Plains E&P has executed a securities purchase agreement with EIG Global Energy Partners ("EIG") in which PXP will receive $450 million of cash proceeds in exchange for a 20% equity interest in Plains Offshore Operations Inc. ("Plains Offshore"), a wholly owned subsidiary of PXP established to hold all of PXP's Gulf of Mexico assets, including the Lucius oil development project, a well-appraised discovery with first production anticipated in 2014. The proceeds raised are expected to be used to fund Plains Offshore's share of capital investment in the Lucius development and the Phobos prospect exploratory drilling planned for 2012.
Under the agreement, Plains Offshore will issue to EIG managed funds and accounts 8% convertible preferred stock and non-detachable warrants to purchase Plains Offshore's common stock. The 8% convertible preferred stock will pay quarterly cash dividends of 6% per annum and an additional 2% per annum dividend, which may be deferred and accumulated quarterly until paid. Plains Offshore also intends to enter into a $300 million revolving credit facility with a bank group.
Plains Offshore's oil-focused Gulf of Mexico portfolio includes 100 blocks covering approximately 570,000 gross acres and a number of de-risked near-term exploration prospects targeting the Pliocene trend with additional Miocene potential.
The transaction is expected to close during the fourth quarter 2011 subject to customary closing conditions, and Plains Offshore will reimburse PXP for any costs attributable to the Gulf of Mexico assets incurred since July 1, 2011. Jefferies & Company, Inc., J.P. Morgan Securities LLC and Barclays Capital Inc. acted as financial advisors to PXP on this transaction.
James C. Flores, Chairman, President and CEO of PXP commented, "This transaction represents a major accomplishment in our plan to deliver maximum asset value to our shareholders. Our growing onshore oil business combined with PXP's well-capitalized Gulf of Mexico oil business, anchored by the Lucius development, is expected to increase total company oil/liquids sales volumes at greater than 15% compounded average growth rate through 2016. While this transaction values our Gulf of Mexico business at $2.25 billion (including cash), the financing provides the capital for the development of Lucius, drilling of Phobos and other high potential prospects going forward."
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