Apache, EXXI Form JV

Formation of JV to develop 135 blocks on the central GoM shelf.

Energy XXI Ltd. (Nasdaq: EXXI) has formed a joint venture with Apache Corp. (NYSE: APA) to develop salt domes across 135 blocks on the central Gulf of Mexico shelf.
In addition, Energy XXI has bought a 25% working interest in 21 non-producing primary-term leases with Apache. A new seismic program is under way to define the potential of the area of mutual interest, which covers about 633,000 acres.
“This joint venture exemplifies our interest in exploring salt structures where new seismic data, remapping and remodeling could uncover significant hidden hydrocarbons,” Energy XXI chairman and chief executive John Schiller said.
The company’s current production is around 30,000 bbl per day.
The announcement gained initial praise from equity research analysts, who liked the strategy to stay in an area that the company already operates.
“We like … that EXXI keeps in the Gulf of Mexico (GoM),” according to a recent report from Cowen Securities. The announcement of the joint venture with Apache Corp. follows to other Gulf of Mexico exploration deals with Exxon Mobil Corp. and a partnership with McMoran Exploration to develop the ultra deep Gulf of Mexico.
“These operators are among the top five leaseholders in the GoM and should continue to provide EXXI with a compelling opportunity set,” the report states.
But the report cautioned that near-term production issues are likely to weigh on the company’s shares. EXXI now expects to produce around 44,000 barrels of oil equivalent (BOE) per day in the third quarter. “We are disappointed with this guidance given the company’s run rate of 46,000 BOE per day at the end of January (with shut-in volumes it expected to return) and our estimate of 48,700 BOE per day,” the report states.
Despite the concerns about the company’s near-term production, Cowen Securities maintains its “Buy” rating for the shares and holds to its target price of $35 per share. Its price closed earlier this week at $30.04 per share.
Cowen uses two approaches to assess the value of Energy XXI’s stock. The first is a relative value approach, which uses common market multiples, and the second is an intrinsic value assessment of the company’s net asset value.
“We rate Energy XXI as Buy because of its quality assets and exploration potential,” the report states.