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Energy XXI Gulf Coast Announces Second Quarter 2017 Financial and Operational Results

Initial Well in 2017 Drilling Program Successful

HOUSTON, Aug. 10, 2017 (GLOBE NEWSWIRE) -- Energy XXI Gulf Coast, Inc. (“EGC” or the “Company”) (NASDAQ:EXXI) today reported financial and operational results for the second quarter of 2017. 

Second Quarter 2017 Highlights and Recent Key Items:

  • Grew current cash and cash equivalents to $179 million
  • Produced an average of approximately 36,000 barrels of oil equivalent (“BOE”) per day, of which 75% was oil
  • Reduced total headcount in the second quarter of 2017 by approximately 18%; reductions expected to result in $8 million to $8.5 million in annualized cost savings
  • Expanded 2017 commodity hedging program by adding WTI fixed price swap contracts and initiated 2018 commodity hedging program by adding WTI fixed price swap contracts for full year 2018
  • Joined FTSE Russell 3000® Index
  • Successfully drilled the first well in 2017 development program, the West Delta 30 L-14 ST2 High Tide well, with better-than-expected net pay
  • Reduced 2017 capital spending budget to $125 million to $155 million
  • Continued to work with financial advisors on long-term plan and review of strategic alternatives

For the second quarter of 2017, EGC reported a net loss of $23.6 million or $0.71 loss per diluted share.  In the first quarter of 2017, the Company reported a net loss of $65.3 million, or $1.97 loss per diluted share.  Adjusted EBITDA totaled $24.4 million for the second quarter 2017 versus $42.6 million in the first quarter 2017. Second quarter 2017 financial results were reduced primarily due to lower production volumes and lower oil prices; higher production costs were more than offset by lower gathering and transportation and G&A expenses. The first quarter included a non-cash ceiling test impairment charge of $44.1 million while the second quarter reflects a credit to past impairment charges of $0.9 million. The credit pertains to the correction of immaterial errors related to certain asset retirement obligations which impacted the past ceiling test calculations.

Adjusted EBITDA is a Non-GAAP financial measure and is described and reconciled to net loss in the attached table under “Reconciliation of Non-GAAP Measures.”

Douglas E. Brooks, EGC’s Chief Executive Officer and President commented, “In the second quarter we were able to grow our cash position by $18 million, add 2017 hedges at an average oil price of $51.74, and successfully spud our first new well in nearly two years.  The West Delta 30 High Tide well that we operated with a 100% working interest was drilled off an existing platform for less than our initially estimated cost to 8,500 feet total vertical depth and encountered better-than-expected net pay and reservoir characteristics.  We plan to complete the well before the end of the third quarter. We remain confident in our inventory of approximately 40 development drilling locations that are available to us in the future.”

Brooks continued, “For the remainder of 2017, we intend to focus on operating safely, efficiently and effectively to deliver predictable and repeatable results. We will accomplish this through enhancing our base production and undertaking low-cost, low-risk projects. We will continue to drive down costs in areas we can control and right size our organization to better align with our future needs. We will opportunistically add hedges to minimize downside risk exposure and maximize cash flow generation from our production, as demonstrated with our expanded hedging program for a portion of our 2018 volumes. We continue to work on our long-term strategic plan, and are evaluating a variety of alternatives with our financial advisors.”

Revenue, Production and Pricing
Total revenues for the second quarter of 2017 were $143.7 million, which includes a $9.4 million gain on derivative financial instruments, while in the first quarter, revenues totaled $157.9 million, which included a $3.7 million gain on derivatives.

In the second quarter, the Company produced and sold approximately 36,000 net BOE per day, which was comprised of 26,800 barrels of oil per day (“BOPD”) at an average realized price of $48.45 per barrel (“BBL”) (before the effect of derivatives), 1,000 barrels of natural gas liquids (“NGL’s”) per day at an average realized price of $27.37 per BBL, and 48.9 million cubic feet of gas (“MMCF”) per day at an average realized price of $3.09 per thousand cubic feet (“MCF”).  In the first quarter, EGC produced and sold approximately 41,000 net BOE per day which was comprised of 29,100 BOPD at an average realized price of $51.04 per BBL (before the effect of derivatives), 900 barrels of NGL’s per day at an average realized price of $27.52 per BBL, and 65.9 MMCF per day at an average realized price of $3.10 per MCF.  When compared with the first quarter, second quarter production declined primarily due to temporary disruptions associated with shut-ins from Tropical Storm Cindy (~750 BOEPD), as well as incremental third-party non-operated pipeline shut-ins and facility-related unscheduled downtime (~350 BOEPD). The balance of the reductions were related to quarter-to-quarter natural declines.  EGC operates approximately 90% of its reserves, substantially all of which are located in the U.S. Gulf of Mexico.

Second Quarter 2017 Costs and Expenses
Total lease operating expense (“LOE”) was $85.3 million, or $26.11 per BOE, which consisted of $64.9 million in direct lease operating expense, $13.4 million in workover and maintenance and $7.1 million in insurance expense. Total LOE for the first quarter of 2017 was $75.2 million, or $20.39 per BOE.  LOE per BOE was driven higher due to lower production volumes and higher LOE costs. Absolute LOE costs were higher during the second quarter primarily due to increased maintenance and workover activity, and higher-than-expected third party non-operated production costs, a portion of which pertained to the first quarter. EGC has successfully completed nearly 350 expense-related workover and maintenance projects during the first half of 2017. 

Gathering and Transportation expense was $13.2 million, or $4.03 per BOE for the second quarter of 2017, which included a $4.7 million Office of Natural Resources Revenue (“ONRR”) refund. In the first quarter of 2017, Gathering and Transportation expense was $21.7 million, or $5.89 per BOE and included increased commodity marketing deductions and expenses incurred on pipeline storage facility repairs.

G&A expense in the second quarter of 2017 was $20.7 million, or $6.34 per BOE compared to $21.6 million, or $5.86 per BOE in the first quarter 2017.   The decrease in G&A expense was primarily due to lower employee salary costs.  During the second quarter, total headcount was reduced by 18% to adjust staffing to EGC’s current operational plan.  This reduction resulted in severance and separation costs of approximately $2.5 million in the second quarter.  The Company expects to realize a total of approximately $8 million to $8.5 million of annualized G&A and LOE savings from this staff reduction.  G&A includes non-cash compensation costs of $2.9 million ($0.88 per BOE) in the second quarter compared with $0.9 million ($0.24 per BOE) in the first quarter.  

Depreciation, depletion and amortization (“DD&A”) expense was $38.7 million, or $11.83 per BOE compared to $42.0 million, or $11.39 per BOE in the first quarter of 2017. 

Accretion of asset retirement obligation was $10 million during the second quarter 2017, compared to $12.4 million in the first quarter of 2017. 

For the first half of 2017, EGC recorded no income tax expense or benefit.

Commodity Hedging 
In May 2017, EGC entered into fixed price swap contracts benchmarked to NYMEX-WTI, to hedge 1,500 BOPD of production for the period from June 2017 to October 2017 and 3,500 barrels of oil per day of production for November 2017 and December 2017 with an average fixed price swap of $51.74. These swaps complement the costless collars previously in place of 10,000 barrels of oil per day for the remainder of 2017, with an average floor price of $52.30 and an average ceiling price of $57.43 per barrel. In August 2017, EGC entered into WTI fixed price swap contracts benchmarked to NYMEX-WTI, to hedge 2,000 BOPD, at an average oil price of $49.52 for full year 2018.  The Company continues to evaluate additional derivative arrangements to help limit the downside risk of adverse price movements.  EGC does not have any hedges in place on natural gas production.

Capital Expenditure Program
The current development plan is focused on the West Delta area where the first well in EGC’s 2017 development program, the 30 L-14 ST2 High Tide well was spud on June 7, 2017.  The High Tide well is located in the West Delta 30 field, which ranks as the largest oil field in the Gulf of Mexico Shelf based on cumulative production. The well was drilled to a total vertical depth of 8,500 feet and encountered 102 feet of net pay across three prospective horizons. This well will be completed and placed on production before the end of the third quarter. In July, EGC spud its second development well, the West Delta 31 L-19 ST1 Kingstream. The well encountered an unanticipated fluid loss zone (“thief zone”) while drilling and was not able to be drilled beyond the problematic zone.  The temporary abandonment of the well is being finalized and a plan is being evaluated to potentially re-drill the well from a different location to avoid the thief zone and reach the targeted reserves.

During the three months ended June 30, 2017, the Company incurred capital costs, excluding acquisitions but including abandonment activities, totaling $31.8 million.  The Company spent approximately $14.4 million on development of its core properties and $17.4 million related to abandonment activities.

In light of the continued uncertainty of commodity prices and to preserve its strong balance sheet and liquidity, EGC has revised its capital expenditure program for 2017 downward from $140 to $170 million to $125 to $155 million, including $50 to $70 million for abandonment activities. The Company does not plan to drill any additional wells this year beyond those already spud, but will continue to implement its previously-announced workover and recompletion program. EGC expects to fund its 2017 capital program with cash on hand and cash generated from ongoing operations. 

Balance Sheet and Liquidity
The Company’s estimate of its asset retirement obligations decreased by $7.8 million during the three months ended June 30, 2017, primarily due to costs expended for plugging and abandonment. Asset retirement obligations totaled $615.2 million at the end of the second quarter 2017.

At June 30, 2017, EGC had approximately $74 million in borrowings and $202.8 million in letters of credit issued under its exit credit agreement. Liquidity totaled $192 million which is comprised of cash and cash equivalents totaling $179 million and $12.5 million in available borrowing capacity under certain conditions outlined in the exit credit agreement. 

Addition to the Russell 3000® Index
The Company was added to the Russell 3000® Index on June 26, 2017. EGC’s addition to the Russell 3000® Index should provide greater awareness among institutional investors, while providing additional liquidity in the Company’s shares.

Conference Call
As previously announced, the Company will hold a conference call to discuss its second quarter financial and operating results tomorrow, Friday, August 11, 2017, at 10:00 a.m. Central Time (11:00 a.m. Eastern Time). Interested parties may participate by dialing (877) 794-3620.  International parties may dial (631) 813-4724.  The confirmation code is 55683951.  This call will also be webcast on EGC’s website at www.energyxxi.com. A replay of the call will be archived and available on the web site shortly after the live call.          

Fresh Start Accounting
Upon emergence from the Company’s Chapter 11 restructuring, EGC elected to adopt fresh start accounting as of December 30, 2016. As a result of the application of fresh start accounting and the effects of the implementation of the plan of reorganization, the financial statements on or after December 31, 2016 are not comparable with the financial statements prior to that date. References to “Successor” refer to the reorganized EGC subsequent to the adoption of fresh start accounting. References to “Predecessor” refer to Energy XXI Ltd. prior to the adoption of fresh start accounting.

Non-GAAP Measures
Adjusted EBITDA is a supplemental non-GAAP financial.  Adjusted EBITDA is not a measure of net income or cash flows as determined by United States Generally Accepted Accounting Principles, (“U.S. GAAP.”)  EGC believes that Adjusted EBITDA is useful because it allows it to more effectively evaluate its operating performance and compare the results of its operations from period to period without regard to its financing methods or capital structure. EGC excludes items such as property and inventory impairments, asset retirement obligation accretion, unrealized derivative gains and losses, non-cash share-based compensation expense, non-cash deferred rent expense and restructuring and severance expense. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income or cash flows from operating activities as determined in accordance with U.S. GAAP or as an indicator of its operating performance or liquidity. EGC’s computations of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.

Cautionary Note Regarding Forward-Looking Statements 
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements, including those relating to the intent, beliefs, plans, or expectations of EGC are based upon current expectations and are subject to a number of risks, uncertainties, and assumptions. It is not possible to predict or identify all such factors and the following list should not be considered a complete statement of all potential risks and uncertainties relating to emergence from Chapter 11, the recent change in EGC’s senior management team, or EGC’s oil and gas reserves, including, but not limited to: (i) the effects of the changes in  EGC’s senior leadership on the Company’s employees, suppliers, regulators and business counterparties, (ii) the impact of restrictions in the exit financing on EGC’s ability to make capital investments and pursue strategic growth opportunities and (iii) other risks and uncertainties. These risks and uncertainties could cause actual results, including project plans and related expenditures and resource recoveries, to differ materially from those described in the forward-looking statements. For a more detailed discussion of risk factors, please see Part I, Item 1A, “Risk Factors” of the Transition Report on Form 10-K for the transition period ended December 31, 2016 filed by EGC for more information.  EGC assumes no obligation and expressly disclaims any duty to update the information contained herein except as required by law.

About the Company
Energy XXI Gulf Coast, Inc. is an independent oil and natural gas development and production company whose assets are primarily located in the U.S. Gulf of Mexico waters offshore Louisiana and Texas.  The Company’s near-term strategy emphasizes exploitation of key assets, enhanced by its focus on financial discipline and operational excellence. To learn more, visit EGC’s website at www.energyxxi.com.



ENERGY XXI GULF COAST, INC.
CONSOLIDATED BALANCE SHEETS
 (In Thousands, except share information)
 
              Successor
    June 30,      March 31,
    December 31,
    2017   2017
  2016
ASSETS   (Unaudited)    (Unaudited)
   
Current Assets              
Cash and cash equivalents   $ 178,855   $ 160,479   $ 165,368
Accounts receivable              
Oil and natural gas sales     52,691     67,952     68,143
Joint interest billings, net     2,498     5,687     5,600
Other     8,318     2,321     17,944
Prepaid expenses and other current assets     17,176     21,449     25,957
Restricted cash     6,365     7,114     32,337
Derivative financial instruments     10,470     3,409     -
Total Current Assets     276,373     268,411     315,349
Property and Equipment              
Oil and natural gas properties, net - full cost method of accounting, including
$224.5 million,  $283.9 million and $376.1 million of unevaluated properties not
being amortized at June 30, 2017, March 31, 2017 and December 31, 2016, respectively
    869,398     893,360     1,097,479
Other property and equipment, net     15,107     16,277     18,807
Total Property and Equipment, net of accumulated depreciation, depletion, amortization
and impairment
    884,505     909,637     1,116,286
Other Assets              
Restricted cash     25,637     25,606     25,583
Other assets     27,011     25,681     28,244
Total Other Assets     52,648     51,287     53,827
Total Assets   $ 1,213,526   $ 1,229,335   $ 1,485,462
LIABILITIES AND STOCKHOLDERS' EQUITY              
Current Liabilities              
Accounts payable   $ 80,891   $ 70,706   $ 101,117
Accrued liabilities     34,517     33,827     63,660
Asset retirement obligations     61,766     73,073     56,601
Current maturities of long-term debt     3,443     3,616     4,268
Total Current Liabilities     180,617     181,222     225,646
Long-term debt, less current maturities     73,940     73,996     74,229
Asset retirement obligations     553,515     549,938     696,763
Other liabilities     16,347     14,299     14,481
Total Liabilities     824,419     819,455     1,011,119
Commitments and Contingencies              
Stockholders’ Equity              
Preferred stock, $0.01 par value, 10,000,000 shares authorized and no shares outstanding
at June 30, 2017, March 31, 2017 and December 31, 2016
    -     -     -
Common stock, $0.01 par value, 100,000,000 shares authorized and 33,221,427, 33,211,594
and 33,211,594 shares
             
issued and outstanding at June 30, 2017, March 31, 2017 and December 31, 2016 respectively     332     332     332
Additional paid-in capital     884,008     881,138     880,286
Accumulated deficit     (495,233)     (471,590)     (406,275)
Total Stockholders’ Equity     389,107     409,880     474,343
Total Liabilities and Stockholders’ Equity   $ 1,213,526   $ 1,229,335   $ 1,485,462



ENERGY XXI GULF COAST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except per share information)
(Unaudited)
 
  Successor    Predecessor
  Three Months
        Three Months
      Three Months
  Ended
  Ended
  Ended
  June 30,
  March 31,
    June 30,
  2017
  2017
  2016
                 
Revenues                  
Oil sales $ 118,180   $ 133,621     $ 130,083
Natural gas liquids sales   2,370     2,227     2,996
Natural gas sales   13,753     18,368     14,725
Gain on derivative financial instruments   9,412     3,698     -
Total Revenues   143,715     157,914     147,804
                 
Costs and Expenses                
Lease operating   85,336     75,157     76,803
Production taxes   482     239     155
Gathering and transportation   13,172     21,716     14,260
Depreciation, depletion and amortization   38,661     42,006     40,078
Accretion of asset retirement obligations   10,050     12,397     18,905
Impairment of oil and natural gas properties   (848)     44,054     142,640
General and administrative expense   20,716     21,604     23,174
Reorganization items   (3,773)     2,244     -
Total Costs and Expenses   163,796     219,417     316,015
                 
Operating Loss   (20,081)     (61,503)     (168,211)
                 
Other Income (Expense)                
Other income, net   80     22     160
Interest expense   (3,642)     (3,834)     (13,438)
Total Other Expense, net   (3,562)     (3,812)     (13,278)
                 
Loss Before Reorganization Items and Income Taxes   (23,643)     (65,315)     (181,489)
                 
Reorganization items   -     -     (14,201)
                 
Loss Before Income Taxes   (23,643)     (65,315)     (195,690)
Income Tax Benefit   -     -     (138)
                 
Net Loss   (23,643)     (65,315)     (195,552)
Preferred Stock Dividends   -     -     352
Net Loss Attributable to Common Stockholders $ (23,643)   $ (65,315)   $ (195,904)
                 
Loss per Share                
Basic and Diluted $ (0.71)   $ (1.97)   $ (2.01)
                 
Weighted Average Number of Common Shares Outstanding                                                                    
Basic and Diluted   33,237     33,228     97,540



ENERGY XXI GULF COAST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
 
                        Successor
Predecessor 
            Three Months
  Three Months
Three Months
            Ended
  Ended
Ended
            June 30,
  March 31,
June 30,
            2017
  2017
2016
                         
Cash Flows From Operating Activities                        
Net loss           $ (23,643)   $ (65,315) $ (195,55)
Adjustments to reconcile net loss to net cash provided by                        
operating activities:                        
Depreciation, depletion and amortization             38,661     42,006   40,078
Impairment of oil and natural gas properties              (848)     44,054   142,640
Change in fair value of derivative financial instruments             (7,061)     (3,409)   -
Accretion of asset retirement obligations             10,050     12,397   18,905
Amortization and write off of debt issuance costs and other             6     -   881
Deferred rent             2,016     2,015   2,215
Provision for loss on accounts receivable             300     -   3,200
Reorganization items             (3,773)     -   -
Stock-based compensation             2,870     852   163
Changes in operating assets and liabilities                        
Accounts receivable             12,153     15,727   9,145
Prepaid expenses and other assets             4,165     6,969   (11,519)
Restricted cash             718     25,201    
Settlement of asset retirement obligations             (18,175)     (9,316)   (3,241)
Accounts payable, accrued liabilities and other             8,515     (59,683)   25,332
Net Cash Provided by Operating Activities             25,954     11,498   32,247
                         
Cash Flows from Investing Activities                        
Capital expenditures             (5,391)     (19,105)   (18,053)
Insurance payments received             (2,010)     2,051   3,872
Transfer to restricted cash             -     -   756
Proceeds from the sale of other property and equipment             10     1,269   1,070
Other             -     -   (81)
Net Cash Used in Investing Activities             (7,391)     (15,785)   (12,436)
                         
Cash Flows from Financing Activities                        
Payments on long-term debt             (126)     (602)   -
Debt issuance costs             (61)     -   -
Net Cash Used in Financing Activities             (187)     (602)   -
Net Increase (Decrease) in Cash and Cash Equivalents             18,376     (4,889)   19,811
                         
Cash and Cash Equivalents, beginning of period             160,479     165,368   183,447
Cash and Cash Equivalents, end of period           $ 178,855   $ 160,479 $ 203,258



/EIN News/ --  

ENERGY XXI GULF COAST, INC.
RECONCILIATION OF NON-GAAP MEASURES
(In Thousands, except per share information)
(Unaudited)
 
As required under Regulation G of the Securities Exchange Act of 1934, provided below is a reconciliation of net loss to Adjusted EBITDA, a non-GAAP      
financial measure.
 
  Successor
    Three Months       Three Months
    Ended     Ended
    June 30,     March 31,
    2017     2017
           
Net Loss $ (23,643)   $ (65,315)
Interest expense   3,642     3,834
Depreciation, depletion and amortization   38,661     42,006
Impairment of oil and natural gas properties   (848)     44,054
Accretion of asset retirement obligations   10,050     12,397
Change in fair value of derivative financial instruments   (7,061)     (3,409)
Non-cash stock-based compensation   2,870     852
Deferred rent (1)   2,016     2,015
Reorganization items   (3,773)     2,244
Severance costs   2,500     3,956
Adjusted EBITDA $ 24,414   $ 42,634

(1) The deferred rent of approximately $2 million for the three months ended June 30 and March 31, 2017, is the non-cash portion of rent which reflects the extent to which our GAAP straight-line rent expense recognized exceeds our cash rent payments              


Operational Information

                Successor Predecessor
                Quarter Ended
     Quarter Ended    
                June 30,
    March 31,
June 30,
Operating Highlights               2017     2017
2016
                           
Operating revenues                          
Oil sales               $ 118,180       $ 133,621 $ 130,083
Natural gas liquids sales                 2,370     2,227   2,996
Natural gas sales                 13,753     18,368   14,725
Gain on derivative financial instruments                 9,412     3,698   -
Total revenues                 143,715     157,914   147,804
Percentage of oil revenues prior to gain                          
on derivative financial instruments                 88%     87%   88%
Operating expenses                          
Lease operating expense                          
Insurance expense                 7,101     6,250   8,269
Workover and maintenance                 13,370     10,005   17,471
Direct lease operating expense                 64,865     58,902   51,063
Total lease operating expense                 85,336     75,157   76,803
Production taxes                 482     239   155
Gathering and transportation                 13,172     21,716   14,260
Depreciation, depletion and amortization                 38,661     42,006   40,078
Accretion of asset retirement obligations                 10,050     12,397   18,905
Impairment of oil and natural gas properties                 (3,421)     44,054   142,640
General and administrative                 20,716     21,604   23,174
Reorganization items                 (3,773)     2,244   -
Total operating expenses                 163,796     219,417   316,015
Operating loss               $ (20,081)   $ (61,503) $ (168,211)
                           
Sales volumes per day                          
Oil (MBbls)                 26.8     29.1   31.4
Natural gas liquids (MBbls)                 1.0     0.9   1.5
Natural gas (MMcf)                 48.9     65.9   86.5
Total (MBOE)                 35.9     41.0   47.3
Percent of sales volumes from oil                 75%     71%   66%
                           
Average sales price                          
Oil per Bbl               $ 48.45   $ 51.04 $ 45.55
Natural gas liquid per Bbl                 27.37     27.52   21.55
Natural gas per Mcf                 3.09     3.10   1.87
Gain on derivative financial instruments per Bbl                 2.88     1.00   -
Total revenues per BOE                 43.99     42.83   34.32
                           
Operating expenses per BOE                          
Lease operating expense                          
Insurance expense                 2.17     1.70   1.92
Workover and maintenance                 4.09     2.71   4.06
Direct lease operating expense                 19.85     15.98   11.86
Total lease operating expense per BOE                 26.11     20.39   17.84
Production taxes                 0.15     0.06   0.04
Gathering and transportation                 4.03     5.89   3.31
Depreciation, depletion and amortization                 11.83     11.39   9.31
Accretion of asset retirement obligations                 3.08     3.36   4.39
Impairment of oil and natural gas properties                 (0.26)     11.95   33.12
General and administrative                 6.34     5.86   5.38
Reorganization items                 (1.15)     0.61   -
Total operating expenses per BOE                 50.13     59.51   73.39
Operating loss per BOE               $ (6.14)   $ (16.68) $ (39.07)

 

Investor Relations Contact
                    Al Petrie
                    Investor Relations Coordinator 
                    713-351-0617
                    apetrie@energyxxi.com

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