Plains Hives Natural Gas Assets - Analyst Blog
Oil and gas company, Plains Exploration & Production Co. ( PXP ) has hived off its natural gas assets in Texas Panhandle to Linn Energy LLC ( LINE ). The sale is in accordance with the announcement made by the company during its third quarter earnings release.
Plains received $555 million in cash from Linn Energy and another $74 million is forthcoming for the gas fields, taking the total consideration to $629 million. These assets have proven reserves of 263 billion cubic feet (bcf).
The decision to dispose of certain assets is part of the company's long-term goal to boost its top line. Besides, the company also hopes to drive profitability by entering into previously announced marketing contracts, reducing deferred premium costs through derivative enhancements and curbing interest expense by lowering debt.
Plains Exploration's long-term debts as of September 30, 2011, were $3.79 billion versus $3.35 billion as of December 31, 2010. The debt-to-equity ratio at the end of the third quarter 2011 was 51.8%, deteriorating from 49.7% at the end of 2010. The company will utilize the proceeds from the current sale to bring down its outstanding debt.
In October 2011, Plains strategically monetized 20% equity interest in its wholly owned subsidiary Plains Offshore Operations Inc. for $450 million. The company will utilize the proceeds for development of the Lucius project and the Phobos prospect exploratory drilling planned for 2012, with first production expected in 2014.
We appreciate the strategic move of Plains Exploration to monetize its assets and utilize the proceeds to lower its debt level and most importantly pursue high-potential growth projects. Going forward, we believe these steps will gradually boost the overall financial strength of the company.
Plains Exploration & Production retains a short-term Zacks #3 Rank on the stock, which translates into a Hold rating. Based in Houston, Texas, Plains Exploration & Production engages in the acquisition, development, exploration, and production of oil and gas properties primarily in the United States.