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Contingencies and Commitments (Unaudited) | 6 Months Ended
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Jun. 30, 2013
Commitments and Contingencies Disclosure [Abstract] |
Commitments and Contingencies | CONTINGENCIES AND COMMITMENTS Asset Retirement Obligations (AROs). A summary of changes in FCX's AROs (included in reclamation and environmental obligations in the condensed consolidated balance sheet) for the six months ended June 30, 2013 follows (in millions):
Balance at December 31, 2012 | $ | 1,146 |
Liabilities assumed in the acquisitions of PXP and MMR a | 1,024 |
Liabilities incurred | 9 |
Revisions to cash flow estimates | 15 |
Accretion expense | 33 |
Spending, including oil and gas settlements | (28 | )
Balance at June 30, 2013 | 2,199 |
Less current portion | (130 | )
Long-term portion | $ | 2,069 |
a. | The fair value of AROs assumed in the acquisitions of PXP and MMR ($741 million and $283 million, respectively) were estimated based on projected cash flows, an estimated long-term annual inflation rate of 2.5 percent, and discount rates based on FCX's estimated credit-adjusted, risk-free interest rates ranging from 1.3 percent to 6.3 percent.
The following information updates previously reported information regarding AROs included in Note 13 of FCX's annual report on Form 10-K for the year ended December 31, 2012, to reflect the acquisitions of PXP and MMR. Consistent with normal oil and gas industry practices, substantially all of the oil and gas leases require that, upon termination of economic production, the working interest owners plug and abandon non-producing wellbores, remove platforms, tanks, production equipment and flow lines and restore the wellsite. Typically, when producing oil and gas assets are purchased, the purchaser assumes the obligation to plug and abandon wells and facilities that are part of such assets. However, in some instances, an indemnity may be received with respect to those costs. FCX cannot be assured that it will be able to collect on these indemnities. In connection with the acquisitions of PXP and MMR, the most significant asset retirement obligations were related to the oil and gas properties located in the GOM. Litigation. The following information includes a discussion of updates to previously reported legal proceedings included in Note 13 of FCX's annual report on Form 10-K for the year ended December 31, 2012, and Note 9 of FCX's quarterly report on Form 10-Q for the quarter ended March 31, 2013. Shareholder Litigation. On June 13, 2013, the Arizona Superior Court extended the stay of In Re Freeport-McMoRan Derivative Litigation, No. CV2012-018351, until December 31, 2013. On July 19, 2013, the plaintiffs in In Re Freeport-McMoRan Copper & Gold, Inc. Derivative Litigation, No. 8145-VCN, pending in the Delaware Court of Chancery, filed a second amended consolidated complaint and voluntarily dismissed without prejudice the aiding and abetting claims against most of the defendants. On May 9, 2013, the Delaware Court of Chancery in In Re Plains Exploration & Production Company Stockholder Litigation, No. 8090-VCN, denied plaintiffs' motion for a preliminary injunction. The defendants moved to dismiss the claims on May 30, 2013. On June 28, 2013, the parties in In Re McMoRan Exploration Co. Stockholder Litigation, No. 8132-VCN, entered into a settlement agreement, the terms of which are not material. A settlement hearing is scheduled for October 11, 2013. Tax Matters. Cerro Verde Royalty Dispute. As reported in Note 13 of FCX's annual report on Form 10-K for the year ended December 31, 2012, SUNAT, the Peruvian national tax authority, has assessed mining royalties on ore processed by the Cerro Verde concentrator that commenced operations in late 2006. These assessments cover the period October 2006 to December 2007 and the years 2008 and 2009. In July 2013, the Peruvian Tax Tribunal issued two decisions affirming SUNAT's assessments for the period October 2006 through December 2008, which are estimated to total $73 million ($175 million including interest and penalties). On July 19, 2013, a hearing on SUNAT's assessment for 2009 was held, but no decision has yet been issued by the Tax Tribunal for that year. The decisions end the administrative stage of the appeal procedures for these assessments. However, Cerro Verde has the right to contest these matters through a judiciary appeal, which it is currently considering because it continues to believe that its 1998 stability agreement provides an exemption for all minerals extracted from its mining concession, irrespective of the method used for processing those minerals. Although FCX believes its interpretation of the stability agreement is correct, if Cerro Verde is ultimately found responsible for these assessments, it will also be liable for interest, which accrues at rates that range from approximately 7 to 18 percent based on the year accrued and the currency in which the amounts would be payable. At June 30, 2013, the aggregate amount of the assessments for the period October 2006 through December 2009, including interest and penalties, is estimated at $245 million. SUNAT may make additional assessments for mining royalties and associated penalties and interest for the years 2010 through 2013, which Cerro Verde will contest. No amounts were accrued as of June 30, 2013. Indonesia Tax Matters. As reported in Note 13 of FCX's annual report on Form 10-K for the year ended December 31, 2012, PT Freeport Indonesia has received assessments from the Indonesian tax authorities for additional taxes and interest related to various audit exceptions for the years 2005, 2006 and 2007. During first-quarter 2013, PT Freeport Indonesia also received assessments from the Indonesian tax authorities for additional taxes of $59 million and interest of $55 million related to various audit exceptions for 2008. During second-quarter 2013, the Indonesian tax authorities agreed to refund $291 million ($320 million was included in other accounts receivable in the condensed consolidated balance sheet at December 31, 2012) associated with overpayments made by PT Freeport Indonesia for 2011. PT Freeport Indonesia expects to file objections for $21 million of the remaining 2011 overpayments that it believes it is due. Additionally, the Indonesian tax authorities withheld $126 million of the 2011 overpayment for assessments from 2005 and 2007, which PT Freeport Indonesia is disputing. A refund of $165 million was received in July 2013. PT Freeport Indonesia has filed objections to the 2005, 2006, 2007 and 2008 assessments because it believes it has properly determined and paid its taxes, and no amounts have been accrued as of June 30, 2013. As of June 30, 2013, PT Freeport Indonesia has $265 million included in other assets for amounts paid on disputed tax assessments, including the $126 million discussed above for the 2011 refunds. Objections will be filed related to the 2011 assessments in the second half of 2013. Contractual Obligations. The following information updates previously reported contractual obligations included in Note 14 of FCX's annual report on Form 10-K for the year ended December 31, 2012, to reflect the acquisitions of PXP and MMR. As is common within the oil and gas industry, FCX has various commitments and operating agreements associated with oil and gas exploration, development and production activities, gathering and transportation, and oilfield and other services. Aggregate future obligations under these agreements total $2.2 billion, primarily comprising minimum commitments of $1.3 billion for ultra-deepwater drillships for the GOM drilling campaign and $490 million associated with the deferred premium costs and future interest expected to be accrued on the crude oil option contracts, which will be paid once the options settle (refer to Note 9 for further discussion). FCX's future commitments associated with the oil and gas unconditional purchase obligations total $1.4 billion for the remainder of 2013, $267 million in 2014, $272 million in 2015, $70 million in 2016, $43 million in 2017 and $124 million thereafter.

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