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