Plains Exploration & Production Company has announced financial and operating results for the third quarter 2008 and filed full-year 2009 operating guidance with the SEC in a Form 8-K.
THREE MONTHS ENDED SEPTEMBER 30
PXP reported third quarter 2008 net income of $493.1 million, or $4.50 per diluted share, on revenues of $719.5 million, an increase from third quarter 2007 net income of $32.9 million, or $0.45 per diluted share, on revenues of $299.0 million. Higher revenues during the third quarter of 2008 were primarily due to a 62% increase in sales volumes and a $26.73 per barrel of oil equivalent (BOE) increase in realized prices. Included in third quarter 2008 earnings is an after-tax gain on mark-to-market derivative contracts of $282.4 million.
Sales volumes increased to 92.4 thousand BOEPD during the third quarter 2008 from 57.1 thousand BOEPD in the third quarter 2007 reflecting the acquisitions and divestments in 2007 and first half of 2008, as well as production from the Flatrock project. Third quarter 2008 sales volumes reflect the impacts of shut-in production associated with the recent Gulf of Mexico hurricanes. Hurricane downtime reduced third quarter volumes by approximately 170 thousand BOE. All production impacted by the hurricanes has been restored.
Total production costs per BOE were slightly higher during third quarter 2008 compared to the prior year period due primarily to increased per unit production and ad valorem taxes associated with the properties acquired in 2007. Total general and administrative costs per BOE were lower due primarily to higher sales volumes.
NINE MONTHS ENDED SEPTEMBER 30
Net income for the first nine months of 2008 was $859.6 million, or $7.72 per diluted share, on revenues of $2.1 billion, a significant increase from net income of $78.7 million, or $1.07 per diluted share, on revenues of $779.2 million for the same period a year ago. Higher revenues during the first nine months of 2008 were primarily due to a 70% increase in sales volumes and a $29.32 per BOE increase in realized prices. Included in the nine months ended September 30, 2008 is a $243.9 million after-tax gain on mark-to-market derivative contracts.
Sales volumes for the first nine months of 2008 increased to 91.9 thousand BOEPD from 54.2 thousand BOEPD for the same period in 2007. Higher year-over- year sales volumes primarily reflect the 2007 acquisitions.
Total production costs per BOE were slightly higher for the first nine months of 2008 compared to the same period in 2007. Lower per unit lease operating, steam gas and electricity costs due to increased sales volumes were offset by higher per unit gathering and transportation and production and ad valorem taxes associated with the properties acquired in 2007. Total general and administrative costs per BOE were lower due to higher sales volumes.
Operating cash flow for the first nine months of 2008, a non-GAAP measure, increased to $1.2 billion from $351.5 million reported in the prior year period. The increase was due primarily to higher sales volumes and stronger commodity prices.
Oil and gas capital expenditures, excluding acquisitions, were $806.4 million for the first nine months of 2008 compared to $573.0 million for the prior year period.
FULL-YEAR 2008 GUIDANCE UPDATE
Due to the pending asset sale, higher service costs and higher natural gas prices, we are revising estimates on certain items of our previously issued full-year 2008 guidance. Production is expected to average about 92 thousand BOEPD for 2008. Lease operating expenses per unit are higher than previously anticipated due primarily to increased well work and stimulation activity and higher service costs accompanied by higher water disposal costs associated with the Pogo and Piceance assets. Lease operating expenses per unit are now estimated to approximate $9.50 per BOE. Steam gas costs per unit are higher than previously anticipated due to significantly higher average natural gas prices and slightly higher volumes of natural gas used in steam generation. Steam gas costs per unit are now estimated to approximate $4.00 per BOE.
On September 30, 2008, the company had approximately $665 million available under its revolving credit facility, which had commitments of $2.7 billion. The commitments are from a diverse syndicate of 23 lenders with no single lender's commitment representing more than 9% of the total.
Due to the pending $1.25 billion asset sale to Occidental, PXP's revolving credit facility commitments will be voluntarily reduced from $2.7 billion to $2.3 billion upon closing of the transaction. Pro forma for the asset sale, PXP's liquidity increases to approximately $1.3 billion and its borrowing base is established at $2.7 billion, well in excess of its commitments.
PXP's liquidity is further supported by no near-term debt maturities and a material positive derivative position. The senior revolving credit facility matures November 6, 2012 and the next maturity of senior unsecured notes occurs on June 15, 2015. In addition, PXP's positive derivative position as of October 31, 2008 had a net value of approximately $930 million.
PXP's derivatives position remains unchanged. On average 80% of our 2009 and 2010 estimated oil production is protected with floors above $100 and approximately 80% of our estimated natural gas production through year-end 2009 is protected with either physical purchases used in our operations or $10 by $20 collars. On September 30, 2008 PXP's mark-to-market position had a net value of approximately $338 million. On October 31, 2008 the mark-to-market position had a net value of approximately $930 million. A table summarizing PXP's open commodity derivative positions as of October 1, 2008 is included at the end of this release.
2009 CAPITAL BUDGET
PXP's Board of Directors approved a $1.15 billion 2009 capital budget. Approximately 50% of the capital investment is allocated to production and development activities, 40% to the Haynesville and 10% for exploration projects. PXP intends to fund its 2009 capital budget from internally generated funds and has flexibility to adjust spending as market conditions warrant.
The capital plan supports PXP's growth initiatives by funding drilling programs in each of its key asset areas. Development activities primarily focus on the large, high-free cash flow California oil business and on the Haynesville, California, Texas Panhandle, South Texas and Gulf of Mexico growth areas. Exploration spending funds a number of high-potential projects in the Gulf of Mexico, onshore Gulf Coast and Vietnam asset areas.
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