PXP Swings to Q2 Profit
Plains Exploration & Production (NYSE: PXP) reported financial and operating results for the second quarter 2007.
THREE MONTHS ENDED JUNE 30
PXP reported second quarter 2007 net income of $25.3 million, or $0.35 per diluted share, on revenues of $255.5 million, compared to the second quarter 2006 net loss of $7.1 million, or $0.09 per diluted share, on revenues of $278.4 million.
Sales volumes during the second quarter 2007 increased three percent to 53.5 thousand barrels of oil equivalent per day (BOEPD) from 51.9 thousand BOEPD in the first quarter 2007. Higher volumes offshore California, the Los Angeles Basin and the Gulf Coast combined with one month of Piceance Basin volumes more than offset slightly lower San Joaquin Valley volumes due to the Star Fee incident in March. Sales volumes for second quarter 2007 were lower than the same quarter last year due primarily to asset sales in the third quarter 2006.
Operating cash flow, a non-GAAP measure, during the second quarter 2007 increased 18% to $107.7 million from $91.5 million in the first quarter of 2007. Operating cash flow for the second quarter 2007 was lower than the same quarter last year due to lower commodity prices, increased operating expenses and lower operating income primarily related to asset sales in the third quarter 2006. See the end of this release for an explanation and reconciliation of all non-GAAP financial measures.
SIX MONTHS ENDED JUNE 30
For the first six months of 2007, PXP reported net income of $45.9 million, or $0.63 per diluted share on revenues of $480.2 million, compared to a net loss of $58.8 million, or $0.75 per diluted share on revenues of $530.0 million.
Sales volumes for the first six months of 2007 were lower year-over-year primarily due to asset sales in the third quarter 2006. PXP reported 52.7 thousand BOEPD for the first six months of 2007 compared to 61.2 thousand BOEPD in 2006.
Oil and gas capital expenditures, excluding acquisitions, were $309.8 million for the first six months of 2007 compared to $307.8 million for the prior year period.
DEVELOPMENT - OPERATIONS UPDATE
In the Los Angeles Basin, PXP's second quarter sales volumes averaged 14,000 net BOEPD. A total of 18 injection and producer wells were drilled and completed during the second quarter in the Los Angeles Basin. In the Inglewood Field, drilling activity this quarter concentrated on the Vickers-Rindge, Moynier and Rubel waterflood projects. At the Montebello Field, we drilled the remaining 5 of the 10 planned wells for 2007 in the second quarter and finished the batch completion of all wells following the drilling phase. This year's program at the Montebello Field is the first stage of a plan to drill wells from pad drilling sites to allow for real estate development. The remaining wells drilled in the Los Angeles Basin expanded the development of the Las Cienegas Field.
In the San Joaquin Valley, PXP's second quarter sales volumes averaged 21,700 net BOEPD. The 2007 plan includes continued development and expansion of the Midway Sunset and Cymric Fields. A total of 32 producers and 4 steam injection wells were drilled and completed during the second quarter in the San Joaquin Valley. Our 2007 drilling activity will be concentrated on steam enhanced recovery development of the Diatomite, Marvic Spellacy and Potter formations in the Midway Sunset Field and the Diatomite and Tulare formations in the Cymric Field.
Offshore California, PXP's second quarter sales volumes averaged 12,800 net BOEPD. Much of the activity on these assets this year will concentrate on maintaining production through well workovers and recompletions.
In the Gulf Coast region, PXP's second quarter sales volumes averaged 3,200 net BOEPD. The successful Perseus II well was completed during the second quarter. Completion operations are currently underway on the Hurricane Deep discovery (South Marsh Island Block 217, PXP 30% working interest) with first sales anticipated in the fourth quarter.
In the Piceance Basin of Colorado, PXP acquired on May 31, 2007 interests in oil and gas producing properties covering over 55,000 net acres, over 200 producing/productive wells, over 3,000 additional potential drilling locations, and 40 miles of pipeline and gathering systems, including a 25% interest in the Collbran Valley Gas Gathering System (CVGS). PXP is operating five drilling rigs and plans to drill a total of 63 wells during the third and fourth quarters of this year. The first planned expansion project on CVGS is expected to be completed by the end of the third quarter allowing PXP to increase current production to 12,000 net BOEPD by the end of this year.
EXPLORATION - OPERATIONS UPDATE
The Flatrock (South Marsh Island Block 212, PXP 30% working interest) discovery well is currently drilling to a proposed total depth of 19,000 feet to evaluate the Operc section. As recently announced by the operator, wireline logs indicated the well at that time had encountered a total of 260 net feet of hydrocarbon bearing sands in eight zones over a combined 637 foot gross interval. Drilling continues to evaluate deeper objectives.
The Cottonwood Point (Vermilion Block 31, PXP 40% working interest) exploratory prospect is currently drilling to a proposed total depth of 21,000 feet. As previously announced by the operator in July, wireline logs indicated the well at that time had encountered approximately 43 net feet of hydrocarbon bearing sands over an approximate 92 foot gross interval in the upper Rob-L section. Drilling continues to evaluate deeper objectives.
The Cas (South Timbalier Block 70) and Mound Point South (Louisiana State Lease 340) Gulf of Mexico exploratory prospects are currently drilling to the proposed total depths of 25,000 feet and 20,000 feet, respectively.
The Shell-operated Vicksburg prospect (Desoto Canyon Block 353) began drilling in the second quarter while the Chevron-operated Bob North prospect (Mississippi Canyon Block 860) began drilling early in the third quarter. The Buckhorn Prospect (South Pass 19) is scheduled to begin drilling late in the third quarter.
PROPOSED MERGER WITH POGO PRODUCING COMPANY
On July 17, 2007 we announced that we had entered into a definitive agreement to acquire Pogo in a stock and cash transaction. Under the terms of the definitive agreement, Pogo stockholders will receive 0.68201 shares of our common stock and $24.88 of cash for each share of Pogo common stock. Pogo stockholders will have the right to elect to receive cash or stock subject to pro ration if either the cash or stock selection is oversubscribed. If completed, we will issue approximately 40 million shares of common stock and pay approximately $1.5 billion in cash.
The transaction is expected to qualify as a tax-free reorganization under Section 368(a) and is expected to be tax free to our stockholders and tax free for the stock portion of the consideration received by Pogo stockholders. The Boards of Directors of both companies have unanimously approved the merger agreement and each will recommend it to their respective stockholders for approval. The transaction will remain subject to stockholder approval from both companies and other customary conditions. Post closing, it is anticipated that PXP stockholders will own approximately 66% of the combined company and Pogo stockholders will own approximately 34% of the combined company.
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