Pricing term sheet dated October 23, 2012
to Preliminary Prospectus Supplement dated October 23, 2012
Filed Pursuant to Rule 433
Registration No. 333-165263
Pricing Term Sheet
Relating to Preliminary Prospectus Supplement Dated October 23, 2012 of
Plains Exploration & Production Company
This term sheet is qualified in its entirety by reference to the Preliminary Prospectus Supplement referenced above. The information in this term sheet supplements the Preliminary Prospectus Supplement and supersedes the information in the Preliminary Prospectus Supplement to the extent inconsistent with the information in the Preliminary Prospectus Supplement.
The issuer has filed a registration statement (including a prospectus) with the SEC for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration statement and other documents the issuer has filed with the SEC for more complete information about the issuer and this offering. You may get these documents for free by visiting EDGAR on the SEC web site at www.sec.gov. Alternatively, the issuer, any underwriter or any dealer participating in the offering will arrange to send you the prospectus if you request it by calling J.P. Morgan at (800) 245-8812, Barclays at (888) 603-5847, BMO Capital Markets at (800) 414-3627, Citigroup at (800) 831-9146 or Wells Fargo Securities at (800) 326-5897.
| Issuer: | Plains Exploration & Production Company | |||
| Security Description: | Senior Notes | |||
| Distribution: | SEC Registered | |||
| Title: | 6.500% Senior Notes due 2020 (“2020 Notes”) 6.875% Senior Notes due 2023 (“2023 Notes”) | |||
| Face: | $1,500,000,000 (2020 Notes) $1,500,000,000 (2023 Notes) | |||
| Gross Proceeds: | $1,500,000,000 (2020 Notes) $1,500,000,000 (2023 Notes) | |||
| Net Proceeds (Before Expenses): | $1,477,500,000 (2020 Notes) $1,477,500,000 (2023 Notes) | |||
| Coupon: | 6.500% (2020 Notes) 6.875% (2023 Notes) | |||
| Maturity: | November 15, 2020 (2020 Notes) February 15, 2023 (2023 Notes) | |||
| Offering Price: | 100.000% (2020 Notes) 100.000% (2023 Notes) | |||
| Yield to Maturity: | 6.500% (2020 Notes) 6.875% (2023 Notes) | |||
| Spread to Treasury: | +509 basis points (2020 Notes) +516 basis points (2023 Notes) | |||
| Benchmark: | UST 2.625% due November 15, 2020 (2020 Notes) UST 7.125% due February 15, 2023 (2023 Notes) | |||
| Interest Pay Dates: | May 15 and November 15 (2020 Notes) February 15 and August 15 (2023 Notes) | |||
| Beginning: | May 15, 2013 (2020 Notes) February 15, 2013 (2023 Notes) | |||
| Equity Clawback: | Up to 35% at 106.500% until November 15, 2015 (2020 Notes) Up to 35% at 106.875% until November 15, 2015 (2023 Notes) | |||
| Optional Redemption: | 2020 Notes: | |||
| Make-whole call @ T+50 bps prior to November 15, 2015, then, on or after | ||||
| November 15, 2015 November 15, 2016 November 15, 2017 November 15, 2018 and thereafter |
104.875% 103.250% 101.625% 100.000% | |||
| 2023 Notes: | ||||
| Make-whole call @ T+50 bps prior to February 15, 2018, then, on or after | ||||
| February 15, 2018 February 15, 2019 February 15, 2020 February 15, 2021 and thereafter |
103.438% 102.292% 101.146% 100.000% | |||
| Change of Control: | Put at 101% of principal plus accrued interest | |||
| Trade Date: | October 23, 2012 | |||
| Settlement Date: | October 26, 2012 (T+3) | |||
| CUSIP: | 726505AN0 (2020 Notes) 726505AP5 (2023 Notes) |
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| ISIN: | US726505AN03 (2020 Notes) US726505AP50 (2023 Notes) |
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| Denominations: | $2,000 x $1,000 | |||
| Bookrunners: | J.P. Morgan Barclays BMO Capital Markets Citigroup Wells Fargo Securities |
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| Senior Co-Managers: | BofA Merrill Lynch RBC Capital Markets Scotiabank TD Securities |
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| Co-Managers: | Capital One Southcoast Deutsche Bank Securities Goldman, Sachs & Co. ING SunTrust Robinson Humphrey UBS Investment Bank BNP PARIBAS CIBC Comerica Securities Fifth Third Securities, Inc. Mizuho Securities |
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Capitalization
The following table sets forth our capitalization and cash balance as of June 30, 2012:
| • | on a consolidated historical basis; and |
| • | on a pro forma basis, giving effect to (i) the consummation of the GOM Acquisition, (ii) our entry into the new credit facilities, (iii) borrowings of approximately $3.7 billion under our new credit facilities to fund a portion of the consideration for the GOM Acquisition, repay outstanding borrowings under our existing senior credit facility, to pay costs and expenses associated with the GOM Acquisition and related financing and for other general corporate purposes, and (iv) the issuance and sale of $3.0 billion in aggregate principal amount of notes in this offering and application of the estimated net proceeds thereof as described in “Use of proceeds” in the Preliminary Prospectus Supplement. |
You should read our historical financial statements and notes, as well as our unaudited pro forma financial statements related to the GOM Acquisition and accompanying notes included in our Current Report on Form 8-K filed with the SEC on October 23, 2012, that are incorporated by reference into the Preliminary Prospectus Supplement.
| As of June 30, 2012 | ||||||||
| (Dollars in thousands) |
Historical | Pro forma | ||||||
| Cash and cash equivalents |
$ | 302,157 | $ | 302,157 | ||||
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| Long-term debt: |
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| Senior revolving credit facility(1) |
298,000 | 1,712,440 | ||||||
| POI senior credit facility(2) |
— | — | ||||||
| 5-year term loan(3) |
— | 730,533 | ||||||
| 7-year term loan (4) |
— | 1,220,332 | ||||||
| 10% senior notes due 2016(5) |
176,299 | 176,299 | ||||||
| 7 5/8% senior notes due 2018 |
400,000 | 400,000 | ||||||
| 6 1/8% senior notes due 2019 |
750,000 | 750,000 | ||||||
| 8 5/8% senior notes due 2019(6) |
394,641 | 394,641 | ||||||
| 7 5/8% senior notes due 2020 |
300,000 | 300,000 | ||||||
| 6 5/8% senior notes due 2021 |
600,000 | 600,000 | ||||||
| 6 3/4% senior notes due 2022 |
1,000,000 | 1,000,000 | ||||||
| 6 1/2% senior notes due 2020 |
— | 1,500,000 | ||||||
| 6 7/8% senior notes due 2023 |
— | 1,500,000 | ||||||
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| Total long-term debt |
3,918,940 | 10,284,245 | ||||||
| Stockholders’ equity(7) |
3,328,322 | 3,307,650 | ||||||
| Noncontrolling interest: |
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| Preferred stock of subsidiary |
435,188 | 435,188 | ||||||
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| Total equity |
3,763,510 | 3,742,838 | ||||||
| Total capitalization |
$ | 7,682,450 | $ | 14,027,083 | ||||
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| (1) | As of June 30, 2012, we had commitments under our senior revolving credit facility of $1.4 billion, of which $1.1 billion was available. Under the terms of the BP purchase and sale agreement, we made a performance deposit in September 2012 of $555 million with BP, which was funded by our senior revolving credit facility. |
| (2) | As of June 30, 2012, the POI senior credit facility had $300 million in commitments and no outstanding borrowings. |
| (3) | The balance is reflected net of $19.5 million of discount on issuance. |
| (4) | The balance is reflected net of $29.7 million of discount on issuance. |
| (5) | The balance is reflected net of unamortized discount of $8.6 million. |
| (6) | The balance is reflected net of unamortized discount of $5.4 million. |
| (7) | Retained earnings has been reduced by an estimated after-tax loss of $20.7 million associated with $3.1 million in deferred financing charges related to the amendment and restatement of our senior revolving credit facility and $30 million in commitment fees associated with our senior unsecured bridge term loan facility, which will be expensed because we will not borrow under the senior unsecured term loan bridge facility. |
Ranking
As of June 30, 2012, on a pro forma as adjusted basis after giving effect to the Transaction Adjustments described in the Preliminary Prospectus Supplement, we would have had total indebtedness of approximately $10.3 billion ($3.7 billion of which would have been secured), excluding approximately $1.2 million in outstanding letters of credit, and we would have had approximately $1.2 billion and $300 million in additional secured borrowing capacity under our amended and restated senior credit facilities and the POI senior credit facility, respectively.
POI, which will not guarantee the notes, has 450,000 shares of 8% convertible perpetual preferred stock outstanding with an aggregate liquidation preference of at least $562.5 million plus accrued and unpaid dividends. For more information regarding this liquidation preference, see “Liquidity and Capital Resources” in our Annual Report on Form 10-K for the year ended December 31, 2011.
As of June 30, 2012, on a pro forma as adjusted basis after giving effect to the Transaction Adjustments described in the Preliminary Prospectus Supplement, the subsidiary guarantors would have had approximately $10.3 billion in total combined consolidated indebtedness outstanding ($3.7 billion of which would have been secured), and approximately $1.2 billion would have been available for borrowing under the amended and restated senior credit facilities, which is guaranteed by the subsidiary guarantors, and approximately $300 million would have been available for borrowing under the POI senior credit facility.
Expected Borrowing Base
We expect that our amended and restated senior credit facilities to be entered into in connection with the GOM Acquisition will have a borrowing base of $5.175 billion, which will be redetermined annually in the same manner as the borrowing base of our senior revolving credit facility. As with our existing senior revolving credit facility, we expect that the borrowing base under the amended and restated senior credit facilities will be automatically reduced by an amount equal to the product of 0.25 and the stated principal amount of any additional notes issued after such facilities become effective, unless the majority lenders otherwise agree.
Ratio of Earnings to Fixed Charges
After giving effect to (i) the consummation of the GOM Acquisition, (ii) our entry into the new credit facilities, (iii) borrowings of approximately $3.7 billion under our new credit facilities to fund a portion of the consideration for the GOM Acquisition, repay outstanding borrowings under our existing senior credit facility and pay costs and expenses associated with the GOM Acquisition and related financing and for general corporate purposes and (iv) the issuance and sale of $3.0 billion in aggregate principal amount of notes in this offering and application of the estimated net proceeds thereof as described in “Use of proceeds” in the Preliminary Prospectus Supplement, our pro forma ratio of earnings to fixed charges for the year ended December 31, 2011 and the six months ended June 30, 2012 is as follows:
| Pro Forma | ||||||||
| December 31, 2011 | June 30, 2012 | |||||||
| Pre-tax income from continuing operations before adjustment for minority interests in consolidated subsidiaries or income or loss from equity investees |
$ | 141,282 | $ | 167,116 | ||||
| Fixed charges (see below) |
495,495 | 269,030 | ||||||
| Amortization of capitalized interest |
16,176 | 12,477 | ||||||
| Interest capitalized |
(117,367 | ) | (32,316 | ) | ||||
| Preference security dividend of subsidiary |
(2,310 | ) | (30,458 | ) | ||||
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| Total adjusted earnings available for payment of fixed charges |
533,276 | 385,849 | ||||||
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| Fixed charges |
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| Interest expense |
355,743 | 195,935 | ||||||
| Interest capitalized |
117,367 | 32,316 | ||||||
| Amortization of debt-related expenses |
15,997 | 8,007 | ||||||
| Rental expense representative of interest factor |
4,078 | 2,314 | ||||||
| Preference security dividend of subsidiary |
2,310 | 30,458 | ||||||
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| Total fixed charges |
$ | 495,495 | $ | 269,030 | ||||
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| Ratio of earnings to fixed charges |
1.1 | 1.4 | ||||||