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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2007

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

Commission file number: 001-31470

PLAINS EXPLORATION & PRODUCTION COMPANY

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 33-0430755                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

700 Milam Street, Suite 3100

Houston, Texas 77002

(Address of principal executive offices)

(Zip Code)

(713) 579-6000

(Registrants telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated
filer  x                Accelerated
filer   ̈                Non-accelerated filer   ̈

Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   ̈    No  x

72.8 million shares of Common Stock, $0.01 par value, issued and outstanding at July 31, 2007.



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PLAINS EXPLORATION & PRODUCTION COMPANY

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                                          |  |   
|------------------------------------------------------------------------------------------------------------------------- |  | --
|PART I. FINANCIAL INFORMATION                                                                                             |  |   
|                                                                                                                          | 
|ITEM 1. Unaudited Condensed Consolidated Financial Statements:                                                            |  |   
|                                                                                                                          | 
|Condensed Consolidated Balance SheetsJune 30, 2007 and December 31, 2006                                                  |  | 1 
|                                                                                                                          | 
|Condensed Consolidated Statements of IncomeFor the three months and six months ended June 30, 2007 and 2006               |  | 2 
|                                                                                                                          | 
|Condensed Consolidated Statements of Cash FlowsFor the six months ended June 30, 2007 and 2006                            |  | 3 
|                                                                                                                          | 
|Condensed Consolidated Statements of Comprehensive IncomeFor the three months and six months ended June 30, 2007 and 2006 |  | 4 
|                                                                                                                          | 
|Condensed Consolidated Statement of Stockholders EquityFor the six months ended June 30, 2007                            |  | 5 
|                                                                                                                          | 
|Notes to Condensed Consolidated Financial Statements                                                                      |  | 6 
|                                                                                                                          | 
|ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations                             |  | 22
|                                                                                                                          | 
|ITEM 3. Quantitative and Qualitative Disclosures About Market Risks                                                       |  | 33
|                                                                                                                          | 
|ITEM 4. Controls and Procedures                                                                                           |  | 35
|                                                                                                                          | 
|PART II. OTHER INFORMATION                                                                                                |  | 36



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PLAINS EXPLORATION & PRODUCTION COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in thousands of dollars)



|                                                            |  |              |           |   |                  |   |           |  
|----------------------------------------------------------- |  | ------------ | --------- | - | ---------------- | - | --------- | -
|                                                            |  | June 30,2007 |           |   | December 31,2006 |  
|ASSETS                                                      |  |              |           |   |                  |   |           |  
|Current Assets                                              |  |              |           |   |                  |   |           |  
|Cash and cash equivalents                                   |  | $            | 10,793    |   |                  | $ | 899       |  
|Accounts receivable                                         |  |              | 126,837   |   |                  |   | 113,193   |  
|Inventories                                                 |  |              | 13,357    |   |                  |   | 12,394    |  
|Deferred income taxes                                       |  |              | 44,663    |   |                  |   | 51,084    |  
|Other current assets                                        |  |              | 3,848     |   |                  |   | 7,226     |  
|                                                            |  |              |           |   |                  |   |           |  
|                                                            |  |              | 199,498   |   |                  |   | 184,796   |  
|                                                            |  |              |           |   |                  |   |           |  
|Property and Equipment, at cost                             |  |              |           |   |                  |   |           |  
|Oil and natural gas properties - full cost method           |  |              |           |   |                  |   |           |  
|Subject to amortization                                     |  |              | 3,342,246 |   |                  |   | 2,624,277 |  
|Not subject to amortization                                 |  |              | 697,042   |   |                  |   | 142,096   |  
|Other property and equipment                                |  |              | 75,661    |   |                  |   | 41,392    |  
|                                                            |  |              |           |   |                  |   |           |  
|                                                            |  |              | 4,114,949 |   |                  |   | 2,807,765 |  
|Less allowance for depreciation, depletion and amortization |  |              | (809,880  | ) |                  |   | (700,241  | )
|                                                            |  |              |           |   |                  |   |           |  
|                                                            |  |              | 3,305,069 |   |                  |   | 2,107,524 |  
|                                                            |  |              |           |   |                  |   |           |  
|Goodwill                                                    |  |              | 153,093   |   |                  |   | 158,515   |  
|                                                            |  |              |           |   |                  |   |           |  
|Other Assets                                                |  |              | 73,065    |   |                  |   | 12,393    |  
|                                                            |  |              |           |   |                  |   |           |  
|                                                            |  | $            | 3,730,725 |   |                  | $ | 2,463,228 |  
|                                                            |  |              |           |   |                  |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                        |  |              |           |   |                  |   |           |  
|Current Liabilities                                         |  |              |           |   |                  |   |           |  
|Accounts payable                                            |  | $            | 178,906   |   |                  | $ | 131,639   |  
|Commodity derivative contracts                              |  |              | 83,611    |   |                  |   | 95,162    |  
|Royalties and revenues payable                              |  |              | 39,266    |   |                  |   | 38,159    |  
|Stock appreciation rights                                   |  |              | 53,157    |   |                  |   | 57,429    |  
|Interest payable                                            |  |              | 14,277    |   |                  |   | 1,143     |  
|Income taxes payable                                        |  |              |          |   |                  |   | 94,272    |  
|Other current liabilities                                   |  |              | 31,366    |   |                  |   | 42,388    |  
|                                                            |  |              |           |   |                  |   |           |  
|                                                            |  |              | 400,583   |   |                  |   | 460,192   |  
|                                                            |  |              |           |   |                  |   |           |  
|Long-Term Debt                                              |  |              |           |   |                  |   |           |  
|Revolving credit facility                                   |  |              | 375,000   |   |                  |   | 235,500   |  
|7% Senior Notes                                             |  |              | 500,000   |   |                  |   |          |  
|73/4%
Senior Notes                                          |  |              | 600,000   |   |                  |   |          |  
|                                                            |  |              |           |   |                  |   |           |  
|                                                            |  |              | 1,475,000 |   |                  |   | 235,500   |  
|                                                            |  |              |           |   |                  |   |           |  
|Other Long-Term Liabilities                                 |  |              |           |   |                  |   |           |  
|Asset retirement obligation                                 |  |              | 140,971   |   |                  |   | 133,420   |  
|Commodity derivative contracts                              |  |              | 16,105    |   |                  |   | 18,114    |  
|Other                                                       |  |              | 11,705    |   |                  |   | 19,040    |  
|                                                            |  |              |           |   |                  |   |           |  
|                                                            |  |              | 168,781   |   |                  |   | 170,574   |  
|                                                            |  |              |           |   |                  |   |           |  
|Deferred Income Taxes                                       |  |              | 482,752   |   |                  |   | 466,279   |  
|                                                            |  |              |           |   |                  |   |           |  
|Commitments and Contingencies (Note 6)                      |  |              |           |   |                  |   |           |  
|Stockholders Equity                                        |  |              |           |   |                  |   |           |  
|Common stock                                                |  |              | 805       |   |                  |   | 792       |  
|Additional paid-in capital                                  |  |              | 1,037,604 |   |                  |   | 964,472   |  
|Retained earnings                                           |  |              | 511,130   |   |                  |   | 463,864   |  
|Treasury stock, at cost                                     |  |              | (345,930  | ) |                  |   | (298,445  | )
|                                                            |  |              |           |   |                  |   |           |  
|                                                            |  |              | 1,203,609 |   |                  |   | 1,130,683 |  
|                                                            |  |              |           |   |                  |   |           |  
|                                                            |  | $            | 3,730,725 |   |                  | $ | 2,463,228 |  
|                                                            |  |              |           |   |                  |   |           |  

See notes to consolidated financial statements.



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PLAINS EXPLORATION & PRODUCTION COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(in thousands, except per share data)



|                                                                             |  |                            |         |   |                           |   |          |      |  |   |         |   |  |   |          |  
|---------------------------------------------------------------------------- |  | -------------------------- | ------- | - | ------------------------- | - | -------- | ---- |  | - | ------- | - |  | - | -------- | -
|                                                                             |  | Three Months EndedJune 30, |         |   | Six Months Ended June 30, |  
|                                                                             |  | 2007                       |         |   | 2006                      |   |          | 2007 |  |   | 2006    |  
|Revenues                                                                     |  |                            |         |   |                           |   |          |      |  |   |         |   |  |   |          |  
|Oil sales                                                                    |  | $                          | 231,583 |   |                           | $ | 286,617  |      |  | $ | 437,101 |   |  | $ | 538,084  |  
|Oil hedging                                                                  |  |                            |        |   |                           |   | (36,548  | )    |  |   |        |   |  |   | (73,087  | )
|Gas sales                                                                    |  |                            | 23,210  |   |                           |   | 27,601   |      |  |   | 40,745  |   |  |   | 63,155   |  
|Other operating revenues                                                     |  |                            | 754     |   |                           |   | 716      |      |  |   | 2,394   |   |  |   | 1,853    |  
|                                                                             |  |                            |         |   |                           |   |          |      |  |   |         |   |  |   |          |  
|                                                                             |  |                            | 255,547 |   |                           |   | 278,386  |      |  |   | 480,240 |   |  |   | 530,005  |  
|                                                                             |  |                            |         |   |                           |   |          |      |  |   |         |   |  |   |          |  
|Costs and Expenses                                                           |  |                            |         |   |                           |   |          |      |  |   |         |   |  |   |          |  
|Production costs                                                             |  |                            |         |   |                           |   |          |      |  |   |         |   |  |   |          |  
|Lease operating expenses                                                     |  |                            | 50,112  |   |                           |   | 44,738   |      |  |   | 94,775  |   |  |   | 86,903   |  
|Steam gas costs                                                              |  |                            | 27,924  |   |                           |   | 12,844   |      |  |   | 54,281  |   |  |   | 25,620   |  
|Electricity                                                                  |  |                            | 9,500   |   |                           |   | 9,954    |      |  |   | 18,267  |   |  |   | 18,786   |  
|Production and ad valorem taxes                                              |  |                            | 5,042   |   |                           |   | 7,036    |      |  |   | 10,301  |   |  |   | 12,804   |  
|Gathering and transportation expenses                                        |  |                            | 1,220   |   |                           |   | 2,072    |      |  |   | 1,406   |   |  |   | 3,656    |  
|General and administrative                                                   |  |                            | 29,913  |   |                           |   | 38,065   |      |  |   | 52,410  |   |  |   | 61,037   |  
|Depreciation, depletion and amortization                                     |  |                            | 58,523  |   |                           |   | 50,917   |      |  |   | 111,201 |   |  |   | 100,684  |  
|Accretion                                                                    |  |                            | 2,273   |   |                           |   | 2,476    |      |  |   | 4,535   |   |  |   | 4,942    |  
|                                                                             |  |                            |         |   |                           |   |          |      |  |   |         |   |  |   |          |  
|                                                                             |  |                            | 184,507 |   |                           |   | 168,102  |      |  |   | 347,176 |   |  |   | 314,432  |  
|                                                                             |  |                            |         |   |                           |   |          |      |  |   |         |   |  |   |          |  
|Income from Operations                                                       |  |                            | 71,040  |   |                           |   | 110,284  |      |  |   | 133,064 |   |  |   | 215,573  |  
|Other Income (Expense)                                                       |  |                            |         |   |                           |   |          |      |  |   |         |   |  |   |          |  
|Interest expense                                                             |  |                            | (11,698 | ) |                           |   | (19,210  | )    |  |   | (17,058 | ) |  |   | (35,004  | )
|Loss on mark-to-market derivative contracts                                  |  |                            | (15,837 | ) |                           |   | (142,914 | )    |  |   | (36,427 | ) |  |   | (312,242 | )
|Gain on termination of merger agreement                                      |  |                            |        |   |                           |   | 37,902   |      |  |   |        |   |  |   | 37,902   |  
|Other                                                                        |  |                            | 747     |   |                           |   | 1,296    |      |  |   | 1,324   |   |  |   | 1,620    |  
|                                                                             |  |                            |         |   |                           |   |          |      |  |   |         |   |  |   |          |  
|Income (Loss) Before Income Taxes and Cumulative Effect of Accounting Change |  |                            | 44,252  |   |                           |   | (12,642  | )    |  |   | 80,903  |   |  |   | (92,151  | )
|Income tax (expense) benefit                                                 |  |                            |         |   |                           |   |          |      |  |   |         |   |  |   |          |  
|Current                                                                      |  |                            |        |   |                           |   | (45      | )    |  |   |        |   |  |   | (8,757   | )
|Deferred                                                                     |  |                            | (18,934 | ) |                           |   | 5,560    |      |  |   | (35,015 | ) |  |   | 44,311   |  
|                                                                             |  |                            |         |   |                           |   |          |      |  |   |         |   |  |   |          |  
|Income (Loss) Before Cumulative Effect of Accounting Change                  |  |                            | 25,318  |   |                           |   | (7,127   | )    |  |   | 45,888  |   |  |   | (56,597  | )
|Cumulative effect of accounting change, net of tax benefit                   |  |                            |        |   |                           |   |         |      |  |   |        |   |  |   | (2,182   | )
|                                                                             |  |                            |         |   |                           |   |          |      |  |   |         |   |  |   |          |  
|Net Income (Loss)                                                            |  | $                          | 25,318  |   |                           | $ | (7,127   | )    |  | $ | 45,888  |   |  | $ | (58,779  | )
|                                                                             |  |                            |         |   |                           |   |          |      |  |   |         |   |  |   |          |  
|Earnings (Loss) Per Share                                                    |  |                            |         |   |                           |   |          |      |  |   |         |   |  |   |          |  
|Basic                                                                        |  |                            |         |   |                           |   |          |      |  |   |         |   |  |   |          |  
|Income (loss) before cumulative effect of accounting change                  |  | $                          | 0.35    |   |                           | $ | (0.09    | )    |  | $ | 0.63    |   |  | $ | (0.72    | )
|Cumulative effect of accounting change                                       |  |                            |        |   |                           |   |         |      |  |   |        |   |  |   | (0.03    | )
|                                                                             |  |                            |         |   |                           |   |          |      |  |   |         |   |  |   |          |  
|Net income (loss)                                                            |  | $                          | 0.35    |   |                           | $ | (0.09    | )    |  | $ | 0.63    |   |  | $ | (0.75    | )
|                                                                             |  |                            |         |   |                           |   |          |      |  |   |         |   |  |   |          |  
|Diluted                                                                      |  |                            |         |   |                           |   |          |      |  |   |         |   |  |   |          |  
|Income (loss) before cumulative effect of accounting change                  |  | $                          | 0.35    |   |                           | $ | (0.09    | )    |  | $ | 0.63    |   |  | $ | (0.72    | )
|Cumulative effect of accounting change                                       |  |                            |        |   |                           |   |         |      |  |   |        |   |  |   | (0.03    | )
|                                                                             |  |                            |         |   |                           |   |          |      |  |   |         |   |  |   |          |  
|Net income (loss)                                                            |  | $                          | 0.35    |   |                           | $ | (0.09    | )    |  | $ | 0.63    |   |  | $ | (0.75    | )
|                                                                             |  |                            |         |   |                           |   |          |      |  |   |         |   |  |   |          |  
|Weighted Average Shares Outstanding                                          |  |                            |         |   |                           |   |          |      |  |   |         |   |  |   |          |  
|Basic                                                                        |  |                            | 72,171  |   |                           |   | 78,694   |      |  |   | 72,316  |   |  |   | 78,567   |  
|                                                                             |  |                            |         |   |                           |   |          |      |  |   |         |   |  |   |          |  
|Diluted                                                                      |  |                            | 73,275  |   |                           |   | 78,694   |      |  |   | 73,382  |   |  |   | 78,567   |  
|                                                                             |  |                            |         |   |                           |   |          |      |  |   |         |   |  |   |          |  

See notes to consolidated financial statements.



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PLAINS EXPLORATION & PRODUCTION COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands of dollars)



|                                                           |  |                           |            |   |      |   |          |  
|---------------------------------------------------------- |  | ------------------------- | ---------- | - | ---- | - | -------- | -
|                                                           |  | Six Months Ended June 30, |           
|                                                           |  | 2007                      |            |   | 2006 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                       |  |                           |            |   |      |   |          |  
|Net income (loss)                                          |  | $                         | 45,888     |   |      | $ | (58,779  | )
|Items not affecting cash flows from operating activities   |  |                           |            |   |      |   |          |  
|Depreciation, depletion, amortization and accretion        |  |                           | 115,736    |   |      |   | 105,626  |  
|Deferred income taxes                                      |  |                           | 35,015     |   |      |   | (44,311  | )
|Cumulative effect of adoption of accounting change         |  |                           |           |   |      |   | 2,182    |  
|Commodity derivative contracts                             |  |                           | 36,427     |   |      |   | 385,329  |  
|Noncash compensation                                       |  |                           | 15,190     |   |      |   | 23,418   |  
|Other noncash items                                        |  |                           | (31        | ) |      |   | (48      | )
|Change in assets and liabilities from operating activities |  |                           |            |   |      |   |          |  
|Accounts receivable and other assets                       |  |                           | (7,548     | ) |      |   | 6,124    |  
|Income taxes payable                                       |  |                           | (94,272    | ) |      |   |         |  
|Accounts payable and other liabilities                     |  |                           | (5,155     | ) |      |   | (13,778  | )
|                                                           |  |                           |            |   |      |   |          |  
|Net cash provided by operating activities                  |  |                           | 141,250    |   |      |   | 405,763  |  
|                                                           |  |                           |            |   |      |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES                       |  |                           |            |   |      |   |          |  
|Additions to oil and gas properties                        |  |                           | (258,182   | ) |      |   | (289,425 | )
|Acquistion of Piceance Basin properties                    |  |                           | (973,875   | ) |      |   |         |  
|Derivative settlements                                     |  |                           | (49,143    | ) |      |   | (42,731  | )
|Other                                                      |  |                           | (27,595    | ) |      |   | (4,535   | )
|                                                           |  |                           |            |   |      |   |          |  
|Net cash used in investing activities                      |  |                           | (1,308,795 | ) |      |   | (336,691 | )
|                                                           |  |                           |            |   |      |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES                       |  |                           |            |   |      |   |          |  
|Revolving credit facilities                                |  |                           |            |   |      |   |          |  
|Borrowings                                                 |  |                           | 1,456,250  |   |      |   | 728,900  |  
|Repayments                                                 |  |                           | (1,316,750 | ) |      |   | (769,900 | )
|Proceeds from 7% Senior Notes                              |  |                           | 500,000    |   |      |   |         |  
|Proceeds from 73/4% Senior Notes                           |  |                           | 600,000    |   |      |   |         |  
|Cost incurred in connection with financing arrangements    |  |                           | (17,917    | ) |      |   |         |  
|Derivative settlements                                     |  |                           |           |   |      |   | (28,579  | )
|Purchase of treasury stock                                 |  |                           | (47,485    | ) |      |   |         |  
|Other                                                      |  |                           | 3,341      |   |      |   | 358      |  
|                                                           |  |                           |            |   |      |   |          |  
|Net cash provided by (used in) financing activities        |  |                           | 1,177,439  |   |      |   | (69,221  | )
|                                                           |  |                           |            |   |      |   |          |  
|Net increase (decrease) in cash and cash equivalents       |  |                           | 9,894      |   |      |   | (149     | )
|Cash and cash equivalents, beginning of period             |  |                           | 899        |   |      |   | 1,552    |  
|                                                           |  |                           |            |   |      |   |          |  
|Cash and cash equivalents, end of period                   |  | $                         | 10,793     |   |      | $ | 1,403    |  
|                                                           |  |                           |            |   |      |   |          |  

See notes to consolidated financial statements.



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PLAINS EXPLORATION & PRODUCTION COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(in thousands of dollars)



|                                                     |  |                            |        |      |                          |         |      |  |      |        |  |   |         |  
|---------------------------------------------------- |  | -------------------------- | ------ | ---- | ------------------------ | ------- | ---- |  | ---- | ------ |  | - | ------- | -
|                                                     |  | Three Months EndedJune 30, |        |      | Six Months EndedJune 30, |        
|                                                     |  | 2007                       |        | 2006 |                          |         | 2007 |  | 2006 |       
|Net Income (Loss)                                    |  | $                          | 25,318 |      | $                        | (7,127  | )    |  | $    | 45,888 |  | $ | (58,779 | )
|Other Comprehensive Income (Loss)                    |  |                            |        |      |                          |         |      |  |      |        |  |   |         |  
|Commodity hedging contracts                          |  |                            |        |      |                          |         |      |  |      |        |  |   |         |  
|Reclassification adjustment for terminated contracts |  |                            |       |      |                          | 36,548  |      |  |      |       |  |   | 73,087  |  
|Related income taxes                                 |  |                            |       |      |                          | (14,267 | )    |  |      |       |  |   | (28,095 | )
|                                                     |  |                            |        |      |                          |         |      |  |      |        |  |   |         |  
|                                                     |  |                            |       |      |                          | 22,281  |      |  |      |       |  |   | 44,992  |  
|                                                     |  |                            |        |      |                          |         |      |  |      |        |  |   |         |  
|Comprehensive Income (Loss)                          |  | $                          | 25,318 |      | $                        | 15,154  |      |  | $    | 45,888 |  | $ | (13,787 | )
|                                                     |  |                            |        |      |                          |         |      |  |      |        |  |   |         |  

See notes to consolidated financial statements.



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PLAINS EXPLORATION & PRODUCTION COMPANY

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(Unaudited)

(share and dollar amounts in thousands)



|                                                |  |              |  |                            |     |                   |   |                |  |   |         |  |        |   |  |   |          |   |  |   |           |  
|----------------------------------------------- |  | ------------ |  | -------------------------- | --- | ----------------- | - | -------------- |  | - | ------- |  | ------ | - |  | - | -------- | - |  | - | --------- | -
|                                                |  | Common Stock |  | Additional Paid-in Capital |     | Retained Earnings |   | Treasury Stock |  |   | Total   | 
|                                                |  | Shares       |  | Amount                     |     |                   |   | Shares         |  |   | Amount  |  |       
|Balance, December 31, 2006                      |  | 79,172       |  | $                          | 792 |                   | $ | 964,472        |  | $ | 463,864 |  | (6,730 | ) |  | $ | (298,445 | ) |  | $ | 1,130,683 |  
|Cumulative effect of accounting change (Note 5) |  |             |  |                            |    |                   |   |               |  |   | 1,378   |  |       |   |  |   |         |   |  |   | 1,378     |  
|Net income                                      |  |             |  |                            |    |                   |   |               |  |   | 45,888  |  |       |   |  |   |         |   |  |   | 45,888    |  
|Issuance of common stock                        |  | 1,000        |  |                            | 10  |                   |   | 44,530         |  |   |        |  |       |   |  |   |         |   |  |   | 44,540    |  
|Restricted stock awards                         |  | 344          |  |                            | 3   |                   |   | 28,541         |  |   |        |  |       |   |  |   |         |   |  |   | 28,544    |  
|Treasury stock transactions                     |  |             |  |                            |    |                   |   |               |  |   |        |  | (1,026 | ) |  |   | (47,485  | ) |  |   | (47,485   | )
|Exercise of stock options and other             |  | 6            |  |                            |    |                   |   | 61             |  |   |        |  |       |   |  |   |         |   |  |   | 61        |  
|                                                |  |              |  |                            |     |                   |   |                |  |   |         |  |        |   |  |   |          |   |  |   |           |  
|Balance, June 30, 2007                          |  | 80,522       |  | $                          | 805 |                   | $ | 1,037,604      |  | $ | 511,130 |  | (7,756 | ) |  | $ | (345,930 | ) |  | $ | 1,203,609 |  
|                                                |  |              |  |                            |     |                   |   |                |  |   |         |  |        |   |  |   |          |   |  |   |           |  

See notes to consolidated financial statements.



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PLAINS EXPLORATION & PRODUCTION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1Organization and Significant Accounting Policies

The condensed consolidated financial statements of Plains Exploration & Production Company, a Delaware corporation, (PXP, us, our, or we) include the accounts of all its
wholly owned subsidiaries. All significant intercompany transactions have been eliminated. Certain reclassifications have been made to prior year statements to conform to the current year presentation.

We are an independent energy company engaged in the upstream oil and gas business. The upstream business acquires, exploits, develops, explores for and
produces oil and gas. Our upstream activities are all located in the United States.

These condensed consolidated financial statements and related
notes present our consolidated financial position as of June 30, 2007 and December 31, 2006, the results of our operations and comprehensive income for the three months and six months ended June 30, 2007 and 2006 and
our cash flows for the six months ended June 30, 2007 and 2006 and the changes in stockholders equity for the six months ended June 30, 2007. All adjustments, consisting only of normal recurring adjustments, that in the opinion
of management were necessary for a fair statement of the results for the interim periods, have been reflected. The results of our operations for the six months ended June 30, 2007 are not necessarily indicative of the results of our
operations to be expected for the full year.

These financial statements have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission (SEC) regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete
financial statements and should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2006.

Asset Retirement Obligations. The following table reflects the changes in our asset retirement obligation during the six months ended June 30, 2007 (in thousands):



|                                                |  |   |         |    
|----------------------------------------------- |  | - | ------- | ---
|Asset retirement obligation - December 31, 2006 |  | $ | 137,311 |    
|Settlements                                     |  |   | (1,782  | )  
|Accretion expense                               |  |   | 4,535   |    
|Acquisitions                                    |  |   | 2,591   |    
|Asset retirement additions                      |  |   | 974     |    
|                                                |  |   |         |    
|Asset retirement obligation - June 30, 2007     |  | $ | 143,629 | (1)
|                                                |  |   |         |    

(1) $2.7 million included in current liabilities.

Earnings Per Share. For the three months and six months ended June 30, 2007 and 2006 the weighted average shares outstanding for computing
basic and diluted earnings per share (EPS) are as follows (in thousands):



|                                                                                                                             |  |                            |  |                           |  |        |  |       
|---------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- |  | ------------------------- |  | ------ |  | ------
|                                                                                                                             |  | Three MonthsEnded June 30, |  | Six Months Ended June 30,
|                                                                                                                             |  | 2007                       |  | 2006                      |  | 2007   |  | 2006  
|Common shares outstanding - basic                                                                                            |  | 72,171                     |  | 78,694                    |  | 72,316 |  | 78,567
|Unvested restricted stock, restricted stock units and stock options                                                          |  | 1,104                      |  |                          |  | 1,066  |  |      
|                                                                                                                             |  |                            |  |                           |  |        |  |       
|Common shares outstanding - diluted                                                                                          |  | 73,275                     |  | 78,694                    |  | 73,382 |  | 78,567
|                                                                                                                             |  |                            |  |                           |  |        |  |       
|Unvested restricted stock, restricted stock units and stock options not included in computing EPS due to antidilutive
effect |  |                           |  | 730                       |  |       |  | 812   
|                                                                                                                             |  |                            |  |                           |  |        |  |       

In computing earnings per share, no adjustments were made to reported net income.



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Inventories. Oil inventories are carried at the lower of the cost to produce or market value and
materials and supplies inventories are stated at the lower of cost or market with cost determined on an average cost method. Our inventories consist of (in thousands):



|                       |  |              |        |                  |   |       
|---------------------- |  | ------------ | ------ | ---------------- | - | ------
|                       |  | June 30,2007 |        | December 31,2006
|Oil                    |  | $            | 4,674  |                  | $ | 4,954 
|Materials and supplies |  |              | 8,683  |                  |   | 7,440 
|                       |  |              |        |                  |   |       
|                       |  | $            | 13,357 |                  | $ | 12,394
|                       |  |              |        |                  |   |       

Stockholders Equity. Our Board of Directors has authorized 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. In the six months ended June 30,
2007 we repurchased approximately 1.0 million common shares at a cost of approximately $47 million. Since the inception of the repurchase program we have repurchased a total of approximately 7.7 million common shares at a cost of
approximately $342 million and we may expend an additional $158 million under the program.

Stock Based Compensation. We account for stock
based compensation in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No.123R Share-Based Payment (SFAS 123R) that requires that the compensation cost relating to share-based
payment transactions be recognized in financial statements.

Stock based compensation expense for the three months ended June 30, 2007 was $18.9
million of which $14.3 million is included in general and administrative expense (G&A), $1.4 million is included in lease operating expense and $3.2 million is included in oil and natural gas properties. Stock based compensation
expense for the three months ended June 30, 2006 was $22.6 million of which $21.3 million is included in G&A and $1.3 million is included in oil and natural gas properties. For the six months ended June 30, 2007, stock based
compensation expense was $26.2 million of which $20.0 million is included in G&A, $1.6 million is included in lease operating expense and $4.6 million is included in oil and natural gas properties, and for the same period ended June 30,
2006, stock based compensation expense was $31.7 million of which $29.0 million is included in G&A and $2.7 million is included in oil and natural gas properties.

Certain of our restricted stock units (RSUs) were classified as liability awards at December 31, 2006 because we did not have sufficient shares available for issuance under the 2004 Stock Incentive Plan. On
May 3, 2007, we received stockholder approval for an amendment to the 2004 Stock Incentive Plan, which increased the available shares. As a result, these RSUs were revalued to their fair value on that date and are now classified as equity
awards (as defined in SFAS 123R) in our Consolidated Balance Sheet. These RSUs will no longer be revalued each period.

During the six months ended
June 30, 2007, 0.7 million stock appreciation rights (SARs) were granted. At June 30, 2007 there were 2.7 million SARs outstanding with a weighted average exercise price of $27.74 and 1.4 million of such SARs
were exercisable with a weighted average exercise price of $13.11. During the six months ended June 30, 2007 1.0 million RSUs were granted. At June 30, 2007 5.3 million RSUs were outstanding, all of which are classified as equity
instruments.

Income Taxes. Effective January 1, 2007, we adopted Financial Accounting Standards Board (FASB) Interpretation
No. 48 Accounting for Uncertainty in Income Taxes (an interpretation of FASB Statement No. 109) (FIN 48). This interpretation clarified the accounting for uncertainty in income taxes recognized in the financial
statements by prescribing a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. See Note 5.

Recent Accounting Pronouncements. In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements which is effective for fiscal years beginning after November 15, 2007 and for interim periods within
those years. This statement defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements. We are currently evaluating the potential impact of this statement.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities  Including an Amendment of
FASB Statement No. 115, which is effective for fiscal years beginning after



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November 15, 2007. This statement permits an entity to choose to measure many financial instruments and certain other items at fair value at specified election
dates. Subsequent unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. We are currently evaluating the potential impact of this statement.

Note 2Long-Term Debt

At June 30, 2007
and December 31, 2006, long-term debt consisted of (in thousands):



|                                 |  |              |           |                  |   |        
|-------------------------------- |  | ------------ | --------- | ---------------- | - | -------
|                                 |  | June 30,2007 |           | December 31,2006
|Senior revolving credit facility |  | $            | 375,000   |                  | $ | 235,500
|7% senior notes                  |  |              | 500,000   |                  |   |       
|73/4%
senior notes               |  |              | 600,000   |                  |   |       
|                                 |  |              |           |                  |   |        
|                                 |  | $            | 1,475,000 |                  | $ | 235,500
|                                 |  |              |           |                  |   |        

In June 2007, we issued $600 million of 73/4% Senior Notes due 2015 (the 73/4% Senior Notes) at par. The net proceeds were used to repay borrowings under our senior revolving credit facility. We may redeem all or part of the 73/4% Senior Notes on or after June 15, 2011 at specified redemption prices and prior to such date at a make-whole redemption price.
In addition, prior to June 15, 2010 we may, at our option, redeem up to 35% of the 73/4% Senior Notes with the
proceeds from certain equity offerings. In the event of a change of control, as defined in the indenture, we will be required to make an offer to repurchase the 73/4% Senior Notes at 101% of the principal amount thereof, plus accrued and unpaid interest to the date of the repurchase.

In March 2007, we issued $500 million of 7% Senior Notes due 2017 (the 7% Senior Notes) at par. The net proceeds were used to repay borrowings under
our senior revolving credit facility and for general corporate purposes. We may redeem all or part of the 7% Senior Notes on or after March 15, 2012 at specified redemption prices and prior to such date at a make-whole
redemption price. In addition, prior to March 15, 2010 we may, at our option, redeem up to 35% of the 7% Senior Notes with the proceeds from certain equity offerings. In the event of a change of control, as defined in the indenture, we
will be required to make an offer to repurchase the 7% Senior Notes at 101% of the principal amount thereof, plus accrued and unpaid interest to the date of the repurchase.

The 7% Senior Notes and 73/4% Senior Notes are our general unsecured, senior obligations. The 7% Senior Notes and 73/4% Senior Notes are jointly and severally guaranteed on a senior unsecured basis by certain of our existing domestic subsidiaries. In the future, the guarantees may be released or terminated under certain circumstances. The
7% Senior Notes and 73/4% Senior Notes rank senior in right of payment to all of our existing and future subordinated
indebtedness; pari passu in right of payment with any of our existing and future unsecured indebtedness that is not by its terms subordinated to the 7% Senior Notes and 73/4% Senior Notes; effectively junior to our existing and future secured indebtedness, including indebtedness under our senior revolving credit facility, to the extent of our assets
constituting collateral securing that indebtedness; and effectively subordinate to all existing and future indebtedness and other liabilities (other than indebtedness and liabilities owed to us) of our non-guarantor subsidiaries.

The indentures governing the 7% Senior Notes and 73/4% Senior Notes contain covenants that, among other things, limit our ability and the ability of our restricted subsidiaries
to incur additional debt; make certain investments or pay dividends or distributions on our capital stock or purchase or redeem or retire capital stock; sell assets, including capital stock of our restricted subsidiaries; restrict dividends or other
payments by restricted subsidiaries; create liens that secure debt; enter into transactions with affiliates; and merge or consolidate with another company.

On May 31, 2007, we entered into an Amended and Restated Credit Agreement (the Amended
Credit Agreement) under which the aggregate commitments of the lenders is $1.3 billion and can be increased to $1.55 billion if certain conditions are met. The Amended Credit Agreement provides for an initial borrowing base of
$1.3 billion and a conforming borrowing base of $1.15 billion, each of which will be redetermined on an annual basis, with PXP and the lenders each having the right to one annual interim unscheduled redetermination, and may be adjusted based on
PXPs oil and gas properties, reserves, other indebtedness and other relevant factors. The borrowing base and commitments were reduced to $970 million on the date PXP issued the 73/4% Senior Notes. The Amended Credit Agreement also contains a $150 million sub-limit on letters of credit. The Amended Credit Agreement matures on



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April 23, 2012. Collateral consists of 100% of the shares of stock of our material domestic subsidiaries and mortgages covering at least 75% of the total
present value of our domestic oil and gas properties.

The Amended Credit Agreement contains negative covenants that limit our ability, as well as
the ability of our restricted subsidiaries to, among other things, incur additional debt, pay dividends on stock, make distributions of cash or property, change the nature of our business or operations, redeem stock or redeem subordinated debt, make
investments, create liens, enter into leases, sell assets, sell capital stock of subsidiaries, guarantee other indebtedness, enter into agreements that restrict dividends from subsidiaries, enter into certain types of swap agreements, enter into gas
imbalance or take-or-pay arrangements, merge or consolidate and enter into transactions with affiliates. In addition, we are required to maintain a ratio of debt to EBITDAX (as defined) of no greater than 4.25 to 1.00.

At June 30, 2007, we had $9.7 million in letters of credit outstanding under the Amended Credit Agreement. At that date we were in compliance with the
covenants contained in the Amended Credit Agreement and could have borrowed the full amount available under the Amended Credit Agreement. The effective interest rate on our borrowings under the Amended Credit Agreement was 6.375% at June 30,
2007.

Note 3Derivative Instruments and Hedging Activities

General

We use various derivative instruments to manage our exposure to commodity price risk on sales of oil and gas
production. All derivative instruments are recorded on the balance sheet at fair value. If a derivative does not qualify as a hedge or is not designated as a hedge, the changes in fair value, both realized and unrealized, are recognized currently in
our income statement as a gain or loss on mark-to-market derivative contracts. Cash flows are only impacted to the extent the actual settlements under the contracts result in making a payment to or receiving a payment from the counterparty. We do
not currently use hedge accounting for our derivative instruments, because the derivatives do not qualify or we have elected not to use hedge accounting. If a derivative is designated as a cash flow hedge and qualifies for hedge accounting, any
unrealized gain or loss is deferred in Accumulated Other Comprehensive Income (OCI), a component of Stockholders Equity, until the hedged oil and gas production is sold. Realized gains and losses on derivative instruments that are
designated as a hedge and qualify for hedge accounting are generally included in oil and gas revenues in the period the hedged volumes are sold. Gains and losses deferred in OCI related to cash flow hedges for which hedge accounting has been
discontinued remain in OCI until the related product has been delivered.

Under SFAS No. 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities, in 2006 certain of our derivatives were deemed to contain a significant financing element because they included off-market terms and cash settlements with respect to such derivatives are required to be
reflected as financing activities in the Statement of Cash Flows. Cash settlements with respect to derivatives that are qualified for hedge accounting and do not have a significant financing element are reflected as operating activities in the
Statement of Cash Flows. Cash settlements with respect to derivatives that are not qualified for hedge accounting and do not have a significant financing element are reflected as investing activities in the Statement of Cash Flows.

At June 30, 2007 we had the following open commodity derivative positions, none of which were designated as hedging instruments:



|                              |  |                |  |              |  |                     |  |      
|----------------------------- |  | -------------- |  | ------------ |  | ------------------- |  | -----
|Period                        |  | InstrumentType |  | DailyVolumes |  | Average Price       |  | Index
|Sales of Crude Oil Production |  |                |  |              |  |                     |  |      
|2007                          |  |                |  |              |  |                     |  |      
|July - Dec                    |  | Put options    |  | 50,000 Bbls  |  | $55.00 Strike price |  | WTI  
|2008                          |  |                |  |              |  |                     |  |      
|Jan - Dec                     |  | Put options    |  | 42,000 Bbls  |  | $55.00 Strike price |  | WTI  

The average strike prices for the put options do not reflect the cost to purchase such options. The only
cash settlements we are required to make on these contracts are option premiums of $56 million for the last six months of 2007 and $58 million for 2008, including interest.



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Income Statement, Cash Payments and Other Comprehensive Income

During the three and six months ended June 30, 2007 and 2006, pre-tax losses recognized in our income statement for derivatives were as follows (in thousands):



|                                             |  |                            |        |                          |   |         |  |      |        |  |   |        
|-------------------------------------------- |  | -------------------------- | ------ | ------------------------ | - | ------- |  | ---- | ------ |  | - | -------
|                                             |  | Three Months EndedJune 30, |        | Six Months EndedJune 30,
|                                             |  | 2007                       |        | 2006                     |   | 2007    |  | 2006
|Loss on mark-to-market derivative contracts  |  | $                          | 15,837 |                          | $ | 142,914 |  | $    | 36,427 |  | $ | 312,242
|Loss reclassified from OCI and recognized in |  |                            |        |                          |   |         |  |      |        |  |   |        
|Oil revenues                                 |  |                            |       |                          |   | 36,548  |  |      |       |  |   | 73,087 

At December 31, 2006 there were no amounts in OCI. The 2006 amounts that were reclassified from OCI and
recognized in oil revenues represent deferred losses attributable to 2006 swaps that were cancelled in 2005.

During the three and six months ended
June 30, 2007 and 2006 cash (payments)/receipts for derivatives were as follows (in thousands):



|                                               |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|---------------------------------------------- |  | -------------------------- | ------- | - | ------------------------ | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                               |  | Three Months EndedJune 30, |         |   | Six Months EndedJune 30, |  
|                                               |  | 2007                       |         |   | 2006                     |   |         | 2007 |  |   | 2006    |  
|Mark-to-market contracts                       |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|Crude oil options                              |  | $                          | (25,615 | ) |                          | $ | (22,583 | )    |  | $ | (49,143 | ) |  | $ | (66,976 | )
|Natural gas call options                       |  |                            |        |   |                          |   | (2,848  | )    |  |   |        |   |  |   | (5,665  | )
|Contracts accounted for using hedge accounting |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|Natural gas purchases                          |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   | 1,331   |  

Note 4Acquisition

On May 31, 2007, we acquired certain Piceance Basin properties for $974 million in cash, including $10 million in related acquisition costs and $64 million for net cash outflows from the effective date to the closing date
(primarily related to capital expenditures for drilling and acreage acquisitions) and issued one million shares of common stock with a fair value of approximately $45 million to the seller, Laramie Energy, LLC. The Piceance Basin properties include
interests in oil and gas producing properties in the Mesaverde geologic section of the Piceance Basin in Colorado, plus associated midstream assets, including a 25% interest in the Collbran Valley Gas Gathering, LLC. We allocated the purchase price
$511 million to oil and gas properties subject to amortization, $448 million to oil and gas properties not subject to amortization, $40 million to our investment in the Collbran Valley Gas Gathering, LLC and the remainder to inventory and other
properties and equipment. We financed $946 million of the acquisition using our senior revolving credit facility.

Note 5Income Taxes

Effective January 1, 2007 we adopted FIN 48. This interpretation clarified the accounting for uncertainty in income taxes recognized in the
financial statements by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. At January 1, 2007 we recorded
the cumulative effect of the change in accounting principle as a $1.4 million increase in the opening balance of retained earnings, a $0.8 million decrease in goodwill and a $2.2 million reduction in our existing reserves for
uncertain tax positions. The adjustment to goodwill relates to tax positions taken with respect to Nuevo Energy Company (Nuevo) and 3TEC Energy Corporation in periods prior to our mergers in 2004 and 2003, respectively.

We file income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. We are no longer subject to U.S. federal and state income tax
examinations by tax authorities for years before 1996. The Internal Revenue



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Service (IRS) commenced an examination of our U.S. income tax returns for 2003 and 2004 that is anticipated to be completed by the end of the first quarter
2008. In addition, the IRS has commenced an examination of Nuevos U.S. income tax returns for 2003 and 2004 that is anticipated to be completed by the end of the first quarter 2008. As of June 30, 2007, the IRS had not proposed any
significant adjustments that would result in a material change to our financial position.

We recognize interest and penalties related to
unrecognized tax positions in income tax expense. At January 1, 2007 and June 30, 2007 we had approximately $18.4 million and $18.2 million of unrecognized tax benefits, respectively, of these amounts approximately $5.5 million
at January 1, 2007 and approximately $4.4 million at June 30, 2007 would affect our effective tax rate if recognized. Included in such amounts are interest and penalties of an immaterial amount.

Note 6Commitments and Contingencies

Environmental matters. As an owner or lessee and operator of oil and gas properties, we are subject to various federal, state, and local laws and regulations relating to discharge of materials into, and protection of, the
environment. Often these regulations are more burdensome on older properties that were operated before the regulations came into effect such as some of our properties in California that have operated for over 90 years. We have established policies
for continuing compliance with environmental laws and regulations. We also maintain insurance coverage for environmental matters, which we believe is customary in the industry, but we are not fully insured against all environmental risks. There can
be no assurance that current or future local, state or federal rules and regulations will not require us to spend material amounts to comply with such rules and regulations.

Plugging, Abandonment and Remediation Obligations.Consistent with normal industry practices, substantially all of our oil and gas leases require that, upon termination of economic production, the
working interest owners plug and abandon non-producing wellbores, remove tanks, production equipment and flow lines and restore the wellsite. Typically, when producing oil and gas assets are purchased the purchaser assumes the obligation to plug and
abandon wells that are part of such assets. However, in some instances, we receive an indemnity with respect to those costs. We cannot assure you that we will be able to collect on these indemnities.

In connection with the sale of certain properties offshore California in December 2004 we retained the responsibility for certain abandonment costs, including
removing, dismantling and disposing of the existing offshore platforms. The present value of such abandonment costs, $40 million ($78 million undiscounted), are included in our asset retirement obligation as reflected on our Consolidated Balance
Sheet. In addition, we agreed to guarantee the performance of the purchaser with respect to the remaining abandonment obligations related to the properties (approximately $46 million). To secure its abandonment obligations the purchaser of the
properties is required to periodically deposit funds into an escrow account. At June 30, 2007 the escrow account had a balance of $6.0 million. The fair value of our guarantee, $0.3 million, is included in Other Long-Term Liabilities in our
Consolidated Balance Sheet.

Operating risks and insurance coverage. Our operations are subject to all of the risks normally incident to
the exploration for and the production of oil and gas, including well blowouts, cratering, explosions, oil spills, releases of gas or well fluids, fires, pollution and releases of toxic gas, each of which could result in damage to or destruction of
oil and gas wells, production facilities or other property, or injury to persons. Our operations in California, including transportation of oil by pipelines within the city and county of Los Angeles, are especially susceptible to damage from
earthquakes and involve increased risks of personal injury, property damage and marketing interruptions because of the population density of southern California. Although we maintain insurance coverage considered to be customary in the industry, we
are not fully insured against all risks, either because insurance is not available or because of high premium costs. We maintain coverage for earthquake damages in California but this coverage may not provide for the full effect of damages that
could occur and we may be subject to additional liabilities. The occurrence of a significant event that is not fully insured against could have a material adverse effect on our financial position. Our insurance does not cover every potential risk
associated with operating our pipelines, including the potential loss of significant revenues. Consistent with insurance coverage generally available to the industry, our insurance policies provide limited coverage for losses or liabilities relating
to pollution, with broader coverage for sudden and accidental occurrences.



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Other commitments and contingencies. As is common within the industry, we have entered into various
commitments and operating agreements related to the exploration and development of and production from proved oil and gas properties and the marketing, transportation and storage of oil. It is managements belief that such commitments will be
met without a material adverse effect on our financial position, results of operations or cash flows.

On November 15, 2005, the United States
Court of Federal Claims issued a ruling granting the plaintiffs motion for summary judgment as to liability and partial summary judgment as to damages in the breach of contract lawsuit Amber Resources Company et al. v. United States, Case
No. 02-30c. The Courts ruling also denied the United States motion to dismiss and motion for summary judgment. The United States Court of Federal Claims ruled that the federal governments imposition of new and onerous
requirements that stood as a significant obstacle to oil and gas development breached agreements that it made when it sold 36 federal leases offshore California. The Court further ruled that the Government must give back to the current lessees the
more than $1.1 billion in lease bonuses it had received at the time of sale. On October 31, 2006, the Court issued an unfavorable decision on the plaintiffs motion for partial summary judgment concerning plaintiffs additional claims
regarding the hundreds of millions of dollars that have been spent in the successful efforts to find oil and gas in the disputed lease area, and other matters. Plaintiffs filed a motion for final judgment on November 29, 2006 and the court
granted such motion on January 11, 2007. Judgment on the $1.1 billion was filed January 12, 2007. The United States has filed its notice of appeal and Plaintiffs intend to file a cross-appeal concerning the Courts October 31,
2006 decision. No payments will be made until all appeals have either been waived or exhausted. We are among the current lessees of the 36 leases. Our share of the $1.1 billion award is in excess of $80 million.

We are a defendant in various other lawsuits arising in the ordinary course of our business. While the outcome of these lawsuits cannot be predicted with certainty
and could have a material adverse effect on our financial position, we do not believe that the outcome of these legal proceedings, individually or in the aggregate, will have a material adverse effect on our financial condition, results of
operations or cash flows.

Note 7Consolidating Financial Statements

We are the issuer of $500 million of 7% Senior Notes due 2017 and $600 million of 73/4% Senior Notes due 2015, which are jointly and severally guaranteed on a full and unconditional basis by certain of our existing domestic
subsidiaries (referred to as Guarantor Subsidiaries). Certain of our subsidiaries do not guarantee the Senior Notes (referred to as Non-Guarantor Subsidiaries).

The following financial information presents consolidating financial statements, which include:



| |  |  | PXP (the Issuer);
| | - |  | -------------------



| |  |  | the Guarantor Subsidiaries on a combined basis;
| | - |  | -----------------------------------------------



| |  |  | the Non-Guarantor Subsidiaries on a combined basis;
| | - |  | ---------------------------------------------------



| |  |  | elimination entries necessary to consolidate the Issuer, Guarantor Subsidiaries and Non-Guarantor Subsidiaries; and
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | PXP on a consolidated basis.
| | - |  | ----------------------------



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PLAINS EXPLORATION & PRODUCTION COMPANY

CONDENSED CONSOLIDATING BALANCE SHEET (Unaudited)

JUNE 30, 2007

(in thousands)



|                                                            |  |        |           |   |                       |   |           |                           |  |                          |        |  |              |            |   |  |   |           |  
|----------------------------------------------------------- |  | ------ | --------- | - | --------------------- | - | --------- | ------------------------- |  | ------------------------ | ------ |  | ------------ | ---------- | - |  | - | --------- | -
|                                                            |  | Issuer |           |   | GuarantorSubsidiaries |   |           | Non-GuarantorSubsidiaries |  | IntercompanyEliminations |        |  | Consolidated |           
|ASSETS                                                      |  |        |           |   |                       |   |           |                           |  |                          |        |  |              |            |   |  |   |           |  
|Current Assets                                              |  |        |           |   |                       |   |           |                           |  |                          |        |  |              |            |   |  |   |           |  
|Cash and cash equivalents                                   |  | $      | 10,786    |   |                       | $ | 7         |                           |  | $                        |       |  | $            |           |   |  | $ | 10,793    |  
|Accounts receivable and other current assets                |  |        | 151,635   |   |                       |   | 37,070    |                           |  |                          |       |  |              |           |   |  |   | 188,705   |  
|                                                            |  |        |           |   |                       |   |           |                           |  |                          |        |  |              |            |   |  |   |           |  
|                                                            |  |        | 162,421   |   |                       |   | 37,077    |                           |  |                          |       |  |              |           |   |  |   | 199,498   |  
|                                                            |  |        |           |   |                       |   |           |                           |  |                          |        |  |              |            |   |  |   |           |  
|Property and Equipment, at cost                             |  |        |           |   |                       |   |           |                           |  |                          |        |  |              |            |   |  |   |           |  
|Oil and natural gas properties - full cost method           |  |        |           |   |                       |   |           |                           |  |                          |        |  |              |            |   |  |   |           |  
|Subject to amortization                                     |  |        | 2,262,019 |   |                       |   | 1,080,227 |                           |  |                          |       |  |              |           |   |  |   | 3,342,246 |  
|Not subject to amortization                                 |  |        | 219,109   |   |                       |   | 477,933   |                           |  |                          |       |  |              |           |   |  |   | 697,042   |  
|Other property and equipment                                |  |        | 52,949    |   |                       |   | 10,671    |                           |  |                          | 12,041 |  |              |           |   |  |   | 75,661    |  
|                                                            |  |        |           |   |                       |   |           |                           |  |                          |        |  |              |            |   |  |   |           |  
|                                                            |  |        | 2,534,077 |   |                       |   | 1,568,831 |                           |  |                          | 12,041 |  |              |           |   |  |   | 4,114,949 |  
|Less allowance for depreciation, depletion and amortization |  |        | (447,857  | ) |                       |   | (417,912  | )                         |  |                          |       |  |              | 55,889     |   |  |   | (809,880  | )
|                                                            |  |        |           |   |                       |   |           |                           |  |                          |        |  |              |            |   |  |   |           |  
|                                                            |  |        | 2,086,220 |   |                       |   | 1,150,919 |                           |  |                          | 12,041 |  |              | 55,889     |   |  |   | 3,305,069 |  
|                                                            |  |        |           |   |                       |   |           |                           |  |                          |        |  |              |            |   |  |   |           |  
|Investment in and Advances to Subsidiaries                  |  |        | 1,343,542 |   |                       |   |          |                           |  |                          |       |  |              | (1,343,542 | ) |  |   |          |  
|                                                            |  |        |           |   |                       |   |           |                           |  |                          |        |  |              |            |   |  |   |           |  
|Other Assets                                                |  |        | 5,289     |   |                       |   | 220,869   |                           |  |                          |       |  |              |           |   |  |   | 226,158   |  
|                                                            |  |        |           |   |                       |   |           |                           |  |                          |        |  |              |            |   |  |   |           |  
|                                                            |  | $      | 3,597,472 |   |                       | $ | 1,408,865 |                           |  | $                        | 12,041 |  | $            | (1,287,653 | ) |  | $ | 3,730,725 |  
|                                                            |  |        |           |   |                       |   |           |                           |  |                          |        |  |              |            |   |  |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                        |  |        |           |   |                       |   |           |                           |  |                          |        |  |              |            |   |  |   |           |  
|Current Liabilities                                         |  |        |           |   |                       |   |           |                           |  |                          |        |  |              |            |   |  |   |           |  
|Accounts payable and other current liabilities              |  | $      | 272,116   |   |                       | $ | 50,356    |                           |  | $                        |       |  | $            | (5,500     | ) |  | $ | 316,972   |  
|Commodity derivative contracts                              |  |        | 83,611    |   |                       |   |          |                           |  |                          |       |  |              |           |   |  |   | 83,611    |  
|                                                            |  |        |           |   |                       |   |           |                           |  |                          |        |  |              |            |   |  |   |           |  
|                                                            |  |        | 355,727   |   |                       |   | 50,356    |                           |  |                          |       |  |              | (5,500     | ) |  |   | 400,583   |  
|                                                            |  |        |           |   |                       |   |           |                           |  |                          |        |  |              |            |   |  |   |           |  
|Long-Term Debt                                              |  |        | 1,475,000 |   |                       |   |          |                           |  |                          |       |  |              |           |   |  |   | 1,475,000 |  
|                                                            |  |        |           |   |                       |   |           |                           |  |                          |        |  |              |            |   |  |   |           |  
|Other Long-Term Liabilities                                 |  |        | 146,102   |   |                       |   | 22,679    |                           |  |                          |       |  |              |           |   |  |   | 168,781   |  
|                                                            |  |        |           |   |                       |   |           |                           |  |                          |        |  |              |            |   |  |   |           |  
|Payable to Parent                                           |  |        |          |   |                       |   | 694,178   |                           |  |                          | 9,035  |  |              | (703,213   | ) |  |   |          |  
|                                                            |  |        |           |   |                       |   |           |                           |  |                          |        |  |              |            |   |  |   |           |  
|Deferred Income Taxes                                       |  |        | 417,034   |   |                       |   | 42,278    |                           |  |                          |       |  |              | 23,440     |   |  |   | 482,752   |  
|                                                            |  |        |           |   |                       |   |           |                           |  |                          |        |  |              |            |   |  |   |           |  
|Stockholders Equity                                        |  |        | 1,203,609 |   |                       |   | 599,374   |                           |  |                          | 3,006  |  |              | (602,380   | ) |  |   | 1,203,609 |  
|                                                            |  |        |           |   |                       |   |           |                           |  |                          |        |  |              |            |   |  |   |           |  
|                                                            |  | $      | 3,597,472 |   |                       | $ | 1,408,865 |                           |  | $                        | 12,041 |  | $            | (1,287,653 | ) |  | $ | 3,730,725 |  
|                                                            |  |        |           |   |                       |   |           |                           |  |                          |        |  |              |            |   |  |   |           |  



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PLAINS EXPLORATION & PRODUCTION COMPANY

CONDENSED CONSOLIDATING BALANCE SHEET (Unaudited)

DECEMBER 31, 2006

(in thousands)



|                                                            |  |        |           |   |                       |   |          |                           |  |                          |       |  |              |          |   |  |   |           |  
|----------------------------------------------------------- |  | ------ | --------- | - | --------------------- | - | -------- | ------------------------- |  | ------------------------ | ----- |  | ------------ | -------- | - |  | - | --------- | -
|                                                            |  | Issuer |           |   | GuarantorSubsidiaries |   |          | Non-GuarantorSubsidiaries |  | IntercompanyEliminations |       |  | Consolidated |         
|ASSETS                                                      |  |        |           |   |                       |   |          |                           |  |                          |       |  |              |          |   |  |   |           |  
|Current Assets                                              |  |        |           |   |                       |   |          |                           |  |                          |       |  |              |          |   |  |   |           |  
|Cash and cash equivalents                                   |  | $      | 896       |   |                       | $ | 3        |                           |  | $                        |      |  | $            |         |   |  | $ | 899       |  
|Accounts receivable and other current assets                |  |        | 156,242   |   |                       |   | 27,655   |                           |  |                          |      |  |              |         |   |  |   | 183,897   |  
|                                                            |  |        |           |   |                       |   |          |                           |  |                          |       |  |              |          |   |  |   |           |  
|                                                            |  |        | 157,138   |   |                       |   | 27,658   |                           |  |                          |      |  |              |         |   |  |   | 184,796   |  
|                                                            |  |        |           |   |                       |   |          |                           |  |                          |       |  |              |          |   |  |   |           |  
|Property and Equipment, at cost                             |  |        |           |   |                       |   |          |                           |  |                          |       |  |              |          |   |  |   |           |  
|Oil and natural gas properties - full costmethod            |  |        |           |   |                       |   |          |                           |  |                          |       |  |              |          |   |  |   |           |  
|Subject to amortization                                     |  |        | 2,131,959 |   |                       |   | 492,318  |                           |  |                          |      |  |              |         |   |  |   | 2,624,277 |  
|Not subject to amortization                                 |  |        | 124,830   |   |                       |   | 17,266   |                           |  |                          |      |  |              |         |   |  |   | 142,096   |  
|Other property and equipment                                |  |        | 31,237    |   |                       |   | 1,564    |                           |  |                          | 8,591 |  |              |         |   |  |   | 41,392    |  
|                                                            |  |        |           |   |                       |   |          |                           |  |                          |       |  |              |          |   |  |   |           |  
|                                                            |  |        | 2,288,026 |   |                       |   | 511,148  |                           |  |                          | 8,591 |  |              |         |   |  |   | 2,807,765 |  
|Less allowance for depreciation, depletion and amortization |  |        | (390,931  | ) |                       |   | (309,310 | )                         |  |                          |      |  |              |         |   |  |   | (700,241  | )
|                                                            |  |        |           |   |                       |   |          |                           |  |                          |       |  |              |          |   |  |   |           |  
|                                                            |  |        | 1,897,095 |   |                       |   | 201,838  |                           |  |                          | 8,591 |  |              |         |   |  |   | 2,107,524 |  
|                                                            |  |        |           |   |                       |   |          |                           |  |                          |       |  |              |          |   |  |   |           |  
|Investment in and Advances to Subsidiaries                  |  |        | 352,667   |   |                       |   |         |                           |  |                          |      |  |              | (352,667 | ) |  |   |          |  
|                                                            |  |        |           |   |                       |   |          |                           |  |                          |       |  |              |          |   |  |   |           |  
|Other Assets                                                |  |        | (1,674    | ) |                       |   | 172,582  |                           |  |                          |      |  |              |         |   |  |   | 170,908   |  
|                                                            |  |        |           |   |                       |   |          |                           |  |                          |       |  |              |          |   |  |   |           |  
|                                                            |  | $      | 2,405,226 |   |                       | $ | 402,078  |                           |  | $                        | 8,591 |  | $            | (352,667 | ) |  | $ | 2,463,228 |  
|                                                            |  |        |           |   |                       |   |          |                           |  |                          |       |  |              |          |   |  |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                        |  |        |           |   |                       |   |          |                           |  |                          |       |  |              |          |   |  |   |           |  
|Current Liabilities                                         |  |        |           |   |                       |   |          |                           |  |                          |       |  |              |          |   |  |   |           |  
|Accounts payable and other current liabilities              |  | $      | 320,899   |   |                       | $ | 44,131   |                           |  | $                        |      |  | $            |         |   |  | $ | 365,030   |  
|Commodity derivative contracts                              |  |        | 95,162    |   |                       |   |         |                           |  |                          |      |  |              |         |   |  |   | 95,162    |  
|                                                            |  |        |           |   |                       |   |          |                           |  |                          |       |  |              |          |   |  |   |           |  
|                                                            |  |        | 416,061   |   |                       |   | 44,131   |                           |  |                          |      |  |              |         |   |  |   | 460,192   |  
|                                                            |  |        |           |   |                       |   |          |                           |  |                          |       |  |              |          |   |  |   |           |  
|Long-Term Debt                                              |  |        | 235,500   |   |                       |   |         |                           |  |                          |      |  |              |         |   |  |   | 235,500   |  
|                                                            |  |        |           |   |                       |   |          |                           |  |                          |       |  |              |          |   |  |   |           |  
|Other Long-Term Liabilities                                 |  |        | 151,365   |   |                       |   | 19,209   |                           |  |                          |      |  |              |         |   |  |   | 170,574   |  
|                                                            |  |        |           |   |                       |   |          |                           |  |                          |       |  |              |          |   |  |   |           |  
|Payable to Parent                                           |  |        |          |   |                       |   | (101,526 | )                         |  |                          | 5,585 |  |              | 95,941   |   |  |   |          |  
|                                                            |  |        |           |   |                       |   |          |                           |  |                          |       |  |              |          |   |  |   |           |  
|Deferred Income Taxes                                       |  |        | 471,617   |   |                       |   | (5,338   | )                         |  |                          |      |  |              |         |   |  |   | 466,279   |  
|                                                            |  |        |           |   |                       |   |          |                           |  |                          |       |  |              |          |   |  |   |           |  
|Stockholders Equity                                        |  |        | 1,130,683 |   |                       |   | 445,602  |                           |  |                          | 3,006 |  |              | (448,608 | ) |  |   | 1,130,683 |  
|                                                            |  |        |           |   |                       |   |          |                           |  |                          |       |  |              |          |   |  |   |           |  
|                                                            |  | $      | 2,405,226 |   |                       | $ | 402,078  |                           |  | $                        | 8,591 |  | $            | (352,667 | ) |  | $ | 2,463,228 |  
|                                                            |  |        |           |   |                       |   |          |                           |  |                          |       |  |              |          |   |  |   |           |  



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PLAINS EXPLORATION & PRODUCTION COMPANY

CONDENSED CONSOLIDATING STATEMENT OF INCOME (Unaudited)

THREE MONTHS ENDED JUNE 30, 2007

(in thousands)



|                                                    |  |        |         |   |                       |   |         |                           |  |                          |   |  |              |        |   |  |   |         |  
|--------------------------------------------------- |  | ------ | ------- | - | --------------------- | - | ------- | ------------------------- |  | ------------------------ | - |  | ------------ | ------ | - |  | - | ------- | -
|                                                    |  | Issuer |         |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiaries |  | IntercompanyEliminations |   |  | Consolidated |       
|Revenues                                            |  |        |         |   |                       |   |         |                           |  |                          |   |  |              |        |   |  |   |         |  
|Oil sales                                           |  | $      | 199,998 |   |                       | $ | 31,585  |                           |  | $                        |  |  | $            |       |   |  | $ | 231,583 |  
|Gas sales                                           |  |        | 6,894   |   |                       |   | 16,316  |                           |  |                          |  |  |              |       |   |  |   | 23,210  |  
|Other operating revenues                            |  |        | 654     |   |                       |   | 100     |                           |  |                          |  |  |              |       |   |  |   | 754     |  
|                                                    |  |        |         |   |                       |   |         |                           |  |                          |   |  |              |        |   |  |   |         |  
|                                                    |  |        | 207,546 |   |                       |   | 48,001  |                           |  |                          |  |  |              |       |   |  |   | 255,547 |  
|                                                    |  |        |         |   |                       |   |         |                           |  |                          |   |  |              |        |   |  |   |         |  
|Costs and Expenses                                  |  |        |         |   |                       |   |         |                           |  |                          |   |  |              |        |   |  |   |         |  
|Production costs                                    |  |        | 76,678  |   |                       |   | 17,120  |                           |  |                          |  |  |              |       |   |  |   | 93,798  |  
|General and administrative                          |  |        | 26,009  |   |                       |   | 3,904   |                           |  |                          |  |  |              |       |   |  |   | 29,913  |  
|Depreciation, depletion, amortization and accretion |  |        | 33,407  |   |                       |   | 27,389  |                           |  |                          |  |  |              |       |   |  |   | 60,796  |  
|                                                    |  |        |         |   |                       |   |         |                           |  |                          |   |  |              |        |   |  |   |         |  
|                                                    |  |        | 136,094 |   |                       |   | 48,413  |                           |  |                          |  |  |              |       |   |  |   | 184,507 |  
|                                                    |  |        |         |   |                       |   |         |                           |  |                          |   |  |              |        |   |  |   |         |  
|Income from Operations                              |  |        | 71,452  |   |                       |   | (412    | )                         |  |                          |  |  |              |       |   |  |   | 71,040  |  
|Other Income (Expense)                              |  |        |         |   |                       |   |         |                           |  |                          |   |  |              |        |   |  |   |         |  
|Equity in earnings of subsidiaries                  |  |        | (10,470 | ) |                       |   |        |                           |  |                          |  |  |              | 10,470 |   |  |   |        |  
|Interest expense                                    |  |        | (7,021  | ) |                       |   | (10,177 | )                         |  |                          |  |  |              | 5,500  |   |  |   | (11,698 | )
|Loss on mark-to-market derivative contracts         |  |        | (15,837 | ) |                       |   |        |                           |  |                          |  |  |              |       |   |  |   | (15,837 | )
|Interest and other income                           |  |        | 6,202   |   |                       |   | 45      |                           |  |                          |  |  |              | (5,500 | ) |  |   | 747     |  
|                                                    |  |        |         |   |                       |   |         |                           |  |                          |   |  |              |        |   |  |   |         |  
|Income (Loss) Before Income Taxes                   |  |        | 44,326  |   |                       |   | (10,544 | )                         |  |                          |  |  |              | 10,470 |   |  |   | 44,252  |  
|Income tax benefit (expense)                        |  |        |         |   |                       |   |         |                           |  |                          |   |  |              |        |   |  |   |         |  
|Current                                             |  |        | (12,788 | ) |                       |   | 12,788  |                           |  |                          |  |  |              |       |   |  |   |        |  
|Deferred                                            |  |        | (6,220  | ) |                       |   | (12,714 | )                         |  |                          |  |  |              |       |   |  |   | (18,934 | )
|                                                    |  |        |         |   |                       |   |         |                           |  |                          |   |  |              |        |   |  |   |         |  
|Net Income (Loss)                                   |  | $      | 25,318  |   |                       | $ | (10,470 | )                         |  | $                        |  |  | $            | 10,470 |   |  | $ | 25,318  |  
|                                                    |  |        |         |   |                       |   |         |                           |  |                          |   |  |              |        |   |  |   |         |  



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PLAINS EXPLORATION & PRODUCTION COMPANY

CONDENSED CONSOLIDATING STATEMENT OF INCOME (Unaudited)

THREE MONTHS ENDED JUNE 30, 2006

(in thousands)



|                                                                             |  |        |          |   |                       |   |         |                          |  |              |       |  |   |          |  
|---------------------------------------------------------------------------- |  | ------ | -------- | - | --------------------- | - | ------- | ------------------------ |  | ------------ | ----- |  | - | -------- | -
|                                                                             |  | Issuer |          |   | GuarantorSubsidiaries |   |         | IntercompanyEliminations |  | Consolidated |      
|Revenues                                                                     |  |        |          |   |                       |   |         |                          |  |              |       |  |   |          |  
|Oil sales                                                                    |  | $      | 215,827  |   |                       | $ | 34,242  |                          |  | $            |      |  | $ | 250,069  |  
|Gas sales                                                                    |  |        | 5,968    |   |                       |   | 21,633  |                          |  |              |      |  |   | 27,601   |  
|Other operating revenues                                                     |  |        | 557      |   |                       |   | 159     |                          |  |              |      |  |   | 716      |  
|                                                                             |  |        |          |   |                       |   |         |                          |  |              |       |  |   |          |  
|                                                                             |  |        | 222,352  |   |                       |   | 56,034  |                          |  |              |      |  |   | 278,386  |  
|                                                                             |  |        |          |   |                       |   |         |                          |  |              |       |  |   |          |  
|Costs and Expenses                                                           |  |        |          |   |                       |   |         |                          |  |              |       |  |   |          |  
|Production costs                                                             |  |        | 53,811   |   |                       |   | 22,833  |                          |  |              |      |  |   | 76,644   |  
|General and administrative                                                   |  |        | 36,571   |   |                       |   | 1,494   |                          |  |              |      |  |   | 38,065   |  
|Depreciation, depletion, amortization and accretion                          |  |        | 20,212   |   |                       |   | 33,181  |                          |  |              |      |  |   | 53,393   |  
|                                                                             |  |        |          |   |                       |   |         |                          |  |              |       |  |   |          |  
|                                                                             |  |        | 110,594  |   |                       |   | 57,508  |                          |  |              |      |  |   | 168,102  |  
|                                                                             |  |        |          |   |                       |   |         |                          |  |              |       |  |   |          |  
|Income (Loss) from Operations                                                |  |        | 111,758  |   |                       |   | (1,474  | )                        |  |              |      |  |   | 110,284  |  
|Other Income (Expense)                                                       |  |        |          |   |                       |   |         |                          |  |              |       |  |   |          |  
|Equity in earnings of subsidiaries                                           |  |        | (1,769   | ) |                       |   |        |                          |  |              | 1,769 |  |   |         |  
|Interest expense                                                             |  |        | (16,538  | ) |                       |   | (2,672  | )                        |  |              |      |  |   | (19,210  | )
|Loss on mark-to-market derivative contracts                                  |  |        | (142,914 | ) |                       |   |        |                          |  |              |      |  |   | (142,914 | )
|Interest and other income                                                    |  |        | 39,198   |   |                       |   |        |                          |  |              |      |  |   | 39,198   |  
|                                                                             |  |        |          |   |                       |   |         |                          |  |              |       |  |   |          |  
|Income (Loss) Before Income Taxes and Cumulative Effect of Accounting Change |  |        | (10,265  | ) |                       |   | (4,146  | )                        |  |              | 1,769 |  |   | (12,642  | )
|Income tax benefit (expense)                                                 |  |        |          |   |                       |   |         |                          |  |              |       |  |   |          |  
|Current                                                                      |  |        | (13,462  | ) |                       |   | 13,417  |                          |  |              |      |  |   | (45      | )
|Deferred                                                                     |  |        | 16,600   |   |                       |   | (11,040 | )                        |  |              |      |  |   | 5,560    |  
|                                                                             |  |        |          |   |                       |   |         |                          |  |              |       |  |   |          |  
|Net Income (Loss) Before Cumulative Effect of Accounting Change              |  |        | (7,127   | ) |                       |   | (1,769  | )                        |  |              | 1,769 |  |   | (7,127   | )
|Cumulative effect of accounting change, net of tax benefit                   |  |        |         |   |                       |   |        |                          |  |              |      |  |   |         |  
|                                                                             |  |        |          |   |                       |   |         |                          |  |              |       |  |   |          |  
|Net Income (Loss)                                                            |  | $      | (7,127   | ) |                       | $ | (1,769  | )                        |  | $            | 1,769 |  | $ | (7,127   | )
|                                                                             |  |        |          |   |                       |   |         |                          |  |              |       |  |   |          |  



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PLAINS EXPLORATION & PRODUCTION COMPANY

CONDENSED CONSOLIDATING STATEMENT OF INCOME (Unaudited)

SIX MONTHS ENDED JUNE 30, 2007

(in thousands)



|                                                    |  |        |         |   |                       |   |         |                           |  |                          |   |  |              |         |   |  |   |         |  
|--------------------------------------------------- |  | ------ | ------- | - | --------------------- | - | ------- | ------------------------- |  | ------------------------ | - |  | ------------ | ------- | - |  | - | ------- | -
|                                                    |  | Issuer |         |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiaries |  | IntercompanyEliminations |   |  | Consolidated |        
|Revenues                                            |  |        |         |   |                       |   |         |                           |  |                          |   |  |              |         |   |  |   |         |  
|Oil sales                                           |  | $      | 380,385 |   |                       | $ | 56,716  |                           |  | $                        |  |  | $            |        |   |  | $ | 437,101 |  
|Gas sales                                           |  |        | 14,206  |   |                       |   | 26,539  |                           |  |                          |  |  |              |        |   |  |   | 40,745  |  
|Other operating revenues                            |  |        | 2,145   |   |                       |   | 249     |                           |  |                          |  |  |              |        |   |  |   | 2,394   |  
|                                                    |  |        |         |   |                       |   |         |                           |  |                          |   |  |              |         |   |  |   |         |  
|                                                    |  |        | 396,736 |   |                       |   | 83,504  |                           |  |                          |  |  |              |        |   |  |   | 480,240 |  
|                                                    |  |        |         |   |                       |   |         |                           |  |                          |   |  |              |         |   |  |   |         |  
|Costs and Expenses                                  |  |        |         |   |                       |   |         |                           |  |                          |   |  |              |         |   |  |   |         |  
|Production costs                                    |  |        | 148,473 |   |                       |   | 30,557  |                           |  |                          |  |  |              |        |   |  |   | 179,030 |  
|General and administrative                          |  |        | 46,202  |   |                       |   | 6,208   |                           |  |                          |  |  |              |        |   |  |   | 52,410  |  
|Depreciation, depletion, amortization and accretion |  |        | 62,106  |   |                       |   | 109,519 |                           |  |                          |  |  |              | (55,889 | ) |  |   | 115,736 |  
|                                                    |  |        |         |   |                       |   |         |                           |  |                          |   |  |              |         |   |  |   |         |  
|                                                    |  |        | 256,781 |   |                       |   | 146,284 |                           |  |                          |  |  |              | (55,889 | ) |  |   | 347,176 |  
|                                                    |  |        |         |   |                       |   |         |                           |  |                          |   |  |              |         |   |  |   |         |  
|Income (Loss) from Operations                       |  |        | 139,955 |   |                       |   | (62,780 | )                         |  |                          |  |  |              | 55,889  |   |  |   | 133,064 |  
|Other Income (Expense)                              |  |        |         |   |                       |   |         |                           |  |                          |   |  |              |         |   |  |   |         |  
|Equity in earnings of subsidiaries                  |  |        | (16,563 | ) |                       |   |        |                           |  |                          |  |  |              | 16,563  |   |  |   |        |  
|Interest expense                                    |  |        | (7,853  | ) |                       |   | (14,705 | )                         |  |                          |  |  |              | 5,500   |   |  |   | (17,058 | )
|Loss on mark-to-market derivative contracts         |  |        | (36,427 | ) |                       |   |        |                           |  |                          |  |  |              |        |   |  |   | (36,427 | )
|Interest and other income                           |  |        | 6,779   |   |                       |   | 45      |                           |  |                          |  |  |              | (5,500  | ) |  |   | 1,324   |  
|                                                    |  |        |         |   |                       |   |         |                           |  |                          |   |  |              |         |   |  |   |         |  
|Income (Loss) Before Income Taxes                   |  |        | 85,891  |   |                       |   | (77,440 | )                         |  |                          |  |  |              | 72,452  |   |  |   | 80,903  |  
|Income tax benefit (expense)                        |  |        |         |   |                       |   |         |                           |  |                          |   |  |              |         |   |  |   |         |  
|Current                                             |  |        | (12,552 | ) |                       |   | 12,552  |                           |  |                          |  |  |              |        |   |  |   |        |  
|Deferred                                            |  |        | (27,451 | ) |                       |   | 15,876  |                           |  |                          |  |  |              | (23,440 | ) |  |   | (35,015 | )
|                                                    |  |        |         |   |                       |   |         |                           |  |                          |   |  |              |         |   |  |   |         |  
|Net Income (Loss)                                   |  | $      | 45,888  |   |                       | $ | (49,012 | )                         |  | $                        |  |  | $            | 49,012  |   |  | $ | 45,888  |  
|                                                    |  |        |         |   |                       |   |         |                           |  |                          |   |  |              |         |   |  |   |         |  



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PLAINS EXPLORATION & PRODUCTION COMPANY

CONDENSED CONSOLIDATING STATEMENT OF INCOME (Unaudited)

SIX MONTHS ENDED JUNE 30, 2006

(in thousands)



|                                                                             |  |        |          |   |                       |   |         |                          |  |              |     |  |   |          |  
|---------------------------------------------------------------------------- |  | ------ | -------- | - | --------------------- | - | ------- | ------------------------ |  | ------------ | --- |  | - | -------- | -
|                                                                             |  | Issuer |          |   | GuarantorSubsidiaries |   |         | IntercompanyEliminations |  | Consolidated |    
|Revenues                                                                     |  |        |          |   |                       |   |         |                          |  |              |     |  |   |          |  
|Oil sales                                                                    |  | $      | 399,982  |   |                       | $ | 65,015  |                          |  | $            |    |  | $ | 464,997  |  
|Gas sales                                                                    |  |        | 11,309   |   |                       |   | 51,846  |                          |  |              |    |  |   | 63,155   |  
|Other operating revenues                                                     |  |        | 1,138    |   |                       |   | 715     |                          |  |              |    |  |   | 1,853    |  
|                                                                             |  |        |          |   |                       |   |         |                          |  |              |     |  |   |          |  
|                                                                             |  |        | 412,429  |   |                       |   | 117,576 |                          |  |              |    |  |   | 530,005  |  
|                                                                             |  |        |          |   |                       |   |         |                          |  |              |     |  |   |          |  
|Costs and Expenses                                                           |  |        |          |   |                       |   |         |                          |  |              |     |  |   |          |  
|Production costs                                                             |  |        | 105,711  |   |                       |   | 42,058  |                          |  |              |    |  |   | 147,769  |  
|General and administrative                                                   |  |        | 59,174   |   |                       |   | 1,863   |                          |  |              |    |  |   | 61,037   |  
|Depreciation, depletion, amortization and accretion                          |  |        | 36,278   |   |                       |   | 69,348  |                          |  |              |    |  |   | 105,626  |  
|                                                                             |  |        |          |   |                       |   |         |                          |  |              |     |  |   |          |  
|                                                                             |  |        | 201,163  |   |                       |   | 113,269 |                          |  |              |    |  |   | 314,432  |  
|                                                                             |  |        |          |   |                       |   |         |                          |  |              |     |  |   |          |  
|Income (Loss) from Operations                                                |  |        | 211,266  |   |                       |   | 4,307   |                          |  |              |    |  |   | 215,573  |  
|Other Income (Expense)                                                       |  |        |          |   |                       |   |         |                          |  |              |     |  |   |          |  
|Equity in earnings of subsidiaries                                           |  |        | (361     | ) |                       |   |        |                          |  |              | 361 |  |   |         |  
|Interest expense                                                             |  |        | (29,528  | ) |                       |   | (5,476  | )                        |  |              |    |  |   | (35,004  | )
|Loss on mark-to-market derivative contracts                                  |  |        | (312,242 | ) |                       |   |        |                          |  |              |    |  |   | (312,242 | )
|Interest and other income                                                    |  |        | 39,522   |   |                       |   |        |                          |  |              |    |  |   | 39,522   |  
|                                                                             |  |        |          |   |                       |   |         |                          |  |              |     |  |   |          |  
|Income (Loss) Before Income Taxes and Cumulative Effect of Accounting Change |  |        | (91,343  | ) |                       |   | (1,169  | )                        |  |              | 361 |  |   | (92,151  | )
|Income tax benefit (expense)                                                 |  |        |          |   |                       |   |         |                          |  |              |     |  |   |          |  
|Current                                                                      |  |        | (3,607   | ) |                       |   | (5,150  | )                        |  |              |    |  |   | (8,757   | )
|Deferred                                                                     |  |        | 38,353   |   |                       |   | 5,958   |                          |  |              |    |  |   | 44,311   |  
|Net Income (Loss) Before Cumulative Effect of Accounting Change              |  |        | (56,597  | ) |                       |   | (361    | )                        |  |              | 361 |  |   | (56,597  | )
|Cumulative effect of accounting change, net of tax benefit                   |  |        | (2,182   | ) |                       |   |        |                          |  |              |    |  |   | (2,182   | )
|                                                                             |  |        |          |   |                       |   |         |                          |  |              |     |  |   |          |  
|Net Income (Loss)                                                            |  | $      | (58,779  | ) |                       | $ | (361    | )                        |  | $            | 361 |  | $ | (58,779  | )
|                                                                             |  |        |          |   |                       |   |         |                          |  |              |     |  |   |          |  



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PLAINS EXPLORATION & PRODUCTION COMPANY

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)

SIX MONTHS ENDED JUNE 30, 2007

(in thousands of dollars)



|                                                          |  |        |            |   |                       |   |         |                           |  |   |                          |   |  |              |         |   |  |   |            |  
|--------------------------------------------------------- |  | ------ | ---------- | - | --------------------- | - | ------- | ------------------------- |  | - | ------------------------ | - |  | ------------ | ------- | - |  | - | ---------- | -
|                                                          |  | Issuer |            |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiaries |  |   | IntercompanyEliminations |   |  | Consolidated |        
|CASH FLOWS FROM OPERATING ACTIVITIES                      |  |        |            |   |                       |   |         |                           |  |   |                          |   |  |              |         |   |  |   |            |  
|Net income (loss)                                         |  | $      | 45,888     |   |                       | $ | (49,012 | )                         |  | $ |                         |   |  | $            | 49,012  |   |  | $ | 45,888     |  
|Items not affecting cash flows from operatingactivities   |  |        |            |   |                       |   |         |                           |  |   |                          |   |  |              |         |   |  |   |            |  
|Depreciation, depletion, amortization andaccretion        |  |        | 62,106     |   |                       |   | 109,519 |                           |  |   |                         |   |  |              | (55,889 | ) |  |   | 115,736    |  
|Equity in earnings of subsidiaries                        |  |        | 16,563     |   |                       |   |        |                           |  |   |                         |   |  |              | (16,563 | ) |  |   |           |  
|Deferred income taxes                                     |  |        | 27,451     |   |                       |   | (15,876 | )                         |  |   |                         |   |  |              | 23,440  |   |  |   | 35,015     |  
|Commodity derivative contracts                            |  |        | 36,427     |   |                       |   |        |                           |  |   |                         |   |  |              |        |   |  |   | 36,427     |  
|Noncash compensation                                      |  |        | 14,037     |   |                       |   | 1,153   |                           |  |   |                         |   |  |              |        |   |  |   | 15,190     |  
|Other noncash items                                       |  |        | 14         |   |                       |   | (45     | )                         |  |   |                         |   |  |              |        |   |  |   | (31        | )
|Change in assets and liabilities from operatingactivities |  |        |            |   |                       |   |         |                           |  |   |                          |   |  |              |         |   |  |   |            |  
|Accounts receivable and other assets                      |  |        | 5,319      |   |                       |   | (12,867 | )                         |  |   |                         |   |  |              |        |   |  |   | (7,548     | )
|Income tax payable                                        |  |        | (94,272    | ) |                       |   |        |                           |  |   |                         |   |  |              |        |   |  |   | (94,272    | )
|Accounts payable and other liabilities                    |  |        | (5,861     | ) |                       |   | 706     |                           |  |   |                         |   |  |              |        |   |  |   | (5,155     | )
|                                                          |  |        |            |   |                       |   |         |                           |  |   |                          |   |  |              |         |   |  |   |            |  
|Net cash provided by operating activities                 |  |        | 107,672    |   |                       |   | 33,578  |                           |  |   |                         |   |  |              |        |   |  |   | 141,250    |  
|                                                          |  |        |            |   |                       |   |         |                           |  |   |                          |   |  |              |         |   |  |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES                      |  |        |            |   |                       |   |         |                           |  |   |                          |   |  |              |         |   |  |   |            |  
|Additions to oil and gas properties                       |  |        | (174,379   | ) |                       |   | (83,803 | )                         |  |   |                         |   |  |              |        |   |  |   | (258,182   | )
|Acquisition of Piceance Basin properties                  |  |        | (973,875   | ) |                       |   |        |                           |  |   |                         |   |  |              |         |   |  |   | (973,875   | )
|Derivative settlements                                    |  |        | (49,143    | ) |                       |   |        |                           |  |   |                         |   |  |              |        |   |  |   | (49,143    | )
|Other                                                     |  |        | (21,712    | ) |                       |   | (2,433  | )                         |  |   | (3,450                   | ) |  |              |        |   |  |   | (27,595    | )
|                                                          |  |        |            |   |                       |   |         |                           |  |   |                          |   |  |              |         |   |  |   |            |  
|Net cash used in investing activities                     |  |        | (1,219,109 | ) |                       |   | (86,236 | )                         |  |   | (3,450                   | ) |  |              |        |   |  |   | (1,308,795 | )
|                                                          |  |        |            |   |                       |   |         |                           |  |   |                          |   |  |              |         |   |  |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES                      |  |        |            |   |                       |   |         |                           |  |   |                          |   |  |              |         |   |  |   |            |  
|Revolving credit facilities                               |  |        |            |   |                       |   |         |                           |  |   |                          |   |  |              |         |   |  |   |            |  
|Borrowings                                                |  |        | 1,456,250  |   |                       |   |        |                           |  |   |                         |   |  |              |        |   |  |   | 1,456,250  |  
|Repayments                                                |  |        | (1,316,750 | ) |                       |   |        |                           |  |   |                         |   |  |              |        |   |  |   | (1,316,750 | )
|Proceeds for issuance of senior notes                     |  |        | 1,100,000  |   |                       |   |        |                           |  |   |                         |   |  |              |        |   |  |   | 1,100,000  |  
|Cost incurred in connection with financing arrangements   |  |        | (17,917    | ) |                       |   |        |                           |  |   |                         |   |  |              |        |   |  |   | (17,917    | )
|Investment in and advances to affiliates                  |  |        | (56,112    | ) |                       |   | 52,662  |                           |  |   | 3,450                    |   |  |              |        |   |  |   |           |  
|Purchase of treasury stock                                |  |        | (47,485    | ) |                       |   |        |                           |  |   |                         |   |  |              |        |   |  |   | (47,485    | )
|Other                                                     |  |        | 3,341      |   |                       |   |        |                           |  |   |                         |   |  |              |        |   |  |   | 3,341      |  
|                                                          |  |        |            |   |                       |   |         |                           |  |   |                          |   |  |              |         |   |  |   |            |  
|Net cash provided by financing activities                 |  |        | 1,121,327  |   |                       |   | 52,662  |                           |  |   | 3,450                    |   |  |              |        |   |  |   | 1,177,439  |  
|                                                          |  |        |            |   |                       |   |         |                           |  |   |                          |   |  |              |         |   |  |   |            |  
|Net increase in cash and cash equivalents                 |  |        | 9,890      |   |                       |   | 4       |                           |  |   |                         |   |  |              |        |   |  |   | 9,894      |  
|Cash and cash equivalents, beginning of period            |  |        | 896        |   |                       |   | 3       |                           |  |   |                         |   |  |              |        |   |  |   | 899        |  
|                                                          |  |        |            |   |                       |   |         |                           |  |   |                          |   |  |              |         |   |  |   |            |  
|Cash and cash equivalents, end of period                  |  | $      | 10,786     |   |                       | $ | 7       |                           |  | $ |                         |   |  | $            |        |   |  | $ | 10,793     |  
|                                                          |  |        |            |   |                       |   |         |                           |  |   |                          |   |  |              |         |   |  |   |            |  



19



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PLAINS EXPLORATION & PRODUCTION COMPANY

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)

SIX MONTHS ENDED JUNE 30, 2006

(in thousands of dollars)



|                                                           |  |        |          |   |                       |   |          |                          |  |   |              |   |  |   |          |  
|---------------------------------------------------------- |  | ------ | -------- | - | --------------------- | - | -------- | ------------------------ |  | - | ------------ | - |  | - | -------- | -
|                                                           |  | Issuer |          |   | GuarantorSubsidiaries |   |          | IntercompanyEliminations |  |   | Consolidated |  
|CASH FLOWS FROM OPERATING ACTIVITIES                       |  |        |          |   |                       |   |          |                          |  |   |              |   |  |   |          |  
|Net income (loss)                                          |  | $      | (58,779  | ) |                       | $ | (361     | )                        |  | $ | 361          |   |  | $ | (58,779  | )
|Items not affecting cash flows from operating activities   |  |        |          |   |                       |   |          |                          |  |   |              |   |  |   |          |  
|Depreciation, depletion, amortization and accretion        |  |        | 36,278   |   |                       |   | 69,348   |                          |  |   |             |   |  |   | 105,626  |  
|Equity in earnings of subsidiaries                         |  |        | 361      |   |                       |   |         |                          |  |   | (361         | ) |  |   |         |  
|Deferred income taxes                                      |  |        | (38,353  | ) |                       |   | (5,958   | )                        |  |   |             |   |  |   | (44,311  | )
|Cumulative effect of adoption of accounting change         |  |        | 2,182    |   |                       |   |         |                          |  |   |             |   |  |   | 2,182    |  
|Commodity derivative contracts                             |  |        | 360,220  |   |                       |   | 25,109   |                          |  |   |             |   |  |   | 385,329  |  
|Noncash compensation                                       |  |        | 23,418   |   |                       |   |         |                          |  |   |             |   |  |   | 23,418   |  
|Other noncash items                                        |  |        | (48      | ) |                       |   |         |                          |  |   |             |   |  |   | (48      | )
|Change in assets and liabilities from operating activities |  |        |          |   |                       |   |          |                          |  |   |              |   |  |   |          |  
|Accounts receivable and other assets                       |  |        | (4,061   | ) |                       |   | 10,185   |                          |  |   |             |   |  |   | 6,124    |  
|Accounts payable and other liabilities                     |  |        | (17,109  | ) |                       |   | 3,331    |                          |  |   |             |   |  |   | (13,778  | )
|                                                           |  |        |          |   |                       |   |          |                          |  |   |              |   |  |   |          |  
|Net cash provided by operating activities                  |  |        | 304,109  |   |                       |   | 101,654  |                          |  |   |             |   |  |   | 405,763  |  
|                                                           |  |        |          |   |                       |   |          |                          |  |   |              |   |  |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES                       |  |        |          |   |                       |   |          |                          |  |   |              |   |  |   |          |  
|Additions to oil and gas properties                        |  |        | (185,569 | ) |                       |   | (103,856 | )                        |  |   |             |   |  |   | (289,425 | )
|Derivative settlements                                     |  |        | (42,731  | ) |                       |   |         |                          |  |   |             |   |  |   | (42,731  | )
|Other                                                      |  |        | (4,080   | ) |                       |   | (455     | )                        |  |   |             |   |  |   | (4,535   | )
|                                                           |  |        |          |   |                       |   |          |                          |  |   |              |   |  |   |          |  
|Net cash used in investing activities                      |  |        | (232,380 | ) |                       |   | (104,311 | )                        |  |   |             |   |  |   | (336,691 | )
|                                                           |  |        |          |   |                       |   |          |                          |  |   |              |   |  |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES                       |  |        |          |   |                       |   |          |                          |  |   |              |   |  |   |          |  
|Revolving credit facilities                                |  |        |          |   |                       |   |          |                          |  |   |              |   |  |   |          |  
|Borrowings                                                 |  |        | 728,900  |   |                       |   |         |                          |  |   |             |   |  |   | 728,900  |  
|Repayments                                                 |  |        | (769,900 | ) |                       |   |         |                          |  |   |             |   |  |   | (769,900 | )
|Derivative settlements                                     |  |        | (28,579  | ) |                       |   |         |                          |  |   |             |   |  |   | (28,579  | )
|Investment in and advances to affiliates                   |  |        | (2,655   | ) |                       |   | 2,655    |                          |  |   |             |   |  |   |         |  
|Other                                                      |  |        | 358      |   |                       |   |         |                          |  |   |             |   |  |   | 358      |  
|                                                           |  |        |          |   |                       |   |          |                          |  |   |              |   |  |   |          |  
|Net cash provided by (used in) financing activities        |  |        | (71,876  | ) |                       |   | 2,655    |                          |  |   |             |   |  |   | (69,221  | )
|                                                           |  |        |          |   |                       |   |          |                          |  |   |              |   |  |   |          |  
|Net decrease in cash and cash equivalents                  |  |        | (147     | ) |                       |   | (2       | )                        |  |   |             |   |  |   | (149     | )
|Cash and cash equivalents, beginning of period             |  |        | 1,548    |   |                       |   | 4        |                          |  |   |             |   |  |   | 1,552    |  
|                                                           |  |        |          |   |                       |   |          |                          |  |   |              |   |  |   |          |  
|Cash and cash equivalents, end of period                   |  | $      | 1,401    |   |                       | $ | 2        |                          |  | $ |             |   |  | $ | 1,403    |  
|                                                           |  |        |          |   |                       |   |          |                          |  |   |              |   |  |   |          |  



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Note 8Proposed Merger with Pogo Producing Company

On July 17, 2007, we announced that we had entered into a definitive agreement to acquire Pogo Producing Company (Pogo) in a stock and cash
transaction valued at approximately $3.6 billion, based on our July 16, 2007 closing stock price of $51.19 per share. Under the terms of the definitive agreement, Pogo stockholders will receive 0.68201 shares of our common stock and $24.88 of
cash for each share of Pogo common stock. Pogo stockholders will have the right to elect to receive cash or stock, subject to pro ration if either the cash or stock election is oversubscribed. If completed, we will issue approximately
40 million shares of common stock and pay approximately $1.5 billion in cash.

The transaction is expected to qualify as a tax free
reorganization under Section 368(a) and is expected to be tax free to our stockholders and tax free for the stock portion of the consideration received by Pogo stockholders. The Boards of Directors of both companies have approved the merger
agreement and each will recommend it to their respective stockholders for approval. The transaction will remain subject to stockholder approval from both companies and other customary conditions. Post closing, it is anticipated that our stockholders
will own approximately 66% of the combined company and Pogo stockholders will own approximately 34% of the combined company.

The transaction is
expected to close in the fourth quarter of 2007. We will account for the transaction as a purchase of Pogo under purchase accounting rules and we will continue to use the full cost method of accounting for our oil and gas properties.



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ITEM 2  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 and our Form 10-K for the year ended December 31, 2006.

Company Overview

We are an independent
oil and gas company primarily engaged in the activities of acquiring, developing, exploiting, exploring and producing oil and gas properties in the United States. Our core areas of operations are:



| |  |  | the Los Angeles and San Joaquin Basins onshore California;
| | - |  | ----------------------------------------------------------



| |  |  | the Santa Maria Basin offshore California;
| | - |  | ------------------------------------------



| |  |  | the Piceance Basin in Colorado; and
| | - |  | -----------------------------------



| |  |  | the Gulf Coast Basin onshore and offshore Louisiana, including the Gulf of Mexico.
| | - |  | ----------------------------------------------------------------------------------

Assets in our principal focus areas include mature properties with long-lived reserves and significant development and exploitation opportunities as well as newer properties with development, exploitation
and exploration potential. Our primary sources of liquidity are cash generated from our operations and our senior revolving credit facility. At June 30, 2007 we had approximately $585.3 million of availability under our senior revolving
credit facility. We have a capital budget for 2007, excluding acquisitions, of $750 million. Currently we believe that we have sufficient liquidity through our cash from operations and borrowing capacity under the Amended Credit Agreement to meet
our short-term and long-term normal recurring operating needs and anticipated capital expenditures. In addition, the majority of our capital expenditures is discretionary and could be curtailed if our cash flows declined from expected levels.

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 derivative instruments to manage our commodity price risk. The level of derivative activity depends on our view of market conditions, available derivative prices and our operating strategy.
For 2007 and 2008 our derivative position consists exclusively of purchased put option contracts with a strike price of $55.00 on 50,000 barrels per day for 2007 and 42,000 barrels per day for 2008. The only cash settlements we are required to make
on these contracts are option premiums and interest, which are expected to total approximately $56 million in the last six months of 2007 and $58 million in 2008. In return, to the extent the daily average NYMEX price for West Texas Intermediate
crude oil is less than $55.00, we will receive the difference between $55.00 and the daily average NYMEX price for West Texas Intermediate crude oil. Since our remaining derivative position consists entirely of crude oil put options, there will
continue to be volatility in derivative gains or losses on our income statement, however, our ultimate potential loss will be limited to the cost of the options. See Item 3  Quantitative and Qualitative Disclosures About Market Risks.

Property Acquisition

On May 31,
2007, we acquired interests in oil and gas producing properties covering over 60,000 gross (55,000 net) acres in the Mesaverde geologic section of the Piceance Basin in Colorado, plus associated midstream assets, including a 25% interest in the
Collbran Valley Gas Gathering, LLC. These properties, which we refer to as the Piceance Basin properties, and which include over 200 producing/productive wells and over 3,000 additional potential drilling locations, produced approximately
6 thousand barrels of oil equivalent (MBOE) per day at the closing date, of which approximately 97% was natural gas. As of December 31, 2006, the properties had estimated proved developed reserves of approximately
15 million barrels of oil equivalent (MMBOE), of which approximately 97% was natural gas. We paid $974 million in cash, including $10 million in related acquisition costs and $64 million for net cash outflows from the effective
date to the closing date (primarily related to capital expenditures for drilling activities and acreage acquisitions) and issued one million shares of common stock with a fair market value of approximately $45 million to the seller, Laramie Energy,
LLC, a privately held Delaware limited liability company. We financed $946 million of the acquisition using our senior revolving credit facility.



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Proposed Merger with Pogo Producing Company

On July 17, 2007 we announced that we had entered into a definitive agreement to acquire Pogo Producing Company (Pogo) in a stock and cash transaction valued at approximately $3.6
billion, based on our July 16, 2007 closing stock price of $51.19 per share. Under the terms of the definitive agreement, Pogo stockholders will receive 0.68201 shares of our common stock and $24.88 of cash for each share of Pogo common stock.
Pogo stockholders will have the right to elect to receive cash or stock, subject to pro ration if either the cash or stock election is oversubscribed. If completed, we will issue approximately 40 million shares of common stock and pay
approximately $1.5 billion in cash.

The transaction is expected to qualify as a tax free reorganization under Section 368(a) and is expected to
be tax free to our stockholders and tax free for the stock portion of the consideration received by Pogo stockholders. The Boards of Directors of both companies have approved the merger agreement and each will recommend it to their respective
stockholders for approval. The transaction will remain subject to stockholder approval from both companies and other customary conditions. Post closing, it is anticipated that our stockholders will own approximately 66% of the combined company and
Pogo stockholders will own approximately 34% of the combined company.

The transaction is expected to close in the fourth quarter of 2007. We will
account for the transaction as a purchase of Pogo under purchase accounting rules and we will continue to use the full cost method of accounting for our oil and gas properties.

General

We follow the full cost method of accounting whereby all costs associated with property
acquisition, exploration, exploitation and development activities are capitalized. Our revenues are derived from the sale of oil, gas and natural gas liquids. We recognize revenues when our production is sold and title is transferred. Our revenues
are highly dependent upon the prices of, and demand for, oil and gas. Historically, the markets for oil and gas have been volatile and are likely to continue to be volatile in the future. The prices we receive for our oil and gas and our levels of
production are subject to wide fluctuations and depend on numerous factors beyond our control, including supply and demand, economic conditions, foreign imports, the actions of OPEC, political conditions in other oil-producing countries, and
governmental regulation, legislation and policies. Under the SECs full cost accounting rules, we review the carrying value of our proved oil and gas properties each quarter. These rules generally require that we price our future oil and gas
production at the oil and gas prices in effect at the end of each fiscal quarter to determine a ceiling value of our properties. The rules require a write-down if our capitalized costs exceed the allowed ceiling. We have had no
write-downs due to these ceiling test limitations since 1998. Given the volatility of oil and gas prices, it is likely that our estimate of discounted future net revenues from proved oil and gas reserves will fluctuate in the near term. If oil and
gas prices decline significantly in the future, write-downs of our oil and gas properties could occur. Write-downs required by these rules do not directly impact our cash flows from operating activities. Decreases in oil and gas prices have had, and
will likely have in the future, an adverse effect on the carrying value of our estimated proved reserves, our reserve volumes and our revenues, profitability and cash flow.

Our oil and gas production expenses include salaries and benefits of personnel involved in production activities, steam gas costs, electric costs, maintenance costs, production, ad valorem and severance
taxes, and other costs necessary to operate our producing properties. Depletion of capitalized costs of producing oil and gas properties is provided using the units of production method based upon estimated proved reserves. For purposes of computing
depletion, estimated proved reserves are redetermined as of the end of each year and on an interim basis when deemed necessary.

General and
administrative expenses (G&A) consist primarily of salaries and related benefits of administrative personnel (including stock based compensation), office rent, systems costs and other administrative costs.



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Results Overview

Our earnings are subject to volatility due to: (i) gains and losses on derivative contracts subject to mark-to-market accounting as changes occur in the NYMEX price indexes and (ii) stock appreciation rights (SARs),
which are accounted for as liability awards under SFAS 123R and are remeasured to fair value each reporting period. The fair value of SARs units is related to the market price of our common stock and will fluctuate with movements in our stock price.

In the first half of 2007, we reported net income of $45.9 million, or $0.63 per diluted share. In the first half of 2006, primarily as a result of
a $312.2 million derivative mark-to-market loss, we reported a net loss of $58.8 million, or $0.75 per share. Our net loss in 2006 includes a non-cash, after-tax expense related to the adoption of SFAS 123R of $2.2 million or $0.03 per share.

Results of Operations

On May 31,
2007, we acquired interests in oil and gas producing properties covering over 60,000 gross (55,000 net) acres in the Mesaverde geologic section of the Piceance Basin in Colorado, plus associated midstream assets, including a 25% interest in the
Collbran Valley Gas Gathering, LLC. These properties, which we refer to as the Piceance Basin properties, and which include over 200 producing/productive wells and over 3,000 additional potential drilling locations, are currently producing
approximately 6 MBOE per day, of which approximately 97% is natural gas.

On September 29, 2006, we closed the sale of non-strategic oil and gas
properties located primarily in California and Texas to subsidiaries of Occidental Petroleum Corporation (Occidental). The properties included our interests in the Asphalto, Buena Vista and Mt. Poso fields in the San Joaquin Valley, the
Sansinena field in the Los Angeles Basin, the Pakenham field in West Texas and various other minor properties. This transaction had an effective date of October 1, 2006. On a barrel of oil equivalent basis, these properties represented
approximately 12% of our sales volume for the first half of 2006.



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##### Table of Contents

The following table reflects the components of our oil and gas production and sales prices and sets forth our
operating revenues and costs and expenses on a barrel of oil equivalent (BOE) basis:



|                                                            |  |                            |        |                          |   |        |  |      |        |  |   |       
|----------------------------------------------------------- |  | -------------------------- | ------ | ------------------------ | - | ------ |  | ---- | ------ |  | - | ------
|                                                            |  | Three Months EndedJune 30, |        | Six Months EndedJune 30,
|                                                            |  | 2007                       |        | 2006                     |   | 2007   |  | 2006
|Sales Volumes                                               |  |                            |        |                          |   |        |  |      |        |  |   |       
|Oil and liquids sales (MBbls)                               |  |                            | 4,264  |                          |   | 4,822  |  |      | 8,526  |  |   | 9,538 
|Gas (MMcf)                                                  |  |                            |        |                          |   |        |  |      |        |  |   |       
|Production                                                  |  |                            | 4,212  |                          |   | 5,860  |  |      | 7,267  |  |   | 11,685
|Used in steam operations                                    |  |                            | 584    |                          |   | 1,128  |  |      | 1,163  |  |   | 2,484 
|Sales                                                       |  |                            | 3,628  |                          |   | 4,732  |  |      | 6,104  |  |   | 9,201 
|MBOE                                                        |  |                            |        |                          |   |        |  |      |        |  |   |       
|Production                                                  |  |                            | 4,966  |                          |   | 5,799  |  |      | 9,737  |  |   | 11,486
|Sales                                                       |  |                            | 4,870  |                          |   | 5,611  |  |      | 9,544  |  |   | 11,072
|Daily Average Volumes                                       |  |                            |        |                          |   |        |  |      |        |  |   |       
|Oil and liquids sales (Bbls)                                |  |                            | 46,865 |                          |   | 52,990 |  |      | 47,106 |  |   | 52,699
|Gas (Mcf)                                                   |  |                            |        |                          |   |        |  |      |        |  |   |       
|Production                                                  |  |                            | 46,285 |                          |   | 64,384 |  |      | 40,148 |  |   | 64,553
|Used in steam operations                                    |  |                            | 6,415  |                          |   | 12,390 |  |      | 6,423  |  |   | 13,721
|Sales                                                       |  |                            | 39,870 |                          |   | 51,994 |  |      | 33,725 |  |   | 50,832
|BOE                                                         |  |                            |        |                          |   |        |  |      |        |  |   |       
|Production                                                  |  |                            | 54,579 |                          |   | 63,721 |  |      | 53,798 |  |   | 63,457
|Sales                                                       |  |                            | 53,510 |                          |   | 61,656 |  |      | 52,727 |  |   | 61,171
|Unit Economics (in dollars)                                 |  |                            |        |                          |   |        |  |      |        |  |   |       
|Average NYMEX Prices                                        |  |                            |        |                          |   |        |  |      |        |  |   |       
|Oil                                                         |  | $                          | 65.02  |                          | $ | 70.72  |  | $    | 61.67  |  | $ | 67.12 
|Gas                                                         |  |                            | 7.55   |                          |   | 6.76   |  |      | 7.17   |  |   | 7.85  
|Average Realized Sales Price Before Derivative Transactions |  |                            |        |                          |   |        |  |      |        |  |   |       
|Oil (per Bbl)                                               |  | $                          | 54.31  |                          | $ | 59.44  |  | $    | 51.27  |  | $ | 56.41 
|Gas (per Mcf)                                               |  |                            | 6.40   |                          |   | 5.83   |  |      | 6.68   |  |   | 6.86  
|Per BOE                                                     |  |                            | 52.32  |                          |   | 56.00  |  |      | 50.07  |  |   | 54.30 
|Costs and Expenses per BOE                                  |  |                            |        |                          |   |        |  |      |        |  |   |       
|Production costs                                            |  |                            |        |                          |   |        |  |      |        |  |   |       
|Lease operating expenses                                    |  | $                          | 10.29  |                          | $ | 7.97   |  | $    | 9.93   |  | $ | 7.85  
|Steam gas costs                                             |  |                            | 5.73   |                          |   | 2.29   |  |      | 5.69   |  |   | 2.31  
|Electricity                                                 |  |                            | 1.95   |                          |   | 1.77   |  |      | 1.91   |  |   | 1.70  
|Production and ad valorem taxes                             |  |                            | 1.04   |                          |   | 1.25   |  |      | 1.08   |  |   | 1.16  
|Gathering and transportation                                |  |                            | 0.25   |                          |   | 0.37   |  |      | 0.15   |  |   | 0.33  

The following table reflects cash receipts (payments) made with respect to derivative contracts that settled
during the periods presented (in thousands):



|                                               |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|---------------------------------------------- |  | -------------------------- | ------- | - | ------------------------ | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                               |  | Three Months EndedJune 30, |         |   | Six Months EndedJune 30, |  
|                                               |  | 2007                       |         |   | 2006                     |   |         | 2007 |  |   | 2006    |  
|Mark-to-market contracts                       |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|Crude oil options                              |  | $                          | (25,615 | ) |                          | $ | (22,583 | )    |  | $ | (49,143 | ) |  | $ | (66,976 | )
|Natural gas call options                       |  |                            |        |   |                          |   | (2,848  | )    |  |   |        |   |  |   | (5,665  | )
|Contracts accounted for using hedge accounting |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   | 1,331   |  



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Comparison of Three Months Ended June 30, 2007 to Three Months Ended June 30, 2006

Oil and gas revenues. Oil and gas revenues decreased $22.9 million, to $254.8 million for 2007 from $277.7 million for
2006. The decrease is primarily due to the Occidental property sale and a decrease in realized prices of $3.68 per BOE, partially offset by the absence of an oil revenue hedging loss in 2007. Excluding the properties sold from 2006 revenues, oil and
gas revenues increased $11.0 million, to $254.8 million for 2007 from $243.8 million for 2006 primarily due to the absence of an oil revenue hedging loss in 2007 offset by a decrease in price of $4.71 per BOE in 2007.

Oil revenues excluding the effects of hedging, decreased $55.0 million to $231.6 million for 2007 from $286.6 million for 2006 reflecting lower
production ($30.3 million) and lower realized prices ($24.7 million). Our average realized price for oil decreased $5.13 to $54.31 per Bbl for 2007 from $59.44 per Bbl for 2006. The decrease is primarily attributable to a decline in the
NYMEX oil price, which averaged $65.02 per Bbl in 2007 versus $70.72 per Bbl in 2006. Oil sales volumes decreased 6.1 MBbls per day to 46.9 MBbls per day in 2007 from 53.0 MBbls per day in 2006, primarily reflecting the
properties sold which had sales of 4.6 MBbls per day in the second quarter of 2006. Hedging had the effect of decreasing our oil revenues by $36.5 million or $7.58 per Bbl in 2006.

Gas revenues, decreased $4.4 million to $23.2 million in 2007 from $27.6 million in 2006 due to decreased sales volumes ($7.1 million) partially offset by higher realized prices ($2.7
million). Our average realized price for gas was $6.40 per Mcf in 2007 compared to $5.83 per Mcf in 2006. Gas sales volumes decreased from 52.0 MMcf per day in 2006 to 39.9 MMcf per day in 2007, primarily reflecting the impact of
properties sold which had sales of 18.4 MMcf per day in the second quarter of 2006.

Lease operating expenses. Lease operating expenses
increased $5.4 million, to $50.1 million in 2007 from $44.7 million in 2006. Excluding the properties sold from 2006 costs, lease operating expenses increased $12.2 million, to $50.1 million in 2007 from $37.9 in 2006. The increase is
primarily attributable to higher expenditures for repairs and maintenance and well workovers, increased labor costs and general cost increases from service providers. Excluding the properties sold, on a per unit basis lease operating expenses
increased to $10.29 per BOE in 2007 versus $7.72 per BOE in 2006.

Steam gas costs. Steam gas costs increased $15.1 million, to
$27.9 million in 2007 from $12.8 million in 2006, primarily reflecting higher steam volumes and higher cost of gas used in steam generation. In 2007 we burned approximately 4.3 Bcf of natural gas at a cost of approximately $6.53 per Mcf
compared to 3.4 Bcf at a cost of approximately $3.75 per Mcf in 2006. The higher cost per Mcf in 2007 principally reflects the fact that all the gas burned in 2007 was purchased while in 2006 almost half of the gas burned was produced from the
Companys properties and costs for these volumes consisted only of transportation costs.

Electricity. Electricity decreased
$0.5 million, to $9.5 million in 2007 from $10.0 million in 2006. Excluding the properties sold from 2006 costs, electricity increased $0.3 million, to $9.5 million in 2007 from $9.2 million in 2006, primarily reflecting higher usage.
Excluding the properties sold, on a per unit basis electricity increased to $1.95 per BOE in 2007 versus $1.86 per BOE in 2006.

Production and ad valorem taxes. Production and ad valorem taxes decreased $2.0 million, to $5.0 million in 2007 from $7.0 million in 2006. Excluding the properties sold from 2006 costs, production and ad valorem taxes
increased $0.2 million, to $5.0 million in 2007 from $4.8 million in 2006.

Gathering and transportation expenses. Gathering and
transportation expenses decreased $0.9 million, to $1.2 million in 2007 from $2.1 million in 2006. Excluding the properties sold from 2006 costs, gathering and transportation costs increased $1.0 million to $1.2 million in 2007 from
$0.2 million in 2006, primarily reflecting the Piceance Basin property acquisition.

General and administrative expense. G&A expense
decreased $8.2 million, to $29.9 million in 2007 compared to $38.1 million in 2006. The 2006 expense included approximately $9.0 million of stock based compensation related to officer resignations. No similar activity occurred in 2007.

G&A expense does not include amounts capitalized as part of our acquisition, exploration and development activities. Capitalized costs increased
to $10.2 million in 2007 compared to $8.0 million in 2006, primarily reflecting increases in our acquisition, exploration and development activities.



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##### Table of Contents

Depreciation, depletion and amortization, or DD&A. DD&A expense increased $7.6 million, to
$58.5 million in 2007 from $50.9 million in 2006. The increase was attributable to our oil and gas DD&A, primarily due to a higher per unit rate. Our average oil and gas unit of production rate increased to $11.35 per BOE in 2007
compared to $8.45 per BOE in 2006. The increase primarily reflects the effect of increased future development costs, higher cost reserve additions, exploration costs and property acquisitions. Our DD&A rate in the third quarter of 2007 will be
approximately $12.64 per BOE as a result of the acquisition of the Piceance Basin properties.

Accretion expense. Accretion expense
decreased $0.2 million, to $2.3 million in 2007 from $2.5 million in 2006. Accretion expense for 2006 included $0.4 million attributable to the properties sold to Occidental. Excluding such expense the $0.2 million increase primarily reflects
higher estimated future costs of our abandonment obligations.

Interest expense. Interest expense decreased $7.5 million, to
$11.7 million in 2007 from $19.2 million in 2006 due to a $5.0 million decrease in interest on derivative contracts and increased capitalization of interest of $2.6 million. Interest expense does not include interest capitalized on oil and
gas properties not subject to amortization. We capitalized $5.0 million and $2.4 million of interest in 2007 and 2006, respectively.

Gain
(loss) on mark-to-market derivative contracts. We do not currently use hedge accounting for our derivative instruments, because the derivatives do not qualify or we have elected not to use hedge accounting. Consequently, these derivative
contracts are marked-to-market each quarter with fair value gains and losses, both realized and unrealized, recognized currently as a gain or loss on mark-to-market derivative contracts on the income statement. Cash flow is only impacted to the
extent the actual settlements under the contracts result in making or receiving a payment from the counterparty.

In 2007 we recognized a $15.8
million loss related to mark-to-market derivative contracts and cash payments related to contracts that settled totaled $25.6 million. In 2006 we recognized a $142.9 million loss related to mark-to-market derivative contracts and cash payments
related to contracts that settled totaled $25.4 million.

Our derivative position in 2007 consists of crude oil put options and our ultimate
potential loss on these contracts will be limited to the cost of the options. In 2006 the derivative losses were primarily related to crude oil collars.

Gain on termination of merger agreement. On April 24, 2006 we announced that we had entered into a definitive agreement to acquire Stone Energy Corporation (Stone) in a stock-for-stock transaction. On June 22, 2006 the
agreement was terminated by Stone in order for Stone to enter into a merger agreement with another company. In connection with the termination of the merger agreement we received a termination fee of $43.5 million. The gain recognized in 2006
reflects the termination fee net of certain merger related costs incurred by the Company.

Income taxes. During interim periods income
tax expense is generally based on the estimated effective income tax rate that is expected for the entire year plus any significant, unusual or infrequently occurring items which are recorded in the period that the specific item occurs. In the
second quarter of 2007 we revised our estimated effective annual tax rate to approximately 45% from the 42% estimated effective annual tax rate that was utilized in the first quarter of 2007. Variances in our estimated annual effective tax rate from
the 35% federal statutory rate primarily result from the effect of state income taxes and estimated permanent differences primarily reflecting expenses that are not deductible because of IRS limitations.

For the second quarter of 2007 income tax expense was approximately 43% of pretax income. In addition to changes in our estimated annual tax rate for 2007,
specific items affecting income tax expense for the second quarter included changes in the balances of state deferred tax liabilities as a result of state apportionment changes caused by the purchase of certain oil and gas properties in the second
quarter of 2007 plus the impact of changes to certain tax credits related to our enhanced oil recovery operations as a result of a newly issued IRS computational guidelines.

Comparison of Six Months Ended June 30, 2007 to Six Months Ended June 30, 2006

Oil and gas revenues. Oil and gas revenues decreased $50.3 million, to $477.8 million for 2007 from $528.2 million for 2006 primarily due to the Occidental property sale and a decrease in realized prices of $4.23 per
BOE, partially offset by the absence of an oil revenue hedging loss in 2007. Excluding the properties sold from 2006 revenues, oil and gas revenues increased $15.4 million, to $477.8 million in 2007 from $462.4 million for 2006 primarily due to the
absence of an oil revenue hedging loss in 2007 partially offset by a decrease in price of $5.08 per BOE in 2007.

Oil revenues excluding the effects
of hedging, decreased $101.0 million to $437.1 million for 2007 from $538.1 million for 2006 reflecting lower realized prices ($49.1 million) and lower production ($51.9 million). Our average realized price for oil decreased
$5.14 to $51.27 per Bbl for 2007 from $56.41 per Bbl for 2006. The decrease is primarily attributable to a decline in the NYMEX oil price, which averaged $61.67 per Bbl in 2007 versus $67.12 per Bbl in 2006. Oil sales volumes decreased
5.6 MBbls per day to 47.1 MBbls per day in 2007 from 52.7 MBbls per day in 2006, primarily reflecting the properties sold which had sales of 4.5 MBbls per day in 2006. Hedging had the effect of decreasing our oil revenues by
$73.1 million or $7.66 per Bbl in 2006.



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##### Table of Contents

Gas revenues, decreased $22.5 million to $40.7 million in 2007 from $63.2 million in 2006 due to
decreased sales volumes ($20.7 million) and a decrease in realized prices ($1.8 million). Our average realized price for gas was $6.68 per Mcf in 2007 compared to $6.86 per Mcf in 2006. Gas sales volumes decreased from
50.8 MMcf per day in 2006 to 33.7 MMcf per day in 2007 primarily reflecting the impact of properties sold which had sales of 18.3 MMcf per day in the 2006.

Lease operating expenses. Lease operating expenses increased $7.9 million, to $94.8 million in 2007 from $86.9 million in 2006. Excluding the properties sold and acquired, lease
operating expenses increased $21.1 million, to $94.8 million in 2007 from $73.7 million in 2006. The increase is primarily attributable to higher expenditures for repairs and maintenance and well workovers, increased labor costs and general cost
increases from service providers. Excluding the properties sold, on a per unit basis, lease operating expenses increased to $9.93 per BOE in 2007 versus $7.59 per BOE in 2006.

Steam gas costs. Steam gas costs increased $28.7 million, to $54.3 million in 2007 from $25.6 million in 2006, primarily reflecting higher steam volumes and higher cost of gas
used in steam generation. In 2007 we burned approximately 8.4 Bcf of natural gas at a cost of approximately $6.44 per Mcf compared to 6.6 Bcf at a cost of $3.89 per Mcf in 2006. The higher cost per Mcf in 2007 principally reflects the fact that all
the gas burned in 2007 was purchased while in 2006 almost half of the gas burned was produced from the Companys properties and costs for these volumes consisted only of transportation costs.

Electricity. Electricity decreased $0.5 million, to $18.3 million in 2007 from $18.8 million in 2006. Excluding the properties sold from
2006 costs, electricity increased $1.0 million, to $18.3 million in 2007 from $17.3 million in 2006, primarily reflecting higher usage. Excluding the properties sold, on a per unit basis, electricity increased to $1.91 per BOE in 2007 versus
$1.78 per BOE in 2006.

Production and ad valorem taxes. Production and ad valorem taxes decreased $2.5 million, to
$10.3 million in 2007 from $12.8 million in 2006. Excluding the properties sold from 2006 costs, production and ad valorem taxes increased $1.5 million, to $10.3 million in 2007 from $8.8 million in 2006 primarily reflecting higher ad
valorem taxes due to higher property tax basis.

Gathering and transportation expenses. Gathering and transportation expenses decreased
$2.3 million, to $1.4 million in 2007 from $3.7 million in 2006. Excluding the properties sold from 2006 costs, gathering and transportation expenses increased $1.1 million to $1.4 million in 2007 from $0.3 million in 2006.

General and administrative expense. G&A expense decreased $8.6 million to $52.4 million in 2007 compared to $61.0 million
in 2006. The 2006 expense includes approximately $9.0 million of stock based compensation related to officer resignations. No similar activity occurred in 2007.

G&A expense does not include amounts capitalized as part of our acquisition, exploration and development activities. Capitalized costs increased to $18.5 million in 2007 compared to $15.8 million in 2006,
primarily reflecting increased acquisition, exploration and development activities.

Depreciation, depletion and amortization, or
DD&A. DD&A expense increased $10.5 million, to $111.2 million in 2007 from $100.7 million in 2006. The increase was attributable to our oil and gas DD&A, primarily due to a higher per unit rate. Our oil and gas
unit of production rate increased to $11.01 per BOE in 2007 compared to $8.45 per BOE in 2006. The increase primarily reflects the effect of increased future development costs, higher costs of reserve additions, exploration costs and property
acquisitions. Our DD&A rate in the third quarter of 2007 will be approximately $12.64 per BOE as a result of the acquisition of the Piceance Basin properties.

Accretion expense. Accretion expense decreased $0.4 million, to $4.5 million in 2007 from $4.9 million in 2006. Accretion expense for 2006 included $0.8 million attributable to the properties sold to
Occidental. Excluding such expense the $0.4 million increase primarily reflects higher estimated future costs of our abandonment obligations.

Interest expense. Interest expense decreased $17.9 million, to $17.1 million in 2007 from $35.0 million in 2006 primarily due to lower outstanding debt and derivatives and higher interest capitalization. Interest
expense on senior debt decreased by $8.7 million for the first six months of 2007 due to the retirement of senior notes in the fourth quarter of 2006 partially offset by interest on new senior notes issued in March and June 2007. Interest on
derivative contracts decreased by $5.3 million in 2007 compared to 2006. We capitalized $7.1 million and $3.9 million of interest in 2007 and 2006, respectively.



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Gain (loss) on mark-to-market derivative contracts. We do not currently use hedge accounting for our
derivative instruments, because the derivatives do not qualify or we have elected not to use hedge accounting. Consequently, these derivative contracts are marked-to-market each quarter with fair value gains and losses, both realized and unrealized,
recognized currently as a gain or loss on mark-to-market derivative contracts on the income statement. Cash flow is only impacted to the extent the actual settlements under the contracts result in making or receiving a payment from the counterparty.

In 2007 we recognized a $36.4 million loss related to mark-to-market derivative contracts and cash payments related to contracts that settled
totaled $49.1 million. In 2006 we recognized a $312.2 million loss related to mark-to-market derivative contracts and cash payments related to contracts that settled totaled $71.3 million.

Our derivative position in 2007 consists of crude oil put options and our ultimate potential loss on these contracts will be limited to the cost of the options. In 2006 the derivative losses were primarily
related to crude oil collars.

Gain on termination of merger agreement. On April 24, 2006 we announced that we had entered into a
definitive agreement to acquire Stone in a stock-for-stock transaction. On June 22, 2006 the agreement was terminated by Stone in order for Stone to enter into a merger agreement with another company. In connection with the termination of the merger
agreement we received a termination fee of $43.5 million. The gain recognized in 2006 reflects the termination fee net of certain merger related costs incurred by the Company.

Income taxes. During interim periods income tax expense is generally based on the estimated effective income tax rate that is expected for the entire year plus any significant, unusual or
infrequently occurring items which are recorded in the period that the specific item occurs. In the second quarter of 2007 we revised our estimated effective annual tax rate to approximately 45% from the 42% estimated effective annual tax rate that
was utilized in the first quarter of 2007. Variances in our estimated annual effective tax rate from the 35% federal statutory rate primarily result from the effect of state income taxes and estimated permanent differences primarily reflecting
expenses that are not deductible because of IRS limitations.

For the six months ended June 30, 2007 income tax expense was approximately 43% of
pretax income. In addition to changes in our estimated annual tax rate for 2007, specific items affecting income tax expense for the six months ended June 30, 2007 included changes in the balances of state deferred tax liabilities as a result
of state apportionment changes caused by the purchase of certain oil and gas properties in the second quarter of 2007 plus the impact of changes to certain tax credits related to our enhanced oil recovery operations as a result of a newly issued IRS
computational guidelines.

Liquidity and Capital Resources

Our primary sources of liquidity are cash generated from our operations and our senior revolving credit facility. At June 30, 2007, we had approximately $585.3 million of availability under our senior revolving credit
facility. We have made and will continue to make substantial capital expenditures for the acquisition, exploitation, development, exploration and production of oil and gas. We have a capital budget for 2007, excluding acquisitions, of approximately
$750 million. Currently, we believe that we have sufficient liquidity through our cash from operations and borrowing capacity under our Amended Credit Agreement to meet our short-term and long-term normal recurring operating needs and
anticipated capital expenditures.

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 derivative instruments to manage our commodity price risk. The level of derivative activity depends on our view of market conditions, available derivative prices
and our operating strategy. In addition, the majority of our capital expenditures is discretionary and could be curtailed if our cash flows declined from expected levels.

Working Capital

At June 30, 2007, we had a working capital deficit of approximately $201 million. Our
working capital deficit is affected by fluctuations in the fair value of our commodity derivative instruments and SARs. At June 30, 2007, we had net short-term liabilities of $57 million and $33 million for derivatives and SARs,
respectively. Excluding such items our working capital deficit was approximately $111 million. We generally have a working capital deficit because we use excess cash to pay down borrowings under our senior revolving credit facility.



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Financing Activities

73/4% Senior Notes. In June 2007, we issued $600 million of 73/4% Senior Notes due 2015 (the 73/4% Senior Notes) at par. We may redeem all or part of the 73/4% Senior Notes on or after June 15, 2011 at specified redemption prices and prior to such date at a make-whole redemption price. In addition, prior to June 15, 2010 we may,
at our option, redeem up to 35% of the 73/4% Senior Notes with the proceeds from certain equity offerings. In the event of a change of
control, as defined in the indenture, we will be required to make an offer to repurchase the 73/4% Senior Notes at 101% of the principal
amount thereof, plus accrued and unpaid interest to the date of the repurchase.

7% Senior Notes. In
March 2007 we issued $500 million of 7% Senior Notes due 2017 (the 7% Senior Notes) at par. We may redeem all or part of the 7% Senior Notes on or after March 15, 2012 at specified redemption prices and prior to such date at a
make-whole redemption price. In addition, prior to March 15, 2010 we may, at our option, redeem up to 35% of the 7% Senior Notes with the proceeds from certain equity offerings. In the event of a change of control, as defined in the
indenture, we will be required to make an offer to repurchase the 7% Senior Notes at 101% of the principal amount thereof, plus accrued and unpaid interest to the date of repurchase.

The 7% Senior Notes and 73/4% Senior Notes are our general unsecured, senior obligations. The 7% Senior Notes and 73/4% Senior
Notes are jointly and severally guaranteed on a senior unsecured basis by certain of our existing domestic subsidiaries. In the future, the guarantees may be released or terminated under certain circumstances. The 7% Senior Notes and 73/4% Senior Notes rank senior in right of payment to all of our existing and future subordinated indebtedness; pari passu in right of
payment with any of our existing and future unsecured indebtedness that is not by its terms subordinated to the 7% Senior Notes and 73/4%
Senior Notes; effectively junior to our existing and future secured indebtedness, including indebtedness under our senior revolving credit facility, to the extent of our assets constituting collateral securing that indebtedness; and effectively
subordinate to all existing and future indebtedness and other liabilities (other than indebtedness and liabilities owed to us) of our non-guarantor subsidiaries.

The indentures governing the 7% Senior Notes and 73/4% Senior Notes contains covenants that, among other things, limit our ability and the ability of our restricted subsidiaries to incur additional debt; make certain investments or pay
dividends or distributions on our capital stock or purchase or redeem or retire capital stock; sell assets, including capital stock of our restricted subsidiaries; restrict dividends or other payments by restricted subsidiaries; create liens that
secure debt; enter into transactions with affiliates; and merge or consolidate with another company.

Amended Credit Agreement.On May 31, 2007, we entered into the Amended Credit Agreement under which the aggregate commitments of the lenders is $1.3 billion and can be increased to $1.55 billion if
certain conditions are met. The Amended Credit Agreement provides for an initial borrowing base of $1.3 billion and a conforming borrowing base of $1.15 billion, each of which will be redetermined on an annual basis, with PXP and the lenders
each having the right to one annual interim unscheduled redetermination, and may be adjusted based on PXPs oil and gas properties, reserves, other indebtedness and other relevant factors. The borrowing base and commitments were reduced to $970
million on the date PXP issued the 73/4% Senior Notes. The Amended Credit Agreement also contains a $150 million sub-limit on letters
of credit. The Amended Credit Agreement matures on April 23, 2012. Collateral consists of 100% of the shares of stock of our material domestic subsidiaries and mortgages covering at least 75% of the total present value of our domestic oil
and gas properties. At June 30, 2007, there was $375 million outstanding under the Amended Credit Agreement.

The Amended Credit
Agreement contains negative covenants that limit our ability, as well as the ability of our restricted subsidiaries to, among other things, incur additional debt, pay dividends on stock, make distributions of cash or property, change the nature of
our business or operations, redeem stock or redeem subordinated debt, make investments, create liens, enter into leases, sell assets, sell capital stock of subsidiaries, guarantee other indebtedness, enter into agreements that restrict dividends
from subsidiaries, enter into certain types of swap agreements, enter into gas imbalance or take-or-pay arrangements, merge or consolidate and enter into transactions with affiliates. In addition, we are required to maintain a ratio of debt to
EBITDAX (as defined) of no greater than 4.25 to 1.00.

At June 30, 2007, we had $9.7 million in letters of credit outstanding under the Amended
Credit Agreement. At that date we were in compliance with the covenants contained in the Amended Credit Agreement and could have borrowed the full amount available under the Amended Credit Agreement. The effective interest rate on our borrowings
under the Amended Credit Agreement was 6.375% at June 30, 2007.



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Cash Flows



|                            |  |                           |          |   |      |   |        |  
|--------------------------- |  | ------------------------- | -------- | - | ---- | - | ------ | -
|                            |  | Six Months Ended June 30, |         
|                            |  | 2007                      |          |   | 2006 |  
|                            |  | (in millions)             |         
|Cash provided by (used in): |  |                           |          |   |      |   |        |  
|Operating activities        |  | $                         | 141.3    |   |      | $ | 405.8  |  
|Investing activities        |  |                           | (1,308.8 | ) |      |   | (336.7 | )
|Financing activities        |  |                           | 1,177.4  |   |      |   | (69.2  | )

Net cash provided by operating activities was $141.3 million in 2007 compared to $405.8 million in
2006. The decrease in net cash provided by operating activities in 2007 is primarily a result of (i) income tax payments of $94 million in 2007 primarily related to the 2006 property sales, (ii) lower operating income primarily related to
the 2006 property sales, lower oil prices and increased operating expenses and (iii) the $37.9 million merger termination gain, net of certain merger related costs, received in 2006. As discussed below, certain of our derivative cash payments
are classified as financing or investing activities.

Net cash used in investing activities was $1.3 billion in 2007 primarily reflecting the
purchase of the Piceance Basin properties of $973.9 million, additions to oil and gas properties of $258.2 million and derivative settlements of $49.1 million. Net cash used in investing activities was $336.7 million in 2006 primarily
reflecting additions to oil and gas properties of $289.4 million and derivative settlements of $42.7 million. Derivative settlements related to derivatives that have not been qualified for hedge accounting and do not contain a significant
financing element are reflected as investing activities.

Net cash provided by financing
activities in 2007 was $1.2 billion, primarily reflecting $1.2 billion in net borrowings, including $1.1 billion from the issuance of the 7% and 73/4% senior notes partially offset by $47.5 million for treasury stock purchases. Net cash used in financing activities in 2006 was $69.2 million, primarily reflecting $41.0 million in net repayments under
our senior revolving credit facility and the payment of $28.6 million for financing derivative settlements. In 2006, certain of our derivatives are deemed to contain a significant financing element and cash settlements with respect to such
derivatives are required to be reflected as financing activities.

Stock Repurchase Program

Our Board of Directors has authorized 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. We expect that the funds for these purchases will come primarily from cash flow in excess of capital investments. Since the
inception of the repurchase program we have made purchases totaling approximately $342 million under this program and we may expend an additional $158 million under the program.

Critical Accounting Policies and Factors that May Affect Future Results

Based on the accounting
policies that we have in place, certain factors may impact our future financial results. Critical accounting policies related to commodity pricing and risk management activities, write-downs under full cost ceiling test rules, oil and gas reserves,
future development and abandonment costs, DD&A, stock based compensation and goodwill are discussed in our Annual Report on Form 10-K for the year ended December 31, 2006.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements which is effective for fiscal years beginning after November 15, 2007 and for interim periods within those years. This statement defines fair value, establishes a framework for measuring fair value and expands the
related disclosure requirements. We are currently evaluating the potential impact of this statement.



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In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities  Including an Amendment of FASB Statement No. 115 which is effective for fiscal years beginning after November 15, 2007. This statement permits an entity to choose to measure many financial instruments and certain
other items at fair value at specified election dates. Subsequent unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. We are currently evaluating the potential impact of this statement.

Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes forward-looking information regarding Plains Exploration & Production Company that is intended to be covered by the safe harbor for forward-looking statements provided by the
Private Securities Litigation Reform Act of 1995. Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as will, would, should,
plans, likely, expects, anticipates, intends, believes, estimates, thinks, may, and similar expressions, are forward-looking statements.
Although we believe that our expectations are based on reasonable assumptions, there are risks, uncertainties and other factors that could cause actual results to be materially different from those in the forward-looking statements. These factors
include, among other things:



| |  |  | uncertainties inherent in the development and production of oil and gas and in estimating reserves;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | unexpected future capital expenditures (including the amount and nature thereof);
| | - |  | ---------------------------------------------------------------------------------



| |  |  | impact of oil and gas price fluctuations, including the impact on our reserve volumes and values and our earnings as a result of our derivative positions;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the effects of our indebtedness, which could adversely restrict our ability to operate, could make us vulnerable to general adverse economic and industry conditions, could
place us at a competitive disadvantage compared to our competitors that have less debt, and could have other adverse consequences;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the success of our derivative activities;
| | - |  | -----------------------------------------



| |  |  | the success of our risk management activities;
| | - |  | ----------------------------------------------



| |  |  | unexpected difficulties in integrating our operations as a result of any significant acquisitions, including the proposed acquisition of Pogo Producing Company;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the effects of competition;
| | - |  | ---------------------------



| |  |  | the availability (or lack thereof) of acquisition or combination opportunities;
| | - |  | -------------------------------------------------------------------------------



| |  |  | the impact of current and future laws and governmental regulations;
| | - |  | -------------------------------------------------------------------



| |  |  | environmental liabilities that are not covered by an effective indemnity or insurance; and
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | general economic, market, industry or business conditions.
| | - |  | ----------------------------------------------------------

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.
See Item 1A  Risk Factors and Item 7 - Managements Discussion and Analysis of Financial Condition and Results of Operations  Critical Accounting Policies and Factors That May Affect Future Results
in our Annual Report on Form 10-K for the year ended December 31, 2006 for additional discussions of risks and uncertainties.



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Item 3  Quantitative and Qualitative Disclosures About Market Risks

Commodity Price Risk

Our primary market risk is oil and gas commodity prices. Historically the markets for oil and gas have been volatile and are likely to continue to be volatile in
the future. We use various derivative instruments to manage our exposure to commodity price risk on sales of oil and gas production. All derivative instruments are recorded on the balance sheet at fair value. If a derivative does not qualify as a
hedge or is not designated as a hedge, the changes in fair value, both realized and unrealized, are recognized currently in our income statement as a gain or loss on mark-to-market derivative contracts. Cash flows are only impacted to the extent the
actual settlements under the contracts result in making a payment to or receiving a payment from the counterparty. We do not currently use hedge accounting for our derivative instruments, because the derivatives do not qualify or we have elected not
to use hedge accounting. If a derivative is designated as a cash flow hedge and qualifies for hedge accounting, any unrealized gain or loss is deferred in OCI, a component of Stockholders Equity, until the hedged oil and gas production is
sold. Realized gains and losses on derivative instruments that are designated as a hedge and qualify for hedge accounting are generally included in oil and gas revenues in the period the hedged volumes are sold. Gains and losses deferred in OCI
related to cash flow hedges for which hedge accounting has been discontinued remain in OCI until the related product has been delivered.

See Note 3
to the Consolidated Financial Statements  Derivative Instruments and Hedging Activities for a discussion of our derivative activities.

At June 30, 2007, we had the following open commodity derivative positions, none of which were designated as hedging instruments:



|                              |  |                |  |              |  |                     |  |      
|----------------------------- |  | -------------- |  | ------------ |  | ------------------- |  | -----
|Period                        |  | InstrumentType |  | DailyVolumes |  | Average Price       |  | Index
|Sales of Crude Oil Production |  |                |  |              |  |                     |  |      
|2007                          |  |                |  |              |  |                     |  |      
|July - Dec                    |  | Put options    |  | 50,000 Bbls  |  | $55.00 Strike price |  | WTI  
|2008                          |  |                |  |              |  |                     |  |      
|Jan - Dec                     |  | Put options    |  | 42,000 Bbls  |  | $55.00 Strike price |  | WTI  

The only cash settlements we are required to make on these put contracts are option premiums and interest,
which are expected to total approximately $56 million in the last six months of 2007 and $58 million in 2008. Such amounts are not included in the fair value of derivatives not designated as hedging instruments in the following table.

The fair value of outstanding crude oil commodity derivative instruments at June 30, 2007 and the change in fair value that would be expected
from a 10% price increase/decrease are shown in the table below (in millions):



|                                                  |  |           |               |               |   |               |   |  |   |     
|------------------------------------------------- |  | --------- | ------------- | ------------- | - | ------------- | - |  | - | ----
|                                                  |  | FairValue |               | Effect of 10%
|                                                  |  |           | PriceIncrease |               |   | PriceDecrease
|Derivatives not designated as hedging instruments |  | $         | 19.9          |               | $ | (10.3         | ) |  | $ | 21.4

The fair value of the commodity derivative contracts are estimated based on quoted prices from independent
reporting services compared to the contract price of the agreement, and approximate the gain or loss that would have been realized if the contracts had been closed out at period end. All positions offset physical positions exposed to the cash
market. None of these offsetting physical positions are included in the above table. Price risk sensitivities were calculated by assuming an across-the-board 10% increase in price regardless of term or historical relationships between the
contractual price of the instruments and the underlying commodity price. In the event of an actual 10% change in prompt month prices, the fair value of our derivative portfolio would typically change less than that shown in the table due to lower
volatility in out-month prices.



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##### Table of Contents

The five financial institutions that are contract counterparties for our derivative commodity contracts all have
Standard & Poors ratings of A or better and all such financial institutions are participating lenders in our revolving credit facility. At June 30, 2007 we were in a net liability position with all such counterparties. Our
management intends to continue to maintain derivative arrangements for a portion of our production. These contracts may expose us to the risk of financial loss in certain circumstances.



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##### Table of Contents

ITEM 4  Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer (our principal executive officer) and our Chief Financial
Officer (our principal financial officer), we evaluated the effectiveness of our disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) to the Securities Exchange Act of 1934, as amended (the Exchange Act)).
Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer believe that the disclosure controls and procedures as of June 30, 2007 were effective to ensure that information we are required to disclose in the
reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms and (ii) accumulated and communicated to our management,
including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.

Because of its
inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, our internal control over financial reporting can provide only reasonable assurance with respect to our financial reporting and
financial statement preparation.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2007 that materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.



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##### Table of Contents

PART II. OTHER INFORMATION

ITEM 2Unregistered Sales of Equity Securities and Use of Proceeds

On May 31, 2007, we issued one million shares of our common stock to Laramie Energy, LLC as a portion of the purchase price of the Piceance
Basin properties. The Piceance Basin properties include interests in oil and gas producing properties covering over 60,000 gross (55,000 net) acres in the Mesaverde geologic section of the Piceance Basin in Colorado, plus associated midstream
assets, including a 25% interest in the Collbran Valley Gas Gathering, LLC. The foregoing transaction was made pursuant to Section 4(2) of the Securities Act.

Our Board of Directors has authorized the repurchase of up to $500 million of PXP common stock. The shares are repurchased from time to time in open market transactions or privately negotiated transactions at our discretion,
subject to market conditions and other factors. The following is a summary of all repurchases by the Company of its common stock during the three month period ended June 30, 2007.

Issuer Purchases of Equity Securities



|                          |  |                                  |  |                              |       |                                                                                  |           |                                                                                                       |   |            
|------------------------- |  | -------------------------------- |  | ---------------------------- | ----- | -------------------------------------------------------------------------------- | --------- | ----------------------------------------------------------------------------------------------------- | - | -----------
|Period                    |  | Total Number of Shares Purchased |  | Average Price Paid per Share |       | Total Number of Shares Purchased As Part of Publicly Announced Plans
or Programs |           | Maximum Number (orApproximateDollar Value) ofShares that MayYet BePurchasedUnder the Plansor Programs
|April 1 to April 30, 2007 |  | 323,200                          |  | $                            | 46.98 |                                                                                  | 7,667,300 |                                                                                                       | $ | 158,364,000

ITEM 4  Submission of Matters to a Vote of Security Holders

The following items were presented for approval to stockholders of record on March 22, 2007 at the Companys 2007 annual meeting of stockholders, held on
May 3, 2007 in Houston, Texas:



|                                                                                                                                                                                        |  |            |  |            |  |                     
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------- |  | ---------- |  | --------------------
|                                                                                                                                                                                        |  | For        |  | Against    |  | Abstainedor Withheld
|(i) Election of Directors                                                                                                                                                               |  |            |  |            |  |                     
|James C. Flores                                                                                                                                                                         |  | 61,786,817 |  |           |  | 464,903             
|Isaac Arnold, Jr.                                                                                                                                                                       |  | 62,066,939 |  |           |  | 184,781             
|Alan R. Buckwalter, III                                                                                                                                                                 |  | 62,077,685 |  |           |  | 174,035             
|Jerry L. Dees                                                                                                                                                                           |  | 59,595,350 |  |           |  | 2,656,370           
|Tom H. Delimitros                                                                                                                                                                       |  | 61,551,852 |  |           |  | 699,868             
|Robert L. Gerry, III                                                                                                                                                                    |  | 61,979,736 |  |           |  | 271,984             
|John H. Lollar                                                                                                                                                                          |  | 61,534,564 |  |           |  | 717,156             
|(ii) Amendments to the Companys 2004 Stock Incentive Plan (a)                                                                                                                          |  | 37,806,684 |  | 20,326,085 |  | 68,725              
|(iii) Ratification of PricewaterhouseCoopers LLP, independent certifiedpublic accountants, as auditors of the Companys
financial statementsfor the fiscal year ended December 31, 2007 |  | 62,186,749 |  | 51,266     |  | 13,705              

(a) There were 4,050,226 broker non-votes.

Of the 72,498,189 shares of common stock issued and outstanding on March 22, 2007, 62,251,720 were present, either in person or by proxy.



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##### Table of Contents

ITEM 6  Exhibits



|     |   |  |                                                                                                                                                                                                                                                                                                                                                                                                        
|---- | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.1  |   |  | Underwriting Agreement, dated June 13, 2007, by and among Plains Exploration & Production Company, the guarantors parties thereto, J.P. Morgan Securities Inc. and the
underwriters parties thereto (incorporated by reference to Exhibit 1.1 to the June 19, 2007 Form 8-K (the June 19, 2007 Form 8-K)).                                                                                           
|     |  
|4.1  |   |  | Second Supplemental Indenture, dated June 5, 2007, to Indenture, dated March 13, 2007, between Plains Exploration & Production Company, the subsidiary guarantors parties thereto
and Wells Fargo Bank, N.A., as trustee (incorporated by reference to Exhibit 4.6 to the Companys Post-Effective Amendment No. 1 to Registration Statement on Form S-3 (file no. 333-141110) filed on June 11, 2007).
|     |  
|4.2  |   |  | Third Supplemental Indenture, dated June 19, 2007, to Indenture, dated as of March 13, 2007, among Plains Exploration & Production Company, the subsidiary guarantors parties
thereto and Wells Fargo Bank, N.A., as trustee (including form of 73/4% Senior Notes due 2015) (incorporated by reference
to Exhibit 4.2 to the June 19, 2007 Form 8-K).                                                 
|     |  
|4.3  |   |  | Amended and Restated Credit Agreement dated as of May 31, 2007, among Plains Exploration & Production Company, as borrower, each of the lenders that is a signatory thereto,
and JPMorgan Chase Bank as Administrative Agent (incorporated by reference to Exhibit 4.1 of the June 1, 2007 Form 8-K).                                                                                                  
|     |  
|10.1 |   |  | Amended and Restated Plains Exploration & Production Company 2004 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the May 7, 2007 Form 8-K).                                                                                                                                                                                                                                        
|     |  
|10.2 | * |  | First Amendment to Employment Agreement effective as of November 8, 2006, and dated as of April 26, 2007, between Plains Exploration & Production Company and Winston M. Talbert.                                                                                                                                                                                                                      
|     |  
|10.3 | * |  | First Amendment to Employment Agreement effective as of November 8, 2006, and dated as of April 26, 2007, between Plains Exploration & Production Company and Doss R. Bourgeois.                                                                                                                                                                                                                       
|     |  
|10.4 |   |  | Asset Purchase and Sale Agreement dated April 18, 2007, between Laramie Energy, LLC and Plains Exploration & Production Company (incorporated by reference to Exhibit 10.1 to the
April 24, 2007 Form 8-K (the April 24, 2007 Form 8-K)).                                                                                                                                                            
|     |  
|10.5 |   |  | Membership Interests Purchase and Sale Agreement dated April 18, 2007 between Laramie Energy, LLC and Plains Exploration & Production Company (incorporated by reference to Exhibit
10.2 to the April 24, 2007 Form 8-K).                                                                                                                                                                              
|     |  
|31.1 | * |  | Certification of Chief Executive Officer, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                        
|     |  
|31.2 | * |  | Certification of Chief Financial Officer, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                        
|     |  
|32.1 | * |  | Chief Executive Officer Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                         
|     |  
|32.2 | * |  | Chief Financial Officer Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                         



|* | Filed herewith
|- | --------------

Items 1, 1A, 3 and 5 are not
applicable and have been omitted.



37



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##### Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|      |  |                |  |                                         |  |     |  |                                                                                   
|----- |  | -------------- |  | --------------------------------------- |  | --- |  | ----------------------------------------------------------------------------------
|      |  |                |  | PLAINS EXPLORATION & PRODUCTION COMPANY
|      |  |                |  |                                        
|Date: |  | August 7, 2007 |  |                                         |  | By: |  | /s/ Winston M. Talbert                                                            
|      |  |                |  |                                         |  |     |  | Winston M. Talbert                                                                
|      |  |                |  |                                         |  |     |  | Executive Vice President and Chief Financial Officer (Principal Financial Officer)



38



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##### Table of Contents

EXHIBIT INDEX



|            |   |  |                                                                                                                                                                                                                                                                                                                                                                                                        
|----------- | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |   |  | Description                                                                                                                                                                                                                                                                                                                                                                                            
|1.1         |   |  | Underwriting Agreement, dated June 13, 2007, by and among Plains Exploration & Production Company, the guarantors parties thereto, J.P. Morgan Securities Inc. and the underwriters
parties thereto (incorporated by reference to Exhibit 1.1 to the June 19, 2007 Form 8-K (the June 19, 2007 Form 8-K)).                                                                                           
|            |  
|4.1         |   |  | Second Supplemental Indenture, dated June 5, 2007, to Indenture, dated March 13, 2007, between Plains Exploration & Production Company, the subsidiary guarantors parties thereto
and Wells Fargo Bank, N.A., as trustee (incorporated by reference to Exhibit 4.6 to the Companys Post-Effective Amendment No. 1 to Registration Statement on Form S-3 (file no. 333-141110) filed on June 11, 2007).
|            |  
|4.2         |   |  | Third Supplemental Indenture, dated June 19, 2007, to Indenture, dated as of March 13, 2007, among Plains Exploration & Production Company, the subsidiary guarantors parties
thereto and Wells Fargo Bank, N.A., as trustee (including form of 73/4% Senior Notes due 2015) (incorporated by reference
to Exhibit 4.2 to the June 19, 2007 Form 8-K).                                                 
|            |  
|4.3         |   |  | Amended and Restated Credit Agreement dated as of May 31, 2007, among Plains Exploration & Production Company, as borrower, each of the lenders that is a signatory thereto,
and JPMorgan Chase Bank as Administrative Agent (incorporated by reference to Exhibit 4.1 of the June 1, 2007 Form 8-K).                                                                                                  
|            |  
|10.1        |   |  | Amended and Restated Plains Exploration & Production Company 2004 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the May 7, 2007 Form 8-K).                                                                                                                                                                                                                                        
|            |  
|10.2        | * |  | First Amendment to Employment Agreement effective as of November 8, 2006, and dated as of April 26, 2007, between Plains Exploration & Production Company and Winston M. Talbert.                                                                                                                                                                                                                      
|            |  
|10.3        | * |  | First Amendment to Employment Agreement effective as of November 8, 2006, and dated as of April 26, 2007, between Plains Exploration & Production Company and Doss R. Bourgeois.                                                                                                                                                                                                                       
|            |  
|10.4        |   |  | Asset Purchase and Sale Agreement dated April 18, 2007, between Laramie Energy, LLC and Plains Exploration & Production Company (incorporated by reference to Exhibit 10.1 to the
April 24, 2007 Form 8-K (the April 24, 2007 Form 8-K)).                                                                                                                                                            
|            |  
|10.5        |   |  | Membership Interests Purchase and Sale Agreement dated April 18, 2007 between Laramie Energy, LLC and Plains Exploration & Production Company (incorporated by reference to Exhibit
10.2 to the April 24, 2007 Form 8-K).                                                                                                                                                                              
|            |  
|31.1        | * |  | Certification of Chief Executive Officer, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                        
|            |  
|31.2        | * |  | Certification of Chief Financial Officer, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                        
|            |  
|32.1        | * |  | Chief Executive Officer Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                         
|            |  
|32.2        | * |  | Chief Financial Officer Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                         



|* | Filed herewith
|- | --------------



39