PXP Hedges Gas Volumes, Extends Review of Deepwater Asset Sale

Plains Exploration & Production (PXP) unveiled plans today to hedge its natural gas production volumes as protection against continued weakness in gas prices as company officials maintain a cautious outlook on a recovery in future gas prices.

PXP has acquired natural gas three-way collars that have a floor price of $4.00 with a limit of $3.00 and a weighted average ceiling price of $4.92 on 200,000 MMBtu per day for 2011. If the index price is below $4.00 per MMBtu, PXP will receive the difference between $4.00 and the index price up to a maximum of $1.00 per MMBtu.

If the index price is greater than the ceiling price of $4.92 per MMBtu, PXP will pay the difference between the index price and $4.92 per MMBtu. If the index price is at or above $4.00 per MMBtu but at or below $4.92 per MMBtu, no cash settlement is required.

Additionally, PXP acquired put option spread contracts on 160,000 MMBtu per day for 2012 with a floor price of $4.30 and a limit of $3.00 per MMBtu. If the index price is below $4.30 per MMBtu, PXP will receive the difference between $4.30 and the index price up to a maximum of $1.30 per MMBtu less the option premium. If the index price is at or above $4.30 per MMBtu, PXP only pays the option premium.

"We not limiting the upside, but it's a defensive move against the man-made gas bubble that's been created," said PXP Chairman, President and CEO James C. Flores at the inaugural Jefferies 2010 Global Energy Conference in Houston today.

PXP will return to an oil-focused strategy for investment in 2011, with an estimated capital program of $1.2 billion focused on oil growth in its California and Eagle Ford assets in Texas, said Flores. The company's California and Eagle Ford assets will each be allocated 23 percent of PXP's estimated 2011 budget, with 18 percent earmarked for Haynesville assets and 16 percent for PXP's Granite Wash assets.

The company also will shift its capital expenditure profile to contain 54 percent oil versus 46 percent gas, a shift from 20 percent oil and 80 percent gas in 2010. During 2011, the company also will operate 70 percent of its assets compared to 36 percent operated-assets PXP held in 2010.

PXP estimates that its Haynesville, California, Eagle Ford, Granite Wash and Rockies assets represent development resource potential of more than 1.5 billion BOE, while its Mowry and Monterey shale assets represent over 100 million BOE of exploration resource potential. The company aims to grow its reserves by 15 percent to 20 percent per year over the next three years and grow production by 10 percent to 15 percent per year over the same time period.

This month, the company expects to begin its first drilling activity in the Mowry shale horizontal oil play in Wyoming's Big Horn Basin. PXP holds 54,000 net acres in the play, with proven source rock at a depth of between 6,000 and 10,000 feet and shale thickness range from 250 feet to 400 feet.

During 2011, the company plans to drill several exploratory wells at its Monterey shale oil play in California. PXP is acquiring 3D seismic data over key assets in its 86,000-net acre position.

PXP also will extend its review of the sale of its deepwater assets. PXP will keep the data room home into the first quarter of 2011 to accommodate existing and additional participants.

Flores commented, "PXP is extending the process to allow for a complete assessment by all interested parties of PXP's properties. The divestment is aimed at optimizing the value of PXP's deepwater portfolio and the additional time is an important step in securing the optimum value for PXP shareholders."

McMoRan on Nov. 23 said it would hold a special meeting of stockholders on Dec. 30, 2010 to vote on the issuance of common stock to PXP in connection with MMR's proposed acquisition of PXP's shallow water Gulf of Mexico assets announced in September of this year.