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Current EXXI Stock Info

Energy XXI (ticker: EXXI) 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 has implemented an “acquire and exploit” growth strategy to build a geographically focused portfolio with some of the highest per-unit margins in the industry. It aims to develop the acquired properties while ramping up a complementary exploration program designed to provide organic growth for the future. The core properties are located in coastal and offshore Louisiana.

Energy XXI recently reported year-end 2013 results, increasing proved reserves to 179 MMBOE with production of 43,100 BOEPD. This increase results in a debt-adjusted reserve growth rate per share of 94% and a debt-adjusted production growth rate per share of 40%.

The Offering

Energy XXI announced on November 19, 2013, the upsizing of its private offering to $350 million in Convertible Notes due 2018. The offering is a 17% increase of the company’s initial amount of $300 million in notes announced on November 18, 2013.  The company expects to grant a 30-day option for initial purchasers to buy up to an additional $50 million aggregate principal amount of notes, an increase from its previous amount of $45 million. The notes are expected to pay interest semiannually and will be convertible to cash, shares of common stock, or a combination of the two at the company’s discretion. The offering is expected to close on or around November 22, 2013.

As of November 15, 2013, Energy XXI’s Market Cap is $2.15 billion and the company’s debt is $1.56 billion (reported as of Sept. 30, 2013), resulting in a Debt-to-Market Cap ratio of 73%. By adding an additional $350 million in debt, the Debt-to-Market Cap ratio increases to 89%. Energy XXI’s mid-cap peers have an average Debt-to-Market Cap of 43%.  As of the announcement, Energy XXI had a WACC of 10.3%. Increasing long-term debt by $350 million at an annual rate of 6% will decrease EXXI’s WACC to 10.0%.  The company has the needed capital to fund the planned CapEx for 2014 as well as plans to grow production.

The company’s capital program for fiscal year 2014, which began July 1, 2013, was raised to $675 million, up from $660 million. Development drilling and recompletions account for $330 million of planned spending. Exploration drilling targeting accounts for approximately $126 million, $46 million of which is associated with ultra-deep water drilling. Facilities spending is estimated at $80 million, which includes approximately $67 million for construction of a new platform. Seismic costs are expected to total $34 million, primarily related to wide azimuth data acquisition, while abandonment costs are estimated at $31 million. The remainder of the capital budget for fiscal 2014 is allocated to general and administrative and land costs.

The company finished FY’13, with $638 million in Cash Flow from Operations, and $0 cash on hand. The $638 million will come close to covering the 2014 capital program, which should be fully funded with the forecasted production increase and additional money from the convertible notes.

The Pricing

The Convertible Notes will pay interest semiannually at a rate of 3.0% and will have an initial conversion rate of 24.7523 shares of the company’s common stock per $1,000 principal amount of the Convertible Notes (which is equal to an initial conversion price of approximately $40.40 per share of the company’s common stock). The amount represents an initial conversion premium of approximately 47.5% above the closing price of $27.39 per share of the company’s common stock on November 18, 2013. The Convertible Notes will mature on December 15, 2018, unless repurchased or converted in accordance with their terms prior to such date.

The Uses

The company expects to receive net proceeds of approximately $341.8 million from the offering of the Convertible Notes (or approximately $390.7 million if the initial purchasers exercise their option to purchase additional Notes in full), after deducting fees and estimated expenses. The Company intends to apply the net proceeds for general corporate purposes, which may include working capital, capital expenditures and acquisitions.

Concurrently with the offering, Energy XXI Gulf Coast, Inc., one of EXXI’s wholly owned subsidiaries, intends to repurchase 2,776,200 shares of the company’s common stock at a price of $27.39 per share, funded with $76,040,118 borrowings under its revolving credit facility.

Prior to September 15, 2018, the Convertible Notes will be convertible only upon the occurrence of certain events and during certain periods, and thereafter, at any time until the second scheduled trading day immediately preceding the maturity date. The Company will be required to offer to repurchase the Convertible Notes if a fundamental change, as defined in the indenture for the Convertible Notes, occurs. In addition, the conversion rate will be increased with respect to Convertible Notes converted in connection with specified fundamental change transactions. The Company expects to close the offering on or about November 22, 2013, subject to the satisfaction of customary closing conditions.

Investor Day

On October 22, 2013, EXXI provided an update on production and operations for the period ended September 30, 2013. Highlights include:

  • An average production of approximately 46.6 MBOEPD, with oil averaging approximately 29.7 MBOPD.
  • Strong initial results from the West Delta 73. Two recently spudded wells have added more than 2 MBOPD gross production and a second rig is scheduled to arrive later in the calendar year.
  • Net oil pay of approximately 226 feet from recently drilled wells, including the Don Lino (126 feet) in the Main Pass 61 and the Heron (100 feet, up from a previously announced 76 feet) in the Main Pass Block 295. The Don Lino is expected to be brought online in mid-November 2013.
  • The ultra-deep Davy Jones is being readied for completion, and the Lineham Creek exploration project has reached total depth and results are under review.

Phil Kerig, EXXI’s Director of Corporate Reserves and Business Planning, elaborated on the CapEx increase during the company’s annual investor day in New York on October 23, 2013. “We think that this capital program will result in about an 11% compound annual growth rate over the three-year period. The capital we expect to go up from the $675 this year to $800 and then $850.”

John Schiller, Chairman and Chief Executive Officer of Energy XXI, said: “Our base production has remained strong, in line with our year-end exit rate of 47 MBOEPD, with only two rigs drilling development wells during the quarter. With a mild hurricane season behind us and drilling activity set to increase during our second half, we continue to expect year-over-year production growth.”

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Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.