Energy XXI Ltd - FORM 8-K - EX-99.1

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8-K - Energy XXI Ltd	v210279_8k.htm

Exhibit 99.1

Energy XXI Gulf Coast, Inc.

Introduction

Pro Forma Consolidated Financial Statements
(Unaudited)

The Company executed a Purchase and Sale Agreement (PSA) with Exxon Mobil Corporation, Mobil Oil Exploration & Producing Southeast Inc., ExxonMobil Pipeline Company and Mobil Eugene Island Pipeline Company (collectively, “ExxonMobil”) on November 19, 2010 to acquire (the “ExxonMobil Acquisition”) certain crude oil and natural gas properties located in the Gulf of Mexico (the “ExxonMobil Properties”). The transaction closed on December 17, 2010 and was financed through equity contributions from our Parent, an increase in the borrowing base available under our revolving credit facility, and borrowings under a $750 million seven year 9.25% bond private placement (Private Placement).

In addition, on December 9, 2010, the Company closed on the call of 35% ($119.7 million face value) of its then outstanding 16% Second Lien Notes at a price of 110% of face value. On December 17, 2010, the Company redeemed $219.9 million (97.8%) of the remaining $224.5 million 16% Second Lien Notes outstanding at 114% of face value and called the remaining $4.6 million outstanding 16% Second Lien Notes (collectively the “16% Notes Redemption”). The call of the $4.6 million of 16% Second Lien Notes was closed on January 18, 2011.

On December 17, 2010, the Company called $47.6 million face value of its $276.5 million outstanding 10% Senior Notes at a price of 105% of par value (the “10% Senior Notes Call”) which closed on January 18, 2011.

The Company purchased certain crude oil and natural gas properties from MitEnergy Upstrean LLC (MitEnergy) effective November 20, 2009 (the “MitEnergy Acquisition”).

The pro forma consolidated balance sheet at December 31, 2010 has been prepared to reflect the 10% Senior Notes Call and the closing of the call of $4.6 million of 16% Second Lien Notes as if such transactions had occurred on December 31, 2010.

The pro forma consolidated statements of operations for the six months ended December 31, 2010 and the year ended June 30, 2010 have been prepared to reflect the Private Placement, the increase in the borrowing base under our revolving credit facility, the 16% Notes Redemption, the ExxonMobil Acquisition, the 10% Senior Notes Call and the MitEnergy Acquisition as if such transactions occurred on July 1, 2009.

These unaudited pro forma consolidated financial statements have been prepared for comparative purposes only and may not be indicative of the results that would have occurred if the Company had completed these transactions at an earlier date or the results that will be obtained in the future. These pro forma consolidated financial statements should be read in conjunction with the audited June 30, 2010 and unaudited December 31, 2010 consolidated financial statements of the Company.

F-1

Energy XXI Gulf Coast, Inc.

Pro Forma Consolidated Balance Sheet
December 31, 2010
(In Thousands)
(Unaudited)

Basis of Presentation

The pro forma consolidated balance sheet at December 31, 2010 has been prepared to reflect the 10% Senior Notes Call and the call of $4.6 million of 16% Second Lien Notes as if such transactions occurred on December 31, 2010.


	Historical December 31, 2010			Call of $47.6MM of 10% Senior Notes			Call of 16% Second Lien Notes			Pro-Forma December 31, 2010
Cash and cash equivalents	$	—		$	—		$	—		$	—
Receivables		117,561			—						117,561
Derivative financial instruments					—
Other current assets		35,712			—						35,712
Total Current Assets	$	153,273		$	—		$	—		$	153,273
Oil and natural gas properties, net		2,610,049									2,610,049
Other non-current assets		82,322			(997	)⁽¹⁾		(4	)⁽²⁾		81,321
Total Assets	$	2,845,644		$	(997	)	$	(4	)	$	2,844,643
Accounts payable	$	106,163		$	—		$	—		$	106,163
Accrued liabilities		37,722			—			—			37,722
Note payable		6,574			—			—			6,574
Asset retirement obligations — current		33,495			—			—			33,495
Derivative financial instruments		49,189			—			—			49,189
Current maturties of long-term debt		2,838			—			—			2,838
Total Current Liabilities	$	235,981		$	—		$	—		$	235,981
Long-term debt:
Revolving credit facility		274,000			50,000	⁽¹⁾		5,209	⁽²⁾		329,209
10% Senior notes		276,500			(47,600	)⁽¹⁾					228,900
16% Second lien notes		5,000			—			(5,000	)⁽²⁾		—
Other long-term debt		2,238									2,238
9.25% Private placement		750,000			—			—			750,000
Total long-term debt		1,307,738			2,400			209			1,310,347
Asset retirement obligations – long-term		310,653			—			—			310,653
Derivative financial instruments		45,904			—			—			45,904
Total Liabilities	$	1,900,276		$	2,400		$	209		$	1,902,885
Common stock		1			—						1
Additional paid-in capital		1,426,374			—						1,426,374
					(997	)⁽¹⁾		(4	)⁽²⁾
Retained deficit		(440,590	)		(2,400	)⁽¹⁾		(209	)⁽²⁾		(444,200	)
Accumulated other comprehensive income		(40,417	)		—			—			(40,417	)
Total stockholders equity		945,368			(3,397	)		(213	)		941,758
Total Liabilities and Equity	$	2,845,644		$	(997	)	$	(4	)	$	2,844,643

F-2

(1)

To reflect the call of $47.6 million of 10% Senior Notes at a price of 105% of par plus $20,000 in expenses which closed on January 18, 2011. The difference between the cash cost of the call ($50 million) and the carrying value of the notes is charged to retained earnings. In addition, $997,000 of debt issue costs associated with the redeemed notes has been written-off.

(2)

To reflect the call of $4.6 million of 16% Second Lien Notes including the write-off of the unamortized premium and discount at December 31, 2010. The cost of the call includes $588,059 in redemption premium. Unamortized debt issue costs of $4,000 related to the redeemed notes has also been written-off.

F-3

Energy XXI Gulf Coast, Inc.

Pro Forma Consolidated Statement of Operations
Year Ended June 30, 2010
(In Thousands)
(Unaudited)

Basis of Presentation

The pro forma consolidated statements of operations has been prepared to reflect the Private Placement, the increase in the borrowing base under our revolving credit facility, the 16% Notes Redemption, the ExxonMobil Acquisition, the 10% Senior Notes Call and the MitEnergy Acquisition as if such transactions occurred on July 1, 2009. Non-recurring expenses have been omitted.



	Historical Year Ended June 30, 2010			Private Placement			Upsize Revolver			Call of 16% Second Lien Notes			Purchase of ExxonMobil			Call of $47.6MM of 10% Senior Notes			MitEnergy Acquisition			Pro-Forma Year Ended June 30, 2010
Oil sales	$	387,935		$	—		$	—		$	—		$	321,262	⁽⁴⁾	$	—		$	50,354	⁽¹²⁾	$	759,551
Natural gas sales		110,996			—			—			—			84,037	⁽⁴⁾		—			5,471	⁽¹²⁾		200,504
Total Revenues	$	498,931		$	—		$	—		$	—		$	405,299		$	—		$	55,825		$	960,055
													$	100,938	⁽⁴⁾					3,889	⁽¹³⁾
Lease operating expenses	$	142,612		$	—		$	—		$	—			10,000	⁽⁵⁾	$	—			19,243	⁽¹²⁾	$	276,682
Production taxes		4,217			—			—			—			1,173	⁽⁴⁾		—			131	⁽¹²⁾		5,521
Depreciation, depletion and amortization		179,040			—			—			—			180,460	⁽⁶⁾		—			20,929	⁽¹⁴⁾		380,429
Accretion of asset retirement obligations		23,487			—			—			—			20,451	⁽⁷⁾		—			3,373	⁽¹⁵⁾		47,311
General and administrative expenses		45,915			—			—			—			3,972	⁽⁸⁾		—			—			50,987
														1,100	⁽⁹⁾
Gain on derivative financial instruments		(4,739	)		—			—			—			—			—			—			(4,739	)
Total Costs and Expenses	$	390,532		$	—		$	—		$	—		$	318,094		$	—		$	47,565		$	756,191
Operating Income		108,399			—			—			—			87,205			—			8,260			203,864
Other income		26,938			—			—			—			—			—			—			26,938
					(69,375	)⁽¹⁾					34,330	⁽³⁾					4,760	⁽¹¹⁾
Interest expense		(92,838	)		(2,208	)⁽¹⁾		(4,180	)⁽²⁾		(6,800	)⁽³⁾		(8,342	)⁽¹⁰⁾		434	⁽¹¹⁾		—			(144,219	)
Total Other Expense		(65,900	)		(71,583	)		(4,180	)		27,530			(8,342	)		5,194			—			(117,281	)
Income Before Income Taxes		42,499			(71,583	)		(4,180	)		27,530			78,863			5,194			8,260			86,583
Income taxes		5,918			—			—			—			—			—			—	⁽¹⁶⁾		5,918
Net Income	$	36,581		$	(71,583	)	$	(4,180	)	$	27,530		$	78,863		$	5,194		$	8,260		$	80,665

(1)

To reflect additional interest expense due under the $750 million 9.25% Private Placement and to amortize $15.4 million in debt issue cost related to the Private Placement over a seven year period. Excluded from expenses is $4.8 million in costs related to obtaining a bridge loan commitment as this amount is non-recurring.

(2)

To amortize $9.5 million in fees related to the increase in the revolving credit facility borrowing base to $700 million amortized over 27 months.

(3)

To reflect a reduction of interest expense ($34.3 million) and to adjust interest expense for the reduction of debt issue cost amortization ($72,000), premium amortization ($9.477 million) and discount amortization ($2.605 million) related to the redeemed 16% Second Lien Notes. This adjustment excludes a non-recurring gain related to the difference between the book value and call price of the 16% Second Lien Notes (approximately $2.9 million when the 16% Second Lien Notes were issued on November 12, 2009).

(4)

To reflect the revenues and direct operating expenses related to the ExxonMobil Properties.

F-4

(5)

To reflect incremental windstorm and related insurance expense associated with the ExxonMobil Properties.

(6)

To adjust depreciation, depletion and amortization (DD&A) expense for the ExxonMobil Properties. Of the $1.012 billion acquisition costs of the ExxonMobil Properties, $289.7 million was allocated to unevaluated properties. Included in the ExxonMobil Properties costs subject to DD&A expense are $313.3 million of future development costs related to the proved oil and natural gas reserves and $204.5 million in asset retirement obligations. Combined production is 15.5 MMBOE.

(7)

To record the accretion of the asset retirement obligation associated with the ExxonMobil Properties.

(8)

To adjust general and administration expense for $6.1 million of additional expenses associated with the ExxonMobil Acquisition net of amounts expected to be capitalized as directly attributable to oil and natural gas property acquisition, exploration and development (35%).

(9)

To record the annual expenses associated with the letter-of-credit issued to ExxonMobil to secure the properties plugging and abandonment obligations ($225 million in letters-of-credit costing .5% per year).

(10)

To reflect additional interest on incremental borrowings under the revolving credit facility ($208.5 million at an annual rate of 4%).

(11)

To reflect a reduction of interest expense ($4.76 million) and to adjust interest expense for the reduction of debt issue cost amortization ($434,000) related to the $47.6 million redeemed 10% Senior Notes.

(12)

To reflect the revenue and direct operating expenses of the MitEnergy properties for the period July 1, 2009 to November 20, 2009.

(13)

To reflect incremental windstorm and related insurance for the period July 1, 2009 to November 20, 2009 based on an annual premium of $10 million.

(14)

To adjust DD&A expense for the MitEnergy Acquisition.

(15)

To reflect the accretion of the MitEnergy properties asset retirement obligation for the period July 1, 2009 to November 20, 2009 based on a $57.8 million liability using a 15% accretion rate.

(16)

To adjust income tax expense for the impact of the adjustments outlined above. The utilization of existing net operating loss carry-forwards at June 30, 2010 will offset the income generated by the purchase of the ExxonMobil Properties.

F-5

Energy XXI Gulf Coast, Inc.

Pro Forma Consolidated Statement of Operations
Six Months Ended December 31, 2010
(In Thousands)
(Unaudited)

Basis of Presentation

The pro forma consolidated statements of operations has been prepared to reflect the Private Placement, the increase in the borrowing base under its revolving credit facility, the 16% Notes Redemption, the ExxonMobil Acquisition and the 10% Senior Notes Call as if such transactions occurred on July 1, 2009. Non-recurring expenses have been omitted.



	Historical Six Months Ended December 31, 2010			Private Placement			Upsize Revolver			Call of 16% Second Lien Notes			Purchase of ExxonMobil			Call of $47.6MM of 10% Senior Notes			Pro-Forma Six Months Ended December 31, 2010
Oil sales	$	262,369		$	—		$	—		$	—		$	136,348	⁽⁴⁾	$	—		$	398,717
Natural gas sales		55,584			—			—			—			35,386	⁽⁴⁾		—			90,970
Total Revenues	$	317,953		$	—		$	—		$	—		$	171,734		$	—		$	489,687
													$	44,690	⁽⁴⁾
Lease operating expenses	$	89,421		$	—		$	—		$	—			5,000	⁽⁵⁾	$	—		$	139,111
Production taxes		1,410			—			—			—			449	⁽⁴⁾		—			1,859
Depreciation, depletion and amortization		115,756			—			—			—			80,308	⁽⁶⁾		—			196,064
Accretion of asset retirement obligations		12,322			—			—			—			9,373	⁽⁷⁾		—			21,695
General and administrative expenses		32,016			—			—			—			1,986	⁽⁸⁾		—			34,506
														504	⁽⁹⁾
Gain on derivative financial instruments		(2,776	)		—			—			—			—			—			(2,776	)
Total Costs and Expenses	$	248,149		$	—		$	—		$	—		$	142,310		$	—		$	390,459
Operating Income		69,804			—			—			—			29,424			—			99,228
Other income		102			—			—			—			—			—			102
Other expense		(9,684	)																	(9,684	)
					(1,011	)⁽¹⁾					24,967	⁽³⁾					2,380	⁽¹¹⁾
Interest expense		(43,534	)		(32,568	)⁽¹⁾		(1,868	)⁽²⁾		(4,941	)⁽³⁾		(4,171	)⁽¹⁰⁾		203	⁽¹¹⁾		(60,543	)
Total Other Expense		(53,116	)		(33,579	)		(1,868	)		20,026			(4,171	)		2,583			(70,125	)
Income Before Income Taxes		16,688			(33,579	)		(1,868	)		20,026			25,253			2,583			29,103
Income taxes		—			—			—			—			—			—	⁽¹²⁾		—
Net Income	$	16,688		$	(33,579	)	$	(1,868	)	$	20,026		$	25,253		$	2,583		$	29,103

(1)

To reflect additional interest expense due under the $750 million 9.25% Private Placement and to amortize $15.4 million in debt issue cost related to the Private Placement over a seven year period.

(2)

To amortize $9.5 million in fees related to the increase in the revolving credit facility borrowing base to $700 million amortized over 27 months.

(3)

To reflect a reduction of interest expense ($24.967 million) and to adjust interest expense for the reduction of debt issue cost amortization ($54,000), premium amortization ($6.889 million) and discount amortization ($1.894 million) related to the redeemed 16% Second Lien Notes. This adjustment excludes a non-recurring gain related to the difference between the book value and call price of the 16% Second Lien Notes (approximately $27,000 on July 1, 2010).

F-6

(4)

To reflect the revenues and direct operating expenses related to the ExxonMobil Properties.

(5)

To reflect incremental windstorm and related insurance expense associated with the ExxonMobil Properties.

(6)

(7)

To record the accretion of the asset retirement obligation associated with the ExxonMobil Properties.

(8)

To adjust general and administration expense for $3.055 million of additional expenses associated with the ExxonMobil Acquisition net of amounts expected to be capitalized as directly attributable to oil and natural gas property acquisition, exploration and development (35%).

(9)

(10)

To reflect additional interest on incremental borrowings under the revolving credit facility ($208.5 million at an annual rate of 4%).

(11)

To reflect a reduction of interest expense ($2.38 million) and to adjust interest expense for the reduction of debt issue cost amortization ($203,000) related to the $47.6 million redeemed 10% Senior Notes.

(12)

To adjust income tax expense for the impact of the adjustments outlined above. The utilization of existing net operating loss carry-forwards at December 31, 2010 will offset the income generated by the purchase of the ExxonMobil Properties.

F-7

Energy XXI Ltd - FORM 8-K - EX-99.1 - February 10, 2011

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Energy XXI Ltd Reports