Highlights for the year 2006 and early 2007 include: * Stockholders realized a 19.6% total return for the year ended December 31, 2006. Since becoming a public company in 2002, PXP's total return to stockholders has been 422%; * Reported improved financial performance: For the year PXP reported a $598 million net income versus a $214 million net loss in 2005; operating cash flow increased 66 percent (a non-GAAP measure) and cash margin per BOE increased 74 percent (a non-GAAP measure); * Repurchased approximately $300 million of PXP stock in 2006 or roughly 6.6 million of its common shares outstanding. Year end basic share count for PXP was 72.4 million shares; * Reduced long term debt from $797 million at year end 2005 to $236 million at year end 2006; * Achieved significant exploration success: PXP's exploration investment in Gulf of Mexico Miocene trend prospects yielded three discoveries: Big Foot Prospect and Caesar Prospect, sold for $706 million, and the Friesian Prospect in Green Canyon Area, OCS 599, is awaiting development and further delineation drilling; * Generated $1.6 billion in proceeds through sales of 43 MMBOE booked reserves and 47 MMBOE discovered unaudited reserves; * Achieved all-in $10.25 per BOE finding and development costs; * Expanded the exploration prospect portfolio in the Gulf of Mexico Miocene trend: The current inventory includes up to 30 high-impact prospects in various water depths; and * The Hurricane Deep Prospect in the OCS 310 Area on the South Marsh Island 217 lease, the McMoRan (MMR) operated #226 well, is an apparent discovery with logged pay in Miocene sands.
FOURTH QUARTER 2006
PXP reported fourth quarter 2006 net income of $383.6 million, or $5.02 per diluted share, on revenues of $207.6 million, compared to net income in the fourth quarter of 2005 totaling $70.8 million, or $0.90 per diluted share, on revenues of $274.4 million. Net income for the periods include a significant gain on the sale of oil and gas properties, a charge for extinguishment of debt, and other items. Without the effects of these items net income for the fourth quarter of 2006 would have been $35.2 million, or $0.46 per diluted share, compared to $31.0 million, or $0.39 per diluted share in 2005. See the end of this release for an explanation and reconciliation of all non-GAAP financial measures.
Operating cash flow, a non-GAAP measure, increased to $110 million in the fourth quarter of 2006 from $92 million in the prior year period. Cash margin, a non-GAAP measure, was $27.83 per BOE in the fourth quarter of 2006 compared to $22.88 per BOE in 2005.
Sales volumes during the fourth quarter 2006 were 53.9 thousand barrels of oil equivalent per day (BOEPD) compared to sales volumes of 60.7 thousand BOEPD during fourth quarter 2005. Lower volumes reflect the impact of the third quarter 2006 producing property sale.
Total production costs were $16.12 per BOE in the fourth quarter of 2006 compared to $13.54 per BOE in 2005. The increase per unit is primarily attributable to lower volumes and higher lease operating costs, attributable to higher expenditures for well workovers, repairs and maintenance, increased labor costs, and general cost increases from service providers.
FULL YEAR 2006
For the full year 2006 PXP reported net income of $597.5 million, or $7.64 per diluted share, on revenues of $1.0 billion, compared to a net loss of $214.0 million for the full year 2005, or $2.75 per diluted share, on revenues of $0.9 billion. Net income for the periods include a significant gain on the sale of oil and gas properties, losses on mark-to-market derivative contracts, a charge for extinguishment of debt, and other items. Without the effects of these items net income for the year would have been $244.5 million, or $3.13 per diluted share, compared to $105.0 million or $1.34 per diluted share in 2005.
Operating cash flow, a non-GAAP measure, increased to $584 million for the year compared to $352 million reported in the prior year period. Cash margin, a non-GAAP measure, was $34.60 per BOE for the year compared to $19.89 per BOE in 2005.
Sales volumes for the year were 59.2 thousand BOEPD compared to 62.2 thousand BOEPD in 2005. Lower volumes reflect the impact of the third quarter 2006 producing property sale.
Total production costs were $14.49 per BOE for the year compared to $12.10 per BOE in 2005. The increase per unit is primarily attributable to lower volumes and higher lease operating costs, attributable to higher expenditures for well workovers, repairs and maintenance, increased labor costs, and general cost increases from service providers.
Through December 2006 PXP repurchased 6.6 million common shares at a cost of approximately $300 million. There is approximately $200 million remaining under the $500 million Board of Directors authorization granted December 2005. The Company expects to continue repurchasing shares from time to time in open market transactions or privately negotiated transactions at its discretion, subject to market conditions and other factors.
As determined by its third party independent engineers, PXP's year-end 2006 proven reserves totaled 352 million barrels of oil equivalent (MMBOE), compared to 401 MMBOE at year-end 2005. The independent engineers also determined that PXP has 153.5 MMBOE of probable and possible reserves from California producing properties. This estimate does not include any potential from current discoveries such as Friesian and Hurricane Deep or potential from T-Ridge offshore California.
The 2006 proven reserve total includes the effect of divesting 43.0 MMBOE proven reserves and 47 MMBOE unaudited reserves, net negative revisions of 2.7 MMBOE, net drill-bit additions of 18.8 MMBOE, and annual production of 22.4 MMBOE.
The Company's total costs incurred for the year were $648 million, of which $272 million were exploration costs primarily in the Gulf of Mexico. During 2006, exploration drilling yielded three discoveries: Big Foot, Caesar, and Friesian. Friesian is being evaluated with additional drilling expected in 2007 while 47 MMBOE of estimated unaudited reserves related to Big Foot and Caesar discoveries were sold for $706 million.
Year-end 2006 estimated proved reserves include approximately 333 million barrels of oil and liquids and 111 billion cubic feet of natural gas totaling 352 MMBOE proven. Approximately 52 percent of the proven reserves are classified as proved developed and the reserve-to-production ratio is about 17 years.
The following table summarizes PXP's 2006 and five-year reserve statistics.
2006 2002-2006 (1) (Million BOE) Beginning Reserves 401.0 239.3 Extension/Discoveries/Improved Recovery 18.8 107.1 Discovered Unaudited Reserves (2) 47.1 47.1 Revisions (2.7) (25.4) Acquisitions --- 257.1 Divestiture Booked (43.0) (135.9) Divestiture Unaudited Reserves (2) (47.1) (47.1) Production (22.4) (90.5) Ending Reserves 351.7 351.7 ($ Million) Development Costs $319.7 $931.0 Exploration Costs $272.4 $468.5 Acquisition Costs $55.5 $1,933.8 Total Costs Incurred $647.6 $3,333.3 (1) PXP was spun off from Plains Resources in December 2002 (2) Big Foot & Caesar discovered and sold in 2006 for $706 million. All-in F&D including the 47 MMBOE is $10.25 ($647.6 million/ 63.2 MMBOE)
DEVELOPMENT -- OPERATIONS UPDATE
In the Los Angeles Basin, PXP's exit rate for the fourth quarter was approximately 14,100 net BOEPD. A total of 61 injection and producer wells were drilled through the end of the fourth quarter. Drilling activity this year was concentrated in the Inglewood Field on the Vickers-Rindge waterflood zone with 49 wells drilled. The remaining wells expanded the development in the Moynier and Rubel formations in the Inglewood Field and the Las Cienegas Field.
In the San Joaquin Valley, PXP's exit rate for the fourth quarter 2006 was approximately 23,800 net BOEPD. A total of 157 injection and producer wells were drilled through the end of the fourth quarter. Drilling activity this year was concentrated on steam flood and horizontal-well development in the Midway Sunset and Cymric Fields. In the Midway Sunset Field 67 injection and producer wells were drilled, while in the Cymric Field 70 injection and producer wells were drilled. Drilling began in November at the Arroyo Grande Field with 3 wells drilled during the fourth quarter.
Offshore California, PXP's exit rate for the fourth quarter 2006 was approximately 13,600 net BOEPD. At our Point Pedernales Field, we completed the fourth in-fill well. In the Gulf Coast region, PXP's exit rate for the fourth quarter 2006 was approximately 2,900 net BOEPD.
EXPLORATION -- OPERATIONS UPDATE
The Hurricane Deep Prospect in the OCS 310 Area on the South Marsh Island 217 lease, the MMR operated #226 well, is an apparent discovery with logged pay in Miocene sands and is presently drilling below 20,000 feet. Other Miocene operations include current drilling or preparing to drill on the CAS Prospect on OCS South Timbalier 70, PXP operated #1 well, and the Cottonwood Point Prospect on OCS Vermilion 31, PXP operated #1 well.
The Company reaffirms its previously issued full-year 2007 operational guidance and issues full-year 2007 financial guidance in Form 8-K filed today.
PXP is an independent oil and gas company primarily engaged in the upstream activities of acquiring, developing, exploiting, exploring and producing oil and gas in its core areas of operation: onshore and offshore California, and the Gulf Coast region of the United States. PXP is headquartered in Houston, Texas.
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