Another company freeing up funds to divert more cash to the Haynesville Shale.


Melinda Peer, 09.25.08, 11:01 PM ET

Louisiana's Haynesville Shale is getting prime attention from oil and gas producer Plains Exploration & Production, which said it would sell its stakes in Colorado- and Texas-based properties to focus on a joint venture with Chesapeake Energy.

Plains Exploration & Production (nyse: PXP - news - people ), is selling interests in energy properties located in Texas' Permian Basin and Colorado's Piceance Basin to Occidental Petroleum (nyse: OXY - news - people ) for $1.3 billion, the company said Thursday. Its stock gained $1.63, or 4.5%, to close Thursday's session at $38.17, while shares of Occidental Petroleum rose 1.6%, adding $1.23, closing at $77.88.

Although the properties yield sales volumes of 13,000 barrels of oil equivalent a day and, at the end of 2007, had proved reserves of 92.0 million barrels of oil equivalent, Plains said selling them would reduce its corporate debt by at least $1.0 billion and reduce capital spending by $1.4 billion in 2009. It would also let Plains focus on Haynesville in west Louisiana, which could hold as much gas as the United States used last year. Industry estimates suggest the shale could hold 20.0 trillion cubic feet of gas equivalent.

In July, Plains acquired rights to 20.0% of Chesapeake's Haynesville leasehold, or 110,000 acres as of July 1. Plains paid $1.7 billion in cash and agreed to fund up to $1.7 billion of Chesapeake Energy (nyse: CHK - news - people )'s drilling and completion costs on future wells in the area.

"With an expanding drilling program and production beginning in the fourth quarter of this year, the Haynesville Shale will become a key driver to our production and reserve growth for most of the next decade while bolstering our return on investment," said Chairman James Flores.

In an August research note to clients, JPMorgan analyst Nicholas Pope deemed Haynesville "the largest single area of growth for Plains," with estimated potential worth equal to $15.93 a share, or 21.0% of the company's unbooked reserve potential.

Plains plans to update its year-end outlook and provide 2009 guidance on Nov. 6, when it reports third-quarter earnings.