BP Plc (LON:BP) (NYSE:BP) announced on Monday that it is selling some of its deepwater Gulf of Mexico wells for $5.55 billion to Plains Exploration & Production Company (NYSE:PXP). In a win–win deal for both of the companies, BP expects to use the proceeds to cover the cost of its oil well blowout in the Gulf two years ago, and Plains Exploration & Production will view the deal as part of a plan to boost crude oil production.
BP Plc (LON:BP) (NYSE:BP) plans to raise $38 billion through asset sales to pay for the damages from the 2010 oil spill in the Gulf of Mexico. The move will also help BP Plc (LON:BP) (NYSE:BP) to get rid of smaller and older asset and to shift focus on the more lucrative ones. The London based company will continue to operate four major production platforms in the region: Thunder Horse, Atlantis, Mad Dog, and Na Kika, and will also hold on to three other hubs which it doesn’t operate. Currently BP has six drilling rigs operating in the Gulf of Mexico, and expects to have eight rigs in place by the end of the year, the most it has ever had in the region.
“While these assets no longer fit our business strategy, the Gulf of Mexico remains a key part of BP’s global exploration and production portfolio, and we intend to continue investing at least $4 billion there annually over the next decade,” said BP CEO Bob Dudley.
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For Plains Exploration, also known as PXP, the deal will almost double its size and boost its exposure to crude oil production. As per the deal, PXP will buy 100 percent stake in BP’s Marlin, Dorado. and King and Horn Mountain fields. PXP will also acquire London based BP’s 33.33 percent working interest in the Diana-Hoover Field, which currently is operated by Exxon Mobil Corporation (NYSE:XOM). Apart from this PXP, will also acquire BP’s 31 percent stake in the Ram Powell field, which is operated by Shell Offshore Inc. Separately, Plains Exploration & Production Company (NYSE:PXP) will also acquire the remaining 50 percent stake in the Holstein Field from Royal Dutch Shell Plc (NYSE:RDS.A) (NYSE:RDS.B), by paying $560 million. The Houston based PXP’s recent acquisitions were producing an estimated 59,500 barrels of oil equivalent net per day at the end of July.
Given PXP’s $5.2 billion market cap, the deal roughly doubles the company in size. The Houston based company will pay for the deal with debt, and will not issue new stock, which is good for the existing shareholders. Last November, Plains Exploration & Production Company (NYSE:PXP) sold its natural gas assets in Texas for $785 million.
“A reduced and more-focused exposure to the Gulf of Mexico is welcome for BP, we think, in the midst of recently escalated” legal action by the U.S. government against the company for the spill, TPH Energy Research said in a research note. As per the research company, the deal was a good one for BP Plc (LON:BP) (NYSE:BP), as the assets fetched $700 million more than what the company expected.
After the announcement of the deal, Plains Exploration & Production Company (NYSE:PXP) shares fell 4.5 percent to $38.52 in premarket trading, while BP’s share rose by 0.6 percent to 437.5 pence in London.