UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-K/A

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012

OR

 ̈TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-31470

PLAINS EXPLORATION & PRODUCTION COMPANY

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 33-0430755                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

700 Milam Street, Suite 3100

Houston, Texas 77002

(Address of principal executive offices)

(Zip Code)

(713) 579-6000

(Registrants telephone number, including area code)

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



|                                        |  |                                          
|--------------------------------------- |  | -----------------------------------------
|Title of each class                     |  | Name of each exchange on which registered
|Common Stock, par value $0.01 per share |  | New York Stock Exchange                  

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    Yes  þ    
No   ̈

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ̈    No  þ

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  
 ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  
 ̈

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ

Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, and smaller reporting
company in Rule 12b-2 of the Exchange Act. (Check one):

þ  Large accelerated filer     ̈  Accelerated
filer     ̈  Non-accelerated filer (Do not check if a
smaller reporting company)     ̈  Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).    Yes   ̈    No  þ

The aggregate market value of the
Common Stock held by non-affiliates of the registrant (treating all executive officers and directors of the registrant, for this purpose, as if they may be affiliates of the registrant) was approximately $4.5 billion on June 29, 2012 (based on
$35.18 per share, the last sale price of the Common Stock as reported on the New York Stock Exchange on such date). On January 31, 2013, there were 129.0 million shares of the registrants Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: The information required in Part III of the Annual Report on Form 10-K is incorporated by reference to the
registrants definitive proxy statement to be filed pursuant to Regulation 14A for the registrants 2013 Annual Meeting of Stockholders or, in the event we do not prepare and file such proxy statement, such information shall be filed as an
amendment to this Form 10-K. Such information will be filed no later than April 30, 2013.









---

EXPLANATORY NOTE

This Amendment No. 1 to the Annual Report on Form 10-K of Plains Exploration & Production Company, or the Company, amends the Companys Annual Report on Form 10-K for the year ended
December 31, 2012, which was filed with the Securities and Exchange Commission on February 21, 2013. The Company is filing this Amendment No. 1 solely to provide the separate audited financial statements of McMoRan Exploration Co. in
accordance with Rule 3-09 of Regulation S-X. These audited financial statements, which were not available prior to the original filing date of February 21, 2013, are included in Item 15  Exhibits, Financial Statement Schedules.

No other changes have been made to the Form 10-K other than those described above. This Amendment No. 1 does not reflect subsequent events
occurring after the original filing date of the Form 10-K or modify or update in any way disclosures made in the Form 10-K.



1



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PART IV

Item 15.Exhibits, Financial Statement Schedules

(a)
(3) Exhibits



|              |  |                                                                       
|------------- |  | ----------------------------------------------------------------------
|ExhibitNumber |  | Description                                                           
|              | 
|23.3*         |  | Consent of Independent Registered Public Accounting Firm.             
|              | 
|31.1*         |  | Rule 13(a)-14(a)/15d-14(a) Certificate of the Chief Executive Officer.
|              | 
|31.2*         |  | Rule 13(a)-14(a)/15d-14(a) Certificate of the Chief Financial Officer.
|              | 
|32.1**        |  | Section 1350 Certificate of the Chief Executive Officer.              
|              | 
|32.2**        |  | Section 1350 Certificate of the Chief Financial Officer.              



|* | Filed herewith.
|- | ---------------

|** | Furnished herewith.
|-- | -------------------

(c) Financial statements of
50-Percent-Or-Less-Owned Investees:



|                                                           |  |      |       | 
|---------------------------------------------------------- |  | ---- | ----- | 
|                                                           |  | Page |      
|McMoRan Exploration Co.                                    |  |      |       | 
|Report of Independent Registered Public Accounting Firm    |  |      | MMR-1 | 
|Consolidated Balance Sheets                                |  |      |       | 
|As of December 31, 2012 and 2011                           |  |      | MMR-2 | 
|Consolidated Statements of Operations                      |  |      |       | 
|For the years ended December 31, 2012, 2011 and 2010       |  |      | MMR-3 | 
|Consolidated Statements of Comprehensive (Income) Loss     |  |      |       | 
|For the years ended December 31, 2012, 2011 and 2010       |  |      | MMR-4 | 
|Consolidated Statements of Cash Flow                       |  |      |       | 
|For the years ended December 31, 2012, 2011 and 2010       |  |      | MMR-5 | 
|Consolidated Statements of Changes in Stockholders Equity |  |      |       | 
|For the years ended December 31, 2012, 2011 and 2010       |  |      | MMR-6 | 
|Notes to Consolidated Financial Statements                 |  |      | MMR-8 | 



2



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                        |  |                                                                                                      
|----------------------- |  | -----------------------------------------------------------------------------------------------------
|                        |  | PLAINS EXPLORATION & PRODUCTION COMPANY                                                              
|                        | 
|Date: February 25, 2013 |  | /s/ Winston M. Talbert                                                                               
|                        |  | Winston M. Talbert, Executive Vice President andChief Financial Officer (Principal Financial Officer)



3



---

EXHIBIT INDEX



|              |  |                                                                       
|------------- |  | ----------------------------------------------------------------------
|ExhibitNumber |  | Description                                                           
|              | 
|23.3*         |  | Consent of Independent Registered Public Accounting Firm.             
|              | 
|31.1*         |  | Rule 13(a)-14(a)/15d-14(a) Certificate of the Chief Executive Officer.
|              | 
|31.2*         |  | Rule 13(a)-14(a)/15d-14(a) Certificate of the Chief Financial Officer.
|              | 
|32.1**        |  | Section 1350 Certificate of the Chief Executive Officer.              
|              | 
|32.2**        |  | Section 1350 Certificate of the Chief Financial Officer.              



|* | Filed herewith.
|- | ---------------

|** | Furnished herewith.
|-- | -------------------



4



---

Report of Independent Registered Public Accounting Firm

To The Stockholders and Board of Directors

of McMoRan Exploration
Co.:

We have audited the accompanying consolidated balance sheets of McMoRan Exploration Co. as of December 31, 2012 and 2011, and the related
consolidated statements of operations, comprehensive income (loss), cash flows, and changes in stockholders equity for each of the three years in the period ended December 31, 2012. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion,
the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of McMoRan Exploration Co. at December 31, 2012 and 2011, and the consolidated results of its operations and
its cash flow for each of the three years in the period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), McMoRan Exploration Co.s internal
control over financial reporting as of December 31, 2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
February 22, 2013, expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

New Orleans, Louisiana

February 22, 2013



MMR-1



---

McMoRan EXPLORATION CO.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share related amounts)



|                                                                                                                                                                 |  |              |            |   |      |   |            |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                                                                                                                                                                 |  | December 31, |           
|                                                                                                                                                                 |  | 2012         |            |   | 2011 |  
|ASSETS                                                                                                                                                           |  |              |            |   |      |   |            |  
|Current assets:                                                                                                                                                  |  |              |            |   |      |   |            |  
|Cash and cash equivalents                                                                                                                                        |  | $            | 114,867    |   |      | $ | 568,763    |  
|Accounts receivable                                                                                                                                              |  |              | 52,548     |   |      |   | 72,085     |  
|Inventories                                                                                                                                                      |  |              | 28,532     |   |      |   | 36,274     |  
|Prepaid expenses                                                                                                                                                 |  |              | 15,186     |   |      |   | 9,103      |  
|Current assets from discontinued operations, including restricted cash of $473                                                                                   |  |              | 2,013      |   |      |   | 682        |  
|                                                                                                                                                                 |  |              |            |   |      |   |            |  
|Total current assets                                                                                                                                             |  |              | 213,146    |   |      |   | 686,907    |  
|Property, plant and equipment, net                                                                                                                               |  |              | 2,394,522  |   |      |   | 2,181,926  |  
|Restricted cash and other                                                                                                                                        |  |              | 61,319     |   |      |   | 61,617     |  
|Deferred financing costs and other                                                                                                                               |  |              | 7,696      |   |      |   | 8,325      |  
|Long-term assets from discontinued operations                                                                                                                    |  |              | 439        |   |      |   | 439        |  
|                                                                                                                                                                 |  |              |            |   |      |   |            |  
|Total assets                                                                                                                                                     |  | $            | 2,677,122  |   |      | $ | 2,939,214  |  
|                                                                                                                                                                 |  |              |            |   |      |   |            |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                             |  |              |            |   |      |   |            |  
|Current liabilities:                                                                                                                                             |  |              |            |   |      |   |            |  
|Accounts payable                                                                                                                                                 |  | $            | 83,937     |   |      | $ | 115,832    |  
|Accrued liabilities                                                                                                                                              |  |              | 131,648    |   |      |   | 160,822    |  
|Accrued interest and dividends payable                                                                                                                           |  |              | 14,433     |   |      |   | 14,448     |  
|Current portion of accrued oil and gas reclamation costs                                                                                                         |  |              | 57,336     |   |      |   | 58,810     |  
|51/4% convertible senior notes                                                                                                                                   |  |              | 67,832     |   |      |   | 66,223     |  
|Current liabilities from discontinued operations, including sulphur reclamation costs                                                                            |  |              | 2,328      |   |      |   | 5,264      |  
|                                                                                                                                                                 |  |              |            |   |      |   |            |  
|Total current liabilities                                                                                                                                        |  |              | 357,514    |   |      |   | 421,399    |  
|11.875% senior notes                                                                                                                                             |  |              | 300,000    |   |      |   | 300,000    |  
|4% convertible senior notes                                                                                                                                      |  |              | 189,470    |   |      |   | 187,363    |  
|Accrued oil and gas reclamation costs                                                                                                                            |  |              | 188,245    |   |      |   | 267,584    |  
|Other long-term liabilities                                                                                                                                      |  |              | 17,204     |   |      |   | 20,886     |  
|Other long-term liabilities from discontinued operations, including sulphur reclamation costs                                                                    |  |              | 21,478     |   |      |   | 19,018     |  
|                                                                                                                                                                 |  |              |            |   |      |   |            |  
|Total liabilities                                                                                                                                                |  |              | 1,073,911  |   |      |   | 1,216,250  |  
|                                                                                                                                                                 |  |              |            |   |      |   |            |  
|Commitments and contingencies (Note 15)                                                                                                                          |  |              |            |   |      |   |            |  
|Stockholders equity:                                                                                                                                            |  |              |            |   |      |   |            |  
|Preferred stock, par value $0.01, 50,000,000 shares authorized,712,082 and 713,999 shares issued and outstanding (liquidation
preference), respectively (Note 9) |  |              | 712,082    |   |      |   | 713,999    |  
|Common stock, par value $0.01, 300,000,000 shares authorized,164,754,966 shares and 163,940,835 shares issued and outstanding,
respectively                      |  |              | 1,648      |   |      |   | 1,639      |  
|Capital in excess of par value of common stock                                                                                                                   |  |              | 2,167,796  |   |      |   | 2,178,775  |  
|Accumulated deficit                                                                                                                                              |  |              | (1,227,743 | ) |      |   | (1,123,449 | )
|Accumulated other comprehensive income (loss)                                                                                                                    |  |              | 176        |   |      |   | 216        |  
|Common stock held in treasury, 2,650,589 shares and 2,611,591 shares,at cost, respectively                                                                       |  |              | (50,748    | ) |      |   | (48,216    | )
|                                                                                                                                                                 |  |              |            |   |      |   |            |  
|Total stockholders equity                                                                                                                                       |  |              | 1,603,211  |   |      |   | 1,722,964  |  
|                                                                                                                                                                 |  |              |            |   |      |   |            |  
|Total liabilities and stockholders equity                                                                                                                       |  | $            | 2,677,122  |   |      | $ | 2,939,214  |  
|                                                                                                                                                                 |  |              |            |   |      |   |            |  

The accompanying notes are an integral part of these consolidated financial statements.



MMR-2



---

McMoRan EXPLORATION CO.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)



|                                                                                   |  |                          |          |   |      |   |         |      |  |   |          |  
|---------------------------------------------------------------------------------- |  | ------------------------ | -------- | - | ---- | - | ------- | ---- |  | - | -------- | -
|                                                                                   |  | Years Ended December 31, |         
|                                                                                   |  | 2012                     |          |   | 2011 |   |         | 2010 | 
|Revenues:                                                                          |  |                          |          |   |      |   |         |      |  |   |          |  
|Oil and natural gas                                                                |  | $                        | 362,995  |   |      | $ | 542,310 |      |  | $ | 418,816  |  
|Service                                                                            |  |                          | 13,893   |   |      |   | 13,104  |      |  |   | 15,560   |  
|                                                                                   |  |                          |          |   |      |   |         |      |  |   |          |  
|Total revenues                                                                     |  |                          | 376,888  |   |      |   | 555,414 |      |  |   | 434,376  |  
|Costs and expenses:                                                                |  |                          |          |   |      |   |         |      |  |   |          |  
|Production and delivery costs                                                      |  |                          | 155,141  |   |      |   | 206,319 |      |  |   | 182,790  |  
|Depletion, depreciation and amortization expense                                   |  |                          | 173,817  |   |      |   | 307,902 |      |  |   | 282,062  |  
|Exploration expenses                                                               |  |                          | 127,994  |   |      |   | 81,742  |      |  |   | 42,608   |  
|Gain on oil and gas derivative contracts                                           |  |                          | -        |   |      |   | -       |      |  |   | (4,240   | )
|General and administrative expenses                                                |  |                          | 52,977   |   |      |   | 49,471  |      |  |   | 51,529   |  
|Insurance recoveries                                                               |  |                          | (1,229   | ) |      |   | (91,076 | )    |  |   | (38,944  | )
|Gain on sale of oil and gas properties                                             |  |                          | (40,453  | ) |      |   | (900    | )    |  |   | (3,455   | )
|Main Pass Energy Hub costs                                                        |  |                          | 287      |   |      |   | 588     |      |  |   | 1,011    |  
|                                                                                   |  |                          |          |   |      |   |         |      |  |   |          |  
|Total costs and expenses                                                           |  |                          | 468,534  |   |      |   | 554,046 |      |  |   | 513,361  |  
|                                                                                   |  |                          |          |   |      |   |         |      |  |   |          |  
|Operating income (loss)                                                            |  |                          | (91,646  | ) |      |   | 1,368   |      |  |   | (78,985  | )
|Interest expense, net                                                              |  |                          | -        |   |      |   | (8,782  | )    |  |   | (38,216  | )
|Loss on debt exchange                                                              |  |                          | (5,955   | ) |      |   | -       |      |  |   | -        |  
|Other income, net                                                                  |  |                          | 568      |   |      |   | 810     |      |  |   | 225      |  
|                                                                                   |  |                          |          |   |      |   |         |      |  |   |          |  
|Loss from continuing operations before income taxes                                |  |                          | (97,033  | ) |      |   | (6,604  | )    |  |   | (116,976 | )
|Income tax benefit (expense)                                                       |  |                          | -        |   |      |   | -       |      |  |   | -        |  
|                                                                                   |  |                          |          |   |      |   |         |      |  |   |          |  
|Loss from continuing operations                                                    |  |                          | (97,033  | ) |      |   | (6,604  | )    |  |   | (116,976 | )
|Loss from discontinued operations                                                  |  |                          | (7,261   | ) |      |   | (9,364  | )    |  |   | (3,366   | )
|                                                                                   |  |                          |          |   |      |   |         |      |  |   |          |  
|Net loss                                                                           |  |                          | (104,294 | ) |      |   | (15,968 | )    |  |   | (120,342 | )
|Preferred dividends and inducement payments forearly conversion of preferred stock |  |                          | (41,276  | ) |      |   | (42,800 | )    |  |   | (77,101  | )
|                                                                                   |  |                          |          |   |      |   |         |      |  |   |          |  
|Net loss applicable to common stock                                                |  | $                        | (145,570 | ) |      | $ | (58,768 | )    |  | $ | (197,443 | )
|                                                                                   |  |                          |          |   |      |   |         |      |  |   |          |  
|Basic and diluted net loss per share of common stock:                              |  |                          |          |   |      |   |         |      |  |   |          |  
|Net loss from continuing operations                                                |  | $                        | (0.86    | ) |      | $ | (0.31   | )    |  | $ | (2.04    | )
|Net loss from discontinued operations                                              |  |                          | (0.04    | ) |      |   | (0.06   | )    |  |   | (0.04    | )
|                                                                                   |  |                          |          |   |      |   |         |      |  |   |          |  
|Net loss per share of common stock                                                 |  | $                        | (0.90    | ) |      | $ | (0.37   | )    |  | $ | (2.08    | )
|                                                                                   |  |                          |          |   |      |   |         |      |  |   |          |  
|Average common shares outstanding:                                                 |  |                          |          |   |      |   |         |      |  |   |          |  
|Basic and diluted                                                                  |  |                          | 161,702  |   |      |   | 159,216 |      |  |   | 95,125   |  
|                                                                                   |  |                          |          |   |      |   |         |      |  |   |          |  

The accompanying notes are an integral part of these consolidated financial statements.



MMR-3



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McMoRan EXPLORATION CO.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)



|                                                                                                |  |                          |          |   |      |   |         |      |  |   |          |  
|----------------------------------------------------------------------------------------------- |  | ------------------------ | -------- | - | ---- | - | ------- | ---- |  | - | -------- | -
|                                                                                                |  | Years Ended December 31, |         
|                                                                                                |  | 2012                     |          |   | 2011 |   |         | 2010 | 
|Net loss                                                                                        |  | $                        | (104,294 | ) |      | $ | (15,968 | )    |  | $ | (120,342 | )
|Other comprehensive income (loss):                                                              |  |                          |          |   |      |   |         |      |  |   |          |  
|Amortization of previously unrecognized pension components, net                                 |  |                          | (40      | ) |      |   | (40     | )    |  |   | (40      | )
|Change in unrecognized net gains of pension plans                                               |  |                          | -        |   |      |   | 353     |      |  |   | 289      |  
|                                                                                                |  |                          |          |   |      |   |         |      |  |   |          |  
|Comprehensive loss                                                                              |  |                          | (104,334 | ) |      |   | (15,655 | )    |  |   | (120,093 | )
|Preferred dividends and inducement payments for early conversion of convertible preferred stock |  |                          | (41,276  | ) |      |   | (42,800 | )    |  |   | (77,101  | )
|                                                                                                |  |                          |          |   |      |   |         |      |  |   |          |  
|Comprehensive loss applicable to common stock                                                   |  | $                        | (145,610 | ) |      | $ | (58,455 | )    |  | $ | (197,194 | )
|                                                                                                |  |                          |          |   |      |   |         |      |  |   |          |  

The accompanying notes are an integral part of these consolidated financial statements.



MMR-4



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McMoRan EXPLORATION CO.

CONSOLIDATED STATEMENTS OF CASH FLOW

(In thousands)



|                                                                                                                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                                                                                                            |  | Years Ended December 31, |         
|                                                                                                                                                                            |  | 2012                     |          |   | 2011 |   |          | 2010 | 
|CASH FLOW FROM OPERATING ACTIVITIES:                                                                                                                                        |  |                          |          |   |      |   |          |      |  |   |          |  
|Net loss                                                                                                                                                                    |  | $                        | (104,294 | ) |      | $ | (15,968  | )    |  | $ | (120,342 | )
|Adjustments to reconcile net loss to net cash provided by operating activities:                                                                                             |  |                          |          |   |      |   |          |      |  |   |          |  
|Loss from discontinued operations                                                                                                                                           |  |                          | 7,261    |   |      |   | 9,364    |      |  |   | 3,366    |  
|Depletion, depreciation and amortization expense                                                                                                                            |  |                          | 173,817  |   |      |   | 307,902  |      |  |   | 282,062  |  
|Exploration drilling and related expenditures                                                                                                                               |  |                          | 93,506   |   |      |   | 42,339   |      |  |   | 14,526   |  
|Loss on debt exchange                                                                                                                                                       |  |                          | 5,955    |   |      |   | -        |      |  |   | -        |  
|Compensation expense associated with stock-based awards                                                                                                                     |  |                          | 17,445   |   |      |   | 18,325   |      |  |   | 18,707   |  
|Amortization of deferred financing costs                                                                                                                                    |  |                          | -        |   |      |   | 5,881    |      |  |   | 3,729    |  
|Change in fair value of oil and gas derivative contracts                                                                                                                    |  |                          | -        |   |      |   | -        |      |  |   | 6,800    |  
|Reclamation expenditures, net of prepayments by third parties                                                                                                               |  |                          | (76,615  | ) |      |   | (150,021 | )    |  |   | (115,133 | )
|Increase in restricted cash                                                                                                                                                 |  |                          | (5,006   | ) |      |   | (5,012   | )    |  |   | (12,298  | )
|Gain on sale of oil and gas properties                                                                                                                                      |  |                          | (40,453  | ) |      |   | (900     | )    |  |   | (3,455   | )
|Other                                                                                                                                                                       |  |                          | 68       |   |      |   | (318     | )    |  |   | 227      |  
|(Increase) decrease in working capital:                                                                                                                                     |  |                          |          |   |      |   |          |      |  |   |          |  
|Accounts receivable                                                                                                                                                         |  |                          | 20,821   |   |      |   | (22,996  | )    |  |   | (17,483  | )
|Accounts payable and accrued liabilities                                                                                                                                    |  |                          | (59,719  | ) |      |   | 45,944   |      |  |   | 30,223   |  
|Inventories                                                                                                                                                                 |  |                          | 7,741    |   |      |   | 2,187    |      |  |   | 10,895   |  
|Prepaid expenses                                                                                                                                                            |  |                          | 2,450    |   |      |   | 5,303    |      |  |   | (1,377   | )
|                                                                                                                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  
|Net cash provided by continuing operations                                                                                                                                  |  |                          | 42,977   |   |      |   | 242,030  |      |  |   | 100,447  |  
|Net cash used in discontinued operations                                                                                                                                    |  |                          | (9,327   | ) |      |   | (14,982  | )    |  |   | (2,217   | )
|                                                                                                                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  
|Net cash provided by operating activities                                                                                                                                   |  |                          | 33,650   |   |      |   | 227,048  |      |  |   | 98,230   |  
|                                                                                                                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  
|CASH FLOW FROM INVESTING ACTIVITIES:                                                                                                                                        |  |                          |          |   |      |   |          |      |  |   |          |  
|Exploration, development and other capital expenditures                                                                                                                     |  |                          | (505,132 | ) |      |   | (509,494 | )    |  |   | (217,252 | )
|Proceeds from sale of oil and gas properties                                                                                                                                |  |                          | 56,679   |   |      |   | 900      |      |  |   | 2,920    |  
|Acquisition of oil and gas properties, net                                                                                                                                  |  |                          | -        |   |      |   | (9,520   | )    |  |   | (86,134  | )
|                                                                                                                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  
|Net cash used in continuing activities                                                                                                                                      |  |                          | (448,453 | ) |      |   | (518,114 | )    |  |   | (300,466 | )
|Net cash from discontinued operations                                                                                                                                       |  |                          | -        |   |      |   | -        |      |  |   | -        |  
|                                                                                                                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  
|Net cash used in investing activities                                                                                                                                       |  |                          | (448,453 | ) |      |   | (518,114 | )    |  |   | (300,466 | )
|                                                                                                                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  
|CASH FLOW FROM FINANCING ACTIVITIES:                                                                                                                                        |  |                          |          |   |      |   |          |      |  |   |          |  
|Proceeds from the sale of 5.75% convertible perpetual preferred stock                                                                                                       |  |                          | -        |   |      |   | -        |      |  |   | 700,000  |  
|Proceeds from the sale of 4% convertible senior notes                                                                                                                       |  |                          | -        |   |      |   | -        |      |  |   | 200,000  |  
|Dividends paid and inducement payments on early conversion of convertiblepreferred stock                                                                                    |  |                          | (41,295  | ) |      |   | (37,951  | )    |  |   | (27,306  | )
|Payment of 51/4% convertible senior notes                                                                                                                                   |  |                          | (345     | ) |      |   | (6,543   | )    |  |   | -        |  
|Credit facility refinancing fees                                                                                                                                            |  |                          | -        |   |      |   | (1,745   | )    |  |   | -        |  
|Debt and equity issuance costs                                                                                                                                              |  |                          | (59      | ) |      |   | (562     | )    |  |   | -        |  
|Proceeds from exercise of stock options and other                                                                                                                           |  |                          | 2,606    |   |      |   | 946      |      |  |   | 497      |  
|Costs associated with the sale of 5.75% convertible perpetual preferred stockand sale of 4% convertible senior notes                                                        |  |                          | -        |   |      |   | -        |      |  |   | (6,689   | )
|                                                                                                                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  
|Net cash provided by (used in) continuing operations                                                                                                                        |  |                          | (39,093  | ) |      |   | (45,855  | )    |  |   | 866,502  |  
|Net cash from discontinued operations                                                                                                                                       |  |                          | -        |   |      |   | -        |      |  |   | -        |  
|                                                                                                                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  
|Net cash provided by (used in) financing activities                                                                                                                         |  |                          | (39,093  | ) |      |   | (45,855  | )    |  |   | 866,502  |  
|                                                                                                                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  
|Net increase (decrease) in cash and cash equivalents                                                                                                                        |  |                          | (453,896 | ) |      |   | (336,921 | )    |  |   | 664,266  |  
|Cash and cash equivalents at beginning of year                                                                                                                              |  |                          | 568,763  |   |      |   | 905,684  |      |  |   | 241,418  |  
|                                                                                                                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  
|Cash and cash equivalents at end of year                                                                                                                                    |  | $                        | 114,867  |   |      | $ | 568,763  |      |  | $ | 905,684  |  
|                                                                                                                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  
|Interest paid                                                                                                                                                               |  | $                        | 50,386   |   |      | $ | 47,473   |      |  | $ | 44,543   |  
|                                                                                                                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  
|Income taxes paid                                                                                                                                                           |  | $                        | -        |   |      | $ | -        |      |  | $ | 63       |  
|                                                                                                                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  
|SUPPLEMENTAL NON-CASH INVESTING & FINANCING ACTIVITIES:                                                                                                                     |  |                          |          |   |      |   |          |      |  |   |          |  
|Issuance of 2.8 million and 51 million shares of common stock and othernon-cash purchase price consideration related to
property acquisitions in2011 and 2010, respectively |  | $                        | -        |   |      | $ | 39,123   |      |  | $ | 926,010  |  
|                                                                                                                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  
|Accrued debt and preferred stock offering costs                                                                                                                             |  | $                        | -        |   |      | $ | -        |      |  | $ | 1,006    |  
|                                                                                                                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  

The accompanying notes are an integral part of these consolidated financial statements.



MMR-5



---

McMoRan EXPLORATION CO.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

(In thousands, except share & per share amounts)



|                                                                                                                                  |  |                          |           |   |      |   |           |      |  |   |           |  
|--------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                                                                                                  |  | Years Ended December 31, |          
|                                                                                                                                  |  | 2012                     |           |   | 2011 |   |           | 2010 | 
|                                                                                                                                  |  |                          |          
|8% Convertible Perpetual Preferred Stock:                                                                                         |  |                          |           |   |      |   |           |      |  |   |           |  
|Balance at beginning of year, representing 13,999 shares in 2012, 22,063 shares in 2011 and 86,250 shares in 2010                 |  | $                        | 13,999    |   |      | $ | 22,063    |      |  | $ | 86,250    |  
|Shares converted in privately negotiated transactions, representing 1,917 shares in 2012, 8,064 shares in 2011 and 64,187 in
2010 |  |                          | (1,917    | ) |      |   | (8,064    | )    |  |   | (64,187   | )
|                                                                                                                                  |  |                          |           |   |      |   |           |      |  |   |           |  
|Balance at end of year, representing 12,082 shares in 2012, 13,999 shares in 2011 and 22,063 shares in 2010                       |  |                          | 12,082    |   |      |   | 13,999    |      |  |   | 22,063    |  
|                                                                                                                                  |  |                          |           |   |      |   |           |      |  |   |           |  
|5.75% Convertible Perpetual Preferred Stock:                                                                                      |  |                          |           |   |      |   |           |      |  |   |           |  
|Balance at beginning of year, representing 700,000 shares in 2012 and 2011 and no shares in 2010                                  |  |                          | 700,000   |   |      |   | 700,000   |      |  |   | -         |  
|Shares issued in equity offering, representing 700,000 shares in 2010                                                             |  |                          | -         |   |      |   | -         |      |  |   | 700,000   |  
|                                                                                                                                  |  |                          |           |   |      |   |           |      |  |   |           |  
|Balance at end of year, representing 700,000 shares in 2012, 2011 and 2010                                                        |  |                          | 700,000   |   |      |   | 700,000   |      |  |   | 700,000   |  
|                                                                                                                                  |  |                          |           |   |      |   |           |      |  |   |           |  
|63/4% Mandatorily Convertible Preferred Stock:                                                                                    |  |                          |           |   |      |   |           |      |  |   |           |  
|Balance at beginning of year, representing no shares in 2012 and 2011 and 1,589,340 shares in 2010                                |  |                          | -         |   |      |   | -         |      |  |   | 158,934   |  
|Shares converted representing 1,589,340 shares in 2010                                                                            |  |                          | -         |   |      |   | -         |      |  |   | (158,934  | )
|                                                                                                                                  |  |                          |           |   |      |   |           |      |  |   |           |  
|Balance at end of year, representing no shares in 2012, 2011 and 2010                                                             |  |                          | -         |   |      |   | -         |      |  |   | -         |  
|                                                                                                                                  |  |                          |           |   |      |   |           |      |  |   |           |  
|Common Stock:                                                                                                                     |  |                          |           |   |      |   |           |      |  |   |           |  
|Balance at beginning of year, representing 163,940,835 shares in 2012, 159,797,352 shares in 2011 and 88,555,685 shares in
2010   |  |                          | 1,639     |   |      |   | 1,598     |      |  |   | 885       |  
|Shares issued to Plains Exploration & Production Company in 2010 (Notes 3 and 9), representing 51,000,000 shares                  |  |                          | -         |   |      |   | -         |      |  |   | 510       |  
|Preferred stock conversions, representing 280,160 shares in 2012, 1,178,514 shares in 2011 and 20,061,622 in 2010                 |  |                          | 3         |   |      |   | 12        |      |  |   | 201       |  
|Shares issued in property acquisition, representing 2,835,158 shares (at $12.36 per share) in 2011 (Note 9)                       |  |                          | -         |   |      |   | 28        |      |  |   | -         |  
|Exercise of stock options and other, representing 533,971 in 2012, 129,811 shares in 2011 and 180,045 shares in 2010              |  |                          | 6         |   |      |   | 1         |      |  |   | 2         |  
|                                                                                                                                  |  |                          |           |   |      |   |           |      |  |   |           |  
|Balance at end of year, representing, 164,754,966 shares in 2012, 163,940,835 shares in 2011 and 159,797,352 shares in 2010       |  |                          | 1,648     |   |      |   | 1,639     |      |  |   | 1,598     |  
|                                                                                                                                  |  |                          |           |   |      |   |           |      |  |   |           |  
|Capital in Excess of Par Value:                                                                                                   |  |                          |           |   |      |   |           |      |  |   |           |  
|Balance at beginning of year                                                                                                      |  |                          | 2,178,775 |   |      |   | 2,156,430 |      |  |   | 1,053,684 |  
|Costs associated with preferred stock equity offerings                                                                            |  |                          | -         |   |      |   | 275       |      |  |   | (5,945    | )
|Common stock issued, net of offering costs                                                                                        |  |                          | -         |   |      |   | 34,996    |      |  |   | 875,670   |  
|Intrinsic value  convertible debt and equity beneficial conversion options (Notes 7 and 9)                                       |  |                          | -         |   |      |   | -         |      |  |   | 66,375    |  
|Debt premium on
51/4% convertible senior notes (Note 7)                                                                           |  |                          | 5,786     |   |      |   | -         |      |  |   | -         |  
|Debt discount on
51/4% convertible senior notes (Note 7)                                                                          |  |                          | -         |   |      |   | 2,550     |      |  |   | -         |  
|Preferred stock conversions                                                                                                       |  |                          | 1,914     |   |      |   | 8,052     |      |  |   | 222,921   |  
|Stock-based compensation expense                                                                                                  |  |                          | 17,445    |   |      |   | 18,327    |      |  |   | 18,707    |  
|Exercise of stock options                                                                                                         |  |                          | 5,152     |   |      |   | 945       |      |  |   | 2,119     |  
|Preferred stock dividends, inducement payments and beneficial conversion option                                                   |  |                          | (41,276   | ) |      |   | (42,800   | )    |  |   | (77,101   | )
|                                                                                                                                  |  |                          |           |   |      |   |           |      |  |   |           |  
|Balance at end of year                                                                                                            |  | $                        | 2,167,796 |   |      | $ | 2,178,775 |      |  | $ | 2,156,430 |  
|                                                                                                                                  |  |                          |           |   |      |   |           |      |  |   |           |  



MMR-6



---

McMoRan EXPLORATION CO.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

(In thousands, except share & per share amounts)

(Continued)



|                                                                                                                                                                  |  |                          |            |   |      |   |            |      |  |   |            |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                                                                                                  |  | Years Ended December 31, |           
|                                                                                                                                                                  |  | 2012                     |            |   | 2011 |   |            | 2010 | 
|                                                                                                                                                                  |  |                          |           
|Accumulated Deficit:                                                                                                                                              |  |                          |            |   |      |   |            |      |  |   |            |  
|Balance at beginning of year                                                                                                                                      |  | $                        | (1,123,449 | ) |      | $ | (1,107,481 | )    |  | $ | (987,139   | )
|Net loss                                                                                                                                                          |  |                          | (104,294   | ) |      |   | (15,968    | )    |  |   | (120,342   | )
|                                                                                                                                                                  |  |                          |            |   |      |   |            |      |  |   |            |  
|Balance at end of year                                                                                                                                            |  |                          | (1,227,743 | ) |      |   | (1,123,449 | )    |  |   | (1,107,481 | )
|                                                                                                                                                                  |  |                          |            |   |      |   |            |      |  |   |            |  
|Accumulated Other Comprehensive Income (Loss):                                                                                                                    |  |                          |            |   |      |   |            |      |  |   |            |  
|Balance at beginning of year                                                                                                                                      |  |                          | 216        |   |      |   | (97        | )    |  |   | (346       | )
|Amortization of previously unrecognized pension components, net                                                                                                   |  |                          | (40        | ) |      |   | (40        | )    |  |   | (40        | )
|Change in unrecognized net gains of pension plans                                                                                                                 |  |                          | -          |   |      |   | 353        |      |  |   | 289        |  
|                                                                                                                                                                  |  |                          |            |   |      |   |            |      |  |   |            |  
|Balance at end of year                                                                                                                                            |  |                          | 176        |   |      |   | 216        |      |  |   | (97        | )
|                                                                                                                                                                  |  |                          |            |   |      |   |            |      |  |   |            |  
|Common Stock Held in Treasury:                                                                                                                                    |  |                          |            |   |      |   |            |      |  |   |            |  
|Balance at beginning of year, representing 2,611,591 shares in 2012, 2,609,427 shares in 2011 and 2,511,132 in 2010                                               |  |                          | (48,216    | ) |      |   | (48,176    | )    |  |   | (46,460    | )
|Tender of 38,998 shares in 2012, 2,164 shares in 2011 and 98,295 shares in 2010 associated with the exercise of stock options and the
vesting of restricted stock |  |                          | (2,532     | ) |      |   | (40        | )    |  |   | (1,716     | )
|                                                                                                                                                                  |  |                          |            |   |      |   |            |      |  |   |            |  
|Balance at end of year, representing 2,650,589 shares in 2012, 2,611,591 shares in 2011 and 2,609,427 shares in 2010                                              |  |                          | (50,748    | ) |      |   | (48,216    | )    |  |   | (48,176    | )
|                                                                                                                                                                  |  |                          |            |   |      |   |            |      |  |   |            |  
|Total stockholders equity                                                                                                                                        |  | $                        | 1,603,211  |   |      | $ | 1,722,964  |      |  | $ | 1,724,337  |  
|                                                                                                                                                                  |  |                          |            |   |      |   |            |      |  |   |            |  

The accompanying notes are an integral part of these consolidated financial statements.



MMR-7



---

McMoRan EXPLORATION CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Basis of
Presentation. The consolidated financial statements of McMoRan Exploration Co. (McMoRan), a Delaware corporation, are prepared in accordance with U.S. generally accepted accounting principles. McMoRans consolidated financial
statements include the accounts of those subsidiaries where McMoRan directly or indirectly has more than 50 percent of the voting rights and where the right to participate in significant management decisions is not shared with other stockholders,
including its two wholly owned subsidiaries, McMoRan Oil & Gas LLC (MOXY) and Freeport-McMoRan Energy LLC (Freeport Energy). MOXY conducts all of McMoRans oil and gas operations. The long-term business objective of Freeport Energy is
to maximize the value of the offshore structures used in the former sulphur operations, which currently includes the pursuit of a potential deepwater port facility/terminal to receive, store and condition natural gas for offloading to floating
liquefaction storage and offloading vessels for export at the Main Pass Energy HubTM(MPEH) located at Main Pass Block 299 (Main Pass).

McMoRans investments in
unincorporated legal entities represented by undivided interests in other oil and gas joint ventures and partnerships engaged in oil and gas exploration, development and production activities are pro rata consolidated, whereby a proportional share
of each joint ventures and partnerships assets, liabilities, revenues and expenses are included in the accompanying consolidated financial statements in accordance with McMoRans working and net revenue interests in each joint
venture and partnership.

All significant intercompany transactions have been eliminated. Changes in the accounting principles applied
during 2012, none of which impacted the consistency of presentation, are discussed below under the caption New Accounting Standards.

McMoRans previously discontinued sulphur operations are presented as such, and the major classes of assets and liabilities related to its former sulphur business are separately shown for the periods
presented.

Nature of Operations. McMoRan is an oil and gas exploration and production company engaged directly through its
subsidiaries, joint ventures or partnerships with other entities in the exploration, development, production and marketing of crude oil and natural gas. McMoRans operations are located entirely in the United States, offshore in the Gulf of
Mexico and onshore in the Gulf Coast region (primarily Louisiana and Texas).

McMoRans production of oil and natural gas involves
lifting oil and natural gas to the surface and gathering, treating and processing hydrocarbons to extract liquids (primarily ethane, propane, butane and natural gasolines) from natural gas. McMoRans production costs include all costs incurred
to operate or maintain its wells and related equipment and facilities. Examples of these costs include:



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



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



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



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



MMR-8



---

Use of Estimates.The preparation of McMoRans financial statements in
conformity with U.S. generally accepted accounting principles require management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and the accompanying notes to the consolidated financial
statements. The more significant estimates include reclamation and environmental obligations, useful lives for depletion, depreciation and amortization, estimates of proved oil and natural gas reserves and related future cash flows and the carrying
value of long-lived assets and assets held for sale or disposal. Actual results could differ from those estimates.

Cash and
Cash Equivalents. Highly liquid investments purchased with an original maturity of three months or less are considered cash equivalents (excluding certain restricted cash, Note 15).

Accounts Receivable. The majority of McMoRans accounts receivable result from oil and natural gas sales or joint
interest billings to third parties in the energy industry. McMoRans counterparty credit losses have historically been minimal.

Inventories. Product inventories totaled $0.8 million at December 31, 2012 and $1.3 million at December 31, 2011, consisting of
crude oil production from Main Pass. Materials and supplies inventory totaled $27.7 million at December 31, 2012 and $34.9 million at December 31, 2011 and represents the cost of supplies to be used in McMoRans drilling activities,
primarily drilling pipe and tubulars. A portion of the cost of such inventory will be reimbursed to McMoRan by joint operating partners as future well drilling activity utilizes these materials. McMoRans inventories are stated at the lower of
weighted average cost or market. During 2012 McMoRan reduced the carrying value of its inventories by approximately $2.8 million to reflect its determination of items that were deemed to have no future utility. There were no required reductions in
the carrying value of McMoRans inventories during 2011 or 2010.

Property, Plant and Equipment.

Oil and Gas. McMoRan follows the successful efforts method of accounting for its oil and natural gas exploration and development activities.
Costs associated with drilling and development activities are included as a use of investing cash flow in the accompanying consolidated statements of cash flow.



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



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



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

| |  |  | Drilling costs that no longer meet the criteria for continued capitalization under U.S. generally accepted accounting principles, but for which management
intends to pursue development activities, are charged to depletion, depreciation and amortization expense.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



MMR-9



---

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



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



| |  |  | Depletion, depreciation and amortization expense is determined on a field-by-field basis using the units-of-production method, with depletion, depreciation and
amortization rates for leasehold acquisition costs based on estimated proved reserves and depletion, depreciation and amortization rates for well and related facility costs based on proved developed reserves associated with each field. The
depletion, depreciation and amortization rates are revised whenever required but, at a minimum, are assessed semi-annually. Any such revisions are accounted for prospectively as a change in accounting estimate.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The costs of maintenance and repairs are expensed when incurred.
| | - |  | ----------------------------------------------------------------



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



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

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



| |  |  | Interest expense allocable to significant unproved leasehold costs and in progress exploration and development projects is capitalized until the assets are ready
for their intended use. Interest expense capitalized by McMoRan totaled $56.5 million in 2012, $47.4 million in 2011 and $10.1 million in 2010.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Sulphur. Note 11 includes results associated with McMoRans discontinued operations, which are reflected within the caption Loss from discontinued operations in the accompanying consolidated
statements of operations. McMoRans remaining sulphur property, plant and equipment is carried at the lower of cost or estimated net realizable value.

Asset Impairment. Costs of unproved oil and gas properties are assessed periodically and a loss is recognized if the properties are deemed impaired. When events or circumstances indicate that proved oil and
gas property carrying amounts might not be recoverable from estimated future undiscounted cash flows, a reduction of the carrying amount to estimated fair value is required. McMoRan estimates the fair value of its properties (derived from Level 3
inputs) using estimated future cash flows based on proved and risk-adjusted probable oil and natural gas reserves as estimated by independent reserve engineers. Future cash flows are determined using published period-end forward market prices
adjusted for property-specific price basis differentials, net of estimated future production and development costs and excluding estimated asset retirement and abandonment expenditures. If the undiscounted cash flows indicate that the property is
impaired, McMoRan discounts the future cash flows using a discount factor that considers market participants expected rates of return for similar type assets if acquired under current market conditions.

The determination of oil and gas reserve estimates is a subjective process, and the accuracy of any reserve estimate depends on the quality of
available data and the application of engineering and geological interpretation and judgment. Estimates of economically recoverable reserves and future net cash flows depend on a number of variable factors and assumptions that are difficult to
predict and



MMR-10



---

may vary considerably from actual results. In particular, reserve estimates for wells with limited or no production history are less reliable than those based on actual production. Subsequent
evaluation of the same reserves may result in variations in estimated reserves and related estimates of future cash flows, and these variations may be substantial. If the capitalized costs of an individual oil and gas property exceed the related
estimated future net cash flows, an impairment charge to reduce the capitalized costs to the propertys estimated fair value is required (Note 5).

Revenue Recognition and Gas Balancing.McMoRan generally sells crude oil and natural gas under short-term agreements at prevailing market prices. Revenue for the sale of crude oil and natural
gas is recognized when title passes to the customer, when prices are fixed or determinable and collection is reasonably assured. Natural gas revenues involving partners in natural gas wells are recognized when the natural gas is sold using the
entitlements method of accounting and are based on McMoRans net working interests. When McMoRan receives a volume in excess of its net working interests, it records a liability and under deliveries are recorded as receivables. At
December 31, 2012, McMoRan had natural gas imbalance receivables valued at $2.6 million for under deliveries and liabilities valued at $3.4 million for over deliveries. At December 31, 2011, McMoRan had natural gas imbalance receivables
valued at $4.2 million for under deliveries and liabilities valued at $4.6 million for over deliveries.

Service
Revenue.McMoRan records the gross amount of reimbursements for costs from third parties as service revenues whenever McMoRan is the primary obligor with respect to the source of such costs, has discretion in the selection of how the
related service costs are incurred and when it has assumed the credit risk associated with the reimbursement for such service costs. The service costs associated with these third-party reimbursements are also recorded within the applicable cost and
expense line item in the accompanying consolidated financial statements.

McMoRans service revenues have been generated primarily
through fees for processing third-party oil and gas production, other third party management fees and standardized industry (COPAS) overhead charges McMoRan receives as operator of oil and gas properties.

Reclamation and Closure Costs. McMoRan incurs costs for environmental programs and projects. Expenditures pertaining to future
revenues from operations are capitalized. Expenditures resulting from the remediation of conditions caused by past operations that do not contribute to future revenue generation are charged to expense. Liabilities are recognized for remedial
activities when the efforts are probable and the costs can be reasonably estimated. Reclamation cost estimates are by their nature imprecise and can be expected to be revised over time because of a number of factors, including changes in reclamation
plans, cost estimates, governmental regulations, technology and inflation.

McMoRan uses estimates derived from information provided by
in-house engineers and third-party specialists in determining its estimated asset retirement obligations under multiple probability-assessed scenarios reflecting a range of possible outcomes considering the future costs to be incurred, the scope of
work to be performed and the timing of such expenditures (Note 15).

Comprehensive Loss.McMoRan follows U.S.
generally accepted accounting principles for the reporting and display of comprehensive loss (net loss adjusted for other comprehensive income (loss), or all other changes in net assets from nonowner sources) and its components.

Financial Instruments and Contracts.Based on its assessment of market conditions, McMoRan may enter into financial contracts
to manage certain risks resulting from fluctuations in oil and natural gas prices. Costs or premiums and gains or losses on contracts meeting deferral criteria are recognized with the hedged transactions. Also, gains or losses are recognized if the
hedged transaction is no longer expected to occur or if deferral criteria are not met. McMoRan monitors any related counterparty credit risk on an ongoing basis and considers this risk to be minimal.



MMR-11



---

In connection with the 2007 oil and gas property acquisition, MOXY entered into oil and gas derivative
contracts for a portion of its anticipated production for the years 2008 through 2010. The oil and gas derivative contracts were not designated as hedges for accounting purposes. Accordingly, these contracts were subject to mark-to-market fair value
adjustments, the impact of which was recognized immediately in McMoRans operating results. McMoRan recorded all gains and losses associated with these derivative contracts within a separate line in the accompanying consolidated statements of
operations, and any related cash flow effect was recorded within cash flows from operations in the related consolidated statements of cash flow. McMoRan believes the operating presentation of its oil and gas derivatives contracts is appropriate in
both its statements of operations and cash flow because the sale of oil and natural gas production represents the primary source of its operating income and cash flow. All remaining derivative contract positions matured on December 31, 2010
(Note 8).

Earnings Per Share. Basic net loss per share of common stock is calculated by dividing the loss
applicable to continuing operations, the loss from discontinued operations, and the net loss applicable to common stock by the weighted-average number of common shares outstanding during the periods presented. For purposes of the basic earnings per
share computations, the net loss applicable to continuing operations includes preferred stock dividends and related charges (Notes 9 and 10).

Stock-Based Compensation. Compensation cost recognized includes compensation cost for all stock option awards granted based on the grant-date fair value and restricted stock units granted which
are estimated in accordance with U.S. generally accepted accounting principles. McMoRan recognizes compensation costs for awards that vest over several years on a straight-line basis over the vesting period. McMoRans stock-based awards provide
for an additional year of vesting after an employee retires. For awards to retirement-eligible employees, McMoRan records one year of amortization of the awards estimated fair value on the date of grant because the grantee has earned that one
year vesting benefit under the terms of McMoRans stock options plans based on length of service. McMoRan includes estimated forfeitures in its compensation cost and updates the estimated forfeiture rate through the final vesting date of the
awards (Note 12).

McMoRan currently recognizes no income tax benefits for deductions resulting from the exercise of stock options
because all of its net deferred tax assets, including significant net operating loss carryforwards, have been reserved with a full valuation allowance (Note 13).

New Accounting Standard. In June 2011, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) in connection with guidance on the presentation of
comprehensive income. The objective of this ASU is to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. This ASU requires an entity to
present the components of net income and other comprehensive income and total comprehensive income (includes net income) either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This ASU
eliminates the option to present the components of other comprehensive income as part of the statement of equity, but does not change the items that must be reported in other comprehensive income. McMoRan adopted this ASU and presented total
comprehensive income in a separate statement for all periods reported in these financial statements.

2. Definitive Merger Agreement

On December 5, 2012, McMoRan announced a definitive agreement (the merger agreement) under which Freeport-McMoRan
Copper & Gold Inc. (FCX) will acquire McMoRan for approximately $3.4 billion in cash, or $2.1 billion net of the 36 percent ownership interest currently held by FCX and Plains Exploration & Production Company (PXP) (the FCX/MMR
merger). The related per-share consideration consists of $14.75 in cash and 1.15 units in the Gulf Coast Ultra Deep Royalty Trust, a



MMR-12



---

newly formed royalty trust, which will hold a five percent overriding royalty interest in future production from McMoRans ultra-deep prospects. Completion of the FCX/MMR merger is subject
to stockholder approval, regulatory approvals (including U.S. antitrust clearance under the Hart-Scott-Rodino Act), and other customary conditions. On December 26, 2012, the U.S. Federal Trade Commission granted early termination of the
Hart-Scott-Rodino waiting period. The FCX/MMR merger is expected to close in second-quarter 2013 (Note 2).

Also on December 5,
2012, FCX announced a definitive merger agreement under which FCX will acquire PXP for approximately $6.9 billion in cash and stock (the FCX/PXP merger). The FCX/PXP merger is subject to the approval of PXPs stockholders, receipt of regulatory
approvals and customary closing conditions. On December 5, 2012, PXP owned 51 million shares of McMoRan common stock, which they acquired in December 2010 as part of an asset acquisition transaction with McMoRan (Note 3).

Substantial capital expenditures have been and will continue to be required in McMoRans exploration and development activities, especially
for the development and exploitation of its significant ultra-deep exploration and development projects. McMoRans capital expenditures have been financed in part with internally generated cash from operations, the continued availability of
which is dependent on a number of variables including production from its existing proved reserves, sales prices for natural gas and oil, and its ability to acquire, locate and produce new reserves. McMoRan has also financed its capital expenditures
with proceeds from debt and equity financings and participation by partners in exploration and development projects. McMoRans ongoing exploration and development activities require substantial financial resources, which it believes can be met
following completion of the transaction with FCX discussed above (FCX/MMR merger). Should the FCX/MMR merger not occur, McMoRan expects to continue to financially support its near-term operating requirements and a limited capital expenditure budget
with cash on hand, internally generated cash from operations and if required, potential asset sales, joint venture transactions or other financings. On a standalone basis, McMoRan would require additional capital to continue its aggressive drilling
and development program, which may include potential asset sales, additional debt or equity financings, joint venture transactions or other financing arrangements.

3. Acquisitions and Divestitures of Oil and Gas Properties

On November 13, 2012 McMoRan completed the sale of a package of Gulf of Mexico traditional shelf oil and gas properties in
the Eugene Island area (the Eugene Island Assets), for net cash consideration of $29.8 million (after closing adjustments) and the assumption of related abandonment obligations. The Eugene Island Assets represented approximately six percent of
McMoRans total average daily production for the third quarter of 2012 and six percent of its total estimated reserves at June 30, 2012. Independent reserve engineers estimates of proved reserves for the Eugene Island Assets at
June 30, 2012 approximated 15.2 billion cubic feet of natural gas equivalents, with approximately 78 percent from natural gas and 21 percent proved developed producing. The transaction was effective July 1, 2012.

On October 2, 2012, McMoRan completed the sale of three Gulf of Mexico shelf oil and gas properties in the West Delta and Mississippi Canyon
areas (the Assets) for net cash consideration of $26.1 million (after closing adjustments) and the assumption of related abandonment obligations. The Assets represented approximately one percent of McMoRans total average daily production for
the third quarter of 2012 and three percent of its total estimated reserves at June 30, 2012. Independent reserve engineers estimates of proved reserves for the Assets at June 30, 2012, approximated 942,000 barrels of oil and 1.7
billion cubic feet of natural gas (7.4 billion cubic feet of natural gas equivalents). The transaction was effective July 1, 2012.



MMR-13



---

The combined net cash proceeds from the 2012 divestiture transactions referred to above totaled $55.9
million and assumed reclamation obligations totaled $45.6 million. McMoRan recorded net gains totaling $39.7 million in the fourth quarter of 2012 in connection with these transactions.

On September 8, 2011, McMoRan acquired Whitney Exploration LLCs (Whitney) 2.97% working interest in Davy Jones and 2% working interest
in Blackbeard East. Under the terms of the transaction, McMoRan issued approximately 2.8 million shares of its common stock and paid $10 million in cash to Whitney for these interests relating to drilling projects in process. McMoRans
common stock price on the closing date was $12.36 per share. The fair value of the interests acquired approximated $49 million. The acquisition of Whitneys interests had no material impact to McMoRans statements of operations on a
pro forma basis.

On December 30, 2010, McMoRan completed the $1 billion acquisition of PXPs shallow water Gulf of Mexico
shelf assets (PXP Acquisition). Under the terms of the transaction, McMoRan issued 51 million shares of its common stock and paid $75.0 million in cash to PXP. In addition, the purchase price included $45.5 million associated with estimated
revenues, expenses and capital expenditures attributable to the properties from the August 1, 2010 effective date through the December 30, 2010 closing date, and the assumption of approximately $8.8 million of related asset retirement
obligations. The substantial majority of properties acquired from PXP represented their interests in certain deep gas and ultra-deep exploration projects that were jointly owned by McMoRan and PXP prior to the transaction. McMoRan incurred
approximately $9.4 million in transaction related costs for the PXP Acquisition included in general and administrative expenses. Concurrent with the PXP Acquisition, McMoRan issued $700 million of 5.75% Convertible Perpetual Preferred Stock (5.75%
preferred stock) and $200 million of 4% Convertible Senior Notes (4% convertible notes) to certain investors (Notes 7 and 9).

Subsequent Events

On January 28, 2013, McMoRan completed the sale of certain properties in the Breton Sound area to Century Exploration New
Orleans, LLC (Century). Consideration consisted of the assumption of related abandonment obligations by Century of approximately $4.6 million and payment by McMoRan to Century of $0.6 million in cash (the Century Sale). The Century Sale properties
represented approximately two percent of McMoRans total average daily production for the fourth quarter of 2012 and less than one percent of its total estimated reserves at December 31, 2012. Independent reserve engineers estimates
of proved reserves for the Century Sale properties at December 31, 2012 totaled approximately 16,600 barrels of oil and natural gas liquids and 0.4 billion cubic feet of natural gas (0.5 billion cubic feet of natural gas equivalents). As of
December 31, 2012 the estimated present value of future net cash flows discounted 10 percent (PV-10) was negative. The Century Sale was effective October 1, 2012.

On January 17, 2013, McMoRan completed the sale of its Laphroaig field to Energy XXI Limited for cash consideration, after closing
adjustments, of $80 million and the assumption of approximately $0.6 million of related abandonment obligations. The Laphroaig field represented approximately 10 percent of McMoRans total average daily production for the fourth quarter 2012
and four percent of McMoRans total estimated reserves at December 31, 2012. Independent reserve engineers estimates of proved reserves for the Laphroaig field at December 31, 2012 approximated 101,000 barrels of oil and 8.7
billion cubic feet of natural gas (9.4 billion cubic feet of natural gas equivalents). The transaction was effective January 1, 2013. McMoRan may consider additional sales of noncore assets during 2013.

McMoRan expects to record gains totaling approximately $76.6 million in the first quarter of 2013 in connection with the Century Sale and the sale
of the Laphroaig field.



MMR-14



---

4. Accounts Receivable and Major Customers

The components of accounts receivable follow (in thousands):



|                          |  |              |        |  |      |   |        | 
|------------------------- |  | ------------ | ------ |  | ---- | - | ------ | 
|                          |  | December 31, |       
|                          |  | 2012         |        |  | 2011 |  
|Accounts receivable:      |  |              |        |  |      |   |        | 
|Customers                 |  | $            | 28,901 |  |      | $ | 44,459 | 
|Joint interest partners   |  |              | 20,252 |  |      |   | 23,354 | 
|Other                     |  |              | 3,395  |  |      |   | 4,272  | 
|                          |  |              |        |  |      |   |        | 
|Total accounts receivable |  | $            | 52,548 |  |      | $ | 72,085 | 
|                          |  |              |        |  |      |   |        | 

Sales of McMoRans oil and natural gas production to individual customers representing 10 percent or more of
its total consolidated oil and gas revenues in each of the three years in the period ended December 31, 2012 is as follows:



|                    |  |                          |     |   |      |  |    |      |  |  |     |  
|------------------- |  | ------------------------ | --- | - | ---- |  | -- | ---- |  |  | --- | -
|                    |  | Years Ended December 31, |    
|Individual Customer |  | 2012                     |     |   | 2011 |  |    | 2010 | 
|A                   |  |                          | 43  | % |      |  | 41 | %    |  |  | 35  | %
|B                   |  |                          | 16  |   |      |  | 13 |      |  |  | <10 |  
|C                   |  |                          | <10 |   |      |  | 16 |      |  |  | 14  |  

All of McMoRans customers are located in the United States. McMoRan does not believe the loss of any of these
purchasers would have a material adverse effect on its operations because oil and gas is a commodity in demand and alternative purchasers, if needed, are readily available.

5. Property, Plant and Equipment

The components of net property, plant and equipment follow (in thousands):



|                                                     |  |              |            |   |      |   |            |  
|---------------------------------------------------- |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                                                     |  | December 31, |           
|                                                     |  | 2012         |            |   | 2011 |  
|Oil and gas property, plant and equipment            |  | $            | 4,238,921  |   |      | $ | 4,124,111  |  
|Other                                                |  |              | 30         |   |      |   | 30         |  
|                                                     |  |              |            |   |      |   |            |  
|                                                     |  |              | 4,238,951  |   |      |   | 4,124,141  |  
|Accumulated depletion, depreciation and amortization |  |              | (1,844,429 | ) |      |   | (1,942,215 | )
|                                                     |  |              |            |   |      |   |            |  
|Property, plant and equipment, net                   |  | $            | 2,394,522  |   |      | $ | 2,181,926  |  
|                                                     |  |              |            |   |      |   |            |  

The components of McMoRans depletion, depreciation and amortization expense are summarized below (in
thousands):



|                                                       |  |                          |         |  |      |   |         |      |  |   |         | 
|------------------------------------------------------ |  | ------------------------ | ------- |  | ---- | - | ------- | ---- |  | - | ------- | 
|                                                       |  | Years Ended December 31, |        
|                                                       |  | 2012                     |         |  | 2011 |   |         | 2010 | 
|Depletion and depreciation expense                     |  | $                        | 96,067  |  |      | $ | 165,277 |      |  | $ | 148,358 | 
|Accretion expense (Note 15)                            |  |                          | 31,562  |  |      |   | 71,496  |      |  |   | 26,525  | 
|Impairment charges/losses                              |  |                          | 46,188  |  |      |   | 71,129  |      |  |   | 107,179 | 
|                                                       |  |                          |         |  |      |   |         |      |  |   |         | 
|Total depletion, depreciation and amortization expense |  | $                        | 173,817 |  |      | $ | 307,902 |      |  | $ | 282,062 | 
|                                                       |  |                          |         |  |      |   |         |      |  |   |         | 



MMR-15



---

As discussed in Note 1, when events and circumstances indicate that proved oil and gas property
carrying amounts might not be recoverable from estimated future undiscounted cash flows, a reduction of the carrying amount to estimated fair value is required.

McMoRan recorded impairment charges during the year ended December 31, 2012 of $46.2 million to reduce net carrying values of certain of its oil and gas properties to fair value primarily due to negative
revisions to estimated proved undeveloped reserves for one property, well performance issues, higher than anticipated recompletion costs for a certain property, a decline in market prices earlier in 2012, and other economic factors (Note 15). During
the year ended December 31, 2011 McMoRan recorded impairment charges of $71.1 million primarily due to well performance issues, the decline in market prices for natural gas, and the impact of increased capitalized costs from asset retirement
obligation adjustments for certain properties, and during the year ended December 31, 2010 McMoRan recorded impairment charges of $107.2 million due largely to declines in market prices for natural gas during those years and, with respect to
certain properties, as a result of negative reserve revisions from well performance issues.

As discussed above, declines in market
prices for primarily natural gas coupled with other operational factors triggered impairment assessments that ultimately resulted in significant impairment charges for several of McMoRans oil and gas property investments. Additional impairment
charges may be recorded in future periods if market conditions experienced in recent years continue to weaken, or if other unforeseen operational issues occur that negatively impact McMoRans ability to fully recover its current investments in
oil and gas properties.

Insurance

Hurricanes Gustav and Ike impacted McMoRans Gulf of Mexico operations prior to making landfall on the Louisiana and Texas coasts in September 2008. Although there was no significant damage to McMoRans
properties resulting from Hurricane Gustav, Hurricane Ike caused significant structural damage to several platforms in which McMoRan had an investment interest. From the third quarter of 2008 through 2011, McMoRan recorded charges of approximately
$200 million related to repair costs, property impairments and additional estimated reclamation costs associated with the damaged properties. In December 2011, McMoRan reached a settlement with its insurance underwriters to finalize all outstanding
claims from the 2008 hurricane events. Including final settlement amounts, McMoRan recorded cumulative insurance recoveries of $154.6 million relating to the 2008 hurricane events. During 2012, McMoRan recognized $1.2 million of insurance proceeds
related to a separate property damage claim. McMoRan recognized net insurance recoveries of $91.1 million in 2011 and $38.9 million in 2010.



MMR-16



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6. Other Assets and Other Liabilities

McMoRan defers its financing costs associated with its debt instruments and amortizes the costs over the terms of the related
instruments. The components of deferred financing costs follow (in thousands):



|                          |  |                     |        |  |                         |   |         |     |  |   |                     |  |  |                         |        |  |     |   |         |   |  |   |       | 
|------------------------- |  | ------------------- | ------ |  | ----------------------- | - | ------- | --- |  | - | ------------------- |  |  | ----------------------- | ------ |  | --- | - | ------- | - |  | - | ----- | 
|                          |  | December 31, 2012   |        |  | December 31, 2011       |  
|                          |  | GrossCarryingAmount |        |  | AccumulatedAmortization |   |         | Net |  |   | GrossCarryingAmount |  |  | AccumulatedAmortization |        |  | Net |  
|11.875% Senior Notes      |  |                     |        |  |                         |   |         |     |  |   |                     |  |  |                         |        |  |     |   |         |   |  |   |       | 
|(due November 2014)       |  | $                   | 8,055  |  |                         | $ | (5,904  | )   |  | $ | 2,151               |  |  | $                       | 8,055  |  |     | $ | (4,753  | ) |  | $ | 3,302 | 
|Revolving Credit Facility |  |                     |        |  |                         |   |         |     |  |   |                     |  |  |                         |        |  |     |   |         |   |  |   |       | 
|(matures June 2016)       |  |                     | 13,162 |  |                         |   | (10,270 | )   |  |   | 2,892               |  |  |                         | 13,122 |  |     |   | (9,437  | ) |  |   | 3,685 | 
|51/4% Convertible Senior  |  |                     |        |  |                         |   |         |     |  |   |                     |  |  |                         |        |  |     |   |         |   |  |   |       | 
|Notes (due October 2013)  |  |                     | 6,323  |  |                         |   | (6,281  | )   |  |   | 42                  |  |  |                         | 6,264  |  |     |   | (6,264  | ) |  |   | -     | 
|4% Convertible Senior     |  |                     |        |  |                         |   |         |     |  |   |                     |  |  |                         |        |  |     |   |         |   |  |   |       | 
|Notes (due December 2017) |  |                     | 1,563  |  |                         |   | (448    | )   |  |   | 1,115               |  |  |                         | 1,563  |  |     |   | (225    | ) |  |   | 1,338 | 
|                          |  |                     |        |  |                         |   |         |     |  |   |                     |  |  |                         |        |  |     |   |         |   |  |   |       | 
|                          |  | $                   | 29,103 |  |                         | $ | (22,903 | )   |  | $ | 6,200               |  |  | $                       | 29,004 |  |     | $ | (20,679 | ) |  | $ | 8,325 | 
|                          |  |                     |        |  |                         |   |         |     |  |   |                     |  |  |                         |        |  |     |   |         |   |  |   |       | 

As of December 31, 2012, other long-term assets includes approximately $1.5 million of prepaid drilling rig
costs which are amortized as a component of contractual rig charges over the term of the contract.

The components of other long-term
liabilities follow (in thousands):



|                                                                   |  |              |        |  |      |   |        | 
|------------------------------------------------------------------ |  | ------------ | ------ |  | ---- | - | ------ | 
|                                                                   |  | December 31, |       
|                                                                   |  | 2012         |        |  | 2011 |  
|Advances from third parties for future abandonment costs (Note 15) |  | $            | 9,873  |  |      | $ | 12,542 | 
|Employee postretirement medical liability (Note 12)                |  |              | 3,416  |  |      |   | 3,676  | 
|Liability for management services (Note 14)                        |  |              | 2,886  |  |      |   | 2,873  | 
|Nonqualified pension plan liability                                |  |              | 933    |  |      |   | 1,453  | 
|Accrued workers compensation and group insurance                   |  |              | 96     |  |      |   | 342    | 
|                                                                   |  |              |        |  |      |   |        | 
|                                                                   |  | $            | 17,204 |  |      | $ | 20,886 | 
|                                                                   |  |              |        |  |      |   |        | 

7. Long-Term Debt

The components of McMoRans long-term debt follow (in thousands):



|                                                                               |  |              |         |   |      |   |         |  
|------------------------------------------------------------------------------ |  | ------------ | ------- | - | ---- | - | ------- | -
|                                                                               |  | December 31, |        
|                                                                               |  | 2012         |         |   | 2011 |  
|11.875% senior notes (due 2014)                                                |  | $            | 300,000 |   |      | $ | 300,000 |  
|51/4% convertible senior notes, net of discount of $0 and $1,954 (due 2013)    |  |              | 67,832  |   |      |   | 66,223  |  
|4% convertible senior notes, net of discount of $10,530 and $12,637 (due 2017) |  |              | 189,470 |   |      |   | 187,363 |  
|Credit facility                                                                |  |              | -       |   |      |   | -       |  
|                                                                               |  |              |         |   |      |   |         |  
|Total debt                                                                     |  |              | 557,302 |   |      |   | 553,586 |  
|Less current maturities                                                        |  |              | (67,832 | ) |      |   | (66,223 | )
|                                                                               |  |              |         |   |      |   |         |  
|Long-term debt                                                                 |  | $            | 489,470 |   |      | $ | 487,363 |  
|                                                                               |  |              |         |   |      |   |         |  

McMoRans scheduled debt maturities are $67.8 million in 2013; $300 million in 2014; none in 2015 or 2016; and
$200 million in 2017.



MMR-17



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Variable Rate Senior Secured Revolving Credit Facility

During 2011 McMoRan entered into a new variable rate senior secured revolving credit facility (credit facility). The credit facility matures on
June 30, 2016, provided that the facility will mature on August 16, 2014 if McMoRans 11.875% senior notes are not redeemed or refinanced with senior notes with a term extending at least through 2016 by that date. The credit
facilitys borrowing capacity is $150 million. There were no borrowings outstanding under the credit facility as of December 31, 2012, although a $100 million letter of credit (LOC) in favor of a third party beneficiary for reclamation
surety was outstanding against the facility. In January 2013, McMoRan reached agreement with the beneficiary to suspend the LOC requirement through June 30, 2013.

Availability under the credit facility is subject to a borrowing base calculated from estimates of MOXYs oil and natural gas reserves, which is subject to redetermination by its lenders semi-annually each
April and October. In the fourth quarter of 2012, in connection with the semi-annual redetermination of McMoRans borrowing base, McMoRans lenders affirmed the $150 million borrowing base subject to a continuing priority lien on $35
million of cash deposited in a separate deposit account until the next redetermination (second quarter of 2013). In February 2013, after giving effect to McMoRans sale of its Laphroaig field in January 2013 (Note 3), the amount of cash
required for the separate account deposit was increased to $60 million. Use of the cash is unrestricted; however, to the extent McMoRan uses any portion of the cash prior to completion of the next redetermination, the borrowing base would be reduced
on a dollar for dollar basis. The credit facility is secured by (1) substantially all the oil and gas properties of MOXY and its subsidiaries and (2) a pledge of McMoRans ownership interest in MOXY and MOXYs ownership interest
in each of its wholly owned subsidiaries.

Interest on the credit facility currently accrues at London Interbank Offered Rate (LIBOR)
plus 2.00 percent, subject to increases or decreases based on usage as a percentage of the borrowing base. Fees associated with the letters of credit and the unused commitment fee are also subject to increases or decreases in the same manner. There
were no borrowings under the credit facility in 2012, 2011 or 2010. Interest expense on the credit facility (including amortization of deferred financing costs and other facility fees) totaled $4.0 million in 2012, $4.3 million in 2011 and $6.2
million in 2010.

The credit facility contains covenants and other restrictions customary for oil and gas borrowing base credit
facilities, including limitations on debt, liens, dividends, voluntary redemptions of debt, investments, asset sales and transactions with affiliates. In addition, the credit facility requires that McMoRan maintain certain financial tests, including
a leverage test (Total Debt to EBITDAX, as those terms are defined in the credit facility, for the preceding four quarters), and a current ratio test (current assets to current liabilities, subject to certain adjustments as of the end of the
quarter). McMoRan was in compliance with these covenants at December 31, 2012.

11.875% Senior Notes

On November 14, 2007, McMoRan completed the sale of $300 million of 11.875% senior notes (11.875% notes). Net proceeds
from the sale of the 11.875% notes of approximately $292 million were used, along with additional borrowings under the credit facility, to repay remaining amounts outstanding on a previous bridge loan after application of the net proceeds from the
concurrent public offerings of shares of McMoRans common stock and 63/4% mandatory convertible preferred stock (Note 9). The 11.875% notes are due on November 15, 2014 and are unconditionally
guaranteed on a senior basis by MOXY and its subsidiaries (Note 18). McMoRan may redeem some or all of the 11.875% notes at its option at stated redemption prices. The indenture governing the 11.875% notes contains restrictions, including
restrictions on incurring debt, creating liens, selling assets and entering



MMR-18



---

into certain transactions with affiliates. The covenants also restrict McMoRans ability to pay certain cash dividends on common stock, repurchase or redeem common or preferred equity,
prepay subordinated debt and make certain investments. Interest expense on the senior notes during 2012, 2011 and 2010 totaled $36.8 million, including amortization of related deferred financing costs of $1.2 million in each of those years. The
estimated fair value of the 11.875% notes (derived from level 2 inputs) was approximately $320.3 million at December 31, 2012 and $318.0 million at December 31, 2011.

4% Convertible Senior Notes

On December 30, 2010, McMoRan completed a private placement
of $200 million of 4% convertible senior notes (4% convertible notes) due December 30, 2017 concurrent with the 5.75% convertible preferred stock offerings (Note 9) and the PXP Acquisition (Note 3). The 4% convertible notes are unsecured with
semi-annual interest payments payable on February 15 and August 15 of each year. The 4% convertible notes are convertible, at the option of the holder at any time on or prior to maturity, into shares of McMoRan common stock at a conversion
rate of 62.5 shares of McMoRan common stock, which is equal to an initial conversion price of $16.00 per share of McMoRan common stock per $1,000 principal amount of the notes. The conversion rate is subject to adjustment upon the occurrence of
certain events. The 4% convertible notes are redeemable for cash by McMoRan beginning December 30, 2015 under certain conditions.

The terms of the 4% convertible notes were negotiated in September 2010, and the closing for the 4% convertible notes was contingent upon the
approval by McMoRans stockholders of FCXs investment in the 5.75% preferred stock offering (Note 9) and the PXP Acquisition. The Notes closed on December 30, 2010, the date of stockholder approval of the other concurrent
transactions. Because the value of McMoRans common stock on the closing date ($17.18 per share) exceeded the conversion price ($16 per share) for the convertible notes issued, the 4% convertible notes included a beneficial conversion option.
With respect to the 4% convertible notes, the intrinsic value of the beneficial conversion option was recognized as a $14.8 million debt discount and a $14.8 million increase to McMoRans additional paid-in-capital, which is being accreted
through McMoRans earnings as adjustments to interest expense through the debt maturity date. McMoRan incurred approximately $1.6 million of debt issuance costs associated with the 4% convertible notes. The estimated fair value of the 4%
convertible notes (derived from level 2 inputs) was approximately $224.7 million at December 31, 2012 and $232.6 million at December 31, 2011.

51/4% Convertible Senior Notes

On October 6, 2004, McMoRan completed a private placement of $140 million of 51/4%
convertible senior notes due October 6, 2011 (2011 51/4% convertible notes). Net proceeds from the 2011
51/4% convertible notes, after fees and expenses, totaled $134.4 million, of which $21.2 million was used to purchase U.S. government securities to be held in escrow to pay the first six semi-annual interest payments
on the notes. The 2011 51/4% convertible notes are otherwise unsecured.

During
2008, McMoRan privately negotiated transactions to induce the conversion of $40.2 million of the 2011 51/4% convertible notes into approximately 2.4 million shares of McMoRans common stock. McMoRan paid an aggregate $1.7 million
in cash to induce these conversions, which was reflected as non-operating expense in the consolidated statements of operations.

On October 6, 2011, McMoRan completed an offer to exchange up to $74.7 million aggregate principal amount of 2011
51/4% convertible notes. 2011 51/4% convertible notes in the principal amount of $68.2 million were tendered and accepted for exchange for an equal principal amount of
newly issued 51/4% Convertible Senior Notes due October 6, 2012 (2012 51/4% convertible notes). McMoRan



MMR-19



---

repaid $6.5 million of the remaining principal amount of 2011 51/4% convertible notes, which matured in accordance with their terms on October 6, 2011. The terms of the 2012 51/4% convertible notes were substantially the same as the terms of the 2011
51/4% convertible notes, except that the 2012 51/4% convertible notes had a maturity date of October 6, 2012. The impact of this exchange transaction, which was recorded as a
modification of debt in the fourth quarter of 2011, resulted in the recognition of an approximate $2.6 million debt discount related to the fair value of the instruments embedded conversion option (derived from level 2 inputs) with discount
accretion recorded as a component of interest expense over the one year term of the 2012 51/4% convertible notes. Debt modification accounting was applied to the 2011 note exchange transaction as the terms of the new notes
were not substantially different from the terms of the previous notes exchanged.

On September 13, 2012, McMoRan completed an offer to exchange up to $68.2 million aggregate principal amount of 2012 51/4% convertible notes. 2012 51/4% convertible notes in the principal amount of $67.8 million were tendered and accepted for exchange for an equal principal amount of
newly issued 51/4% Convertible Senior Notes due October 6, 2013 (2013 51/4% convertible notes). McMoRan repaid $0.3 million of the remaining principal amount of 2012 51/4%
convertible notes, which matured in accordance with their terms on October 6, 2012. The terms of the 2013 51/4% convertible notes are substantially the same as the terms of the 2012 51/4%
convertible notes, except that the 2013
51/4% convertible notes have a maturity date of October 6, 2013. The impact of this exchange transaction, which was recorded as a debt extinguishment in the third quarter of 2012, resulted in a loss on debt
exchange of $6.0 million (derived from level 2 inputs). Debt extinguishment accounting was applied to the 2012 note exchange transaction as the change in fair value of the embedded conversion option between the previous notes exchanged and the new
notes exceeded ten percent of the face value of the notes prior to the exchange.

Interest payments are payable on April 6 and October 6 of each year. The 51/4% notes are convertible at the option of the holder at any time prior to maturity into shares of McMoRans common
stock at a conversion price of $16.575 per share. Since October 6, 2009, McMoRan had the option of redeeming the 51/4% notes for a price equal to 100 percent of the principal amount of the notes plus any accrued and unpaid interest on
the notes prior to the redemption date, provided the closing price of McMoRans common stock exceeded 130 percent of the conversion price for at least 20 trading days in any consecutive 30-day trading period.

The estimated fair value of the 2013
51/4% convertible notes (derived from level 2 inputs) was $69.0 million at December 31, 2012 and the estimated fair value of the 2012 51/4%
convertible notes was $73.6 million at December 31, 2011.

The fair value measures determined by McMoRan for purposes
of its accounting and disclosures associated with its debt instruments are derived from inputs related to observable market transactions of instruments with comparable terms and similar issuer characteristics.

8. Derivative Contracts

In connection with the closing of the 2007 oil and gas property acquisition and related financing, MOXY entered into derivative
contracts for a portion of the anticipated production from its proved developed producing oil and gas properties at the time of the acquisition for the years 2008 through 2010.



MMR-20



---

Because these oil and gas derivative contracts were not designated as hedges for accounting purposes,
unrealized (gains) losses representing changes in the related fair values along with realized (gains) losses representing cash settlements were recognized immediately in McMoRans operating results at the reporting period. McMoRans
realized and unrealized (gains) losses on these contracts were as follows for the year ended December 31, 2010 (in thousands):



|                                             |  |   |         |  
|-------------------------------------------- |  | - | ------- | -
|Realized (gain) loss                         |  |   |         |  
|Gas puts                                     |  | $ | (1,453  | )
|Oil puts                                     |  |   | 121     |  
|Gas swaps                                    |  |   | (10,754 | )
|Oil swaps                                    |  |   | 1,046   |  
|                                             |  |   |         |  
|Total realized gain                          |  |   | (11,040 | )
|                                             | 
|Unrealized (gain) loss                       |  |   |         |  
|Gas puts                                     |  |   | 578     |  
|Oil puts                                     |  |   | (76     | )
|Gas swaps                                    |  |   | 7,536   |  
|Oil swaps                                    |  |   | (1,238  | )
|                                             |  |   |         |  
|Total unrealized loss                        |  |   | 6,800   |  
|                                             |  |   |         |  
|Net gain on oil and gas derivative contracts |  | $ | (4,240  | )
|                                             |  |   |         |  

All remaining derivative contract positions matured on December 31, 2010.

9. Common Stock and Preferred Stock Offerings

On September 8, 2011, McMoRan issued approximately 2.8 million shares of its common stock in connection with acquiring
Whitneys working interests in Davy Jones and Blackbeard East, and on December 30, 2010, McMoRan issued 51 million shares of its common stock in connection with the PXP Acquisition (Note 3).

On December 30, 2010, McMoRan completed the private placement of $700 million of 5.75% convertible perpetual preferred stock (5.75% preferred
stock) concurrent with the 4% senior note offering (Note 6) and the PXP Acquisition (Note 3). FCX, an affiliate of McMoRan (Note 14), purchased $500 million of the 5.75% preferred stock, and $200 million of the 5.75% preferred stock was purchased by
institutional investors.

The 5.75% preferred stock is recorded at the liquidation preference value ($1,000 per share). Cumulative
annual dividends accrue at 5.75% of the liquidation preference, payable quarterly on February 15, May 15, August 15 and November 15 of each year, which commenced on February 15, 2011. The 5.75% preferred stock is
convertible, at the option of the holder, at any time into shares of McMoRan common stock at a conversion rate of 62.5 shares of McMoRan common stock per $1,000 liquidation preference of the 5.75% preferred stock, which is equal to an initial
conversion price of $16.00 per share. The conversion rate is subject to adjustment upon the occurrence of certain events. On or after three years following the date of issuance, McMoRan may redeem some or all of the 5.75% preferred stock under
certain conditions.



MMR-21



---

The terms of the 5.75% preferred stock were negotiated in September 2010 and closing for the
transaction was subject to McMoRan stockholder approval. The transaction closed on December 30, 2010, the date of stockholder approval. Because the value of McMoRans common stock on the closing date ($17.18 per share) exceeded the
conversion price ($16 per share) for the convertible instruments issued, the 5.75% preferred stock included a beneficial conversion option. The intrinsic value of the beneficial conversion option associated with the 5.75% preferred stock was
recognized by McMoRan at the date of closing as a preferred stock discount and related preferred stock dividend resulting in a $51.6 million increase to additional paid-in-capital and a $51.6 million reduction to income applicable to common
stockholders. McMoRan incurred approximately $5.7 million of offering costs associated with the 5.75% preferred stock.

In June 2009,
McMoRan completed concurrent public offerings of 15.5 million shares of common stock at $5.75 per share and 86,250 shares of 8% convertible perpetual preferred stock (8% preferred stock) with an offering price of $1,000 per share. The net
proceeds from these offerings, after deducting underwriters discounts and other expenses, were approximately $168.3 million.

The
8% preferred stock is recorded at the liquidation preference value ($1,000 per share), and dividends are paid quarterly. Each share of the 8% preferred stock is convertible into 146.1454 shares of McMoRan common stock (equivalent to a conversion
price of $6.8425 per share), subject to certain anti-dilution adjustments. Beginning June 15, 2014, McMoRan has the right to redeem shares of the 8% preferred stock by paying cash, McMoRan common stock or any combination thereof for $1,000 per
share plus accumulated and unpaid dividends, but only if the trading price of McMoRans common stock has exceeded 130% of the initial conversion price for at least 20 trading days within a period of 30 consecutive trading days ending on the
trading day before the date McMoRan gives the redemption notice.

In 2010, McMoRan privately negotiated the induced conversion of
approximately 64,200 shares of its 8% preferred stock with a liquidation preference of $64.2 million into approximately 9.4 million shares of McMoRan common stock (at a conversion rate equal to 146.1454 shares of common stock per share of 8%
preferred stock). To induce the early conversions of the 8% preferred stock, McMoRan paid an aggregate of $12.2 million in cash and recorded such payments as preferred dividends.

In 2011, McMoRan privately negotiated the induced conversion of approximately 8,100 shares of its 8% preferred stock with a liquidation preference
of $8.1 million into approximately 1.2 million shares of McMoRan common stock (at a conversion rate equal to 146.1454 shares of common stock per share of 8% preferred stock). To induce the early conversion of these shares of 8% preferred stock,
McMoRan paid an aggregate of $1.5 million in cash and recorded such payments as preferred dividends.

During 2012, 1,917 shares of
McMoRans 8% preferred stock were converted with a liquidation preference of $1.9 million into approximately 0.3 million shares of McMoRan common stock (at a conversion rate equal to 146.1454 shares of common stock per share of 8%
preferred stock). At December 31, 2012, 12,082 shares of McMoRans 8% preferred stock remained outstanding.



MMR-22



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10. Earnings Per Share

McMoRan had a net loss from continuing operations for each of the three years in the period ending
December 31, 2012. Accordingly, McMoRans diluted per share calculation for these periods was equivalent to its basic net loss per share calculation because it excluded the assumed exercise of stock options whose exercise prices were less
than the average market price of McMoRans common stock during these periods, as well as the assumed conversion of McMoRans 5.75% preferred stock, 8% preferred stock, 63/4%
preferred stock, 4% convertible notes and
51/4% convertible notes. These instruments were excluded for these periods because they were considered to be anti-dilutive, meaning their inclusion would have reduced the reported net loss per share for these periods.
The excluded common share amounts are summarized below (in thousands):



|                                            |  |                          |        |  |      |  |        |      |  |  |       | 
|------------------------------------------- |  | ------------------------ | ------ |  | ---- |  | ------ | ---- |  |  | ----- | 
|                                            |  | Years Ended December 31, |       
|                                            |  | 2012                     |        |  | 2011 |  |        | 2010 | 
|In-the-money stock optionsa, b              |  |                          | 1,006  |  |      |  | 1,332  |      |  |  | 2,938 | 
|Shares issuable upon assumed conversion of: |  |                          |        |  |      |  |        |      |  |  |       | 
|5.75% preferred stockc                      |  |                          | 43,750 |  |      |  | 43,750 |      |  |  | 120   | 
|8% preferred stockd                         |  |                          | 1,925  |  |      |  | 2,175  |      |  |  | 2,875 | 
|63/4% preferred stocke                      |  |                          | -      |  |      |  | -      |      |  |  | 1,317 | 
|4% convertible notesf                       |  |                          | 12,500 |  |      |  | 12,500 |      |  |  | 34    | 
|51/4% convertible notesg                    |  |                          | 4,092  |  |      |  | 4,414  |      |  |  | 4,508 | 



|a. | McMoRan uses the treasury stock method to determine the amount of in-the-money stock options 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. | Amount represents total equivalent common stock shares assuming conversion of 5.75% preferred stock (Note 9). The 2010 amount is reduced from the total 43.8 million
equivalent shares that would have been issued upon conversion to reflect the weighted average impact of the number of days the preferred stock was outstanding in 2010. Preferred dividends and other charges totaled $40.3 million in 2012, $40.1
million in 2011 and $51.8 million in 2010.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|d. | Amount represents total equivalent common stock shares assuming conversion of 8% preferred stock (Note 9). Preferred dividends and inducement payments totaled $1.0 million in
2012, $2.7 million in 2011 and $14.9 million in 2010.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|e. | Amount represents total equivalent common stock shares assuming conversion of
63/4% preferred stock (Note 9). Preferred dividends, amortization of convertible preferred stock issuance costs and inducement payments for the early conversion of preferred stock totaled $9.4 million in 2010.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|f. | Amount represents total equivalent common stock shares assuming conversion of 4% convertible notes (Note 7). There was no net interest expense on the 4% convertible notes in 2012
and net interest expense totaled $1.6 million in 2011. The 2010 amount is reduced from the total 12.5 million equivalent shares that would have been issued upon conversion to reflect the weighted average impact of the number of days the debt
was outstanding in 2010.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|g. | Amount represents total equivalent common stock shares assuming conversion of
51/4% convertible notes (Note 7). There was no net interest expense on the 51/4% convertible notes in 2012 and net interest expense totaled $0.7 million in 2011 and $4.4 million in 2010.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Outstanding stock options excluded from the computation of diluted net income (loss) per share of
common stock because their exercise prices were greater than the average market price of McMoRans common stock during the periods presented are as follows:



|                                   |  |                          |        |  |      |   |       |      |  |   |       | 
|---------------------------------- |  | ------------------------ | ------ |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                   |  | Years Ended December 31, |       
|                                   |  | 2012                     |        |  | 2011 |   |       | 2010 | 
|Outstanding options (in thousands) |  |                          | 11,604 |  |      |   | 6,999 |      |  |   | 7,696 | 
|Average exercise price             |  | $                        | 15.77  |  |      | $ | 17.29 |      |  | $ | 16.53 | 



MMR-23



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11. Discontinued Operations

In November 1998, McMoRan acquired Freeport Energy, a business engaged in the purchasing, transporting, terminaling, processing,
and marketing of recovered sulphur and the production of oil reserves at Main Pass. Prior to August 31, 2000, Freeport Energy was also engaged in the mining of sulphur. In June 2002, Freeport Energy sold substantially all of its remaining
sulphur assets. As discussed in Note 1, all of McMoRans sulphur operations and major classes of assets and liabilities are classified as discontinued operations in the accompanying consolidated financial statements. All of McMoRans
sulphur results are included in the accompanying consolidated statements of operations within the caption Loss from discontinued operations.

The table below provides a summary of the discontinued results of operations (in thousands):



|                                                                                |  |                          |        |   |      |   |        |      |  |   |        |  
|------------------------------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                |  | Years Ended December 31, |       
|                                                                                |  | 2012                     |        |   | 2011 |   |        | 2010 | 
|Accretion and other sulphur reclamation and contingency obligations             |  | $                        | 6,711  |   |      | $ | 9,503  |      |  | $ | 1,415  |  
|Caretaking costs - Port Sulphur                                                 |  |                          | 1,117  |   |      |   | 1,556  |      |  |   | 2,923  |  
|Environmental remediation activities, net of Insurance and other reimbursements |  |                          | (2,018 | ) |      |   | (1,266 | )    |  |   | 36     |  
|Sulphur retiree costs (credits)                                                 |  |                          | 1,072  |   |      |   | (1,135 | )    |  |   | (1,330 | )
|General and administrative and legal                                            |  |                          | 130    |   |      |   | 230    |      |  |   | 382    |  
|Insurance                                                                       |  |                          | 222    |   |      |   | 228    |      |  |   | 213    |  
|Other                                                                           |  |                          | 27     |   |      |   | 248    |      |  |   | (273   | )
|                                                                                |  |                          |        |   |      |   |        |      |  |   |        |  
|Loss from discontinued operations                                               |  | $                        | 7,261  |   |      | $ | 9,364  |      |  | $ | 3,366  |  
|                                                                                |  |                          |        |   |      |   |        |      |  |   |        |  

Exit From Sulphur Business

In connection with the June 2002 sale of assets, McMoRan also agreed to be responsible for certain related historical environmental obligations and also agreed to indemnify the purchaser from certain potential
liabilities with respect to the historical sulphur operations engaged in by Freeport Sulphur and its predecessor and successor companies, including reclamation obligations. In addition, McMoRan assumed, and agreed to indemnify the purchaser from
certain potential obligations, including environmental obligations, other than liabilities existing and identified as of the closing of the sale associated with historical oil and gas operations undertaken by the Freeport-McMoRan companies prior to
the 1997 merger of Freeport-McMoRan Inc. and IMC Global Inc. Cumulative legal fees and related settlement amounts incurred since 2002 with respect to this indemnification total approximately $1.2 million (Note 15).

Sulphur Reclamation Obligations

McMoRan is
currently meeting its financial obligations relating to the future abandonment of its former Main Pass sulphur facilities with BSEE using financial assurances from MOXY. McMoRan and its subsidiaries ongoing compliance with applicable BSEE
requirements will be subject to meeting certain financial and other criteria.



MMR-24



---

12. Employee Benefits

Stock-Based Awards. At December 31, 2012, McMoRan had four stockholder-approved stock incentive plans. Under each
plan McMoRan is authorized to issue a fixed amount of stock-based awards, which include stock options, stock appreciation rights, restricted stock, restricted stock units (RSUs) and other stock-based awards that are issuable in or valued by McMoRan
common shares. Below is a summary of McMoRans stock incentive plans.



|                                                      |  |                                       |            |  |                                              |  |           | 
|----------------------------------------------------- |  | ------------------------------------- | ---------- |  | -------------------------------------------- |  | --------- | 
|Plan                                                  |  | Authorized amountof
stock-basedawards |            |  | Shares availablefor grant atDecember 31,2012 | 
|2008 Stock Incentive Plan (2008 Plan)                 |  |                                       | 11,500,000 |  |                                              |  | 2,584,084 | 
|2005 Stock Incentive Plan (2005 Plan)                 |  |                                       | 3,500,000  |  |                                              |  | 125       | 
|2004 Director Compensation Plan (2004 Directors Plan) |  |                                       | 175,000    |  |                                              |  | 1,000     | 

Restricted Stock Units. Under McMoRans incentive plans, its Board of Directors granted 30,000 RSUs in
2012, 30,000 RSUs in 2011 and 48,500 RSUs in 2010. The RSUs are converted ratably into an equivalent number of shares of McMoRan common stock on the first three anniversaries of the grant date, except for RSUs granted to the non-management
directors, which vest incrementally over the first four anniversaries of the grant date. RSUs converted into common stock totaled 29,207 shares in 2012, 21,088 shares in 2011 and 18,596 shares in 2010. Upon issuance of the RSUs, unearned
compensation equivalent to the market value at the date of grant is recorded as deferred compensation in stockholders equity and is charged to expense over the three or four-year vesting period of each respective grant. McMoRan charged
approximately $0.4 million of this deferred compensation to expense in each of the years ending December 31, 2012, 2011 and 2010.

Stock Options. McMoRans Board of Directors grants stock options under its stock incentive plans. Except for certain awards described
below, the stock options become exercisable in 25 percent annual increments beginning one year from the date of grant and expire ten years after the date of grant. Under the terms of the stock incentive plans all unvested options become fully vested
and exercisable upon a change of control with respect to McMoRans ownership (Note 2). A summary of stock options outstanding follows:



|                           |  |                  |            |   |                     |   |       |                  |  |  |                     |   |  |                  |       |  |                     |  |            |   |  |   |       | 
|-------------------------- |  | ---------------- | ---------- | - | ------------------- | - | ----- | ---------------- |  |  | ------------------- | - |  | ---------------- | ----- |  | ------------------- |  | ---------- | - |  | - | ----- | 
|                           |  | 2012             |            |   | 2011                |   |       | 2010             | 
|                           |  | Number ofOptions |            |   | AverageOption Price |   |       | Number ofOptions |  |  | AverageOption Price |   |  | Number ofOptions |       |  | AverageOption Price | 
|Beginning of year          |  |                  | 13,265,500 |   |                     | $ | 14.15 |                  |  |  | 11,867,750          |   |  | $                | 13.69 |  |                     |  | 10,446,250 |   |  | $ | 13.37 | 
|Granted                    |  |                  | 2,073,500  |   |                     |   | 12.76 |                  |  |  | 1,857,500           |   |  |                  | 17.27 |  |                     |  | 1,821,500  |   |  |   | 15.57 | 
|Exercised                  |  |                  | (656,250   | ) |                     |   | 7.86  |                  |  |  | (98,750             | ) |  |                  | 9.58  |  |                     |  | (154,500   | ) |  |   | 13.75 | 
|Expired/forfeited          |  |                  | (640,500   | ) |                     |   | 13.98 |                  |  |  | (361,000            | ) |  |                  | 16.21 |  |                     |  | (245,500   | ) |  |   | 14.00 | 
|                           |  |                  |            |   |                     |   |       |                  |  |  |                     |   |  |                  |       |  |                     |  |            |   |  |   |       | 
|End of year                |  |                  | 14,042,250 |   |                     |   | 14.25 |                  |  |  | 13,265,500          |   |  |                  | 14.15 |  |                     |  | 11,867,750 |   |  |   | 13.69 | 
|                           |  |                  |            |   |                     |   |       |                  |  |  |                     |   |  |                  |       |  |                     |  |            |   |  |   |       | 
|Exercisable at end of year |  |                  | 10,669,875 |   |                     |   |       |                  |  |  | 10,040,748          |   |  |                  |       |  |                     |  | 8,920,187  |   |  |   |       | 
|                           |  |                  |            |   |                     |   |       |                  |  |  |                     |   |  |                  |       |  |                     |  |            |   |  |   |       | 

The total intrinsic value of options exercised during the years ended December 31,
2012, December 31, 2011 and 2010 was $5.2 million, $0.9 million and $2.1 million, respectively. The weighted average fair value per share of shares vested during the years ended December 31, 2012,



MMR-25



---

2011 and 2010 was $10.97, $11.31 and $11.42, respectively. The total intrinsic value of all McMoRan options outstanding at December 31, 2012 was $17.0 million with a weighted average life of
4.7 years. The total intrinsic value of exercisable options totaled $14.0 million at December 31, 2012. The exercisable options had a weighted average life of 4.1 years and a weighted average exercise price of $14.35.

The Co-Chairmen of McMoRans Board of Directors and McMoRans Treasurer agreed to forgo all cash compensation during each of the three
years ended December 31, 2012. In lieu of cash compensation, McMoRan has granted the Co-Chairmen and Treasurer stock options that are immediately exercisable upon grant and have a term of ten years. These grants to the Co-Chairmen and Treasurer
totaled 445,000 options at an exercise price of $13.00 per share in February 2012, 445,000 options at an exercise price of $17.25 per share in February 2011 and 445,000 options at an exercise price of $15.73 per share in February 2010. The
Co-Chairmen and Treasurer also received additional grants totaling 380,000 stock options in February 2012, February 2011 and February 2010 (with the same respective periods exercise prices stated above), all of which vest ratably over a
four-year period.

Compensation cost charged against earnings for stock-based awards is shown below (in thousands):



|                                                            |  |                          |        |  |      |   |        |      |  |   |        | 
|----------------------------------------------------------- |  | ------------------------ | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                                            |  | Years Ended December 31, |       
|                                                            |  | 2012                     |        |  | 2011 |   |        | 2010 | 
|Cost of options awarded to employees (including directors)a |  | $                        | 15,094 |  |      | $ | 17,230 |      |  | $ | 17,435 | 
|Cost of options awarded to non-employees                    |  |                          | 1,917  |  |      |   | 654    |      |  |   | 870    | 
|Cost of restricted stock units                              |  |                          | 434    |  |      |   | 441    |      |  |   | 402    | 
|                                                            |  |                          |        |  |      |   |        |      |  |   |        | 
|Total stock-based compensation cost                         |  | $                        | 17,445 |  |      | $ | 18,325 |      |  | $ | 18,707 | 
|                                                            |  |                          |        |  |      |   |        |      |  |   |        | 



|a. | Includes $4.0 million, $4.9 million and $4.7 million of compensation charges associated with immediately vested stock options granted to certain executive officers (including
McMoRans Co-Chairmen and Treasurer) during 2012, 2011 and 2010, respectively. Also includes $2.0 million, $2.3 million and $2.0 million of compensation charges related to stock options granted to retirement-eligible employees, which resulted
in one-years compensation expense being immediately recognized at the date of the stock option grant during 2012, 2011 and 2010, respectively.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

A summary of the classification of stock-based compensation by financial statement line item for the three years in the period ended December 31, 2012 is as follows (in thousands):



|                                    |  |      |        |  |      |   |        |      |  |   |        | 
|----------------------------------- |  | ---- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                    |  | 2012 |        |  | 2011 |   |        | 2010 | 
|General and administrative expenses |  | $    | 9,755  |  |      | $ | 9,944  |      |  | $ | 9,750  | 
|Exploration expenses                |  |      | 7,651  |  |      |   | 8,266  |      |  |   | 8,639  | 
|Main Pass Energy Hub costs          |  |      | 39     |  |      |   | 115    |      |  |   | 318    | 
|                                    |  |      |        |  |      |   |        |      |  |   |        | 
|Total stock-based compensation cost |  | $    | 17,445 |  |      | $ | 18,325 |      |  | $ | 18,707 | 
|                                    |  |      |        |  |      |   |        |      |  |   |        | 

As of December 31, 2012, total compensation cost related to nonvested, approved stock option awards not yet
recognized in earnings was approximately $16.0 million, which is expected to be recognized over a weighted average period of one year. However, should the definitive merger agreement with FCX be finalized (Note 2) certain outstanding stock options
will fully vest in accordance with change of control provisions in the respective stock option agreements. Currently with the execution of the merger agreement, certain officers of McMoRan (specifically, the Co-Chairmen of the Board of Directors,
Chief Financial Officer and Treasurer) waived their contractual right to accelerated vesting of equity awards as a result of the FCX/MMR merger.



MMR-26



---

The fair value of option awards is estimated on the date of grant using a Black-Scholes option
valuation model. Expected volatility is based on implied volatilities from the historical volatility of McMoRans stock, and to a lesser extent, on traded options on McMoRans common stock. McMoRan uses historical data to estimate option
exercise, forfeitures and expected life of the options. The risk-free interest rate is based on Federal Reserve rates in effect for bonds with maturity dates equal to the expected term of the option at the date of grant. McMoRan has not paid, and is
currently not permitted to pay, cash dividends on its common stock. The weighted average fair value of stock options granted and assumptions used to value stock option awards during the years ended December 31, 2012, 2011 and 2010 are noted in
the following table:



|                                                      |  |      |       |   |      |   |       |      |  |   |       |  
|----------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                                      |  | 2012 |       |   | 2011 |   |       | 2010 | 
|Weighted average fair value of stock options granteda |  | $    | 8.49  |   |      | $ | 10.76 |      |  | $ | 10.04 |  
|Expected and weighted average volatility              |  |      | 72.13 | % |      |   | 62.43 | %    |  |   | 66.79 | %
|Expected life of options (in years)a                  |  |      | 6.88  |   |      |   | 6.71  |      |  |   | 6.62  |  
|Risk-free interest rate                               |  |      | 1.31  | % |      |   | 2.58  | %    |  |   | 3.02  | %



|a. | Excludes stock options that were granted with immediate vesting (445,000 shares, including 400,000 shares granted to the Co-Chairmen in lieu of cash compensation for 2012, 2011
and 2010). The expected life and fair value of stock options on the respective grant dates during the years ended December 31, 2012, 2011 and 2010 for such option awards are as follows:
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                            |  |      |      |  |      |   |       |      |  |   |       | 
|------------------------------------------- |  | ---- | ---- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                            |  | 2012 |      |  | 2011 |   |       | 2010 | 
|Expected life (in years)                    |  |      | 7.73 |  |      |   | 7.44  |      |  |   | 7.22  | 
|Fair value of stock option on date of grant |  | $    | 9.04 |  |      | $ | 11.05 |      |  | $ | 10.60 | 

On January 28, 2013, McMoRans Board of Directors granted a total of 928,000 stock options to its
employees at an exercise price of $15.91 per share, which vest ratably over a four-year period.

Other Benefits.
McMoRan provides certain health care and life insurance benefits (Other Benefits) to retired employees. McMoRan has the right to modify or terminate these benefits. For the year ended December 31, 2012, the health care trend rate used for Other
Benefits was 8.0 percent in 2012, decreasing ratably annually until reaching 4.5 percent in 2029. For the year ended December 31, 2011, the health care trend rate used for Other Benefits was 7.9 percent in 2011, decreasing ratably annually
until reaching 4.5 percent in 2028. A one-percentage-point increase or decrease in assumed health



MMR-27



---

care cost trend rates would not have a significant impact on service or interest costs. Information on the Other Benefits plan follows (in thousands):



|                                               |  |                          |         |   |      |   |         |  
|---------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | -
|                                               |  | Years Ended December 31, |        
|                                               |  | 2012                     |         |   | 2011 |  
|Change in benefit obligation:                  |  |                          |         |   |      |   |         |  
|Benefit obligation at the beginning of year    |  | $                        | (4,155) |   |      | $ | (4,449) |  
|Service cost                                   |  |                          | (63)    |   |      |   | (53)    |  
|Interest cost                                  |  |                          | (153)   |   |      |   | (191)   |  
|Actuarial gains (losses)                       |  |                          | -       |   |      |   | 353     |  
|Participant contributions                      |  |                          | (207)   |   |      |   | (217)   |  
|Benefits paid                                  |  |                          | 737     |   |      |   | 402     |  
|                                               |  |                          |         |   |      |   |         |  
|Benefit obligation at end of year              |  |                          | (3,841) |   |      |   | (4,155) |  
|                                               |  |                          |         |   |      |   |         |  
|Change in plan assets:                         |  |                          |         |   |      |   |         |  
|Fair value of plan assets at beginning of year |  |                          | -       |   |      |   | -       |  
|Return on plan assets                          |  |                          | -       |   |      |   | -       |  
|Employer/participant contributions             |  |                          | 737     |   |      |   | 402     |  
|Benefits paid                                  |  |                          | (737)   |   |      |   | (402)   |  
|                                               |  |                          |         |   |      |   |         |  
|Fair value of plan assets at end of year       |  |                          | -       |   |      |   | -       |  
|                                               |  |                          |         |   |      |   |         |  
|Funded status                                  |  | $                        | (3,841) |   |      | $ | (4,155) |  
|                                               |  |                          |         |   |      |   |         |  
|Weighted-average assumptions :                 |  |                          |         |   |      |   |         |  
|Discount rate                                  |  |                          | 3.6     | % |      |   | 4.2     | %
|Expected return on plan assets                 |  |                          | -       |   |      |   | -       |  
|Rate of compensation increase                  |  |                          | -       |   |      |   | -       |  

Expected benefit payments for the Other Benefits plan approximate $0.4 million in each of the three years ending December 31,
2015, $0.3 million in the years ending December 31, 2016 and 2017 and a total of $1.2 million during the five years thereafter. The components of net periodic benefit cost for McMoRans plans follow (in thousands):



|                                    |  |                |     |   |      |   |     |      |  |   |     |  
|----------------------------------- |  | -------------- | --- | - | ---- | - | --- | ---- |  | - | --- | -
|                                    |  | Other Benefits |    
|                                    |  | 2012           |     |   | 2011 |   |     | 2010 | 
|Service cost                        |  | $              | 63  |   |      | $ | 53  |      |  | $ | 49  |  
|Interest cost                       |  |                | 153 |   |      |   | 191 |      |  |   | 214 |  
|Return on plan assets               |  |                | -   |   |      |   | -   |      |  |   | -   |  
|Amortization of prior service costs |  |                | (40 | ) |      |   | (40 | )    |  |   | (40 | )
|                                    |  |                |     |   |      |   |     |      |  |   |     |  
|Net periodic benefit cost           |  | $              | 176 |   |      | $ | 204 |      |  | $ | 223 |  
|                                    |  |                |     |   |      |   |     |      |  |   |     |  

Included in accumulated other comprehensive loss at December 31, 2012, are prior service costs of $0.1 million
that have not been recognized in net periodic benefit costs associated with the Other Benefits. The total amount expected to be recognized into net periodic costs in 2013 associated with these prior service credits and actuarial gains and losses is
immaterial.

McMoRan has an employee savings plan under Section 401(k) of the Internal Revenue Code. The plan allows eligible
employees to contribute up to 75 percent of their pre-tax compensation, subject to certain limits prescribed by the Internal Revenue Code. McMoRan matches 100 percent of each employees contribution up to a maximum of 5 percent of each
employees annual basic compensation amount. In this plan, participants exercise control and direct the investment of their contributions and account balances among various investment options. In connection with the termination of its defined



MMR-28



---

benefits plan, McMoRan enhanced the savings plan for substantially all its employees. Pursuant to the enhancements, McMoRan contributes amounts to individual employee accounts totaling either
4 percent or 10 percent of each employees pay, depending on a combination of each employees age and years of service with McMoRan. Participants who were actively employed on January 1, 2009 became fully vested in the matching
contributions. Plan participants vest in McMoRans enhanced contributions upon completing three years of service with McMoRan. For employees whose eligible compensation exceeds certain levels, McMoRan provides an unfunded defined contribution
plan. The balance of this liability totaled $0.6 million on December 31, 2012 and $1.1 million on December 31, 2011.

McMoRans results of operations reflect charges to expense totaling $1.0 million in 2012, $1.0 million in 2011 and $1.1 million in 2010
for its aggregate matching contributions for the Section 401(k) savings plan and the defined contribution plan. Additionally, McMoRan has other employee benefit plans, certain of which are related to McMoRans performance, which costs are
recognized currently in general and administrative expense.

McMoRan also has a contractual obligation to reimburse a third party for a
portion of its postretirement benefit costs relating to certain former retired sulphur employees (Note 15).

13. Income Taxes

McMoRan has a net deferred tax asset of $494.7 million as of December 31, 2012, resulting from net operating loss
carryforwards and other temporary differences related to McMoRans activities. McMoRan has provided a valuation allowance, including approximately $42.4 million associated with McMoRans discontinued sulphur operations, for the full
amount of these net deferred tax assets. McMoRans effective tax rate would be impacted in future periods to the extent these deferred tax assets are recognized. McMoRan will continue to assess whether or not its deferred tax assets can be
recognized based on operating results in future periods. McMoRan has no material uncertain tax positions as of December 31, 2012.

As of December 31, 2012 and 2011, McMoRan had federal tax net operating loss carryforwards (NOLs) of approximately $952.9 million and $733.9
million, respectively, and state tax NOLs of approximately $341.8 million and $300.5 million, respectively. These NOLs are scheduled to expire in varying amounts between tax years 2013 through 2032.

Federal tax regulations impose certain annual limitations on the utilization of NOLs from prior periods when a defined level of change in the stock
ownership of certain stockholders is exceeded. If a corporation has a statutorily defined change of ownership, its ability to use its existing NOLs could be limited by Section 382 of the Internal Revenue Code depending upon the level of future
taxable income generated in a given year and other factors. McMoRan determined that such a change of ownership occurred during 2010, which, depending upon the amounts and timing of future taxable income generated, may limit McMoRans ability to
use its existing NOLs to fully offset taxable income in individual future periods.

Interest or penalties associated with income taxes
are recorded as components of the provision for income taxes, although no such amounts have been recognized in the accompanying financial statements. Currently, McMoRans major taxing jurisdictions are the United States (federal) and Louisiana.
Tax periods open to audit for McMoRan primarily include federal and Louisiana income tax returns subsequent to 2008. NOLs amounts prior to this time are also subject to audit.



MMR-29



---

The components of McMoRans deferred tax assets (liabilities) at December 31, 2012 and 2011
follow (in thousands):



|                                                                                   |  |              |          |   |      |   |          |  
|---------------------------------------------------------------------------------- |  | ------------ | -------- | - | ---- | - | -------- | -
|                                                                                   |  | December 31, |         
|                                                                                   |  | 2012         |          |   | 2011 |  
|Federal and state net operating loss carryforwards                                 |  | $            | 349,479  |   |      | $ | 271,073  |  
|Property, plant and equipment                                                      |  |              | (4,626   | ) |      |   | 21,150   |  
|Reclamation and shutdown reserves                                                  |  |              | 92,055   |   |      |   | 120,449  |  
|Deferred compensation, postretirement and pension benefits and accrued liabilities |  |              | 50,033   |   |      |   | 44,311   |  
|Other, net                                                                         |  |              | 7,716    |   |      |   | 2,403    |  
|Less: valuation allowance                                                          |  |              | (494,657 | ) |      |   | (459,386 | )
|                                                                                   |  |              |          |   |      |   |          |  
|Net deferred tax asset                                                             |  | $            | -        |   |      | $ | -        |  
|                                                                                   |  |              |          |   |      |   |          |  

Reconciliations of the differences between income taxes computed at the federal statutory tax rate and the income
taxes recorded follow (in thousands):



|                                                                     |  |                          |         |   |      |   |        |      |  |   |         |  
|-------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                                     |  | Years Ended December 31, |        
|                                                                     |  | 2012                     |         |   | 2011 |   |        | 2010 | 
|Income tax benefit computed at the federal statutory income tax rate |  | $                        | 36,503  |   |      | $ | 5,588  |      |  | $ | 42,119  |  
|Change in valuation allowance                                        |  |                          | (36,585 | ) |      |   | (7,357 | )    |  |   | (43,098 | )
|State NOLs (not impacting federal tax)                               |  |                          | 2,146   |   |      |   | 1,870  |      |  |   | 1,083   |  
|Other                                                                |  |                          | (2,064  | ) |      |   | (101   | )    |  |   | (104    | )
|                                                                     |  |                          |         |   |      |   |        |      |  |   |         |  
|Federal income tax benefit (provision)                               |  |                          | -       |   |      |   | -      |      |  |   | -       |  
|State income tax benefit (provision)                                 |  |                          | -       |   |      |   | -      |      |  |   | -       |  
|                                                                     |  |                          |         |   |      |   |        |      |  |   |         |  
|Total income tax benefit (provision)                                 |  | $                        | -       |   |      | $ | -      |      |  | $ | -       |  
|                                                                     |  |                          |         |   |      |   |        |      |  |   |         |  

14. Transactions with Affiliates

FM Services Company, a wholly owned subsidiary of FCX and a company with which McMoRan shares certain common executive
management, provides McMoRan with certain administrative, financial and other services on a contractual basis. These service costs, which include related overhead amounts, including rent for the New Orleans, Louisiana corporate headquarters, totaled
$7.7 million in 2012, $7.9 million in 2011 and $7.7 million in 2010. Management believes these costs do not differ materially from the costs that would have been incurred had the relevant personnel providing the services been employed directly by
McMoRan. At each of December 31, 2012 and 2011, McMoRan had an obligation to fund $2.9 million of FM Services costs, primarily reflecting long-term employee pension and postretirement medical obligations (Notes 6 and 12).

On December 30, 2010, FCX purchased 500,000 shares of McMoRans 5.75% preferred stock (Note 9).

On December 5, 2012, McMoRan signed a definitive merger agreement under which FCX will acquire McMoRan for approximately $3.4 billion in cash,
or $2.1 billion net of the 36 percent McMoRan ownership interest currently held by FCX and PXP (Note 2).

15. Commitments and Contingencies

Oil and Gas Operations. McMoRan has $118.9 million of estimated commitments related to its planned oil and gas
exploration and development activities, including costs related to projects currently



MMR-30



---

in progress, inventory purchase commitments and other exploration expenditures. Included in this amount is $16.0 million of expenditures for drilling rig contract charges anticipated to be
expended over the next year which McMoRan expects to share with its partners in its exploration program.

Long-Term Contracts and
Operating Leases. McMoRans primary operating leases involve renting office space in two buildings in Houston, Texas, which expire in April 2014 and July 2014, and office space in Lafayette, Louisiana, which expires in November 2015. At
December 31, 2012, McMoRans total minimum annual contractual charges aggregated $4.1 million, with payments totaling $2.5 million in 2013, $1.5 million in 2014 and $0.1 million in 2015. Rent expense, including rent allocated to McMoRan by
FM Services (Note 14), totaled $3.0 million in each of the years in the three year period ended December 31, 2012.

Other
Liabilities. Freeport Energy has a contractual obligation to reimburse a third party a portion of its postretirement benefit costs relating to certain retired former sulphur employees of Freeport Energy. This contractual obligation totaled $1.8
million at December 31, 2012 and $1.5 million at December 31, 2011, including $0.5 million and $0.7 million in current liabilities from discontinued operations, respectively. A third-party actuarial consultant assesses the estimated
related future costs associated with this contractual liability on an annual basis using current health care trend costs and incorporating changes made to the underlying benefit plans of the third party. The assessment at year end 2012 used an
initial health care cost trend rate of 8.0 percent in 2012 decreasing ratably to 4.5 percent in 2029. The assessment at year end 2011 used an initial health care cost trend rate of 7.9 percent in 2011 decreasing ratably to 4.5 percent in 2028.
McMoRan applied a discount rate of 8.5 percent at December 31, 2012 and 2011 to the consultants future cost estimates. McMoRan increased the liability by $0.8 million at December 31, 2012 primarily due to estimated increases in
future health claim costs resulting from higher than expected actual health claim reimbursements and higher health trend costs. McMoRan reduced the liability by $1.6 million at December 31, 2011, due to lower than expected actual health claim
reimbursements at that time, partially offset by higher health trend costs. Future revisions to this estimate resulting from changes in assumptions or actual results varying from projected results will be recorded in earnings.

Environmental and Reclamation. McMoRan has made, and will continue to make, expenditures for the protection of the environment. McMoRan is
subject to contingencies as a result of environmental laws and regulations. Present and future environmental laws and regulations applicable to McMoRans operations could require substantial capital expenditures or could adversely affect its
operations in other ways that cannot be predicted at this time. Cumulative legal fees and related settlement amounts incurred with respect to historical oil and gas liabilities McMoRan assumed from IMC Global since 2002 total approximately $1.2
million. No additional amounts have been recorded because no specific liability requiring McMoRan to fund any material future amounts has been identified and assessed to be probable.

Since 2007 McMoRan has funded over $430 million of reclamation costs to settle a significant portion of the asset retirement obligations assumed in
an oil and gas property acquisition in 2007, including certain properties damaged in the 2008 hurricanes. McMoRans estimates of existing asset retirement obligations involve inherent uncertainties and are subject to change over time as a
result of several factors, including, without limitation, changes in the industrys regulatory environment, changes in the cost and availability of required equipment and expertise to complete the work, changes in timing, and changes in scope
that are identified as reclamation projects progress. McMoRan revises its reclamation estimates, as appropriate, when such changes in estimates become known.

The results from these reclamation activities as well as information obtained from other industry sources indicate that the cost to conduct reclamation projects in the offshore Gulf of Mexico region has risen in
recent years, particularly since the occurrence of the 2010 Deepwater Horizon incident. As a



MMR-31



---

result, McMoRan re-assessed the estimates of substantially all of its oil and gas property asset retirement obligations in 2011. As a result of this assessment McMoRan revised its estimates
related to certain, ongoing and/or near term reclamation projects resulting in an increase to accretion expense of approximately $57.3 million in 2011. Approximately $19.8 million of these charges were reimbursed to McMoRan under its insurance
policies related to damage restoration costs resulting from the 2008 hurricane events. In addition, McMoRan also revised its estimates related to certain longer term producing properties resulting in adjustments that increased property, plant and
equipment by approximately $54.6 million in 2011.

For year ended December 31, 2012 McMoRan recorded approximately $17.6 million to
accretion expense related to certain ongoing reclamation projects and approximately $7.7 million of adjustments for certain longer term producing properties, the impact of which increased property, plant and equipment.

Revisions made for certain properties depending upon the respective circumstances include consideration of the following:
(1) the inclusion of estimates for new properties; (2) changes in the projected timing of certain reclamation costs because of changes in the estimated timing of the depletion of the related proved reserves for McMoRans oil and gas
properties and new estimates for the timing of the reclamation for the structures comprising the MPEHtmproject and former sulphur facilities at Main Pass; (3) changes in the reclamation costs based on revised estimates of future reclamation work to be performed; and (4) when applicable, changes in
McMoRans credit-adjusted, risk-free interest rate. McMoRans credit adjusted, risk-free interest rates ranged from 4.2 percent to 8.2 percent at December 31, 2012, 4.1 percent to 6.4 percent at December 31, 2011 and 4.6 percent
to 9.9 percent at December 31, 2010. At December 31, 2012, McMoRans estimated undiscounted reclamation obligations, including inflation and market risk premiums, totaled $369.4 million, including $41.4 million associated with its
remaining sulphur obligations. A rollforward of McMoRans consolidated discounted asset retirement obligations (including both current and long term liabilities) follows (in thousands):



|                                                                                      |  |                          |         |   |      |   |          |      |  |   |          |  
|------------------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                      |  | Years Ended December 31, |        
|                                                                                      |  | 2012                     |         |   | 2011 |   |          | 2010 | 
|Oil and Natural Gas                                                                   |  |                          |         |   |      |   |          |      |  |   |          |  
|Asset retirement obligation at beginning of year                                      |  | $                        | 326,394 |   |      | $ | 358,624  |      |  | $ | 428,711  |  
|Liabilities settled                                                                   |  |                          | (76,217 | ) |      |   | (153,357 | )    |  |   | (124,142 | )
|Scheduled accretion expensea                                                          |  |                          | 14,005  |   |      |   | 14,192   |      |  |   | 17,095   |  
|Reclamation costs assumed                                                             |  |                          | 3,040   |   |      |   | -        |      |  |   | 2,268    |  
|Properties sold                                                                       |  |                          | (45,640 | ) |      |   | -        |      |  |   | (411     | )
|Liabilities recorded in 2010 property acquisition                                     |  |                          | -       |   |      |   | -        |      |  |   | 9,882    |  
|Revision for changes in estimates  charged to operationsa                            |  |                          | 17,556  |   |      |   | 57,304   |      |  |   | 9,041    |  
|Revision for changes in estimates  adjustments to property, plant and equipment, net |  |                          | 7,663   |   |      |   | 54,604   |      |  |   | 16,180   |  
|Other, net                                                                            |  |                          | (1,221  | ) |      |   | (4,973   | )    |  |   | -        |  
|                                                                                      |  |                          |         |   |      |   |          |      |  |   |          |  
|Asset retirement obligations at end of year                                           |  | $                        | 245,580 |   |      | $ | 326,394  |      |  | $ | 358,624  |  
|                                                                                      |  |                          |         |   |      |   |          |      |  |   |          |  
|Sulphur                                                                               |  |                          |         |   |      |   |          |      |  |   |          |  
|Asset retirement obligations at beginning of year                                     |  | $                        | 17,745  |   |      | $ | 25,266   |      |  | $ | 27,452   |  
|Liabilities settled                                                                   |  |                          | (4,145  | ) |      |   | (13,425  | )    |  |   | (3,601   | )
|Scheduled accretion expenseb                                                          |  |                          | 1,093   |   |      |   | 1,542    |      |  |   | 1,415    |  
|Revision for changes in estimatesb                                                    |  |                          | 2,742   |   |      |   | 4,362    |      |  |   | -        |  
|                                                                                      |  |                          |         |   |      |   |          |      |  |   |          |  
|Asset retirement obligation at end of year                                            |  | $                        | 17,435  |   |      | $ | 17,745   |      |  | $ | 25,266   |  
|                                                                                      |  |                          |         |   |      |   |          |      |  |   |          |  



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

|b. | Included within loss from discontinued operations.
|-- | --------------------------------------------------



MMR-32



---

At December 31, 2012, McMoRan had $4.9 million in restricted investments associated with third
party prepayments of their share of future abandonment costs and $56.4 million held in escrow associated with surety funding requirements in favor of a third party related to a portion of the reclamation obligations assumed in a 2007 oil and gas
property acquisition. McMoRan is required to make quarterly installment payments under this arrangement totaling $5.0 million per year until certain requirements under the arrangement are met. These restricted funds are classified as long-term
restricted cash in the accompanying consolidated balance sheets.

Litigation. McMoRan may from time to time be involved in
various legal proceedings of a character normally incident to the ordinary course of its business. Management believes that potential liability from any of these pending or threatened proceedings will not have a material adverse effect on
McMoRans financial condition or results of operations.

Between December 11, 2012 and December 26, 2012, ten putative
class actions challenging the FCX/MMR merger were filed on behalf of all McMoRan stockholders by purported McMoRan stockholders. Nine were filed in the Court of Chancery of the State of Delaware (the Court of Chancery). On
January 25, 2013, the Court of Chancery consolidated the actions into a single action, In re McMoRan Exploration Co. Stockholder Litigation, No. 8132-VCN. One action was also filed on December 19, 2012 in the Civil District Court for
the Parish of Orleans of the State of Louisiana, Langley v. Moffett et al., No. 2012-11904. The defendants in these lawsuits include McMoRan, members of the McMoRan board of directors, FCX, INAVN Corp., a wholly-owned subsidiary of FCX (the
merger sub), another subsidiary of FCX, the Gulf Coast Ultra Deep Royalty Trust and PXP. The lawsuits allege, among other things, that members of the McMoRan board of directors breached their fiduciary duties to McMoRans
stockholders because they, among other things, pursued their own interests at the expense of stockholders and failed to maximize stockholder value with respect to the merger, and that FCX, the merger sub and PXP aided and abetted that breach of
fiduciary duties. The consolidated Delaware action also asserts claims derivatively on behalf of McMoRan. These lawsuits seek, among other things, an injunction barring or rescinding the FCX/MMR merger, damages, and attorneys fees and costs.

In addition, between December 14, 2012 and January 16, 2013, thirteen derivative actions challenging the FCX/MMR merger
and/or the FCX/PXP merger were filed on behalf of FCX by purported FCX stockholders. Ten were filed in the Court of Chancery of the state of Delaware and three were filed in the Superior Court of the State of Arizona, County of Maricopa (the
Arizona Superior Court). On January 25, 2013, the Court of Chancery consolidated the Delaware actions into a single action, In re Freeport-McMoRan Copper & Gold, Inc. Derivative Litigation, No. 8145-VCN. On
January 17, 2013, the Arizona Superior Court consolidated two of the Arizona actions into In re Freeport-McMoRan Derivative Litigation, No. CV2012-018351. A third Arizona complaint, Harris v. Adkerson et al., No. CV2013-004163, filed on
January 16, 2013, has not yet been consolidated. The defendants in these lawsuits include directors and certain officers of FCX, two FCX subsidiaries, McMoRan and certain of McMoRans directors and officers, and PXP and certain of
PXPs directors. These lawsuits allege, among other things, that the FCX directors breached their fiduciary duties to FCXs stockholders because they, among other things, pursued their own interests at the expense of stockholders in
approving the FCX/MMR merger and the FCX/PXP merger. These lawsuits further allege that the other defendants aided and abetted that breach of fiduciary duties. These lawsuits seek, among other things, an injunction barring or rescinding both the
FCX/MMR merger and the FCX/PXP merger and requiring submission of both the FCX/MMR merger and the FCX/PXP merger to a vote of FCX stockholders, damages, and attorneys fees and costs. The McMoRan and FCX defendants believe the lawsuits are
without merit and intend to defend vigorously against them.



MMR-33



---

16. Main Pass Energy HubTMProject

McMoRans long-term business objective of the Main Pass Energy HubTM(MPEHTM) is to maximize the value of the offshore structures used in its former sulphur operations located at Main Pass in the Gulf of
Mexico, 38 miles east of Venice, Louisiana. Currently McMoRans subsidiary, Freeport-McMoRan Energy LLC, and a third party are engaged in efforts to utilize the MPEH as a potential deepwater port facility/terminal to receive, store,
condition and liquefy domestic natural gas for export as LNG. Natural gas would be received by a pipeline at MPEHTM,processed and then transferred to on-site floating liquefaction storage and offloading vessels for liquefaction and offloading to LNG transport vessels for export to foreign locations. MPEH is located close
to significant Gulf Coast natural gas production and numerous interstate pipelines and offshore gathering systems. The project would utilize existing offshore structures of the MPEH, which was approved by the U.S. Maritime Administration in
2007 as a deepwater port for the importation and regasification of LNG, conditioning of natural gas to produce NGLs, and storage of natural gas in salt caverns. Modification of the Main Pass facilities to accommodate use as an LNG export facility
would require additional permit approvals.

On January 4, 2013, the Department of Energy authorized MPEH to export
domestically produced LNG by vessel from the proposed MPEH to any country that has or subsequently enters into a free trade agreement (FTA) with the United States. The approval allows export of up to 24 million tonnes of LNG per annum
(3.2 Bcf per day) for a 30-year term, beginning on the earlier of the date of first export or 8 years from the date the authorization is issued (January 4, 2021), pursuant to one or more long-term contracts with third parties that do not exceed the
term of this authorization. A non-FTA application, seeking approval to export to countries without free trade agreements with the United States, is being developed.

McMoRan is engaged in studies to define the project and related permitting requirements and is developing commercial arrangements required to support the significant capital investments involved in the MPEH
project. The ultimate outcome of its efforts to enter into commercial arrangements on reasonable terms to develop the MPEH project and obtain additional financing to fund the MPEH project is subject to various uncertainties, many of
which are beyond McMoRans control.

The costs associated with the establishment of the MPEH project have been charged to
expense in the accompanying consolidated statements of operations. These costs will continue to be charged to expense until commercial feasibility is established. McMoRan incurred costs for the MPEH project totaling $0.3 million in 2012, $0.6
million in 2011 and $1.0 million in 2010.

17. Supplementary Oil and Gas Information

McMoRans oil and gas exploration, development and production activities are primarily conducted offshore in the Gulf of
Mexico and onshore in the Gulf Coast region of the United States. Supplementary information presented below is prepared in accordance with requirements prescribed by U.S. generally accepted accounting principles.

Oil and Gas Capitalized Costs.



|                                               |  |                         |            |   |      |   |            |  
|---------------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | -
|                                               |  | Years EndedDecember 31, |           
|                                               |  | 2012                    |            |   | 2011 |  
|                                               |  | (In Thousands)          |           
|Unproved properties                            |  | $                       | 1,962,441  |   |      | $ | 1,575,806  |  
|Proved properties                              |  |                         | 2,276,480  |   |      |   | 2,548,305  |  
|                                               |  |                         |            |   |      |   |            |  
|Subtotal                                       |  |                         | 4,238,921  |   |      |   | 4,124,111  |  
|Less accumulated depreciation and amortization |  |                         | (1,844,429 | ) |      |   | (1,942,215 | )
|                                               |  |                         |            |   |      |   |            |  
|Net oil and gas properties                     |  | $                       | 2,394,492  |   |      | $ | 2,181,896  |  
|                                               |  |                         |            |   |      |   |            |  



MMR-34



---

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



|                           |  |                          |         |  |      |   |         |      |  |   |           | 
|-------------------------- |  | ------------------------ | ------- |  | ---- | - | ------- | ---- |  | - | --------- | 
|                           |  | Years Ended December 31, |        
|                           |  | 2012                     |         |  | 2011 |   |         | 2010 | 
|                           |  | (In Thousands)           |        
|Acquisition of properties: |  |                          |         |  |      |   |         |      |  |   |           | 
|Proved                     |  | $                        | -       |  |      | $ | -       |      |  | $ | 191,605   | 
|Unproved                   |  |                          | -       |  |      |   | 49,123  |      |  |   | 819,001   | 
|Exploration costs          |  |                          | 514,761 |  |      |   | 556,337 |      |  |   | 207,806   | 
|Development costs          |  |                          | 21,295  |  |      |   | 54,399  |      |  |   | 53,465    | 
|                           |  |                          |         |  |      |   |         |      |  |   |           | 
|                           |  | $                        | 536,056 |  |      | $ | 659,859 |      |  | $ | 1,271,877 | 
|                           |  |                          |         |  |      |   |         |      |  |   |           | 

The following table reflects the net changes in McMoRans capitalized exploratory well drilling costs during
each of the three years in the period ended December 31, 2012 (in thousands):



|                                                                                                |  |                          |           |   |      |   |         |      |  |   |         |  
|----------------------------------------------------------------------------------------------- |  | ------------------------ | --------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                |  | Years Ended December 31, |          
|                                                                                                |  | 2012                     |           |   | 2011 |   |         | 2010 | 
|Beginning of year                                                                               |  | $                        | 689,661   |   |      | $ | 218,524 |      |  | $ | 62,649  |  
|Additions to capitalized exploratory well costs pending determination of proved reserves        |  |                          | 471,804   |   |      |   | 504,142 |      |  |   | 163,563 |  
|Reclassifications to wells, facilities, and equipment based on determination of proved reserves |  |                          | -         |   |      |   | -       |      |  |   | -       |  
|Amounts charged to expense                                                                      |  |                          | (40,114   | ) |      |   | (33,005 | )    |  |   | (7,688  | )
|                                                                                                |  |                          |           |   |      |   |         |      |  |   |         |  
|End of year                                                                                     |  | $                        | 1,121,351 |   |      | $ | 689,661 |      |  | $ | 218,524 |  
|                                                                                                |  |                          |           |   |      |   |         |      |  |   |         |  

McMoRan has investments in drilling and capitalized prospect and other costs for in-progress and/or unproven
exploratory wells totaling $1,134.7 million at December 31, 2012. In addition, McMoRans allocated costs for the working interests acquired in properties associated with McMoRans current in-progress and unproven wells totaled $693.5
million at December 31, 2012.

As of December 31, 2012, McMoRan had four wells (the Davy Jones initial discovery
wellDavy Jones No. 1, the Davy Jones offset appraisal wellDavy Jones No. 2, Blackbeard West No. 1 and Hurricane Deep) with costs that have been capitalized for a period in excess of one year
following the completion of initial exploratory drilling operations.

In 2010, the Davy Jones No. 1 well logged 200 net feet of pay
in multiple Wilcox sands, which were all full to base. Davy Jones No. 2, which is located two and a half miles southwest of Davy Jones No. 1, confirmed 120 net feet of pay in multiple Wilcox sands and also encountered 192 net feet of
potential hydrocarbons in the Tuscaloosa and Lower Cretaceous carbonate sections. McMoRan is the operator and holds a 63.4 percent working interest and a 50.2 percent net revenue interest in Davy Jones.

Davy Jones No. 1 completion activities initiated in the fourth quarter of 2011 and initial flow testing procedures were attempted in March
2012, however McMoRan encountered mechanical issues with the wells originally designed perforating equipment. Subsequent activities to flow test the well were conducted in 2012, and additional procedures to achieve a measurable flow rate are
required. Future plans will incorporate data gained to date at Davy Jones as well as potential core and log data from the in-progress well at Lineham Creek, located onshore approximately 50 miles northwest of Davy Jones. The rig has been moved off
location for several months while a large-scale hydraulic fracture treatment is designed to penetrate the Wilcox reservoirs to facilitate hydrocarbon movement into the wellbore. McMoRans investment in well drilling, completion and other costs
specifically attributable to Davy Jones No. 1 approximated $318.4 million as of December 31, 2012.



MMR-35



---

Completion and testing of the Davy Jones offset appraisal well (Davy Jones No. 2) is expected to
commence following review of results from Davy Jones No. 1. Davy Jones is located on a 20,000 acre structure that has multiple additional drilling opportunities.

McMoRans total investment in the Davy Jones complex, which includes $474.8 million in allocated property acquisition costs, totaled $1,024.0 million at December 31, 2012.

The Blackbeard West No. 1 ultra-deep exploration well on South Timbalier Block 168 was drilled to a total depth of 32,997 feet in October 2008
and logs below 30,067 feet indicated potential hydrocarbon bearing zones measuring 220 net feet requiring further evaluation. The well has been temporarily abandoned while McMoRan evaluates whether to drill deeper or complete the well to test the
existing zones. McMoRans lease rights to the Blackbeard West Unit (including Blackbeard West No. 1) are currently held by activities associated with Blackbeard West No. 2 (discussed below) while McMoRans evaluation of
Blackbeard West No. 1 continues. McMoRans investment in the Blackbeard West No. 1 drilling costs approximated $31.1 million at December 31, 2012.

The Blackbeard West No. 2 ultra-deep exploration well on Ship Shoal Block 188 was drilled to a total depth of 25,584 feet in January 2013. Through logs and core data, McMoRan has identified three potential
hydrocarbon bearing Miocene sand sections between approximately 20,800 and 24,000 feet. McMoRan holds a 69.4 percent working interest and a 53.1 percent net revenue interest in Ship Shoal Block 188. McMoRans investment in Blackbeard West
No. 2 totaled $90.6 million at December 31, 2012. In addition, McMoRan has approximately $27.6 million of allocated property acquisition costs for the Blackbeard West unit.

The Hurricane Deep well, on South Marsh Island Block 217, was drilled to a true vertical depth of 21,378 feet in July 2011. Log results indicated
the presence of Operc and Gyro sands that McMoRan determined could be pursued in an updip location. The well was temporarily abandoned to preserve the wellbore while McMoRan evaluates opportunities to sidetrack or deepen the well. McMoRans
total investment in Hurricane Deep, which includes $24.8 million in allocated property acquisition costs, totaled $55.5 million at December 31, 2012.

The Blackbeard East ultra-deep exploration by-pass well, which is located on South Timbalier Block 144 in 80 feet of water, was drilled to a total depth of 33,318 feet in January 2012. Exploration results from the
well indicate the presence of hydrocarbons below the salt weld in geologic formations including Upper/Middle Miocene, Frio, Vicksburg, and Sparta carbonate. Pressure and temperature data below the salt weld in the Miocene sands between 19,500 feet
and 24,600 feet at Blackbeard East indicate that a completion at these depths could utilize conventional equipment and technologies. McMoRans lease rights to South Timbalier Block 144 were scheduled to expire on August 17, 2012. Prior to
the expiration, McMoRan submitted initial development plans for Blackbeard East to the Bureau of Safety and Environmental Enforcement of the United States Department of the Interior (BSEE). McMoRan is seeking approval to test and complete the middle
Miocene sands during 2013 using conventional equipment and technologies. Additional plans for further development of the deeper zones continue to be evaluated. McMoRan continues to hold its rights to this lease while its development plans are under
administrative consideration by BSEE. McMoRans ability to continue to preserve its interest in Blackbeard East will require approval from the BSEE of its development plans.

McMoRan holds a 72.0 percent working interest and a 57.4 percent net revenue interest in Blackbeard East. McMoRans total investment in
Blackbeard East, which includes $130.5 million in allocated property acquisition costs, totaled $308.8 million at December 31, 2012.

The Lafitte ultra-deep exploration well, which is located on Eugene Island Block 223 in 140 feet of water, was drilled to a total depth of 34,162
feet in March 2012. Exploration results from the well



MMR-36



---

indicate the presence of hydrocarbons below the salt weld in geologic formations including Middle/Lower Miocene, Frio, Upper Eocene, and Sparta carbonate. McMoRans lease rights to Eugene
Island Block 223 were scheduled to expire on October 8, 2012. Prior to the lease expiration, McMoRan submitted its initial development plans to complete and test the Jackson/Yegua sands in the upper Eocene for Lafitte to the BSEE. McMoRan
continues to hold its rights to this lease while its development plans are under administrative consideration by the BSEE. McMoRans ability to continue to preserve its interest in Lafitte will require approval from the BSEE of its development
plans.

McMoRan holds a 72.0 percent working interest and a 58.3 percent net revenue interest in Lafitte. McMoRans total
investment in Lafitte, which includes $35.8 million in allocated property acquisition costs, totaled $196.8 million at December 31, 2012.

Proved Oil and Natural Gas Reserves (Unaudited). Proved oil and natural gas reserves for the periods ending December 31, 2012, 2011 and 2010 have been estimated by Ryder Scott Company, L.P. (Ryder
Scott), in accordance with the guidelines established by the Security and Exchange Commission (SEC) as set forth in Rule 4-10 (a) (6), (22), (26) and (31). All estimates of oil and natural gas reserves are inherently imprecise and subject
to change as new technical information about the properties is obtained. Estimates of proved reserves for wells with little or no production history are less reliable than those based on a long production history. Subsequent evaluation of the same
reserves may result in variations which may be substantial. Revisions of proved reserves represent changes in previous estimates of proved reserves resulting from new information obtained from production history, additional development drilling
and/or changes in other factors, including economic considerations. Discoveries and extensions represent additions to proved reserves resulting from (1) extensions of proved acreage of previously discovered reservoirs through additional
drilling in periods subsequent to initial discovery, and (2) discovery of new fields with proved reserves or of new reservoirs of proved reserves in old fields. Substantially all of McMoRans proved reserves are located offshore in the
Gulf of Mexico. Oil and natural gas liquids (NGLs), are stated in thousands of barrels (MBbls) and natural gas in millions of cubic feet (MMcf).



|                                |  |           |         |     |            |  |        |             |  |  |        |  
|------------------------------- |  | --------- | ------- | --- | ---------- |  | ------ | ----------- |  |  | ------ | -
|                                |  | Gas(MMcf) |         |     | Oil(MBbls) |  |        | NGLs(MBbls) | 
|Proved reserves:                |  |           |         |     |            |  |        |             |  |  |        |  
|January 1, 2010                 |  |           | 173,035 |     |            |  | 15,519 |             |  |  | 1,208  |  
|Revisions of previous estimates |  |           | 7,773   |     |            |  | 629    |             |  |  | 1,105  |  
|Discoveries and extensions      |  |           | -       |     |            |  | -      |             |  |  | -      |  
|Production                      |  |           | (38,018 | )   |            |  | (2,481 | )           |  |  | (993   | )
|Sales of reserves               |  |           | (140    | )   |            |  | (222   | )           |  |  | -      |  
|Purchase of reservesa           |  |           | 42,820  |     |            |  | 1,112  |             |  |  | 1,254  |  
|                                |  |           |         |     |            |  |        |             |  |  |        |  
|December 31, 2010               |  |           | 185,470 |     |            |  | 14,557 |             |  |  | 2,574  |  
|Revisions of previous estimates |  |           | 9,647   |     |            |  | 2,585  |             |  |  | 1,428  |  
|Discoveries and extensions      |  |           | 1,934   |     |            |  | 16     |             |  |  | -      |  
|Production                      |  |           | (45,000 | )   |            |  | (2,717 | )           |  |  | (1,154 | )
|Sales of reserves               |  |           | -       |     |            |  | -      |             |  |  | -      |  
|Purchase of reserves            |  |           | -       |     |            |  | -      |             |  |  | -      |  
|                                |  |           |         |     |            |  |        |             |  |  |        |  
|December 31, 2011               |  |           | 152,051 |     |            |  | 14,441 |             |  |  | 2,848  |  
|Revisions of previous estimates |  |           | 15,064  |     |            |  | (199   | )           |  |  | 1,226  |  
|Discoveries and extensionsb     |  |           | 14,219  |     |            |  | 143    |             |  |  | -      |  
|Production                      |  |           | (31,797 | )   |            |  | (2,107 | )           |  |  | (965   | )
|Sales of reservesc              |  |           | (13,604 | )   |            |  | (1,399 | )           |  |  | -      |  
|Purchase of reserves            |  |           | -       |     |            |  | -      |             |  |  | -      |  
|                                |  |           |         |     |            |  |        |             |  |  |        |  
|December 31, 2012               |  |           | 135,933 | d,e |            |  | 10,879 | e           |  |  | 3,109  | e
|                                |  |           |         |     |            |  |        |             |  |  |        |  
|Proved developed reserves:      |  |           |         |     |            |  |        |             |  |  |        |  
|January 1, 2010                 |  |           | 131,414 |     |            |  | 13,483 |             |  |  | 1,027  |  
|December 31, 2010               |  |           | 137,800 |     |            |  | 13,317 |             |  |  | 2,051  |  
|December 31, 2011               |  |           | 123,626 |     |            |  | 13,353 |             |  |  | 2,220  |  
|December 31, 2012               |  |           | 99,736  | c   |            |  | 10,114 |             |  |  | 2,447  |  



MMR-37



---

|a. | Reflects the estimated proved reserves associated with the 2010 oil and gas property acquisition (Note 3).
|-- | ----------------------------------------------------------------------------------------------------------

|b. | Includes 12,203 MMcf of natural gas and 122 MBbls of oil associated with the Lineham Creek onshore ultra-deep exploratory well.
|-- | -------------------------------------------------------------------------------------------------------------------------------

|c. | Reflects the estimated proved reserves associated with the 2012 oil and gas property sales (Note 3).
|-- | ----------------------------------------------------------------------------------------------------

|d. | At December 31, 2012, McMoRan had natural gas imbalances of 0.5 Bcfe for under deliveries and 0.5 Bcfe for over deliveries which are not reflected in the above reserve
quantities.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|e. | Includes 9,165 MMcf of natural gas, 107 MBbls of oil and 11 MBbls of NGLs associated with properties sold in January 2013 (Note 3)
|-- | ----------------------------------------------------------------------------------------------------------------------------------

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

McMoRans standardized measure of discounted future net cash flows (Standardized Measure) and changes therein relating to proved oil and
natural gas reserves were computed using reserve valuations based on regulations and parameters prescribed by the SEC. SEC regulations require the use of average prices during the 12-month period prior to the reporting date. The weighted average of
these prices for all properties with proved reserves was $106.68 per barrel of oil, $46.56 per barrel of NGLs and $2.84 per Mcf of natural gas at December 31, 2012 and was $100.68 per barrel of oil, $56.82 per barrel of NGLs and $4.29 per Mcf
of natural gas at December 31, 2011.



|                                                                     |  |                |           |   |      |   |           |  
|-------------------------------------------------------------------- |  | -------------- | --------- | - | ---- | - | --------- | -
|                                                                     |  | December 31,   |          
|                                                                     |  | 2012           |           |   | 2011 |  
|                                                                     |  | (In Thousands) |          
|Future cash inflows                                                  |  | $              | 1,690,828 |   |      | $ | 2,268,446 |  
|Future costs applicable to future cash flows:                        |  |                |           |   |      |   |           |  
|Production costs                                                     |  |                | (463,294  | ) |      |   | (566,947  | )
|Development and abandonment costs                                    |  |                | (441,591  | ) |      |   | (534,703  | )
|Future income taxesa                                                 |  |                | -         |   |      |   | -         |  
|                                                                     |  |                |           |   |      |   |           |  
|Future net cash flows                                                |  |                | 785,943   |   |      |   | 1,166,796 |  
|Discount for estimated timing of net cash flows (10% discount rate)b |  |                | (255,632  | ) |      |   | (337,965  | )
|                                                                     |  |                |           |   |      |   |           |  
|                                                                     |  | $              | 530,311   | c |      | $ | 828,831   |  
|                                                                     |  |                |           |   |      |   |           |  



|a. | For both of the years ended December 31, 2012 and 2011 McMoRans available tax benefits directly related to its oil and gas operations exceeded its pretax future net
cash flows under the Standardized Measure.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|c. | Includes $16.1 million associated with properties sold in January 2013 (Note 3).
|-- | --------------------------------------------------------------------------------



MMR-38



---

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



|                                                                                                |  |                          |          |    |      |   |          |      |  |   |          |  
|----------------------------------------------------------------------------------------------- |  | ------------------------ | -------- | -- | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                                |  | Years Ended December 31, |         
|                                                                                                |  | 2012                     |          |    | 2011 |   |          | 2010 | 
|                                                                                                |  | (In Thousands)           |         
|Beginning of year                                                                               |  | $                        | 828,831  |    |      | $ | 650,920  |      |  | $ | 348,381  |  
|Revisions:                                                                                      |  |                          |          |    |      |   |          |      |  |   |          |  
|Accretion of discount                                                                           |  |                          | 82,883   |    |      |   | 65,092   |      |  |   | 34,838   |  
|Changes in prices                                                                               |  |                          | (166,543 | )  |      |   | 147,195  |      |  |   | 196,927  |  
|Change in reserve quantities                                                                    |  |                          | 7,879    |    |      |   | 195,033  |      |  |   | 53,306   |  
|Other changes, including revised estimates of development costs and changes in timing and other |  |                          | (43,348  | )  |      |   | (107,785 | )    |  |   | (71,337  | )
|Discoveries and extensions, less related costs                                                  |  |                          | 269      |    |      |   | 5,951    |      |  |   | -        |  
|Development costs incurred during the year                                                      |  |                          | 97,511   |    |      |   | 207,756  |      |  |   | 175,340  |  
|Change in future income taxes                                                                   |  |                          | -        |    |      |   | -        |      |  |   | 1,476    |  
|Revenues, less production costs                                                                 |  |                          | (208,280 | )  |      |   | (335,331 | )    |  |   | (235,541 | )
|Purchases reserves in place                                                                     |  |                          | -        |    |      |   | -        |      |  |   | 154,967  |  
|Sales of reserves in place                                                                      |  |                          | (68,891  | )a |      |   | -        |      |  |   | (7,437   | )
|                                                                                                |  |                          |          |    |      |   |          |      |  |   |          |  
|End of year                                                                                     |  | $                        | 530,311  |    |      | $ | 828,831  |      |  | $ | 650,920  |  
|                                                                                                |  |                          |          |    |      |   |          |      |  |   |          |  



|a. | Reflects sale of certain oil and gas properties during 2012 (Note 3).
|-- | ---------------------------------------------------------------------

18. Guarantor Financial Statements

In November 2007, McMoRan completed the sale of $300 million of 11.875% notes (Note 7). The 11.875% notes are
unconditionally guaranteed on a senior basis jointly and severally by MOXY and the subsidiary guarantors. The guarantee is an unsecured obligation of the guarantor and ranks equal in right of payment with all existing and future indebtedness of
McMoRan, including indebtedness under the credit facility. The guarantee also ranks senior in right of payment with all future subordinated obligations and is effectively subordinated in right of payment to any debt of McMoRans subsidiaries
that are not subsidiary guarantors.



MMR-39



---

The following condensed consolidating financial information includes information regarding McMoRan, as
parent, MOXY and its subsidiaries, as guarantors, and Freeport Energy, as the non-guarantor subsidiary. Included are the condensed consolidating balance sheets at December 31, 2012 and 2011 and the related condensed consolidating statements of
operations and cash flow for the years ended December 31, 2012, 2011 and 2010, which should be read in conjunction with the notes to these consolidated financial statements:

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2012

(In Thousands)



|                                                         |  |        |           |  |      |   |           |                |  |   |              |   |  |                     |             |   |  |   |           | 
|-------------------------------------------------------- |  | ------ | --------- |  | ---- | - | --------- | -------------- |  | - | ------------ | - |  | ------------------- | ----------- | - |  | - | --------- | 
|                                                         |  | Parent |           |  | MOXY |   |           | FreeportEnergy |  |   | Eliminations |   |  | ConsolidatedMcMoRan |            
|                                                         |  |        |          
|ASSETS                                                   | 
|Current assets:                                          |  |        |           |  |      |   |           |                |  |   |              |   |  |                     |             |   |  |   |           | 
|Cash and cash equivalents                                |  | $      | 94        |  |      | $ | 113,803   |                |  | $ | 970          |   |  | $                   | -           |   |  | $ | 114,867   | 
|Accounts receivable                                      |  |        | 2,546     |  |      |   | 49,881    |                |  |   | 121          |   |  |                     | -           |   |  |   | 52,548    | 
|Inventories                                              |  |        | -         |  |      |   | 28,532    |                |  |   | -            |   |  |                     | -           |   |  |   | 28,532    | 
|Prepaid expenses                                         |  |        | 703       |  |      |   | 14,483    |                |  |   | -            |   |  |                     | -           |   |  |   | 15,186    | 
|Current assets from discontinued operations              |  |        | -         |  |      |   | -         |                |  |   | 2,013        |   |  |                     | -           |   |  |   | 2,013     | 
|                                                         |  |        |           |  |      |   |           |                |  |   |              |   |  |                     |             |   |  |   |           | 
|Total current assets                                     |  |        | 3,343     |  |      |   | 206,699   |                |  |   | 3,104        |   |  |                     | -           |   |  |   | 213,146   | 
|Property, plant and equipment, net                       |  |        | -         |  |      |   | 2,394,491 |                |  |   | 31           |   |  |                     | -           |   |  |   | 2,394,522 | 
|Investment in subsidiaries                               |  |        | 1,535,803 |  |      |   | -         |                |  |   | -            |   |  |                     | (1,535,803  | ) |  |   | -         | 
|Amounts due from affiliates                              |  |        | 638,964   |  |      |   | -         |                |  |   | -            |   |  |                     | (638,964    | ) |  |   | -         | 
|Restricted cash and other assets                         |  |        | 3,309     |  |      |   | 65,706    |                |  |   | -            |   |  |                     | -           |   |  |   | 69,015    | 
|Long-term assets from discontinued operations            |  |        | -         |  |      |   | -         |                |  |   | 439          |   |  |                     | -           |   |  |   | 439       | 
|                                                         |  |        |           |  |      |   |           |                |  |   |              |   |  |                     |             |   |  |   |           | 
|Total assets                                             |  | $      | 2,181,419 |  |      | $ | 2,666,896 |                |  | $ | 3,574        |   |  | $                   | (2,174,767) |   |  | $ | 2,677,122 | 
|                                                         |  |        |           |  |      |   |           |                |  |   |              |   |  |                     |             |   |  |   |           | 
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)           | 
|Current liabilities:                                     |  |        |           |  |      |   |           |                |  |   |              |   |  |                     |             |   |  |   |           | 
|Accounts payable                                         |  | $      | 604       |  |      | $ | 83,244    |                |  | $ | 89           |   |  | $                   | -           |   |  | $ | 83,937    | 
|Accrued liabilities                                      |  |        | 2,179     |  |      |   | 129,516   |                |  |   | 1            |   |  |                     | (48         | ) |  |   | 131,648   | 
|Current portion of debt                                  |  |        | 67,832    |  |      |   | -         |                |  |   | -            |   |  |                     | -           |   |  |   | 67,832    | 
|Current portion of oil and gas accrued reclamation costs |  |        | -         |  |      |   | 57,336    |                |  |   | -            |   |  |                     | -           |   |  |   | 57,336    | 
|Other current liabilities                                |  |        | 13,679    |  |      |   | 754       |                |  |   | -            |   |  |                     | -           |   |  |   | 14,433    | 
|Current liabilities from discontinued operations         |  |        | -         |  |      |   | -         |                |  |   | 2,280        |   |  |                     | 48          |   |  |   | 2,328     | 
|                                                         |  |        |           |  |      |   |           |                |  |   |              |   |  |                     |             |   |  |   |           | 
|Total current liabilities                                |  |        | 84,294    |  |      |   | 270,850   |                |  |   | 2,370        |   |  |                     | -           |   |  |   | 357,514   | 
|Long-term debt                                           |  |        | 489,470   |  |      |   | -         |                |  |   | -            |   |  |                     | -           |   |  |   | 489,470   | 
|Amounts due to affiliates                                |  |        | -         |  |      |   | 634,161   |                |  |   | 4,803        |   |  |                     | (638,964    | ) |  |   | -         | 
|Accrued oil and gas reclamation costs                    |  |        | -         |  |      |   | 188,245   |                |  |   | -            |   |  |                     | -           |   |  |   | 188,245   | 
|Other long-term liabilities                              |  |        | 4,444     |  |      |   | 11,144    |                |  |   | 1,616        |   |  |                     | -           |   |  |   | 17,204    | 
|Long-term liabilities from discontinued operations       |  |        | -         |  |      |   | -         |                |  |   | 21,478       |   |  |                     | -           |   |  |   | 21,478    | 
|                                                         |  |        |           |  |      |   |           |                |  |   |              |   |  |                     |             |   |  |   |           | 
|Total liabilities                                        |  |        | 578,208   |  |      |   | 1,104,400 |                |  |   | 30,267       |   |  |                     | (638,964    | ) |  |   | 1,073,911 | 
|Stockholders equity (deficit)                           |  |        | 1,603,211 |  |      |   | 1,562,496 |                |  |   | (26,693      | ) |  |                     | (1,535,803  | ) |  |   | 1,603,211 | 
|                                                         |  |        |           |  |      |   |           |                |  |   |              |   |  |                     |             |   |  |   |           | 
|Total liabilities and stockholders equity (deficit)     |  | $      | 2,181,419 |  |      | $ | 2,666,896 |                |  | $ | 3,574        |   |  | $                   | (2,174,767  | ) |  | $ | 2,677,122 | 
|                                                         |  |        |           |  |      |   |           |                |  |   |              |   |  |                     |             |   |  |   |           | 



MMR-40



---

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2011

(In
Thousands)



|                                                         |  |        |           |  |      |   |           |                |  |   |              |   |  |                     |            |   |  |   |           | 
|-------------------------------------------------------- |  | ------ | --------- |  | ---- | - | --------- | -------------- |  | - | ------------ | - |  | ------------------- | ---------- | - |  | - | --------- | 
|                                                         |  | Parent |           |  | MOXY |   |           | FreeportEnergy |  |   | Eliminations |   |  | ConsolidatedMcMoRan |           
|                                                         |  |        |          
|ASSETS                                                   | 
|Current assets:                                          |  |        |           |  |      |   |           |                |  |   |              |   |  |                     |            |   |  |   |           | 
|Cash and cash equivalents                                |  | $      | 16,341    |  |      | $ | 552,365   |                |  | $ | 57           |   |  | $                   | -          |   |  | $ | 568,763   | 
|Accounts receivable                                      |  |        | 1,850     |  |      |   | 70,235    |                |  |   | -            |   |  |                     | -          |   |  |   | 72,085    | 
|Inventories                                              |  |        | -         |  |      |   | 36,274    |                |  |   | -            |   |  |                     | -          |   |  |   | 36,274    | 
|Prepaid expenses                                         |  |        | 668       |  |      |   | 8,435     |                |  |   | -            |   |  |                     | -          |   |  |   | 9,103     | 
|Current assets from discontinued operations              |  |        | -         |  |      |   | -         |                |  |   | 682          |   |  |                     | -          |   |  |   | 682       | 
|                                                         |  |        |           |  |      |   |           |                |  |   |              |   |  |                     |            |   |  |   |           | 
|Total current assets                                     |  |        | 18,859    |  |      |   | 667,309   |                |  |   | 739          |   |  |                     | -          |   |  |   | 686,907   | 
|Property, plant and equipment, net                       |  |        | -         |  |      |   | 2,181,896 |                |  |   | 30           |   |  |                     | -          |   |  |   | 2,181,926 | 
|Investment in subsidiaries                               |  |        | 1,596,092 |  |      |   | -         |                |  |   | -            |   |  |                     | (1,596,092 | ) |  |   | -         | 
|Amounts due from affiliates                              |  |        | 677,127   |  |      |   | -         |                |  |   | -            |   |  |                     | (677,127   | ) |  |   | -         | 
|Restricted cash and other assets                         |  |        | 4,641     |  |      |   | 65,301    |                |  |   | -            |   |  |                     | -          |   |  |   | 69,942    | 
|Long-term assets from discontinued operations            |  |        | -         |  |      |   | -         |                |  |   | 439          |   |  |                     | -          |   |  |   | 439       | 
|                                                         |  |        |           |  |      |   |           |                |  |   |              |   |  |                     |            |   |  |   |           | 
|Total assets                                             |  | $      | 2,296,719 |  |      | $ | 2,914,506 |                |  | $ | 1,208        |   |  | $                   | (2,273,219 | ) |  | $ | 2,939,214 | 
|                                                         |  |        |           |  |      |   |           |                |  |   |              |   |  |                     |            |   |  |   |           | 
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)           |  |        |           |  |     
|Current liabilities:                                     |  |        |           |  |      |   |           |                |  |   |              |   |  |                     |            |   |  |   |           | 
|Accounts payable                                         |  | $      | 217       |  |      | $ | 115,121   |                |  | $ | 494          |   |  | $                   | -          |   |  | $ | 115,832   | 
|Accrued liabilities                                      |  |        | 787       |  |      |   | 160,309   |                |  |   | -            |   |  |                     | (274       | ) |  |   | 160,822   | 
|Current portion of debt                                  |  |        | 66,223    |  |      |   | -         |                |  |   | -            |   |  |                     | -          |   |  |   | 66,223    | 
|Current portion of oil and gas accrued reclamation costs |  |        | -         |  |      |   | 58,810    |                |  |   | -            |   |  |                     | -          |   |  |   | 58,810    | 
|Other current liabilities                                |  |        | 13,694    |  |      |   | 754       |                |  |   | -            |   |  |                     | -          |   |  |   | 14,448    | 
|Current liabilities from discontinued operations         |  |        | -         |  |      |   | -         |                |  |   | 4,990        |   |  |                     | 274        |   |  |   | 5,264     | 
|                                                         |  |        |           |  |      |   |           |                |  |   |              |   |  |                     |            |   |  |   |           | 
|Total current liabilities                                |  |        | 80,921    |  |      |   | 334,994   |                |  |   | 5,484        |   |  |                     | -          |   |  |   | 421,399   | 
|Long-term debt                                           |  |        | 487,363   |  |      |   | -         |                |  |   | -            |   |  |                     | -          |   |  |   | 487,363   | 
|Amounts due to affiliates                                |  |        | -         |  |      |   | 674,613   |                |  |   | 2,515        |   |  |                     | (677,128   | ) |  |   | -         | 
|Accrued oil and gas reclamation costs                    |  |        | -         |  |      |   | 267,584   |                |  |   | -            |   |  |                     | -          |   |  |   | 267,584   | 
|Other long-term liabilities                              |  |        | 5,471     |  |      |   | 13,799    |                |  |   | 1,616        |   |  |                     | -          |   |  |   | 20,886    | 
|Long-term liabilities from discontinued operations       |  |        | -         |  |      |   | -         |                |  |   | 19,018       |   |  |                     | -          |   |  |   | 19,018    | 
|                                                         |  |        |           |  |      |   |           |                |  |   |              |   |  |                     |            |   |  |   |           | 
|Total liabilities                                        |  |        | 573,755   |  |      |   | 1,290,990 |                |  |   | 28,633       |   |  |                     | (677,128   | ) |  |   | 1,216,250 | 
|Stockholders equity (deficit)                           |  |        | 1,722,964 |  |      |   | 1,623,516 |                |  |   | (27,425      | ) |  |                     | (1,596,091 | ) |  |   | 1,722,964 | 
|                                                         |  |        |           |  |      |   |           |                |  |   |              |   |  |                     |            |   |  |   |           | 
|Total liabilities and stockholders equity (deficit)     |  | $      | 2,296,719 |  |      | $ | 2,914,506 |                |  | $ | 1,208        |   |  | $                   | (2,273,219 | ) |  | $ | 2,939,214 | 
|                                                         |  |        |           |  |      |   |           |                |  |   |              |   |  |                     |            |   |  |   |           | 



MMR-41



---

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Year Ended December 31, 2012

(In Thousands)



|                                                            |  |        |          |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |          |  
|----------------------------------------------------------- |  | ------ | -------- | - | ---- | - | ------- | -------------- |  | - | ------------ | - |  | ------------------- | ------ | - |  | - | -------- | -
|                                                            |  | Parent |          |   | MOXY |   |         | FreeportEnergy |  |   | Eliminations |   |  | ConsolidatedMcMoRan |       
|Revenues:                                                   |  |        |          |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |          |  
|Oil and natural gas                                         |  | $      | -        |   |      | $ | 362,995 |                |  | $ | -            |   |  | $                   | -      |   |  | $ | 362,995  |  
|Service                                                     |  |        | -        |   |      |   | 13,893  |                |  |   | 39           |   |  |                     | (39    | ) |  |   | 13,893   |  
|                                                            |  |        |          |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |          |  
|Total revenues                                              |  |        | -        |   |      |   | 376,888 |                |  |   | 39           |   |  |                     | (39    | ) |  |   | 376,888  |  
|Costs and expenses:                                         |  |        |          |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |          |  
|Production and delivery costs                               |  |        | -        |   |      |   | 155,180 |                |  |   | -            |   |  |                     | (39    | ) |  |   | 155,141  |  
|Depletion, depreciation and amortization expense            |  |        | -        |   |      |   | 173,817 |                |  |   | -            |   |  |                     | -      |   |  |   | 173,817  |  
|Exploration expenses                                        |  |        | -        |   |      |   | 127,994 |                |  |   | -            |   |  |                     | -      |   |  |   | 127,994  |  
|General and administrative expenses                         |  |        | 12,651   |   |      |   | 40,326  |                |  |   | -            |   |  |                     | -      |   |  |   | 52,977   |  
|Main Pass Energy Hub costs                                 |  |        | -        |   |      |   | -       |                |  |   | 287          |   |  |                     | -      |   |  |   | 287      |  
|Insurance recoveries                                        |  |        | -        |   |      |   | (1,229  | )              |  |   | -            |   |  |                     | -      |   |  |   | (1,229   | )
|Gain on sale of oil and gas properties                      |  |        | -        |   |      |   | (40,453 | )              |  |   | -            |   |  |                     | -      |   |  |   | (40,453  | )
|                                                            |  |        |          |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |          |  
|Total costs and expenses                                    |  |        | 12,651   |   |      |   | 455,635 |                |  |   | 287          |   |  |                     | (39    | ) |  |   | 468,534  |  
|                                                            |  |        |          |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |          |  
|Operating loss                                              |  |        | (12,651  | ) |      |   | (78,747 | )              |  |   | (248         | ) |  |                     | -      |   |  |   | (91,646  | )
|Interest expense, net                                       |  |        | -        |   |      |   | -       |                |  |   | -            |   |  |                     | -      |   |  |   | -        |  
|Equity in losses of consolidated subsidiaries               |  |        | (85,677  | ) |      |   | -       |                |  |   | -            |   |  |                     | 85,677 |   |  |   | -        |  
|Loss on debt exchange                                       |  |        | (5,955   | ) |      |   | -       |                |  |   | -            |   |  |                     | -      |   |  |   | (5,955   | )
|Other income (expense), net                                 |  |        | (11      | ) |      |   | 579     |                |  |   | -            |   |  |                     | -      |   |  |   | 568      |  
|                                                            |  |        |          |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |          |  
|                                                            |  |        |          |   |     
|Loss from continuing operations before income taxes         |  |        | (104,294 | ) |      |   | (78,168 | )              |  |   | (248         | ) |  |                     | 85,677 |   |  |   | (97,033  | )
|Income tax expense                                          |  |        | -        |   |      |   | -       |                |  |   | -            |   |  |                     | -      |   |  |   | -        |  
|                                                            |  |        |          |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |          |  
|                                                            |  |        |          |   |     
|Loss from continuing operations                             |  |        | (104,294 | ) |      |   | (78,168 | )              |  |   | (248         | ) |  |                     | 85,677 |   |  |   | (97,033  | )
|Loss from discontinued operations                           |  |        | -        |   |      |   | -       |                |  |   | (7,261       | ) |  |                     | -      |   |  |   | (7,261   | )
|                                                            |  |        |          |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |          |  
|                                                            |  |        |          |   |     
|Net loss                                                    |  |        | (104,294 | ) |      |   | (78,168 | )              |  |   | (7,509       | ) |  |                     | 85,677 |   |  |   | (104,294 | )
|Preferred dividends and other related preferred stock costs |  |        | (41,276  | ) |      |   | -       |                |  |   | -            |   |  |                     | -      |   |  |   | (41,276  | )
|                                                            |  |        |          |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |          |  
|                                                            |  |        |          |   |     
|Net loss applicable to common stock                         |  | $      | (145,570 | ) |      | $ | (78,168 | )              |  | $ | (7,509       | ) |  | $                   | 85,677 |   |  | $ | (145,570 | )
|                                                            |  |        |          |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |          |  



MMR-42



---

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Year Ended December 31, 2011

(In Thousands)



|                                                            |  |        |         |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |         |  
|----------------------------------------------------------- |  | ------ | ------- | - | ---- | - | ------- | -------------- |  | - | ------------ | - |  | ------------------- | ------ | - |  | - | ------- | -
|                                                            |  | Parent |         |   | MOXY |   |         | FreeportEnergy |  |   | Eliminations |   |  | ConsolidatedMcMoRan |       
|Revenues:                                                   |  |        |         |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |         |  
|Oil and natural gas                                         |  | $      | -       |   |      | $ | 542,310 |                |  | $ | -            |   |  | $                   | -      |   |  | $ | 542,310 |  
|Service                                                     |  |        | -       |   |      |   | 13,104  |                |  |   | 39           |   |  |                     | (39    | ) |  |   | 13,104  |  
|                                                            |  |        |         |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |         |  
|Total revenues                                              |  |        | -       |   |      |   | 555,414 |                |  |   | 39           |   |  |                     | (39    | ) |  |   | 555,414 |  
|Costs and expenses:                                         |  |        |         |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |         |  
|Production and delivery costs                               |  |        | -       |   |      |   | 206,358 |                |  |   | -            |   |  |                     | (39    | ) |  |   | 206,319 |  
|Depletion, depreciation and amortization expense            |  |        | -       |   |      |   | 307,902 |                |  |   | -            |   |  |                     | -      |   |  |   | 307,902 |  
|Exploration expenses                                        |  |        | -       |   |      |   | 81,742  |                |  |   | -            |   |  |                     | -      |   |  |   | 81,742  |  
|General and administrative expenses                         |  |        | 9,291   |   |      |   | 40,180  |                |  |   | -            |   |  |                     | -      |   |  |   | 49,471  |  
|Main Pass Energy Hub costs                                 |  |        | -       |   |      |   | -       |                |  |   | 588          |   |  |                     | -      |   |  |   | 588     |  
|Insurance recoveries                                        |  |        | -       |   |      |   | (91,076 | )              |  |   | -            |   |  |                     | -      |   |  |   | (91,076 | )
|Gain on sale of oil and gas property                        |  |        | -       |   |      |   | (900    | )              |  |   | -            |   |  |                     | -      |   |  |   | (900    | )
|                                                            |  |        |         |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |         |  
|Total costs and expenses                                    |  |        | 9,291   |   |      |   | 544,206 |                |  |   | 588          |   |  |                     | (39    | ) |  |   | 554,046 |  
|                                                            |  |        |         |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |         |  
|Operating loss                                              |  |        | (9,291  | ) |      |   | 11,208  |                |  |   | (549         | ) |  |                     | -      |   |  |   | 1,368   |  
|Interest expense, net                                       |  |        | (8,782  | ) |      |   | -       |                |  |   | -            |   |  |                     | -      |   |  |   | (8,782  | )
|Equity in losses of consolidated subsidiaries               |  |        | 2,127   |   |      |   | -       |                |  |   | -            |   |  |                     | (2,127 | ) |  |   | -       |  
|Other income (expense), net                                 |  |        | (22     | ) |      |   | 832     |                |  |   | -            |   |  |                     | -      |   |  |   | 810     |  
|                                                            |  |        |         |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |         |  
|                                                            |  |        |         |   |     
|Loss from continuing operations before income taxes         |  |        | (15,968 | ) |      |   | 12,040  |                |  |   | (549         | ) |  |                     | (2,127 | ) |  |   | (6,604  | )
|Income tax expense                                          |  |        | -       |   |      |   | -       |                |  |   | -            |   |  |                     | -      |   |  |   | -       |  
|                                                            |  |        |         |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |         |  
|                                                            |  |        |         |   |     
|Loss from continuing operations                             |  |        | (15,968 | ) |      |   | 12,040  |                |  |   | (549         | ) |  |                     | (2,127 | ) |  |   | (6,604  | )
|Loss from discontinued operations                           |  |        | -       |   |      |   | -       |                |  |   | (9,364       | ) |  |                     | -      |   |  |   | (9,364  | )
|                                                            |  |        |         |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |         |  
|                                                            |  |        |         |   |     
|Net loss                                                    |  |        | (15,968 | ) |      |   | 12,040  |                |  |   | (9,913       | ) |  |                     | (2,127 | ) |  |   | (15,968 | )
|Preferred dividends and other related preferred stock costs |  |        | (42,800 | ) |      |   | -       |                |  |   | -            |   |  |                     | -      |   |  |   | (42,800 | )
|                                                            |  |        |         |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |         |  
|                                                            |  |        |         |   |     
|Net loss applicable to common stock                         |  | $      | (58,768 | ) |      | $ | 12,040  |                |  | $ | (9,913       | ) |  | $                   | (2,127 | ) |  | $ | (58,768 | )
|                                                            |  |        |         |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |         |  



MMR-43



---

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Year Ended December 31, 2010

(In Thousands)



|                                                            |  |        |          |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |          |  
|----------------------------------------------------------- |  | ------ | -------- | - | ---- | - | ------- | -------------- |  | - | ------------ | - |  | ------------------- | ------ | - |  | - | -------- | -
|                                                            |  | Parent |          |   | MOXY |   |         | FreeportEnergy |  |   | Eliminations |   |  | ConsolidatedMcMoRan |       
|Revenues:                                                   |  |        |          |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |          |  
|Oil and natural gas                                         |  | $      | -        |   |      | $ | 418,816 |                |  | $ | -            |   |  | $                   | -      |   |  | $ | 418,816  |  
|Service                                                     |  |        | -        |   |      |   | 15,560  |                |  |   | 53           |   |  |                     | (53    | ) |  |   | 15,560   |  
|                                                            |  |        |          |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |          |  
|Total revenues                                              |  |        | -        |   |      |   | 434,376 |                |  |   | 53           |   |  |                     | (53    | ) |  |   | 434,376  |  
|Costs and expenses:                                         |  |        |          |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |          |  
|Production and delivery costs                               |  |        | -        |   |      |   | 182,843 |                |  |   | -            |   |  |                     | (53    | ) |  |   | 182,790  |  
|Depletion, depreciation and amortization expense            |  |        | -        |   |      |   | 282,062 |                |  |   | -            |   |  |                     | -      |   |  |   | 282,062  |  
|Exploration expenses                                        |  |        | -        |   |      |   | 42,608  |                |  |   | -            |   |  |                     | -      |   |  |   | 42,608   |  
|Gain on oil and gas derivative contracts                    |  |        | -        |   |      |   | (4,240  | )              |  |   | -            |   |  |                     | -      |   |  |   | (4,240   | )
|General and administrative expenses                         |  |        | 13,931   |   |      |   | 37,598  |                |  |   | -            |   |  |                     | -      |   |  |   | 51,529   |  
|Main Pass Energy Hub costs                                 |  |        | -        |   |      |   | -       |                |  |   | 1,011        |   |  |                     | -      |   |  |   | 1,011    |  
|Gain on sale of oil and gas property                        |  |        | -        |   |      |   | (3,455  | )              |  |   | -            |   |  |                     | -      |   |  |   | (3,455   | )
|Insurance recoveries                                        |  |        | -        |   |      |   | (38,944 | )              |  |   | -            |   |  |                     | -      |   |  |   | (38,944  | )
|                                                            |  |        |          |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |          |  
|Total costs and expenses                                    |  |        | 13,931   |   |      |   | 498,472 |                |  |   | 1,011        |   |  |                     | (53    | ) |  |   | 513,361  |  
|                                                            |  |        |          |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |          |  
|Operating loss                                              |  |        | (13,931  | ) |      |   | (64,096 | )              |  |   | (958         | ) |  |                     | -      |   |  |   | (78,985  | )
|Interest expense, net                                       |  |        | (38,196  | ) |      |   | (20     | )              |  |   | -            |   |  |                     | -      |   |  |   | (38,216  | )
|Equity in losses of consolidated subsidiaries               |  |        | (68,201  | ) |      |   | -       |                |  |   | -            |   |  |                     | 68,201 |   |  |   | -        |  
|Other income (expense), net                                 |  |        | (14      | ) |      |   | 239     |                |  |   | -            |   |  |                     | -      |   |  |   | 225      |  
|                                                            |  |        |          |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |          |  
|Loss from continuing operations before income taxes         |  |        | (120,342 | ) |      |   | (63,877 | )              |  |   | (958         | ) |  |                     | 68,201 |   |  |   | (116,976 | )
|Income tax benefit                                          |  |        | -        |   |      |   | -       |                |  |   | -            |   |  |                     | -      |   |  |   | -        |  
|                                                            |  |        |          |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |          |  
|Loss from continuing operations                             |  |        | (120,342 | ) |      |   | (63,877 | )              |  |   | (958         | ) |  |                     | 68,201 |   |  |   | (116,976 | )
|Loss from discontinued operations                           |  |        | -        |   |      |   | -       |                |  |   | (3,366       | ) |  |                     | -      |   |  |   | (3,366   | )
|                                                            |  |        |          |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |          |  
|Net loss                                                    |  |        | (120,342 | ) |      |   | (63,877 | )              |  |   | (4,324       | ) |  |                     | 68,201 |   |  |   | (120,342 | )
|Preferred dividends and other related preferred stock costs |  |        | (77,101  | ) |      |   | -       |                |  |   | -            |   |  |                     | -      |   |  |   | (77,101  | )
|                                                            |  |        |          |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |          |  
|Net loss applicable to common stock                         |  | $      | (197,443 | ) |      | $ | (63,877 | )              |  | $ | (4,324       | ) |  | $                   | 68,201 |   |  | $ | (197,443 | )
|                                                            |  |        |          |   |      |   |         |                |  |   |              |   |  |                     |        |   |  |   |          |  



MMR-44



---

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW

Year Ended December 31, 2012

(In Thousands)



|                                                                                 |  |        |         |   |      |   |          |                |  |   |                     |   |  |   |          |  
|-------------------------------------------------------------------------------- |  | ------ | ------- | - | ---- | - | -------- | -------------- |  | - | ------------------- | - |  | - | -------- | -
|                                                                                 |  | Parent |         |   | MOXY |   |          | FreeportEnergy |  |   | ConsolidatedMcMoRan |  
|CASH FLOW FROM OPERATING ACTIVITIES:                                             |  |        |         |   |      |   |          |                |  |   |                     |   |  |   |          |  
|Net cash provided by (used in) continuing operations                             |  | $      | (12,565 | ) |      | $ | 55,789   |                |  | $ | (247                | ) |  | $ | 42,977   |  
|Net cash used in discontinued operations                                         |  |        | -       |   |      |   | -        |                |  |   | (9,327              | ) |  |   | (9,327   | )
|                                                                                 |  |        |         |   |      |   |          |                |  |   |                     |   |  |   |          |  
|Net cash provided by (used in) operating activities                              |  |        | (12,565 | ) |      |   | 55,789   |                |  |   | (9,574              | ) |  |   | 33,650   |  
|                                                                                 |  |        |         |   |      |   |          |                |  |   |                     |   |  |   |          |  
|CASH FLOW FROM INVESTING ACTIVITIES:                                             |  |        |         |   |      |   |          |                |  |   |                     |   |  |   |          |  
|Exploration, development and other capital expenditures                          |  |        | -       |   |      |   | (505,132 | )              |  |   | -                   |   |  |   | (505,132 | )
|Proceeds from sale of oil and gas properties                                     |  |        | -       |   |      |   | 56,679   |                |  |   | -                   |   |  |   | 56,679   |  
|                                                                                 |  |        |         |   |      |   |          |                |  |   |                     |   |  |   |          |  
|Net cash used in investing activities                                            |  |        | -       |   |      |   | (448,453 | )              |  |   | -                   |   |  |   | (448,453 | )
|                                                                                 |  |        |         |   |      |   |          |                |  |   |                     |   |  |   |          |  
|CASH FLOW FROM FINANCING ACTIVITIES:                                             |  |        |         |   |      |   |          |                |  |   |                     |   |  |   |          |  
|Dividends paid and conversion inducement payments on convertible preferred stock |  |        | (41,295 | ) |      |   | -        |                |  |   | -                   |   |  |   | (41,295  | )
|Payment of 51/4% convertible senior notes                                        |  |        | (345    | ) |      |   | -        |                |  |   | -                   |   |  |   | (345     | )
|Proceeds from exercise of stock options                                          |  |        | 2,646   |   |      |   | (40      | )              |  |   | -                   |   |  |   | 2,606    |  
|Debt and equity issuance costs                                                   |  |        | (59     | ) |      |   | -        |                |  |   | -                   |   |  |   | (59      | )
|Investment from parent                                                           |  |        | (8,200  | ) |      |   | -        |                |  |   | 8,200               |   |  |   | -        |  
|Amounts payable to consolidated affiliate                                        |  |        | 43,571  |   |      |   | (45,858  | )              |  |   | 2,287               |   |  |   | -        |  
|                                                                                 |  |        |         |   |      |   |          |                |  |   |                     |   |  |   |          |  
|Net cash (used in) provided by financing activities                              |  |        | (3,682  | ) |      |   | (45,898  | )              |  |   | 10,487              |   |  |   | (39,093  | )
|                                                                                 |  |        |         |   |      |   |          |                |  |   |                     |   |  |   |          |  
|Net increase (decrease) in cash and cash equivalents                             |  |        | (16,247 | ) |      |   | (438,562 | )              |  |   | 913                 |   |  |   | (453,896 | )
|Cash and cash equivalents at beginning of year                                   |  |        | 16,341  |   |      |   | 552,365  |                |  |   | 57                  |   |  |   | 568,763  |  
|                                                                                 |  |        |         |   |      |   |          |                |  |   |                     |   |  |   |          |  
|Cash and cash equivalents at end of period                                       |  | $      | 94      |   |      | $ | 113,803  |                |  | $ | 970                 |   |  | $ | 114,867  |  
|                                                                                 |  |        |         |   |      |   |          |                |  |   |                     |   |  |   |          |  



MMR-45



---

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW

Year Ended December 31, 2011

(In Thousands)



|                                                                                 |  |        |         |   |      |   |          |                |  |   |                     |   |  |   |          |  
|-------------------------------------------------------------------------------- |  | ------ | ------- | - | ---- | - | -------- | -------------- |  | - | ------------------- | - |  | - | -------- | -
|                                                                                 |  | Parent |         |   | MOXY |   |          | FreeportEnergy |  |   | ConsolidatedMcMoRan |  
|CASH FLOW FROM OPERATING ACTIVITIES:                                             |  |        |         |   |      |   |          |                |  |   |                     |   |  |   |          |  
|Net cash provided by (used in) continuing operations                             |  | $      | (20,592 | ) |      | $ | 263,095  |                |  | $ | (473                | ) |  | $ | 242,030  |  
|Net cash used in discontinued operations                                         |  |        | -       |   |      |   | -        |                |  |   | (14,982             | ) |  |   | (14,982  | )
|                                                                                 |  |        |         |   |      |   |          |                |  |   |                     |   |  |   |          |  
|Net cash provided by (used in) operating activities                              |  |        | (20,592 | ) |      |   | 263,095  |                |  |   | (15,455             | ) |  |   | 227,048  |  
|                                                                                 |  |        |         |   |      |   |          |                |  |   |                     |   |  |   |          |  
|CASH FLOW FROM INVESTING ACTIVITIES:                                             |  |        |         |   |      |   |          |                |  |   |                     |   |  |   |          |  
|Exploration, development and other capital expenditures                          |  |        | -       |   |      |   | (509,494 | )              |  |   | -                   |   |  |   | (509,494 | )
|Acquisition of oil and gas properties                                            |  |        | -       |   |      |   | (9,520   | )              |  |   | -                   |   |  |   | (9,520   | )
|Proceeds from sale of oil and gas property                                       |  |        | -       |   |      |   | 900      |                |  |   | -                   |   |  |   | 900      |  
|                                                                                 |  |        |         |   |      |   |          |                |  |   |                     |   |  |   |          |  
|Net cash used in investing activities                                            |  |        | -       |   |      |   | (518,114 | )              |  |   | -                   |   |  |   | (518,114 | )
|                                                                                 |  |        |         |   |      |   |          |                |  |   |                     |   |  |   |          |  
|CASH FLOW FROM FINANCING ACTIVITIES:                                             |  |        |         |   |      |   |          |                |  |   |                     |   |  |   |          |  
|Dividends paid and conversion inducement payments on convertible preferred stock |  |        | (37,951 | ) |      |   | -        |                |  |   | -                   |   |  |   | (37,951  | )
|Credit facility refinancing                                                      |  |        | -       |   |      |   | (1,745   | )              |  |   | -                   |   |  |   | (1,745   | )
|Payment of 51/4% convertible senior notes                                        |  |        | (6,543  | ) |      |   | -        |                |  |   | -                   |   |  |   | (6,543   | )
|Proceeds from exercise of stock options                                          |  |        | 946     |   |      |   | -        |                |  |   | -                   |   |  |   | 946      |  
|Debt and equity issuance costs                                                   |  |        | (562    | ) |      |   | -        |                |  |   | -                   |   |  |   | (562     | )
|Investment from parent                                                           |  |        | (14,750 | ) |      |   | -        |                |  |   | 14,750              |   |  |   | -        |  
|Amounts payable to consolidated affiliate                                        |  |        | 95,373  |   |      |   | (95,760  | )              |  |   | 387                 |   |  |   | -        |  
|                                                                                 |  |        |         |   |      |   |          |                |  |   |                     |   |  |   |          |  
|Net cash (used in) provided by financing activities                              |  |        | 36,513  |   |      |   | (97,505  | )              |  |   | 15,137              |   |  |   | (45,855  | )
|                                                                                 |  |        |         |   |      |   |          |                |  |   |                     |   |  |   |          |  
|Net increase (decrease) in cash and cash equivalents                             |  |        | 15,921  |   |      |   | (352,524 | )              |  |   | (318                | ) |  |   | (336,921 | )
|Cash and cash equivalents at beginning of year                                   |  |        | 420     |   |      |   | 904,889  |                |  |   | 375                 |   |  |   | 905,684  |  
|                                                                                 |  |        |         |   |      |   |          |                |  |   |                     |   |  |   |          |  
|Cash and cash equivalents at end of period                                       |  | $      | 16,341  |   |      | $ | 552,365  |                |  | $ | 57                  |   |  | $ | 568,763  |  
|                                                                                 |  |        |         |   |      |   |          |                |  |   |                     |   |  |   |          |  



MMR-46



---

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW

Year Ended December 31, 2010

(In Thousands)



|                                                                |  |        |          |   |      |   |          |                |  |   |                     |   |  |   |          |  
|--------------------------------------------------------------- |  | ------ | -------- | - | ---- | - | -------- | -------------- |  | - | ------------------- | - |  | - | -------- | -
|                                                                |  | Parent |          |   | MOXY |   |          | FreeportEnergy |  |   | ConsolidatedMcMoRan |  
|CASH FLOW FROM OPERATING ACTIVITIES:                            |  |        |          |   |      |   |          |                |  |   |                     |   |  |   |          |  
|Net cash provided by (used in) continuing operations            |  | $      | (860,748 | ) |      | $ | 963,955  |                |  | $ | (2,760              | ) |  | $ | 100,447  |  
|Net cash used in discontinued operations                        |  |        | -        |   |      |   | -        |                |  |   | (2,217              | ) |  |   | (2,217   | )
|                                                                |  |        |          |   |      |   |          |                |  |   |                     |   |  |   |          |  
|Net cash provided by (used in) operating activities             |  |        | (860,748 | ) |      |   | 963,955  |                |  |   | (4,977              | ) |  |   | 98,230   |  
|                                                                |  |        |          |   |      |   |          |                |  |   |                     |   |  |   |          |  
|CASH FLOW FROM INVESTING ACTIVITIES:                            |  |        |          |   |      |   |          |                |  |   |                     |   |  |   |          |  
|Exploration, development and other capital expenditures         |  |        | -        |   |      |   | (217,252 | )              |  |   | -                   |   |  |   | (217,252 | )
|Acquisition of properties, net                                  |  |        | -        |   |      |   | (86,134  | )              |  |   | -                   |   |  |   | (86,134  | )
|Proceeds from sale of oil and gas property                      |  |        | -        |   |      |   | 2,920    |                |  |   | -                   |   |  |   | 2,920    |  
|                                                                |  |        |          |   |      |   |          |                |  |   |                     |   |  |   |          |  
|Net cash used in investing activities                           |  |        | -        |   |      |   | (300,466 | )              |  |   | -                   |   |  |   | (300,466 | )
|                                                                |  |        |          |   |      |   |          |                |  |   |                     |   |  |   |          |  
|CASH FLOW FROM FINANCING ACTIVITIES:                            |  |        |          |   |      |   |          |                |  |   |                     |   |  |   |          |  
|Proceeds from sale of preferred stock                           |  |        | 700,000  |   |      |   | -        |                |  |   | -                   |   |  |   | 700,000  |  
|Proceeds from sale of senior notes                              |  |        | 200,000  |   |      |   | -        |                |  |   | -                   |   |  |   | 200,000  |  
|Dividend and inducement payments on convertible preferred stock |  |        | (27,306  | ) |      |   | -        |                |  |   | -                   |   |  |   | (27,306  | )
|Costs associated with sale of preferred stock and senior notes  |  |        | (6,689   | ) |      |   | -        |                |  |   | -                   |   |  |   | (6,689   | )
|Proceeds from exercise of stock options                         |  |        | 497      |   |      |   | -        |                |  |   | -                   |   |  |   | 497      |  
|Investment from parent                                          |  |        | (5,350   | ) |      |   | -        |                |  |   | 5,350               |   |  |   | -        |  
|                                                                |  |        |          |   |      |   |          |                |  |   |                     |   |  |   |          |  
|Net cash provided by financing activities                       |  |        | 861,152  |   |      |   | -        |                |  |   | 5,350               |   |  |   | 866,502  |  
|                                                                |  |        |          |   |      |   |          |                |  |   |                     |   |  |   |          |  
|Net increase (decrease) in cash and cash equivalents            |  |        | 404      |   |      |   | 663,489  |                |  |   | 373                 |   |  |   | 664,266  |  
|Cash and cash equivalents at beginning of year                  |  |        | 16       |   |      |   | 241,400  |                |  |   | 2                   |   |  |   | 241,418  |  
|                                                                |  |        |          |   |      |   |          |                |  |   |                     |   |  |   |          |  
|Cash and cash equivalents at end of year                        |  | $      | 420      |   |      | $ | 904,889  |                |  | $ | 375                 |   |  | $ | 905,684  |  
|                                                                |  |        |          |   |      |   |          |                |  |   |                     |   |  |   |          |  



MMR-47



---

19. Quarterly Financial Information (Unaudited)



|            |  |                                          |         |  |                       |   |         |                    |  |   |                           |    |  |   |       |   |  |   |       |  
|----------- |  | ---------------------------------------- | ------- |  | --------------------- | - | ------- | ------------------ |  | - | ------------------------- | -- |  | - | ----- | - |  | - | ----- | -
|            |  | Revenues                                 |         |  | OperatingIncome(Loss) |   |         | NetLoss a          |  |   | Net Lossper Share         |   
|            |  |                                          |         |  | Basic                 |   |         | Diluted            | 
|            |  | (In Thousands, Except Per Share Amounts) |        
|2012        |  |                                          |         |  |                       |   |         |                    |  |   |                           |    |  |   |       |   |  |   |       |  
|1st Quarter |  | $                                        | 110,647 |  |                       | $ | 8,367   |                    |  | $ | (4,850                    | )  |  | $ | (0.03 | ) |  | $ | (0.03 | )
|2nd Quarter |  |                                          | 90,295  |  |                       |   | (63,542 | )                  |  |   | (75,500                   | )  |  |   | (0.47 | ) |  |   | (0.47 | )
|3rd Quarter |  |                                          | 91,776  |  |                       |   | (47,195 | )                  |  |   | (64,013                   | )  |  |   | (0.40 | ) |  |   | (0.40 | )
|4th Quarter |  |                                          | 84,170  |  |                       |   | 10,724  |                    |  |   | (1,207                    | )b |  |   | (0.01 | ) |  |   | (0.01 | )
|            |  |                                          |         |  |                       |   |         |                    |  |   |                           |    |  |   |       |   |  |   |       |  
|            |  | $                                        | 376,888 |  |                       | $ | (91,646 | )                  |  | $ | (145,570                  | )  |  |   |       |   |  |   |       |  
|            |  |                                          |         |  |                       |   |         |                    |  |   |                           |    |  |   |       |   |  |   |       |  
|            |  |                                          |         | 
|            |  | Revenues                                 |         |  | OperatingIncome(Loss) |   |         | Net Income(Loss)
a |  |   | Net Income(Loss)per Share |   
|            |  |                                          |         |  | Basic                 |   |         | Diluted            | 
|            |  | (In Thousands, Except Per Share Amounts) |        
|2011        |  |                                          |         |  |                       |   |         |                    |  |   |                           |    |  |   |       |   |  |   |       |  
|1st Quarter |  | $                                        | 137,004 |  |                       | $ | (9,265  | )                  |  | $ | (27,550                   | )  |  | $ | (0.17 | ) |  | $ | (0.17 | )
|2nd Quarter |  |                                          | 158,308 |  |                       |   | (35,392 | )                  |  |   | (50,198                   | )  |  |   | (0.32 | ) |  |   | (0.32 | )
|3rd Quarter |  |                                          | 138,183 |  |                       |   | 2,836   |                    |  |   | (9,420                    | )  |  |   | (0.06 | ) |  |   | (0.06 | )
|4th Quarter |  |                                          | 121,919 |  |                       |   | 43,189  |                    |  |   | 28,400                    | c  |  |   | 0.18  |   |  |   | 0.16  |  
|            |  |                                          |         |  |                       |   |         |                    |  |   |                           |    |  |   |       |   |  |   |       |  
|            |  | $                                        | 555,414 |  |                       | $ | 1,368   |                    |  | $ | (58,768                   | )  |  |   |       |   |  |   |       |  
|            |  |                                          |         |  |                       |   |         |                    |  |   |                           |    |  |   |       |   |  |   |       |  



|a. | Represents net income (loss) attributable to common stockholders, which includes preferred dividends and inducement payments for early conversion of preferred stock as a
reduction to net income (loss).
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b. | Includes approximately $39.7 million in gains from sales of oil and gas properties.
|-- | -----------------------------------------------------------------------------------

|c. | Incudes approximately $39.1 million in insurance recoveries associated with prior hurricane damage related claims.
|-- | ------------------------------------------------------------------------------------------------------------------



MMR-48