Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
The following information should be read in connection with the information contained in the
consolidated financial statements and notes thereto included elsewhere in this report.
Company Overview
Plains Exploration & Production Company, a Delaware corporation formed in 2002, is an
independent energy company engaged in the upstream oil and gas business. The upstream business
acquires, develops, explores for and produces oil and gas. Our upstream activities are located in the
United States. We own oil and gas properties with principal operations in:
• Onshore California;
• Offshore California;
• the Gulf Coast Region;
• the Gulf of Mexico; and
• the Rocky Mountains.
Assets in our principal focus areas include mature properties with long-lived reserves and
significant development opportunities, as well as newer properties with development and exploration
potential. We believe our balanced portfolio of assets and our ongoing risk management program
position us well for both the current commodity price environment and future potential upside as we
develop our attractive resource opportunities, including our California, Eagle Ford Shale, Haynesville
Shale and Gulf of Mexico plays. As of December 31, 2011, we had estimated proved reserves of 410.9
MMBOE, of which 59% was comprised of oil and 55% was proved developed. Our primary sources of
liquidity are cash generated from our operations, our senior revolving credit facility and periodic public
offerings of debt and equity.
Our assets include 51.0 million shares of McMoRan common stock, approximately 31.6% of its
common shares outstanding. We measure our equity investment at fair value. Unrealized gains and
losses on the investment are reported in our income statement and could result in volatility in our
earnings. See Item 7A – Quantitative and Qualitative Disclosures About Market Risk – Equity Price
Risk.
Our cash flows depend on many factors, including the price of oil and gas, the success of our
acquisition and drilling activities and the operational performance of our producing properties. We use
various derivative instruments to manage our exposure to commodity price risk. This practice may
prevent us from receiving the full advantage of increases in oil and gas prices above the maximum
fixed amount specified in the derivative agreements and subjects us to the credit risk of the
counterparties to such agreements. Since all of our derivative contracts are accounted for under
mark-to-market accounting, we expect continued volatility in gains and losses on mark-to-market
derivative contracts in our income statement as changes occur in the NYMEX and ICE price indices.
The level of derivative activity depends on our view of market conditions, available derivative prices
and our operating strategy. See Item 7A – Quantitative and Qualitative Disclosures About Market Risk
– Commodity Price Risk.
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