----

|                                                                                                                           |
|--------------------------------------------------------------------------------------------------------------------------------|
| **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, 2006**                                                                 |
| **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**                                                                                                                       |
|  **Securities                registered pursuant to Section 12(b) of the Act:**(Registrant's                telephone number, including area code) |
| **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 2007 Annual Meeting to be held on                April 26,                2007 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, 2006**

| **TABLE                OF CONTENTS**                                                                                                                                                   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                   |   |
|                                                                                                                                                                                   | Page |
| Part                I                                                                                                                                                                  |   |
| Items                1. and 2. Business and Properties                                                                                                                                 | 1 |
| Item                1A. Risk Factors                                                                                                                                                   | 23 |
| Item                1B. Unresolved Staff                Comments                                                                                                                       | 33 |
| Item                3. Legal Proceedings                                                                                                                                               | 33 |
| Item                4. Submission of Matters to a Vote of                Security Holders                                                                                              | 34 |
| Executive                Officers of the                Registrant                                                                                                                     | 34 |
|                                                                                                                                                                                   |   |
| Part                II                                                                                                                                                                 |   |
| Item                5. Market for Registrant’s Common Equity,                Related Stockholder Matters and                Issuer Purchases of Equity                Securities |  35 |
| Item                6. Selected Financial Data                                                                                                                                         | 37 |
| Items                7. and 7A. Management’s Discussion and Analysis of                Financial Condition and Results                                                           |   |
| of                Operation and Quantitative and Qualitative Disclosures                about Market Risk                                                                              | 39 |
| Item                8. Financial Statements and Supplementary                Data                                                                                                      | 62 |
| Item                9. Changes in and Disagreements with Accountants on                Accounting and Financial Disclosure                                                             | 98 |
| Item                9A. Controls and Procedures                                                                                                                                        | 98 |
| Item                9B. Other Information                                                                                                                                              | 99 |
|                                                                                                                                                                                   |   |
| Part                III                                                                                                                                                                |   |
| Item                10. Directors, Executive Officers and Corporate                Governance                                                                                          | 99 |
| Item                11. Executive Compensation                                                                                                                                         | 99 |
| Item                12. Security Ownership of Certain                Beneficial Owners and Management and Related                                                                      |   |
| Stockholders                Matters                                                                                                                                                    | 99 |
| Item                13. Certain Relationships and Related                Transactions, and Director Independence                                                                       | 99 |
| Item                14. Principal Accounting Fees and                Services                                                                                                          | 99 |
|                                                                                                                                                                                   |   |
| Part                IV                                                                                                                                                                 |   |
|                                                                                                                                                                                   |   |
| Item                15. Exhibits and Financial Statement                Schedules                                                                                                      | 99 |
|                                                                                                                                                                                   |   |
| Signatures                                                                                                                                                                             | S-1 |
|                                                                                                                                                                                   |   |
| Exhibit                Index                                                                                                                                                           | E-1 |

----

**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 20.*

**About      the Company. **

**Subsidiaries.**
** **

**Business      Strategy. **

| ·   | 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 established oil and gas companies to participate                in our                identified exploration prospects as well as partner with them in                additional exploratory prospects (see “Oil and Gas Operations -                Exploration Agreements” 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; |
|------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**TABLE OF      CONTENTS**

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

| **·  ** | We                have conducted intensive evaluations of our acreage and have identified                over 20 exploration prospects, most of which are high-risk,                high-potential, deep-gas prospects;                and |
|------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **·  ** | We                have participated in important discoveries in an area where we control                over 150,000 gross acres within OCS 310 and Louisiana State Lease                340. To                date, we have drilled a total of seven successful wells at the Hurricane,                Hurricane Deep, JB Mountain and Mound Point prospects and we have                two                additional potential discoveries at the Blueberry Hill and JB Mountain                Deep prospects that require additional evaluation (see “Oil and Gas                Operations - Discoveries and Development Activities” below). We have also                identified multiple additional drilling opportunities within this                acreage                position. |
|------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **·  ** | 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 MPEH™ as                a LNG deepwater port facility with onsite cavern storage for natural                gas; |
|------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **·  ** | We                have completed preliminary engineering for the MPEH™                project and                the related license application was approved in January                2007; |
|------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **·  ** | The                MPEH™                project has unique advantages including the use of existing offshore                structures, onsite natural gas cavern storage capabilities, significant                logistical savings associated with the offshore location and access                to                premium natural gas markets from its eastern Gulf of Mexico location.                These advantages would provide LNG suppliers with a highly attractive                netback price and offer U.S. natural gas consumers a reliable source                of                supply; and |
|------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **·  ** | 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. |
|------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**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 the opportunity to reduce costs and the time that it takes                to                develop, produce and transport oil and natural                gas. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**TABLE OF      CONTENTS**

**Exploration      Agreements. **

**Oil      and Gas Properties.**

**Producing      Properties.**

----

**TABLE OF      CONTENTS**

|                                                 |   |     |   | Net      |   |     |   |                     |   | Location  |   |    |   |
|------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|--------------------------|--------|-----------|--------|---------|--------|
|                                                 |   | Working  |   | Revenue  |   |     |   | Water                    |   | Offshore  |   | Gross   |   |
| Field,                Lease or Well                  |   | Interest |   | Interest |   | Operator |   | Depth                    |   | Louisiana |   | Acreage |   |
|                                                 |   | (%)      |   | (%)      |   |     |   | (in                feet) |   | (miles)   |   |    |   |
| 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           |   |     |   |     |   |     |   |                     |   |      |   |    |   |
| (Thunderbolt)                                        |   | 38.0     |   | 27.2     |   | DVN      | c      | 90                       |   | 50        |   | 9,375   |   |
| Ship                Shoal Block 296 (Raptor)         |   | 49.4     |   | 34.8     |   | APA      | d      | 260                      |   | 62        |   | 5,000   |   |
| Main                Pass Blocks 86 (Shiner)          |   | 53.4     |   | 38.5     |   | MMR      |   | 70                       |   | 45        |   | 4,995   |   |
| Vermilion                Block 196 (Lombardi)        |   | 35.6     |   | 25.7     |   | Superior |   | 115                      |   | 50        |   | 5,000   |   |
| West                Cameron Block 616                |   | 25.0     |   | 19.3     |   | Tarpon   |   | 300                      |   | 130       |   | 5,000   |   |
| **Discoveries                after 2004** e     |   |     |   |     |   |     |   |                     |   |      |   |    |   |
| Eugene                Island Block 193 (C-2)         |   | 48.6     |   | 45.3     |   | MMR      |   | 90                       |   | 50        |   | 7,500   |   |
| Eugene                Island Block 213               |   |     |   |     |   |     |   |                     |   |      |   |    |   |
| (Minuteman)                                          |   | 33.3     |   | 29.8     |   | NHY      | f      | 100                      |   | 40        |   | 9,000   |   |
| South                Marsh Island Block 217          |   |     |   |     |   |     |   |                     |   |      |   |    |   |
| (Hurricane)                                          |   | 27.5     |   | 29.8     |   | CVX      | g      | 10                       |   | 9         |   | 7,700   |   |
| Vermilion                Block 16 (King Kong)        |   | 40.0     |   | 29.2     |   | MMR      |   | 13                       |   | 2         |   | 3,323   |   |
| Louisiana                State Lease 18055           |   |     |   |     |   |     |   |                     |   |      |   |    |   |
| (Cane                Ridge)                          |   | 50.0     |   | 36.8     |   | MMR      |   | n/a                      |   | n/a       |   | 1,099   |   |
| Louisiana                State Lease 18090           |   |     |   |     |   |     |   |                     |   |      |   |    |   |
| (Long                Point)                          |   | 37.5     |   | 26.7     |   | EP       |   | 8                        |   | n/a       |   | 5,000   |   |
| Garden                Banks 625 (Dawson Deep)        |   | 30.0     |   | 24.0     |   | ANA      |   | 2,900                    |   | n/a       | h      | 5,760   |   |
| Vermilion                Parish, LA (West Pecan      |   |     |   |     |   |     |   |                     |   |      |   |    |   |
| Island)                                              |   | 50.0     |   | 36.0     |   | MMR      |   | 10                       |   | n/a       |   | 1,710   |   |
| High                Island Block 131 (King of Hill)  |   | 25.0     |   | 23.8     |   | Gryphon  |   | 40                       |   | 27        |   | 5,760   |   |
| Vermilion                Parish, LA (Liberty Canal)  |   | 37.5     |   | 27.7     |   | EP       |   | n/a                      |   | n/a       |   | 1,424   |   |
| St.                Mary Parish, LA (Point Chevreuil) |   | 25.0     |   | 17.5     |   | Palace   |   | <10                   |   | n/a       |   | 4,303   |   |
| Vermilion                Parish, LA (Zigler Canal)   |   | 50.0     |   | 35.8     |   | MMR      |   | n/a                      |   | n/a       |   | 640     |   |

| Farm-out i                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
|---------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| South                Marsh Island Block 223 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (JB                Mountain)                |   | 55.0   |   | 38.8   |   | CVX    |   | 10     |   |   |   | -      |   |
| Louisiana                State Lease 340    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (Mound                Point)                |   | 30.4   |   | 21.6   |   | CVX    |   | 10     |   |   |   | -      |   |

| 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. “Main Pass Oil Facilities” 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.                 | For                a discussion of these properties see “Discoveries and Development                Activities” below. |
|------------------------------|------------------------------------------------------------------------------------------------------------------------------------|

| f.                 | 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. |
|------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| h.                 | Dawson                Deep is located 150 miles offshore                Texas |
|------------------------------|-------------------------------------------------------------------------------|

----

**TABLE OF      CONTENTS**

| 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. 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 a                joint venture, in which we retained a 33.3 percent equity interest.                On                December 27, 2004, we acquired the 66.7 percent ownership interest                in the                joint venture that we did not own and now own 100 percent of the                Main Pass                oil operations. For more information regarding the joint venture                transactions see Items 7. and 7A. “Main Pass Oil Facilities” and Note 4                located elsewhere in this Form                10-K. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **·  ** | **Eugene                Island Blocks 193/215.**                During 2000, we performed remedial and recompletion work that                reestablished production from the field and identified additional                proved                reserves. We performed additional recompletion work during each of                the                three years ended December 31, 2006, including work performed at                the                Eugene Island Block 193 C-1 Sidetrack and C-2 wells in the fourth                quarter                of 2006 (see “Discoveries and Development Activities” below). |
|------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | **Eugene                Island Blocks 97 and 108.**                During 2000 and 2001, we drilled three successful exploratory wells                at                this prospect. 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 currently have intermittent 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. During 2006,                initial attempts to reestablish production from the shut-in well                were                unsuccessful. Another attempt to reestablish production from the                shut-in                well is planned for the first quarter of 2007. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | **Ship                Shoal Block 296.**                In                2000, we drilled two productive wells at the Raptor prospect, with                production commencing during 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). In                the first quarter of 2005, we performed recompletion work and restored                production to one well. The third-party purchaser assigned to us                the 75                percent reversionary interest in Raptor 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. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**TABLE      OF      CONTENTS**

| ·   | **Main                Pass Block 86.**                During 2000, we announced two successful exploratory wells at the                Shiner                prospect. We sold the property in February 2002 but 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 that                we own                reverted to us effective June 1, 2005 following the achievement of                payout. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | **Vermilion                Block 196**.                In 2000, we drilled the Lombardi No. 2 exploratory well to a total                depth                of 14,798 feet. We developed the well and initial production commenced                in                2001. We sold the property in 2002 but retained a reversionary interest                (see “Disposition of Oil and Gas Properties” below). Production from the                field increased during 2003 following the successful drilling and                development of additional exploratory wells. The interests that we                own                reverted to us effective June 1, 2005 following the achievement of                payout. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | **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 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. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Discoveries      and Development Activities.**

|                                          |  **Working****Interest** | **Net****Revenue****Interest** | **Water                Depth** | **Total                Depth**** ** | **Initial                Production** |
|-----------------------------------------------|-------------------------------|--------------------------------|--------------------------------|------------------------------------------|---------------------------------------|
|                                          | %                             | %                              | feet                           | feet                                     | Date                                  |
| **2005                Discoveries:**          |                          |                           |                           |                                     |                                  |
| 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                          | 19.4                           | 10                             | 19,664                                   | March                30, 2005         |
| Vermilion                Blocks 16/17         |                          |                           |                           |                                     |                                  |
| “King                Kong” a,d    | 40.0                          | 29.2                           | 13                             | 18,918                                   | December                22, 2005      |
| Louisiana                State Lease 18055    |                          |                           |                           |                                     |                                  |
| “Cane                Ridge” a     | 50.0                          | 36.8                           | n/a                e           | 16,450                                   | April                21, 2006    |
| Louisiana                State Lease 18090    |                          |                           |                           |                                     |                                  |
| “Long                Point” c,f   | 37.5                          | 26.7                           | 8                              | 19,000                                   | May                22, 2006      |
| Garden                Banks Block 625         |                          |                           |                           |                                     |                                  |
| “Dawson                Deep”      | 30.0                          | 24.0                           | 2,900                          | 22,790                                   | July                6, 2006      |
| West                Cameron Block 43 (No.3)g  | 23.4                          | 21.9b                          | 30                             | 18,800                                   | January                18, 2007       |
| **2006                Discoveries:**          |                          |                           |                           |                                     |                                  |
| West                Pecan Island              |                          |                           |                           |                                     |                                  |
| “Pecos”                a          | 50.0                          | 36.0                           | 10                             | 18,795                                   | August                4, 2006         |
| High                Island Block 131          |                          |                           |                           |                                     |                                  |
| “King                of the Hill” | 25.0                          | 23.8b                          | 40                             | 16,290                                   | August                22, 2006        |
| Onshore                Vermilion Parish, LA   |                          |                           |                           |                                     |                                  |
| “Liberty                Canal” a  | 37.5                          | 27.7                           | n/a                e      | 16,594                                   | October                2, 2006        |
| St.                Mary Parish, LA            |                          |                           |                           |                                     |                                  |
| “Point                Chevreuil”  | 25.0                          | 17.5                           | <10                         | 17,011                                   | December                22, 2006      |
| Onshore                Vermilion Parish, LA   |                          |                           |                           |                                     |                                  |
| “Zigler                Canal” a   | 50.0                          | 35.8                           | n/a                e      | 13,635                                   | December                30, 2006      |

----

**TABLE OF      CONTENTS**

|                                            |  **Working****Interest** | **Net****Revenue****Interest** | **Water                Depth** | **Total                Depth**** ** | **Initial                Production** |
|-------------------------------------------------|-------------------------------|--------------------------------|--------------------------------|------------------------------------------|---------------------------------------|
|                                            | %                             | %                              | feet                           | feet                                     | Date                                  |
|  St.              Mary Parish, LA          |                          |                           |                           |                                     |                                  |
| “Laphroaig”                a        | 50.0                          | 38.5                           | <10                         | 19,060                                   | Mid-Year                2007          |
| South                Marsh Island Block 217     |                          |                           |                           |                                     |                                  |
| “Hurricane                Deep” a,c | 25.0                          | 20.8b                          | <10                         | 21,500                                   | Mid-Year                2007          |
| **Potential                Discovery**          |                          |                           |                           |                                     |                                  |
| Louisiana                State Lease 340        |                          |                           |                           |                                     | Pending                Test Results   |
| “Blueberry                Hill” a   | 49.0                          | 33.9                           | 10                             | 23,903                                   | &                Development Plan |
| South                Marsh Island Block 224     |                          |                           |                           |                                     | Pending                Results from   |
| “JB                Mountain Deep” a | 35.0                          | 24.8                           | 10                             | 5,195                                    | Blueberry                Hill well    |

| 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 during either 2006 or                2005. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c.   | We                operated the drilling of the exploratory well at these prospects.                We                relinquished being operator following successful completion of the                related                wells. El Paso is the current operator of the Long Point wells. Chevron                Corporation is current operator of the Hurricane wells. Chevron will                operate the Hurricane Deep well following its                completion. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| d.   | Table                reflects information for the King Kong No. 1 discovery well. The                King Kong                No. 2 development well commenced production on December 30, 2005                and the                King Kong No. 3 development well commenced production on April 27,                2006.                All three wells have the same working and net revenue interests. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| f.   | Table                reflects information for the Long Point No. 1 discovery well. The                Long                Point No. 2 development well commenced production on May 27, 2006.                Both                wells have the same working and net revenue                interests. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| g.   | We                drilled a second 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. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | **Eugene                Island Block 193.**                In                November 2004, the Deep Tern C-2 well 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, 2006, approximately                5.4                Bcf of natural gas has been produced from the C-2 well. When gross                production exceeds 10 Bcf, our net revenue interest for natural gas                would                revert to 37.2 percent in the deeper Basal Pliocene and Upper Miocene                sections of the well. Our net revenue interest for oil production                is 37.2                percent. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | **Eugene                Island Block 213.**                Following start-up operations, gross daily production decreased to                approximately 3 MMcfe/d and was shut-in on various occasions because                of                mechanical and/or hurricane-related events. The well is currently                producing at significantly reduced rates. The Eugene Island Block                213                lease is eligible for royalty relief on the first 25 Bcf of natural                gas                production. At December 31, 2006, approximately 1.5 Bcf has been                produced                at the Eugene Island Block 213 lease. When gross production of natural                gas                exceeds 25 Bcf, our net revenue interest would revert to 24.3 percent.                Our                net revenue interest for oil production is 24.3 percent. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**TABLE OF CONTENTS**
| **·  ** | We                control 9,600 acres in this prospect area, which is located approximately                40 miles offshore Louisiana. |
|------------------------|-----------------------------------------------------------------------------------------------------------------------------------------|

| **·  ** | **South                Marsh Island Block 217.**In                January 2005, the Hurricane prospect logged approximately 205 gross                feet                of hydrocarbons in two Rob-L pay zones. The well was shut-in for                45 days                in 2005 primarily because of the effects of Hurricanes Katrina and                Rita.                Production 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). During 2006, we drilled two                development wells, Hurricane Nos. 2 (total depth 14,000 feet) and                3 (total                depth 16,000 feet). The Hurricane No. 2 well commenced production                on April                27, 2006 and the No. 3 well commenced production on November 29,                2006. The                No. 3 well is currently shut-in; however, a recompletion to the next                sand                interval is expected to commence prior to the end of the first quarter                of                2007. |
|------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | **Vermilion                Blocks 16/17.**The                King Kong No. 1 discovery well commenced drilling in February 2005                and                wireline logs indicated 14 hydrocarbon bearing sands totaling                approximately 150 feet of net pay. In August 2005, a successful production                test at King Kong No. 1 was conducted. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | **Louisiana                State Lease 18055.**The                Cane Ridge exploratory well commenced drilling in July 2005 and wireline                logs indicated multiple hydrocarbon bearing sands approximating 60                net                true vertical feet of resistivity. The well commenced production                at                initial rates approximating 9 MMcfe/d, which decreased significantly                after                a few weeks of production. In early July the well was shut-in and                initial                attempts to reestablish production were unsuccessful. In late December                2006, the operator relinquished its ownership rights to us and our                private                exploration partner. We were appointed operator and are currently                performing remedial operations. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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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 in July 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. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **·  ** | **Garden                Banks Block 625.**                Completion operations at the Dawson Deep well commenced in January                2006                and a sidetrack of the well commenced drilling in February 2006.                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. 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. |
|------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | **West                Cameron Block 43.**The                No. 3 exploratory well commenced drilling in November 2004 and wireline                logs indicated 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 well. The No. 4 well                was                drilled to a total depth of 18,500 feet and encountered several sands                that                appeared to be hydrocarbon bearing. Following an initial successful                production test, the No. 4 well experienced mechanical difficulties                and                was temporarily abandoned while efforts to establish production at                the No.                3 well were initiated. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | **West                Pecan Island, Vermilion Parish, LA**.                The Pecos exploratory well commenced drilling on January 5, 2006                and                uphole pay sands were evaluated with log-while-drilling tools and                wireline                logs, indicating two intervals of hydrocarbons. The deeper zone                encountered 31 net feet of hydrocarbon bearing sands over a 172 foot                gross                interval; the upper zone entered 12 net feet of hydrocarbon bearing                sands                over a 14 foot gross interval. The well uses the facilities at the                nearby                King Kong facilities at Vermilion Block 16. In late February 2007,                the                well was shut-in. We are currently performing work to reestablish                production from the well. We have rights to approximately 3,500 acres                in                this area, which includes both the Pecos prospect and the Platte                exploration prospect. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **·  ** | **High                Island Block 131.**The                King of the Hill No. 2 exploratory well commenced drilling on January                28,                2006 and encountered 130 net feet of hydrocarbon bearing sands. The                High                Island Block 131 lease, located 27 miles offshore Louisiana, is eligible                for royalty relief on the first 15 Bcf of natural gas production.                As of                December 31, 2006, 2.4 Bcf of natural gas has been produced for this                well.                Our net revenue interest for natural gas production is currently                23.8                percent and will decrease to 19.6 percent after 15 Bcf of natural                gas is                produced. Our net revenue interest for oil production is 19.6 percent. |
|------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**TABLE OF CONTENTS**
| ·   | **Liberty                Canal, Onshore Vermilion, Parish LA**.                ** **The                Liberty Canal exploratory well commenced drilling on March 5, 2006                and was                evaluated with log-while-drilling tools and confirmed with wireline                logs,                which indicated two intervals totaling 199 gross feet with 125 net                feet of                hydrocarbon                bearing sands. The Liberty Canal discovery is located onshore Vermilion                Parish, Louisiana on a significant north-south ridge where we control                approximately 13,000 acres. We incorporated the results from this                well                together with our 3-D seismic data to develop the Zigler Canal discovery                (see below) located two miles northwest of the Liberty Canal discovery.                We                are continuing to evaluate this 13,000-acre area and expect to identify                additional exploration prospects. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | **Point                Chevreuil, St. Mary Parish, LA**.                The Point Chevreuil exploratory well commenced drilling on November                18,                2005 and was evaluated with log-while-drilling tools and confirmed                with                wireline logs, which indicated 96 net feet of hydrocarbon bearing                sands                over a 112 foot gross interval. In May 2006, we and our exploration                partner acquired an additional approximate 2,500 gross acres surrounding                this discovery. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | **Zigler                Canal, Onshore Vermilion Parish, LA**.                The Zigler Canal exploratory well commenced drilling on June 17,                2006 and                was drilled to a total depth of 18,571 feet. The deeper objectives                were                determined to be nonproductive and the well was plugged back and                sidetracked. The sidetrack well was drilled to a total depth of 13,635                feet and evaluated with log-while-drilling logs, which indicated                a                potential 30 net feet of hydrocarbon bearing sands over a 125 foot                gross                interval. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **·  ** | **Laphroaig,                St. Mary Parish, LA.**The                Laphroaig exploratory well commenced drilling on April 8, 2006 and                was                sidetracked to a true vertical depth of 18,415 feet. Following an                unsuccessful production test in February 2007, we and our partners                deepened the well to test additional targets. Wireline logs have                indicated                that the well encountered a potential 56 net feet of hydrocarbon                bearing                sands over a 75 foot gross interval. The well can be brought on production                promptly utilizing infrastructure in the area. We have rights to                approximately 2,200 gross acres in this                area. |
|------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | **Louisiana                State Lease 340.**The                Blueberry Hill well was drilled and wireline logs indicated four                potentially productive hydrocarbon bearing sands. A 4½ inch production                liner was 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.                Delivery of this equipment occurred in the fourth quarter of 2006                and the                completion and testing of the well commenced. The well has been perforated                but production has not been established because of blockage above                the                perforated intervals. Additional operations to clear the blockage                and                complete testing of the well are expected in the near-term. 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). |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **·  ** | **South                Marsh Island Block 224.**The                JB Mountain Deep prospect commenced drilling in July 2005 and reached                a                total depth of approximately 24,600 feet in April 2006. Wireline                logs                indicated 120 gross feet of potential hydrocarbon bearing sands at                a depth                of approximately 21,900 feet that will require further evaluation.                Wireline logs also indicated an additional 115 gross feet of potential                hydrocarbon bearing sands at a depth of approximately 24,250 feet.                A liner                was set to protect the lower zone and the well was temporarily abandoned.                We control approximately 5,200 gross acres in the area, which is                outside                the area covered by the farm-out arrangement with El Paso. Information                obtained from the completion and testing of the Blueberry Hill well                will                be incorporated in our future plans for the JB Mountain Deep prospect.                Both areas demonstrate similar geologic settings and are targeting                Deep                Miocene sands that are equivalent in                age. |
|------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Near-Term      Drilling Activities. **

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**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                                        |                                        |
| South                Timbalier Block 70       |                          |                           |                                           |                           |                                            |                                        |                                        |
| “Cas”                e            | 15.0                          | 12.4                           | 5,000                                          | 20                             | 25,000                                          | 5,000                                       | January                30, 2007             |
| Vermilion                Block 31             |                          |                           |                                           |                           |                                            |                                        |                                        |
| “Cottonwood                Point” | 15.0                          | 11.3                           | 5,523                                          | 15                             | 21,000                                          | 5,000                                       | March                1, 2007                |

| **Near-Term                Exploration Wells:**   |   |   |   |   |   |   |                              |
|---------------------------------------------------|--------|--------|--------|--------|--------|--------|-----------------------------------|
| Louisiana                State Lease 340          |   |   |   |   |   |   |                              |
| “Mound                Point South” f  | 18.3   | 14.5   | 6,400  | 8      | 20,000 | n/a    | First-Quarter                2007 |
| South                Marsh Island Block 212       |   |   |   |   |   |   | Second-Quarter                    |
| “Flatrock”                f           | 25.0   | 18.8   | 3,805  | 10     | 16,500 | n/a    | 2007                              |
| Matagorda                Island Blocks            |   |   |   |   |   |   |                              |
| 526/557                “Deep Cavallo” | 40.0   | 29.8   | 6,878  | 70     | 14,000 | n/a    | Mid-Year                2007      |

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

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

| c.   | Approximate                total depth of well on March 14,                2007. |
|----------------|----------------------------------------------------------------------------------|

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

| e.   | 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. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| f.   | Wells                in which we are or expect to be the operator. |
|----------------|--------------------------------------------------------------------|

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

| ·   | **“JB                Mountain” at South Marsh Island Block 223.**Drilling                commenced at the JB Mountain prospect in 2002. The No. 1 well was                drilled                to a measured depth of approximately 22,000 feet and evaluated |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**TABLE OF      CONTENTS**

| **·  ** | **“Mound                Point Offset” at Louisiana State Lease 340.**Drilling                commenced in 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. Final production from                the                field occurred in the fourth quarter of 2005. Reclamation activities                for                the field are planned for the first half of 2007. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **·  ** | **Louisiana                State Lease 340 No. 2.**We                commenced drilling the Louisiana State Lease 340 No. 2 exploratory                well in                2001 and reached 18,704 feet. 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. The No.                2 well                is located approximately one mile from the Mound Point Offset wells                discussed in “Farm-Out Arrangement with El Paso”                above. |
|------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **·  ** | **Nonproductive                wells.**During                2006 and through February 2007 wells on the following prospects were                evaluated as being nonproductive. |
|------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | 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; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------|

| §   | South                Pass Block 26 -                “Denali”                prospect; total depth 17,442 feet; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------|

| §   | Louisiana                State Lease 18091 - “Long Point Deep” prospect; total depth 21,838                feet; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------|

| §   | Vermilion                Block 54 - total depth 14,669 feet; |
|--------------------|--------------------------------------------------------------|

| §   | Onshore                Vermilion Parish - “Zigler Canal” prospect; objectives deeper than 13,500                feet determined to be nonproductive (shallower objectives resulted                in                discovery); and |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | Grand                Isle Block 18 - “Marlin” prospect; total depth 16,000 feet; evaluated in                January 2007. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------|

**Disposition      of Oil and Gas Properties.**

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**TABLE OF      CONTENTS**

**Oil      and Gas Reserves. **

| Gas       |   | Oil         |   |
|-----------|--------|-------------|--------|
| Proved    |   | Proved      |   | Proved |   | Proved |   |
| Developed |   | Undeveloped |   | Developed |   | Undeveloped |   |
| 34,949    |   | 6,253       |   | 5,526,457 |   | 245,843 |   |

|                                                                   | Proved                        |    | Proved      |   | Total  |
|------------------------------------------------------------------------|-------------------------------|---------|-------------|--------|--------|
|                                                                   | Developed                     |    | Undeveloped |   | Proved |
|                                                                   | (in                thousands) |
| Estimated                undiscounted future net cash flows before     |                          |    |        |   |   |   |   |   |
| income                taxes                                            | $                             | 277,864 | a           | $      | 37,151 |   | $ | 315,015 |
| Present                value of estimated future net cash flows before |                          |    |        |   |   |   |   |   |
| income                taxes                                            | $                             | 242,050 | a      | $      | 28,495 |   | $ | 270,545 |

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**TABLE OF CONTENTS**
**Production,      Unit Prices and Costs. **

|                                                                    |   | Years                Ended December 31, |   |
|-------------------------------------------------------------------------|--------|-----------------------------------------|--------|
|                                                                    |   | 2006                                    |   | 2005 |   | 2004 |   |
| Net                natural gas production (Mcf)                         |   | 14,545,600                              |   | 7,938,000 |   | 1,978,500 |   |
| Net                crude oil and condensate production, excluding Main  |   |                                    |   |   |   |   |   |
| Pass                (Bbls)a                                             |   | 779,000                                 |   | 387,100 |   | 84,800 |   |
| Net                crude oil production from Main Pass (Bbls)b          |   | 775,500                                 |   | 463,000 |   | - |   |
| Sales                prices:                                            |   |                                    |   |   |   |   |   |
| Natural                gas (per Mcf)                                    |   | $                7.05                   |   | $                9.24 |   | $                6.08 |   |
| Crude                oil and condensate, including Main Pass (per Bbl)c |   | 60.55                                   |   | 53.82 |   | 39.83 |   |
| Production                (lifting) costs: d                            |   |                                    |   |   |   |   |   |
| Per                barrel for Main Pass e                               |   | $35.76                                  |   | $41.46 |   | - |   |
| Per                Mcfe for other propertiesf                           |   | 1.34                                    |   | 1.06 |   | $                2.64 |   |

| a.                 | The                amount during 2006 includes approximately 178,700 equivalent barrels                of                oil and condensate associated with $9.6 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 includes                106,700 and 22,900 equivalent barrels of oil ($5.0 million and $0.6                million of revenues) associated with plant products during 2005 and                2004,                respectively. |
|------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.                 | We                sold our interests in the oil producing assets at Main Pass to a                joint                venture in December 2002. We acquired the ownership interest in the                joint                venture 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 expense.                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 included approximately $3.6 million, $4.68 per                barrel                in 2006 and $3.9 million, $8.31 per barrel in 2005, of estimated                repair                costs for damages sustained during Hurricane Katrina. The per barrel                lifting cost during 2005 reflects the field being shut-in for substantial                periods while still continuing to incur a significant level of the                field’s                fixed production costs. |
|------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 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 $4.5 million or $0.23 per Mcfe in 2006,                $1.2                million or $0.13 per Mcfe in 2005 and $0.6 million or $0.26 per Mcfe                in                2004. Our production costs during 2004 include approximately $0.4                million                or $0.18 per Mcfe of non-recurring costs associated with our acquisition                of the Main Pass joint venture in December 2004**.** |
|------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**TABLE OF CONTENTS**

**Acreage.**

|                                       |   | Developed |   | Undeveloped |
|--------------------------------------------|--------|-----------|--------|-------------|
|                                       |   | Gross     |   | Net         |   | Gross |   | Net |
|                                       |   | Acres     |   | Acres       |   | Acres |   | Acres |
| Offshore                (federal waters)   |   | 62,562    |   | 25,315      |   | 60,685 |   | 31,047 |
| Onshore                Louisiana and Texas |   | 8,232     |   | 3,231       |   | 70,414 |   | 29,358 |
| Total                at December 31, 2006  |   | 70,794    |   | 28,546      |   | 131,099 |   | 60,405 |

**Oil      and Gas Drilling Activity. **

|            |   | 2006   |   | 2005   |   | 2004   |   |
|-----------------|--------|--------|--------|--------|--------|--------|--------|
|            |   | Gross  |   | Net    |   | Gross  |   | Net |   | Gross |   | Net |   |
| **Exploratory** |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Productive      |   | 6      |   | 2.375  |   | 4      |   | 1.426 |   | 4 |   | 1.394 |   |
| Dry             |   | 4      |   | 1.185  | a      | 6      |   | 2.021 | b | 5 |   | 1.413 |   |
| In-progress     |   | 4      |   | 1.808  |   | 5      |   | 1.728 |   | 3 |   | 0.920 |   |
| Total           |   | 14     |   | 5.368  |   | 15     |   | 5.625 |   | 12 |   | 3.727 |   |
|            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Development** |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Productive      |   | 7      |   | 2.613  |   | 2      |   | 0.667 |   | - |   | - |   |
| Dry             |   | -      |   | -      |   | -      |   | - |   | - |   | - |   |
| In-progress     |   | 2      |   | 0.854  | c      | 5      |   | 1.904 | c | 2 |   | 0.854 | c |
| Total           |   | 9      |   | 3.467  |   | 7      |   | 2.571 |   | 2 |   | 0.854 |   |

| a.   | Includes                the exploratory well at Grand Isle Block 18 (0.26 net) that was determined                to be nonproductive in early January                2007. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.   | 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. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c.   | Includes                the program’s 0.304 net interest in the Mound Point Offset No. 2 well and                0.550 net interest in the JB Mountain No. 3, which have been temporarily                abandoned. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**TABLE OF CONTENTS**
|     | Gas   |   | Oil   |   |
|----------|-------|--------|-------|--------|
|     | Gross |   | Net   |   | Gross |   | Net |   |
| Offshore | 19    |   | 5.406 |   | 16 |   | 11.100 |   |
| Onshore  | 8     |   | 2.287 |   | - |   | - |   |
| Total    | 27    |   | 7.693 |   | 16 |   | 11.100 |   |

**Marketing.**

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

**      PROJECT**

** **

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**TABLE      OF      CONTENTS**

| ·   | Offshore                unloading provides savings compared with land-based                facilities. |
|--------------------|--------------------------------------------------------------------------------------------------------|
| §   | Remote                offshore location near major shipping lanes avoids port congestion                and                offers shipping logistical advantages;                and |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| §   | Water                depth of 210 feet allows access to the largest LNG                carriers. |
|--------------------|--------------------------------------------------------------------------------------------------|

| ·   | Eastern                Gulf of Mexico location offers a premium price to Henry                Hub. |
|--------------------|----------------------------------------------------------------------------------------------------|
| §   | Dedicated                off-take header will deliver to 8 major interstate pipeline systems;                and |
|--------------------|------------------------------------------------------------------------------------------------------------------|
| §   | Onsite                gas conditioning will allow receipt of a wide range of LNG Btu                contents. |
|--------------------|---------------------------------------------------------------------------------------------------------------|
| ·   | Seasonal                arbitrage opportunities through onsite gas cavern storage offer                significant added value. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------|
| §   | Extensive                infrastructure allows future expansion; |
|--------------------|------------------------------------------------------------------|
| §   | Existing                platforms over a large salt dome provide extensive cavern storage                capacity; and |
|--------------------|------------------------------------------------------------------------------------------------------------------------|
| §   | MPEH™                is the only facility in the United States combining LNG regas, gas                conditioning, and onsite cavern storage. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|

**DISCONTINUED      SULPHUR OPERATIONS**

**Background.**

**Sale      of Sulphur Assets. **

----

**TABLE      OF      CONTENTS**

**Sulphur        Assets. **

**Sulphur      Reclamation Obligations.**

**REGULATION**

**General.**

**Exploration,      Production and Development. **

*Federal      leases. *

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**TABLE      OF      CONTENTS**

*State      and Local Regulation of Drilling and Production*

**Environmental      Matters. **

*Solid      Waste.*

*Hazardous      Substances.*

*Air.*

*Water.*

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**TABLE OF      CONTENTS**

*Endangered      Species.*

**Safety      and Health Regulations.**

**EMPLOYEES**

**GLOSSARY**

*3-D      seismic technology. *

*Bbl      or Barrel*

*Bcf*

----

**TABLE OF CONTENTS**
*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*

*MMBbls*

*MMcf*

*MMcfe*

*MMcfe/d.*

----

**TABLE      OF      CONTENTS**

*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.*

*Reservoir*

*Sands.      *

*SEC.*

----

**TABLE OF CONTENTS**

*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.**

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**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**

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**TABLE OF CONTENTS**

| ·   | 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.**

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

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**TABLE      OF      CONTENTS**

**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; |
|--------------------|-----------------------------------------------------------|

| ·   | 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.**

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**TABLE OF      CONTENTS**

**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. |
|--------------------|---------------------------------------------------------------------------|

**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.**

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**TABLE OF      CONTENTS**

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

**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. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**TABLE      OF      CONTENTS**

**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**
**™**

**      Project**

**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**
**™**

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

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**TABLE      OF      CONTENTS**

**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. **

**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.**

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**TABLE      OF      CONTENTS**

**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**

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**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    |   | 68     |   | Co-Chairman                of the Board                       |
|                               |   |   |   |                                                          |
| Richard                C. Adkerson |   | 60     |   | Co-Chairman                of the Board                       |
|                               |   |   |   |                                                          |
| Glenn                A. Kleinert   |   | 64     |   | President                and Chief Executive Officer          |
|                               |   |   |   |                                                          |
| C.                Howard Murrish   |   | 66     |   | Executive                Vice President                       |
|                               |   |   |   |                                                          |
| Nancy                D. Parmelee   |   | 55     |   | Senior                Vice President, Chief Financial Officer |
|                               |   |   |   | and                Secretary                                  |
|                               |   |   |   |                                                          |
| Kathleen                L. Quirk   |   | 43     |   | Senior                Vice President and Treasurer            |
|                               |   |   |   |                                                          |
| John                G. Amato       |   | 63     |   | General                Counsel                                |

*James      R. Moffett*

*Richard      C. Adkerson*

*Glenn      A. Kleinert*

*C.      Howard Murrish*

*Nancy      D. Parmelee *

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**TABLE      OF      CONTENTS**

*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**

|                          |   | 2006   |   | 2005   |   |
|-------------------------------|--------|--------|--------|--------|--------|
|                          |   | High   |   | Low    |   | High |   | Low |   |
| First                Quarter  |   | $21.12 |   | $16.77 |   | $23.55 |   | $16.00 |   |
| Second                Quarter |   | 19.63  |   | 14.37  |   | 22.20 |   | 16.96 |   |
| Third                Quarter  |   | 19.42  |   | 16.60  |   | 20.69 |   | 16.85 |   |
| Fourth                Quarter |   | 18.46  |   | 13.95  |   | 20.34 |   | 15.75 |   |

**Issuer      Purchases of Equity Securities**

**Performance      Graph**

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**TABLE OF      CONTENTS**

**Comparison      of Cumulative Total Return***

**McMoRan      Exploration Co., Hemscott Independent **

**Oil      & Gas Industry Group and S&P 500 Stock Index**

|                                          | **December                31,** |
|-----------------------------------------------|---------------------------------|
|                                          | **2001**                        | **2002** | **2003** | **2004** | **2005** | **2006** |
| McMoRan                Exploration Co.        | $100.00                         | $                88.08 | $                323.83 | $                322.97 | $                341.45 | $                245.60 |
| Hemscott                Independent Oil & |                            |   |   |   |   |   |
| Gas                Industry Group             | 100.00                          | 104.71 | 163.33 | 219.43 | 340.60 | 395.82 |
| S&P                500 Stock Index        | 100.00                          | 77.90 | 100.25 | 111.15 | 116.61 | 135.03 |

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**TABLE OF CONTENTS**
**Item      6. Selected Financial Data**

|                                                                       |   | 2006                                                                     |    | 2005   |   | 2004    |   | 2003   |                                        | 2002   |   |
|----------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|---------|--------|--------|---------|--------|--------|---------------------------------------------|--------|--------|
| **Financial                  Data**                                        |   | (Financial                  Data in thousands, except per share amounts) |    |
| Years                  Ended December 31:                                  |   |                                                                     |    |   |   |    |   |   |                                        |   |   |   |   |   |   |   |
| Revenues                  a                                                |   | $                                                                        | 209,738 |   | $      | 130,127 |   | $      | 29,849                                      |   | $      | 17,284 |   | $ | 44,247 |   |
| Exploration                  expenses                                      |   |                                                                     | 67,737  |   |   | 63,805  |   |   | 36,903                                      |   |   | 14,109 |   |   | 13,259 |   |
| Start-up                  costs for Main Pass Energy                       |   |                                                                     |    |   |   |    |   |   |                                        |   |   |   |   |   |   |   |
| HubTM                  b                                                   |   |                                                                     | 10,714  |   |   | 9,749   |   |   | 11,461                                      |   |   | 11,411 |   |   | - |   |
| Exploration                  expense reimbursement c                       |   |                                                                     | (10,979 | )      |   | -       |   |   | -                                           |   |   | - |   |   | - |   |
| Litigation                  settlement d                                   |   |                                                                     | (446    | )      |   | 12,830  |   |   | -                                           |   |   | - |   |   | - |   |
| Insurance                  recovery e                                      |   |                                                                     | (3,306  | )      |   | (8,900  | )      |   | (1,074                                      | )      |   | - |   |   | - |   |
| Gain                  on sale of oil and gas properties                  f |   |                                                                     | -       |   |   | -       |   |   | -                                           |   |   | - |   |   | 44,141 |   |
| Operating                  income (loss)                                   |   |                                                                     | (32,567 | )      |   | (22,373 | )      |   | (43,940                                     | )      |   | (38,947 | ) |   | 17,942 |   |
| Income                  (loss) from continuing operations                  |   |                                                                     | (44,716 | )      |   | (31,470 | )      |   | (52,032                                     | )      |   | (41,847 | ) |   | 18,544 |   |
| Income                  (loss) from discontinued                           |   |                                                                     |    |   |   |    |   |   |                                        |   |   |   |   |   |   |   |
| operations                  g                                              |   |                                                                     | (2,938  | )      |   | (8,242  | )      |   | 361                                         |   |   | (11,233 | ) |   | (503 | ) |
| Cumulative                  effect of change in                            |   |                                                                     |    |   |   |    |   |   |                                        |   |   |   |   |   |   |   |
| accounting                  principle                                      |   |                                                                     | -       |   |   | -       |   |   | -                                           |   |   | 22,162 | h |   | - |   |
| Net                  income (loss) applicable to                           |   |                                                                     |    |   |   |    |   |   |                                        |   |   |   |   |   |   |   |
| common                  stock                                              |   |                                                                     | (49,269 | )      |   | (41,332 | )      |   | (53,313                                     | )      |   | (32,656 | ) |   | 17,041 |   |
|                                                                       |   |                                                                     |    |   |   |    |   |   |                                        |   |   |   |   |
| Diluted                  net income (loss) per share of common stock:      |   |                                                                     |    |   |   |    |   |   |                                        |   |   |   |   |
| Continuing                  operations                                     |   |                                                                     | (1.66   | )      |   | (1.35   | )      |   | (2.85                                       | )      |   | (2.62 | ) |   | 0.93 | i |
| Discontinued                  operations                                   |   |                                                                     | (0.10   | )      |   | (0.33   | )      |   | 0.02                                        |   |   | (0.68 | ) |   | (0.02 | )i |
| Cumulative                  effect of change in                            |   |                                                                     |    |   |   |    |   |   |                                        |   |   |   |   |   |   |   |
| accounting                  principle                                      |   |                                                                     | -       |   |   | -       |   |   |     -    |   |   | 1.33 |   |   |    -    |   |
| Diluted                  net income (loss) per share                       |   | $                                                                        | (1.76   | )      | $      | (1.68   | )      | $      | (2.83                                       | )      | $      | (1.97 | ) | $ | 0.91 | i |
|                                                                       |   |                                                                     |    |   |   |    |   |   |                                        |   |   |   |   |
| Average                  common shares outstanding                         |   |                                                                     |    |   |   |    |   |   |                                        |   |   |   |   |
| Basic                                                                      |   |                                                                     | 27,930  |   |   | 24,583  |   |   | 18,828                                      |   |   | 16,602 |   |   | 16,010 |   |
| Diluted                                                                    |   |                                                                     | 27,930  |   |   | 24,583  |   |   | 18,828                                      |   |   | 16,602 |   |   | 19,879 | k |
|                                                                       |   |                                                                     |    |   |   |    |   |   |                                        |   |   |   |   |   |   |   |
| At                  December 31:                                           |   |                                                                     |    |   |   |    |   |   |                                        |   |   |   |   |   |   |   |
| Working                  capital (deficit)                                 |   | $                                                                        | (25,906 | )      | $      | 67,135  |   | $      | 175,889                                     |   | $      | 83,143 |   | $ | 5,077 |   |
| Property,                  plant and equipment, net                        |   |                                                                     | 282,582 |   |   | 192,397 |   |   | 97,262                                      |   |   | 26,185 |   |   | 37,895 |   |
| Discontinued                  sulphur business assets                 |   |                                                                     | 362     |   |   | 375     |   |   | 312                                         |   |   | 312 |   |   | 355 |   |
| Total                  assets                                              |   |                                                                     | 408,677 |   |   | 407,636 |   |   | 383,920                                     |   |   | 169,280 |   |   | 72,448 |   |
| Long-term                  debt                                            |   |                                                                     | 244,620 | j      |   | 270,000 |   |   | 270,000                                     |   |   | 130,000 |   |   | - |   |
| Mandatorily                  redeemable convertible                        |   |                                                                     |    |   |   |    |   |   |                                        |   |   |   |   |   |   |   |
| preferred                  stock                                           |   |                                                                     | 29,043  |   |   | 28,961  |   |   | 29,565                                      |   |   | 30,586 |   |   | 33,773 |   |
| Stockholders’                  deficit                               |   | $                                                                        | (68,443 | )j     | $      | (86,590 | )      | $      | (49,546                                     | )      | $      | (84,593 | ) | $ | (64,431 | ) |

| a.                 | Includes                service revenues totaling $13.0 million in 2006, $12.0 million in                2005,                $14.2 million in 2004, $1.2 million in 2003 and $0.5 million in 2002.                The                service revenues primarily reflect recognition of the |
|------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**TABLE OF CONTENTS**
| 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                $20.0 million received upon inception of exploration agreement in                fourth                quarter of 2006 (Note 2). We recorded $19.0 million of this payment                as                exploration expense reimbursement with the remainder as a reduction                of                property, plant and equipment, less an $8.0 million payment to our                previous exploration venture partner for relinquishing certain of                their                exploration rights. |
|------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| e.                 | Reflects                proceeds received in connection with our hurricane-related insurance                claims (see “Main Pass Oil Facilities” below and Note 4). |
|------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| f.                 | Includes                sales of various oil and gas properties (Note                4). |
|------------------------------|------------------------------------------------------------------------------------------|

| g.                 | Amounts                in 2006 and 2005 include charges for modification of previously estimated                reclamation plans for remaining facilities at Port Sulphur, Louisiana                as a                result of hurricane damages ($3.4 million in 2006 and $3.5 million                in                2005). Amounts also include year-end reductions ($3.2 million in                2006,                $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. |
|------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| i.                 | 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 discontinued                operations. |
|------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| j.                 | In                the first quarter of 2006, debt conversion transactions were completed                that reduced long-term debt by $54.1 million and resulted in the                issuance                of approximately 3.6 million shares of McMoRan common stock (Note                5). |
|------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|                                                | 2006   |       | 2005   |   | 2004      |   | 2003   |      | 2002   |   |
|-----------------------------------------------------|--------|------------|--------|--------|-----------|--------|--------|-----------|--------|--------|
| **Operating                Data**                   |   |       |   |   |      |   |   |      |   |   |   |   |   |   |   |
| Sales                Volumes:                       |   |       |   |   |      |   |   |      |   |   |   |   |   |   |   |
| Gas                (thousand cubic feet, or Mcf)    |   | 14,545,600 |   |   | 7,938,000 |   |   | 1,978,500 |   |   | 2,011,100 |   |   | 5,851,300 | a |
| Oil                (barrels) b                      |   | 1,379,300  |   |   | 716,400   |   |   | 61,900    |   |   | 107,600 |   |   | 1,126,600 | c |
| Plant                products (equivalent barrels)d |   | 178,700    |   |   | 106,700   |   |   | 22,900    |   |   | 20,700 |   |   | 26,100 |   |
| Average                realization:                 |   |       |   |   |      |   |   |      |   |   |   |   |   |   |   |
| Gas                (per Mcf)                        | $      | 7.05       |   | $      | 9.24      |   | $      | 6.08      |   | $      | 5.64 |   | $ | 3.00 |   |
| Oil                (per barrel)                     |   | 60.55      |   |   | 53.82     |   |   | 39.83     |   |   | 30.76 |   |   | 22.28 |   |

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

| b.   | A                joint venture, in which we held a 33.3 percent interest, acquired                the Main                Pass oil operations in December 2002. 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 “Main Pass Oil Facilities” and Note                4). Oil sales from Main Pass totaled 779,000 barrels in 2006, 436,000                barrels in 2005, 4,200 barrels in 2003 and 1,001,900 barrels in 2002.                Amounts during 2003 represent the sale of the remaining Main Pass                product                inventory from December 2002. Main Pass produces sour crude oil,                which                sells at a discount to other crude oils. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c.   | Sales                volumes associated with properties sold in February 2002 totaled                18,500                barrels in 2002. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------|

| d.   | During                2006 revenues included $9.6 million of proceeds from plant products                (ethane, propane, butane, etc.). Revenues from plant products totaled                $5.0                million in 2005, $0.6 million in 2004, $0.8 million in 2003 and $0.9                million in 2002. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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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”). 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 **

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**TABLE OF CONTENTS**
**OPERATIONAL      ACTIVITIES**

**Exploration      Agreements**

----

**TABLE OF CONTENTS**
**Drilling      Update**

----

**TABLE      OF      CONTENTS**

**Acreage      Position**

**Production      Update **

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

**PROJECT**

**MAIN      PASS OIL FACILITIES**

----

**TABLE OF CONTENTS**
**CAPITAL      RESOURCES AND LIQUIDITY**

|                                 | For                Year Ended December 31, |   |
|--------------------------------------|--------------------------------------------|--------|
|                                 | 2006                                       |   | 2005 |   | 2004 |   |
| Continuing                operations |                                       |   |   |   |   |   |   |   |   |
| Operating                            | $                                          | 99.3   |   | $ | 74.8 |   | $ | (29.7 | ) |
| Investing                            |                                       | (231.1 | ) |   | (143.1 | ) |   | (75.8 | ) |
| Financing                            |                                       | 22.8   |   |   | 1.2 |   |   | 218.9 |   |

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**TABLE OF CONTENTS**
|   | For                Year Ended December 31, |   |
|--------|--------------------------------------------|--------|
|   | 2006                                       |   | 2005 |   | 2004 |   |

| Discontinued                operations |   |   |   |   |   |   |   |   |   |
|----------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Operating                              | $      | (4.9   | )      | $      | (4.7   | )      | $      | (5.5   | )      |
| Investing                              |   | -      |   |   | (0.1   | )      |   | (5.9   | )      |
| Financing                              |   | -      |   |   | -      |   |   | -      |   |
|                                   |   |   |   |   |   |   |   |   |   |
| Total                cash flow         |   |   |   |   |   |   |   |   |   |
| Operating                              | $      | 94.4   |   | $      | 70.1   |   | $      | (35.1  | )      |
| Investing                              |   | (231.1 | )      |   | (143.2 | )      |   | (81.7  | )      |
| Financing                              |   | 22.8   |   |   | 1.2    |   |   | 218.9  |   |

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

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**TABLE OF CONTENTS**
**Senior      Secured Revolving Credit Facility**

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**TABLE OF CONTENTS**
**Senior      Term Loan Agreement**

**Debt      Conversion Transactions**

**Securities      Offerings**

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**TABLE OF CONTENTS**
**Convertible      Preferred Stock **

**Sales      of Oil and Gas Properties**

**Contractual      Obligations and Commitments**

|       | Long                Term Debt                and |   |                      |   |                         |   |      |   |  Interest/           |   |   |
|------------|--------------------------------------------------|--------|---------------------------|--------|------------------------------|--------|-----------|--------|---------------------------|--------|--------|
|       | Convertible                                      |   | Retirement                |   | Oil                & Gas |   | Lease     |   | Dividend                  |   |   |
|       | Securities                a                      |   | Benefits                b |   | Obligationsc                 |   | Paymentsd |   | Payments                e |   | Total  |
| 2007       | $                                                | -      |                      | $      | 2.7                          |   | $         | 47.7   |                      | $      | 0.2    |   | $ | 25.7 |   | $ | 76.3 |
| 2008       |                                             | 110.9  |                      |   | 2.1                          |   |      | 0.4    |                      |   | 0.2    |   |   | 25.7 |   |   | 139.3 |
| 2009       |                                             | 10.0   |                      |   | 2.1                          |   |      | -      |                      |   | 0.1    |   |   | 18.3 |   |   | 30.5 |
| 2010       |                                             | 10.0   |                      |   | 2.1                          |   |      | -      |                      |   | -      |   |   | 17.1 |   |   | 29.2 |
| 2011       |                                             | 125.0  |                      |   | 2.0                          |   |      | -      |                      |   | -      |   |   | 15.9 |   |   | 142.9 |
| Thereafter |                                             | 89.8   |                      |   | 12.4                         |   |      | -      |                      |   | -      |   |   | 0.8 |   |   | 103.0 |
| Total      | $                                                | 345.7  |                      | $      | 23.4                         |   | $         | 48.1   |                      | $      | 0.5    |   | $ | 103.5 |   | $ | 521.2 |

| a.   | Amounts                due upon maturity subject to change based on future conversions by                the                holders of the securities. The outstanding balance payable to holders                of                record on the 5% convertible preferred stock totaled $29.8 million                at                December 31, 2006. 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 |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**TABLE OF CONTENTS**
| b.   | Includes                anticipated payments under our employee retirement health care plan                through 2016 (Note 8) and our future reimbursements associated with                the                contractual liability covering certain of our former sulphur retiree’s                medical costs (Note 11). Amounts shown in 2007 are included within                our                accrued liabilities at December 31, 2006. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c.   | These                oil & gas obligations primarily reflect our net working interest share                of authorized exploration and development project costs at December                31,                2006 (see below for total estimated exploration and development                expenditures for 2007). Amount also includes inventory purchase                commitments relating to our drilling activities, primarily for tubulars                and other related supplies. 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 $0.7 million third-party contractual consulting                costs                over the next two years (Note 11). |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| d.   | Amount                primarily reflects leased office space in Houston, Texas, which terminates                in April 2009. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------|

| e.   | Assumes                no conversions of our outstanding 5% convertible preferred stock                shares                (resulting in $1.5 million dividend payments per year), no conversions                of                our convertible senior notes (the cash to satisfy the $6.0 million                of                interest payments due in 2007 for the 5¼% convertible notes is held in                escrow at December 31, 2006) and a 12 percent effective annual interest                rate on our term loan. The interest rate on the term loan is variable                and                a 0.1 percent change in the rate would change our cumulative interest                on                the term loan by approximately $0.4 million. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**RESULTS      OF OPERATIONS**

** **

**Operations**

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**TABLE OF CONTENTS**
|                                                       |   | 2006   |    | 2005   |   |
|------------------------------------------------------------|--------|--------|---------|--------|--------|
| Oil                and natural gas revenues - prior year   |   | $      | 118,176 |   | $      | 15,611 |   |
| Increase                (decrease)                         |   |   |    |   |   |   |   |
| Price                realizations:                         |   |   |    |   |   |   |   |
| Natural                gas                                 |   |   | (31,829 | )      |   | 25,031 |   |
| Oil                                                        |   |   | 8,953   |   |   | 4,861 |   |
| Sales                volumes:                              |   |   |    |   |   |   |   |
| Natural                gas                                 |   |   | 61,032  |   |   | 36,255 |   |
| Oil                                                        |   |   | 36,012  |   |   | 31,234 |   |
| Plant                products revenue                      |   |   | 4,545   |   |   | 4,387 |   |
| Overriding                royalty and other                |   |   | (172    | )      |   | 797 |   |
| Oil                and natural gas revenues - current year |   | $      | 196,717 |   | $      | 118,176 |   |

**2006      Compared with 2005**

** **

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**TABLE OF CONTENTS**
** **

** **

----

**TABLE      OF      CONTENTS**

|                                           |   | Years                Ended December 31, |   |
|------------------------------------------------|--------|-----------------------------------------|--------|
|                                           |   | 2006                                    |   | 2005 |   |
| Geological                and geophysical,     |   |                                    |   |   |   |   |   |
| including                3-D seismic purchases |   | $                                       | 15.2   | a | $ | 7.4 |   |
| Dry                hole costs                  |   |                                    | 45.6   | b |   | 49.6 | c |
| Insurance                and other             |   |                                    | 6.9    |   |   | 6.8 |   |
|                                           |   | $                                       | 67.7   |   | $ | 63.8 |   |

| a.   | Includes                $8.1 million of compensation costs associated with outstanding stock-based                awards following adoption of a new accounting standard (see “New                Accounting Standards” below). |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.   | Includes                nonproductive exploratory drilling and related costs for “Marlin” at Grand                Isle Block 18 ($7.0 million), Vermilion Block 54 ($7.8 million),“Long                Point Deep” at Louisiana State Lease 18091($14.9 million), “Denali” at                South Pass Block 26 ($8.3 million) and the evaluation of the deeper                objectives at “Zigler Canal” in Vermilion Parish, Louisiana ($1.7                million). Also includes the costs incurred during 2006 at “Cabin Creek” at                West Cameron Block 95 ($2.7 million) and “Elizabeth” at South Marsh Island                Block 230 ($2.5 million), which were evaluated as nonproductive in                January                2006. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c.   | For                listing of nonproductive exploratory well drilling and related costs                for                2005 see “2005 Compared with 2004”below. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**2005      Compared with 2004**

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**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 |
| Insurance                and 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                also 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 No. 1” 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 include a $1.0 million impairment charge to write                off                the remaining unproved leasehold costs associated with the Eugene                Island                Block 97 field. |
|------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c.                 | Increase                over the 2004 period includes higher delay rental payments to maintain                portions of our lease acreage                position. |
|------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**TABLE      OF      CONTENTS**

**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 |
|--------------------------------------------|----------------------------|--------|---------|
|                                       | 2006                       |   | 2005    |   | 2006 |   | 2005 |
| Undiscounted                cost estimates | $                          | 41,600 |    | $ | 39,210 |   | $ | 42,244 |   | $ | 41,802 |
| Discounted                cost estimates   | $                          | 25,175 |    | $ | 21,760 |   | $ | 23,094 |   | $ | 21,786 |

** **

|                                                  | Inflation                Rate |   | Market                Risk Premium |   |
|-------------------------------------------------------|-------------------------------|--------|------------------------------------|--------|
|                                                  | +1%                           |   | -1%                                |   | +1% |   | -1% |   |
| Oil                & Gas reclamation obligations: |                          |   |                               |   |   |   |   |   |   |   |   |   |
| Undiscounted                                          | $                             | 3.5    |                               | $      | (3.2 | ) | $ | 0.4 |   | $ | (0.4 | ) |
| Discounted                                            |                          | 1.5    |                               |   | (1.6 | ) |   | 0.2 |   |   | (0.2 | ) |
| Sulphur                reclamation obligations:       |                          |   |                               |   |   |   |   |   |   |   |   |   |
| Undiscounted                                          |                          | 5.3    |                               |   | (4.4 | ) |   | 0.3 |   |   | (0.3 | ) |
| Discounted                                            |                          | 1.5    |                               |   | (1.8 | ) |   | 0.1 |   |   | (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 **

----

**TABLE OF CONTENTS**

**NEW      ACCOUNTING STANDARDS**

|                                               | 2006   |   | 2005   |   | 2004   |   |
|----------------------------------------------------|--------|--------|--------|--------|--------|--------|
| General                and administrative expenses | $      | 7,120  |   | $      | 615    |   | $ | 405 |   |
| Exploration                expenses                |   | 8,104  |   |   | 1,052  |   |   | 702 |   |
| Main                Pass Energy Hub start-up costs |   | 598    |   |   | 10     |   |   | - |   |
| Total                stock-based compensation cost | $      | 15,822 |   | $      | 1,677  |   | $ | 1,107 |   |
|                                               |   |   |   |   |   |   |   |   |   |

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**TABLE      OF      CONTENTS**

| ·   | Recognize                in its statements of financial position an asset for a defined benefit                postretirement plan’s overfunded status or a liability for a plan’s                underfunded status, |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Measure                a defined benefit postretirement plan’s assets and obligations that                determine its funded status as of the end of the employer’s fiscal year,                and |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Recognize                changes in the funded status of a defined benefit postretirement                plan in                comprehensive income/loss in the year in which the changes                occur. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**ENVIRONMENTAL      **

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**TABLE      OF      CONTENTS**

**CAUTIONARY      STATEMENT**

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**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                                  |

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**TABLE OF CONTENTS**
**REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

*      Internal Control-Integrated Framework*

----

**TABLE      OF      CONTENTS**

**REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

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**TABLE OF CONTENTS**
**McMoRan      EXPLORATION CO.**

**CONSOLIDATED      BALANCE SHEETS**

|                                                                                                                |   | December                31,   |     |
|---------------------------------------------------------------------------------------------------------------------|--------|-------------------------------|----------|
|                                                                                                                |   | 2006                          |     | 2005 |   |
|                                                                                                                |   | (In                Thousands) |     |
| **ASSETS**                                                                                                          |   |                          |     |   |   |   |   |
| **Current                assets:**                                                                                  |   |                          |     |   |   |   |   |
| Cash                and cash equivalents:                                                                           |   |                          |     |   |   |   |   |
| Continuing                operations, $0.3 million restricted at December 31, 2005                                  |   | $                             | 17,830   |   | $ | 131,179 |   |
| Discontinued                operations, all restricted                                                              |   |                          | 441      |   |   | 1,005 |   |
| Restricted                investments (Note 1)                                                                      |   |                          | 5,930    |   |   | 15,155 |   |
| Accounts                receivable (Note 1)                                                                         |   |                          | 45,636   |   |   | 36,954 |   |
| Inventories                (Note 1)                                                                                 |   |                          | 25,034   |   |   | 7,980 |   |
| Prepaid                expenses                                                                                     |   |                          | 16,190   |   |   | 1,348 |   |
| Current                assets from discontinued operations, excluding cash                                          |   |                          | 6,051    |   |   | 2,550 |   |
| Total                current assets                                                                                 |   |                          | 117,112  |   |   | 196,171 |   |
| Property,                plant and equipment, net (Note 4)                                                          |   |                          | 282,538  |   |   | 192,397 |   |
| Discontinued                sulphur business assets                                                                 |   |                          | 362      |   |   | 375 |   |
| Restricted                investments and cash (Note 1)                                                             |   |                          | 3,288    |   |   | 10,475 |   |
| Other                assets                                                                                         |   |                          | 5,377    |   |   | 8,218 |   |
| Total                assets                                                                                         |   | $                             | 408,677  |   | $ | 407,636 |   |
|                                                                                                                |   |                          |     |   |   |   |   |
| **LIABILITIES                AND STOCKHOLDERS’ DEFICIT**                                                      |   |                          |     |   |   |   |   |
| **Current                liabilities:**                                                                             |   |                          |     |   |   |   |   |
| Accounts                payable                                                                                     |   | $                             | 85,504   |   | $ | 64,023 |   |
| Accrued                liabilities                                                                                  |   |                          | 32,844   |   |   | 49,192 |   |
| Accrued                interest and dividends payable                                                               |   |                          | 5,479    |   |   | 5,635 |   |
| Current                portion of accrued sulphur reclamation costs (Note 7)                                        |   |                          | 12,909   |   |   | 4,724 |   |
| Current                portion of accrued reclamation costs for oil and gas                facilities               |   |                          | 2,604    |   |   | - |   |
| Other                current liabilities from discontinued operations                                               |   |                          | 3,678    |   |   | 5,462 |   |
| Total                current liabilities                                                                            |   |                          | 143,018  |   |   | 129,036 |   |
| Long-term                debt (Note 5)                                                                              |   |                          | 244,620  |   |   | 270,000 |   |
| Accrued                oil and gas reclamation costs                                                                |   |                          | 23,272   |   |   | 21,760 |   |
| Accrued                sulphur reclamation costs                                                                    |   |                          | 10,185   |   |   | 17,062 |   |
| Contractual                postretirement obligation related to discontinued operations (Note                11)    |   |                          | 9,831    |   |   | 11,517 |   |
| Other                long-term liabilities (Note 4)                                                                 |   |                          | 17,151   |   |   | 15,890 |   |
| Commitments                and contingencies (Note 11)                                                              |   |                          |     |   |   |   |   |
| Mandatorily                redeemable convertible preferred stock, net of unamortized offering                costs |   |                          |     |   |   |   |   |
| of                $0.8 million and $0.9 million at December 31, 2006 and 2005, respectively                         |   |                          | 29,043   |   |   | 28,961 |   |
| **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, 30,740,275                             |   |                          |     |   |   |   |   |
| shares                and 27,122,538 shares issued and outstanding, respectively                                    |   |                          | 307      |   |   | 271 |   |
| Capital                in excess of par value of common stock                                                       |   |                          | 477,178  |   |   | 410,139 |   |
| Unamortized                value of restricted stock units                                                          |   |                          | -        |   |   | (110 | ) |
| Accumulated                deficit                                                                                  |   |                          | (499,725 | ) |   | (452,071 | ) |
| Accumulated                comprehensive loss                                                                       |   |                          | (1,273   | ) |   | - |   |
| Common                stock held in treasury, 2,433,545 shares and 2,428,121 shares,                                |   |                          |     |   |   |   |   |
| at                cost, respectively                                                                                |   |                          | (44,930  | ) |   | (44,819 | ) |
| Stockholders’                deficit                                                                          |   |                          | (68,443  | ) |   | (86,590 | ) |
| Total                liabilities, convertible preferred stock and stockholders'                deficit              |   | $                             | 408,677  |   | $ | 407,636 |   |

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**TABLE OF CONTENTS**
**McMoRan      EXPLORATION CO.**

**CONSOLIDATED      STATEMENTS OF OPERATIONS**

|                                                                                 | Years                Ended December 31,                 |    |
|--------------------------------------------------------------------------------------|---------------------------------------------------------|---------|
|                                                                                 | 2006                                                    |    | 2005 |   | 2004 |   |
|                                                                                 | (In                Thousands, Except Per Share Amounts) |    |
| **Revenues:**                                                                        |                                                    |    |   |   |   |   |   |   |   |
| Oil                and natural gas                                                   | $                                                       | 196,717 |   | $ | 118,176 |   | $ | 15,611 |   |
| Service                                                                              |                                                    | 13,021  |   |   | 11,951 |   |   | 14,238 |   |
| Total                revenues                                                        |                                                    | 209,738 |   |   | 130,127 |   |   | 29,849 |   |
|                                                                                 |                                                    |    |   |   |   |   |   |   |   |
| **Costs                and expenses:**                                               |                                                    |    |   |   |   |   |   |   |   |
| Production                and delivery costs                                         |                                                    | 53,134  |   |   | 29,569 |   |   | 6,559 |   |
| Depletion,                depreciation and amortization expense                      |                                                    | 104,724 |   |   | 25,896 |   |   | 5,904 |   |
| Exploration                expenses                                                  |                                                    | 67,737  |   |   | 63,805 |   |   | 36,903 |   |
| General                and administrative expenses                                   |                                                    | 20,727  |   |   | 19,551 |   |   | 14,036 |   |
| Start-up                costs for Main Pass Energy Hub™                Project |                                                    | 10,714  |   |   | 9,749 |   |   | 11,461 |   |
| Exploration                expense reimbursement                                     |                                                    | (10,979 | ) |   | - |   |   | - |   |
| Litigation                settlement, net of insurance proceeds                      |                                                    | (446    | ) |   | 12,830 |   |   | - |   |
| Insurance                recovery                                                    |                                                    | (3,306  | ) |   | (8,900 | ) |   | (1,074 | ) |
| Total                costs and expenses                                              |                                                    | 242,305 |   |   | 152,500 |   |   | 73,789 |   |
| Operating                loss                                                        |                                                    | (32,567 | ) |   | (22,373 | ) |   | (43,940 | ) |
| Interest                expense, net                                                 |                                                    | (10,203 | ) |   | (15,282 | ) |   | (10,252 | ) |
| Other                (expense) income, net                                           |                                                    | (1,946  | ) |   | 6,185 |   |   | 2,160 |   |
| Loss                from continuing operations                                       |                                                    | (44,716 | ) |   | (31,470 | ) |   | (52,032 | ) |
| (Loss)                income from discontinued operations                            |                                                    | (2,938  | ) |   | (8,242 | ) |   | 361 |   |
| Net                loss                                                              |                                                    | (47,654 | ) |   | (39,712 | ) |   | (51,671 | ) |
| Preferred                dividends and amortization of convertible preferred         |                                                    |    |   |   |   |   |   |   |   |
| stock                issuance costs                                                  |                                                    | (1,615  | ) |   | (1,620 | ) |   | (1,642 | ) |
| Net                loss applicable to common stock                                   | $                                                       | (49,269 | ) | $ | (41,332 | ) | $ | (53,313 | ) |
|                                                                                 |                                                    |    |   |   |   |   |   |   |   |
| **Basic                and diluted net loss per share of common stock:**             |                                                    |    |   |   |   |   |   |   |   |
| Net                loss from continuing operations                                   |                                                    | (1.66   | ) |   | $(1.35 | ) |   | $(2.85 | ) |
| Net                loss from discontinued operations                                 |                                                    | (0.10   | ) |   | (0.33 | ) |   |  0.02 |   |
| Net                loss per share of common stock                                    |                                                    | $(1.76  | ) |   | $(1.68 | ) |   | $(2.83 | ) |
|                                                                                 |                                                    |    |   |   |   |   |   |   |   |
| **Average                common shares outstanding:**                                |                                                    |    |   |   |   |   |   |   |   |
| Basic                and diluted                                                     |                                                    | 27,930  |   |   | 24,583 |   |   | 18,828 |   |

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**TABLE OF CONTENTS**
**McMoRan      EXPLORATION CO.**

**CONSOLIDATED      STATEMENTS OF CASH FLOW**

|                                                                           |   | Years                Ended December 31, |     |
|--------------------------------------------------------------------------------|--------|-----------------------------------------|----------|
|                                                                           |   | 2006                                    |     | 2005 |   | 2004 |   |
|                                                                           |   | (In                Thousands)           |     |
| **Cash                flow from operating activities:**                        |   |                                    |     |   |   |   |   |   |   |   |
| Net                loss                                                        |   | $                                       | (47,654  | ) | $ | (39,712 | ) | $ | (51,671 | ) |
| Adjustments                to reconcile net loss to net cash                   |   |                                    |     |   |   |   |   |   |   |   |
| used                in operating activities:                                   |   |                                    |     |   |   |   |   |   |   |   |
| Loss                (income) from discontinued operations                      |   |                                    | 2,938    |   |   | 8,242 |   |   | (361 | ) |
| Depletion,                depreciation and amortization                        |   |                                    | 104,724  |   |   | 25,896 |   |   | 5,904 |   |
| Exploration                drilling and related expenditures                   |   |                                    | 45,591   |   |   | 49,621 |   |   | 23,679 |   |
| Stock                warrants granted - Main Pass Energy Hub™            |   |                                    | -        |   |   | - |   |   | 188 |   |
| Compensation                associated with stock-based awards                 |   |                                    | 15,822   |   |   | 1,677 |   |   | 1,107 |   |
| Loss                on induced conversion of convertible senior notes          |   |                                    | 4,301    |   |   | - |   |   | - |   |
| Amortization                of deferred financing costs                        |   |                                    | 1,891    |   |   | 2,225 |   |   | 1,599 |   |
| Reclamation                and mine shutdown expenditures                      |   |                                    | (670     | ) |   | (4 | ) |   | (288 | ) |
| Other                                                                          |   |                                    | 997      |   |   | (261 | ) |   | 285 |   |
| (Increase)                decrease in working capital:                         |   |                                    |     |   |   |   |   |   |   |   |
| Accounts                receivable                                             |   |                                    | (4,523   | ) |   | (2,182 | ) |   | (6,990 | ) |
| Accounts                payable and accrued liabilities                        |   |                                    | 7,743    |   |   | 36,469 |   |   | (3,231 | ) |
| Inventories                                                                    |   |                                    | (17,050  | ) |   | (7,127 | ) |   | 103 |   |
| Prepaid                expenses                                                |   |                                    | (14,845  | ) |   | (48 | ) |   |   |   |
| (Increase)                decrease in working capital                          |   |                                    | (28,675  | ) |   | 27,112 |   |   | (10,118 | ) |
| Net                cash provided by (used in) continuing operations            |   |                                    | 99,265   |   |   | 74,796 |   |   | (29,676 | ) |
| Net                cash used in discontinued operations                        |   |                                    | (4,916   | ) |   | (4,681 | ) |   | (5,459 | ) |
| Net                cash provided by (used in) operating activities             |   |                                    | 94,349   |   |   | 70,115 |   |   | (35,135 | ) |
|                                                                           |   |                                    |     |   |   |   |   |   |   |   |
| **Cash                flow from investing activities:**                        |   |                                    |     |   |   |   |   |   |   |   |
| Exploration,                development and other capital expenditures         |   |                                    | (252,369 | ) |   | (161,262 | ) |   | (57,241 | ) |
| Property                insurance reimbursement                                |   |                                    | 3,947    |   |   | 3,500 |   |   | - |   |
| Purchase                of restricted investments                              |   |                                    | -        |   |   | - |   |   | (21,191 | ) |
| Proceeds                from restricted investments                            |   |                                    | 16,505   |   |   | 15,150 |   |   | 7,800 |   |
| Acquisition                of K-Mc I LLC, net of acquired cash of $0.6 million |   |                                    | -        |   |   | - |   |   | (7,415 | ) |
| Increase                in restricted investments                              |   |                                    | (229     | ) |   | (502 | ) |   | (265 | ) |
| Proceeds                from disposition of oil and gas properties             |   |                                    | 1,021    |   |   | - |   |   | 2,550 |   |
| Proceeds                from sale of other property plant and equipment        |   |                                    | 50       |   |   | - |   |   | - |   |
| Net                cash used in continuing activities                          |   |                                    | (231,075 | ) |   | (143,114 | ) |   | (75,762 | ) |
| Net                cash used in discontinued operations                        |   |                                    | -        |   |   | (66 | ) |   | (5,920 | ) |
| Net                cash used in investing activities                           |   |                                    | (231,075 | ) |   | (143,180 | ) |   | (81,682 | ) |
|                                                                           |   |                                    |     |   |   |   |   |   |   |   |
| **Cash                flow from financing activities:**                        |   |                                    |     |   |   |   |   |   |   |   |
| Net                borrowings under senior secured revolving credit facility   |   |                                    | 28,750   |   |   | - |   |   | - |   |
| Payments                for induced conversion of convertible senior notes     |   |                                    | (4,301   | ) |   | - |   |   | - |   |
| Proceeds                from issuance of 5¼% convertible senior notes     |   |                                    | -        |   |   | - |   |   | 140,000 |   |
| Net                proceeds from equity offering                               |   |                                    | -        |   |   | - |   |   | 85,478 |   |
| Financing                costs                                                 |   |                                    | (531     | ) |   | - |   |   | (5,624 | ) |
| Dividends                paid on convertible preferred stock                   |   |                                    | (1,494   | ) |   | (1,129 | ) |   | (1,531 | ) |
| Proceeds                from exercise of stock options and other               |   |                                    | 389      |   |   | 2,363 |   |   | 610 |   |
| Net                cash provided by continuing operations                      |   |                                    | 22,813   |   |   | 1,234 |   |   | 218,933 |   |
| Net                cash activity from discontinued operations                  |   |                                    | -        |   |   | - |   |   | - |   |
| Net                cash provided by financing activities                       |   |                                    | 22,813   |   |   | 1,234 |   |   | 218,933 |   |

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**TABLE OF CONTENTS**
**McMoRan      EXPLORATION CO.**

**CONSOLIDATED      STATEMENTS OF CASH FLOW**

|                                                                 |   | Years                Ended December 31, |     |
|----------------------------------------------------------------------|--------|-----------------------------------------|----------|
|                                                                 |   | 2006                                    |     | 2005 |   | 2004 |   |
|                                                                 |   | (In                Thousands)           |     |
| Net                (decrease) increase in cash and cash equivalents  |   |                                    | (113,913 | ) |   | (71,831 | ) |   | 102,116 |   |
| Cash                and cash equivalents at beginning of year        |   |                                    | 132,184  |   |   | 204,015 |   |   | 101,899 |   |
| Cash                and cash equivalents at end of year              |   |                                    | 18,271   |   |   | 132,184 |   |   | 204,015 |   |
| Less                restricted cash from continuing operations       |   |                                    | -        |   |   | (278 | ) |   | (3,726 | ) |
| Less                restricted cash from discontinued operations     |   |                                    | (441     | ) |   | (1,005 | ) |   | (980 | ) |
| Unrestricted                cash and cash equivalents at end of year |   | $                                       | 17,830   |   | $ | 130,901 |   | $ | 199,309 |   |
|                                                                 |   |                                    |     |   |   |   |   |   |   |   |
| Interest                paid                                         |   | $                                       | 9,382    |   | $ | 15,150 |   | $ | 7,800 |   |
| Income                taxes paid                                     |   | $                                       | -        |   | $ | - |   | $ | - |   |

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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, |     |
|--------------------------------------------------------------------------------|--------|-----------------------------------------|----------|
|                                                                           |   | 2006                                    |     | 2005 |   | 2004 |   |
| **Preferred                stock:**                                            |   |                                    |     |   |   |   |   |   |   |   |
| Balance                at beginning and end of year                            |   | $                                       | -        |   | $ | - |   | $ | - |   |
|                                                                           |   |                                    |     |   |   |   |   |   |   |   |
| **Common                stock:**                                               |   |                                    |     |   |   |   |   |   |   |   |
| Balance                at beginning of year representing 27,122,538 shares     |   |                                    |     |   |   |   |   |   |   |   |
| in                2006, 26,670,574 shares in 2005 and 19,181,251 shares        |   |                                    |     |   |   |   |   |   |   |   |
| in                2004                                                         |   |                                    | 271      |   |   | 267 |   |   | 192 |   |
| Shares                issued in debt conversion transactions representing      |   |                                    |     |   |   |   |   |   |   |   |
| 3,552,494                shares (Note 5)                                       |   |                                    | 36       |   |   | - |   |   | - |   |
| Shares                issued on equity offering representing 7,130,000         |   |                                    |     |   |   |   |   |   |   |   |
| shares                (at $12.75 per share) (Note 5)                           |   |                                    | -        |   |   | - |   |   | 71 |   |
| Exercise                of stock options representing 26,823 shares in 2006,   |   |                                    |     |   |   |   |   |   |   |   |
| 255,699                shares in 2005 and 82,220 shares in 2004                |   |                                    | -        |   |   | 3 |   |   | 1 |   |
| Restricted                stock units vested and other representing 30,104     |   |                                    |     |   |   |   |   |   |   |   |
| shares                in 2006, 46,709 in 2005 and 42,258 shares in 2004        |   |                                    | -        |   |   | - |   |   | 1 |   |
| Mandatorily                redeemable preferred stock conversions              |   |                                    |     |   |   |   |   |   |   |   |
| representing                8,316 shares in 2006, 149,556 shares in 2005       |   |                                    |     |   |   |   |   |   |   |   |
| and                234,845 shares in 2004                                      |   |                                    | -        |   |   | 1 |   |   | 2 |   |
| Balance                at end of year representing, 30,740,275 shares in       |   |                                    |     |   |   |   |   |   |   |   |
| 2006,                27,122,538 shares in 2005 and 26,670,574 shares in        |   |                                    |     |   |   |   |   |   |   |   |
| 2004                                                                           |   |                                    | 307      |   |   | 271 |   |   | 267 |   |
|                                                                           |   |                                    |     |   |   |   |   |   |   |   |
| **Capital                in Excess of Par Value:**                             |   |                                    |     |   |   |   |   |   |   |   |
| Balance                at beginning of year                                    |   |                                    | 410,139  |   |   | 406,458 |   |   | 319,530 |   |
| Shares                issued in debt conversion transactions (Note 5)          |   |                                    | 52,513   |   |   | - |   |   | - |   |
| Mandatorily                redeemable preferred stock conversions              |   |                                    | 40       |   |   | 719 |   |   | 1,130 |   |
| Stock-based                compensation expense (Note 1)                       |   |                                    | 15,822   |   |   | 1,168 |   |   | 561 |   |
| Exercise                of stock options                                       |   |                                    | 389      |   |   | 2,363 |   |   | 610 |   |
| Exercise                of stock options through tender of outstanding shares  |   |                                    | -        |   |   | 1,051 |   |   | 464 |   |
| Dividends                on preferred stock and amortization of issuance cost  |   |                                    | (1,615   | ) |   | (1,620 | ) |   | (1,642 | ) |
| Reclass                unamortized value of restricted stock units on adoption |   |                                    |     |   |   |   |   |   |   |   |
| of                new accounting standard                                      |   |                                    | (110     | ) |   | - |   |   | - |   |
| Shares                issued in equity offering                                |   |                                    | -        |   |   | - |   |   | 85,407 |   |
| Restricted                stock unit grants                                    |   |                                    | -        |   |   | - |   |   | 210 |   |
| Issuance                of stock warrants                                      |   |                                    | -        |   |   | - |   |   | 188 |   |
| Balance                at end of year                                          |   |                                    | 477,178  |   |   | 410,139 |   |   | 406,458 |   |
|                                                                           |   |                                    |     |   |   |   |   |   |   |   |
| **Unamortized                value of restricted stock units:**                |   |                                    |     |   |   |   |   |   |   |   |
| Balance                beginning of year                                       |   |                                    | (110     | ) |   | (619 | ) |   | (955 | ) |
| Reclass                unamortized value of restricted stock units on adoption |   |                                    |     |   |   |   |   |   |   |   |
| of                new accounting standard                                      |   |                                    | 110      |   |   |   |   |   |   |   |
| Deferred                compensation associated with restricted stock units    |   |                                    |     |   |   |   |   |   |   |   |
| (Note                1)                                                        |   |                                    | -        |   |   | - |   |   | (210 | ) |
| Amortization                of related deferred compensation                   |   |                                    | -        |   |   | 509 |   |   | 546 |   |
| Balance                end of year                                             |   |                                    | -        |   |   | (110 | ) |   | (619 | ) |
|                                                                           |   |                                    |     |   |   |   |   |   |   |   |
| **Accumulated                Deficit:**                                        |   |                                    |     |   |   |   |   |   |   |   |
| Balance                at beginning of year                                    |   |                                    | (452,071 | ) |   | (412,359 | ) |   | (360,688 | ) |
| Net                loss                                                        |   |                                    | (47,654  | ) |   | (39,712 | ) |   | (51,671 | ) |
| Balance                at end of year                                          |   |                                    | (499,725 | ) |   | (452,071 | ) |   | (412,359 | ) |

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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, |    |
|-------------------------------------------------------------------------------|--------|-----------------------------------------|---------|
|                                                                          |   | 2006                                    |    | 2005 |   | 2004 |   |
|                                                                          |   |                                    |    |   |   |   |   |   |   |   |
| **Accumulated                Comprehensive Loss:**                            |   |                                    |    |   |   |   |   |   |   |   |
| Balance                at beginning of year                                   |   |                                    | -       |   |   | - |   |   | - |   |
| Adoption                of new accounting standard (Notes 1 and 8)            |   |                                    | (1,273  | ) |   | - |   |   | - |   |
| Balance                at end of year                                         |   |                                    | (1,273  | ) |   | - |   |   | - |   |
|                                                                          |   |                                    |    |   |   |   |   |   |   |   |
| **Common                Stock Held in Treasury:**                             |   |                                    |    |   |   |   |   |   |   |   |
| Balance                at beginning of year representing, 2,428,121 shares in |   |                                    |    |   |   |   |   |   |   |   |
| 2006,                2,345,759 in 2005 and 2,302,068 shares in 2004           |   |                                    | (44,819 | ) |   | (43,293 | ) |   | (42,672 | ) |
| Tender                of 5,424 shares in 2006, 82,362 shares in 2005 and      |   |                                    |    |   |   |   |   |   |   |   |
| 43,691                shares in 2004 associated with the exercise of stock    |   |                                    |    |   |   |   |   |   |   |   |
| options                and the vesting of restricted stock                    |   |                                    | (111    | ) |   | (1,526 | ) |   | (621 | ) |
| Balance                at end of year representing 2,433,545 shares in 2006,  |   |                                    |    |   |   |   |   |   |   |   |
| 2,428,121                shares in 2005 and 2,345,759 shares in 2004          |   |                                    | (44,930 | ) |   | (44,819 | ) |   | (43,293 | ) |
|                                                                          |   |                                    |    |   |   |   |   |   |   |   |
| **Total                stockholders’ deficit**                          |   | $                                       | (68,443 | ) | $ | (86,590 | ) | $ | (49,546 | ) |

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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. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

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**TABLE OF      CONTENTS**

**Use      of Estimates. **

**Cash      and Cash Equivalents.**

**Accounts      Receivable.**

|                                     |   | December                31,   |   |
|------------------------------------------|--------|-------------------------------|--------|
|                                     |   | 2006                          |   | 2005 |   |
|                                     |   | (In                Thousands) |   |
| Accounts                receivable:      |   |                          |   |   |   |   |   |
| Customers                                |   | $                             | 19,151 |   | $ | 19,156 |   |
| Joint                interest partners   |   |                          | 24,883 |   |   | 17,360 |   |
| Other                                    |   |                          | 1,602  |   |   | 438 |   |
| Total                accounts receivable |   | $                             | 45,636 |   | $ | 36,954 |   |

**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. |
|--------------------|----------------------------------------------------------------------------|

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**TABLE OF CONTENTS**
| ·   | 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, are revised once every year. Any such 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 $5.3 million in 2006, $2.1 million in 2005 and $0.9 million                in                2004. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

** **

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**TABLE OF CONTENTS**
**Restricted      investments and cash. **

**Revenue      Recognition. **

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**TABLE OF CONTENTS**
**Service      Revenue. **

**Major      Customers.**

**Reclamation      and Closure Costs.**

**Accumulated      Comprehensive Loss**

| Net                loss                         | $      | (47,654 | )      |
|-------------------------------------------------|--------|---------|--------|
| Adjustment                to apply SFAS No. 158 |   | (1,273  | )      |
| Total                comprehensive loss         | $      | (48,927 | )      |
|                                            |   |    |   |

**Financial      Instruments and Contracts. **

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**TABLE OF CONTENTS**
**Share      Purchase Program. **

**Restricted      Stock Units. **

**Earnings      Per Share.**

|                                                                               |   | Years                Ended December 31, |   |
|------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|
|                                                                               |   | 2006                                    |   | 2005 |   | 2004 |   |
|                                                                               |   |                                    |   |   |   |   |   |   |   |   |
| In-the-money                stock options a                ,b                 |   |                                    | 1,097  |   |   | 1,336 |   |   | 2,243 |   |
| Shares                issuable upon exercise of stock warrants a                ,c |   |                                    | 1,753  |   |   | 1,800 |   |   | 1,654 |   |
| Shares                issuable upon assumed conversion of                          |   |                                    |   |   |   |   |   |   |   |   |
| 5%                mandatorily redeemable preferred stock d                         |   |                                    | 6,205  |   |   | 6,214 |   |   | 6,363 |   |
| Shares                issuable upon assumed conversion of                          |   |                                    |   |   |   |   |   |   |   |   |
| 6%                convertible senior notes e                                       |   |                                    | 7,079  |   |   | 9,123 |   |   | 9,123 |   |
| Shares                issuable upon assumed conversion of                          |   |                                    |   |   |   |   |   |   |   |   |
| 5¼%                convertible senior notes f                                 |   |                                    | 6,938  |   |   | 8,446 |   |   | 8,446 |   |

| 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). |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**TABLE OF CONTENTS**
| d.   | Amount                represents total equivalent common stock shares assuming conversion                of 5%                mandatorily redeemable preferred stock (Note 5). Preferred dividends                and                related costs totaled $1.6 million in 2006 and 2005, and $1.7 million                in                2004. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| e.   | Amount                represents total equivalent common stock shares assuming conversion                of 6%                convertible senior notes (Note 5). Net                interest expense on the 6% convertible senior notes totaled $4.7                million                in 2006, $8.1 million during 2005 and $8.5 million in                2004. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| f.   | Amount                represents total equivalent common stock shares assuming conversion                of 5¼%                convertible senior notes (Note 5). The amount would have been reduced                in                2004 if included in the diluted earning per share calculation to                reflect                the 87-day period the notes were outstanding (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 $4.2 million in 2006, $7.2 million in 2005 and $1.8 million                in                2004. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Accounting      for Stock-Based Compensation**

**Stock-Based      Compensation Cost**

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**TABLE OF CONTENTS**
|                                                                           | Year                Ended December 31, |   |
|--------------------------------------------------------------------------------|----------------------------------------|--------|
|                                                                           | 2006                                   |   | 2005 |   | 2004 |   |
| Cost                of options awarded to employees (including Directors)      | $                                      | 15,129 | a | $ | 858 | b | $ | 281 | b |
| Cost                of options awarded to non-employees and Advisory Directors |                                   | 588    |   |   | 310 |   |   | 280 |   |
| Cost                of restricted stock units                                  |                                   | 105    |   |   | 509 |   |   | 546 |   |
| Total                stock-based compensation cost                             | $                                      | 15,822 |   | $ | 1,677 |   | $ | 1,107 |   |

| a.                 | Includes                $5.8 million of compensation charges associated with immediately                vested                stock options granted to McMoRan’s Co-Chairmen in lieu of receiving any                cash compensation during 2006. Also includes $1.9 million of compensation                charges related to stock options granted to retirement-eligible employees,                which resulted in one-year’s compensation expense being immediately                recognized at the date of the stock option grant (see “Accounting for                Stock-Based Compensation” above). |
|------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.                 | Reflects                compensation charge resulting from difference between the market                price on                the award date and the market price on the ultimate date of grant                (Note                8). The amortization of the remaining $1.0 million of compensation                costs                resulting from these types of stock option grants ceased upon adoption                of                SFAS No. 123R.  |
|------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

** **

|                                                                |   |   | 2006  |   |
|---------------------------------------------------------------------|--------|--------|-------|--------|
| Fair                value (per share) of stock option on grant date |   | $      | 11.85 | a      |
| Expected                and weighted average volatility             |   |   | 55.5  | %      |
| Expected                life of options (in years)                  |   |   | 7     | a      |
| Risk-free                interest rate                              |   |   | 4.5   | %      |

| a.   | Not                included in these amounts are immediately vested stock options (500,000                shares granted to the Co-Chairmen in lieu of any cash compensation                for                2006), having an expected life of six years and a grant date fair                value of                $11.52 per share. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                           | 2005   |    | 2004   |   |
|------------------------------------------------------------------------------------------------|--------|---------|--------|--------|
| Basic                net loss applicable to common stock, as reported                          | $      | (41,332 | )      | $      | (53,313 | ) |
| Add:                Stock-based employee compensation expense recorded in                      |   |    |   |   |   |   |
| net                income for restricted                stock units and employee stock options |   | 1,367   |   |   | 827 |   |
| Deduct:                Total stock-based employee compensation expense                         |   |    |   |   |   |   |
| determined                under fair value based method for all awards                         |   | (11,439 | )      |   | (8,347 | ) |
| Pro                forma diluted net loss applicable to common stock                           | $      | (51,404 | )      | $      | (60,833 | ) |
|                                                                                           |   |    |   |   |   |   |
| Net                loss per share:                                                             |   |    |   |   |   |   |
| Basic                and diluted - as reported                                                 | $      | (1.68   | )      | $      | (2.83 | ) |
| Basic                and diluted - pro forma                                                   | $      | (2.09   | )      | $      | (3.23 | ) |

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**TABLE      OF CONTENTS**

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

**Other      New Accounting Standards.**

| ·   | Recognize                in its statements of financial position an asset for a defined benefit                postretirement plan’s overfunded status or a liability for a plan’s                underfunded status, |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Measure                a defined benefit postretirement plan’s assets and obligations that                determine its funded status as of the end of the employer’s fiscal year,                and |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Recognize                changes in the funded status of a defined benefit postretirement                plan in                comprehensive income/loss in the year in which the changes                occur. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**TABLE OF CONTENTS**
|                                                | Before                 |   |       |   |                   | After    |   |
|-----------------------------------------------------|------------------------|--------|------------|--------|------------------------|----------|--------|
|                                                | Applying               |   |       |   |                   | Applying |   |
|                                                | SFAS                   |   |       |   |                   | SFAS     |   |
|                                                | No.                158 |   | Adjustment |   | No.                158 |     |
| Accrued                liabilities                  | $                      | 32,219 |       | $      | 625                    |     | $      | 32,844 |   |
| Other                long-term liabilities          |                   | 16,503 |       |   | 648                    |     |   | 17,151 |   |
| Accumulated                other comprehensive loss |                   | -      |       |   | (1,273                 | )        |   | (1,273 | ) |

**2.      OIL & GAS EXPLORATION ACTIVITIES**

**Acreage      **

** **

|                                | Number                of                Leases |  GrossAcres |  Net                Acres |
|-------------------------------------|------------------------------------------------|------------------|--------------------------------|
| At                December 31, 2006 | 400                                            | 370,000          | 132,000                        |

**Exploration      Funding Arrangements**

----

**TABLE OF CONTENTS**

----

**TABLE OF CONTENTS**
**3.      MAIN PASS ENERGY HUB**
**TM**

**      PROJECT**

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

|                                                                |   | December                31, |     |
|---------------------------------------------------------------------|--------|-----------------------------|----------|
|                                                                |   | 2006                        |     | 2005 |   |
| Oil                and gas property, plant and equipment            |   | $                           | 521,372  |   | $ | 327,870 |   |
| Other                                                               |   |                        | 31       |   |   | 56 |   |
|                                                                |   |                        | 520,703  |   |   | 327,926 |   |
| Accumulated                depletion, depreciation and amortization |   |                        | (238,865 | ) |   | (135,529 | ) |
| Property,                plant and equipment, net                   |   | $                           | 282,538  |   | $ | 192,397 |   |

----

**TABLE OF CONTENTS**
**Reversionary      Interests**

**Transactions      Involving the Main Pass Oil Facilities **

----

**TABLE OF CONTENTS**
**Other      assets and liabilities**

|                                                              |   | December                31, |   |
|-------------------------------------------------------------------|--------|-----------------------------|--------|
|                                                              |   | 2006                        |   | 2005 |   |
| Employee                postretirement medical liability (Note 8) |   | $                           | 5,668  |   | $ | 4,812 |   |
| Accrued                workers compensation and group insurance   |   |                        | 2,242  |   |   | 2,050 |   |
| Sulphur-related                environmental liability (Note 11)  |   |                        | 3,161  |   |   | 3,161 |   |
| Defined                benefit pension plan liability (Note 8)    |   |                        | 2,141  |   |   | 1,953 |   |
| Nonqualified                pension plan liability                |   |                        | 1,012  |   |   | 849 |   |
| Deferred                compensation and other                    |   |                        | 208    |   |   | 346 |   |
| Liability                for management services (Note 10)        |   |                        | 2,719  |   |   | 2,719 |   |
|                                                              |   | $                           | 17,151 |   | $ | 15,890 |   |

----

**TABLE OF CONTENTS**
**5.      LONG-TERM DEBT and EQUITY OFFERING **

|                                                    | December                31,   |    |
|---------------------------------------------------------|-------------------------------|---------|
|                                                    | 2006                          |    | 2005 |   |
|                                                    | (in                thousands) |    |
| 6%                convertible senior notes              | $                             | 100,870 |   | $ | 130,000 |   |
| 5                ¼% convertible senior notes       |                          | 115,000 |   |   | 140,000 |   |
| Senior                secured revolving credit facility |                          | 28,750  |   |   | - |   |
| Long-term                debt                           | $                             | 244,620 |   | $ | 270,000 |   |

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

**6%      Convertible Senior Notes**

**Debt      Conversion Transactions**

**Senior      Secured Revolving Credit Facility**

----

**TABLE OF CONTENTS**
**Second      Tier Term Loan **

**6.      MANDATORILY REDEEMABLE PREFERRED STOCK **

----

**TABLE OF CONTENTS**
**7.      DISCONTINUED OPERATIONS**

|                                                      |   | Years                Ended December 31, |   |
|-----------------------------------------------------------|--------|-----------------------------------------|--------|
|                                                      |   | 2006                                    |   | 2005 |   | 2004 |   |
| Sulphur                retiree costs a                    |   |                                    | (1,436 | ) |   | (2,513 | ) |   | (2,777 | ) |
| Legal                expenses                             |   |                                    | 126    |   |   | 387 |   |   | 1,629 | b |
| Caretaking                costs                           |   |                                    | 1,889  |   |   | 1,476 |   |   | 1,055 |   |
| Accretion                expense - sulphur                |   |                                    |   |   |   |   |   |   |   |   |
| reclamation                obligations c                  |   |                                    | 4,417  | d |   | 7,205 | e |   | 634 |   |
| Insurance                                                 |   |                                    | 881    |   |   | 1,030 |   |   | (384 | )f |
| General                and administrative                 |   |                                    | 50     |   |   | 196 |   |   | 284 |   |
| Other                                                     |   |                                    | (2,989 | )g |   | 461 | h |   | (802 | )i |
| Loss                (income) from discontinued operations |   | $                                       | 2,938  |   |   | 8,242 |   |   | (361 | ) |

| a.   | Reflects                postretirement benefit costs associated with certain retired former                sulphur employees (Note 11). Amount during 2006 reflects $3.2 million                reduction in a contractual liability resulting primarily from a                significant reduction in the number of participants in the related                benefit                plans. The contractual liability was reduced by $3.5 million at year                end                2005 to reflect the expected future benefit associated with the initiation                of the federal prescription drug program. The 2004 amount reflected                a $5.2                million reduction in a contractual liability reflecting a decrease                in the                number of participants in the plans and certain plan amendments made                by                the plan sponsor. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.   | Reflects                the costs associated with 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 (Note 11). |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

| d.   | Includes                a $3.4 million charge to expense at December 31, 2006 to increase                the                accrued reclamation costs for the Port Sulphur facilities to their                estimated fair value. The increased estimate incorporates the planned                acceleration of certain of these closure costs as well as higher                costs                associated with a portion of the facilities. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| e.   | 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. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| f.   | 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. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| g.   | Includes                income of $3.5 million related to approved insurance claims resulting                from                property damages at the Port Sulphur facilities. Also includes $0.5                million of additional hurricane repair costs. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| i.   | 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. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Exit      From Sulphur Business**

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**TABLE OF CONTENTS**
**Sulphur      Reclamation Obligations**

**8.      EMPLOYEE BENEFITS**

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

|   Plan                                                                   |   | Authorized                amount of                stock-based awards |   | Shares                available for                grant at December                31, 2006 |
|------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------|
| 2005                Stock Incentive Plan (“the 2005 Plan”)             |   | 3,500,000                                                             |   | 1,335,500                                                                                    |
| 2004                Director Compensation Plan (“2004 Directors Plan”) |   | 175,000                                                               |   | 140,272                                                                                      |
| 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                                                               |   | 4,500                                                                                        |
| 1998                Stock Option Plan for Non Employee Directors                   |   |                                                                  |   |                                                                                         |
| (the                Directors Plan”)                                         |   | 75,000                                                                |   | 24,375                                                                                       |
| 1998                Adjusted Stock Award Plan                                      |   | 794,250                                                               |   | -                                                                                            |

----

**TABLE OF CONTENTS**
|                              |   | 2006                     |   | 2005                        |   | 2004                     |
|-----------------------------------|--------|--------------------------|--------|-----------------------------|--------|--------------------------|
|                              |   | Number                of |   | Average                     |   | Number                of |   | Average |   | Number                of |   | Average |
|                              |   | Options                  |   | Option                Price |   | Options                  |   | Option                Price |   | Options |   | Option                Price |
| Beginning                of year  |   | 5,845,416                |   | 14.57                       |   |                     | 4,820,860 |   | $13.97 |   |   | 4,069,572 |   | $13.50 |   |
| Granted                           |   | 1,365,500                |   | 19.79                       |   |                     | 1,310,500 |   | 16.74 |   |   | 996,092 |   | 16.63 |   |
| Exercised                         |   | (26,823                  | )      | 14.52                       |   |                     | (255,699 | ) | 13.32 |   |   | (82,220 | ) | 13.08 |   |
| Expired/forfeited                 |   | (88,102                  | )      | 20.71                       |   |                     | (30,245 | ) | 22.25 |   |   | (162,584 | ) | 18.97 |   |
| End                of year        |   | 7,095,991                |   | 15.50                       |   |                     | 5,845,416 |   | 14.57 |   |   | 4,820,860 |   | 13.97 |   |
| Exercisable                at end |   |                     |   |                        |   |                     |   |   |   |   |   |   |   |   |   |
| of                year            |   | 5,169,822                |   |                        |   |                     | 4,167,393 |   |   |   |   | 3,401,607 |   |   |   |

|                                               | 2006   |   | 2005   |   | 2004   |   |
|----------------------------------------------------|--------|--------|--------|--------|--------|--------|
| General                and administrative expenses | $      | 7,120  |   | $      | 615    |   | $ | 405 |   |
| Exploration                expenses                |   | 8,104  |   |   | 1,052  |   |   | 702 |   |
| Main                Pass Energy Hub start-up costs |   | 598    |   |   | 10     |   |   | - |   |
| Total                stock-based compensation cost | $      | 15,822 |   | $      | 1,677  |   | $ | 1,107 |   |
|                                               |   |   |   |   |   |   |   |   |   |

**Pension      Plans and Other Benefits.**

----

**TABLE OF CONTENTS**
|                                                       | Pension                Benefits |   | Other                Benefits |   |
|------------------------------------------------------------|---------------------------------|--------|-------------------------------|--------|
|                                                       | 2006                            |   | 2005                          |   | 2006 |   | 2005 |   |
| Change                in benefit obligation:               |                            |   |                          |   |   |   |   |   |   |   |   |   |
| Benefit                obligation at the beginning of year | $                               | (4,502 | )                             | $      | (5,145 | ) | $ | (6,300 | ) | $ | (6,179 | ) |
| Service                cost                                |                            | -      |                          |   | - |   |   | (20 | ) |   | (19 | ) |
| Interest                cost                               |                            | (217   | )                             |   | (243 | ) |   | (347 | ) |   | (358 | ) |
| Change                in Plan payout assumptions           |                            | -      |                          |   | - |   |   | - |   |   | 369 |   |
| Actuarial                gains (losses)                    |                            | -      |                          |   | - |   |   | 108 |   |   | (596 | ) |
| Participant                contributions                   |                            | -      |                          |   | - |   |   | (207 | ) |   | (153 | ) |
| Benefits                paid                               |                            | 347    |                          |   | 886 |   |   | 473 |   |   | 636 |   |
| Benefit                obligation at end of year           |                            | (4,372 | )                             |   | (4,502 | ) |   | (6,293 | ) |   | (6,300 | ) |

| Change                in plan assets:                         |   |   |   |   |   |   |   |   |   |   |   |   |
|---------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Fair                value of plan assets at beginning of year |   | 2,549  |   |   | 3,339  |   |   | -      |   |   | -      |   |
| Return                on plan assets                          |   | 29     |   |   | 96     |   |   | -      |   |   | -      |   |
| Employer/participant                contributions             |   | -      |   |   | -      |   |   | 473    |   |   | 636    |   |
| Benefits                paid                                  |   | (347   | )      |   | (886   | )      |   | (473   | )      |   | (636   | )      |
| Fair                value of plan assets at end of year       |   | 2,231  |   |   | 2,549  |   |   | -      |   |   | -      |   |

| Funded                status                           | $      | (2,141 | )      | $      | (1,953 | )      | $      | (6,293 | )      | $      | (6,300 | )      |
|--------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted-average                assumptions (percent): |   |   |   |   |   |   |   |   |   |   |   |   |
| Discount                rate                           |   | N/A    | a      |   | N/A    | a      |   | 5.75   |   |   | 5.5    |   |
| 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 |   |
|----------------------------------------------------|--------|---------------------------------|--------|-------------------------------|--------|
|                                               |   | 2006                            |   | 2005                          |   | 2004 |   | 2006 |   | 2005 |   | 2004 |   |
| Service                cost                        |   | $                               | -      |                          | $      | - |   | $ | - |   | $ | 20 |   | $ | 19 |   | $ | 21 |   |
| Interest                cost                       |   |                            | 217    |                          |   | 243 |   |   | 334 |   |   | 347 |   |   | 358 |   |   | 378 |   |
| Return                on plan assets               |   |                            | (29    | )                             |   | (96 | ) |   | (145 | ) |   | - |   |   | - |   |   | - |   |
| Amortization                of prior service costs |   |                            | -      |                          |   | - |   |   | - |   |   | (40 | ) |   | (47 | ) |   | (13 | ) |
| Recognition                of net actuarial loss   |   |                            | -      |                          |   | - |   |   | - |   |   | 148 |   |   | 114 |   |   | 95 |   |
| Net                periodic benefit cost           |   | $                               | 188    |                          | $      | 147 |   | $ | 189 |   | $ | 475 |   | $ | 444 |   | $ | 481 |   |

**9.      INCOME TAXES**

|                                                                          |   | December                31,  |     |
|-------------------------------------------------------------------------------|--------|-----------------------------------|----------|
|                                                                          |   | 2006                              |     | 2005 |   |
| Net                operating loss carryforwards (expire 2007-2026)            |   | $                                 | 158,360  |   | $ | 155,490 |   |
| Property,                plant and equipment                                  |   |                              | 35,931   |   |   | 30,330 |   |
| Reclamation                and shutdown reserves                              |   |                              | 18,073   |   |   | 13,662 |   |
| Deferred                compensation, postretirement and pension benefits and |   |                              |     |   |   |   |   |
| accrued                liabilities                                            |   |                              | 13,827   |   |   | 9,170 |   |
| Other                                                                         |   |                              | 5,940    |   |   | 6,449 |   |
| Less                valuation allowance                                       |   |                              | (232,131 | ) |   | (215,101 | ) |
| Net                deferred tax asset                                         |   | $                                 | -        |   | $ | - |   |

----

**TABLE OF CONTENTS**
|                                         | 2006   |    | 2005    |   | 2004   |   |
|----------------------------------------------|--------|---------|---------|--------|--------|--------|
|                                         | Amount |    | Percent |   | Amount |   | Percent |   | Amount |   | Percent |   |
| Income                tax benefit computed   |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| at                the federal statutory      |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| income                tax rate               | $      | 16,679  |    |   | 35     | %      | $ | 13,899 |   |   | 35 | % | $ | 18,085 |   |   | 35 | % |
| Change                in valuation allowance |   | (17,030 | )       |   | (36    | )      |   | (9,951 | ) |   | (25 | ) |   | (17,664 | ) |   | (35 | ) |
| Other                                        |   | 351     |    |   | 1      |   |   | (3,948 | )a  |   | (10 | ) |   | (421 | ) |   | - |   |
| Income                tax provision          | $      | -       |    |   | -      | %      | $ | - |   |   | - | % | $ | - |   |   | - | % |

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

**11.      COMMITMENTS AND CONTINGENCIES**

**Commitments.**

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

**Other      Liabilities.**

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**TABLE OF CONTENTS**
**Environmental      and Reclamation.**

|                                                              | Years                Ended December 31, |   |
|-------------------------------------------------------------------|-----------------------------------------|--------|
|                                                              | 2006                                    |   | 2005 |   | 2004 |   |
| **Oil                and Natural Gas**                            |                                    |   |   |   |   |   |   |   |   |
| Asset                retirement obligation at beginning of year   | $                                       | 21,760 |   | $ | 14,429 |   | $ | 7,273 |   |
| Liabilities                settled                                |                                    | (670   | ) |   | (4 | ) |   | (288 | ) |
| Accretion                expense a                                |                                    | 2,088  | b |   | 1,442 |   |   | 487 |   |
| Incurred                liabilities                               |                                    | 2,534  | c |   | 6,978 | f |   | 6,399 | g |
| Revision                for changes in estimates                  |                                    | 164    |   |   | (1,085 | ) |   | 558 |   |
| Asset                retirement obligations at end of year        | $                                       | 25,876 |   | $ | 21,760 |   | $ | 14,429 |   |
|                                                              |                                    |   |   |   |   |   |   |   |   |
| **Sulphur**                                                       |                                    |   |   |   |   |   |   |   |   |
| Asset                retirement obligations at beginning of year: | $                                       | 21,786 |   | $ | 14,636 |   | $ | 14,001 |   |
| Liabilities                settled                                |                                    | (3,109 | )d |   | (55 | ) |   | - |   |
| Accretion                expense                                  |                                    | 1,392  |   |   | 960 |   |   | 868 |   |
| Revision                for changes in estimates                  |                                    | 3,025  | e |   | 6,245 | e |   | (233 | ) |
| Asset                retirement obligation at end of year         | $                                       | 23,094 |   | $ | 21,786 |   | $ | 14,636 |   |

| a.   | Accretion                expense charges are included within depletion, depreciation and                amortization expense in the accompanying consolidated statements                of                operations. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.   | Includes                $0.7 million charge for the remaining estimated reclamation costs                for the                West Cameron Block 43 field (Note 1). |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c.   | Reflects                reclamation obligations associated with discoveries and additional                development wells that commenced production in 2006. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**TABLE OF CONTENTS**
| d.   | Amount                of costs incurred to remove structures at Port Sulphur that were                damaged                by hurricanes Katrina and Rita in                2005. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| e.   | 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. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| f.   | 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. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| g.   | Includes                $5.9 million assumed liability related to McMoRan’s acquisition of the                66.7 percent third-party ownership interest in the joint venture                for the                Main Pass oil operations (Note 4). |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Litigation.      **
** **

**12.      SUPPLEMENTARY OIL AND GAS INFORMATION **
* *

**Oil      and Gas Capitalized Costs.**

|                                                          |   | Years                Ended        |     |
|---------------------------------------------------------------|--------|-----------------------------------|----------|
|                                                          |   | December                31,  |     |
|                                                          |   | 2006                              |     | 2005 |   |
|                                                          |   | (In                Thousands)     |     |
| Unproved                properties a                          |   | $                                 | 45,237   |   | $ | 36,429 |   |
| Proved                properties b                            |   |                              | 476,135  |   |   | 291,441 |   |
| Subtotal                                                      |   |                              | 521,372  |   |   | 327,870 |   |
| Less                accumulated depreciation and amortization |   |                              | (238,865 | ) |   | (135,529 | ) |
| Net                oil and gas properties                     |   | $                                 | 282,507  |   | $ | 192,341 |   |

----

**TABLE OF CONTENTS**
| a.   | Includes                costs associated with in-progress wells and wells not fully evaluated,                including related leasehold acquisition costs, totaling $38.4 million                at                December 31, 2006 and $21.1 million at December 31, 2005. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.**  ** | Includes                the costs associated with the Blueberry Hill well at Louisiana State                Lease                340 which is awaiting final testing and completion activities. Amounts                totaled $16.5 million at December 31, 2006 and $11.2 million at December                31, 2005. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|                                      |   | Years                Ended December 31, |    |
|-------------------------------------------|--------|-----------------------------------------|---------|
|                                      |   | 2006                                    |    | 2005 |   | 2004 |   |
|                                      |   | (In                Thousands)           |    |
| Acquisition                of properties: |   |                                    |    |   |   |   |   |   |   |   |
| Proved                                    |   | $                                       | -       |   | $ | - |   | $ | 12,375 | a |
| Unproved                                  |   |                                    | 2,310   |   |   | 3,542 |   |   | 3,808 |   |
| Exploration                costs          |   |                                    | 124,590 |   |   | 88,294 |   |   | 92,473 |   |
| Development                costs          |   |                                    | 134,338 |   |   | 90,617 |   |   | 5,408 |   |
|                                      |   | $                                       | 261,238 |   | $ | 182,453 |   | $ | 114,064 |   |

| a.   | Amount                reflects the acquisition in December 2004 of the remaining 66.7 percent                equity interest in the joint venture associated with the Main Pass                oil                operations (Note 4). |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                 | Years                Ended December 31, |     |
|----------------------------------------------------------------------|-----------------------------------------|----------|
|                                                                 | 2006                                    |     | 2005 |   | 2004 |   |
| Beginning                of year                                     | $                                       | 19,619   |   | $ | 39,270 |   | $ | 2,082 |   |
| Additions                to capitalized exploratory well             |                                    |     |   |   |   |   |   |   |   |
| costs                pending determination of proved reserves        |                                    | 242,558  |   |   | 163,638 |   |   | 77,807 |   |
| Reclassifications                to wells, facilities, and equipment |                                    |     |   |   |   |   |   |   |   |
| based                on determination of proved reserves             |                                    | (178,777 | ) |   | (136,465 | ) |   | (19,249 | ) |
| Amounts                charged to exploration expense                |                                    | (44,944  | ) |   | (46,824 | ) |   | (21,370 | ) |
| End                of year                                           | $                                       | 38,456   |   | $ | 19,619 |   | $ | 39,270 |   |

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

----

**TABLE OF CONTENTS**
|                                           | Oil    |   | Natural                Gas |   |
|------------------------------------------------|--------|--------|----------------------------|--------|
|                                           | 2006   |   | 2005                       |   | 2004 |   | 2006 |   | 2005 |   | 2004 |   |
| **Proved                reserves:**            |   |   |                       |   |   |   |   |   |   |   |   |   |
| Beginning                of year               | 7,131  |   | 4,789                      |   | 547 |   | 38,944 |   | 21,187 |   | 13,567 |   |
| Revisions                of previous estimates | (343   | )      | 1,137                      |   | 96 |   | (349 | ) | (2,150 | ) | 833 |   |
| Discoveries                and extensions      | 536    |   | 1,602                      | b      | 112 | c | 17,153 |   | 27,845 | b | 10,720 | c |
| Production                                     | (1,552 | )      | (850                       | )      | (62 | ) | (14,546 | ) | (7,938 | ) | (1,979 | ) |
| Sale                of reserves                | -      |   | -                          |   | (66 | ) | - |   | - |   | (2,236 | ) |
| Purchase                of reserves            | -      |   | 453                        | d      | 4,162 | e | - |   | - |   | 282 |   |
| End                of year                     | 5,772  | a      | 7,131                      |   | 4,789 |   | 41,202 | f | 38,944 |   | 21,187 |   |

| **Proved                developed reserves:** |   |   |   |   |   |   |   |   |   |   |   |   |
|-----------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Beginning                of year              | 6,248  |   | 4,640  |   | 389    |   | 29,101 |   | 14,765 |   | 8,074  |   |
| End                of year                    | 5,526  | a      | 6,248  |   | 4,640  |   | 34,949 | f      | 29,101 |   | 14,765 |   |

| a.   | Includes                approximately 46 MBbls of oil associated with the West Cameron Block                43                field that McMoRan currently believes will not be recoverable (Note                1). |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.   | 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). |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c.   | 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). |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| d.   | 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). |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| e.   | 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). |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| f.   | Includes                1,129 MMcf of natural gas associated with the West Cameron Block                43 field                that McMoRan currently believes will not be recoverable (Note 1). |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|                                                                                                |   | December                31,  |     |
|-----------------------------------------------------------------------------------------------------|--------|-----------------------------------|----------|
|                                                                                                |   | 2006                              |     | 2005 |   |
|                                                                                                |   | (In                Thousands)     |     |
| Future                cash inflows                                                                  |   | $                                 | 560,852  |   | $ | 789,503 |   |
| Future                costs applicable to future cash flows:                                        |   |                              |     |   |   |   |   |
| Production                costs                                                                     |   |                              | (199,246 | ) |   | (226,668 | ) |
| Development                and abandonment costs                                                    |   |                              | (46,591  | ) |   | (79,077 | ) |
| Future                income taxes                                                                  |   |                              | (772     | ) |   | (6,765 | ) |
| Future                net cash flows                                                                |   |                              | 314,243  | a |   | 476,993 |   |
| Discount                for estimated timing of net cash flows (10% discount rate)                b |   |                              | (44,281  | ) |   | (93,854 | ) |
|                                                                                                |   | $                                 | 269,962  | a | $ | 383,139 |   |

----

**TABLE OF CONTENTS**
| a.   | Amount                includes $7.9 million of estimated undiscounted future net cash flows                and                $6.9 million of estimated discounted future cash flows associated                with                proved reserves attributable to the West Cameron Block 43 field that                McMoRan currently believes will not be recoverable (Note                1). |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.   | 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. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|                                                                     |   | Years                Ended December 31, |     |
|--------------------------------------------------------------------------|--------|-----------------------------------------|----------|
|                                                                     |   | 2006                                    |     | 2005 |   | 2004 |   |
|                                                                     |   | (In                Thousands)           |     |
| Beginning                of year                                         |   | $                                       | 383,139  |   | $ | 117,289 |   | $ | 52,702 |   |
| Revisions:                                                               |   |                                    |     |   |   |   |   |   |   |   |
| Changes                in prices                                         |   |                                    | (106,961 | ) |   | 70,657 |   |   | 6,271 |   |
| Accretion                of discount                                     |   |                                    | 38,313   |   |   | 11,729 |   |   | 5,270 |   |
| Change                in reserve quantities                              |   |                                    | (21,317  | ) |   | (15,051 | ) |   | 3,205 |   |
| Other                changes, including revised estimates of development |   |                                    |     |   |   |   |   |   |   |   |
| costs                and rates of production                             |   |                                    | (11,739  | ) |   | 9,204 |   |   | (5,967 | ) |
| Discoveries                and extensions, less related costs            |   |                                    | 93,125   |   |   | 257,432 | a |   | 59,195 | b |
| Development                costs incurred during the year                |   |                                    | 35,123   |   |   | 8,640 |   |   | 2,112 |   |
| Change                in future income taxes                             |   |                                    | 3,862    |   |   | (4,445 | ) |   | - |   |
| Revenues,                less production costs                           |   |                                    | (143,583 | ) |   | (88,607 | ) |   | (10,126 | ) |
| Sale                of reserves in place                                 |   |                                    | -        |   |   | - |   |   | (11,477 | ) |
| Purchase                of reserves in place                             |   |                                    | -        |   |   | 16,291 | c |   | 16,104 | d |
| End                of year                                               |   | $                                       | 269,962  |   | $ | 383,139 |   | $ | 117,289 |   |

| 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) |    |
| 2006                       |   |                                                    |    |      |   |                    |   |                            |    |   |   |   |   |   |   |   |
| 1st                Quarter |   | $                                                       | 39,745  |      | $      | (6,378                  | )b     | $                               | (13,485 | )c | $ | (0.50 | ) | $ | (0.50 | ) |
| 2nd                Quarter |   |                                                    | 53,330  |      |   | 17,828                  | d      |                            | 14,090  |   |   | 0.50 |   |   | 0.32 |   |
| 3rd                Quarter |   |                                                    | 60,415  |      |   | (13,719                 | )e     |                            | (18,992 | ) |   | (0.67 | ) |   | (0.67 | ) |
| 4th                Quarter |   |                                                    | 56,248  |      |   | (30,298                 | )f     |                            | (30,882 | )g |   | (1.09 | ) |   | (1.09 | ) |
|                       |   | $                                                       | 209,738 |      | $      | (32,567                 | )      | $                               | (49,269 | ) |   |   |   |   |   |   |

----

**TABLE OF CONTENTS**

|   |   |                                                    |   | 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  | )h     | $      | (5,744  | )      | $      | (0.24  | )      | $      | (0.24  | )      |
| 2nd                Quarter |   |   | 33,952  |   |   | (12,218 | )i     |   | (16,233 | )      |   | (0.66  | )      |   | (0.66  | )      |
| 3rd                Quarter |   |   | 44,265  |   |   | 11,251  | j      |   | 6,746   |   |   | 0.27   |   |   | 0.21   |   |
| 4th                Quarter |   |   | 37,243  |   |   | (19,290 | )k     |   | (26,101 | )l     |   | (1.06  | )      |   | (1.06  | )      |
|                       |   | $      | 130,127 |   | $      | (22,373 | )      | $      | (41,332 | )      |   |   |   |   |   |   |
|                       |   |   |    |   |   |    |   |   |    |   |   |   |   |   |   |   |

| 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                nonproductive exploratory well drilling and related costs of $12.3                million                and $9.7 million of stock-based compensation costs following adoption                of                SFAS 123R effective January 1, 2006 (Note 1). The amount of the first                quarter 2006 charge was higher than the other interim 2006 periods                because                it, included charges for immediately vesting stock options and options                granted to retiree eligible employees. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c.   | Includes                $4.3 million charge related to McMoRan’s debt conversion transactions                (Note 5). |
|----------------|------------------------------------------------------------------------------------------------------------------------------|

| d.   | Includes                $1.7 million of insurance recovery associated with claims resulting                from                Hurricanes Ivan and Katrina. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

| e.   | Includes                $18.5 million of nonproductive exploratory well drilling and related                costs. |
|----------------|--------------------------------------------------------------------------------------------------------------------|

| f.   | Includes                $33.9 million of impairment charges, $12.7 million of nonproductive                exploratory well drilling and related costs and an $11.0 million                of net                exploration expense reimbursements associated with exploration agreements                (Note 2). |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| g.   | Includes                $3.2 million reduction in contractual liability covering certain                retired                former sulphur employees (Note 11). |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| i.   | Includes                nonproductive exploratory well drilling and related costs of $18.5                million                and an additional insurance recovery of $3.9 million associated with                McMoRan’s Main Pass business interruption claims (Note 4). |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| k.   | Includes                nonproductive exploratory well drilling and related costs of $18.0                million                and a $12.8 million net charge to expense for settlement of class                action                litigation (Note 11). |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| l.   | 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). |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

**Item      9A. Controls and Procedures**

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**TABLE OF CONTENTS**
**Item      9B. Other Information**

**PART      III**

**Item      10. Directors, Executive Officers and Corporate      Governance**

**Item      11. Executive Compensation**

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

**Item      13. Certain Relationships and Related Transactions,      and Director Independence**

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

**PART      IV**

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

| (a)(2). | Financial                Statement Schedules.                All financial statement schedules are either not required under the                related instructions or are not applicable because the information                has                been included elsewhere herein. |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

----

**TABLE OF CONTENTS**
**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                                                           |
| Suzanne                T. Mestayer                         |                                                               |
|                                                       |                                                               |
| *                                                          | Director                                                           |
| J.                Taylor Warton                            |                                                               |
|                                                       |                                                               |
| *By:                /s/                Richard C. Adkerson |                                                               |
| Richard                C. Adkerson                         |                                                               |
| Attorney-in-Fact                                           |                                                               |

----

**TABLE OF CONTENTS**
**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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**TABLE OF CONTENTS**
| 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   | Purchase                Agreement dated September 30, 2004, by and among McMoRan Exploration                Co.,                Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith                Incorporated, and J.P. Morgan Securities Inc. (Incorporated by reference                to Exhibit 99.2 to McMoRan’s Current Report on Form 8-K dated October 6,                2004 (filed October 7, 2004).                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.13   | 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)).                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.14   | 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)).                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.15   | 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 to McMoRan’s 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.)                                                                                                                                                                                                    |

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**TABLE OF CONTENTS**
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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).                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 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).                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.12  | Credit                Agreement dated as of April 19, 2006 among McMoRan Oil & Gas LLC as                borrower, JP Morgan Chase Bank, N.A., as administrative agent,                Toronto-Dominion (Texas) LLC, as syndication agent and the Lenders                Party                Hereto. (Incorporated by reference to Exhibit 10.1 to McMoRan’s Current                Report on Form 8-K dated April 19, 2006). |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.13  | First                Amendment to Credit Agreement effective January 19, 2007 among McMoRan                Oil                & Gas LLC as borrower, JP Morgan Chase Bank, N.A, as administrative                agent, Toronto-Dominion (Texas) LLC, as syndication agent and the                Lenders                Party Hereto.                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.14  | Senior                Term Loan Agreement effective as of January 19, 2007 among McMoRan                Oil                & Gas LLC as borrower, JP Morgan Chase Bank, N.A., as administrative                agent, TD Securities (USA) LLC, as syndication agent and the Lenders                Party                Hereto.                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | Executive                and Director Compensation Plans and Arrangements (Exhibits 10.15                through                10.36).                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.15  | McMoRan                Adjusted Stock Award Plan, as amended and restated. (Incorporated                by                reference to Exhibit 10.6 to McMoRan’s Current Report on Form 8-K dated                May 1, 2006 (May 1, 2006 Form 8-K)).                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.16  | McMoRan                1998 Stock Option Plan, as amended and restated. (Incorporated by                reference to Exhibit 10.5 to McMoRan’s May 1, 2006 Form                8-K).                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.17  | 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).                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.18  | 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).                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.19  | McMoRan                2000 Stock Incentive Plan, as amended and restated. (Incorporated                by                reference to Exhibit 10.4 to McMoRan’s May 1, 2006 Form                8-K).                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.20  | 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).                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.21  | McMoRan                2001 Stock Incentive Plan, as amended and restated. (Incorporated                by                reference to Exhibit 10.3 to McMoRan’s May 1, 2006 Form                8-K).                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.22  | McMoRan                2003 Stock Incentive Plan, as amended and restated. (Incorporated                by                reference to Exhibit 10.2 to McMoRan’s May 1, 2006 Form                8-K).                                                                                                                                                                                                                             |

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**TABLE OF CONTENTS**
|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.23  | 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).                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.24  | 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).                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.25  | 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).                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.26  | McMoRan                Exploration Co. Executive Services Program (Incorporated by reference                to                Exhibit 10.8 to McMoRan’s May 1, 2006 Form 8-K).                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.27  | 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).                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.28  | 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).                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.29  | McMoRan                2004 Director Compensation Plan. (Incorporated by reference to Exhibit                10.29 to McMoRan’s Second Quarter 2004 Form 10-Q).                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.30  | Form                of Amendment No. 1 to Notice of Grant of Nonqualified Stock Options                under                the 2004 Director Compensation Plan. (Incorporated by reference to                Exhibit                10.7 to McMoRan’s May 1, 2006 Form 8-K).                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.31  | 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’s 1998 Form                10-K). |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.32  | Supplemental                Letter Agreement between FM Services Company and B.M. Rankin, Jr.                effective as of January 1, 2007.                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.33  | McMoRan                Director Compensation. (Incorporated by reference to Exhibit 10.27                to                McMoRan’s 2004 Form 10-K).                                                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.34  | McMoRan                Exploration Co. 2005 Stock Incentive Plan. (Incorporated by reference                to                Exhibit 10.1 to McMoRan’s May 1, 2006 Form 8-K).                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.35  | 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).                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.36  | 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. |
|--------|-------------------------------------------------------------------|
|   |                                                              |
|   |                                                              |

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**TABLE OF CONTENTS**
| 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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