----

|                                                                                     |
|------------------------------------------------------------------------------------------|
| **UNITED                  STATES**                                                       |
| **SECURITIES                  AND EXCHANGE COMMISSION**                                  |
| **Washington,                  D.C. 20549**                                              |
|                                                                                     |
| **FORM                  10-Q**                                                           |
|                                                                                     |
| **(Mark                  One)**                                                          |
| **[X]**                                                                                  | **QUARTERLY                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE** |
| **SECURITIES                  EXCHANGE ACT OF 1934**                                     |
| **For                  the quarterly period ended June 30, 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**                                                             |
| (Registrant's                  telephone number, including area code)                           |
|                                                                                            |

----

|                                                                                      |
|-------------------------------------------------------------------------------------------|
| **McMoRan                Exploration Co.**                                                |
| **TABLE                OF CONTENTS**                                                      |
|                                                                                      |
|                                                                                      | Page |
|                                                                                      |   |
| Part                I. Financial Information                                              |   |
|                                                                                      |   |
| Financial                Statements:                                                      |   |
|                                                                                      |   |
| Condensed                Consolidated Balance Sheets                (Unaudited)           | 3 |
|                                                                                      |   |
| Consolidated                Statements of Operations                (Unaudited)           | 4 |
|                                                                                      |   |
| Consolidated                Statements of Cash Flow                (Unaudited)            | 5 |
|                                                                                      |   |
| Notes                to Consolidated Financial                Statements                  | 6 |
|                                                                                      |   |
| Report                of Independent Registered Public Accounting                Firm     | 14 |
|                                                                                      |   |
| Management's                Discussion and Analysis                                       |   |
| of                Financial Condition and Results of                Operations            | 15 |
|                                                                                      |   |
| Quantitative                and Qualitative Disclosures about Market                Risks | 27 |
|                                                                                      |   |
| Controls                and Procedures                                                    | 27 |
|                                                                                      |   |
| Part                II. Other Information                                                 | 28 |
|                                                                                      |   |
| Signature                                                                                 | 29 |
|                                                                                      |   |
| Exhibit                Index                                                              | E-1 |

----

Table      of Contents

**McMoRan      Exploration Co.**

**Part      I. FINANCIAL INFORMATION**

**Item      1.**
**Consolidated      Financial Statements.**

**McMoRan      EXPLORATION CO.**

**CONDENSED      CONSOLIDATED BALANCE SHEETS(Unaudited**

|                                                                           | June                30,       |    | December                31, |   |
|--------------------------------------------------------------------------------|-------------------------------|---------|-----------------------------|--------|
|                                                                           | 2006                          |    | 2005                        |   |
|                                                                           | (In                Thousands) |    |
| ASSETS                                                                         |                          |    |                        |   |   |   |
| Cash                and cash equivalents:                                      |                          |    |                        |   |   |   |
| Continuing                operations, includes restricted cash of $0.3 million |                          |    |                        |   |   |   |
|                  at December 31, 2005                                     | $                             | 16,765  |                        | $      | 131,179 |   |
| Discontinued                operations, all restricted                         |                          | 553     |                        |   | 1,005 |   |
| Restricted                investments                                     |                          | 9,065   |                        |   | 15,155 |   |
| Accounts                receivable                                             |                          | 46,248  |                        |   | 36,954 |   |
| Inventories:                                                                   |                          |    |                        |   |   |   |
| Materials                and supplies                                          |                          | 21,815  |                        |   | 7,026 |   |
| Product                                                                        |                          | 1,538   |                        |   | 954 |   |
| Prepaid                expenses                                                |                          | 6,278   |                        |   | 1,348 |   |
| Current                assets from discontinued operations, excluding cash     |                          | 2,655   |                        |   | 2,550 |   |
| Total                current assets                                            |                          | 104,917 |                        |   | 196,171 |   |
| Property,                plant and equipment, net                              |                          | 316,820 |                        |   | 192,397 |   |
| Sulphur                business assets                                         |                          | 368     |                        |   | 375 |   |
| Restricted                investments and cash                                 |                          | 5,926   |                        |   | 10,475 |   |
| Other                assets                                               |                          | 6,297   |                        |   | 8,218 |   |
| Total                assets                                                    | $                             | 434,328 |                        | $      | 407,636 |   |
|                                                                           |                          |    |                        |   |   |   |
| LIABILITIES                AND STOCKHOLDERS’ DEFICIT                     |                          |    |                        |   |   |   |
| Accounts                payable                                                | $                             | 81,353  |                        | $      | 64,023 |   |
| Accrued                liabilities                                             |                          | 47,450  |                        |   | 49,192 |   |
| Accrued                interest                                                |                          | 4,453   |                        |   | 5,635 |   |
| Current                portion of accrued oil and gas reclamation costs        |                          | 2,163   |                        |   | - |   |
| Current                portion of accrued sulphur reclamation cost             |                          | 3,007   |                        |   | 4,724 |   |
| Current                liabilities from discontinued operations                |                          | 4,937   |                        |   | 5,462 |   |
| Total                current liabilities                                       |                          | 143,363 |                        |   | 129,036 |   |
| 6%                convertible senior notes                                     |                          | 100,895 |                        |   | 130,000 |   |
| 5¼%                convertible senior notes                               |                          | 115,000 |                        |   | 140,000 |   |
| Accrued                oil and gas reclamation costs                           |                          | 21,957  |                        |   | 21,760 |   |
| Accrued                sulphur reclamation costs                               |                          | 17,322  |                        |   | 17,062 |   |
| Contractual                postretirement obligation                           |                          | 12,041  |                        |   | 11,517 |   |
| Other                long-term liabilities                                     |                          | 16,220  |                        |   | 15,890 |   |
| Mandatorily                redeemable convertible preferred stock              |                          | 29,021  |                        |   | 28,961 |   |
| Stockholders'                deficit                                           |                          | (21,491 | )                           |   | (86,590 | ) |
| Total                liabilities and stockholders' deficit                     | $                             | 434,328 |                        | $      | 407,636 |   |
|                                                                           |                          |    |                        |   |   |   |

----

Table        of Contents

**McMoRan      EXPLORATION CO.**

**CONSOLIDATED      STATEMENTS OF OPERATIONS (Unaudited**)

|                                                                | Three                Months Ended                       |   | Six                Months Ended |   |
|---------------------------------------------------------------------|---------------------------------------------------------|--------|---------------------------------|--------|
|                                                                | June                30,                                 |   | June                30,         |   |
|                                                                | 2006                                                    |   | 2005                            |   | 2006 |   | 2005 |   |
| Revenues:                                                           | (In                Thousands, Except Per Share Amounts) |   |
| Oil                and gas                                          | $                                                       | 50,276 |                            | $      | 30,875 |   | $ | 85,717 |   | $ | 42,255 |   |
| Service                                                             |                                                    | 3,054  |                            |   | 3,077 |   |   | 7,359 |   |   | 6,364 |   |
| Total                revenues                                       |                                                    | 53,330 |                            |   | 33,952 |   |   | 93,076 |   |   | 48,619 |   |
| Costs                and expenses:                                  |                                                    |   |                            |   |   |   |   |   |   |   |   |   |
| Production                and delivery costs                        |                                                    | 10,775 |                            |   | 4,670 |   |   | 21,534 |   |   | 8,370 |   |
| Depreciation                and amortization                        |                                                    | 12,430 |                            |   | 9,013 |   |   | 18,274 |   |   | 12,929 |   |
| Exploration                expenses                                 |                                                    | 6,757  |                            |   | 28,497 |   |   | 27,377 |   |   | 36,033 |   |
| General                and administrative expenses                  |                                                    | 4,322  |                            |   | 5,246 |   |   | 12,546 |   |   | 9,636 |   |
| Start-up                costs for Main Pass Energy Hub™       |                                                    | 2,905  |                            |   | 2,601 |   |   | 4,751 |   |   | 4,885 |   |
| Insurance                recovery                                   |                                                    | (1,687 | )                               |   | (3,857 | ) |   | (2,856 | ) |   | (8,900 | ) |
| Total                costs and expenses                             |                                                    | 35,502 |                            |   | 46,170 |   |   | 81,626 |   |   | 62,953 |   |
| Operating                income (loss)                              |                                                    | 17,828 |                            |   | (12,218 | ) |   | 11,450 |   |   | (14,334 | ) |
| Interest                expense                                     |                                                    | (2,313 | )                               |   | (4,094 | ) |   | (4,146 | ) |   | (7,881 | ) |
| Other                income (expense), net                          |                                                    | 595    |                            |   | 1,421 |   |   | (2,599 | ) |   | 3,020 |   |
| Income                (loss) from continuing operations             |                                                    | 16,110 |                            |   | (14,891 | ) |   | 4,705 |   |   | (19,195 | ) |
| Loss                from discontinued operations                    |                                                    | (1,616 | )                               |   | (938 | ) |   | (3,293 | ) |   | (1,967 | ) |
| Net                income (loss)                                    |                                                    | 14,494 |                            |   | (15,829 | ) |   | 1,412 |   |   | (21,162 | ) |
| Preferred                dividends and amortization of convertible  |                                                    |   |                            |   |   |   |   |   |   |   |   |   |
| preferred                stock issuance costs                       |                                                    | (404   | )                               |   | (404 | ) |   | (807 | ) |   | (815 | ) |
| Net                income (loss) applicable to common stock         | $                                                       | 14,090 |                            | $      | (16,233 | ) | $ | 605 |   | $ | (21,977 | ) |
|                                                                |                                                    |   |                            |   |   |   |   |   |   |   |   |   |
| Basic                net income (loss) per share of common stock:   |                                                    |   |                            |   |   |   |   |   |   |   |   |   |
| Continuing                operations                                |                                                    | $0.56  |                            |   | $(0.62 | ) |   | $0.14 |   |   | $(0.82 | ) |
| Discontinued                operations                              |                                                    | (0.06  | )                               |   | (0.04 | ) |   | (0.12 | ) |   | (0.08 | ) |
| Net                income (loss) per share of common stock          |                                                    | $0.50  |                            |   | $(0.66 | ) |   | $0.02 |   |   | $(0.90 | ) |
|                                                                |                                                    |   |                            |   |   |   |   |   |   |   |   |   |
| Diluted                net income (loss) per share of common stock: |                                                    |   |                            |   |   |   |   |   |   |   |   |   |
| Continuing                operations                                |                                                    | $0.35  |                            |   | $(0.62 | ) |   | $0.13 |   |   | $(0.82 | ) |
| Discontinued                operations                              |                                                    | (0.03  | )                               |   | (0.04 | ) |   | (0.11 | ) |   | (0.08 | ) |
| Net                income (loss) per share of common stock          |                                                    | $0.32  |                            |   | $(0.66 | ) |   | $0.02 |   |   | $(0.90 | ) |
|                                                                |                                                    |   |                            |   |   |   |   |   |   |   |   |   |
| Average                common shares outstanding:                   |                                                    |   |                            |   |   |   |   |   |   |   |   |   |
| Basic                                                               |                                                    | 28,280 |                            |   | 24,615 |   |   | 27,556 |   |   | 24,500 |   |
| Diluted                                                             |                                                    | 51,341 |                            |   | 24,615 |   |   | 30,585 |   |   | 24,500 |   |

----

Table        of Contents

**McMoRan      EXPLORATION CO.**

**CONSOLIDATED      STATEMENTS OF CASH FLOW (Unaudited**

|                                                                                                                   |   | Six                Months Ended |     |
|------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|----------|
|                                                                                                                   |   | June                30,         |     |
|                                                                                                                   |   | 2006                            |     | 2005 |   |
|                                                                                                                   |   | (In                Thousands)   |     |
| **Cash                flow from operating activities:**                                                                |   |                            |     |   |   |   |   |
| Net                income (loss)                                                                                       |   | $                               | 1,412    |   | $ | (21,162 | ) |
| Adjustments                to reconcile net income (loss) to net cash provided by operating                activities: |   |                            |     |   |   |   |   |
| Loss                from discontinued operations                                                                       |   |                            | 3,293    |   |   | 1,967 |   |
| Depreciation                and amortization                                                                           |   |                            | 18,274   |   |   | 12,929 |   |
| Exploration                drilling and related expenditures                                                           |   |                            | 14,458   |   |   | 28,920 |   |
| Compensation                expense associated with stock-based awards                                                 |   |                            | 11,715   |   |   | 1,019 |   |
| Loss                on induced conversion of convertible senior notes                                                  |   |                            | 4,301    |   |   | - |   |
| Reclamation                and mine shutdown expenditures                                                              |   |                            | -        |   |   | (4 | ) |
| Amortization                of deferred financing costs                                                                |   |                            | 940      |   |   | 1,112 |   |
| Other                                                                                                                  |   |                            | 732      |   |   | (366 | ) |
| (Increase)                decrease in working capital:                                                                 |   |                            |     |   |   |   |   |
| Accounts                receivable                                                                                     |   |                            | 2,652    |   |   | 2,784 |   |
| Accounts                payable, accrued liabilities and other                                                         |   |                            | (13,719  | ) |   | 11,189 |   |
| Inventories                                                                                                            |   |                            | (15,372  | ) |   | (2,055 | ) |
| Prepaid                expenses                                                                                        |   |                            | (4,926   | ) |   | (823 | ) |
| (Increase)                decrease in working capital                                                                  |   |                            | (31,365  | ) |   | 11,095 |   |
| Net                cash provided by continuing operations                                                              |   |                            | 23,760   |   |   | 35,510 |   |
| Net                cash used in discontinued operations                                                                |   |                            | (4,869   | ) |   | (1,591 | ) |
| Net                cash provided by operating activities                                                               |   |                            | 18,891   |   |   | 33,919 |   |
|                                                                                                                   |   |                            |     |   |   |   |   |
| **Cash                flow from investing activities**:                                                                |   |                            |     |   |   |   |   |
| Exploration,                development and other capital expenditures                                                 |   |                            | (142,545 | ) |   | (79,212 | ) |
| Property                insurance reimbursement                                                                        |   |                            | 3,947    |   |   | - |   |
| Proceeds                from restricted investments                                                                    |   |                            | 10,419   |   |   | 7,575 |   |
| Proceeds                from sale of property, plant and equipment                                                     |   |                            | 50       |   |   | - |   |
| Increase                in restricted investments                                                                      |   |                            | (40      | ) |   | (320 | ) |
| Net                cash used in continuing operations                                                                  |   |                            | (128,169 | ) |   | (71,957 | ) |
| Net                cash used in discontinued operations                                                                |   |                            | -        |   |   | - |   |
| Net                cash used in investing activities                                                                   |   |                            | (128,169 | ) |   | (71,957 | ) |
|                                                                                                                   |   |                            |     |   |   |   |   |
| **Cash                flow from financing activities:**                                                                |   |                            |     |   |   |   |   |
| Payments                for induced conversion of convertible senior notes                                             |   |                            | (4,301   | ) |   | - |   |
| Dividends                paid on convertible preferred stock                                                           |   |                            | (1,121   | ) |   | (757 | ) |
| Financing                costs                                                                                         |   |                            | (531     | ) |   | - |   |
| Proceeds                from exercise of stock options and other                                                       |   |                            | 365      |   |   | 1,994 |   |
| Net                cash (used in) provided by continuing operations                                                    |   |                            | (5,588   | ) |   | 1,237 |   |
| Net                cash used in discontinued operations                                                                |   |                            | -        |   |   | - |   |
| Net                cash (used in) provided by financing activities                                                     |   |                            | (5,588   | ) |   | 1,237 |   |
| Net                decrease in cash and cash equivalents                                                               |   |                            | (114,866 | ) |   | (36,801 | ) |
| Cash                and cash equivalents at beginning of year                                                          |   |                            | 132,184  |   |   | 204,015 |   |
| Cash                and cash equivalents at end of period                                                              |   |                            | 17,318   |   |   | 167,214 |   |
| Less                restricted cash from continuing operations                                                         |   |                            | -        |   |   | (3,135 | ) |
| Less                restricted cash from discontinued operations                                                       |   |                            | (553     | ) |   | (990 | ) |
| Unrestricted                cash and cash equivalents at end of period                                                 |   | $                               | 16,765   |   | $ | 163,089 |   |

----

Table        of Contents

**McMoRan      EXPLORATION CO.**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**1.      **
**BASIS      OF PRESENTATION**

**2.      STOCK-BASED COMPENSATION**

**Accounting      for Stock-Based Compensation. **

----

Table        of Contents

**Stock-Based      Compensation Cost.**

|                                                                 | Three                Months Ended |   |   | Six                Months Ended |   |
|----------------------------------------------------------------------|-----------------------------------|--------|--------|---------------------------------|--------|
|                                                                 | June                30,           |   |   | June                30,         |   |
|                                                                 | 2006                              |   | 2005   |                            |   | 2006 |   | 2005 |   |
| Cost                of options awarded to employees (including       | $                                 | 1,890  |   | $                               | 539    | a |   | $ | 11,254 | b | $ | 609 | a |
| Directors)                                                           |                              |   |   |                            |   |   |   |   |   |   |   |   |   |
| Cost                of options awarded to non-employees and advisory |                              | 132    |   |                            | 90     |   |   |   | 391 |   |   | 145 |   |
| Directors                                                            |                              |   |   |                            |   |   |   |   |   |   |   |   |   |
| Cost                of restricted stock units                        |                              | 18     |   |                            | 127    |   |   |   | 70 |   |   | 265 |   |
| Total                compensation cost                               | $                                 | 2,040  |   | $                               | 756    |   |   | $ | 11,715 |   | $ | 1,019 |   |

| a. | Reflects                compensation charge resulting from difference between the market                price on                the award date and the market price on the ultimate date of grant                (see                Note 8 of McMoRan’s 2005 Form 10-K). 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.  |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|                                                              |   |   | Three  |    |   | Six    |   |
|-------------------------------------------------------------------|--------|--------|--------|---------|--------|--------|--------|
|                                                              |   |   | Months |    |   | Months |   |
|                                                              |   |   | 2005   |    |   | 2005   |   |
| Net                  loss applicable to common stock, as reported |   |   | $      | (16,233 | )      |   | $      | (21,977 | ) |
| Add:                  Stock-based employee compensation expense   |   |   |   |    |   |   |   |   |   |
| included                  in reported net loss for stock option   |   |   |   |    |   |   |   |   |   |
| conversions                  and restricted stock units           |   |   |   | 652     |   |   |   | 860 |   |
| Deduct:                  Total stock-based employee compensation  |   |   |   |    |   |   |   |   |   |
| expense                  determined under fair value-based method |   |   |   |    |   |   |   |   |   |
| for                  all awards                                   |   |   |   | (5,248  | )      |   |   | (9,129 | ) |
| Pro                  forma net loss applicable to common stock    |   |   | $      | (20,829 | )      |   | $      | (30,246 | ) |
|                                                              |   |   |   |    |   |   |   |   |   |
| Net                  loss per share:                              |   |   |   |    |   |   |   |   |   |
| Basic                  and diluted - as reported                  |   |   | $      | (0.66   | )      |   | $      | (0.90 | ) |
| Basic                  and diluted - pro forma                    |   |   | $      | (0.85   | )      |   | $      | (1.23 | ) |
|                                                              |   |   |   |    |   |   |   |   |   |

----

Table        of Contents

|                                                   |   | Three  |   |   | Six    |   |
|--------------------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                                   |   | Months |   |   | Months |   |
|                                                   |   | 2005   |   |   | 2005   |   |
| Fair                value (per share) per stock option |   | $      | 11.88  |   | $      | 11.45  |   |
| Risk-free                interest rate                 |   |   | 4.5    | %      |   | 4.3    | % |
| Expected                volatility rate                |   |   | 61.1   | %      |   | 61.2   | % |
| Expected                life of options (in years)     |   |   | 7      |   |   | 7      |   |

**Stock-Based      Compensation Plans. **

**Stock      Options.**

|                                     |      |   |     |   | Weighted                    |   |      |   |
|------------------------------------------|-----------|--------|----------|--------|-----------------------------|--------|-----------|--------|
|                                     |      |   | Weighted |   | Average                     |   | Aggregate |   |
|                                     | Number    |   | Average  |   | Remaining                   |   | Intrinsic |   |
|                                     | Of        |   | Exercise |   | Contractual                 |   | Value     |   |
|                                     | Options   |   | Price    |   | Term                (years) |   | ($000)    |   |
| Balance                at January 1      | 5,845,416 |   | $        | 14.57  |                        |   |      |   |   |   |
| Granted                                  | 1,355,500 |   |     | 19.80  |                        |   |      |   |   |   |
| Exercised                                | (24,823   | )      |     | 14.70  |                        |   |      |   |   |   |
| Expired/Forfeited                        | (88,102   | )      |     | 20.71  |                        |   |      |   |   |   |
| Balance                at June 30        | 7,087,991 |   |     | 15.50  |                        | 7.3    |      | $      | 19,702 |   |
| Vested                and exercisable at |      |   |     |   |                        |   |      |   |   |   |
| June                30                   | 5,172,447 |   |     | 14.85  |                        | 6.6    |      | $      | 17,671 |   |
|                                     |      |   |     |   |                        |   |      |   |   |   |

|                                                                |   |  Three  |   |  Six    |   |
|---------------------------------------------------------------------|--------|--------------|--------|--------------|--------|
|                                                                |   |  Months |   |  Months |   |
|                                                                |   |  2006   |   |  2006   |   |
| Fair                value (per share) of stock option on grant date |   | $            | 10.24  |         | $      | 11.86 | a |
| Expected                and weighted average volatility             |   |         | 55.5   | %            |   | 55.5 | % |
| Expected                life of options (in years)                  |   |         | 7      |         |   | 7 | a |
| Risk-free                interest rate                              |   |         | 4.5    | %            |   | 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. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table        of Contents

|                                                             | Three                Months Ended |   | Six                Months Ended |   |
|------------------------------------------------------------------|-----------------------------------|--------|---------------------------------|--------|
|                                                             | June                30,           |   | June                30,         |   |
|                                                             | 2006                              |   | 2005                            |   | 2006 |   | 2005 |   |
| McMoRan                shares tendered to pay the exercise price |                              |   |                            |   |   |   |   |   |   |   |   |   |
| and/or                the minimum required taxes a               |                              | -      |                            |   | 5,209 |   |   | 5,424 |   |   | 15,768 |   |
| Cash                received from stock option exercises         | $                                 | 326    |                            | $      | 637 |   | $ | 365 |   | $ | 1,994 |   |
| Amounts                McMoRan paid for employee taxes related   |                              |   |                            |   |   |   |   |   |   |   |   |   |
| to                stock option exercises                         | $                                 | -      |                            | $      | 93 |   | $ | 111 |   | $ | 307 |   |

| a.                 | Under                terms of the related plans, upon exercise of stock options and vesting                of                restricted stock units, employees may tender McMoRan shares to McMoRan                to                pay the exercise price and/or the minimum required                taxes. |
|------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Restricted      Stock Units.**

**3.      DEBT CONVERSION TRANSACTIONS AND CREDIT FACILTY**

**4.      EARNINGS PER SHARE**

----

Table        of Contents

|                                                                                                          |   |   | Second                Quarter |   |   | SixMonths |   |
|---------------------------------------------------------------------------------------------------------------|--------|--------|-------------------------------|--------|--------|-----------|--------|
| Basic                net income from continuing operations                                                    |   | $      | 15,706                        |   | $      | 3,898     |   |
| Add:                Preferred dividends from assumed conversion of 5% mandatorily                             |   |   |                          |   |   |      |   |
|                  redeemable convertible preferred stock                                                  |   |   | 404                           |   |   | -         |   |
| Add:                Net interest from assumed conversion of 6% convertible senior                notes        |   |   | 1,067                         |   |   | -         |   |
| Add:                Net interest from assumed conversion of 5 ¼% convertible senior                notes |   |   | 1,001                         |   |   | -         |   |
| Diluted                net income from continuing operations                                                  |   |   | 18,178                        |   |   | 3,898     |   |
| Loss                from discontinued sulphur operations                                                      |   |   | (1,616                        | )      |   | (3,293    | )      |
| Diluted                net income applicable to common stock                                                  |   | $      | 16,562                        |   | $      | 605       |   |

| Weighted                average common shares outstanding for purpose of calculating                      |   |   |                  |   |   |                  |   |
|-----------------------------------------------------------------------------------------------------------|--------|--------|-----------------------|--------|--------|-----------------------|--------|
| basic                net income per share                                                                 |   |   | 28,280                |   |   | 27,556                |   |
| Assumed                exercise of dilutive stock options                                                 |   |   | 1,080                 |   |   | 1,247                 |   |
| Assumed                exercise of stock warrants                                                         |   |   | 1,749                 |   |   | 1,782                 |   |
| Assumed                conversion of 5% mandatorily redeemable convertible preferred                stock |   |   | 6,214                 |   |   | -                     |   |
| Assumed                conversion of 6% convertible senior notes                                          |   |   | 7,080                 |   |   | -                     |   |
| Assumed                conversion of 5¼% convertible senior notes                                    |   |   | 6,938                 |   |   | -                     |   |
| Weighted                average common shares outstanding                                                 |   |   |                  |   |   |                  |   |
|                      for purposes of calculating diluted net income per share    |   |   | 51,341                |   |   | 30,585                |   |
|                                                                                                      |   |   |                  |   |   |                  |   |
| Diluted                net income from continuing operations                                              |   |   | $                0.35 |   |   | $                0.13 |   |
| Diluted                net loss from discontinued sulphur operations                                      |   |   |   (0.03     | )      |   | (0.11                 | )      |
| Diluted                net income per share                                                               |   |   | $                0.32 |   |   | $                0.02 |   |

|                                                 |   | Second                Quarter |   |   | Six                Months |   |
|------------------------------------------------------|--------|-------------------------------|--------|--------|---------------------------|--------|
|                                                 |   | 2006                          |   |   | 2005                      |   |   | 2006 |   |   | 2005 |   |
| In-the-money                stock options a,b        |   |                          | -      | c      |                      |   | 1,470 |   |   |   | - | c |   |   | 1,421 |   |
| Stock                warrants a,d                    |   |                          | -      | c      |                      |   | 1,815 |   |   |   | - | c |   |   | 1,811 |   |
| 5%                mandatorily redeemable convertible |   |                          |   |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| preferred                stock e                     |   |                          | -      | c      |                      |   | 6,214 |   |   |   | 6,214 |   |   |   | 6,214 |   |
| 6%                convertible senior notes f         |   |                          | -      | c      |                      |   | 9,123 |   |   |   | 7,080 |   |   |   | 9,123 |   |
| 5¼%                convertible senior notes g   |   |                          | -      | c      |                      |   | 8,446 |   |   |   | 6,938 |   |   |   | 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.   | Included                in McMoRan’s diluted net income per share calculation (see table above for                a reconciliation of McMoRan’s basic and diluted net income per share                calculations for the second-quarter and six months ended June 30,                2006). |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| d.   | Includes                stock warrants issued 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. See Note 4 of McMoRan’s 2005 Form 10-K                for additional information. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table      of Contents

| e.   | At                the election of the holder, and before the shares mature on June                30, 2012,                each outstanding share of 5% mandatorily redeemable convertible preferred                stock (1.2 million shares outstanding as of June 30, 2005) is convertible                into 5.1975 shares of McMoRan common stock. For additional information                see                Note 6 of McMoRan’s 2005 Form 10-K. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| f.   | The                notes, issued in July 2003, are convertible at the option of the                holder at                any time prior to their maturity on July 2, 2008 into shares of McMoRan                common stock at a conversion price of $14.25 per share. Net interest                expense on the 6% convertible senior notes totaled $2.2 million during                the                second quarter of 2005 and $2.1 million and $ 4.2 million for the                six-month periods ended June 30, 2006 and 2005, respectively. For                additional information see Note 5 of McMoRan’s 2005 Form 10-K. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| g.   | The                notes, issued in October 2004, are convertible at the option of the                holder                at any time prior to their maturity on October 6, 2011 into shares                of                McMoRan common stock at a conversion price of $16.575 per share.                Net                interest expense on the 5¼% convertible senior notes totaled $1.9 million                for the second quarter of 2005 and $1.8 million and $3.7 million                for the                six months ended June 30, 2006 and 2005, respectively. For additional                information see Note 5 of McMoRan’s 2005 Form 10-K. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                              |   | Second                Quarter |   |   | Six                Months |   |
|---------------------------------------------------|--------|-------------------------------|--------|--------|---------------------------|--------|
|                                              |   | 2006                          |   |   | 2005                      |   |   | 2006 |   |   | 2005 |   |
| Outstanding                options (in thousands) |   |                          | 2,145  |   |                      |   | 420 |   |   |   | 2,133 |   |   |   | 420 |   |
| Average                exercise price             |   | $                             | 19.84  |   |                      | $      | 21.71 |   |   | $ | 19.85 |   |   | $ | 21.71 |   |

**5.      OTHER MATTERS**

** **

----

Table        of Contents

** **

----

Table        of Contents

| Oil                and Natural Gas                                |   |   |   |
|-------------------------------------------------------------------|--------|--------|--------|
| Asset                retirement obligation at beginning of year   | $      | 21,760 |   |
| Liabilities                settled                                |   | -      |   |
| Accretion                expense                                  |   | 489    |   |
| Incurred                liabilities                               |   | 1,871  |   |
| Revision                for changes in estimates                  |   | -      |   |
| Asset                retirement obligations at June 30, 2006      | $      | 24,120 |   |
|                                                              |   |   |   |
| Sulphur                                                           |   |   |   |
| Asset                retirement obligations at beginning of year: | $      | 21,786 |   |
| Liabilities                settled                                |   | (2,153 | )      |
| Accretion                expense                                  |   | 696    |   |
| Revision                for changes in estimates                  |   | -      |   |
| Asset                retirement obligation at June 30, 2006       | $      | 20,329 |   |

|                                                       |   |   | Second                Quarter |   |   | Six                Months |   |
|------------------------------------------------------------|--------|--------|-------------------------------|--------|--------|---------------------------|--------|
|                                                       |   |   | 2006                          |   |   | 2005                      |   |   | 2006 |   |   | 2005 |   |
| Interest                cost                               |   | $      | 51                            |   | $      | 50                        |   | $ | 135 |   | $ | 83 |   |
| Service                cost                                |   |   | -                             |   |   | -                         |   |   | - |   |   | - |   |
| Loss                (return)                on plan assets |   |   | 45                            |   |   | (67                       | )      |   | 37 |   |   | (85 | ) |
| Change                in plan payout assumptions           |   |   | -                             |   |   | -                         |   |   | - |   |   | - |   |
| Net                periodic (benefit)                cost  |   | $      | 96                            |   | $      | (17                       | )      | $ | 172 |   | $ | (2 | ) |

**6.      RATIO OF EARNINGS TO FIXED CHARGES **

----

Table        of Contents

REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING      FIRM

----

Table      of Contents

Management's      Discussion and Analysis of Financial Condition and Results      of Operations.

**OVERVIEW**

*In      management’s discussion and analysis “we,” “us,” and “our” refer to McMoRan      Exploration Co. and its wholly owned consolidated subsidiaries, McMoRan Oil      & Gas LLC (MOXY) and Freeport-McMoRan Energy LLC (Freeport Energy). You      should read the following discussions in conjunction with our consolidated      financial statements, the related discussion and analysis of financial condition      and results of operations and our discussion of “Business and Properties” in our      Form 10-K for the year ended December 31, 2005 (2005 Form 10-K), filed with      the      Securities and Exchange Commission. The results of operations reported and      summarized below are not necessarily indicative of future operating results.      Unless otherwise specified, all references to Notes refers to Notes to      Consolidated Financial Statements included elsewhere in this Form 10-Q.*

**OIL      & GAS ACTIVITIES**

** **

----

Table        of Contents

|                                                                                              |  **Working****Interest** | **Net****Revenue****Interest** |  **Prospect                Acreage****a** | **Water                Depth** | **Proposed                Total****Depth****b** |  **Current                Depth****c** | **Spud                Date**    |
|---------------------------------------------------------------------------------------------------|-------------------------------|--------------------------------|------------------------------------------------|--------------------------------|-------------------------------------------------|---------------------------------------------|---------------------------------|
| **Exploration                In-Progress**                                                        | %                             | %                              |                                           | Feet                           | Feet                                            | Feet                                        |                            |
| St.                Mary Parish, LA“Laphroaig”                                         | 37.5                          | 27.8                           | 2,439                                          | <10                         | 19,000                                          | 16,100                                      | April                8, 2006    |
| Louisiana                State Lease 18091“Long                Point Deep” d          | 37.5                          | 26.8                           | 5,000                                          | 8                              | 23,000                                          | 16,800                                      | April                27, 2006   |
| Onshore                Vermilion Parish, LA“Zigler                Canal” d            | 37.5                          | 26.8                           | 640e                                           | n/af                           | 13,500                                          | 7,600g                                      | June                17, 2006    |
| **Near-Term                Exploration Well**                                                     |                          |                           |                                           |                           |                                            |                                        |                            |
| Vermilion                Block 54 d                                                               | 30.0                          | 24.2                           | 3,125                                          | 20                             | 15,400                                          | n/a                                         | August                2006 h    |
| South                Marsh Block 217“Hurricane                Deep”d                  | 27.5                          | 19.4                           | 7,700                                          | 20                             | 21,500                                          | n/a                                         | Second-Half                2006 |
| Onshore                Vermilion Parish, LA“North                West Kaplan Canal” d | 33.4                          | 23.8                           | 1,159                                          | n/af                           | 21,500                                          | n/a                                         | Second-Half                2006 |
| **Development                Well**                                                               |                          |                           |                                           |                           |                                            |                                        |                            |
| South                Marsh Island Block 217“Hurricane                No. 3”           | 27.5                          | 19.4                           | 7,700                                          | 10                             | 16,000                                          | 13,200                                      | June                14, 2006    |

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

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

| c.   | Approximate                total vertical depth of well on August 2,                2006. |
|----------------|-------------------------------------------------------------------------------------------|

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

| e.   | Well                drilling on a 640-acre lease located within an area where we control                approximately 13,000 acres. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------|

| f.   | Prospect                located onshore Louisiana. |
|----------------|----------------------------------------------------|

| g.   | In                late July, the well encountered a high-pressure zone at a depth of                approximately 12,100 feet true vertical depth was sidetracked and                it                currently drilling to its proposed total depth. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| h.   | Rig                is currently on location. |
|----------------|----------------------------------------------|

**.      **

----

Table        of Contents

** **
**. **
* *

** **

----

Table        of Contents

|                                                                                     | **Working****Interest** | **Net                Revenue****Interest** | **Start-Up                or Expected****Start-Up                Date** |
|------------------------------------------------------------------------------------------|-------------------------|--------------------------------------------|-------------------------------------------------------------------------|
| Onshore                Vermilion Parish, LA“Cane                Ridge”       | 37.5%                   | 27.5%                                      | April                21, 2006                                           |
| Vermilion                Blocks 16/17 “King                Kong No. 3”       | 40.0%                   | 29.2%                                      | April                27, 2006                                           |
| South                Marsh Island Block 217“Hurricane                No. 2”  | 27.5%                   | 19.4%                                      |  May                14, 2006                                       |
| Louisiana                State Lease 18090“Long                Point No. 1”  | 37.5%                   | 26.8%                                      | May                23, 2006                                             |
| Louisiana                State Lease 18090“Long                Point No. 2”  | 37.5%                   | 26.8%                                      | May                27, 2006                                             |
| Garden                Banks Block 625“Dawson                Deep”            | 30.0%                   | 24.0%                                      | July                6, 2006                                             |
| West                Cameron Block 43 “No.                3”*                 | 23.4%                   | 18.0%                                      | Third-Quarter                2006                                       |
| West                Pecan Island“Pecos”                                      | 50.0%                   | 36.0%                                      | Third-Quarter                2006                                       |
| Onshore                Vermilion Parish“Liberty                Canal”        | 37.5%                   | 27.7%                                      | Third-Quarter                2006                                       |
| High                Island Block 131“King                of the Hill” No. 2* | 25.0%                   | 19.6%                                      | Third-Quarter                2006                                       |
| Louisiana                State Lease 18350“Point                Chevreuil”   | 25.0%                   | 17.5%                                      | Year-End                2006                                            |
| Louisiana                State Lease 340“Blueberry                Hill”      | 35.3%                   | 24.2%                                      | Completion                Pending Second-Half 2006 Test                 |

*       *
* *

----

Table        of Contents

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

**      PROJECT**

**™**

**™**

----

Table            of Contents

**RESULTS      OF OPERATIONS**

** **

----

Table        of Contents

|                                                 | Three                Months Ended |   | Six                Months Ended |   |
|------------------------------------------------------|-----------------------------------|--------|---------------------------------|--------|
|                                                 | June                30,           |   | June                30,         |   |
|                                                 | 2006                              |   | 2005                            |   | 2006 |   | 2005 |   |
| Sales                volumes:                        |                              |   |                            |   |   |   |   |   |
| Gas                (thousand cubic feet, or Mcf)     | 3,867,100                         |   | 2,764,700                       |   | 6,026,500 |   | 4,175,200 |   |
| Oil                (barrels)a                        | 339,700                           |   | 180,400                         |   | 636,600 |   | 197,400 |   |
| Plant                products (equivalent barrels) b | 21,000                            |   | 28,400                          |   | 35,300 |   | 35,500 |   |
| Average                realizations:                 |                              |   |                            |   |   |   |   |   |
| Gas                (per Mcf)                         | $                6.90             |   | $                7.51           |   | $                7.34 |   | $                7.28 |   |
| Oil                (per barrel)a                     | 64.96                             |   | 48.85                           |   | 61.32 |   | 48.97 |   |

| a.                 | After                being shut-in in September 2004 as a result of damage to a third-party                facility and connecting pipelines caused by Hurricane Ivan, Main                Pass                resumed production in May 2005 following completion of modifications                to                existing facilities to allow transportation of oil from the field                by barge                (Note 5). Sales volumes from Main Pass totaled 203,600 barrels in                the                second quarter of 2006 and 402,900 barrels during the six months                ended                June 30, 2006 compared with 100,600 barrels in the second quarter                and six                months ended June 30, 2005. Main Pass produces sour crude oil, which                sells                at a discount to the price of other crude                oils. |
|------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.                 | We                received approximately $1.1                million and $1.8 million of revenues associated with plant products                (ethane, propane, butane, etc.) during the second quarter of 2006                and six                months ending June 30, 2006, respectively, compared with $1.2 million                and                $1.4 million of plant product revenues in the comparable periods                last                year. |
|------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table        of Contents

**Oil      and Gas Operations**

|                                                              | Second  |   |   | Six    |   |
|-------------------------------------------------------------------|---------|--------|--------|--------|--------|
|                                                              | Quarter |   |   | Months |   |
| Oil                and natural gas revenues - prior year period   | $       | 30,875 |   | $      | 42,255 |   |
| Increase                in:                                       |    |   |   |   |   |   |
| Sales                volumes:                                     |    |   |   |   |   |   |
| Natural                gas                                        |    | 8,276  |   |   | 13,477 |   |
| Oil                and condensate                                 |    | 7,711  |   |   | 21,116 |   |
| Price                realizations:                                |    |   |   |   |   |   |
| Natural                gas                                        |    | (2,347 | )      |   | 362    |   |
| Oil                and condensate                                 |    | 5,548  |   |   | 8,250  |   |
| Plant                products revenues                            |    | (104   | )      |   | 405    |   |
| Other                                                             |    | 317    |   |   | (148   | ) |
| Oil                and natural gas revenues - current year period | $       | 50,276 |   | $      | 85,717 |   |

** **

----

Table        of Contents

** **

|                                                      | Second                Quarter |   | Six                Months |   |
|-----------------------------------------------------------|-------------------------------|--------|---------------------------|--------|
|                                                      | 2006                          |   | 2005                      |   | 2006 |   | 2005 |   |
| Geological                and geophysical                 | $                             | 2.4    | a                         | $      | 1.0 |   | $ | 9.4 | a | $ | 2.8 |   |
| Nonproductive                exploratory costs, including |                          |   |                      |   |   |   |   |   |   |   |   |   |
| related                lease costs                        |                          | 2.2    |                      |   | 26.0 | b |   | 14.5 | c |   | 28.9 | b,d |
| Other                                                     |                          | 2.2    |                      |   | 1.5 |   |   | 3.5 |   |   | 4.3 |   |
|                                                      | $                             | 6.8    |                      | $      | 28.5 |   | $ | 27.4 |   | $ | 36.0 |   |

| a.   | Includes                $1.0 million and $6.0 million of compensation costs during the second                quarter and six months periods associated with outstanding stock-based                awards following adoption of a new accounting standard (see “New                Accounting Standards” below and Note                2). |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.   | Includes                nonproductive exploratory drilling and related costs associated with                the                “Korn” well at South Timbalier Blocks 97/98 ($6.9 million), the “Little                Bay” well at Louisiana State Lease 5097 ($11.0 million) |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table        of Contents

| c.   | Includes                nonproductive exploratory well drilling and related costs primarily                associated with the “Denali” well at South Pass Block 26 ($8.2 million),                and the costs incurred during the first half of 2006 for the “Cabin Creek”                well at West Cameron Block 95 ($2.7 million) and the “Elizabeth” well at                South Marsh Island Block 230 ($2.5                million). |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| d.   | Includes                nonproductive exploratory well costs associated with the “Caracara” well                at Vermilion Blocks 227/228 ($1.2 million), the “King of the Hill” No. 1                well at High Island Block 131 ($0.3 million), the “Gandalf” well at                Mustang Island Block 829 ($0.2 million) and the deeper zones at both                the                “Hurricane Upthrown” well at South Marsh Island Block 217 ($0.4 million)                and the West Cameron Block 43 No. 3 exploratory well ($0.4 million).                Amount also includes the write-off of approximately $0.4 million                of                leasehold costs associated with one onshore Louisiana prospect. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Other      Financial Results**

**CAPITAL      RESOURCES AND LIQUIDITY**

----

Table          of Contents

|                                 | Six                Months Ended |   |
|--------------------------------------|---------------------------------|--------|
|                                 | June                30,         |   |
|                                 | 2006                            |   |   | 2005 |   |
| Continuing                operations |                            |   |   |   |   |   |   |
| Operating                            | $                               | 23.8   |   |   | $ | 35.5 |   |
| Investing                            |                            | (128.2 | ) |   |   | (72.0 | ) |
| Financing                            |                            | (5.6   | ) |   |   | 1.2 |   |

| Discontinued                operations |   |   |   |   |   |   |   |
|----------------------------------------|--------|--------|--------|--------|--------|--------|--------|
| Operating                              |   | (4.9   | )      |   |   | (1.6   | )      |
| Investing                              |   | -      |   |   |   | -      |   |
| Financing                              |   | -      |   |   |   | -      |   |

| Total                cash flow |   |   |   |   |   |   |   |
|--------------------------------|--------|--------|--------|--------|--------|--------|--------|
| Operating                      |   | 18.9   |   |   |   | 33.9   |   |
| Investing                      |   | (128.2 | )      |   |   | (72.0  | )      |
| Financing                      |   | (5.6   | )      |   |   | 1.2    |   |

**Six-Month      2006 Cash Flows Compared with Six-Month 2005**

----

Table        of Contents

**Debt      Conversion Transactions and Credit Facility**

**NEW      ACCOUNTING STANDARDS **

|                                                 | Three                  Months Ended |   | Six                  Months Ended |   |
|------------------------------------------------------|-------------------------------------|--------|-----------------------------------|--------|
|                                                 | June                  30,           |   | June                  30,         |   |
|                                                 | 2006                                |   | 2005                              |   | 2006 |   | 2005 |   |
| General                  and administrative expenses | $                                   | 601    |                              | $      | 313 |   | $ | 5,252 |   | $ | 399 |   |
| Exploration                  expenses                |                                | 1,022  |                              |   | 439 |   |   | 6,021 |   |   | 616 |   |
| Main                  Pass Energy Hub start-up costs |                                | 417    |                              |   | 4 |   |   | 442 |   |   | 4 |   |
| Total                  stock-based compensation cost | $                                   | 2,040  |                              | $      | 756 |   | $ | 11,715 |   | $ | 1,019 |   |
|                                                 |                                |   |                              |   |   |   |   |   |   |   |   |   |

----

Table        of Contents

*Accounting      for Uncertainty in Income Taxes.*

**DISCONTINUED      OPERATIONS**

|                                                       | Second                Quarter |   | Six                Months |   |
|------------------------------------------------------------|-------------------------------|--------|---------------------------|--------|
|                                                       | 2006                          |   | 2005                      |   | 2006 |   | 2005 |   |
| Sulphur                retiree costs                       | $                             | 475    |                      | $      | 184 |   | $ | 935 |   | $ | 402 |   |
| Caretaking                costs                            |                          | 243    |                      |   | 253 |   |   | 673 |   |   | 443 |   |
| Accretion                expense - sulphur                 |                          |   |                      |   |   |   |   |   |   |   |   |   |
| reclamation                obligations                     |                          | 348    |                      |   | 240 |   |   | 696 |   |   | 480 |   |
| Insurance                                                  |                          | 416    |                      |   | 94 |   |   | 834 |   |   | 184 |   |
| General                and administrative, legal and other |                          | 134    |                      |   | 167 |   |   | 155 |   |   | 458 |   |
| Loss                from discontinued operations           | $                             | 1,616  |                      | $      | 938 |   | $ | 3,293 |   | $ | 1,967 |   |

**CAUTIONARY      STATEMENT**

Quantitative      and Qualitative Disclosures about Market      Risk.

Controls      and Procedures

----

Table        of Contents

PART      II--OTHER INFORMATION

----

Table        of Contents

SIGNATURE

----

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).                                                                                                                                                                                                                                                                                                            |

----

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.)                                                                                                                                                                                                    |

----

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). |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | Executive                and Director Compensation Plans and Arrangements (Exhibits 10.13                through                10.34).                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.13  | 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)).                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.14  | 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).                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.15  | 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).                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.16  | 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).                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.17  | 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).                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.18  | 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).                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.19  | 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).                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.20  | 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).                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.21  | 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).                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.22  | 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).                                                                                                                           |

----

Table      of Contents

|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.23  | 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).                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.24  | McMoRan                Exploration Co. Executive Services Program (Incorporated by reference                to                Exhibit 10.8 to McMoRan’s May 1, 2006 Form 8-K).                                                                                                                                                                                                                                             |
| 10.25  | 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).                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.26  | 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).                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.27  | McMoRan                2004 Director Compensation Plan. (Incorporated by reference to Exhibit                10.29 to McMoRan’s Second Quarter 2004 Form 10-Q).                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.28  | 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).                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.29  | 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). |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.30  | Supplemental                Letter Agreement between FM Services Company and B.M. Rankin, Jr.                effective as of January 1, 2006. (Incorporated by reference to Exhibit                10.28 to McMoRan’s 2005 Form 10-K).                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.31  | McMoRan                Director Compensation. (Incorporated by reference to Exhibit 10.27                to                McMoRan’s 2004 Form 10-K).                                                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.32  | McMoRan                Exploration Co. 2005 Stock Incentive Plan. (Incorporated by reference                to                Exhibit 10.1 to McMoRan’s May 1, 2006 Form 8-K).                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.33  | 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).                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.34  | 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).                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 15.1   | Letter                dated August 2, 2006 from Ernst & Young LLP regarding unaudited                interim financial statements.                                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 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.                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |

----