Photo credit: Flickr user Tulane Public Relations

It can't be easy being Jim Cramer. Every single stock call he makes is tracked and analyzed. That's what happens when a lot of people are counting on him for good advice. While he has made some very good calls, his constant buying and selling hasn't always won him fans. It also doesn't help when stocks he calls "a bargain" fall 30%, as Energy XXI Limited (NASDAQOTH:EXXIQ) has done since he pointed it out on March 12. That plunge certainly makes investors wonder if he was simply wrong about that oil stock.

What happened?
On a segment of his Mad Money show that day, Cramer had Energy XXI CEO John Schiller on to talk about an acquisition the company just made. Schiller said that the company viewed that deal as having the potential to be "the greatest acquisition for shareholders" as the "properties fit together like gloves." Investors doubted this as they sold off the stock, sending Energy XXI's stock down 8% on the announcement. In response to the sell-off Cramer said, "to me, that smells like it might be a bargain."

Fast forward a few months and the stock price of Energy XXI is down more than 30% from Cramer's bargain price. The reason behind the plunge was weak fourth-quarter results where the company lost $0.06 per share and also announced the resignation of its Chief Operating Officer. Investors don't like losses and really don't like to see C-Suite executives resign, especially with no real reason given other than he was "retiring."

Was Cramer simply wrong, or is it still early?
One of the things that Cramer pointed out on his show was that Energy XXI has a history of making acquisitions and then using science and technology to get more oil out of the oil fields than anyone thought it could. What the company does is slowly add probable and possible reserves to proved reserves by drilling new wells. The following diagram shows the certainty of each resource estimate.

Source: EIA.

Investors put a lot of value on proved reserves because of the certainty that these can be produced. This is good news for Energy XXI investors as it does have a long history of moving economically and technically recoverable reserves into the proved category, as the following slide shows.

Source: Energy XXI Investor Presentation. 

What we see here is a company that has nearly doubled the proved reserves it acquired by finding new reservoirs in old oil fields. This has enabled the company to turn $5 billion in acquired assets into proved oil and gas in the ground worth $7.6 billion.

However, Energy XXI believes that it is sitting on a whole lot more oil than investors give it credit for holding. The company sees substantial future recoveries from probable, or 2P, and possible, or 3P, resources as well as simply figuring out a way to extract more oil that stubbornly refuses to come out of the ground. As this next slide shows, the company's top ten oil fields originally held over 6.1 billion barrels of oil.

Source: Energy XXI Investor Presentation.

If the company's use of new technology, such as bringing horizontal drilling into these fields, can extract more oil then Energy XXI is sitting on an incredible amount of value. As the above slide notes, if it can extract just 5% of the oil it knows is down there, then it's sitting on more than $13 billion in oil. That's a massive resource for a company with a $1.5 billion market cap.

Investor takeaway
Energy XXI doesn't need to extract all of the oil it thinks it can reach to make investors money. The proved value of its reserves alone is $7.6 billion. That's substantially more than the company's $5.1 billion enterprise value. So, Jim Cramer might not have been wrong in saying this company is a bargain -- it's just that this oil stock has apparently become even more of a bargain since he made those comments.