Plains Exploration & Production Co., the U.S. oil and gas producer that’s selling offshore assets, agreed to buy stakes in properties in the Eagle Ford formation of south Texas for $578 million to boost oil output.
The purchase will add production equivalent to about 5,000 barrels of oil a day as of the end of 2011, Houston-based Plains said today in a statement. Sellers included closely held Dan A. Hughes Co. of Beeville, Texas, and Houston American Energy Corp., those companies said. Plains said its third-quarter sales averaged an estimated 89,000 barrels of oil equivalent a day, up about 5 percent from its second-quarter total.
Plains is tightening its focus on onshore oil wells after an expansion push in natural gas turned out to be a “bust,” Chief Executive Officer James C. Flores told investors on a conference call. The purchase announced today will ensure that oil and gas liquids, which sell at a premium to dry natural gas, account for 50 percent to 60 percent of production, he said.
At current market prices, oil is about 3.6 times as valuable as dry gas, relative to the energy content of the two commodities.
Plains rose $1.41, or 5.4 percent, to $27.33 at 4:30 p.m. in New York Stock Exchange composite trading. The stock had dropped 6.3 percent this year before today. Houston American climbed 6.2 percent to $11.34.
‘Rotation’ From Gulf
Plains on Sept. 20 announced the sale of its stakes in some of the largest U.S. offshore oil discoveries in the past decade for $818 million. The company has additional offshore assets to sell and will keep open a so-called data room for prospective buyers until at least Oct. 15, Flores said. Gulf of Mexico divestitures will total as much as $2.8 billion, he said.
“The whole rotation out of the Gulf of Mexico is going to be a great transaction for us to use as much of that capital to strengthen our balance sheet,” Flores said on the conference call.
Most of the assets Plains is buying are located in Karnes County, Texas, according to the statement. About 20,400 of the 60,000 net acres included in the deal are in a joint operating area where Plains partners with EOG Resources Inc.
Plains will pay $1.65 million for a 2.5 percent working interest in 6,000 acres in the county, Houston American said today in a statement. Dan A. Hughes Jr., president of Hughes, said Plains is buying “prime” acreage from his company.
Plains said it expects to complete more than 25 wells next year in the Granite Wash formation in the Texas Panhandle, up from an Aug. 5 target of more than 22. Granite Wash is rich in gas liquids.