two-step goodwill impairment test. If it is determined through the qualitative assessment that it is not
more likely than not that the fair value of a reporting unit is less than its carrying amount, then
performing the two-step impairment test is unnecessary. The qualitative assessment is optional,
allowing companies to go directly to the quantitative assessment. As of December 31, 2011, we have
elected to continue performing our annual goodwill impairment assessment under the quantitative
two-step impairment test.
The first step of the goodwill impairment test requires that we make an estimate of the fair value of
the reporting unit. Quoted market prices in active markets are the best evidence of fair value. We
estimate the fair value of the reporting unit by applying a control premium to the quoted market price of
our common stock. We determine the control premium through reference to control premiums in
merger and acquisition transactions for our industry and other comparable industries. This requires that
we make certain judgments about the selection of merger and acquisition transactions and transaction
premiums.
We perform our goodwill impairment test annually as of December 31 and have recorded no
impairment. We also perform interim impairment tests if events occur or circumstances change that
would indicate the fair value of our reporting unit may be below its carrying amount.
Events affecting oil and gas prices may cause a decrease in the fair value of the reporting unit,
and we could have an impairment of our goodwill in future periods. An impairment of goodwill could
significantly reduce earnings during the period in which the impairment occurs and would result in a
corresponding reduction to goodwill and equity.
Noncontrolling Interest in the Form of Preferred Stock of Subsidiary.
Noncontrolling interest in the
form of preferred stock of subsidiary represents third-party ownership in the net assets of our
consolidated subsidiary Plains Offshore Operations Inc., or Plains Offshore, in the form of convertible
perpetual preferred stock and associated non-detachable warrants, which are classified as permanent
equity in our consolidated balance sheet since redemption for cash of the preferred stock is within our
control. See Note 4 – Noncontrolling Interest in the Form of Preferred Stock of Subsidiary.
Business Segment Information
. We acquire, develop, explore for and produce oil and gas in the
United States. We allocate capital resources on a project-by-project basis across our entire asset base
to maximize profitability and measure financial performance as a single enterprise and not on an
area-by-area basis. Accordingly, we have one operating segment, our oil and gas operations.
Stock-Based Compensation
. Our stock-based compensation cost is measured based on the fair
value of the award on the grant date and remeasured each reporting period for liability-classified
awards. The compensation cost is recognized net of estimated forfeitures over the requisite service
period. See Note 10 – Stock-Based and Other Compensation Plans.
Pension.
As a result of our acquisition of Pogo Producing Company we recorded assets and
liabilities for a defined benefit pension plan. We terminated the plan and in May 2009, we made final
lump sum distributions and annuity purchases in settlement of the plan’s obligations and recognized in
income the remaining balance in accumulated other comprehensive loss.
Recent Accounting Pronouncement
s. In December 2010, the FASB issued authoritative guidance
clarifying the acquisition date that should be used for reporting the pro forma financial information
disclosures when comparative financial statements are presented. The guidance also improves the
usefulness of the pro forma revenue and earnings disclosures by requiring a description of the nature
and amount of material, nonrecurring pro forma adjustments that are directly attributable to the
business combination. We adopted the provisions of this standard effective January 1, 2011, and it did
not have a significant impact on our consolidated financial position, results of operations or cash flows.
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