Monday, November 9, 2015

Problems for Energy XXI $EXXI

  • In light of current commodity prices and our substantial leverage position, we continue to analyze a variety of transactions and mechanisms designed to reduce debt, including the retirement or purchase of outstanding debt securities through cash purchases and/or exchanges for equity or other Company securities in open market purchases, privately negotiated transactions or otherwise and opportunistic acquisitions. Such transactions, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors and there can be no assurance that we will take any of these actions.
  • As part of our quarterly compliance certificates required under our revolving credit agreement and also as a condition to borrow funds or issue letters of credit under our revolving credit agreement, we must make certain representations, including representations about our solvency, and we must remain in compliance with the financial ratios in our revolving credit facility, as amended to date. Generally, the solvency representation requires, among other things, for us to determine at the time we desire to make a future borrowing, or issue or extend letters of credit, that the fair market value of our assets exceeds the face amount of our liabilities. The current commodity environment creates substantial uncertainty in determining fair market value of oil and natural gas assets which accordingly may impact our ability to continue to give the required representation
  • Consequently, as we currently evaluate the information received from the BOEM in October 2015 and after taking into account items that we expect to be able to remove from our responsibility described above, we believe that the BOEM will assess an additional $150 to $250 million of supplemental financial assurance and/or bonding requirements on us in such other letters that may be issued after November 15, 2015 if these items are not otherwise addressed in our long-term financial assurance plan. If we are successful in obtaining the 30-day extension, we intend for our long-term financial assurance plan to address these additional financial assurance requirements for which we received information in October 2015. Please note if our co-lessees and us are unable to agree on allocation of supplemental financial assurance and/or bonding amounts for such specified leases and present such agreed upon allocations to the BOEM for approval, the BOEM may direct supplemental financial assurance and/or bonding amounts for 100% of the lease interests to us, which would substantially increase the supplemental financial assurance and/or bonding requirements.

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