NEW YORK (TheStreet) -- Shares of Energy XXI (EXXI) , commonly known as EXXI, have fallen by nearly 40% this year, currently trading at $16.50. But that is no reason to sell this stock, even with the company suffering a lack of revenue growth over the last two years. 

Why? Because EXXI, a small energy company focused on producing oil from the shallower waters of the U.S. Gulf of Mexico Shelf, has forecast a revival in its latest quarterly results on the back of the $2.3 billion acquisition of its peer EPL Oil & Gas (EPL) . After completion of the acquisition in June, EXXI became the biggest publicly traded independent operator at the Gulf of Mexico Shelf.

That means EXXI could also become a takeover target of a bigger oil company looking to expand its position in the Gulf of Mexico. There are several oil majors operating in this area including Exxon Mobil (XOM) - Get Report , Chevron (CVX) - Get Report , Royal Dutch Shell (RDS.A) and BP (BP) - Get Report . While most of the majors are largely focused on exploiting the deepwater areas, with advancements in exploration and production technologies, such as higher quality seismic analysis and horizontal drilling, the big boys of the industry might consider revisiting the shallower waters.

It is worth mentioning that EXXI is essentially an execution story. The company's future depends heavily on its ability to successfully integrate the EPL acquisition. Failure to do so will jeopardize its turnaround plans.

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That said, EXXI's growth strategy has always been based on buying and exploiting assets from other oil companies. Since its birth in 2005, EXXI has acquired and integrated a number of properties from several energy companies.

Before EPL, about four years ago, EXXI purchased shallow water assets from Exxon Mobil for $1 billion. In an email to TheStreet, Senior Vice President Stewart Lawrence said that with the exception of some minor setbacks, overall, the "Exxon integration was seamless."

On Aug. 13, the company released its annual results for the fiscal year 2014 showing a lack of any meaningful increase in crude oil production over the last two years. This was largely because EXXI did not undertake any big acquisitions in this period.

For the full year, EXXI produced around 30,100 barrels of oil per day, slightly higher from 2013 but largely unchanged from 2012. The company's revenue follow a similar trend. Meanwhile, its operating income has gradually dropped from $483 million two years ago to $280 million last year amid increasing operating expenses and derivative activity.

EXXI has also suffered operational setbacks which further exacerbated the situation. For instance, the company encountered several problems during completion of a Davy Jones well. The drop in oil prices from more than $105 per barrel in the beginning of 2012 to less than $100 a barrel throughout most of 2012 and 2013 also did not help.

Due to these reasons, EXXI has performed poorly and this is reflected in its stock price. That said, all of these issues are now in the past, its future is now looking brighter than ever, mainly due to the EPL acquisition.

EXXI has forecast 47.9% increase in crude oil production for the current fiscal year which ends in on June 30, 2015. Higher production will also give a serious boost to the company's revenues, which could grow by 41% in the ongoing fiscal year, as per data compiled by Thomson Reuters. That is huge for a company which has been struggling with soft production growth and declining revenues.

On the flip side, EXXI's long term debt has grown from $1.35 billion a year ago to more than $3.7 billion by the end of June due to the expensive acquisition. However, investors shouldn't panic as the company has a proven track record of increasing its leverage for acquisition, then using the new asset to bring down the debt to a reasonable level.

EXXI brought down its net debt to total capitalization ratio, which is commonly used to gauge leverage, to 39% in 2012 after the ratio rose to 62% when it purchased Exxon Mobil's assets. This time, this metric has increased to 67% due to the EPL acquisition, but EXXI has targeted to reduce this ratio to between 40% and 60%.

At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

TheStreet Ratings team rates ENERGY XXI (BERMUDA) as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate ENERGY XXI (BERMUDA) (EXXI) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity." You can view the full analysis from the report here: EXXI Ratings Report