EXXI reports Big Increase in Proved Reserves

[dan_s]

July 16 at 4:32PM - Energy XXI says 2013 Proved reserves estimated at 179 MMBOE, up 50%, with a present value of $6.1 billion; proved plus probable reserves estimated at 232 MMBOE with a present value of $8.4 billion

The company's June 30, 2013 fiscal year-end proved reserves are estimated at 179 million barrels of oil equivalent (MMBOE), up almost 50 percent from the June 30, 2012 year-end reserves. Energy XXI estimates it added 62 MMBOE of proved reserves through discoveries, extensions of existing fields and revisions, in addition to 13 MMBOE through acquisitions, while producing 16 MMBOE in fiscal 2013. The all-sources proved reserves replacement rate was 469 percent. Excluding acquisitions, the nearly 390 percent organic reserves replacement rate was a record for Energy XXI. Pre-tax proved-only present value, using a 10 percent discount rate (PV10), totaled $6.1 billion as of June 30, 2013, using prices of $91.60 per barrel of oil and $3.44 per MMBTU of gas, before differentials, based on the SEC-prescribed first-of-the-month average prices for the preceding 12 months. Proved plus probable reserves as of June 30, 2013 are estimated at 232 MMBOE, with a PV10 of $8.4 billion.

My Take: EXXI has a very strong balance sheet and generates a lot of free cash flow. Its market cap is ~$2 Billion, so this report should draw a lot of attention. - Dan

[dan_s]

Keep in mind that fiscal year-end reserve reports are confirmed by 3rd party engineering firms, which must comply with tight SEC guidelines. So, this is real!

[dan_s]

Let's do the math.

$8.4 Billion of 2P PV10 value
-2.0 Billion of total debt
-----
$6.4 billion is what the break-up value should be.

$2.0 Billion = Market Cap at today's closing price

[bearcatbob]

Dan - it looks like your main thesis re EXXI has been proven to be correct. If they only do the basic blocking and tackling with their resource base they have a huge opportunity to generate shareholder value. Execution, execution, execution, execution.

Bob

[dan_s]

Netherland, Sewell & Associates, Inc., independent oil and gas reserves auditors [a very highly respected firm], completed the year-end proved and probable reserves audits and currently are finalizing the possible reserves audit. All of the company's reserves are in the United States Gulf of Mexico or Gulf Coast, with approximately 75 percent being liquids, of which 95 percent is crude oil and condensate. Approximately 61 percent of proved reserves are proved developed.

"The horizontal drilling campaign was a key driver to our reserves growth in fiscal 2013," Energy XXI Chairman and CEO John Schiller said. "Since initiating the horizontal program a year ago, we have been successful in nine of our first 11 attempts. On average, the successful horizontal wells added about 1 MMBOE of incremental proved reserves per location due to higher recoveries of oil-in-place. We have addressed the early challenges associated with the program and the value generated by the overall horizontal program has been outstanding."

The point is that EACH NEW HORIZONTAL WELL SHOULD ADD 1 MILLION BOE OF PROVED RESERVES.

[dan_s]

As previously announced, the company's Board of Directors in May approved the repurchase of the company's common shares up to a value of $250 million. Through July 16, 2013, repurchased shares totaled 3,852,900 at an average price per share of $24.35. Following these purchases, the company has a total of 75,571,910 shares in issue.

Share count going down, increasing per share valuation.

[dan_s]

An updated Net Income & Cash Flow Forecast model has been posted for EXXI under the Sweet 16 Tab. Just log on and click on their logo. In light of the huge increase in proved reserves, I have increased my Fair Value Estimate for the stock. You can find it at the bottom of the forecast model.

Important to note that EXXI will be generating a lot of free cash flow this fiscal year, which started 7-1-2013.

[bearcatbob]

Earnings out. Looks like a huge beat. I will wait to see what the analysis of a professional is.

Bob

[dan_s]

Susan is now calling me to dinner. I will take a look at EXXI's forecast model tonight.

All year it has been my opinion that the market has over-punished this stock because of the Davy Jones disappointment.

[dan_s]

The share repurchase program makes a BIG DIFFERENCE in my valuation. My SWAG is that my Fair Value will go well over $50/share.

Stock is up about $1/share in after-hours trading.