Plains Exploration & Production Co., Houston, (NYSE: PXP) plans to sell Granite Wash assets in Texas and Oklahoma to Linn Energy LLC, Houston, (Nasdaq: LINE) and conventional gas assets in South Texas to an undisclosed third party for a total $785 million in two deals.
The Linn deal concerns approximately 20,000 Granite Wash net acres and approximately 75,000 net acres outside of Granite Wash for a total $600 million. The assets double Plains' inventory of Granite Wash locations, with significant upside potential, increases organic growth potential and increases Granite Wash current production by approximately 75%.
Net production is approximately 80 million cubic feet equivalent per day. Proved reserves as of Dec. 31, 2010, were 263 billion cubic feet of gas equivalent (90% gas).
Linn estimates proved reserves will be significantly higher at year-end 2011 due to the more than 200 low-risk infill drilling locations.
Linn president and chief executive Mark E. Ellis says, "This acquisition represents substantially all of Plains' assets in the Midcontinent region including mature stable assets and an outstanding position in the Granite Wash. This transaction will double Linn’s current inventory of horizontal drilling locations to more than 400 in the Granite Wash."
The deal is expected to close by Dec. 31. Linn plans to fund the deal with internally generated cash flow and proceeds from borrowings under its revolving credit facility.
Barclays Capital Inc. is financial advisor to Plains and J.P. Morgan Securities LLC rendered a fairness opinion. Citi and RBC Richardson Barr are financial advisors to Linn.
The second deal consists of all of Plains’ working interests in its South Texas conventional gas properties for $185 million. Total working interest sales volumes during the third quarter were approximately 39 million cubic feet of gas equivalent per day. Proved reserves as of year-end 2010 were 120 billion cubic feet equivalent.
The deal is expected to close in December. The effective date is Sept. 1. Barclays Capital is financial advisor to Plains and Simmons & Co. International rendered a fairness opinion.
Plains executive vice president and chief financial officer Winston M. Talbert says, "The asset sales are part of a broader strategy to increase revenues through the previously announced marketing contracts, decrease deferred premium costs through the previously announced derivative enhancements, and lower total interest costs by lowering debt levels. Over the next 18 months, Plains has $2.1 billion of high coupon debt that is callable. With the current low-interest-rate environment, Plains sees a unique opportunity to reduce its interest costs 30% to 40% by year-end 2012 thereby increasing profitability, shareholder return and cash flow."
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