In December 2011, the FASB issued authoritative guidance requiring entities to disclose both
gross and net information about financial instruments and transactions eligible for offset in the
statement of financial position as well as financial instruments and transactions subject to agreements
similar to master netting arrangements. The additional disclosures will enable users of the financial
statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial
position. The guidance is effective for interim and annual periods beginning after January 1, 2013, and
will primarily impact our disclosures associated with our commodity derivative instruments. We are
currently evaluating the impact of this guidance.
Note 2 — Acquisitions
Eagle Ford Shale
During the fourth quarter of 2010, we completed the acquisition of approximately 60,000 net acres
in the Eagle Ford Shale oil and gas condensate windows in South Texas for approximately $596.3
million in cash. We funded the acquisition primarily with borrowings under our senior revolving credit
facility.
In conjunction with the acquisition of our Eagle Ford Shale properties, and in anticipation of
divesting our deepwater Gulf of Mexico properties, we entered into a series of reverse like-kind
exchange agreements pursuant to Section 1031 of the Internal Revenue Code, or IRC. The purchase
consideration related to our Eagle Ford Shale properties was loaned by PXP to the qualified
intermediary, PXP Operations LLC, to facilitate the potential tax deferred reverse like-kind exchange
treatment under IRC 1031. During the first half of 2011, the reverse like-kind arrangements pursuant to
IRC Section 1031 were concluded prior to the completion of a like-kind exchange involving any
disposition of PXP properties. As a result, the related Eagle Ford Shale properties were transferred
from PXP Operations LLC, which was reported as a Non-Guarantor Subsidiary, to PXP, which is
reported as Issuer, and the outstanding notes between PXP Operations LLC and PXP were settled.
See Note 16 – Consolidating Financial Statements.
Chesapeake Participation Agreement
In July 2008, we acquired from a subsidiary of Chesapeake Energy Corporation a 20% interest in
Chesapeake’s Haynesville Shale leasehold for approximately $1.65 billion in cash and we agreed, over
a multi-year period, to fund 50% of Chesapeake’s drilling and completion costs associated with future
Haynesville Shale wells, up to an additional $1.65 billion, which we refer to as the Haynesville Carry.
In August 2009, we amended the participation agreement with Chesapeake to accelerate the
payment of the remaining Haynesville Carry. On September 29, 2009, we paid $1.1 billion to
Chesapeake for the remaining Haynesville Carry balance as of September 30, 2009, which we
estimated to be $1.25 billion, an approximate 12% reduction. We funded the payment with net
proceeds from the sale of our common stock and issuance of $400 million of 8
5
⁄
8
% Senior Notes due
2019, cash on hand and borrowings under our senior revolving credit facility. As a result of the
prepayment of the Haynesville Carry, we do not pay promoted well costs for costs attributable to
periods subsequent to the third quarter of 2009.
We have the option to participate for 20% of any additional leasehold that Chesapeake, or its
affiliates, acquires in the Haynesville Shale within a designated area of mutual interest.
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