Morgan Keegan Raises Target on EXXI

CHRIS PIKUL, Morgan Keegan (11/22/2010)
"EXXI has agreed to acquire shallow-water GOM assets from Exxon in a $1B transaction, growing proved reserves and production 65% and 77%, respectively. We calculate deal metrics of $20.40/boe for 49.5 Mboe for proved reserves ($15.30/boe for 2P reserves) and only $8.4k/flowing Mcfe, an implied discount to EXXI's current valuation of about $13K/flowing Mcfe.

Ultra-deep shelf catalysts at both Blackbeard East (logging underway at 28,500 feet with more hole to drill) and Davy Jones (drilling ahead at 24,300 feet toward 25K casing point) can still be significant catalysts for EXXI shares. This accretive acquisition is highly complementary to the ultra-deep program, providing significant shelf inventory, which will not only support near-term growth but also will preserve the company's oily production stream in light of what could be significant gas-production from the ultra-deep over the next 12–18 months. In light of the proved (and probable) reserve additions, we are increasing our price target to $40 from $35. Maintain Outperform."

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