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Plains Exploration Ups Budget, Drilling Plans

Plains Exploration & Production Co. (PXP) last week raised its capital budget to $1.2 billion, up from a previous plan of $900 million to $1.1 billion, to develop a plethora of natural gas and oil prospects both onshore and offshore.

The boost to spending would increase PXP's annual production growth target through 2014 to 15% from an earlier forecast of 10%. The average annual reserve growth target also was raised to 20% for the next several years, said CEO Jim Flores. He discussed the company's outlook as well as its performance in 4Q2009 during a conference call with financial analysts.

"Our 2010 $1.2 billion capital spending plan leverages on PXP's 2009 accomplishments and the contribution from multiple assets," Flores said. "Our resources will be primarily directed to the Haynesville Shale, continued development activities in California, South Texas and the Panhandle, and our exploration and development projects in the Gulf Coast and Gulf of Mexico [GOM]."

Several other producers also have raised their capital expenditure (capex) forecasts for 2010 including Enid, OK-based Continental Resources Inc., which increased its capex for the year by 31% to $850 million to accelerate gas and oil drilling in the Anadarko Woodford and Bakken shales. Continental said Thursday it now expects production this year to jump around 13% from an earlier forecast of 10%.

For PXP, the possibilities to add proven reserves in the coming years seem endless, Flores said. "Our corporate goal is to double production by year-end 2014 and to remain balanced between oil and gas," he said. "We accomplished a lot of things last year that put us on track for very predictable growth."

PXP's proved reserves in 2009 increased 23% to 359.5 million boe and its reserve replacement was 320%. In 4Q2009 revenues of $367.7 million generated $48.1 million of net income (34 cents/share). Excluding one-time items, PXP earned $192.6 million ($1.37/share) in the final three months of 2009. Net cash in the quarter provided by operating activities was $189.2 million; operating cash flow was $465.5 million.

In the GOM, PXP last year announced Friesian delineation drilling success and participated in discoveries at Davy Jones, Lucius and Blueberry Hill (see NGI, Feb. 1; Jan. 18). For Friesian, early stage commercialization initiatives for production are under study, and appraisal and further drilling is set to continue in 2010 at Lucius, Davy Jones and Blueberry Hill.

"We viewed 2009 as a year of identification and look to 2010 as the year of confirmation," Flores said of the GOM. "We are planning follow-up drilling at our Davy Jones and Lucius discoveries and new drilling at our Blackbeard East and Phobos exploratory opportunities in which PXP has a 26.25% and 50% working interest, respectively. Our highly successful Flatrock development contributed meaningful sales volume growth during 2009. We are drilling Blueberry Hill to expand upon our Flatrock success."

Onshore in the Haynesville Shale PXP's average output in 4Q2009 was about 75 MMcfe/d net, which is 43% higher than in 1Q2009. The shale play, where PXP partners with Chesapeake Energy Corp., is expected to increase output to about 125 MMcfe/d net to PXP by the end of this year.

"During 2010, Chesapeake is expected to operate an average of approximately 40 rigs [in the Haynesville], and other operators are expected to operate 15 or more rigs on our acreage," Flores noted.

"In the Texas Panhandle, we look forward to drilling our Granite and Atoka Wash positions in which PXP holds approximately 19,500 net acres," said the CEO. "We recently spud our first horizontal test well and expect to spud a second test well in early second quarter 2010. A total of 14 wells are planned in 2010 out of the approximately 58 primary Granite Wash locations." PXP also plans to test its Big Mac project in Southeast Texas in the second quarter. In the Big Mac play, "we have documented about 30 to 40 leads, all amplitude driven."

"We begin 2010 positioned to continue efficiently growing production and reserves per share with contribution from multiple asset areas over the next several years," said Flores. "Our current business model incorporates production contribution from three Gulf of Mexico projects, one per year for three years starting in 2012, which have the potential to increase the corporate target growth rate to 15% through 2014. We believe our balanced portfolio of assets, our 2009 deleveraging transactions, and ongoing hedging program position us well for both the current commodity price environment and future potential upside as we develop our attractive resource opportunities."

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