Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Plains Exploration & Production Company (NYSE:PXP)

Q4 2008 Earnings Call

February 26, 2009, 9:30 am ET

Executives

Scott Winters - VP, Corporate Communications

Jim Flores - Chairman, President and CEO

Winston Talbert - EVP and CFO

Cindy Feedback - CAO

Analysts

David Kistler - Simmons & Company

Joseph Allman - JPMorgan

Duane Grubert - CRT Capital Group

Marshall Carver - Capital One Southcoast, Inc.

David Heikkinen - Tudor, Pickering, Holt & Company

Michael Shelton - Ingalls & Snyder

Bill Frazier - Greenhill Capital

Operator

Good morning. My name is Darla, and I will be your conference operator today. At this time, I would like to welcome everyone to the 2008 Fourth Quarter and Year-End Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. (Operator Instructions). Thank you.

I would now like to turn the conference over to Scott Winters, Vice President of Corporate Communications.

Scott Winters

Darla, thank you very much and good morning everyone. Welcome to PXP's 2008 fourth quarter and full-year earnings conference call, which is also being broadcast live on the internet. Anyone may listen to the call or the replay by accessing our company website at pxp.com, also located on the website are the earnings release, the 10-Q, and a slide presentation, which were all filed with the SEC.

Before we begin today’s comments, I would like to remind everyone that during this call, there will be forward-looking statements as defined by the SEC. These statements are based on our current expectations and projections about future events and involve certain assumptions, known as well as unknown risks, uncertainties and other factors that could cause our actual results to differ materially. Please refer to our Forms 10-K and 8-K filed with the SEC for a complete discussion on forward-looking statements.

In our press release and in our prepared comments this morning, we represent some non-GAAP measures and explanation and reconciliation of non-GAAP measures or financial measures is included at the end of the release.

On the call today is Jim Flores, our Chairman, President and CEO; Doss Bourgeois, Executive Vice President of Exploration and Production; Winston Talbert, Executive Vice President and Chief Financial Officer; John Wombwell, our Executive Vice President and General Counsel; and Hance Myers, our Vice President of Investor Relations.

I will begin by reviewing some 2008 financial results and operating highlights. 2008 was another remarkable year, through our unprecedented commodity price volatility, the financial credit crisis and the global impacts this had on economies and companies. PXP continue the strategy of acquiring oil and gas properties with meaningful production and cash flow potential, and ended the year with a strong balance sheet.

With revenues of $2.4 billion, PXP reported net income for the year of $524 million or $4.81 per diluted share before the impact of the non-cash impairment charge on it's oil and gas properties, a gain on mark-to-market derivative contracts and a gain on sale of assets. Including the impact of these items PXP reported a net loss of $709 million or $6.52 per diluted share.

PXP strengthened it's year-end balance sheet by reducing net debt over $930 million or 26% from the third quarter of 2008. And earlier in the year repurchased over 5% of it's shares outstanding. PXP ended the year with $2.5 billion in net long-term debt, a substantial reduction from $3.3 billion at year-end 2007. No near-term debt maturities and nearly $1 billion available under this revolving credit facility and approximately $1.5 billion of estimated value on mar-to-market derivative positions.

We completed a strategic asset rotation by investing $1.65 billion into the Haynesville shale. A large, high potential lower risk portfolio with top tier returns. And divesting $3 billion of non-strategic oil and gas properties.

Rotation in the Haynesville gas producing properties greatly increased the growth and economic strength of our gas portfolio. We believe the Haynesville shale is a remarkable opportunity to add substantial asset value through years of growth and cash flow generating potential and is rapidly developing into a world class field.

By year end 2008 the company had drilled 26 highly successful those are gross in the Haynesville shale with Chesapeake Energy the operator.

Providing further confirmation of potentially one of the largest domestic gas fields. Drilling operations began in July of 2008. And production net to PXP commenced in September. A significant portion of PXP's resources are planned for its emerging position in the Haynesville, we are finding a development and full cycle cost where some of the most attractive in the industry.

Drilling results have been encouraging and with over 7300 potential well locations, after risk waiting this asset area is expected to be a significant driver of future production and reserve growth.

Our Flatrock development continued to yield successful drilling results and provided significant growth during 2008. Flatrock gross production is over 200 million cubic feet equivalent per day gross or 45 million cubic feet equivalent net to PXP. And proved reserves at year end 2008, as estimated by independent reservoir engineers were in excess of 300 billion cubic feet of natural gas equivalent gross.

That 74.4 billion cubic feet equivalent net to PXP. Four wells are currently producing a fifth well is being completed and sixth well is drilling significant pay has been logged in all 6 wells.

PXP produced a company records 33.5 million barrels of oil equivalent in 2008, while adding 47 million Boes of reserves through the discoveries, extensions, technical revisions and acquisitions. And PXP reported proved reserves of 292 million.

We had discoveries and extensions of 42 million barrels of oil equivalent including the Haynesville shale which accounted for about 15.5 million barrels of oil equivalent and at Gulf of Mexico another 12, which is primarily attributable to the continued success in the Flatrock area.

We acquired 16 million barrels of oil equivalent of reserves primarily in our South Texas properties. The company had a total of 215 million barrels of oil equivalent of negative reserves, 11 million were technical and 204 were price related.

The price revision was due to significantly lower average year end prices for oil and gas including the widening of differentials impacting our California properties. And development and production cost which were reflective of the higher oil and gas prices during the first nine months of the year.

We divested approximately 207 million barrels of oil equivalent which represents all of our Permian basin, Piceance basin and San Juan basin oil and gas properties.

Now few comments on the fourth quarter particular for the fourth quarter of 2008. PXP reported a net loss of $1.6 billion or $14.56 per diluted share on revenues of $328.2 million. Although loss including the following items. A $2.3 billion after-tax impairment of oil and gas properties due to significantly lower commodity prices at year end 2008. This non-cash adjustment resulted from the application of full cost accounting rules, a $728 million after-tax gain on mark-to-market derivative contracts and a $19 million after-tax gain on a sale of assets.

Without the effect of these items, the net loss for the quarter would have been $33.1 million, or $0.31 per diluted share. The fourth quarter 2008 results, compared to the same period in 2007 reflect lower revenues due to an approximate $21.90 per BOE decrease in realized prices and slightly higher production sales volumes.

Sales volumes reflect a net effect of acquisitions and investments in 2007 and 2008, and increasing production from the Flatrock and the Haynesville Shale properties during 2008.

Total production cost per BOE increased 5% during the fourth quarter 2008, compared to the prior year period, due primarily to higher per unit lease operating cost associated with non-operative properties divested in December of last year.

Total general and administrative cost per BOE were about 23% lower due to reduced general and administrative cost as well as significantly lower stock-based compensation charges.

Total production costs per BOE for the year were only slightly higher, compared to the same period in 2007. Lower per unit lease operating, steam gas and electricity costs, due to increased sales volumes were offset by higher per unit production and ad valorem taxes associated with the properties acquired in 2007. Total general and administrative costs per BOE were lower due to higher sales volumes.

Operating cash flow was $292.8 million in the fourth quarter of 2008, compared to $275 million in 2007. And $1.5 billion for the full year of 2008, compared to $627 million in 2007.

Since the first of the year, PXP has been busy, PXP drilled nine more successful wells with Chesapeake in the Haynesville. Currently 18 wells are producing 100 million cubic feet per day gross, or 14.2 million cubic feet equivalent per day net to PXP. And another 15 wells are waiting on completion.

For 2009, the joint-venture plans to drill approximately 150 gross wells and run an average of 26 rigs. According estimates by Chesapeake Energy, the joint-venture anticipates producing approximately 575 million cubic feet equivalent per day gross or nearly 65 million cubic feet equivalent per day net to PXP, by year end 2009.

The company announced significant pay in the Friesian #2 well, the first confirmation of four high-impact exploration prospects. This well is scheduled to be deepened during the second quarter. The Ammazzo prospect is currently drilling; and the White Shark prospect in Vietnam and Salida prospects in Gulf of Mexico will begin drilling in the second and third quarters, respectively.

We monetized approximately $1.125 billion in commodity derivative gains and were used the proceeds to reduce debt. Since the Haynesville acquisition in July of 2008, net debt will be reduced by over $2 billion.

PXP entered into $52 crude oil product contracts on 40,000 barrels of per day for 2010, and acquired natural gas three way callers on 40,000 MMbtu's per day for 2010. The company retained its existing $55 crude oil puts on $32,500 barrels of well per day for 2009, and its existing 10 by 20 natural gas collars on 150,000 MMbtu's for 2009.

For the new 2010 natural gas collars, if the index price is below the floor price of $6.25 per MMbtu, PXP receives the difference between 625 in the index price upto a maximum of $1.45 per MMbtu. If the index price is greater than the ceiling price of $8 per MMbtu, PXP pays a difference between the index price and $8. The monetization and reset arrangements accelerated cash receipts while maintaining a derivative position that protects against further declines in oil and natural gas prices during 2009 and 2010.

We also updated 2009 full-year guidance with discipline spending and targeted cost reduction. The guidance which is included at the end of the release reflects the impact of the following forecasted 2009 items. The capital budget is estimated to be $1.05 billion, the previous estimate was $1.15 billion. We are targeting a 10% reduction in total cash, general and administrative expense and a 15% to 20% reduction in total lease operating expense.

Production sales volumes are estimated to be in the range of 78,000 to 82,000 barrels of oil equivalent per day. A company plans to maximize returns on its existing portfolio by high grading reduced capital expenditures toward higher rate of return development projects, lowering lease, operating expenses and reducing cash and general and administrative cost. The $1.05 billion is prudently allocated based on current economic conditions to the company's major development areas including its emerging and prolific position in Haynesville.

PXP will drill it's remaining committed high-impact exploration projects including the deepening of the freezing discovery, it's a leader prospect the shale and it's White Shark prospect in Vietnam. Remaining capital spending will be focused on the Flatrock development in the Gulf of Mexico and maintaining production in its long-life reserve base in California.

With that, I will turn the call over to Jim.

Jim Flores

Thanks, Scott. I know that’s a lot for everybody to chew on, and it's probably a difficult release for all the quick draw orders to get our hands around. We are going to take a little time this morning and go through 2008 and the fourth quarter and then a impact and the great position to put us in for 2009 in going forward, because if we look at all the noise in the fourth quarter between the transactions of selling the Permian and the Piceance, their (inaudible) extraneously due to more costs. The DD&A rate that we have with the write-off and so forth before the write-off for the reserves, the reserve reduction and so forth. We couldn’t handle more complicated quarters, so hard though now to everybody that have to try to understand in about an hour we are trying to get a report out.

But what I would like to do is go through the slide presentation a parts of it. Real quick going to talk about how we see the business going forward and how we feel like we are very well positioned in this current tough-tough climate. Don’t kid yourself, this is one of the toughest climates that anybody has every operated in with challenges based on operational service costs reductions, trying to push that business, those costs down, liquidity requirements, worried about banks, 24/7. It’s quite a situation. I couldn’t be proud of with how our organization responded. We have been able to move quickly to address situations that build strength in the company not create weakness. And we feel like we are in a stronger position today to take advantage of this market internally and continue to deliver good positive returns going forward. And I will talk about the adjustments that were required in the fourth quarter due to those pricings.

We put the page 3 the stock of prices and NYMEX in the forward curve. I mean it’s kind of historical of what PXP has been, the volatility in the prior dates has created a lot of opportunity for the industry, lot of opportunity for PXP on the cash flow side. We have tremendous cash flow of about $55 million build target. As we have talked many times our business was very well above $50 a barrel oil. The current oil prices, the oil price at year-end below $55 a barrel we will not hedge below 55 in 2008 in the fourth quarter. We are hedged going forward 2009 and 2010 at 55 at even after the monetization of the $100 plus floors that we have for 2009-2010.

So, if you look at that red line that’s our base line pricing and so forth, that allows us to get a decent return of our assets. And you see the 2009 and 2010, so at the beginning at 2011 the current was actually reflecting what we think is our business plan that we think that $55 floor is going to be real important, hedge protection for PXP going forward. And then you can see the [Katanga] bringing it above in 2011 to 2012. Obviously this current is going to change and move around and so forth, but we think we are hedged perfectly for the upcoming cycle of down prices and working through it and we think we will be in a great position preserving our growth opportunities and identifying additional growth opportunities to the exploration drill bit, when this market turns around and we start growing with much [farther].

In page 4, we put some graphics behind all the assets rotation we did in the entire year of 2008 between the sources of selling the Permian and Piceance, San Joaquin Basin, Barnett for about $3 billion and then uses we have rotated in some assets at South Texas and of course, our tremendous Haynesville investment in July of last year.

Net-net in the gold box we reduced debt on as reported basis over the year of $800 million and repurchased over 5% of the shares outstanding of PXP. We strengthen our balance sheet only this year with hedge monetization on page 5 where we have reduced our debt-to-cap from 54% down to 39% we have reduced some secured debt by 1.3 billion the hedge proceeds of 1.1.

So we have effectively paid of our revolver and we will soon be talking about resetting the revolver and working with the banks and our strategies going forward. And because we look at aggressive spending program to where we are going to use the revolver to fund any negative cash flow that we will have above our CapEx here in 2009 and 2010 and also in the 2011 if we need it.

The business transformation to strategic execution has been accomplished, it's a key-key milestone for this company, because for the past six years in this company we have not had a large resource play to invest capital. We have taken our excess all revenues and had a successful exploration program, however, the lumpiness of it and so forth has not given our investors visibility to put us in a position of one of the top tier players as far as returns.

The Haynesville will do that and allow us to prove our efficiency of our asset base and we will continue to allocate substantial development dollars to the sub $12 F&D opportunities. I mean Haynesville is somewhere between 10 or 11 bucks available then you will see that, but the California reserves now that we moved so many barrels from PUD to probable bringing those barrels back from probable straight to PDNP. We are going to have extraordinary low F&D cost as we inject capital into our California program. And so what you are going to see is the benefit of the reallocation of those reserves come out of our F&D cost going forward for the next several years.

So when you look at the spending in California and Haynesville will be almost probably 60% this year and growing to almost 75% and 80% going forward in the year's coming forward. Our F&D cost and based our returns on capital employed are really going to be spectacular. That will also play to our F&D costs which reduced 60% in 2009 from what the number was in 2008 toward the reserve write down.

Our operational strategy in 2009 is going to be very simple to maximize existing portfolio, growing production and reserves based on returns, that’s lowering cost, LOE, G&A our high impact exploration moves the ball forward and also reducing our capital expenditure one of the highest rate of return projects.

The financing strategy is to stay conservative, the conservative strategy is workforce and since we have been in business, we are going to stay there. We monetized our $100 puts, we right sized our capital budget, we right sized our business around it, and we retained a production around the $55 puts, hopefully it goes higher, don't know if it will or not, don’t care.

We retained, our gas hedges are $10 [floors] a very key, we think this is going to be extremely tough here for natural gas, as we continue to see too much optimism out there from operators and so forth, as we drastically cut our rig and others are respondent, there are still several that are hoping we see a gas rebound by summer, we don’t think so.

The key aspect of the hedge program and the house starts burning down we can put up the fire and $1.1 billion put out any fire at PXP. Since the announcement of the Haynesville, PXP has reduced net debt by $2.2 billion or $20.45 per share, a dramatic achievement in one of the worst credit crisis of all times.

The next page, page 9. The hedge position that we have is excellent with our well structured to protect the downside and cash and have available all of the upside to our stakeholders equity and debt holders. We have 71% of our oil protected this year with 55 puts and 92% of our gas which is about 80% on an average basis of all of our production and obviously we have large puts 55 in 2010 and we have some gas protected in 2010 as well we just do not want to a quote the volumes and give you a percentage but you see its even more dramatic on the oil side in 2010 than 2009.

Page 10, the financial strength of the company is excellent. Our first bond maturity is 2015. We have an unused $1.5 billion of credit capacity as far as our bank borrowing base for use purposes we will probably put in a facility that's less than that somewhere around a $1 billion, $1.1 billion.

Just from a standpoint we do not need the capital, but it will be available under our borrowing base. This shows you the financial strength of this company in the conservative stance we are going to go forward since total aspects of our company are so strong and we are in a unique position in the history of the company to have recurring returns on internal basis.

Page 11, California was well the reserve action was this year between 2008 and 2009. I think this graphically shows it where we basically took 369 million barrels in California turn them into 174 million barrels due to prices and reclassifications. What's going to be interesting about this is in the new reserve classification rules we just moved 200 million barrels of fully engineered PUDs for graphic purpose not all of this PUDs most of it. And we will turn it into probable. So, we are basically building a tremendous reserve picture on a proved probable basis to adhere to the SEC guideline going forward.

What I want to reiterate is the ability for us to bring those probables back on the books as PDPs and continue to drive our finding cost and use our capitals. So to effect we think about that high prices allowed everybody to overbook their PUDs and I think you are going to see a lot of that coming forward and lot of the gas producers specially where were up in the Piceance, and so forth. Where lot of these NAVs and what's value of an Mcf and what's value of a barrel its PDP barrel that is going to count and it's going to be what the returns on that PDP barrel that's going to count.

And its going to be what the returns on that PDP barrel they are going to count and we are most pleased we are moving from 49% proved developed in California to 69 almost 70% proved developed. And you see our reserve potential almost doubled out there where we moved barrels to the probable side.

CapEx we are able to cut CapEx in California because the response from the wells to the 18 to 24 months before we reach peak production from the wells out there and due to steaming and heating of the reservoirs and the capital cost acquired.

So the money we spent in the last two or three years is going to be a boom for us out there as far as maintaining production and be able to work through this low spending cycle and with having good production rates and decent cash flow.

Our RP shortened dramatically from 21 years to 10 years out here. And is basically the tail reserves that we, its hard to get credit for because the economy value is so low that far out.

So from the standpoint we think our new RP is much more representative of the valuation of our business on a present work basis. We still have about 2500 well locations we will continue to grant through.

The price differentials will continue to be contract protected with major refiners like ConocoPhillips and Shell. And we are going to be reducing LOE from 15% to 20% because much of the operation in California is LOE categorized even though it enhances and increases production and reserves many times. But we are going to be moving that strictly to capital cost and we will be able to stop paying pump jacks and those types of things like we have done in the past when oil was 100, 150 and spending what it took to get oil out of the ground. We are going to be much more thrifty in our spending there.

Page 12, gives you a reserve picture I think going forward its very helpful. And also looking back at 2007 on a pro-forma basis for sales. And going in to similar to our reserve engineers is 507 million barrels at the end of, really at the end of 2007 and pro-forma for 2008 at $95 and $7.48, at the new prices of $44.60 and $5.71 which is our year end SEC prices.

Our reserves are 292 million barrel. We broke the Haynesville out, because its such a huge reserve growth going forward, and also we are freezing we want to make sure you had a chance to look at and see what the impact was.

Well then prices stay flat, flat prices, $44 oil and $5.71 gas going forward, we should have about a 17% CAGR and reserve bookings because of capital we are spending and staying flat with our base production after the write-down. That 17% CAGR on the next page, third page, 13, goes to a 30% CAGR if prices respond as per the strip.

In this was the strip, as of 12/31/08. but its representative of what some of the volatility we have seen going forward. And you can see how we dramatically increase reserves in California, based on rebooking initially some of the PDP barrels that we are taken off the books to the differential widening of the spot market, past our contracts out in the tail years.

So, and we will move forward as we bring more of those probables on as proved reserves going forward.

So, the dynamics of our business being well positioned and grow reserves dramatically has never been stronger, and all these projects, our developing and they are in hand it has no exploration opportunities, no exploration potential going forward, and does not include the deepwater Friesian as part of that reserve picture project.

The 2.2 billion barrels of reserve potential, obviously, has increased by 200 million barrels due to the, reclassification of the California PUD reserves. So, Haynesville is 950, California is about a-third of that, at 335, and the Panhandle South Texas, these are higher cost areas, $15 to $20, F&D cost areas obviously we are not gaining any capital available capital going forward.

And we will continue to just produce those areas and try to maintain our opportunities here. Gulf of Mexico we are finishing up on our Flatrock development out there. It was McMoRan primarily where those reserves are the Rockies the Madden Field. Those are in suspension as far as capital as well. And the Gulf of Mexico and Vietnam as our going forward this year exploration program for this year.

Page 15, our capital program in 2009, we have reduced capital once again to $1.050 billion from $1.150 billion cut $100 million of capital out is actually $200 million of development and as but as some exploration has been move forward, again Vietnam and also Salida we had an extra $100 million on our exploration.

So, we have 20% exploration, 80% development is broken down about 43% of our capital going to be in the Haynesville with 26 rigs. Gulf of Mexico, California are 12% and 7% quarterly, the other is remaining spending in the other assets plus our capitalized G&A and interest that we put our CapEx budget.

Page 16, is the asset picture by those we talk about this. Page 17, is the Haynesville Shale activity that we had the picture was talking about, 150 wells that we participate with Chesapeake huge dynamic that play is.

Page 18, is the net PXP production through the end of December 2009 end of this year we will be around 70 million a day is a net you will see how the impact of the growing business. It's still not a large component of our business overall in 2009 from a production standpoint. So it's going to help and so forth. But the next page shows you how, a fairly large component growing much faster than everything else we have in 2010 through 2014.

The production get over 200 million a day net to PXP and some very nice returns. The 2009 Haynesville F&D cost is projected at about $11 of BOE or $1.83 in MCFE and from January 9 moving forward on cost forward basis the F&D cost is $1.62 or $9.72 and that’s reflective of two things that promote working off to Chesapeake as well as higher reserve bookings right now we are a little less than 5 BCF net per well on our reserve bookings the way we are looking at it from an SEC perspective as wells get more production and obviously the that have been talked about between 6.5 BCF and 7.5 BCF will be realized we think it’s highly achievable and we definitely recognized those as potential. But we just want to talk about the conservative booking aspects as how we see the Haynesville and try to stay within the SEC guidelines to manage the expectations of all of our stakeholders.

The Gulf of Mexico development is continuing to be a real success point for us. The Flatrock development continues to grow. We will talk about that (inaudible) is a project with MacMoRan and we will talk about Friesian is another talking point.

Flatrock Discovery right now is drilling over 225 million a day. It’s scheduled with production behind pipe and completions to be somewhere between 300 million and 350 million a day this summer we are going to operate at Chevron and our partner MacMoRan.

We had early on had planned to exit 2009 at 400 million a day that certainly seems achievable as we sit here in February 10 months away. But we will be responsive to gas prices and gas markets and so forth to find out what that exit rate. But right now stick with somewhere over 300 million a day to maybe 350 million.

Our Friesian project is one of the most dynamic projects we have in the near-term. This map shows the time log that we drill down to 29,000 feet. It's a cartoon of log we saw in our number 2 location, which is about 3,000 for all set to our number 1 well, and it's about 300 million barrel potential same concept from Tahiti and PXP has a 50% working interest and we are operating this project.

The cross sections, the green line on that map it's reflecting on slide 23 is showing that we drill the top corner of the Friesian Miocene sands, and we get right to drill mid of the field with the ocean Monday ark when it shows up here early March.

At the base well from 29,000 feet to 325, and that's where we go from 40 million barrels of what net reserves that we found so far to over 150 million barrels net to the company that we hope to have well down by our annual meeting coming up in May.

The Blackbeard area with McMoRan continue to make plans with that well, we have partner meeting coming up in March discussing additional drilling plans exact completion techniques and support from the service centers to really complete the well and so forth so stay tuned on that for more data in March from our operator at Blackbeard.

Our exploration effort that Scott alluded to in his script is in full force and very exciting. The first project, Ammazzo project in South Marsh Island, it's a PCR project. We have a 28% working interest. This is a project we have been trying to get Chevron have it under leases all time while we have been developing Flatrock, it has a same size and signatures in the Operc and the Gyro section.

And I think we are below 11,000, 12,000 feet at this point in time. We are going to be down in next couple months.

The Salida project with Shell is our first interest in the Paleogene even though we found I guess at Big Foot, our Salida project is the multi-billion drill project that we have a 25% in Shell. It's a look alike to BP's Kaskida, which is 30 miles from the Southeast where Devon about 26% interest.

You see the Kaskida type logs, it's got over 1,600 feet to gross pay and over 800 feet of net pay, and it's been developments being accelerated with offset well is drilling right now out there. The Salida project should begin drilling late second quarter and should be finished by third quarter.

Our White Shark project at Vietnam, which is the Pogo exploration project that we talked about are prepared to drill, I mean the Gori V rig is from Japan right now, and they are out there to drill it well in the March and which should be down sometime in April on that. It's another 100 million barrel project from us.

The corporate strategy in 2009 is very simple, we are going to keep a strong cash flow and balance sheet position during the current operating and financial environment. We are going to maintain liquidity, and develop a $2.2 billion barrels of resource potential once this company continue to grow.

We have a lot of details to give everybody on LOE cost and things of that nature, financing strategies.

So I am just going to turn it over to Winston to open it up for questions and we will get into it later go from there. Operator?

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of David Kistler with Simmons & Company

David Kistler - Simmons & Company

Looking at your forward production guidance for '09.Can you talk.

Winston Talbert

Good morning, David.

David Kistler - Simmons & Company

Good morning. Can you guys hear me okay?

Winston Talbert

Yeah, it's fine now.

David Kistler - Simmons & Company

Okay, sorry about that. Looking at your production guidance for 2009, down a little bit of what you previously said. I was curious how much of that was T-Ridge being pulled out and then what the balance of that is?

Jim Flores

David, the big thing is we cut $200 billion out of our production spending. And that was main thing. We are being very sensitive we have some high volume wells in Gulf of Mexico and so forth offshore California. We trying to just be conservative we fell very good about that guides as a floor from a standpoint there is some upside to that if things go well, but we take a very conservative stance at this point.

David Kistler - Simmons & Company

Okay. That's helpful and can you clarify how much productions guidance you are baking in for T-Ridge?

Jim Flores

We aren't baking any.

David Kistler - Simmons & Company

Okay, I am sorry for the misunderstanding there. Then can you also give us kind of the returns of the California oil assets on $55 oil, just so that we can kind of think about that that's the floors you guys have setting through your hedges and it gives you a really easy way to model that out?

Jim Flores

Well let's talk about couple components here. LOE and so forth, when you look at California, the biggest variable there is a steam cost and with low gas prices, steam cost coming in per barrel, just give you some macro, I will give plenty of the details, because in the fourth quarter with all the Permian sales went to true-ups and LOEs, or looked high in the fourth quarter on a company-wide basis.

And that was because of that Permian sale were actually flat 2007 to 2008. On top of that The LOEs are inflated because of all the well work we were doing, when oil was $150 a barrel, we said get it out of the ground and we spent a lot of money inside the wellbore and so forth. They were classified as LOEs, that's not going to be straight going forward.

That's a simple no from headquarters and we have a very professional staff out there in California Bakersfield. They understand us and respond and one of them mentioned to me. It's a job we operated for three years with $42 million a year of capital.

So, the returns out in California when you look at that aspect you look at the LOE cost out there being fairly static. When you are talking about $55 oil, you are talking about a very significant margin. Dave, I'll let Winston and Cindy to kind of give you some of the numbers, but not been a capital it's going to be a free cash flow for us at 55.

Cindy Feedback

Yeah, cash cost are kind of somewhere around $20 a barrel and then you got $55 floors and we got $5 premiums on those so you are netting 55, some G&A on top of that your so cash margins out there are going to be somewhere around $20, $25.

David Kistler - Simmons & Company

Okay. And on that when you talk about $20 as your cash cost. That's back again the LOE reduction? I just want to.

Winston Talbert

I mean that taking in some of that where I am kind of averaging what we think is going to be next year and what we are thinking about this year just to give you sort of ballpark figure.

Jim Flores

Yeah. The bigger variables is where our steam gas cost and where our electricity cost and obviously with lower gas prices, both are going to be downward trending. So you see that's kind of number from there.

David Kistler - Simmons & Company

Perfect. That's very helpful. And then in the past you guys have talked about rationalizing some assets balance sheet looking a lot better with the monetization of the hedges where you guys stand on kind of asset rationalization right now. And how do I think about that when you have got asset like Friesian which looks to be off the charts, but it's going to need the lot of capital.

Jim Flores

We just want to put that out. We from the standpoint as we look at things, when we are looking at our debt reductions in that we kind of put everything on the table. I can tell you we are probably from an asset base that we have today, we are probably no in the asset rationalization mode, let’s say for next months, and the exploration effort is always in that.

And in the rationalization mode. It depends on what our capital structure looks like. What capital to put, how big, how significant, I am pointing toward Friesian the rest of the deep water projects. Obviously we have done that, we have a developed one to date.

So its interesting it is all your when developed and when prices are low and you can get it done cheaper, but it's always the capital constraint. So from our standpoint what we hope to do is get through our exploration program look around and decide what we want to do probably in the third quarter.

David Kistler - Simmons & Company

Great, that's very helpful. I will let somebody else to jump on, thanks.

Operator

Your next question comes from the line of Joe Allman with JPMorgan.

Joseph Allman - JPMorgan

Yes, thank you. Good morning, everybody.

Cindy Feedback

Hi, Joe.

Joseph Allman - JPMorgan

Hey, in terms of Friesian, and Jim what are you thinking about in terms of development options out there are Friesian?

Jim Flores

There is several. Our main focus on negotiations have been with enterprise and they are trying to put out a Green Canyon hub like it did the independence hubs kind of consortium deal.

There is a 100 million barrel discoveries, 200 million barrel discoveries kind of south Tahiti that have consortium players in them and with our Friesian. So there is enough production out in that area to get it done. It's just going to be first half of this year with the Heidelberg discovery down there. They are going to be drawing offset to that I think and there may be drilling [Tagga] and then plus with working through the Friesian deep and kind of figure out where we are there.

So this summer we are going to have a lot of those discussions on how and when to do that, but that may be an enterprise option. It maybe an option where we join a consortium with everybody else, and just market through that enterprise if you want on a pipeline side. There is a lot of options with these fields and I look at for to make it more successful. So we know all the guys they are involved in that. So, I think, one again kind of pointed toward, getting our deep part of the well drilled, figuring out where we are, I pointed out their shales, so they have got a lot of options as well. So, I think we are in a good position to make a determination, you know, second quarter, third quarter, or what PXP's position in the project is going forward.

Joseph Allman - JPMorgan

Okay. That’s helpful. And then a separate topic on your hedge monetizations, do you view that as kind of a value neutral transaction, and when you look at the cost of the monetization versus the savings on your interest expense, its pretty much a wash, isn’t?

Jim Flores

Well we look at that, when you put in the conditions of the banks, Joe, we think it’s a pretty net positive of what we had to do with from September. So, that’s one thought that's not lost on this, but the other side, it allowed us to reset hedges in 2010, on the oil side the $55 floors there. At the same point in time, we think the business is going to stay tough for a while. We think the gas business is going to get tougher. So, we think liquidity and balance sheet and steam power and preservation of options is the right strategy for as long as it takes until we see it. A real sign of worldwide product demand growth and kind of work to like LNG bubbles and stuff like that.

So, we are very much going to be protecting our liquidity, maintaining drilling just the wells you need to drill, and therefore, that’s why we want to be very conservative on our production forecast and hopefully we can do better than that, but that’s really a mind set of where we see our business. And we don’t want to put too much pressure on our financial partners, like to banks to be there just want to hedge protective basis. The borrowing base of 1.5 billion is reset at today's prices as above. It's what our financial picture looks like today with $55 force going forward, I mean, the bank debt goes above that. So, we feel very strong about that half of that unused, that’s a lot of unused fire power and liquidity. So that we can execute our business plan.

Joseph Allman - JPMorgan

Got you. And then how about on Tom Sauk, what's your sense of the timetable we are going to hear some news on that?

Jim Flores

Our McMoRan is very vocal when there is news on their stuff. We are subject to get in press release request at 5 O'clock any day. So I have no idea when they want to make an announcement.

Joseph Allman - JPMorgan

Okay, I appreciate it, it's a good stuff, thank you.

Jim Flores

You bet.

Operator

Your next question comes from the line of Duane Grubert with CRT Capital Group.

Duane Grubert - CRT Capital Group

Jim, can you make a few comments about sort of the future of California and specifically at these lower prices are there any portions of your mature heavy oil fields that you are letting go cold, you know, basically making the assessment that the steaming isn't worth anymore we are going to let those just play out. And whether or not you got any of that now, kind of talk me through how you envision that playing out in future years?

Jim Flores

Well, we have to have a sustained long-term view that all would be below $30. Okay, it's a below 20 bucks where we started loosing money out there on LOE basis, because from the standpoint of having this unlimited basic and financial terms resource base out there in California and the option. The way we look at our California assets is kind of offset from that standpoint we look at hedge protection at $55 and we look at like last year with the oil price we got an extra $700 million of capital above the $55 level but we think about $20 a barrel and you think about the amount of cash flow we are going to get out of California even at today’s prices they are going to fund the Haynesville development. It’s a priceless asset that we can dial up or dial down and I can’t imagine to stay-in in this business without California.

And as far as looking at stuff go cold, we are still far above that number dealing with that’s not in the consideration. We ask the people to manage prudently under these circumstances. I mean you have nightmares back from the ANS differential days and when you are almost 15 you are netting 8 and your cost were 12, we are not anymore close to that from that standpoint, but we still have cash margins especially with our hedge protection going forward.

Duane Grubert - CRT Capital Group

Okay, that’s really useful. And a couple of years back you have re-categorized a bunch of reserves based on maybe a third-party view that some of the wells would collapse. So bunch of PDPs became PUDs. Have you seen any well problems of that time that were suspected when that was done?

Jim Flores

We are seeing a significant reduction in wells, once we recapture that, that is about 50%, 50% less, but it is what it is. But it’s also a standpoint we have written those PUDs off, we have written those reserves off this year because of the price anyway.

Duane Grubert - CRT Capital Group

Yes, that makes sense. And just to reiterate one point, you are telling me that you don’t have any feel near-term that are just depleted, you don’t have it?

Jim Flores

No, absolutely not, we are going to throw those huge dynamite expansion and so forth. We obviously don’t give this much press to some of the other people out there. It's just one of the things we do. Our business is running real-real good, when we went to functional management where we basically run California out of Huston and we are totally integrated with our VPs out there, and they just got back from QRM, its all option. We can dial capital up, dial capital down, it keeps on given and that’s the thing that makes special about PXP. We don’t have this huge maintenance CapEx requirement on existing assets in California like if you have big high decline gas fields fully matured.

We have capital requirements with the Haynesville but that’s to grow the business, that’s to grow the reserve, grow the production. As far as California we are just going to idle along, lick our wounds and bruises from T-ridge and just kind of wait for a new administration and see what happens. So, California will always be a part of PXP and it will always be a part of this company as far as the base production, as far as I can see in all the engineer reports we have with 50 years of life out there left.

Now economic life depends on prices, depends on costs and depends on differential. So, that any snapshot and I will remind you Duane, you know this, that those reserves have produced the approved reserve reports from (Inaudible) Rider Scott, four or five times over, since they have been doing it, since World War II. So you can not engineer these fields for depletion. You can only engineer for economics and we have the business right size to do it.

Duane Grubert - CRT Capital Group

Yes, that’s very helpful and indeed I am a big support of California as you know. Moving on to something little different conceptually. With the Vietnam well as a prime example, can you talk about your philosophy which you talked about in the past, about what kind of cycle time projects would be most likely to be monetized before development by PXP.

So in other words, what would you drill on sale rather than drill on development?

Jim Flores

Yes, that’s a good question with the California oil base and the Haynesville development and the reason of our (inaudible). Our view is a little flexible at this point, we have the base build the next five years to seven years of growth maybe more, depending what [albeit] Oklahoma City does on the rig count out of the years. So, the option would be whether we developed Friesian or Salida or Vietnam those things for post-Haynesville world, because that’s when they become one in the five year three to five year range. That is a very tough economic question for us, because obviously our cost to capital and in situation we have to redeploy that other places more near-term for the shareholders.

We will just have to see, it depends, if Friesian is big as potentially it could be, it's a tougher question, because it's going to be one of the more economical projects to develop. It's not going to cost a lot of money because the consortium production facility issue, because of the high flow rates per well, no such things. Salida is so massive it's another Haynesville on all scale for a company our size.

These projects are all company makers and I kind of look back to someone like Murphy that had a big discoveries up in Indonesia and the Far East. And whether through and build these the company cornerstone. So, we are going to have to just kind of make that decision together with our shareholders and what the economic conditions are. As we have done in the past as what's the best thing for the PXP shareholders, whether it goes because these projects, the size and the potential of them are bigger than PXP by itself. So, it's a good [form] to have and we will discuss with our shareholders and try to get a feel and make that decision jointly.

Duane Grubert - CRT Capital Group

That’s great. Thanks very much.

Scott Winters

Thank you.

Operator

Our next question comes from the line of Marshall Carver with Capital One.

Marshall Carver - Capital One Southcoast, Inc.

Questions one on the selling California real estate would that I assume that be pushed back to 2010 or beyond and do you have a feel for how much that could be worth at this point I know it was worth a few hundred million as of '08 at some point?

Scott Winters

That's the toughest question you could ask us Marshall. Our terminating process is going forward if we have not pushed it because obviously as permitting process there is cost obligations and so forth, sequentially we are not big fans of real estate at this point in time, I means its not a secret in the world or aspect. But we fully expect to have that by the end of '10 kind of a permitted and be looking at 2011, 2012 something in the nearest force be it something that we can maybe discuss, there is a real estate market by then.

Marshall Carver - Capital One Southcoast, Inc.

Okay thank you and are you considering unwinding the gas hedges or are you done unwinding hedges for a while?

Scott Winters

Our present view right now, Winston.

Winston Talbert

Yeah I think we are just going to maintain the gas hedges, I do not see any drill point in that rig and we just, we just reset the oil hedges and maintained the down side protection and got 1.1 billion, we really do not need more upfront cash.

Marshall Carver - Capital One Southcoast, Inc.

Okay that’s helpful and last question I assume Gladstones at [trihoe]?

Scott Winters

You can assume any well Marshall, we have heard from our operator yet so we can't comment on.

Marshall Carver - Capital One Southcoast, Inc.

Okay thank you.

Operator

Your next question comes from line of David Heikkinen with Tudor, Pickering, Holt.

David Heikkinen - Tudor, Pickering, Holt & Company

Good morning guys. Did a good job on the call so far.

Scott Winters

You got to challenge us.

David Heikkinen - Tudor, Pickering, Holt & Company

No, I am just going to ask couple of questions. So when you look at the reserve growth, is that within cash flow or what kind of capital budget within mostly in your cases?

Scott Winters

That's a good question. They about the same case. We are looking at probably negative cash flow in '09 of about $300 million and probably $200 million or less in 2010 or 2011.

David Heikkinen - Tudor, Pickering, Holt & Company

Okay.

Scott Winters

So, it's going to take some extra cash flow. In the big cash flow as the actually Haynesville drilling and the exploration commitments this year and then going forward to 2009 and 2010 that would be minimal exploration. So it would be mostly Haynesville expansion. So, as well as reserve with it everything else and that's what our big revolver is for.

David Heikkinen - Tudor, Pickering, Holt & Company

And then in your year end reserves can you walk through the standardized measure just future development cost and pre and post to PV-10?

Scott Winters

Okay. It's not clear there. Winston, go ahead.

David Heikkinen - Tudor, Pickering, Holt & Company

Ms. Cindy.

Scott Winters

Cindy Feedback our Chief Accounting Officer.

Cindy Feedback

PV-10 was $1.675 billion and in the standardized measure is $1.1 billion.

David Heikkinen - Tudor, Pickering, Holt & Company

Okay. And what was your future development cost?

Scott Winters

She is referring to the document.

Cindy Feedback

I am referring to the 10-K?

Scott Winters

Yes, I got.

Cindy Feedback

$1.7 billion.

David Heikkinen - Tudor, Pickering, Holt & Company

Okay.

Cindy Feedback

It was $4.9 billion.

Scott Winters

$4.9 billion and that's reflective of the PUDs going away.

David Heikkinen - Tudor, Pickering, Holt & Company

And as you think about moving those PUDs that are now probables and back in could I just think about delta between like your year end future development cost used to be and what they are now as of the cost of develop of the PUDs.

Cindy Feedback

Yes.

David Heikkinen - Tudor, Pickering, Holt & Company

Okay.

Scott Winters

And then also you got the price of variability of what the actual cost will be, so you got service cost. You got to remember the cost of environment which were pricing us.

David Heikkinen - Tudor, Pickering, Holt & Company

Okay.

Winston Talbert

And all of our numbers and all of our projections are still pretty much based on the service company environment that we are living in 2008. We expect those to come down, but we have not baked in a whole lot of actual service cost reductions, its really just actions that we can take and that we are taking.

David Heikkinen - Tudor, Pickering, Holt & Company

Okay. And then Jim, bigger picture as you look at '09 2010 you have outlined kind of grim market on companies that have poor balance sheets. How you react to that, you have done a deal guys historically have made good acquisitions and just wanted to get your perspective on how the next two years play out. Either for playing specifically or kind of in the industry?

Jim Flores

Well playing specific is an easier question because, we were chasing the rabbit all the time as far as we are behind the growth. The growth asset curve, we were late to shale's, we are late to tie gas we were late to shale. And so forth, and so from our standpoint now, now that we have caught the truck that we are, there is no barn additional assets they have to be a accretive to the Haynesville.

So that's we do not believe there is, that asset exist today from what we see in the Haynesville and then we have got a 16.5 year inventory with Chesapeake and Haynesville we are not sure we need more of that from that standpoint. And if we get any more Haynesville we are bound under the Haynesville agreement to share with and let them operate.

So from our standpoint we have built some adult size controls around our business to be disciplined and we have the company to do we are just based on the economics which you know drives our trends or thinking it drives our business. With that I mean there is still going to be issues in the whole industry. So from my standpoint I still think, when you look at the gas business, evaluations are still high in the gas business based on what projections cash flows are going to be and if we get a rebound that low. If we do not get a rebound for a while then they are probably pretty high.

So, from our standpoint, the gas business runs on credit and price. Right now, we have neither. So, I'm not sure how, but that’s also what it takes to fix the gas business as well. When you suck out all the credit and the price, the rig count should drop like a stone. Its dropping fast. It just needs to drop a lot faster and move a lot more gas out from that standpoint. And hopefully, we will see those in the numbers.

But right now, I think, people are a little too optimistic, because they needed to drop fast. Instead of what, our needs all these numbers will drop fast. And may not drop fast enough 2009, 2010, early 2010 cycle.

So, we kind of think late 2010, 2011 is a pretty safe bet. We are hoping we are wrong. But that's a way we are setting up our business and kind of putting in some conservative hedges in 2010, not trying to, you know, just more protective hedges. But also try to maintain an upside the gas business for late 2010, 2011.

David Heikkinen - Tudor, Pickering, Holt & Company

Okay. And then, when can you hit on it I think, with the decline in operating expenses that you are forecasting, mainly that's not doing maintenance and kind of the things that you have not forecasted a decline in services cost and to that OpEx, so could you expect more declines, or bottom hedge?

Jim Flores

We shall hope so. We are going to be right to markets.

David Heikkinen - Tudor, Pickering, Holt & Company

But your specific declines of 15% to 20%. That is things that are not related to the broad services market going down. Those are things you're making the active decision not to do, work over maintenance, those type of expenses, is that correct?

Winston Talbert

That’s correct.

Scott Winters

Yeah, the word there is primarily, that’s correct.

David Heikkinen - Tudor, Pickering, Holt & Company

Primarily, fair. That is it, thanks. Thanks for answering my questions.

Scott Winters

Thanks a lot.

Operator

(Operator Instructions) Your next question comes from the line of [Michael Shelton] with Ingalls & Snyder.

Michael Shelton - Ingalls & Snyder

Good morning, guys. Good job on the hedges.

Scott Winters

So far so good.

Michael Shelton - Ingalls & Snyder

Yeah.

Scott Winters

We hope we don’t get paid on the 55, so how is that.

Michael Shelton - Ingalls & Snyder

You said that, I guess, I am not sure if you said it or it was in the press release, you are going to be the shield the profit from that?

Winston Talbert

Right. The way our business model works is we are going to doing a lot of drilling out in the Haynesville Shale and we have got our capital budget set out. And the drilling in the Shale and the capital budget that we have set up, we think shields a significant amount of that from taxes. And we would have, had those taxes for instance in 2009 in anyway because we would have got into settlements, and would have been in March would been throughout the year. And then in 2010 we have a pretty robust capital budget that we think will have IDCs that will offset a significant amount of the tax income that we are going to have 2009, 2010 because of the hedges.

Michael Shelton - Ingalls & Snyder

So --

Winston Talbert

I have said we are pulling in the cash taxes this year maybe around $100 million somewhere.

Michael Shelton - Ingalls & Snyder

A 100, okay, that’s what I was getting into, $100 million in cash taxes.

Winston Talbert

Yeah.

Michael Shelton - Ingalls & Snyder

Okay.

Winston Talbert

And how much I do not think we are getting to that for 2010 because we depend on lots of factors.

Michael Shelton - Ingalls & Snyder

Okay. And with regard to those hedges they are really close, there is no counter party risk on that $1 billion anymore is that correct?

Scott Winters

The counter party risk is until all the cash shows up March 6.

Michael Shelton - Ingalls & Snyder

March 6?

Jim Flores

And we have gotten a significant amount of it already.

Michael Shelton - Ingalls & Snyder

Okay

Jim Flores

So there everybody is contractually obligated. It's okay, we're very confident about that.

Michael Shelton - Ingalls & Snyder

Yeah. Okay, great. Thanks very much, guys. That's all I had.

Jim Flores

Thank you

Operator

Your final question comes from Bill Frazier with Greenhill Capital.

Bill Frazier - Greenhill Capital

Good morning, gentlemen.

Jim Flores

Good morning

Bill Frazier - Greenhill Capital

Great job again with hedges as the previously caller has mentioned.

Jim Flores

Thank you.

Bill Frazier - Greenhill Capital

I had a question on the reserve recapture. It looks like you lost about 204 million barrels and if prices go back to the 60 and 60, it looks like you recaptured about 70% of that, $138. And if that is recaptured, does that go back on the balance sheet as I guess the reversal of the charge?

Jim Flores

No, you got to earn that back every quarter, You don't get to reverse the charge.

Winston Talbert

You are just reducing the DD&A.

Jim Flores

And Bill, that's also if we are putting back on the books it illustrated as PUD, and so what we are trying to articulate is we will probably spend the money to bring them back as PDPs or PDMPs and then show an efficiency ratio in our business, because we just rebook all those things as PUDs going forward.

They are subject to the price swings and they get very little capital on a recurring basis because they just sit there. So we are going to try to maintain a reserve picture that's more conservative when it comes to the PUD booking going forward, especially in California.

Bill Frazier - Greenhill Capital

Okay. Going back to the hedge monetization, you booked a good portion of that gain in the Q4 earnings announcement did some of that will go over to Q1?

Winston Talbert

Yeah, if you look at prices from the end of December through February the gain actually probably got bigger than that, and then we started unwinding it.

Bill Frazier - Greenhill Capital

Right, so it looks like maybe 200 or 300 million might have spilled over?

Winston Talbert

Yeah, it could be, I don’t have those numbers.

Bill Frazier - Greenhill Capital

Right, the relationship with Chesapeake, is it pretty good? I noticed in the 10-K you have put option non-cash put option to get out I guess half the carry?

Jim Flores

Yeah, almost with Chesapeake's spectacular fact, we have filed, we have done the final closing on our transaction there and having the 20% on the 550,000 acres. Yeah, that's strictly a feature of financial conditions basically the assets performing much better than what we have planed operational.

When we bought into we are looking at 6 million a day flow rates and 4 Bcf, where already booking close above five we have to talk like EURs on reserves and EURs 7.5 and flow rates plus 20 million a day.

So from our standpoint operational asset what we want to make sure is that and Chesapeake gracefully obliged is that our investors realized that if some reason the company PXP was not able to fund its obligation that it wouldn't drown PXP, we had an option that put right to surrender half of our interest and Haynesville back to the operator Chesapeake and that we didn't want to find the last $800 million worth of carry.

Obviously our thought process today is with our strong balance sheet and our disciplined spending and we have articulated the small amount of negative cash flow we have in the operation success of the asset we have no intention of doing that, but it is a nice feeling from all of our stakeholders that PXP has got options, but those strictly have to be market related form a standpoint of financing our capital at this point, because the operation is so strong.

Bill Frazier - Greenhill Capital

Gives you lot of flexibility?

Jim Flores

Yeah. We think that's important in this market and we once again appreciate Chesapeake's understanding for that and they have been spectacular operator. And obviously, well-positioned in the play, so we just want the hits keep on coming.

Bill Frazier - Greenhill Capital

Now on Friesian switching over to that play, are you the operator there or is it Shell?

Jim Flores

We are the operator right now. Obviously as long as you do a good job, we will stay the operator. I mean Shell, they are spectacular in the Gulf and so we will continue to work with the on a daily basis from that standpoint, but right now we are the operator.

Bill Frazier - Greenhill Capital

And what kind of investment does it take to bring that oil into production; I noticed you had something for 2012.

Jim Flores

Yeah.

Bill Frazier - Greenhill Capital

That's almost three-year period.

Jim Flores

And that's an accelerated. There a lot of infrastructure there already. It's little fast, it all depends on whether we sanction the project commercially this year or not, or stay in the project. Then we will have a very good look at that by third quarter due to the additional drilling there Friesian here with the deepening of the second well, and whether Shell is prepared to move forward as we are.

But as operator, we aren't open to dictate that, we keep it on the accelerating path. But we will have a lot of more clarity on that and be able to talk definitively we take in the third quarter.

Bill Frazier - Greenhill Capital

Okay, that's all I got. Thanks a lot, guys.

Jim Flores

Thank you.

Operator

And gentlemen, I hand the call back over to you for closing remarks.

Jim Flores

Thank you, operator and thanks everyone for your participation on the call and looking forward to having a spectacular 2009. We will see you guys in the first quarter.

Operator

This concludes today's conference call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Plains Exploration & Production Company, Q4 2008 Earnings Call Transcript
This Transcript
All Transcripts