Offshore explorer Energy XXI Ltd. has agreed to pay $1.01 billion to buy the majority of ExxonMobil Corp.'s oil and natural gas fields in the shallow waters of the Gulf of Mexico (GOM).
The cash transaction, announced on Sunday, would give the independent producer nine fields in the Outer Continental Shelf (OCS) that cover 130,000 net acres. Estimated proved reserves are 50 million boe, which are 49% weighted to natural gas, 61% oil. The properties now generate 20,000 boe/d.
"The ExxonMobil properties are an extraordinary fit with our existing, oil-focused core assets, which generate some of the highest margins in the industry," said Energy XXI CEO John D. Schiller Jr.
The additional property would increase Energy XXI's proved plus probable reserves by 72%, to 158.1 million boe from 92.1 million boe, as of June 20. Daily production would jump more than 77% from the daily average as of Sept. 30.
The deal also would move Energy XXI into the top tier of OCS producers, making it the third-largest producer in the shallow waters behind Apache Corp. and Chevron Corp.
The properties being acquired primarily are located between Energy XXI's two largest ultra-deep drilling operations in the shallow waters. It now operates 94% of the assets being acquired. Once the transaction is completed the independent would own a stake in seven of the 11 largest fields now producing in the shallow GOM.
The transaction would solidify Energy XXI's position in the gassy Wilcox section of the Eocene/Paleocene trend, where among other things it holds a 15%-plus stake in the Davy Jones well in South Marsh Island Block 230. The well, in which Energy XXI partnered with McMoRan Exploration Co. and others, is said to be one of the largest ever shallow water discoveries (see Daily GPI, Jan. 15).
ExxonMobil had in fact abandoned a well in the trend in 2007 after drilling more than 90% of the way to target depth.
Coincidentally, McMoRan in September nearly doubled the size of its shallow water portfolio in a transaction with another Davy Jones partner, Plains Exploration & Production Co. (see Daily GPI, Sept. 21). Energy XXI also works with McMoRan in the gassy Blackbeard and Blueberry Hill prospects, which are in the same trend (see Daily GPI, March 25, 2009).
The divestiture would account for only 15% of ExxonMobil's total GOM production. The oil major would retain substantial assets offshore and it would retain a 5% override in any gas and oil produced from zones in the fields to be sold that are deeper than those currently flowing .
The transaction also comes as no surprise. ExxonMobil had marketed properties for sale in October "for a variety of reasons that may be of more value to others."
Schiller, who at one time was vice president of exploration and production for Devon Energy Corp., said Energy XXI expected to realize "meaningful cost savings" from the consolidation of the properties within its core focus area on the OCS.
Energy XXI, which has historically focused on offshore prospects, made a big splash in 2007 when it acquired Pogo Producing Co.'s remaining OCS portfolio (see Daily GPI, April 27, 2007). The deal gave Energy XXI 28 fields that at the time were producing 7,400 boe/d net.
Analysts with Tudor, Pickering, Holt & Co. noted that the last four shelf deals in the GOM "went for $22/boe" on average for proved reserves so the transaction, valued at about $20/boe, was historically "in line" with others.
Energy XXI, which is based in Bermuda with business operations in Houston, expects the transaction to close by Dec. 20.
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