Energy Prospectus

Energy XXI (EXXI): An updated profile has been posted under the Sweet 16 Tab.

I continue to hold EXXI in hopes some deep value buyer will come along, but I'm wary of LLS and HLS pricing as they come to track more with WTI and less with Brent as light crude supplies build along the Gulf Coast. I don't know how much longer $100 will hold up for modeling.

Davy Jone 2 is working towards completion in Q1. The option premiums are really nice in the coming months. Dan, any ideas on what a hugely successful flow test of DJ2 would have on share price?

Edi: Add the availability of weekly options to the allure of EXXI Options.

From October update:

"Within the ultra-deep exploration program with Freeport-McMoRan, the Davy Jones offset well (15.8% WI/12.3% NRI) is being readied for completion. The Rowan EXL III is expected to be on site in December to begin the completion with a production test to follow in the first half of calendar 2014. Once the Rowan EXL III has completed the Davy Jones offset, the rig is expected to move to the Blackbeard complex to begin completion of the Blackbeard West #2 well, which logged more than 200 feet of net pay.

The Lineham Creek exploration prospect (9% WI/ 6.75% NRI), located onshore in Cameron Parish, Louisiana, has reached total depth in the sidetrack wellbore at 24,600 feet. The results of the well are under review, and Freeport McMoRan Oil and Gas plans to propose a completion operation in the sands above 24,000 feet under the Operating Agreement.

The Lomond North prospect (18% WI/ 13% NRI) in the Highlander area, located primarily in St. Martin Parish, Louisiana, is drilling below 26,800 feet toward a proposed total depth of 30,000 feet. The well is targeting Lower Wilcox and Cretaceous objectives below the salt weld. Lomond North is approximately 65 miles north of the partnership's Davy Jones discovery. "

Energy XXI (EXXI): An updated Net Income & Cash Flow Forecast model has been posted under the Sweet 16 Tab. My Fair Value Estimate calculation can be found at the bottom.

There is nothing in my forecast model for the Ultra-Deep program, so any success there would be a big plus.

Since all the problems with Davy Jones, the market views the Ultra-Deep program as a negative for this stock. Very expensive test wells that are difficult, if not impossible, to complete. Plus, the targets are primarily gas. However, the targeted reserves are HUGE.

Most of EXXI's current natural gas production (over 100 MMcfpd) is unhedged, so the recent run up in gas prices should give revenues a very nice boost. Their gas has a high btu content and contains lots of high value NGLs. EXXI's gas sells at about a 50 cent premium per mcf to Henry Hub pricing.

EXXI trades today at about half the company's net asset value (PV10 of proven reserves less debt / fully diluted share count). For a company with a strong balance sheet and big-time upside that seems ridiculous to me, but the share price hasn't done much for us. I will probably drop it from the Sweet 16 on January 1st (for no good reason) to make room for some others in our Small-Cap Growth Portfolio that I think have more near-term upside for us.

i would think dnr would be a better candidate to drop from the s16. at least exxi has provided trading up to 38 in past three years. have ya got a metric to measure mkt acceptance.

i think we need one--anybody out there ever run across such?

DNR and EXXI are both great value stocks, but they may lack the production grow needed to stay in our Sweet 16. BTW I own both of them myself and will keep my shares.

I like to make several changes to the Sweet 16 on January 1st, just to shake things up a bit. Doesn't mean there is anything wrong with the ones I drop. There are several companies in the Small-Cap Growth Portfolio that deserve a promotion this year.