Since our inception in July 2005, Energy XXI has implemented an acquire. and exploit growth strategy to build a geographically focused portfolio with

Transcription

1 Annual Report 2008

2 EnergyXXI Since our inception in July 2005, Energy XXI has implemented an acquire and exploit growth strategy to build a geographically focused portfolio with some of the highest per-unit margins in the industry. Having completed three major acquisitions totaling $1.1 billion between April 2006 and June 2007, we focused our attention in fiscal 2008 on developing the acquired properties while ramping up a complementary exploration program designed to provide organic growth for the future. Contents 1 Financial and Operational Highlights 2 Letter to Shareholders 4 Operations Overview 6 Central Shelf Operations 8 Eastern Shelf Operations 10 Gulf Coast Operations 12 High-Impact Exploration 14 Board of Directors and Other Officers 16 Reserves Highlights 2008 Highlights Production Grows 62% to More Than 26,000 BOE/d Revenues and EBITDA* Nearly Double Exploration Program Ramps Up Capital Structure Enhanced through Warrant Tender and Share Cleanup * See reconciliation of GAAP to Non-GAAP Measures in the company s Sept. 9, 2008 earnings release.

3 Annual Report 2008 Financial and Operational Highlights Year Ended Year Ended June 30, 2007 June 30, 2008 Financials ($000 except per share amounts) Operating Revenues $ 341,284 $ 643,232 Operating Expenses Lease operating expense 68, ,859 Production taxes 3,595 8,686 Depreciation, depletion and amortization 145, ,389 General and administrative expense 26,507 26,450 Other net 1,054 14,248 Total operating expenses 246, ,632 Operating Income 95, ,600 Total Other Income (Expense) (58,420) (101,859) Provision for Income Taxes 12,665 14,874 Net Income 24,130 26,869 Basic Earnings per Common Share $ 0.29 $ 0.31 Diluted Earnings Per Common Share $/BOE Revenue $ $ Lease operating expense Production taxes Depreciation, depletion and amortization General and administrative expense Other net Total operating expenses Operating Income EBITDA Discretionary Cash Flow Production - Sales Volume per Day Natural gas (MMcf) Crude oil (MBbls) Total (MBOE) Percent of Production from Crude 48% 52% Proved Reserves (MBOE) Proved Developed Producing 19,288 21,075 Proved Developed Non-Producing 17,815 11,717 Proved Undeveloped 18,542 18,706 Total Proved Reserves 55,645 51,498 Percent of Proved Reserves from Crude 55% 58% PV-10 ($000) $1,598,633 $3,301,429 Balance Sheet ($000) Total Assets $1,648,442 $2,049,931 Long-Term Debt 1,045, ,972 Stockholders' Equity 397, ,585 Common Shares Outstanding (000) 84, ,937 1

4 Dear Shareholders John D. Schiller Jr. Chairman and Chief Executive Officer It s tough for some of us to comprehend that fiscal 2008 was only our second full year in operation, dating back to the close of our first acquisition in April Since then, Energy XXI has grown production to more than 26,000 BOE/d. Higher commodity prices have leveraged that growth even more, in terms of record revenues and EBITDA. Our growth was largely generated through acquisitions, which was the game plan from day one. But the development side of our acquire and exploit strategy also has contributed, not just by incrementing reserves, but also by accelerating the production of those reserves, creating higher net present value. Without any significant acquisitions during fiscal 2008, production volumes leveled off. The lack of a deal does not mean we re out of the acquisitions market. The fact is, we put a lot of effort into several initiatives, and actually walked away from a couple of competitive opportunities we felt were marginal based on current commodity price volatility. We maintained our capital discipline, focusing on enhancing our capital structure and maximizing the value of our previous acquisitions, while building our exploration portfolio for the future. This last point deserves additional explanation. Our highimpact exploration program is just now beginning to mature, and is expected to deliver material growth moving forward. Our volume growth to date includes less than a 10% contribution from high-impact exploration. That is by design, not accident. As we ve said from day one, at the core we are an acquire & exploit company. While we always had the intention of augmenting our growth profile through high-impact exploration, building a greenfield program takes time and a lot of up-front effort. This is not a part of the business that can easily be bolted on through acquisition. Today, we are excited about the exploration portfolio. As we closed out fiscal 2008, we had three wells that were very near the target objectives, any one of which could completely change the complexion of our reserves replacement and volume growth profile. For fiscal 2009, we have budgeted additional high-potential prospects, and we expect to continue to layer on organic growth opportunities. We are not a one- or two- or three-well story. We expect high-impact exploration to be a permanent feature of our business moving forward, along with acquisitions. With the maturation of the exploration program, we would hope to begin enhancing the company s replacement-cost profile. To date, the more traditional analysis of finding and development costs has not been a good gauge of the success of our drilling program. Since the reserves were primarily added through acquisition rather than through drilling, the economic analysis needs to include full-cycle costs, rather than a single year s drilling program. Our depreciated oil and gas property portfolio at year-end was on the books at just above $1.5 billion, which represents the full-cycle cost of acquiring and developing our reserves. That $1.5 billion cost compares with our proved-only year-end PV-10 of approximately $3.3 billion. More appropriately, however, if we add in the value of our probable resources ignoring the value of other unproved properties our year-end discounted present value was about $4.3 billion. While much of this value creation was driven by higher 2

5 Annual Report 2008 Letter to Shareholders commodity prices, our exploitation efforts have certainly realized excellent returns. Also remember there are significant costs already baked into this equation for exploration activities that have yet to come to fruition. At fiscal year-end, Energy XXI had seen all the costs and few of the rewards of our exploration efforts so far. We are optimistic that drilling results will begin balancing that equation. In total, we would have to say fiscal 2008 was a transformational year for Energy XXI. Aside from the operating results, we made significant strides in getting Energy XXI to look like a proper company. In that regard, we started the year with three main objectives: Increase liquidity in our stock; Reduce our leverage; and Reduce the overhang associated with the warrants. To say these were distractions for both management and investors is an understatement. So it is no small deal that in the last several months of fiscal 2008 we were able to address all of these issues. Our trading volumes went from 30,000 shares a day to 1.3 million shares a day. As a result of our successful warrant tender, we reduced net debt by almost $250 million, or 24%, and reduced our warrant overhang from 48% to 8%. Now, we have just one clear focus for the future: to deliver operating results, including delivering on the promise of the high-impact exploration program. While we are battling the headwinds created by Hurricanes Gustav and Ike, we intend to make significant progress in the coming year Production MBOE/d June 06* Sept 06 Dec 06 Mar 07 June 07 Sept 07 Dec 07 Mar 08 June 08 * Partial Quarter Revenue $ in Millions June 06* Sept 06 Dec 06 Mar 07 June 07 Sept 07 Dec 07 Mar 08 June 08 * Partial Quarter EBITDA $ in Millions June 06* Sept 06 Dec 06 Mar 07 June 07 Sept 07 Dec 07 Mar 08 June 08 * Partial Quarter John D. Schiller Jr. Chairman and Chief Executive Officer 3

6 Operations Overview Since our inception in July 2005, Energy XXI has implemented an acquire and exploit growth strategy to build a geographically focused portfolio with some of the highest per-unit margins in the industry. Having completed three major acquisitions totaling $1.1 billion between April 2006 and June 2007, we focused our attention in fiscal 2008 on developing the acquired properties while ramping up a complementary exploration program designed to provide organic growth for the future. Fiscal 2008 capital expenditures totaled $330.1 million (excluding acquisitions), which included $114.6 million for exploration, $205.7 million for development activity and $9.8 million for other spending. Additionally, the company spent approximately $40 million on producing property acquisitions. The company drilled 18 exploration wells and 10 development wells with a success rate of 33% and 80%, respectively. Key development focus areas included the South Timbalier 21 field in the central Gulf of Mexico shelf (Central Shelf) area and the Main Pass 61 and 72 fields in the Eastern Shelf area. Onshore, the Lake Salvador area was a key exploration focus. The company s 384 gross wells produced an average of 26,200 BOE/d in 2008, a 62% increase over fiscal 2007 volumes. As of fiscal year-end June 30, 2008, total proved reserves were 51.5 million BOE. While proved reserves decreased slightly in 2008, several high-impact 4

7 Annual Report 2008 Operations Overview Energy XXI Areas of Operations MISSISSIPPI TEXAS LOUISIANA FY 2008 Capital Expenditures ($330 Million) Development / Drill 35% Exploration / Drill 35% exploration wells were in progress at year-end and could add materially to the reserves profile in fiscal These include the Cote de Mer, Blackbeard West and Kaplan prospects. Energy XXI originally budgeted capital expenditures for fiscal 2009 at $380 million, with about $185 million for exploration and $195 million for development activity. Due to production delays caused in September 2008 by Hurricanes Gustav and Ike, the budget will be revisited to help ensure capital spending remains within cash flow levels. While Energy XXI is consistently engaged in evaluating Gulf of Mexico and Gulf Coast acquisition opportunities, the budget does not dedicate capital for property acquisitions. The warrant tender successfully completed in June 2008 sufficiently capitalized Energy XXI to pursue sizable acquisitions on an opportunistic basis. Recompletes 6% Proved Developed Producing 21.1 MMBOE Facility 10% Proved Reserves 2008 (51.5 Million BOE) G&A / Other 9% Proved Developed Non-Producing 11.7 MMBOE Seismic / Land 5% Proved Undeveloped 18.7 MMBOE 5

8 Central Shelf Operations The central Gulf of Mexico shelf area comprises approximately 34% and 37% of the company s proved reserves and production, respectively, primarily within the South Timbalier 21 field. Other key Central Shelf fields include Eugene Island 330 and East Cameron 334/335. South Timbalier 21 South Timbalier 21 is the 9th largest oil field on the Gulf of Mexico shelf. It was discovered in 1957 and has produced more than 300 million BOE to date. Located six miles offshore of Lafourche Parish, Louisiana in approximately 50 feet of water, the 100% owned and operated South Timbalier 21 field includes acreage in South Timbalier blocks 21, 22, 23, 27 and 28, as well as two state leases. 6

9 Annual Report 2008 Central Shelf Operations Area of Central Shelf Operations The company s assets within the field include 54 producing wells, connected to 11 major production platforms and 79 smaller support facilities. The field s average daily net production for the year ended June 30, 2008 was 7,900 BOE/d, or 30% of the company s fiscal 2008 net production. Since acquiring the field in the Marlin transaction in April 2006, the company has drilled 16 development and delineation wells, with an 81% success rate. As of June 30, 2008, net proved reserves for the field were 15.4 million BOE, 76% of which was oil. In fiscal 2008, approximately $63 million was spent in the field for development work and facilities, compared with approximately $200 million the prior year. LOUISIANA South Timbalier Field East Cameron 334/335 Fields Eugene Island 330 Field East Cameron 334/335 While East Cameron currently is a relatively small part of the company s existing production and reserves, the field is expected to be an important focus of the fiscal 2009 capital program and should provide meaningful uplift to the production profile. Discovered in 1971, this is the 29th largest natural gas field on the Gulf of Mexico shelf, having produced one trillion cubic feet equivalent to date. Energy XXI has a 51% working interest and serves as the operator of six platforms and 10 wells within the field. Net production from East Cameron 334/335 was approximately 544 BOE/d in fiscal 2008, and net proved reserves at year-end totaled 648 MBOE. Proved Reserves Gulf Coast 23% Eastern Shelf 36% Proved Reserves by Field Central Shelf 41% Eugene Island 330 At Eugene Island 330, net production was 1,203 BOE/d in fiscal year Energy XXI has a 17.5% working interest in the field, which includes 43 completion wells tied into four platforms. As of June 2008, proved reserves at Eugene Island 330 were 1.3 million BOE. In September 2008, Hurricane Ike destroyed the field s two primary producing platforms. Redevelopment plans are under consideration. Central Other 3.8 MMBOE EI MMBOE EC 334/ MMBOE South Timbalier 15.4 MMBOE 7

10 Eastern Shelf Operations The eastern Gulf of Mexico shelf area comprises approximately 32% and 41% of the company s proved reserves and production, respectively, primarily within the Main Pass 61 and 72 fields and the South Pass 49 field. 8

11 Annual Report 2008 Eastern Shelf Operations Area of Eastern Shelf Operations Main Pass 61 Discovered in 2002, Main Pass 61 is an oil field located near the mouth of the Mississippi River in approximately 90 feet of water. The field includes two producing pods that are being water-flooded to maximize recovery. Energy XXI serves as the operator at Main Pass 61 and has a 50% working interest. There are 15 producing wells and five major production platforms located throughout the field. Main Pass 61 contributed net production for the year ended June 30, 2008 of 3,000 BOE/d, which was about 7% higher than the previous year. At June 30, 2008, net proved reserves for the field were 8.0 million BOE, 94% of which was oil. LOUISIANA MISSISSIPPI Main Pass 61 & 72 Fields South Pass 49 Field Main Pass 72 Energy XXI has a 50% working interest and operates the Main Pass 72 field, which is in close proximity to the Main Pass 61 field. Main Pass 72, an oil field discovered in 1979 that has produced more than 100 million BOE to date, contains three producing platforms and one central facility. The field s average daily net production for the year ended June 30, 2008 was 1,200 BOE/d. At June 30, 2008, net proved reserves for the field were 3.3 million BOE, 88% of which was oil. South Pass 49 South Pass 49 is a unitized field located near the mouth of the Mississippi River in about 300 feet of water on South Pass blocks 33, 48 and 49. Energy XXI serves as operator and has a 33% working interest. The company also has a 10% working interest in a non-unitized portion of the field. The field s average daily net production for the year ended June 30, 2008 was 700 BOE/d. At June 30, 2008, net proved reserves for the field were 1.6 million BOE, 40% of which was oil. Proved Reserves Gulf Coast 23% Eastern Shelf 36% Proved Reserves by Field Eastern Other 3.4 MMBOE Main Pass Other 2.1 MMBOE South Pass MMBOE Main Pass MMBOE Central Shelf 41% Main Pass MMBOE 9

12 Gulf Coast Operations The company s onshore Gulf Coast properties comprise approximately 23% and 15% of its proved reserves and production, respectively. This region includes numerous fields and focus areas, the largest of which include the Lake Salvador project and the Rabbit Island field. Many, like the Laphroaig discovery pictured here, are one- or two-well fields. Rabbit Island Field The Rabbit Island field is located in Louisiana state waters in Iberia and St. Mary Parishes, 95 miles southwest of New Orleans. Energy XXI operates and maintains a 99.9% working interest in the field, which covers approximately 27,000 acres. The field s average daily net production for the year ended June 30, 2008 was 1,800 BOE/d and net proved reserves for the field were 5.2 million BOE, 90% of which was natural gas. The field was discovered by Texaco in 1939 and is a structurally complex, faulted, shallow piercement salt dome with associated radial faulting. The field has produced more than 1.2 trillion cubic feet equivalent to date. Lake Salvador Field The Lake Salvador Project is a joint venture area onshore south Louisiana in which Energy XXI has a 50% working interest. The project has in excess of 1,000 square miles of 10

13 Annual Report 2008 Gulf Coast Operations Area of Gulf Coast Operations LOUISIANA MISSISSIPPI Rabbit Island Field Lake Salvador Proved Reserves Gulf Coast 23% Central Shelf 41% Eastern Shelf 36% merged and reprocessed 3-D seismic data that is helping the company identify both shallow and deep prospects that were overlooked by previous seismic coverage. Since entering into the agreement, the company has spent approximately $50 million on seismic, land and drilling activity and achieved an overall success rate of 75%, including 70% on 10 exploration wells and 100% on two development wells. In fiscal 2008, net production averaged 1,724 BOE/d, a 47% increase over the previous year s net production of 1,170 BOE/d. Currently, the joint venture has lease options on 80,000 gross acres within the Lake Salvador Project, with the opportunity to pick up an additional 25,000 gross acres. Proved Reserves by Field Gulf Coast Other 4.9 MMBOE Lake Salvador 1.8 MMBOE Rabbit Island 5.2 MMBOE 11

14 High-Impact Exploration In fiscal year 2008, Energy XXI began the transition from a relatively low-risk and low-reward exploration program to a more focused and balanced drilling program with significant high-impact reserve potential. The timelines associated with these types of projects can often be longer than for other conventional wells due to their deeper pay zones and challenging characteristics. Cote de Mer, Blackbeard West and Kaplan are three examples of high-impact prospects that have the potential to materially improve the company s reserve profile in the immediate future. Cote de Mer Cote de Mer, which commenced drilling in Vermilion Parish, Louisiana in February 2007, is a deep transition-zone prospect identified by merging onshore and offshore 3-D seismic data. The prospect is a large three-way closure against a fault block, with a pre-drill reserve estimate of 500 billion cubic feet equivalent. This project is assisted by 12

15 Annual Report 2008 High-Impact Exploration Exploration Watch Areas data from a well drilled in 1972, which appears to have missed the primary target by drilling on the outer flanks of the structure. TEXAS NW Kaplan LOUISIANA Banff/N. Banff MISSISSIPPI Blackbeard West Energy XXI is participating in the Blackbeard West exploratory well, which is being drilled on South Timbalier block 168 in 70 feet of water in offshore Louisiana. This prospect previously had been drilled to a depth of 30,067 feet when the operator at the time abandoned the well. Energy XXI and the new partnership utilized onshore and offshore seismic data to determine that previous drilling efforts were approximately 2,000 feet short of reaching the Lower Miocene. The well was reentered on March 18, 2008 with a proposed measured depth of 35,000 feet, and has been drilled below 32,550 feet to evaluate the pre-drill estimate of 3 trillion cubic feet equivalent. Shadowfax Belle Isle Platte Blackbeard West Ruby & Ruby II Cote de Mer Prospect Potential Reserves 1 (Bcfe) GWI/NRI 2 Risk Proposed MD 4 Cote de Mer %/24% High 21,100' NW Kaplan %/65% Medium 19,000' Blackbeard West 3,000 20%/16% High 35,000' Banff/N. Banff %/69% High 19,000' NE Belle Isle 78 25%/17% High 18,500' Platte 54 80%/55% High 16,500' Ruby & Ruby II 100/54 100%/74% High 16,500' Shadowfax 55 25%/19% High 21,100' 1 Pre-drill reserve targets are P10 gross unrisked 2 General Working Interest/Net Revenue Interest 3 Measured Depth Kaplan The NW Kaplan prospect is located in Vermilion Parish, Louisiana. The well, Greene & Broussard Plantation Inc. #1, was spud on March 28, 2008 with a proposed total depth of 18,500 feet. The prospect is designed to test the Camerina B sand. NE Belle Isle The NE Belle Isle prospect, which commenced drilling in St. Mary Parish, Louisiana in September of 2008, is located along an east-west fault that sets up production in the Rob L section of the Belle Isle field. The prospect was identified using subsurface and 3-D seismic data. Banff & North Banff The Banff prospect is located in St. Mary Parish, Louisiana. The well is scheduled to spud in the fourth quarter of fiscal year 2009 to a proposed depth of 18,500 feet. The well will be drilled to test the Lower Miocene Marg A section seen as productive in nearby fields. Platte Platte is located on the coastline of southern Vermilion Parish, Louisiana and is scheduled to spud in the second quarter of fiscal year The objective section, Cris A, has been highly productive in the nearby Pecan Island field (700 billion cubic feet equivalent produced). Ruby & Ruby II Ruby and Ruby II are both located in the shallow Louisiana State waters. Ruby is planned to spud in the third quarter of fiscal year 2009 to a total depth of 17,000 feet targeting the recently active and prolific Cib op trend. The Ruby II prospect is another large fault block that will test the extent of the Cib op section and will be dependent on Ruby s success. Shadowfax The Shadowfax prospect is located in southern Vermilion Parish, Louisiana and is scheduled to spud during the second quarter of fiscal year The prospect is located in the Lower Miocene Marg A section on trend with the Deep Lake (1.1 Tcf) and Lac Blanc (0.8 Tcf) fields. 13

16 Board of Directors Mr. John D. Schiller Jr., 49 Chairman and Chief Executive Officer Mr. Steven A. Weyel, 54 Director, President and Chief Operating Officer Mr. David West Griffin, 47 Director and Chief Financial Officer Mr. William Colvin, 49 (1) Director Mr. Paul Davison, 55 (2) Director Mr. David M. Dunwoody, 58 (3) Director Mr. Hill A. Feinberg, 61 (4) Director (1) Chairman of Audit Committee, member of Remuneration and Nomination committees. (2) Member of Audit, Remuneration and Nomination committees. (3) Chairman of the Remuneration Committee, member of the Audit and Nomination committees. (4) Chairman of the Nominations Committee, member of the Audit and Remuneration committees. William Colvin Mr. Colvin is one of our independent non-executive directors. He chairs our Audit Committee and is a member of our Nomination and Remuneration Committees. In January 2008, Mr. Colvin was appointed Chief Executive of Southern Cross Healthcare plc, a nursing home operator based in the UK. From March 2005 to January 2008, Mr. Colvin served as Southern Cross Healthcare s Chairman of the Board, the role he assumed following the acquisition of NHP plc by funds controlled by The Blackstone Group. From January 2000 to February 2005 Mr. Colvin was a director of NHP plc, a property investment group in the UK specializing in the ownership of freehold or long leasehold interests in modern purpose-built nursing homes. From November 2000 to February 2005, Mr. Colvin was also the Chief Executive of NHP plc. He was Finance Director of British-Borneo Oil & Gas plc from 1992 to From 1990 to 1992, Mr. Colvin was Finance Manager/Director Pictured from left to right: William Colvin, West Griffin, Paul Davison, John Schiller, David Dunwoody, Steven Weyel, Hill Feinberg at Oryx UK Energy. From 1989 to 1990, he was group financial controller at Thames Television plc. From 1984 to 1989, he worked in a variety of financial roles for Atlantic Richfield (ARCO) Inc. From 1979 to 1984, Mr. Colvin worked in the audit department of Ernst & Young. He is also a non-executive director of Sondex plc and BSN Medical. He qualified as a Scottish Chartered Accountant in 1982 and holds a Bachelor of Commerce degree from the University of Edinburgh. Paul Davison Mr. Davison is one of our independent nonexecutive directors. He became a director on May 7, 2007 and is a member of our Audit, Nomination and Remuneration committees. Mr. Davison has over 30 years of experience in the oil and gas industry in petroleum engineering and general management positions with Shell and Clyde Petroleum plc. He most recently served as Technical and Operations Director of Paladin Resources plc from 1997 until its takeover in Since 2006 he has pursued personal interests. Mr. Davison graduated from Nottingham University in 1974 with a degree in Mining Engineering. David M. Dunwoody Mr. Dunwoody is one of our independent non-executive directors. He chairs the Remuneration Committee and is a member of our Audit and Nomination committees. Mr. Dunwoody is the President of Morris Pipeline Company, a natural gas gathering company operating in Texas and has served in that capacity since From 1982 to 1998, Mr. Dunwoody held various positions with TECO Pipeline Company, an intrastate pipeline company operating in Texas. Prior to being acquired by PG&E Corporation, TECO operated over 1,100 miles of gas gathering and transmission pipelines. Mr. Dunwoody graduated from the University of Texas at Austin in 1971, receiving a Bachelors of Business Administration degree. Hill A. Feinberg Mr. Feinberg is one of our independent nonexecutive directors. He chairs the Nomination Committee and is a member of the Audit and Remuneration committees. Mr. Feinberg is Chairman and Chief Executive Officer of First Southwest Company, a privately held, fully diversified investment banking firm founded in Before joining First Southwest Company in 1991, Mr. Feinberg was a Senior Managing Director at Bear Stearns & Co. and a former Vice President and Manager of Salomon Brothers in the Dallas office. Mr. Feinberg is a past Chairman of the Municipal Securities Rulemaking Board (MSRB), the self-regulatory organization charged with the responsibility of writing rules governing the municipal securities activities of registered brokers. Mr. Feinberg also formerly served s a member of the board for Compass Bancshares, Inc. and is currently a member of Greater Dallas Chamber. His civic and charitable service includes chairing the board of directors of the Phoenix House Foundation, as well as serving as a board member of the Cardiopulmonary Research Science and Technology Institute, a member of the Executive Committee of St. Mark s School of Texas and a board member of 14

17 Annual Report 2008 visitors of UT Southwestern Health System. He is also the past Chairman of the Board of Directors of the MBM Foundation, which is the governing board of the partnership between Menninger Clinic and Baylor College of Medicine. Mr. Feinberg received his bachelor s degree in finance from the University of Georgia in 1969, receiving the Distinguished Alumnus Award from the University of Georgia s Terry College of Business in May After graduation, Mr. Feinberg joined the United States Army Corps of Engineers, serving as 1st Lieutenant in Vietnam from 1970 to John D. Schiller Jr. Mr. Schiller is our Chairman and Chief Executive Officer, and has been since our inception in Mr. Schiller s career spans 28 years in the oil and gas industry. In addition to forming the company, Mr. Schiller served as: interim Chief Executive Officer of Particle Drilling, Inc. between December 2004 and November 2005; Vice President, Exploration and Development, for Devon Energy from April 2003 to December 2003 with responsibility for domestic and international activities; Executive Vice President, Exploration and Production, for Ocean Energy, Inc. from 1999 to April 2003, overseeing Ocean s worldwide exploration, production and drilling activities; and Senior Vice President of Operations of Seagull Energy. Prior to serving in those offices, Mr. Schiller held various positions at Burlington Resources, including Engineering and Production Manager of the Gulf of Mexico Division and Corporate Acquisition Manager, and at Superior Oil where he began his career in Mr. Schiller serves on the Board of Directors of Particle Drilling, Inc., a development stage oil and gas services company, and also serves on the Board of Directors of Escape Family Resource Center, a charitable organization. He is a registered professional engineer in the State of Texas. Mr. Schiller is a charter member and past Chairman of the Petroleum Engineering Industry Board and a member of the Look College of Engineering Advisory Council at Texas A&M. Mr. Schiller graduated with honors from Texas A&M University with a Bachelor of Science in Petroleum Engineering in 1981, and was inducted into the Texas A&M Harold Vance Department of Petroleum Engineering s Academy of Distinguished Graduates in Steven A. Weyel Mr. Weyel is our President and Chief Operating Officer and has been since our inception. Mr. Weyel is co-founder and was most recently Principal and President/COO of EnerVen LLC, a company developing and supporting strategic ventures in the emerging energy industry, which company was formed in September In August 2005, Mr. Weyel sold his membership interests and resigned his positions in EnerVen LLC to devote full time and efforts to Energy XXI. From 1999 to 2002, Mr. Weyel was President and COO of InterGen North America, a Shell-Bechtel joint venture in the merchant gas and power business. From 1994 to 1999, Mr. Weyel was with Dynegy Corporation, previously known as Natural Gas Clearinghouse and NGC Corporation, where he served in various executive leadership positions, including Executive Vice President, Integrated Energy, and Senior Vice President, Power Development. Mr. Weyel has a broad range of experience in the international oil service sector, including ownership of his own firm, Resource Technology Corporation, from 1983 to 1994, where he identified a new market opportunity based on evolving technology and created the global engineering leader in onsite energy commodity reserves evaluation. From 1976 to 1983, Mr. Weyel worked with Baker Eastern S.A. (Baker-Hughes) in numerous strategic growth roles including Managing Director for the Western Hemisphere. Mr. Weyel also served with Mr. Schiller on the Board of Directors of Particle Drilling until his resignation on August 7, Mr. Weyel received his Masters in Business Administration from the University of Texas at Austin in Mr. Weyel graduated from Texas A&M University with a Bachelor of Science in Industrial Distribution in David West Griffin Mr. Griffin is our Chief Financial Officer and has been since our inception. Prior to that, Mr. Griffin spent his time focusing on the formation of the company. From January 2004 to December 2004, Mr. Griffin was the Chief Financial Officer of Alon USA, a refining and marketing company. From April 2002 to January 2004, Mr. Griffin owned his own turnaround consulting business, Energy Asset Management. From 1996 to April 2002, Mr. Griffin served in various positions with InterGen, including as Chief Financial Officer for InterGen s North American business and supervisor of financing of all of InterGen s Latin American projects. From 1993 to 1996, Mr. Griffin worked in the Project Finance Advisory Group of UBS. From 1985 to 1993, Mr. Griffin served in various positions with Bankers Trust Company. Mr. Griffin graduated Magna Cum Laude from Dartmouth College in 1983 and received his Masters in Business Administration from Tuck Business School in Other Officers Mr. Ben Marchive Senior Vice President, Operations Mr. Todd Reid Senior Vice President, Marketing & Risk Management Mr. J. Granger Anderson III Vice President, Land Ms. Bo Boyd Vice President of Law Mr. Stewart Lawrence Vice President, Investor Relations and Communications Mr. Hugh Menown Vice President, Chief Accounting Officer and Chief Information Officer Mr. Steve Nelson Vice President, Drilling and Production Mr. Tom O Donnell Vice President, Corporate Development and Planning Mr. Rick Fox Vice President and Controller Ms. Kerry McDonough Vice President, Human Resources and Administration 15

18 Reserves Highlights Proved Reserves by Category Total: 51.5 MMBOE Proved Reserves by Value PV-10 $3.3 Billion PUD 18.7 MMBOE PUD $998 million PDP 21.1 MMBOE PDP $1.6 billion PDN 11.7 MMBOE PDN $678 million Resource Base Oil Gas Equivalent PV-10 (MBBL) (MMCF) (MBOE) ($000) Proved Developed Producing 13,365 46,260 21,075 1,625,209 Proved Developed Non-Producing 6,428 31,731 11, ,426 Proved Undeveloped 10,172 51,207 18, ,794 Proved Reserves 29, ,198 51,498 3,301,429 Probables 7,588 55,732 16, ,224 Proved + Probables 37, ,930 68,374 4,292,653 Possibles 4,913 44,785 12, ,078 Total Resources 42, ,714 80,751 4,937,731 Reserve Highlights Energy XXI operates 72% of its proved reserve base 58% of proved reserves are oil 64% of proved reserves fall under the proved developed category 17 MMBOE of probable reserves represent 33% of low-risk upside and $991 million of PV-10 16

19 Shareholder Information Secretary Juliet Evans Canon's Court 22 Victoria Street PO Box HM 1179 Hamilton HM EX Bermuda Auditors UHY, LLP 12 Greenway Plaza Suite 1202 Houston, Texas U.K. Transfer Agent Capita Registrars ATTN: Foreign Team 34 Beckenham Road Beckenham Kent BR3 4TU Telephone: (From outside the UK: ) Facsimile: +44 (0) Nominated Advisor and Broker Collins Stewart Limited 9 th Floor 88 Wood Street London EC2V 7QR Branch Registrars Capita IRG (Offshore) Limited Victoria Chambers Liberation Square 1/3 The Esplanade St Helier Jersey U.S. Transfer Agent Continental Stock Transfer & Trust Company ATTN: Michael Mullings, Vice President 17 Battery Place 8th floor New York, NY Telephone: (212) Facsimile: (212) mmullings@continentalstock.com FORWARD-LOOKING STATEMENT This document contains statements about future events and expectations that can be characterized as forward-looking statements, including, in particular, statements about the company s plans, strategies and prospects. The use of the words anticipate, estimate, expect, may, project, believe and similar expressions are intended to identify forward-looking statements. Although the company believes that the plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, they do involve certain assumptions, risks and uncertainties, and the company cannot assure you that those expectations will prove to have been correct. Actual results could differ materially from those anticipated in these forward-looking statements as a result of the factors described in this presentation. Many of these factors are beyond the company s ability to control or predict. The company cannot assure you that its future results will meet its expectations and investors are cautioned not to place undue reliance on any forward-looking statement made by the company or its authorized representatives. All subsequent written and oral forward-looking statements attributable to the company and persons acting on its behalf are qualified in their entirety by the cautionary statements contained in this paragraph and elsewhere in this presentation. The company does not have any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained in this presentation or the admission document to reflect any change in the company s expectations about the statement or any change in events, conditions or circumstances on which the statement is based.

20 Energy XXI (Bermuda) Limited Canon s Court 22 Victoria Street Hamilton HM12 Bermuda