Seymour Pierce Initiates Coverage of EXXI

ALAN SINCLAIR, Seymour Pierce (07/23/2010)
"Energy XXI offers the combination of strong management, a robust and growing production base and potentially spectacular upside in its ultra-deep asset position in the shallow waters of the Gulf of Mexico Shelf. In terms of valuation, at current levels, the shares are well underpinned on the basis of its proved reserves alone with the current ultra-deep drilling program providing the potential for a $19/share asset value increment in the next 12 months or so. We initiate coverage of Energy XXI with a BUY recommendation. . .this relative valuation framework is based on proved reserves only—it is potentially massive upside in the Energy XXI's ultra-deep Shelf position that makes a BUY recommendation compelling.

To date, Energy XXI has identified 14 prospects on its ultra-deep Shelf acreage and these have a net combined prospective resource of 9 trillion cubic feet (tcf) of gas, or 1.5 billion barrels in oil eq. terms. Of these, wells are currently being drilled on two—Davy Jones and Blackbeard East. Should Energy XXI be able to book current resource potential as reserves in due course, we estimate that Davy Jones would be worth the equivalent of $15/share and Blackbeard East would be worth ~$4/share."

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