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Energy XXI Reports Fiscal 2015 Third-Quarter Results, Issues Operations Update

HOUSTON, May 6, 2015 (GLOBE NEWSWIRE) -- Energy XXI (Nasdaq:EXXI) today announced fiscal third-quarter 2015 results and provided an operations update on activities in the Gulf of Mexico.



Highlights

  • Average Q3 production a record 60,000 BOE/d (41,600 barrels of oil per day)

- Production up 2,100 BOE/d versus prior quarter

- Successful recompletion program at South Pass 78 field

- Downtime trending down to seven percent

  • Continued lease operating expense cost reduction

- LOE $108 million versus $119 million in previous quarter

  • $1.45 billion second-lien financing completed

- Provided approximately $725 million in liquidity

  • Asset monetization progressing as planned

- Midstream assets expected to close before fiscal year-end 2015

  • Non-cash ceiling test write-down of $740 million driven by lower commodity prices

- Adjusted Net Loss $102.3 million, adjusted diluted loss per share $1.08 before non-cash impairment and one-time non-recurring items

"Production for the quarter was up due to the successful development drill and recompletion programs. Our capital spending remains focused on low-risk projects like the recompletion program at South Pass 78. That field alone is producing over 4,000 barrels of oil equivalent per day (BOE/d) versus the 2,100 BOE/d prior to the initiation of the recompletion program," Energy XXI Ltd Chairman, President and Chief Executive Officer John D. Schiller said. "We are focused on maintaining production relatively flat going forward with a disciplined capital program. Our lifting costs are down again quarter on quarter and we continue to focus on ways to achieve additional savings. Additionally, our successful placement of second-lien notes in March provides the needed liquidity to execute on our plan."

Fiscal 2015 Third-Quarter Results

For the 2015 fiscal third quarter, adjusted earnings before non-recurring charges and interest, taxes, depreciation, depletion and amortization (adjusted EBITDA) was $110.1 million (a non-GAAP measure reconciled below), compared with $178.8 million in the 2014 fiscal third quarter. Non-recurring charges in the 2015 fiscal third quarter totaled approximately $5 million, primarily associated with consulting fees in connection with the integration of the EPL acquisition. The company reported a net loss available for common stockholders in the 2015 fiscal third quarter of $587.2 million, or $6.22 loss per diluted share (or $102.3 million adjusted net loss, with adjusted diluted loss per share of $1.08 before non-cash impairment and one-time charges), on revenues of $260.2 million, compared with fiscal 2014 third-quarter net income available for common stockholders of $4.4 million, or $0.06 income per diluted share, on revenues of $285.2 million. The company's reported loss on the quarter was primarily due to a $739.9 million non-cash impairment charge, the result of lower commodity prices, as well as other costs associated with financing, mergers and acquisitions and the EPL integration.

Production for the 2015 fiscal third quarter averaged 60,000 net BOE/d, with 41,600 barrels per day (Bbl/d) liquids, compared with 42,300 net BOE/d and 28,400 Bbl/d liquids in the 2014 fiscal third quarter. Production was impacted in April 2015 by equipment repairs at Main Pass, shut in and rig moves at the West Delta 73 field and rig movement at the South Pass 78 field. As of May 1, with these fields back online, production is averaging 60,100 BOE/d.

Financing Activities

On March 12, 2015, the company completed a private placement of second-lien notes with net proceeds of $1.36 billion. Simultaneously, the company amended and paid down the existing credit facility and established a new borrowing base at $500 million, of which $150 million is drawn and $226 million is allocated to letters of credit, leaving $124 million undrawn. Total liquidity, post revolver pay down, was approximately $725 million.

Hedging

In late January and early February, the company monetized its three-way and put spread hedges for calendar 2015, receiving $73.1 million in cash proceeds. Following this monetization, the company entered into additional hedges for calendar 2015 and calendar 2016, bringing total crude oil hedges to approximately 70 percent and 37 percent of estimated volumes for those periods, respectively.

Operations Update

During the fiscal third quarter, the company drilled and completed two wells. Additionally, four recompletions were brought online in the quarter at the South Pass 78 field.

Approximately 70% of the production optimization work in the West Delta area, including water handling and compression equipment to optimize oil production in the field, has been completed. Additional water handling equipment at West Delta 73 (100% WI/ 83% NRI) has allowed the company to raise production to a record 7,000 BOE/d from the field. Additionally, compression equipment has added approximately 1,000 BOE/d at South Pass 49 (100% WI/ 83% NRI), and 1,600 BOE/d at West Delta 30 (100% WI/ 87% NRI).

The company is executing a low-risk recompletion program to address proved developed non-producing reserves at the South Pass 78 field (100% WI/ 83% NRI). A total of five wells have been recompleted since the program began in January. Net production from the field at the beginning of the program was approximately 2,100 BOE/d, and is currently averaging just over 4,000 BOE/d.

The non-operated Highlander discovery (18% WI/ 13% NRI), located onshore in South Louisiana, began production on February 25, 2015, following production testing. The well has been restricted to approximately 24 million cubic feet per day because of limited processing facilities. The operator is currently developing additional processing facilities to accommodate higher flow rates, and installation is expected by calendar year-end 2015.

Divestiture Update

The Grand Isle gathering system was deregulated on February 1, 2015 and we continue to move forward with the monetization of the asset. The company expects to close the transaction before fiscal year-end June 30, 2015.

The non-core divestiture package generated solid interest from prospective buyers, which include established exploration and production companies as well as private equity backed start-ups. With commodity prices stabilizing, Energy XXI continues to negotiate with prospective buyers for both the overall package and individual fields, such as East Bay.

Capital Expenditures

During the 2015 fiscal third quarter, capital expenditures including abandonment totaled $75.5 million, with 57 percent being spent on development. Currently, the company is estimating the total fiscal 2015 capital program to range from $640 million to $660 million with approximately $90 million to be spent in the fourth fiscal quarter.

Non-cash Impairment Write-down

At March 31, 2015, Energy XXI's oil and gas properties exceeded the limitation of capital costs specified by the U.S. Securities and Exchange Commission (SEC) full cost accounting rules, which resulted in the recognition of a non-cash impairment charge totaling $739.9 million. The twelve-month average of the first-day-of-the-month historical reference oil price required to be used under SEC full cost accounting rules in determining the March 31, 2015, ceiling amount was $85.57 per barrel.

Guidance

Fourth-quarter and fiscal year guidance is provided below.

Volume Projections FY 2015 4Q FY15
Net Production (per day)
Oil, including NGLs (Bbls) 41,000-42,000 40,000-42,000
BOE 58,000-59,000 57,000-60,000
% Oil, including NGLs
(using midpoint of guidance)
71% 68-70%
FY15 Cost Projections ($MM) 3Q Actuals 4Q proj.
LOE 108 105-115
G&A 37* 24-28
Gathering & Transport 3.7 3-5
DD&A 37.48/BOE 33.00-35.00/BOE
*includes non-recurring charges
Operational Information
Quarter Ended
Operating Highlights March 31,
2015
December 31,
2014
September 30,
2014
June 30,
2014
March 31,
2014
(In thousands, except per unit amounts)
Operating revenues
Crude oil sales $ 177,606 $ 279,163 $ 370,155 $ 294,974 $ 254,641
Natural gas sales 27,012 32,345 34,561 34,508 37,562
Hedge gain (loss) 55,574 46,247 (1,485) (5,348) (7,020)
Total revenues 260,192 357,755 403,231 324,134 285,183
Percentage of operating revenues from crude oil
Prior to hedge gain (loss) 87% 90% 91% 90% 87%
Including hedge gain (loss) 89% 91% 91% 89% 88%
Operating expenses
Lease operating expense
Insurance expense 8,828 11,233 11,022 8,357 6,410
Workover and maintenance 10,773 13,130 29,416 14,408 17,797
Direct lease operating expense 88,509 95,003 102,147 79,806 59,417
Total lease operating expense 108,110 119,366 142,585 102,571 83,624
Production taxes 1,537 2,263 3,093 1,750 1,090
Gathering and transportation 3,726 4,771 9,188 6,509 5,700
DD&A 190,174 177,333 161,266 119,691 99,899
Impairment of oil and natural gas properties 739,941 -- -- -- --
Goodwill impairment -- 329,293 -- -- --
General and administrative 37,121 27,745 26,424 30,824 24,208
Other - net 14,038 11,912 9,536 8,112 5,861
Total operating expenses 1,094,647 672,683 352,092 269,457 220,382
Operating income (loss) $ (834,455) $ (314,928) $ 51,139 $ 54,677 $ 64,801
Sales volumes per day
Natural gas (MMcf) 110.4 96.5 100.7 84.8 83.7
Crude oil (MBbls) 41.6 41.8 41.8 32.0 28.4
Total (MBOE) 60.0 57.9 58.6 46.1 42.3
Percent of sales volumes from crude oil 69% 72% 71% 69% 67%
Average sales price
Natural gas per Mcf 2.72 3.64 $ 3.73 4.47 4.98
Hedge gain (loss) per Mcf 0.06 0.09 0.02 (0.02) (0.31)
Total natural gas per Mcf $ 2.78 $ 3.73 $ 3.75 $ 4.45 $ 4.67
Crude oil per Bbl 47.49 72.56 96.28 101.45 99.71
Hedge gain (loss) per Bbl 14.68 11.82 (0.43) (1.78) (1.83)
Total crude oil per Bbl $ 62.17 $ 84.38 $ 95.85 $ 99.67 $ 97.88
Total hedge gain (loss) per BOE $ 10.30 $ 8.68 $ (0.28) $ (1.28) $ (1.83)
Operating revenues per BOE $ 48.22 $ 67.15 $ 74.84 $ 77.28 $ 74.85
Operating expenses per BOE
Lease operating expense
Insurance expense 1.64 2.11 2.05 1.99 1.68
Workover and maintenance 2.00 2.46 5.46 3.44 4.67
Direct lease operating expense 16.40 17.83 18.96 19.03 15.59
Total lease operating expense per BOE 20.04 22.40 26.47 24.46 21.94
Production taxes 0.28 0.42 0.57 0.42 0.29
Gathering and transportation 0.69 0.90 1.71 1.55 1.50
DD&A 35.24 33.29 29.93 28.54 26.22
Impairment of oil and natural gas properties 137.12 -- -- -- --
Goodwill impairment -- 61.81 -- -- --
General and administrative 6.88 5.21 4.90 7.35 6.35
Other - net 2.60 2.23 1.77 1.93 1.54
Total operating expenses per BOE 202.85 126.26 65.35 64.25 57.84
Operating income (loss) per BOE $ (154.63) $ (59.11) $ 9.49 $ 13.03 $ 17.01
ENERGY XXI LTD
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except per share information)
(Unaudited)
Three Months Ended March 31, Nine Months Ended March 31,
2015 2014 2015 2014
Revenues
Crude oil sales $ 232,520 $ 249,955 $ 925,676 $ 801,414
Natural gas sales 27,672 35,228 95,502 105,177
Total Revenues 260,192 285,183 1,021,178 906,591
Costs and Expenses
Lease operating 108,110 83,624 370,061 263,176
Production taxes 1,537 1,090 6,893 3,677
Gathering and transportation 3,726 5,700 17,685 17,023
Depreciation, depletion and amortization 190,174 99,899 528,773 303,628
Accretion of asset retirement obligations 12,106 6,066 37,723 20,817
Impairment of oil and natural gas properties 739,941 -- 739,941 --
Goodwill impairment -- -- 329,293 --
General and administrative expense 37,121 24,208 91,290 65,578
(Gain) loss on derivative financial instruments 1,932 (205) (2,237) 6,958
Total Costs and Expenses 1,094,647 220,382 2,119,422 680,857
Operating Income (Loss) (834,455) 64,801 (1,098,244) 225,734
Other Income (Expense)
Loss from equity method investees (2,646) (1,111) (3,384) (5,525)
Other income - net 1,231 867 3,173 2,302
Interest expense (85,039) (42,700) (218,203) (111,026)
Total Other Expense (86,454) (42,944) (218,414) (114,249)
Income (Loss) Before Income Taxes (920,909) 21,857 (1,316,658) 111,485
Income Tax Expense (Benefit) (336,592) 14,565 (352,059) 50,559
Net Income (Loss) (584,317) 7,292 (964,599) 60,926
Preferred Stock Dividends 2,862 2,872 8,605 8,617
Net Income (Loss) Available for Common Stockholders $ (587,179) $ 4,420 $ (973,204) $ 52,309
Earnings (Loss) per Share
Basic $ (6.22) $ 0.06 $ (10.34) $ 0.71
Diluted $ (6.22) $ 0.06 $ (10.34) $ 0.71
Weighted Average Number of Common Shares Outstanding
Basic 94,408 70,437 94,076 73,415
Diluted 94,408 70,502 94,076 73,493

ENERGY XXI LTD
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(In Thousands, except per share information)
(Unaudited)

As required under Regulation G of the Securities Exchange Act of 1934, provided below are reconciliations of net income to the following non-GAAP financial measure: Adjusted EBITDA. The company uses this non-GAAP measure as a key metric for the management of the company and to demonstrate the company's ability to internally fund capital expenditures and service debt.

Three Months Ended March 31, Nine Months Ended March 31,
2015 2014 2015 2014
Net Income (Loss) $ (584,317) $ 7,292 $ (964,599) $ 60,926
Interest expense, net 83,808 41,833 215,030 108,724
Impairment of oil and natural gas properties 739,941 -- 739,941 --
Depreciation, depletion and amortization 190,174 99,899 528,773 303,628
Goodwill impairment -- -- 329,293 --
Income Tax Expense (Benefit) (336,592) 14,565 (352,059) 50,559
EBITDA 93,014 163,589 496,379 523,837
Adjustments to EBITDA
Accretion of asset retirement obligations 12,106 6,066 37,723 20,817
Non-recurring (severance, acquisition & divestiture costs) 4,985 9,100 23,742 9,100
Adjusted EBITDA $ 110,105 $ 178,755 $ 557,844 $ 553,754
Adjusted EBITDA per Share
Basic $ 1.17 $ 2.54 $ 5.93 $ 7.54
Diluted $ 1.17 $ 2.54 $ 5.92 $ 7.53
Weighted Average Number of Common Shares Outstanding
Basic 94,408 70,437 94,076 73,415
Diluted 94,408 70,502 94,234 73,493
ENERGY XXI LTD
CONSOLIDATED BALANCE SHEETS
(In Thousands, except share information)
March 31, June 30,
2015 2014
Current Assets (Unaudited)
Cash and cash equivalents $ 602,024 $ 145,806
Accounts receivable
Oil and natural gas sales 83,919 167,075
Joint interest billings 16,176 12,898
Other 25,244 5,438
Prepaid expenses and other current assets 39,608 72,530
Deferred income taxes 16,959 52,587
Derivative financial instruments 52,822 1,425
Total Current Assets 836,752 457,759
Property and Equipment
Oil and natural gas properties, net - full cost method of accounting, including $680.0 million and $1,165.7 million of unevaluated properties not being amortized at March 31, 2015 and June 30, 2014, respectively 5,772,316 6,524,602
Other property and equipment, net 22,759 19,760
Total Property and Equipment, net of accumulated depreciation, depletion, amortization and impairment 5,795,075 6,544,362
Other Assets
Goodwill -- 329,293
Derivative financial instruments 9,767 3,035
Equity investments 25,050 40,643
Restricted Cash 6,024 6,350
Other assets and debt issuance costs, net of accumulated amortization 83,158 57,394
Total Other Assets 123,999 436,715
Total Assets $ 6,755,826 $ 7,438,836
LIABILITIES
Current Liabilities
Accounts payable $ 192,472 $ 417,776
Accrued liabilities 117,574 133,526
Notes payable 4,949 21,967
Asset retirement obligations 68,392 79,649
Derivative financial instruments -- 31,957
Current maturities of long-term debt 17,282 15,020
Total Current Liabilities 400,669 699,895
Long-term debt, less current maturities 4,595,770 3,744,624
Deferred income taxes 369,685 701,038
Asset retirement obligations 469,033 480,185
Derivative financial instruments 71 4,306
Other liabilities 8,168 10,958
Total Liabilities 5,843,396 5,641,006
Commitments and Contingencies
Stockholders' Equity
Preferred stock, $0.001 par value, 7,500,000 shares authorized at March 31, 2015 and June 30, 2014 -- --
7.25% Convertible perpetual preferred stock, 3,000 and 8,000 shares issued and outstanding at March 31, 2015 and June 30, 2014, respectively -- --
5.625% Convertible perpetual preferred stock, 812,759 and 812,760 shares issued and outstanding at March 31, 2015 and June 30, 2014, respectively 1 1
Common stock, $0.005 par value, 200,000,000 shares authorized and 94,428,557 and 93,719,570 shares issued and outstanding at March 31, 2015 and June 30, 2014, respectively 471 468
Additional paid-in capital 1,842,919 1,837,462
Accumulated deficit (1,016,322) (19,626)
Accumulated other comprehensive income (loss), net of income taxes 85,361 (20,475)
Total Stockholders' Equity 912,430 1,797,830
Total Liabilities and Stockholders' Equity $ 6,755,826 $ 7,438,836
ENERGY XXI LTD
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Nine Months Ended March 31,
2015 2014
Cash Flows From Operating Activities
Net income (loss) $ (964,599) $ 60,926
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization 528,773 303,628
Impairment of oil and natural gas properties 739,941 --
Goodwill impairment 329,293 --
Deferred income tax expense (benefit) (352,899) 47,197
Change in derivative financial instruments
Proceeds from sale of derivative instruments 102,354 --
Other – net (24,478) (549)
Accretion of asset retirement obligations 37,723 20,817
Loss from equity method investees 3,384 5,525
Amortization and write-off of debt issuance costs and other 17,942 9,715
Stock-based compensation 3,271 5,292
Changes in operating assets and liabilities
Accounts receivable 62,163 20,551
Prepaid expenses and other assets 32,938 28,130
Settlement of asset retirement obligations (77,235) (46,269)
Accounts payable and accrued liabilities (278,239) (9,047)
Net Cash Provided by Operating Activities 160,332 445,916
Cash Flows from Investing Activities
Acquisitions (301) (35,082)
Capital expenditures (512,302) (574,824)
Insurance payments received 2,669 --
Change in equity method investments 12,642 (11,694)
Transfer from (to) restricted cash 325 (325)
Proceeds from the sale of properties 7,093 1,748
Other 185 624
Net Cash Used in Investing Activities (489,689) (619,553)
Cash Flows from Financing Activities
Proceeds from the issuance of common and preferred stock, net of offering costs 2,187 3,844
Discount on convertible debt allocated to additional paid-in capital -- 63,432
Repurchase of company common stock -- (184,263)
Dividends to shareholders – common (23,492) (26,238)
Dividends to shareholders – preferred (8,605) (8,617)
Proceeds from long-term debt 2,586,572 2,039,759
Payments on long-term debt (1,729,355) (1,391,379)
Debt issuance costs (41,732) (19,199)
Net Cash Provided by Financing Activities 785,575 477,339
Net Increase in Cash and Cash Equivalents 456,218 303,702
Cash and Cash Equivalents, beginning of period 145,806 --
Cash and Cash Equivalents, end of period $ 602,024 $ 303,702

Fiscal 2015 Third-Quarter Conference Call

Energy XXI will host its fiscal third-quarter conference call Thursday, May 7, at 9 a.m. CDT. The dial-in numbers are 1 (888) 771-4371 (U.S.) and 1 (847) 585-4405 and the confirmation code is 39538724. For complete instructions on how to actively participate in the conference call, or to listen to the live audio webcast or a replay, please refer to www.EnergyXXI.com.

Glossary

Barrel – unit of measure for oil and petroleum products, equivalent to 42 U.S. gallons.

BOE – barrels of oil equivalent, used to equate natural gas volumes to liquid barrels at a general conversion rate of 6,000 cubic feet of gas per barrel.

BOE/d – barrels of oil equivalent per day.

Bbl/d – barrels per day of oil or condensate.

Mcf/d – thousand cubic feet of gas per day.

NRI, Net Revenue Interest – the percentage of production revenue allocated to the working interest after first deducting proceeds allocated to royalty and overriding interest.

WI, Working Interest – the interest held in lands by virtue of a lease, operating agreement, fee title or otherwise, under which the owner of the interest is vested with the right to explore for, develop, produce and own oil, gas or other minerals and bears the proportional cost of such operations.

Forward-Looking Statements

All statements included in this release relating to future plans, projects, events or conditions and all other statements other than statements of historical fact included in this release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based upon current expectations and are subject to a number of risks, uncertainties and assumptions, including changes in long-term oil and gas prices or other market conditions affecting the oil and gas industry, reservoir performance, the outcome of commercial negotiations and changes in technical or operating conditions, our ability to integrate acquisitions, among others, that could cause actual results, including project plans and related expenditures and resource recoveries, to differ materially from those described in the forward-looking statements. Energy XXI assumes no obligation and expressly disclaims any duty to update the information contained herein except as required by law.

About the Company

Energy XXI 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's properties are located in the U.S. Gulf of Mexico waters and the Gulf Coast onshore. To learn more, visit the Energy XXI website at www.EnergyXXI.com.

CONTACT: INQUIRIES OF THE COMPANY Greg Smith Vice President, Investor Relations 713-351-3149 gsmith@energyxxi.com Kim Pinyopusarerk Manager, Investor Relations 713-351-3028 kpinyo@energyxxi.com

Source:Energy XXI