McMoRan to Consider Gulf of Mexico Energy Hub

McMoRan is pursuing a potential energy hub at Main Pass Block 299 (Main Pass) in the Gulf of Mexico, consisting of a natural gas receipt, processing and distribution facility and an offshore support hub for deepwater oil and gas operations. McMoRan is engaged in developing plans to use existing structures and infrastructure previously constructed as part of its discontinued sulphur mining operations for the energy hub. McMoRan has completed conceptual engineering for the project and has begun preparing a license application to be filed with the U.S. Coast Guard to authorize it to receive, process, and distribute liquefied natural gas (LNG), compressed natural gas (CNG) and natural gas at the facilities. Permits have also previously been filed for use of the facilities as a disposal site for non-hazardous oilfield waste.

A terminal for natural gas at Main Pass would allow McMoRan to receive, process and distribute LNG and CNG offshore using Main Pass' existing facilities and the significant storage capacity in its two-mile diameter caprock and salt dome. Other potential advantages of using the Main Pass facilities include their close proximity to shipping channels, the potential to receive large LNG tankers and their being located near existing pipelines which would facilitate the receipt and distribution of natural gas. McMoRan believes that the use of its existing facilities would provide timing, construction and operating cost advantages over the development of terminals at other locations. The offshore location of the Main Pass terminal may also mitigate the security, safety and environmental issues faced by onshore facilities. McMoRan will seek commercial arrangements to form the basis for financing the Main Pass Energy Hub(TM) project. McMoRan plans to pursue both regulatory approvals and financing simultaneously in order to position this project to be one of the first U.S. offshore facilities to receive, process and distribute LNG. McMoRan has significant management team experience in completing major development projects and commercial transactions. McMoRan is aggressively pursuing these activities and expects to spend $8-$10 million in the near-term to advance the permitting process.

As previously reported, McMoRan formed an alliance with K1 USA Energy Production Corporation (K1 USA), a subsidiary of k1 Ventures Limited, a Singapore investment firm publicly traded on the Singapore Stock Exchange. McMoRan and K1 USA commenced a joint venture, K-Mc Venture I LLC (K-Mc I), in December 2002 when K-Mc I acquired McMoRan's Main Pass oil production facilities. K-Mc I, which is owned 66.7 percent by K1 USA and 33.3 percent by McMoRan, also has the option until December 16, 2003, at K1 USA's election, to acquire the remaining Main Pass facilities and use them for the potential Main Pass Energy Hub(TM). If the option is exercised, K1 USA would provide up to $10 million, if necessary, in additional financial assistance to cover Minerals Management Service bonding requirements relating to the abandonment obligations for the newly acquired facilities. In addition, K1 USA would also receive warrants to purchase an additional 0.76 million shares of McMoRan common stock at $5.25 per share. McMoRan and K1 USA are engaged in discussions regarding the future development of the Main Pass Energy Hub(TM), including the possibility of revising the K-Mc I option arrangement.