Energy XXI Ltd. (EXXI) said Aug. 13 it purchased one of its subsidiaries, M21K, in a move to offset liquids production lost after it divested its East Bay Field assets in June.

The acquisition of M21K, in which Energy XXI had a 20% equity interest, brings 5,500 barrels of oil equivalent per day (boe/d) production, 45% liquids, in its core asset areas.

Energy XXI paid $25 million for the company, which has total proved reserves of 13 MMboe with a present value of $82 million at current strip prices discounted at 10%.

Energy XXI, which operates in the Gulf of Mexico and onshore Gulf Coast, has faced scrutiny in the past several months over its highly leveraged balance sheet.

Global Hunter Securities (GHS) analysts disfavor the stock as “super-levered” and said Aug. 13 the company needs higher oil prices to service debt and grow production. In 2016, GHS estimates Energy XXI’s net debt to EBITDA ratio will be 13.9x.

The company has made several moves to reduce future costs and increase liquidity, which stood at $875 million, including $750 million cash, as of July 31.

The company rid itself of $175 million in plugging and abandonment liabilities by selling its East Bay Field for $21 million. However, the move cost it 2 Mboe/d of production. In June, the company also sold its Grand Isle gathering assets for $245 million.

Energy XXI is continuing to trim spending.

“We will remain focused on reducing operating expenses and maintaining capital discipline to preserve liquidity," said John Schiller, chairman, president and CEO. “More importantly we have accomplished this while keeping production stable. We continue to target low-cost recompletions.”

Recompletions are becoming a key operational strategy for the company, “with 25 projects having been identified on that front,” said Andrew Coleman, analyst, Raymond James.

Energy XXI guided fiscal 2016 production down somewhat to 54-59 Mboe/d on tighter capex. The company said it would spend as much as $150 million, down 76% from 2015’s $585 million budget, Coleman said.

“In this challenging commodity price environment, I'm very proud of our team's ability to maintain capital discipline and reduce per barrel lease operating costs by 30%,” Schiller said.

Previous investor concerns that the Bureau of Ocean Energy Management (BOEM) could force Energy XXI to post up to $1 billion in supplemental bonds to cover asset retirement obligations have also been allayed. In June, the company reached an agreement with the BOEM to provide $150 million in supplemental bonding.

Contact the author, Darren Barbee, at dbarbee@hartenergy.com.