EXXI Energy Xxi (DI)

Energy XXI (NASDAQ:EXXI) today announced financial and operating results for the three months ended September 30, 2015 (fiscal 2016 first quarter), and provided an operations update. Highlights include:

• Production continues to be stable
  • 1Q 2016 net oil production averaged 42,200 barrels per day
  • 1Q 2016 total net production averaged 58,900 barrels equivalent per day
• Lease Operating Expenses (LOE) decreased 34% year over year
  • $94 million in 1Q 2016, decreased from $142 million in 1Q 2015
• Over $890 million in face-value debt retired in 2015 to-date
• Annualized interest savings of approximately $65 million, ~$3.00 per barrel of oil equivalent (BOE)
• Total liquidity of $510 million

“We continue to execute successfully on multiple objectives,” Energy XXI President and Chief Executive Officer John Schiller said.  “Our operations team continues to deliver stable production, while reducing our LOE costs, and improving our efficiency in the Gulf of Mexico.   Production for the fiscal 2016 first quarter totaled 5.42 million barrels of oil equivalent (MMBOE), compared to 5.38 MMBOE in the same period last year.  LOE for fiscal 2016 first quarter were $94 million compared to $142 million in the fiscal 2015 first quarter.  The 34 percent year over year decrease was driven by a combination of synergies gained from the EPL acquisition, operational efficiencies, and lower service costs in the field as a result of the commodity price erosion,” Mr. Schiller continued.  “Our finance team continues to reduce debt while managing our liquidity.  We have retired over $890 million in face value of our bonds through open-market purchases and continue to look for opportunities to reduce our leverage and minimize annual interest payments.”

For the fiscal 2016 first quarter, adjusted EBITDA was $89.0 million (a non-GAAP measure reconciled below), on revenue of $257.8 million, as total net production volumes averaged 58,900 barrels of oil equivalent per day (BOE/d), 72 percent of which was oil.  These results compare with fiscal 2015 first quarter adjusted EBITDA of $231.5 million on revenue of $461.4 million and volumes of 58,600 BOE/d, 71 percent oil.  Net loss attributable to common shareholders in the 2016 fiscal first quarter totaled ($576.2) million, or ($6.08) per diluted share, compared with fiscal 2015 first quarter net income attributable to common shareholders of $24.3 million, or $0.24 per diluted share.  Net loss attributable to common shareholders in the 2016 fiscal first qurter includes a non-cash impairment charge on its oil and gas assets of $904.7 million, or ($9.54) per diluted share, due to sustained lower commodity prices and a gain on early extinguishment of debt of $458.3 million, or $4.83 per diluted share, resulting from our bond repurchases.  Excluding these two items and other non-cash items, the company’s fiscal 2016 first quarter adjusted net loss attributable to common shareholders was ($155.8) million, or ($1.64) per diluted share, compared with adjusted net loss attributable to common shareholders in fiscal 2015 first quarter of ($31.8) million, or ($0.34) per diluted share.

(Adjusted EBITDA and Adjusted Net Income (Loss) is a non-GAAP financial measure and is defined and reconciled to the most directly comparable GAAP measure under “Non-GAAP Financial Measures” in the tables below)

Operations Update

Production for the 2016 fiscal first quarter averaged 58,900 BOE/d, of which 42,200 was oil.  Current production for the fiscal second quarter to date is approximately 54,500 BOE/d, as a result of third-party pipeline downtime during the quarter.  With a majority of the downtime back online, production for the month of November has averaged 56,515 BOE/d. 

The West Delta 73 (100% WI/ 83% NRI) rig demobilization has been completed and the field has returned to full production, averaging over 5,900 BOE/d net.  Operations were shut-in temporarily to remove the rig in October, which had an impact on average production for the fiscal second quarter of 775 BOE/d. 

The company began the recompletion of the Landers well in South Louisiana (74% WI/ 55% NRI).  The Landers well has produced 48 billion cubic feet of gas since coming online in 2011.  This large gas unit has multiple stacked pay zones.  The company is currently recompleting to the MA7 sand, and expects it to come online this December at a rate of 20-24 Mmcf/d, approximately 15-17 Mmcf/d net to Energy XXI.

The Highlander well (18% WI/ 13% NRI) in South Louisiana, operated by Freeport McMoRan, has been remediated and returned to production as of September 29, 2015, at 25 Mmcf/d.  The well was taken offline in July 2015 to begin remediation and to expand an amine unit to allow for higher production rates.  The operator expects that the new amine unit will be commissioned and operational this December and is expected to allow the well to produce over 45 Mmcf/d, 8 Mmcf/d net to Energy XXI.

The company reaffirms 2016 full year production ranges as detailed below.

Volume Projections	FY 2016
Net Production (per day)
Oil, including NGLs (Bbls)	35,000 – 40,000
BOE	54,000 – 59,000
Oil, including NGLs (using midpoint of guidance)	~66%

Capital Expenditures and Liquidity

For fiscal 2016 full year, the company is targeting a range of $130 - $150 million in capital expenditures.  Fiscal 2016 first quarter ended September 30, 2015, capital expenditures totaled approximately $55 million excluding acquisitions, of which approximately $33 million was spent on development of our core properties, and $22 million on other assets, mostly attributable to plugging and abandonment costs. 

As of October 31, 2015, the company had total liquidity of $510 million. The company has been opportunistic in repurchasing bonds, and to date has retired over $890 million in face value of bonds with annualized cash interest expense savings of more than $65 million.  We continue to analyze a variety of transactions designed to reduce our leverage.

Conference Call Today, Nov. 9, at 9 a.m. CST

Energy XXI will host its fiscal 2016 first quarter conference call Monday, Nov. 9, at 9:00 a.m. CST. The dial-in number is 1 (877) 794-3620 (U.S.) and the confirmation code is 72125657.  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.

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

Adjusted EBITDA is a supplemental non-GAAP financial measure that is used by management and external users of the Company's consolidated financial statements, such as industry analysts and investors. The Company defines Adjusted EBITDA as earnings before interest expense, income taxes, depreciation, depletion, amortization, exploration expenses, gains/losses on derivatives less net cash received or paid in settlement of commodity derivatives, non-cash impairments, non-cash gain or (loss) on extinguishment of debt and other similar non-cash or non-recurring charges. Adjusted EBITDA is not a measure of net income or cash flows as determined by the United States generally accepted accounting principles, or GAAP. 

Adjusted net income (loss) is a supplemental non-GAAP financial measure that is used by management and external users of our consolidated financial statements, such as industry analysts and investors. We define adjusted net income (loss) as net income (loss) before derivative fair value (gain) loss, excluding net cash receipts on settled derivative instruments incentive unit expense, non-cash impairments, non-cash gain (loss) on extinguishment of debt and other similar non-cash or non-recurring items. Adjusted net income (loss) is not a measure of net income as determined by the United States generally accepted accounting principles, or GAAP.

The following tables presents a reconciliation of the GAAP financial measure net income to the non-GAAP financial measures of Adjusted EBITDA and Adjusted Net Income (Loss) for the periods presented:

ENERGY XXI LTD
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(In thousands, except per share information)
(Unaudited)
	Three Months Ended
	September 30,
		2015				2014
Net Income (Loss) attributable to common shareholders	$	(576,246	)		$	24,318
Total gain on commodity derivative contracts - net		(55,430	)			(55,095	)
Cash settlements, net of purchased put premium amortization		18,742				1630
Impairment of oil and natural gas properties		904,669				-
Gain on early extinguishment of debt		(458,278	)			-
Income (Loss) from equity method investees		10,746				(959	)
Adjusted net (Loss) attributable to common shareholders		(155,797	)			(31,736	)
Weighted average fully diluted shares outstanding		94,778				93,833
Adjusted loss per share assuming dilution	$	(1.64	)		$	(0.34	)

ENERGY XXI LTD
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(In thousands, except per share information)
(Unaudited)
		Three Months Ended
		September 30,
			2015				2014
Net Income (Loss)		$	(573,392	)		$	27,190
	Interest expense, net		102,724				65,312
	Depreciation, depletion and amortization		124,024				159,140
	Income tax expense		-				16,649
EBITDA			(346,644	)			268,291
	Total Gains on commodity derivative contracts – net		(55,430	)			(56,725	)
	Cash settlements, net of purchased put premium amortization		18,742				1,630
	Impairment of oil and natural gas properties		904,669				-
	Gain on early extinguishment of debt		(458,278	)			-
	Accretion of asset retirement obligations		14,784				12,819
	Acquisition and integration costs and disposition costs		-				120
	Severance payments		-				3,015
	One time bank fee related to covenant waiver		-				1,500
	Loss from equity method investees		10,746				(959	)
	Stock-based compensation		383				1,779
Adjusted EBITDA		$	88,972			$	231,470
Adjusted EBITDA per share
	Basic	$	0.94			$	2.47
	Diluted	$	0.86			$	2.26
Weighted average number of common shares outstanding
	Basic		94,778				93,833
	Diluted		103,296				102,300

ENERGY XXI LTDOPERATING HIGHLIGHTS(Unaudited)
		Quarter Ended
		September 30,					June 30,					March 31,					December 31,					September 30,
Operating Highlights		2015					2015					2015					2014					2014
		(In thousands, except per unit amounts)
Operating revenues
Oil sales		$		178,908			$		225,263			$		177,605			$		279,708			$		370,155
Natural gas sales				23,485					23,908					27,012					31,801					34,561
Gain (loss) on derivative financial instruments				55,430					(29,711	)				16,963					191,462					56,725
Total revenues				257,823					219,460					221,580					502,971					461,441
Percentage of operating revenues from oil prior to gain (loss) on derivative financial instruments				88	%				90	%				87	%				90	%				91	%
Operating expenses
Lease operating expense
Insurance expense				11,335					8,963					8,828					11,233					11,022
Workover and maintenance				22,028					12,243					10,773					13,130					29,416
Direct lease operating expense				61,259					72,268					88,509					95,003					102,147
Total lease operating expense				94,622					93,474					108,110					119,366					142,585
Production taxes				757					1,492					1,537					2,263					3,093
Gathering and transportation				14,978					3,459					3,726					4,771					9,188
Depreciation, depletion and amortization				124,024					183,279					187,947					175,155					159,140
Accretion of asset retirement obligations				14,784					12,358					12,106					12,798					12,819
Impairment of oil and natural gas properties				904,669					1,852,268					569,616					-					-
Goodwill impairment				-					-					-					329,293					-
General and administrative				22,189					25,210					37,121					27,745					26,424
Total operating expenses				1,176,023					2,171,540					920,163					671,391					353,249
Operating income (loss)		$		(918,200	)		$		(1,952,080	)		$		(698,583	)		$		(168,420	)		$		108,192
Sales volumes per day
Natural gas (MMcf)				100.4					103.2					110.4					96.5					100.7
Oil (MBbls)				42.2					42.0					41.6					41.8					41.8
Total (MBOE)				58.9					59.3					60.0					57.9					58.6
Percent of sales volumes from oil				72	%				71	%				69	%				72	%				71	%
Average sales price
Oil per Bbl		$		46.11			$		58.87			$		47.49			$		72.70			$		96.28
Natural gas per Mcf				2.54					2.55					2.72					3.58					3.73
Gain (loss) on derivative financial instruments per BOE				10.23					(5.51	)				3.14					35.94					10.53
Total revenues per BOE				47.57					40.70					41.06					94.40					85.64
Operating expenses per BOE
Lease operating expense
Insurance expense				2.09					1.66					1.64					2.11					2.05
Workover and maintenance				4.06					2.27					2.00					2.46					5.46
Direct lease operating expense				11.30					13.40					16.40					17.83					18.96
Total lease operating expense per BOE				17.45					17.33					20.04					22.40					26.47
Production taxes				0.14					0.28					0.28					0.42					0.57
Gathering and transportation				2.76					0.64					0.69					0.90					1.71
Depreciation, depletion and amortization				22.88					33.99					34.83					32.87					29.54
Accretion of asset retirement obligations				2.73					2.29					2.24					2.40					2.38
Impairment of oil and natural gas properties				166.91					343.52					105.56					-					-
Goodwill impairment				-					-					-					61.80					-
General and administrative				4.09					4.68					6.88					5.21					4.90
Total operating expenses per BOE				216.96					402.73					170.52					126.00					65.57
Operating income (loss) per BOE		$		(169.39	)		$		(362.03	)		$		(129.46	)		$		(31.60	)		$		20.07

ENERGY XXI LTDCONSOLIDATED BALANCE SHEETS(In Thousands, except share information)
	September 30,					June 30,
ASSETS	2015					2015
Current Assets		(Unaudited)
Cash and cash equivalents	$		491,461			$		756,848
Accounts receivable
Oil and natural gas sales			75,902					100,243
Joint interest billings			19,979					12,433
Other			35,105					43,513
Prepaid expenses and other current assets			49,053					24,298
Restricted cash			9,708					9,359
Derivative financial instruments			50,904					22,229
Total Current Assets			732,112					968,923
Property and Equipment
Oil and natural gas properties, net - full cost method of accounting, including $437.8 million and $436.4 million of unevaluated properties not being amortized at September 30, 2015 and June 30, 2015, respectively			2,691,510					3,570,759
Other property and equipment, net			22,599					21,820
Total Property and Equipment, net of accumulated depreciation, depletion, amortization and impairment			2,714,109					3,592,579
Other Assets
Derivative financial instruments			8,658					3,898
Equity investments			-					10,835
Restricted cash			32,682					32,667
Other assets and debt issuance costs, net of accumulated amortization			71,068					81,927
Total Other Assets			112,408					129,327
Total Assets	$		3,558,629			$		4,690,829
LIABILITIES
Current Liabilities
Accounts payable	$		175,994			$		156,339
Accrued liabilities			135,425					155,306
Asset retirement obligations			27,366					33,286
Derivative financial instruments								2,661
Current maturities of long-term debt			6,230					11,395
Total Current Liabilities			345,015					358,987
Long-term debt, less current maturities			4,007,081					4,597,037
Asset retirement obligations			505,806					453,799
Derivative financial instruments			-					1,358
Other liabilities			5,000					8,370
Total Liabilities			4,862,902					5,419,551
Commitments and Contingencies
Stockholders’ Deficit
Preferred stock, $0.001 par value, 7,500,000 shares authorized at Sept. 30, 2015 and June 30, 2015
7.25% Convertible perpetual preferred stock, 3,000 shares issued and outstanding at September 30, 2015 and June 30, 2015			-					-
5.625% Convertible perpetual preferred stock, 797,759 and 812,759 shares issued and outstanding at September 30, 2015 and June 30, 2015, respectively			1					1
Common stock, $0.005 par value, 200,000,000 shares authorized and  94,966,655 and  94,643,498 shares issued and outstanding at September 30, 2015 and June 30, 2015, respectively			474					472
Additional paid-in capital			1,844,611					1,843,918
Accumulated deficit			(3,149,359	)				(2,573,113	)
Total Stockholders’ Deficit			(1,304,273	)				(728,722	)
Total Liabilities and Stockholders’ Deficit	$		3,558,629			$		4,690,829

ENERGY XXI LTDCONSOLIDATED STATEMENTS OF OPERATIONS(In Thousands, except per share information)(Unaudited)
	Three Months Ended September 30,
	2015					2014
Revenues
Oil sales	$		178,908			$		370,155
Natural gas sales			23,485					34,561
Gain on derivative financial instruments			55,430					56,725
Total Revenues			257,823					461,441
Costs and Expenses
Lease operating			94,622					142,585
Production taxes			757					3,093
Gathering and transportation			14,978					9,188
Depreciation, depletion and amortization			124,024					159,140
Accretion of asset retirement obligations			14,784					12,819
Impairment of oil and natural gas properties			904,669					-
General and administrative expense			22,189					26,424
Total Costs and Expenses			1,176,023					353,249
Operating Income (Loss)			(918,200	)				108,192
Other Income (Expense)
(Loss) income from equity method investees			(10,746	)				959
Other income, net			494					951
Gain on early extinguishment of debt			458,278					-
Interest expense			(103,218	)				(66,263	)
Total Other Income (Expense), net			344,808					(64,353	)
Income (Loss) Before Income Taxes			(573,392	)				43,839
Income Tax Expense (Benefit)			-					16,649
Net Income (Loss)			(573,392	)				27,190
Preferred Stock Dividends			2,854					2,872
Net Income (Loss) Attributable to Common Stockholders	$		(576,246	)		$		24,318
Earnings (Loss) per Share
Basic	$		(6.08	)		$		0.26
Diluted	$		(6.08	)		$		0.24
Weighted Average Number of Common Shares Outstanding
Basic			94,778					93,833
Diluted			94,778					102,300

ENERGY XXI LTDCONSOLIDATED STATEMENTS OF CASH FLOWS(In Thousands)(Unaudited)
	Three Months Ended September 30,
	2015						2014
Cash Flows From Operating Activities
Net income (loss)	$		(573,392		)		$		27,190
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation, depletion and amortization			124,024						159,140
Impairment of oil and natural gas properties			904,669						-
Deferred income tax expense			-						16,369
Gain on early extinguishment of debt			(458,278		)				-
Change in fair value of derivative financial instruments			(36,688		)				(55,095	)
Accretion of asset retirement obligations			14,784						12,819
Loss (income) from equity method investees			10,746						(959	)
Amortization and write-off of debt issuance costs and other			5,581						2,744
Deferred rent			2,288						-
Stock-based compensation			383						1,779
Changes in operating assets and liabilities
Accounts receivable			39,606						23,313
Prepaid expenses and other assets			(14,122		)				7,661
Settlement of asset retirement obligations			(40,631		)				(14,907	)
Accounts payable and accrued liabilities			(48,203		)				23,896
Net Cash Provided by (Used in) Operating Activities			(69,233		)				203,950
Cash Flows from Investing Activities
Acquisitions, net of cash			(2,227		)				(287	)
Capital expenditures			(68,656		)				(280,010	)
Insurance payments received			976						-
Change in equity method investments			-						1,282
Transfer to restricted cash			(12		)				-
Proceeds from the sale of properties			3,787						6,947
Other			112						(80	)
Net Cash Used in Investing Activities			(66,020		)				(272,148	)
Cash Flows from Financing Activities
Proceeds from the issuance of common and preferred stock, net of offering costs			311						2,217
Dividends to shareholders – common			-						(11,264	)
Dividends to shareholders – preferred			(2,863		)				(2,872	)
Proceeds from long-term debt			-						510,120
Payments on long-term debt			(99,792		)				(454,042	)
Payment of debt assumed in acquisition, net of cash acquired			(25,187		)				-
Fees related to debt extinguishment			(1,580		)				-
Debt issuance costs			(4		)				(2,250	)
Other			(1,019		)				(17	)
Net Cash Provided by (Used in) Financing Activities			(130,134		)				41,892
Net Decrease in Cash and Cash Equivalents			(265,387		)				(26,306	)
Cash and Cash Equivalents, beginning of period			756,848						145,806
Cash and Cash Equivalents, end of period	$		491,461				$		119,500

Other Information - Gain on Derivative Financial Instruments(Unaudited)
	Three Months Ended September 30,
Gain (loss) on derivative financial instruments		2015				2014
Cash Settlements, net of purchased put premium amortization	$	18,742		$		(1,734	)
Proceeds from monetizations		-				3,364
Change in fair value		36,688				55,095
Total gain on derivative financial instruments	$	55,430		$		56,725

Forward-Looking StatementsAll 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, access to capital and ability to fund drilling costs and otherwise meet Energy XXI’s obligations, reservoir performance, the outcome of commercial negotiations and changes in technical or operating conditions, 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 CompanyEnergy XXI is an independent oil and natural gas development 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. Cantor Fitzgerald Europe is Energy XXI’s listing broker in the United Kingdom.  To learn more, visit the Energy XXI website at www.EnergyXXI.com.

 

Enquiries of the Company

Greg Smith
Vice President, Investor Relations 
713-351-3149
gsmith@energyxxi.com

David Griffith
Associate, Investor Relations
713-351-3176
dgriffith@energyxxi.com