EXXI 3 Offshore Drillers Ready to Be Plucked From the Storm
ByClaire PooleFollow | 04/09/15 - 11:04 AM EDT0
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NEW YORK (The Deal) -- Oil and gas explorers and producers that work on the land have it easy: They can move in and out of wells quickly when prices fall or when they find better prospects elsewhere.
Offshore operators aren't as lucky. They have to build a lot of infrastructure -- in the water, no less -- to pursue their quarry. So moving in and out of wells takes a lot of time and a lot of money: The typical deepwater project can cost $1 billion or more, most or all of which would be spent over a five-year period before any returns are seen, according to petroleum industry adviser Gaffney, Cline and Associates. "As a result, projects currently underway are less likely to be stopped," said Bob George, an executive director and senior strategic adviser at the firm.
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That's one of the reasons why companies like Energy XXI (EXXI - Get Report), W&T Offshore (WTI - Get Report) and Stone Energy (SGY - Get Report) have been punished so severely in the stock market after the dramatic drop in oil prices. Energy XXI, for example, is trading 83% off its 52-week high, while W&T's stock is down 70% and Stone's shares have declined 66%. Some observers think their troubles could force them to sell assets -- and perhaps themselves. "They are the tail end of the whip," as one industry watcher put it recently.
Royal Dutch Shell's (RDS.A) $70 billion purchase of BG Group -- a deal that gives the buyer access to arguably the best deepwater oil resource globally in Brazil, according to Tudor, Pickering, Holt & Co. Securities -- could very well spark some M&A among companies operating offshore. "Shell's move ... is likely to reignite interest in a moribund space," Tudor, Pickering, Holt said.
Houston-based Energy XXI, led by John Schiller, probably didn't have the best of timing when it bought EPL Oil & Gas last year for $2.3 billion, a move that loaded it up with debt shortly before oil prices began to slide. Industry sources say the company hasn't been able to sell its shallow-water assets in the Gulf of Mexico for a price it likes. (Bids came in at year-end, and it was hoping for $300 million to $350 million). But it was able to raise $1.25 billion in a private senior notes offering to repay debt on its revolver, which bolstered its liquidity, and to amend its revolver, which provided some covenant relief. Global Hunter Securities analyst Mike Kelly said he remains on the lookout for the company to sell its Grande Island pipeline assets, which could bring in an additional $250 million to $300 million.
