Main Pass - Frasch Sulphur Mine and Oil and Gas Development

INTRODUCTION In the spring of 1988 the Joint Venture of Freeport-McMoran Resource Partners, Limited Partnership, IMC Fertilizer Inc, and Homestake Mining Co. was awarded the sulphur lease for Main Pass Block 299, lease number OCS-G 9372. This was one of eleven leases awarded to the Joint Venturers. Following the initial discovery wells in December 1988, a program of delineation drilling confirmed proven sulphur reserves of 67 million long tons. Proven, recoverable oil and gas reserves are 39.4 million barrels and 7.2 billion cubic feet, respectively. Development of the sulphur mine was given approval as a fast-track project by the Joint Venturers in 1989. The oil and gas reserves were acquired from the original hydrocarbon lessee in 1990 and given fast- track status immediately. Fast-track for these projects meant design and engineering would not be complete before construction began JOINT VENTURE The Main Pass Joint Venture is one of thirteen joint ventures formed between Freeport and three other companies - IMC Fertilizer, Inc., Felmont Oil Corporation, a wholly owned subsidiary of Homestake Mining Co., and Texasgulf Minerals and Metals Co. Felmont has subsequently changed its name to Homestake Sulphur Co. and Texasgulf assigned their interests in the three leases they participated in to their parent company. Texasgulf did not participate in the Main Pass 299 joint venture. Joint venture negotiations, anticipating a lease sale in mid-1988, began in December of 1987. This Joint Venture was the first of its kind; created to acquire offshore leases, explore, develop and mine sulphur. The Minerals Management Service announced a lease sale date of February 24, 1988 on the first business day of 1988. This greatly accelerated the joint venture negotiations. Of the thirteen leases the Joint Ventures bid on, eleven were awarded. Freeport holds its interest in all the leases through its ownership interest in Freeport-McMoRan Resource Partners, Limited Partnership, and Resource Partners is the operator on all of the leases. The Main Pass joint venture percentage ownership is: 58.33 Freeport-McMoRan Resource Partners 25.00 IMC Fertilizer, Inc. 16.67 Homestake Sulphur Co. 100.00 The Main Pass Joint Venture paid $3,401,757 for the Main Pass lease and will pay a royalty of 12.5 percent of production value to the MMS . LOCATION The Main Pass mine complex is located in the Gulf of Mexico, in U. S. federal waters, about 27 kilometers (17 miles) east of Venice, Louisiana or 140 kilometers south east of New Orleans, Louisiana. It is situated in about 63 meters (210 feet) of water. HISTORY The Minerals Management Service (MMS) of the United States Department of the Interior administers the mineral properties of the United States located in federal waters. Periodically the MMS holds lease sales of blocks under its jurisdiction. Prior to the offshore discoveries of sulphur associated with salt domes leased for hydrocarbons, the MMS leased blocks with all minerals including hydrocarbons awarded to the successful bidder for the block. In 1963 MMS held the first lease sale of blocks specifically for sulphur. This sale was followed by a similar sale in