OilVoice - PXP Announces 2010 Second Quarter Net Income of $45 Million

PXP Announces 2010 Second Quarter Net Income of $45 Million

Friday, August 06, 2010

• 5% production growth year-over-year
• 10% lower production costs per unit year-over-year
• Strong drilling results in the Granite Wash, Haynesville, California and Gulf of Mexico
• Gulf of Mexico strategic alternatives process

Plains Exploration & Production Company announces 2010 second quarter results and updates drilling activities.

Financial Summary
For the second quarter 2010, revenues of $364.6 million generated $45.4 million of net income, 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 2009. These results include 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, a non-cash impairment charge related to our Vietnam oil and gas properties in 2010, a legal recovery in 2009 and other items. When considering these items, net income for the second quarter 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 (a non-GAAP measure).

For the second quarter 2010, net cash provided by operating activities was $252.7 million and operating cash flow was $212.3 million compared to net cash provided by operating activities of $171.0 million and operating cash flow of $224.1 million for the second quarter 2009 (a non-GAAP measure).

Average daily sales volumes for the second quarter 2010 were 85.0 thousand barrels of oil equivalent (BOE) or 5% higher than 80.6 thousand BOE in the second quarter 2009. Oil represented approximately 53% of the second quarter 2010 daily volumes.

Total production costs per BOE were $13.03 in the second quarter 2010 or 10% lower than $14.43 per BOE in the second quarter 2009.

PXP completed its interpretation of seismic and drilling data from its two offshore Vietnam exploratory wells and has decided not to pursue additional exploratory activities in this area. PXP recorded a $59.5 million non-cash pre-tax impairment charge related to these wells and a corresponding tax benefit of $23.0 million in the second quarter 2010.

For the first six months of 2010, revenues of $748.6 million generated $103.9 million of net income, or $0.73 per diluted share, compared to revenues of $507.2 million and net income of $48.8 million, or $0.43 per diluted share, for the same period in 2009. 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 contracts, which exclude the impact of the derivatives monetized in 2009, a non-cash impairment charge related to our Vietnam oil and gas properties in 2010, a legal recovery in 2009 and other items. When considering these items, net income for the first six months of 2010 was $80.5 million, or $0.57 per diluted share, compared to $81.7 million, or $0.72 per diluted share, for the same period in 2009 (a non-GAAP measure).

For the first six months of 2010, net cash provided by operating activities was $474.4 million and operating cash flow was $438.5 million compared to net cash provided by operating activities of $141.7 million and operating cash flow of $388.8 million for the same period in 2009 (a non-GAAP measure).

Average daily sales volumes for the first six months of 2010 were 85.1 thousand BOE or 5% higher than 80.7 thousand BOE for the six-month period in 2009.

Total production costs per BOE were $13.69 for the first six months of 2010 or 10% lower than $15.15 per BOE for the six-month period in 2009.

Operational Update

Production
PXP's average daily sales volumes were 85.0 thousand BOE per day for the second quarter 2010 or 5% higher than second quarter 2009. This result was impacted by the fire and damage of a portion of the gas processing facility at the Madden Field in Fremont County, Wyoming which reduced net production from the field to PXP by approximately 850 BOE per day in the second quarter. Current production at the Madden Field net to PXP is approximately 3,800 BOE per day which is approximately 75% of full capacity. The operator informed us that it expects to return to full capacity by year end upon completion of all repairs.

PXP reaffirms its 2010 full-year operating and financial guidance, but with lower volumes due to the facilities fire at the Madden Field, PXP expects full-year 2010 average daily sales volumes to be at the lower end of the stated guidance of 88 to 92 thousand BOE per day.

In the Texas Panhandle Granite Wash development, PXP is currently operating 4 rigs drilling horizontal wells and plans to add 1 additional rig by the end of September 2010 to accelerate development of its inventory of over 100 potential locations. The 5 rig program will enable PXP to spud up to 19 horizontal wells in 2010 and 22 projected wells in 2011. So far this year 2 producing wells have been drilled and completed and a third well is waiting on completion.

PXP's first Granite Wash horizontal producer, the Thomas 903-H well in the Wheeler area, has been completed with an initial production rate of 12.2 million cubic feet (MMcf) per day with 1,373 barrels of condensate per day and an estimated 1,311 barrels of natural gas liquids per day (3,653 BOE net per day).

PXP's second Granite Wash horizontal producer, the Hanson 40-4H in the Marvin Lake area, has been completed with an initial rate of 15.4 MMcf per day with 746 barrels of condensate per day and an estimated 1,532 barrels of natural gas liquids per day (3,822 BOE net per day).The Hanson well is located approximately ten miles north of the established Granite Wash Horizontal Producing Trend and is a significant extension to the current play.

Completion operations are underway on the third well, the Hanson 29-2H in the Marvin Lake area, with first production expected in August. The Granite Wash development is expected to contribute approximately 30% of PXP's production growth in the second half of 2010.

In the Haynesville Shale, second quarter 2010 average daily sales volumes were 106 million cubic feet equivalent (MMcfe) per day net to PXP, an approximate 19% increase over the 89 MMcfe net per day average rate for the first quarter of 2010. With interests in nearly 50 active drilling rigs, production from this asset area is expected to exceed 125 MMcfe net per day in the fourth quarter 2010 and to contribute approximately 60% of PXP's production growth for the second half of 2010.

In California, PXP continues to develop its onshore projects. In the first half of 2010, the Company drilled 59 wells in the San Joaquin Valley and 1 well in the Los Angeles Basin. During the second half of 2010, PXP plans to drill up to 40 wells in the San Joaquin Valley and up to 25 wells in the Los Angeles Basin.

In the San Joaquin Valley, PXP drilled 21 Diatomite wells of which 16 are in the Cymric Field and 5 in the Midway-Sunset Field. The Cymric Field Diatomite wells logged on average 245 feet of pay and each of these wells has been completed and placed on steam-enhanced production. The 5 Midway-Sunset Diatomite wells were drilled in May. These wells logged an average of 175 feet of pay, extended the reservoir and were placed on steam-enhanced production in July.

In the San Joaquin Valley, PXP drilled 38 wells in its conventional sand reservoirs of which 28 are in the South Belridge Field. These wells, all of which are in service, included vertical injectors, vertical producers, and horizontal producers to infill and expand PXP's existing steamflood in the Pleistocene Tulare Sand. PXP drilled 9 wells in the Pleistocene Tulare Sand in the Cymric Field, most of which represent delineation of existing sands as a result of geologic re-mapping efforts. Drilled in May, these wells logged an average pay of 140 feet, expanded the project inventory and began producing in July. PXP drilled 1 producer in the Midway-Sunset Field in May in a primary producing reservoir. This well logged 200 feet of pay as expected and is now producing.

In the Los Angeles Basin, PXP drilled one development well in the Inglewood Field, logging an expected 450 feet of pay. First production is expected during the third quarter. The Vickers-Rindge waterflood zone has significant amounts of bypassed oil pay which PXP is targeting for infill and improved waterflood injection control.

Initial production expectation for each of the wells drilled in 2010 is between 40 and 50 net barrels of oil per day. Early production results have met or exceeded expectations for the wells drilled to date.

California onshore development is expected to contribute approximately 10% of PXP's production growth in the second half of 2010.

In the Gulf Coast, PXP plugged and abandoned the first well of the Big Mac project in Southeast Texas after testing the initial objectives. The Company is integrating the well log data into its geophysical model to evaluate the additional opportunities in the area.

In the Gulf of Mexico, second quarter 2010 average daily sales volumes from the Flatrock area were in line with our expectations at 42 MMcfe per day net to PXP (187 MMcfe per day gross). The operator plans to recomplete the #229 and #230 wells in 2010. PXP's working interest is 30.0%.

In the Gulf of Mexico shallow water, drilling operations are ongoing at Blackbeard East, Davy Jones #2 and Blueberry Hill, each operated by McMoRan Exploration Co. (NYSE: MMR).

The Blueberry Hill #9 STK1, located on Louisiana State Lease 340, has been drilled to a true vertical depth of 23,630 feet and is an offset to the previously announced discoveries in 2009.

Log-while-drilling tools indicate a possible hydrocarbon bearing zone in a high quality sand measuring 105 feet. Wireline logs will be required to fully evaluate this section. The operator will continue to deepen the well. PXP's working interest is 47.9%.

The Davy Jones offset appraisal well (Davy Jones #2) on South Marsh Island Block 234 is currently drilling below 12,000 feet towards a proposed total depth of 29,950 feet and is expected to test similar sections up-dip to the discovery well, as well as deeper objectives, including potential additional Wilcox and possibly Cretaceous (Tuscaloosa) sections. PXP's working interest is 27.7%.

The Davy Jones discovery well on South Marsh Island Block 230 was drilled to a total depth of 29,000 feet and, as reported, the operator logged 200 net feet of pay in multiple Eocene/Paleocene (Wilcox) sands in the well. In March 2010, a production liner was set and the well was temporarily abandoned until necessary equipment for the completion is available. Flow testing will be required to confirm the ultimate hydrocarbon flow rates from the well. The operator completed the well design in the second quarter of 2010 and the long-lead equipment needed to complete, test and produce the well is being procured. The completion and flow test are expected to be performed in the third quarter of 2011. PXP's working interest is 27.7%.

The Blackbeard East exploration well on South Timbalier Block 144 is currently drilling below 18,800 feet towards a proposed total depth of 29,950 feet. The well will target Middle and Lower Miocene objectives seen below 30,000 feet in Blackbeard West, nine miles away, as well as younger Miocene objectives. PXP's working interest is 31.5%.

The Lafitte exploration well is expected to commence drilling in second half of 2010 and, like Blackbeard East, will target Middle and Lower Miocene objectives. Lafitte is operated by McMoRan and located on Eugene Island Block 223. PXP's working interest is 31.5%.

Gulf of Mexico shallow water 2010 drilling plans also include Boudin and Hurricane Deep. The Boudin exploratory prospect, operated by McMoRan and located on Eugene Island Block 26, has a proposed total depth of 23,050 feet and will test Miocene objectives. PXP's working interest is 37.1%. Hurricane Deep, operated by McMoRan and located on the southern flank of the Flatrock structure on South Marsh Island Block 217, has a proposed total depth of 21,750 feet and is targeting the significant Gyro sand encountered in the Hurricane Deep discovery well and deeper potential. PXP's working interest is 30.0%.

In the Gulf of Mexico deepwater, the Lucius project continues to move forward. An integrated project team has been assembled with the goal of project sanction by the end of 2010. As previously announced, the Lucius discovery well, located on Keathley Canyon Block 875, encountered more than 200 net feet of oil pay in Pliocene and Miocene age sands. In early 2010, a sidetrack of the discovery well encountered almost 600 net feet of oil pay with additional gas-condensate pay in the same Pliocene and Miocene age sands seen in the discovery well. The recently drilled Lucius #2 well encountered more than 650 net feet of oil pay in three primary targets. Drilling was suspended approximately 2,000 feet from total depth with one additional target yet to test. Anadarko Petroleum Corporation (NYSE: APC) as the operator ceased drilling operations as a result of the Gulf of Mexico deepwater drilling moratorium. PXP's working interest is 33.33%.

GOM Strategic Review
PXP has studied its Gulf of Mexico (GOM) operations over the past few months and now plans to reduce its GOM exposure and related capital spending while delivering to its shareholders the unrecognized value created by our recent drilling success. PXP's goals are to secure $1 to $2 billion of value from its GOM assets through third party joint ventures and/or asset sales and to align capital spending with operating cash flow. PXP has engaged Barclays Capital and Jefferies & Company to assist in executing this value recognition strategy over the next few months.