When it comes to the independent oil & gas sector, finding ‘hidden’ value and solid ‘upside potential’ can be a difficult task especially when it comes to stocks that have been nothing but beaten up since that start of the year. With that said, I wanted to take some time and highlight both Energy XXI’s EXXI recent performance as well as the most recent production update it provided to the investment community.

Company Overview

Headquartered in Houston, Texas, Energy XXI (Bermuda) Limited is engaged in the acquisition, exploration, development, production, and operation of oil and natural gas properties onshore in Louisiana and Texas, and on the Gulf of Mexico. As of June 30, 2014, the company had proved reserves of 246.2 million barrels of oil equivalent. It operated or had an interest in 984 gross producing wells on 432,954 net developed acres, including interests in 61 producing fields.

Recent Performance & Trend Behavior

As of Monday's close, shares of EXXI, which have fallen just over 55% year-to-date, currently possess a market cap of $1.12 billion, a P/E ratio of 20.59, and an annualized dividend yield of 4.02% ($0.48). Based on their closing price of $11.94/share, shares of EXXI are trading 16.72% below their 20-day simple moving average, 29.52% below their 50-day simple moving average, and 44.34% below their 200-day simple moving average.

Based on their recent trends these numbers indicate both a short-term and mid-to-long term downtrend for the stock, which generally translates into a selling mode for most near-term traders and many long-term investors. With that said, I strongly believe we could see its trend behavior reverse course on the heels of its latest production update.

Production Update

During the company's fiscal first quarter, oil production is averaging approximately 41,700 barrels of oil per day (Bbl/d). The quarter's volumes were impacted by third party pipeline downtime which accounted for approximately 1,950 barrels of oil equivalent per day (BOE/d). 

"We expect to reach the mid-point of production guidance despite third-party pipeline outages that were out of our control," Chairman, President and Chief Executive Officer John Schiller stated. "We are properly risking our production forecast and plan for the unexpected, while still delivering on our targets. We expect a majority of our third-party downtime to be back online within the next 30 days”.

The key takeaway, in my opinion, is the fact that Energy XXI seems to be delivering on its targets even in the wake of unexpected downtime and if that downtime hadn’t existed, then there’s an even better chance production would have come in at the higher-end of forecasts.

Conclusion

For those of you looking to establish a position in Energy XXI, I’d continue to keep an eye two key catalysts. For instance, I'm keeping an eye on the company’s ability to meet and/or surpass the mid-point of its production guidance for the remainder of the fiscal year, as well as its ability to continue to reduce its capital expenditures over the next 6-12 months. Why? I strongly believe that by enhancing production and cutting costs, Energy XXI will not only see higher profit margins but its share price could easily reach the $17-to-$22 range by mid-2015.