Acquire and Exploit Isn't All They Can Do: Energy XXI Updates Gulf of Mexico Shelf Operations; Organic Drilling Efforts Help EXXI Hit Production Goals

During the last six years, Energy XXI (NASDAQ:EXXI) has completed five major acquisitions, making EXXI the third largest producer on the Gulf of Mexico shelf. The company’s historic core strategy is to acquire and exploit producing oil properties; however, more recently, EXXI has been unlocking additional production value and reserve growth through its organic drilling programs.

Today, EXXI reported four successful well results in four different fields:

• The Winters well (100% WI) at Grand Isle 16 Field, encountered 83 net feet of pay and was placed on production at 8,200 BOEPD (6,425 BOEPD net).
• The Onyx well (100% WI) at Main Pass 72 Field, has recorded an increase in flow rates to 3,100 BOPD from 2,100 BOPD in June 2011.
• The Camshaft well (100% WI) at South Timbalier 54 Field, and Magnum well (100% WI) at West Delta 73 encountered 180 net feet of oil pay and 50 net feet of oil pay, respectively. Production is expected from both wells in March 2012.

OAG360 Comments:

The well results from Energy XXI’s announcement reflect another successful operational update from the company. We continue to see Energy XXI successfully acquire and exploit its current operational portfolio, but what is more interesting is Energy XXI’s shift to allocate more capital to its organic drilling program. During 2012, EXXI is expecting organic production growth between 10% and 12%.

Management reaffirmed its fiscal 2012 production estimates of 46,000 BOEPD to 50,000 BOEPD. In the news release, the company reported that “production is approaching 50,000 BOEPD” with more than a dozen wells schedule to come on production before year-end. At EnerCom’s The Oil & Services Conference 10 last week, Energy XXI said current production is approximately 42,000 BOEPD. OAG360 notes that Energy XXI’s has a fiscal 2012 year-end of June 30, 2012 providing the company more than ample time to hit its production goals.

Main Pass Field: The Main Pass Field is Energy XXI’s largest overall legacy property. The field was acquired in 2007 and Energy XXI concentrated on exploiting the field to increase oil production. The Onyx well, as mentioned above, was drilled by testing a new salt model theory and the well’s production actually increased from June 2011 leading Energy XXI to believe the field is much larger than expected.

Grand Isle 16: The Grand Isle 16 Field was the first ExxonMobil property that Energy XXI allocated capital towards, and they have since initiated an aggressive recompletion program. The Winters well came on with a production rate of 45 MMcf/d and 711 barrels of condensate per day. This is one of the only gas wells EXXI is drilling since the company was going to lose the lease if they did not drill the well. OAG360 notes that EXXI rarely has to deal with drilling to hold leases due to the company’s acquisition and development program in fields that are currently held by production.

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