Xcite Energy refinances loans – one less thing to worry about!

News this morning that Xcite Energy (XEL) have refinanced their outstanding debt via a private placement with Canadian based West Face Capital Inc. for a year to two year period. The shares are up a couple of pence versus a declining oil sector.

This takes the pressure off the company given the previous loan expired in March 2014, allowing them breathing space to get the farm out of the North Sea Bentley field sorted and also to get DECC (Department of Energy and Climate change) approval of the ES (Enviromental Statement) and FDP (Field Development plan). The FDP is contingent on financing of the field being completed using the farm out and also RBL (Reserves Based Lending). The existing RBL based on the old p2 reserves was $155 million. The upgrade of P2 reserves (proven and probable) to 250 million barrels should give Rupert Cole, the Chief Executive of Xcite, plenty of scope to increase this figure to meet the expected $700 millon early development costs for Bentley – one of the largest undeveloped oil fields in the North Sea.

The shares fell heavily in late November when it became clear that a farm out deal was not imminent at their third quarter results with the forward looking statement proving vague, “talks continuing blah blah”. Despite confirmation that Statoil spent $15 million on buying Xcite extended well test data which they are using to reconfigure their Bressay heavy oil field development.

The question all investors are asking is….how long before a nice farm out announcement and with whom? With the 250 million barrels currently valued at less than $2 a barrel, hopefully Q1 2014 will be a good time for private investors after what seems a very, very long wait!!

Xcite Energy has agreed to issue new 12.5% unsecured loan notes (the “Loan Notes”) in the aggregate principal amount of US$80 million on a private placement basis, in order to repay its outstanding 14% unsecured loan notes, currently valued at approximately US$72 million aggregate principal amount (including payment-in-kind interest accrued), with the balance of proceeds to be used for general corporate purposes.

The issuance of Loan Notes is expected to close on, or about, 30 December 2013. The Loan Notes will be purchased by several investors, including funds managed by West Face Capital Inc (the “Investors”). The Loan Notes will be issued at a 2% discount, have an initial term of 360 days and may be extended by the Company for an additional 360 days, subject to unanimous noteholder consent. The coupon of 12.5% on the Loan Notes is payable quarterly in arrears in cash.

The noteholders are entitled to a termination payment of 1% of the aggregate principal amount of the Loan Notes to be issued at closing, which is payable at the earlier of full repayment of the Loan Notes or the maturity date. In all other material respects, the terms of the Loan Notes remain consistent with the terms of the Company’s existing 14% unsecured loan notes being repaid.

The Investors will also subscribe for a total of 1,000,000 units (consisting of one ordinary share in the capital of the Company (a “Share”) and one ordinary share purchase warrant (a “Warrant”), together the “Units”) on a private placement basis at a subscription price of £0.98 (equivalent to US$1.60) per Unit, (being the 10 day trailing volume weighted average price per Share on AIM), resulting in approximately £0.98 million (US$1.6 million) of additional proceeds payable to the Company (the “Private Placement”). Each Warrant will be exercisable for one additional Share at an exercise price of £0.98 per Share for a period of three years from the closing date.

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