Energy XXI to acquire rival for $2.3bn


Financier Worldwide Magazine

May 2014 Issue

May 2014 Issue

On 12 March, oil producer Energy XXI Ltd announced it had agreed a deal to purchase EPL Oil & Gas Inc (EPL) for $2.3bn including debt.

Under the terms of the deal Energy XXI will pay existing EPL shareholders $39 per share – a 34 percent premium over the company’s closing price on 11 March and a 37 percent premium over the 30 day average closing price of EPL’s shares before that date. In exchange for their stake in EPL the company’s stockholders will be able to opt for either $39 in cash, 1.669 common shares of Energy XXI, or $25.35 in cash plus 0.584 common shares in exchange for each EPL share they hold. At the time of writing the terms of the deal are still subject to shareholder approval from both companies. The board of directors of both organisations have announced they unanimously recommend the deal to shareholders; however, the deal is still subject to regulatory approvals and customary closing conditions.

According to Energy XXI’s statement announcing the deal, the transaction will be funded with 65 percent cash and 35 percent Energy XXI common shares. Energy XXI also announced that the company’s incumbent chairman and chief executive officer John Schiller will remain in his current position. The newly merged group will remain headquartered in Houston, Texas. One member of EPL’s current board of directors will join the Energy XXI board of directors upon completion of the transaction.

By completing a deal for EPL, Energy XXI will significantly improve its operations in the Gulf of Mexico region. Indeed, the acquisition will see Energy XXI become the largest public independent oil producer on the Gulf of Mexico shelf. EPL currently operates in 37 producing fields in the region; the majority of the company’s efforts are concentrated within nine core producing areas. Around 91 percent of the company’s proved reserves, 88 percent of its production and 91 percent of its total revenues are generated at EPL’s facilities at Ship Shoal, East Bay, South Timbalier, South Pass 78 and 49, West Delta, Main Pass, Eugene Island and South Marsh.

According to EPL’s year-end reserves estimates for the Eugene Island 258/259 field, and adjustments for lease-use natural gas, the properties are estimated to contain net proved and probable reserves of 106.3 million barrels of oil equivalent (BOE). Seventy-one percent of those reserves are comprised of oil. Proved reserves are estimated at 54.9 million barrels of oil and 139.2 billion cubic feet of natural gas, or a total of 78.1 million BOE, 70 percent of which are proved developed. EPL’s offshore leases total 273,713 net acres. In its December 2013 year-end report, EPL reported total assets of $1.86bn, with net income for the year totalling $85.3m. As a result of these estimates, upon completion of the merger, Energy XXI expects the newly merged company to have an enterprise value of approximately $6bn. “EPL’s assets and operations closely resemble our own, predominantly oil, with some of the highest margins in the industry and extraordinary opportunities for reserves and production growth through development and exploration activities,” said Energy XXI chairman and chief executive John Schiller.

The acquisition of EPL is in keeping with Energy XXI’s aggressive program of expansion. Since the company was founded in 2005 Energy XXI has completed deals for the assets of other operators in the Gulf of Mexico region, including those of multinational oil and gas giant Exxon Mobil Corp. Energy XXI’s $1.01bn acquisition of properties from ExxonMobil in 2010 saw the company become the third largest producer on the Gulf of Mexico shelf just five years after its inception.

Energy XXI announced that it has increased its credit facility in order to complete the deal. The company’s facility has now risen to $1.68bn up from $1.09bn, although the group is making efforts to reduce its current debt level.

© Financier Worldwide 


Richard Summerfield

©2001-2019 Financier Worldwide Ltd. All rights reserved.