Gulf of Mexico (GOM) explorer Energy XXI Ltd. on Monday said it has two deals on the table with ExxonMobil Corp. to buy some shallow water properties in the Gulf of Mexico (GOM) and to jointly explore some adjacent targets.

The sales agreement, for an undisclosed sum, covers 5,000 gross acres on Vermilion Block 164, which currently produces 1,100 boe/d net. The asset has produced around 44 million boe since its discovery in 1957, Energy XXI noted.

Separately ExxonMobil and Energy XXI executed a joint venture (JV) agreement to explore nine contiguous blocks adjacent to the Vermilion block. Energy XXI would operate the JV and is to drill the initial prospect, Pendragon, by the end of the year. Assuming “successful completions of two earning wells,” Energy XXI’s total capital commitment was estimated at $75 million. No other financial details were disclosed.

The JV with ExxonMobil led Energy XXI to adjust its drilling schedule and to postpone two large GOM natural gas exploration prospects — Golden Bear and Wombat.

“This joint venture provides Energy XXI the opportunity to drill best-in-class exploration projects with a world-class partner,” Energy XXI CEO John Schiller said. “Acquiring existing production in an oil producing reservoir, along with the additional opportunities identified by our teams, makes this agreement even more significant.”

Two years ago ExxonMobil helped Energy XXI to become one of the biggest operators on the Outer Continental Shelf after selling most of its shallow water fields to the Houston independent for $1.01 billion (see Daily GPI, Nov. 23, 2010).

Energy XXI also updated recent operations in the offshore. At West Delta Block 73, where it has 100% working interest (WI), the first horizontal Big Sky 2 well was drilled to 8,000 feet true vertical depth (TVD)/10,765 feet measured depth (MD), including a 1,000-foot lateral. The well was placed on production at 3,000 boe/d gross.

“Our first horizontal well, Big Sky 2, had the highest oil rate ever produced in the West Delta 73 field since its discovery in 1962,” according to Energy XXI Executive Vice President Ben Marchive. Based on the “historical results of nine horizontal wells drilled in this field in the late 1990s, the estimated ultimate recovery from Big Sky 2 should exceed 1 million bbl of oil,” the company added.

Weimer, the company’s second horizontal well at West Delta, currently is drilling at a depth of 8,234 feet TVD/9,320 feet MD. Weimer is to be drilled to 8,300 feet TVD/10,200 feet MD with production expected to come online this month.

In the Main Pass complex, the Don Tomas well (WI 100%) was drilled to 8,292 feet TVD/ 8,550 feet MD, encountering 195 net feet of pay within the targeted BA-4AA sand, and placed on production in mid-August at 4,500 boe/d gross, Energy XXI said. “Additional development wells are scheduled at Main Pass, with as many as five additional wells in the program this fiscal year.”

The Pi development well at Grand Isle Block 16 (WI 100%) was drilled to 9,572 feet TVD/ 11,482 feet MD and is currently producing 1,200 Boe/d, according to the company. The company currently is drilling Cake, a horizontal development well that is targeting a sand updip. The well is drilling at 6,898 feet TVD/7,808 feet MD.

“Production for the fiscal first quarter was impacted by downtime associated with Hurricane Isaac, as well as pipeline repairs,” the company noted. Although it sustained no “significant physical storm damage, production was shut-in for an extended period.”

Combined with repairs to operated and third-party pipelines, the shut-ins are expected to result about 37,000 boe/d of production for the current quarter, more than 70% liquids weighted. Current output is averaging 45,000 boe/d, 71% oil, with current capacity of 50,000 boe/d.

“Even with the storm and pipeline outages during the fiscal first quarter, and the deferral of two high-rate gas wells to accommodate the joint venture oil exploration, we still expect to grow the average annual production rate this year more than 25% while generating significant free cash flow,” Schiller said. “Notably, the oil portion of our production could grow by more than 30%, with the potential for upward production and reserves additions in the future if we are successful with our high-impact exploration.”

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