That leaves Pendragon as the major near-term catalyst. Unfortunately, this JV drilling program with Exxon was hit by delays. Due to rough seas, supply vessels couldn’t unload onto the rig, delaying its start. The good news is that the rig is sitting just above the predicted pay zones, so news should come relatively soon. Still, investors were expecting Pendragon to be at depth at this time, not just entering its target intervals.
Exxon didn’t have space in its capital budget to drill these propects, because it had bigger fish to fry. It still had an interest in development, though. So, it promoted the prospects to the industry looking for a partner to provide starter capital. Energy XXI won bids and has a two well commitment obligating it to fund $200MM for the first two wells. If things progress well, Exxon Mobil Corporation (NYSE:XOM) steps back in with 50% of funding for the remainder of the JV.
Energy XXI’s CEO John Schiller has said in the past that the company with unveil relevant Pendragon news as it occurs. They won’t hold back information on a find until they have completion results and flow tests. That reflects how significant the JV is at the moment. This isn’t just another well.
Pendragon is proof of concept for Merlin. The two putative reservoirs share geological features, so Pendragon success significantly enhances the probability that Merlin will be worth drilling. That’s significant because Merlin is the largest prospect in the entire JV and a catch that’s promised to be big, if the partners can reel it in.
Energy XXI (Bermuda) Limited (NASDAQ:EXXI)’s track record of incorporating acquisitions is impressive, especially when considering the size of some of its acquisitions. The company has successfully integrated acquisitions that doubled its size on multiple occasions. This time around hasn’t quite been the same.
The initial POGO acquisition was a 50% working interest with Mitsui, which defrayed half the operating costs. When Mitsui later sold its interest in those very same properties to Energy XXI in the company’s second large transaction, as operator Energy XXI was already familiar with the property and infrastructure repairs were complete.
Everything was already in working order. This time around, it’s different. With no partner and no prior experience with the properties, the task is a little more complicated. Perhaps the growing pains we now see should have been more expected. How long they persist bears watching.
The article This Gulf Oil Producer is Suffering Growing Pains originally appeared on Fool.com and is written by Peter Horn.
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