Shares of Houston’s Energy Partner’s Limited (EPL) were heading toward the close of Wednesday’s trading session on gains of around 30 percent, and on nearly 30 times average volume after the early morning announcement that the independent oil and gas producer had agreed to be acquired by the Bermuda-based Energy XXI Limited (EXXI) .
In total Energy XXI will pay $1.5 billion for the purchase, 65 percent of it in cash and 35 percent in common stock, ultimately a 34 percent premium on EPL’s shares. The total value of the deal will look more like $2.3 billion, however, as EXXI has also agreed to pick up the tab for EPL’s debts, which add up to around $700 million.
A number of factors bode well for the future company. Firstly, the two companies combined will constitute the single largest publicly-traded independent energy play in the Gulf of Mexico shelf, one whose focus is primarily crude oil. Both companies do similar work in the shallow waters of the Gulf, and the combined company will wind up operating ten fields each with a production capacity of over 80 million barrels of oil per year.
While the purchase still requires approval from shareholders, it is not difficult to imagine that investors will give a quick thumbs-up. Energy XXI has a track record of making astute purchases in the coastal waters of the Gulf. Energy XXI has doubled its production in just three years, thanks mainly to acquisitions of properties from ExxonMobil (XOM) and others. Furthermore, EXXI has been far more willing than their peers to go for unconventional wells, and has invested substantially in upgrading exploration and drilling technologies precisely for this purpose.
By the end of Wednesday trading, shares for EPl had risen 28.75 percent to $37.48 a piece, while Energy XXI had shed 7.83 percent, to $21.54