Energy XXI to Acquire EPL Oil & Gas for $1.5 Billion

Energy XXI (Bermuda) Ltd. agreed to acquire EPL Oil & Gas Inc. for $1.5 billion to become the largest publicly traded independent producer on the Gulf of Mexico shelf.

The purchase price of $39 a share for EPL stockholders represents a 34 percent premium over the company’s closing price yesterday, according to a statement today. The transaction will be 65 percent cash and 35 percent Energy XXI common shares.

Energy XXI, with its main office in Houston, has doubled production in three years through acquisitions and the use of horizontal drilling to boost oil recovery. The combined entity, termed independent because it won’t have refineries, will pump 65,000 barrels of oil equivalent a day, of which 70 percent will be crude.

“From day one, they’ve been acquire and exploit within their wheelhouse in the Gulf of Mexico shelf,” Chad Mabry, a Houston-based analyst for MLV & Co. who rates Energy XXI shares a buy and doesn’t own any, said today in a telephone interview. “This makes them the largest public operator on the shelf.”

Energy XXI Chief Executive Officer John Schiller is betting he can boost proved reserves, Mabry said, given the offer price is more than the $33 a share he says EPL is worth.

Past Deals

Since founding Energy XXI in 2005, Schiller has snapped up Gulf of Mexico properties from Exxon Mobil Corp. and other explorers. The shelf refers to the shallower waters near the coast.

“We will be able to apply horizontal drilling and other exploitation expertise across the expanded portfolio,” Ben Marchive, executive vice president of exploration and production at Energy XXI, said in today’s statement. The company also will use advanced seismic data to probe deeper and below layers of salt, he said.

EPL, also based in Houston, is focused on state and federal waters off Louisiana in the Gulf of Mexico. It owns working interests in 37 producing fields, mainly concentrated within nine core production areas.

Energy XXI has been more aggressive with exploration and drilling technology than EPL, which has pursued lower-risk operations since emerging from bankruptcy in 2009, said Mabry.

The total consideration to EPL shareholders is expected to consist of about $1 billion in cash and about 23.4 million common shares of Energy XXI. Schiller will remain CEO and chairman of the combined company.

Upon completion, Energy XXI expects to have an enterprise value of about $6 billion. The total value of the deal including debt is $2.3 billion.

Energy XXI fell 7.8 percent to $21.54 at the close in New York. EPL jumped 29 percent to $37.50.

Citigroup Inc. and Credit Suisse Group AG advised Energy XXI. Vinson & Elkins LLP was legal adviser. Barclays Plc advised EPL and Sidley Austin LLP gave legal advice.

(Updates with closing share prices in 12th paragraph.)
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