Energy XXI has announced fiscal second-quarter results for the period ended Dec. 31, 2008, which reflect a non-cash ceiling test impairment resulting from the steep drop in oil and natural gas prices.
"Current industry conditions are very challenging, as oil and gas prices have plunged while operating costs have been slow to adjust downward, resulting in a non-cash write-down of the carrying value of our reserves," Energy XXI Chairman and CEO John Schiller said.
"Operationally, Energy XXI has made solid progress restoring production volumes in the wake of the recent hurricanes, and our exploration program continues to offer significant reserve growth potential. Financially, our sizable cash position and credit facility, along with hedge-protected cash flow, help ensure access to working capital, and we are working diligently to reduce costs and minimize future capital expenditures with the intention of paying down debt."
For the 2009 fiscal second quarter, Energy XXI reported net cash provided by operating activities of $31.4 million and earnings before interest, taxes, depreciation, depletion and amortization (EBITDA) of $68.8 million, compared with $48.2 million and $111.9 million, respectively, in the 2008 fiscal second quarter.
Including a $459.1 million pre-tax ceiling test impairment ($415.5 million, or $2.88 per share, after tax), the company reported a 2009 fiscal second-quarter net loss of $429.2 million, or $2.98 per share, on revenues of $106.9 million and production of 19,200 barrels of oil equivalent per day (BOE/d). In the 2008 fiscal second quarter, the company had net income of $6.5 million, or $.07 per diluted share, on revenues of $153.7 million and production of 26,000 BOE/d. The net realized price received for the company's production in the 2009 fiscal second quarter averaged $60.57 per BOE, compared with $64.24 per BOE in the 2008 fiscal second quarter.
During the 2009 fiscal second quarter, capital expenditures totaled $101.8 million, with $43.0 million in exploration, $58.5 million in development and $0.3 million in other investments. The company expects to significantly reduce activity and expenditures during the second half of its fiscal year, remaining within the previously announced fiscal 2009 range of $240 million to $260 million, excluding hurricane-related spending, which is largely reimbursable through insurance recoveries.
Energy XXI production volumes continue to be curtailed by damage inflicted by Hurricanes Gustav and Ike. In addition to a 2,000 BOE/d long-term reduction due to the loss of facilities serving two non-operated fields, approximately 2,000 BOE/d remains off-line awaiting repair of third-party-operated pipelines. The company's current net production approximates 21,000 BOE/d.
EXPLORATION AND DEVELOPMENT ACTIVITY
Energy XXI continues drilling the E.A. McIlhenny #1 well on the Cote de Mer prospect, located in Vermilion Parish, Louisiana. The well has been drilled to a depth of 21,730 feet, with a target depth of 22,300 feet. Logging efforts to date indicate that the well has encountered at least 60 net feet of natural gas pay in two zones within the targeted Cris-A Massive sands. Based on these preliminary results, the company's estimate of gross reserves potential within the drilled interval is between 20 billion and 40 billion cubic feet. Continued drilling could add significantly to the discovery's size. Energy XXI holds a 33 percent working interest (WI) and a 24 percent net revenue interest (NRI) in the prospect.
The Ammazzo deep gas exploratory prospect (16 percent WI, 13 percent NRI), which spud Nov. 22, 2008, has set casing to 11,089 feet and is drilling ahead towards a proposed total depth of 24,500 feet. The Ammazzo prospect is located in 25 feet of water offshore Louisiana, approximately 15 miles south of the Flatrock and JB Mountain discoveries where operator McMoRan has successfully drilled to the targeted Rob-L, Operc and Gyro sands in the Middle Miocene.
As previously reported, the South Timbalier Block 168 No. 1 exploratory well, targeting the Blackbeard West prospect (20 percent WI, 16 percent NRI) in 70 feet of water offshore Louisiana, was drilled to 32,997 feet. Energy XXI and its partners have formed an engineering team to design a completion plan and procure long-lead-time equipment necessary to conduct a production test of four potential hydrocarbon-bearing zones logged in the wellbore. Additional drilling opportunities on the flanks of the structure and on other acreage in the ultra-deep trend are being reviewed.
At the South Timbalier 21 field, net production averaged 4,939 BOE/d, up from fiscal first-quarter volume of 4,694 BOE/d as the company continued to restore disrupted production from Hurricanes Gustav and Ike. Recent volumes have averaged more than 8,000 BOE/d, benefitting from the successful Barolo well, which was placed on-line in January at nearly 1,700 BOE/d net, as well as two well recompletions that began producing in January at a combined net rate of 1,900 BOE/d.
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