Middle East unsettles markets again and Xcite Energy takes the brunt of rumour mill

Oil is currently up nearly 3% to just shy of $100 a barrel (WTI Crude), its highest level since the middle of 2008 on fears of an escalation of violence in the middle East and its potential impact on supply. Sentiment wasn't helped as U.S. Federal Reserve Chairman Bernancke said high oil prices could dent a global economic recovery. Gold hit a record high of $1,432, up 22 dollars on the day as the flight to safe havens continued. The FTSE 100 was hit with a drop of 58 points to 5,936, whilst the Dow Industrials is down 137 points to 12,089.

The Contrarian Investor UK portfolio had plenty of action today.

Xcite Energy (XEL) collapsed another 5% to 311p. Rumours abound about reasons for the delay in the reserves upgrade and Competent Persons Report (CPR). Conspiracy theories are circulating that management are hiding something with the shift to TRACS rather than RPS energy to complete the reserves report. Like the rubbish that we saw on the bulletin boards pre-flow test like the Betty Knutsen saga, its almost certain to be complete fiction. The supposed "guys in the know" are spooking ordinary investors to sell shares at daft prices. Market Makers are taking the Michael!!

Then we have the funding issue. Again lots of talk by derampers that Xcite will have a massively discounted placing to fund the Bentley field development. As a reminder from last weeks Reuters interview with Rupert Cole (CFO) - ""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," "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. See my previous post at http://contrarianinvestoruk.blogspot.com/2011/02/xcites-cfo-cole-confirms-partner-may.html.

I believe 311p is a crazily low price because:
1. Xcite are It is already sitting on substantial oil-in-place volumes of between 109 and 235 million barrels as confirmed by the last CPR - probable 170 mm barrels (which is a legal document). The Bentley field is in the North Sea, no political risks.

2. A new reserves report is due in late March - the 9-3b/6 well flowed at the top end of expectations (2900 barrels per day) and the vertical pilot section of the well encountered a larger than expected oil column towards the end of October 2010. RNS of 31st December said  “In addition to the successful well flow test announced on 21 December 2010, high quality downhole pressure, temperature and sample data has been safely recovered following a 36 hour shut in and build up period after the flow test.” It would be expected that we will looking at 250-300 million barrles.

3. A rig has been contracted from British American offshore (Rowan Norway) and is due for delivery in June and be in operation in October or November

4. Production of 15,000 barrels per day is due to start in early Q1 2011. Upside of 60,000 barrels per day. Field life of 12-15 years.

5. The Bentley field has full infrastructure support through the Bentley alliance which includes BP and Amec.

Enough said really. This feels like pre flow test days when the price was oscillating like crazy on unfounded rumours. I bought then in the dark days when the derampers were calling a "duster". Now I am buying on equally dark days....and hoping for brighter days ahead. But less hope, more conviction!

Fellow North Sea explorer, Encore Oil (EO.) announced today it had spudded two wells. The Cladhan appraisal well 210/30a-4, in which it has a 16.6% interest, was spudded yesterday evening in Northern North Sea Block 210/30a. EnCore's is partnered Sterling Resources (39.9%), Wintershall (33.5%) and Dyas UK (10%). Drilling is expected to take around 40 days, using the Transocean Prospect semi-submersible rig.

EnCore also announced the Burgman exploration well 23/9-4 in Central North Sea Block 28/9 was spudded this morning. It is a joint venture with Premier Oil (PMO), Wintershall, Nautical Petroleum (NPE) and Agora Oil & Gas. The well is exploring the Tay and Cromarty sands and is expected to take approximately 25 days. In addition it will also drill a deeper, Jurassic aged Fulmar sand target. The shares dropped 1% to 119p.

Sirius Minerals (SXX) popped nicely again today with an 11% gain to 14.88p. After buying last week I took some profit to invest in Xcite Energy. I am sure further gains are ahead, but Xcite is just too tempting at 311p,

Bowleven (BLVN) also had a good day, finishing up 6p at 338p. I sold a tranche earlier in the day at over 340p. This stock has risen nicely since the Goldman Sachs conviction buy report last week, it was less than 300p little more than a week ago.

I took the opportunity to increase my stake in Rockhopper (RKH) and also bought into Solomon Islands and Australian gold explorer, Solomon Gold (SOLG) which is now trading at 28.5p (which is only 0.5p higher than the £15 million October 2010 placing). I am finishing a Contrarian Investor review on the company and I hope to post it in the next day or two. Time is tight these days! I was trading SOLG late in 2010, but it has dropped back below 30p and I like the prospects for this company with its varied portfolio of gold assets, particularly in the Ring of Fire area in the Solomons.

From III.co.uk Conversation with Jon Dale

Fowlertheprowler 16.57 iii.co.uk xcite board

I am happy to post the following feedback from a conversation I had with Jon Dale yesterday late afternoon.

He knows who I post as and he has my personal details (address etc) so I can be authenticated and brought to task if I relay false information. Also for the record I currently hold 60,000 shares and only plan to add over the next few months when the opportunities allow.

I will keep it short and simple:

ISSUE ONE - Appointment of TRACS for Reserves Report

I asked why the apparent change regarding regarding the appointment of Tracs (part of APR Group) to complete the Reserves report as opposed to RPS Energy...

The explanation was absolutely reasonable and logical. Firstly, as the RNS clearly states, Tracs were appointed as independent third party engineers in the second half of 2010. In other words, their involvement is nothing new and in no shape or form a panic reaction.

Secondly, Jon pointed out that due to the amount of work RPS have already carried out for Xcite over a long period of time, it was felt that their independence could be compromised / called into question and that appointing Tracs would overcome this issue. That is not to say that RPS lack credibility, on the contrary, but what it does do is show that the Xcite BOD want the reserves report to be above reproach in terms of the perception of it from the City and other investors. This a good thing.

ISSUE TWO - Is a Placement about to be announced in tandem with Report

I asked if the slight delay in the report due to an imminent placement. Of course, Jon cannot answer this question and I have always found his conduct to be 100 per reputable and professional. However, I made the point that I assumed a fundraising was imminent. At this point Jon echoed Rupert Cole's recent comments (which are on the public record) that this assumption should not be necessarily made. Read into this what you will.

ISSUE THREE - Xcite will never move to production - they will be takenover first...

This has never been my assumption, as many of you will know, although I sit in the minority camp on this one with many very well informed posters convinced that Mr Kew has no intentions of managing lots of staff as potentially the North Seas second largest independent oil producer.

Of course Jon cannot mention any talks even if there were any, but he was very convincing when he stated that it is they every intention to bit by bit prove up the Bentley field and extract oil from here....making the point that it is when the oil is extracted commercially that the true value will be unlocked.

ISSUE FOUR Share price expectations.....

My views in this area mirror Jon's. He made the point that it is not realistic to expect all of the possible contingency resources (385 million barrels perhaps by 2014 - my opinion here not Jon's) to be converted into reserves in one go in the approaching report. That is not to say that some will be allocated. However, as an investor the most sensible course is to view the progression of the share price on a long term trajectory with value being unlocked on an incremental basis as bit by bit the enormous potential of the Bentley field (and beyond..) is realised.

Whilst Jon was in no way dismissive of private investors he did make the point that if a few pi's sell off because of a lack of understanding of the a process that has been clearly communicated and because of unrealistic expectations (ie 200 million booked into reserves by April!!!) there is not a lot that Xcite can do about it.

Finally Jon shared all of our disappointment with current reaction to the share price, but he did not seem unduly fazed by it and why would he be!

Conclusion - Be patient and you will be rewarded. If you can't afford to leave money in for 12-18 months you should not be investing in an oily that has not gone into production yet...

Make of the above what you will and I'm sure some will weave conspiracy theories into it, but I will continue to hold and hope to fill my SIPP with these when I have converted my company pension.

The daffodils may not be dancing yet (funnily enough none of mine have flowered yet this year), but I am confident they will be joyful, radiant and triumphant by spring next year.

Patience will be rewarded.

As for the Saudi question, I can't control events in the Middle East and yes there is a risk that a big prolonged spike in the oil price could tip the world into the recession which would result in a large drop in oil price. This would of course have a detrimental effect short term on Xcite. However, I put this to you all, if regimes are toppled do you really think they will turn the oil taps off and refuse investment and development from the major oilies? Surely, they will want to rebuild their infrastructure, lay the foundations for a civil society, share the oil wealth around the citizens. The motivation to boost the state coffers will be hugh. If it leads to a more inclusive less corrupt and more equitable society in the middle east I can wait a few years for my fortune!

NM

From III.co.uk Conversation with Jon Dale

Fowlertheprowler 16.57 iii.co.uk xcite board

I am happy to post the following feedback from a conversation I had with Jon Dale yesterday late afternoon.

He knows who I post as and he has my personal details (address etc) so I can be authenticated and brought to task if I relay false information. Also for the record I currently hold 60,000 shares and only plan to add over the next few months when the opportunities allow.

I will keep it short and simple:

ISSUE ONE - Appointment of TRACS for Reserves Report

I asked why the apparent change regarding regarding the appointment of Tracs (part of APR Group) to complete the Reserves report as opposed to RPS Energy...

The explanation was absolutely reasonable and logical. Firstly, as the RNS clearly states, Tracs were appointed as independent third party engineers in the second half of 2010. In other words, their involvement is nothing new and in no shape or form a panic reaction.

Secondly, Jon pointed out that due to the amount of work RPS have already carried out for Xcite over a long period of time, it was felt that their independence could be compromised / called into question and that appointing Tracs would overcome this issue. That is not to say that RPS lack credibility, on the contrary, but what it does do is show that the Xcite BOD want the reserves report to be above reproach in terms of the perception of it from the City and other investors. This a good thing.

ISSUE TWO - Is a Placement about to be announced in tandem with Report

I asked if the slight delay in the report due to an imminent placement. Of course, Jon cannot answer this question and I have always found his conduct to be 100 per reputable and professional. However, I made the point that I assumed a fundraising was imminent. At this point Jon echoed Rupert Cole's recent comments (which are on the public record) that this assumption should not be necessarily made. Read into this what you will.

ISSUE THREE - Xcite will never move to production - they will be takenover first...

This has never been my assumption, as many of you will know, although I sit in the minority camp on this one with many very well informed posters convinced that Mr Kew has no intentions of managing lots of staff as potentially the North Seas second largest independent oil producer.

Of course Jon cannot mention any talks even if there were any, but he was very convincing when he stated that it is they every intention to bit by bit prove up the Bentley field and extract oil from here....making the point that it is when the oil is extracted commercially that the true value will be unlocked.

ISSUE FOUR Share price expectations.....

My views in this area mirror Jon's. He made the point that it is not realistic to expect all of the possible contingency resources (385 million barrels perhaps by 2014 - my opinion here not Jon's) to be converted into reserves in one go in the approaching report. That is not to say that some will be allocated. However, as an investor the most sensible course is to view the progression of the share price on a long term trajectory with value being unlocked on an incremental basis as bit by bit the enormous potential of the Bentley field (and beyond..) is realised.

Whilst Jon was in no way dismissive of private investors he did make the point that if a few pi's sell off because of a lack of understanding of the a process that has been clearly communicated and because of unrealistic expectations (ie 200 million booked into reserves by April!!!) there is not a lot that Xcite can do about it.

Finally Jon shared all of our disappointment with current reaction to the share price, but he did not seem unduly fazed by it and why would he be!

Conclusion - Be patient and you will be rewarded. If you can't afford to leave money in for 12-18 months you should not be investing in an oily that has not gone into production yet...

Make of the above what you will and I'm sure some will weave conspiracy theories into it, but I will continue to hold and hope to fill my SIPP with these when I have converted my company pension.

The daffodils may not be dancing yet (funnily enough none of mine have flowered yet this year), but I am confident they will be joyful, radiant and triumphant by spring next year.

Patience will be rewarded.

As for the Saudi question, I can't control events in the Middle East and yes there is a risk that a big prolonged spike in the oil price could tip the world into the recession which would result in a large drop in oil price. This would of course have a detrimental effect short term on Xcite. However, I put this to you all, if regimes are toppled do you really think they will turn the oil taps off and refuse investment and development from the major oilies? Surely, they will want to rebuild their infrastructure, lay the foundations for a civil society, share the oil wealth around the citizens. The motivation to boost the state coffers will be hugh. If it leads to a more inclusive less corrupt and more equitable society in the middle east I can wait a few years for my fortune!

NM

Proactive investors - Xcite gears up for a busy year while investors pause to catch their breath

Xcite gears up for a busy year while investors pause to catch their breath

Mon 12:09 pm by Ian Lyall

Xcite has been the standout success story of the oil and gas sector. This time last year the shares were changing hands at around 40 pence.

Xcite Energy (LON:XEL, TSX-V:XEL) said this morning it hopes to complete an updated reserves report by the end of March.

Good news, you’d say. Not quite. The shares tumbled almost 6 per cent as the bout of profit-taking that has afflicted stock in the past month continued. 

“Given the high degree of anticipation surrounding the release of the reserve report we feel the market may be slightly disappointed that this is not the big announcement.  Consequently, the share price may be softer today,” explained Dougie Youngson, oil and gas analyst at City broker Arbuthnot.  

That said investors are probably suffering an acute case of vertigo. In the past year the stock has rocketed a phenomenal 871 per cent, as the group has been transformed from promising exploration minnow to mid-cap development play.  And there are plenty more milestones as the company gears up for first production in the next year.

Earlier Xcite said has appointed TRACS, part of the AGR Group, to carry out the independent assessment of the Bentley Field in the North Sea, which will interpret the data from well 9/3b-6, the company’s first test hole.

“The success of the Bentley 9/3b-6 well test requires Xcite to re-assess all material aspects of the reservoir model as the starting point for the input to the reserves report,” the company said in a bullish update on progress.

“The information and data available from the well is still in the process of being received and collated and the company intends to use as much of this material as possible for input to the reserves report.”

It is already sitting on substantial oil-in-place volumes of between 109 and 235 million barrels. 

However it is heavy oil (10 to 12 degree API) and the big question has always been whether or not Xcite will be able to recover sufficient volumes to make the oilfield development commercially viable.

Last year’s test well provided the answer. The Xcite team conducted multi-rate flow tests, culminating in a final stabilised flow rate of 2,900 stock tank barrels of oil per day.

Ultimately the flow test proved that Xcite would be able to draw up enough of the heavy oil to make the resource commercial.

“Given the quality of the data gained during both the drilling and testing phase, Xcite now has an excellent opportunity to optimise its reservoir model for the Bentley Field,” said Arbuthnot’s Youngson.

The latest reserves report will be focused on the first stage production of Bentley, though it will also provide a further update to the resources on a field-wide basis.

Xcite last published comprehensive reserves data two years ago, which was contained in its competent persons report.

“The company expects the completion of the reserves report to be around the end of March 2011, but will take the time necessary to maximise the value of the report,” the group said in a statement today.

The company is currently scoping and will start drilling in the final three months of 2011. First production is set to begin in the first quarter of 2012, and the ramp up continuing over the remainder of the year. 

“The reserve report is the first major of several major milestones expected this year in anticipation of drilling,” Youngson added. 

“As well as the submission of the finalised development plan we can expect the gaining of various DECC approvals and submission of environmental impact assessments in the next six months.” 

Xcite has been the standout success story of the oil and gas sector. This time last year the shares were changing hands at around 40 pence.

While the year began slowly, the spudding of the appraisal well sparked investor interest in September. 

Just a few short weeks later, a better than expected drilling update from the well’s vertical section took this interest up another gear.

The vertical pilot section of the well encountered a larger than expected oil column towards the end of October.

Xcite shares finally broke through the 300 pence level in early December, and later that month they hit an intra-day high of 425.25 pence as the company unveiled the successful flow results. 

Since then some quite understandable profit-taking has seen the stock pull back.

Source: http://www.proactiveinvestors.co.uk/companies/news/25959/xcite-gears-up-for-a-busy-year-while-investors-pause-to-catch-their-breath-25959.html