PXP sells McMoRan its shallow-water GOM assets for $818MM, to divest deepwater properties as well

By Phaedra Friend Troy

Plains Exploration & Production Company (NYSE:PXP) has agreed to sell McMoRan Exploration Company (NYSE:MMR) its interest in shallow-water Gulf of Mexico properties for a combination of cash and stock totaling $818 million.

PXP will receive $75 million in cash and 51 million McMoRan common stock for PXP’s interest in its Gulf of Mexico assets located in waters measuring less than 500 feet deep.

Holding an estimated 63.9 billion cubic feet of natural gas equivalents, these properties currently produce about 45 million cubic feet of natural gas equivalents a day.

In connection with the transaction, McMoran has secured $900 million of committed financing from an investor group.

"The transaction with McMoRan creates a premium operator/ownership structure that maximizes value for both PXP and McMoRan shareholders from the ultra-deep program's existing discoveries and exploratory potential,” said James Flores, chairman, president and CEO of PXP. “Through PXP's ownership position in McMoRan, PXP will maintain upside exposure to the multi-trillion cubic feet equivalent ultra-deep exploratory potential without the substantial long-lead time capital requirements.”

Additionally, PXP has begun the process of marketing its deepwater Gulf of Mexico assets, including the Friesian and Lucius oil discoveries, for divestment. The deepwater properties include interest in 107 blocks, 9 well-defined prospects and 22 additional leads in the Pliocene, Miocene and Lower Tertiary reservoirs.

“Starting nearly four years ago, the highly successful shallow water exploration program began with the Flatrock discovery and its subsequent development and follow up discoveries at Hurricane Deep and Blueberry Hill,” Flores said. “Recent exploration efforts in the sub-salt, ultra-deep program continue that success, initially with the Blackbeard West discovery followed by the latest successful discovery at the Davy Jones mega structure announced earlier this year.”

The McMoRan divestment is expected to close by the year-end 2010. The deepwater divestment is currently in the data room process, and final bids are expected in late-October to mid-November with the transaction expected to close by the end of 2010, as well. 

In the company's second quarter 2010 earning conference call, Flores explained that PXP is looking to limit its risk in the Gulf of Mexico after the BP oil spill and subsequent "unclear regulatory environment." The company will now focus its efforts onshore the US.

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