Acquisitions and Dispositions

3 Months Ended

6 Months Ended

9 Months Ended

12 Months Ended

Sep. 30, 2014

Dec. 31, 2014

Mar. 31, 2015

Jun. 30, 2015

Acquisitions and Dispositions [Abstract]

Acquisitions and Dispositions

(2) Acquisitions and Dispositions

The South Pass 49 Acquisition

On June 3, 2014, we acquired from Energy XXI GOM, LLC, an asset package consisting of certain shallow-water GoM shelf oil and natural gas interests in our South Pass 49 field (the “SP49 Interests”) for $230.0 million, subject to customary adjustments to reflect an economic effective date of June 1, 2014 (the “SP49 Acquisition”). We estimate that the proved reserves as of the June 1, 2014 economic effective date totaled approximately 11.3 Mmboe, of which 74% were oil and 73% were proved developed reserves. Prior to the SP49 Acquisition, we owned a 43.5% working interest in certain of these assets, and Energy XXI owned a 56.5% working interest in certain of these assets as well as 100% interest in additional assets in the field. As a result of the SP49 Acquisition, we have become the sole working interest owner of the South Pass 49 field. We financed the SP49 Acquisition with borrowings of approximately $135 million under our credit facility and a $95 million capital contribution from EGC. See Note 6, “Indebtedness” for more information regarding our credit facility.

The following table summarizes the estimated values of assets acquired and liabilities assumed and reflects management’s estimate of customary adjustments of $0.2 million to reflect an economic effective date of June 1, 2014.


(In thousands)	June 1, 2014
Oil and natural gas properties	$	231,271
Asset retirement obligations		(1,086)
Net assets acquired	$	230,185

The Nexen Acquisition

On January 15, 2014, we acquired from Nexen Petroleum Offshore U.S.A., Inc. (“Nexen”) a 100% working interest of certain shallow-water central GoM shelf oil and natural gas assets for $70.4 million, subject to customary adjustments to reflect the September 1, 2013, economic effective date (the “Nexen Acquisition”). The assets we acquired comprise five leases in the Eugene Island 258/259 field (the “EI Interests”). Estimated proved reserves as of the September 1, 2013 effective date consisted of approximately 2.6 Mmboe of proved developed producing reserves, about 91% of which was oil. The Nexen Acquisition was financed with borrowings under our senior secured credit facility with BMO Capital Markets, as lead arranger, and Bank of Montreal, as administrative agent and a lender, and the other lender parties thereto (as amended and restated, the “Prior Senior Credit Facility”).

The following table summarizes the estimated values of assets acquired and liabilities assumed and reflects management’s estimate of customary adjustments to purchase price provided for by the purchase and sale agreement of approximately $5.7 million to reflect an economic effective date of September 1, 2013.


(In thousands)	September 1, 2013
Oil and natural gas properties	$	82,897
Asset retirement obligations		(18,165)
Net assets acquired	$	64,732

The West Delta 29 Acquisition

On September 26, 2013, we acquired from W&T Offshore, Inc. (“W&T”) an asset package consisting of certain GoM shelf oil and natural gas interests in the West Delta 29 field (the “WD29 Interests”) for $21.8 million in cash, subject to customary adjustments to reflect an economic effective date of January 1, 2013 (the “WD29 Acquisition”). We estimate that the proved reserves as of the January 1, 2013 economic effective date totaled approximately 0.7 Mmboe, of which 95% were oil and 58% were proved developed reserves. The WD29 Acquisition was funded with a portion of the proceeds from the sale of certain shallow water GoM shelf oil and natural gas interests located within the non-operated Bay Marchand field in a tax-deferred exchange of properties.

The following table summarizes the estimated values of assets acquired and liabilities assumed and reflects final adjustments to purchase price provided for by the purchase and sale agreement of approximately $7.1 million to reflect an economic effective date of January 1, 2013.


(In thousands)	January 1, 2013
Oil and natural gas properties	$	16,544
Asset retirement obligations		(1,398)
Net assets acquired	$	15,146

We have accounted for our acquisitions using the acquisition method of accounting for business combinations, and therefore we have estimated the fair value of the assets acquired and the liabilities assumed as of their respective acquisition dates. In the estimation of fair value, management uses various valuation methods including (i) comparable company analysis, which estimates the value of the acquired properties based on the implied valuations of other similar operations; (ii) comparable asset transaction analysis, which estimates the value of the acquired operations based upon publicly announced transactions of assets with similar characteristics; (iii) comparable merger transaction analysis, which, much like comparable asset transaction analysis, estimates the value of operations based upon publicly announced transactions with similar characteristics, except that merger analysis analyzes public to public merger transactions rather than solely asset transactions; and (iv) discounted cash flow analysis. The fair value is based on subjective estimates and assumptions, which are inherently subject to significant uncertainties which are beyond our control. These assumptions represent Level 3 inputs, as further discussed in Note 8, “Fair Value Measurements.”

Results of Operations and Pro Forma Information

Revenues and lease operating expenses attributable to acquired interests and properties were as follows:


	Three Months Ended September 30,
	2014
	(In thousands)
SP49 Interests:
Revenues	$	14,980
Lease operating expenses	$	1,994
EI Interests:
Revenues	$	11,847
Lease operating expenses	$	4,265
WD29 Interests:
Revenues	$	3,843
Lease operating expenses	$	244

We have determined that the presentation of net income attributable to the acquired interests and properties is impracticable due to the integration of the related operations upon acquisition.

The following supplemental pro forma information presents consolidated results of operations as if the WD 29 Acquisition, the Nexen Acquisition and the SP49 Acquisition had occurred on July 1, 2013. The supplemental unaudited pro forma information was derived from a) our historical condensed consolidated statements of operations and b) unaudited revenues and direct operating expenses of the SP49 Interests, WD29 Interests and the EI Interests as derived from the records of the applicable seller provided to us in connection with the acquisitions. This information does not purport to be indicative of results of operations that would have occurred had the acquisitions occurred on July 1, 2013, nor is such information indicative of any expected future results of operations.


	PRO FORMA
	Three Months Ended September 30,
	2013
(in thousands, except per share data)
Revenue	$	220,668
Net income		8,216
Basic earnings per share		0.21
Diluted earnings per share		0.21

(2) Acquisitions

The South Pass 49 Transfer

On June 3, 2014, Energy XXI GOM, LLC, transferred an asset package to us consisting of certain shallow-water GoM shelf oil and natural gas interests in our South Pass 49 field (the “SP49 Interests”) for $230.0 million to reflect an economic effective date of June 1, 2014 (the “SP49 Transfer”). Prior to the SP49 Transfer, we owned a 43.5% working interest in certain of these assets, and Energy XXI owned a 56.5% working interest in certain of these assets as well as 100% interest in additional assets in the field. As a result of the SP49 Transfer, we have become the sole working interest owner of the South Pass 49 field. We financed the SP49 Transfer with borrowings of approximately $135 million under our credit facility and a $95 million capital contribution from EGC. See Note 7, “Indebtedness” for more information regarding our credit facility.

The following table summarizes the assets acquired and liabilities assumed in the transfer to reflect an economic effective date of June 1, 2014.


(In thousands)
Oil and natural gas properties	$	231,271
Asset retirement obligations		(1,086)
Net assets acquired	$	230,185

The Nexen Acquisition

On January 15, 2014, we acquired from Nexen Petroleum Offshore U.S.A., Inc. (“Nexen”) a 100% working interest in certain shallow-water central GoM shelf oil and natural gas assets for $70.4 million, subject to customary adjustments to reflect the September 1, 2013, economic effective date (the “Nexen Acquisition”). The assets we acquired comprise five leases in the Eugene Island 258/259 field (the “EI Interests”). The Nexen Acquisition was financed with borrowings under our senior secured credit facility with BMO Capital Markets, as lead arranger, and Bank of Montreal, as administrative agent and a lender, and the other lender parties thereto (as amended and restated, the “Prior Senior Credit Facility”).

The following table summarizes the estimated values of assets acquired and liabilities assumed and reflects final adjustments to purchase price provided for by the purchase and sale agreement of approximately $5.7 million to reflect an economic effective date of September 1, 2013.


(In thousands)
Oil and natural gas properties	$	82,897
Asset retirement obligations		(18,165)
Net assets acquired	$	64,732

The West Delta 29 Acquisition

On September 26, 2013, we acquired from W&T Offshore, Inc. (“W&T”) an asset package consisting of certain GoM shelf oil and natural gas interests in the West Delta 29 field (the “WD29 Interests”) for $21.8 million in cash, subject to customary adjustments to reflect an economic effective date of January 1, 2013 (the “WD29 Acquisition”). The WD29 Acquisition was funded with a portion of the proceeds from the sale of certain shallow water GoM shelf oil and natural gas interests located within the non-operated Bay March and field in a tax-deferred exchange of properties.


(In thousands)
Oil and natural gas properties	$	16,544
Asset retirement obligations		(1,398)
Net assets acquired	$	15,146

We have accounted for the Nexen Acquisition and WD29 Acquisition using the acquisition method of accounting for business combinations, and therefore we have estimated the fair value of the assets acquired and the liabilities assumed as of their respective acquisition dates. In the estimation of fair value, management uses various valuation methods including (i) comparable company analysis, which estimates the value of the acquired properties based on the implied valuations of other similar operations; (ii) comparable asset transaction analysis, which estimates the value of the acquired operations based upon publicly announced transactions of assets with similar characteristics; (iii) comparable merger transaction analysis, which, much like comparable asset transaction analysis, estimates the value of operations based upon publicly announced transactions with similar characteristics, except that merger analysis analyzes public to public merger transactions rather than solely asset transactions; and (iv) discounted cash flow analysis. The fair value is based on subjective estimates and assumptions, which are inherently subject to significant uncertainties which are beyond our control. These assumptions represent Level 3 inputs, as further discussed in Note 9, “Fair Value Measurements.”

Results of Operations and Pro Forma Information

Revenues and lease operating expenses attributable to acquired interests and properties were as follows:


	SUCCESSOR COMPANY					PREDECESSOR COMPANY
		Three Months Ended December 31,		Six Months Ended December 31,		Three Months Ended December 31,		Six Months Ended December 31,
		2014		2014		2013		2013
(In thousands)
SP49 Interests:
Revenues		$	12,051	$	27,031	$	-	$	-
Lease operating expenses		$	2,368	$	4,363	$	-	$	-
EI Interests:
Revenues		$	8,145	$	19,992	$	-	$	-
Lease operating expenses		$	5,731	$	9,996	$	-	$	-
WD29 Interests:
Revenues		$	2,902	$	6,745	$	3,011	$	3,011
Lease operating expenses		$	127	$	371	$	44	$	44

We have determined that the presentation of net income attributable to the acquired interests and properties is impracticable due to the integration of the related operations upon acquisition.

The following supplemental pro forma information presents consolidated results of operations as if the WD 29 Acquisition, the Nexen Acquisition and the SP49 Transfer had occurred on July 1, 2012. In addition, this information has been prepared to reflect the Merger and pushdown accounting as if it occurred on July 1, 2012. The supplemental unaudited pro forma information was derived from a) our historical condensed consolidated statements of operations and b) unaudited revenues and direct operating expenses of the SP49 Interests, WD29 Interests and the EI Interests as derived from the records of the applicable seller provided to us in connection with the acquisitions. This information does not purport to be indicative of results of operations that would have occurred had the transactions occurred on July 1, 2012, nor is such information indicative of any expected future results of operations. The most significant pro forma adjustments for the three and six months ended December 31, 2013, were the following:

Exclude $13.6 million and $17.0 million, respectively, of our exploration costs, impairment expense and gain on sales of assets accounted for under the successful efforts method of accounting to correspond with the full cost method of accounting.

Increase DD&A expense by $26.0 million and $59.3 million, respectively, for our properties to correspond with the full cost method of accounting.

Decrease interest expense $3.3 million and $6.6 million, respectively, to reflect non-cash premium amortization due to the adjustment to fair value associated with the $510 million face value of our 8.25% Senior Notes.


	PRO FORMA
	Three Months Ended December 31,		Six Months Ended December 31,
	2013		2013
(in thousands, except per share data)
Revenue	$	165,603	$	386,270
Net loss		(8,217)		(10,191)
Basic loss per share		(0.21)		(0.26)
Diluted loss per share		(0.21)		(0.26)

(2) Acquisitions

The South Pass 49 Transfer

On June 3, 2014, Energy XXI GOM, LLC, transferred an asset package to us consisting of certain shallow-water GoM shelf oil and natural gas interests in our South Pass 49 field (the “SP49 Interests”) for $230.0 million to reflect an economic effective date of June 1, 2014 (the “SP49 Transfer”). Prior to the SP49 Transfer, we owned a 43.5% working interest in certain of these assets, and Energy XXI owned a 56.5% working interest in certain of these assets as well as 100% interest in additional assets in the field. As a result of the SP49 Transfer, we have become the sole working interest owner of the South Pass 49 field. We financed the SP49 Transfer with borrowings of approximately $135 million under our prior credit facility and a $95 million capital contribution from EGC.

The following table summarizes the assets acquired and liabilities assumed in the transfer.


(In thousands)
Oil and natural gas properties	$	231,271
Asset retirement obligations		(1,086)
Net assets acquired	$	230,185

The Nexen Acquisition

The following table summarizes the estimated values of assets acquired and liabilities assumed and reflects final adjustments to purchase price provided for by the purchase and sale agreement of approximately $5.7 million to reflect an economic effective date of September 1, 2013.


(In thousands)
Oil and natural gas properties	$	82,897
Asset retirement obligations		(18,165)
Net assets acquired	$	64,732

The West Delta 29 Acquisition

On September 26, 2013, we acquired from W&T Offshore, Inc. (“W&T”) an asset package consisting of certain GoM shelf oil and natural gas interests in the West Delta 29 field (the “WD29 Interests”) for $21.8 million in cash, subject to customary adjustments to reflect an economic effective date of January 1, 2013 (the “WD29 Acquisition”). The WD29 Acquisition was funded with a portion of the proceeds from the sale of certain shallow water GoM shelf oil and natural gas interests located within the non-operated Bay Marchand field in a tax-deferred exchange of properties.


(In thousands)
Oil and natural gas properties	$	16,544
Asset retirement obligations		(1,398)
Net assets acquired	$	15,146

Results of Operations and Pro Forma Information

Revenues and lease operating expenses attributable to acquired interests and properties were as follows:


	SUCCESSOR COMPANY					PREDECESSOR COMPANY
		Three Months Ended March 31,		Nine Months Ended March 31,		Three Months Ended March 31,		Nine Months Ended March 31,
		2015		2015		2014		2014
(In thousands)
SP49 Interests:
Revenues		$	8,311	$	35,342	$	-	$	-
Lease operating expenses		$	837	$	5,200	$	-	$	-
EI Interests:
Revenues		$	4,711	$	24,703	$	8,380	$	8,380
Lease operating expenses		$	6,030	$	16,026	$	3,656	$	3,656
WD29 Interests:
Revenues		$	1,683	$	8,428	$	3,232	$	6,243
Lease operating expenses		$	238	$	609	$	59	$	103

We have determined that the presentation of net income attributable to the acquired interests and properties is impracticable due to the integration of the related operations upon acquisition.

The following supplemental pro forma information presents consolidated results of operations as if the WD 29 Acquisition, the Nexen Acquisition and the SP49 Transfer had occurred on July 1, 2012. In addition, this information has been prepared to reflect the Merger and pushdown accounting as if it occurred on July 1, 2012. The supplemental unaudited pro forma information was derived from a) our historical condensed consolidated statements of operations and b) unaudited revenues and direct operating expenses of the SP49 Interests, WD29 Interests and the EI Interests as derived from the records of the applicable seller provided to us in connection with the acquisitions. This information does not purport to be indicative of results of operations that would have occurred had the transactions occurred on July 1, 2012, nor is such information indicative of any expected future results of operations. The most significant pro forma adjustments for the three and nine months ended March 31, 2014, were the following:

Exclude $5.0 million and $22.0 million, respectively, of exploration costs, impairment expense and gain on sales of assets accounted for under the successful efforts method of accounting to correspond with the full cost method of accounting.

Increase DD&A expense by $25.0 million and $82.6 million, respectively, to correspond with the full cost method of accounting.

Decrease interest expense $3.4 million and $10.0 million, respectively, to reflect non-cash premium amortization due to the adjustment to fair value associated with the $510 million face value of our 8.25% senior notes due February 2018 (the “8.25% Senior Notes”).


	PRO FORMA
	Three Months Ended March 31,		Nine Months Ended March 31,
	2014		2014
(in thousands, except per share data)
Revenue	$	176,833	$	563,103
Net income		11,434		2,289
Basic income per share		0.29		0.06
Diluted income per share		0.29		0.06

(3) Acquisitions and Dispositions

Sale of interests in the East Bay field

On June 30, 2015, we sold our interest in the East Bay field to Whitney Oil & Gas, LLC and Trimont Energy (NOW), LLC, for cash consideration of $21 million plus the assumption of asset retirement obligations estimated at $55.1 million. The cash consideration is payable in two installments with $5 million received at closing and the remainder due on or before October 31, 2015. We retained a 5% overriding royalty interest (applicable only during calendar months if and when the WTI for such month averages over $65) on these assets for a period not to exceed 5 years from the closing date or $7 million whichever occurs first, and we also retained 50% of the deep rights associated with the East Bay field. Revenues and expenses related to the field were included in our results of operations through June 30, 2015. The proceeds were recorded as a reduction to our oil and natural gas properties with no gain or loss being recognized. The net reduction to the full cost pool related to this sale was $68.9 million.

The South Pass 49 Transfer

On June 3, 2014, Energy XXI GOM, LLC transferred an asset package consisting of certain shallow-water GoM shelf oil and natural gas interests in our South Pass 49 field (the “SP49 Interests”) to us for $230.0 million to reflect an economic effective date of June 1, 2014 (the “SP49 Transfer”). We estimate that the proved reserves as of the June 1, 2014 economic effective date totaled approximately 11.3 Mmboe, of which 74% were oil and 73% were proved developed reserves. Prior to the SP49 Transfer, we owned a 43.5% working interest in certain of these assets, and Energy XXI owned a 56.5% working interest in certain of these assets as well as 100% interest in additional assets in the field. As a result of the SP49 Transfer, we have become the sole working interest owner of the South Pass 49 field. We financed the SP49 Acquisition with borrowings of approximately $135 million under our credit facility and a $95 million capital contribution from EGC. See Note 8, “Indebtedness” for more information regarding our credit facility.

The following table summarizes the estimated values of assets acquired and liabilities assumed in the transfer.


(In thousands)	June 1, 2014
Oil and natural gas properties	$	231,271
Asset retirement obligations		(1,086)
Net assets acquired	$	230,185

The Nexen Acquisition

On January 15, 2014, we acquired from Nexen Petroleum Offshore U.S.A., Inc. (“Nexen”) a 100% working interest of certain shallow-water central GoM shelf oil and natural gas assets for $70.4 million, subject to customary adjustments to reflect the September 1, 2013, economic effective date (the “Nexen Acquisition”). The assets we acquired comprise five leases in the Eugene Island 258/259 field (the “EI Interests”). Estimated proved reserves as of the September 1, 2013 effective date consist of approximately 2.6 Mmboe of proved developed producing reserves, about 91% of which is oil. The Nexen Acquisition was financed with borrowings under our senior secured credit facility with BMO Capital Markets, as lead arranger, and Bank of Montreal, as administrative agent and a lender, and the other lender parties thereto (as amended and restated, the “Prior Senior Credit Facility”).

The following table summarizes the estimated values of assets acquired and liabilities assumed and reflects final adjustments to purchase price provided for by the purchase and sale agreement of approximately of $5.7 million to reflect an economic effective date of September 1, 2013.


(In thousands)	September 1, 2013
Oil and natural gas properties	$	82,897
Asset retirement obligations		(18,165)
Net assets acquired	$	64,732

The West Delta 29 Acquisition

On September 26, 2013, we acquired from W&T Offshore, Inc. (“W&T”) an asset package consisting of certain GoM shelf oil and natural gas interests in the West Delta 29 field (the “WD29 Interests”) for $21.8 million in cash, subject to customary adjustments to reflect an economic effective date of January 1, 2013 (the “WD29 Acquisition”). We estimate that the proved reserves as of the January 1, 2013 economic effective date totaled approximately 0.7 Mmboe, of which 95% were oil and 58% were proved developed reserves. The WD29 Acquisition was funded with a portion of the proceeds from the sale of the BM Interests held by the qualified intermediary as described below.


(In thousands)	January 1, 2013
Oil and natural gas properties	$	16,544
Asset retirement obligations		(1,398)
Net assets acquired	$	15,146

Sale of Non-Operated Bay Marchand Asset

On April 2, 2013, we sold certain shallow water GoM shelf oil and natural gas interests located within the non-operated Bay Marchand field (the “BM Interests”) to the property operator for $51.5 million in cash and the buyer’s assumption of liabilities recorded on our balance sheet of $11.3 million resulting in total consideration of $62.8 million, subject to customary adjustments to reflect the January 1, 2013 economic effective date. Our results for the year ended December 31, 2013 reflect a pre-tax gain of $28.1 million from this sale.

The following table summarizes the carrying amount of the net assets sold and reflects final adjustments to the sale price provided for by the purchase and sale agreement of approximately $0.7 million to reflect the economic effective date of January 1, 2013.


(In thousands)	January 1, 2013
Oil and natural gas properties	$	35,298
Asset retirement obligations		(3,959)
Other liabilities		(7,311)
Net assets sold	$	24,028

The cash proceeds from this sale of assets were held on deposit with a qualified intermediary in contemplation of a potential tax-deferred exchange of properties and classified as restricted cash at June 30, 2013. On September 26, 2013, we used $16.5 million of these proceeds to fund the WD29 Acquisition (defined and described above), which was a qualifying purchase for tax-deferral purposes. On September 29, 2013, the underlying escrow agreement expired, and the remaining amount of the deposit became unrestricted.

Results of Operations and Pro Forma Information

Revenues and lease operating expenses attributable to acquired interests and properties were as follows:


	Year Ended June 30,		Period from June 4, 2014 through June 30,		Period from January 1, 2014 through June 3,		Year Ended December 31,
	2015		2014		2014		2013
	(In thousands)				(In thousands)
SP49 Interests:
Revenues	$	44,702	$	5,126	$	-	$	-
Lease operating expenses	$	8,039	$	600	$	-	$	-
EI Interests:
Revenues	$	30,521	$	4,379	$	17,565	$	-
Lease operating expenses	$	21,469	$	1,151	$	7,264	$	-
WD29 Interests:
Revenues	$	10,943	$	1,232	$	5,681	$	3,011
Lease operating expenses	$	710	$	12	$	89	$	44

We have determined that the presentation of net income attributable to the acquired interests and properties is impracticable due to the integration of the related operations upon acquisition. We incurred fees of approximately $0.3 million related to the SP49 Acquisition which were included in general and administrative expenses in the accompanying consolidated statement of operations for the period June 4, 2014 through June 30, 2014. We incurred fees of approximately $0.1 million related to the Nexen Acquisition which were included in general and administrative expenses in the accompanying consolidated statement of operations for the period January 1, 2014 through June 3, 2014.

The following supplemental unaudited pro forma information presents consolidated results of operations as if the WD 29 Acquisition, the Nexen Acquisition and the SP49 Transfer had occurred on July 1, 2012. In addition, this unaudited information has been prepared to reflect the Merger and pushdown accounting as if it occurred on July 1, 2012. The supplemental unaudited pro forma information was derived from a) our historical condensed consolidated statements of operations and b) unaudited revenues and direct operating expenses of the SP49 Interests, WD29 Interests and the EI Interests as derived from the records of the applicable seller provided to us in connection with the acquisitions. This information does not purport to be indicative of results of operations that would have occurred had the transactions occurred on July 1, 2012, nor is such information indicative of any expected future results of operations. The most significant pro forma adjustments for the period from January 1, 2014 through June 3, 2014 and the year ended December 31, 2013, were the following:

Exclude $26.3 million and $0.8 million, respectively, of our exploration costs, impairment expense and gain on sales of assets accounted for under the successful efforts method of accounting to correspond with the full cost method of accounting.

Increase DD&A expense by $35.6 million and $129.6 million, respectively, for our properties to correspond with the full cost method of accounting.

Decrease interest expense $5.6 million and $13.3 million, respectively, to reflect non-cash premium amortization due to the adjustment to fair value associated with the $510 million face value of our 8.25% Senior Notes.


		PRO FORMA
		Period from January 1, 2014 through June 3,		Year Ended December 31,
		2014		2013
	(in thousands, except per share data) (Unaudited)
Revenue		$	303,742	$	823,436
Net income (loss)			(9,244)		73,794
Basic earnings (loss) per share			(0.24)		1.88
Diluted earnings (loss) per share			(0.24)		1.86