Energy XXI (Bermuda) Limited's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Energy XXI (Bermuda) Limited (EXXI)

Q2 2012 Earnings Call

February 02, 2012 10:00 am ET

Executives

Stewart Lawrence - Vice President of Investor Relations and Communications

John Daniel Schiller - Chairman and Chief Executive Officer

David West Griffin - Chief Financial Officer

Analysts

Joseph Bachmann - Howard Weil Incorporated, Research Division

Duane Grubert - Susquehanna Financial Group, LLLP, Research Division

Andrew Coleman - Raymond James & Associates, Inc., Research Division

Ronald E. Mills - Johnson Rice & Company, L.L.C., Research Division

Richard M. Tullis - Capital One Southcoast, Inc., Research Division

Joan E. Lappin - Gramercy Capital Management Corp.

Michael Kelly - Global Hunter Securities, LLC, Research Division

David Deckelbaum - KeyBanc Capital Markets Inc., Research Division

Jeffrey P. Hayden - Rodman & Renshaw, LLC, Research Division

Eric B. Anderson - Hartford Financial Management, Inc.

Unknown Analyst

Presentation

Operator

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Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Energy XXI Second Quarter Fiscal Year 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce our host for today, Mr. Stewart Lawrence, Vice President of Investor Relations. Sir, please go ahead.

Stewart Lawrence

Thank you, Karen. Welcome to the call today everybody. Presenting this today is John Schiller, Founder, Chairman and CEO; and West Griffin, Chief Financial Officer. We'll be available to answer your questions at the end of the call.

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 can include, among others, matters that we've described in our earnings releases issued last night and in our public filings. 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 the latest 10-Q to be -- to become better familiar with these risks and our company.

With that, I'll go ahead and turn it over to John.

John Daniel Schiller

Thanks, Dirk, welcome, everyone. Our second quarter financials were released yesterday. As you can see, we had record earnings for the fourth straight quarter. Highlighted in the release were production volumes of 42,700 barrels of oil equivalent a day, in line with our internal target and up 45% from prior year's average. It's important to note that crude oil production exceeded our budget by about 3,000 barrels of oil a day as we redirected some of our capital oil and away from gas projects.

We also experienced excellent development results on our oil projects. As a result, our EBITDA exceeded expectations with net income reaching nearly $100 million. Since acquiring the Exxon assets in December of 2010, we've increased production from this field by over 20%. A majority of that growth was on the oil side.

Before I update operations and discuss where that growth is coming from, let's turn the call over to West to discuss our financial performance.

David West Griffin

Thanks, John. I want to start by showing a historical chart on EBITDA and net income. As you can see on Slide 6, we more than doubled our EBITDA from the same period last year, with 4 consecutive record quarters. Net income followed too, jumping almost 9x from the same quarter last year.

Excellent results from our development program drove these results, allowing us to pay down debt at an amazing pace. Net debt has gone from $1.27 billion on December 31, 2010, to $950 million on December 31, 2011. And our net-debt-to-total-cap has gone from 58% to 44% over that same period.

Looking at the capital structure in another way, you can see our revolver has paid off, and we currently have about $100 million of cash in the bank. The only real debt remaining are our 2 long-term notes, which are callable until December 2014. So for now, we will continue to reduce net debt by stockpiling cash.

Now let's analyze volumes and revenues for the quarter. We guided last quarter to expect production to rise to around 41,500 barrels a day. As John said, we beat that, coming in at 42,700 barrels a day. More important, oil was 72% of our production, up from 70% a year earlier. The importance of that mix, of course, is a higher margin for oil. The widening spread combined with our higher oil waiting pushed our percentage of pre-hedged revenues coming from oil to 93%. So a 10% or 20% movement either way in gas prices would have minimal impact on our financial performance at this point.

The next slide is our standard per BOE snapshot for the quarter. Everything is moving in the right direction. The maintenance and workover expense is up from last quarter but in line with previous periods, relating to opportunities we continue to identify to add volumes. That production tax/other item is driven by non-cash mark-to-market of derivatives from quarter to quarter, sometimes negative like this quarter and sometimes positive like last quarter. The bottom line is that EBITDA per BOE exceeded the previous record by 15%.

I'd like to now turn the call back to John to update everyone on our operations.

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