Xcite Energy announces collaboration with Statoil and Shell

A very interesting RNS for Xcite Energy shareholders this morning…

There have been many disappointments of late to say the least. After a very successful extended well test (EWT) in late 2012 which allowed the company to book a staggering 257 million proven and probable reserves, hopes for a good farm out deal were dashed earlier this year with the company blaming capital constraints at potential partners. The company announced it was having to resort to agreements with service partners to get the oil out of the Bentley heavy oil field, North East of the Shetlands. Bentley remains one of the largest undeveloped North Sea fields, with Xcite retaining 100% ownership of the asset. Originally first oil at around 45,000 barrels per day was expected in late 2015 but this slipped well into 2016/17.

News this morning that things seem to be warming up with Statoil. The Norwegian company first started collaborating with Xcite after the extended well test purchasing the date for $15 million plus a potential $1 million regulatory milestone payment, and today it was announced this collaboration is being strengthened to progress the adjacent field to Bentley, Bressay (also a heavy oil field). The purchase of the well data by Statoil was only confirmed by Statoil itself in late 2013, with Xcite silent on its partner, presumably bound by confidentiality agreements.The intellectual property contained within the well test is apparently still confidential to Xcite.

So very good news for battered shareholders with the shares stuck at multi year lows at 65p, making it much more likely that Bentley will be developed and it makes it more probable that at some point Statoil/Shell will buy Xcite out.  It is the first time that Shell has been announced as a partner in developing these assets. A heavy oil hub in the North sea incorporating Bentley and Bressay using shared infrastructure makes a lot of sense for all parties.

Its been a frightening drop to the current share price from the highs of over £4 in 2010. With the current market cap at around £200 million with 257 2P reserves and with sentiment gradually improving in the oil and gas sector after a series of takeover deals in recent weeks, a rerating is long overdue. I’m sure many holders of the shares will be relieved to see £1 again, never mind £4! Institutional investors have given XEL a relatively wide berth since 2010 when they sold out in droves following the original Bentley well test, with Statoil and Shell as partners, it should give more credibility that Chief Executive Rupert Cole can actually execute this project rather than talk about what a great asset his company has.

With the AGM in Paris on 15th May, plenty of questions for the company to answer – funding for Bentley including reserves based lending, timing of first oil, have they ordered long lead time components, contracts rather than MOU’s with service providers etc.

Contrarian Investor UK

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The RNS reads:

Xcite Energy announces that its 100% owned subsidiary, Xcite Energy Resources Ltd (“XER”), has entered into a Collaboration Agreement with Statoil (U.K.) Ltd. (“Statoil”) and Shell U.K. Ltd. (“Shell”), which allows all the Parties to make available and share field-specific technical and operational information for the evaluation of potential synergies and collaboration between the Bentley and Bressay Fields.

A joint XER, Statoil and Shell team will work together to analyse the current available information and develop a number of proposals for assessment, including the potential utilisation of common infrastructure, assets and operational solutions during the phased development of the Bentley Field and the future development of the Bressay Field.

XER believes that collaboration in a number of key areas, along with a coordinated approach to an area development, will realise a number of mutual opportunities which have the potential to benefit all stakeholders.

Rupert Cole, CEO of Xcite Energy, commented: “We are pleased to continue to work  with Statoil and Shell in this important initiative and, following their purchase of the Bentley EWT data in 2013, believe that it demonstrates the value that independent oil companies can bring to the North Sea to unlock major energy assets. We also believe that the principles contained in this Collaboration Agreement complement the recent UK Government commissioned report, “UKCS Maximising Recovery Review” by Sir Ian Wood, and will provide an important early framework through which additional value can be captured in area development scenarios.”