Energy XXI Reports Fiscal Year End Results

Energy XXI (Nasdaq:EXXI) (LSE:EXXS) (LSE:EXXI) reported audited fiscal fourth-quarter and full-year financial and operating results for the period ended June 30, 2007.

"Our fiscal fourth-quarter production volumes averaged 44 percent higher than in the immediately preceding quarter, while revenues rose 53 percent, assisted by our hedging program," Energy XXI Chairman and CEO John Schiller said. "From our initial start-up of operations in April 2006, Energy XXI has grown rapidly through both acquisitions and our organic capital program. Our track record of growth is continuing, as our estimated fiscal first-quarter volumes to date have averaged 26,000 barrels of oil equivalent (BOE) per day, which is nearly 25 percent higher than our fourth-quarter average."

For the 2007 fiscal fourth quarter, Energy XXI reported net income of $2.2 million, or $.02 per diluted share, on revenues of $118.7 million. These results were affected by higher depletion costs. Net cash provided by operating activities totaled $116.6 million, as volumes averaged 20,900 BOE per day. In the 2006 fiscal fourth quarter, net income was $5.5 million or $.09 per diluted share, revenues were $47.1 million, net cash provided by operating activities was $12.4 million and volumes averaged 9,700 BOE per day.

The net realized price received for the company's production in the 2007 fiscal fourth quarter was $62.53 per BOE, including $5.03 per BOE contributed by hedging, consistent with the company's active risk-management program.

For the company's fiscal year ended June 30, Energy XXI reported net income of $24.1 million, or $.29 per diluted share, on revenues of $341.3 million. Net cash provided by operating activities totaled $275.4 million. Comparisons to the prior fiscal year are not meaningful, as the company's first producing properties were acquired on April 4, 2006.

Capital Expenditures

During the year ended June 30, 2007, capital expenditures, excluding acquisitions, totaled $431.8 million, which included $331.1 million for development activity, $67.1 million for exploration and a $31 million capital contribution to an exploration joint venture, with the remainder associated with administration and other. In addition, producing property acquisitions totaled $717.6 million.

The 2008 capital budget, excluding acquisitions, is expected to be approximately $260 million, or 40 percent lower than the prior year.

"Last year, we ran a very active and successful drilling program at our South Timbalier 21 field offshore Louisiana, which doubled production from that property in addition to growing its reserves 16 percent and present value 38 percent," Energy XXI President and Chief Operating Officer Steve Weyel said. "Our overall drilling program delivered good value with a rate of return exceeding 30 percent, yet our focus on development contributed to high reserve replacement costs, as did some disappointing results that required negative reserve revisions. Consequently, high depletion costs weighed upon our financial results. This year, the focus will shift more to exploration, with more opportunity to add new reserves rather than enhancing the value of reserves already on the books."

Of the $260 million 2008 budget, approximately $137 million is allocated to exploration and $120 million to development activity. The company also has agreed to acquire $40 million of producing properties, $36 million of which are related to the exercise of a preferential right for onshore Louisiana properties recently purchased by a joint venture partner.

Year-end Reserves

Proved reserves at June 30, 2007 totaled 55.6 million BOE, up 126 percent from the 24.6 million BOE booked at June 30, 2006. During fiscal year 2007, Energy XXI added 29.7 million BOE of proved reserves through acquisitions and 10.9 million BOE through the drilling program, while producing 5.9 million BOE. Revisions reduced proved reserves by 3.2 million BOE, while property sales cut 0.4 million BOE. Year-end proved reserves were weighted toward liquids (crude oil, condensate and natural gas liquids) at 54 percent, or 30.3 million barrels, with natural gas representing 46 percent, or 151.8 billion cubic feet. The company's reserves are fully determined by independent reservoir engineering firms.