What an Xciting week! Rarely do you see a share have such an up and down week on AIM when there is no real newsflow to drive it.
Xcite (Yes, hands up , I own a few thousand shares, and like many other holders am slightly in the red) is one of just a handful of North Sea AIM stocks. Encore has been swallowed up this year, as has Nautical Petroleum – selling its main asset. The sheer costs of field development is really messing with the market. Even good underlying performers like Ithaca have had a torrid year.
Why is this the case? Well Banks have simply stopped lending to anything that even feels like it is uncertain. Speaking to a Director at one of the Reserve Based Lending institutions in the City this week, I discovered that they had already lent out their allocated capital allowance for 2012 – it does not matter how good the opportunity is, there is no money left. Where have we heard this before?
Back to Xcite, where, in unison with my fellow bloggers here, I think that they make an interesting case, noting that this magazine moved to a Conviction Buy last week at 73p and in fact provided a roadmap for the stock over the weekend in a blog post that remarked upon the similarities between it and Bowleven’s chart structure. Xcite has a 100% owned field of at least 200 million barrels, even with swingeing UK taxes this should turn 10- 20 dollars a barrel profit and so about $2 – 4 billion over its lifetime and probably just over $1 billion to develop. A pretty good base business case.
The management know this and have been trying to take the project through to production for a number of years. The last year has been painful though with poor communication to the market and the reality of no funding available, except at eye-watering costs in terms of equity dilution. Yes, it’s been tough on us poor shareholders.
Now though, it looks like an inflection point was reached last week. On the one hand record amounts of shares on loan, on the other a base finally forming at 70p with news of the later EWT test due in the next few weeks. Plenty have bought this share far too high, but at the 77p close today the future looks interesting. Clearly, problems with the latest test and it’s another haircut on the stock price but success, and then a farm-in or takeover approach is on the cards.
Xcite in 2012 will tell us a lot about Aim resources companies. Will a big buyer take it out for a song or will the credit markets open enough to continue to fund the business further (which looks likely to be necessary)? A microcosm of the wider economic situation…