Plains Exploration Prices Notes

Oil and gas company, Plains Exploration & Production Co. (PXP - Analyst Report) announced that it has priced the underwritten public offering of its $1 billion 6.75% Senior Notes due in 2022. The company has decided to offer the notes to public at 100% of the principal amount.

The company intends to utilize the net proceeds of the issue to replenish the sum due under the senior revolving credit facility and for general corporate purposes. Plains Exploration already has cash and cash equivalents, as of September 30, 2011, of $11.5 million while the sale of its working interest in oil and gas properties located in Texas Panhandle and its conventional natural gas properties in South Texas will generate around $785 million.

Plains has plans to draw from its senior revolving credit facility, utilize cash in hand and cash from proposed asset sales to fund the cash tender of $600 million of 7.75% Senior notes due in 2015 and $400 million of 7% Senior notes due in 2017.

Plains Exploration's long-term debts as of September 30, 2011, were $3.79 billion versus $3.35 billion as of December 31, 2010. The debt-to-equity ratio at the end of the third quarter 2011 was 51.8%, deteriorating from 49.7% at the end of 2010. The debt-to-capital ratio of its peer Pioneer Natural Resources Co. (PXD - Analyst Report) at the end of the third quarter was much lower at 33.2%.

Interest expenses of the company at the end of the third quarter 2011 were $43.5 million versus $26.5 million in the prior-year quarter. The increase was attributable to the higher debt level.

We believe the issue of new notes will not only lower the interest burden of the company but will also give the company an extended period to utilize the debts for its benefit.

Plains Exploration & Production retains a short-term Zacks #2 Rank on the stock, which translates into a Buy rating. Based in Houston, Texas, Plains Exploration & Production engages in the acquisition, development, exploration, and production of oil and gas properties primarily in the United States.

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