This mornings article from oilbarrel.com seems to have helped in unsettling the fragile nerves of Xcite Energy investors. The shares are down 7.5p at 362p.
Although the article reassures about the p50 of 200 million barrels from the Bentley heavy oil field with as much as 100% upside, Ambrian analysts have raised concerns, notably on funding for the field development.
Xcite are currently waiting on the revised CPR (competent Persons Report), written by an independent third party to move contingent resources to reserves enabling the first stage production plan. The original CPR had reserves of 166 million barrels but the 9/3b-6,6z well had a flow rate of 2900 barrels per day versus a maximum expectation of 2800 bpd. In addition, at the Oilbarrel.com presentation in January 2011, Xcite described the appraisal well as "shows mobility and reservoir properties are at or above the high end expectation for this part of the reservoir". High end flow and reservoir properties would seem to give confidence that when the CPR comes, there is a strong possibility that there will be a good reserves upgrade.By how much is the big question?
On the funding front, the Bentley Alliance structure whilst not fully transparent gives potential funding for the field infrastructure.without the need for a major farm in (see more details of Alliance in the previous post http://contrarianinvestoruk.blogspot.com/2011/01/xcite-energy-should-prove-highly.html). Infrastructure costs will be contained because refining and transport will be handled by BP which are part of the Alliance. The cost of the rig from British American Offshore (Rowan Norway) will most likely be handled by the SEDA agreement where the company is given cash in return for nil-discount shares (which cannot be sold for 4 months). There is also the possibility of debt versus a dilutive fund raising via a placing.
Although the Oilbarrel article mentions a supposed limited interest in heavy oil fields like this from other companies (according to Ambrian), but Statoil with a heavy oil field right next door springs to mind as a often mentioned suitor. Maybe there isn't takeover interest right now, but they don't even have a CPR or confirmed final reserves for Bentley to undertake due diligence, but they will have very soon. Either way, Xcite is committed to bringing Bentley to full production during 2011.
Sure the share price has gone up many times over in the last 18 months but investors should not forget that before the flow test in December 2010 know one knew if Bentley oil would flow at a commercial rate. Conoco failed in the 1980's to achieve a commerial flow. Xcite have managed to get the heavy oil to flow with modern techniques with the help of Schlumberger. The share price was over 3 pounds with this huge questionmark hanging over the field last December, now it is 362p, with the risk largely gone. It could have gone to more or less zero if the flow test was very poor! There's no good having out if you can't extract it.
We'll find out soon enough about the CPR and funding for the project, and though Xcite is not a bargain, it is certainly not overvalued with such a strong asset in the North Sea. I derisked a bit yesterday and moved some funds into Bowleven and Weatherly which I do consider bargain basement based on assets. However, there's still a lot of Xcite shares in the kitty.
The oilbarrel article is below for reference:
http://www.oilbarrel.com/nc/news/display_news/article/xcite-energy-inks-rig-contract-to-put-it-on-track-for-bentley-development-drilling-in-q4/771.html
Xcite Energy Inks Rig Contract To Put It On Track For Bentley Development Drilling In Q4
After a few months of negotiations, Xcite Energy has finally inked the paperwork to hire the Rowan Norway harsh-environment deepwater jack-up. The newbuild, still under construction in the Keppel FELS yard in Singapore, will undertake development drilling under the first stage production plans for the Bentley heavy oilfield in the North Sea from Q4 2011. The news follows a £5 million draw on the company’s standby equity distribution agreement earlier this month.
This ensures Xcite, which is listed on AIM and TSX, now has the drilling hardware to push ahead with development of this heavy oilfield, which has so far exceeded the expectations of the management team. A key well drilled late last year, the much watched 6z horizontal well, which saw investors pile into the stock, driving the share price up 550 per cent from 65 pence in August to 425 pence per share as test results were announced in December, proved the reservoir had high porosity, high permeability and high productivity. The well flowed at 2,900 bpd with the rate constrained by the limits of the testing equipment.
Provisionally, the company reckons there are 750 million barrels of oil in place, with a low case of 120 million and a high case of 250 million with a P50 of 200 million barrels. That’s without any enhanced oil recovery, which could increase that number by 50 to 100 per cent. Xcite has 100 per cent. An updated CPR is due out shortly, which should lay the foundation for development of an asset that has been a seven-year labour of love for the management team and could make Xcite, which listed on AIM in November 2007, one of the largest oil companies on the exchange.
Yet news that the key drilling contract is now in place received a rather muted response on Monday, with the shares dropping 14.5 pence to 368 pence. Analysts at Ambrian Oil & Gas believe this is because so many question marks still remain about how this capital intensive project will be funded by the dual-listed company.
“The capex associated with a full-field development of a crude with characteristics such as those at Bentley (high viscosity of up to 1000Cp and gravity of 10-12° API) will run into the billions and, for a small company, we suggest the task of taking on such a large-scale development is simply unrealistic,” said the Ambrian analysts in a note. “Accepting Xcite will not (or cannot) take Bentley on alone leads you down a path that ends with the conclusion that a significant farm-down will be necessary in order to bring in a larger operating partner, with much deeper pockets and a proven heavy oil operating track record. No noises with respect to a potential farm-out have yet been made, and with the industry not appearing to be lining up to get access to Bentley, this is concerning in our opinion.”
Some investors are also concerned about the lack of clarity about the terms agreed with the Bentley Alliance, which includes AMEC and BP. The Alliance is a group of contractors who have agreed to work on a risk and reward basis, a formula which enables Xcite to capture industry-leading expertise and secure the best people by providing enhanced returns for performance. This may be a win-win for the operator-contractor relationship and ensure a Rolls Royce engineering job, but investors are left rather in the dark as to just how much is on the table for the contractors and how much will be retained by Xcite.
Shares in the company rose 800 per cent in 2009 and 700 per cent in 2010, making it one of the favourites among oily investors. While there has been some easing back of the share price to below the £4 a share marker, inevitably some profit taking following the stellar gains of the past year, the stock is likely to remain a favourite pick of many investors given management’s track record of delivery and the upside in the Bentley reservoir, which many believe will be at the top end of expectations given the success of that 6z well. Some clarity on the future financing of the development would, however, be much welcomed by investors in the relatively near-term.
Although the article reassures about the p50 of 200 million barrels from the Bentley heavy oil field with as much as 100% upside, Ambrian analysts have raised concerns, notably on funding for the field development.
Xcite are currently waiting on the revised CPR (competent Persons Report), written by an independent third party to move contingent resources to reserves enabling the first stage production plan. The original CPR had reserves of 166 million barrels but the 9/3b-6,6z well had a flow rate of 2900 barrels per day versus a maximum expectation of 2800 bpd. In addition, at the Oilbarrel.com presentation in January 2011, Xcite described the appraisal well as "shows mobility and reservoir properties are at or above the high end expectation for this part of the reservoir". High end flow and reservoir properties would seem to give confidence that when the CPR comes, there is a strong possibility that there will be a good reserves upgrade.By how much is the big question?
On the funding front, the Bentley Alliance structure whilst not fully transparent gives potential funding for the field infrastructure.without the need for a major farm in (see more details of Alliance in the previous post http://contrarianinvestoruk.blogspot.com/2011/01/xcite-energy-should-prove-highly.html). Infrastructure costs will be contained because refining and transport will be handled by BP which are part of the Alliance. The cost of the rig from British American Offshore (Rowan Norway) will most likely be handled by the SEDA agreement where the company is given cash in return for nil-discount shares (which cannot be sold for 4 months). There is also the possibility of debt versus a dilutive fund raising via a placing.
Although the Oilbarrel article mentions a supposed limited interest in heavy oil fields like this from other companies (according to Ambrian), but Statoil with a heavy oil field right next door springs to mind as a often mentioned suitor. Maybe there isn't takeover interest right now, but they don't even have a CPR or confirmed final reserves for Bentley to undertake due diligence, but they will have very soon. Either way, Xcite is committed to bringing Bentley to full production during 2011.
Sure the share price has gone up many times over in the last 18 months but investors should not forget that before the flow test in December 2010 know one knew if Bentley oil would flow at a commercial rate. Conoco failed in the 1980's to achieve a commerial flow. Xcite have managed to get the heavy oil to flow with modern techniques with the help of Schlumberger. The share price was over 3 pounds with this huge questionmark hanging over the field last December, now it is 362p, with the risk largely gone. It could have gone to more or less zero if the flow test was very poor! There's no good having out if you can't extract it.
We'll find out soon enough about the CPR and funding for the project, and though Xcite is not a bargain, it is certainly not overvalued with such a strong asset in the North Sea. I derisked a bit yesterday and moved some funds into Bowleven and Weatherly which I do consider bargain basement based on assets. However, there's still a lot of Xcite shares in the kitty.
The oilbarrel article is below for reference:
http://www.oilbarrel.com/nc/news/display_news/article/xcite-energy-inks-rig-contract-to-put-it-on-track-for-bentley-development-drilling-in-q4/771.html
Xcite Energy Inks Rig Contract To Put It On Track For Bentley Development Drilling In Q4
After a few months of negotiations, Xcite Energy has finally inked the paperwork to hire the Rowan Norway harsh-environment deepwater jack-up. The newbuild, still under construction in the Keppel FELS yard in Singapore, will undertake development drilling under the first stage production plans for the Bentley heavy oilfield in the North Sea from Q4 2011. The news follows a £5 million draw on the company’s standby equity distribution agreement earlier this month.
This ensures Xcite, which is listed on AIM and TSX, now has the drilling hardware to push ahead with development of this heavy oilfield, which has so far exceeded the expectations of the management team. A key well drilled late last year, the much watched 6z horizontal well, which saw investors pile into the stock, driving the share price up 550 per cent from 65 pence in August to 425 pence per share as test results were announced in December, proved the reservoir had high porosity, high permeability and high productivity. The well flowed at 2,900 bpd with the rate constrained by the limits of the testing equipment.
Provisionally, the company reckons there are 750 million barrels of oil in place, with a low case of 120 million and a high case of 250 million with a P50 of 200 million barrels. That’s without any enhanced oil recovery, which could increase that number by 50 to 100 per cent. Xcite has 100 per cent. An updated CPR is due out shortly, which should lay the foundation for development of an asset that has been a seven-year labour of love for the management team and could make Xcite, which listed on AIM in November 2007, one of the largest oil companies on the exchange.
Yet news that the key drilling contract is now in place received a rather muted response on Monday, with the shares dropping 14.5 pence to 368 pence. Analysts at Ambrian Oil & Gas believe this is because so many question marks still remain about how this capital intensive project will be funded by the dual-listed company.
“The capex associated with a full-field development of a crude with characteristics such as those at Bentley (high viscosity of up to 1000Cp and gravity of 10-12° API) will run into the billions and, for a small company, we suggest the task of taking on such a large-scale development is simply unrealistic,” said the Ambrian analysts in a note. “Accepting Xcite will not (or cannot) take Bentley on alone leads you down a path that ends with the conclusion that a significant farm-down will be necessary in order to bring in a larger operating partner, with much deeper pockets and a proven heavy oil operating track record. No noises with respect to a potential farm-out have yet been made, and with the industry not appearing to be lining up to get access to Bentley, this is concerning in our opinion.”
Some investors are also concerned about the lack of clarity about the terms agreed with the Bentley Alliance, which includes AMEC and BP. The Alliance is a group of contractors who have agreed to work on a risk and reward basis, a formula which enables Xcite to capture industry-leading expertise and secure the best people by providing enhanced returns for performance. This may be a win-win for the operator-contractor relationship and ensure a Rolls Royce engineering job, but investors are left rather in the dark as to just how much is on the table for the contractors and how much will be retained by Xcite.
Shares in the company rose 800 per cent in 2009 and 700 per cent in 2010, making it one of the favourites among oily investors. While there has been some easing back of the share price to below the £4 a share marker, inevitably some profit taking following the stellar gains of the past year, the stock is likely to remain a favourite pick of many investors given management’s track record of delivery and the upside in the Bentley reservoir, which many believe will be at the top end of expectations given the success of that 6z well. Some clarity on the future financing of the development would, however, be much welcomed by investors in the relatively near-term.
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