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EPL Oil & Gas Inc. (NYSE: EPL) agreed to be bought by main rival Energy XXI Ltd (Nasdaq: EXXI) Wednesday in a $2.3 billion deal billed as creating the biggest publicly owned independent oil producer on the U.S. Gulf of Mexico shelf.
Energy XXI said it expects an enterprise value of about $6 billion after the deal is closed.
The acquisition will increase the company's production to roughly 65,000 barrels of oil equivalent per day, up from about 45,100, Energy XXI said. When joined, the combined company will own and operate 10 oil fields on the shelf with cumulative production each surpassing 80 million barrels of oil.
The two similar companies are an ideal fit, and the integration is expected to be seamless.
"EPL's assets and operations closely resemble our own, predominantly oil, with some of the highest margins in the industry and extraordinary opportunities for reserves and production growth through development and exploration activities," Energy XXI Chairman and Chief Executive Officer John Schiller said in a statement.
The combined company will be based in Houston, where EPL has headquarters. Schiller will serve as chairman and CEO of the combined company.
At first glance, it looks like EPL shareholders are getting the better part of the deal. EPL shares surged more than 30% intraday to $39.26.
Meanwhile, EXXI shares slipped 7% to $21.32.
But for EXXI shareholders who stick around, the deal is likely to pay off over the long term.
Oil Companies Go Fishing in the Gulf
The EPL buy is Energy XXI's largest deal since 2010, when it agreed to buy nine oil and gas fields in Gulf of Mexico shallow waters for $1.01 billion from oil behemoth Exxon Mobil Corp. (NYSE: XOM).
"The merger is consistent with EXXI's strategy of bulking up in Shelf through acquisitions and squeezing oil out of older fielders," energy investment and merchant bank Tudor, Pickering, Holt & Co. analysts wrote in a note.
The U.S. Gulf of Mexico has been a lucrative spot for oilfield services companies over the last couple of years thanks to rising drilling activity and increased capital spending in the region.