Market moves up after London Stock Exchange closes for 4 hours

With oil prices stabilising as the end game in Libya seems close as regards Gaddafi, markets responded nicely with the FTSE 100 up 90 points to 6,006 and the Dow Industrials is up 65 to 12,130.  Lots of gains across the board. Some degree of risk appetite has undoubtedly returned with a lot of the AIM stocks that have bombed in the last week bouncing., for example, Kurdistan oil explorer, Gulf Keystone was up over 10%.

The London stock exchange was down all morning after a new software system which was installed 2 weeks ago, sprang a glitch. Hopefully when the LSE merge with the Canadian TSX, they can use their software!

Most of the stocks in the Contrarian Investor UK portfolio are having a good day, Bowleven, Sirius, Weatherly, Encore are all up, the only exception is Rockhopper which is down a couple of pence. Nice to see Xcite Energy up 2.5% today after yesterday's top up. Now I need to see some RKH action, up, not down!

Lloyds makes first profit since U.K. tax payer bail out

Lloyds Banking Group (LLOY) has just announced its first annual profit, since the government rescue. In 2008 at the height of the financial crisis, the Labour government brokered a deal whereby the U.K. tax payer injected capital in return for a 41% stake in an enlarged group which included HBOS (Halifax Bank of Scotland).

For 2010 it made pre-tax profits of £2.2bn, compared with a £6.3bn loss in 2009 and higher than consensus estimates of £2 billion. Bad debt was down to £13bn, from £23bn the previous year.

Things seem to be improving faster at Lloyds than RBS and with its signficant share of the U.K. mortage market as a result of the HBOS integration the future is probably bright unless the housing market is dented by interest rate increases later in the year. It is worth remembering that Lloyds and HBOS would never have been able to combine because of competition issues in normal circumstances.

Xcite's CFO Cole confirms partner may not be needed to develop Bentley field

Various sources have now published details of an interview with Rupert Cole (CFO of Xcite Energy) conducted on Wednesday. He makes the statements that "...believes Xcite can undertake the development without bringing in a partner and possibly without raising fresh equity.", ""I wouldn't rule it out, I wouldn't rule it in either," he said when asked if the company was planning a fundraising, adding that he was encouraged by approaches from institutions willing to lend to the company."

So it looks like an equity placing is not a done deal and if it is done it will be Xcite's terms not the institutional investors, i.e. not at a big discount to the current price. It is not unfeasible that Xcite may choose to borrow the money required to develop the field or use its Bentley Alliance partnership. I am sure that the management team is as keen as anyone not to dilute their substantial share holding giving shares away at a discount. Its worth reminding that at 340p or so, Xcite is only at a small premium to the share price pre-flow test back in December. 

With production starting early next year at a hefty 15,000 barrels per day (an upside target of 60,000 has been stated by Xcite management before), $ will be flowing into the Xcite coffers very quickly, particularly with Brent Crude oil over $100 a barrel. With this cash flow due in early 2012, Xcite could securitise this cash flow against a bond at a fixed coupon (interest rate). The fact that the Bentley field is in the North Sea should make it easier to bring a bank onboard to provide the necessary investment.

Hopefully this will be the bottom and we can look forward to a ramp up in the share price as the CPR document publication moves ever closer. I couldn't resist topping up at 338p yesterday.

INTERVIEW-Xcite confident on Bentley oil field development
Wed 23/02/2011 17:44
http://www.selftrade.co.uk/news-information/news.php?fullview=1&idNews=9569037&submit=

* CFO says development could require fresh equity

* Targeting first oil in Q1 2012

By Sarah Young

LONDON, Feb 23 (Reuters) - Xcite Energy XELL.L is confident it can undertake a major oil field development off the east coast of Scotland without bringing in a partner, it said on Wednesday, as it looks to become one of the biggest independent oil companies in the North Sea.

"We're not of a mind to farm-down ... There's no reason that we can't deliver this and bring the field into production," Chief Financial Officer Rupert Cole said in an interview.

Xcite's management estimates its Bentley field in the northern North Sea could hold up to 200 million barrels of recoverable oil, a reserve base which would propel it into the top ranks of London-listed independent oil companies alongside Premier Oil PMO.L and Enquest ENQ.L .

Independent oil companies, increasingly dominant in the North Sea as oil majors such as BP BP.L put fields up for sale, are helping to revive the oil province. ID:nLDE71L18J

British oil production is forecast to decline more slowly over the next five years with investment in the North Sea rising in 2011 compared with the previous two years. ID:nLDE71L181

Bringing a substantial oil field like Bentley into production is a costly process for a company with no cash flow, but Cole believes Xcite can undertake the development without bringing in a partner and possibly without raising fresh equity.

"I wouldn't rule it out, I wouldn't rule it in either," he said when asked if the company was planning a fundraising, adding that he was encouraged by approaches from institutions willing to lend to the company.

FIRST OIL

The company, whose shares have soared over 700 percent in the last 12 months since a well returned better than expected results in late 2010, is targeting first oil from an initial production plan in the first quarter of next year.

"The strategy for Xcite has always been to eat this elephant a bite at a time," Cole said.

The first stage will be followed by further development plans once the company starts to generate cash flow, estimated by Cole at an initial $300 million to $400 million over the first two to three years from production at a forecast rate of 15,000 barrels of oil per day.

(Editing by Greg Mahlich)

((sarah.young@thomsonreuters.com; +44 207 542 7717; Reuters Messaging: sarah.young.thomsonreuters@reuters.net))

Keywords: XCITE/