Houston-based upstream and midstream operator Plains Resources Inc. (NYSE: PLX) will separate into two companies in a series of moves, including distribution of substantially all its upstream assets to shareholders through a subsidiary, Plains Exploration & Production Co. (PXP). Currently a California limited partnership, PXP will be converted into a Delaware corporation prior to the distribution, which Plains expects to make in first-quarter 2003. PXP plans to make an initial public offering of up to 19.9% of its common stock. Goldman, Sachs & Co. will be the lead managing underwriter. Plains Resources would retain at least an 80.1% interest in PXP for at least four months after the IPO. "The process began approximately nine months ago when we began to struggle with our company's competing capital needs in two distinct businesses. Both objectives cannot be achieved simultaneously from a finite capital tool," says John Raymond, Plains Resources president and chief operating officer. Raymond will become chief executive officer after the spin-off, and vice chairman of PXP. Jim Flores will remain chairman of Plains Resources and become chairman, president and chief executive of PXP. The separation is expected to help Plains' E&P business grow-as a stand-alone company. Production will grow 3% to 5% this year-after annual growth of 10% to 11% in 2000 and 2001-as it cut its capital spending in half. "Several excellent upstream opportunities had to go unfunded," Raymond says. "(PXP) will be large enough to execute opportunities and small enough to have a meaningful impact," says Raymond. "With this transaction, the future of Plains' E&P business will improve as capital employed will be more effective functionally as well as financially." Flores says, "We want to be a pure play in the E&P business and in a position to take advantage of all the opportunities that are out there. California [where Plains has significant upstream assets] is in need of consolidation. Some people are too big to care. Others don't have strong enough balance sheets. We'll be in a position to do something about it." The plan presently requires a ruling from the IRS that the spin-off will continue to qualify as a tax-free distribution to Plains Resources and its shareholders, and additional regulatory and third-party consents. Plains Resources will retain its interest in oil and gas properties in Florida and its interests in Plains All American Pipeline LP (NYSE: PAA), which consist of 7.9 million common units, 4.5 million subordinated units and a 44% interest in the pipeline's general partner. Plains Resources also will have to refinance its debt, including $276.5 million of outstanding 10.25% senior subordinated notes due 2006, as a condition of the distribution. The debt currently can be redeemed at Plains' option at 103.4167% of principal, plus accrued interest to the redemption date. Plains expects to call the debt once it receives acceptable financing. -Petroleum Finance Week Greka Energy Corp., New York City, (Nasdaq: GRKA) has privately placed $30 million of secured debt with institutional investors as part of an overall restructuring that focuses its business on its integrated operations in Santa Monica, Calif. "This reengineering provides the company significantly better liquidity, a deleveraged balanced sheet, and focused management and operations," says Randeep S. Grewal, Greka chairman, chief executive officer and president. Durham Capital Corp. advised the New York upstream and midstream company in the transaction. Greka used the proceeds to retire its $14.3-million term loan with GMAC Commercial Credit LLC, and to pay Vintage Petroleum Inc. (NYSE: VPG) $12 million for interests in central California's Santa Maria Valley. The rest will be used as working capital. Greka owes Vintage an additional $6 million, which is to be paid within 12 months. The acquisition includes interests in five fields and approximately 110 producing wells, encompassing more than 5,000 acres of mineral interests and 800 acres of real estate. Greka will operate the properties, which produce an average 2,000 bbl. per day of heavy oil and 300,000 cu. ft. per day of gas. The additional production will raise the total throughput at Greka's asphalt plant 36% to total 3,400 bbl. per day, more than 90% of which will be equity barrels. Meanwhile, Greka sold its interests in Louisiana's Potash Field for $20 million and in an Indonesian prospect for a $4 million production payment and a retained 5% overriding royalty interest. CIBC World Markets represented the company in the Potash Field sale. Greka also has closed its offices in Bogota, Colombia, and Jakarta, and plans to close its Houston offices during July.