* Deal to create largest public producer focused on U.S.
* Deal worth $1.53 bln
* Offer price represents 34 pct premium to EPL's Tuesday
* EPL's shares jump about 31 pct
(Adds analyst, executive comments, graphics link; updates
By Garima Goel and Swetha Gopinath
March 12 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.
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)