PXP using big debt load to buy BP's U.S. Gulf wells for $5.5 billion
By Ernest Scheyder
(Reuters) - Plains Exploration & Production Co PXP.N will borrow $7 billion -- more than its market value -- to buy BP Plc's stake in some deepwater Gulf of Mexico wells in a $5.55 billion deal that will triple its crude production and boost its power in the North American energy market.
Shares of Plains, known by its ticker symbol "PXP," fell more than 10 percent on Monday as investors worried about the steep price of the deal and the debt load, which exceeds PXP's $4.66 billion market cap, that will fund the acquisition and other company needs.
BP is selling the large network of oil exploration rigs to help pay damages for the worst offshore oil spill in U.S. history. The deal will put Plains Exploration into the energy industry big leagues with Anadarko Petroleum Corp (APC.N: Quote), Devon Energy Corp (DVN.N: Quote) and other large independent oil and natural gas producers.
Roughly two-thirds of PXP's operations will now be in the Gulf, with one-third on land, and daily production will triple to 300,000 barrels of oil equivalent per day. The deal is part of the company's strategy to focus on lucrative crude oil instead of natural gas, which has seen prices tumble to the lowest in a decade.
PXP Chief Executive James Flores touted the new assets to investors on a conference call, saying they are superior to peers' holdings in the Gulf.
"This is not your brother's Gulf of Mexico," Flores said. "This has very long life and we have a well-developed plan for the next eight years."
Flores has been CEO for nine years and owns roughly 0.9 percent of outstanding PXP shares. The stock is mostly held by institutional investors, including Vanguard and BlackRock Inc (BLK.N: Quote).
Formed in 2002 by a tax-free spinoff from Plains Resources Inc, PXP has traditionally focused on oil drilling in Southern California. Continued...