Insiders can sell stock for any number of reasons. Maybe they are buying a new house or sending a kid off to college. Maybe they see their business is weakening and want to cash in before the stock takes a tumble. That being said, insiders almost always buy for one reason, and that one reason alone. They think the stock is going higher. That makes the recent insider buying at Energy XXI (OTC:EXXIQ) worth looking into.

Drilling down into recent insider buying
Insiders at Energy XXI bought just over 130,000 shares over the past three months. That well outpaced insider selling, which was less than 30,000 shares. A bulk of the insider buying was done in August when the company's stock was trading for $15-$16 per share. Unfortunately for those insiders the stock is down more than 50% since that time.

EXXI Chart

EXXI data by YCharts

A bulk of that buying appears to have happened when Energy XXI's stock took a big dive in August. However, the company's stock hasn't stopped going down since that time as plunging oil prices have sent its stock spiraling lower. 

That being said, thanks to all of their buying insiders actually own a fair amount of Energy XXI's stock. CEO John Schiller owns 2.38% of the company's outstanding shares as he has increased his position by nearly 6% over the past year. Meanwhile, CFO David Griffin owns 1.3% of the company's outstanding shares, which is a position he has grown by 1.6% over the past year. So, we do see meaningful ownership from insiders.

What is even more compelling, however, is all of the buying these days that is coming from potential activist investors. One noted hedge fund, Mount Kellett Capital Management, has 12.3% of its portfolio invested in Energy XXI's stock. Meanwhile, Hayman Capital recently boosted its stake in Energy XXI by 60% to 5.08% of the company's total shares outstanding. It's a move that could one day lead to investors taking a more active role in order to reverse the stock's price.  

Is this buying bullish?
So far 2014 has been one big disappointment for Energy XXI investors. The stock is off more than 60% year to date after it completed a larger merger, then it lost money last quarter, its COO resigned, and oil prices started tumbling. That being said, there are reasons why both insiders and activists are buying its stock.

The company is built upon a solid asset base of long-lived oil weighted reserves that are worth upwards of $14 billion, as we see on the following slide.

Source: Energy XXI (Bermuda) Limited Investor Presentation.

That's a lot of potential value considering the fact that the company's current enterprise value is around $5 billion. While there is the question of the certainty of some of those resources, what is more certain is the company's proved reserves, which had a PV-10 value of nearly $8 billion.

That being said, Energy XXI has a lot of work to do before investors will buy into that value. The biggest worry right now is the fact that the company's debt load is awfully high at 67% net debt to total capitalization. That's well above the company's target ratio of 45%-60%. However, that ratio should improve as the company uses its cash flow in the second half of next year to pay down debt. On top of that there is a looming catalyst here as the company is planning to sell assets to pare down its debt. Energy XXI is hoping to announce a sales agreement by the end of 2014, and if it can get a good price from these asset sales it could provide a boost to the company's stock price.

Investor takeaway
Insider buying is a tool investors can use to see what insiders really think about the company's future. In this case insiders as well as large hedge fund investors are signaling that they are bullish on Energy XXI's stock. While investors shouldn't blindly buy based on what insiders or hedge funds are doing, these signals do suggest that investors should at least take a closer look at Energy XXI's stock.