Energy XXI: Buying Accretive Growth Whether the Market Likes It or Not

Energy XXI continues to acquire and grow, while the market doesn't appreciate Gulf of Mexico assets making the stock attractive.

Mar 29, 2014 at 4:53PM

A couple of weeks ago, Energy XXI (NASDAQ:EXXI) bought EPL Oil & Gas (NYSE:EPL) in an accretive deal that initially sent the stock down. The stock has recovered to pre-announcement levels, but the deal suggests a more premium pricing for the stock is due, instead of scraping along the bottom near three-year lows.

Energy XXI is a leading oil and natural gas production firm on the Gulf of Mexico shelf. The company has a history of growing via acquiring and exploiting the assets for increased production and reserves. The oil-heavy producer continues to expand reserves and significantly repurchase shares below net asset value, or NAV.

The stock appears to offer value to shareholders based on the market overlooking assets in the Gulf of Mexico. Freeport-McMoRan Copper & Gold (NYSE:FCX) bought struggling McMoRan Exploration last year due to huge perceived value and the potential for significant growth in production ignored by a market focusing on land shale plays.

Accretive EPL deal
Energy XXI has a history of buying large oilfield assets and improving the long-term results of the field. With the EPL deal, the company lists the numbers as immediately accretive to shareholders. The deal calls for EPL shareholders to receive roughly $39 per share. The aggregate consideration will be paid in roughly 65% cash and 35% in Energy XXI stock, equating to $1 billion in cash and approximately 23.4 million common shares.

EPL provides working interests in 37 producing fields, mainly concentrated within nine core operating areas. The company had year-end reserves of an estimated net proved and probable reserves of 106.3 million boe, 71% of which is oil. Proved reserves are estimated at 54.9 million barrels of oil and 139.2 Bcf of natural gas, or a total of 78.1 million boe.

Creating value  
Energy XXI estimates that it has acquired 146 million boe over the years and has converted those assets into 261 million boe (including production). In addition, the company forecasts the gross unrisked potential in core areas is equal to more than 2 billion boe. 

The below slide highlights the uplift from past purchases that Energy XXI expects to achieve with the EPL assets.

Screen Shot

Source: EXXI investor presentation

The ability to buy assets on the cheap and increase reserves adds value to the PV-10. The proved reserve value equaled $6.1 billion at the end of 2013 with the market cap sitting around $1.8 billion. In fact, the PV-10 value has nearly doubled in the last two years, yet the stock price is down. The majority of the land producers sit at market valuations above the PV-10 values.

Energy XXI sees the stock as being so undervalued that it repurchased 9.4 million shares at levels above the current stock price. With an estimated NAV that deducts debt near $55, the company estimates that the share repurchases added $3.60 to NAV.

Bottom line
The history of making attractive acquisitions makes the recent move by Energy XXI appealing, especially considering the accretive nature of the deal and the weak stock action. Even more interesting is that EPL had rallied in the last couple of years and Energy XXI still made the deal work, suggesting that it offers extreme value trading at near three-year lows. With the continued high price of oil, a value creating company shouldn't be trading at these levels.

It's not too late to profit from America's energy resurgence
You already know record oil and natural production is changing the lives of millions of Americans. But what you probably haven't heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America's greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, "The IRS Is Daring You to Make This Investment Now!," and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.


Mark Holder has no position in any stocks mentioned. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers