Energy XXI Ltd - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - November 9, 2015

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Exhibit 99.1
 

 
Energy XXI Reports Fiscal 2016 First quarter Results and Operations Update
 
 
 
HOUSTON – Nov. 9, 2015 – Energy XXI (NASDAQ: EXXI) today announced financial and operating results for the three months ended September 30, 2015 (fiscal 2016 first quarter), and provided an operations update. Highlights include:
 
·  
Production continues to be stable
o  
1Q 2016 net oil production averaged 42,200 barrels per day
o  
1Q 2016 total net production averaged 58,900 barrels equivalent per day
·  
Lease Operating Expenses (LOE) decreased 34% year over year
o  
$94 million in 1Q 2016, decreased from $142 million in 1Q 2015
·  
Over $890 million in face-value debt retired in 2015 to-date
·  
Annualized interest savings of approximately $65 million, ~$3.00 per barrel of oil equivalent (BOE)
·  
Total liquidity of $510 million

“We continue to execute successfully on multiple objectives,” Energy XXI President and Chief Executive Officer John Schiller said.  “Our operations team continues to deliver stable production, while reducing our LOE costs, and improving our efficiency in the Gulf of Mexico.   Production for the fiscal 2016 first quarter totaled 5.42 million barrels of oil equivalent (MMBOE), compared to 5.38 MMBOE in the same period last year.  LOE for fiscal 2016 first quarter were $94 million compared to $142 million in the fiscal 2015 first quarter.  The 34 percent year over year decrease was driven by a combination of synergies gained from the EPL acquisition, operational efficiencies, and lower service costs in the field as a result of the commodity price erosion,” Mr. Schiller continued.  “Our finance team continues to reduce debt while managing our liquidity.  We have retired over $890 million in face value of our bonds through open-market purchases and continue to look for opportunities to reduce our leverage and minimize annual interest payments.”

For the fiscal 2016 first quarter, adjusted EBITDA was $89.0 million (a non-GAAP measure reconciled below), on revenue of $257.8 million, as total net production volumes averaged 58,900 barrels of oil equivalent per day (BOE/d), 72 percent of which was oil.  These results compare with fiscal 2015 first quarter adjusted EBITDA of $231.5 million on revenue of $461.4 million and volumes of 58,600 BOE/d, 71 percent oil.  Net loss attributable to common shareholders in the 2016 fiscal first quarter totaled ($576.2) million, or ($6.08) per diluted share, compared with fiscal 2015 first quarter net income attributable to common shareholders of $24.3 million, or $0.24 per diluted share.  Net loss attributable to common shareholders in the 2016 fiscal first qurter includes a non-cash impairment charge on its oil and gas assets of $904.7 million, or ($9.54) per diluted share, due to sustained lower commodity prices and a gain on early extinguishment of debt of $458.3 million, or $4.83 per diluted share, resulting from our bond repurchases.  Excluding these two items and other non-cash items, the company’s fiscal 2016 first quarter adjusted net loss attributable to common shareholders was ($155.8) million, or ($1.64) per diluted share, compared with adjusted net loss attributable to common shareholders in fiscal 2015 first quarter of ($31.8) million, or ($0.34) per diluted share.

 (Adjusted EBITDA and Adjusted Net Income (Loss) is a non-GAAP financial measure and is defined and reconciled to the most directly comparable GAAP measure under “Non-GAAP Financial Measures” in the tables below)

 
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Operations Update

Production for the 2016 fiscal first quarter averaged 58,900 BOE/d, of which 42,200 was oil.  Current production for the fiscal second quarter to date is approximately 54,500 BOE/d, as a result of third-party pipeline downtime during the quarter.  With a majority of the downtime back online, production for the month of November has averaged 56,515 BOE/d.

 The West Delta 73 (100% WI/ 83% NRI) rig demobilization has been completed and the field has returned to full production, averaging over 5,900 BOE/d net.  Operations were shut-in temporarily to remove the rig in October, which had an impact on average production for the fiscal second quarter of 775 BOE/d.

 
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The company began the recompletion of the Landers well in South Louisiana (74% WI/ 55% NRI).  The Landers well has produced 48 billion cubic feet of gas since coming online in 2011.  This large gas unit has multiple stacked pay zones.  The company is currently recompleting to the MA7 sand, and expects it to come online this December at a rate of 20-24 Mmcf/d, approximately 15-17 Mmcf/d net to Energy XXI.

The Highlander well (18% WI/ 13% NRI) in South Louisiana, operated by Freeport McMoRan, has been remediated and returned to production as of September 29, 2015, at 25 Mmcf/d.  The well was taken offline in July 2015 to begin remediation and to expand an amine unit to allow for higher production rates.  The operator expects that the new amine unit will be commissioned and operational this December and is expected to allow the well to produce over 45 Mmcf/d, 8 Mmcf/d net to Energy XXI.

The company reaffirms 2016 full year production ranges as detailed below.

Volume Projections
FY 2016
  
Net Production (per day)
    
   Oil, including NGLs (Bbls)
   35,000 – 40,000  
   BOE
   54,000 – 59,000  
Oil, including NGLs (using midpoint of guidance)
~66%
  

Capital Expenditures and Liquidity

For fiscal 2016 full year, the company is targeting a range of $130 - $150 million in capital expenditures.  Fiscal 2016 first quarter ended September 30, 2015, capital expenditures totaled approximately $55 million excluding acquisitions, of which approximately $33 million was spent on development of our core properties, and $22 million on other assets, mostly attributable to plugging and abandonment costs. 
 
As of October 31, 2015, the company had total liquidity of $510 million. The company has been opportunistic in repurchasing bonds, and to date has retired over $890 million in face value of bonds with annualized cash interest expense savings of more than $65 million.  We continue to analyze a variety of transactions designed to reduce our leverage.


 
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Conference Call Today, Nov. 9, at 9 a.m. CST

Energy XXI will host its fiscal 2016 first quarter conference call Monday, Nov. 9, at 9:00 a.m. CST. The dial-in number is 1 (877) 794-3620 (U.S.) and the confirmation code is 72125657.  For complete instructions on how to actively participate in the conference call, or to listen to the live audio webcast or a replay, please refer to www.EnergyXXI.com.

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

Adjusted EBITDA is a supplemental non-GAAP financial measure that is used by management and external users of the Company's consolidated financial statements, such as industry analysts and investors. The Company defines Adjusted EBITDA as earnings before interest expense, income taxes, depreciation, depletion, amortization, exploration expenses, gains/losses on derivatives less net cash received or paid in settlement of commodity derivatives, non-cash impairments, non-cash gain or (loss) on extinguishment of debt and other similar non-cash or non-recurring charges. Adjusted EBITDA is not a measure of net income or cash flows as determined by the United States generally accepted accounting principles, or GAAP. 

Adjusted net income (loss) is a supplemental non-GAAP financial measure that is used by management and external users of our consolidated financial statements, such as industry analysts and investors. We define adjusted net income (loss) as net income (loss) before derivative fair value (gain) loss, excluding net cash receipts on settled derivative instruments incentive unit expense, non-cash impairments, non-cash gain (loss) on extinguishment of debt and other similar non-cash or non-recurring items. Adjusted net income (loss) is not a measure of net income as determined by the United States generally accepted accounting principles, or GAAP.

The following tables presents a reconciliation of the GAAP financial measure net income to the non-GAAP financial measures of Adjusted EBITDA and Adjusted Net Income (Loss) for the periods presented:
 
 
ENERGY XXI LTD
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(In thousands, except per share information)
(Unaudited)
 
   
September 30,
  
   
2015
    
2014
  
             
Net Income (Loss) attributable to common shareholders
   $ (576,246 )   $ 24,318  
                 
    Total gain on commodity derivative contracts - net
     (55,430 )     (55,095 )
    Cash settlements, net of purchased put premium amortization
     18,742       1,630  
    Impairment of oil and natural gas properties
     904,669       -  
    Gain on early extinguishment of debt
     (458,278 )     -  
    Income (Loss) from equity method investees
     10,746       (959 )
                 
Adjusted net (Loss) attributable to common shareholders
     (155,797 )     (31,736 )
                 
Weighted average fully diluted shares outstanding
     94,778       93,833  
                 
Adjusted loss per share assuming dilution
   $ (1.64 )   $ (0.34 )



 
-4-
 
 
ENERGY XXI LTD
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(In thousands, except per share information)
(Unaudited)

     
September 30,
  
     
2015
    
2014
  
               
Net Income (Loss)
   $ (573,392 )   $ 27,190  
 
Interest expense, net
     102,724       65,312  
 
Depreciation, depletion and amortization
     124,024       159,140  
 
Income tax expense
     -       16,649  
                   
EBITDA
       (346,644 )     268,291  
 
Total Gains on commodity derivative contracts – net
     (55,430 )     (56,725 )
 
 
Cash settlements, net of purchased put premium amortization
     18,742       1,630  
 
Impairment of oil and natural gas properties
     904,669       -  
 
Gain on early extinguishment of debt
     (458,278 )     -  
 
Accretion of asset retirement obligations
     14,784       12,819  
 
Acquisition and integration costs and disposition costs
     -       120  
 
Severance payments
     -       3,015  
 
One time bank fee related to covenant waiver
     -       1,500  
 
Loss from equity method investees
     10,746       (959 )
 
Stock-based compensation
     383       1,779  
                   
Adjusted EBITDA
   $ 88,972     $ 231,470  
                   
                   
Adjusted EBITDA per share
                
 
Basic
   $ 0.94     $ 2.47  
 
Diluted
   $ 0.86     $ 2.26  
                   
                   
Weighted average number of common shares outstanding
                
 
Basic
     94,778       93,833  
 
Diluted
     103,296       102,300  
                   



 
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ENERGY XXI LTD
OPERATING HIGHLIGHTS
(Unaudited)

   
Quarter Ended
  
   
September 30,
    
June 30,
    
March 31,
    
December 31,
    
September 30,
  
Operating Highlights
  
2015
    
2015
    
2015
    
2014
    
2014
  
   
(In thousands, except per unit amounts)
  
Operating revenues
                              
Oil sales
   $ 178,908     $ 225,263     $ 177,605     $ 279,708     $ 370,155  
Natural gas sales
     23,485       23,908       27,012       31,801       34,561  
Gain (loss) on derivative financial instruments
     55,430       (29,711 )     16,963       191,462       56,725  
Total revenues
     257,823       219,460       221,580       502,971       461,441  
Percentage of operating revenues from oil
                                        
prior to gain (loss) on derivative financial instruments
     88 %     90 %     87 %     90 %     91 %
Operating expenses
                                        
Lease operating expense
                                        
Insurance expense
     11,335       8,963       8,828       11,233       11,022  
Workover and maintenance
     22,028       12,243       10,773       13,130       29,416  
Direct lease operating expense
     61,259       72,268       88,509       95,003       102,147  
Total lease operating expense
     94,622       93,474       108,110       119,366       142,585  
Production taxes
     757       1,492       1,537       2,263       3,093  
Gathering and transportation
     14,978       3,459       3,726       4,771       9,188  
Depreciation, depletion and amortization
     124,024       183,279       187,947       175,155       159,140  
Accretion of asset retirement obligations
     14,784       12,358       12,106       12,798       12,819  
Impairment of oil and natural gas properties
     904,669       1,852,268       569,616       -       -  
Goodwill impairment
     -       -       -       329,293       -  
General and administrative
     22,189       25,210       37,121       27,745       26,424  
Total operating expenses
     1,176,023       2,171,540       920,163       671,391       353,249  
Operating income (loss)
   $ (918,200 )   $ (1,952,080 )   $ (698,583 )   $ (168,420 )   $ 108,192  
                                         
Sales volumes per day
                                        
Natural gas (MMcf)
     100.4       103.2       110.4       96.5       100.7  
Oil (MBbls)
     42.2       42.0       41.6       41.8       41.8  
Total (MBOE)
     58.9       59.3       60.0       57.9       58.6  
Percent of sales volumes from oil
     72 %     71 %     69 %     72 %     71 %
                                         
Average sales price
                                        
Oil per Bbl
   $ 46.11     $ 58.87     $ 47.49     $ 72.70     $ 96.28  
Natural gas per Mcf
     2.54       2.55       2.72       3.58       3.73  
Gain (loss) on derivative financial instruments per BOE
     10.23       (5.51 )     3.14       35.94       10.53  
Total revenues per BOE
     47.57       40.70       41.06       94.40       85.64  
                                         
Operating expenses per BOE
                                        
Lease operating expense
                                        
Insurance expense
     2.09       1.66       1.64       2.11       2.05  
Workover and maintenance
     4.06       2.27       2.00       2.46       5.46  
Direct lease operating expense
     11.30       13.40       16.40       17.83       18.96  
Total lease operating expense per BOE
     17.45       17.33       20.04       22.40       26.47  
Production taxes
     0.14       0.28       0.28       0.42       0.57  
Gathering and transportation
     2.76       0.64       0.69       0.90       1.71  
Depreciation, depletion and amortization
     22.88       33.99       34.83       32.87       29.54  
Accretion of asset retirement obligations
     2.73       2.29       2.24       2.40       2.38  
Impairment of oil and natural gas properties
     166.91       343.52       105.56       -       -  
Goodwill impairment
     -       -       -       61.80       -  
General and administrative
     4.09       4.68       6.88       5.21       4.90  
Total operating expenses per BOE
     216.96       402.73       170.52       126.00       65.57  
Operating income (loss) per BOE
   $ (169.39 )   $ (362.03 )   $ (129.46 )   $ (31.60 )   $ 20.07  



 
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ENERGY XXI LTD
CONSOLIDATED BALANCE SHEETS
(In Thousands, except share information)
 

             
   
September 30,
    
June 30,
  
ASSETS
  
2015
    
2015
  
Current Assets
  
(Unaudited)
        
Cash and cash equivalents
   $ 491,461     $ 756,848  
Accounts receivable
                
   Oil and natural gas sales
     75,902       100,243  
   Joint interest billings
     19,979       12,433  
   Other
     35,105       43,513  
Prepaid expenses and other current assets
     49,053       24,298  
Restricted cash
     9,708       9,359  
Derivative financial instruments
     50,904       22,229  
      Total Current Assets
     732,112       968,923  
Property and Equipment
                
   Oil and natural gas properties, net - full cost method of accounting, including $437.8 million and $436.4 million
         of unevaluated properties not being amortized at September 30, 2015 and June 30, 2015, respectively
     2,691,510       3,570,759  
   Other property and equipment, net
     22,599       21,820  
            Total Property and Equipment, net of accumulated depreciation, depletion, amortization and impairment
     2,714,109       3,592,579  
Other Assets
                
   Derivative financial instruments
     8,658       3,898  
   Equity investments
     -       10,835  
   Restricted cash
     32,682       32,667  
   Other assets and debt issuance costs, net of accumulated amortization
     71,068       81,927  
           Total Other Assets
     112,408       129,327  
       Total Assets
   $ 3,558,629     $ 4,690,829  
LIABILITIES
                
Current Liabilities
                
   Accounts payable
   $ 175,994     $ 156,339  
   Accrued liabilities
     135,425       155,306  
   Asset retirement obligations
     27,366       33,286  
   Derivative financial instruments
             2,661  
   Current maturities of long-term debt
     6,230       11,395  
         Total Current Liabilities
     345,015       358,987  
Long-term debt, less current maturities
     4,007,081       4,597,037  
Asset retirement obligations
     505,806       453,799  
Derivative financial instruments
     -       1,358  
Other liabilities
     5,000       8,370  
         Total Liabilities
     4,862,902       5,419,551  
Commitments and Contingencies
                
Stockholders’ Deficit
                
Preferred stock, $0.001 par value, 7,500,000 shares authorized at Sept. 30, 2015 and June 30, 2015
                
7.25% Convertible perpetual preferred stock, 3,000 shares issued and outstanding at September 30, 2015 and June 30, 2015
     -       -  
5.625% Convertible perpetual preferred stock, 797,759 and 812,759 shares issued and outstanding at September 30, 2015 and June 30, 2015, respectively
     1       1  
Common stock, $0.005 par value, 200,000,000 shares authorized and  94,966,655 and  94,643,498 shares issued and
                
   outstanding at September 30, 2015 and June 30, 2015, respectively
     474       472  
Additional paid-in capital
     1,844,611       1,843,918  
Accumulated deficit
     (3,149,359 )     (2,573,113 )
        Total Stockholders’ Deficit
     (1,304,273 )     (728,722 )
        Total Liabilities and Stockholders’ Deficit
   $ 3,558,629     $ 4,690,829  


 
-7-
 


 
ENERGY XXI LTD
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except per share information)
(Unaudited)

             
   
Three Months Ended September 30,
  
   
2015
    
2014
  
             
Revenues
            
   Oil sales
   $ 178,908     $ 370,155  
   Natural gas sales
     23,485       34,561  
   Gain on derivative financial instruments
     55,430       56,725  
      Total Revenues
     257,823       461,441  
                 
Costs and Expenses
                
   Lease operating
     94,622       142,585  
   Production taxes
     757       3,093  
   Gathering and transportation
     14,978       9,188  
   Depreciation, depletion and amortization
     124,024       159,140  
   Accretion of asset retirement obligations
     14,784       12,819  
   Impairment of oil and natural gas properties
     904,669       -  
   General and administrative expense
     22,189       26,424  
        Total Costs and Expenses
     1,176,023       353,249  
                 
Operating Income (Loss)
     (918,200 )     108,192  
                 
Other Income (Expense)
                
   (Loss) income from equity method investees
     (10,746 )     959  
   Other income, net
     494       951  
   Gain on early extinguishment of debt
     458,278       -  
   Interest expense
     (103,218 )     (66,263 )
       Total Other Income (Expense), net
     344,808       (64,353 )
                 
Income (Loss) Before Income Taxes
     (573,392 )     43,839  
                 
Income Tax Expense (Benefit)
     -       16,649  
                 
Net Income (Loss)
     (573,392 )     27,190  
Preferred Stock Dividends
     2,854       2,872  
Net Income (Loss) Attributable to Common Stockholders
   $ (576,246 )   $ 24,318  
                 
Earnings (Loss) per Share
                
   Basic
   $ (6.08 )   $ 0.26  
   Diluted
   $ (6.08 )   $ 0.24  
                 
Weighted Average Number of Common Shares Outstanding
                
   Basic
     94,778       93,833  
   Diluted
     94,778       102,300  


 
-8-
 


 
ENERGY XXI LTD
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)

   
Three Months Ended September 30,
  
   
2015
    
2014
  
             
Cash Flows From Operating Activities
            
Net income (loss)
   $ (573,392 )   $ 27,190  
Adjustments to reconcile net income (loss) to net cash provided by
                
  (used in) operating activities:
                
     Depreciation, depletion and amortization
     124,024       159,140  
     Impairment of oil and natural gas properties
     904,669       -  
     Deferred income tax expense
     -       16,369  
     Gain on early extinguishment of debt
     (458,278 )     -  
     Change in fair value of derivative financial instruments
     (36,688 )     (55,095 )
   Accretion of asset retirement obligations
     14,784       12,819  
   Loss (income) from equity method investees
     10,746       (959 )
   Amortization and write-off of debt issuance costs and other
     5,581       2,744  
   Deferred rent
     2,288       -  
   Stock-based compensation
     383       1,779  
   Changes in operating assets and liabilities
                
        Accounts receivable
     39,606       23,313  
        Prepaid expenses and other assets
     (14,122 )     7,661  
        Settlement of asset retirement obligations
     (40,631 )     (14,907 )
       Accounts payable and accrued liabilities
     (48,203 )     23,896  
          Net Cash Provided by (Used in) Operating Activities
     (69,233 )     203,950  
                 
Cash Flows from Investing Activities
                
   Acquisitions, net of cash
     (2,227 )     (287 )
   Capital expenditures
     (68,656 )     (280,010 )
   Insurance payments received
     976       -  
   Change in equity method investments
     -       1,282  
   Transfer to restricted cash
     (12 )     -  
   Proceeds from the sale of properties
     3,787       6,947  
   Other
     112       (80 )
        Net Cash Used in Investing Activities
     (66,020 )     (272,148 )
                 
Cash Flows from Financing Activities
                
   Proceeds from the issuance of common and preferred stock, net of offering costs
     311       2,217  
   Dividends to shareholders – common
     -       (11,264 )
   Dividends to shareholders – preferred
     (2,863 )     (2,872 )
   Proceeds from long-term debt
     -       510,120  
   Payments on long-term debt
     (99,792 )     (454,042 )
   Payment of debt assumed in acquisition, net of cash acquired
     (25,187 )     -  
   Fees related to debt extinguishment
     (1,580 )     -  
   Debt issuance costs
     (4 )     (2,250 )
   Other
     (1,019 )     (17 )
        Net Cash Provided by (Used in) Financing Activities
     (130,134 )     41,892  
                 
Net Decrease in Cash and Cash Equivalents
     (265,387 )     (26,306 )
Cash and Cash Equivalents, beginning of period
     756,848       145,806  
Cash and Cash Equivalents, end of period
   $ 491,461     $ 119,500  


 
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Other Information - Gain on Derivative Financial Instruments
(Unaudited)


   
Three Months Ended
September 30,
  
Gain (loss) on derivative financial instruments
  
2015
    
2014
  
             
Cash Settlements, net of purchased put premium amortization
   $ 18,742     $ (1,734 )
Proceeds from monetizations
     -       3,364  
Change in fair value
     36,688       55,095  
Total gain on derivative financial instruments
   $ 55,430     $ 56,725  



Forward-Looking Statements
All statements included in this release relating to future plans, projects, events or conditions and all other statements other than statements of historical fact included in this release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based upon current expectations and are subject to a number of risks, uncertainties and assumptions, including changes in long-term oil and gas prices or other market conditions affecting the oil and gas industry, access to capital and ability to fund drilling costs and otherwise meet Energy XXI’s obligations, reservoir performance, the outcome of commercial negotiations and changes in technical or operating conditions, among others, that could cause actual results, including project plans and related expenditures and resource recoveries, to differ materially from those described in the forward-looking statements.  Energy XXI assumes no obligation and expressly disclaims any duty to update the information contained herein except as required by law.

About the Company
Energy XXI is an independent oil and natural gas development and production company whose growth strategy emphasizes acquisitions, enhanced by its value-added organic drilling program. The company’s properties are located in the U.S. Gulf of Mexico waters and the Gulf Coast onshore. Cantor Fitzgerald Europe is Energy XXI’s listing broker in the United Kingdom. To learn more, visit the Energy XXI website at www.EnergyXXI.com.

Enquiries of the Company

Greg Smith
Vice President, Investor Relations
713-351-3149
gsmith@energyxxi.com

David Griffith
Associate, Investor Relations
713-351-3176
dgriffith@energyxxi.com

 
 
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Energy XXI Ltd Reports