----

|                                                                                                                           |
|--------------------------------------------------------------------------------------------------------------------------------|
| **UNITED                STATES**                                                                                               |
| **SECURITIES                AND EXCHANGE COMMISSION**                                                                          |
| **Washington,                D.C. 20549**                                                                                      |
|                                                                                                                           |
| **FORM                10-K**                                                                                                   |
| **(Mark                One)**                                                                                                  |
| **[X]                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE                ACT OF 1934**     |
| **For                the fiscal year ended December 31, 2005**                                                                 |
| **OR**                                                                                                                         |
| **[                ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES                EXCHANGE ACT OF 1934** |
| **For                the transition period from**                                                                              |   | **to** |
| **Commission                File Number: 001-07791**                                                                           |
|                                                                                                                           |
| **McMoRan                Exploration Co.**                                                                                     |
| (Exact                name of registrant as specified in its                charter)                                           |

| **Delaware**                                                                                | **72-1424200**                                   |
|---------------------------------------------------------------------------------------------|--------------------------------------------------|
| (State                or other jurisdiction ofincorporation                or organization) | (IRS                Employer Identification No.) |
|                                                                                        |                                             |
| **1615                Poydras Street**                                                      |                                             |
| **New                Orleans, Louisiana**                                                   | **70112**                                        |
| (Address                of principal executive offices)                                     | (Zip                Code)                        |
|                                                                                        |
| **(504)                582-4000**                                                           |
| (Registrant's                telephone number, including area                code)          |

**Securities      registered pursuant to Section 12(b) of the Act:**

| **Title                of each class**                    |   | **Name                of each exchange on which registered** |
|-----------------------------------------------------------|--------|--------------------------------------------------------------|
| Common                Stock, par value $0.01 per share    |   | New                York Stock Exchange                       |
| Preferred                Stock Purchase Rights            |   | New                York Stock Exchange                       |
| 6%                Convertible Senior Notes due 2008       |   | New                York Stock Exchange                       |
| 5¼%                Convertible Senior Notes due 2012 |   | New                York Stock Exchange                       |

**Securities      registered pursuant to Section 12(g) of the Act: None**

**DOCUMENTS      INCORPORATED BY REFERENCE**

| Portions                of our Proxy Statement for our 2006 Annual Meeting to be held on                May 4,                2006 are incorporated by reference into Part                III (Items 10, 11, 12, 13 and 14) of this report. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                        |

----

**McMoRan      Exploration Co.**

**Annual      Report on Form 10-K for**

**the      Fiscal Year ended December 31, 2005**

| **TABLE                  OF CONTENTS**                                                                                                                                                         |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                           |   |
|                                                                                                                                                                                           | Page |
| Part                  I                                                                                                                                                                        |   |
| Items                  1. and 2. Business and Properties                                                                                                                                       | 1 |
| Item                  1A. Risk Factors                                                                                                                                                         | 21 |
| Item                  1B. Unresolved Staff Comments                                                                                                                                            | 30 |
| Item                  3. Legal Proceedings                                                                                                                                                     | 30 |
| Item                  4. Submission of Matters to a Vote of Security                  Holders                                                                                                  | 31 |
| Executive                  Officers of the Registrant                                                                                                                                          | 31 |
|                                                                                                                                                                                           |   |
| Part                  II                                                                                                                                                                       |   |
| Item                  5. Market for Registrant’s Common Equity, Related                  Stockholder Matters and                  Issuer Purchases of Equity                  Securities |  32 |
| Item                  6. Selected Financial Data                                                                                                                                               | 33 |
| Items                  7. and 7A. Management’s Discussion and Analysis                  of Financial Condition and Results                                                               |   |
| of                  Operation and Quantitative and Qualitative Disclosures about Market                  Risk                                                                                  | 35 |
| Item                  8. Financial Statements and Supplementary                  Data                                                                                                          | 54 |
| Item                  9. Changes in and Disagreements with                  Accountants on Accounting and Financial Disclosure                                                                 | 85 |
| Item                  9A. Controls and Procedures                                                                                                                                              | 85 |
| Item                  9B. Other Information                                                                                                                                                    |   |
|                                                                                                                                                                                           |   |
| Part                  III                                                                                                                                                                      |   |
| Item                  10. Directors and Executive Officers of the                  Registrant                                                                                                  | 85 |
| Item                  11. Executive Compensation                                                                                                                                               | 85 |
| Item                  12. Security Ownership of Certain                  Beneficial Owners and Management and Related                                                                          |   |
| Stockholders                  Matters                                                                                                                                                          | 86 |
| Item                  13. Certain Relationships and Related                  Transactions                                                                                                      | 86 |
| Item                  14. Principal Accounting Fees and                  Services                                                                                                              | 86 |
|                                                                                                                                                                                           |   |
| Part                  IV                                                                                                                                                                       |   |
|                                                                                                                                                                                           |   |
| Item                  15. Exhibits and Financial Statement                  Schedules                                                                                                          | 86 |
|                                                                                                                                                                                           |   |
| Signatures                                                                                                                                                                                     | S-1 |
|                                                                                                                                                                                           |   |
| Exhibit                  Index                                                                                                                                                                 | E-1 |

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Table      of Contents

**PART      I**

**Items      1. and 2. Business and Properties**

*All      of our periodic report filings with the Securities and Exchange Commission      (SEC)      pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934,      as      amended, are available, free of charge, through our website located at      www.mcmoran.com, including our annual reports on Form 10-K, quarterly reports      on      Form 10-Q, and current reports on Form 8-K, and any amendments to those reports.      These reports and amendments are available through our website as soon as      reasonably practicable after we electronically file or furnish such materials      with the SEC.*
*All      references to Notes in this report refer to the Notes to the Consolidated      Financial Statements located in Item 8. of this Form 10-K.*

**OVERVIEW**

*We      have provided definitions for some of the industry terms we use in a glossary      beginning on page 19.*

**About      the Company. **

**Subsidiaries.**
** **

**Business      Strategy. **

| **·  ** | We                have developed a business relationship with a private exploration                and                production company with whom we have pursued a multi-year exploration                venture. Through the exploration venture we have jointly committed                to                spend at least $500 million to acquire and exploit high-risk,                high-potential prospects (see “Oil and Gas Operations - Multi-Year                Exploration Venture” below); |
|------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **·  ** | We                possess a significant exploration acreage portfolio in the Gulf of                Mexico                and Gulf Coast region (see Oil and Gas Operations - Acreage”                below); |
|------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **·  ** | We                have a broad-based team with significant experience in the use of                structural geology augmented by 3-D seismic technology and in drilling                deep gas prospects; |
|------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **·  ** | We                own or have rights to an extensive seismic database, including 3-D                seismic                data on substantially all of our                acreage; |
|------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Table of Contents

| **·  ** | We                conduct intensive evaluations of our acreage and have identified                numerous                prospects, most of which are high-risk, high-potential deep gas prospects; |
|------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Our                success in drilling deep-gas exploratory wells on the shelf of the                Gulf of                Mexico and onshore in the Gulf Coast region is providing opportunities                to                partner with other companies to participate in additional exploratory                prospects (see “Oil and Gas Operations - Oil and Gas Properties” below);                and |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **·  ** | We                have participated in two important discoveries in an area where we                have a                potential reversionary interest in a joint venture that controls                approximately 13,000 gross acres and where we have identified multiple                drilling opportunities (see “Oil and Gas Operations - Farm Out Arrangement                with El Paso” below). |
|------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **·  ** | We                have offshore platform facilities with an adjacent two-mile diameter                salt                dome that are strategically located in an area we believe is suitable                for                the development of the MPEH™ as                an LNG port facility with onsite cavern storage for natural                gas; |
|------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **·  ** | We                have completed conceptual and preliminary engineering for the MPEH™                project and                have submitted an application for a license to develop an LNG terminal                with cavern storage and pipeline connections to natural gas markets                using                our Main Pass facilities; |
|------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **·  ** | The                Final Environmental Impact Statement for the MPEH™                project was issued on March 10, 2006 and indicated                that construction and operation of our MPEH™ project                would result in minor long-term adverse impacts on the surrounding                environment. Final public hearings on our license application will                be held                the week of March 20, 2006 with a final decision on our license                application expected by the end of June                2006. |
|------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **·  ** | We                are targeting receipt of our license in mid-2006, which together                with the                development of commercial arrangements for LNG supplies and distribution                of natural gas and financing for the project could enable our project                to                become operational as                one of the first U.S. offshore LNG terminals;                and |
|------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **·  ** | We                are engaged in discussions with potential LNG suppliers in the Atlantic                Basin and with natural gas consumers in the United States regarding                commercial arrangements for the                facilities. |
|------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**OIL      AND GAS OPERATIONS**

**Background.      **

| ·   | We                have developed significant expertise and have an extensive database                of                information about the geology and geophysics of this                region; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We                believe there are significant reserves in this region that have not                yet                been discovered; and |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The                necessary infrastructure for efficiently developing, producing and                transporting oil and natural gas exists in this region, which allows                an                operator to reduce costs and the time that it takes to develop, produce                and transport oil and natural gas. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Multi-Year      Exploration Venture. **

----

Table      of Contents

**Oil      and Gas Properties.**

**Discoveries.**

----

Table      of Contents

|                                          |  **Working****Interest** | **Net****Revenue****Interest** | **Water                Depth** | **Total                Depth**** ** | **Initial                Production**               |
|-----------------------------------------------|-------------------------------|--------------------------------|--------------------------------|------------------------------------------|-----------------------------------------------------|
|                                          | %                             | %                              | feet                           | feet                                     | Date                                                |
| **Producing:**                                |                          |                           |                           |                                     |                                                |
| Eugene                Island Block 193        |                          |                           |                           |                                     |                                                |
| “Deep                Tern C-2” a  | 48.6                          | 45.3b                          | 90                             | 20,731                                   | December                30, 2004                    |
| Eugene                Island Block 213        |                          |                           |                           |                                     |                                                |
| “Minuteman”                       | 33.3                          | 29.8b                          | 100                            | 20,432                                   | February                25, 2005                    |
| South                Marsh Island Block 217   |                          |                           |                           |                                     |                                                |
| “Hurricane”                c      | 27.5                          | 19.4b                          | 10                             | 19,664                                   | March                30, 2005                       |
| Vermilion                Blocks 16/17         |                          |                           |                           |                                     |                                                |
| “King                Kong” a,d    | 40.0                          | 29.2                           | 13                             | 18,918                                   | December                22, 2005                    |
| **Under                development:**         |                          |                           |                           |                                     |                                                |
| West                Cameron Block 43 (No.3)e  | 23.4                          | 21.9b                          | 30                             | 18,800                                   | Second                Quarter 2006g                 |
| Louisiana                State Lease 18090    |                          |                           |                           |                                     |                                                |
| “Long                Point” c,f   | 37.5                          | 26.8                           | 8                              | 19,000                                   | Second                Quarter 2006                g |
| Louisiana                State Lease 18055    |                          |                           |                           |                                     |                                                |
| “Cane                Ridge” c     | 37.5                          | 27.5                           | n/a                h           | 16,450                                   | Second                Quarter 2006                g |
| Garden                Banks Block 625         |                          |                           |                           |                                     |                                                |
| “Dawson                Deep”      | 30.0                          | 24.0                           | 2,900                          | 22,790                                   | Second-Half                2006                g    |
| Louisiana                State Lease 340      |                          |                           |                           |                                     | Pending                Completion &             |
| “Blueberry                Hill” a | 35.3                          | 24.2                           | 10                             | 23,903                                   | Development                Plan                     |

| a.   | Wells                operated by us. |
|----------------|--------------------------------------|

| b.   | Reflects                the eligibility for deep gas royalty relief under current MMS guidelines                adopted effective March 1, 2004. The guidelines exempt from U.S.                government royalties production of as much as the first 25 Bcf from                a                depth of 18,000 feet or greater, and as much as 15 Bcf from depths                between                15,000 and 18,000 feet, with gas production from all qualified wells                on a                lease counting towards the volume eligible for royalty relief. The                exact                amount of royalty relief depends on eligibility criteria, which include                the well depth, nature of the well, and the timing of drilling and                production. In addition, the guidelines include price threshold provisions                that discontinue royalty relief if natural gas prices exceed a specified                level. The price threshold was not exceeded for 2005. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c.   | We                operated the drilling of the exploratory well at these prospects                and will                continue as operator during the completion of the wells. El Paso                is the                current operator of the Long Point No. 1 and Cane Ridge wells. El                Paso                will be designated the operator upon completion of the Long Point                No. 2                well. Chevron Corporation is operator of the Hurricane                well. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| d.   | Table                reflects information for the King Kong No. 1 discovery well. The                King Kong                No. 2 development well was drilled to a total depth of 13,680 feet                and                commenced production on December 30, 2005. The King Kong No. 3 development                well was drilled to a total depth of 16,142 feet. Initial production                from                this well is expected in the second quarter of 2006. All three wells                have                the same working and net revenue interests. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| e.   | We                drilled a second successful exploratory well at West Cameron Block                43. The                No. 4 well was drilled to a total depth of 18,500 feet. We have a                41.7                percent working interest and 39.2 percent net revenue interest in                the No.                4 well. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| f.   | Table                reflects information for the Long Point No. 1 discovery well. The                Long                Point No. 2 development well reached a total depth of 19,617 feet                and is                currently being completed. Both wells have the same working and net                revenue interests. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| g.   | Estimated                time of initial production. |
|----------------|------------------------------------------------------|

| h.   | Prospect                is located onshore Vermilion, Parish,                Louisiana. |
|----------------|-----------------------------------------------------------------------------------------|

| ·   | **Eugene                Island Block 193.**                Drilling at the Deep Tern C-2 well reached a total measured depth                of                20,731 feet in November 2004 and logged approximately 340 gross feet                of                hydrocarbons in five Basal Pliocene and Upper Miocene pay zones.                The                Eugene Island Block 193 lease is eligible for royalty relief on the                first                10 Bcf of natural gas production. At December 31, 2005, approximately                1.8                Bcf of natural gas has been produced from the Eugene Island Block                C-2                well. Our net revenue interest will approximate 45.3 percent until                gross                production exceeds 10 Bcf, at which time our net revenue interest                will                revert to 37.2 percent in the deeper Basal Pliocene and Upper Miocene                sections of the well. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Table      of Contents

| **·  ** | **Eugene                Island Block 213.**                Production from the Minuteman discovery uses our facilities at Eugene                Island Block 215, located approximately seven miles west of the well.                The                initial gross rate for the well approximated 17 MMcfe/d (5 MMcfe/d                net to                us) on an 11/64th                choke with flowing tubing pressure of 14,720 pounds per square inch.                Gross                daily production from the well subsequently decreased to approximately                3                MMcfe/d and was shut-in on various occasions because of mechanical                and/or                hurricane-related events. In late October 2005, the well was shut-in                because of mechanical problems. In the first quarter of 2006, the                operator                performed workover activities on the well, which resumed production                in                February 2006. The Eugene Island Block 213 lease is eligible for                royalty                relief on the first 25 Bcf of natural gas production. At December                31,                2005, approximately 0.5 Bcf has been produced at the Eugene Island                Block                213 lease. Our net revenue interest will approximate 29.8 percent                until                gross production exceeds 25 Bcf, at which time our net revenue interest                would revert to 24.3 percent. We control 9,600 acres in the prospect                area                of this discovery. We control approximately 9,000 additional acres                in the                immediate area surrounding the prospect, which is located approximately                40                miles offshore Louisiana. |
|------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **·  ** | **South                Marsh Island Block 217.**Drilling                at the Hurricane prospect reached a total depth of 19,664 feet in                January                2005 and logged approximately 205 gross feet of hydrocarbons in two                Rob-L                pay zones. The exploration objectives lying below 15,500 feet were                determined to be nonproductive. Initial production from the well                commenced                on March 30, 2005. The well is capable of producing at high rates,                with                the well’s gross rate averaging approximately 36 MMcfe/d, (7 MMcfe/d net                to us) for the period from commencement of production to December                31,                2005. The well was shut-in for 45 days in 2005 primarily because                of the                effects of Hurricanes Katrina and Rita. Production from the well                is                processed through the Tiger Shoal facilities, which also are used                to                process the production of the Mound Point/JB Mountain wells (see“Farm-Out                Arrangement with El Paso” below). Mechanical issues required the well to                be shut-in in early January 2006. The rig from the JB Mountain Deep                prospect at South Marsh Island Block 224 (see “Near-Term Drilling                Activities” below) has moved to the Hurricane No. 1 well and the required                workover is currently in progress. We expect the Hurricane well will                resume production in March 2006. A development well, Hurricane No.                2, is                currently in progress at South Marsh Island Block 217 (see “Near-Term                Drilling Activities” below). We have rights to approximately 7,700 gross                acres in the Hurricane prospect area which is located offshore Louisiana. |
|------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | **Vermilion                Blocks 16/17.**The                King Kong No. 1 discovery well commenced drilling on February 20,                2005,                was drilled to a total depth of 18,918 feet. Wireline logs indicated                that                the well encountered 14 hydrocarbon bearing sands totaling approximately                150 feet of net pay. In August 2005, a production test at King Kong                No. 1                was conducted and indicated a gross flow rate of approximately 20.6                MMcf/d, approximately 3,600 bbls/d and zero barrels of water (total                of                approximately 42 MMcfe/d, 12 MMcfe/d net to us) on a 28/64th                choke from 34 net feet of perforations below 15,400 feet in the well. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | **West                Cameron Block 43.**The                No. 3 exploratory well commenced drilling on November 6, 2004 and                was                drilled to a total depth of 18,800 feet. Wireline logs have indicated                the                well has encountered three hydrocarbon-bearing sands in the lower                Miocene                with a total gross interval in excess of 100 feet. In April 2005,                drilling                commenced on a second exploratory well (West Cameron Block 43 No.                4),                which is located 4,000 feet north of the No. 3 discovery well. We                expect                initial production from the No. 3 well in the second quarter of 2006.                The                No. 4 well was drilled to a total depth of 18,500 feet and encountered                several sands that appeared to be hydrocarbon-bearing. The initial                production test for the No. 4 well indicated a gross rate of 3.5                MMcf/d                and 800 bbls/day (8.3 MMcfe/d gross, 2.7 MMcfe/d net to us) on a                14/64th                choke with flowing tubing pressure of approximately 4,100 pounds                per                square inch. However, the well experienced mechanical |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Table      of Contents

| ·   | **Louisiana                State Lease 18090.**The                Long Point exploratory well, located in the state waters of Vermilion                Parish, Louisiana, commenced drilling on July 21, 2005 and was drilled                to                19,000 feet and evaluated with log-while-drilling tools and wireline                logs,                indicating an interval approximating 150 gross feet of hydrocarbon                bearing                sands. The wireline log indicated excellent porosity. In November                2005, we                conducted a successful production test on the discovery, which indicated                a                gross flow rate of approximately 41 MMcf/d and 860 bbls/d of condensate                (total of approximately 46 MMcfe/d, 12 MMcfe/d net to us) on a                29/64th                choke with flowing tubing pressure of 10,200 pounds per square                inch. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **·  ** | **Louisiana                State Lease 18055.**The                Cane Ridge exploratory well commenced drilling on July 29, 2005 and                was                drilled to a total depth of 16,450 feet. Wireline logs have indicated                the                well encountered multiple hydrocarbon bearing sands approximating                60 net                true vertical feet of resistivity. The well is currently being completed                and initial production is expected in the second quarter of                2006. |
|------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **·  ** | **Garden                Banks Block 625.**                Completion operations at the Dawson Deep well commenced in January                2006.                Subsequently, a sidetrack of the well commenced drilling on February                14,                2006 (see “Near-Term Drilling Activities” below). We currently estimate                that the initial production at Dawson Deep will commence in the second                half of 2006. As previously reported, the Dawson Deep well encountered                hydrocarbon-bearing sands as indicated by more than 100 feet of total                vertical thickness of resistivity in the shallow zones. An additional                100                feet of hydrocarbons were logged in the deepest zone which was the                original objective of this well. The well was sidetracked and drilled                to a                total depth of 22,790 feet. This prospect is located on a 5,760 acre                block                located approximately 150 miles offshore Texas and is adjacent to                the                operator’s Gunnison spar facility. |
|------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | **Louisiana                State Lease 340.**The                Blueberry Hill well was drilled to a total depth of 23,903 feet.                Wireline                logs indicated the well encountered four potentially productive                hydrocarbon-bearing sands. A 4½ inch production liner has been run and                cemented to protect the identified potential pay zones. We temporarily                abandoned the well while the necessary 20,000-pound completion equipment                for the anticipated high pressure well was procured. We expect delivery                of                the completion equipment in the first half of 2006. Completion and                testing                of the well will determine future plans for this prospect. Blueberry                Hill                is located seven miles east of the JB Mountain discovery and seven                miles                south southeast of the Mound Point Offset discovery (see “Farm-Out                Arrangement with El Paso” below). |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Near-Term      Drilling Activities. **

----

Table      of Contents

|                                                                                    |  **Working****Interest** | **Net****Revenue****Interest** |  **Prospect                  Acreage****a** | **Water                  Depth** | **Proposed                  Total****Depth****b** |  **Current                  Depth****c** | **Spud                  Date****d**** ** |
|-----------------------------------------------------------------------------------------|-------------------------------|--------------------------------|--------------------------------------------------|----------------------------------|---------------------------------------------------|-----------------------------------------------|-----------------------------------------------|
| **Exploration                  In-Progress**:                                           | %                             | %                              |                                             | feet                             | feet                                              | feet                                          |                                          |
| Louisiana                  State Lease 18350                                            |                          |                           |                                             |                             |                                              |                                          |                                          |
| “Point                  Chevreuil” e                                        | 25.0                          | 17.5                           | 1,700                                            | <10                           | 17,000                                            | 17,011                                        | November                  18, 2005            |
| South                  Pass Block 26                                                    |                          |                           |                                             |                             |                                              |                                          |                                          |
| “Denali”                                                                    | 25.0                          | 19.5                           | 14,800                                           | 20                               | 18,500                                            | 14,700                                        | December                  15, 2005            |
| West                  Pecan Island                                                      |                          |                           |                                             |                             |                                              |                                          |                                          |
| “Pecos”                                                                     | 25.0                          | 18.8                           | 3,500f                                           | 10                               | 18,800                                            | 17,400                                        | January                  5, 2006              |
| iHigh                  Island Block 131                                                 |                          |                           |                                             |                             |                                              |                                          |                                          |
| “King                  of Hill” No. 2 f                                     | 25.0                          | 19.6                           | 5,760                                            | 40                               | 16,800                                            | 14,100                                        | January                  28, 2006             |
| Onshore                  Vermilion Parish“Liberty                  Canal” h | 37.5                          | 27.7                           | 1,420                                            | n/ah                             | 16,000                                            | 4,000                                         | March                  5, 2006                |
|                                                                                    |                          |                           |                                             |                             |                                              |                                          |                                          |
| **Development                  In-Progress**:                                           |                          |                           |                                             |                             |                                              |                                          |                                          |
| South                  Marsh Island Block 217                                           |                          |                           |                                             |                             |                                              |                                          |                                          |
| “Hurricane”                  No. 2 h                                        | 27.5                          | 19.4                           | 7,700                                            | 10                               | 16,000                                            | 14,000                                        | August                  21, 2005              |
| Garden                  Banks Block 625                                                 |                          |                           |                                             |                             |                                              |                                          |                                          |
| “Dawson                  Deep”                                              | 30.0                          | 24.0                           | 5,760                                            | 2,900                            | 22,000                                            | 21,900                                        | February                  14, 2006            |
|                                                                                    |                          |                           |                                             |                             |                                              |                                          |                                          |
| **Near-Term                  Exploration Wells:**                                       |                          |                           |                                             |                             |                                              |                                          |                                          |
| St.                  Mary, Parish NW Garden City “Laphroaig”                | 37.5                          | 27.9                           | 2,430                                            | <10                           | 19,000                                            | n/a                                           | First-Half                  2006              |
| South                  Marsh Island Block 224                                           |                          |                           |                                             |                             |                                              |                                          |                                          |
| “JB                  Mountain Deep” g,h                                     | 27.5                          | 19.4                           | 5,195                                            | 10                               | 24,500                                            | 24,400                                        | First-Half                  2006              |
| Louisiana                  State Lease 18090Long                  Point No. 3           | 37.5                          | 26.8                           | 5,000                                            | 8                                | 23,000                                            | n/a                                           | First-Half                  2006              |
| Vermilion                  Block 54                                                     | 30.0                          | 24.4                           | 3,125                                            | 20                               | 15,100                                            | n/a                                           | First-Half                  2006              |
| South                  Marsh Island Block 217                                           |                          |                           |                                             |                             |                                              |                                          |                                          |
| “Hurricane                  Deep” h                                         | 27.5                          | 19.4                           | 7,700                                            | 10                               | 21,500                                            | n/a                                           | First-Half                  2006              |

| a.   | Gross                acres encompassing prospect to which we retain exploration                rights. |
|----------------|--------------------------------------------------------------------------------------------------------|

| b.   | Planned                target measured depth, which is subject to                change. |
|----------------|------------------------------------------------------------------------------------------|

| c.   | Approximate                total depth of well on March 14,                2006. |
|----------------|----------------------------------------------------------------------------------|

| d.   | The                timing of spudding near-term wells is subject to                change. |
|----------------|--------------------------------------------------------------------------------------------|

| e.   | Well                will be temporarily abandoned to allow further evaluation of its                drilling                results. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------|

| f.   | Acreage                includes both the Pecos and Platte exploratory prospects. The Pecos                prospect is currently being drilled. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------|

| g.   | Depending                upon applicability of Deep Gas Royalty Relief eligibility criteria,                the                lease on which these wells are located could be eligible for royalty                relief on up to 25 Bcf of gas production under current Minerals Management                Service (MMS) guidelines. Our net revenue interests would increase                during                the royalty relief period for eligible leases. For further discussion                of                royalty relief requirements see Note                1. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| h.   | Wells                in which we are or expect to be the operator. We expect to relinquish                being operator of the Hurricane No. 2, Liberty Canal, JB Mountain                Deep,                Mound Point and Hurricane Deep wells after drilling and related completion                operations are finished. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| i.   | Prospect                located onshore Louisiana. |
|----------------|----------------------------------------------------|

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Table      of Contents

**Producing        Properties.**

|                                           |   |     |   | Net      |   |                 |   |                     |   | Location  |   |    |   |
|------------------------------------------------|--------|----------|--------|----------|--------|----------------------|--------|--------------------------|--------|-----------|--------|---------|--------|
|                                           |   | Working  |   | Revenue  |   |                 |   | Water                    |   | Offshore  |   | Gross   |   |
| Field,                Lease or Well            |   | Interest |   | Interest |   | Operator             |   | Depth                    |   | Louisiana |   | Acreage |   |
|                                           |   | (%)      |   | (%)      |   |                 |   | (in                feet) |   | (miles)   |   |    |   |
| Producing                                      |   |     |   |     |   |                 |   |                     |   |      |   |    |   |
| Main                Pass Block 299 a           |   | 100      |   | 83.3     |   | MMR                b |   | 210                      |   | 32        |   | 1,125   |   |
| Eugene                Island Blocks 193/215    |   | 53.4     |   | 42.3     |   | MMR                  |   | 100                      |   | 50        |   | 7,500   |   |
| Eugene                Island Blocks 97/108     |   | 38.0     |   | 27.2     |   | DVN                c |   | 90                       |   | 50        |   | 9,375   |   |
| Ship                Shoal Block 296            |   | 49.4     |   | 34.8     |   | APA                d |   | 260                      |   | 62        |   | 5,000   |   |
| Main                Pass Blocks 86             |   | 53.4     |   | 38.5     |   | MMR                  |   | 70                       |   | 45        |   | 4,995   |   |
| Vermilion                Block 196             |   | 35.6     |   | 25.7     |   | NE                e  |   | 115                      |   | 50        |   | 5,000   |   |
| West                Cameron Block 616          |   | 25.0     |   | 19.3     |   | Tarpon               |   | 300                      |   | 130       |   | 5,000   |   |
| Eugene                Island Block 193 (C-2) f |   | 48.6     |   | 45.3     |   | MMR                  |   | 90                       |   | 50        |   | 7,500   |   |
| Eugene                Island Block 193 (C-1) f |   | 26.7     |   | 20.6     |   | MMR                  |   | 90                       |   | 50        |   | 7,500   |   |
| Eugene                Island Block 213 f       |   | 27.5     |   | 29.8     |   | NHYg                 |   | 100                      |   | 40        |   | 9,000   |   |
| South                Marsh Island Block 217 f  |   | 27.5     |   | 19.4     |   | CVXh                 |   | 10                       |   | 9         |   | 7,700   |   |
| Vermilion                Block 16 f            |   | 40.0     |   | 29.2     |   | MMR                  |   | 13                       |   | 2         |   | 2,517   |   |

| Farm-out i                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
|---------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| South                Marsh Island Block 223 |   | 55.0   |   | 38.8   |   | CVX    |   | 10     |   |   |   | -      | j      |
| Louisiana                State Lease 340    |   | 30.4   |   | 21.6   |   | CVX    |   | 10     |   |   |   | -      | j      |

| a.                 | In                December 2004, we acquired the 66.7 percent equity interest in a                joint                venture not previously owned by us. For additional information see                Items                7. and 7A. “K-Mc Ventures” and Note 4 located elsewhere in this Form                10-K. |
|------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.                 | MMR                is our New York Stock Exchange ticker symbol. |
|------------------------------|------------------------------------------------------------------|

| c.                 | Devon                Energy Corporation. |
|------------------------------|------------------------------------------|

| d.                 | Apache                Corp. |
|------------------------------|-----------------------------|

| e.                 | Noble                Corp. |
|------------------------------|----------------------------|

| f.                 | Properties                that commenced production in 2005. For a discussion of these properties                see “Discoveries” above. |
|------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

| g.                 | Hydro                Gulf of Mexico, LLC, a wholly owned subsidiary of Norsk Hydro ADR.                We                operate the field’s production operations under terms of a                contract. |
|------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| h.                 | Chevron                Corporation. Chevron is the operator of the producing wells at Hurricane,                JB Mountain and Mound Point. |
|------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------|

| i.                 | In                May 2002, we entered into an exploration arrangement with El Paso                covering                these deep-gas prospects. In the farm-out agreement we retained a                potential 50 percent reversionary interest in these prospects, which                would                revert to us when the aggregate production from the prospects, net                to the                program’s net revenue interests, exceeds 100 Bcfe. |
|------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| j.                 | These                prospects are located in an area where we participate in a program                that                controls an approximate 13,000-acre area on portions of Louisiana                State                Lease 340 and OCS 310. |
|------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | **Main                Pass Block 299.** We                originally acquired the Main Pass oil operations in November 1998.                In                December 2002, we sold our interest in the Main Pass oil operations                to                K-Mc Ventures I LLC (K-Mc I), in which we retained a 33.3 percent                equity                interest. On December 27, 2004, we acquired the 66.7 percent ownership                interest in K-Mc I that we did not own and now own 100 percent of                K-Mc I.                For more information regarding the joint venture transactions see                Items 7.                and 7A. “K-Mc Ventures” and Note 4 located elsewhere in this Form                10-K. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Table        of Contents

| **·  ** | **Eugene                Island Blocks 193/215.**                We                re-established production from the field during the second quarter                of                2000. During the fourth quarter of 2000, we performed remedial and                recompletion work, which identified additional proved reserves. Additional                recompletion work was performed during each of the three years ended                December 31, 2005. |
|------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | **Eugene                Island Blocks 97 and 108.**                During 2000 and 2001, we drilled three successful exploratory wells                at                Eugene Island Block 97 (Thunderbolt). Two of the wells commenced                production in 2001 and the third well commenced production in January                2002. The wells have been shut-in periodically in order to perform                recompletion work to establish production from new intervals. We                performed                additional remedial operations in 2004. We currently have production                from                only one well; one well’s proved reserves are fully depleted and the third                well has been shut-in since Hurricane Rita in September 2005. A                recompletion of the shut-in well is planned for the second quarter of                2006. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | **Ship                Shoal Block 296.**                In                2000, we drilled two productive wells at the Ship Shoal Block 296                (Raptor). Development of the Raptor prospect was completed and production                commenced during the second quarter of 2001. We sold 80 percent of                our                original 61.8 percent working interest and 43.5 percent net revenue                interest in February 2002 (see “Disposition of Oil and Gas Properties”                below and Note 4). Recompletion activities performed in the first                quarter                of 2005 restored production to one well in the field. During the                first                quarter of 2005, we reached an agreement with the third-party purchaser                of                our interests to assign our 75 percent reversionary interest in Raptor                to                us effective February 1, 2005. On January 1, 2006, a development                well was                spud at the Raptor location. The A-3 well reached its total planned                depth                of 9,200 feet, was completed, and commenced production on February                12,                2006. The A-4 development well commenced drilling on February 9,                2006. The                A-4 well reached its total planned depth of 7,405 feet, was completed,                and                commenced production on March 4, 2006. The Raptor field’s current gross                daily production is approximately 27 MMcfe/d, 9.4 MMcfe/d net to                us. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | **Main                Pass Block 86.**                During the fourth quarter of 2000, we announced two successful exploratory                wells at Main Pass Block 86 (Shiner). The Main Pass Block 86 No.1                exploratory well encountered 108 feet of gross hydrocarbon pay in                a sand                at a depth of 9,888 feet. The Main Pass Block 86 No. 2 exploratory                well,                located approximately one mile northwest from the No. 1 well, encountered                20 feet of gross gas pay between depths of 2,668 feet and 2,688 feet.                The                property was sold in February 2002 but we retained a reversionary                interest                in the well (see “Disposition of Oil and Gas Properties” below). Initial                production from the No. 2 well occurred in June 2004 and from the                No. 1                well in March 2005. The interests we own in this field reverted to                us                effective June 1, 2005 following the achievement of payout for the                sold                properties. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | **Vermilion                Block 196**.                In August 2000, drilling of the Vermilion Block 196 (Lombardi) No.                2                exploratory well commenced. The well was drilled to a total depth                of                14,798 feet. The well discovered 70 feet of net hydrocarbon pay in                three                sands logged between measured depths of 13,160 feet and 14,350 feet.                We                developed the well and initial production commenced in early July                2001.                The property was sold in February 2002 but we retained a |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Table      of Contents

| ·   | **West                Cameron Block 616.**We                discovered this field in 1996. Production commenced at the field                from five                well completions in March 1999. Production from the field ceased                in                February 2002 and we farmed out our interests to a third party in                June                2002. The third party drilled four successful wells at the field                and                production from the field re-commenced during the first quarter of                2003.                We retained a 5 percent overriding royalty interest, subject to                adjustment, after aggregate production exceeded 12 Bcf of gas, net                to the                acquired interests. When aggregate production exceeded this threshold                in                September 2004, we exercised our option to convert to a 25 percent                working                interest and a 19.3 percent net revenue interest in three of the                wells in                the field and to a 10 percent overriding royalty interest in the                fourth                well. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Farm-Out      Arrangement with El Paso.**

| **·  ** | **“JB                Mountain” at South Marsh Island Block 223.**Drilling                commenced at the JB Mountain prospect in June 2002. The No. 1 well                was                drilled to a measured depth of approximately 22,000 feet and evaluated                with wireline logs and formation tests, which indicated significant                intervals of hydrocarbon pay. The well was completed and production                commenced in June 2003. The No. 2 well commenced in June 2003. This                development well was drilled to a total measured depth of 22,375                feet and                wireline logs indicated that it encountered significant hydrocarbons                in                the “Gyrodina” sand section. The No. 2 well was subsequently completed and                placed on production in January 2004. |
|------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **·  ** | **“Mound                Point Offset” at Louisiana State Lease 340.**Drilling                commenced in February 2003. The well was drilled to a total depth                of                approximately 19,000 feet and encountered 120 feet of net gas pay                in three                sands. Development activities were completed and the well commenced                production in October 2003. The well is located approximately one                mile                from the No. 2 exploratory well at Louisiana State Lease 340 that                we                drilled and completed during 2001 and flow tested in early 2002 (see                “Other” below). |
|------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Other.**

| ·   | **Vermilion                Block 160 Field Unit.**                We                commenced production from this field in 1995. We had three wells                on                production during 2003; however, two of the wells ceased production                in the                second quarter of 2003 and the third well ceased production in the                fourth                quarter of 2004. Recompletion activities were performed at the field                during the first quarter of 2005 and production was restored from                one                well. The well was shut-in again during the fourth quarter of 2005                and no                further remedial activities are planned for the field. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **·  ** | **Louisiana                State Lease 340 No. 2.**We                commenced drilling the Louisiana State Lease 340 No. 2 exploratory                well in                February 2001 and reached 18,704 feet in August 2001. In January                2002, the                well was perforated and flowed at various rates from 10 to 20 MMcfe/d,                until a failure of the cement isolating the hydrocarbon-bearing sands                caused water encroachment in the well. Remedial operations were                unsuccessful in eliminating the water encroachment, and the well                was                temporarily abandoned while we evaluated further remedial alternatives.                The No. 2 well is located approximately one mile from the Mound Point                Offset wells discussed in “Farm-Out Arrangement with El Paso”                above. |
|------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Table of Contents

| **·  ** | **Nonproductive                  wells.**During                  2005 and early 2006 wells on the following prospects were evaluated                  as                  being nonproductive. |
|------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | Vermilion                  Blocks 227/228 - **“**Caracara”                  prospect; total depth 17,454 feet; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------|

| §   | South                  Marsh Island Block 217 - “Hurricane” prospect; total depth 19,664 feet;                  objectives deeper than 15,500 feet were determined to be nonproductive                  (shallower objectives resulted in a                  discovery); |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | West                Cameron Block 43 - The No. 3 well’s total depth was 18,800 feet;                objectives deeper than 17,500 feet were determined to be nonproductive                (shallower objectives resulted in a                discovery); |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | South                Timbalier Blocks 97/98 - “Korn” prospect; total depth 23,080                feet; |
|--------------------|--------------------------------------------------------------------------------------------------------------------|

| §   | Louisiana                State Lease 5097 - “Little Bay” prospect; total depth 21,550                feet; |
|--------------------|------------------------------------------------------------------------------------------------------------------------|

| §   | Louisiana                State Lease 1706 - “Delmonico” prospect; total depth 19,507                feet; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------|

| §   | South                Marsh Block 230 - “Elizabeth” prospect; total depth 19,950 feet; evaluated                in January 2006; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------|

| §   | West                Cameron Block 95 - “Cabin Creek” prospect; total depth 18,688; evaluated                in January 2006. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------|

**Disposition      of Oil and Gas Properties.**

**Oil      and Gas Reserves. **

| Gas       |   | Oil         |   |
|-----------|--------|-------------|--------|
| Proved    |   | Proved      |   | Proved |   | Proved |   |
| Developed |   | Undeveloped |   | Developed |   | Undeveloped |   |
| 29,101    |   | 9,843       |   | 6,247,743 |   | 883,872 |   |

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Table      of Contents

|                                                                                               | Proved                        |    | Proved      |   | Total  |   |
|----------------------------------------------------------------------------------------------------|-------------------------------|---------|-------------|--------|--------|--------|
|                                                                                               | Developed                     |    | Undeveloped |   | Proved |   |
|                                                                                               | (in                thousands) |    |
| Estimated                undiscounted future net cash flows before income taxes                    | $                             | 390,196 |        | $      | 93,562 |   | $ | 483,758 |   |
| Present                value of estimated future net cash flows before income                taxes | $                             | 318,273 |        | $      | 69,310 |   | $ | 387,583 |   |

**Production,      Unit Prices and Costs. **

|                                                                    |   | Years                Ended December 31, |   |
|-------------------------------------------------------------------------|--------|-----------------------------------------|--------|
|                                                                    |   | 2005                                    |   | 2004 |   | 2003 |   |
| Net                natural gas production (Mcf)                         |   | 7,938,000                               |   | 1,978,500 |   | 2,011,100 |   |
| Net                crude oil and condensate production, excluding Main  |   |                                    |   |   |   |   |   |
| Pass                (Bbls)a                                             |   | 280,400                                 |   | 61,900 |   | 103,400 |   |
| Net                crude oil production from Main Pass (Bbls)b          |   | 463,000                                 |   | - |   | - |   |
| Sales                prices:                                            |   |                                    |   |   |   |   |   |
| Natural                gas (per Mcf)                                    |   | $                9.24                   |   | $                6.08 |   | $                5.64 |   |
| Crude                oil and condensate, excluding Main Pass (per Bbl)c |   | 57.16                                   |   | 39.83 |   | 31.03 |   |
| Crude                oil from Main Pass (per Bbl)                       |   | 51.67                                   |   | - |   | - |   |
| Production                (lifting) costs: d                            |   |                                    |   |   |   |   |   |
| Per                barrel for Main Pass e                               |   | $41.46                                  |   | - |   | - |   |
| Per                Mcfe for other propertiesf                           |   | 1.13                                    |   | $                2.79 |   | $                2.70 |   |

| a.                 | The                amount during 2005 excludes approximately 106,700 equivalent barrels                of                oil and condensate associated with $5.0 million of plant product                revenues                received for the value of such products recovered from the processing                of                our natural gas production. Our oil and condensate production excludes                22,900 and 20,700 equivalent barrels of oil ($0.6 million and $0.8                million                of revenues) associated with plant products during 2004 and 2003,                respectively. |
|------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.                 | We                sold our interests in the oil producing assets at Main Pass to K-Mc                I on                December 16, 2002. During 2003, we sold our remaining Main Pass oil                inventory, which approximated 4,200 barrels of oil, at an average                price of                $24.09 per barrel. We acquired the ownership interest in K-Mc I that                we                previously did not own on December 27, 2004. Production from Main                Pass was                shut in for a substantial portion of 2005 (see “Oil and Gas - Producing                Properties” above). |
|------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c.                 | Realization                does not include the effect of the plant product revenues discussed                in (a)                above. |
|------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------|

| d.                 | Production                costs exclude all depletion, depreciation and amortization. The components                of production costs may vary substantially among wells depending                on the                production characteristics of the particular producing formation,                method                of recovery employed, and other factors. Production costs include                charges                under transportation agreements as well as all lease operating                expenses. |
|------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| e.                 | Production                costs for Main Pass in 2005 included approximately $3.9 million,                $8.31 per                barrel, of estimated repair costs for damages sustained during Hurricane                Katrina. Per barrel lifting costs reflect the field being shut-in                for |
|------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Table of Contents

| f.                 | Production                costs were converted to a Mcf equivalent on the basis of one barrel                of oil                being equivalent to six Mcf of natural gas. Production costs included                workover expenses totaling $1.2 million or $0.13 per Mcfe in 2005,                $0.6                million or $0.27 per Mcfe in 2004 and $1.5 million or $0.58 per Mcfe                in                2003. Our production costs during 2004 include approximately $0.4                million                or $0.46 per Mcfe of non-recurring costs associated with our acquisition                of K-Mc I in December 2004**.** |
|------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Acreage.**

|                                       |   | Developed |   | Undeveloped |
|--------------------------------------------|--------|-----------|--------|-------------|
|                                       |   | Gross     |   | Net         |   | Gross |   | Net |
|                                       |   | Acres     |   | Acres       |   | Acres |   | Acres |
| Offshore                (federal waters)   |   | 66,178    |   | 30,183      |   | 89,148 |   | 42,891 |
| Onshore                Louisiana and Texas |   | 4,619     |   | 1,766       |   | 77,870 |   | 27,430 |
| Total                at December 31, 2005  |   | 70,797    |   | 31,949      |   | 167,018 |   | 70,321 |

**Oil      and Gas Drilling Activity. **

|            |   | 2005   |   | 2004   |   | 2003   |   |
|-----------------|--------|--------|--------|--------|--------|--------|--------|
|            |   | Gross  |   | Net    |   | Gross  |   | Net |   | Gross |   | Net |   |
| **Exploratory** |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Productive      |   | 4      |   | 1.426  |   | 4      |   | 1.394 |   | 1 |   | 0.304 |   |
| Dry             |   | 6      |   | 2.021  | a      | 5      |   | 1.413 |   | 3 |   | 0.943 |   |
| In-progress     |   | 5      |   | 1.728  |   | 3      |   | 0.920 |   | 2 |   | 0.575 |   |
| Total           |   | 15     |   | 5.625  |   | 12     |   | 3.727 |   | 6 |   | 1.822 |   |
|            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Development** |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Productive      |   | 2      |   | 0.667  |   | -      |   | - |   | 2 | b | 1.025 |   |
| Dry             |   | -      |   | -      |   | -      |   | - |   | - |   | - |   |
| In-progress     |   | 5      |   | 1.904  | c,d    | 2      | c,d    | 0.854 |   | 1 | c | 0.550 |   |
| Total           |   | 7      |   | 2.571  |   | 2      |   | 0.854 |   | 3 |   | 1.575 |   |

| a.   | Includes                the exploratory wells at South Marsh Island Block 230 (0.25 net)                and West                Cameron Block 95 (0.50 net) that were determined to be non-productive                in                early January 2006. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.   | Includes                0.475 net interest attributable to a well drilled at Vermilion Block                196,                which we sold subject to a 75 percent reversionary interest in February                2002 (see “Disposition of Oil and Gas Properties” above). Also, reflects                the program’s net interest in the JB Mountain No. 2                well. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c.   | Reflects                the program’s net interest in the JB Mountain No. 3 well, which has been                temporarily abandoned. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------|

| d.   | Includes                the program’s 0.304 net interest in the Mound Point Offset No. 2 well,                which has been temporarily                abandoned. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Table      of Contents

|     | Gas    |   | Oil    |   |
|----------|--------|--------|--------|--------|
|     | Gross  |   | Net    |   | Gross |   | Net |   |
| Offshore | 13     |   | 3.759  |   | 16 |   | 11.693 |   |
| Onshore  | 2      |   | 0.583  |   | - |   | - |   |
| Total    | 15     |   | 4.342  |   | 16 |   | 11.693 |   |
|     |   |   |   |   |   |   |   |   |

**Marketing.**

**MAIN      PASS ENERGY HUB**
**TM**

**      PROJECT**

----

Table      of Contents

| ·   | Existing                facilities that provide timing, construction and operating cost advantages                over undeveloped locations. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Cavern                storage capacity of 28 Bcf of natural gas within the two-mile diameter                salt dome at the location. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Close                proximity to shipping channels. |
|--------------------|------------------------------------------------------|

| ·   | Access                to an existing pipeline system and potential to develop other pipeline                interconnects that would facilitate the receipt and distribution                of                natural gas to U.S. gas markets. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Possible                security and safety advantages because of its offshore location in                relatively deep water. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------|

| ·   | The                potential ability to handle a fleet of new LNG supertankers, which                may                have limited access to existing U.S.                ports. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Table of Contents

**DISCONTINUED      SULPHUR OPERATIONS**

**Background.**

**Sale      of Sulphur Assets. **

**Sulphur      Assets. **

**Sulphur      Reclamation Obligations.**

**REGULATION**

**General.**

----

Table        of Contents

**Exploration,        Production and Development. **

*Federal      leases. *

*State      and Local Regulation of Drilling and Production*

**Environmental      Matters. **

*Solid      Waste.*

*Hazardous      Substances.*

----

Table        of Contents

*Air.*

*Water.*

*Endangered      Species.*

**Safety      and Health Regulations.**

**EMPLOYEES**

----

Table          of Contents

**GLOSSARY**

*3-D      seismic technology. *

*Bbl      or Barrel*

*Bcf*

*Bcfe*

*Block*

*Completion*

*Condensate*

*Developed      acreage*

*Development      well*

*Exploratory      well*

*Farm-in      or farm-out*

*Field*

*Gross      acres or gross wells*

*Gulf      of Mexico shelf.*

*MBbls*

*Mcf*

*Mcfe*

----

Table        of Contents

*MMBbls*

*MMcf*

*MMcfe*

*MMcfe/d.*

*MMS.      *

*Net      acres or net wells*

*Net      feet of pay*

*Net      profit interest.*

*Net      revenue interest.*

*Non-productive      well*

*Overriding      royalty interest.*

*Pay.      *

*Plant      Products.*

*Productive      well*

*Prospect.*

*Proved      developed reserves.*

*Proved      reserves.*

*Proved      undeveloped reserves.*

----

Table        of Contents

*Reservoir*

*Sands.        *

*SEC.*

*Sour.*

*Undeveloped      acreage*

*Working      interest*

**Item        1A. Risk Factors**

**Factors        Relating to Financial Matters**

**We        will require additional capital to fund our future drilling activities and        to        pursue development of the MPEH**
**™**
**.        If we fail to obtain additional capital, we may not be able to continue our        operations or develop MPEH**
**™**
**.        **

| ·   | our                  cash flow from operations; |
|--------------------|-------------------------------------------------|

| ·   | entering                  into exploration arrangements with other                  parties; |
|--------------------|----------------------------------------------------------------------------------------------|

| ·   | selling                  oil and gas properties; |
|--------------------|--------------------------------------------------|

| ·   | borrowing                  money from banks; and |
|--------------------|--------------------------------------------------|

| ·   | selling                  preferred and common stock and securities convertible into common                  stock. |
|--------------------|--------------------------------------------------------------------------------------------------------------------|

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Table      of Contents

**Our      future revenues will be reduced as a result of agreements that we have entered      into and may enter into in the future with third parties.**

**We        have incurred losses from our operations in the past and may continue to        do so        in the future. Our failure to achieve profitability in the future could        adversely affect the trading price of our common stock and our other securities        and our ability to raise additional capital.**

**We        are responsible for reclamation, environmental and other obligations relating        to        our former sulphur operations, including Main Pass and Port        Sulphur.**

----

Table          of Contents

**We          are subject to indemnification obligations with respect to the sulphur          transportation and terminaling assets that we sold in June 2002, including          sulphur and oil and gas obligations arising under environmental          laws.**

**Factors      Relating to Our Operations**

**Our      future performance depends on our ability to add reserves.**

**Our        exploration and development activities may not be commercially        successful.**

| ·   | the                  market price of oil and natural gas; |
|--------------------|-----------------------------------------------------------|

| ·   | unexpected                  drilling conditions; |
|--------------------|--------------------------------------------------|

| ·   | unexpected                  pressure or irregularities in formations; |
|--------------------|-----------------------------------------------------------------------|

| ·   | equipment                  failures or accidents; |
|--------------------|---------------------------------------------------|

| ·   | title                  problems; |
|--------------------|----------------------------------|

| ·   | hurricanes,                  which are common in the Gulf of Mexico during certain times of                  the year,                  and other adverse weather                  conditions; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | regulatory                  requirements; and |
|--------------------|-----------------------------------------------|

| ·   | unavailability                  or high cost of equipment or labor. |
|--------------------|---------------------------------------------------------------------|

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Table          of Contents

**The          future results of our oil and natural gas business are difficult to forecast,          primarily because the results of our exploration strategy are          unpredictable.**

**The      marketability of our production depends mostly upon the availability, proximity      and capacity of natural gas gathering systems, pipelines and processing      facilities.**

**Because        our reserves and production are concentrated in a small number of offshore        properties, production problems or significant changes in reserve estimates        related to any property could have a material impact on our        business.**

**We        are vulnerable to risks associated with the Gulf of Mexico because we currently        explore and produce exclusively in that area**

| ·   | hurricanes,                  which are common in the Gulf of Mexico during certain times of                  the year,                  and other adverse weather                  conditions; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | difficulties                  securing oil field services; and |
|--------------------|----------------------------------------------------------------|

| ·   | compliance                  with existing and future regulations. |
|--------------------|-------------------------------------------------------------------|

**The        amount of oil and natural gas that we produce and the net cash flow that        we        receive from that production may differ materially from the amounts reflected        in        our reserve estimates.**

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Table of Contents

| ·   | historical                  production from the area compared with production from other producing                  areas; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------|

| ·   | assumptions                concerning future oil and natural gas prices, future operating and                development costs, workover, remediation and abandonment costs, and                severance and excise taxes; and |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the                assumed effects of government regulation. |
|--------------------|--------------------------------------------------------------|

| ·   | the                  actual amount and timing of production; |
|--------------------|--------------------------------------------------------------|

| ·   | changes                  in consumption by gas purchasers; and |
|--------------------|----------------------------------------------------------------|

| ·   | changes                  in governmental regulations and taxation. |
|--------------------|--------------------------------------------------------------------|

**Financial        difficulties encountered by our partners or third-party operators could        adversely affect the exploration and development of our        prospects.**

**We        cannot control the activities on properties we do not        operate.**

| ·   | timing                  and amount of capital expenditures; |
|--------------------|-------------------------------------------------------------|

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Table        of Contents

| ·   | the                  operator’s expertise and financial                  resources; |
|--------------------|-------------------------------------------------------------------------------------------|

| ·   | approval                  of other participants in drilling wells;                  and |
|--------------------|-----------------------------------------------------------------------------------------|

| ·   | selection                  of technology. |
|--------------------|-------------------------------------------|

**Our        revenues, profits and growth rates may vary significantly with fluctuations        in        the market prices of oil and natural gas**

| ·   | the                market forces of supply and demand; |
|--------------------|--------------------------------------------------------|

| ·   | regulatory                and political actions of domestic and foreign governments;                and |
|--------------------|---------------------------------------------------------------------------------------------------------|

| ·   | attempts                of international cartels to control or influence                prices. |
|--------------------|-------------------------------------------------------------------------------------------------|

**If        oil and natural gas prices decrease or our exploration efforts are unsuccessful,        we may be required to write down the capitalized cost of individual oil and        natural gas properties.**

**Shortages        of supplies, equipment and personnel may adversely affect our        operations.**

**The        loss of key personnel could adversely affect our ability to        operate.**

| ·   | evaluating                  and analyzing drilling prospects and producing oil and gas properties;                  and |
|--------------------|-------------------------------------------------------------------------------------------------------------------------|

| ·   | maximizing                  production from oil and natural gas                  properties. |
|--------------------|----------------------------------------------------------------------------------------------|

----

Table        of Contents

**The        oil and natural gas exploration business is very competitive, and most of        our        competitors are much larger and financially stronger than we        are**

| ·   | access                less expensive sources of capital; |
|--------------------|----------------------------------------------------------|

| ·   | obtain                equipment, supplies and labor on better                terms; |
|--------------------|-------------------------------------------------------------------------------------|

| ·   | develop,                  or buy, and implement new technologies;                  and |
|--------------------|----------------------------------------------------------------------------------------|

| ·   | access                  more information relating to prospects. |
|--------------------|-----------------------------------------------------------------|

**Offshore        operations are hazardous, and the hazards are not fully insurable at        commercially reasonable costs.**

| ·   | fires; |
|--------------------|--------|

| ·   | natural                  disasters; |
|--------------------|-------------------------------------|

| ·   | abnormal                  pressures in formations; |
|--------------------|----------------------------------------------------|

| ·   | blowouts; |
|--------------------|-----------|

| ·   | cratering; |
|--------------------|------------|

| ·   | pipeline                  ruptures; and |
|--------------------|-----------------------------------------|

| ·   | spills. |
|--------------------|---------|

| ·   | hurricanes,                  which are common in the Gulf of Mexico during certain times of                  the year,                  and other adverse weather                  conditions; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | extensive                  governmental regulation (including regulations that may, in certain                  circumstances, impose strict liability for pollution damage);                  and |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | interruption                  or termination of operations by governmental authorities based                  on                  environmental, safety or other                  considerations. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table          of Contents

**Hedging          our production may result in losses.**

| ·   | production                is less than expected; |
|--------------------|--------------------------------------------------|

| ·   | the                other party to the contract defaults on its obligations;                or |
|--------------------|-----------------------------------------------------------------------------------------------|

| ·   | there                is a change in the expected differential between the underlying price                in                the hedging agreement and actual prices                received. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Compliance        with environmental and other government regulations could be costly and could        negatively affect production.**

| ·   | require                  the acquisition of a permit before drilling                  commences; |
|--------------------|--------------------------------------------------------------------------------------------------|

| ·   | restrict                  the types, quantities and concentration of various substances that                  can be                  released into the environment from drilling and production                  activities; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | limit                  or prohibit drilling activities on certain lands lying within wilderness,                  wetlands and other protected areas; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | require                  remedial measures to address or mitigate pollution from former                  operations,                  such as plugging abandoned wells; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | impose                  substantial liabilities for pollution resulting from our operations;                  and |
|--------------------|-------------------------------------------------------------------------------------------------------------------|

| ·   | require                  capital expenditures for pollution control                  equipment. |
|--------------------|-------------------------------------------------------------------------------------------------|

**Factors        Relating to the Potential Main Pass Energy Hub**
**TM**

**        Project**

**We        may not be able to obtain the approvals and permits from regulatory agencies        necessary to use our Main Pass facilities as an LNG        terminal.**

----

Table      of Contents

**Even      if we obtain the approvals and permits from regulatory agencies necessary to      use      our Main Pass facilities as an LNG terminal, we may not be able to obtain the      necessary financing to complete the project.**

**Our      interest in the proposed LNG terminal project will be reduced if either or      both      K1 USA or OSFI exercises its option to acquire a passive equity interest in      our      Main Pass Energy Hub**
**TM**

**      project, and may be further reduced by any financing arrangements that may      be      entered into with respect to the project.**

**Failure      of LNG to compete successfully in the United States natural gas market could      have a detrimental effect on our ability to pursue alternative uses of our      Main      Pass facilities.**

**We      face competition in the LNG receipt and processing terminal business from      competitors with greater resources and the potential for overcapacity in the      LNG      receipt and processing terminal marketplace. **

----

Table          of Contents

**If          we were to develop an LNG terminal at our Main Pass facilities, fluctuations          in          energy prices or the supply of natural gas could be harmful to those          operations.**

**Our      proposed LNG terminal would be subject to significant operating hazards and      uninsured risks, one or more of which may create significant liabilities for      us.**

**The      inability to import LNG into the United States due to, among other things,      governmental regulation or political instability in countries that supply      natural gas could materially adversely affect our business plans and results      of      operations. **

**Other      Factor**

**The      U.S military intervention in Iraq, the terrorist attacks in the United States      on      September 11, 2001, and the potential for future terrorist acts have      created economic, political and social uncertainties that could materially      and      adversely affect our business.**

**Item      1B. Unresolved Staff Comments**

**Item      3. Legal Proceedings**

----

Table      of Contents

**Item      4. Submission of Matters to a Vote of Security      Holders**

**Executive      Officers of the Registrant**

| Name                               |   | Age    |   | Position                or Office                             |
|------------------------------------|--------|--------|--------|---------------------------------------------------------------|
| James                R. Moffett    |   | 67     |   | Co-Chairman                of the Board                       |
|                               |   |   |   |                                                          |
| Richard                C. Adkerson |   | 59     |   | Co-Chairman                of the Board                       |
|                               |   |   |   |                                                          |
| Glenn                A. Kleinert   |   | 63     |   | President                and Chief Executive Officer          |
|                               |   |   |   |                                                          |
| C.                Howard Murrish   |   | 65     |   | Executive                Vice President                       |
|                               |   |   |   |                                                          |
| Nancy                D. Parmelee   |   | 54     |   | Senior                Vice President, Chief Financial Officer |
|                               |   |   |   | and                Secretary                                  |
|                               |   |   |   |                                                          |
| Kathleen                L. Quirk   |   | 42     |   | Senior                Vice President and Treasurer            |
|                               |   |   |   |                                                          |
| John                G. Amato       |   | 62     |   | General                Counsel                                |

*James      R. Moffett*

----

Table        of Contents

*Richard        C. Adkerson*

*Glenn      A. Kleinert*

*C.      Howard Murrish*

*Nancy      D. Parmelee *

*Kathleen      L. Quirk*
* *

*John      G. Amato*

**PART      II**

**Item      5. Market for Registrant's Common Equity, Related Stockholder      Matters and Issuer Purchases of Equity Securities**

|                          |   | 2005   |   | 2004   |   |
|-------------------------------|--------|--------|--------|--------|--------|
|                          |   | High   |   | Low    |   | High |   | Low |   |
| First                Quarter  |   | $23.55 |   | $16.00 |   | $19.55 |   | $13.88 |   |
| Second                Quarter |   | 22.20  |   | 16.96  |   | 17.56 |   | 12.28 |   |
| Third                Quarter  |   | 20.69  |   | 16.85  |   | 16.34 |   | 12.43 |   |
| Fourth                Quarter |   | 20.34  |   | 15.75  |   | 19.40 |   | 12.52 |   |

**Issuer      Purchases of Equity Securities**

----

Table      of Contents

**Item      6. Selected Financial      Data**

|                                                                   |   | 2005                                                                   |    | 2004   |   | 2003                                        |   | 2002   |    | 2001   |   |
|------------------------------------------------------------------------|--------|------------------------------------------------------------------------|---------|--------|--------|---------------------------------------------|--------|--------|---------|--------|--------|
| **Financial                Data**                                      |   | (Financial                Data in thousands, except per share amounts) |    |
| Years                Ended December 31:                                |   |                                                                   |    |   |   |                                        |   |   |    |   |   |   |   |   |   |   |
| Revenues                a                                              |   | $                                                                      | 130,127 |   | $      | 29,849                                      |   | $      | 17,284  |   | $      | 44,247 |   | $ | 73,672 |   |
| Exploration                expenses                                    |   |                                                                   | 63,805  |   |   | 36,903                                      |   |   | 14,109  |   |   | 13,259 |   |   | 61,831 |   |
| Start-up                costs for Main Pass Energy                     |   |                                                                   |    |   |   |                                        |   |   |    |   |   |   |   |   |   |   |
| HubTM                b                                                 |   |                                                                   | 9,749   |   |   | 11,461                                      |   |   | 11,411  |   |   | - |   |   | - |   |
| Litigation                settlement c                                 |   |                                                                   | 12,830  |   |   | -                                           |   |   | -       |   |   | - |   |   | - |   |
| Insurance                recovery d                                    |   |                                                                   | (8,900  | )      |   | (1,074                                      | )      |   | -       |   |   | - |   |   | - |   |
| Gain                on sale of oil and gas properties                e |   |                                                                   | -       |   |   | -                                           |   |   | -       |   |   | 44,141 |   |   | - |   |
| Operating                income (loss)                                 |   |                                                                   | (22,373 | )      |   | (43,940                                     | )      |   | (38,947 | )      |   | 17,942 |   |   | (104,917 | ) |
| Income                (loss) from continuing operations                |   |                                                                   | (31,470 | )      |   | (52,032                                     | )      |   | (41,847 | )      |   | 18,544 |   |   | (104,801 | ) |
| Income                (loss) from discontinued                         |   |                                                                   |    |   |   |                                        |   |   |    |   |   |   |   |   |   |   |
| operations                f                                            |   |                                                                   | (8,242  | )      |   | 361                                         |   |   | (11,233 | )      |   | (503 | ) |   | (43,260 | ) |
| Cumulative                effect of change in                          |   |                                                                   |    |   |   |                                        |   |   |    |   |   |   |   |   |   |   |
| accounting                principle                                    |   |                                                                   | -       |   |   | -                                           |   |   | 22,162  | g      |   | - |   |   | - |   |
| Net                income (loss) applicable to                         |   |                                                                   |    |   |   |                                        |   |   |    |   |   |   |   |   |   |   |
| common                stock                                            |   |                                                                   | (41,332 | )      |   | (53,313                                     | )      |   | (32,656 | )      |   | 17,041 |   |   | (148,061 | ) |
|                                                                   |   |                                                                   |    |   |   |                                        |   |   |    |   |   |   |   |
| Diluted                net income (loss) per share of common stock:    |   |                                                                   |    |   |   |                                        |   |   |    |   |   |   |   |
| Continuing                operations                                   |   |                                                                   | (1.35   | )      |   | (2.85                                       | )      |   | (2.62   | )      |   | 0.93 | h |   | (6.60 | ) |
| Discontinued                operations                                 |   |                                                                   | (0.33   | )      |   | 0.02                                        |   |   | (0.68   | )      |   | (0.02 | )h |   | (2.73 | ) |
| Cumulative                effect of change in                          |   |                                                                   |    |   |   |                                        |   |   |    |   |   |   |   |   |   |   |
| accounting                principle                                    |   |                                                                   | -       |   |   |     -    |   |   | 1.33    |   |   |    -    |   |   |    -    |   |
| Diluted                net income (loss) per share                     |   | $                                                                      | (1.68   | )      | $      | (2.83                                       | )      | $      | (1.97   | )      | $      | 0.91 | h | $ | (9.33 | ) |
|                                                                   |   |                                                                   |    |   |   |                                        |   |   |    |   |   |   |   |
| Average                common shares outstanding                       |   |                                                                   |    |   |   |                                        |   |   |    |   |   |   |   |
| Basic                                                                  |   |                                                                   | 24,583  |   |   | 18,828                                      |   |   | 16,602  |   |   | 16,010 |   |   | 15,869 |   |
| Diluted                                                                |   |                                                                   | 24,583  |   |   | 18,828                                      |   |   | 16,602  |   |   | 19,879 | i |   | 15,869 |   |
|                                                                   |   |                                                                   |    |   |   |                                        |   |   |    |   |   |   |   |   |   |   |
| At                December 31:                                         |   |                                                                   |    |   |   |                                        |   |   |    |   |   |   |   |   |   |   |
| Working                capital (deficit)                               |   | $                                                                      | 67,135  |   | $      | 175,889                                     |   | $      | 83,143  |   | $      | 5,077 |   | $ | (88,145 | ) |
| Property,                plant and equipment, net                      |   |                                                                   | 192,397 |   |   | 97,262                                      |   |   | 26,185  |   |   | 37,895 |   |   | 98,519 |   |
| Discontinued                sulphur business assets                j   |   |                                                                   | 375     |   |   | 312                                         |   |   | 312     |   |   | 355 |   |   | 54,607 |   |
| Total                assets                                            |   |                                                                   | 407,636 |   |   | 383,920                                     |   |   | 169,280 |   |   | 72,448 |   |   | 189,686 |   |
| Debt,                including current portion                         |   |                                                                   | 270,000 | k      |   | 270,000                                     |   |   | 130,000 |   |   | - |   |   | 104,657 |   |
| Mandatorily                redeemable convertible                      |   |                                                                   |    |   |   |                                        |   |   |    |   |   |   |   |   |   |   |
| preferred                stock                                         |   |                                                                   | 28,961  |   |   | 29,565                                      |   |   | 30,586  |   |   | 33,773 |   |   | - |   |
| Stockholders’                deficit                             |   | $                                                                      | (86,590 | )      | $      | (49,546                                     | )      | $      | (84,593 | )      | $      | (64,431 | ) | $ | (87,772 | ) |

| a.                 | Includes                service revenues totaling $12.0 million in 2005, $14.3 million in                2004,                $1.2 million in 2003, $0.5 million in 2002 and $0.7 million in 2001.                The                service revenues during 2005 and 2004 primarily reflect recognition                of the                management fees received associated with our exploration venture                activities (Note 2), oil processing fees and other management fees                for                services provided to other third parties (Note                1). |
|------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.                 | Reflects                costs associated with pursuit of the licensing, design and financing                plans                necessary to establish an energy hub, including an LNG terminal,                at Main                Pass Block 299 (Main Pass) in the Gulf of Mexico (Notes 3 and                4). |
|------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c.                 | Reflects                settlement of class action litigation case, net of anticipated insurance                proceeds (Note 11). |
|------------------------------|-------------------------------------------------------------------------------------------------------------------------------------|

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Table of Contents

| d.                 | Reflects                proceeds received in connection with our Main Pass oil business                interruption claim following Hurricane Ivan (see “K-Mc Ventures” below and                Note 4). In 2004, represents reimbursement of costs associated with                repairs previously charged to expense following Hurricane Lili in                October                2002. |
|------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| e.                 | Includes                sales of various oil and gas properties during 2002 (Note                4). |
|------------------------------|------------------------------------------------------------------------------------------------------|

| f.                 | Amount                in 2005 includes $6.5 million charge for modification of previously                estimated reclamation plans for remaining facilities at Port Sulphur,                Louisiana as a result of hurricane damages. Amounts also include                reductions ($3.5 million in 2005 and $5.2 million in 2004) in the                contractual liability associated with postretirement benefit costs                relating to certain retired former sulphur employees (Note 11). The                amount                for 2003 includes a $5.9 million estimated loss on the disposal of                our                remaining sulphur railcars, which were sold during 2004. The amount                for                2002 includes a $5.0 million gain on completion of the Caminada sulphur                mine reclamation activities, a $5.2 million gain to adjust the estimated                reclamation cost for certain Main Pass sulphur structures and facilities                and an aggregate $4.6 million loss on the disposal of sulphur                transportation and terminaling assets. The amount for 2001 includes                a                $20.8 million charge to reduce sulphur business assets to their net                realizable value, a $13.6 million increase in the contractual liability                associated with certain retired former sulphur employees and $10.0                million                to reduce sulphur product inventory to its then estimated fair value. |
|------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| g.                 | Reflects                implementation of Statement of Financial Accounting Standard No.                143                “*Accounting                for Asset Retirement Obligations*”                effective January 1, 2003 (Note 1). |
|------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| h.                 | Basic                net income (loss) per share of common stock in 2002 totaled $1.06                per                share, reflecting $1.09 per share from continuing operations and                $(0.03)                per share from discounted                operations. |
|------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| i.                 | Includes                the assumed conversion of McMoRan’s 5% Convertible Preferred Stock into                approximately 3.9 million shares (Note                6). |
|------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| j.                 | Reflects                sale of sulphur assets in June 2002 (Note                7). |
|------------------------------|--------------------------------------------------------------------------------------|

| k.                 | Subsequent                to December 31, 2005, debt to equity inducement transactions were                completed reducing long-term debt by $54.1 million (Note                5). |
|------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                | 2005   |      | 2004   |   | 2003      |   | 2002   |      | 2001   |   |
|-----------------------------------------------------|--------|-----------|--------|--------|-----------|--------|--------|-----------|--------|--------|
| **Operating                Data**                   |   |      |   |   |      |   |   |      |   |   |   |   |   |   |   |
| Sales                Volumes:                       |   |      |   |   |      |   |   |      |   |   |   |   |   |   |   |
| Gas                (thousand cubic feet, or Mcf)    |   | 7,938,000 |   |   | 1,978,500 |   |   | 2,011,100 |   |   | 5,851,300 | a |   | 11,136,800 | a |
| Oil,                excluding Main Pass (barrels)   |   | 280,400   |   |   | 61,900    |   |   | 103,400   |   |   | 124,700 | b |   | 342,800 | b |
| Oil                from Main Pass (barrels)c        |   | 436,000   |   |   | -         |   |   | 4,200     |   |   | 1,001,900 |   |   | 993,300 |   |
| Plant                products (equivalent barrels)d |   | 106,700   |   |   | 22,900    |   |   | 20,700    |   |   | 26,100 |   |   | 81,100 |   |
| Average                realization:                 |   |      |   |   |      |   |   |      |   |   |   |   |   |   |   |
| Gas                (per Mcf)                        | $      | 9.24      |   | $      | 6.08      |   | $      | 5.64      |   | $      | 3.00 |   | $ | 3.59 |   |
| Oil,                excluding Main Pass (barrels)   |   | 57.16     |   |   | 39.83     |   |   | 31.03     |   |   | 24.24 |   |   | 24.62 |   |
| Oil                from Main Pass (barrels)         |   | 51.67     |   |   | -         |   |   | 24.09     |   |   | 22.03 |   |   | 21.07 |   |

| a.   | Sales                volumes associated with properties sold in February 2002 (Note 4)                totaled                856,000 Mcf in 2002 and 3,200,000 Mcf in                2001. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.   | Sales                volumes associated with properties sold in February 2002 totaled                18,500                barrels in 2002 and 147,300 barrels in                2001. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c.   | A                joint venture, in which we held a 33.3 percent interest, acquired                the Main                Pass oil operations in December 2002. Amounts during 2003 represent                the                sale of remaining Main Pass product inventory. We acquired the interest                in                the joint venture not owned by us in December 2004. The Main Pass                oil                operations were shut-in for a substantial portion of 2005 resulting                from                damages sustained from hurricanes (see “K-Mc Ventures” and Note                4). |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| d.   | During                2005 revenues included $5.0 million of proceeds from plant products                (ethane, propane, butane, etc.). Revenues from plant products totaled                $0.6                million in 2004, $0.8 million in 2003, $0.9 million in 2002 and $3.0                million in 2001. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Table          of Contents

**Items          7. and 7A. Management’s Discussion and Analysis of          Financial Condition and Results of Operation and Quantitative and Qualitative          Disclosures About Market Risk**

**OVERVIEW**

*In          management’s discussion and analysis “we,” “us,” and “our” refer to McMoRan          Exploration Co. and its consolidated subsidiaries, McMoRan Oil & Gas LLC          (“MOXY”) and Freeport-McMoRan Energy LLC (“Freeport Energy,” formerly known as          Freeport-McMoRan Sulphur LLC). You should read the following discussion          in          conjunction with our consolidated financial statements and the related          discussion of “Business and Properties” included elsewhere in this Form*

*10-K.      The results of operations reported and summarized below are not necessarily      indicative of our future operating results.*
*All      subsequent references to Notes refer to Notes to Consolidated Financial      Statements located in Item 8. “Financial Statements and Supplementary Data”elsewhere in this Form 10-K.*

**Business      Strategy**

**North      American Natural Gas Environment **

----

Table of Contents

**OPERATIONAL      ACTIVITIES**

**Multi-Year      Exploration Venture**

**Drilling      Update**

----

Table      of Contents

** **

** **

**Acreage      Position**

**Production      Update **

**MAIN      PASS ENERGY HUB**
**TM      **

**PROJECT**

----

Table      of Contents

**K-Mc        VENTURES**

----

Table of Contents

**CAPITAL      RESOURCES AND LIQUIDITY**

|                                   | For                Year Ended December 31, |   |
|----------------------------------------|--------------------------------------------|--------|
|                                   | 2005                                       |   | 2004 |   | 2003 |   |
| Continuing                operations   |                                       |   |   |   |   |   |   |   |   |
| Operating                              | $                                          | 74.8   |   | $ | (29.7 | ) | $ | (3.3 | ) |
| Investing                              |                                       | (143.1 | ) |   | (75.8 | ) |   | (21.5 | ) |
| Financing                              |                                       | 1.2    |   |   | 218.9 |   |   | 122.1 |   |
|                                   |                                       |   |   |   |   |   |   |   |   |
| Discontinued                operations |                                       |   |   |   |   |   |   |   |   |
| Operating                              | $                                          | (4.7   | ) | $ | (5.5 | ) | $ | (10.8 | ) |
| Investing                              |                                       | (0.1   | ) |   | (5.9 | ) |   | 0.2 |   |
| Financing                              |                                       | -      |   |   | - |   |   | - |   |

| Total                cash flow |   |   |   |   |   |   |   |   |   |
|--------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|

| Operating | $      | 70.1   |   | $      | (35.1 | )      | $      | (14.1 | )      |
|-----------|--------|--------|--------|--------|-------|--------|--------|-------|--------|
| Investing |   | (143.2 | )      |   | (81.7 | )      |   | (21.3 | )      |
| Financing |   | 1.2    |   |   | 218.9 |   |   | 122.1 |   |

**Comparison      of Year-To-Year Cash Flows**

----

Table      of Contents

**Securities      Offerings**

----

Table      of Contents

**Convertible          Preferred Stock **

**Sales      of Oil and Gas Properties**

**Revolving      Bank Credit Facilities**

**Contractual      Obligations and Commitments**

----

Table of Contents

|       | Convertible                  Securitiesa |   | SulphurMedical                  Costs |   | Oil                  & Gas Obligationsb |   | Lease                  Paymentsc |   | Total  |
|------------|------------------------------------------|--------|---------------------------------------|--------|---------------------------------------------|--------|----------------------------------|--------|--------|
| 2006       | $                                        | -      |                                  | $      | 3.5                                         |   | $                                | 76.1   |   | $ | 0.1 | d | $ | 77.2 |
| 2007       |                                     | -      |                                  |   | 1.9                                         |   |                             | 0.4    |   |   | - |   |   | 2.3 |
| 2008       |                                     | 130.0  |                                  |   | 1.9                                         |   |                             | 0.3    |   |   | - |   |   | 132.3 |
| 2009       |                                     | -      |                                  |   | 1.8                                         |   |                             | 0.1    |   |   | - |   |   | 1.9 |
| 2010       |                                     | -      |                                  |   | 1.8                                         |   |                             | -      |   |   | - |   |   | 1.8 |
| Thereafter |                                     | 169.9  |                                  |   | 14.2                                        |   |                             | -      |   |   | - |   |   | 184.1 |
| Total      | $                                        | 299.9  |                                  | $      | 25.1                                        |   | $                                | 76.9   |   | $ | 0.1 |   | $ | 399.6 |

| a.   | Amounts                  due upon maturity subject to change based on future conversions                  by the                  holders of the securities. There were no conversions for the 6%                  or 5¼%                  convertible notes through December 31, 2005. The outstanding balance                  payable to holders of record on the 5% convertible preferred stock                  totaled                  $29.9 million at December 31, 2005. We have the option of redeeming                  the                  outstanding convertible preferred stock after June 30, 2007 and                  must                  settle the balance by June 30, 2012 (Note 6). In the first quarter                  of 2006                  (through March 1, 2006), we induced conversion of $29.1 million                  of our 6%                  convertible notes and $25.0 million of our 5¼% convertible senior notes                  into approximately 3.6 million shares of our common stock thus                  reducing                  our future expected debt payments by $54.1                  million. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.   | These                    oil & gas obligations primarily reflect our net working interest share                    of approved exploration and development project costs at December                    31, 2005                    (see below for total estimated exploration and development expenditures                    for 2006). Amount also includes inventory purchase commitments                    relating to                    our drilling activities, primarily tubulars and other related                    supplies,                    which have increased as a result of market supply and demand                    conditions                    for these materials. While these inventory purchases will be                    charged to                    other working interest owners as soon as permitted under applicable                    operating agreements, we likely will retain some level of inventory                    for                    some time before these can be charged to projects. This amount                    also                    includes $1.1 million third-party contractual consulting costs                    over the                    next three years (Note                    11). |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c.   | The                substantial majority of our former lease obligations were assumed                by third                parties in June 2002, following the sale of our sulphur assets (see                “Discontinued Operations - Sale of Sulphur Assets”) and our railcar lease                termination in January 2004 (Note 11). |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| d.   | Amount                primarily reflects leased office space in Houston, Texas. The lease                was                extended in the first quarter of 2006 for a period of three                years, terminating on April 30, 2009. Aggregate future minimum payments                under the lease extension total $0.6                million. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**RESULTS      OF OPERATIONS**

** **

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Table          of Contents

**Operations**

|                                                        |   | 2005   |    | 2004   |   |
|-------------------------------------------------------------|--------|--------|---------|--------|--------|
| Oil                and natural gas revenues - prior year    |   | $      | 15,611  |   | $      | 16,114 |   |
| Increase                (decrease)                          |   |   |    |   |   |   |   |
| Price                realizations:                          |   |   |    |   |   |   |   |
| Natural                gas                                  |   |   | 25,031  |   |   | 871 |   |
| Oil,                excluding Main Pass                     |   |   | 4,861   |   |   | 545 |   |
| Sales                volumes:                               |   |   |    |   |   |   |   |
| Natural                gas                                  |   |   | 36,255  |   |   | (184 | ) |
| Oil,                excluding Main Pass                     |   |   | 8,704   |   |   | (1,288 | ) |
| Revenue                from oil production at Main Pass 299 |   |   | 22,530  |   |   | (100 | ) |
| Plant                products revenue                       |   |   | 4,387   |   |   | (168 | ) |
| Overriding                royalty and other                 |   |   | 797     |   |   | (179 | ) |
| Oil                and natural gas revenues - current year  |   | $      | 118,176 |   | $      | 15,611 |   |

**2005      Compared with 2004**

----

Table      of Contents

** **

----

Table        of Contents

|                                             |   | Years                  Ended December 31, |   |
|--------------------------------------------------|--------|-------------------------------------------|--------|
|                                             |   | 2005                                      |   | 2004 |   |
| Geological                  and geophysical,     |   |                                      |   |   |   |   |   |
| including                  3-D seismic purchases |   | $                                         | 7.4    |   | $ | 8.9 |   |
| Dry                  hole costs                  |   |                                      | 49.6   | a |   | 23.7 | b |
| Other                                            |   |                                      | 6.8    | c |   | 4.3 |   |
|                                             |   | $                                         | 63.8   |   | $ | 36.9 |   |

| a.                     | Includes                    nonproductive exploratory well drilling and related costs for“Elizabeth”                    at South Marsh Island Block 230 ($5.9 million) and “Cabin Creek” at West                    Cameron Block 95 ($10.8 million) during the fourth quarter of                    2005.                    Nonproductive exploratory well costs during the interim 2005                    periods                    included “Delmonico” at Louisiana State Lease 1706 ($9.8 million), “Korn”                    at South Timbalier Blocks 97/98 ($6.9 million), “Little Bay” at Louisiana                    State Lease 5097 ($12.1 million) and $1.3 million of well drilling                    costs                    for the “Caracara” well incurred after December 31, 2004 (see b below). We                    charged approximately $1.4 million of expiring leasehold costs                    to                    exploration expense in 2005. |
|----------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.                     | Reflects                    nonproductive exploratory well drilling and related costs for                    the deeper                    zones at the “Hurricane No. 1” well at South Marsh Island Block 217 ($0.5                    million), “King of the Hill” at High Island Block 131 ($4.8 million),                    “Gandalf” at Mustang Island Block 829 ($2.0 million), “Poblano” at East                    Cameron Block 137 ($3.4 million), “Lombardi Deep” at Vermilion Block 208                    ($7.2 million) and $0.9 million for the first-quarter 2004 costs                    incurred                    on the original Hurricane well at South Marsh Island Block 217.                    Also                    includes $3.8 million of drilling and related costs incurred                    through                    December 31, 2004 on the “Caracara” well at Vermilion Blocks 227/228,                    which was evaluated to be nonproductive in late January 2005.                    Our dry hole                    costs in 2004 also includes a $1.0 million impairment charge                    to write off                    the remaining unproved leasehold costs associated with the Eugene                    Island                    Block 97 field. |
|----------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c.                     | Includes                    insurance costs associated with our increasing exploration drilling                    activities. Increase over 2004 period also includes higher delay                    rental                    payments to maintain portions of our lease acreage                    position. |
|----------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**2004          Compared with 2003**

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Table of Contents

| 1)   | Reduced                  sales volumes and the use of lower units-of-production depreciation                  rates                  during 2004 reflecting a lower depreciable basis for certain of                  our                  producing fields; |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2)   | Impairment                  charges totaling $0.8 million in 2004 compared with $3.9 million                  during                  2003. The impairment charge in 2004 was recorded to reduce the                  net book                  value of the Eugene Island Block 97 field to its estimated fair                  value at                  December 31, 2004. The impairment charge for 2003 represented a                  reduction                  in the Vermilion Block 160 field’s net book value to its estimated fair                  value at December 31, 2003. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                             |   | Years                  Ended December 31, |   |
|--------------------------------------------------|--------|-------------------------------------------|--------|
|                                             |   | 2004                                      |   | 2003 |   |
| Geological                  and geophysical,     |   |                                      |   |   |   |   |   |
| including                  3-D seismic purchases |   | $                                         | 8.9    | a,b | $ | 4.5 | b |
| Dry                  hole costs                  |   |                                      | 23.7   | c |   | 8.8 | d |
| Other                                            |   |                                      | 4.3    | e |   | 0.8 |   |
|                                             |   | $                                         | 36.9   |   | $ | 14.1 |   |

| a.                   | Increased                  amounts during 2004 included certain personnel and other costs                  associated                  with our multi-year exploration venture (see “Operational Activities -                  Multi Year Exploration Venture). |
|--------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.                   | In                  2004, we recorded $0.7 million of a total $1.1 million of compensation                  expense associated with stock-based awards to exploration expense                  with the                  remainder being charged to general and administrative expense.                  During                  2003 we charged $1.4 million of a total $2.2 million                  of                  stock-based compensation expense to exploration                  expense. |
|--------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c.                     | For                    listing of nonproductive 2004 exploratory well costs see “2005 Compared                    with 2004” above. |
|----------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------|

| d.                     | Includes                    a $4.0 million charge associated with “Hornung” at Eugene Island Blocks                    96/97/108/109, a $1.0 million charge associated with “Cyprus” at Garden                    Banks Block 228 and a $3.2 million charge for the original Hurricane                    prospect well. |
|----------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| e.                   | Reflects                  higher insurance costs associated with the increased exploration                  drilling                  activities of the multi-year exploration venture. |
|--------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Other      Financial Results**

----

Table      of Contents

**DISCONTINUED        OPERATIONS**

**Sale      of Sulphur Assets**

----

Table      of Contents

**MMS        Bonding Requirement Status**

**Sulphur        Reclamation Obligations**

**CRITICAL      ACCOUNTING POLICIES AND ESTIMATES **

**Reclamation      Costs. **

----

Table of Contents

*Accounting for Asset Retirement          Obligations*

----

Table        of Contents

|                                         | Oil                  and Gas |   | Sulphur |
|----------------------------------------------|------------------------------|--------|---------|
|                                         | 2005                         |   | 2004    |   | 2005 |   | 2004 |
| Undiscounted                  cost estimates | $                            | 39,210 |    | $ | 25,731 |   | $ | 41,802 |   | $ | 43,516 |
| Discounted                  cost estimates   | $                            | 21,760 |    | $ | 14,429 |   | $ | 21,786 |   | $ | 14,636 |

** **

|                                                    | Inflation                  Rate |   | Market                  Risk Premium |   |
|---------------------------------------------------------|---------------------------------|--------|--------------------------------------|--------|
|                                                    | +1%                             |   | -1%                                  |   | +1% |   | -1% |   |
| Oil                  & Gas reclamation obligations: |                            |   |                                 |   |   |   |   |   |   |   |   |   |
| Undiscounted                                            | $                               | 3.4    |                                 | $      | (3.1 | ) | $ | 0.4 |   | $ | (0.8 | ) |
| Discounted                                              |                            | 1.6    |                                 |   | (1.5 | ) |   | 0.2 |   |   | (0.6 | ) |
| Sulphur                  reclamation obligations:       |                            |   |                                 |   |   |   |   |   |   |   |   |   |
| Undiscounted                                            |                            | 1.5    |                                 |   | (1.2 | ) |   | 1.4 |   |   | (1.0 | ) |
| Discounted                                              |                            | 0.4    |                                 |   | (0.1 | ) |   | 0.3 |   |   | (0.1 | ) |

**·**
**Depletion,        Depreciation and Amortization. **

| a)   | Estimated                future oil and natural gas prices and future operating                costs. |
|----------------|-------------------------------------------------------------------------------------------------------|

| b)   | Projected                production levels and the timing and amounts of future development,                remedial, and abandonment costs. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------|

| c)   | Assumed                effects of government regulations on our                operations. |
|----------------|--------------------------------------------------------------------------------------------|

| d)   | Historical                production from the area compared with production in similar producing                areas. |
|----------------|------------------------------------------------------------------------------------------------------------------------|

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Table      of Contents

**Postretirement        and Other Employee Benefits Costs. **

**DISCLOSURES        ABOUT MARKET RISKS **

**NEW      ACCOUNTING STANDARDS**

----

Table        of Contents

**ENVIRONMENTAL        **

----

Table      of Contents

**CAUTIONARY      STATEMENT**

**CERTIFICATIONS**

**WE      HAVE FILED THE CERTIFICATIONS OF OUR CHIEF EXECUTIVE OFFICER AND OUR CHIEF      FINANCIAL OFFICER REQUIRED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002      AS EXHIBITS TO OUR 2005 FORM 10-K.**

----

Table of Contents

**Item      8. Financial Statements and Supplementary      Data**

**MANAGEMENT’S      REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING**

| ·   | Pertain                to the maintenance of records that in reasonable detail accurately                and                fairly reflect the transactions and dispositions of the Company’s                assets; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Provide                reasonable assurance that transactions are recorded as necessary                to permit                preparation of financial statements in accordance with generally                accepted                accounting principles, and that receipts and expenditures of the                Company                are being made only in accordance with authorizations of management                and                directors of the Company; and |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Provide                reasonable assurance regarding prevention or timely detection of                unauthorized acquisition, use or disposition of the Company’s assets that                could have a material effect on the financial statements. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Internal      Control-Integrated Framework *

| Glenn                A. Kleinert   | Nancy                D. Parmelee           |
|------------------------------------|--------------------------------------------|
| President                and Chief | Senior                Vice President,      |
| Executive                Officer   | Chief                Financial Officer and |
|                               | Secretary                                  |

----

Table      of Contents

**REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

*      Internal Control-Integrated Framework*

----

Table      of Contents

**REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

----

Table of Contents

**McMoRan      EXPLORATION CO.**

**CONSOLIDATED      BALANCE SHEETS**

|                                                                                                                |   | December                31,   |     |
|---------------------------------------------------------------------------------------------------------------------|--------|-------------------------------|----------|
|                                                                                                                |   | 2005                          |     | 2004 |   |
|                                                                                                                |   | (In                Thousands) |     |
| **ASSETS**                                                                                                          |   |                          |     |   |   |   |   |
| **Current                assets:**                                                                                  |   |                          |     |   |   |   |   |
| Cash                and cash equivalents:                                                                           |   |                          |     |   |   |   |   |
| Continuing                operations, $0.3 million and $3.7 million restricted at                                   |   |                          |     |   |   |   |   |
| December                31, 2005 and 2004, respectively                                                             |   | $                             | 131,179  |   | $ | 203,035 |   |
| Discontinued                operations, all restricted                                                              |   |                          | 1,005    |   |   | 980 |   |
| Restricted                investments (Note 1)                                                                      |   |                          | 15,155   |   |   | 15,150 |   |
| Accounts                receivable:                                                                                 |   |                          |     |   |   |   |   |
| Customers                                                                                                           |   |                          | 19,156   |   |   | 1,979 |   |
| Joint                interest partners                                                                              |   |                          | 17,360   |   |   | 21,808 |   |
| Other                                                                                                               |   |                          | 438      |   |   | 3,616 |   |
| Prepaid                expenses and inventories                                                                     |   |                          | 9,328    |   |   | 1,976 |   |
| Current                assets from discontinued operations, excluding cash                                          |   |                          | 2,550    |   |   | 2,563 |   |
| Total                current assets                                                                                 |   |                          | 196,171  |   |   | 251,107 |   |
| Property,                plant and equipment, net (Note 4)                                                          |   |                          | 192,397  |   |   | 97,262 |   |
| Discontinued                sulphur business assets                                                                 |   |                          | 375      |   |   | 312 |   |
| Restricted                investments and cash (Note 1)                                                             |   |                          | 10,475   |   |   | 24,779 |   |
| Other                assets                                                                                         |   |                          | 8,218    |   |   | 10,460 |   |
| Total                assets                                                                                         |   | $                             | 407,636  |   | $ | 383,920 |   |
|                                                                                                                |   |                          |     |   |   |   |   |
| **LIABILITIES                AND STOCKHOLDERS’ DEFICIT**                                                      |   |                          |     |   |   |   |   |
| **Current                liabilities:**                                                                             |   |                          |     |   |   |   |   |
| Accounts                payable                                                                                     |   | $                             | 63,398   |   | $ | 33,787 |   |
| Accrued                liabilities                                                                                  |   |                          | 49,815   |   |   | 28,407 |   |
| Accrued                interest                                                                                     |   |                          | 5,635    |   |   | 5,635 |   |
| Current                portion of accrued sulphur reclamation costs (Note 7)                                        |   |                          | 4,724    |   |   | 2,550 |   |
| Current                portion of accrued reclamation costs for oil and gas                facilities               |   |                          | -        |   |   | 238 |   |
| Other                current liabilities from discontinued operations                                               |   |                          | 5,462    |   |   | 4,601 |   |
| Total                current liabilities                                                                            |   |                          | 129,036  |   |   | 75,218 |   |
| Long-term                debt - convertible senior notes (Note 5)                                                   |   |                          | 270,000  |   |   | 270,000 |   |
| Accrued                oil and gas reclamation costs                                                                |   |                          | 21,760   |   |   | 14,191 |   |
| Accrued                sulphur reclamation costs                                                                    |   |                          | 17,062   |   |   | 12,086 |   |
| Contractual                postretirement obligation related to discontinued                operations              |   |                          | 11,517   |   |   | 15,695 |   |
| Other                long-term liabilities (Note 4)                                                                 |   |                          | 15,890   |   |   | 16,711 |   |
| Commitments                and contingencies (Note 11)                                                              |   |                          |     |   |   |   |   |
| Mandatorily                redeemable convertible preferred stock, net of unamortized offering                costs |   |                          |     |   |   |   |   |
| of                $0.9 million and $1.0 million at December 31, 2005 and 2004, respectively                         |   |                          | 28,961   |   |   | 29,565 |   |
| **Stockholders'                deficit:**                                                                           |   |                          |     |   |   |   |   |
| Preferred                stock, par value $0.01, 50,000,000 shares authorized and                unissued           |   |                          | -        |   |   | - |   |
| Common                stock, par value $0.01, 150,000,000 shares authorized, 27,122,538                             |   |                          |     |   |   |   |   |
| shares                and 26,670,574 shares issued and outstanding, respectively                                    |   |                          | 271      |   |   | 267 |   |
| Capital                in excess of par value of common stock                                                       |   |                          | 410,139  |   |   | 406,458 |   |
| Unamortized                value of restricted stock units                                                          |   |                          | (110     | ) |   | (619 | ) |
| Accumulated                deficit                                                                                  |   |                          | (452,071 | ) |   | (412,359 | ) |
| Common                stock held in treasury, 2,428,121 shares and 2,345,759 shares, at                             |   |                          |     |   |   |   |   |
| cost,                respectively                                                                                   |   |                          | (44,819  | ) |   | (43,293 | ) |
| Stockholders’                deficit                                                                          |   |                          | (86,590  | ) |   | (49,546 | ) |
| Total                liabilities, convertible preferred stock and stockholders'                deficit              |   | $                             | 407,636  |   | $ | 383,920 |   |

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Table of Contents

**McMoRan      EXPLORATION CO.**

**CONSOLIDATED      STATEMENTS OF OPERATIONS**

|                                                                            | Years                Ended December 31,                 |                                              |
|---------------------------------------------------------------------------------|---------------------------------------------------------|---------------------------------------------------|
|                                                                            | 2005                                                    |                                              | 2004 |   | 2003 |   |
|                                                                            | (In                Thousands, Except Per Share Amounts) |                                              |
| **Revenues:**                                                                   |                                                    |                                              |   |   |   |   |   |   |   |
| Oil                and natural gas                                              | $                                                       | 118,176                                           |   | $ | 15,611 |   | $ | 16,114 |   |
| Service                                                                         |                                                    | 11,951                                            |   |   | 14,238 |   |   | 1,170 |   |
| Total                revenues                                                   |                                                    | 130,127                                           |   |   | 29,849 |   |   | 17,284 |   |
| **Costs                and expenses:**                                          |                                                    |                                              |   |   |   |   |   |   |   |
| Production                and delivery costs                                    |                                                    | 29,569                                            |   |   | 6,559 |   |   | 7,185 |   |
| Depletion,                depreciation and amortization expense                 |                                                    | 25,896                                            |   |   | 5,904 |   |   | 14,112 |   |
| Exploration                expenses                                             |                                                    | 63,805                                            |   |   | 36,903 |   |   | 14,109 |   |
| General                and administrative expenses                              |                                                    | 19,551                                            |   |   | 14,036 |   |   | 9,414 |   |
| Start-up                costs for Main Pass Energy HubTM                Project |                                                    | 9,749                                             |   |   | 11,461 |   |   | 11,411 |   |
| Litigation                settlement, net of insurance proceeds                 |                                                    | 12,830                                            |   |   | - |   |   | - |   |
| Insurance                recovery                                               |                                                    | (8,900                                            | ) |   | (1,074 | ) |   | - |   |
| Total                costs and expenses                                         |                                                    | 152,500                                           |   |   | 73,789 |   |   | 56,231 |   |
| Operating                loss                                                   |                                                    | (22,373                                           | ) |   | (43,940 | ) |   | (38,947 | ) |
| Interest                expense, net                                            |                                                    | (15,282                                           | ) |   | (10,252 | ) |   | (4,599 | ) |
| Other                income, net                                                |                                                    | 6,185                                             |   |   | 2,160 |   |   | 1,700 |   |
| Loss                from operations before provision for income taxes           |                                                    | (31,470                                           | ) |   | (52,032 | ) |   | (41,846 | ) |
| Provision                for income taxes                                       |                                                    | -                                                 |   |   | - |   |   | (1 | ) |
| Loss                from continuing operations                                  |                                                    | (31,470                                           | ) |   | (52,032 | ) |   | (41,847 | ) |
| Income                (loss) from discontinued operations                       |                                                    | (8,242                                            | ) |   | 361 |   |   | (11,233 | ) |
| Net                loss before cumulative effect of change in                   |                                                    |                                              |   |   |   |   |   |   |   |
| accounting                principle                                             |                                                    | (39,712                                           | ) |   | (51,671 | ) |   | (53,080 | ) |
| Cumulative                effect of change in accounting principle              |                                                    | -                                                 |   |   | - |   |   | 22,162 |   |
| Net                loss                                                         |                                                    | (39,712                                           | ) |   | (51,671 | ) |   | (30,918 | ) |
| Preferred                dividends and amortization of convertible preferred    |                                                    |                                              |   |   |   |   |   |   |   |
| stock                issuance costs                                             |                                                    | (1,620                                            | ) |   | (1,642 | ) |   | (1,738 | ) |
| Net                loss applicable to common stock                              | $                                                       | (41,332                                           | ) | $ | (53,313 | ) | $ | (32,656 | ) |
|                                                                            |                                                    |                                              |   |   |   |   |   |   |   |
| **Basic                and diluted net loss per share of common stock:**        |                                                    |                                              |   |   |   |   |   |   |   |
| Net                loss from continuing operations                              |                                                    | $(1.35                                            | ) |   | $(2.85 | ) |   | $(2.62 | ) |
| Net                loss from discontinued operations                            |                                                    | (0.33                                             | ) |   |  0.02 |   |   |  (0.68 | ) |
| Before                cumulative effect of change in accounting                 |                                                    |                                              |   |   |   |   |   |   |   |
| principle                                                                       |                                                    | (1.68                                             | ) |   | (2.83 | ) |   | (3.30 | ) |
| Cumulative                effect of change in accounting principle              |                                                    |      -    |   |   |      -    |   |   |    1.33 |   |
| Net                loss per share of common stock                               |                                                    | $(1.68                                            | ) |   | $(2.83 | ) |   | $(1.97 | ) |
|                                                                            |                                                    |                                              |   |   |   |   |   |   |   |
| **Average                common shares outstanding:**                           |                                                    |                                              |   |   |   |   |   |   |   |
| Basic                and diluted                                                |                                                    | 24,583                                            |   |   | 18,828 |   |   | 16,602 |   |

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Table      of Contents

**McMoRan      EXPLORATION CO.**

**CONSOLIDATED      STATEMENTS OF CASH FLOW**

|                                                                           |   | Years                Ended December 31, |     |
|--------------------------------------------------------------------------------|--------|-----------------------------------------|----------|
|                                                                           |   | 2005                                    |     | 2004 |   | 2003 |   |
|                                                                           |   | (In                Thousands)           |     |
| **Cash                flow from operating activities:**                        |   |                                    |     |   |   |   |   |   |   |   |
| Net                loss                                                        |   | $                                       | (39,712  | ) | $ | (51,671 | ) | $ | (30,918 | ) |
| Adjustments                to reconcile net loss to net cash                   |   |                                    |     |   |   |   |   |   |   |   |
| used                in operating activities:                                   |   |                                    |     |   |   |   |   |   |   |   |
| Loss                (income) from discontinued operations                      |   |                                    | 8,242    |   |   | (361 | ) |   | 11,233 |   |
| Depletion,                depreciation and amortization                        |   |                                    | 25,896   |   |   | 5,904 |   |   | 14,112 |   |
| Exploration                drilling and related expenditures                   |   |                                    | 49,621   |   |   | 23,679 |   |   | 8,823 |   |
| Cumulative                effect of change in accounting principle             |   |                                    | -        |   |   | - |   |   | (22,162 | ) |
| Stock                warrants granted - Main Pass Energy HubTM                 |   |                                    | -        |   |   | 188 |   |   | 6,220 |   |
| Compensation                associated with stock-based awards                 |   |                                    | 1,677    |   |   | 1,107 |   |   | 2,201 |   |
| Amortization                of deferred financing costs                        |   |                                    | 2,225    |   |   | 1,599 |   |   | 698 |   |
| Reclamation                and mine shutdown expenditures                      |   |                                    | (4       | ) |   | (288 | ) |   | (699 | ) |
| Other                                                                          |   |                                    | (261     | ) |   | 285 |   |   | (307 | ) |
| (Increase)                decrease in working capital:                         |   |                                    |     |   |   |   |   |   |   |   |
| Accounts                receivable                                             |   |                                    | (2,182   | ) |   | (6,990 | ) |   | 287 |   |
| Accounts                payable and accrued liabilities                        |   |                                    | 36,469   |   |   | (3,231 | ) |   | 7,324 |   |
| Inventories                and prepaid expenses                                |   |                                    | (7,175   | ) |   | 103 |   |   | (142 | ) |
| Net                cash provided by (used in) continuing operations            |   |                                    | 74,796   |   |   | (29,676 | ) |   | (3,330 | ) |
| Net                cash used in discontinued sulphur operations                |   |                                    | (4,681   | ) |   | (5,459 | ) |   | (10,769 | ) |
| Net                cash provided by (used in) operating activities             |   |                                    | 70,115   |   |   | (35,135 | ) |   | (14,099 | ) |
|                                                                           |   |                                    |     |   |   |   |   |   |   |   |
| **Cash                flow from investing activities:**                        |   |                                    |     |   |   |   |   |   |   |   |
| Exploration,                development and other capital expenditures         |   |                                    | (161,262 | ) |   | (57,241 | ) |   | (5,523 | ) |
| Property                insurance reimbursement                                |   |                                    | 3,500    |   |   | - |   |   | - |   |
| Purchase                of restricted investments                              |   |                                    | -        |   |   | (21,191 | ) |   | (22,928 | ) |
| Proceeds                from restricted investments                            |   |                                    | 15,150   |   |   | 7,800 |   |   | - |   |
| Acquisition                of K-Mc I LLC, net of acquired cash of $0.6 million |   |                                    | -        |   |   | (7,415 | ) |   | - |   |
| Increase                in restricted investments                              |   |                                    | (502     | ) |   | (265 | ) |   | (127 | ) |
| Proceeds                from disposition of oil and gas properties             |   |                                    | -        |   |   | 2,550 |   |   | 7,050 |   |
| Net                cash used in continuing activities                          |   |                                    | (143,114 | ) |   | (75,762 | ) |   | (21,528 | ) |
| Net                cash (used in) provided by discontinued sulphur operations  |   |                                    | (66      | ) |   | (5,920 | ) |   | 189 |   |
| Net                cash used in investing activities                           |   |                                    | (143,180 | ) |   | (81,682 | ) |   | (21,339 | ) |
|                                                                           |   |                                    |     |   |   |   |   |   |   |   |
| **Cash                flow from financing activities:**                        |   |                                    |     |   |   |   |   |   |   |   |
| Proceeds                from issuance of 6% convertible senior notes           |   |                                    | -        |   |   | - |   |   | 130,000 |   |
| Proceeds                from issuance of 5¼% convertible senior notes     |   |                                    | -        |   |   | 140,000 |   |   | - |   |
| Financing                costs                                                 |   |                                    | -        |   |   | (5,624 | ) |   | (7,032 | ) |
| Net                proceeds from equity offering                               |   |                                    | -        |   |   | 85,478 |   |   | - |   |
| Dividends                paid on convertible preferred stock                   |   |                                    | (1,129   | ) |   | (1,531 | ) |   | (1,631 | ) |
| Proceeds                from exercise of stock options and other               |   |                                    | 2,363    |   |   | 610 |   |   | 777 |   |
| Net                cash provided by continuing operations                      |   |                                    | 1,234    |   |   | 218,933 |   |   | 122,114 |   |
| Financing                activities of discontinued operations                 |   |                                    | -        |   |   | - |   |   | - |   |
| Net                cash provided by financing activities                       |   |                                    | 1,234    |   |   | 218,933 |   |   | 122,114 |   |

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|                                                                 |   | Years                Ended December 31, |    |
|----------------------------------------------------------------------|--------|-----------------------------------------|---------|
|                                                                 |   | 2005                                    |    | 2004 |   | 2003 |   |
|                                                                 |   | (In                Thousands)           |    |
| Net                (decrease) increase in cash and cash equivalents  |   |                                    | (71,831 | ) |   | 102,116 |   |   | 86,676 |   |
| Cash                and cash equivalents at beginning of year        |   |                                    | 204,015 |   |   | 101,899 |   |   | 15,223 |   |
| Cash                and cash equivalents at end of year              |   |                                    | 132,184 |   |   | 204,015 |   |   | 101,899 |   |
| Less                restricted cash from continuing operations       |   |                                    | (278    | ) |   | (3,726 | ) |   | - |   |
| Less                restricted cash from discontinued operations     |   |                                    | (1,005  | ) |   | (980 | ) |   | (961 | ) |
| Unrestricted                cash and cash equivalents at end of year |   | $                                       | 130,901 |   | $ | 199,309 |   | $ | 100,938 |   |
|                                                                 |   |                                    |    |   |   |   |   |   |   |   |
| Interest                paid                                         |   | $                                       | 15,150  |   | $ | 7,800 |   | $ | 2 |   |
| Income                taxes paid                                     |   | $                                       | -       |   | $ | - |   | $ | 1 |   |

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Table      of Contents

**McMoRan      EXPLORATION CO.**

**CONSOLIDATED      STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT**

**(In      thousands, except share amounts)**

|                                                                                                |   | Years                Ended December 31, |     |
|-----------------------------------------------------------------------------------------------------|--------|-----------------------------------------|----------|
|                                                                                                |   | 2005                                    |     | 2004 |   | 2003 |   |
| **Preferred                stock:**                                                                 |   |                                    |     |   |   |   |   |   |   |   |
| Balance                at beginning and end of year                                                 |   | $                                       | -        |   | $ | - |   | $ | - |   |
|                                                                                                |   |                                    |     |   |   |   |   |   |   |   |
| **Common                stock:**                                                                    |   |                                    |     |   |   |   |   |   |   |   |
| Balance                at beginning of year representing 26,670,574 shares in 2005,                 |   |                                    |     |   |   |   |   |   |   |   |
| 19,181,251                shares in 2004 and 18,429,402 shares in 2003                              |   |                                    | 267      |   |   | 192 |   |   | 184 |   |
| Shares                issued on equity offering representing 7,130,000 shares (at                   |   |                                    |     |   |   |   |   |   |   |   |
| $12.75                per share) (Note 5)                                                           |   |                                    | -        |   |   | 71 |   |   | - |   |
| Exercise                of stock options representing 255,699 shares in 2005,                       |   |                                    |     |   |   |   |   |   |   |   |
| 82,220                shares in 2004 and 51,119 shares in 2003                                      |   |                                    | 3        |   |   | 1 |   |   | 1 |   |
| Restricted                stock units vested and other representing 46,709 shares in                |   |                                    |     |   |   |   |   |   |   |   |
| 2005,                42,258 in 2004 and no shares in 2003                                           |   |                                    | -        |   |   | 1 |   |   | - |   |
| Mandatorily                redeemable preferred stock conversions representing                      |   |                                    |     |   |   |   |   |   |   |   |
| 149,556                shares in 2005, 234,845 shares in 2004 and 684,063                           |   |                                    |     |   |   |   |   |   |   |   |
| shares                in 2003                                                                       |   |                                    | 1        |   |   | 2 |   |   | 7 |   |
| Balance                at end of year representing 27,122,538 shares in 2005,                       |   |                                    |     |   |   |   |   |   |   |   |
| 26,670,574                shares in 2004 and 19,181,251 shares in 2003                              |   |                                    | 271      |   |   | 267 |   |   | 192 |   |
|                                                                                                |   |                                    |     |   |   |   |   |   |   |   |
| **Capital                in Excess of Par Value:**                                                  |   |                                    |     |   |   |   |   |   |   |   |
| Balance                at beginning of year                                                         |   |                                    | 406,458  |   |   | 319,530 |   |   | 307,903 |   |
| Mandatorily                redeemable preferred stock conversions                                   |   |                                    | 719      |   |   | 1,130 |   |   | 3,287 |   |
| Exercise                of stock options and other (Note 8)                                         |   |                                    | 4,582    |   |   | 1,635 |   |   | 2,607 |   |
| Shares                issued in equity offering                                                     |   |                                    | -        |   |   | 85,407 |   |   | - |   |
| Restricted                stock unit grants                                                         |   |                                    | -        |   |   | 210 |   |   | 1,251 |   |
| Issuance                of stock warrants (Note 4)                                                  |   |                                    | -        |   |   | 188 |   |   | 6,220 |   |
| Dividends                on preferred stock and amortization of issuance cost                       |   |                                    | (1,620   | ) |   | (1,642 | ) |   | (1,738 | ) |
| Balance                at end of year                                                               |   |                                    | 410,139  |   |   | 406,458 |   |   | 319,530 |   |
|                                                                                                |   |                                    |     |   |   |   |   |   |   |   |
| **Unamortized                value of restricted stock units:**                                     |   |                                    |     |   |   |   |   |   |   |   |
| Balance                beginning of year                                                            |   |                                    | (619     | ) |   | (955 | ) |   | (151 | ) |
| Deferred                compensation associated with restricted stock units (Note                1) |   |                                    | -        |   |   | (210 | ) |   | (1,251 | ) |
| Amortization                of related deferred compensation                                        |   |                                    | 509      |   |   | 546 |   |   | 447 |   |
| Balance                end of year                                                                  |   |                                    | (110     | ) |   | (619 | ) |   | (955 | ) |
|                                                                                                |   |                                    |     |   |   |   |   |   |   |   |
| **Accumulated                Deficit:**                                                             |   |                                    |     |   |   |   |   |   |   |   |
| Balance                at beginning of year                                                         |   |                                    | (412,359 | ) |   | (360,688 | ) |   | (329,770 | ) |
| Net                (loss)                                                                           |   |                                    | (39,712  | ) |   | (51,671 | ) |   | (30,918 | ) |
| Balance                at end of year                                                               |   |                                    | (452,071 | ) |   | (412,359 | ) |   | (360,688 | ) |
|                                                                                                |   |                                    |     |   |   |   |   |   |   |   |
| **Common                Stock Held in Treasury:**                                                   |   |                                    |     |   |   |   |   |   |   |   |
| Balance                at beginning of year representing, 2,345,759 in 2005                         |   |                                    |     |   |   |   |   |   |   |   |
| 2,302,068                shares in 2004 and 2,295,900 shares in 2003                                |   |                                    | (43,293  | ) |   | (42,672 | ) |   | (42,597 | ) |
| Tender                of 82,362 shares in 2005, 43,691 shares in 2004 and 6,168                     |   |                                    |     |   |   |   |   |   |   |   |
| shares                in 2003 associated with the exercise of stock options                         |   |                                    |     |   |   |   |   |   |   |   |
| and                the vesting of restricted stock                                                  |   |                                    | (1,526   | ) |   | (621 | ) |   | (75 | ) |
| Balance                at end of year representing 2,428,121 shares in 2005                         |   |                                    |     |   |   |   |   |   |   |   |
| 2,345,759                shares in 2004 and 2,302,068 shares in 2003                                |   |                                    | (44,819  | ) |   | (43,293 | ) |   | (42,672 | ) |
|                                                                                                |   |                                    |     |   |   |   |   |   |   |   |
| Total                stockholders’ deficit                                                    |   | $                                       | (86,590  | ) | $ | (49,546 | ) | $ | (84,593 | ) |

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Table of Contents

**McMoRan      EXPLORATION CO.**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

**Basis      of Presentation.**

**Nature      of Operations. **
** **

| ·   | labor                costs to operate the wells and related equipment and                facilities; |
|--------------------|------------------------------------------------------------------------------------------------------|

| ·   | repair                and maintenance costs, including costs associated with re-establishing                production from a geological structure that has previously produced; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | material,                supplies, and fuel consumed and services utilized in operating the                wells                and related equipment and facilities, including marketing and                transportation costs; and |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | property                taxes and insurance applicable to proved properties and wells and                related                equipment and facilities. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

**Use      of Estimates. **

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**Cash      and Cash Equivalents.**

**Accounts      Receivable.**

**Inventories.      **

**Property,      Plant and Equipment.**

| ·   | Geological                and geophysical costs and costs of retaining unproved properties                and                undeveloped properties are charged to expense as incurred and are                included                as a reduction of operating cash flow in the accompanying consolidated                statements of cash flow. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Costs                of exploratory wells are capitalized pending determination of whether                they                have discovered proved reserves. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *   | The                costs of exploratory wells that have found oil and natural gas reserves                that cannot be classified as proved when drilling is completed continue                to                be capitalized as long as the well has found a sufficient quantity                of                reserves to justify its completion as a producing well and sufficient                progress is being made in assessing the proved reserves and the economic                and operating viability of the project. Management evaluates progress                on                such wells on a quarterly basis. |
|---------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *   | If                proved reserves are not discovered the related drilling costs are                charged                to exploration expense. |
|---------------|---------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Acquisition                costs of leases and development activities are                capitalized. |
|--------------------|-------------------------------------------------------------------------------------------------------|

| ·   | Other                exploration costs are charged to expense as incurred. |
|--------------------|----------------------------------------------------------------------------|

| ·   | Depletion,                depreciation and amortization expense is determined on a field-by-field                basis using the units-of-production method with depletion rates for                leasehold acquisition costs based on estimated proved reserves and                depletion, depreciation and amortization rates for well and related                facility costs based on proved developed reserves associated with                each                field. The depletion, depreciation and amortization rates are changed                whenever there is an indication of the need for a revision but, at                a                minimum, such rates are revised once every year; those revisions                are                accounted for prospectively as a change in accounting estimate. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Gains                or losses from dispositions of McMoRan’s interests in oil and gas                properties are included in earnings under the following                conditions: |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *   | All                or part of an interest owned is sold to an unrelated third party;                if only                part of an interest is sold, there is no substantial uncertainty                about the                recoverability of cost applicable to the interest retained;                and |
|---------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *   | McMoRan                has no substantial obligation for future performance (e.g, drilling                a                well(s) or operating the property without proportional reimbursement                of                costs relating to the interest                sold). |
|---------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Interest                expense allocable to significant unproved leasehold costs and in                progress                exploration and development projects is capitalized until the assets                are                ready for their intended use. Interest expense capitalized by McMoRan                totaled $2.1 million in 2005 and $0.9 million in 2004. No interest                was                capitalized during 2003. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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** **

**Restricted      investments and cash. **

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Table      of Contents

**Revenue        Recognition. **

**Service      Revenue. **

**Major      Customers.**

**Accounting      Change - Reclamation and Closure Costs.**

*Accounting      for Asset Retirement Obligations*

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Table        of Contents

**Financial      Instruments and Contracts. **
*“Accounting      for Derivative Instruments and Hedging Activities*
*”*

**Share      Purchase Program. **

**Restricted      Stock Units. **

**Earnings      Per Share.**

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|                                                                               |   | Years                Ended December 31, |   |
|------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|
|                                                                               |   | 2005                                    |   | 2004 |   | 2003 |   |
|                                                                               |   |                                    |   |   |   |   |   |   |   |   |
| In-the-money                stock options a                ,b                 |   |                                    | 1,336  |   |   | 2,243 |   |   | 2,607 |   |
| Shares                issuable upon exercise of stock warrants a                ,c |   |                                    | 1,800  |   |   | 1,654 |   |   | 1,373 |   |
| Shares                issuable upon assumed conversion of                          |   |                                    |   |   |   |   |   |   |   |   |
| 6%                Convertible Senior Notes d                                       |   |                                    | 9,123  |   |   | 9,123 |   |   | 9,123 |   |
| Shares                issuable upon assumed conversion of                          |   |                                    |   |   |   |   |   |   |   |   |
| 5¼%                Convertible Senior Notes e                                 |   |                                    | 8,446  |   |   | 8,446 |   |   | N/A |   |

| a.   | McMoRan                uses the treasury stock method to determine the amount of in-the-money                stock options and stock warrants to include in its diluted earnings                per                share calculation. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.   | Represents                stock options with an exercise price less than the average market                price                for McMoRan’s common stock for the periods                presented. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c.   | Includes                stock warrants issued to K1 USA Energy Production Corporation in                December                2002 (1.74 million shares) and September 2003 (0.76 million shares).                The                warrants are exercisable for McMoRan common stock at any time over                their                respective five-year terms at an exercise price of $5.25 per share                (Note                4). |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| d.   | Amount                represents total equivalent common stock shares assuming conversion                of 6%                convertible senior notes. In 2003, the amount would have been reduced                if                included in the diluted earning per share calculation to reflect                the                period the notes were outstanding, 183 days (July 2 - December 31,                2003).                The amount that would have otherwise been included in the diluted                earning                per share calculation for 2003 was 4,574,000 equivalent common stock                shares. Net                interest expense on the 6% convertible senior notes totaled $8.1                million                during 2005, $8.5 million in 2004 and $4.6 million for                2003. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| e.   | Amount                represents total equivalent common stock shares assuming conversion                of 5¼%                convertible senior notes. The amount would have been reduced in 2004                if                included in the diluted earning per share calculation to reflect                the                period the notes were outstanding, 87 days (October 6 - December                31,                2004). The amount that would have otherwise been included in the                diluted                earning per share calculation in 2004 was 2,013,000 equivalent common                stock shares. Net interest expense on the 5¼% convertible senior notes                totaled $7.2 million during 2005 and $1.8 million in                2004. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Stock-Based      Compensation Plans.**
*Accounting      for Stock Issued to Employees*
*Accounting      for Stock-Based Compensation*
** **

|                                                                                           | Years                Ended December 31, |    |
|------------------------------------------------------------------------------------------------|-----------------------------------------|---------|
|                                                                                           | 2005                                    |    | 2004 |   | 2003 |   |
| Basic                net loss applicable to common stock, as reported                          | $                                       | (41,332 | ) | $ | (53,313 | ) | $ | (32,656 | ) |
| Add:                Stock-based employee compensation expense recorded in                      |                                    |    |   |   |   |   |   |   |   |
| net                income for restricted                stock units and employee stock options |                                    | 1,366   |   |   | 826 |   |   | 2,201 |   |
| Deduct:                Total stock-based employee compensation expense                         |                                    |    |   |   |   |   |   |   |   |
| determined                under fair value based method for all awards                         |                                    | (11,438 | ) |   | (8,346 | ) |   | (7,199 | ) |
| Pro                forma diluted net loss applicable to common stock                           | $                                       | (51,404 | ) | $ | (60,833 | ) | $ | (37,654 | ) |
|                                                                                           |                                    |    |   |   |   |   |   |   |   |
| Net                loss per share:                                                             |                                    |    |   |   |   |   |   |   |   |
| Basic                and diluted - as reported                                                 | $                                       | (1.68   | ) | $ | (2.83 | ) | $ | (1.97 | ) |
| Basic                and diluted - pro forma                                                   | $                                       | (2.09   | ) | $ | (3.23 | ) | $. | (2.27 | ) |
|                                                                                           |                                    |    |   |   |   |   |   |   |   |

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Table      of Contents

|                                                   | Years                Ended December 31, |   |
|--------------------------------------------------------|-----------------------------------------|--------|
|                                                   | 2005                                    |   | 2004 |   | 2003 |   |
| Fair                value (per share) of stock options | $                                       | 11.45  |   | $ | 11.00 |   | $ | 8.14 |   |
| Risk                free interest rate                 |                                    | 4.5    | % |   | 3.9 | % |   | 3.6 | % |
| Expected                volatility rate                |                                    | 61     | % |   | 65 | % |   | 66 | % |
| Expected                life of options (in years)     |                                    | 7      |   |   | 7 |   |   | 7 |   |
| Assumed                annual dividend                 |                                    | -      |   |   | - |   |   | - |   |

**New      Accounting Standards.**

**2.      OIL & GAS EXPLORATION ACTIVITIES**

**Acreage      **

** **

|                                |  Number                of Leases | GrossAcres | Net                Acres |
|-------------------------------------|---------------------------------------|------------|--------------------------|
| At                December 31, 2005 | 361                                   | 300,000    | 123,000                  |

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Table of Contents

**Exploration      Funding Arrangements**

**3.      MAIN PASS ENERGY HUB**
**TM**

**      PROJECT**

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Table      of Contents

**4.      PROPERTY, PLANT AND EQUIPMENT, OTHER ASSETS AND OTHER      LIABILITIES**

|                                                                |   | December                31, |     |
|---------------------------------------------------------------------|--------|-----------------------------|----------|
|                                                                |   | 2005                        |     | 2004 |   |
| Oil                and gas property, plant and equipment            |   | $                           | 327,870  |   | $ | 265,896 |   |
| Other                                                               |   |                        | 56       |   |   | 56 |   |
|                                                                |   |                        | 327,926  |   |   | 265,952 |   |
| Accumulated                depletion, depreciation and amortization |   |                        | (135,529 | ) |   | (168,690 | ) |
| Property,                plant and equipment, net                   |   | $                           | 192,397  |   | $ | 97,262 |   |

**Reversionary      Interests**

**Sale      of Main Pass Oil Facilities to Joint Venture**

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Table      of Contents

**Other          assets and liabilities**

|                                                             |   | December                31, |   |
|------------------------------------------------------------------|--------|-----------------------------|--------|
|                                                             |   | 2005                        |   | 2004 |   |
| Retiree                medical liability (Note 8)                |   | $                           | 4,812  |   | $ | 4,851 |   |
| Accrued                workers compensation and group insurance  |   |                        | 2,050  |   |   | 2,048 |   |
| Sulphur-related                environmental liability (Note 11) |   |                        | 3,161  |   |   | 3,161 |   |
| Defined                benefit pension plan liability (Note 8)   |   |                        | 1,953  |   |   | 1,806 |   |
| Nonqualified                pension plan liability               |   |                        | 849    |   |   | 663 |   |
| Deferred                compensation and other                   |   |                        | 346    |   |   | 379 |   |
| Liability                for management services (Note 10)       |   |                        | 2,719  |   |   | 3,233 |   |
| Discontinued                operations liabilities               |   |                        | -      |   |   | 570 |   |
|                                                             |   | $                           | 15,890 |   | $ | 16,711 |   |

**5.      LONG-TERM DEBT and EQUITY OFFERING **

**5¼%      Convertible Senior Notes and Equity Offering**

**6%      Convertible Senior Notes**

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Table      of Contents

**6.      MANDATORILY REDEEMABLE PREFERRED STOCK **

**7.      DISCONTINUED OPERATIONS**

|                                                      |   | Years                Ended December 31, |   |
|-----------------------------------------------------------|--------|-----------------------------------------|--------|
|                                                      |   | 2005                                    |   | 2004 |   | 2003 |   |
| Sulphur                retiree costs a                    |   |                                    | (2,513 | ) |   | (2,777 | ) |   | 2,133 |   |
| Legal                expenses                             |   |                                    | 387    |   |   | 1,629 | b |   | 692 |   |
| Caretaking                costs                           |   |                                    | 1,476  |   |   | 1,055 |   |   | 1,162 |   |
| Accretion                expense - sulphur                |   |                                    |   |   |   |   |   |   |   |   |
| reclamation                obligations c                  |   |                                    | 7,205  | d |   | 634 |   |   | 529 |   |
| Insurance                                                 |   |                                    | 1,030  |   |   | (384 | )e |   | 509 |   |
| General                and administrative                 |   |                                    | 196    |   |   | 284 |   |   | 304 |   |
| Other                                                     |   |                                    | 461    | f |   | (802 | )g |   | 5,904 | h |
| (Income)                loss from discontinued operations |   | $                                       | 8,242  |   |   | (361 | ) |   | 11,233 |   |

| a.   | Reflects                postretirement benefit costs associated with certain former sulphur                employees (Notes 8 and 11). Amount during 2005 reflects $3.5 million                reduction in a contractual liability (Note 11) primarily reflecting                the                expected future benefit associated with the initiation of the federal                prescription drug program. The 2004 amount reflects a $5.2 million                reduction in a contractual liability reflecting a decrease in the                number                of participants in the plan and certain plan amendments made by the                Plan                sponsor. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.   | Increase                primarily reflects the costs associated with the litigation involving                reclamation activities at Main Pass. The case was settled in July                2004                (see “Sulphur Reclamation Obligations”below). |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c.   | Reflects                adoption of SFAS 143 “Accounting for Asset Retirement Obligations on                January 1, 2003 (Notes 1 and 11). |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

| d.   | Includes                a $6.5 million charge to expense in fourth quarter of 2005 reflecting                a                modification of McMoRan’s prior reclamation plan for its remaining                facilities at Port Sulphur. McMoRan currently is considering various                accelerated closure alternatives under its reclamation plans regarding                these facilities as a result of damages they sustained from Hurricanes                Katrina and Rita. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| e.   | During                2004, McMoRan reduced its estimated uninsured workers compensation                and                general liability claims following completion of an analysis of such                matters resulting in a $0.8 million reduction in the related accrued                liability. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| f.   | Includes                approximately $0.5 million of repair and related costs for the Port                Sulphur facilities following Hurricanes Katrina and Rita. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| g.   | Includes                  $0.3 million gain on the sale of material and supplies inventory                  that was                  charged to expense in June 2000, $0.3 million from the remediation                  of an                  environmental liability previously assumed (Note 11) and $0.2 million                  of                  sublease income from the sulphur railcars during the first quarter                  of                  2004. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| h.   | Primarily                reflects the $5.7 million estimated loss on the disposal of the sulphur                railcars, which were sold in early 2004 partially offset by the receipt                of                $0.3 million of insurance proceeds. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Exit      From Sulphur Business**

**Sulphur      Reclamation Obligations**

**8.      EMPLOYEE BENEFITS**

**Stock-Based      Awards.**
** **

|   Plan                                                                   |   | Authorized                amount of                stock-based awards |   | Shares                available for                grant at December                31, 2005 |
|------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------|
| 2005                Stock Incentive Plan (“the2005 Plan”)              |   | 3,500,00                                                              |   | 2,666,500                                                                                    |
| 2004                Director Compensation Plan (“2004 Directors Plan”) |   | 175,000                                                               |   | 146,908                                                                                      |
| 2003                Stock Incentive Plan (“the 2003 Plan”)             |   | 2,000,000                                                             |   | -                                                                                            |
| 2001                Stock Incentive Plan (“the 2001 Plan”)             |   | 1,250,000                                                             |   | 2,000                                                                                        |
| 2000                Stock Option Plan (“the 2000 Plan”)                |   | 600,000                                                               |   | 1,000                                                                                        |
| 1998                Stock Option Plan (“the 1998 Plan”)                |   | 775,000                                                               |   | 6,375                                                                                        |
| 1998                Stock Option Plan for Non Employee Directors                   |   |                                                                  |   |                                                                                         |
| (the                Directors Plan”)                                         |   | 75,000                                                                |   | 22,000                                                                                       |
| 1998                Adjusted Stock Award Plan                                      |   | 794,250                                                               |   | -                                                                                            |

----

Table        of Contents

|                              |   | 2005                     |   | 2004                        |   | 2003                     |
|-----------------------------------|--------|--------------------------|--------|-----------------------------|--------|--------------------------|
|                              |   | Number                of |   | Average                     |   | Number                of |   | Average |   | Number                of |   | Average |
|                              |   | Options                  |   | Option                Price |   | Options                  |   | Option                Price |   | Options |   | Option                Price |
| Beginning                of year  |   | 4,820,860                |   | $13.97                      |   |                     | 4,069,572 |   | $13.50 |   |   | 3,393,211 |   | $14.81 |   |
| Granted                           |   | 1,310,500                |   | 16.74                       |   |                     | 996,092 |   | 16.63 |   |   | 766,000 |   | 7.71 |   |
| Exercised                         |   | (255,699                 | )      | 13.32                       |   |                     | (82,220 | ) | 13.08 |   |   | (51,119 | ) | 11.92 |   |
| Expired/forfeited                 |   | (30,245                  | )      | 22.25                       |   |                     | (162,584 | ) | 18.97 |   |   | (38,520 | ) | 15.69 |   |
| End                of year        |   | 5,845,416                |   | 14.57                       |   |                     | 4,820,860 |   | 13.97 |   |   | 4,069,572 |   | 13.50 |   |
| Exercisable                at end |   |                     |   |                        |   |                     |   |   |   |   |   |   |   |   |   |
| of                year            |   | 4,167,393                |   |                        |   |                     | 3,401,607 |   |   |   |   | 2,925,891 |   |   |   |

|                             |                     |                      | Options                Outstanding |                     | Options                Exercisable |
|----------------------------------|--------------------------|---------------------------|------------------------------------|--------------------------|------------------------------------|
|                             |                     |                      |                               |                     | Weighted                           |   | Weighted |   |   |   | Weighted |
|                             |                     |                      |                               |                     | Average                            |   | Average |   |   |   | Average |
| Range                of Exercise |                     | Number                    |                               | Remaining                |                               | Option |   | Number |   | Option |
| Prices                           |                     | of                Options |                               | Life                     |                               | Price |   | Of                Options |   | Price |
| $3.88                            | to                $4.28  |                      | 32,000                             |                     | 6.4                years           |   | $                3.97 |   | 24,000 |   | $                3.97 |
| $6.17                to $7.52    |                     | 1,228,875                 |                               | 6.6                years |                               | 6.98 |   | 888,310 |   | 6.95 |
| $10.63                           | to                $15.78 |                      | 953,893                            |                     | 5.7                years           |   | 13.78 |   | 913,768 |   | 13.80 |
| $16.22                           | to                $22.14 |                      | 3,585,348                          |                     | 7.4                years           |   | 17.34 |   | 2,296,015 |   | 17.66 |
| $25.31                           |                     | 45,300                    |                               | 2.3                years |                               | 25.31 |   | 45,300 |   | 25.31 |
|                             |                     |                      | 5,845,416                          |                     |                               |   |   |   | 4,167,393 |   |   |

----

Table      of Contents

**Pension      Plans and Other Benefits.**

|                                                       | Pension                Benefits |   | Other                Benefits |   |
|------------------------------------------------------------|---------------------------------|--------|-------------------------------|--------|
|                                                       | 2005                            |   | 2004                          |   | 2005 |   | 2004 |   |
| Change                in benefit obligation:               |                            |   |                          |   |   |   |   |   |   |   |   |   |
| Benefit                obligation at the beginning of year | $                               | (5,145 | )                             | $      | (10,558 | ) | $ | (6,179 | ) | $ | (7,178 | ) |
| Service                cost                                |                            | -      |                          |   | - |   |   | (19 | ) |   | (21 | ) |
| Interest                cost                               |                            | (243   | )                             |   | (334 | ) |   | (358 | ) |   | (378 | ) |
| Change                in Plan payout assumptions           |                            | -      |                          |   | - |   |   | 369 |   |   | 130 |   |
| Actuarial                gains (losses)                    |                            | -      |                          |   | - |   |   | (596 | ) |   | 964 |   |
| Participant                contributions                   |                            | -      |                          |   | - |   |   | (153 | ) |   | (227 | ) |
| Benefits                paid                               |                            | 886    |                          |   | 5,747 |   |   | 636 |   |   | 531 |   |
| Benefit                obligation at end of year           |                            | (4,502 | )                             |   | (5,145 | ) |   | (6,300 | ) |   | (6,179 | ) |

| Change                in plan assets:                         |   |   |   |   |   |   |   |   |   |   |   |   |
|---------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Fair                value of plan assets at beginning of year |   | 3,339  |   |   | 8,941  |   |   | -      |   |   | -      |   |
| Return                on plan assets                          |   | 96     |   |   | 145    |   |   | -      |   |   | -      |   |
| Employer/participant                contributions             |   | -      |   |   | -      |   |   | 636    |   |   | 531    |   |
| Benefits                paid                                  |   | (886   | )      |   | (5,747 | )      |   | (636   | )      |   | (531   | )      |
| Fair                value of plan assets at end of year       |   | 2,549  |   |   | 3,339  |   |   | -      |   |   | -      |   |

| Funded                status                           |   | (1,953 | )      |   | (1,806 | )      |   | (6,300 | )      |   | (6,179 | )      |
|--------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Unrecognized                net actuarial gain         |   | -      |   |   | -      |   |   | 1,923  |   |   | 1,441  |   |
| Unrecognized                prior service cost         |   | -      |   |   | -      |   |   | (435   | )      |   | (113   | )      |
| Accrued                benefit cost                    | $      | (1,953 | )      | $      | (1,806 | )      | $      | (4,812 | )      | $      | (4,851 | )      |
|                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted-average                assumptions (percent): |   |   |   |   |   |   |   |   |   |   |   |   |
| Discount                rate                           |   | N/A    | a      |   | N/A    | a      |   | 5.5    |   |   | 6.00   |   |
| Expected                return on plan assets          |   | N/A    |   |   | N/A    |   |   | -      |   |   | -      |   |
| Rate                of compensation increase           |   | N/A    |   |   | N/A    |   |   | -      |   |   | -      |   |

| a.   | As                discussed above, McMoRan elected to terminate its defined benefit                pension                plan on June 30, 2000. McMoRan invests almost the entire amount of                its                plan asset portfolio in short-term fixed income securities, with                the                remainder invested in overnight money market                accounts. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Table of Contents

|                                               |   | Pension                Benefits |   | Other                Benefits |   |
|----------------------------------------------------|--------|---------------------------------|--------|-------------------------------|--------|
|                                               |   | 2005                            |   | 2004                          |   | 2003 |   | 2005 |   | 2004 |   | 2003 |   |
| Service                cost                        |   | $                               | -      |                          | $      | - |   | $ | - |   | $ | 19 |   | $ | 21 |   | $ | 26 |   |
| Interest                cost                       |   |                            | 243    |                          |   | 334 |   |   | 413 |   |   | 358 |   |   | 378 |   |   | 434 |   |
| Return                on plan assets               |   |                            | (96    | )                             |   | (145 | ) |   | (334 | ) |   | - |   |   | - |   |   | - |   |
| Amortization                of prior service costs |   |                            | -      |                          |   | - |   |   | - |   |   | (47 | ) |   | (13 | ) |   | 1 |   |
| Recognition                of net actuarial loss   |   |                            | -      |                          |   | - |   |   | - |   |   | 114 |   |   | 95 |   |   | 154 |   |
| Net                periodic benefit cost           |   | $                               | 147    |                          | $      | 189 |   | $ | 79 |   | $ | 444 |   | $ | 481 |   | $ | 615 |   |

**9.      INCOME TAXES**

|                                                                          |   | December                31,  |     |
|-------------------------------------------------------------------------------|--------|-----------------------------------|----------|
|                                                                          |   | 2005                              |     | 2004 |   |
| Net                operating loss carryforwards (expire 2006-2025)            |   | $                                 | 155,490  |   | $ | 157,741 |   |
| Property,                plant and equipment                                  |   |                              | 30,330   |   |   | 21,350 |   |
| Reclamation                and shutdown reserves                              |   |                              | 13,662   |   |   | 10,173 |   |
| Deferred                compensation, postretirement and pension benefits and |   |                              |     |   |   |   |   |
| accrued                liabilities                                            |   |                              | 9,170    |   |   | 10,138 |   |
| Other                                                                         |   |                              | 6,449    |   |   | 5,748 |   |
| Less                valuation allowance                                       |   |                              | (215,101 | ) |   | (205,150 | ) |
| Net                deferred tax asset                                         |   | $                                 | -        |   | $ | - |   |

----

Table of Contents

|                                       | 2005   |   | 2004     |   | 2003   |    |
|--------------------------------------------|--------|--------|----------|--------|--------|---------|
|                                       | Amount |   | Percent  |   | Amount |    | Percent |   | Amount |   | Percent |   |
| Income                tax benefit computed |   |   |     |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |
| at                the federal statutory    |   |   |     |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |
| income                tax rate             | $      | 13,899 |     |   | 35     | %       | $ | 18,085 |   |   | 35 | % | $ | 10,821 |   |   | 35 | % |
| Change                in valuation         |   |   |     |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |
| allowance                                  |   | (9,951 | )        |   | (25    | )       |   | (17,664 | ) |   | (35 | ) |   | (10,878 | ) |   | (35 | ) |
| State                taxes and other       |   | (3,948 | )a  |   | (10    | )       |   | (421 | ) |   | - |   |   | 56 |   |   | - |   |
| Income                tax provision        | $      | -      |     |   | -      |  % | $ | - |   |   | - | % | $ | (1 | )b |   | - | % |

**10.      TRANSACTIONS WITH AFFILIATES**
** **

**11.      COMMITMENTS AND CONTINGENCIES**

**Commitments.**

**Long-Term      Contracts and Operating Leases. **

**Other      Liabilities.**

----

Table      of Contents

**Environmental      and Reclamation.**

|                                                              | Years                Ended December 31, |   |
|-------------------------------------------------------------------|-----------------------------------------|--------|
|                                                              | 2005                                    |   | 2004 |   |
| **Oil                and Natural Gas**                            |                                    |   |   |   |   |   |
| Asset                retirement obligation at beginning of year   | $                                       | 14,429 |   | $ | 7,273 |   |
| Liabilities                settled                                |                                    | (4     | ) |   | (288 | ) |
| Accretion                expense                                  |                                    | 1,442  |   |   | 487 |   |
| Incurred                liabilities                               |                                    | 6,978  | a |   | 6,399 | b |
| Revision                for changes in estimates                  |                                    | (1,085 | ) |   | 558 |   |
| Asset                retirement obligations at end of year        | $                                       | 21,760 |   | $ | 14,429 |   |
|                                                              |                                    |   |   |   |   |   |
| **Sulphur**                                                       |                                    |   |   |   |   |   |
| Asset                retirement obligations at beginning of year: | $                                       | 14,636 |   | $ | 14,001 |   |
| Liabilities                settled                                |                                    | (55    | ) |   | - |   |
| Accretion                expense                                  |                                    | 960    |   |   | 868 |   |
| Revision                for changes in estimates                  |                                    | 6,245  | c |   | (233 | ) |
| Asset                retirement obligation at end of year         | $                                       | 21,786 |   | $ | 14,636 |   |

| a.   | Includes                $3.9 million reclamation liability assumed in connection with the                termination of the overriding royalty interest in Main Pass’ oil                production (Note 4). Also includes $2.2 million of assumed reclamation                liabilities related to interests in properties which reverted to                McMoRan                effective June 1, 2005 (Note 4). The remaining amount reflects estimated                reclamation liabilities associated with our discoveries that commenced                production in 2005. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.   | Includes                $5.9 million assumed liability related to McMoRan’s acquisition of K-Mc I                in December 2004 (Note 4). |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------|

| c.   | Revisions                primarily reflect changes in estimated timing of reclamation work                at Port                Sulphur (Note 7). Accretion expense within discontinued operations                includes amounts associated with revision for changes in estimates                because                there are no related property, plant and equipment amounts associated                with                the sulphur reclamation                obligations. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Litigation.      **
** **

----

Table      of Contents

**12.      SUPPLEMENTARY OIL AND GAS INFORMATION **
*“Disclosures      about Oil and Gas Producing Activities.” *

**Oil      and Gas Capitalized Costs.**

|                                                          |   | Years                Ended December                31,  |     |
|---------------------------------------------------------------|--------|--------------------------------------------------------------|----------|
|                                                          |   | 2005                                                         |     | 2004 |   |
|                                                          |   | (In                Thousands)                                |     |
| Unproved                properties a                          |   | $                                                            | 36,429   |   | $ | 47,369 |   |
| Proved                properties                              |   |                                                         | 291,441  |   |   | 218,527 |   |
| Subtotal                                                      |   |                                                         | 327,870  |   |   | 265,896 |   |
| Less                accumulated depreciation and amortization |   |                                                         | (135,529 | ) |   | (168,690 | ) |
| Net                oil and gas properties                     |   | $                                                            | 192,341  |   | $ | 97,206 |   |

| a.   | Includes                costs associated with in-progress wells and wells not fully evaluated,                including related leasehold acquisition costs, totaling $21.1 million                at                December 31, 2005 and $39.8 million at December 31, 2004. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Costs      Incurred in Oil and Natural Gas Property Acquisition, Exploration and      Development Activities. **

|                                      |   | Years                Ended December 31, |    |
|-------------------------------------------|--------|-----------------------------------------|---------|
|                                      |   | 2005                                    |    | 2004 |   | 2003 |   |
|                                      |   | (In                Thousands)           |    |
| Acquisition                of properties: |   |                                    |    |   |   |   |   |   |   |   |
| Proved                                    |   | $                                       | -       |   | $ | 12,375 | a | $ | - |   |
| Unproved                                  |   |                                    | 3,542   |   |   | 3,808 |   |   | - |   |
| Exploration                costs b        |   |                                    | 88,294  |   |   | 92,473 |   |   | 11,356 |   |
| Development                costs          |   |                                    | 90,617  | c |   | 5,408 | d |   | 7,558 |   |
|                                      |   | $                                       | 182,453 |   | $ | 114,064 |   | $ | 18,914 |   |

| a.   | Amount                reflects the acquisition of the remaining 66.7 percent equity interest                in                K-Mc I in December 2004 (Note 4). |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.   | Amounts                include in progress wells and wells not fully evaluated totaling                $21.1                million at December 31, 2005 and $39.8 million at December 31,                2004. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

| c.   | Includes                the development costs associated with McMoRan’s development wells                including the Eugene Island Block 193 (Deep Tern) C-1 sidetrack well,                the                the Vermilion Blocks 16/17 (King Kong) Nos. 2 and 3 wells, the South                Marsh                Island Block 217 (Hurricane) No. 2 well and the Louisiana State Lease                18090 (Long Point) No. 2 well. Also includes the development costs                related                to McMoRan’s successful exploratory wells including Eugene Island Block                213 (Minuteman), the King Kong No. 1 well, the Long Point No. 1 well,                the                Hurricane No. 1 well and West Cameron Block 43 No. 3 and 4 wells. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| d.   | Includes                the development costs associated with the Deep Tern C-2 and Hurricane                No.                1 exploratory wells. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                 | Years                Ended December 31, |     |
|----------------------------------------------------------------------|-----------------------------------------|----------|
|                                                                 | 2005                                    |     | 2004 |   | 2003 |   |
| Beginning                of year                                     | $                                       | 39,270   |   | $ | 2,082 |   | $ | - |   |
| Additions                to capitalized exploratory well             |                                    |     |   |   |   |   |   |   |   |
| costs                pending determination of proved reserves        |                                    | 163,638  |   |   | 77,807 |   |   | 6,447 |   |
| Reclassifications                to wells, facilities, and equipment |                                    |     |   |   |   |   |   |   |   |
| based                on determination of proved reserves             |                                    | (136,465 | ) |   | (19,249 | ) |   |   |   |
| Amounts                charged to exploration expense                |                                    | (46,824  | ) |   | (21,370 | ) |   | (4,365 | ) |
| End                of year                                           | $                                       | 19,619   |   | $ | 39,270 |   | $ | 2,082 |   |

**Proved      Oil and Natural Gas Reserves (Unaudited).**

|                                           | Oil    |   | Natural                Gas |   |
|------------------------------------------------|--------|--------|----------------------------|--------|
|                                           | 2005   |   | 2004                       |   | 2003 |   | 2005 |   | 2004 |   | 2003 |   |
| **Proved                reserves:**            |   |   |                       |   |   |   |   |   |   |   |   |   |
| Beginning                of year               | 4,789  |   | 547                        |   | 579 |   | 21,187 |   | 13,567 |   | 13,983 |   |
| Revisions                of previous estimates | 1,137  |   | 96                         |   | 92 |   | (2,150 | ) | 833 |   | 1,595 |   |
| Discoveries                and extensions      | 1,602  | a      | 112                        | b      | - |   | 27,845 | a | 10,720 | b | - |   |
| Production                                     | (850   | )      | (62                        | )      | (124 | ) | (7,938 | ) | (1,979 | ) | (2,011 | ) |
| Sale                of reserves                | -      |   | (66                        | )      | - |   | - |   | (2,236 | ) | - |   |
| Purchase                of reserves            | 453    | c      | 4,162                      | d      | - |   | - |   | 282 |   | - |   |
| End                of year                     | 7,131  |   | 4,789                      |   | 547 |   | 38,944 |   | 21,187 |   | 13,567 |   |
|                                           |   |   |                       |   |   |   |   |   |   |   |   |   |

----

Table of Contents

|   | Oil  |   | Natural                Gas |   |
|--------|------|--------|----------------------------|--------|
|   | 2005 |   | 2004                       |   | 2003 |   | 2005 |   | 2004 |   | 2003 |

| **Proved                developed reserves:** |   |   |   |   |   |   |   |   |   |   |   |   |
|-----------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Beginning                of year              | 4,640  |   | 389    |   | 412    |   | 14,765 |   | 8,074  |   | 8,822  |   |
| End                of year                    | 6,248  |   | 4,640  |   | 389    |   | 29,101 |   | 14,765 |   | 8,074  |   |
| Equity                in proved reserves of   |   |   |   |   |   |   |   |   |   |   |   |   |
| unconsolidated                affiliate d     | -      |   | -      |   | 1,561  |   | -      |   | -      |   | -      |   |

| a.   | The                estimated proved reserves include 3,363 MMcf of natural gas and 80                MBbls                of oil associated with the reversions of interest to McMoRan from                properties it sold in 2002 (Note                4). |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.   | Amount                includes 2,587 MMcf of natural gas related to McMoRan’s elections at the                West Cameron Block 616 field following payout of the field in September                2004 (Note 4). |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c.   | In                February 2005, McMoRan negotiated the termination of an overriding                royalty/net profit interest in the oil production at Main Pass by                assuming                a reclamation obligation at the field (Notes 4 and 11). |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| d.   | Represents                McMoRan’s acquisition of the remaining 66.7 percent equity ownership of                K-Mc I, which owns the oil operations at Main Pass (Note 4) |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Standardized      Measure of Discounted Future Net Cash Flows From Proved Oil and Natural Gas      Reserves (Unaudited).**

|                                                                               |   | December                31,  |     |
|------------------------------------------------------------------------------------|--------|-----------------------------------|----------|
|                                                                               |   | 2005                              |     | 2004 |   |
|                                                                               |   | (In                Thousands)     |     |
| Future                cash inflows                                                 |   | $                                 | 789,503  |   | $ | 314,453 |   |
| Future                costs applicable to future cash flows:                       |   |                              |     |   |   |   |   |
| Production                costs                                                    |   |                              | (226,668 | ) |   | (144,900 | ) |
| Development                and abandonment costs                                   |   |                              | (79,077  | ) |   | (30,850 | ) |
| Future                income taxes                                                 |   |                              | (6,765   | ) |   | - |   |
| Future                net cash flows                                               |   |                              | 476,993  |   |   | 138,703 |   |
| Discount                for estimated timing of net cash flows (10% discount rate) |   |                              | (93,854  | )a |   | (21,414 | ) |
|                                                                               |   | $                                 | 383,139  |   | $ | 117,289 |   |
|                                                                               |   |                              |     |   |   |   |   |

| a.   | Amount                reflects application of required 10 percent discount rate to both                the                estimated future income taxes and estimated future net cash flows                associated with production of the estimated proved                reserves. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table      of Contents

**Changes      in Standardized Measure of Discounted Future Net Cash Flows From Proved Oil      and      Natural Gas Reserves (Unaudited).**

|                                                                     |   | Years                Ended December 31, |    |
|--------------------------------------------------------------------------|--------|-----------------------------------------|---------|
|                                                                     |   | 2005                                    |    | 2004 |   | 2003 |   |
|                                                                     |   | (In                Thousands)           |    |
| Beginning                of year                                         |   | $                                       | 117,289 |   | $ | 52,702 |   | $ | 40,487 |   |
| Revisions:                                                               |   |                                    |    |   |   |   |   |   |   |   |
| Changes                in prices                                         |   |                                    | 70,657  |   |   | 6,271 |   |   | 19,174 |   |
| Accretion                of discount                                     |   |                                    | 11,729  |   |   | 5,270 |   |   | 4,049 |   |
| Change                in reserve quantities                              |   |                                    | (15,051 | ) |   | 3,205 |   |   | 7,310 |   |
| Other                changes, including revised estimates of development |   |                                    |    |   |   |   |   |   |   |   |
| costs                and rates of production                             |   |                                    | 9,204   |   |   | (5,967 | ) |   | (12,005 | ) |
| Discoveries                and extensions, less related costs            |   |                                    | 257,432 | a |   | 59,195 | b |   | - |   |
| Development                costs incurred during the year                |   |                                    | 8,640   |   |   | 2,112 |   |   | 2,685 |   |
| Change                in future income taxes                             |   |                                    | (4,445  | ) |   | - |   |   | - |   |
| Revenues,                less production costs                           |   |                                    | (88,607 | ) |   | (10,126 | ) |   | (8,998 | ) |
| Sale                of reserves in place                                 |   |                                    | -       |   |   | (11,477 | ) |   | - |   |
| Purchase                of reserves in place                             |   |                                    | 16,291  | c |   | 16,104 | d |   | - |   |
| End                of year                                               |   | $                                       | 383,139 |   | $ | 117,289 |   | $ | 52,702 |   |

| a.   | Amount                includes $65.5 million relating to the reversion of interests to                McMoRan                in properties it sold in February 2002 (Note                4). |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.   | Amount                also includes $13.2 million relating to McMoRan’s elections associated                with the West Cameron Block 616 field in September 2004 (Note                4). |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c.   | Reflects                the termination of an overriding royalty/net profit interest in the                oil                production at Main Pass (Note 4). |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| d.   | Primarily                reflects the acquisition of the remaining 66.7 percent equity ownership                in                K-Mc I in December 2004 (Note 4). |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**13.      QUARTERLY FINANCIAL INFORMATION (UNAUDITED)**

|                       |   |                                                    |    | Operating |   | Net                     |   | Net                Income       |    |
|----------------------------|--------|---------------------------------------------------------|---------|-----------|--------|-------------------------|--------|---------------------------------|---------|
|                       |   |                                                    |    | Income    |   | Income                  |   | (Loss)                per Share |    |
|                       |   | Revenues                                                |    | (Loss)    |   | (Loss)                a |   | Basic                           |    | Diluted |   |
|                       |   | (In                Thousands, Except Per Share Amounts) |    |
| 2005                       |   |                                                    |    |      |   |                    |   |                            |    |   |   |   |   |   |   |   |
| 1st                Quarter |   | $                                                       | 14,667  |      | $      | (2,116                  | )b     | $                               | (5,744  | ) | $ | (0.24 | ) | $ | (0.24 | ) |
| 2nd                Quarter |   |                                                    | 33,952  | c         |   | (12,218                 | )d     |                            | (16,233 | ) |   | (0.66 | ) |   | (0.66 | ) |
| 3rd                Quarter |   |                                                    | 44,265  |      |   | 11,251                  | e      |                            | 6,746   |   |   | 0.27 |   |   | 0.21 |   |
| 4th                Quarter |   |                                                    | 37,243  |      |   | (19,290                 | )f     |                            | (26,101 | )g |   | (1.06 | ) |   | (1.06 | ) |
|                       |   | $                                                       | 130,127 |      | $      | (22,373                 | )      | $                               | (41,332 | ) |   |   |   |   |   |   |

| 2004                       |   |   |   |   |   |    |   |   |    |   |   |   |   |   |   |   |
|----------------------------|--------|--------|--------|--------|--------|---------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|
| 1st                Quarter |   | $      | 4,110  |   | $      | (9,078  | )h     | $      | (13,256 | )      | $      | (0.78  | )      | $      | (0.78  | )      |
| 2nd                Quarter |   |   | 9,435  | i      |   | (7,594  | )j     |   | (11,239 | )      |   | (0.65  | )      |   | (0.65  | )      |
| 3rd                Quarter |   |   | 7,301  |   |   | (5,639  | )k     |   | (8,233  | )      |   | (0.48  | )      |   | (0.48  | )      |
| 4th                Quarter |   |   | 9,003  |   |   | (21,629 | )l     |   | (20,585 | )l     |   | (0.86  | )      |   | (0.86  | )      |
|                       |   | $      | 29,849 |   | $      | (43,940 | )      | $      | (53,313 | )      |   | (2.83  | )      |   | (2.83  | )      |
|                       |   |   |   |   |   |    |   |   |    |   |   |   |   |   |   |   |

| a.   | Reflects                net income (loss) attributable to common stock, which includes preferred                dividends and amortization of convertible preferred stock issuance                costs                as a reduction to net income                (loss). |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.   | Includes                $5.0 million insurance recovery associated with McMoRan’s business                interruption claims at Main Pass (Note 4). |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c.   | Reflects                production from fields/wells that either commenced or reestablished                production during the quarter including Main Pass in May 2005, the                Hurricane No. 1 well at South Marsh Island Block 217 in late March                2005                and Deep Tern C-1 at Eugene Island Block 193 in April 2005. Also                reflects                the reversion of interests to McMoRan effective June 1, 2005 in properties                it sold in February 2002 (Note 4). |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| d.   | Includes                nonproductive exploratory well drilling and related costs of $18.5                million, primarily reflecting $11.0 for the Little Bay well at Louisiana                State Lease 5097 and $6.9 million for the Korn well at South Timbalier                Blocks 97/98. Also includes an additional insurance recovery of $3.9                million associated with McMoRan’s Main Pass business interruption claims                (Note 4). |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| e.   | Includes                estimated damage repair costs totaling $2.8 million associated with                Hurricanes Katrina and Rita. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------|

| f.   | Includes                nonproductive exploratory well drilling and related costs of $18.0                million, primarily reflecting $10.8 million for the Cabin Creek well                at                West Cameron Block 95 and $5.9 million for the Elizabeth well at                South                Marsh Island Block 230. Amount also includes a $12.8 million net                charge to                expense for settlement of class action litigation (Note 11). |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| g.   | Includes                $6.5 million charge to expense for modification of previously estimated                reclamation costs for remaining facilities at Port Sulphur as a result                of                hurricane damages (Note 7). Also includes a $3.5 million reduction                in a                contractual obligation relating to certain former sulphur employees                (Note                11). |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| h.   | Includes                exploration expenses of $3.3 million, including $0.7 million of                nonproductive exploratory costs associated with the South Marsh Island                Block 217 (Hurricane) well and $4.3 million of start-up costs associated                with the MPEH™                project                (Note 3). |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| i.   | Includes                recognition of $6.0 million of a $12.0 million management fee paid                to                McMoRan in June 2004 (Note 2). McMoRan recorded $3.0 million of additional                service revenue in the third and fourth quarters of                2004. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| j.   | Includes                exploration expenses of $10.1 million, including nonproductive exploratory                well costs associated with the Vermilion Block 208 (Deep Lombardi)                well of                $6.8 million, and $1.7 million of MPEH™                start-up                costs. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| k.   | Includes                exploration expense totaling $3.2 million, including $1.5 million                of                nonproductive exploratory well costs for the East Cameron Block 137                (Poblano) well, and $2.7 million of MPEH™                start-up costs. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| l.   | Includes                a $0.8 million impairment charge to reduce the net book value of                the                Eugene Island Block 97 field to its estimated fair value at December                31,                2004. Also includes exploration expense totaling $20.2 million, including                $13.0 million of nonproductive exploratory well costs reflecting                $4.8                million for High Island Block 131 (King of the Hill), $2.0 million                for                Mustang Island Block 829 (Gandalf), $1.9 million for Poblano, $0.5                million                for drilling costs in excess of 15,500 feet at South Marsh Island                Block                217 (Hurricane Upthrown) and $3.8 million for the Vermilion Blocks                227/228                (Caracara) well that was evaluated as nonproductive in late January                2005.                Amount also includes $1.0 million impairment charge to write off                the                remaining unproved leasehold costs associated with the Eugene Island                Block                97 field. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Item      9. Changes in and Disagreements with Accountants      on Accounting and Financial Disclosure**

**Item      9A. Controls and Procedures**

**Item      9B. Other Information**

**PART      III**

**Item      10. Directors and Executive Officers of the      Registrant**

**Item      11. Executive Compensation**

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**Item      12. Security Ownership of Certain Beneficial      Owners and Management and Related Stockholders      Matters**

**Item      13. Certain Relationships and Related      Transactions**

**Item      14. Principal Accounting Fees and      Services**

**PART      IV**

**Item      15. Exhibits and Financial Statement      Schedules**

| (a)(2). | Financial                Statement Schedules.                Following is Schedule II - Valuation and Qualifying Accounts and                the                related Report of Independent Registered Public Accounting Firm.                All other                financial statement schedules are not required under the related                instructions or are inapplicable and therefore have been                omitted. |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (a)(3). | Exhibits.                Reference is made to the Exhibit Index beginning on page E-1                hereof. |
|---------|--------------------------------------------------------------------------------------------------------------|

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**Schedule      II - Valuation and Qualifying Accounts**

|                                |   |                          |   | Additions                 |   |                      |   |                   |   |
|-------------------------------------|--------|-------------------------------|--------|---------------------------|--------|---------------------------|--------|------------------------|--------|
|                                |   | Balance                at     |   | Charged                to |   | Charged                to |   | Other                - |   | Balance                at |   |
|                                |   | Beginning                     |   | Costs                and  |   | Other                     |   | Add                    |   | End                of |   |
|                                |   | of                Period      |   | Expense                   |   | Accounts                  |   | (Deduct)               |   | Period |   |
|                                |   | (In                Thousands) |   |
| Reclamation                and mine |   |                          |   |                      |   |                      |   |                   |   |   |   |   |   |   |   |   |
| shutdown                reserves:   |   |                          |   |                      |   |                      |   |                   |   |   |   |   |   |   |   |   |
| 2005                                |   |                          |   |                      |   |                      |   |                   |   |   |   |   |   |   |   |   |
| Sulphura                            |   | $                             | 14,636 |                      | $      | 960                       |   | $                      | -      |   | $ | 6,190 |   | $ | 21,786 |   |
| Oil                and gasb         |   |                          | 14,429 |                      |   | 1,442                     |   |                   | -      |   |   | 5,889 |   |   | 21,760 |   |
|                                |   | $                             | 29,065 |                      | $      | 2,402                     |   | $                      | -      |   | $ | 12,079 |   | $ | 43,546 |   |
| 2004                                |   |                          |   |                      |   |                      |   |                   |   |   |   |   |   |   |   |   |
| Sulphurc                            |   | $                             | 14,001 |                      | $      | 868                       |   | $                      | -      |   | $ | (233 | ) | $ | 14,636 |   |
| Oil                and gasd         |   |                          | 7,273  |                      |   | 487                       |   |                   | -      |   |   | 6,669 |   |   | 14,429 |   |
|                                |   | $                             | 21,274 |                      | $      | 1,355                     |   | $                      | -      |   | $ | 6,436 |   | $ | 29,065 |   |
|                                |   |                          |   |                      |   |                      |   |                   |   |   |   |   |   |   |   |   |
| 2003                                |   |                          |   |                      |   |                      |   |                   |   |   |   |   |   |   |   |   |
| Sulphur                e            |   | $                             | 38,547 |                      | $      | 826                       |   | $                      | -      |   | $ | (25,372 | ) | $ | 14,001 |   |
| Oil                and gas f        |   |                          | 7,994  |                      |   | 470                       |   |                   | -      |   |   | (1,191 | ) |   | 7,273 |   |
|                                |   | $                             | 46,541 |                      | $      | 1,296                     |   | $                      | -      |   | $ | (26,563 | ) | $ | 21,274 |   |

| a.   | McMoRan                adopted Statement of Financial Accounting Standards No. 143 “*Accounting                for Asset Retirement Obligations*”                (SFAS 143) effective January 1, 2003. Amounts include $0.9 million                of                accretion expense and $6.2 million increase in the SFAS 143 liabilities                at                December 31, 2005, primarily reflecting the modification of previously                estimated reclamation costs for the remaining facilities at Port                Sulphur,                Louisiana. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.   | Includes                $1.4 million of accretion expense. Also includes McMoRan assumption                of                reclamation obligations associated with Main Pass Block 299 ($3.9                million), the properties that reverted back to it effective June                1, 2005                ($2.2 million) and estimated amounts related to its discoveries in                2005                ($1.0 million) (Notes 4 and 11). McMoRan also reduced it estimated                reclamation costs by $1.1 million for some of its existing producing                properties because of changes in projected timing and                costs. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c.   | Amounts                include $0.8 million of accretion expense and $0.2 million reduction                of                the SFAS 143 liabilities at December 31, 2004, primarily reflecting                a                change in the projected timing of the Main Pass Phase II reclamation                activities. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| d.   | Includes                $0.5 million of accretion expense. Also includes assumption of reclamation                obligations associated with Main Pass Block 299 ($5.9 million) and                West                Cameron Block 616 ($0.5 million) (Notes 4 and 11), and a $0.2 million                increase in the remaining estimated oil and gas liabilities at December                31, 2004. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| e.   | Amounts                include $0.8 million of accretion charges, a $19.4 million reduction                of                the liabilities upon adoption of SFAS 143, $5.7 million of cost incurred                on Phase I Main Pass reclamation activities and a $0.3 million reduction                in the SFAS 143 liability of Main Pass at December 31, 2003 reflecting                changes in projected timing of certain reclamation activates. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| f.   | Includes                $0.5 million of accretion charges following adoption of SFAS 143,                a $0.1                million reduction of the reclamation liabilities upon adoption of                SFAS                143, $0.7 million of reclamation costs incurred at the Eugene Island                Blocks 193/208/215 field to remove structures that were damaged by                a                hurricane in 2002 and a $0.4 million reduction in the estimated future                SFAS 143 liabilities at December 31, 2003, reflecting changes in                the                projected timing of certain reclamation activities. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**SIGNATURES**

| *                                                          | Co-Chairman                of the Board                            |
|------------------------------------------------------------|--------------------------------------------------------------------|
| James                R. Moffett                            |                                                               |
|                                                       |                                                               |
| *                                                          | Co-Chairman                of the Board                            |
| Richard                C. Adkerson                         |                                                               |
|                                                       |                                                               |
| *                                                          | Vice                Chairman of the Board                          |
| B.M.                Rankin, Jr.                            |                                                               |
|                                                       |                                                               |
| *                                                          | Executive                Vice President                            |
| C.                Howard Murrish                           |                                                               |
|                                                       |                                                               |
| /s/                Glenn A. Kleinert                       | President                and Chief Executive Officer               |
| Glenn                A. Kleinert                           |                                                               |
|                                                       |                                                               |
| /s/                Nancy D. Parmelee                       | Senior                Vice President, Chief Financial Officer      |
| Nancy                D. Parmelee                           | and                Secretary                                       |
|                                                       | (Principal                Financial Officer)                       |
|                                                       |                                                               |
| *                                                          | Vice                President and Controller - Financial Reporting |
| C.                Donald Whitmire, Jr.                     | (Principal                Accounting Officer)                      |
|                                                       |                                                               |
| *                                                          | Director                                                           |
| Robert                A. Day                               |                                                               |
|                                                       |                                                               |
| *                                                          | Director                                                           |
| Gerald                J. Ford                              |                                                               |
|                                                       |                                                               |
| *                                                          | Director                                                           |
| H.                Devon Graham, Jr.                        |                                                               |
|                                                       |                                                               |
| *                                                          | Director                                                           |
| J.                Taylor Warton                            |                                                               |
|                                                       |                                                               |
| *By:                /s/                Richard C. Adkerson |                                                               |
| Richard                C. Adkerson                         |                                                               |
| Attorney-in-Fact                                           |                                                               |

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**McMoRan      Exploration Co.**

**Exhibit      Index**

**Exhibit      Number**

| 2.1    | Agreement                and Plan of Merger dated as of August 1, 1998. (Incorporated by reference                to Annex A to McMoRan’s Registration Statement on Form S-4 (Registration                No. 333-61171) filed with the SEC on October 6, 1998 (the McMoRan                S-4)).                                                                                                                                                                                                                                                             |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 3.1    | Amended                and Restated Certificate of Incorporation of McMoRan. (Incorporated                by                reference to Exhibit 3.1 to McMoRan’s 1998 Annual Report on Form 10-K (the                McMoRan 1998 Form 10-K)).                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 3.2    | Certificate                of Amendment to the Amended and Restated Certificate of Incorporation                of                McMoRan. (Incorporated by reference to Exhibit 3.2 of McMoRan’s                First-Quarter 2003 Form 10-Q).                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 3.3    | Amended                and Restated By-Laws of McMoRan as amended effective January 30,                2006.                (Incorporated by reference to Exhibit 3.3 to McMoRan’s Current Report on                Form 8-K dated January 30, 2006 (filed February 3, 2006).                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.1    | Form                of Certificate of McMoRan Common Stock (Incorporated by reference                to                Exhibit 4.1 of the McMoRan S-4).                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.2    | Rights                Agreement dated as of November 13, 1998. (Incorporated by reference                to                Exhibit 4.2 to McMoRan 1998 Form 10-K).                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.3    | Amendment                to Rights Agreement dated December 28, 1998. (Incorporated by reference                to                Exhibit 4.3 to McMoRan 1998 Form 10-K).                                                                                                                                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.4    | Standstill                Agreement dated August 5, 1999 between McMoRan and Alpine Capital,                L.P.,                Robert W. Bruce III, Algenpar, Inc, J. Taylor Crandall, Susan C.                Bruce,                Keystone, Inc., Robert M. Bass, the Anne T. and Robert M. Bass Foundation,                Anne T. Bass and The Robert Bruce Management Company, Inc. Defined                Benefit                Pension Trust. (Incorporated by reference to Exhibit 4.4 to McMoRan’s                Third Quarter 1999 Form 10-Q). |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.5    | Form                of Certificate of McMoRan 5% Convertible Preferred Stock (McMoRan                Preferred Stock). (Incorporated by reference to Exhibit 4.5 to McMoRan’s                Second Quarter 2002 Form 10-Q).                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.6    | Certificate                of Designations of McMoRan Preferred Stock. (Incorporated by reference                to                Exhibit 4.6 to McMoRan’s Third-Quarter 2002 Form 10-Q).                                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.7    | Warrant                to Purchase Shares of Common Stock of McMoRan dated December 16,                2002.                (Incorporated by reference to Exhibit 4.7 to McMoRan’s 2002 Form                10-K).                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.8    | Warrant                to Purchase Shares of Common Stock of McMoRan dated September 30,                2003.                (Incorporated by reference to Exhibit 4.8 to McMoRan’s 2003 Form                10-K),                                                                                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.9    | Registration                Rights Agreement dated December 16, 2002 between McMoRan and K1 USA                Energy                Production Corporation. (Incorporated by reference to Exhibit 4.8                to                McMoRan’s 2002 Form 10-K).                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.10   | Indenture                dated as of July 2, 2003 by and between McMoRan and The Bank of New                York,                as trustee. (Incorporated by reference to Exhibit 4.9 to McMoRan’s                Second-Quarter 2003 Form 10-Q).                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

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| 4.11   | Collateral                Pledge and Security Agreement dated as of July 2, 2003 by and among                McMoRan, as pledgor, The Bank of New York, as trustee, and the Bank                of New                York, as collateral agent. (Incorporated by reference to Exhibit                4.11 to                McMoRan’s Second-Quarter 2003 Form 10-Q).                                                                                                           |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.12   | Indenture                dated October 6, 2004 by and among McMoRan and the Bank of New York,                as                trustee. (Incorporated by reference to Exhibit 99.3 to McMoRan’s Current                Report on Form 8-K dated October 6, 2004 (filed October 7,                2004).                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.13   | Collateral                Pledge and Security Agreement dated October 6, 2004 by and among                McMoRan,                as pledgor, The Bank of New York, as trustee and the Bank of New                York, as                collateral agent. (Incorporated by reference to Exhibit 99.4 to McMoRan’s                Current Report on Form 8-K dated October 6, 2004 (filed October 7,                2004).                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.14   | Registration                Rights Agreement dated October 6, 2004 by and among McMoRan, as issuer                and                Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan                Securities Inc. and Jefferies & Company, Inc. as Initial Purchasers.                (Incorporated by reference to Exhibit 99.5 to McMoRan’s Current Report on                Form 8-K dated October 6, 2004 (filed October 7,                2004)). |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.1   | Main                Pass 299 Sulphur and Salt Lease, effective May 1, 1988. (Incorporated                by                reference to Exhibit 10.1 to McMoRan’s 2001 Annual Report on Form 10-K                (the McMoRan 2001 Form 10-K)).                                                                                                                                                                                                                                  |

| 10.2   | IMC                Global/FSC Agreement dated as of March 29, 2002 among IMC Global                Inc., IMC                Global Phosphate Company, Phosphate Resource Partners Limited Partnership,                IMC Global Phosphates MP Inc., MOXY and McMoRan. (Incorporated by                reference to Exhibit 10.10 to McMoRan’s Second Quarter 2002 Form                10-Q). |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.3   | Amended                and Restated Services Agreement dated as of January 1, 2002 between                McMoRan and FM Services Company. (Incorporated by reference to Exhibit                10.3 to McMoRan’s Second-Quarter 2003 Form 10-Q).                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.4   | Letter                Agreement dated August 22, 2000 between Devon Energy Corporation                and                Freeport Sulphur. (Incorporated by reference to Exhibit 10.36 to                McMoRan’s                Third-Quarter 2000 Form 10-Q).                                                                                                                              |

| 10.5   | Asset                Purchase Agreement dated effective December 1, 1999 between SOI Finance                Inc., Shell Offshore Inc. and MOXY. (Incorporated by reference to                Exhibit                10.33 in the McMoRan 1999 Form 10-K).                                                                                                |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                     |
| 10.6   | Employee                Benefits Agreement by and between Freeport-McMoRan Inc. and Freeport                Sulphur (Incorporated by reference to Exhibit 10.29 to McMoRan’s 2001 Form                10-K).                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                     |
| 10.7   | Purchase                and Sales agreement dated January 25, 2002 but effective January                1, 2002                by and between MOXY and Halliburton Energy Services, Inc. (Incorporated                by                reference to Exhibit 10.1 to McMoRan’s Current Report on Form 8-K dated                February 22, 2002). |

| 10.8   | Purchase                and Sale Agreement dated as of March 29, 2002 by and among Freeport                Sulphur, McMoRan, MOXY and Gulf Sulphur Services Ltd., LLP. (Incorporated                by reference to Exhibit 10.37 to McMoRan’s First-Quarter 2002 Form 10-Q.)                      |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                     |
| 10.9   | Purchase                and Sale Agreement dated May 9, 2002 by and between MOXY and El Paso                Production Company. (Incorporated by reference to Exhibit 10.28 to                McMoRan’s Second Quarter 2002 Form 10-Q).                                                            |
|   |                                                                                                                                                                                                                                                                                                     |
| 10.10  | Amendment                to Purchase and Sale Agreement dated May 22, 2002 by and between                MOXY and                El Paso Production Company. (Incorporated by reference to Exhibit                10.29 to                McMoRan’s Second Quarter 2002 Form                10-Q). |

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|   |                                                                                                                                                                                                                                                                                              |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.11  | Master                Agreement dated October 22, 2002 by and among Freeport-McMoRan Sulphur                LLC, K-Mc Venture LLC, K1 USA Energy Production Corporation and McMoRan                (Incorporated by reference to Exhibit 10.18 to McMoRan’s 2002 Form                10-K). |
|   |                                                                                                                                                                                                                                                                                              |
|   | Executive                and Director Compensation Plans and Arrangements (Exhibits 10.12                through                10.32).                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                              |
| 10.12  | McMoRan                Adjusted Stock Award Plan, as amended. (Incorporated by reference                to                Exhibit 10.15 to McMoRan’s 2003 Form 10-K)                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                              |
| 10.13  | McMoRan                1998 Stock Option Plan. (Incorporated by reference to Exhibit 10.13                to                McMoRan’s Second-Quarter 2005 Form 10-Q).                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                              |
| 10.14  | McMoRan                1998 Stock Option Plan for Non-Employee Directors. (Incorporated                by                reference to Exhibit 10.14 to McMoRan’s Second-Quarter 2005 Form                10-Q).                                                                             |
|   |                                                                                                                                                                                                                                                                                              |
| 10.15  | McMoRan                Form of Notice of Grant of Nonqualified Stock Options and Limited                Rights                under the 1998 Stock Option Plan. (Incorporated by reference to Exhibit                10.15 to McMoRan’s Second-Quarter 2005 Form 10-Q).                     |
|   |                                                                                                                                                                                                                                                                                              |
| 10.16  | McMoRan                2000 Stock Incentive Plan. (Incorporated by reference to Exhibit                10.16 to                McMoRan’s Second-Quarter 2005 Form 10-Q).                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                              |
| 10.17  | McMoRan                Form of Notice of Grant of Nonqualified Stock Options and Limited                Rights                under the 2000 Stock Incentive Plan. (Incorporated by reference to                Exhibit                10.17 to McMoRan’s Second-Quarter 2005 Form 10-Q).   |
|   |                                                                                                                                                                                                                                                                                              |
| 10.18  | McMoRan                2001 Stock Incentive Plan. (Incorporated by reference to Exhibit                10.18 to                McMoRan’s Second-Quarter 2005 Form 10-Q).                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                              |
| 10.19  | McMoRan                2003 Stock Incentive Plan. (Incorporated by reference to Exhibit                10.19 to                McMoRan’s Second-Quarter 2005 Form 10-Q).                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                              |
| 10.20  | McMoRan’s                Performance Incentive Awards Program as amended effective February                1,                1999. (Incorporated by reference to Exhibit 10.18 to McMoRan’s 1998 Form                10-K).                                                           |
|   |                                                                                                                                                                                                                                                                                              |
| 10.21  | McMoRan                Form of Notice of Grant of Nonqualified Stock Options and Limited                Rights                under the 2001 Stock Incentive Plan. (Incorporated by reference to                Exhibit                10.21 to McMoRan’s Second-Quarter 2005 Form 10-Q).   |
|   |                                                                                                                                                                                                                                                                                              |
| 10.22  | McMoRan                Form of Restricted Stock Unit Agreement Under the 2001 Stock Incentive                Plan. (Incorporated by reference to Exhibit 10.22 to McMoRan’s                Second-Quarter 2005 Form 10-Q).                                                                  |
|   |                                                                                                                                                                                                                                                                                              |
| 10.23  | McMoRan                Financial Counseling and Tax Return Preparation and Certification                Program,                effective September 30, 1998. (Incorporated by reference to Exhibit                10.26                to McMoRan’s First-Quarter 2003 Form 10-Q).         |
|   |                                                                                                                                                                                                                                                                                              |
| 10.24  | McMoRan                Form of Notice of Grants of Nonqualified Stock Options and Limited                Rights                under the 2003 Stock Incentive Plan. (Incorporated by reference to                Exhibit                10.24 to McMoRan’s Second-Quarter 2005 Form 10-Q).  |
|   |                                                                                                                                                                                                                                                                                              |
| 10.25  | McMoRan                Form of Restricted Stock Unit Agreement Under the 2003 Stock Incentive                Plan. (Incorporated by reference to Exhibit 10.25 to McMoRan’s                Second-Quarter 2005 Form 10-Q).                                                                  |

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Table of Contents

|   |                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.26  | McMoRan                2004 Director Compensation Plan. (Incorporated by reference to Exhibit                10.29 to McMoRan’s Second-Quarter 2004 Form 10-Q)                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.27  | Agreement                for Consulting Services between Freeport-McMoRan Inc. and B. M. Rankin,                Jr. effective as of January 1, 1991)(assigned to FM Services Company                as of                January 1, 1996); as amended on December 15, 1997 and on December                7, 1998.                (Incorporated by reference to Exhibit 10.32 to McMoRan 1998 Form                10-K). |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.28  | Supplemental                Letter Agreement between FM Services Company and B.M. Rankin, Jr.                effective as of January 1, 2006.                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.29  | McMoRan                Director Compensation. (Incorporated by reference to Exhibit 10.27                to                McMoRan’s 2004 Form 10-K).                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.30  | McMoRan                Exploration Co. 2005 Stock Incentive Plan. (Incorporated by reference                to                Exhibit 10.1 to McMoRan’s Current Report on Form 8-K filed on May 6,                2005).                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.31  | Form                of Notice of Grant of Nonqualified Stock Options under the 2005 Stock                Incentive Plan. (Incorporated by reference to Exhibit 10.2 to McMoRan’s                Current Report on Form 8-K filed May 6, 2005).                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.32  | Form                of Restricted Stock Unit Agreement under the 2005 Stock Incentive                Plan.                (Incorporated by reference to Exhibit 10.3 to McMoRan’s Current Report on                Form 8-K filed May 6, 2005).                                                                                                                                                                    |

| 12.1   | Computation                of Ratio of Earnings to Fixed Charges.                                                                                                                                                                               |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                            |
| 14.1   | Ethics                and Business Conduct Policy. (Incorporated by reference to Exhibit                14.1 to                McMoRan’s 2003 Form 10-K).                                                                                 |
|   |                                                                                                                                                                                                                                            |
| 21.1   | List                of subsidiaries.                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                            |
| 23.1   | Consent                of Ernst & Young LLP.                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                            |
| 23.2   | Consent                of Ryder Scott Company, L.P.                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                            |
| 24.1   | Certified                Resolution of the Board of Directors of McMoRan authorizing this                report to                be signed on behalf of any officer or director pursuant to a Power                of                Attorney. |
|   |                                                                                                                                                                                                                                            |
| 24.2   | Powers                of Attorney pursuant to which this report has been signed on behalf                of                certain officer and directors of McMoRan.                                                                            |
|   |                                                                                                                                                                                                                                            |
| 31.1   | Certification                of Principal Executive Officer pursuant to Rule                13a-14(a)/15d-14(a).                                                                                                                                |
|   |                                                                                                                                                                                                                                            |
| 31.2   | Certification                of Principal Financial Officer pursuant to Rule                13a-14(a)/15d-14(a).                                                                                                                                |
|   |                                                                                                                                                                                                                                            |
| 32.1   | Certification                of Principal Executive Officer pursuant to 18 U.S.C. Section                1350.                                                                                                                                  |
|   |                                                                                                                                                                                                                                            |
| 32.2   | Certification                of Principal Financial Officer pursuant to 18 U.S.C. Section                1350.                                                                                                                                  |

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