Plains Exploration & Production Company (PXP)

[OilStockReport]

Plains Exploration and Production (NYSE:PXP) transitioned in 2010 towards becoming an onshore exploration and production company focused on oil and natural gas liquids development, as the company moved to monetize its Gulf of Mexico assets.

Strategic Review
In August 2010, Plains Exploration and Production announced a "strategic alternatives process" of its properties in the Gulf of Mexico. The goal was to reduce exposure to this basin and secure between $1 and $2 billion in value from here through divestitures or joint ventures.

As a result of this strategic review, Plains Exploration and Production announced the sale of its shallow water Gulf of Mexico assets to McMoRan Exploration (NYSE:MMR) for a combination of $818 million in cash and stock. The deal was structured by Plains Exploration and Production so that the company could participate in any exploration and development success by the buyer.

Plains Exploration and Production is also marketing its deepwater properties in the Gulf of Mexico. These properties include the company's 33.3% interest in the Lucius project operated by Anadarko Petroleum (NYSE:APC). Another attractive property owned by Plains Exploration and Production in the deepwater Gulf of Mexico is the Friesian project. Plains Exploration and Production has interests in 107 deepwater blocks and expects a deal to be announced in the first half of 2011.

Shift to Oil
Plains Exploration and Production has shifted the focus of its capital plan towards oil and liquids development over the last few years. The company spent only 7% of its total capital budget on the development of oil assets in 2009, and plans to increase this percentage to 54% in 2011. These funds will be spent mostly in the Eagle Ford Shale, Granite Wash and in various basins in California.

Eagle Ford Shale
In 2010, Plains Exploration and Production bought into the Eagle Ford Shale in 2010, acquiring 60,000 net acres for $578 million in cash. The company plans to put 23% of its 2011 capital budget into this play, where the company has its own operated acreage and is also involved in a joint venture with EOG Resources (NYSE:EOG).

Granite Wash
Plains Exploration and Production has 19,100 net acres exposed to the Granite Wash formation. The company spent $105 million and spud 20 wells here in 2010. Wells here produce a mix of natural gas, oil and natural gas liquids.

California
Plains Exploration and Production has a large base of operations in California, where the company has 215 million barrels of oil equivalent (BOE) of proved reserves. Plains Exploration and Production spent $166 million in capital here in 2010, and plans to spend $271 million in 2011, or 23% of its total capital budget. The company also plans to drill some exploratory wells into the Monterey Shale in 2011 on its acreage in California.

The Bottom Line
In 2010, Plains Exploration and Production moved towards diversifying its assets in the Gulf of Mexico. With the company now spread among several U.S. oil and liquid developments, 2011 will determine the wisdom of these decisions. (To learn more, see our Oil And Gas Industry Primer.)