Freeport-McMoRan Getting into Oil and Gas with Acquisitions Worth $9B

US copper giant Freeport-McMoRan Copper & Gold (NYSE:FCX) has taken a page out of BHP Billiton’s (ASX:BHP,NYSE:BHP,LSE:BLT) playbook by announcing today plans to buy two oil and gas producers for $9 billion.

Freeport, based out of Phoenix, will pay $6.9 billion in cash and stock for Plains Exploration (NYSE:PXP) and $2.1 billion for McMoRan Exploration (NYSE:MMR). The company will also assume $11 billion in debt from the deal.

Forbes notes that the debt-financing option will allow Freeport to “[take] advantage of the low interest rate environment to borrow cheaply and buy assets that should offer a substantially higher return.”

Richard Adkerson, CEO, said the acquisitions’ strong cash flows offer “significant growth options and complementary exposure to markets positioned for global growth in the developed and developing world” and are what Freeport looks for in its mining business: “large scale assets with long lives, low cost and geologic potential to support growth through exploration and development.”

Freeport’s mineral assets include the Grasberg copper mine in Indonesia, the Morenci minerals district in North America, the Cerro Verde and El Abra operations in South America, the Tenke Fungurume minerals district in the Democratic Republic of the Congo and a global molybdenum business.

On a pro forma basis for 2013, approximately 74 percent of the combined company’s estimated EBITDA (equals operating income plus depreciation, depletion and amortization) is expected to be generated from mining and 26 percent from oil and gas, with 48 percent of combined EBITDA from US operations.

The oil and gas assets being acquired are located in onshore and offshore US geologic basins. Plains Exploration’s major assets include its oil production facilities in California, a growing production profile in the onshore Eagle Ford trend in Texas, significant production facilities and growth potential in the Deepwater Gulf of Mexico and large onshore resources in the Haynesville natural gas trend in Louisiana. McMoRan Exploration is an industry leader in the emerging shallow-water, ultra-deep gas trend, which has sizeable potential and is located offshore in the shallow waters of the Gulf of Mexico and onshore in South Louisiana. McMoRan Exploration’s portfolio is expected to provide a large, long-term and low-cost source of natural gas production.

Freeport’s acquisitions today follow on a spotty record by the world’s biggest miner, BHP Billiton, to diversify into oil and gas. The Australian megaminer in August wrote down $2.8 billion in the value of its US natural gas assets after paying $5 billion for Chesapeake Energy’s (NYSE:CHK) natural gas reserves in 2011. BHP also bought Petrohawk Energy the same year for $12 billion.

Freeport shareholders were unimpressed by its moves to diversify, with the company’s stock falling about 14 percent in morning trading. Plains Exploration was up 24 percent and McMoRan Exploration jumped 82 percent.