(RTTNews) - Monday, Energy XXI Ltd. (EXXI, EXXI.L) announced signing an agreement to acquire certain Gulf of Mexico shelf oil and natural gas interests from MitEnergy Upstream LLC, a subsidiary of Japan-based Mitsui & Co., Ltd., (MITSY: News ) for $283 million.

Energy XXI would acquire properties, including 30 fields currently producing 8,000 net barrels of oil equivalent or BOE per day, about 77% of which is oil and 80% of which is already operated by Energy XXI. After certain repairs to third-party pipelines, damaged by hurricanes in 2008, net production is expected to reach 10,000 BOE per day. Offshore leases included in the purchase total nearly 33,000 net acres. The transaction involves mirror-image, non-operated interests in the same group of properties Energy XXI purchased from Pogo Producing Company in June 2007.

Energy XXI Chairman and CEO John Schiller said, "The original Pogo property acquisition turned out to be an excellent transaction for Energy XXI, and the purchase announced today will double our interests in the same properties. The synergies are obvious, as no incremental personnel, systems or other overhead will be required. Administrative and operating cash costs are expected to be reduced by about $1 per BOE overall. This transaction will boost our recent production run rate by 43 percent to about 27,000 BOE per day, with near-term upside anticipated."

Post-transaction, the company expects oil to represent 67% of current production, up from 59% in the prior quarter. It expects proved plus probable reserves to increase to 93 million BOE from 66 million BOE; 61% of which is oil, up from 56%. In addition, accounting for recent development activity, Energy XXI expects its pro forma reserves to be 76% proved developed, up from the 64% in the prior quarter. The company will operate 79% of its properties on a reserves basis, compared with 78% currently.

Energy XXI has purchased puts and put spreads that provide downside price protection averaging $73.46 per barrel on 6,500 barrels per day of oil production for 18 months, from January 2010 through June 2011.
The transaction is likely to be funded through a combination of new equity, cash on hand and bank debt. Energy XXI has placed a 5% cash deposit into escrow under the terms of the agreement.

The purchase is subject to customary closing conditions and adjustments, such as downward adjustments to the purchase price to reflect revenues generated between the effective date of July 1, 2009. Assuming a year-end closing, actual funding requirements are estimated to be $263 million.

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