Plains Exploration & Production Company (PXP) entered into a cash and stock deal with McMoRan Exploration Company (MMR) to sell its shallow water Gulf of Mexico assets. As per the deal, Plains will receive roughly $818 million for all of its Gulf of Mexico leasehold assets located at less than 500 feet of water.
Under the terms of the transaction, McMoRan will pay Plains $75 million in cash and $51 million in McMoRan shares (valued at McMoRan’s stock price of $14.57 as on September 17, 2010) to gain larger interests in the properties it already owns. Apart from becoming a majority shareholder in McMoRan through this transaction, Plains Exploration will also have the right to designate two directors to McMoRan’s board.
The assets under sale include Plains’ leaseholds located in the Flatrock field (30% interest), Hurricane Deep (30% interest), Blueberry Hill (47.9% interest), Blackbeard West (35% interest), Davy Jones (27.7% interest) and Blackbeard East which is currently being drilled. These properties currently produce nearly 45 million cubic feet of natural gas equivalents per day for PXP and had estimated proved reserves of 63.9 billion cubic feet of natural gas equivalents as of June 30, 2010. McMoRan already owns working interests in substantially all of the properties being acquired.
Both the companies plan to operate the properties together.
The effective date of the transaction is August 1, 2010, while the companies expect to complete the deal by year-end 2010. The deal is subject to McMoRan shareholder approval and customary closing conditions and adjustments.
With the completion of the transaction, McMoRan expects to expand the scale of its 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. Going forward, the company expects to benefit from its relationship with PXP through PXP’s significant shareholding position in McMoRan.
The sale of these shallow water Gulf of Mexico assets represents Plains’ move to fructify its strategy of reducing its Gulf of Mexico exposure after the oil spill incident. While Plains focuses on onshore projects like Granite Wash, California and the Haynesville shale, it retains its interest in the Gulf of Mexico through its shareholding in McMoRan. The company expects to provide its updated financial and operating guidance after the transaction is closed.
Proceeding further with its goal of optimizing the value of its deepwater portfolio, Plains Exploration has also begun the process of marketing its Gulf of Mexico deepwater assets. 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 to finalize the sale by late-October to mid-November and close the transaction by year-end 2010.
To finance the deal, McMoRan plans to privately issue $900 million in convertible securities, including $200 million worth convertible senior notes and $700 million worth convertible perpetual preferred stock. McMoRan indicated that private investors have agreed to purchase the notes and $200 million of Preferred Stock (representing 44% of the issue) and Freeport-McMoRan Copper & Gold Inc. has agreed to purchase $500 million of Preferred Stock (56% of the issue).
We currently have a short term Zacks #3 (Hold) Rank on Plains Exploration, which translates into a long term Neutral recommendation.
Under the terms of the transaction, McMoRan will pay Plains $75 million in cash and $51 million in McMoRan shares (valued at McMoRan’s stock price of $14.57 as on September 17, 2010) to gain larger interests in the properties it already owns. Apart from becoming a majority shareholder in McMoRan through this transaction, Plains Exploration will also have the right to designate two directors to McMoRan’s board.
The assets under sale include Plains’ leaseholds located in the Flatrock field (30% interest), Hurricane Deep (30% interest), Blueberry Hill (47.9% interest), Blackbeard West (35% interest), Davy Jones (27.7% interest) and Blackbeard East which is currently being drilled. These properties currently produce nearly 45 million cubic feet of natural gas equivalents per day for PXP and had estimated proved reserves of 63.9 billion cubic feet of natural gas equivalents as of June 30, 2010. McMoRan already owns working interests in substantially all of the properties being acquired.
Both the companies plan to operate the properties together.
The effective date of the transaction is August 1, 2010, while the companies expect to complete the deal by year-end 2010. The deal is subject to McMoRan shareholder approval and customary closing conditions and adjustments.
With the completion of the transaction, McMoRan expects to expand the scale of its 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. Going forward, the company expects to benefit from its relationship with PXP through PXP’s significant shareholding position in McMoRan.
The sale of these shallow water Gulf of Mexico assets represents Plains’ move to fructify its strategy of reducing its Gulf of Mexico exposure after the oil spill incident. While Plains focuses on onshore projects like Granite Wash, California and the Haynesville shale, it retains its interest in the Gulf of Mexico through its shareholding in McMoRan. The company expects to provide its updated financial and operating guidance after the transaction is closed.
Proceeding further with its goal of optimizing the value of its deepwater portfolio, Plains Exploration has also begun the process of marketing its Gulf of Mexico deepwater assets. 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 to finalize the sale by late-October to mid-November and close the transaction by year-end 2010.
To finance the deal, McMoRan plans to privately issue $900 million in convertible securities, including $200 million worth convertible senior notes and $700 million worth convertible perpetual preferred stock. McMoRan indicated that private investors have agreed to purchase the notes and $200 million of Preferred Stock (representing 44% of the issue) and Freeport-McMoRan Copper & Gold Inc. has agreed to purchase $500 million of Preferred Stock (56% of the issue).
We currently have a short term Zacks #3 (Hold) Rank on Plains Exploration, which translates into a long term Neutral recommendation.
MCMORAN EXPLOR (MMR): Free Stock Analysis Report
PLAINS EXPL&PRD (PXP): Free Stock Analysis Report
Zacks Investment Research
