During the fourth quarter of 2011, we improved our liquidity position by reducing our future interest
costs and extending the average maturity of our senior notes by issuing $1.0 billion of 6
3
⁄
4
% Senior
Notes that mature in 2022 and retiring approximately $1.3 billion of principal related to our senior notes
with higher interest rates and nearer term maturities. See Financing Activities. We further improved our
liquidity position by divesting our Texas Panhandle properties and our conventional natural gas South
Texas properties. After the exercise of third party preferential rights and preliminary closing adjustments,
we received approximately $735.8 million in cash upon the closing of these transactions. At
December 31, 2011, we continue to have interests in approximately 50,000 gross acres at our Texas
Panhandle properties. We expect to receive additional proceeds from future closings, as may be further
modified for additional post-closing adjustments. The cash proceeds received from the 2011 divestments
were primarily used to reduce indebtedness. Further, our investment in McMoRan was reclassified from
long-term to current assets as the one year restriction to sell the shares ended on December 30, 2011.
Stock Repurchase Program.
During the year ended December 31, 2011, we repurchased
10.4 million common shares at an average cost of $34.73 per share, totaling $361.7 million. In January
2012, we completed the purchase of an additional 2.4 million common shares at an average cost of
$37.02 per share totaling $88.5 million.
Plains Offshore.
In October 2011, we entered into a securities purchase agreement with EIG,
pursuant to which we received $430.2 million of net cash proceeds in November 2011, upon closing of
the transaction, in exchange for a 20% equity interest in Plains Offshore. The proceeds raised are
expected to be used to fund Plains Offshore’s share of capital investment in the Lucius oil field and the
Phobos prospect exploratory drilling planned for 2012 and other activities. Under the agreement and
upon closing of the transaction, Plains Offshore issued to the EIG Funds (i) 450,000 shares of Plains
Offshore 8% convertible perpetual preferred stock and (ii) non-detachable warrants to purchase in
aggregate 9,121,000 shares of Plains Offshore’s common stock with an exercise price of $20 per
share. In addition, Plains Offshore issued 87 million shares of Plains Offshore Class A common stock,
which will be held in escrow until the conversion and cancellation of the preferred stock or the exercise
of the warrants held by EIG. The preferred stock will pay quarterly cash dividends of 6% per annum
and an additional 2% per annum dividend. The 2% dividend may be deferred and accumulated
quarterly until paid. The shares of preferred stock also fully participate, on an as-converted basis at
four times, in cash dividends distributed to any class of common stockholders of Plains Offshore.
The preferred holders have the right, at any time at their option, to convert any or all of such
holder’s preferred stock and exercise any of the associated non-detachable warrants into shares of
Class A common stock of Plains Offshore, at an initial conversion/exercise price of $20 per share; the
conversion price is subject to adjustment as a result of certain events. Additionally, at any time on or
after the fifth anniversary of the closing date, we may exercise a call right to purchase all, but not less
than all, of the outstanding preferred stock and associated non-detachable warrants for cash, at a price
equal to the liquidation preference described below.
At any time after the fourth anniversary of the closing date, a majority of the preferred holders may
cause Plains Offshore to use its commercially reasonable efforts to consummate an exit event. An exit
event, as defined in the stockholders agreement, means, at the sole option of Plains Offshore (i) the
purchase by us or the redemption by Plains Offshore of all the preferred stock, warrants and common
stock held by the EIG Funds for the aggregate fair value thereof; (ii) a sale of Plains Offshore or a sale
of all or substantially all of its assets, in each case in an arms’ length transaction with a third party, at
the highest price available after reasonable marketing efforts by Plains Offshore; or (iii) a qualified
initial public offering. In the event that Plains Offshore fails to consummate an exit event prior to the
applicable exit event deadline, the conversion price of the preferred stock and the exercise price of the
warrants will immediately and automatically be adjusted such that all issued and outstanding shares of
preferred stock on an as-converted basis taken together with shares of common stock issuable upon
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