Energy XXI To Restate Financials Due To Change In Derivative Accounting Method

(RTTNews) - Energy XXI Ltd (EXXI) Tuesday said it would restate its financial statements to correct its method of accounting for crude oil and natural gas hedging. This is to reflect unrealized hedging gains and losses in the company's consolidated statements of operations as a component of earnings rather than on its consolidated balance sheets.

Consolidated financial statements for the years ended June 30, 2014, 2013, 2012 and 2011 as well as for the quarters ended September 30, 2014 and 2013, December 31, 2014 and 2013, March 31, 2015 and 2014 and June 30, 2014 will be restated.

Historically, under the cash flow hedge accounting, the company recorded the unrealized gains and losses on its derivative contracts, net of the related tax impact, in accumulated other comprehensive income or loss as part of the consolidated balance sheet.

This was until the production month when the associated hedge contracts were settled, when gains or losses associated with the settled contracts were reclassified to revenues.

During the preparation of its annual report on Form 10-K for the year ended June 30, 2015, Energy XXI recently determined that certain oil and gas hedges did not qualify for cash flow hedge accounting treatment at their date of designation.

The primary reason for this derivative accounting change was that the formal hedge documentation lacked specificity of the hedged items. Thus, the designations failed to meet the complex technical documentation requirements for cash flow hedge accounting treatment.