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Financial Instruments (Unaudited) | 6 Months Ended
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Jun. 30, 2014
Financial Instruments [Abstract] |
Financial Instruments | FINANCIAL INSTRUMENTS FCX does not purchase, hold or sell derivative financial instruments unless there is an existing asset or obligation, or it anticipates a future activity that is likely to occur and will result in exposure to market risks, which FCX intends to offset or mitigate. FCX does not enter into any derivative financial instruments for speculative purposes, but has entered into derivative financial instruments in limited instances to achieve specific objectives. These objectives principally relate to managing risks associated with commodity price changes, foreign currency exchange rates and interest rates. Commodity Contracts. From time to time, FCX has entered into derivative contracts to hedge the market risk associated with fluctuations in the prices of commodities it purchases and sells. As a result of the acquisition of PXP, FCX assumed a variety of crude oil and natural gas commodity derivatives to hedge the exposure to the volatility of crude oil and natural gas commodity prices. Derivative financial instruments used by FCX to manage its risks do not contain credit risk-related contingent provisions. As of June 30, 2014, and December 31, 2013, FCX had no price protection contracts relating to its mine production. A discussion of FCX’s derivative contracts and programs follows. Derivatives Designated as Hedging Instruments – Fair Value Hedges Copper Futures and Swap Contracts. Some of FCX’s U.S. copper rod customers request a fixed market price instead of the Commodity Exchange Inc. (COMEX), a division of the New York Mercantile Exchange (NYMEX), average copper price in the month of shipment. FCX hedges this price exposure in a manner that allows it to receive the COMEX average price in the month of shipment while the customers pay the fixed price they requested. FCX accomplishes this by entering into copper futures or swap contracts. Hedging gains or losses from these copper futures and swap contracts are recorded in revenues. FCX did not have any significant gains or losses during the three-month or six-month periods ended June 30, 2014 and 2013, resulting from hedge ineffectiveness. At June 30, 2014, FCX held copper futures and swap contracts that qualified for hedge accounting for 53 million pounds at an average contract price of $3.10 per pound, with maturities through September 2015. A summary of gains (losses) recognized in revenues for derivative financial instruments related to commodity contracts that are designated and qualify as fair value hedge transactions, along with the unrealized gains (losses) on the related hedged item follows (in millions):
| Three Months Ended |  | Six Months Ended
| June 30, |  | June 30,
| 2014 |  | 2013 |  | 2014 |  | 2013
Copper futures and swap contracts: |  |  |  |  |  |  |
Unrealized gains (losses): |  |  |  |  |  |  |
Derivative financial instruments | $ | 12 |  |  | $ | (6 | ) |  | $ | — |  |  | $ | (18 | )
Hedged item – firm sales commitments | (12 | ) |  | 6 |  |  | — |  |  | 18 |
Realized losses: |  |  |  |  |  |  |
Matured derivative financial instruments | (2 | ) |  | (13 | ) |  | (4 | ) |  | (14 | )
Derivatives Not Designated as Hedging Instruments Embedded Derivatives. As described in Note 1 to FCX's annual report on Form 10-K for the year ended December 31, 2013, under “Revenue Recognition,” certain FCX copper concentrate, copper cathode and gold sales contracts provide for provisional pricing primarily based on the London Metal Exchange (LME) copper price or the COMEX copper price and the London Bullion Market Association (London) gold price at the time of shipment as specified in the contract. Similarly, FCX purchases copper under contracts that provide for provisional pricing. FCX applies the normal purchases and normal sales scope exception in accordance with derivatives and hedge accounting guidance to the host sales agreements since the contracts do not allow for net settlement and always result in physical delivery. Sales and purchases with a provisional sales price contain an embedded derivative (i.e., the price settlement mechanism is settled after the time of delivery) that is required to be bifurcated from the host contract. The host contract is the sale or purchase of the metals contained in the concentrates or cathodes at the then-current LME or COMEX copper price or the London gold price as defined in the contract. Mark-to-market price fluctuations recorded through the settlement date are reflected in revenues for sales contracts and in cost of sales as production and delivery costs for purchase contracts. A summary of FCX’s embedded commodity derivatives at June 30, 2014, follows:
| Open Positions |  | Average Price Per Unit |  | Maturities Through
|  | Contract |  | Market |
Embedded derivatives in provisional sales contracts: |  |  |  |  |  |  |
Copper (millions of pounds) | 496 |  |  | $ | 3.08 |  |  | $ | 3.18 |  |  | November 2014
Gold (thousands of ounces) | 85 |  |  | 1,273 |  |  | 1,314 |  |  | August 2014
Embedded derivatives in provisional purchase contracts: |  |  |  |  |  |  |
Copper (millions of pounds) | 84 |  |  | 3.07 |  |  | 3.19 |  |  | October 2014
Crude Oil and Natural Gas Contracts. As a result of the acquisition of PXP, FCX has derivative contracts for 2014 and 2015 that consist of crude oil options and natural gas swaps. These crude oil and natural gas derivatives are not designated as hedging instruments and are recorded at fair value with the mark-to-market gains and losses recorded in revenues. The crude oil options were entered into by PXP to protect the realized price of a portion of expected future sales in order to limit the effects of crude oil price decreases. At June 30, 2014, these contracts are composed of crude oil put spreads consisting of put options with a floor limit. The premiums associated with put options are deferred until the settlement period. At June 30, 2014, the deferred option premiums and accrued interest associated with the crude oil option contracts totaled $329 million, which was included as a reduction of the fair value of the crude oil options contracts. At June 30, 2014, the outstanding crude oil option contracts, which settle monthly and cover approximately 20 million barrels in 2014 and approximately 31 million barrels in 2015, follow:
|  |  |  |  |  | Average Strike Price (per barrel)a |  |  |  |
Period |  | Instrument Type |  | Daily Volumes (thousand barrels) |  | Floor |  | Floor Limit |  | Average Deferred Premium (per barrel) |  | Index
2014 |  |  |  |  |  |  |  |  |  |  |  |
Jul - Dec |  | Put options b |  | 75 |  |  | $ | 90 |  |  | $ | 70 |  |  | $ | 5.74 |  |  | Brent
Jul - Dec |  | Put options b |  | 30 |  |  | 95 |  |  | 75 |  |  | 6.09 |  |  | Brent
Jul - Dec |  | Put options b |  | 5 |  |  | 100 |  |  | 80 |  |  | 7.11 |  |  | Brent
2015 |  |  |  |  |  |  |  |  |  |  |  |
Jan - Dec |  | Put options b |  | 84 |  |  | 90 |  |  | 70 |  |  | 6.89 |  |  | Brent
a. | The average strike prices do not reflect any premiums to purchase the put options.
b. | If the index price is less than the per barrel floor, FCX receives the difference between the per barrel floor and the index price up to a maximum of $20 per barrel less the option premium. If the index price is at or above the per barrel floor, FCX pays the option premium and no cash settlement is received.
In addition, at June 30, 2014, outstanding natural gas swaps with a weighted-average fixed swap price of $4.09 per million British thermal units (MMBtu) cover approximately 18 million MMBtu of natural gas, with maturities through December 2014 (on daily volumes of 100,000 MMBtu). If the Henry Hub index price is less than the fixed price, FCX receives the difference between the fixed price and the Henry Hub index price. FCX pays the difference between the index price and the fixed price if the Henry Hub index price is greater than the fixed price. Copper Forward Contracts. Atlantic Copper, FCX's wholly owned smelting and refining unit in Spain, enters into forward copper contracts designed to hedge its copper price risk whenever its physical purchases and sales pricing periods do not match. These economic hedge transactions are intended to hedge against changes in copper prices, with the mark-to-market hedging gains or losses recorded in cost of sales. At June 30, 2014, Atlantic Copper held net forward copper purchase contracts for 19 million pounds at an average contract price of $3.07 per pound, with maturities through July 2014. Summary of Gains (Losses). A summary of the realized and unrealized gains (losses) recognized in income before income taxes and equity in affiliated companies’ net earnings for commodity contracts that do not qualify as hedge transactions, including embedded derivatives, follows (in millions):
| Three Months Ended |  | Six Months Ended
| June 30, |  | June 30,
| 2014 |  | 2013 |  | 2014 |  | 2013
Embedded derivatives in provisional copper and gold |  |  |  |  |  |  |
sales contracts a | $ | 84 |  |  | $ | (205 | ) |  | $ | (85 | ) |  | $ | (288 | )
Crude oil options a | (68 | ) |  | (54 | ) |  | (104 | ) |  | (54 | )
Natural gas swaps a | (2 | ) |  | 19 |  |  | (16 | ) |  | 19 |
Copper forward contracts b | 4 |  |  | — |  |  | 5 |  |  | 3 |
a. | Amounts recorded in revenues.
b. | Amounts recorded in cost of sales as production and delivery costs.
Unsettled Derivative Financial Instruments A summary of the fair values of unsettled commodity derivative financial instruments follows (in millions):
|  | June 30, 2014 |  | December 31, 2013
Commodity Derivative Assets: |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |
Copper futures and swap contracts a |  | $ | 6 |  |  | $ | 6 |
Derivatives not designated as hedging instruments: |  |  |  |
Embedded derivatives in provisional copper and gold |  |  |  |
sales/purchase contracts |  | 55 |  |  | 63 |
Copper forward contracts |  | 2 |  |  | — |
Total derivative assets |  | $ | 63 |  |  | $ | 69 |
Commodity Derivative Liabilities: |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |
Copper futures and swap contracts a |  | $ | 1 |  |  | $ | — |
Derivatives not designated as hedging instruments: |  |  |  |
Embedded derivatives in provisional copper and gold |  |  |  |
sales/purchase contracts |  | 12 |  |  | 16 |
Crude oil options b |  | 298 |  |  | 309 |
Natural gas swaps |  | 7 |  |  | 4 |
Copper forward contracts |  | — |  |  | 1 |
Total derivative liabilities |  | $ | 318 |  |  | $ | 330 |
a. | FCX paid $1 million to brokers at June 30, 2014, and at December 31, 2013, for margin requirements (recorded in other current assets).
b. | Included $329 million at June 30, 2014, and $444 million at December 31, 2013, for deferred premiums and accrued interest.
FCX's commodity contracts have netting arrangements with counterparties with which the right of offset exists, and it is FCX's policy to offset balances by counterparty on the balance sheet. FCX's embedded derivatives on provisional sales/purchases are netted with the corresponding outstanding receivable/payable balances. A summary of these unsettled commodity contracts that are offset in the balance sheet follows (in millions):
|  | Assets |  | Liabilities
|  | June 30, 2014 |  | December 31, 2013 |  | June 30, 2014 |  | December 31, 2013
Gross amounts recognized: |  |  |  |  |  |  |  |
Commodity contracts: |  |  |  |  |  |  |  |
Embedded derivatives on provisional |  |  |  |  |  |  |  |
sales/purchase contracts |  | $ | 55 |  |  | $ | 63 |  |  | $ | 12 |  |  | $ | 16 |
Crude oil and natural gas derivatives |  | — |  |  | — |  |  | 305 |  |  | 313 |
Copper derivatives |  | 8 |  |  | 6 |  |  | 1 |  |  | 1 |
|  | 63 |  |  | 69 |  |  | 318 |  |  | 330 |
Less gross amounts of offset: |  |  |  |  |  |  |  |
Commodity contracts: |  |  |  |  |  |  |  |
Embedded derivatives on provisional |  |  |  |  |  |  |  |
sales/purchase contracts |  | — |  |  | 10 |  |  | — |  |  | 10 |
Crude oil and natural gas derivatives |  | — |  |  | — |  |  | — |  |  | — |
Copper derivatives |  | 1 |  |  | — |  |  | 1 |  |  | — |
|  | 1 |  |  | 10 |  |  | 1 |  |  | 10 |
Net amounts presented in balance sheet: |  |  |  |  |  |  |  |
Commodity contracts: |  |  |  |  |  |  |  |
Embedded derivatives on provisional |  |  |  |  |  |  |  |
sales/purchase contracts |  | 55 |  |  | 53 |  |  | 12 |  |  | 6 |
Crude oil and natural gas derivatives |  | — |  |  | — |  |  | 305 |  |  | 313 |
Copper derivatives |  | 7 |  |  | 6 |  |  | — |  |  | 1 |
|  | $ | 62 |  |  | $ | 59 |  |  | $ | 317 |  |  | $ | 320 |
Balance sheet classification: |  |  |  |  |  |  |  |
Trade accounts receivable |  | $ | 55 |  |  | $ | 53 |  |  | $ | — |  |  | $ | — |
Other current assets |  | 7 |  |  | 6 |  |  | — |  |  | — |
Accounts payable and accrued liabilities |  | — |  |  | — |  |  | 232 |  |  | 205 |
Other liabilities |  | — |  |  | — |  |  | 85 |  |  | 115 |
|  | $ | 62 |  |  | $ | 59 |  |  | $ | 317 |  |  | $ | 320 |
Credit Risk. FCX is exposed to credit loss when financial institutions with which FCX has entered into derivative transactions (commodity, foreign exchange and interest rate swaps) are unable to pay. To minimize the risk of such losses, FCX uses counterparties that meet certain credit requirements and periodically reviews the creditworthiness of these counterparties. FCX does not anticipate that any of the counterparties it deals with will default on their obligations. As of June 30, 2014, the maximum amount of credit exposure associated with derivative transactions was $62 million. Other Financial Instruments. Other financial instruments include cash and cash equivalents, accounts receivable, investment securities, legally restricted funds, accounts payable and accrued liabilities, dividends payable and long-term debt. The carrying value for cash and cash equivalents (which included time deposits of $72 million at June 30, 2014, and $211 million at December 31, 2013), accounts receivable, accounts payable and accrued liabilities, and dividends payable approximates fair value because of their short-term nature and generally negligible credit losses (refer to Note 8 for the fair values of investment securities, legally restricted funds and long-term debt). In addition, FCX has non-detachable warrants, which are considered to be embedded derivative instruments, associated with FM O&G's Plains Offshore Operations Inc. (Plains Offshore) 8% Convertible Preferred Stock (Preferred Stock) (refer to Note 8 for the fair value of these instruments).

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80748-113994 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5618551-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4K -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5708775-113959 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 25 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6886632&loc=d3e76258-113986 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5624181-113959 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5624258-113959 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5624163-113959 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5708773-113959 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80784-113994 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4D -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5624177-113959 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35706170&loc=d3e41620-113959 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5579245-113959 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1B -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5580258-113959 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5579240-113959 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=35706170&loc=d3e41641-113959 Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=35706170&loc=d3e41638-113959 Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5624171-113959 + Details
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