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

Executives

Scott D. Winters - Former Vice President of Corporate Communications

James C. Flores - Chairman, Chief Executive Officer and President

Winston M. Talbert - Chief Financial Officer and Executive Vice President

Analysts

David Heikkinen - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

David W. Kistler - Simmons & Company International, Research Division

Leo P. Mariani - RBC Capital Markets, LLC, Research Division

Brian M. Corales - Howard Weil Incorporated, Research Division

Anne Cameron - BNP Paribas, Research Division

Ronald E. Mills - Johnson Rice & Company, L.L.C., Research Division

Joseph Patrick Magner - Macquarie Research

Gary Stromberg - Barclays Capital, Research Division

Plains Exploration & Production (PXP) Q4 2011 Earnings Call February 23, 2012 9:00 AM ET

Operator

Good morning. My name is Jody, and I will be your conference operator today. At this time, I would like to welcome everyone to the Plains Exploration 2011 Fourth Quarter Earnings Results Conference Call. [Operator Instructions] Thank you. I would now like to turn the conference over to Mr. Scott Winters, Vice President, Corporate Planning and Research. Please go ahead, sir.

Scott D. Winters

Jody, thank you. Good morning, everyone, and welcome to our conference call. Earlier this morning, we issued our fourth quarter and full year earnings release. Our conference call today is being broadcast live on the Internet and anyone may listen to the call by accessing our company website at pxp.com. We posted a slide presentation to supplement our comments this morning, and we may refer to the slides during the call. The webcast, slides and today's press release are available on our website in the Investor Information section.

Before we begin today's comments, I'd 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 filings with the SEC, including our Form 10-K for a discussion of these risks. In our press release and our prepared comments this morning, we present non-GAAP measures. A reconciliation of non-GAAP financial measures to comparable GAAP financial measures is included with the press release.

On the call today is Jim Flores, our Chairman, President and Chief Executive Officer; Doss Bourgeois, our Executive Vice President of Exploration and Production; Winston Talbert, our Executive Vice President and Chief Financial Officer; John Wombwell, our Executive Vice President and General Counsel; and Hance Meyers, our Vice President, Corporate Information Director.

For the fourth quarter of 2011, PXP reported net income attributable to common stockholders of $97.7 million or $0.69 per diluted share, compared to a net loss of $19.5 million or $0.14 per diluted share for the fourth quarter of 2010. Quarterly income was reduced by approximately $0.07 per share due to higher stock-based compensation expense reflecting the impact of a 62% increase in PXP's share price during the quarter, and approximately $0.14 per share due to an increase in the depreciation, depletion and amortization rate. Fourth quarter net income attributable to common stockholders includes certain items affecting comparability of operating result. Those items consist of realized and unrealized gains and losses on our mark-to-market derivative contracts and unrealized gain on investment in McMoRan Exploration Co. common stock, debt extinguishment costs and other items.

When considering these items, PXP reported net income attributable to common stockholders for the fourth quarter of 2011 of $28.6 million or $0.20 per diluted share compared to net income of $28.3 million or $0.20 per diluted share for the same period in 2010. This is a non-GAAP measure.

Net cash provided by operating activity was $188.1 million and operating cash flow was $284.7 million, a 12% increase over fourth quarter of 2010. This is a non-GAAP measure.

Gross margin per BOE was $15.33 and cash margin per BOE was $35.71, a 9% increase over fourth quarter of 2010. 2011 fourth quarter daily sales volumes averaged approximately 105,396 barrels of oil equivalent per day, a 13% increase over fourth quarter of 2010 average daily sales volumes. Adjusting for the 2010 and 2011 asset divestments, the 13% sales volume increase would have been 26%. PXP's 2011 fourth quarter oil/liquids daily sales volumes averaged 52,262 barrels per day, a 12% increase over fourth quarter 2010 average daily sales volumes. Adjusting for the 2010 and 2011 asset divestments, the 12% sales volume increase would have been 16%. The robust volume growth is driven primarily by strong performance in the Eagle Ford Shale and Haynesville Shale asset areas, combined with steady, consistent performance in California.

For the quarter fourth quarter of 2011, oil/liquids and gas revenues increased 26% to $515.2 million from $407.8 million in the fourth quarter of 2010. Oil/liquids revenues increased $104.4 million due to higher sales volumes, higher oil prices and stronger oil sales price realizations. Oil/liquids revenues accounted for 81% of the total oil/liquids and gas revenue. Oil/liquids sales price realizations before derivative transactions were 93% in the fourth quarter of 2011 compared to 86% in the fourth quarter of 2010. In the fourth quarter, posted crude oil prices in California strengthened in relation to NYMEX. PXP's average realized oil price increased $13.85 to $87.02 per barrel in 2011 from $73.17 per barrel in 2010. Natural gas revenues increased approximately $3 million as higher natural gas sales volumes just offset lower natural gas prices and lower sales price realization. Natural gas sales price realizations before derivative transactions were 92% in the fourth quarter of 2011 versus 96% in the fourth quarter of 2010. PXP's average realized natural gas price decreased $0.36 to $3.30 per million cubic feet to $3.66 per million cubic feet in 2010.

Total production costs were $16.58 per BOE for the fourth quarter of 2011 compared to $14.24 per BOE in the fourth quarter of 2010. The increase is primarily attributable to higher lease operating expense and production and ad valorem taxes per BOE. Electricity cost per BOE declined approximately $0.21, which nearly offset a 26% increase per BOE in gathering and transportation expense. Lease operating expense increased approximately $26 million to $101 million in 2011, reflecting increased number of producing wells at our Eagle Ford Shale properties and Panhandle properties divested in December of 2011, and higher scheduled repair, maintenance and well workovers, primarily at our California property. Production and ad valorem taxes increased $8 million to approximately $16 million in 2011, reflecting increased production, primarily from our Eagle Ford Shale properties and Panhandle properties, which were divested in December of 2011, higher ad valorem taxes at our California properties and production tax abatements recorded in 2010. Steam gas costs were up about $1.6 million to $15.8 million in 2011, primarily reflecting higher volumes and higher cost of gas used in steam generation. In 2011, for the quarter, we burned approximately 4.3 Bcf of natural gas at a cost of approximately $3.66 per MMBtu compared to 4 Bcf at a cost of approximately $3.56 per MMBtu in 2010.

Gathering and transportation expense increased approximately $4 million to $17 million in 2011 reflecting -- primarily reflecting an increase in production from our Haynesville Shale properties, our Eagle Ford Shale properties and our Panhandle properties divested in December of 2011, partially offset by a decrease due to a December 2010 divestment in our U.S. Gulf of Mexico shallow water properties.

The derivative instruments we had in place are not classified as hedges for accounting purposes. Consequently, these derivative contracts are mark-to-market each quarter with fair value gains and losses, both realized and unrealized, recognized currently as a gain or loss in mark-to-market derivative contracts in our income statement. Cash flow is only impacted to the extent the actual settlements under the contracts result in making a payment to, or receiving a payment from, the counterparty. We recognized an $11.5 million loss in mark-to-market derivative contracts in the fourth quarter of 2011, which was primarily associated with a decrease in the fair value of our crude oil contracts due to higher forward prices. In the fourth quarter of 2010, we recognized an $83.9 million loss related to mark-to-market derivative contracts.

Since our last quarterly report, PXP has acquired a number of new Brent crude oil derivatives and natural gas derivatives for 2013 and 2014. This activity is consistent with our strategy of preserving commodity price upside while protecting the downside risk and lowering deferred premium expense associated with the crude oil contract. In 2012, approximately 70% of the expected oil/liqs production is covered by three-way collars and in 2013, approximately 90% of expected oil/liquids production is covered by a combination of put spreads and three-way collars. A summary of PXP's derivative positions is included with the financial tables in the press release.

At December 31, 2011, PXP owned 51 million shares of McMoRan common stock. PXP has elected to measure its equity investment in McMoRan at fair value. As a result, unrealized gains and losses on investment are reported quarterly in our income statement, which would result or could result in volatility in our earnings. In the fourth quarter of 2011, we recognized a $232.3 million gain on investment. Pursuant to PXP share repurchase program, during the fourth quarter of 2011, and at the beginning of the first quarter of 2012, the company repurchased 12.8 million common shares at an average price of $35.16 per share, for a total cost of approximately $450 million. In January of 2012, PXP Board of Directors increased the approval for purchases to $1 billion of PXP common stock and extended the program until January 2016.

The company's borrowing base was recently increased from $1.8 billion to $2.3 billion until the next redetermination date currently scheduled for May 1, 2013. The commitments remained unchanged at $1.4 billion. Now for the year 2011, PXP reported revenues of approximately $2 billion and net income attributable to common stockholders of $205.3 million or $1.44 per diluted share. This represents a nearly 100% increase over full year 2010. Full year 2011 net income attributable to common stockholders includes certain items affecting the comparability of operating results. Those items consist of realized and unrealized gains and losses on our mark-to-market derivative contracts, debt extinguishment costs, and unrealized loss on investment in McMoRan, a 2010 impairment of PXP's relinquished Vietnam oil and gas properties and other items. When considering these items, PXP reports net income attributable to common stockholders of $223 million or $1.56 per diluted share.

Other full year statistical highlights include low liquids sales volumes accounted for approximately 78% of total oil and gas revenue. Average daily sales volumes increased 12% or 23% pro forma per asset sales compared to 2010. Oil/liquids average daily sales volumes increased 7% or 8% pro forma per asset sales compared to 2010. Net cash provided by operating activities was $1.11 billion, a 22% increase year-over-year. Gross margin per BOE was $20.95 and cash margin per BOE was $37.29, an increase of 17% and 14% over 2010 respectively.

Total proved reserves on a pro forma per asset sales increased 16% to 410.9 million barrels of oil equivalent. Oil/liquids reserves pro forma per asset sales increased 18% to 244 million barrels. The standard measure of discounted net cash flows increased 66% to $5.1 billion from $3.1 billion in 2010. The pretax PV-10 value was $7.9 billion, a 58% increase over 2010 PV-10 value. The robust increase in the value is primarily attributable to a greater concentration of oil/liquids reserves, higher oil/liquids reference prices and stronger marketing contract terms for oil sales. Reserve replacement is 222% or 290% pro forma per asset sale. And all in, finding and development cost were $23.48 per BOE or $18.01 per BOE pro forma for the asset sale.

PXP updated its 2012 full year operational and financial guidance. Due to curtailment in drilling activity by operators in the Haynesville Shale, PXP plans to redirect capital from the Haynesville Shale to the Eagle Ford Shale development. Total capital expenditures and the full year total production sales volume range of 92,000 and 96,000 BOE per day remain unchanged. However, due to the shift in capital allocation, oil/liquids sales volumes, as a percentage of total volumes, are now expected to account for 58% to 61% of total volumes, up from 55% estimated in the previous guidance.

PXP has revised its production cost per BOE to reflect higher forecasted oil/liquids volumes and lower forecasted natural gas prices. The new cost estimates are incorporated in the updated 2012 full year operational and financial guidance included at the end of our earnings release. Full year guidance also reflects the following new information: Depreciation, depletion and amortization expense per BOE; general and administrative expense; the current interest rate schedule for long-term debt; an effective tax rate; and the weighted average equivalent shares outstanding. PXP's focus remains on increasing its margins while targeting a strong organic oil/liquids growth rate, balancing its natural gas focused capital spending with natural gas generated operating cash flow and preserving commodity price upside and protecting the downside risks for the shareholders. With that, I'll turn the call over to Jim.

James C. Flores

Thank you, Scott. Good morning, everyone. We're very pleased to deliver our 2011 final results. 2011 was a very busy year. We've gone over it several times in our investor presentations with where we are. The main goal there was to strengthen our oil business by organic growth in the Eagle Ford and also financing our deepwater business to where the capital that we put in the deepwater business is third-party capital. Here in the near-term, we reap the benefits starting at 2014 of the revenues of the big discoveries we made at Lucius and then moving forward into our Pliocene funnel play out there as further exploratory drills with Phobos, et cetera, get going later this year in 2013 and '14. So with that, the other key about strategic component of our 2011 plan was to strengthen our balance sheet, streamline our business and deemphasize or really rationalize our gas business further.

And selling our shelf gas business to McMoRan in 2010, we follow that up with selling our Granite Wash and South Texas business here in the fourth quarter. And the reason is, we looked at our gas business and said, "This is going to be a tough slog for a long time, and we were aggressively hedging $4 gas in '12 and '13 last year when everybody said the curve said spot 50." So we took advantage of that and with our $4 hedges and with our large Haynesville position in our Madden gas fields, we believe we have probably one of the best gas businesses in the whole space right now. And the reason why I say that is that we're engineering our gas business to generate $100 million of free cash flow in '12 and also in '13 on an annual basis. And the way we do that, including our hedges, the revenues we get out of the gas business, we're going to restrict spending so that we generate $100 million of free cash flow out of our gas business. Our gas business is going to contribute to the bottom line of the company and until the fundamentals recover in our industry, we don't know when that's going to be, but we're in a position to weather that storm in '12 and '13 on a profitable basis from a cash flow perspective. And that's the way we're going to look at our gas business in a checkbook accounting mode. And I think that's going to be very positive for our shareholders as we're, obviously, committed to returning capital to shareholders in our high-price oil environment scenarios.

Speaking of oil and liquids, the growth rate in our company is very sustainable from an operating standpoint because of our Eagle Ford growth and the subsequent Gulf of Mexico growth starting in '14 and '15 that we've been so articulate about. But we believe to be competitive in our group, in our space and grow oil on an accelerated basis. The best way for us to do that, the most cost efficient and also the most risk adverse is to reduce our share count. So when you look at it from a standpoint of going from our share count of 141 million shares last year to the new share count of around 128 million shares, it basically increases our growth rate well above our 20% -- 25% oil growth target per year and we're in the 30s for 2012 over 2011 on a pro forma basis. We look at 2013 the same way. Obviously, we'll continue to reduce the share count and increase that oil growth percentage by 25% or better going forward, taking advantage of these high oil prices well above our $110 Brent operational forecast, and I think it's the best use of the capital. Combined with the net operating losses and running the economics, we believe our share price -- buying our shares is actually as competitive as drilling wells in the Eagle Ford for us right now.

And we'll continue to do that as the value warrants and be in a position to also enhance our forward growth rate on a per share basis at least 25% per year. So with that, I'll turn it over to the operator for questions and we can go through and fill in all the possible answers for all the details of our report. Thank you, operator.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of David Heikkinen from Tudor, Pickering, Holt.

David Heikkinen - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Sorry for missing the 12.8 million shares in our note this morning, there was a PR Newswire issue. But as you think about, where are you currently on your share count and then how do you think about funding the $1 billion share repurchases as you look at the next several years?

James C. Flores

I'll answer part and then turn it over to Winston. Basically, we bought in -- I'll just give some historical perspective, Dave, we bought in almost $1.1 billion worth of stock since 2005. We had $700,000 -- $700 million authorized left over from $1 billion authorization in 2007. During 2011, we used $450 million of it, which we were down to $250 million net of authorization and we just reupped that another $750 million worth. So that's how you get to a $1 billion of fresh authorization from our Board of Directors. And looking at that on a cash flow basis, where oil -- we think oil trades over the next 2 to 3 years and next 3-year period, we think we'll generate close to $2 billion of free cash flow. From time to time, we will take advantage of that when our stock does not reflect that oil price. And then especially with -- as we crank our growth rate up on a per share basis, I think, we will always be in a position for the next couple of years with the Lucius production coming on and our dynamic exploratory projects that are offsetting it going on to make purchases where PXP will be a great value and use of our capital. Winston, you want to elaborate on near term?

Winston M. Talbert

Yes. David, if you look at our balance sheet, we've got a tremendous amount of liquidity in the company, probably the most we've ever had. If you look, we've got the McMoRan shares, 51 million shares in McMoRan. We've got $400 million of cash on the balance sheet to finance the deepwater project. We've got free cash flow coming into the company. We've got unused revolver and we've got -- even on top of the unused revolver, we've got another $600 million of capability to strengthen that. So we've never been in a better liquidity position, and that's why we feel pretty comfortable doing what we've been doing.

David Heikkinen - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

And so as you think about the 3-year period of generating $2 billion of free cash flow, a lot of that starts coming as you get Lucius in 2014. So do you buy back stock in front of the expectation of free cash flow generation from Lucius?

James C. Flores

From time to time, yes. Well, that's where we use all of our liquidity for, David. It's really a matter of focusing on our per share growth rate for oil. And we're committed to a 25% per share growth rate on an annual basis going forward from '12, '13, '14 and beyond.

David Heikkinen - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Okay. And then on your assets in the Eagle Ford, there's been some discussion now of downspacing to 65, 70 acre spacing. Do you have any thoughts around how that would work on your asset and do you have a view on that?

James C. Flores

Well, you remember, we were articulating about that at our November analyst meeting about these are some of the trends we see coming up in volumes and so forth. We're obviously in the mix of that. The key components of that, you have to have the thicker parts of the Eagle Ford and, obviously, with our acreage being in the, I'll call it the EOG graben that they've been so articulate about, and about the thickness and so forth that our 60,000 acres is right in the sweet spot of that. So we'll be participating in that. We're continuing to focus on our operational issues there, building out our surface facilities and getting down to a more efficient operation where we'll stop building tank batteries and just drill wells and hook them up. And we're still on schedule to finish that up at the end of this year. Everything at Eagle Ford is moving forward. We're obviously continuing to fine-tune our operations, through our hookup and marketing effort. But with the premium pricing, the strong service support we've had for very consistent operations there, I think everything's going according to plan. And all we can do is, from a corporate standpoint, is enhance that by reducing the share count.

Operator

Your next question comes from the line of Dave Kistler from Simmons & Company.

David W. Kistler - Simmons & Company International, Research Division

Quick question. With -- if I'm not mistaken, has your lockup on McMoRan shares expired at the first of the year? And if so, what are kind of latest thoughts on monetization of those McMoRan shares?

James C. Flores

The answer is, yes, there was lockup. But we're very excited about what's going on with McMoRan on the Davy Jones test and the other developments that -- Lafitte, in East Blackbeard, plus all the drilling going on, like we told everybody, we're going to continue to be thoughtful about it. On McMoRan, I sure think it's a great option on expanding reserves in the gas business because of the way they can find them with a drill-bit. It's a well-capitalized company and we're not in any rush. We're basically -- that would be incremental capital to our free cash flow model that's going to pay for our share repurchases. And if any kind of situation came about where we were able to feel like we're at a point where we want to monetize those shares, we'd obviously turn those shares into PXP shares. But that's not what we're forecasting as far as our share buybacks.

David W. Kistler - Simmons & Company International, Research Division

Okay, that's helpful. Switching over to the Haynesville for a bit and looking at your current budget allocation and mainly other company comments in reduction of activity in the Haynesville, feels like that could go lower as your partner looks like they're adjusting their drilling and, obviously, you're looking at gas as a cash flow machine. So spending in the Haynesville might not be the most accretive thing to do versus that cash flow machine. Can you just give us a little color on whether that could be adjusted downward and if so, would that redirection continue to go to the Eagle Ford?

James C. Flores

Yes. Dave, you're going to see a lot of decoupling of strategies in the gas business. For example, there's no well we have to drill in the Haynesville from PXP perspective. The way we control our spending is through the nonconsent process. So you can have Chesapeake with 6 rigs out there and EXCO with 6 rigs and all these people drilling wells out there and us with 0 capital going to the Haynesville because we have 11,000 locations right now. We have almost 1,000 units HBP. We have a lot of gas but industry has a lot of gas. Supply is not the issue. It is all about pricing. So we look at it from a standpoint, a mandate that our engineering groups, led by Dawson and Wright Williamson, is going to basically manage till we have $100 million of free cash flow out of our gas business. That's Haynesville, that's Madden, and there's some associated gas that, obviously, some of the flash gas we cause out of the Eagle Ford oil drilling and so forth. With our $4 hedges, it's not going to be that difficult, with spending where it is in our budget, about $129 million. But if we see further erosion and gas gets to $1.50, we have those put spreads in place between $4 and $3. So if we see that, we can cut capital by the day. And I'd be very surprised if we don't have a little more than $100 million of free cash flow out of our gas business. This incubation process of the gas business is going to be very important to not destroying value by drilling gas wells. And that's one of the challenges for the industry as people continue to figure out what business they're in, everybody's trying to rotate to our business, the oil business, we're already there. The key is we want to make sure the gas business is something that we want to hold on to and that's the reason why we sold the Granite Wash in South Texas. It's not -- it wasn't the durable assets that we'll have 5 years from now that we'll be proud of. They will basically melt because of these gas prices and liquids prices. So the hope -- if I understand the rationalization we've done at selling into this gas curve has mainly been on asset intensity and really focus on -- in our presentation on Slide 11 that shows -- talks about our RP resource reserves of 62 years. We have a long dated oil reserves just on our oil side, it's 58 years on a resource potential basis of reserves and production; on the gas side, it's almost 70. So we have a lot of barrels. The key is becoming more efficient and returning those returns to our shareholders through earnings or share buybacks. And I keep going back to that because this is going to be a different story for a lot of people that are going to adjust it and all the pre-written analyst reports about PXP are going to have to be rewritten about consistently operationally driving the oil revenues and be in a position to continue to compress the share count, and accelerate the growth the old-fashioned way internally.

David W. Kistler - Simmons & Company International, Research Division

Great. If I can sneak one more in, if you can give us just a little bit of an update regarding California permitting process as far as drilling activity there and how that's impacting your outlook for the next year or 2?

James C. Flores

We have no issues.

Operator

Your next question comes from the line of Leo Mariani from RBC.

Leo P. Mariani - RBC Capital Markets, LLC, Research Division

I just wanted to check in real quick. Do you guys have a more tight timeframe when the Phobos wells is going to be spud?

James C. Flores

We don't have any further information from our operator. I think they're -- a lot of things are moving in the Gulf of Mexico as activity is ramping up there, not only by our operator, and other people. So, I think, rigs and services, they're just trying to be thoughtful. And I think, Anadarko will be on their timeframe when they announce, but we haven't heard anything different than 2012 spud.

Leo P. Mariani - RBC Capital Markets, LLC, Research Division

Okay. Got you. In terms of your Haynesville production, has that peaked? The opinion at this point in time, should we expect to see that sort of flat in 2012 with 2011, you think it will decline? Any color you sort of have on that will be great.

James C. Flores

It's going to be difficult to say because of our operators shutting in wells and trying to keep from overproducing into this terrible gas tapes. So we have a forecast for about 150 million a day net to us, at PXP this year. And we think that's in sync with what we believe the operators are going to do, and it fits with our $100 million a year free cash flow.

Leo P. Mariani - RBC Capital Markets, LLC, Research Division

Okay. In terms of California, you guys talked about production sort of flattening out here in the fourth quarter of '11. Are you guys still on track to start to grow those volumes here in 2012 and could you venture a guess at what you think that growth rate could be this year?

James C. Flores

Let's wait and see what happens on '12. The aspect of that, we're harvesting the cash out of that. We can manufacture any growth rates we want on a per-share basis but on an operational basis, I would say somewhere between 0% and 5%.

Operator

Your next question comes from the line of Brian Corales from Howard Weil.

Brian M. Corales - Howard Weil Incorporated, Research Division

Can you talk about how your Eagle Ford tight curve has held up for estimates or how the actuals versus your estimates have looked at least early stages?

James C. Flores

Well, like with EOG, been articulate on what's happened and so forth, it all depends on where you start. If you started where Floyd and Petrohawk started, yes, we're consistent with them. But we started a much more conservative look at it and engineering-wise, it's continuing to move up into the right. So we're very pleased with what we're seeing there. The big thing there, the big challenge is Eagle Ford has not been -- the reservoir has not been flow rates, it's been making sure marketing operations smoothly and then pointing toward physically reducing cost by elimination of services. That's going to be the real story the next 24 months in the Eagle Ford because I think everybody knows where the good acreage is, everybody knows we've got our 60,000 acres right in the middle of it. And as far as reserves and adding value and so forth, it's going to continue to be a down spacing engineering deal that's going to be driven by well performance that we see nothing but upside there. So the Eagle Ford is going to be more of an operational successes for us going forward and production volumes.

Brian M. Corales - Howard Weil Incorporated, Research Division

Okay. And just to touch -- follow up on the stock buyback. How do you look at buying back stock versus reducing debt and, I mean, can we assume instead of historically you all have had several bolt-on kind of asset acquisitions, would you rather just buy PXP stock rather than some of these bolt-ons today?

James C. Flores

Yes. Let me give you an example, like you could probably buy California oil production at 8x cash flow. Where do we have PXP selling at right now, Brian?

Brian M. Corales - Howard Weil Incorporated, Research Division

Right, half of that.

James C. Flores

So, I mean, tell me what you want to buy and I know one's a sure thing. And as long as we have the tax attribute. So we can get some real simple math. I can give you some real complicated math on -- it's the most competitive thing in our portfolio. And the only thing competes with it is drilling Eagle Ford wells and California recompletions. I mean, we've got some high rate of return projects. And then we've got -- and so we look at it and then you take our cash flow potential, it's not going away. It's very durable assets and then you have -- then you put on top of it the Gulf of Mexico exploration, which we're getting ready to kick off at Anadarko that's going to have not only Phobos but, I think, several wells behind it for the next few years once we get things tightened up and probably be a little more articulate at the time of your conference that this is as good as it gets for us to continue to press the share count. One bit of history, when we issued -- we had to issue shares in 2009 post the financial collapse and make sure we had access to the bond market. That was a painful time for PXP and we started -- we were at 110 million shares and we issued another 31 million shares in 2 tranches, which the Street supported. So I think with time when oil is $125 is a good time for us to support the Street and be in a situation to reduce that share count back to historical levels.

Operator

Your next question comes from the line of Anne Cameron from BNP Paribas.

Anne Cameron - BNP Paribas, Research Division

Just a question about the share buyback, the 12.8 million shares, can you guide or give us like an estimate of how many of those shares were in the fourth quarter versus the first quarter or year-end share count?

Winston M. Talbert

Most of it was in the fourth quarter. We had probably about $90 million worth in the first quarter.

Anne Cameron - BNP Paribas, Research Division

Okay, great, great. And then back to the Haynesville volume, that looks like this is the first time your net volumes were roughly flat quarter-over-quarter. Do you think that was because -- and I know you talked about this at your Analyst Day, is that because you were going nonconsent on some of your nonoperated wells or was that just reflective?

James C. Flores

No, it has nothing to do with that. We have such a large inventory of uncompleted wells. We have such a large inventories of wells completed on restricted chokes. Some things -- some wells are being shut in from time to time. Basically with our restricted capital, we don't see any demolition of flow rates at 150 million a day till maybe end of '13, first of '14 before we need to start thinking about working from a standpoint of new drills. So we can nonconsent wells for a long time and keep the same production flat. That's how powerful that field is.

Anne Cameron - BNP Paribas, Research Division

Okay, got it. And then just lastly, and I apologize if you said this earlier, your LOE, your field OpEx jumped up a bunch this quarter. Can you talk about that a little bit?

James C. Flores

Sure we can talk about that. Winston, you want to take on that one?

Winston M. Talbert

Yes. We did have maintenance out in California but one of the biggest reasons is that our stock went up 62% in the quarter, and we have a lot of compensation down at the field level that uses stock and so we had a jump up in that as well. And we're also producing a lot more barrels out of the Eagle Ford. So as you start moving from gas production to oil production, the LOEs are just going to go up.

James C. Flores

And did you see what's offset with the steam cost, with the erosion of gas prices. So our total lease operating expenses didn't change that much.

Operator

[Operator Instructions] Your next question comes from the line of Ron Mills from Johnson Rice.

Ronald E. Mills - Johnson Rice & Company, L.L.C., Research Division

A couple of questions. Just on the Gulf of Mexico, I think you were recently, or you were the high bidder on a couple additional leases in the deepwater. Can you talk about whether those have been awarded? And if so, where they're located relative to the Lucius-Phobos area?

James C. Flores

Yes, Ron, actually, they've all been awarded at this point in time to PXP. And basically, we have 100% interest in those 2 large prospects, they're Phobos-like prospects, billion barrel plus-type opportunities, and we'll be joint venturing those with someone that look at us kind of net 50% interest in those projects, kind of alignment with Phobos is probably more realistic for PXP on some type of prefer-to-carry basis. The key about that was that was the first lease sales since the Macondo incident and we want to be aggressive there to lock up we felt were the grade A prospects in this Pliocene funnel trend that, obviously, Lucius, Hadrian and, hopefully, Phobos is going to be some of the most exciting production coming out of the Gulf of Mexico in the southern gulf. So for us, it's huge exposure. The key is of it we expect to hopefully put that together with our existing Anadarko portfolio, which is the prospects we purchased a week before the Macondo incident, that we haven't been able to drill yet and those would come behind Phobos. So really, we've got the Lucius production coming on, our Phobos drill here in '12, probably drill some of the Anadarko projects in '13 and these 2 projects, probably are slated for late '13, '14 in kind of a joint venture fashion. So we're building a tremendous Gulf of Mexico Pliocene exposure upside, all oil, that PXP is going to have a very low cost basis and a low exposure in to drive oil revenues beyond the Lucius startup and production ramp into 2017 and beyond.

Ronald E. Mills - Johnson Rice & Company, L.L.C., Research Division

And when you look or when you provide in your presentation the production build, as you look out 5, 6 years, you have Lucius in there, the risk explorations successes, is that primarily Phobos or does that also get into the other Anadarko operated in your recent lease awards?

James C. Flores

Yes. You're talking about the -- on Page 13...

Ronald E. Mills - Johnson Rice & Company, L.L.C., Research Division

Slide 13, yes.

James C. Flores

Yes. Gulf of Mexico risk -- that's basically risk, that's half of Phobos, basically. So it doesn't have any of the portfolio nor any of the 2 new prospects that we just picked up. So that's one of the things that we're -- it's going to be a big part of our operational success here at 2012 as get that in a position where we can talk about the plans a bit concretely.

Ronald E. Mills - Johnson Rice & Company, L.L.C., Research Division

And beyond the redirection of the capital from the Haynesville to the Eagle Ford that you talked about this morning, how much can you accelerate there? You mentioned over the next couple of years, you got to be wary of the marketing/infrastructure side of the business. Is that going to really be the limiting factor in terms of how much of acceleration is possible in the Eagle Ford over the next 12 to 24 months or is that even really a limiting factor?

James C. Flores

Yes. I may have voiced that incorrectly. That's our operational focus, it's not our concern. We've got that well in hand but that's absolutely our focus and we're going to land those there, we've got a lot of flow lines being laid, we got a lot of production facilities being put in, we've got a lot of gas -- associated gas, we've got a hookup, we've got -- no matter what the flow, we've got to get that gas sold. Those types of things are what we're focused on versus major reserve builds and those type of things afterwards. So our builds are going to come from lower operating cost, lower LOE costs and those things once we get up to scale. We don't see anything at this point in time that's going to keep us from ramping to 25,000, 30,000 barrels a day out there that, according to our plan, it's whether how fast we want to do it and what type of free cash flow we want out of it. You see the way it's modeled here in our plan, it's for our free cash flow model next year. We plan on keeping that in place as long as we're able to use the free cash flow to reduce our share count. We get the same growth rate whether we burn up a bunch of rigs or just compress the shares. So we think we have the right model for the Eagle Ford. And if oil prices stay well above $100 for a long period of time, we're going to make a lot of money out of there.

Ronald E. Mills - Johnson Rice & Company, L.L.C., Research Division

Okay. And then, Winston, one quick one for you on the guidance, particularly the LOE guidance. Do you -- is that really for field level LOE, so the fluctuation in stock price will impact the LOE beyond this $8, $9.50 to $10.50 or do you...

Winston M. Talbert

No. I think that's all kind of baked into the guidance that we gave. You'll only see -- you'll only really notice an increase in LOEs because of that when you have dramatic increases in PXP stock price.

Ronald E. Mills - Johnson Rice & Company, L.L.C., Research Division

Okay. I'm just trying to reconcile that with the noncash or the stock-based compensation portion of the guidance, are those...

Winston M. Talbert

That's for the G&A.

Ronald E. Mills - Johnson Rice & Company, L.L.C., Research Division

That's for the G&A, okay, perfect.

Operator

Your next question comes from the line of Joe Magner from Macquarie.

Joseph Patrick Magner - Macquarie Research

I just wanted to touch on some of the out year -- adjustments that may have been made. If I look at Slide #9 in your new slide deck, it looks like CapEx maybe ticked lower beginning in '13 for a couple of years and then the cash flow outlook longer term went up a little bit. Can you just talk about some of the shifts and the assumptions?

James C. Flores

Okay. That's your classic lower Haynesville, higher Eagle Ford, Joe.

Joseph Patrick Magner - Macquarie Research

So that's entirely what it ties out to?

James C. Flores

Yes, that's what it ties to. We're cutting our Haynesville CapEx over the long term until we're basically, say, in 2015, is when we'll start really establishing Haynesville sustainable fundamental spending. So we're making really the gas call, the gas space below $4 through 2014.

Joseph Patrick Magner - Macquarie Research

Okay. But no real other meaningful adjustments to expect with oil margins or cost?

James C. Flores

No. No, when you stop spending money on the gas business, and that's the key. You have your growth rate continue to accelerate while you're cutting CapEx. That's what PXP is going to be about the next 3 years.

Operator

Your next question comes from the line of Gary Stromberg from Barclays Capital.

Gary Stromberg - Barclays Capital, Research Division

Winston, just on the balance sheet, can you tell us how much was drawn on the revolver at year end?

Winston M. Talbert

A little over $700 million. We expect that to -- we expect to pay that down as we have free cash flow over the next couple of quarters.

Gary Stromberg - Barclays Capital, Research Division

Okay. And was there any other debt adds in the quarter? I guess, I'm just having trouble, and we can talk more offline, but in terms of that $3.76 billion in debt, what the other pieces are?

Winston M. Talbert

Yes, we still have about $50 million or so that we're going to get in from asset sales when we true up the acreage and that will probably come in the second quarter.

Gary Stromberg - Barclays Capital, Research Division

Okay. But the EIG funds did come in during the fourth quarter, right?

Winston M. Talbert

Again, that's where they show up as cash on the balance sheet. You can see that $420 million.

Gary Stromberg - Barclays Capital, Research Division

Okay. And then, Jim, back to the question on debt, how do you think about buying back stock versus reducing debt?

James C. Flores

Well, think about it this way, Gary, we're going to be opportunistic, it may be a little lumpy on the stock buybacks. We're going to -- we have, obviously, bought our stock, we'll probably go through a period of debt pay down. I think we're generating somewhere between $30 million and $50 million a month of free cash flow. So we can build that up pretty quick and then we'll just take advantage of what we see. I mean, it was pretty easy to buy the stock in the fourth quarter because of the outlook on oil prices and our business, where it's going, we have a pretty good view of that. So we have to buy it clumsily but we can also buy it smartly from a business and a forecasting environment. And what we're going to be doing, Gary, that really comfort everybody, the bond holders, the equity holders, to continue to extend our hedges. Hedging is the key to maintaining, I think, a good, safe, secure balance sheet at the same time, being aggressive when we have an opportunity. So you'll see us go through periods of debt repayment, and then you'll see us use the revolver as needed or as warranted depending on what we feel is good value on the equities. But what we're really showing everybody is the endorsement of our business plan. Number one, we truly are excited about where we are, the position, we don't need more assets. And if we weren't buying stock and piling up cash, you'd all be worried about whether we were going to do something or buy something or try to make some strategic gas business. Our aspect is we're about creating value for our stakeholders both from the bonds, on the equity side. And if we can execute this plan with the tax assets we have, with the free cash flow we're doing, if free cash flow starts going away because lower oil prices, obviously, we'll slow down the stock buyback. We're not into recapping our company, we're into taking advantage of what we see as a doubling of our oil revenues the next 3 years and production that does being unrecognized in the marketplace. So we're going to take advantage of it here, near-term, and be in a position and really appreciate the support of all the bond holders and with our large credit facility and this is going to be a nice disciplined story, we're not going to get out over our skis and stay well hedged to protect everyone.

Operator

I would now like to turn the conference back over to the presenters for any closing remarks.

James C. Flores

Thank you, operator. I really enjoyed delivering the 2011 results and obviously 2012 is looking a lot stronger. We'll see everybody at the first quarter call this spring. Thanks so much.

Operator

Thank you. That 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's CEO Discusses Q4 2011 Results - Earnings Call Transcript
This Transcript
All Transcripts