Energy XXI announced fiscal third-quarter results for the period ended March 31, 2010 and provided an operational update.
For the 2010 fiscal third quarter, Energy XXI reported earnings before interest, taxes, depreciation, depletion and amortization (EBITDA) of $87.3 million, up 33 percent from the $65.8 million recorded in the 2009 fiscal third quarter. Net income for the 2010 fiscal third quarter was $11.1 million ($0.18 per share -- diluted) on revenues of $150.1 million and production of 25,400 barrels of oil equivalent per day (BOE/d). Oil represented 68 percent of production and 84 percent of pre-hedge revenues in the quarter. In the 2009 fiscal third quarter, the company had a net loss of $120.6 million, or $4.18 per share, on revenues of $106.1 million and production of 20,700 BOE/d. The loss included a $117.9 million ceiling test impairment.
"This quarter's results benefited from our December consolidation of interests in our key Gulf of Mexico shelf properties and reflect the advantage of having an oil-focused production portfolio," Energy XXI Chairman and CEO John Schiller said. "Increased oil production and commodity price realizations continued to drive industry-leading margins, generating discretionary cash flow that helped reduce net debt by almost $60 million in the fiscal third quarter. Our operations are providing more than enough cash to fund the capital program and to service debt, even as we accelerate exploration and development activity at our ultra-deep-shelf play. We have moved into the development stage at the Davy Jones discovery announced in January, and have made tremendous progress at the Blackbeard East exploration well. We have entered our fiscal fourth quarter with great expectations for reserves growth through the drillbit and continued strengthening of the balance sheet."
Production volumes averaged 25,400 BOE/d in the fiscal third-quarter and approximated 27,000 BOE/d entering the fiscal fourth-quarter. The last remaining volumes shut in by hurricane damages, approximating 1,300 BOE/d, were restored at the end of February.
In late December, the third-party-owned Cypress Pipe Line, which transports a portion of the company's oil production from its Main Pass fields, was shut in for repairs that partially curtailed volumes through the end of January. On April 5, the same pipeline, a joint venture between Chevron Corp. and BP Plc, again was ruptured, shutting in about 2,400 BOE/d of the company's production. The pipeline is undergoing repairs and is expected to be placed back in service by July. In an effort to minimize future production disruptions, Energy XXI in January began permitting a bi-directional pipeline lateral that would provide alternative transportation options to route around downstream system outages. The lateral received the required permits in late April and is expected to be in service by the end of June, at a cost of $5 million.
Within the next several months, volumes are expected to be incremented as a result of two well workovers at the South Timbalier 21 field. To date, none of the company's production or drilling activities have been affected by the BP deepwater Gulf of Mexico oil spill.
ULTRA-DEEP SHELF EXPLORATION AND DEVELOPMENT ACTIVITY
Data received to date from the McMoRan-operated partnership's ultra-deep drilling on the Gulf of Mexico shelf confirm geologic modeling that correlates objective sections on the shelf below the salt weld (i.e. listric fault) in the Miocene and older age sections to those productive sections seen in deepwater discoveries by other industry participants. In addition to Davy Jones and Blackbeard West, 15 ultra-deep prospects have been identified in shallow water near existing infrastructure that are available to Energy XXI through its ultra-deep partnership with McMoRan. The partnership's ultra-deep drilling plans in 2010 include the Blackbeard East and Lafitte exploratory wells and delineation drilling at Davy Jones.
In February 2010, the Davy Jones discovery well on South Marsh Island Block 230 was drilled to a total depth of 29,000 feet. As reported in January 2010, the partnership logged 200 net feet of pay in multiple Eocene/Paleocene (Wilcox) sands in the well. In March 2010, a production liner was set and the well was temporarily abandoned until necessary equipment for the completion is available. The partnership, working with a team of experts, has initiated studies on the design for the completion of the well.
On April 7, 2010, the partnership commenced drilling the Davy Jones offset appraisal well (Davy Jones #2) on South Marsh Island Block 234, two and a half miles southwest of the discovery well. The well is currently drilling below 5,000 feet towards a proposed total depth of 29,950 feet. Davy Jones #2 is expected to test similar sections up-dip to the discovery well, as well as deeper objectives, including potential additional Wilcox and possibly Cretaceous (Tuscaloosa) sections.
Davy Jones involves a large ultra-deep structure encompassing four lease blocks (20,000 acres). Energy XXI is funding 14.1 percent of the exploratory costs to earn a 15.8 percent working interest and 12.6 percent net revenue interest in Davy Jones. The company's investment in both wells at Davy Jones to date has totaled about $18 million.
The Blackbeard East ultra-deep exploration well commenced drilling on March 8, 2010 and is drilling below 15,200 feet. The well, which is located in 80 feet of water on South Timbalier Block 144, has a proposed total depth of 29,950 feet, targeting Middle and Deep Miocene objectives seen below 30,000 feet in Blackbeard West, nine miles away. Energy XXI is funding 16 percent of the exploratory costs to earn an 18 percent working interest and 14.35 percent net revenue interest in Blackbeard East. The company's investment in the well to date has totaled about $5 million.
The Lafitte ultra-deep exploration well is expected to commence drilling this summer. Like Blackbeard East, Lafitte will target Middle and Deep Miocene objectives. Lafitte is located on Eugene Island Block 223 in 140 feet of water.
In conjunction with the partnership's ultra-deep exploration activities, McMoRan participated in the MMS' Central Gulf of Mexico Lease Sale 213 and submitted apparent high bids on 14 ultra-deep-shelf-focused blocks totaling $8.9 million. Apparent high bids are subject to MMS review before they can be awarded. If granted, the lease acquisitions would add to the leasehold inventory available to Energy XXI through the partnership.
Energy XXI fiscal third-quarter capital expenditures totaled $36.8 million, excluding acquisition costs, with $17.1 million in exploration and $19.7 million in development and other investments. During the first three fiscal quarters in 2010, capital expenditures totaled $98.7 million, excluding acquisition costs, with $30.8 million in exploration and $67.9 million in development and other investments.
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