Plains Exploration & Production Company (NYSE:PXP) plans to acquire more than $6 billion of oil and gas properties in the deepwater Gulf of Mexico as it looks to increase its presence in this key offshore region.

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Separate Deals
Plains Exploration & Production Company agreed to pay $5.55 billion to BP (NYSE:BP) for that company's interests in five separate oil and gas fields in the deepwater Gulf of Mexico. BP operates three of these fields and has a non-operated minority interest in the two other fields. The three operated fields included in the sale are the Marlin Hub, Horn Mountain Field and the Holstein Field. The non-operated fields being purchased are the Diana Hoover Field and the Ram Powell Field.

Plains Exploration & Production Company also agreed to pay $560 million to Royal Dutch Shell (NYSE:RDS-A, RDS-B) for its 50% working interest in the Holstein Field, making Plains Exploration & Production Company the sole owner of this field.

The oil and gas fields to be acquired have current production of 66,900 barrels of oil equivalent (BOE) per day, with approximately 87% of the production composed of crude oil. These acquisitions form a key part of the company's plan to grow offshore oil and gas production to 275,000 BOE per day by 2020.

SEE: A Guide To Investing In Oil Markets

Operated Fields
The Holstein Field is located on Green Canyon Block 645 and was discovered in 1999, with first production in December 2004. The field is currently producing 14,500 BOE per day, far below its capacity of 113,500 barrels of oil and 142.3 million cubic feet per day of natural gas.

The Marlin Hub is located on Viosca Knoll Blocks 871 and 915 and consists of a Tension Leg Platform (TLP) handling production from three oil and gas fields in the area. The Marlin Hub has a capacity of 60,000 barrels of oil and 235 million cubic feet per day of natural gas and currently produces 38,000 BOE per day.

The Horn Mountain Field is located on Mississippi Canyon Block 127 and was discovered in 1999, with first production in January 2002. The Horn Mountain Field is currently producing 8,500 BOE per day, compared to capacity of 75,000 barrels of oil and 72 million cubic feet per day of natural gas.

SEE: Oil And Gas Industry Primer

Non-Operated Fields
Plains Exploration & Production Company is also acquiring BP's working interests in two non-operated projects in the deepwater Gulf of Mexico.

The Diana Hoover Field is operated by Exxon Mobil (NYSE:XOM) and consists of a Deep Draft Caisson Vessel platform (DDCV) located on Alaminos Canyon Block 25. The DDCV hands production from the Hoover and Diana fields, as well as three others in the area. The Diana Hoover Field first started production in May 2000 and Plains Exploration & Production Company will own a 33.33% working interest at this field.

The Ram Powell Field is operated by Royal Dutch Shell and consists of a TLP platform located on Viosca Knoll Block 956. The TLP handles production from oil and gas fields spread over five separate blocks in the Gulf of Mexico. The Ram Powell Field started up production in 1997 and Plains Exploration & Production Company will own a 31% working interest at this field.

Financing
Plains Exploration & Production Company plans to finance the purchase with the company's credit facility. Since this will raise the company's leverage, Plains Exploration & Production Company will engage in several actions to reduce its debt over the next few years, including the divestiture of between $1.5 billion and $2 billion in lower margin natural gas properties.

Plains Exploration & Production Company will also hedge up to 90% of oil production through 2015 to lock in high prices and use the excess cash flow to pay down debt.

The Bottom Line
Plains Exploration & Production Company is bulking up with a large acquisition of properties in the Gulf of Mexico and plans to use these new oil and gas fields to power growth for the company going forward.

At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

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