Plains Exploration & Production Co. (PXP) said last week 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 NGI, Aug. 9, 2010). A month later PXP sold most of its shallow water gas-weighted assets to McMoRan Exploration Co. in a transaction estimated to be worth more than $800 million (see NGI, Sept. 27, 2010).
PXP’s deepwater portfolio, which was scheduled to be sold by the end of last year, is anchored by the highly prospective Friesian and Lucius oil prospects (see NGI, Feb. 1, 2010). Anadarko Petroleum Corp. operates the Lucius well with a 50% stake while PXP owns a one-third interest. Apache Corp. gained the remaining 16.67% stake last year (see NGI, April, 19, 2010).
When PXP’s portfolio was put up for sale it had interests in 107 blocks in the deepwater, which included 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.”
Howard Weil analyst Brian Corales said the delayed sale process “should not come as a huge surprise.” Anadarko, he noted, received a permit from the Interior Department to test Lucius at the end of this month.
“This is an important step for potentially increasing the value for the assets and to make the development more transparent,” wrote Corales. “This should create less concern for potential buyers who may be hesitant to buy in the deepwater today. If the assets are spun-off, a successful test should bring in higher value. While this does delay the sale, it could help bring in a higher price.
“We continue to think the make-up of PXP will ultimately be an onshore company focused on oil and therefore should see multiple expansion. We think PXP has an attractive valuation and would be buyers of the stock.”
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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