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Plains Exploration Says Deepwater Moratorium Delayed Asset Sale

Plains Exploration & Production Co. (PXP) said Thursday the planned sale of its Gulf of Mexico (GOM) deepwater properties has been delayed because the uncertain regulatory environment for offshore producers has frightened away buyers.

PXP said it has twice extended the time to submit bids for the deepwater properties because potential buyers were unsure of how much more safety measures would cost under the more strict GOM rules enacted by the Interior Department. Because of the uncertainty, the bids have been low, said CEO Jim Flores.

"To date, the deepwater separation process reflects a discounted value due to the current regulatory uncertainties, permit delays, and reduced activity for Gulf of Mexico exploration and development," he said.

Last year the Houston-based independent said it hoped to raise up to $2 billion through the sale of its GOM properties, either through third-party joint ventures or through sales, "to align capital spending with operating cash flow" (see Daily GPI, Aug. 6, 2010).

A month later PXP sold most of its shallow water gas-weighted assets in the GOM to McMoRan Exploration Co. in a transaction estimated to be worth more than $800 million (see Daily GPI, Sept. 21, 2010).

PXP's deepwater portfolio, which was scheduled to be sold by the end of last year, is anchored by the Friesian and Lucius oil prospects (see Daily GPI, Jan. 28, 2010). Anadarko Petroleum Corp. is a partner and operates the Lucius prospect.

When the portfolio was put up for sale PXP had interests in 107 blocks in the deepwater, which include nine prospects and an additional 22 prospects or leads in Pliocene, Miocene and Lower Tertiary reservoirs.

Although the assets are for sale, PXP still plans to spend around $50-60 million in the deepwater this year. Anadarko now is conducting tests at the Lucius prospect.

"It is prudent to allow time for the regulatory uncertainties to abate and to complete the Lucius well test operations before proceeding" with the sale process, said the CEO. "The flow test is a key milestone to possible project sanctioning in 2011, which results in significant discovered resources becoming proved reserves."

Moody's Investors Service on Thursday assigned a "B1" rating to PXP after the producer proposed a $300 million senior unsecured notes offering that is due in 2021.

"The negative outlook reflects PXP's continuing high level of leverage," said Moody's Vice President Francis J. Messina, Moody's Vice-President. "PXP has transformed itself over the past two years from a spending focus on natural gas to oil and liquids. Now PXP needs to grow organic production and reserves."

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