PXP Hedging 90% to cover debt

[dan_s]

From Seeking Alpha: We were a bit surprised to see Plains Exploration (PXP) as the buyer for assets in the Gulf of Mexico from BP, however we were even more surprised when we saw the price tag and the amount that the company would be borrowing to pull off the acquisition. Shares fell $4.24 (10.51%) to close at $36.09/share on volume of 16.9 million shares as investors worried about the company borrowing $7 billion to purchase the assets for $5.5 billion and have working capital left over. To pull the deal off while also minimizing risk, the company will hedge 90% of oil production to lock in today's prices and the cash flow from that production. This could be the road map for possible divestitures from big companies to smaller ones moving forward, especially in the shale plays where we shall see numerous asset sales moving forward.

With oil prices up and interest rates down this deal may make a lot more sense. If hedging allows them to pay off the deal in a few years then it makes sense.

[dan_s]

Plains Exploration downgraded by Global Hunter Securities From BUY to Accumulate.

Buy and Accumulate always sound the same to me but "Accumulate" just means to "buy the dips", which is probably the right course of action for PXP now. The stock is likely to stay in a tight trading range for months, until the impact of this deal clear up.