3
2011 ANNUAL REPORT
James C. Flores
Chairman, President and
Chief Executive Officer
TO OUR SHAREHOLDERS
With outstanding consecutive quarter-to-quarter production
growth and excellent operating results, PXP had another
exceptional year. We continued to implement our oil
growth strategy, which resulted in a very busy year and
put us in an excellent position to continue delivering
impressive financial and operating results during a period
that has proven to be a structurally strong oil market and
a weak natural gas market. We secured financing for our
premier Gulf of Mexico assets and responded to changing
oil differentials, lower interest rates, and a weak gas market
by renegotiating our oil marketing contracts, refinancing
a portion of our long term debt and strengthening our
hedging program.
Among the many accomplishments achieved for the year,
our net income attributable to common stockholders was up
nearly 100% compared to 2010, and PXP achieved record
sales volumes. In addition, PXP delivered substantially
higher proved reserve value, improved cash margins and
solid reserve additions. These attributes are the building
blocks for sustained value creation and align with our
fundamental asset intensity philosophy.
Underpinned by our cornerstone California assets, we
focused on our oil growth strategy by accelerating our
Eagle Ford Shale activity. To enhance our oil margins,
we moved our Eagle Ford Shale and California pricing
mechanisms away from West Texas Intermediate pricing
to Brent based pricing by negotiating changes in our crude
oil marketing contracts. In November, we completed
$450 million in financing for a 20% preferred equity
interest in our subsidiary to develop our offshore Gulf of
Mexico oil assets. The financing provides capital for the
development of Lucius Oil Production Facilities and for
additional exploratory drilling opportunities beginning
in 2012 with our large Phobos prospect. Lucius Field oil
production is expected in 2014.
As a result of the weakened gas market, we strategically
divested our natural gas assets in the Texas Panhandle and
South Texas in 2011 for $735.8 million. We are managing
our gas assets to be cash flow positive as we move into
2012 by reducing gas focused capital expenditures and
expanding our hedging program. Our gas portfolio includes
assets in the Haynesville Field, the Madden Field, and
our equity investment in McMoRan Exploration Co. PXP
owned 51 million shares of McMoRan common stock at
year-end 2011.
Financially, with the current
historically low interest rates, we
issued $600 million 6
5
/
8
% Senior
Notes due 2021 and $1.0 billion
6
3
/
4
% Senior Notes due 2022 and
redeemed $1.3 billion of higher
coupon Senior Notes. These
transactions resulted in lengthening
our debt maturity schedule and
lowering our overall interest rate.
PXP continues to maintain a comprehensive hedging
program to protect against downside risk and unpredictable
commodity prices. Through various derivative instruments,
we have significant oil and gas hedges in place through
2014. Oil and liquids sales revenue as a percentage of total
revenue is expected to be approximately 90% in 2012,
compared to 78% in 2011.
In late December and early January 2012, PXP repurchased
12.8 million shares of common stock, thereby reducing
our share count by 9% and increasing the benefit of the
forecasted increase in oil volumes and corresponding cash
flow for each shareholder.
With significant proven reserves and development resource
potential, we are in an excellent position to continue
maximizing shareholder value. PXP’s focus remains on
increasing margins while targeting a significant organic oil
growth rate, minimizing natural gas focused capital spending
and protecting the downside risk of commodity prices for our
shareholders. Our low-risk stable assets and strong margins
provide a solid foundation for future growth.
The invaluable key to our operational and financial
successes has been our outstanding employees and
contractors who are committed to safety and environmental
stewardship. Through their dedication, PXP received
National Safety Council Safety Leadership awards for
20 out of 24 facilities.
On behalf of our board of directors and employees, I
thank you for your investment in PXP and appreciate your
continued support as we celebrate our 10th anniversary in
December 2012.
James C. Flores
Chairman, President and
Chief Executive Officer