Attached files
| file | filename |
|---|---|
| 8-K - Energy XXI Ltd | v205940_8k.htm |
| EX-99.2 - Energy XXI Ltd | v205940_ex99-2.htm |
| EX-23.1 - Energy XXI Ltd | v205940_ex23-1.htm |
Exhibit
99.1
STATEMENTS
OF REVENUES AND DIRECT OPERATING EXPENSES
OF
THE OIL AND GAS PROPERTIES PURCHASED BY
ENERGY
XXI GOM, LLC FROM EXXONMOBIL
FOR
THE TWELVE MONTHS ENDED JUNE 30, 2010, 2009 AND 2008
AND
THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
CONTENTS
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Page
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Independent
Auditors’ Report
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3
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Statements
of Revenues and Direct Operating Expenses
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4
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Notes
to Statements of Revenues and Direct Operating Expenses
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5
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2
INDEPENDENT
AUDITORS’ REPORT
To the
Board of Directors of Energy XXI (Bermuda) Limited:
We have
audited the accompanying statements of revenues and direct operating expenses of
the oil and gas properties purchased by Energy XXI GOM, LLC, an indirect
wholly-owned subsidiary of Energy XXI (Bermuda) Limited (the “Company”), from
ExxonMobil Corporation, Mobil Oil Exploration & Producing Southeast Inc.,
Exxon Mobil Pipeline Company and Mobil Eugene Island Pipeline Company
(“ExxonMobil”) for each of the fiscal twelve month periods in the three-year
period ended June 30, 2010. These financial statements are the responsibility of
the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with auditing standards generally accepted in
the United States of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The
accompanying statements were prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission for inclusion in
Energy XXI (Bermuda) Limited’s Form 8-K and is not intended to be a complete
financial presentation of the properties described above.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the revenues and direct operating expenses of the oil and gas
properties purchased by Energy XXI GOM, LLC from ExxonMobil for each of the
fiscal twelve month periods in the three-year period ended June 30, 2010 in
conformity with accounting principles generally accepted in the United
States.
As
discussed in Note 2 to the statements of revenues and direct operating expenses,
on June 30, 2010, the Company adopted SEC Release 33-8995 and the amendments to
ASC Topic 932, “Extractive Industries – Oil and Gas,” resulting from ASU 2010-03
(collectively, the Modernization Rules).
/s/ UHY
LLP
Houston,
Texas
December
20, 2010
3
STATEMENTS
OF REVENUES AND DIRECT OPERATING EXPENSES
OF
THE OIL AND GAS PROPERTIES PURCHASED BY
ENERGY
XXI GOM, LLC FROM EXXONMOBIL
(In
thousands)
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Three Months Ended September
30,
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Twelve Months Ended June
30,
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|||||||||||||||||||
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2010
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2009
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2010
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2009
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2008
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(Unaudited)
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REVENUES
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$ | 94,495 | $ | 100,671 | $ | 405,299 | $ | 453,279 | $ | 665,005 | ||||||||||
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DIRECT
OPERATING EXPENSES
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23,596 | 26,705 | 102,111 | 155,154 | 86,323 | |||||||||||||||
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EXCESS
OF REVENUES OVER DIRECT OPERATING EXPENSES
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$ | 70,899 | $ | 73,966 | $ | 303,188 | $ | 298,125 | $ | 578,682 | ||||||||||
See
accompanying Notes to Statements of Revenues and Direct Operating
Expenses
4
NOTES
TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
OF
THE OIL AND GAS PROPERTIES PURCHASED BY
ENERGY
XXI GOM, LLC FROM EXXONMOBIL
FOR
THE TWELVE MONTHS ENDED JUNE 30, 2010, 2009 AND 2008
AND
THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
NOTE
1 - BASIS OF PRESENTATION
On November 21, 2010 Energy XXI GOM,
LLC (the “Company”), an indirect wholly-owned subsidiary of Energy
XXI (Bermuda) Limited, signed an agreement to acquire from ExxonMobil
Corporation, Mobil Oil Exploration & Producing Southeast Inc., ExxonMobil
Pipeline Company and Mobil Eugene Island Pipeline Company (“ExxonMobil”) certain
offshore oil and gas properties and related facilities located in the Gulf of
Mexico and Louisiana (the “Properties”) as defined in the Purchase and Sale
Agreement between the Company and ExxonMobil for approximately $1.01 billion,
subject to normal closing adjustments, with an effective date of December 1,
2010. The accompanying statements of revenues and direct operating
expenses relate to the operations of the oil and gas properties to be acquired
by the Company.
The statements of revenues and direct
operating expenses associated with the Properties were derived from the
ExxonMobil accounting records. During the periods presented, the
Properties were not accounted for or operated as a consolidated entity or as a
separate division by ExxonMobil. Revenues and direct operating
expenses for the Properties included in the accompanying statements represent
the net collective working and revenue interests to be acquired by the
Company. The revenues and direct operating expenses presented herein
relate only to the interests in the producing oil and natural gas properties
which will be acquired and do not represent all of the oil and natural gas
operations of ExxonMobil, other owners, or other third party working interest
owners. Direct operating expenses include lease operating expenses
and production and other related taxes. General and administrative
expenses, depreciation, depletion and amortization (“DD&A”) of oil and gas
properties and federal and state taxes have been excluded from direct operating
expenses in the accompanying statements of revenues and direct operating
expenses because the allocation of certain expenses would be arbitrary and would
not be indicative of what such costs would have been had the Properties been
operated as a stand alone entity. ExxonMobil accounted for the
Properties under the successful efforts method of accounting for oil and gas
activities while the Company uses the full cost method. Accordingly,
exploration expenses and dry hole costs are not applicable to this
presentation. Full separate financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America do not exist for the Properties and are not practicable to prepare in
these circumstances. The statements of revenues and direct operating
expenses presented are not indicative of the results of operations of the
Properties on a go forward basis due to changes in the business and the omission
of various operating expenses.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of
Estimates: The preparation of statements of revenues and
direct operating expenses in conformity with accounting principles generally
accepted in the United States of America requires management to make certain
estimates and assumptions that affect the reported amounts of revenues and
expenses during the reporting periods. Although these estimates are based on
management’s best available knowledge of current and future events, actual
results could be different from those estimates.
Revenue
Recognition: Revenues are recognized for oil and natural gas
sales under the sales method of accounting. Under this method, revenues are
recognized on production as it is taken and delivered to its
purchasers. The volumes sold may be more or less than the volumes
entitled to, based on the owner’s net interest in the
Properties. These differences result from production imbalances,
which are not significant, and are reflected as adjustments to proved reserves
and future cash flows in the unaudited supplementary oil and gas information
included herein.
5
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Issued
Accounting Pronouncements: On December 31, 2008, the SEC issued
Release No. 33-8995, “Modernization of Oil and Gas Reporting,” which
revises disclosure requirements for oil and gas companies. In addition to
changing the definition and disclosure requirements for oil and gas reserves,
the new rules change the requirements for determining oil and gas reserve
quantities. These rules permit the use of new technologies to determine proved
reserves under certain criteria and allow companies to disclose their probable
and possible reserves. The new rules also require companies to report the
independence and qualifications of their reserves preparer or auditor and file
reports when a third party is relied upon to prepare reserves estimates or
conducts a reserves audit. The new rules also require that oil and gas reserves
be reported and the full cost ceiling limitation be calculated using a
twelve-month average price rather than period-end prices. The new rules are
effective for annual reports for fiscal years ending on or after
December 31, 2009. Additionally, the FASB issued authoritative guidance on
oil and gas reserve estimation and disclosures, as set forth in Topic 932 of the
Codification to align with the requirements of the SEC’s revised rules. The
Company implemented the new disclosure requirements and requirements for
estimating reserves related to the Company’s oil and natural gas operations as
disclosed in Note 3.
NOTE
3 – SUPPLEMENTARY OIL AND GAS INFORMATION - (UNAUDITED)
Estimated
Net Quantities of Oil and Natural Gas Reserves
The following are estimates of the net
proved oil and natural gas reserves of the properties located entirely within
the United States of America. Reserve volumes and values were
determined under definitions and guidelines of the U.S. Securities and Exchange
Commission (“SEC”) and, with the exception of the exclusion of future income
taxes, conform to the FASB Accounting Standards Codification Topic 932,
Extractive Activities-Oil and Gas. Reserve estimates are inherently
imprecise and estimates of new discoveries are more imprecise that those of
producing oil and gas properties. Accordingly, reserve estimates are expected to
change as additional performance data becomes available.
Estimated quantities of proved domestic
oil and gas reserves and changes in quantities of proved developed and
undeveloped reserves in thousands of barrels (“MBbls”), million cubic feet
(“MMcf”) and thousand barrels of oil equivalent (“MBOE”) were as
follows:
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Crude Oil
(MBbls)
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Natural Gas
(MMcf)
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Total
(MBOE)
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||||||||||
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Proved
reserves at June 30, 2007
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44,903 | 196,801 | 77,703 | |||||||||
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Production
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(4,961 | ) | (30,883 | ) | (10,108 | ) | ||||||
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Extensions
and discoveries
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287 | 505 | 371 | |||||||||
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Revisions
of previous estimates
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409 | (222 | ) | 372 | ||||||||
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Proved
reserves at June 30, 2008
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40,638 | 166,201 | 68,338 | |||||||||
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Production
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(4,222 | ) | (16,802 | ) | (7,022 | ) | ||||||
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Extensions
and discoveries
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211 | 1,826 | 515 | |||||||||
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Revisions
of previous estimates
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(906 | ) | (7,204 | ) | (2,106 | ) | ||||||
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Proved
reserves at June 30, 2009
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35,721 | 144,021 | 59,725 | |||||||||
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Production
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(4,468 | ) | (19,021 | ) | (7,638 | ) | ||||||
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Extensions
and discoveries
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42 | 778 | 172 | |||||||||
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Revisions
of previous estimates
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272 | (3,068 | ) | (240 | ) | |||||||
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Proved
reserves at June 30, 2010
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31,567 | 122,710 | 52,019 | |||||||||
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Proved
developed reserves
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June
30, 2007
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35,720 | 155,121 | 61,573 | |||||||||
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June
30, 2008
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31,173 | 124,308 | 51,891 | |||||||||
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June
30, 2009
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26,547 | 103,107 | 43,731 | |||||||||
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June
30, 2010
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22,384 | 81,786 | 36,015 | |||||||||
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Proved
undeveloped reserves
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June
30, 2007
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9,183 | 41,680 | 16,130 | |||||||||
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June
30, 2008
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9,465 | 41,893 | 16,447 | |||||||||
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June
30, 2009
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9,174 | 40,914 | 15,994 | |||||||||
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June
30, 2010
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9,183 | 40,924 | 16,004 | |||||||||
6
NOTE
3 – SUPPLEMENTARY OIL AND GAS INFORMATION - (UNAUDITED) (Continued)
Discounted
Future Net Cash Flows
A summary
of the discounted future net cash flows related to proved crude oil and natural
gas reserves is shown below. Future net cash flows calculated at June 30, 2010
are based on the 12-month unweighted arithmetic average of the
first-day-of-the-month price for each month within the 12-month prior period.
Future net cash flows calculated at June 30, 2009 and 2008 were computed using
year-end commodity prices that relate to the properties’ existing proved crude
oil and natural gas reserves.
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June 30,
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2010
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2009
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2008
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Oil
(Bbl) |
Gas
(MMBtu)
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Oil
(Bbl)
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Gas
(MMBtu)
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Oil
(Bbl)
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Gas
(MMBtu)
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Commodity
prices used in determining future cash flows
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$ | 75.76 | $ | 4.10 | $ | 69.89 | $ | 3.89 | $ | 140.00 | $ | 13.10 | ||||||||||||
The discounted future net cash flows
related to proved oil and gas reserves as of June 30, 2010, 2009 and 2008
are as follows (in thousands):
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June 30,
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||||||||||||
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2010
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2009
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2008
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Future
cash inflows
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$ | 2,840,681 | $ | 2,998,575 | $ | 7,858,865 | ||||||
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Less
related future
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Production
costs
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1,211,342 | 1,260,704 | 1,368,980 | |||||||||
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Development
and abandonment costs
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714,574 | 714,574 | 740,174 | |||||||||
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Future
net cash flows
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914,765 | 1,023,297 | 5,749,711 | |||||||||
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Ten
percent annual discount for estimated timing of cash flows
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112,763 | 114,564 | 1,816,235 | |||||||||
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Standardized
measure of discounted future net cash flows
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$ | 802,002 | $ | 908,733 | $ | 3,933,476 | ||||||
Changes
in Discounted Future Net Cash Flows
A summary of the changes in the
discounted future net cash flows applicable to proved crude oil and natural gas
reserves follows (in thousands):
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Twelve Months Ended June
30,
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||||||||||||
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2010
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2009
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2008
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Beginning
of period
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$ | 908,733 | $ | 3,933,476 | $ | 1,908,396 | ||||||
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Revisions
of previous estimates
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||||||||||||
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Changes
in prices and costs
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87,992 | (3,077,127 | ) | 2,798,178 | ||||||||
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Changes
in quantities
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(46,275 | ) | (153,666 | ) | (33,023 | ) | ||||||
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Additions
to proved reserves resulting from extensions,
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||||||||||||
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discoveries
and improved recovery, less related costs
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4,723 | 13,307 | 24,104 | |||||||||
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Accretion
of discount
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90,873 | 393,348 | 190,840 | |||||||||
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Sales,
net of production costs
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(303,188 | ) | (298,125 | ) | (578,682 | ) | ||||||
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Changes
in rate of production and other
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59,144 | 97,520 | (376,337 | ) | ||||||||
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Net
change
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(106,731 | ) | (3,024,743 | ) | 2,025,080 | |||||||
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End
of period
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$ | 802,002 | $ | 908,733 | $ | 3,933,476 | ||||||
7