CONTINGENCIES AND COMMITMENTS

Asset Retirement Obligations (AROs). A summary of changes in FCX's AROs (included in reclamation and environmental obligations in the condensed consolidated balance sheet) for the nine months ended September 30, 2013, follows (in millions):



Balance at December 31, 2012	$	1,146
Liabilities assumed in the acquisitions of PXP and MMR^a	1,024
Liabilities incurred	15
Settlements and revisions to cash flow estimates, net	(3		)
Accretion expense	66
Spending	(62		)
Other	(3		)
Balance at September 30, 2013	2,183
Less: current portion	(125		)
Long-term portion	$	2,058


a.	The fair value of AROs assumed in the acquisitions of PXP and MMR ($741 million and $283 million, respectively) were estimated based on projected cash flows, an estimated long-term annual inflation rate of 2.5 percent, and discount rates based on FCX's estimated credit-adjusted, risk-free interest rates ranging from 1.3 percent to 6.3 percent.

The following discussion updates previously reported information regarding AROs included in Note 13 of FCX's annual report on Form 10-K for the year ended December 31, 2012, to reflect the acquisitions of PXP and MMR. Consistent with oil and gas industry practices, substantially all of the oil and gas leases require that, upon termination of economic production, the working interest owners plug and abandon non-producing wellbores, remove platforms, tanks, production equipment and flow lines and restore the wellsite. Typically, when producing oil and gas assets are purchased, the purchaser assumes the obligation to plug and abandon wells and facilities that are part of such assets. However, in some instances, an indemnity may be received with respect to those costs. FCX cannot be assured that it will be able to collect on these indemnities. In connection with the acquisitions of PXP and MMR, the most significant asset retirement obligations were related to the oil and gas properties located in the GOM.

Litigation. The following information includes a discussion of updates to previously reported legal proceedings included in Note 13 of FCX’s annual report on Form 10-K for the year ended December 31, 2012, and Notes 8 and 9 of FCX’s quarterly report on Form 10-Q for the quarters ended June 30, 2013, and March 31, 2013, respectively.

Shareholder Litigation. On July 19, 2013, the plaintiffs in In Re Freeport-McMoRan Copper & Gold, Inc. Derivative Litigation, No. 8145-VCN, pending in the Delaware Court of Chancery, filed a second amended consolidated complaint and voluntarily dismissed without prejudice the aiding and abetting claims against most of the defendants. On October 10, 2013, FCX and the other defendants filed a motion to dismiss the second amended consolidated complaint.

On August 14, 2013, the parties in In Re Plains Exploration & Production Company Stockholder Litigation, No. 8090-VCN, entered into a stipulation that provided for dismissal with prejudice as to the named plaintiffs and without prejudice as to the non-present class members. The court approved the stipulation on August 15, 2013.

On October 11, 2013, the court held a hearing to consider the evidence in support of the proposed settlement of In Re McMoRan Exploration Co. Stockholder Litigation, No. 8132-VCN. On October 16, 2013, the court entered an order approving the settlement, the terms of which are not material to FCX.

Tax and Other Matters. Cerro Verde Royalty Dispute. As reported in Note 13 of FCX's annual report on Form 10-K for the year ended December 31, 2012, SUNAT, the Peruvian national tax authority, has assessed mining royalties on ore processed by the Cerro Verde concentrator that commenced operations in late 2006. These assessments cover the period October 2006 to December 2007 and the years 2008 and 2009. In July 2013, the Peruvian Tax Tribunal issued two decisions affirming SUNAT's assessments for the period October 2006 through December 2008. Decisions by the Tax Tribunal end the administrative stage of the appeal procedures for the assessments. In September 2013, Cerro Verde filed judiciary appeals related to the assessments because it continues to believe that its 1998 stability agreement provides an exemption for all minerals extracted from its mining concession, irrespective of the method used for processing those minerals. Although FCX believes its interpretation of the stability agreement is correct, if Cerro Verde is ultimately found responsible for these assessments, it will also be liable for interest, which accrues at rates that range from approximately 7 to 18 percent based on the year accrued and the currency in which the amounts would be payable.

On October 1, 2013, SUNAT served Cerro Verde with a demand for payment totaling 492 million Peruvian nuevo soles ($176 million based on current exchange rates, including interest and penalties of $104 million) based on the Peruvian Tax Tribunal’s July 2013 decisions. As permitted by law, Cerro Verde requested and was granted an installment payment program that defers payment for six months and thereafter satisfies the amount via sixty-six equal monthly payments. On July 19, 2013, a hearing on SUNAT's assessment for 2009 was held, but no decision has been issued by the Tax Tribunal for that year. As of September 30, 2013, the aggregate amount of the assessments, including interests and penalties, for the year 2009 was 200 million Peruvian nuevo soles ($72 million based on current exchange rates). SUNAT may make additional assessments for mining royalties and associated penalties and interest for the years 2010 through 2013, which Cerro Verde will contest; FCX believes any such assessments for the years 2010 through 2013, if made, would in the aggregate be similar to the aggregate assessments received for the periods October 2006 through December 2009. No assessments can be issued for years after 2013, as Cerro Verde’s current stability agreement expires on December 31, 2013, and Cerro Verde will begin paying royalties on all of its production in January 2014 under its new 15-year stability agreement. No amounts were accrued as of September 30, 2013, because Cerro Verde believes its stability agreement exempts it from these royalties.

Indonesia Tax Matters. PT Freeport Indonesia has received assessments from the Indonesian tax authorities for additional taxes and interest related to various audit exceptions for the years 2005, 2006, 2007, 2008 and 2011. During first-quarter 2013, PT Freeport Indonesia received assessments from the Indonesian tax authorities for additional taxes of $59 million and interest of $55 million related to various audit exceptions for 2008. During second-quarter 2013, the Indonesian tax authorities agreed to refund $291 million ($320 million was included in other accounts receivable in the condensed consolidated balance sheet at December 31, 2012) associated with overpayments made by PT Freeport Indonesia for 2011. PT Freeport Indonesia filed objections for $22 million of the remaining 2011 overpayments that it believes it is due. Additionally, the Indonesian tax authorities withheld $126 million of the 2011 overpayment for unrelated assessments from 2005 and 2007, which PT Freeport Indonesia is disputing. A refund of $165 million was received in July 2013. PT Freeport Indonesia has filed objections to the 2005, 2006, 2007, 2008 and 2011 assessments because it believes it has properly determined and paid its taxes. As of September 30, 2013, FCX had $284 million included in other assets for amounts paid on disputed tax assessments, which it believes are collectible, including the $126 million discussed above for the 2011 refunds.

Contractual Obligations. The following information updates previously reported contractual obligations included in Note 14 of FCX's annual report on Form 10-K for the year ended December 31, 2012, to reflect the acquisitions of PXP and MMR. As is common within the oil and gas industry, FCX has various commitments and operating agreements associated with oil and gas exploration, development and production activities, gathering and transportation, and oilfield and other services. As of September 30, 2013, aggregate future obligations under these agreements total $2.3 billion, primarily comprising minimum commitments of $1.5 billion for two ultra-deepwater drillships currently under construction and expected to be delivered in late 2014 and early 2015 for the GOM drilling campaign and $472 million associated with the deferred premium costs and future interest expected to be accrued on crude oil option contracts, which will be paid once the options settle (refer to Note 9 for further discussion). FCX's future commitments associated with these oil and gas unconditional purchase obligations total $72 million for the remainder of 2013, $340 million in 2014, $704 million in 2015, $565 million in 2016, $493 million in 2017 and $166 million thereafter.