Houston-based Plains Exploration & Production Co. (PXP) and certain of its subsidiaries agreed to sell certain working interests in oil and gas properties to a subsidiary of Occidental Petroleum Corp. (Oxy) and to XTO Energy Inc. in two separate transactions worth a combined $1.75 billion. PXP also said it is increasing its share repurchase authorization to $1 billion.
"The oil and gas property divestments balance PXP's asset portfolio and align operator strengths to specific assets maximizing efficiencies and returns," said PXP CEO Jim Flores. "We are pleased with the values being realized today through these transactions with Oxy and XTO, which are significantly higher than our properties are currently valued in our stock price, allowing us to use the proceeds to buy back PXP common shares and reduce debt."
PXP is selling to Oxy:
In a separate transaction, certain of PXP's subsidiaries have agreed with XTO to sell PXP's interests in oil and gas properties in the San Juan Basin in New Mexico and in the Barnett Shale in Texas. The properties currently generate sales volumes of approximately 3,000 boe/d and have approximately 17 million boe estimated proved reserves as of Dec. 31, 2006.
PXP will receive $180 million of cash and XTO's 50% working interest in the Big Mac 3-D prospect area on the Texas Gulf Coast. PXP will have a 100% working interest in the Big Mac 3-D prospect area, covering approximately 50,000 net lease acres in the 275 square mile 3-D. The transaction effective date is Jan. 1, 2008 and it is expected to close on or before the end of the first quarter 2008, subject to customary conditions and adjustments.
In the Oxy sale the Permian Basin properties currently generate sales volumes of approximately 18,000 boe/d and had approximately 91 million boe of estimated proved reserves as of Dec. 31, 2006. The Piceance properties generate sales volumes of approximately 9,000 boe/d and, based on PXP estimates, had approximately 64 million boe estimated proved reserves on the date of PXP's acquisition. The transaction effective date is Jan. 1, 2008 and it is expected to close on or before the end of the first quarter 2008, subject to customary conditions and adjustments.
"The total production on this deal is roughly 55% natural gas and 45% oil, Oxy spokesman Richard Kline told NGI. "And when you start getting down into the two areas if you look at the reserves in the Permian, that's roughly two-thirds oil and if you look at it in the Piceance the vast majority is natural gas."
"This acquisition is consistent with our strategy of focusing on our Permian Basin core area and continuing to build a meaningful position in the Piceance Basin," said Oxy CEO Ray R. Irani. "Currently, we produce approximately 40 MMcf/d of gas in the Piceance Basin; together with our share of the new assets, we will have 67 MMcf/d of production. We look forward to 20% year-over-year growth from the combined Piceance assets. The Permian properties, including the large acreage position, have excellent growth prospects. We believe, over time, the proved reserves from both the properties will more than double."
Current production (net to Oxy) from the properties being acquired is approximately 13,500 boe/d. The Permian properties produce approximately 9,000 boe/d. The Permian properties have 46 million boe of proved reserves (net to Oxy). The Piceance properties also have approximately 46 million boe of proved reserves (net to Oxy).
Earlier this year Oxy acquired Permian assets from BP (see NGI, May 7).
PXP's board authorized the company to purchase $1 billion of PXP common stock, replacing the previous authorization that had approximately $158 million remaining. The shares will be repurchased from time to time in open market transactions or privately negotiated transactions at the company's discretion, subject to market conditions and other factors.
Last week Standard & Poor's Ratings Services (S&P) said the sales would not affect credit ratings of PXP. "The announcement of an expanded share repurchase program raises some concern, but we expect management will approach repurchases in a measured manner that is not detrimental to credit quality," S&P said. "Management has indicated that it expects that the amount of share repurchases in the upcoming year will likely approximate 2008 earnings."
PXP's board also approved a 2008 capital budget of $1.15 billion, including capitalized interest and general and administrative expenses. The capital plan supports PXP's diversified growth strategy by funding drilling programs in each of its key asset areas. PXP expects to fund capital expenditures from internal cash flow. Approximately 65% is expected to be allocated to production and development activities in the California, Rockies, Texas and Gulf of Mexico asset areas. Approximately 25% is intended for exploration projects primarily in the Gulf of Mexico, onshore Gulf Coast and Panhandle area of Texas.
PXP said it intends to participate in several Gulf of Mexico deepwater prospects during 2008. Up to approximately 80% of the exploration budget is allocated to the Gulf of Mexico. The remaining 20% is allocated to several exploratory wells in the Gulf Coast onshore 3-D areas and the Panhandle area of Texas.
Last month PXP closed its $3.6 billion acquisition of Pogo Producing Co. (see NGI, Nov. 12).
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