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NEW YORK (AP) — Shares of Plains Exploration & Production Co. fell Monday after it said it will buy some deepwater Gulf of Mexico assets from BP PLC and at least one analyst said it's paying too much.
THE SPARK: Plains inked the deal with BP for $5.55 billion. The sale is considered a big step in the BP's drive to cover the cost of its oil well blowout in the Gulf two years ago and focus elsewhere. Plains is also buying a 50 percent stake in the Holstein field — an area of development in the Gulf of Mexico — that BP doesn't own from Shell Offshore Inc. for $560 million.
Both deals, representing production of 59,500 barrels of oil equivalent per day, are expected to close by the end of the year. That should boost Plains production by more than 60 percent. In the most recent quarter, Plains averaged 98,000 barrels of oil equivalent per day.
THE ANALYSIS: Peter Hutton, an analyst with RBC Capital Markets, said the deal's price is significantly higher than he expected. Last month, he estimated the value of the assets at $2.2 billion. Hutton said he believes the $5.5 billion price reflects strong potential for newly discovered oil.
Raymond James analyst Kevin Smith said the strategy of the deal "comes as a little bit of a head scratcher" considering Plains' 2010 sale of offshore assets to McMoran Exploration Co. and its increased focused on land-based drilling.
SHARE ACTION: Plains shares lost $3.98, or 9.9 percent, to $36.34 in afternoon trading. The stock has traded between $20.25 and $47.13 in the past 12 months.