Plains E&P betting $6 billion on Gulf of Mexico oil
BY STEVE GELSI
NEW YORK (MarketWatch) -- Plains Exploration & Production Co.' s $6 billion move into Gulf of Mexico oil fields marks its largest acquisition ever -- a bid to boost the oil component of its energy output over lower-priced natural gas via techniques for wringing more barrels out of mature fields.
The hefty price tag to be paid by Plains Exploration & Production in separate deals with BP and Shell outweighs the Houston energy firm' s current market capitalization of $5 billion, as it bets big on tapping into the riches of the Gulf. Shares of Plains fell 7% in the early going Monday.
"Significant upside production potential exists in the currently producing reservoirs through numerous low-risk, high-margin drilling/recompletion and well workover opportunities," Houston-based Plains said.
Plains will boost oil volumes to 89% of its total production in 2013, up from about 61% projected for 2012. Since oil is much more lucrative than natural gas, Plains will boost its cash flow considerably by adding more crude production.
All told, Plains sees up to $5 billion in cumulative excess cash flow between 2013 and 2016. The deals are expected to close by the end of December.
With financing from a group of banks led by J.P. Morgan Securities LLC, Plains will gain 67,000 boepd in addition to potential increases that would accrue from oil-reservoir stimulation technology.
Analysts at Tudor Pickering Holt said they' re hoping to see more details on the financing of the acquisitions, but their initial take is that Plains may not have to sell more common stock to raise money to close the deal.
That would be good news for stockholders, who won' t see the value of their shares diluted by a big equity sale. Instead, the transaction stands to be "accomplished via additional debt, asset sales and free cash flow," the Tudor Pickering analysts said.
In the biggest chunk of the deal, BP will get $5.5 billion from Plains for its interests in the Holstein, Marlin and Horn Mountain production platforms in Gulf waters located south of New Orleans.
For BP, the deal represents part of a divestment plan announced in the wake of its 2010 Macondo oil well blowout. Meanwhile, Royal Dutch Shell will get $560 million for its 50% stake in Holstein.
The legal fight over the oil spill took a difficult turn for BP in recent days as the U.S. government leans toward pursing gross-negligence charges against the oil company.
Tudor Pickering analysts said BP got a good price for the oil fields -- about $700 million more than they projected.
"A reduced and more focused exposure to the Gulf of Mexico is welcome for BP, we think, in the midst of recently-escalated federal pursuit of Macondo gross-negligence charges," they wrote.
For its part, BP said the sale fits its strategy to focus on "giant fields and deepwater exploration."
Taking aim at the oil-rich region, BP said it' ll bear down on four major operated production hubs and three non-operated deepwater production hubs.
"While these assets no longer fit our business strategy, the Gulf of Mexico remains a key part of BP' s global exploration and production portfolio and we intend to continue investing at least $4 billion there annually over the next decade," said Bob Dudley, BP' s group chief executive, in a statement.
Dow Jones Newswires