Plains Exploration & Production Company (PXP) came out with updates on its strategic offshore and onshore separation plans. Separately, the company said it has priced a $600 million senior notes offering.
Separation Plan Update
Plains Exploration & Production said it continues to mull separating its deepwater and onshore businesses. The company’s plan is to separately capitalize its deepwater business through a joint venture or outside capital and then either spin off or divest these assets.
The company’s plan to shift away from deepwater operations stems from the regulations enforced on deepwater drilling following last year’s oil spill incident at BP Plc’s (BP) well in the Gulf of Mexico.
Plains Exploration & Production said the planned sale of its deepwater assets in the Gulf of Mexico would be delayed as the current tough regulatory environment has deterred buyers. The company said it is prudent enough to wait for the regulatory uncertainties to subside and to complete test operations at the Lucius well before proceeding with the sale.
Plains also noted that Anadarko Petroleum Corporation (APC), the Lucius operator, recently received approval to conduct well test operations beginning late March 2011. The company expects the flow test to act as a key milestone for the possible project approval in 2011.
Prior to separation, Plains expects capital spending of about $50-$60 million (net to Plains) for these properties in 2011, with the reduction in Gulf of Mexico activity curtailments.
Public Offering
Per the notes offering, the company will sell 6.625% senior notes with maturity in 2021. The company said the notes will be offered to the public at par.
Interest will be paid on the notes on May 1 and November 1 every year. Plains said the first interest payment will be made on November 1, 2011. The offering is expected to close on March 29, 2011.
PXP intends to use the net proceeds of the offering to reduce debt under its senior revolving credit facility and for general corporate purposes.
Plains Exploration & Production Company retains a Zacks #3 Rank (short term Hold). We also maintain our long term ‘Neutral’ rating on the stock.
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