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Plains Exploration & Production Company (PXP)

Q2 2010 Earnings Call

August 5, 2010 9:00 ET

Executives

James Flores – Chairman, President and Chief Executive Officer

Scott Winters - Vice President, Corporate Communications.

Analysts

Leo Mariani – RBC Capital Markets

David Heikkinen- Tudor, Pickering, Holt & Co.

Joe Allman - JP Morgan

Brian Singer - Goldman Sachs

Scott Wilmuth - Simmons & Company

Brian Corales – Howard Weil

Joe Magnum - Macquarie Capital.

Marshall Carver - Capital One Southcoast

Presentation

Operator

Good morning and welcome to the 2010 second quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a questions-and-answers session. (Operator Instructions)

Thank you, I will now turn over the call to Scott Winters, Vice President of Corporate Communications; please go ahead sir.

Scott Winters

Operator, thank you very much. Good morning everybody. Welcome to PXP’s 2010 quarterly earnings conference call which is also being broadcast live on the internet. And one may listen to the call or the replay by accessing the company’s website at php.com. Also located on the website are the earnings release, a slide presentation and the form 10-Q.

Before we begin today’s 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 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, our Executive Vice President of Exploration and 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 second quarter 2010 revenues were $364.6 million and net income was $45.4 million or $0.32 per diluted share compared to revenues of $278.7 million and net income of $43.6 million or $0.37 per diluted share for the second quarter of 2009. These results include certain items affecting the comparability of operating results. Those items consist of realized and unrealized gains and losses on our marked market, driven of contracts which exclude the impact of the derivatives monetized in 2009.

Our non cash impairment charge related to our Vietnam Well and gas properties in 2010and a legal well covering in 2009 and other items. When considering these items net income for the second quarter of 2010 was $36.9 million or $0.26 per diluted share compared to $71.7 million or $0.60 per diluted share for the same period in 2009. this is a non-GAAP measure.

Net cash provide by operating activities was $252.7 million and our cash flow was $212.3 million for the second quarter of 2010 compared to net cash provided by operating activities of $171 million and operating cash flow of$224.1 million for the second quarter of 2009. Operating cash flow was on non-GAAP measures.

Sales price realizations before diluted transactions were 86% for oil, 99% for natural gas during the second quarter of 2010 versus 83% for oil and 96% for natural gas on the second quarter of 2009. 2010 second quarter oil and gas revenues when compared to the second quarter of 2009 were higher due primarily to a $9.15 per bill increase in realized prices before derivatives.

Total production costs were$13.03 per barrel oil equivalent for the second quarter or 10% lower than the 2009 second quarter of $14.43. A quick review of some of the components of total production costs for the quarter is as follows; these operating expenses decreased 14% to $7.44 per BLE in the second quarter of 2010 versus $8.64 per BLE in the second quarter of 2009 reflecting a decrease in stock based compensation and our program to reduce costs.

Lower taxes both production and up along per unit primarily reflect production tax of payments and lower add lower taxes due to lower commodity prices at the time of assessment.

Higher gathering and air transportation expenses on a per unit basis reflect an increase in the production from the Haynesville Shale properties. PXP completed interpretation of seismic and drilling data from its two off-shore Vietnam exploratory wells and has decided not to pursue additional exploratory activities in the area. PXP recorded 59.9 million non cash pretax impairment charge related to these wells and a course spanning tax benefit of 23 million in the second quarter of this year.

In the first half of 2010 PXP reported net income of $103.9 million or $0.73 per diluted share compared to net income of $48.8 million or $0.43 per diluted share in the firs half of 2009. The increase primarily reflects higher commodity prices and increased gains on mark to market derivative contracts primarily offset or partially offset by the impairment of our Vietnam oil and gas properties.

There have been no changes in our open derivative positions since our first quarter report. A summary of PXP’s derivative position is included with financial tables in the press release. PXP amended and restated its senior revolving credit agreement. The agreement extends the senior revolving credit facility maturity to August 3rd, 2015 from November 6th, 2012 and increases PXP’s borrowing base from $1.3 billion to $1.6 billion, an increase of 23% and well in excess of the $1.4 billion of commitments in closing. On June 30th, 2010 the senior revolving credit facility had no amounts outstanding.

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