Energy XXI files for bankruptcy after $5-billion expansion

By Tiffany Kary, Joe Carroll on 4/14/2016

HOUSTON (Bloomberg) -- Energy XXI Ltd., a U.S. oil and gas explorer, filed for bankruptcy protection after spending $5 billion on acquisitions in the years leading up to the crude slump.

The company entered Chapter 11 in Houston after reaching a restructuring agreement with noteholders, it said Thursday in a statement. “Energy XXI will eliminate more than $2.8 billion in debt from its balance sheet, substantially deleverage its capital structure and position the company for long-term success,” it said.

Energy XXI bills itself as the largest publicly traded independent producer on the Gulf of Mexico shelf. Since its initial public offering more than 10 years ago, the Houston-based company bought MitEnergy, picked up $1.01 billion of properties from Exxon Mobil Corp. and spent $2.3 billion on EPL Oil & Gas, according to its website.

As recently as three years ago, CEO John Schiller was planning to expand as far afield as Southeast Asia, where he said the geology is similar to the gulf’s.

Delayed Payments

But with oil hovering around $30/bbl, Energy XXI wound up buying back more than $1.7 billion in debt over seven months to trim its interest expense. In a February regulatory filing, the company said it doubted it could meet financial commitments over the coming year and continue operating. Crude’s recovery to about $40 since then hasn’t been enough.

Energy XXI, after warning March 7 that it may seek bankruptcy protection, made an $8.8 million interest payment that was due Feb. 16, while delaying two payments due March 15 on about $1.6 billion of borrowings.

Schiller, a protege of wildcatter James "Jim Bob" Moffett, had also steered the company into costly exploration projects with Moffett’s Freeport-McMoRan Inc. several miles beneath the Gulf of Mexico. Energy XXI said Thursday that Schiller will continue as CEO.

The company, which plans to operate as normal during the restructuring, has about $180 million in cash and expects to pay suppliers and vendors in full, it said in the statement. The explorer listed both assets and liabilities of as much as $500 million in its filing in the U.S. Bankruptcy Court for the Southern District of Texas.

Bankruptcy Wave

Oil began its slide in mid-2014 when crude was at about $100/bbl. A glut has driven dozens of energy explorers into Chapter 11, including Magnum Hunter Resources Corp., Samson Resources Corp. and Sabine Oil & Gas Corp. Rig operators such as Paragon Offshore Plc and Hercules Offshore Inc. have also declared bankruptcy as demand for their services drops.

About 35% of E&P companies worldwide—some 175 firms—are at risk of bankruptcy this year, according to a Deloitte LLP study published in February. Together, these companies have around $150 billion in debt on their balance sheets, according to the report.

The bankruptcy is Energy XXI Ltd., 16-31928, U.S. Bankruptcy Court, Southern District of Texas.

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