Energy XXI Ltd (NASDAQ:EXXI) Oil-Weight Base Strong To Justify $5 Share Price Target


Dallas, Texas 07/01/2015 (Financialstrend) – Energy XXI Ltd (NASDAQ:EXXI) has reached an agreement with Bureau of Ocean Energy Management that will see it provide $150 million in supplemental bonding requirement. The transaction brings the company’s total supplemental bonding to $319 million with the annual premium expense standing at $4.8 million.

Complex Debt Structure

Energy XXI Ltd (NASDAQ:EXXI) is to maintain $226 million in Letters of Credit to third parties as part of its additional assets in the Gulf of Mexico. BOEM, on the other hand, is to withdraw orders concerning supplemental bonding upon the dismissal of appeals filed with the Interior Board of Land Appeals.

Canaccord Genuity Stephen Berman believes the supplemental bonding agreement highlights the amount of work the company has to do to clean up its complex debt structure. The key driver of the stock going forward will depend a great deal on how the company performs on the debt front according to the analyst.

Despite the concerns over Energy XXI Ltd (NASDAQ:EXXI) debt structure, Berman maintains a ‘buy’ rating on the stock with a $5 price target. The analyst is remaining bullish over the company’s oil weighted asset base on the Gulf of Mexico. Additional catalysts going forward should come from enhanced liquidity levels as well as reduced debt levels and lowered operating costs.

Monetization of the Grand Isle Gathering System

Energy XXI Ltd (NASDAQ:EXXI) has already executed a purchase and sale agreement for the monetization of the Grand Isle Gathering System to CorEnergy Infrastructure Trust. The deal is worth $245 million in cash with the assumption of abandonment liabilities related to the assets. The company as part of the deal has signed a lease agreement that allows it to access and operate pipeline assets.

Berman believes the deal takes the company’s liquidity to $1 billion. The liquidity levels could receive an additional boost on Energy XXI Ltd (NASDAQ:EXXI) pursuing further non-core asset sales.

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