Energy XXI Takes Bigger Bite of GOM Oil Assets
Energy XXI has executed a conditional purchase/sale agreement to acquire certain Gulf of Mexico shelf oil and natural gas interests from MitEnergy Upstream LLC, a subsidiary of Mitsui & Co., Ltd., for a headline cash consideration of $283 million.
The transaction involves mirror-image non-operated interests in the same group of properties Energy XXI purchased from Pogo Producing Company in June 2007. The properties include 30 fields currently producing 8,000 net barrels of oil equivalent (BOE) per day, about 77 percent of which is oil and 80 percent of which is already operated by Energy XXI. Upon restoration of volumes pending repair of third party pipelines damaged by hurricanes in 2008, net production is expected to reach 10,000 BOE per day. Offshore leases included in the purchase total nearly 33,000 net acres.
"The original Pogo property acquisition turned out to be an excellent transaction for Energy XXI, and the purchase announced today will double our interests in the same properties," Energy XXI Chairman and CEO John Schiller said. "The synergies are obvious, as no incremental personnel, systems or other overhead will be required. Administrative and operating cash costs are expected to be reduced by about $1 per BOE overall. This transaction will boost our recent production run rate by 43 percent to about 27,000 BOE per day, with near-term upside anticipated."
Pro forma for the transaction, oil represents 67 percent of current production, up from 59 percent in the company's 2009 fiscal year ended June 30; proved plus probable reserves increase to 93 million BOE from 66 million BOE, 61 percent of which is oil, up from 56 percent. In addition, accounting for recent development activity, Energy XXI expects its pro forma reserves to be 76 percent proved developed, up from the 64 percent reported at June 30. The company will operate 79 percent of its properties on a reserves basis, compared with 78 percent currently.
"This is a transformational transaction for Energy XXI," Schiller said. "Not only are we doubling up on some our most profitable and lowest-risk barrels, but we will use the transaction to strengthen the balance sheet, which increases our ability to fund future growth by furthering our acquire-and-exploit strategy and capitalizing on an enhanced portfolio of projects."
Concurrent with the signing of the agreement, Energy XXI has purchased puts and put spreads that provide downside price protection averaging $73.46 per barrel on 6,500 barrels per day of oil production for 18 months, from January 2010 through June 2011.
The transaction is likely to be funded through a combination of new equity, cash on hand and bank debt. Energy XXI has placed a 5 percent cash deposit into escrow under the terms of the agreement.
The purchase is subject to customary closing conditions and adjustments, such as downward adjustments to the purchase price to reflect revenues generated between the effective date of July 1, 2009 and the closing, which is expected within 90 days. Assuming a year-end closing, actual funding requirements are estimated to be $263 million.
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