Plains Exploration and Production Company Q1 2008 Earnings Call Transcript

| About: Plains Exploration (PXP)

Plains Exploration and Production Company (NYSE:PXP)

Q1 2008 Earnings Call

May 8 2008 15:00 pm ET

Executives

Scott Winters - Vice President of Corporate Communications

Jim Flores - Chairman, President and Chief Executive Officer

Doss Bourgeois - EVP of Exploration and Production

Winston Talbert - EVP and CFO

John Wombwell - EVP and General Counsel

Hance Myers - VP of Investor Relations

Analyst

Larry Busnardo - Tristone Capital

David Kistler - Simmons & Company

Stacy Nieuwoudt - Tudor, Pickering, Holt

Michael Bodino - Coker and Palmer

Nick Pope - JPMorgan

Andrew Coleman - UBS

Operator

Good afternoon. My name is Julian, and I will be your conference operator today. At this time, I would like to welcome everyone to the Plains Exploration first quarter 2008 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question and answer period. (Operator Instructions). Thank you.

It is now my pleasure to turn the floor over to your host, Scott Winters, Vice President of Corporate Communications. Sir, you may begin your conference.

Scott Winters

Julian, thank you very much and good afternoon, everybody. Welcome to PXP’s first quarter 2008 earnings conference call. Copies of our 10-Q and earnings results are available on our website at pxp.com. We reaffirmed our full year 2008 operating and financial guidance, which we originally issued back in December of 2007 and subsequently updated in March 2008 to reflect the impact of the South Texas property acquisition. This conference call is being broadcast live on the internet and any one may listen to the call or the replay by accessing our company website.

Before we begin today's comments, I would like to remind everybody that during this call, there will be forward-looking statements as defined by the Securities and Exchange Commission. 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, 10-Q, and 8-K filed with the SEC for a complete discussion on forward-looking statements.

On the call today is Jim Flores, our Chairman, President and CEO, Doss Bourgeois, our EVP of Exploration and Production; Winston Talbert, our EVP and CFO; John Wombwell, our EVP and General Counsel; and Hance Myers, our VP of Investor Relations.

PXP reported net income of $163.5 million in the first quarter of 2008 compared to net income of $20.6 million in the first quarter of 2007. The stronger results reflect the impact of the 2007 acquisitions, higher commodity prices and improving unit economics and cost structure.

On a per share basis, PXP reported net income of $1.43 per diluted share in the first quarter of 2008, compared to $0.28 per diluted share in the first quarter of 2007. This represents the fourth consecutive quarterly improvement. In addition of earnings, a number of performance metrics were stronger in the first quarter of 2008 compared to the first quarter of 2007. Those metrics include oil and gas daily sales volumes which increased to 84% and are higher for the fourth consecutive quarter. Realized oil prices, which increased to 89% of NYMEX prices from 83%, revenue which increased 177% to $623 million from $225 million, production cost per barrel of oil equivalent decreased 4% and are lower for the third consecutive quarter.

Gross margin for BOE before DD&A increased 82% to $53.70 per BOE, and is higher for the fifth consecutive quarter. Operating cash flow which was approximately $350 million for the quarter is a 270% increase and a fourth consecutive quarterly gain. Operating cash flow is a non-GAAP measure and reconciliation is included all along with the press release.

Now, for some specifics, average NYMEX pricing for the first quarter was $97.82 for oil and $8.02 for natural gas. The average realized price for oil was 89% of NYMEX price in the first quarter. Our average realized price for oil increased $38.81 to $87.03 per barrel for 2008 from $48.22 per barrel in 2007. The increase is primarily attributable to stronger NYMEX oil prices and from improved prices we received on a portion of our heavy crude oil sold under contract in California. The average realized price for natural gas was 98% of the NYMEX price in the first quarter of 2008, our average realized price for gas $7.90 in 2008 compared to $7.08 in 2007. The increase is primarily attributable to the improvement in NYMEX gas price, which was partially offset by higher differential for the Piceance Basin properties.

PXP's gas price realization for the first quarter of 2008 was above our annual guidance range. The increase is due to higher spot prices relative to the published index prices during the quarter.

Revenues in the first quarter of 2008 compared to the prior year period increased approximately 177% and this was due to the Pogo and Piceance Basin acquisitions, stronger oil and gas prices and improved crude oil price realizations. Total production cost on a per unit basis improved 4% to $17.50 per BOE during the first quarter of 2008 compared to $18.25 BOE in the prior year period.

The per unit lease operating steam gas and electricity cost were lower due to higher volumes during the period, but were partially offset by higher per unit gathering and transportation and production and ad valorem tax costs, which are associated with the addition of the Pogo and Piceance Basin properties.

PXP reported $39.9 million in G&A for the first quarter of 2008, which does include about $4.5 million in Pogo merger related cost. Excluding those cost, total G&A cost per barrel of oil equivalent decreased 15% to $4.07 per BOE. PXP recognized a $9.5 million loss related to the mark-to-market derivative contracts in the first quarter of 2008. Cash payments related to the contracts totaled $21.8 million, about $17.1 million of the cash payments are associated with the crude oil differed premium put options. The balance of the cash settlements are associated with crude oil and natural gas callers.

The balance sheet is stronger at the end of the quarter than at year-end 2007. Total debt-to-cap was 40% on March 31 compared to 50% on December 31, 2007.

Proceeds from the asset divestments were predominantly used to reduce debt and repurchase PXP common shares. As previously reported, PXP repurchased about 5% of its outstanding common shares or 5.77 million with $304 million in the first quarter which leaves about $696 million remaining under the $1 billion stock buyback authorization.

So PXP continues to deliver strong results and as well operation results. Operationally, we have reported continued positive results from the Flatrock area which is indicating now a major discovery. As previously announced by the operator; first production commenced in January 2008 from the discovery well number 1. The number 2 discovery well tested about 114 million cubic feet equivalent per day gross. The number 3 well encountered pay and drilling operations are ongoing. The fourth well commenced drilling in April and more wells are planned. There are currently three rigs running in the area.

PXP expects to see continued production growth in the Flatrock area, as the first production from the second discovery well and from Cottonwood point began around mid 2008. PXP also commenced drilling at the Mound Point East exploratory well on Louisiana State Lease 340 on March 31, of this year. We are currently drilling below 12,700 feet level to a proposed total depth of just over 18,000 feet. PXP's working interest is 43.4%.

We commenced drilling by re-entering the well bore at South Timbalier 168 on March 18 of this year and we are currently drilling below 30,900 feet to evaluate potentially significant Miocene exploratory targets. As announced by the operator, wireline logs have indicated, the well has encountered a potential hydrocarbon bearing zone, which will be further evaluated after the well is drilled deeper. The well has been permitted to a proposed total depth of 33,000 feet to evaluate additional targets. PXP's working interest is 35%.

So the recent activity in the Gulf of Mexico remains high and is providing a solid prime work for continued growth. In the Piceance basin gross volumes increased 6% in the first quarter of 2008 compared to the fourth quarter of 2007 and has increased just over 60% since the acquisition in the second quarter of 2007. We continue to operate five rigs and expect to see continued production growth in this area as well.

The Panhandle Ranches area and our South Texas position where we recently expanded our presence are getting a lot of drill bit activity this year. So we will have more information from these areas as the year progresses. With respect to our T-Ridge project, PXP received support for the project from a collation of environmental and conservation groups, and received Santa Barbara County Planning Commission approval of the T-Ridge final development plan, which is one of the necessary government approvals for such project. Both of these events occurred in April.

This is a new news, but just want to be sure to say, we closed the XTO and OXY asset divestment transactions in February this year for about $1.7 billion in cash. One final accomplishment we closed the South Texas property acquisition in April for about $288 million. The acquisition expands one of our core operating areas and has cash flow and an attractive development project inventory.

PXP is now active in a number of high quality basins with an expanded inventory of cash producing and growth opportunities several high end big projects and improving unit economics and cost structure. After several years of aligning our asset base PXP is well positioned to continue growing production from the development assets, maximizing free cash flow generating assets, delivering upside growth via high quality, high impact projects, maintaining our financial flexibility and repurchasing PXP shares.

With that I will turn the call over to Jim.

Jim Flores

Thank you Scott and good afternoon everyone. I think that was very comprehensive report of all the activities. It has been a very busy quarter in the first quarter and really finishing up a lot of the business that we initiated in 2007. During that low gas and oil price environment where we were able to reposition the company take maximum advantage of the crude oil and natural gas prices. As well as been able to physically control our cost-to-volume increases in the existing infrastructure and existing fields and do a lot more development work around them. To make sure you offset the cost inflation that is not only with us but we are anticipating going forward. Some of the capacity that is been in the recent quarters available on the service side will be soaked up.

The interesting thing about our financial flexibility going forward is with our floors on the hedging program being initiated on our crude oil flows. We are fully exposed except for 2,500 barrels a day to this magnificent oil price. We plan on being very judicious with that additional capital. Funding growth opportunities for the company and managing our balance sheet and of course buy-back our precious stock.

We are going to continue that program aggressively since we were successful in buying a lot shares in the first quarter. The $300 million worth will be reporting the number of shares we brought in the second quarter at the end of the second quarter consistent with what we did in the first quarter going forward.

Operationally we are running on all cylinders there with a lot of good things ahead of us, with the spreading of our Vicksburg II, which has now been efficiently named Fredericksburg by the operator next week. We are excited to see that well going down into Southern Canyon. Also we have signed definitive agreements with Shell to drill a project more in the Central Gulf and the Paleogene called Salida.

It is a project that has got tremendous reserve potential, its about 10 miles north of the Kaskida discovery that BP and Devon now own that is so large and we are very excited. We think its one of the top projects in the Gulf of Mexico to be drilled here in the fourth quarter this early next year.

So we have been active in the opportunity capture area, as well as working on the various permitting of different projects. T-Ridge and alike, and happy to take your questions at this point in time after that comprehensive report and give your further updates.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is coming from Larry Busnardo with Tristone Capital.

Larry Busnardo - Tristone Capital

Hey, good morning, Jim or good afternoon I guess now.

Jim Flores

Good afternoon Larry. How are you?

Larry Busnardo - Tristone Capital

It has been a long day. Can you just run us through the process or the remaining process at T-Ridge. I know you have got a couple of the steps out of the way and run it down in terms of the timing and when we can expect things to happen here going forward.

Jim Flores

Well, as we understand it and all of this has been dictated by the government agencies in California, not us. So we have to be response to it. Basically here in the second quarter, we should give you by quarters, because of the dates are -- they have websites and you can find that type of thing. We are looking forward to understanding the Santa Barbara County Planning Commission final recommendations to the office of state lands and the office state lands commission should grant the lease and then it will go to the California Coastal Commission in the third quarter that will grant their permit and then get final approval by the MMS for operations off of the federal platform, and we plan on having drilling operations commenced by October 1st and hopefully first of all by year end.

Larry Busnardo - Tristone Capital

Okay. Is there anything that needs to be done from a facility standpoint, once you drill and to bring those wells on, there was everything already in place?

Jim Flores

Well, we are producing 9,000 barrels a day net out there right now, so the easy answer is no. The more specific answer is as we are bringing on a different reservoir, different landowners, we are going to need some duplicate vessels and things of that nature and be an offshore. We probably drilled the first well have established the production and established commerciality. Then we will have probably 60 days of some light construction as far as bringing those vessels on and make sure Mirs and those types vehicles before we resume drilling and production on the rest of the reservoir. At the same point, Tom we will continue producing obviously our point head. So, I think the first quarter will be more around getting organized next year and then we will be having continuous operations from the second quarter '09 throughout the development.

Larry Busnardo - Tristone Capital

Okay. Shift note to the Gulf of Mexico, you nearly have to bare right now with the wells you have got drilling, I know you mentioned Salida, is there a timing of that well.

Jim Flores

It can be fourth quarter of '08 or first quarter '09.

Larry Busnardo - Tristone Capital

Okay. Alright. would you give us an update on Friesia?

Jim Flores

Friesia right now, Friesian's in a delay period right now. you will get multi-headed parties there between our partner Shale, BP and the MMS. It is a complicated situation. We tailor by just pause on Friesian and we will update them in the second quarter.

Larry Busnardo - Tristone Capital

Okay. Alright. Then, just one last one, you mentioned three rigs and Flatrock, I know there is one in the third well, one in the fourth well, where is the other one?

Jim Flores

Well, actually there is probably four wells and four drilling rigs in Flatrock right now. Camperdown Mound point East. In the whole concept you have got, they are really accelerating. Again we are getting organized there with twin production facilities and Chevron and MacBrayne and us and what we can do and continuing the Valacad I call it development where we continue to field wide development and usual peep we are finding another pay sands. So, the numbers are going to move around a little bit. We may get to may be more than four rigs running at some point in time and back down.

So, think about it from a standpoint of we have three rigs right now drilling Flatrock reservoirs plus the deeper targets and we have one rig in Mound Point East that is more of a step out to the Operc reservoir that we found in the deep side of Flatrock in the same mini basin and that could set off a whole new set of development on the east side of the basin as well. So, that is more of a exploitation well versus a pure development well.

Larry Busnardo - Tristone Capital

Right, I guess I forgot about Mound Point being a part of that whole area there.

Jim Flores

Right.

Larry Busnardo - Tristone Capital

Alright, great. Thanks a lot Jim.

Jim Flores

Thank you, David.

Operator

Thank you. Our next question is coming from David Kistler of Simmons & Company.

David Kistler - Simmons & Company

Good afternoon, guys.

Scott Winters

Good afternoon.

David Kistler - Simmons & Company

With respect to the Piceance, what percent of your rigs right now are drilling the acreage to hole versus moving to the pad drilling you have talked about in the past or the manufacture drilling process.

Jim Flores

Well it is, we are probably -- I would say use the figure 18% four out of five rigs are moving toward production development. On moving to the hole, we are really, we really moving another rig up there. We are really in the process now that we move well further down the explore, of regulatory trail to ramping that up over the next 18 months to where it will be moving a lot more, given a lot more product through the lines there, a more of a development. So, if you use, if you use one to hold acreage and every rig we add now is basically for development. So, as we go from five to six, seven and eight, we will continue to use one to hold acreage and that is stand point..

David Kistler - Simmons & Company

With that in mind, can you give us some thoughts about how you see that production ramping up or when you see yourself moving to six and seven rigs?

Jim Flores

This is a fluid question right now because you now only got rigs, you have got marketing and we are working on something is on the basin and I would not want to get ahead of some of the long-term marketing opportunities that we have because of all of proposed pipelines and marketers and so forth.

So, basically we told everybody that we should get to the gross number about a $125 million, $130 million a day at year end '08 and then be increasing that rate of probably $30 million to $40 million a day. Therefore until we have $250 million to $300 million out there, which we anticipate in about four to five years. It depends on how many rigs we put out there, what cost are, and such type of things but our goal is to be between $250 million to $300 million a day out four years now, that will be our five year model, when we purchase the project.

The actually thing out here right now is that the differentials and all the marketing is really tightened up and we see a lot of flexibility going forward as for us build the market product. We are aware of the water differentials going out further in the next couple of years, and surprised with all the capacity we see to market our gas that they must, that we see more of a contractual type anomaly there versus a real packing of the supply lines for the existing pipelines and not to mention even the pipelines that are being proposed and the things we are trying to contract on the marketing side. So, we think that Piceance is going to be a pretty nice place to be in the gas business for next several years based on some of the realizations that we are getting right now.

David Kistler - Simmons & Company

Okay. Jumping to California for one second, on the residential line that you guys have that you rezoning. Any update on that still targeting end of this year start of next year?

Jim Flores

Yes let's that process in ongoing. I mean, it is gone through the, more of the Federal and State County regulatory. We are down to city where the city, there is obviously variance in the tax base. So we are going through the process there and being very thoughtful. One thing, the credit crunch has done is shells a lot of our monetization opportunities this year and we have been guided by the two some time, mid next year as a monetization opportunity for us assuming that is in the credit market could help out a buyer.

Dave Kistler - Simmons & Company

That asset is going to be treated separately from anything related to T-Ridge etcetera. You do not see those two getting tied together in anyway?

Jim Flores

Well, you never say never anywhere, especially in California, but Montebello is in Los Angeles County and T-Ridge is in Santa Barbara. So that is two different mind sets anyway.

Dave Kistler - Simmons & Company

Great. Well, thank you for the clarification, guys.

Operator

Thank you. Our next question is coming from Stacy Nieuwoudt with Tudor, Pickering, Holt.

Stacy Nieuwoudt - Tudor, Pickering, Holt

Good afternoon, Jim. What is your working interest in Salida?

Jim Flores

In Salida we will have a 25% interest.

Stacy Nieuwoudt - Tudor, Pickering, Holt

Okay, and then on the Piceance, over the next couple of years, can you walk us through your take-away capacity expansion timeline and also where you see differentials going?

Jim Flores

Well, Stacy, you must know if I will just cover that with another question on the differentials. We are pretty comfortable with it, but we have locked in some differentials plus we are looking at being one of the major players up there. So we are getting some long-term pricing opportunities that we are going to take advantage of, and when those become realized, hopefully here in the second quarter, we will be able to give you all those thoughts.

However, as far as our ramp up of production it is pretty consistent, where we will be able to ramp it up by adding rigs going forward. Now that we have our operation under control and how we want to do it and efficiently and help drive our costs down to where we are going to go from about $125 million to $130 million a day at year end '08. Then grow it up $30 million, $40 million, $50 million a day rate from there going forward to the 250, $300 million a day rate by year four from this point forward.

Stacy Nieuwoudt - Tudor, Pickering, Holt

Thanks guys.

Jim Flores

Thank you.

Operator

Thank you. Our next question is coming from Michael Bodino with Coker and Palmer.

Michael Bodino - Coker and Palmer

Good afternoon guys.

Jim Flores

Hi, Mike.

Michael Bodino - Coker and Palmer

Couple of quick questions most of my questions have been answered. However, related to OXY transaction, I know there is lot of questions coming in on the Piceance basin. Now that the deals closing up had some time to work together, are there any changes out there with respect to the activity or ideas of how activity is going to progress in the Piceance or in the Paradox basin?

Jim Flores

Number one, you meant Permian basin, right?

Michael Bodino - Coker and Palmer

Yes, I am sorry.

Jim Flores

I know it has been a long day for everybody, with OXY operating in the Permian Basin. No, they have been operating now for about 40 days, 45 days they basically have been executing the plan that we QC from and ramped up from actually the Pogo year budget plan. So they are going to be, all this year getting their feet on the ground, they have done a great job, they have drilled some great wells in the Permian, which we are happy to add to our product.

Scott Winters

They have got some really good ideas and our guys are working real well together. However, we expect great things starting out of the Permian with OXY starting in 2009.

The Piceance, we are looking just to expand our presence with OXY in the Piceance. They are excited about what we are doing, where we are running our business and where all systems go there, could not be a better shape.

Michael Bodino - Coker and Palmer

So, it is fair to say that most of the impact to you in that area and the Permian is going to be more '09 and we will see that more reflective in next years budget than this years?

Jim Flores

Yes, from a standpoint, still an impact this year, but I would just. OXY had only been operating for 40 days, I just do not expect a whole lot, and we will give them a chance to get on their feet and everything else and get fully integrated in their system and get to a budget cycle where they can actually implement their own -- look at the projects and something they author instead of taking our stuff and just execute it.

Michael Bodino - Coker and Palmer

Okay. My other question Jim, one of the things I was curious about now that you have digested and gone through all the year end at Pogo, we know a lot of about most of the assets, have you all found anything else in the files there that has you excited or is there a potential additional divestitures?

Jim Flores

No, the excitement comes around; we were able to acquire Pogo at $60 oil and $6 gas, only six, seven months ago. So its doubled in value just off of the commodity price and number two is, as we sit down looking at it and go, what is wrong with great cash flow and consistent assets. If we put last year together with Pogo, the Piceance, yet Pogo owned the Piceance we brought it all in one package. That is a great growth area. That is complimented by the Panhandle area and the Ranches area up in North Texas and then the South Texas assets is very consistent. The Vietnam option is interesting, New Zealand options on the East Coast is interesting. So it is what it is, what its done for us, is really been able to give us a good look at these gas prices.

Michael on April 30th of last year we were consuming 20 million a day of gas in this company. We did not have any gas production. Today we have a significant 230 million to 240 million a day gas business to the plus side at record gas prices, and with a lot of development to do. So we are tickled to death about what Pogo has done to our business in the Piceance from last year and really feel like the execution is in hand for us to maximize those assets in a way they have never been maximized before with these prices and the talented team that we put on it. So we are very pleased.

Michael Bodino - Coker and Palmer

Given record commodity prices and the fact that you turn off a little bit more free cash flow. Are you still being opportunistic, you see more opportunities; I know you mentioned the Salida deal that you took a piece of. Could we potentially see more opportunities like that on the horizon here?

Jim Flores

Well, we are hampered in our exploration effort. Our exploration outlook has forced more opportunities like that with the success that we have had. We have capacity for our (inaudible) gas for a few choice things but not a whole bunch, because we are in full development mode at Flatrock. We are in a development mode, at Vicksburg. We are hopefully developed mode at freezing. We will figure out what is going on there and then.

So we are going to be very judicious about our exploration. Its going to be large and impact full, but it is only going to be the best of the best, that what we are looking at it because our development business is growing so fast and the near term cash flow and growth out of the development business is frankly more recognized and valued by the street and we get more value added internally to the corporation because we are selling more barrels in MCS in this price environment instead of waiting a few years to do it. That is what T-Ridge is so important on the development side.

We have a tremendous amount of projects that the next two or three years is going to be just us putting our head down and getting it done. As far as other projects, I do not think there is anything out there operated that we would pursue if we did something a bolt-on, or add some acreage or something like that it'd be in a non-operated fashion. We want it full out.

Andrew Coleman - UBS

I appreciate it. Great quarter, guys. Thank.

Jim Flores

Thank you.

Operator

Thank you. (Operator Instructions).

Our next question is coming from Nick Pope of JPMorgan.

Nick Pope - JPMorgan

Hello, guys.

Jim Flores

Hi Nick.

Nick Pope - JPMorgan

Quick question I was curious with South Tim 168. If that well is ultimately successful, how are you all positioned in terms of acreage and partnerships to benefit from what that could potentially open up, the trend that that could potentially open up for development?

Jim Flores

Well, the buying on the play was participating the well, but by a 35% interest in the 90,000 acres that we have on structure on all of the additional prospects. What is interesting about these prospects are very large and that is only about say 6 to 8 prospects, so we have enough drilling for eternity for this company to drill these types of projects based on success there. On all the additional prospects, we were able to hold that acreage together in the deal.

Nick Pope - JPMorgan

You will have the same working interest in this well and that acreage, is that right?

Jim Flores

In that 90,000 acres, that is correct.

Nich Pope - J.P. Morgan

Okay. Now moving onto Mound, what you all seeing in terms of drilling cost and service cost as you have been bringing onto these new rings, have you seen that trend moving on here recently?

Jim Flores

It is all over the board. Most of these rigs are under contract, MacBrayne has got them on the contract. We have got for examples project of Piceance, long-term, this is pretty flat as lot of, there is some extra capacity on the services side. We haven't been beating down our vendors like lot of operators have. We left things level and kept things consistent, hire well for a while and let's try to have consistent operation because the way commodity prices have worked out, and we think we have got real good servicing and shown a lot of operation efficiency and that is really where you are. You pick up the real money as in the quality service out of the service side, not necessarily beaten down for 10% discount.

Nich Pope - J.P. Morgan

Got it. Alright that is all I have, thanks guys.

Operator

Thank you. (Operator Instructions) Our next question is coming from Andrew Coleman of UBS. Andrew your line is live.

Andrew Coleman - UBS

I am sorry about that guy. Can you hear me now?

Jim Flores

Sure Andrew, how are you doing?

Andrew Coleman - UBS

I just had a question about the onshore California assets, how are things are going in LA Basin and the San Joaquin Basin?

Jim Flores

Things are going fine. There we are, went full bloom in our development program in the San Joaquin Basin right now with capital being spending on the spring. We are working very hard on a project. You might heard about Arroyo Grande, it is a steam flood acceleration project. It is actually in San Luis Obispo where we are, we needed some additional water discharge here to start ramping that project up and we recently heard favorable ruling on that. So you will keep that in mind, could be a nice grower of production but a significant reservoir going forward.

As well as LA basin, we have been working on the real estate there and continue to more in a maintenance mode in LA basin, and we have been doing lot of remapping of the fields and so forth at the same point in time following a little more, filing a more comprehensive drilling permit that we look forward to kicking off late this year in early '09. So, next year is going to be a big year for the LA basin in drilling.

Andrew Coleman - UBS

Okay, what is the approximate maintenance CapEx level for those assets, is it about 30%, is that roughly to think about it?

Jim Flores

No, it is much, much lower than that Andrew. Basically, on to our California, we send them a $100 million of maintenance and everything CapEx and they send us $800 million of revenue back, so the map there is pretty compelling.

Andrew Coleman - UBS

Definitely and then last thing from a modeling standpoint, with the Pogo gas that is coming in, are you able to may be swap some of that gas to a lower some of the fuel gas usage in your input.

Scott Winters

Oh, no. I mean, at the end of the day, we just feel like we are internally hedged, because we are exposed to the gas price in our other basins.

Andrew Coleman - UBS

Okay.

Jim Flores

So, every dollar increase in gas price, it is about $70 million to $75 million net to the company, so it offsets the expense.

Andrew Coleman - UBS

Okay, fair enough. Thank you.

Scott Winters

All right.

Operator

Thank you. At this time, there appears to be no further questions. I will turn the floor back over to Mr. Jim Flores, for any closing remarks.

Jim Flores

Great, thank you all for the interest in the call. So forth it has been a very busy first quarter. It has been very prolific for the company. It has been the highest quarter in earnings that we have ever had on a recurring basis. We have had some with asset sales and we hope to continue this type of performance going forward. So, we will see everybody in the second quarter. Thank you very much.

Operator

Thank you. This does conclude today's Plains Explorations first quarter 2008 earnings conference call. You may now disconnect.

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