Energy XXI (Bermuda) Limited's CEO Discusses Q3 2012 Results - Earnings Call Transcript

Energy XXI (Bermuda) Limited (EXXI)

Q3 2012 Earnings Call

May 03, 2012 10:00 am ET


Stewart Lawrence - Vice President of Investor Relations and Communications

John Daniel Schiller - Chairman and Chief Executive Officer

David West Griffin - Chief Financial Officer


Joseph Bachmann - Howard Weil Incorporated, Research Division

Duane Grubert - Susquehanna Financial Group, LLLP, Research Division

Unknown Analyst

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

David Deckelbaum - KeyBanc Capital Markets Inc., Research Division

Michael Kelly - Global Hunter Securities, LLC, Research Division

Robert Ferer - KeyBanc Capital Markets Inc., Research Division



Ladies and gentlemen, good day. At this time, I'd like to welcome everyone to the Energy XXI Third Quarter 2012 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. And now I would like to turn the call over to Stewart Lawrence, Vice President of Investor Relations. Please go ahead, sir.

Stewart Lawrence

Thank you, Allie. Welcome to the call, everyone. Presenting today is John Schiller, Chairman and CEO; and West Griffin, CFO; and a few others in the room to help answer questions when we're done.

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 become better familiar with these risks and our company.

And now I'll turn the call over to John.

John Daniel Schiller

Thanks, Stewart. Welcome, everyone. Our third quarter financials were released yesterday at the close of the market. And we have record production of 45,300 barrels equivalent oil per day for the quarter, producing nearly 70% oil. Our net realized crude price for the quarter was about $1 -- $109 per barrel, representing more than 94% of our pre-head revenues for the quarter. Bottom line is all that drives our financial success.

We hit our stride this quarter and are currently running 5 operated rigs and 4 non-operated rigs. This program resulted in a substantial increase in our CapEx for the quarter and yet we still generate our free cash flow during the quarter. Even better next quarter, we'll start reaping the benefits from the increased activity in terms of record production from those assets.

The only downside for the quarter was that it's [ph] -- our oil production, we suffered shut ins due to pipeline repairs and rig moves that caused us about 2,000 barrels of oil today, with the majority of that coming from the pipeline.

Oil has led our [ph] store for production growth and 2 years with increased oil production over 80%. Current oil production indicates that growth trend is continuing with the capacity that's running 10% above our current quarter grade. We have 6 more wells coming online this quarter with net uplift expected to top [ph] another 10,000 barrels of oil equivalent per day. I'll talk more about those wells and other operations in a few minutes, but first let's turn the call over to West to discuss our financial performance.

David West Griffin

Thanks, John. Let's take a look at a few highlights from the quarter. We realized $118.76 on crude versus $52.67 on NGLs for an average realized price of $110.54 for the quarter. That's up slightly versus $108.80 in the December quarter.

We realized natural gas prices of $2.52 this quarter versus $3.23 in the December quarter. Even though natural gas prices fell 34% quarter on quarter, our average realized price per barrel equivalent fell less than 3%. Gas prices have a minimal impact on our financial performance.

Our LOE remains essentially flat against the December quarter at $19.61 per barrel. And our EBITDA was healthy $52.16 per barrel, our second consecutive quarter above $50 per barrel, even with natural gas prices declining by over 1/3 during that period.

G&A was higher quarter on quarter, primarily due to noncash mark-to-market adjustment and stock-based compensation and profit sharing paid during the quarter. Our EBITDA for the past 2 quarters combined is $440 million. On an annualized basis, that's almost $900 million. As we continue to ramp crude oil production, we should see a significant increase in EBITDA and free cash flow.

During the fiscal third quarter, the drilling program was at its peak and we spent approximately $155 million in CapEx. And even at that rate, we were cash flow positive. As we bring production tied to this CapEx online in the June and September quarters, you will see accelerated cash flow and increased liquidity. And to help assure that we remain cash flow positive, although we believe that the fundamental for crude oil remains very constructive, we continue to look for prudent ways to enhance our existing hedge portfolio. We recently bought 15,000 barrels per day of the 75-85 WTI foot [ph] spread, paying approximately $0.70 per barrel for this through May through the December period. We are also looking at incremental hedges for calendar 2013 and 2014 periods, which give us additional downside protection while allowing us to participate in the upside.

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