Xcite Energy announces $155 million reserves based lending deal

Following the huge disappointment of the 80p placing a couple of weeks ago, Xcite Energy has pulled the reserves based lending deal out of the bag to largely fund phase 1b of the Bentley heavy oil field development programme. Huge relief for long suffering share holders!

22 June 2012

Xcite Energy Limited

Signing of US$155 million reserves based loan facility

Xcite Energy is pleased to announce that it has signed a US$155 million secured reserves based loan facility agreement (the “Facility”) for the Bentley field with a leading group of lending institutions. The Facility, with a term of five years, will be used to provide a substantial part of the funding required for the Phase 1B development of the Bentley heavy oil field in the UK North Sea.

The Facility has been arranged with Royal Bank of Scotland plc, Societe Generale Corporate & Investment Bank, GE unit GE Energy Financial Services, Nedbank Limited and Britannic Strategies Limited (a subsidiary of BP plc). Royal Bank of Scotland is acting as the Facility agent and security trustee, with Societe Generale acting as technical and modelling bank.

The draw down under the Facility is subject to conditions precedent, including the achievement of certain principal objectives in the Bentley Phase 1A work programme announced on 19 April 2012 as set out below, together with their current status:

– Drilling of a horizontal motherbore well in the geological formation immediately overlying the reservoir.

Current status: the drilling of this motherbore in excess of 1300ft has now been successfully completed.

– Drilling of the toe extension well (9/03b-7 well), a horizontal wellbore from the toe of the motherbore, with a reservoir section of up to 2,400ft in length. This well is be positioned approximately at mid-height in the reservoir at an elevation above the oil-water contact such that, when produced at an oil rate of at least 1,500 barrels of oil per day (“bopd”), it should initiate water breakthrough at the well and subsequently develop sufficient water cut (to approximately 50%) within the flow test period. This well will be plugged and abandoned at the end of the production test.

Current status: as announced on 29 May 2012, the drilling of this toe extension well has now been successfully completed, with a reservoir section in excess of 2,200ft having been penetrated with 100% net pay. Sand control screens have been successfully installed.

– The 9/03b-7 wellbore is planned to recover a minimum cumulative volume of 45,000 barrels of oil during the flow test period to help ensure that the data gathering will be as effective as possible. This flow test is planned to be up to 90 days in length and to be conducted at a range of different flow rates (specifically not 500 barrels per day for 90 days), again to assist in the data gathering programme, to achieve sufficient water cut to enable satisfactory calibration of the reservoir model and a revised, independent reserves assessment report.

Current status: this flow test is expected to commence in the coming weeks.

– Drilling of a lateral well (9/03b-7z well) from the side of the motherbore, a horizontal wellbore with a reservoir section of approximately 2,450ft in length. This well is positioned as high in the reservoir as possible, being similar in design and completion to the successful 9/03b-6z well. This wellbore was drilled after the toe extension well, but will not be flowed until after the toe extension well has been flowed to achieve sufficient water cut. This lateral wellbore will be cleaned up and then flowed at a rate of at least 1,500 bopd for a minimum period of one day, prior to being suspended as the first full production well on the field in Phase 1B.

Current status: as announced on 13 June 2012, the drilling of this lateral well has now been successfully completed in the roof of the reservoir, a section in excess of 2,000ft has been penetrated, 100% net pay was encountered and the oil column was found to be thicker than expected. Sand control screens have been successfully installed. The flow test on this well is expected to be completed in the fourth quarter of 2012.

With the Facility now signed, the Company will continue its preparations for the development of the Bentley field in Phase 1B, including the inter-dependent completion of the funding programme and the DECC approval for the field development plan.

In line with the previously outlined funding strategy and with the Facility now signed, the Company intends to pursue its other options to provide the balance of the funding required to commence the Phase 1B development. Such funding could be provided by the potential farm-out of an appropriate interest in the Bentley field following the outcome of Phase 1A programme in the fourth quarter of 2012, other industry participation, convertible debt instruments, mezzanine debt and potentially equity financing.

Commenting on today’s announcement Rupert Cole, Chief Financial Officer, said:

“We are very pleased to have secured the Facility from such a high quality banking consortium with considerable experience in reserves based lending. The process to secure the Facility has involved a further rigorous, independent technical assessment of the Bentley field, the Company’s field development plan for the Bentley field and the route to market for the Bentley crude.

Having secured the Facility in the current, difficult banking and financial market conditions, the Company has demonstrated a further substantial de-risking of the Bentley field and its proposed development plan.”

Technical take – 93p is the all important level to break – pop this and the large wedge formation will be broken to the upside. We can see 3 bottoms in the chart above too and so a decisive move back towards 100p would be very constructive. Any more downside from here and it will move firmly into our Conviction Buy zone.