Plains shifts direction, will buy Gulf oil fields

Plains Exploration & Production Co. agreed to buy BP P.L.C.'s and Royal Dutch Shell P.L.C.'s stakes in a group of Gulf of Mexico oil fields for $6.1 billion, doubling crude production in its biggest acquisition since 2007.

BP, which has been selling assets after causing the worst marine oil spill in U.S. history, sold its fields for $5.55 billion. Shell sold its stake in a field co-owned with BP for $560 million, according to a statement.

The acquisition amount is larger than Houston-based Plains' market value. The purchase gives Plains oil production in the Gulf's deep waters two years after it sold shallow-water assets to focus onshore. The company, which started the day with a market value of $5.2 billion, will borrow $7 billion for the deals.

"Their change in strategy took everybody by surprise," Eliecer Palacios, a New York-based energy-sector specialist for Maxim Group L.L.C. "Deep-water production is usually capital intensive and they'd indicated to the Street they wanted to get out of it."

Plains declined 11 percent, or $4.24, to close at $36.09. BP closed 0.7 percent higher in London.

Plains paid "full price" for the fields and needs to find oil deeper or nearby to make the deals work, Duane Grubert, a Stanford, Conn.-based analyst for Susquehanna Financial Group, wrote in a note to clients.

Standard & Poor's put Plains' ratings on watch with negative implications. "The acquisition represents a strategic shift for Plains and presents increased execution risk, particularly given the complexities associated with operating in the deep-water Gulf," according to an S&P note from a group of analysts led by Lawrence Wilkinson.

BP is targeting $38 billion in divestitures by the end of 2013 to raise cash after a 2010 explosion at its Macondo well killed 11 workers. It's setting aside $38 billion for costs of the disaster, including a $20 billion trust fund for victims.