Mikaila Adams
OGFJ Associate Editor

Company hopes to continue in the Gulf in some form or fashion – a "smaller form or fashion"


In its 2Q10 earnings statement released today, Plains Exploration & Production Co. (NYSE: PXP) noted, that after studying its Gulf of Mexico (GOM) operations over the past few months, it plans to “reduce its GOM exposure and related capital spending.”

The Houston-based company hopes to secure $1 to $2 billion of value from its GOM assets through third party joint ventures and/or asset sales and has engaged Barclays Capital and Jefferies & Company to assist in the strategy.

Which assets will go?
PXP has interests in the deepwater Gulf of Mexico, where a drilling moratorium after the April explosion of the Deepwater Horizon and subsequent oil spill tragedy occurred.

The recently drilled Lucius #2 well encountered more than 650 net feet of oil pay in three primary targets. Drilling was suspended approximately 2,000 feet from total depth with one additional target yet to test. Anadarko Petroleum Corp. (NYSE: APC) as the operator ceased drilling operations as a result of the Gulf of Mexico deepwater drilling moratorium. PXP's working interest is 33.33%.

In a conference call to analysts, James Flores, PXP's chairman, president, and CEO, noted that the board has decided to "rationalize" its exposure in the Gulf of Mexico due to the risk associated with drilling in an area highlighted by the BP oil spill and the "unclear regulatory environment" that has followed. 

He continued to say the company will shift its focus to the assets growing fastest in the near term – in the case of PXP, the Granite Wash, the Haynesville shale, and in California. 

The company has operations in both shallow water and deepwater. But which assets will go? "We’re not putting any boundaries or any gates around assets," Flores said.

"We hope to continue to be in the Gulf of Mexico, we hope to continue to get some form or fashion, just in the smaller form or fashion."