?Occidental Petroleum Corp., Los Angeles, (NYSE: OXY) plans to acquire all of the assets in the Permian Basin of West Texas and New Mexico and the Piceance Basin of Colorado held by Plains Exploration & Production Co., Houston, (NYSE: PXP) for a total $1.25 billion.
Occidental acquired a 50% interest in these properties in 2007, and is purchasing the remainder in this transaction.
Current net production is approximately 4,300 bbl. of liquids and 52 million cu. ft. of gas per day, for a total of 13,000 BOE per day. The properties have about 92 million BOE of proved reserves (69% gas, 45% developed).
In the Piceance Basin in the first half of 2008, Occidental produced more than 50 million cu. ft. a day. Occidental expects this to grow to at least 200 million cu. ft. a day in 2010, including this acquisition. Occidental’s net position in the Piceance Basin totals 129,000 acres.
Plains president and chief executive James C. Flores says, “Pursuant to our commitment to strengthen PXP’s financial profile, this transaction increases the company’s oil weighting for both reserves and production for 2009 and protects a significant portion of our remaining production with our superior hedge-put position insuring positive cash flow even in a lower commodity-price environment.”
He says the transaction will reduce Plains’ corporate debt by at least $1 billion and enables the company to lower projected 2009 capital expenditures to $1.35 billion. Pro forma, its target com?pounded annual production growth rate will be in excess of 15% for 2008 through 2012.
“This divestment facilitates PXP’s rotation from assets with moderate growth and challenging differentials to the unparalleled high-growth Haynesville shale play, which is proving to have stronger operating metrics and growth attributes with higher wellhead realizations,” Flores says.
Plains has a 20% interest in Oklahoma City-based Chesapeake Energy Corp.’s (NYSE: CHK) 550,000-acre leasehold position in the play, holding an estimated 40 trillion cu. ft. equivalent of gross unrisked resource potential, as per the companies. “With an expanding drilling program and production beginning in the fourth quarter of this year, the Haynesville shale will become a key driver to our production and reserve growth for most of the next decade while bolstering our return on investment.
“The refocusing of our asset base will increase our high-margin, oil weighting and will target a strong organic production-growth rate while remaining fiscally disciplined and preserving commodity-price upside for our stakeholders,” says Flores.
On average, 75% of its 2009 and 2010 estimated oil production is protected with floors above $100 and approximately 85% of estimated gas production through year-end 2009 is protected with either physical purchases used in operations or $10 to $20 collars, he says.
Banc of America Securities LLC and Barclays Capital Inc. are advisors to Plains.

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