It is often easy to run away from an investment when a particular segment is facing uncertain times. It is, however, just as easy to run toward that sector when others are fleeing if a longer time horizon is involved. The Gulf of Mexico oil spill is a case in point. There is little doubt that the United States needs deep water drilling and the oil it yields, meaning that those that drill the oil are not going to go away for some time regardless of the current circumstance. Recent events may depress stock prices in the short term, but they will most likely come back and exceed expectations as investors come to understand the true reality.
Energy XXI (Bermuda) Ltd., an energy exploration and development company, primarily focused on off-shore oil exploration and development within the Gulf of Mexico, works to drill and develop established and promising oil leases in both deep and shallow waters. The company currently produces oil from 274 properties and has equivalent proven reserves of over 78 million barrels of oil.
Although the current status of new well permits is in flux at the moment, the company does have lease access to over 148,000 acres of probable drill sites. Generally, over time this will prove valuable as the US government comes to terms with new regulations regarding off-shore drilling. From a general perspective, this delay in new drill permits may prove profitable as many (although not all with many being “ultra deep”) sites that the company has rights to are not deep water sites but more shallow, making them attractive from an access and safety perspective.
Reporting at the end of the third quarter 2010 finds the company declaring a quarterly $1.81 per preferred perpetual stock share indicating a company that has played its cards well and is profiting even as oil prices have been falling of late. One must, however, couch these results in the near-term with recent events and expect that over the next many months production will remain somewhat stagnant until government comes to terms with the fallout of the gulf tragedy. Longer-term however presents significant opportunity at current levels.