Plains Exploration Acquires 3TEC Energy
Plains Exploration & Production Company and 3TEC Energy Corporation have entered into a definitive agreement pursuant to which PXP will acquire 3TEC for a combination of cash and stock. Under the terms of the transaction, 3TEC stockholders will receive $8.50 in cash and 0.85 shares of PXP's common stock for each share of 3TEC common stock, subject to certain adjustments based on PXP's share price prior to closing. Following the acquisition, PXP will be a large, domestic independent oil and gas company with an expected enterprise value of over $900 million. It is anticipated that this acquisition should benefit the stockholders of both companies by creating an enterprise with the following attributes:
- Highly Accretive To Stockholders-the transaction is expected to be immediately and significantly accretive to PXP's pro forma per share earnings and cash flow for 2003 and 2004.
- Significant Exploration Potential-PXP will gain significant exploration potential in the Gulf Coast region of South Louisiana. This resulting property base is expected to supply several years of drilling locations, and should expand through an extensive, ongoing 3-D seismic acquisition and evaluation program. 3TEC has a three- year exploration drilling inventory with multiple separate prospects which complements the development program at PXP, particularly the Inglewood field in Southern California.
- Establishes New Core Areas-3TEC provides PXP with new core areas in East Texas and the Gulf Coast, both of which have strong growth potential. These areas complement PXP's primary production area in Southern California.
- More Balanced Production Profile/Reserve Base-upon completion of the acquisition, PXP is expected to have a production mix of 37% natural gas and 63% oil, and a proved reserve base that will be 19% natural gas and 81% oil with total proved reserves of 302 MMBOE at year end 2002. PXP's proved developed reserves as a percentage of total reserves are expected to increase to 58% from 54% while the reserve-to-production ratio will decrease from 27.1 years to 20.9 years. PXP's production should increase in excess of 50% as a result of the acquisition. In addition, it is anticipated that the transaction will result in enhanced capital allocation for the Company as lower-risk California and East Texas reserves should provide significant free cash flow to fund higher impact, exploration activities in South Louisiana.
- Combined Production Partially Hedged for 2003 and 2004-3TEC's natural gas hedges and PXP's crude oil hedges lock in attractive financial accretion and returns while substantial free cash flow generation should allow the Company to reduce debt and invest in future growth.
- Enhanced Credit Profile and Stockholder Liquidity-in addition to enhanced geographic diversification and increased size, PXP's pro forma cash flow to interest and debt coverage ratios should improve. Moreover, the transaction should result in a more diversified stockholder base and increased public float, both of which should provide improved liquidity to PXP's and 3TEC's existing stockholders.
Mr. James C. Flores, Chairman and Chief Executive Officer of PXP stated, "This transaction represents a cornerstone in the transformation of PXP and is consistent with our previously articulated growth strategy. 3TEC's high quality, natural gas oriented properties bring more balance to our reserve base and production mix and diversity to our risk profile. Additionally, the recent exploration success 3TEC has had in South Louisiana is very exciting and we believe its continuation will lead to substantial organic reserve and production growth. Having spent much of my career working both onshore and offshore South Louisiana, the quality of 3TEC's prospect inventory, acreage position and technical capabilities are truly unique for an independent of its size. 3TEC's high impact exploration program is very complementary to PXP's substantial inventory of low-risk development drilling. After the acquisition, PXP will have the prospect inventory, financial flexibility and technical capability to deliver significant production growth through the drillbit and be opportunistic regarding further acquisitions."
Mr. John Raymond, President and Chief Operating Officer of PXP stated, "Clearly, the strategic merits of the transaction speak for themselves. While the strategic benefits are important, it is equally important to understand that the rationale behind the deal goes far beyond the strategic benefits as it satisfies all of our key constructs from a financial and operational perspective. To this end, upon consummation, this transaction will provide for meaningful immediate accretion to each of our key financial metrics and is expected to generate a competitive, compelling return on capital which speaks to the longer term value and vision for the business. The larger scale coupled with the geographic diversity and financial flexibility that this transaction manifests further positions us to optimistically look to the future."
Mr. Floyd C. Wilson, 3TEC's Chairman and Chief Executive Officer stated,
"When 3TEC was founded in 1999, our primary goal was the creation and
realization of stockholder value. In the near term, we believe the
transaction with PXP will provide 3TEC stockholders with excellent value and
substantially improved liquidity in their securities. Over the longer term,
3TEC's high potential exploration program should provide excellent
reinvestment opportunities for the combined company's substantial cash flow.
The future of PXP is very exciting as this transaction results in a company
with the prospect inventory and financial resources to conduct a significant
South Louisiana exploration program, being led by Jim Flores, who is widely
recognized as an industry leader with a long track record of success in South