Energy XXI bought back $428 million bonds, has $1 billion buyback goal

By Paul Deckelman

New York, Sept. 30 – Energy XXI (Bermuda) Ltd.’s chairman, president and chief executive officer said that one of the keys to the company’s ability to continue to survive and thrive in the current low energy price environment is lowering its more than $4 billion debt load.

“We’ve got to address the debt,” John D. Schiller told participants at the Johnson & Rice Energy Conference on Wednesday in New Orleans, adding that “we’re doing that.” The Hamilton, Bermuda-based oil and natural gas offshore exploration and production company has repurchased $428 million face amount of its outstanding bonds over the past few months at deeply discounted prices in privately negotiated transactions, which has produced annual interest cost savings totaling $32 million.

He said that the company is setting a goal of reducing its debt by $1 billion, including the bonds that have already been taken out, acknowledging that “we’ve got to do something else there to get to the $1 billion target.”

Schiller said that “the bond market is already an illiquid, strange market, but we were able to do some things quietly behind the scenes there and buy that position.”

According to data provided by the company in a supplemental presentation to go along with the CEO’s remarks, Energy XXI repurchased $123.7 million of its $$250 million of outstanding 7¾% senior notes due 2019 for $29.8 million, or at an average price of 24.1 cents on the dollar, leaving $126.3 million of the notes still outstanding.

It bought back $253.7 million of its $500 million of 7½% senior notes due 2021 at an average cost of 21.4 cents on the dollar, or $54.2 million total, leaving $246.3 million outstanding.

It also repurchased $50.4 million of its $650 million of 6 7/8% notes due 2024 at an average price of 20.6 cents on the dollar, or $10.4 million total, leaving $599.6 million still outstanding.

More buybacks possible

Schiller said that “we’ll continue to look at that” [private bond repurchases] as a means toward achieving the company’s $1 billion goal.

“We continue to advance on that,” he added. “The market is in the right place, so I think you’ll see us make something happen there.”

Besides the aforementioned bonds remaining outstanding, the company’s capital structure also included $750 million of 9¾% senior notes due 2017, $510 million of 8¼% senior notes and $400 million of 3% convertible notes due 2018 and $1.45 billion of 11% senior secured second-lien notes due 2020 that Energy XXI sold in March.

The latter bonds came to market via the company’s wholly owned Energy XXI Gulf Coast, Inc. subsidiary in a regularly scheduled forward calendar deal that priced at 96.313 on March 5 to yield 12%. The transaction was upsized from an originally announced $1.25 billion.

Ample liquidity

The company also had $150 million of borrowings outstanding under its $500 million revolving credit facility drawn by its wholly owned indirect subsidiary EPL Oil & Gas Inc.

Schiller said that because the company proactively reduced the size of that facility to $500 million in March from $1.5 billion, “our banks are very comfortable,” and the company now has “no pressure on us for this redetermination period.” (Energy companies with asset-based credit facilities such as Energy XXI undergo semiannual borrowing-base redeterminations in April and October, during which their lenders calculate the value of the companies’ proved and potential reserves in light of current and expected energy prices to determine how much credit to extend to the companies.)

Schiller asserted that “one of the reasons, frankly, that we raised the amount of money that we did in March was to make sure we didn’t get exposed here in October.”

The CEO said that the company has $679 million of total liquidity, including cash, equivalents and short-term investments and revolver availability. The $350 million of availability after the EPL borrowings was further reduced by $227 million of outstanding letters of credit.

“We’ve got plenty of cash liquidity,” the CEO concluded. “We understand that liquidity, we’re not out there throwing it away, we’re here to be a long-term survivor – and you’ll see that everything we do is focused on how do we get to a neutral cash flow and then positive cash flow in the environment we’re in.”

© 2015 Prospect News.
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