Energy XXI (Bermuda) Limited (EXXI)
F3Q10 (Qtr End 03/31/10) Earnings Call Transcript
May 6, 2010 10:00 am ET
Stewart Lawrence – VP, IR & Communications
John Schiller – Chairman and CEO
Steve Weyel – President and COO
Duane Grubert – Susquehanna Financial Group
Steven Karpel [ph]
Ron Mills – Johnson Rice
Steve Berman – Pritchard Capital
Richard Tullis – Capital One Southcoast
Nicholas Pope – Dahlman Rose
Joan Lappin – Gramercy Capital
Jeff Hayden – Rodman & Renshaw
Previous Statements by EXXI
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Good day, ladies and gentlemen and welcome to Energy XXI third quarter 2010 earnings conference call. (Operator instructions) As a reminder, this conference call is being recorded.
And now, your host for today's conference, Stewart Lawrence. Please begin, sir.
Thank you, Tyron. Presenting today, we have John Schiller. We're going to make the call a little shorter than normal in terms of the formal presentation to leave plenty of room for Q&A. We'll, obviously, be – We've got the team here available to answer questions.
Before we get started, I need to remind everyone that our remarks today, including answers to your questions, include statements that we believe to be forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those currently anticipated. Those risks include, among others, matters that we've described in our earnings release issued today and our public filing. We disclaim any obligation to update these forward-looking statements. While the Company believes these forward-looking statements are reasonable, they are subject to factors such as commodity prices, competition, technology and environmental and regulatory compliance. Our drilling schedules, capital plans and other factors may cause our results to differ materially. I urge you to read our 10-K and our latest 10-Q to be filed later today to become better familiar with these risks and our company.
Now, I'll turn the call over to John.
Thanks, Stewart. Good morning, everyone. Our third quarter demonstrated the benefit of the MitEnergy acquisition and our oil focus as we posted solidly profitable results. Our production volume rose 23% and our EBITDA jumped 33%.
You'll note that we significantly under-spent cash flow, allowing us to pay down debt by almost $60 million during the quarter. About $20 million of that was receivable to MitEnergy on the closing of the acquisition, post closing adjustments.
The free cash flow from operations was nonetheless impressive. At the end of the quarter, net debt was down to $609 million, with only about $71 million drawn against the revolver. That leaves a lot of availability should we need it for anything. And we definitely do not expect to need it to fund the drilling program, including our ultra-deep drilling.
Also on the subject of debt, earlier this week, our second-lien notes tender was completed and we expect to close that exchange today, making all but a handful of the notes freely tradable, one coefficient [ph]. I'm sure that will be helpful from a pricing and liquidity standpoint for many of you.
Now a quick update on the ultra-deep shelf. We continue to make excellent progress. Both at Davy Jones 2 and the Blackbeard East wells are ahead of schedule and under AFB. As of this morning, Davy Jones 2 is drilling ahead below 5,000 feet and our Blackbeard East well is drilling a head below 15,200 feet. Blackbeard East costs to date are $34 million, $5 million net to the company and we expect to be to the top of the salt for less than $40 million. Our next casing point will be around 16,500 feet.
Our Davy Jones task force continues to make good headway on the completion design for our ultra-deep wells. We plan on utilizing 25,000 pound equipment across the board to complete the Davy Jones number 1 well. We will complete the well for production between 12 to 18 months from now. Vendors have begun engineering designs on all the major components, including the tree, subsurface safety valve, tubulars and pumping equipment. We expect to have all major long-lead items ordered by early June.
We have no reason to believe that the timing or cost of any of this will be affected in the aftermath of the recent incident. Unfortunately, ultra-deep program in our third quarter results have been overshadowed by the rig explosion and oil spill in the deepwater Gulf of Mexico. We'll talk a bit more about this tragic event and what it means for the future of Energy XXI.
I'll start with a disclaimer that the cause of BP's tragedy is unknown, so nobody can claim it can never happen to them. What we can say is that our industry has over 60 years of experience drilling more than 60,000 wells on the shelf in the Gulf of Mexico without having a major incident like this one. In fact, the safety record over the past couple of decades has been excellent.
As the Wall Street Journal, said in an opinion piece Tuesday, the industry's record has been extraordinary, given the scope of its operations, with the amount of spill being miniscule. For our part, Energy XXI has consistently achieved environmental health and safety results significantly better than the industry average. We've even been a finalist for the SAFE award from the MMS.
We will also highlight some basic differences between drilling on the shelf and the deepwater. First and foremost, our BOPs are on the rig, not on the ocean floor under thousands of feet of water. Consequently, we don't need a riser for any of our drilling on the shelf. So what we're physically talking about is our BOP stack sits about 20 to 25 feet below the floor of our drilling rig. We can put men on it. We can manually shut in the BOPs in times of well control with all our automation cells.