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Thanks for your view gibby. I am holding.

A great write up from Gramacho from iii who went to the AGM

Something for the weekend! This should give you a good flavour of the discussions with the shareholder attendees.

This note was rejected by iis inappropriate language checker first time through, hoping the use of Richard instead of the usual short form helps lol!

ATTENDEES
There were about 10 - 15 independent shareholders present along with a few employees and associates of the company together with the non-Execs. It was extremely interesting to have in attendance a shareholder who has control of 2.7MM shares. That is 1.6% of the company. IMO it is important to listen carefully to what this category of shareholder says as:
1) They usually have managements attention
2) If and when they decide to sell their holding it can influence the sp and
3) They usually dont get into that position without having a sound investment philosophy.

To preserve his anonymity in this note he is referred to simply as Mr 1.6%.

It was extremely unfortunate that the meeting was late in getting underway. It did not impact on the time available for discussion within the meeting which was very reasonable (we had 1-1/2 + hours of discussion following the formal part of the meeting). However it did curtail the time available for 1-2-1 discussion with the directors afterwards over refreshments which can also be very productive.

FORMAL PART OF MEETING
The resolutions passed with not much discussion as some had effectively been passed by the proxy votes of absentees and most attendees were more interested in the discussion of company activities and recent events.

Mr 1.6% did respectfully ask how much is enough to motivate Board members in respect of the stock option plan given that their effect is dilutive to shareholders. This plan permits stock options up to 10% of the issued and outstanding Ordinary Shares on a non-diluted basis at any time and TSX regulations require companies to obtain shareholder ratification of such a stock option plan each year. At the time of issuing the AGM circular there were about 15.5 million options outstanding leaving about 850k available for grant of additional options. Obviously a difficult question to answer and Chairman Roger Ramshaw referred to this being set by the market.

MANAGEMENT REVIEW
This was delivered by the CEO Richard Smith and after some historical background to the field this then took the form of a conversation about the Material Change Report as a starting point. Key points made and Q&As from this discussion:

The material change report is the first independent report issued since the Feb 2009 CPR. The Management Review (of June 09) gave a management view that Bentley East was material. Bentley East not incorporated into the core area in the 2009 CPR. There is a potential saddle between the core area and Bentley East/South which means the reservoir pinches out at this point and since there is not a well in Bentley East it can only be placed in the prospective resources category.

As part of the FSP there is an opportunity to appraise this area with a slant well. If pressure continuity is confirmed this will create an opportunity to upgrade the resource category of Bentley East.

Oil migrated from the south east to the north west so the expectation is that Bentley East was filled first and oil spilled into Bentley core area and then via a channel into Bressay. Richard pointed out that there are gas chimneys in the Bentley East area [the CPR shows high amplitude reflectors on the crest of Bentley East that are analogous to a proven gas cap in Bressay].

The 9/3b-6 well came within the range of possibilities but it was better than they were allowing for in the reservoir model at the time.

The FSP area is an artificial portion of the core area. If wells are drilled out in a pattern this is the approx drainage area of the wells planned for in the FSP. There are no technical contingencies if they repeat the same pattern in the remainder of the core area.

Only thing standing in way of getting reserves in whole core area is the process of applying for government approval. This requires a board decision and government sanction of the project.

Richard West the XER Director, who was present, is in discussion with the DECC. Draft reports are being reviewed.

A distinction was drawn between a phased development and a staged development during discussions with the DECC. In a phased development you are not really committing to the whole program. In a staged development you are committing to the totality of program.

Q&As 200 MMBBL
At this point the style of the meeting morphed to a Q&A Session

Q Richard pre-empted the inevitable question by posing it himself Investors are asking not where Betty has gone but where has our 200mm bbl gone

A. It hasnt gone anywhere. 200mm bbl is not proven, not probable but is currently in the possible category i.e. it is in the upside. However management is not saying investors should focus on 200 mmbbl, they should focus on the range of possible outcomes. Richard Smith reminded investors that all outcomes are estimates, even the so called proven is an estimate. [True, this is the nature of the oil industry we are always dealing with ranges and degrees of uncertainty.]

Q When do you expect to gain DECC approval?

A XEL has put forward in draft form a 2 stage development of core area. Why 2 stages? Because in applying the first stage they can learn and optimise the second stage.

XEL is not currently seeking funding for 2nd stage (SPS) at this point. They have the rig that can simultaneously drill and produce. XEL is in discussion with contractors for the FSU, the floating storage unit from which oil can be exported via tanker. [Apologies for any confusion that may have been caused by a recent post referring to an FPSO which was not mentioned by XEL.]

It is also in the final stage of discussions with contractors to select a primary duty holder. [This is very important, the field will not be run by XEL staff as such; they dont have a team of operations staff but will rely on third party contractors to physically operate the production equipment on a daily basis. Early involvement of a contractor is important to get ops personnel input into the facility design.]

Hence once DECC approval is obtained, which they will seek this summer, XEL can start the development of the core area of the field in two stages.

Q. Is managements expectation today the same as it was earlier in the year at Oilbarrel? Has anything happened between Jan 2011 and now to make management less confident of 200 mm bbl?

A. 200mm bbl is within the range of reasonable possibility. 200mm bbl is an internal target XEL is looking at for sizing of facilities on the field. However investors basing investment decisions on 200 mm bbl would be going a step too far. We have provided low, base and upside numbers and 200 would be in the upside range.

Between Jan and now have been able to refine and update model with info from 6 and 6z wells and have had it independently reviewed.

Focussing on the 200 mm bbl would miss what has happened to the downside case. Downside case P90 is very important, the commercial viability has improved it is much more robust around downside. Commercial deliverability much improved in the downside case. Field is more bankable, more fundable more deliverable.

FUNDING
Q. (Mr 1.6%) What do the bankers think of the numbers?
A. We are in discussion with a range of banking institutions and now understand the amount of bank facility availability as proportion of the total funding requirement. Due diligence has been carried out on the information.

We will be formalising arrangements over the next one to two months with financial advisors Rothschilds and working with MS and Oriel on the split between debt and equity funding for the FSP.

Banks look at the range between the downside to probable/most likely case so it is very important that the P90 case has improved substantially.

Q. (Mr 1.6%) Have you got an indication of the ratio of debt to equity the banks will accept?

A. They havent got to point of finalising debt to equity with the banks; discussions are ongoing and have not concluded.

TRACS REPORT AND IP
Q (Mr 1.6%) Why is XEL not publishing the TRACS report?

A. XEL has invested over $100mm in the 5 and 6/6z wells. It is not publishing full TRACS report because the IP associated with how to drill the wells, how to tackle the technical issues and how to develop the field has commercial value.

XEL has been approached for data sharing and government will eventually want them to do so. XEL is giving an indication of technical work being carried out but not the detail. Very difficult to recreate

Q. (Mr 1.6%) By not publishing info preventing excitement coming back to Xcite! It is preventing people wanting to get involved as partners, investors or as suitors.

A. Richard explained why there was about a years delay in releasing the CPR post the #5 well. This was because there was a delay in Statoil drilling their Bressay appraisal well and release of the CPR into the public domain awaited completion of a trade of information of comparable value from the Statoil well.

No horizontal wells have been drilled on the Statoils Bressay field and they will be very interested in how the well was completed and how XEL were so successful. XEL believes this info has significant value.

[The primary value of the IP of course is to XEL in going forward with Bentley. It was not explained what they would hope to gain from external parties for the IP they have acquired. Perhaps if Statoil elects to drill a horizontal well of its own then they would trade like for like information such as the TRACs report and the 9/3b-6 final well report with Statoil. In the meantime they are naturally reluctant to, as they would see it, give some of the IP away by simply issuing the report into the public domain.]


BACK TO 200 MM BBL
Q. The June 2009 XEL interpretation of the reprocessed seismic contained three views of the full field structure downside, most likely and upside each with a low case, base case and high case, i.e. a matrix of 9 cases. The base case for the full field upside structure contained 235 mm bbl. When the #6 well came about 40 ft high with a thicker than expected total pay, better net to gross, slightly better oil saturation and a porosity as good as or better than expectations many observers and shareholders believed that the well had confirmed or gone some way towards confirming the upside structure. Hence an expectation developed that the RAR would report about 200 mm bbl for the combined field. Does the RAR estimate of 115 mm bbl in the core area (and about 15 mm bbl in Bentley East and South) indicate TRACS has rejected the upside structure interpretation?

A. This took a couple of attempts to explain/clarify and probably needed one more. My interpretation of what Richard said is that the structural upside case was based on an interpretation of the seismic that has Bentley East and South being in communication with Bentley core. In other words the saddle between the core and other areas is less pronounced than assumed in the RAR. Thus the upside structural case interprets the core and East/South Bentley to be in direct communication laterally via a continuous oil column rather than only in communication via the underlying aquifer or not at all if the reservoir sands pinch out altogether in the saddle area.

[Looking at the map on p6 of the MCR, The 9/3b-6 well is the eastern most well to have been drilled on Bentley. However it is still several km NNW of the saddle area. Thus although the well came in 42ft high it is sufficiently distant from the saddle that it does not provide conclusive evidence that the upside structural interpretation is valid. Only a penetration of Bentley East (possibly close to the saddle area) would resolve the uncertainty.]


Q. Investors with an appetite for risk in junior oil companies have a focus on the upside. The Company has contributed to the gap between investor expectations, 200 mm bbl coming from the Oilbarrel presentation, and the outcome which the company believed would be market pleasing but which has turned out to be the opposite. Why has there been such a gap between investor expectations and what does management have to do to address the situation?

A. XEL believes it is not in control of investor expectations. The only thing XEL can do is to issue independently derived reports with a range of outcomes. Everything in between these reports is to some degree conjecture. The disconnect occurs because of the range of interpretations/outcomes that surface in the public domain in the intervening time between updates to third party reports. The investment community also has access to independent analyst reports but these differ as to where they sit within the range of possibilities.

LOOKING AHEAD
Q. What changes of tactics or approach is planned to deal with the investor community not appreciating the underlying value?
A. Management is not in the business of selling or hyping the stock we are in the business of providing factual information.

Q . Is the appointment of new advisory team a factor in telling the story?
A. XEL will be listening to them and taking advice from them. This appointment demonstrates that there has been another independent piece of due diligence and that the new team believes in the viability of achieving funding otherwise they would not have engaged with XEL.

XELs management is trying to point out the value proposition of the company and how it will deliver the proposition. The independently assessed value, even before it goes into production, translates to a value per share that is 2.5 to 3 x the current value measured by the market cap. The disconnect between the market cap and asset value presents an opportunity. Management is also pointing out how that value proposition will move forward.

Q. The value proposition is in some doubt because funding will be required for FSP and a portion of that will come from equity so there will be some dilution affecting the value proposition?

A. With a $1.35 Bn valuation and a $450 mm MCap there is huge capacity for self correction. If equity and market cap were in balance with the valuation the dilution would be less.

Comment from Mr 1.6% that he had heard the Oilbarrel presentation and the hint from XEL that there was scope for investors to double or treble their money but he also heard and understood that this was a process that would take place over 18 36 months.

Q. With management believing that the market does not understand the story or has misinterpreted the story will there be a change in tactics?

A. Managements role is to provide the facts not sell the story. Management doesnt control the SP. If the Asset value and MCap is misaligned we will point that out.

THE FSP AND VALUE
Q. We are where we are. We had a value of $781mm best estimate in the CPR and it is now $1350mm....
A. (Rupert Cole) Actually the $781mm had to be risked at 70% so we have taken the value from $550mm to $1350mm.

Q. Can you give us some insight into what is driving the value increase? Some of it is in the oil price but what about other factors such as capex and opex etc.?

A. (RC) This is a long and complicated discussion. There is a fundamental difference between the CPR and the FSP and SSP plans. $781mm NPV10 was derived from a theoretical field dev plan [i.e. a conceptual development and conceptual cost estimate] because we didnt have the info from the 6z well.

The new NPV is based on contracted costs, and the costs for both the FSP and SSP are higher. The FSP is much higher cost than in the CPR this is due to how we are doing it.

Steve Kew: Based on the productivity and geological information from the 6z well, which was oustanding, the revised development plan is perhaps able to achieve the same ultimate recovery with fewer wells. We are getting more capacity early also [which will help the NPV and NPV/bbl].

Q. When do you anticipate first production?
A. SK We are aiming to start production around early 2Q2012.
RS: It depends on whether a number of wells are batch drilled early on or we elect to drill and produce, drill and produce. There are advantages in batch drilling the top hole of a number of wells. If we want to phase and time the facilities there are advantages in batch drilling.
RR: We have to get the money to do this so production startup timing is contingent on funding and DECC approval and other issues.
So production will start some time in 1H 2012.

Q. What is capacity of the Rowan for production and injection risers?
A. (SK) It depends on the balance between topsides and risers but it is potentially more than 5 or 6.
DS We are looking at a range of laterals for the producers, will start with a smaller number to get familiar with the drilling and completion technology and could increase the number in later wells.

Q. What water handling capacity are you planning for on the FSP, is it sufficient if the wells cut water earlier than expected?

A. (SK and DW) Adequate capacity will be installed, within the bounds of the predicted range for water breakthrough.
DS If we found parts of the reservoir were cutting water early we can shut off the water from an individual leg and produce from others or drill in another part of the FSP/core area.

Q (Mr 1.6%) Is farming down part of the asset at current market price/bbl reserves attractive? You might be able to sell of a small percentage of the asset and avoid doing any financing.

A. (DS) So far we have found it beneficial to proceed on a 100% sole basis because we are not seeking to spread the development risk. Is the approach dependent on difference between Market Cap and Asset value? Well you would be pushed in one direction if the MCap is close to asset value and a different one if there is a big disconnect between the two.

BACK TO THE SP
Q What are we doing to help get the message out?
A (DS) On the day the MCR was released there was a call to 30 analysts in the UK the morning and a similar number in Nth America afternoon. More analysts briefing are planned.

ANY OTHER QS
Q. Concern about new size of Bentley East and South. If you cant justify a second drilling platform can the Rowan be transferred to Bentley East when the FSP oil rates decline?

A DS: The FSP is designed to produce during the 3 year period prior to the SSP starting up. We have the option of doing Bentley East as a subsea tieback, as a wellhead platform or with the Rowan because we have an optionality to keep the unit for up to 6 years after the initial 240 days.

Q. (Mr 1.6%) What is the status of the Bentley Alliance?
A There is significant contractor interest for incentivisation through production sharing via a tariff/bbl that would increase the total day rate if the unit is producing continuously with a high uptime. We are approaching it on an incentivised basis not on an equity basis and allowing the contractor to benefit from a per barrel fee according to the rate of production that is achieved.

Q Is Rowan funding the topsides costs or is XEL?
A One of options we are looking at is to have one production unit within the 3500 te capacity limit that would initially go on the Rowan Norway but which could be lifted off and placed on the SSP alongside another production train when it is ready to be installed. This would involve some pre-investment for the SSP in the FSP stage. There are other options that depend on lead times.

It is about a 3 year cycle. We want to produce field for a period of time with the FSP, optimise the permanent facilities and have them built.

Meeting concluded.

PRELIMINARY REFLECTIONS
The Board were open and forthcoming with their answers. However on the question of the 200 mm bbl I felt more insight could have been provided into the apparent contradiction between the outstanding well result and the inability to increase the core area P50 towards the P50 of the 2009 high side structural interpretation. I suspect it could be answered by close examination of the different interpretations but perhaps, because the focus was on the value improvement that had been achieved, this has not yet taken place.

Of course geological interpretations will differ between companies but it is important to know how they differ and what would be the information that would resolve the differences. We would then understand whether for example a future well in a specific location has the potential to re-ignite the 200 mm bbl flame.

The June 2009 update tried to convey quite a lot of information in written and tabular form. I wonder if all of the management team fully understood, no matter how good the results were, if it was ever possible for the 9/3b-6 well to confirm either the Most Likely Structure High Case (166 mm bbl core area) or the Upside Structure Base Case (235 mm bbl full field of which presumably about 160 mm bbl core area).

Maybe a lesson to be learnt is that much more clarity could have been obtained had it been supported by a physical representation of the cases with one or two maps etc. It might then have been possible to have avoided the over excitement that was generated by the 9/3b-6 result. In addition provision of the input parameters to the various cases would have helped tremendously. We get this most of the time from companies when they are in the exploration stage and from some to support the CPR after a discovery e.g. Gulf Keystone. This sort of information helps constrain estimates and manage expectations.

Of course the focus of the well was really on horizontal well production performance and proving that commercial rates could be obtained and the team can be proud of the tremendous achievement in achieving this goal and translating the results and information gained into a much improved asset value as measured by NPV10.

That said there is a substantial amount of work to do to get to first production. I do hope XEL keeps the market informed on the progress being made towards this goal. The new support team has to earn its fees in facilitating the best solution with regard to financing.

Regards,

Gramacho

Well done marky.,.

ditto that & kerrrchinnnnggggg!!

roll on tomorrow!

BS
regards
jkd

Is this another tree shake.....thought 200p would hold...obviously not.,.

just impatient people - mms also making the most of it - got me some more at bargain - will not be part of my long - hopefully be rid of these latest ones today / tomorrow - will bounce from these levels imo 179 / 180

Bought at 183p - good bargain again

hlyeo98

The chart doesn't suggest so looks like a falling knife.

agreed hyleo

current sp under 1/3 of fair value - and that is being conservative and they are based in the north sea not some war torn dodgy region! additionally north sea resources bacoming scarce as we all know et cetera

ditto that d

roll on the last 30mins - and tomorrow morning!

What an awful chart.

80p?

Certainly if chart wise it's following the trend of PDX and AVM

seen worse lol!

Dealer, you can go away with those sort of comments, thats upset my day now!!
Edit: report dealer for sp abuse.,.

NPV ($1.35bn = c. 830m) at different share price levels:

Current (1.80) Mkt cap 295m Discount to NPV = 65%

SP 2.00 Mk cap 326m Discount = 61%

SP 2.50 Mkt cap 407m Discount = 51%

SP 3.00 Mkt cap 489m Discount = 41%

SP 3.50 Mkt cap 571m Discount = 31%

SP 4.00 Mkt cap 653m Discount = 21%

Wow, not a good day all round.Was having a good day until I turned the computer on.

Got a few at 179p.....what a test.,.

You will get them for 1.50 tomorrow