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Energy XXI (EGC) to be Acquired by Cox for $322M in GoM Push

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Energy XXI Gulf Coast, Inc. EGC recently inked a deal, per which privately held Dallas-based operator Cox Oil Offshore LLC will acquire the former. Apart from expanding Cox’s presence in the Gulf of Mexico (GoM), the acquisition also offers Energy XXI the much-needed respite and best solution to maximize its shareholders’ value amid its distressing financials.   

The move was hugely appreciated by the investors of Energy XXI, as evidenced by its share-price uptick post the announcement. The stock increased 19.36% to eventually close the session at $8.94 yesterday.

Deal Terms

Per the deal, Cox will buy all outstanding shares of Energy XXI for $9.10 a share, representing a 21% premium to Energy XXI’s closing share price as of Jun 15. The transaction is valued at $322 million.

The transaction has been unanimously approved by the board of directors of both the companies. Subject to satisfactory closing conditions and regulatory approval, the deal is set for closure in the third quarter of this year.

Energy XXI: A Victim of the Oil Crash

Energy XXI has had been going through quite a tumultuous phase since a couple of years, considering its bankruptcy filing and then successfully emerging out of it, along with a major shakeup in its leadership position.

The company’s predecessor, Energy XXI Limited, one of the high flyers in the Gulf of Mexico, was touted as the largest producer in the Outer Continental Shelf, operating around 10 of the largest oilfields. The company, like many others during the oil boom, committed to growth through acquisitions and spent billions to bolster its footing in the U.S. offshore. In 2014, it snapped up Houston-based EPL Oil and Gas Inc. in a $2.3-billion deal, including the assumption of debt. Energy XXI was riding high with more than 750,000 net acres along with 16,000 square miles of 3D seismic data.

However, things took a 360 degree turn for the company in 2015 as it was severely hit by the crude downturn. Aggravating the issue further was the infamous involvement of the company’s CEO John Schiller in money laundering. The company’s financials staggered severely as a result of all this and Energy XXI finally had to file for Chapter 11 bankruptcy protection in April 2016. It emerged from bankruptcy in late December 2016 and renamed itself as Energy XXI Gulf Coast Inc. A few months later, Schiller was ousted and the company announced major changes in its C-suite positions. Finally, Douglas E. Brooks took over as the CEO of the company in April 2017. A few months back, EPL’s CEO Gary Hanna was appointed as the chairman of the company.

Though the restructuring agreement eliminated around $3.6 billion of debt, its financial struggle was still not over. In the last reported quarter, the company posted a net loss of $33.1 million. Energy XXI, grappling with cash-crunch woes, slashed various jobs last year and had been contemplating best-possible ways to seek collaboration and financial partner, as it could not grow without additional financing. It also appointed Morgan Stanley and Co LLC to evaluate its strategic plans to address liquidity challenges, future growth prospects and asset-retirement obligations among others.

After exploring a wide range of options to boost the firm’s prospects, the company finally zeroed in on this $322-million deal, which will protect its shareholders’ value, offering them with a certain cash premium and less execution risk.

Interestingly, the latest development comes a month after the company announced its decision to offload non-core assets worth $125 million to Orinoco Natural Resources LLC, which would have ended up acquiring 35% stake in Energy XXI. Of course, negotiations with Orinoco Natural have been terminated now, due to the more profitable proposition by Cox.

What’s in it for Cox?

Founded in 2004, Cox has been treading on growth trajectory through prudent acquisitions, and revitalization of mature oil and gas fields. Notably, it became the biggest Outer Continental Shelf (OCS) operator in 2016 with the acquisition of bulk of GoM assets from Chevron Corporation CVX. Cox further boosted its portfolio by acquiring more acreage from Freeport-McMoRan Oil & Gas, a subsidiary of Freeport-McMoRan Inc. FCX that is set for closure by the third quarter of 2018.

With operations stretching from Texas to Florida, Cox has holdings both in OCS and shallow waters off the coast of Louisiana. The assets include more than 200 operated wells in over 25 fields in GoM. With Energy XII’s key holdings located mainly in the OCS and GoM, its complementary asset base will bolster scale and leadership position of the combined entity in the region. Additionally, the strategic acquisition is expected to lead to significant commercial, financial and operational synergies, due to the integration of asset, systems and staff.

Importantly, the acquisition will more than double Cox’s Gulf of Mexico production, boosting output from 35,000 barrels of oil equivalent per day (Boe/d) to 61,000 Boe/d.

Zacks Rank and Another Stock to Consider

Houston-based Energy XII currently carries a Zacks Rank #2 (Buy).

Energy XXI Gulf Coast, Inc. Price

Energy XXI Gulf Coast, Inc. Price | Energy XXI Gulf Coast, Inc. Quote

Meanwhile, one can also consider another top-ranked player within the same industry namely Bonanza Creek Energy, Inc. BCEI, sporting a Zacks Rank #1 (Strong Buy). The company delivered positive earnings surprise in each of the trailing four quarters, with an average beat of 215.36%. You can see the complete list of today’s Zacks #1 Rank stocks here.

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