PXP Announces Second Quarter 2006 Results

HOUSTON, Aug. 3 /PRNewswire-FirstCall/ -- Plains Exploration & Production Company ("PXP" or the "Company") today announced financial and operating results for the second quarter 2006 and include the following highlights:

* Operating cash flow doubled year-over-year $174.3 million compared to $83.6 million (a non-GAAP measure) * Cash margin per BOE doubled year-over-year $37.86 compared to $18.57 (a non-GAAP measure) * Oil and gas revenue per BOE increased 41% $49.49 compared to $35.17 * Further results from PXP's high impact deepwater exploration program were released in the second quarter. The Kerr-McGee operated Caesar prospect was announced as a discovery in May. A sidetrack well at the Chevron operated Big Foot well confirmed the net pay of the original discovery well. * The share repurchase program was initiated and 2,461,900 common shares were repurchased by the end of July. * $43.5 million was received for the terminated Stone Energy Corporation bid. * Executive vice president promotions of Doss R. Bourgeois to EVP - Exploration and Production and Winston M. Talbert to EVP and Chief Financial Officer were announced in July. * A non-core asset sale was announced as part of a plan to generate, from sales proceeds and free cash flow, $1 billion during the second half of 2006. PXP expects to close the asset sales during the fourth quarter 2006. Proceeds are planned for share repurchase and debt reduction. * A series of offsetting contracts were executed to eliminate all of the 2007 and 2008 crude oil price collars to allow PXP to continue participating in the higher price commodity market and acquired substantial oil price downside protection via put option contracts through 2008. THREE MONTHS ENDED JUNE 30

PXP reported revenues of $278.4 million for the second quarter 2006 compared to $217.3 million for the second quarter 2005. Operating cash flow, a non-GAAP measure, more than doubled to $174.3 million in the second quarter of 2006 compared to $83.6 million in the prior year period. Cash margin, a non-GAAP measure, was $37.86 per BOE in the second quarter of 2006 compared to $18.57 per BOE in 2005. See the end of this release for an explanation and reconciliation of all non-GAAP financial measures.

PXP reported a net loss of $7.1 million, or $0.09 per diluted share, compared to a net loss of $47.3 million, or $0.61 per diluted share for the second quarter 2005. The results for the second quarter 2006 include a $142.9 million pre-tax loss on mark-to-market derivative contracts (cash payments related to the put and call option premiums during the quarter totaled $25.2 million), a $36.5 million pre-tax non cash charge to revenue related to certain oil hedges, a $21.3 million pre-tax charge related to stock-based compensation, which includes approximately $9.0 million related to officer resignations and organizational changes, and a $37.9 million gain on termination of the merger agreement between PXP and Stone.

Without the effects of these items net income for the second quarter of 2006 would have been $75.4 million, or $0.95 per diluted share, compared to $27.4 million, or $0.35 per diluted share for 2005.

Sales volumes during the second quarter 2006 were 61.7 thousand barrels of oil equivalent per day (BOEPD) compared to first quarter 2006 sales volumes of 60.7 thousand BOEPD and second quarter 2005 sales volumes of 65.2 thousand BOEPD. Sales volumes were lower year-over-year primarily due to asset sales in the second quarter 2005.

The average realized sales price per BOE before hedging and derivative transactions was $56.00 during the second quarter 2006 compared to $42.42 for the same period a year ago. Cash payments related to hedging and derivative transactions in the second quarter 2006 were $3.98 per BOE compared to $12.51 in 2005.

Total production costs were $13.65 per BOE in the second quarter of 2006 compared to $11.34 per BOE in 2005. The year-over-year increase per unit is primarily attributable to lower volumes and higher lease operating costs, due to general cost increases from service providers, higher electricity costs and increased expenditures for repairs, maintenance and well workovers.

On April 24, 2006 PXP announced a definitive agreement to acquire Stone in a stock-for-stock transaction. On June 22, 2006 the agreement was terminated by Stone and PXP received a termination fee of $43.5 million. The $37.9 million gain recognized during the quarter reflects the termination fee net of merger related costs incurred by the Company.

SIX MONTHS ENDED JUNE 30

PXP reported revenues of $530.0 million for the first six months of 2006 compared to $407.4 million in 2005. Operating cash flow, a non-GAAP measure, more than doubled to $325.5 million in the first six months of 2006 compared to $161.7 million reported in the prior year period. Cash margin, a non-GAAP measure, was $36.43 per BOE in the first six months of 2006 compared to $17.77 per BOE in 2005.

For the first six months of 2006 PXP reported a net loss of $58.8 million, or $0.75 per diluted share, compared to a net loss of $252.9 million, or $3.27 per diluted share for the same period a year ago. The results for the 2006 period include a $312.2 million pre-tax loss on mark-to-market derivative contracts (cash payments related to the put and call option premiums during the period totaled $50.1 million), a $73.0 million pre-tax non cash charge to revenue related to certain oil hedges, a $29.0 million pre-tax charge related to stock-based compensation and a $37.9 million gain on termination of the merger agreement between PXP and Stone.

Without the effects of these items net income for the six months of 2006 would have been $141.2 million, or $1.78 per diluted share, compared to $47.6 million or $0.61 per diluted share for 2005.

Sales volumes for the first six months of 2006 were 61.2 thousand BOEPD compared to 64.4 thousand BOEPD in 2005. Sales volumes were lower year-over- year primarily due to asset sales in the second quarter 2005.

The average realized sales price per BOE before hedging and derivative transactions was $54.30 for the first six months of 2006 compared to $40.84 in 2005. Cash payments related to hedging and derivative transactions in the six month period were $4.01 per BOE in 2006 compared to $11.82 per BOE in 2005.

Total production costs were $13.35 per BOE for the first six months of 2006 compared to $11.25 per BOE in 2005. The year-over-year increase per unit is primarily attributable to lower volumes and higher lease operating costs, due to general cost increases from service providers, and higher expenditures for repairs, maintenance and well workovers.

Oil and gas capital expenditures, excluding acquisitions, were $307.8 million for 2006 compared to $202.6 million for the prior year period. The increase is primarily attributed to exploratory opportunities in the Gulf of Mexico and Rocky Mountain regions.

DEVELOPMENT - OPERATIONS UPDATE

In California's Los Angeles Basin, PXP's exit rate for the second quarter 2006 was approximately 16,000 net BOEPD. A total of 46 of the 64 planned wells have been drilled through the end of the second quarter of 2006, all in the Inglewood Field. Drilling activities during this period have concentrated on the Vickers-Rindge waterflood zone with 38 of the 46 drilled. Drilling will continue in the Vickers-Rindge and in expanding the successful developments in the Moynier and Rubel formations. Drilling has commenced at the Las Cienegas Field with one of the five wells planned this year currently testing. PXP operates both developments and has a 100 percent working interest in Inglewood and an average 70 percent working interest in Las Cienegas.

In the San Joaquin Valley, PXP's exit rate for the second quarter 2006 was approximately 24,900 net BOEPD. A total of 101 of the 156 planned wells have been drilled through the end of the second quarter of 2006. In the Midway Sunset Field, 49 wells have been drilled including cyclic steam producers and injection wells; in the Cymric Field, 27 producers and 16 steam injection wells have been drilled. The remaining wells are planned for the Cymric, Midway Sunset and Arroyo Grande Fields. Drilling is expected to begin during the fourth quarter at the Arroyo Grande Field with a total of eight wells planned this year. PXP generally has a 100 percent working interest and an 80-100 percent income interest in the San Joaquin Valley properties.

Offshore California, PXP's exit rate for the second quarter 2006 was approximately 13,100 net BOEPD. At PXP's Point Pedernales Field, two of four planned in-fill wells are producing a total of 2,100 net BOEPD and drilling operations for the third in-fill well are now underway.

In the Gulf Coast and Texas regions, PXP's exit rate for the second quarter 2006 was approximately 7,600 net BOEPD. PXP is drilling the Tabasco prospect in the Barataria Bay area of Jefferson Parish, Louisiana. PXP has a 50 percent working interest in this prospect.

EXPLORATION - OPERATIONS UPDATE

In the deepwater Middle/Lower Miocene trend area of the Gulf of Mexico, PXP is currently participating in 3 wells, 2 of which are initial exploratory tests and the other is a delineation well at the Caesar discovery.

PXP owns a 17.5 percent working interest in the Caesar discovery announced by the operator on May 17, 2006 as a successful well. Delineation drilling at Caesar is underway. PXP owns a 12.5 percent working interest in the Big Foot discovery announced by the operator earlier this year as a successful well. Chevron announced on July 26, 2006 the successful completion of the sidetrack well.

PXP is currently participating in an exploratory test of the Grand Cayman prospect with a 30 percent working interest and the Friesian prospect with a 20 percent working interest. Drilling operations are expected to resume at Friesian in mid-August when the drilling rig returns from the shipyard. Operations are expected to begin during the third quarter at the Norman prospect in which PXP has a 15 percent working interest. PXP's deepwater leasehold position totals over 40 blocks.

SHARE REPURCHASE

Our Board of Directors authorized in December 2005 the repurchase of up to $500 million of our common stock. The shares will be repurchased from time to time in open market transactions or privately negotiated transactions at our discretion, subject to market conditions and other factors. Through July 2006 PXP repurchased 2,461,900 common shares at a cost of $100.8 million. The reduction in shares outstanding will be reflected in the third quarter 2006.

2006 OUTLOOK The Company reaffirms its previously issued guidance. SECOND QUARTER EARNINGS CONFERENCE CALL

PXP will host a conference call today August 3, 2006 at 10:00 a.m. Central to discuss results and other forward-looking items. Investors wishing to participate may dial 1-800-567-9836 or 1-973-935-8460. The replay will be available through August 17, 2006 and can be accessed by dialing 1-877-519-4471 or 1-973-341-3080, Replay ID: 7600679.

PXP is an independent oil and gas company primarily engaged in the upstream activities of acquiring, developing, exploiting, exploring and producing oil and gas in its core areas of operation: onshore and offshore California, and the Gulf Coast region of the United States. 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 statements. 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, * 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 the year ended December 31, 2005, for a discussion of these risks.

All forward-looking statements in this report 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 report 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 for any obligation to disclose material information under the Federal securities laws, we do not intend to update these forward-looking statements and information.

Plains Exploration & Production Company Consolidated Statements of Income (amounts in thousands, except per share data) Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 Revenues Oil sales $250,069 $162,672 $464,997 $297,385 Gas sales 27,601 53,898 63,155 108,377 Other operating revenues 716 738 1,853 1,621 278,386 217,308 530,005 407,383 Costs and Expenses Production costs Lease operating expenses 44,738 36,877 86,903 69,205 Steam gas costs 12,844 16,404 25,620 33,085 Electricity 9,954 8,186 18,786 14,761 Production and ad valorem taxes 7,036 5,967 12,804 13,303 Gathering and transportation expenses 2,072 2,404 3,656 5,949 General and administrative G&A excluding stock-based compensation 16,812 11,511 32,038 23,238 Stock-based compensation 21,253 6,831 28,999 32,632 Depreciation, depletion and amortization 50,917 45,745 100,684 89,338 Accretion 2,476 1,934 4,942 3,679 168,102 135,859 314,432 285,190 Income from Operations 110,284 81,449 215,573 122,193 Other Income (Expense) Interest expense (19,210) (14,158) (35,004) (25,561) Loss on mark-to-market derivative contracts (142,914) (113,871) (312,242) (487,923) Gain on termination of merger agreement 37,902 --- 37,902 --- Interest and other income (expense) 1,296 (120) 1,620 172 Income (Loss) Before Income Taxes and Cumulative Effect of Accounting Change (12,642) (46,700) (92,151) (391,119) Income tax (expense) benefit Current (45) (1,330) (8,757) (1,330) Deferred 5,560 700 44,311 139,501 Income (Loss) Before Cumulative Effect of Accounting Change (7,127) (47,330) (56,597) (252,948) Cumulative effect of accounting change, net of tax benefit --- --- (2,182) --- Net Income (Loss) $(7,127) $(47,330) $(58,779) $(252,948) Earnings (loss) per share, basic and diluted Income (loss) before cumulative effect of accounting change $(0.09) $(0.61) $(0.72) $(3.27) Cumulative effect of accounting change --- --- (0.03) --- Net income (loss) $(0.09) $(0.61) $(0.75) $(3.27) Weighted Average Shares Outstanding, basic and diluted 78,694 77,329 78,567 77,266 Plains Exploration & Production Company Operating Data Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 Daily Average Volumes Oil and liquids sales (Bbls) 52,990 52,088 52,699 50,593 Gas (Mcf) Production 64,384 93,417 64,553 98,219 Used in steam operations 12,390 14,911 13,721 15,147 Sales (A) 51,994 78,506 50,832 83,072 BOE Production 63,721 67,658 63,457 66,963 Sales (A) 61,656 65,172 61,171 64,437 Unit Economics (in dollars) (B) Average NYMEX Prices Oil $70.72 $53.13 $67.12 $51.53 Gas 6.76 6.73 7.85 6.50 Average Realized Sales Price Before Derivative Transactions Oil (per Bbl) $59.44 $43.56 $56.41 $42.22 Gas (per Mcf) 5.83 6.43 6.86 6.10 Per BOE 56.00 42.42 54.30 40.84 Cash Margin per BOE (C) Oil and gas revenues $49.49 $35.17 $47.70 $33.48 Costs and expenses Lease operating expenses (7.97) (5.99) (7.85) (5.71) Steam gas costs (2.29) (2.66) (2.31) (2.73) Electricity (1.77) (1.33) (1.70) (1.22) Production and ad valorem taxes (1.25) (0.97) (1.16) (1.10) Gathering and transportation (0.37) (0.39) (0.33) (0.49) Gross margin before DD&A (GAAP) 35.84 23.83 34.35 22.23 Hedging expense included in oil and gas revenues 6.51 7.25 6.60 7.36 Cash derivative settlements Oil & gas production (3.98) (12.51) (4.01) (11.82) Natural gas purchases (0.51) --- (0.51) --- Cash margin (Non-GAAP) $37.86 $18.57 $36.43 $17.77 (A) 2005 amounts represent volumes presented on a basis consistent with 2006. See Note B. (B) In 2005 gas revenues included amounts attributable to buy-sell contracts related to our thermal recovery operations in California and associated costs were included in steam gas costs. As a result of our adoption of EITF 04-13 effective January 1, 2006, in 2006 certain costs associated with such contracts are reflected as a reduction in gas revenues and the associated volumes are not included in sales volumes. Amounts per BOE reflected in the foregoing table are based on production volumes for 2005 and sales volumes for 2006. (C) Cash margin (a non-GAAP measure) is calculated by adjusting gross margin before DD&A (a GAAP measure) to exclude hedging expense included in oil and gas revenues and to deduct cash derivative settlements. Management believes this presentation may be helpful to investors as it represents the cash generated by our oil and gas production that is available for, among other things, capital expenditures and debt service. PXP management uses this information to analyze operating trends and for comparative purposes within the industry. This measure is not intended to replace the GAAP statistic but to provide additional information that may be helpful in evaluating the Company's operational trends and performance. Plains Exploration & Production Company Consolidated Balance Sheets (in thousands of dollars) June 30, December 31, 2006 2005 ASSETS Current Assets Cash and cash equivalents $1,403 $1,552 Accounts receivable 131,642 148,691 Inventories 13,669 10,325 Deferred income taxes 162,277 128,816 Other current assets 10,315 3,948 319,306 293,332 Property and Equipment, at cost Oil and natural gas properties - full cost method Subject to amortization 2,845,684 2,604,892 Not subject to amortization 187,681 112,204 Other property and equipment 18,676 16,282 3,052,041 2,733,378 Less allowance for depreciation, depletion and amortization (597,120) (498,075) 2,454,921 2,235,303 Goodwill 173,790 173,858 Other Assets 41,169 39,449 $2,989,186 $2,741,942 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $135,503 $122,996 Commodity derivative contracts 266,418 85,596 Royalties payable 47,201 43,279 Stock appreciation rights 57,279 55,170 Interest payable 13,029 13,000 Other current liabilities 35,216 43,957 554,646 363,998 Long-Term Debt Revolving credit facility 231,000 272,000 8.75% Senior Subordinated Notes 276,439 276,538 7.125% Senior Notes 248,888 248,837 756,327 797,375 Other Long-Term Liabilities Asset retirement obligation 165,882 155,865 Commodity derivative contracts 507,506 440,543 Other 5,687 7,014 679,075 603,422 Deferred Income Taxes 271,410 258,810 Stockholders' Equity Common stock 791 784 Additional paid-in capital 973,535 940,988 Retained earnings (deficit) (192,443) (133,664) Accumulated other comprehensive income (44,574) (89,566) Treasury stock, at cost (9,581) (205) 727,728 718,337 $2,989,186 $2,741,942 Plains Exploration & Production Company Consolidated Statements of Cash Flows (in thousands of dollars) Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $(7,127) $(47,330) $(58,779) $(252,948) Items not affecting cash flows from operating activities Depreciation, depletion, amortization and accretion 53,393 47,679 105,626 93,017 Deferred income taxes (5,560) (700) (44,311) (139,501) Cumulative effect of adoption of accounting change --- --- 2,182 --- Commodity derivative contracts Loss (gain) on derivatives 154,276 (62,596) 335,234 291,914 Reclassify derivative settlements 25,431 220,028 71,310 270,742 Noncash compensation 17,144 1,199 23,418 23,914 Other noncash items (25) (23) (48) (46) Change in assets and liabilities from operating activities (3,060) (142,585) (28,869) (173,624) Net cash provided by operating activities 234,472 15,672 405,763 113,468 CASH FLOWS FROM INVESTING ACTIVITIES Exploration, development and other costs (149,936) (99,810) (289,425) (180,764) Acquisition of oil and gas properties --- (118,375) --- (118,375) Proceeds from sale of oil and gas properties --- 340,969 --- 340,969 Derivative settlements (25,431) --- (42,731) --- Other (3,005) (1,921) (4,535) (2,596) Net cash used in investing activities (178,372) 120,863 (336,691) 39,234 CASH FLOWS FROM FINANCING ACTIVITIES Revolving credit facilities Borrowings 343,700 464,000 728,900 751,000 Repayments (399,700) (380,900) (769,900) (634,500) Derivative settlements --- (220,028) (28,579) (270,742) Other 144 (176) 358 964 Net cash used in financing activities (55,856) (137,104) (69,221) (153,278) Net decrease in cash and cash equivalents 244 (569) (149) (576) Cash and cash equivalents, beginning of period 1,159 1,538 1,552 1,545 Cash and cash equivalents, end of period $1,403 $969 $1,403 $969 Plains Exploration & Production Company Summary of Open Derivative Positions at August 1, 2006 Instrument Daily Average Period Type Volumes Price Index Sales of Crude Oil Production 2006 Aug - Dec Put options 50,000 Bbls $55.00 Strike price WTI 2007 Jan - Dec Put options 50,000 Bbls $55.00 Strike price WTI 2008 Jan - Dec Put options 42,000 Bbls $55.00 Strike price WTI Purchases of Natural Gas 2006 Aug - Dec Call options 30,000 MMBtu $12.00 Strike price Socal Plains Exploration & Production Company Reconciliation of GAAP to Non-GAAP Measure

The following chart reconciles Net Cash Provided by Operating Activities (GAAP) to Operating Cash Flow (non-GAAP) for the three months and six months ended June 30, 2006 and 2005. Management believes this presentation may be useful to investors because it is illustrative of the impact of the Company's derivative contracts. PXP management uses this information for comparative purposes within the industry and as a means of measuring the Company's ability to fund capital expenditures and service debt. This measure is not intended to replace the GAAP statistic but to provide additional information that may be helpful in evaluating the Company's operational trends and performance.

Operating cash flow is calculated by adjusting the GAAP measure of cash provided by operating activities to exclude the gain on termination of the merger agreement and changes in operating assets and liabilities and include derivative cash flows that are classified as a financing or investing activity in the statement of cash flows. Pursuant to SFAS 149 "Amendment of SFAS 133, Derivative Instruments and Hedging Activities", certain of our derivative instruments are deemed to contain a significant financing element and cash flows associated with these positions are required to be reflected as financing activities. The cash flows that were reclassified in the following tables do not include the $145.4 million that we paid in the second quarter of 2005 to eliminate our 2006 collar positions.

Three Months Ended June 30, 2006 2005 (millions of dollars) Net cash provided by operating activities (GAAP) $234.5 $15.7 Changes in operating assets and liabilities 3.1 142.5 Gain on termination of merger agreement (37.9) --- Cash payments for commodity derivative contracts that settled during the period that are reflected as investing or financing cash flows in the statement of cash flows (25.4) (74.6) Operating cash flow (Non-GAAP) $174.3 $83.6 Six Months Ended June 30, 2006 2005 (millions of dollars) Net cash provided by operating activities (GAAP) $405.8 $113.5 Changes in operating assets and liabilities 28.9 173.6 Gain on termination of merger agreement (37.9) --- Cash payments for commodity derivative contracts that settled during the period that are reflected as investing or financing cash flows in the statement of cash flows (71.3) (125.4) Operating cash flow (Non-GAAP) $325.5 $161.7 Plains Exploration & Production Company Reconciliation of GAAP to Non-GAAP Measure

The following table reconciles net income (loss) (GAAP) to net income (loss) excluding certain items (Non-GAAP) for the three months and six months ended June 30, 2006 and 2005. This measure excludes certain items that management believes affect the comparability of operating results. Items excluded are generally items whose timing or amount cannot be reasonably estimated or are nonrecurring. Management believes this presentation may be helpful to investors who want to isolate the impacts from oil and gas derivative contracts and stock-based compensation. PXP management uses this information to analyze operating trends and for comparative purposes within the industry. This measure is not intended to replace the GAAP statistic but to provide additional information that may be helpful in evaluating the Company's operational trends and performance.

Three Months Ended June 30, 2006 2005 (millions of dollars) Net income (loss) before cumulative effect (GAAP) $(7.1) $(47.3) Loss on mark-to-market derivative contracts 142.9 113.9 Cash payments on mark-to-market derivative contracts (25.2) (50.9) Non cash charge to revenue for oil and gas hedges 36.5 18.4 Stock-based compensation 21.3 6.8 Gain on termination of merger agreement (37.9) --- Adjust income taxes (55.1) (13.5) Net income (loss) excluding certain items (Non-GAAP) $75.4 $27.4 Six Months Ended June 30, 2006 2005 (millions of dollars) Net income (loss) before cumulative effect (GAAP) $(56.6) $(252.9) Loss on mark-to-market derivative contracts 312.2 487.9 Cash payments on mark-to-market derivative contracts (50.1) (87.9) Non cash charge to revenue for oil and gas hedges 73.0 33.8 Stock-based compensation 29.0 32.6 Gain on termination of merger agreement (37.9) --- Adjust income taxes (128.4) (165.9) Net income (loss) excluding certain items (Non-GAAP) $141.2 $47.6

The cash payments on mark-to-market derivative contracts in 2005 do not include the $145.4 million that we paid in the second quarter of 2005 to eliminate our 2006 collar positions.