March 12, 2014 / 11:06 AM / in 3 years

UPDATE 3-Energy XXI to buy rival to take on private explorers in US Gulf

4 Min Read

* Deal to create largest public producer focused on U.S. Gulf shelf

* Deal worth $1.53 bln

* Offer price represents 34 pct premium to EPL's Tuesday close

* EPL's shares jump about 31 pct (Adds analyst, executive comments, graphics link; updates shares)

By Garima Goel and Swetha Gopinath

March 12 (Reuters) - Energy XXI Ltd will buy its closest rival EPL Oil & Gas Inc for $1.53 billion as the company looks to better compete with private-equity backed explorers such as Fieldwood Energy in the shallow-water region of the Gulf of Mexico.

Energy XXI offered $39 per share, a premium of about 34 percent to EPL's Tuesday close.

Shares of EPL jumped 30.5 percent to $37.98 in late morning trading on the New York Stock Exchange, while those of Energy XXI were down about 6 percent at $22 on the Nasdaq.

Companies that are focused on the Gulf of Mexico shelf have been turning to acquisitions because they are struggling to replace reserves and increase production as fields mature and new oil and gas discoveries shrink in size.

Energy XXI said on Wednesday that the acquisition would boost its production to about 65,000 barrels of oil equivalent per day (boepd). The company produced about 45,100 boepd in the second quarter ended Dec. 31.

"EPL's assets and operations closely resemble our own ... with some of the highest margins in the industry," Energy XXI Chief Executive John Schiller said in a statement.

Stifel Nicolaus analysts said Energy XXI had made a "full and fair offer" and they were not expecting a competing bid.

"The merger is consistent with EXXI's strategy of bulking up in Shelf through acquisitions and squeezing oil out of older fields," Tudor, Pickering, Holt & Co analysts said in a note.

The EPL buy is Energy XXI's largest deal since it agreed to buy nine oil and gas fields in the shallow waters of the Gulf of Mexico from Exxon Mobil for $1.01 billion in late 2010.

Energy XXI and EPL were, however, facing competition from the likes of Fieldwood Energy for U.S. Gulf assets sold off by big oil companies such as Apache Corp.

Fieldwood Energy, owned by private-equity firm Riverstone Holdings LLC, has become the largest player in the shallower continental shelf region of the U.S. Gulf.

The company bought Apache's Gulf shelf assets for $3.75 billion in July and acquired SandRidge Energy Inc's Gulf assets for $750 million in January.

Deal Details

Energy XXI, which will become the largest public oil and gas producer focused on the U.S. Gulf shelf, said it expected an enterprise value of about $6 billion after the deal is closed.

Energy XXI had a market value of $1.64 billion as of Tuesday, while EPL was worth $1.14 billion.

About 65 percent of the deal value will be paid in cash, with the rest in stock. EPL shareholders can elect to get $39 in cash per share, or 1.669 Energy XXI shares, or $25.35 in cash plus 0.584 Energy XXI shares.

Energy XXI has increased its credit facility to $1.68 billion from $1.09 billion to fund the acquisition.

The company is taking steps to reduce debt, Chief Financial Officer West Griffin said on a conference call.

Energy XXI scrapped plans to acquire oil fields in Malaysia, saving about $100 million, Griffin said. He said the company would get about $100 million from a sale of two non-core fields in the U.S. Gulf.

Energy XXI had proved reserves of 179 million boe as of June 30, three-quarters of which were oil. About 71 percent of EPL's net proved and probable reserves of 106.3 million boe is oil.

Schiller will lead the combined company and one member of EPL's board will join its board.

Citigroup Global Markets and Credit Suisse Securities were Energy XXI's financial advisers, while Vinson & Elkins LLP was its legal adviser. Barclays is EPL's financial adviser and Sidley Austin LLP was its legal adviser. (Writing by Sayantani Ghosh; Editing by Savio D'Souza, Sriraj Kaluvilla and Kirti Pandey)

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