Energy XXI

The company's core properties are offshore and onshore the Louisiana Gulf Coast with 56 producing fields. Offshore properties are primarily comprised of large legacy oil fields where activity focuses on exploitation, while onshore properties are primarily natural gas focused. The company's 274 gross wells produced an average of 19,300 BOE/d in 2009. As of fiscal year-end June 30, 2009, total proved reserves were 53.1 million BOE with 58% in oil. The company is pursuing high-impact exploration that could add materially to the reserves profile.

Watch Bloomberg interview Energy XXI CEO John Schiller

EXXI Named Top Oil & Gas Stock by TransWorldNews (1/20/10)

"We are initiating coverage of Energy XXI with an Overweight rating. Given its Gulf of Mexico focus, the company trades at a significant discount on a multiple basis (Price-to-Cash Flow and Enterprise Value-to-EBITDA) as investors remain more focused on the onshore shale development plays. Given the longer-lived reserve profile and lower-risk development nature of its core mature oil properties on the shelf, Energy XXI possesses an inventory that should allow for lower production volatility than most Gulf of Mexico producers. Combining its existing reserve/production profile with the ultra-deep exploratory program, investors are exposed to significant upside."
    -RONALD MILLS,   JOHNSON RICE & COMPANY (01/19/10)

"We are initiating coverage of Energy XXI Limited (with a BUY rating and a $4.50/share price target. To leverage our coverage of McMoRan Exploration, and its recent success in the Ultradeep trend with the Davy Jones discovery, we are launching coverage of Energy XXI. While the corporate strategy differs, EXXI has similar large upside catalysts to MMR, as the two are partners in the Ultradeep trend. However, EXXI's core GOM shelf assets are much oilier, have higher working interests, and it intends to use free cash flow to be a consolidator on the shelf. If it continues to find accretive acquisition, maintains its base decline and spends 25-50% of its cash flow on Ultradeep exploration/development, we think EXXI will grow production per share at a reasonable, sub-10% pace.

EXXI is one of [the] best vehicles for exposure to near-term oil prices with short reserve life and 60+% oil weighting. EXXI is one of the oiliest names in our coverage space and its short reserve life (less than 10 years) means it is more exposed to near-term commodity prices than companies with longer dated reserves and potential. Exposure to Ultradeep/Davy Jones comes with oil weighted cash flows and reserves. While EXXI has less net exposure to the Ultradeep trend than MMR, its base valuation is driven more by oil than natural gas. Current production is 64% oil (this relates to MMR's 25%). If investors want exposure to Ultradeep development and exploration, but have concerns with natural gas prices, EXXI could provide an interesting vehicle for exposure. We estimate the Ultradeep potential is worth $1.75/share to our NAV."
    -NICHOLAS POPE,   DAHLMAN ROSE & CO. (01/14/10)

"Davy Jones is a keeper. . .The discovery could lead to many years of follow-up drilling. Wells at this depth (28,000+ ft.) take many months to drill, and rigs capable of drilling them are fairly scarce. MMR [McMoRan Exploration] is likely to make consistent progress on delineating and producing its discovery here, extending the limits of its separate deep Blackbeard find, and testing additional structures on its extensive acreage. However, investors will tussle over how soon to pay for the long-term development based on limited data so far.

With the news, we have adjusted our. . .EXXI. . .one year target to assume the market will reflect 1.5 tcf of reserves (up from 1 tcf) combined, from the Blackbeard and Davy Jones prospects—a modest share of what may ultimately be developed. Until recently, EXXI was getting no credit at all for exploration potential. Our new target is: EXXI: new target is $7.50, up from $6, and reflecting enterprise value supported 45% by undeveloped assets.

. . .We maintain our 'BUY' rating on. . .EXXI. . .and see material additional upside support above our target.

. . .EXXI is newly balance sheet healthy, very able to afford its exploration drilling, and likely to ramp up additional drilling or acquisition activity.

EXXI, $7.50 target. For now, in our view, EXXI remains the most levered name to the MMR program, in that the market has not paid up even for EXXI's proved reserves base until now, much less assigned value to upside exploration volumes. Above $3 per share, EXXI shares are finally paying up for some of its share of MMR's exploration portfolio. Our $6 target was supported by one tcf of gross reserves between the Davy Jones and Blackbeard projects. Each incremental tcf would support around another $3 per share. We are adding a half a tcf to what we think the market will pay for in a year."
    -DUANE GRUBERT,   CRT CAPITAL HOLDINGS LLC (01/11/10)

"Operator McMoRan Exploration announced this morning the Davy Jones well (South Marsh Island Block 230) logged 135 feet of net pay in four zones in the Wilcox (Eocene/Paleocene), with 90 feet in the two largest. The well is currently being deepened to 29,000 feet to test additional objectives. As of 12/30, the well cost was over $70m gross (vs. $50m AFE).

We are raising our price target to $5.50, from $3.50 (based on 1P value alone), reflecting our estimates for prospect size at Davy Jones. EXXI currently trades at a3.6x EV / NTM EBITDA.

Davy Jones find could mean another $2+ to EXXI shares. The news flow on Davy Jones continues to be encouraging, albeit on few details. The fact that the discovery was announced shouldn't have been a surprise in our view given the ongoing commitment. There's still a lot of work to be done, but looking at a range of EUR, we believe that shares of EXXI could still capture another $2+ in Davy Jones upside. Further, as we stated in our December initiation, we believe shares are worth $3.50 on 1P value alone and believe that the added attention will only further catalyze value recognition."
    -ANDREW COLEMAN,   UBS (01/11/10)

 PRINT THIS PAGE  EMAIL THIS PAGE