Houston-based Plains Exploration & Production Co. (PXP), which up to now has concentrated its exploration efforts in California and along the Gulf Coast, on Wednesday gained entry into the natural gas-rich Piceance Basin of Colorado in an agreement estimated to be worth $946 million with privately held Laramie Energy LLC. The transaction, 97% weighted to gas, gives PXP 55,000 net acres, more than 200 producing wells and more than 3,000 additional potential drilling locations.
Along with the leasehold, PXP gains a 25% stake in the Collbran Valley Gathering System. The properties currently produce 6,000 boe/d. Estimated proved reserves are 64 MMboe, with an additional 295 MMboe of unproven resource potential, totaling 359 MMboe of proved, probable and possible reserves. Up to now, PXP concentrated most of its efforts on oil exploration.
CEO Jim Flores, who presided over a conference call, explained that PXP had been studying the Piceance Basin for the last eight months.
"To us, the Piceance Basin is the San Joaquin Valley of gas," said Flores. "Most of it hasn't been developed yet [and] it's got an estimated 22 Tcf...All the big operators are up there, Exxon, EnCana, XTO, Marathon...You can follow around the majors [because] they're where the best returns are...
"We know a lot of gas is going to be coming out of the Rockies [and] this deal is massive on a scale of other independents operating up there. With an inventory of 3,000 wells, there's nothing more we need to do. We have a complete business unit." He added, "We're kind of excited about not having to fix something."
Of the 3,000 drilling prospects identified, Flores said 50% of them are "ready to go," with permits in hand. "That gives us 15 years of drilling opportunities [at 100 wells a year]," he said. The deal "very much balances our company," which up to now has been 81% weighted to oil.
Laramie was formed in 2004 by Robert Boswell, the former chairman and CEO of Forest Oil Corp., and James Schroeder, former president of Mesa Hydrocarbons LLC. The company initially was funded by CSFB Private Equity and EnCap Investments.
"The big thing here is the quality of the assets, the value, which will deliver," Flores said. "We are an opportunistic company, but we've been patient with our acquisition strategy. The last time we bought something was three years ago, with Nuevo [Energy Co.]." PXP purchased Nuevo in early 2004 (see Daily GPI, Feb. 13, 2004).
"We were a seller in '05 and '06, and we've spent the last three years waiting for an acquisition that would be immediately accretive to what we are doing in our company."
The Laramie assets are expected to be fully integrated as a functional part of PXP, Flores said. He did not indicate how many employees from Laramie would be joining the Houston company, but he noted that the personnel in place had done an outstanding job. "They're already running a real good show."
PXP had been "looking for assets that wouldn't dilute with what we already had, assets that will be with us forever." PXP already is considering spinning off the assets into a master limited partnership (MLP), Flores said. "These assets are definitely MLP-able. We've been watching and learning and we definitely will not dilute that opportunity."
PXP said it will pay Laramie $900 million in cash and issue one million shares of PXP common stock. The transaction, with an effective date of Jan. 1, 2007, is expected to close in the second quarter. PXP intends to fund the acquisition with borrowings under its bank credit facility. Lehman Brothers Inc. acted as the financial adviser.
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