Another MOU for Xcite Energy but Field Development Plan remains key

Xcite Energy, the owner of the North Sea heavy oil Bentley field, has today announced it has entered into a Memorandum of Understanding with China Oilfield Services Limited (COSL), which sets out the principles for the provision of a new-build Keppel FELS N Class Plus, harsh environment jack-up drilling rig, together with equipment and personnel for the Bentley field.  Final specifications of the rig are currently being agreed in order for construction to begin at the Keppel FELS yard in Singapore. This MOU follows several others including with Aibel, Amec, Arup and Teekay to form a consortium to develop the 257 million barrel field which was the subject of a successful extended well test in late 2012.

In addition, CEO Rupert Cole, has issued a new update video talking about the Field Development Plan (process) and updated that technical and commercial discussions remain ongoing with its partners as well as trying to secure funding for the project to allow the Field Development Plan (FDP) to be submitted to the Department of Energy and Climate Change (DECC). Hopes were high of a 2014 submission but it seems this “challenging target” is likely to slip into Q1 2015 at a minimum, with DECC approval Q3-Q4 2015 and first oil late 2018 or early 2019. Originally the field was expected to be producing first oil in 2012 but a series of funding problems and revisions to the FDP have meant this has slipped. The big blow was the announcement earlier this year that Xcite had failed to find the expected farm in partner which meant that it had to go it alone with a series of service providers, with the addition of COSL as the latest one in the line up. This strategic shift has cost time in getting Bentley to first oil and there is still substantial uncertainty about MOU’s being converted to full contracts and obtaining the $900 million (or perhaps now slightly less) funding to get things off the ground.

The shares bounced early on but are now marginally up at 48p, after falling heavily in recent weeks as pressure mounted on the price of oil. Rupert Cole has said that the key to unlocking shareholder value in this share is the approval of the FDP and at the moment it seems that submission is still a little way off given today’s comments about the detailed discussions needed which seemed to downplay an early start to the process with DECC. The steep fall in Xcite shares since late 2010 (when they traded over £4) has been an immense disappointment to many shareholders and many are now hoping that 2015 could be the transformational year and get the price moving back up if Cole and the board can deliver on the critical issue of project funding. With such a great asset like Bentley you would think that sooner or later the project would come to fruition even in the current era of falling oil prices. For long term investors the company has been a painful experience to say the least!

Contrarian Investor UK

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