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Plains Exploration & Production Company (PXP)

Q3 2010 Earnings Call Transcript

November 5, 2010 9:00 am ET

Executives

Scott Winters – VP, Corporate Communications

Jim Flores – Chairman, President and CEO

Doss Bourgeois – EVP, Exploration & Production

Winston Talbert – EVP and CFO

Analysts

Dave Kistler – Simmons & Company

Leo Mariani – RBC

Brian Singer – Goldman Sachs

Marshall Carver – Capital One Southcoast

Rehan Rashid – FBR Capital

Brian Corales – Howard Weil

Dick Kindig [ph] – Keeley Asset Management

Presentation

Operator

Good morning. My name is Dorothy and I will be your conference operator today. At this time, I would like to welcome everyone to Plains Exploration 2010 third quarter earnings 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. I would now like to turn the conference over to Scott Winters, Vice President of Corporate Communications. Sir, you may begin.

Scott Winters

Operator, thank you. Good morning, everyone, and welcome to our conference call. Earlier this morning, we issued our third quarter earnings and operational update release and filed our 10-Q. Our conference call today is being broadcast live on the Internet, and anyone may listen to the call by accessing our company website at pxp.com. We have posted a slide presentation to supplement our comments this morning, and we will be referring to the slides during this call. The webcast, slides, 10-Q and today’s press release are available on our website, pxp.com, in the Investor Information section.

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 third quarter 2010, revenues were $387.8 million and net income was $18.8 million or $0.13 per diluted share compared to revenues of $312.2 million and net income of $39.3 million or $0.30 per diluted share for the third quarter 2009.

Net income includes certain items affecting the comparability of operating results. Those items consist of realized and unrealized gains and losses on our mark-to-market derivative contracts, which exclude the impact of the derivatives monetized in 2009, and other items. When considering these items, net income for the third quarter 2010 was $41.4 million, or $0.29 per diluted share, compared to $79.3 million, or $0.60 per diluted share, for the same period in 2009. This is a non-GAAP measure.

For the nine months ended September 30, 2010, PXP reported net income of $122.8 million or $0.87 per diluted share. This represents a 19% increase on a per-share basis over the nine months ended September 30, 2009. The increase primarily reflects higher commodity prices and an increased gain on mark-to-market derivative contracts in 2010, partially offset by 2010 impairment of our Vietnam oil and gas property.

For the third quarter of 2010, oil and gas revenues increased 24% to $386.9 million for 2010 from $312.0 million for 2009, primarily due to an increase in realized prices of $5.57 per BOE. PXP’s average realized oil price increased $7.39 to $64.65 per barrel in 2010 from $57.26 per barrel in 2009. PXP’s average realized natural gas price was $4.54 per Mcf in 2010 compared to $3.18 per Mcf in 2009.

Income from operations increased 30% over the third quarter of 2009, or 19% on a BOE unit of production sold basis. Net cash provided by operating activities was $202.7 million, and operating cash flow was $284.4 million. These represented 21% and a 10% increase over third quarter 2009 respectively. Total production costs were $14.32 per BOE for the third quarter compared to $13.11 per BOE in the third quarter of 2009. For the nine months, total production costs per BOE were $13.92 or 4% lower than for the first nine months of 2009.

A quick review of the components of total production cost for the third quarter of 2010 compared to the third quarter of 2009 is as follows. Lease operating expenses increased $7.4 million to $67.7 million in 2010 from $60.3 million in 2009, primarily reflecting increased repairs and maintenance expenditures, including repairs on the Madden Field facility in Wyoming following the fire during the second quarter of 2010.

Steam gas costs increased $6.1 million to $17.1 million in 2010 from $11 million in 2009, primarily reflecting the higher cost of gas used in steam generation. In 2010, we’ve earned approximately 4.1 Bcf of natural gas at a cost of $4.21 per MMBtu compared to 3.7 Bcf at a cost of approximately $2.95 per MMBtu in 2009.

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