Xcite rumour dispelled - Rowan Stavanger goes to Talisman

A form 8-K SEC release from Rowan companies yesterday confirms that the Rowan Stavanger is going to Talisman Norway. Looks like Rowan Norway for Xcite assuming all agreed by 31st January with delivery June 2011. Another solid possibility is that Xcite is talking to Talisman (who have operations in the UK North Sea) about using the Rowan Stavanger until the Rowan Norway is available in June 2011.

http://secwatch.com/rdc/8k/events-or-changes-between-quar/2011/1/21/7522190?source=rss

In terms of the funding of the Rowan Norway, in the event that cash is needed to pay for it (other collateral could potentially be used), there should be sufficient money left from the SEDA (Standby Equity Distribution Agreement) arrangement where the company gets cash in exchange for the issue of shares to Yorkville Advisors - the YA Global Master SPV Ltd. From the December 17th RNS, "Xcite Energy (LON:XEL, TSX-V:XEL) has increased its existing Standby Equity Distribution Agreement (SEDA) by £20 million.The company can now raise up to £60 million through the equity line facility.". Alternatively money could be obtained from the Bentley Alliance (BP, Transocean, ADTI, AMEC, Fugro) without needing to resort to alternatives such as a placing. BP have already put in £4 million (see previous post on Alliance - http://contrarianinvestoruk.blogspot.com/2011/01/xcite-energy-should-prove-highly.html). I would guess that the company could also get a loan if necessary on the oil in place resource estimate, which will be converted to reserves in place in February or March. Either way, no big discounted placing.

Rowan Stavanger

*

N-Class

400

35,000

2011

North Sea

Talisman Norway

Low 300s

August 2011

Rig is under construction with delivery expected in January 2011. Rig received an LOI for approximately 90 to 120 days for accommodation work in the Norwegian Sector of the North Sea.Commencement date is expected to occur between May and August 2011 upon  receipt of Norwegian regulatory approval.

Rowan Norway

*

N-Class

400

35,000

2011

UK North Sea

Xcite Energy

Low 250s

June 2012

Rig is under construction with delivery expected in June 2011.  Received LOI for approximately 240 days.   LOI provides for a termination fee of $4 million payable by the customer in the event it does not enter into  the drilling contract by January 31 , 2011.  Customer is required to provide security in the amount of   $30 million for the first 120 days of the contract term by January 31 , 2011.  Customer is also required to  provide additional security in the amount of $30 million for the second 120 days of the contract term by  January 31, 2011.  Customer may reduce the contract term to 120 days, in which event it will be required  to increase the security from $30 million to $33.6 million and day rate is increased to low 280s .

Irish people left picking up the pieces after banking disaster

One of my favourite books on the financial sector is Andrew Ross Sorkin's "Too big to fail". Sorkin's book analyses the financial crisis post Lehman Brothers from a U.S. perspective. I have been reading Shane Ross's, "The Bankers: How the Banks Brought Ireland to Its Knees" over the last couple of weeks. Ross looks specifically at the factors behind the collapse of the Irish banking sector.

After being staggered by the sheer greed of some of the leading bankers on Wall Street which led ultimately to the Federal Reserve bail out known as TARP (Toxic Asset Relief Programme), I am even more sickened by the situation in Ireland where the Irish population has been blighted by an IMF/EU bailout. Ireland's Fianna Fáil party seemed to have overseen an unprecedented period of over lax regulation over the banking system. What's  more cosy relationships with property developers helped foster a drive for over generous tax breaks which benefitted a few wealthy individuals in the commercial and residential property market. The likes of Allied Irish bank and Bank of Ireland paid their management teams huge bonuses by pumping up profits by investing in the real estate sector. Of course when the Collateralised debt obligation (CDO) and sub-prime mortgage disaster started in the U.S. in 2007 the whole game in Ireland fell apart with the major banks collapsing with huge debts and having to be bailed out by the Irish tax payer.

In late November, Ireland finally agreed to a 85 billion euro bail out from the European Union and IMF which has coincided with a severe austerity package with pay cuts for government staff and tax increases. Irish property prices have collapsed near to 50% in the last 2 years after being pumped up on steroids during the "Celtic Tiger" boom years. It is a sorry tale that ordinary Irish people have been left to pick up the pieces of so much corruption and mismanagement. I am almost relieved that the U.K. situation with the banks seems almost benign compared with across the Irish sea. The Irish have a right to be very angry indeed.

Portfolio review of the week - 22nd January 2011

A great deal of volatility in the market to contend with this week but this threw up some good top-up opportunities, particularly in Bowleven (BLVN) and Sirius Minerals (SXX).

Xcite Energy (XEL): After testing 350p early in the week on low volumes, Xcite had a positive move on Thursday and Friday to finish at 368p. There seems to be a very consistent retrace pattern with this company, with the share price dropping by small amounts for several days before stabilising and then starting a move up, presumably instigated by the market makers. Still looking forward to the rig contract signing news and which one by January 31st  - Rowan Norway or Rowan Stavanger. The company have signed a Letter of Intent on the Norway but given a cancellation of a contract with BP on the Stavanger which is already built (Norway would not be ready until October), this could offer great opportunities to start production far earlier in the Bentley field. All conjecture of course, but sounds like a credible alternative. Nice rumour anyway. (POST POST NOTE: See http://contrarianinvestoruk.blogspot.com/2011/01/xcite-rumour-dispelled-rowan-stavanger.html).  I'm looking forward to a very profitable few weeks on Xcite - the share price should be a lot higher than £3.68 on a field of at least 200 million barrels.

Sirius Minerals (SXX): A major announcement this week with the purchase of NE England potash company, York Potash for £25 million in shares and a management restructuring with Chris Fraser (York's founder) taking over as Sirius's new CEO and MD.

A JORC Exploration Target of between 3.3 and 6 Billion tonnes of 67% to 94% polyhalite and 330 to 400 million tonnes of 35%-40% potassium chloride has been established for the currently contracted area within the York Potash Project. This estimate establishes the project as having one of the world's largest deposits of polyhalite at mineable depth.

The shares have had a good run this week, rising 4p or 24% to 20.75p on the York Potash and director buys. I took the opportunity to buy more on the fall during Thursday, since significant news from the company's North Dakota exploration project is expected mid-February which will make 20p look like a bargain. It is amazing to think that Sirius was 3p or so in August 2010.

Bowleven (BLVN) - Finally a rise in Bowleven's shares on Friday with a 3% increase to 380p. All week the shares have been drifting down as investors wait for further updates from the Sapele 1 well in Cameroon. Early Friday, with the share price down again, I took the plunge and bought more shares. With estimates of oil in place already at 65 to 430 million barrels in the Deep Omicron, mean 217 million barrels this company has great prospects for the future.

Imagination technology (IMG) - I have initiated a position this week on the rumours that the Ipad 2 and Iphone 5 will use IMG chips. Unfortunately this is showing a loss currently but Goldman Sachs issued a broker note this week with a £6 target, currently the shares are £3.84.

Angel Mining (ANGM): A poor week for Angel with the share price drifting down to 5.75p. News of the first gold production from the company's Nanulaq mine is due this month (and hopefully it is positive) as well as an update on progress of preparing the Black Angel zinc/lead mine also in Greenland. "To minimise transport and refining costs, the Company will only ship doré once it has produced an optimal quantity. The first shipment of doré for refining is expected to take place in January 2011" RNS 15th December. Did a couple of buys and sells on this one, but still holding a position at 5.8p.

Overall a good week for the portfolio, with Sirius being the star. I reckon Xcite should be the big mover next week, followed perhaps by Angel on some Nanulaq mine news. The Contrarian Investor UK portfolio has had a nice start to 2011, with a profit edging towards £7000 already because of gains on Bowleven and Xcite earlier in January.