Oil and gas company Plains Exploration & Production Co. (PXP) announced that it has entered into an agreement with EIG Global Energy Partners (“EIG”) to sell a 20% equity interest in Plains Offshore Operations Inc. (“Plains Offshore”), its wholly owned subsidiary, for $450 million.
Plains Offshore has been developed to hold Plains Exploration’s Gulf of Mexico assets, including the Lucius oil development project, a well-appraised discovery with first production expected in 2014. The company intends to utilize the proceeds for the development of the Lucius project and the Phobos prospect exploratory drilling planned for 2012. We appreciate the company’s strategic decision to sell interest in order to raise funds for potential future projects.
Per the agreement, Plains Offshore will issue 8% convertible preferred stock and non-detachable warrants to EIG Global Energy Partners to purchase Plains Offshore’s common stock. The 8% convertible preferred stock will pay quarterly cash dividends of 6% per annum and an additional 2% per annum dividend, which may be deferred and accumulated quarterly until paid.
Plains Exploration’s earnings in the second quarter surpassed both our expectation and the year-ago results. The company excelled in the quarter due to higher production levels as well as better price realizations. The company is scheduled to release its third quarter earnings on November 4, 2011. The Zacks Consensus Estimate for earnings per share in the third quarter is 40 cents.
Plains Exploration & Production retains a short-term Zacks #3 Rank on the stock, which translates into a Hold rating. The company competes with Anadarko Petroleum Corporation (APC) and Pioneer Natural Resources Co. (PXD).
Based in Houston, Texas, Plains Exploration & Production engages in the acquisition, development, exploration, and production of oil and gas properties primarily in the United States.
