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Freeport (FCX) Restructures its Oil and Gas Division

Freeport-McMoRan Inc. FCX has declared a new organizational structure for its subsidiary, Freeport-McMoRan Oil & Gas (FM O&G). The subsidiary is being restructured as an operating division of Freeport, leading to the elimination of FM O&G executive management roles and the merger of financial and administrative roles with Freeport’s corporate functions.

Mark Kidder, who previously served as Vice President – Operations, will lead FM O&G’s operating team and has been named the Executive Vice President – Operations of FM O&G.

Jim Flores, who served as FM O&G’s CEO; Doss Bourgeois, who was the President and  COO; Winston Talbert, who served as the Executive Vice President and CFO; and John Wombwell, the Executive Vice President and General Counsel are no longer holding these positions, and will leave the company. This team has served as executive management for the FM O&G organization since Freeport’s purchase of Plains Exploration Company in 2013.

The company is undertaking this initiative in order to curtail costs and capital expenditures. Also, Freeport will continue to assess potential transactions for the sale of certain assets of FM O&G. Further, the company aims to allocate capital in a manner that aids its debt-reduction initiatives. FM O&G will strive to preserve and increase the values of its assets for expected future improvement in market conditions.

Freeport posted a loss in the fourth quarter of 2015, hurt by hefty charges mostly related to its oil and gas properties. Adjusted loss was narrower than the Zacks Consensus Estimate. Revenues fell by double-digits on lower copper and gold pricing, and missed expectations.

Freeport, like other miners, is reeling under the effects of broad-based weakness in commodities. The depressed oil and copper pricing environment remains a major headwind for the company.

Sluggishness in China (a major market for copper) is affecting markets, thereby hurting Freeport’s core copper mining business. China, which solely accounts for around 45% of global copper consumption, saw a steady decline in copper imports last year in the wake of the economic downturn.

Weak demand in China is weighing on copper prices. In 2015, copper lost 25% of its value amid concerns over China’s economic health. Moreover, the oil price rout has dealt a massive blow to Freeport, hampering its oil and gas business.

Nevertheless, Freeport is taking aggressive actions, including asset sales and deferral of capital spending in an effort to cope with the weak commodity pricing environment. The company is undertaking measures to manage costs and capital expenditures in a bid to strengthen its balance sheet. It is also taking actions to cut debt and enhance shareholder value through sale of assets and joint venture transactions.

Freeport is a Zacks Rank #3 (Hold) stock.

Some better-ranked mining companies include First Quantum Minerals Ltd. FQVLF, NovaCopper Inc. NCQ and Coeur Mining, Inc. CDE. While First Quantum and NovaCopper sport a Zacks Rank #1 (Strong Buy), Coeur Mining holds a Zacks Rank #2 (Buy).

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