Energy XXI (Bermuda) Limited on Thursday announced it has agreed to sell a number of non-core, mostly non-operated, onshore natural gas assets to a private buyer for $41 million in cash.
The assets include about 70 producing wells in 20 fields with recent average net production of 8 million cubic feet per day (MMcf/d) of natural gas and 285 barrels per day (BBl/d) of oil, or a total equivalent of 9.7 MMcf/d. The transaction is scheduled to close by June 30, 2011, with an effective date of June 1, 2011.
"Divestiture of these non-core assets is consistent with our oil-focused acquire-and-exploit strategy," Energy XXI Chairman and CEO John Schiller said. "The sale does not include the Laphroaig and Cote de Mer discoveries or certain deep rights within the divested properties, which we believe have significant unbooked upside. Less than a quarter of the proved reserves associated with the properties are currently on production, so the divestiture significantly reduces future development costs in addition to asset retirement obligations. Proceeds from the sale will help us continue to strengthen our balance sheet and focus our attention on properties we operate and can grow. We are committed to building shareholder value through efficient deployment of capital."
The property divestiture was factored into the company's recently amended revolving bank credit facility, which increased the company's borrowing base to $750 million from the prior $700 million facility and reduced the interest rate margins by 50 basis points.
Operations Update--Exploration and Development Activity
Within the company's core producing fields offshore Louisiana, drilling has been completed on the Ashton prospect at the Main Pass 72 field. The well was drilled to 8,350 feet. As previously reported, the well encountered seven pay zones. The rig currently is being moved to begin drilling the Onyx prospect within the same structure, and will be moved back to Ashton afterwards for completion operations.
At the nearby South Pass 89 field, a rig has moved onsite to commence a six-well recompletion program from the SP93 A platform. The objective of the workover program is to optimize existing producing zones and exploit new zones.
Within the shallow-water, ultra-deep Gulf of Mexico shelf program, the McMoRan-operated partnership (in which Energy XXI has various interests) has identified 15 sub-salt prospects near existing infrastructure. The partnership's current drilling activity includes the Blackbeard East and Lafitte exploratory wells and the offset appraisal well at Davy Jones.
The Davy Jones offset well, located on South Marsh Island Block 234 in 20 feet of water, has been drilled to 30,450 feet and logging operations are underway to evaluate exploration objectives in the Cretaceoous section below the identified Wilcox pay sands. Energy XXI has a 15.8 percent working interest and 12.6 percent net revenue interest in Davy Jones.
The Blackbeard East exploration well, located in 80 feet of water on South Timbalier Block 144, commenced drilling on March 8, 2010 and is drilled to 32,559 feet. McMoRan continues to make progress resolving mechanical problems in the well and plans to deepen the well pending the resolution of those issues. Energy XXI has an 18 percent working interest and 14.35 percent net revenue interest in Blackbeard East.
The Lafitte exploration well commenced drilling on Oct. 3, 2010 and is currently drilling below 22,000 feet towards a proposed total depth of 29,950 feet, targeting Middle and Deep Miocene objectives and possibly Oligocene (Frio) sections below the salt weld. Lafitte is located on Eugene Island Block 223 in 140 feet of water. Energy XXI has an 18 percent working interest and a 14.6 percent net revenue interest.
Onshore Louisiana, the McMoRan-operated Valentine Pontiff well, an offset to the 2007 Laphroaig discovery, was placed online in late April 2011 and is currently producing 50 MMcf/d of natural gas and 500 BBl/d of condensates on a gross basis. Energy XXI has an 18.75 percent working interest and a 15 percent net revenue interest in the well.
Energy XXI is an independent oil and natural gas exploration and production company whose growth strategy emphasizes acquisitions, enhanced by its value-added organic drilling program. The company's properties are located in the U.S. Gulf of Mexico waters and the Gulf Coast onshore. Seymour Pierce is Energy XXI's listing broker in the United Kingdom.
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