PXP Plains Exploration & Production Company

Plains Exploration & Production Co. (PXP) posted first-quarter 2011 operating earnings of 37 cents per share, beating the Zacks Consensus Estimate of 33 cents and the year-ago profit of 31 cents. The company’s outperformance in the quarter was driven by higher crude oil production levels and better price realizations.

Operating Results

Net revenues of $430.3 million grew 5.2% from the Zacks Consensus Estimate of $409 million. Also, revenues grew 12% from $384.1 million a year-ago, on robust sales volumes and commodity prices. Strong drilling results in the Granite Wash, Haynesville, California and South Texas Eagle Ford accounted for the volume growth during the quarter.

In the first quarter, Oil Sales accounted for approximately 77% of the quarter’s revenues, Gas Sales represented 22% of revenues, while other operating revenues made up for the remaining 1%.

Daily sales volumes at Plains Exploration and Production grew 3% year over year to 88 thousand barrels of oil equivalent (MBoe) for the first quarter of 2011. The modest growth in first-quarter sales volumes is attributed to the scheduled maintenance completed at the California offshore Platform Irene during the quarter and an unusually harsh winter weather experienced in January and February, which slowed drilling and well completion activities in the Texas, Louisiana and Wyoming asset areas.

Average realized hydrocarbon price, before derivative transactions, on “per barrel of oil equivalent (BOE) basis” was $54.14 in the first quarter 2011, up 8% year over year. This improvement was due to a 23.4% increase in crude oil realizations, which reached $83.67 per barrel in the first quarter, offset by a 18.4% decline in gas realizations which came in at $4.08 per thousand cubic feet (Mcf).

On the cost side, Plains Exploration and Production’s operating costs showed an increase of 11.7% in the first quarter, marked by higher per unit lease operating expenses (up 11.8%), higher production and ad valorem tax costs (up 32.7%) and higher gathering and transportation costs (up 30.9%), offset by lower steam gas costs (down 22.6%) and electricity costs (down 6.1%).

Plains Exploration and Production’s operating income for the quarter improved 12.6% from the first quarter of 2010 to $133.8 million despite rising costs.

Financials

Plains Exploration and Production’s balance sheet remained strong at quarter-end helped by its conservative financial strategy. The company ended the first quarter with nearly $3.6 million of cash and cash equivalents and $3.5 billion in long term debt.

For the first quarter, the company generated cash from operating activities of $290.0 million, a 30.7% increase over last year, with operating cash flows increasing 7.4% to $243.0 million.

During the quarter, the company increased its borrowing base from $1.45 billion to $1.8 billion with maturity currently scheduled for May 1, 2012. The commitments remained unchanged at $1.4 billion.

In addition, PXP amended and extended its senior revolving credit facility, shifting the maturity date to May 2016 from August 2015 at a lower rate of interest.. On March 31, 2011, the senior revolving credit facility had $125 million outstanding.

Guidance

For 2011, Plains Exploration and Production reiterated its sales volumes guidance of 95-100 MBoe per day.

Our View

Though the company’s sales were poor in the first two months of 2011, the company seemed to have picked up on sales with production for March averaging 93.6 MBoe per day. We remain encouraged by the robust operating results and expect Plains to go from strength to strength by leveraging its generating assets that are likely to perform well in the coming years.

The company retains a short-term Zacks #3 Rank on the stock, which translates into a Hold rating. We maintain a long-term Neutral recommendation on Plains. The company stands at par with its closest peers Anadarko Petroleum Corporation (APC) and Pioneer Natural Resources Co. (PXD), based on the Zacks Rank.

Based in Houston, Texas, Plains Exploration & Production engages in the acquisition, development, exploration and production of oil and gas properties primarily in the United States.

 
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