McMoRan Exploration Co. is nearly doubling the size of its portfolio in the shallow waters of the Gulf of Mexico (GOM) in a transaction with Plains Exploration & Production Co. (PXP) estimated to be worth more than $800 million.
The New Orleans-based producer plans to buy the PXP gas-weighted assets with a combination of stock and cash that would effectively make PXP a 23% shareholder.
Under the terms of the transaction, McMoRan would issue 51 million shares of common stock and pay $75 million in cash to acquire all of PXP’s interests and exploration rights in the shallow waters of the Outer Continental Shelf (OCS). The transaction was estimated to be worth about $818 million based on McMoRan’s stock price of $14.57/share last Friday.
The transaction would increase McMoRan’s scale of operations on the GOM shelf, consolidate its ownership in core focus areas, expand its participation in future production from its deep gas and ultra-deep exploration and development programs and increase current reserves and production.
In addition, McMoRan said it would “continue to benefit from its positive relationship with PXP through PXP’s significant shareholding position in McMoRan.”
In conjunction with the transaction, McMoRan has secured $900 million of committed financing from an investor group, and PXP would have the right to designate two directors to McMoRan’s board.
The producer currently owns working interests in substantially all of the properties being acquired, which include PXP’s 27.7% interest in the ultradeep discovery at Davy Jones, which some believe may be one of the largest gas fields discovered in U.S. waters (see Daily GPI, Jan. 15).
McMoRan also gains PXP’s 35% stake in Blackbeard West, also considered highly prospective for natural gas (see Daily GPI, March 25, 2009). In addition, McMoRan would acquire all of PXP’s stakes in deep gas and ultradeep exploration prospects on the OCS, including Blackbeard East, now being drilled; 30% working interest in the multi-well Flatrock field; 47.9% interest in Blueberry Hill; and 30% working interest in Hurricane Deep.
Independent reserve estimates for the proved reserves being acquired, excluding the reserve potential from Davy Jones and recent results from Blueberry Hill, were 60 Bcfe at the end of June. Current production rates are about 45 MMcfe/d.
During a conference call Monday to discuss the transaction, McMoRan CEO Jim Bob Moffett said an independent review of reserves data indicate that the shallow water assets could generate up to 100 Tcfe, which is more than triple earlier estimates.
PXP, which has been building its portfolio in the less costly onshore plays, stands to gain more from the transaction than two seats on the McMoRan board, said CEO James C. Flores. As he explained, PXP will still take part in McMoRan’s drilling success.
“What’s critical from Plains’ perspective is our continued participation,” said Flores. “We truly understand this trend…it’s an emerging play, and every time we drill a well it’s getting larger.”
Because the “major gas reserve” will take a “few years to come on,” McMoRan will benefit by being able to “skip all this gas price melee” and take time to “actually develop, identify and explore the opportunities.”
“This transaction is consistent with our objective of restructuring our GOM ownership while enabling our shareholders to continue to participate in the significant potential of these opportunities. Under Jim Bob’s leadership, McMoRan has been successful in redefining the potential of the GOM shelf, and as a significant shareholder of McMoRan, we look forward to future success and value creation that this consolidated and focused portfolio provides.”
Separately PXP said it has begun the process of marketing the company’s deepwater GOM portfolio, which is anchored by the Friesian and Lucius oil prospects. In the deepwater PXP has interests in “107 blocks, nine well defined prospects and an additional 22 prospects or leads in Pliocene, Miocene and Lower Tertiary reservoirs. The data room process is under way with final bids expected in late October to mid-November.”
The transaction with McMoRan is expected to close by the end of the year. PXP also expects to complete the deepwater asset sale by year’s end.
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