Energy XXI chief: Massive Gulf merger will drive oil field growth (photos)

HOUSTON – Energy XXI’s $1.5 billion deal to buy another offshore oil and gas producer is notable in the energy industry, as corporate acquisitions have given way to a slew of asset transactions in recent years.

But Energy XXI Chairman and CEO John Schiller said in an interview with FuelFix Wednesday that it’s a chance to capitalize on synergies that oil producers don’t typically get when offshore leases simply trade hands.

His company, for example, is more focused on optimizing oil production rates in the Gulf, while the company selling itself, Houston-based EPL Oil & Gas, is stronger in geosciences activities such as using seismic equipment, he said.

“We’ve been saying we’ll keep buying assets, but in this case, the companies do exactly the same thing in the same areas,” Schiller said.

Houston growth

Both an improved understanding of geosciences and Energy XXI’s 12 production engineers will have a hand in boosting the output of their existing oil fields, he said.

“In this business, it’s all about pressure drops,” he said, adding that EPL has only one production engineer. “You have to maximize that – we’ve always been focused on it.”

Together, the companies — worth a combined $6 billion in enterprise value — will spend about $1.1 billion in capital expenditures this year, largely geared to expand operations in the Gulf, he said.

It will be an all-hands-0n-deck effort: Schiller said the company’s Houston headquarters would grow from about 200 to 300 employees after the deal.

People are really hard to get right now, so I don’t see a lot of reduction in Houston,” he said.

Growing Gulf reserves

Combining the two companies’ offshore oil fields will make it the third-largest producer in the Gulf of Mexico shelf, behind Houston-based, private equity-backed Fieldwood Energy and oil major Chevron, Schiller said.

After amassing a large position, cultivating the Gulf will be a matter of changing the company’s mindset: A bigger portfolio means it can soak up billions of dollars to put back into development. Just a minor increase in production optimization from its largest oil fields could have a dramatic impact on its reserve levels, he said.

The company is already counting on growing its Gulf reserves from 243 million barrels of oil equivalent to 400 million barrels some time after the transaction is closed.

“With commodity prices where they are and new technology, there’s a lot of incentive to get more oil out of the ground,” he said. “It’s just a matter of coaxing more of the oil out of the ground.”

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