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Plains Exploration & Production Company (PXP)

Q1 2010 Earnings Call Transcript

May 6, 2010 9:00 am ET

Executives

Scott Winters – VP, Corporate Communications

Jim Flores – Chairman, President and CEO

Analysts

David Heikkinen – Tudor, Pickering, Holt & Co.

David Kistler – Simmons & Company

Leo Mariani – RBC Capital Markets

Brian Corales – Howard Weil

Jeff Robertson – Barclays Capital

Duane Grubert – Susquehanna

Ann Hammeren [ph]

David Tameron – Wells Fargo

Presentation

Operator

Good morning. My name is Debbie, and I will be your conference operator today. At this time, I would like to welcome everyone to the 2010 first quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions) Thank you. Mr. Scott Winters, Vice President of Corporate Communications. Please go ahead.

Scott Winters

Thank you, operator, and good morning, everybody. Welcome to PXP’s 2010 quarterly earnings conference call, which is also being broadcast live on the Internet. Anyone may listen to the call or the replay by accessing the Company’s Web site at pxp.com. Also located on the Web site are the earnings release, a slide presentation, and the Form 10-Q.

Before we begin today’s quarterly comments, I’d like to remind everyone that during this call there will be forward-looking statements as defined by the SEC. These statements are based on our current expectations and projections about future events and involve certain assumptions, known as well as unknown risks, uncertainties and other factors that could cause our actual results to differ materially.

Please refer to our filings with the SEC including our Form 10-K for a discussion of these risks. In our press release and our prepared comments this morning, we present some non-GAAP measures. A reconciliation of non-GAAP financial measures to comparable GAAP financial measures is included with the press release.

On the call today is Jim Flores, our Chairman, President and Chief Executive Officer; Doss Bourgeois, Executive Vice President of Exploration & Production; Winston Talbert, Executive Vice President and Chief Financial Officer; John Wombwell, our Executive Vice President and General Counsel; and Hance Myers, our Vice President of Investor Relations.

For the first quarter 2010, revenues were $384.1 million and net income was $58.5 million or $0.41 per diluted share, compared to revenues of $228.5 million and net income of 5.2 million or $0.05 per diluted share for the first quarter of 2009. This improvement reflects higher commodity prices and higher sales volumes.

These results include certain items affecting comparability of operating results. Those items consist of realized and unrealized gains and losses on our mark-to-market derivative contract which exclude the impact of the derivatives monetized in the first quarter of 2009 and some other items.

While considering these items, net income for the first quarter of 2010 was $43.5 million or $0.31 per diluted share compared to $10 million or $0.09 per diluted share for the first quarter of 2009. This is a non-GAAP measure.

Net cash provided by operating activities was $221.8 million, and operating cash flow which is 226.2 million for the first quarter of 2010 compared to net cash used in operating activities of 29.4 million and operating cash flow of 164.7 million for the first quarter of 2009. Operating cash flow is a non-GAAP measure.

Sales price realizations before derivative transactions were 86% for oil and 95% for natural gas during the first quarter 2010 versus 81% for oil and 86% for natural gas in the first quarter of 2009.

2010 quarterly oil and gas revenues when compared to the first quarter of 2009 were higher due primarily to an $18.80 per BOE increase in realized prices for derivatives and a 5% increase in sales volumes.

Average daily sales volumes were 85.1 thousand BOE compared to 80.9 thousand BOE, in the first quarter of 2009. Total production costs were $14.37 per BOE for the first quarter or 10% lower than the 2009 period, which was $15.89.

A quick review of some of the components of total production costs for the quarter is as follows. Lease operating expense decreased 16% to $8.16 per BOE in the first quarter of 2010 versus $9.74 per BOE in the first quarter of 2009, reflecting the results of our cost reduction program.

Lower taxes, both production and ad valorem per unit primarily reflect lower ad valorem taxes partially offset by increased production taxes. The reduction in ad valorem taxes reflects a lower commodity prices at the time of assessment while the increase in production taxes is a result of higher current commodity prices.

Higher gathering and transportation expenses on a per unit basis reflect an increase in production from our Haynesville Shale and properties.

As previously reported, PXP acquired Incremental Derivatives on a significant portion of its 2011 and 2012 crude oil production volumes during the recent strong oil price market. We continue to pull away our hedge strategy using a combination of put options and three way collars to protect our cash flows through 2012 and retain exposure to substantially all oil prices upside potential.

These two derivatives enhance our credit position and underpin our capital expenditure program thereby providing PXP greater flexibility to deliver double-digit production reserve gross targets.

PXP acquired crude oil production spread contracts on 31,000 barrels of oil per day in 2011 and 40,000 barrels of oil per day in 2012. Both the 2011 and 2012 put options have a floor price of $80 with a limit of $60 per barrel.

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