Energy XXI Update

[dan_s]

I attended a breakfast meeting this morning hosted by EXXI. John Schiller was the main speaker but several operations people and their IR Manager was there.
> Current production is 47,000 BOE/day with over 30,000 bbls per day of oil.
> The company's production was 44,575 BOE/day in the quarter ending 12-31-2012.
> They have four horizontal development wells that should be completed this quarter (April - June).
> Schiller said oil production should be near 40,000 BOPD within six months.
> The joint venture with Apache is very interesting to me, but not sure when it will result in higher production.
> Davy Jones is definitely a dark cloud that will hang over this one for awhile but the Ultra-Deep program does have HUGE upside.

> Their oil sells at HLS pricing, which is currently $4/bbl above Brent.
> Weather (high waves in GOM) did cause some completions to be delayed during the last quarter (Jan-Mar).
> Horizontal wells and higher gas prices should result in a big reserve addition at FYE 6-30-2013.

EXXI has a strong balance sheet and very strong cash flows (over $7/share this fiscal year). First Calls CFPS estimate for next fiscal year is $10/share, which would be free cash flow above the current capex budget. The stock price is below PV10 of their proven reserves as of 6-30-2012 and I expect proven reserves to be much higher at 6-30-2012.

This one is puzzling. I think Davy Jones and investor's fear of hurricane risk are keeping the share price down.

[bearcatbob]

Dan - he needs to deliver. Words mean NOTHING! His track record in my book has become POOR.

[dan_s]

I agree. I don't blame them for Davy Jones, that was McMorRan's well. EXXI should complete several horizontal development wells between now and when they release their Q3 results. It would be nice if those wells come on strong.

[bearcatbob]

I agree. I don't blame them for Davy Jones, that was McMorRan's well. EXXI should complete several horizontal development wells between now and when they release their Q3 results. It would be nice if those wells come on strong.

I do not blame them for DJ either. In fact - I am very glad the spending has stopped there. And yes yes - a few solid base hits would be good. They seem to be readily in reach.

Bob

[dan_s]

One of the analysts that attended yesterday's EXXI presentation sent me his take on the company. I cannot post it here but if you send me an e-mail I will send it to you.

My e-mail is dmsteffens@comcast.net

[dan_s]

I just posted an updated Net Income & Cash Flow model for EXXI under the Sweet 16 Tab. I have lowered my Fair Value Estimate to 5X CFPS but my opinion on the company is the same. If they deliver the production growth and proven reserve increases that I am expecting, the Fair Value Estimate is a reasonable 6-month target.

Execution of their horizontal development drilling program is the key for this one.

[ghrcap]

The Street loves NG now but can't seem to get its arms around the fact that EXXI is approximately 40% NG by production and reserves.

[bearcatbob]

Dan - he needs to deliver. Words mean NOTHING! His track record in my book has become POOR.

I listened to the EXXI call today. It seems to me like the corner has been turned. I also liked the way Shiller fessed up to the pain of poor execution and the fact that he defined positive initiatives to improve execution.

Pendragon was disappointing - but hey - that is the game.

I will be interested in Dan's comments.

Bob

[dan_s]

I will update the forecast model tonight. I'm just swamped with info coming in these days.

[bearcatbob]

I will update the forecast model tonight. I'm just swamped with info coming in these days.

Dan - as far as I am concerned you can do the details at your convenience. My prime curiosity is re your thoughts on the content of the call. My read is that the bottom is past and while we are not there yet - we are firmly moving in the right direction.

Bob