Energy XXI and EPL Oil & Gas, Inc. recently announced the signing of a definitive merger agreement pursuant to which Energy XXI will acquire all of EPL's outstanding shares for total consideration of US$ 2.3 billion, including the assumption of debt. As a result of the merger, Energy XXI will become the largest public independent producer on the Gulf of Mexico shelf, with production of approximately 65,000 barrels of oil equivalent per day, 70% oil, including a reduction related to the pending divestiture of non-operated interests in the Eugene Island 330 and South Marsh Island 128 fields. Upon completion of the merger, Energy XXI expects to have an enterprise value of approximately US$ 6 billion.
Opportunities to expand on the Gulf of Mexico
"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," Energy XXI Chairman and CEO John Schiller said. "Energy XXI will be the only publicly traded pure play on the Gulf of Mexico shelf, with the highest concentration of large, mature oilfields ever owned by a single shelf operator. With a history of increasing acquired reserves, we have proven the adage that big oilfields get bigger, and we are excited at the prospect of continuing that trend with the addition of EPL's properties."
"This merger of the two premier independent oil producers on the shelf will create an unrivalled operator," EPL Chairman, President and CEO Gary C. Hanna said. "As part of a larger organisation, EPL shareholders will benefit from synergies across the board, a high-grading of the drilling portfolio and opportunities to expand across the Gulf of Mexico."
EPL owns working interests in 37 producing fields, mainly concentrated within nine core producing areas: an estimated 91% of proved reserves, 88% of production and 91% of revenues are associated with the Ship Shoal, East Bay, South Timbalier, South Pass 78 and 49, West Delta, Main Pass, Eugene Island and South Marsh complexes. EPL operates 90% of its properties, by reserves, similar to Energy XXI's 94%.
EPL's year-end reserves estimates were prepared as of Dec. 31, 2013 by Netherland, Sewell & Associates, Inc., independent oil and gas consultants. Including estimates for the subsequently acquired 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 boe, 71% of which is oil. Proved reserves are estimated at 54.9 million barrels of oil and 139.2 billion ft3 of natural gas, or a total of 78.1 million boe, 70% of which are proved developed. Offshore leases total 273,713 net acres. At its Dec. 31, 2013 year end, EPL reported total assets of US$ 1.86 billion, with net income for the year totalling US$ 85.3 million.
"This acquisition adds meaningfully to our reserves, production, infrastructure and acreage positions, complemented by seismic data and field studies," Energy XXI Executive Vice President of Exploration and Production Ben Marchive said. "Upon completion, the combined company will own and operate 10 oilfields on the shelf with cumulative production exceeding 80 million barrels of oil each, with ample opportunity to grow organically by increasing recovery from those known reservoirs as well as by exploring around and below the producing horizons. The combined company's larger presence on the central Gulf of Mexico shelf can drive capital costs lower and operating efficiencies higher. In addition, we will be able to apply horizontal drilling and other exploitation expertise across the expanded portfolio, while leveraging advanced seismic data to explore sub-salt and deeper horizons across the region."
In addition to utilising cash on hand to finance the purchase, Energy XXI has obtained commitments to increase its corporate revolver from US$ 1.0875 billion currently to US$ 1.675 billion in conjunction with the acquisition, as well as a US$ 400 million unsecured bridge loan to augment the available revolver if EPL's bonds are repurchased. Energy XXI would anticipate retiring any bridge loan through the future issuance of high-yield notes. Details of financing terms will be disclosed upon completion of any issuances.
"Based on current expectations and market conditions, the acquisition is expected to be immediately accretive to existing Energy XXI shareholders, while offering EPL shareholders a significant premium to recent trading prices in addition to the ability to participate in the future success of the combined company," Schiller said.
Members of the boards of directors and management teams of Energy XXI and EPL all have entered into voting agreements in support of the transaction.
Edited from various sources by Cecilia Rehn
Read the article online at: https://www.oilfieldtechnology.com/drilling-and-production/13032014/merger_to_create_the_largest_public_independent_oil_and_gas_producer_on_the_gom_shelf/