HOUSTON, Sept. 26, 2011 /PRNewswire/ -- Plains Exploration
& Production Company (NYSE: PXP) ("PXP" or the "Company")
provides an update to its derivative positions.
As previously announced in August, PXP executed a new marketing
contract for its California crude
production ("PXP CA Basket Index"). The new contract that becomes
effective January 1, 2012 covers
approximately 90% of PXP's California production, extends the dedication
from January 1, 2015 to January 1, 2023, and replaces the percent of
NYMEX index pricing mechanism with a market-based pricing approach.
In recent weeks, the PXP CA Basket Index price has averaged 92% of
Brent; and net of PXP's transportation and quality discounts, the
PXP CA Basket Index price has averaged 89% of Brent,
representing an approximate 20% increase over existing NYMEX-based
contracts.
Separately, PXP executed an agreement with a third party
purchaser to sell its Eagle Ford crude oil using a Light Louisiana
Sweet ("LLS") based pricing mechanism. In recent weeks, the LLS
crude price has averaged 100% of Brent; and net of PXP's
transportation and quality discounts, the LLS price has
averaged 93% of Brent. Oil production covered by the new
"waterborne" contracts in California and the Texas Gulf Coast represents
approximately 92% of PXP's total estimated 2012 crude production
versus approximately 25% in 2011.
In response to the higher priced contracts, PXP has realigned
its existing 2012 WTI crude oil put option spread contracts that
had a floor price of $80 and a limit
of $60 per barrel on 40,000 barrels
of oil per day by acquiring 2012 Brent crude oil three-way collars.
The Brent three-way collars have a floor price of $100 with a limit of $80 and a weighted average ceiling price of
$120 per barrel on 40,000 barrels of
oil per day. If the Brent index price is below $100 per barrel of oil, PXP will receive the
difference between $100 and the Brent
index price up to a maximum of $20
per barrel. If the Brent index price is greater than the ceiling
price of $120 per barrel, PXP will
pay the difference between the Brent index price and $120 per barrel for 2012 only. If the Brent index
price is at or above $100 per barrel
but at or below $120 per barrel, no
cash settlement is required. The $89
million of 2012 premiums for the previous WTI put spreads
has been reduced to approximately $3
million due to the Brent three-way collars with the
$100 per barrel floor price.
The Company also acquired Brent put option spread contracts on
22,000 barrels of oil per day for 2013 with a floor price of
$90 and a limit of $70 per barrel of oil. If the Brent index price
is below $90 per barrel of oil, PXP
will receive the difference between $90 and the Brent index price up to a maximum of
$20 per barrel less the option
premium. If the Brent index price is at or above $90 per barrel, PXP only pays the option
premium.
Additionally, PXP converted 40,000 of the 160,000 MMBtu per day
of natural gas put option spread contracts in 2012 to three-way
collars. These modified three-way collars have a floor price of
$4.30 with a limit price of
$3.00 and a weighted average ceiling
price of $4.86 per MMBtu and offsets
approximately $4 million of deferred
premiums. 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. If
the index price is greater than the ceiling price of $4.86 per MMBtu, PXP will pay the difference
between the index price and $4.86 per
MMBtu. If the index price is at or above $4.30 but at or below $4.86 per MMBtu, no cash settlement is
required.
Winston M. Talbert, Executive
Vice President and Chief Financial Officer of PXP commented, "To
align our hedging strategy with the recently executed crude oil
marketing contracts and to enhance future cash flows by reducing
our 2012 deferred premiums, we realigned our 2012 WTI crude oil
derivatives by acquiring Brent crude oil derivatives, modified a
portion of our 2012 natural gas derivatives, and added Brent crude
oil derivatives in 2013. PXP was able to adjust its oil derivative
contracts due to the wide disparity between Brent and WTI prices in
the forward markets. The Company now has a more potentially
profitable and effective floor relative to its crude oil mix at a
significantly higher price while reducing cash premiums in 2012,
which will increase net cash flow in 2012 by approximately
$90 million. Also, we will
opportunistically acquire additional derivatives to minimize or
eliminate the put spread expense in 2013 as we are always working
to strengthen our cash flow profile while protecting our downside
in commodity prices."
The following table summarizes PXP's open commodity derivative
positions as of September 26,
2011.
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Average
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Instrument
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Daily
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Average
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Deferred
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Period (1)
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Type
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Volumes
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Price (2)
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Premium
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Index
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Sales of Crude Oil
Production
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2011
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Sep - Dec
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Put
options
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31,000
Bbls
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$80.00 Floor
with a $60.00 Limit
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$5.023 per
Bbl
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WTI
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Sep - Dec
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Three-way
collars
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9,000
Bbls
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$80.00 Floor
with a $60.00 Limit
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$1.00 per
Bbl
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WTI
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$110.00
Ceiling
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2012
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Jan - Dec
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Three-way
collars
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40,000
Bbls
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$100.00
Floor with a $80.00 Limit
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-
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Brent
ICE
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$120.00
Ceiling
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2013
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Jan - Dec
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Put
options
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22,000
Bbls
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$90.00 Floor
with a $70.00 Limit
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$6.237 per
Bbl
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Brent
ICE
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Sales of Natural Gas
Production
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2011
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Sep - Dec
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Three-way
collars
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200,000
MMBtu
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$4.00 Floor
with a $3.00 Limit
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-
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Henry
Hub
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$4.92
Ceiling
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2012
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Jan - Dec
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Put
options
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120,000
MMBtu
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$4.30 Floor
with a $3.00 Limit
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$0.298 per
MMBtu
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Henry
Hub
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Jan - Dec
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Three-way
collars
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40,000
MMBtu
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$4.30 Floor
with a $3.00 Limit
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-
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Henry
Hub
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$4.86
Ceiling
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(1)
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All of our derivatives are
settled monthly.
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(2)
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The average strike price
does not reflect the cost to purchase the put options or
collars.
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PXP has elected not to use hedge accounting for these
derivatives and consequently the derivatives will be
marked-to-market with fair value gains and losses recognized
currently as a gain or loss on mark-to-market derivative contracts
on the income statement.
PXP is an independent oil and gas company primarily engaged in
the activities of acquiring, developing, exploring and producing
oil and gas in California,
Texas, and Louisiana. PXP is headquartered in
Houston, Texas.
ADDITIONAL INFORMATION & FORWARD-LOOKING
STATEMENTS
This press release contains forward-looking information
regarding PXP that is intended to be covered by the safe harbor
"forward-looking statements" provided by the Private Securities
Litigation Reform Act of 1995. All statements included in this
press release that address activities, events or developments that
PXP expects, believes or anticipates will or may occur in the
future are forward-looking statement. These include statements
regarding:
- reserve and production estimates,
- oil and gas prices,
- the impact of derivative positions,
- production expense estimates,
- cash flow estimates,
- future financial performance,
- capital and credit market conditions,
- planned capital expenditures, and
- other matters that are discussed in PXP's filings with the
SEC.
These statements are based on our current expectations and
projections about future events and involve known and unknown
risks, uncertainties, and other factors that may cause our actual
results and performance to be materially different from any future
results or performance expressed or implied by these
forward-looking statements. Please refer to our filings with the
SEC, including our Form 10-K, for a discussion of these risks.
All forward-looking statements in this press release are made as
of the date hereof, and you should not place undue reliance on
these statements without also considering the risks and
uncertainties associated with these statements and our business
that are discussed in this press release and our other filings with
the SEC. Moreover, although we believe the expectations reflected
in the forward-looking statements are based upon reasonable
assumptions, we can give no assurance that we will attain these
expectations or that any deviations will not be material. Except as
required by law, we do not intend to update these forward-looking
statements and information.
SOURCE Plains Exploration & Production Company