In April, Energy XXI Ltd. (EXXI) was “90% certain” it would have an agreement for its Grand Isle midstream subsea assets by the end of June.
It was a little early, but on June 22 Energy XXI said it had a purchase and sale agreement for the assets that enables the company to hold on to the pipeline to serve its needs.
In deal worth $257.5 million, CorEnergy Infrastructure Trust Inc. (CORR) will pay Energy XXI $245 million in cash and assume $12.5 million in abandonment liabilities related to the pipeline system.
Energy XXI will continue to operate the subsea Grand Isle Gathering System (GIGS) under an 11-year primary term lease, with an 
initial renewal term of nine years. The company’s annual, minimum rent payments will average $40.5 million per year during the primary term.
“Continuing to maintain operatorship of the GIGS is important to us, ensuring transportation of a significant portion of our production,” said John Schiller, Energy XXI chairman, president and CEO.
Energy XXI has said it also plans to sell its East Bay Field in the Gulf of Mexico (GoM) before June 30. The field has produced 675 million barrels (MMbbl) of oil and 1.3 trillion cubic feet of gas.
Under the terms of the lease agreement, Energy XXI will retain any revenues generated from transporting third-party volumes. The transaction is expected to close prior to June 30, elevating the company’s liquidity to nearly $1 billion.
CorEnergy acquires 100% of the subsea, midstream pipeline system and related onshore Grand Isle terminal. The system serves oil-producing fields in the shallow portion of the GoM.
David Schulte, CorEnergy CEO, said the infrastructure is critical to large oil-producing fields on the GoM shelf. GIGS provides essential infrastructure to move oil and water from offshore fields onto land, and will enlarge and diversify the company’s portfolio.
“Energy XXI is a quality operator with a dedicated team focused on increasing production and reserves in the GIGS area,” Schulte said. “The long-lived system, including the onshore facilities, will further diversify our growing infrastructure portfolio.”
The GIGS system transports about half of its capacity at 60,000 bbl/d, including 18 Mbbl/d of oil and 42 Mbbl/d of water. Total capacity is 120 Mbbl/d. About 42% of GIGS volume was Energy XXI oil production in the fiscal year ending June 30, 2014, said Andrew Coleman, analyst, Raymond James Equity Research.
The GIGS serves six Energy XXI fields and one operated by ExxonMobil Corp. (XOM).
CorEnergy expects to finance the acquisition with a combination of a common stock offering of 11.25 million shares, $75 in debt and an expansion of its existing senior credit facilities. The remainder of the acquisition cost will be funded with cash.
BofA Merrill Lynch and Wells Fargo are joint book running managers for the common stock offering and for the convertible note offering.
Regions Securities LLC was financial adviser to CorEnergy in connection with the acquisition. KeyBanc Capital Markets Inc. was financial adviser to Energy XXI.
Contact the author, Darren Barbee, at dbarbee@hartenergy.com.
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