Price Differentials
. Our realized wellhead oil prices are higher than the NYMEX index level and
our realized wellhead gas prices are lower than the NYMEX index level. See Items 1 and 2 – Business
and Properties – Product Markets and Major Customers.
Approximately 20% of our 2011 crude oil production was sold under contracts that provide for
NYMEX less a fixed price differential (as of December 31, 2011 the fixed price differential averaged
$4.66 per barrel) with the remainder sold under contracts that provide for monthly field posted prices.
Approximately 50% of our gas production is sold monthly using industry recognized, published
index pricing and the remainder is priced daily on the spot market. Fluctuations between the two
pricing mechanisms can significantly impact the overall differential to the Henry Hub.
Interest Rate Risk
We are exposed to market risk due to the floating interest rates on our senior revolving credit
facility, the Plains Offshore senior credit facility and our short-term credit facility. At December 31,
2011, $735.0 million was outstanding under our senior revolving credit facility at an effective interest
rate of 2.08%. Based on the $735.0 million outstanding under our senior revolving credit facility at
December 31, 2011, on an annualized basis a 1% change in the effective interest rate would result in a
$7.4 million change in our interest costs. At December 31, 2011, no amounts were outstanding under
the Plains Offshore senior credit facility or our short-term credit facility.
Equity Price Risk
We are exposed to market risk because we own an equity investment in McMoRan common
stock. See Note 7 – Investment and Note 8 – Fair Value Measurements of Assets and Liabilities in the
accompanying financial statements for a discussion of our equity investment. At December 31, 2011,
the investment, comprised of 51.0 million shares of McMoRan common stock, was valued at
approximately $611.7 million. A 10% change in the underlying equity market price per share would
result in a $61.2 million increase or decrease in the fair value of our investment, recognized in the
income statement.
Item 8.
Financial Statements and Supplementary Data
The information required here is included in this report as set forth in the Index to Consolidated
Financial Statements on page F-1.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Not Applicable.
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