Domestic oil and gas explorer
Energy XXI (Bermuda) Ltd.
) has agreed to acquire smaller rival
EPL Oil & Gas Inc.
) for about $2.3 billion in stock, cash and debt. Following the
announcement, shares of EPL surged 30%, while those of Energy XXI
fell about 6%.
Both companies, based in Houston, are upstream players engaged in
the exploration and development of crude oil and natural gas
resources in the U.S. Gulf of Mexico (GoM) shelf. The deal will
create the largest publicly-owned independent oil producer in the
region's shallow water, with 10 oilfields, daily production of
approximately 65,000 barrels of oil equivalent and an enterprise
value of $6 billion.
The transaction has been okayed by the boards of both companies
but awaits regulatory and shareholder approval. We expect the
buyout to conclude by June 1 following which the current
stockholders of Energy XXI will own approximately 77% of the
combined company, with EPL shareholders owning the rest. The
resulting entity - to be headquartered in Houston - will be led
by Energy XXI Chairman and CEO John Schiller, while one EPL
director will join the enlarged board.
Under the terms of the agreement, EPL shareholders will receive
$25.35 in cash and 0.584 shares of Energy XXI for each share they
hold. This combination of cash and stock values EPL shares at $39
apiece, a 34% premium to the pre-announcement closing price. The
cash component of the deal is worth about $1 billion, while
equity contribution will total around $500 million. Additionally,
Energy XXI will assume $707 million in debt.
The acquisition - Energy XXI's largest in more than three years -
will allow the GoM pure play widen its presence in the central
shallow water region, thereby lowering capital costs and
improving operating efficiencies. In particular, as access to new
energy resources in the GoM becomes more difficult, Energy XXI,
like most of its peers, has been facing headwinds to replace its
reserve base and grow production. The EPL buy will help Energy
XXI to overcome this problem.
Both EPL and Energy XXI retain a Zacks Rank #3 (Hold), implying
that they are expected perform in line with the broader U.S.
equity market over the next one to three months.
Meanwhile, investors interested in the 'Oil/Energy' sector may
consider stocks like
Helmerich & Payne Inc.
Patterson-UTI Energy Inc.
). Both of them carry a Zacks Rank #1 (Strong Buy).
EPL OIL&GAS INC (EPL): Free Stock Analysis
ENERGY XXI LTD (EXXI): Free Stock Analysis
HELMERICH&PAYNE (HP): Free Stock Analysis
PATTERSON-UTI (PTEN): Free Stock Analysis
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