Houston-based Plains Exploration & Production Co. is paying $5.55 billion for deepwater Gulf of Mexico (GOM) oil and gas properties it is acquiring from BP Exploration & Production Inc. and BP America Production Co. A separate deal with Shell Offshore Inc. in the GOM is worth another $560 million.
The properties include the BP-operated Marlin, Dorado and King fields (collectively the Marlin Hub, 100% working interest), BP-operated Horn Mountain field (working interest 100%), BP-operated Holstein field (working interest 50%), BP nonoperated Diana-Hoover Field (33.33% working interest, operated by ExxonMobil Corp.) and BP nonoperated Ram Powell field (31% working interest, operated by Shell Offshore Inc.).
At the end of July the properties were producing an estimated 59,500 boe/d, of which nearly 84% was oil and natural gas liquids (NGL) with an average American Petroleum Institute gravity of 34 degrees. "Significant upside production potential exists in the currently producing reservoirs through numerous low risk, high-margin drilling/recompletion and well workover opportunities," Plains said. Plains is to pay BP $5.55 billion in cash, subject to regulatory approvals and adjustments; closing of the deal is expected by year-end.
Separately, Plains agreed to acquire from Shell Offshore its 50% working interest in the Holstein Field for $560 million, giving it a 100% working interest in the field when combined with the BP acquisition. At the end of July the properties were producing an estimated net 7,400 boe/d, of which nearly 86% was oil and NGLs with an average American Petroleum Institute gravity of 33 degrees. "Upside production potential exists in the currently producing reservoirs through numerous low-risk, high-margin drilling/recompletion and well workover opportunities," Plains said.
Shell said, "Holstein is a mature deepwater asset and the sale is consistent with Shell's continuing practice of reviewing our existing portfolio and evaluating new opportunities."
The two acquisitions are another step in Plains conversion to a heavily oil-focused company, a transition it began three years ago, CEO James Flores told financial analysts during a conference call to discuss the deal. In the coming months Plains intends to divest $1.5-2 billion worth of nonoperated natural gas assets in the Madden field in Wyoming and the Haynesville Shale in Louisiana.
The Madden assets, operated by ConocoPhillips, have 200 Bcfe of total resource potential, according to Plains. The Haynesville assets, in the hands of multiple operators but mainly Chesapeake Energy Corp., have 5,475 Bcfe of total resource potential, Plains said.
Flores said Plains has had "a lot of interest in the gas assets" from master limited partnerships in light of the fact that much of the gas production is hedged and provides a steady revenue stream. "We're going to sell the gas assets; we're going to be an oil company. We have said for the last 18 months we cannot get returns in our gas assets...We are going to be selling them."
After the divestitures, Plains' activities will be focused on California, where it has 482 million boe of resource potential; the Eagle Ford Shale, where it has 172 million boe, and the GOM, where it will have about 1,923 million boe including the latest acquisitions.
Moody's Investors Service placed under review for downgrade Plains' "Ba3" corporate family rating and B1 senior unsecured notes rating. "The review for downgrade reflects the all debt-funded nature of the transaction, with leverage rising substantially above other 'Ba3'-rated peers, the execution risk associated with PXP's deleveraging plans, including the timing of and proceeds from asset sales, and the higher risk profile of GOM development," Moody's said. "To fund the acquisition PXP intends to raise up to $7 billion of debt financing, which will dramatically leverage its balance sheet with as much as $9.7 billion total debt at year-end 2012. On a pro forma run rate basis, debt on production will exceed a very high $60,000 per average daily boe at closing."
The deal reflects BP's greater focus in the Gulf of Mexico on producing more high-margin barrels from fewer, larger assets, the major said. The plan to sell the assets was announced earlier this year (see NGI, May 7). The company said it will concentrate activity in the GOM on growth opportunities around its four major operated production hubs and three nonoperated production hubs in the deepwater, as well as on exploration and appraisal opportunities in the Paleogene and elsewhere. The company's four production platforms in the GOM are Thunder Horse, Atlantis, Mad Dog and Na Kika. BP will also continue to hold interests in three nonoperated hubs: Mars, Ursa and Great White.
"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 BP CEO Bob Dudley. "This sale, as with previous divestments, is consistent with our strategy of playing to our strengths as a company and positioning us for long-term growth. In the Gulf of Mexico that means focusing future investments on our strong set of producing assets and promising exploration prospects."
BP said it expects to have divested assets worth $38 billion between 2010 and 2013. With the Plains deal, BP has agreed to sell assets with a value of over $32 billion since the beginning of 2010. The company said it anticipates investing on average at least $4 billion in the GOM each year for the next decade. In June production started from the BP-operated Galapagos project, tied back to the Na Kika platform. A further development of Na Kika is expected to come on stream in 2013. BP is also progressing plans for a second phase of the Mad Dog field. The company now has six drilling rigs operating in the GOM and expects to have eight rigs in place by the end of the year, the most it has ever had in the region.
Almost a year ago, Plains announced a deal to sell a one-fifth interest in its offshore unit to EIG Global Energy Partners for $450 million in cash (see NGI, Oct. 31, 2011).
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