Xcite has a mini flash crash as CPR announcement moved back

Wow what a day for Xcite Energy!! All seemed to be stable this morning with the share price barely budging at around 392p to buy. Then the company presentation started at the Oilbarrel forum at 12.30pm and things starting moving down. First a few pence and then before I knew it I was choking on my sandwich as the share price briefly hit 350p, down 40p or so at just after 1pm. Suddenly

the margin on my spread bet account was looking rather perilous with an email from IGindex arriving in my inbox before long asking for a deposit (note to myself to review my emergency deposit requirements).

Xcite had in effect suffered its own “flash crash”, similar in nature, but not as severe as the Rockhopper (RKH) one back in June 2nd 2010. The price quickly bounced back as I desperately tried to buy more shares below 355p to no avail and actually went back into the mid 380p range around 1.30pm before settling at its current 376p, down 4.4% on the day.

What was the reason for the precipitous fall? Well the severe drop seemed to coincide with news being received from the oilbarrel conference that the CPR (Competent Persons Report) would be available in February or even March rather than the January timescale originally anticipated (thanks to Hedge Fox on iii.co.uk for his live posts from the conference).

Initial sales byprivate investors on this news seems to have led to a massive loss of
liquidity (as it did with Rockhopper’s “flash crash”) probably due to a sudden but severe lack of
buyers and overwhelming sells, large numbers of stop losses being triggered and a likely degree of Market Maker manipulation who swung the price down heavily to mop up sales. Like the Rockhopper situation, I am sure many holders were left out of pocket as the price bounced back.

Do not use stop losses on AIM stocks this is the golden rule in Contrarian Investors’s humble
opinion, the extreme volatility on some of these stocks can be very expensive if they are used. Fine on FTSE stocks, but on stocks controlled by Market Makers investors need to be disciplined and watchful and avoid them.

Looking at the presentation from the oilbarrel conference (http://www.xcite energy.com/docs/XEL%20General%20Jan11%20Oilbarrel%20v3%20FINAL.pdf
) the only disappointment is the delay in the CPR release, otherwise things
look increasingly positive with probability of success now 90%+ (I think this is on the low side given the strong flow test results)

Key points from the presentation include:
9/3b-6, 6z appraisal well:

• Potential resource of 950 million barrels (at least 750 million barrels)
• 120-250 million barrels of recoverable oil (an increase from 160mm barrels)
• Successful commercial flow test in Dec 2010
• Shows mobility and reservoir properties are at or above the high end of expectation for this part of the reservoir
• The techniques to drill 500m+ horizontal well and achieve stabilised flow rates worked according to plan
• Pilot well confirmed upside reservoir on Eastern flank
• Horizontal well of over 500m; flowed for over 36 hours; stabilised at multiple flow rates
• Multi-staged flow test reached 2900 bopd (pre-well max expectation of 2800bopd); test was surface equipment limited 
• 6z well had a flow capability of 3000 to 3500+ bopd with a reasonable and sustainable drawdown
• Test results should enable the movement of ‘Contingent Resources’ to ‘Reserves’ for First Stage Production plan.

Next steps
Short-term:

• Assimilate and update current reservoir model with new well information to:
• Produce an interim PIIP update (pre full-scale structural model)
• Produce an interim Reserves assessment to progress the FSP plan
• Complete jack up rig contract for the Rowan Norway unit (drilling &amp production)
• Complete design and order process equipment for FSP (full scale production)

Medium-term:

• Upgrade full reservoir model with new well information to:
• Produce a new PIIP using the new structural model
• Produce an updated recoverable Reserves assessment based upon new full scale model
• Submit Field Development Plan to the Government for approval for FSP and beyond
• Identify projects to expand Block Reserves, eg EOR (full field and new satellites)
• Deliver ‘first oil’ from FSP

Late 2011/early 2012 target date for FSP start up. In addition Charles Lucas-Clements (Director of Strategy and Business Development for XER) stated that he believed the CPR update should show "Most likely recovery estimate" at 200million barrels of oil with this figure being described as "conservative". He said that could increase by 50-100% (300m-400m) - "We think there is room for the share price to double or treble and this should be achieved in the next 12-18 months as a farily safe bet"  and "We know there's much more oil, but we can't say how much more at this stage". It will be established as part of the ongoing development.(ref. whowantstomeamill iii who was present at the event) .This would be incredible and a cause for much confidence. So much for the 10% share price drop during lunch!!

What a day for Xcite Energy! I was in need of a bit of portfolio stimulation this morning after the
lack of share price movement, but this was a little too much. It didn’t help that there was a cock up in the RNS being released this morning about the presentation being available on the Xcite web site and it was nowhere to be seen for at least an hour. The directors have been great at managing news flow so far, but I ask them to take note today since I think a great many investors lost money
unnecessarily. It also shows how illiquid Xcite energy is and how much volatility there is due to its large private investor base which means huge swings in the share price can occur on news of any sort. The sooner we get off AIM and onto the main FTSE market the better with some more institutions on board to give greater stability to the share price action (BOD, if  there's any possibility at all you're reading this blog perhaps you can make an announcement about intention to leave AIM soon??)

I love the excitement of AIM shares, but on days like this it can be a little too Xciting!! So we await the rig announcement (due any day), CPR with potentially significant resource upgrade in February (or March worst case), plus announcements relating to preparation for start of production by end of year (rig should arrive in October). Sounds good to me and glad I managed to pick up a few extra at 370p by selling some Angel Mining.