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Plains Exploration & Production (PXP)

Q3 2011 Earnings Call

November 04, 2011 9:00 am ET

Executives

Doss R. Bourgeois - Executive Vice President of Exploration & Production

James C. Flores - Chairman, Chief Executive Officer and President

Scott D. Winters - Former Vice President of Corporate Communications

Winston M. Talbert - Chief Financial Officer and Executive Vice President

Analysts

Gregg Brody - JP Morgan Chase & Co, Research Division

Brian Singer - Goldman Sachs Group Inc., Research Division

Ronald E. Mills - Johnson Rice & Company, L.L.C., Research Division

Leo P. Mariani - RBC Capital Markets, LLC, Research Division

Philip J. McPherson - Global Hunter Securities, LLC, Research Division

Marshall H. Carver - Capital One Southcoast, Inc., Research Division

Jessica Chipman - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Scott M. Wilmoth - Simmons & Company International, Research Division

Presentation

Operator

Good morning, my name is Jackie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Plains Exploration 2011 Third Quarter Earnings Results Conference Call. [Operator Instructions] I would now like to turn the call over to Scott Winters, Vice President of Corporate Planning and Research. Please go ahead.

Scott D. Winters

Jackie, thank you. Good morning, everyone, and welcome to our conference call. Earlier this morning, we issued our earnings release and filed our 10-Q and our full-year 2012 operational guidance with the SEC on our Form 8-K.

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've posted a slide presentation to supplement our comments this morning, and we may refer to the slides during the call.

The webcast, the slides, the 10-Q, the 8-K and today's press release are all available on the website, in the Investor Information section.

Before we begin today's comments, I'd like to remind everybody that during this call, there will be forward-looking statements as defined by the SEC. These statements are based on 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, slide presentation 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, Vice President Corporate Information Director.

For the third quarter of 2011, PXP reported a net loss of approximately $88 million or $0.62 per diluted share, compared to net income of approximately $19 million or $0.13 per diluted share for the third quarter of 2010.

The net loss includes the impact of realized and unrealized gains and losses on our mark-to-market derivative contracts, a $396 million unrealized loss on investment in McMoRan Exploration company's common stock and other items, which affect the comparability of operating results.

When considering these items, PXP reported net income of approximately $65 million or $0.45 per diluted share compared to net income of $41 million or approximately $0.29 per diluted share for the same period in 2010.

2011 third quarter daily sales volumes reached a record level and averaged 104.4 thousand barrels of oil equivalent per day. It represents a 15% increase compared to the third quarter of 2010, or a 26% increase pro forma for the 2010 asset sale.

Average daily liquids sales volumes increased 9% compared to the third quarter of 2010, or 16% pro forma for the 2010 asset sale.

During the third quarter of 2011, gross margin per BOE was $21.35 and cash margin per BOE was $36.73, a 27% and an 18% increase over the third quarter of 2010, respectively.

Higher realized prices and higher production were the primary drivers for this increase. For the third quarter of 2011, oil and gas revenues increased 29% compared to the third quarter of 2010.

Oil revenues increased approximately $103 million, reflecting higher average realized prices benefited by California crude postings, which remain strong relative to NYMEX, and higher sales volumes. Gas revenues increased approximately $11 million reflecting higher sales volumes, partially offset by lower average realized prices.

Lease operating expenses increased approximately $12 million to $80 million in the quarter, reflecting an increased number of producing wells at our Eagle Ford Shale and Panhandle properties, and higher scheduled repair and maintenance and well workovers, primarily at our California properties.

Production and ad valorem taxes increased approximately $2 million to about $11 million in 2011, reflecting increased production primarily from our Eagle Ford and Panhandle properties, partially offset by lower ad valorem taxes.

Steam gas costs, electricity and gathering and transportation costs were flat to the third quarter of 2010 costs, but lower than the prior year period on a per-unit basis.

For steam gas costs in the third quarter of 2011, we burned approximately 4.1 Bcf of natural gas at a cost of approximately $4.18 per MMBtu compared to 4.1 Bcf at a cost of $4.21 per MMBtu in the third quarter of 2010.

Depreciation, depletion, and amortization expense increased approximately $35 million to $168 million in 2011. The increase is attributable to our oil and gas depletion, primarily due to the increased production and higher per-unit rate.

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