Energy XXI Gulf Coast, Inc., in conjunction with Orinoco Natural Resources, LLC (“ONR”) and its affiliates, today announced the entry into a term sheet for the disposition of EGC’s current non-core asset portfolio. This disposition is expected to significantly reduce EGC’s asset retirement liability, improve profitability and financial stability, lower its cost structure, and facilitate future growth. EGC is also reporting financial and operational results for the first quarter 2018 today in a separate release.

Highlights of the proposed transaction include:

• Transfers non-core EGC asset portfolio with significant plugging and abandonment and decommissioning (P&A) burden to the Offshore Environmental Fund, LLC (“OEF”), an affiliate of ONR
• Increases EGC’s estimated present value of proved reserves discounted at 10% (PV-10) by approximately $150 million to $461 million, which represents a nearly 50% increase, based on year-end 2017 SEC reserves and forward strip pricing as of April 24, 2018
• Eliminates approximately $320 million of undiscounted P&A liability, which represents 33% of EGC’s total undiscounted P&A liability
• Minimally impacts EGC’s projected future cash flow and production from very low or negative margin properties being divested, which totals approximately 3,000 barrels of oil per day and 9.5 million cubic feet of natural gas per day, and includes about 6.7 million BOE of proved reserves of which 30% is natural gas
• Reduces annual cash P&A expense $30 million to $40 million for the foreseeable future, and G&A costs by approximately $11 million per year; additional operating expense savings are anticipated
• Provides potential for release of significant cash collateral due to the reduction in overall P&A obligations and associated bonding and cash collateral requirements, further enhancing EGC’s liquidity
• Enhances potential for future strategic transactions, including acquisition and consolidation opportunities in the U.S. Gulf Coast region, both offshore and onshore
• Facilitates a potential financing to fund EGC’s enhanced development program in 2019, which the term sheet contemplates would be led by an anchor $25 million commitment from ONR or its affiliates

The non-core asset portfolio to be transferred to OEF consists of properties that have significant near-term P&A burden and limited cash flow and development upside. By comparison, the oil and gas properties that EGC would retain after the proposed divestiture are EGC’s most valuable and profitable core central GOM fields, with strong current production, cash flow and multiple ongoing and future drilling opportunities.

Under the terms of the proposed transaction, ONR would receive a 35% equity ownership position in EGC, pro forma for the transaction, and would have the right to designate for nomination members to serve on EGC’s Board of Directors proportionate to ONR’s equity ownership. EGC would also issue to OEF a $100 million, ten-year, second lien note amortized ratably beginning 2019, with 9% annual interest. Interest and amortization payments on this note are expected to be more than offset by the expected savings in cash P&A and G&A costs. Further, EGC would pay OEF upfront cash totaling $12.5 million at closing and an additional $12.5 million six months following the closing (funded by a portion of the cash collateral expected to be released as part of the transaction). The term sheet provides that OEF would be a self-sustaining entity with sufficient financial capability to assume all the P&A obligations and associated bonding obligations of the EGC non-core assets and associated liabilities that are to be transferred through the proposed transaction.

In addition, EGC would sign a 10-year P&A services agreement for its core assets with EPIC Companies LLC, a major P&A service provider in the U.S. Gulf of Mexico and an affiliate of ONR, on commercially reasonable terms and at market-supported rates.

Douglas E. Brooks, EGC’s Chief Executive Officer and President, commented, 
“Through extensive evaluation of our portfolio over the last year, we identified several critical factors that could materially enhance the sustainability and valuation of EGC’s portfolio. We believe that this proposed transaction addresses many of these factors, including a significant reduction of EGC’s asset retirement obligations, meaningful reductions to operating costs, and a renewed operational focus on our most productive assets, which generate the majority of our cash flow and value. The successful execution of this transaction will leave EGC much better positioned to implement its strategy. The near-term components of EGC’s strategy include future drilling and development programs and pursuing potential acquisitions or future consolidations. We are committed to the long-term sustainability of EGC and remain focused on enhancing stockholder value.”

Tom Clarke, principal of ONR, stated, 
“Earlier this year, EGC and my companies began a dialogue to craft a structure to fit both our strategic desires. We have considerable experience helping natural resource companies shed and decommission non-core assets and believe that we have found a compelling, complementary partner in EGC. We believe there is significant value in EGC’s future and are very pleased with this mutually beneficial relationship. With this transaction, EGC can focus on its core business, and we can ensure that the assets are retired in a safe and environmentally sound manner. We are committed to EGC for the long term as evidenced by the terms of this proposed transaction.”

Under the term sheet, ONR or its affiliates would commit at closing to anchor a potential future financing with at least a $25 million participation on terms to be agreed. That financing, which is expected to provide proceeds ranging from $100 million to $150 million, would further bolster EGC’s liquidity and provide capital to fund an enhanced drilling and development program beginning in 2019 to facilitate future growth. There can be no assurances that any future financing will be consummated in the amounts specified above, or at all.

EGC and ONR expect to continue their strategic alliance via ongoing financing and other strategic opportunities.