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Trazpee Management 2011 Review

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Trapzee Management recently reviewed Xcite Energy's performance in their recent research note.

They wrote the following :

"Xcite Energy ran up from its early 2010 lows following drilling success at its Bentley field in the UK North Sea. It then fell precipitously in May of 2011 after the publication of a poorly communicated reserve report which was misunderstood or misinterpreted by the market.Essentially, third party engineers assigned the company 28 million barrels of reserves, leavinganother 87 million barrels as contingent resources. The market was likely anticipating that thefull 115 million barrels would be booked as reserves. However, management has stated thatconversion of the contingent resources to reserves is anticipated from project sanction anddeliverability of the field development plan, not from any required additional technical work.Assuming, as we anticipate, Xcite receives approval for a staged development process shortlythen all 115 million barrels should be included in the reserve category.

Perhaps more importantly, the booking of reserves will indicate that Xcite has now proven the commerciality of the Bentley field. The company completed a successful commercial flow testin December 2010, 3,000 barrels per day from a low-risk development well, greater than expectations. The reservoir quality was also better than expected, which should lead to enhanced economics with relatively low operating costs of $55 per barrel once production begins.Shares of Xcite have been held back by the uncertainty surrounding potential debt and/or equityissues to finance its field development program. However, the company recently announced aprivate placement and equity credit facility that can fund the development of the project. Final government approval of its project is expected shortly, which should facilitate a debt financing the reafter.The company has a clean balance sheet with about $100 million (or nearly $.50/share) in netcash on hand. At current price levels, the stock trades for around $1.80 per barrel if we assumethe contingent barrels are converted to reserves, whereas it should trade closer to $10 perbarrel. For comparative purposes, a nearby operation, with 200 million of proven and probablebarrels of reserves, was acquired in 2010 for $3.1 billion, or $15.40/bbl.

Xcite’s independent reserve auditor, in the May 2011 reserve report, indicated that the present value of just the proven reserves amounts to $1.10 per share. The auditor also ascribed anafter-tax net present value of $0.80 per share for probable reserves. The contingent resourceassigned amounted to another $4.65 per share best case (the likely additional proven andprobable reserves). That amounts to $6.55 per share (compared to a $1.50 share price) of total proven and probable reserves, again assuming that contingent resource is mechanically converted to reserves once Xcite receives government approval to proceed with the full fielddevelopment plan. The barrels are in the ground and management is focused on establishingthe equity and debt financings necessary to fund the development program.

With an asset value at least 4x today’s share price, even allowing for further share dilution, there is high upside potential. And even more upside from additional reserve delineation,higher oil prices and the potential for enhanced oil recovery. The company will likely be acquired within the next couple of years once additional reserves are booked and oil is flowing."

sp needs to break out (north!) from the tight shackles showing on the chart

Am thinking of buying back in Cynic,Decc cant be to long now,Rig is ready apart from the odd thing....the ducks are lineing up.

Still have 2 huge loss making ISAs

i bought a few the other day

Just bought a few,time to get some of my money back Cynic.fingers crossed.

DECC Approval Process Update
RNS
RNS Number : 5521W
Xcite Energy Limited
01 February 2012





THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO THE UNITED STATES



TSX-V, LSE-AIM: XEL







1 February 2012



Xcite Energy Limited

("Xcite Energy or the ("Company")





DECC Approval Process Update



Further to the announcement of 1 December 2011, the Company is pleased to provide an update on the DECC approval process. In the opinion of the management team of Xcite Energy Resources Limited ("XER"), all of the broad operational and planning questions from the Department of Energy and Climate Change ("DECC") with respect to Phase 1A and Phase 1B of the Bentley First Phase Development have been addressed. A number of detailed questions on technical matters are currently being resolved and it is XER's expectation that this will be completed as a matter of due process.



DECC has issued a letter of comfort to XER to confirm its support for the Field Development Plan ("FDP") for the Bentley field and is broadly satisfied with the phased development approach from a resource recovery perspective. This now leaves the formal approval of the FDP subject to funding and any amendments to the FDP that may be proposed by XER following the results of Phase 1A, with the re-submission of the FDP expected in the latter half of 2012.



By agreement with DECC, the approval of the Phase 1A work programme will now be managed through the conventional Well Operations Notification System ("WONS"). It is the Company's expectation that DECC will give its approval for the Phase 1A WONS in the near future, enabling XER to commence the 2012 drilling programme and achieve an expected First Oil date in the first half of 2012.



The Environmental Statement ("ES") with respect to the overall Field Development Plan is expected to be approved by DECC in a similar timeframe to the WONS. It is not expected that the ES will require to be re-submitted to DECC.



Based on the letter of comfort from DECC, it remains the Company's expectation that it will be able to convert the currently assigned Contingent Resources to 2P Reserves.

Its about bloody time we had an update,i think young cyiners and myself may of top up at the right time.

Xcite Energy negotiates amendment to Rowan Rig contract
StockMarketWire.com
Xcite Energy's subsidiary Xcite Energy Resources, has negotiated an amendment to its rig contract with British American Offshore Ltd, a subsidiary of Rowan Companies Inc, providing more flexibility on the timing of the provision of a drilling unit.

The new terms better suit the revised work programme anticipated for Phase 1B of the first phase development of the Bentley field in the North Sea.

The contract amendment provides XER with the ability to shorten the 240 day initial period for Phase 1A and ability at any time up to 240 days after the end of Phase 1A in which to re-call an appropriate rig from the Rowan fleet for Phase 1B

The new contract terms also provide a flexible delivery window of between 14 and 20 months from the exercise of the Call Option for the selected rig, to be determined in consultation with Rowan to match the construction and installation of facilities for Phase 1B of the Bentley field development.



At 9:50am: (LON:XEL) share price was -0.87p at 92.88p

Is Xcite Energy still a worthy investment?
Sunday, February 5, 2012 at 12:23PM
The last 18 months has proved to quite a roller coaster for AIM and TSX listed North Sea oil company Xcite Energy (XEL).

On 21st December 2010 things couldn't be better for Xcite and its investors as it announced a successful completion of the 9/3b-6z horizontal well on the North sea heavy oil Bentley field. Despite constrained flow due to problems with a pipe to the tanker, "The flow rates achieved demonstrate both the commerciality of the Bentley field and the reservoir properties to be above the upper end of modelled expectations", "Multi-rate flow tests were conducted, culminating in a final stabilised flow rate of 2,900 stock tank barrels of oil per day." The share price spiked over £4 and ended the day at £3.85.

All good, but then the euphoria quickly started to die down. On December 24th 2010, an RNS stated that Directors Rupert Cole (Finance Director), Richard Smith (Chief Exec.) and Stephen Kew (Head of Exploration) had sold 1,101,666 shares each with a total value of £12.79 million. In hindsight this was a clear signal to sell off. In the directors defence they retained 80% of their holding and Cole and Kew bought back in mid-2011 (2 million and 1 million shares) but at £1.18 and £1.28 rather than the £3.74 they sold at in December 2010. Clearly they recognised that the share price had gotten ahead of itself given the long time to field development and the risks ahead. It was particularly galling that Charles Lucas Clements (Director of business development) stated at the January 2011 Oilbarrel conference that he saw the shares doubling or tripling and that shareholders should hang on!

In May 2011, the long awaited reserves update news was received and hugely disappointed investors. The expectation was that the Bentley field would have booked reserves of 160-200 million barrels of oil. In fact the independent auditors, TRACS, only allowed probable reserves in the core area of 28mm barrels (2p) and contingent reserves (2C) of 87mm barrels. The exact catalyst for the conversion of the 87mm barrels was unclear but probably was related to TRACS confidence that funding was in place to allow the field to be developed plus the lack of DECC approval at this stage. The shares reacted badly on the news and fell well over a pound within days. It seems likely that the larger institutional shareholders e.g. Fidelity dumped their holding (they were no longer on the major shareholder list as of end 2011).

Since the highs of end 2010 its been pretty much down hill all the way to a low of less than 80p in December 2011 when the Board of Directors was forced to issue an RNS stating that

"In response to feedback from the Department of Energy and Climate Change ("DECC") on the Bentley field development plan, the Company has re-configured its approach to the first phase of development of Bentley to provide a more financially efficient outcome. This re-configuration has allowed the Company to maintain the first oil date in 2012, while enabling the completion of a more cost effective field development plan. The principal elements of this plan are Phase 1A with first oil planned for 2012, Phase 1B planned for 2013 and Phase 2 estimated to commence in 2016. The Company understands that the plan is in the final stages of DECC approval.

If DECC approval is obtained, the financial resources to commence Phase 1A are available. The Company continues to make good progress with respect to securing additional sources of funding, including project finance from commercial lending banks. Whilst adopting this more financially efficient approach to Phase 1, the Company intends to pre-invest substantially in Phase 1B and Phase 2, with the objective of lowering the unit cost of oil produced and, thus, maximising the commercial industry value of the Bentley asset in advance of Phase 1B.

Management considers that this re-configuration of the Phase 1 production and financial plans for the Bentley field should maximise shareholder value. Further announcements will be made to the market as soon as practicable."

The RNS smacked of Board incompetence as it was only issued when an Addendum to the DECC (Department of Energy and Climate Change) field development plan appeared on bulletin boards the day before the official release and it was clear that the Bentley plans had changed months ago without any knowledge of investors.

It had also become clear that the initial Board optimism that funding for the development of the Bentley field could be obtained with just the 36 hour 9/3b-6z well test in the risk averse financial climate of 2011 was not possible. It was questionable whether there was full shareholder transparency when the RNS of 15th November 2011 stated

"The company continues its good process with the approval process by the Department of Energy and Climate Change ("DECC") of a field development plan for the Bentley Field, to be consistent with the rig deployment timing. A final environmental statement for the planned FDP on the Bentley field has now been submitted in line with usual practice.

Financing discussions continue to progress satisfactorily and the Company's objective is to conclude these in a consistent timeframe with approval by DECC of a Field Development Plan for the Bentley field and the rig deployment."

Then on the 1st February 2012, the company finally updated on progress of the DECC approval.

"DECC has issued a letter of comfort to XER to confirm its support for the Field Development Plan ("FDP") for the Bentley field and is broadly satisfied with the phased development approach from a resource recovery perspective. This now leaves the formal approval of the FDP subject to funding and any amendments to the FDP that may be proposed by XER following the results of Phase 1A, with the re-submission of the FDP expected in the latter half of 2012.

By agreement with DECC, the approval of the Phase 1A work programme will now be managed through the conventional Well Operations Notification System ("WONS"). It is the Company's expectation that DECC will give its approval for the Phase 1A WONS in the near future, enabling XER to commence the 2012 drilling programme and achieve an expected First Oil date in the first half of 2012.

The Environmental Statement ("ES") with respect to the overall Field Development Plan is expected to be approved by DECC in a similar timeframe to the WONS. It is not expected that the ES will require to be re-submitted to DECC.

Based on the letter of comfort from DECC, it remains the Company's expectation that it will be able to convert the currently assigned Contingent Resources to 2P Reserves."

The change in the field configuration also had an impact on the choice of Rig and contract period. Last week, Xcite issued news that it had renegotiated its terms with Rowan for the Rowan Norway rig. The rig was originally constructed in Singapore in 2011 and arrived in Dundee in November last year. It is currently being fitted out before deployment probably during mid to late February. The change in the rig contract gives a significantly better financial commitment.

So the company now has the Letter of Comfort for Decc which is presumably being used in 2 ways 1) to help funding of phase 1b (possibly 2) of the field development 2) to allow TRACS (who published the Reserves report) to increase reserves from 28mm to 115mm barrels. There remains signficant uncertainty in these areas.

So after all the disappointment of 2011 and poor investor communication can we look forward to better times ahead? The company has certainly tested my patience at times with its weak communication but the Bentley field appears to be an excellent asset. Fortunately I have traded in and out and my average stands at 97p and I added considerably to my holding last week. At 93p Xcite's share price has been decimated since December 2010 but with all the news flow ahead there appears to be more than good upside potential.

News flow:

1) The WONS approval from DECC for the 1a field development appears imminent

2) The Rowan Norway rig is likely to leave Dundee and proceed to Bentley mid-end february

3) The upgrade to reserves from 28mm to 115mm (timing is uncertain and subject to much debate but it appears linked to the letter of comfort and perhaps funding). Timing??

4) End of pipeline consultation February

5) Beginning of well test April. If the well flows at between 5000 and 10,000 barrels a day, this could generate income of $50 million, more than offsetting the rig costs of $250,000 a day.

6) End of well test September. company sale or start of planning for 1b.

The upgrade in reserves by auditors TRACS remains the key catalyst for a move up in the share price. However timing is somewhat unclear. Hopefully shareholders will get more clarity on this key issue as the Rowan Norway rig gears up for first oil. I believe it is likely that there is a good chance of a share price well in excess of £1 if news flow doesn't disappoint. With 209.7 million shares in issue, current market cap is only £195 million compared with minimum assets of 115 million barrels worth £359 million at $5 a barrel. What's more there are £800 million of accrued tax breaks and stage 1a of the Bentley development is fully funded by Socius through a£25.8 million private placement and a £60 million equity credit facility with Esousa. Though there is a major doubt on phase 1b and second stage funding for the field which could result in further equity dilution, the fact that the Directors bought 3 million shares at 118p and 128p gives confidence that Xcite is more likely to be under valued than over valued at 93p! It's time for the Xcite board to show their value!

Good article markymar, I suppose A lot of investors feel they can invest in better prospects at present. Lets hope to see this at £3 or + again by year end.

Afteroon RNS

http://www.moneyam.com/action/news/showArticle?id=4307686

Fastest I have seen this move in 6 months. :-))

Through the £1

Steady Mr D,still £2 more to go,i live in hope.

Thats a lot of buying to get there markymar. Dig deep and buy a few more, every little helps.

It is that Mr D,toppedd up a couple of weeks a go,when Cynic dips his toe it a good sign.

When they start to suck up the black stuff , this will move. Taught me a lot this share and I bet a lot of other investors too.

certainly volume is very heavy for this stock .... already double daily average at nearly 7m

Going long on the spreads...has to worth more than 120p....