Two weeks ago, we detailed Houston-based Plains Exploration & Production's
Today, Plains Exploration announced a $578 million acquisition in the Eagle Ford shale play in South Texas. I believe that EOG Resources
I've noted that Plains Exploration risks being late to the party in terms of picking up onshore oil assets in the wake of an industrywide scramble that started well over a year ago. The transaction metrics here provide some evidence of that. The company is picking up 60,000 acres at a cost of more than $9,600 per acre. Compare this with how the company itself breaks down the purchase price in its investor presentation today:
- $100,000 to $125,000 per flowing barrel x +/- 2,000 barrels per day = $200 million to $250 million
- 60,000 net acres x $6,300 to $5,467 per acre = $378 million to $328 million
If you want to break out a separate value for the producing acreage, and slap a per-acre value on the undeveloped stuff, that's totally fine, but this looks like double-counting to me.
Any way you slice it, this acreage isn't coming cheap. Rather than focusing on California, where Plains Exploration arguably has an early mover advantage, it is jumping into one of the most overcrowded plays in North America. The sheer volume of activity is driving up the costs of drilling and completing wells, so that compounds the issue of potentially overpaying for acreage at this stage.
Look, not everyone can be a leader in this industry. There are only so many companies, like Range Resources