PXP's $1.2B Capex for 2010 Leveraged on 2009 Success
Plains Exploration & Production Company ("PXP") announced 2009 fourth quarter and full-year financial and operating results, and updates its 2010 full-year guidance.
For the fourth quarter, revenues of $367.7 million generated $48.1 million of net income, or $0.34 per diluted share. 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 and other items. When considering these items, net income was $192.6 million, or $1.37 per diluted share (a non-GAAP measure). Net cash provided by operating activities was $189.2 million while operating cash flow was $465.5 million (a non-GAAP measure).
For the year, revenues of $1.2 billion generated $136.3 million of net income, or $1.09 per diluted share. 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 and other items. When considering these items, net income was $676.0 million, or $5.40 per diluted share (a non-GAAP measure). Net cash provided by operating activities was $499.0 million while operating cash flow was $1.6 billion (a non-GAAP measure).
Proved reserves increased 23% during 2009 to 359.5 million barrels of oil equivalent (BOE); reserve replacement was 320%.
Finding and development costs, excluding acquisition costs, which are primarily related to the Haynesville Shale drilling carry pre-payment, and our Haynesville Shale promoted well costs, were $12.61 per BOE (a non-GAAP measure).
Full-year average daily sales volumes of 82.7 thousand BOE increased 8% during 2009, excluding the impact of our 2008 divestments, and exceeded published targets.
Total production costs per BOE decreased 32% to $12.89 compared to the fourth quarter 2008. For the year, total production costs per BOE were $14.03, well below published targets.
PXP announced Friesian delineation drilling success and participated in discoveries at Davy Jones, Lucius, and Blueberry Hill. For Friesian, early stage commercialization initiatives for production are under study. The Lucius discovery announced in December 2009 was followed by a successful appraisal well in late January 2010 which confirmed a major oil discovery. Appraisal and further drilling will continue in 2010 at Lucius, Davy Jones and Blueberry Hill. These projects have the potential to provide significant incremental future production and reserve growth.
The Flatrock development contributed meaningful sales volume growth during 2009. During the year a planned facility expansion was completed, and at year-end 2009, production averaged over 62 million cubic feet equivalent (MMCFE) per day net to PXP.
The Haynesville Shale drilling results have been outstanding and finding and development and full-cycle costs are some of the most attractive in the industry. The fourth quarter average daily production of approximately 75 MMCFE net to PXP represents a 436% increase from the first quarter 2009. Production is expected to continue to increase to approximately 125 MMCFE net per day by year-end 2010.
James C. Flores, Chairman, President and CEO of PXP commented, "As our industry faced commodity price volatility and significant economic uncertainty throughout the year, we applied our experience, remained focused on our long-term growth platform, and executed our strategic plans. The quality of our people and portfolio continue to standout as we reported significant progress in growing production and reserves, lowering costs, strengthening liquidity and expanding our resource potential during today's challenging environment.
"During 2009, sales volumes increased 8% over 2008, excluding the impact of our 2008 divestments, and exceeded published targets. Proved reserves increased 23% to 359.5 million BOE, reserve replacement was 320% and finding and development costs, excluding acquisition costs, which are primarily related to the Haynesville Shale drilling carry pre-payment, and Haynesville Shale promoted well costs, were $12.61 per BOE. Our Gulf of Mexico exploration program yielded a number of discoveries adding to our future development project inventory and increasing our average annual production growth target to 15%, up from 10%, through 2014. Our average annual reserve growth target is 20% over the next several years.
"We are mindful of our need to protect our balance sheet, liquidity and operating efficiencies as we continue to pursue our balanced operational strategy. During 2009, PXP monetized $1.1 billion in commodity derivative gains, which accelerated cash receipts, entered into 2010 crude oil derivative positions and acquired natural gas collars for 2010 to maintain the Company's strong derivative position, issued senior notes and common stock, pre-paid the Haynesville Shale drilling carry in order to unlock potential capital for PXP's other high-quality assets, and reduced general and administrative costs and lease operating expenses in excess of our stated targets. PXP ended the year with no near-term debt maturities and nearly $990 million available under its revolving credit facility.
"Our 2010 $1.2 billion capital spending plan leverages on PXP's 2009 accomplishments and the contribution from multiple assets. Our resources will be primarily directed to the Haynesville Shale, continued development activities in California, South Texas and the Panhandle, and our exploration and development projects in the Gulf Coast and Gulf of Mexico.
In California, we continue our strategy of maintaining our strong production volumes while simultaneously developing our incremental diatomite, non-diatomite and Miocene projects. California onshore is PXP's largest asset area with approximately 204 million BOE of proved reserves at year-end 2009. With a multi-year inventory identified in the San Joaquin Valley, the Arroyo Grande Field, and the Los Angeles Basin, these asset areas will sustain multi-year drilling programs providing future reserves, production and free cash flow.
In the Haynesville Shale, we continue to see outstanding drilling results. The fourth quarter average daily production was approximately 75 MMCFE net to PXP, and production is expected to continue to increase to approximately 125 MMCFE net per day by year-end 2010. During 2010, Chesapeake is expected to operate an average of approximately 40 rigs and other operators are expected to operate 15 or more rigs on our acreage.
In the Gulf of Mexico, we viewed 2009 as a year of identification and look to 2010 as the year of confirmation. We are planning follow-up drilling at our Davy Jones and Lucius discoveries and new drilling at our Blackbeard East and Phobos exploratory opportunities in which PXP has a 26.25% and 50% working interest, respectively. Our highly successful Flatrock development contributed meaningful sales volume growth during 2009. We are drilling Blueberry Hill to expand upon our Flatrock success.
In the Texas Panhandle, we look forward to drilling our Granite and Atoka Wash positions in which PXP holds approximately 19,500 net acres. We recently spud our first horizontal test well and expect to spud a second test well in early second quarter 2010. A total of 14 wells are planned in 2010 out of the approximately 58 primary Granite Wash locations.
In the Gulf Coast, we are planning to test our Big Mac project in Southeast Texas during the second quarter of this year. We have documented about 30 to 40 leads, all amplitude driven.
"We have a balanced, geographically diverse, lower-risk portfolio of producing properties that underpin our long-term growth strategy, an attractive portfolio of other longer term value-enhancing projects, a total resource potential of over 2 billion BOE, financial liquidity, and a talented and dedicated workforce.
"Our Corporate goal is to double production and reserves by 2014, remain balanced between oil and gas, and continue reducing total production costs per BOE. We begin 2010 positioned to continue efficiently growing production and reserves per share with contribution from multiple asset areas over the next several years. Our base production will continue to benefit from stable California production and Haynesville Shale growth. Our Granite Wash, Blueberry Hill and Big Mac opportunities support near-term incremental growth targets while our Friesian, Davy Jones and Lucius projects support our longer-term growth targets. Our current business model incorporates production contribution from three Gulf of Mexico projects, one per year for three years starting in 2012, which have the potential to increase the corporate target growth rate to 15% through 2014. We believe our balanced portfolio of assets, our 2009 deleveraging transactions, and ongoing hedging program position us well for both the current commodity price environment and future potential upside as we develop our attractive resource opportunities."
Year-end estimated proved reserves of 359.5 million BOE were 60% oil and 64% proved developed. We have a total proved reserve life of approximately 11 years and a proved developed reserve life of approximately 7 years.
In December 2008, the SEC issued new guidelines which are effective for reporting 2009 reserve information. The primary impacts of the SEC's final rule on our reserve estimates are as follows:
The use of the twelve-month average first-day-of-the-month reference prices (prior to adjustment for location and quality differentials) of $61.18 per Bbl for oil and $3.87 per MMBtu for natural gas compared to the year-end reference prices (prior to adjustment for location and quality differentials) of $79.36 per Bbl for oil and $5.79 per MMBtu for natural gas.
The new guidelines limit the booking of proved undeveloped reserves that are scheduled to be developed beyond five years. Certain of PXP's undeveloped locations are not scheduled to be developed within five years and were excluded from our proved reserves, resulting in a negative revision of 25 million BOE.
The new guidelines expanded the definition of proved undeveloped reserves that can be booked from a proved developed well location. PXP was able to support with reasonable certainty proved undeveloped reserves for certain horizontal locations in the Haynesville Shale, more than the two parallel offsets from a proved developed well location allowed under the previous guidelines. The impact increased our proved undeveloped reserves by 11 million BOE.
In 2009, PXP had approximately 57 million BOE of extensions and discoveries, including approximately 53 million BOE in the Haynesville Shale resulting from successful drilling during 2009 that extended and developed the proved acreage and approximately 2 million BOE of extensions and discoveries in the Gulf of Mexico, primarily attributable to continued success in the Flatrock area.
PXP had a total of 2 million BOE of proved reserves additions related to interests acquired in the Haynesville Shale and had net positive revisions of approximately 39 million BOE. Positive revisions of 77 million BOE were primarily related to higher oil prices principally at PXP's California properties and negative revisions of 13 million BOE mostly related to lower gas prices. Under the SEC's final rule, prior period reserves were not restated. A summary of the proved reserve reconciliation and costs incurred for 2009 is included with the financial tables.
2010 FULL-YEAR GUIDANCE
PXP updates its 2010 full-year financial and operational guidance originally filed with the SEC in a Form 8-K on November 5, 2009. The complete guidance table is included at the end of this release. The updates include:
Depreciation, depletion and amortization expense is expected to be $16.00 to $18.00 per BOE for 2010.
Capital spending is estimated to be approximately $1.2 billion, including capitalized interest expense and general and administrative expense. The budget reflects additional spending on our Gulf of Mexico discoveries, Davy Jones and Lucius, and our Phobos and Blackbeard East exploration prospects.
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