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McMoRan Exploration's latest flop makes Freeport-McMoRan Copper & Gold's bid last month to buy the company look more like a bailout. The U.S. explorer revealed on Friday that it is bleeding more cash after plowing nearly $1-billion (U.S.) into a failing deep gas well. That makes the 74-per-cent premium offered by miner Freeport, whose chairman also runs McMoRan, look even richer – especially with gas cheap and abundant. Freeport's shareholders are the losers.

The Dec. 5 offer to buy McMoRan and fellow explorer Plains Exploration and Production is riddled with conflicts of interest. Freeport chairman James "Jim Bob" Moffett, who owns a 3-per-cent stake in McMoRan, netted a paper gain of about $19-million on the day the deal was announced. Now McMoRan's dismal results for the final quarter of 2012 reinforce fears that the deal was a dud.

McMoRan has pursued a risky business strategy. It's pushing the frontiers of drilling technology by trying to extract gas trapped under salt deposits deep in the ocean floor. The Davy Jones No. 1 well is the centrepiece of this effort, but it has been plagued by costly delays. After more than a year, McMoRan is running out of options The well may never be economically productive.

Were it not for Freeport's bid, McMoRan would also be running out of cash. It consumed $90-million in the fourth quarter alone, leaving it with just $115-million. Exploration costs soared 80 per cent from the same period last year, extending the company's streak of money-losing quarters to four.

Even if the firm can overcome its technical difficulties, the financial rewards are uncertain. Natural gas trades at $3.44 per million British thermal units, close to a decade-low. The glut produced by the shale boom in the United States has forced many explorers to stop drilling even onshore wells. And if the price of natural gas does rebound, it wouldn't take long for drillers to ramp up production and send it down again.

Maybe McMoRan could have still found a buyer had Freeport not come to its aid. It's doubtful, however, that any other offer would have been nearly so generous – or ill advised.

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Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 1:36pm EDT.

SymbolName% changeLast
FCX-N
Freeport-Mcmoran Inc
+2.16%46.87

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