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Plains Exploration & Production (PXP)

Q4 2011 Earnings Call

February 23, 2012 9:00 am ET

Executives

Scott D. Winters - Former Vice President of Corporate Communications

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

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

Analysts

David Heikkinen - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

David W. Kistler - Simmons & Company International, Research Division

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

Brian M. Corales - Howard Weil Incorporated, Research Division

Anne Cameron - BNP Paribas, Research Division

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

Joseph Patrick Magner - Macquarie Research

Gary Stromberg - Barclays Capital, Research Division

Presentation

Operator

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

Scott D. Winters

Jody, thank you. Good morning, everyone, and welcome to our conference call. Earlier this morning, we issued our fourth quarter and full year earnings release. 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 posted a slide presentation to supplement our comments this morning, and we may refer to the slides during the call. The webcast, slides and today's press release are available on our website 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, our Executive Vice President and Chief Financial Officer; John Wombwell, our Executive Vice President and General Counsel; and Hance Meyers, our Vice President, Corporate Information Director.

For the fourth quarter of 2011, PXP reported net income attributable to common stockholders of $97.7 million or $0.69 per diluted share, compared to a net loss of $19.5 million or $0.14 per diluted share for the fourth quarter of 2010. Quarterly income was reduced by approximately $0.07 per share due to higher stock-based compensation expense reflecting the impact of a 62% increase in PXP's share price during the quarter, and approximately $0.14 per share due to an increase in the depreciation, depletion and amortization rate. Fourth quarter net income attributable to common stockholders includes certain items affecting comparability of operating result. Those items consist of realized and unrealized gains and losses on our mark-to-market derivative contracts and unrealized gain on investment in McMoRan Exploration Co. common stock, debt extinguishment costs and other items.

When considering these items, PXP reported net income attributable to common stockholders for the fourth quarter of 2011 of $28.6 million or $0.20 per diluted share compared to net income of $28.3 million or $0.20 per diluted share for the same period in 2010. This is a non-GAAP measure.

Net cash provided by operating activity was $188.1 million and operating cash flow was $284.7 million, a 12% increase over fourth quarter of 2010. This is a non-GAAP measure.

Gross margin per BOE was $15.33 and cash margin per BOE was $35.71, a 9% increase over fourth quarter of 2010. 2011 fourth quarter daily sales volumes averaged approximately 105,396 barrels of oil equivalent per day, a 13% increase over fourth quarter of 2010 average daily sales volumes. Adjusting for the 2010 and 2011 asset divestments, the 13% sales volume increase would have been 26%. PXP's 2011 fourth quarter oil/liquids daily sales volumes averaged 52,262 barrels per day, a 12% increase over fourth quarter 2010 average daily sales volumes. Adjusting for the 2010 and 2011 asset divestments, the 12% sales volume increase would have been 16%. The robust volume growth is driven primarily by strong performance in the Eagle Ford Shale and Haynesville Shale asset areas, combined with steady, consistent performance in California.

For the quarter fourth quarter of 2011, oil/liquids and gas revenues increased 26% to $515.2 million from $407.8 million in the fourth quarter of 2010. Oil/liquids revenues increased $104.4 million due to higher sales volumes, higher oil prices and stronger oil sales price realizations. Oil/liquids revenues accounted for 81% of the total oil/liquids and gas revenue. Oil/liquids sales price realizations before derivative transactions were 93% in the fourth quarter of 2011 compared to 86% in the fourth quarter of 2010. In the fourth quarter, posted crude oil prices in California strengthened in relation to NYMEX. PXP's average realized oil price increased $13.85 to $87.02 per barrel in 2011 from $73.17 per barrel in 2010. Natural gas revenues increased approximately $3 million as higher natural gas sales volumes just offset lower natural gas prices and lower sales price realization. Natural gas sales price realizations before derivative transactions were 92% in the fourth quarter of 2011 versus 96% in the fourth quarter of 2010. PXP's average realized natural gas price decreased $0.36 to $3.30 per million cubic feet to $3.66 per million cubic feet in 2010.

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