Energy XXI Ltd - FORM 10-K - EX-99.1 - September 8, 2010

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10-K - Energy XXI Ltdv193275_10k.htm
EX-32.1 - Energy XXI Ltdv193275_ex32-1.htm
EX-32.2 - Energy XXI Ltdv193275_ex32-2.htm
EX-21.1 - Energy XXI Ltdv193275_ex21-1.htm
EX-31.1 - Energy XXI Ltdv193275_ex31-1.htm
EX-23.2 - Energy XXI Ltdv193275_ex23-2.htm
EX-12.1 - Energy XXI Ltdv193275_ex12-1.htm
EX-31.2 - Energy XXI Ltdv193275_ex31-2.htm
EX-23.1 - Energy XXI Ltdv193275_ex23-1.htm
EX-10.38 - Energy XXI Ltdv193275_ex10-38.htm
   
WORLDWIDE PETROLEUM CONSULTANTS
ENGINEERING • GEOLOGY • GEOPHYSICS • PETROPHYSICS
Chairman & CEO
C.H. (Scott) Rees iii
President & COO
Danny D. Simmons
Executive VP
G. Lance Binder
     
Executive Committee
P. Scott Frost - Dallas
J. Carter Henson, Jr. - Houston
Dan Paul Smith - Dallas
Joseph J. Spellman - Dallas
Thomas J. Telia ii - Dallas
  
EXHIBIT 99.1
 
August 1, 2010

Mr. David West Griffin
Energy XXI (Bermuda) Limited
1021 Main Street, Suite 2626
Houston, Texas 77002

Dear Mr. Griffin:

In accordance with your request, we have estimated the proved reserves and future revenue, as of June 30, 2010, to the Energy XXI (Bermuda) Limited (referred to herein as "Energy XXI") interest in certain oil and gas properties located in Texas, onshore and offshore Louisiana, and federal waters in the Gulf of Mexico. It is our understanding that the proved reserves estimated in this report constitute approximately 80 percent of all proved reserves owned by Energy XXI. The estimates in this report have been prepared in accordance with the definitions and guidelines of the U.S. Securities and Exchange Commission (SEC) and, with the exception of the exclusion of future income taxes, conform to the FASB Accounting Standards Codification Topic 932, Extractive Activities—Oil and Gas. Definitions are presented immediately following this letter. This report has been prepared for Energy XXI's use in filing with the SEC.

We estimate the net reserves and future net revenue to the Energy XXI interest in these properties, as of June 30, 2010, to be:

   
Net Reserves
    
Future Net Revenue (M$)
  
   
Oil
    
NGL
    
Gas
          
Present Worth
  
Category
  
(MBBL)
    
(MBBL)
    
(MMCF)
    
Total
    
at 10%
  
                               
Proved Developed Producing
     22,026.6       1,959.5       34,101.0       1,209,745.6       996,721.6  
Proved Developed Non-Producing
     6,746.5       1,279.7       27,331.0       447,281.6       301,466.4  
Proved Undeveloped
     8,290.9       1,180.3       52,267.3       500,510.7       314,849.8  
                                         
Total Proved
     37,064.1       4,419.5       113,699.3       2,157,538.8       1,613,037.6  

Totals may not add because of rounding.

The oil reserves shown include crude oil and condensate. Oil and natural gas liquids (NGL) volumes are expressed in thousands of barrels (MBBL); a barrel is equivalent to 42 United States gallons. Gas volumes are expressed in millions of cubic feet (MMCF) at standard temperature and pressure bases.

The estimates shown in this report are for proved reserves. As requested, probable and possible reserves that exist for these properties have not been included. This report does not include any value that could be attributed to interests in undeveloped acreage beyond those tracts for which undeveloped reserves have been estimated. Reserves categorization conveys the relative degree of certainty; reserves subcategorization is based on development and production status. The estimates of reserves and future revenue included herein have not been adjusted for risk.

Future gross revenue to the Energy XXI interest is prior to deducting state production taxes and ad valorem taxes. Future net revenue is after deductions for these taxes, future capital costs, operating expenses, and abandonment costs but before consideration of federal income taxes. The future net revenue has been discounted at an annual rate of 10 percent to determine its present worth, which is shown to indicate the effect of time on the value of money. Future net revenue presented in this report, whether discounted or undiscounted, should not be construed as being the fair market value of the properties.
   
4500 Thanksgiving Tower • 1601 Elm Street • Dallas, Texas 75201-4754 • Ph. 214-969-5401 • Fax. 214-969-5411
nsai@nsai-petro.com
1221 Lamar Street, Suite 1200 • Houston, Texas 77010-3072 • PH: 713-654-4950 • Fax: 713-654-4951
netherlandsewell.com
 
 
 
 
 

For the purposes of this report, we did not perform any field inspection of the properties, nor did we examine the mechanical operation or condition of the wells and facilities. We have not investigated possible environmental liability related to the properties; therefore, our estimates do not include any costs due to such possible liability. Our estimates of future net revenue include Energy XXI's estimates of the costs to abandon the wells, platforms, and production facilities, net of any salvage value. Abandonment costs are included as capital costs.

Prices used in this report are based on the 12-month unweighted arithmetic average of the first-day-of-the-month price for each month in the period July 2009 through June 2010. For oil and NGL volumes, the average Heavy Louisiana Sweet posted price of $75.81 per barrel is adjusted by field for quality, transportation fees, and regional price differentials. For gas volumes, the average Henry Hub spot price of $4.103 per MMBTU is adjusted by field for energy content, transportation fees, and regional price differentials. All prices are held constant throughout the lives of the properties. The average adjusted product prices, weighted by production over the remaining lives of the properties, are $75.26 per barrel of oil, $37.90 per barrel of NGL, and $4.14 per MCF of gas.

Lease and well operating costs used in this report are based on operating expense records of Energy XXI. For nonoperated properties, these costs include the per-well overhead expenses allowed under joint operating agreements along with estimates of costs to be incurred at and below the district and field levels. As requested, lease and well operating costs for the operated properties are limited to direct lease- and field-level costs and Energy XXI's estimate of the portion of its headquarters general and administrative overhead expenses necessary to operate the properties. Lease and well operating costs are held constant throughout the lives of the properties. Capital costs are included as required for workovers, new development wells, and production equipment. The future capital costs are held constant to the date of expenditure.

We have made no investigation of potential gas volume and value imbalances resulting from overdelivery or underdelivery to the Energy XXI interest. Therefore, our estimates of reserves and future revenue do not include adjustments for the settlement of any such imbalances; our projections are based on Energy XXI receiving its net revenue interest share of estimated future gross gas production.

The reserves shown in this report are estimates only and should not be construed as exact quantities. Proved reserves are those quantities of oil and gas which, by analysis of engineering and geoscience data, can be estimated with reasonable certainty to be economically producible. If the reserves are recovered, the revenues therefrom and the costs related thereto could be more or less than the estimated amounts. Because of governmental policies and uncertainties of supply and demand, the sales rates, prices received for the reserves, and costs incurred in recovering such reserves may vary from assumptions made while preparing this report. Estimates of reserves may increase or decrease as a result of future operations, market conditions, or changes in regulations.

For the purposes of this report, we used technical and economic data including, but not limited to, well logs, geologic maps, seismic data, well test data, production data, historical price and cost information, and property ownership interests. The reserves in this report have been estimated using deterministic methods; these estimates have been prepared in accordance with generally accepted petroleum engineering and evaluation principles as set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers (SPE). We used standard engineering and geoscience methods, or a combination of methods, such as performance analysis, volumetric analysis, analogy, and reservoir modeling, that we considered to be appropriate and necessary to categorize and estimate reserves in accordance with SEC definitions and guidelines. A substantial portion of these reserves are for behind-pipe zones, non-producing zones, undeveloped locations, and producing wells that lack sufficient production history upon which performance-related estimates of reserves can be based. Therefore, these reserves are based on estimates of reservoir volumes and recovery efficiencies along with analogy to properties with similar geologic and reservoir characteristics. Our expertise is in petroleum engineering, geoscience, and petrophysical interpretation, not legal or accounting matters; we are not accountants, attorneys, or landmen. As in all aspects of oil and gas evaluation, there are uncertainties inherent in the interpretation of engineering and geoscience data; therefore, our conclusions necessarily represent only informed professional judgment.

 
 
 
 
 
The titles to the properties have not been examined by Netherland, Sewell & Associates, Inc. (NSAI), nor has the actual degree or type of interest owned been independently confirmed. The data used in our estimates were obtained from Energy XXI, public data sources, and the nonconfidential files of NSAI and were accepted as accurate. Supporting geoscience, field performance, and work data are on file in our office. The technical persons responsible for preparing the reserves estimates presented herein meet the requirements regarding qualifications, independence, objectivity, and confidentiality set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the SPE. We are independent petroleum engineers, geologists, geophysicists, and petrophysicists; we do not own an interest in these properties and are not employed on a contingent basis.

     
Sincerely,
  
         
     
NETHERLAND, SEWELL & ASSOCIATES, INC.
  
     
Texas Registered Engineering Firm F-002699
  
           
       
/s/ C. H. (Scott) Rees III
  
     
By:
    
       
C. H. (Scott) Rees III, P. E.
  
       
Chairman and Chief Executive Officer
  
           
 
/s/ Connor B. Riseden
    
/s/ David E. Nice
  
By:
    
By:
    
 
Connor B. Riseden, P.E. 100566
    
David E. Nice, P.G. 346
  
 
Petroleum Engineer
    
Vice President
  
           
Date Signed: August 1, 2010
  
Date Signed: August 1, 2010
  
       
CBR:JCC
      

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