The Gulf Of Mexico Just Welcomed A New $6 Billion Oil Contender

Todays top stocks to buyOne of the largest oil and gas deals in 2014 has created the biggest publicly traded energy company currently operating in the Gulf — just in time for the Gulf’s next great production growth spurt…

Over 800 million barrels in reserves and 65,000 barrels of oil equivalent per day.

That’s the sort of firepower that the newly expanded Energy XXI Ltd. (NASDAQ:EXXI) will soon be commanding after its deal with EPL Oil & Gas Inc. (NYSE:EPL) closes in the coming weeks.

In an agreement worth $2.3 billion (or $39/share), EPL agreed to be purchased by EXXI, providing EXXI with an additional 19,900 barrels of daily output and a combined total of 10 abundant oil fields on the US Gulf of Mexico Shelf to develop.

This is EXXI’s largest deal since the Company bought nine oil and gas blocks in Gulf shallow waters for $1.01 billion from Exxon Mobil (NYSE:XOM).

After EPL hands over the keys, EXXI says it expects to have an enterprise value of around $6 billion.

No doubt EXXI wants to amass a huge presence in this prolific region in order to compete with the industry behemoths.

In a statement, EXXI Chairman and CEO John Schiller explained the opportunity stemming from this strategic acquisition: “EPL’s assets and operations closely resemble our own, predominantly oil, with some of the highest margins in the industry and extraordinary opportunities for reserves and production growth through development and exploration activities.”

The timing of this deal is excellent for investors of both companies as oil exploration and development in the Gulf is on the rise.

As one of the most politically stable and infrastructural sound areas in the world to conduct oil and gas business, the Gulf of Mexico has always been a magnate for oil companies large and small.

It accounts for around 23% of total US crude output and approximately 7% of total dry gas production.

What’s more, the US Department of the Interior estimates that some 48 billion barrels of oil equivalent have yet to be found in the Gulf.

Because of that, production growth isn’t expected to slow down for a few years. In fact, according to the US EIA, production from the Gulf is anticipated to climb by a whopping 26% from 2014 to 2019.

That’s a spike of some 400,000 bpd to over 1.9 million bpd.

But this is just part of the story…

Despite the buzz that’s growing in the Gulf, the huge amount of hidden oil isn’t exactly cheap or easy to reach.

That’s why firms who are on the Gulf of Mexico shelf have been in acquisition mode because they are struggling to replace their own reserves and increase output as fields mature and new oil and gas discoveries shrink in size.

If EXXI wants to capitalize on its latest chess move, it will need to act fast to ramp up production via EPL as they aren’t the only ones looking to sow their seeds in the Gulf.

Another dealmaker that made waves in the past year was privately-owned Fieldwood Energy who snagged a number of Apache Corp’s (NYSE:APA) and SandRidge Energy’s (NYSE:SD) Gulf assets worth a combined $4.5 billion.

Coupled with aggressive competition is the fact that EXXI owns production infrastructure that is aging, which has resulted in higher downtime over the past year.

Where current production (without EPL’s assets) is around 45,000 – 47,000 bpd, they should actually have a daily capacity of almost 52,000.

Though some effort is being made to update existing infrastructure, the majority of improvements to capacity will undoubtedly come from the addition of EPL’s operations.

After last quarter’s earnings miss where its Q2 EPS of $0.10 was well off the analyst estimate of $0.43, EXXI is confident it can win back shareholders confidence with this major transaction.

With EPL’s track record for having some of the highest operating margins around, this deal will definitely give EXXI a big boost in the right direction.

Yours in profits,
Todays top stocks to buy
John Holt
for Top Stock Millionaire
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