PXP Strengthens 2012 and 2013 Oil Derivative Position to Enhance and Secure Cash Flow

HOUSTON, Sept. 26, 2011 /PRNewswire/ -- Plains Exploration & Production Company (NYSE: PXP) ("PXP" or the "Company") provides an update to its derivative positions.

As previously announced in August, PXP executed a new marketing contract for its California crude production ("PXP CA Basket Index"). The new contract that becomes effective January 1, 2012 covers approximately 90% of PXP's California production, extends the dedication from January 1, 2015 to January 1, 2023, and replaces the percent of NYMEX index pricing mechanism with a market-based pricing approach. In recent weeks, the PXP CA Basket Index price has averaged 92% of Brent; and net of PXP's transportation and quality discounts, the PXP CA Basket Index price has averaged 89% of Brent, representing an approximate 20% increase over existing NYMEX-based contracts.

Separately, PXP executed an agreement with a third party purchaser to sell its Eagle Ford crude oil using a Light Louisiana Sweet ("LLS") based pricing mechanism. In recent weeks, the LLS crude price has averaged 100% of Brent; and net of PXP's transportation and quality discounts, the LLS price has averaged 93% of Brent. Oil production covered by the new "waterborne" contracts in California and the Texas Gulf Coast represents approximately 92% of PXP's total estimated 2012 crude production versus approximately 25% in 2011.

In response to the higher priced contracts, PXP has realigned its existing 2012 WTI crude oil put option spread contracts that had a floor price of $80 and a limit of $60 per barrel on 40,000 barrels of oil per day by acquiring 2012 Brent crude oil three-way collars. The Brent three-way collars have a floor price of $100 with a limit of $80 and a weighted average ceiling price of $120 per barrel on 40,000 barrels of oil per day. If the Brent index price is below $100 per barrel of oil, PXP will receive the difference between $100 and the Brent index price up to a maximum of $20 per barrel. If the Brent index price is greater than the ceiling price of $120 per barrel, PXP will pay the difference between the Brent index price and $120 per barrel for 2012 only. If the Brent index price is at or above $100 per barrel but at or below $120 per barrel, no cash settlement is required. The $89 million of 2012 premiums for the previous WTI put spreads has been reduced to approximately $3 million due to the Brent three-way collars with the $100 per barrel floor price.

The Company also acquired Brent put option spread contracts on 22,000 barrels of oil per day for 2013 with a floor price of $90 and a limit of $70 per barrel of oil. If the Brent index price is below $90 per barrel of oil, PXP will receive the difference between $90 and the Brent index price up to a maximum of $20 per barrel less the option premium. If the Brent index price is at or above $90 per barrel, PXP only pays the option premium.

Additionally, PXP converted 40,000 of the 160,000 MMBtu per day of natural gas put option spread contracts in 2012 to three-way collars. These modified three-way collars have a floor price of $4.30 with a limit price of $3.00 and a weighted average ceiling price of $4.86 per MMBtu and offsets approximately $4 million of deferred premiums. If the index price is below $4.30 per MMBtu, PXP will receive the difference between $4.30 and the index price up to a maximum of $1.30 per MMBtu. If the index price is greater than the ceiling price of $4.86 per MMBtu, PXP will pay the difference between the index price and $4.86 per MMBtu. If the index price is at or above $4.30 but at or below $4.86 per MMBtu, no cash settlement is required.

Winston M. Talbert, Executive Vice President and Chief Financial Officer of PXP commented, "To align our hedging strategy with the recently executed crude oil marketing contracts and to enhance future cash flows by reducing our 2012 deferred premiums, we realigned our 2012 WTI crude oil derivatives by acquiring Brent crude oil derivatives, modified a portion of our 2012 natural gas derivatives, and added Brent crude oil derivatives in 2013. PXP was able to adjust its oil derivative contracts due to the wide disparity between Brent and WTI prices in the forward markets. The Company now has a more potentially profitable and effective floor relative to its crude oil mix at a significantly higher price while reducing cash premiums in 2012, which will increase net cash flow in 2012 by approximately $90 million. Also, we will opportunistically acquire additional derivatives to minimize or eliminate the put spread expense in 2013 as we are always working to strengthen our cash flow profile while protecting our downside in commodity prices."

The following table summarizes PXP's open commodity derivative positions as of September 26, 2011.

PXP has elected not to use hedge accounting for these derivatives and consequently the derivatives will be marked-to-market with fair value gains and losses recognized currently as a gain or loss on mark-to-market derivative contracts on the income statement.

PXP is an independent oil and gas company primarily engaged in the activities of acquiring, developing, exploring and producing oil and gas in California, Texas, and Louisiana. PXP is headquartered in Houston, Texas.

ADDITIONAL INFORMATION & FORWARD-LOOKING STATEMENTS

This press release contains forward-looking information regarding PXP that is intended to be covered by the safe harbor "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995. All statements included in this press release that address activities, events or developments that PXP expects, believes or anticipates will or may occur in the future are forward-looking statement. These include statements regarding:

• reserve and production estimates,
• oil and gas prices,
• the impact of derivative positions,
• production expense estimates,
• cash flow estimates,
• future financial performance,
• capital and credit market conditions,
• planned capital expenditures, and
• other matters that are discussed in PXP's filings with the SEC.

These statements are based on our current expectations and projections about future events and involve known and unknown risks, uncertainties, and other factors that may cause our actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements. Please refer to our filings with the SEC, including our Form 10-K, for a discussion of these risks.

All forward-looking statements in this press release are made as of the date hereof, and you should not place undue reliance on these statements without also considering the risks and uncertainties associated with these statements and our business that are discussed in this press release and our other filings with the SEC. Moreover, although we believe the expectations reflected in the forward-looking statements are based upon reasonable assumptions, we can give no assurance that we will attain these expectations or that any deviations will not be material. Except as required by law, we do not intend to update these forward-looking statements and information.

SOURCE Plains Exploration & Production Company

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