With a strong focus on eliminating its offshore exposure, Plains Exploration & Production Company (PXP) continues to build on new onshore oil-producing prospects. The company expects average sales volumes of 89 thousand barrels of oil equivalent per day in the third quarter of 2010.
 
The company recently acquired significant acreage in the Eagle Ford shale play in South Texas. Plains has agreed to pay $578 million in cash for roughly 60,000 net acres in the Karnes County of South Texas. Of the acreage acquired, the company holds nearly 20,400 net acres (about one-third of assets acquired) in joint operation with EOG Resources Inc. (EOG).
 
This acquisition adds a high-quality oil asset with substantial reserve and oil production growth opportunities to Plains’ existing domestic oil resource position. The Eagle Ford properties have an estimated net resource potential of approximately 140 to 175 million barrels of oil equivalent (BOE). Plains expects net production capacity of about 2,000 BOE per day from these assets. The company targets year-end 2011 production at Eagle Ford to reach 5,000 BOE per day, net to Plains.
 
The Eagle Ford acquisition enables the company to aggressively expand its large, high-margin onshore oil business. Plains targets the close of the Eagle Ford oil shale acquisition during fourth quarter 2010, with an effective date of September 1, 2010.
 
On the divesture front, Plains Exploration continues to market its deepwater Gulf of Mexico assets with final bids expected in late-October to mid-November. Plains’ deepwater portfolio is anchored by the Friesian and the Lucius prospects, with interests in 107 blocks, nine well-defined prospects and an additional 22 prospects. The company expects the divestments to close by year-end 2010.
 
Going forward, Plains anticipates using up substantially all of its oil assets, maintaining total liquids volumes between 50% and 60% of total production, and continued deployment of hedging strategy to protect the company’s cash flows.
 
Furthermore, Plains expects average sales volumes of roughly 89 thousand BOE per day for the third quarter of 2010, up 5% from 85 thousand BOE per day in the second quarter of 2010.
 
Based in Houston, Texas, Plains Exploration & Production Company is an independent oil and gas company with core operations located in North America. The company is primarily engaged in the activities of acquiring, developing, exploring and producing oil and gas. The company’s core assets include mature properties with long-lived reserves and significant development opportunities as well as newer properties with development and exploration potential.
 
We currently have a short-term Zacks #3 (Hold) Rank on Plains Exploration, which translates into a long-term Neutral recommendation.
 
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PLAINS EXPL&PRD (PXP): Free Stock Analysis Report
 
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