Despite sitting on a ‘development-ready’ $2.5bn N. Sea oil field, Xcite Energy shares are suspended as bond holders petition for winding-up over $139m


Scottish Energy News EXCLUSIVE Report

The bondholders of Xcite Energy – a North Sea oil exploration company with an operations base in Aberdeen – are to petition the court in the British Virgin Islands offshore tax haven in the West Indies, where the company is registered, to be wound up and a liquidator appointed.

The sudden move came after talks on bond-restructuring between the company and the bond-holders broke down – despite Xcite holding a licence to drill for oil in one of the biggest un-tapped fields – with a net value of $2.5 billion -in the North Sea

As a consequence, the directors today announced the immediate suspension of trading in ordinary shares in the AIM-listed company. They last traded at 1.58p, falling more than 7% before being suspended.

Both the principal bondholders and the proposed liquidator have confirmed that Xcite Energy Resources plc and its assets are not expected to be the subject of enforcement action and Xcite is expected to remain a going concern throughout this process.

However, managing director Andrew Fairclough and finance director Rupert Cole warned shareholders that liquidation is unlikely to result in the return of any value to them.

Xcite Energy holds and operates 100% of the Bentley field located in Block 9/3b (Licence P1078). It is one of the largest undeveloped fields in the North Sea, containing some 881 MMstb in-place of 10°-12° API heavy oil. Its licence is due to expire in June 2017.

The after-tax net present value of the Bentley field cash flows (discounted at 10%) is confirmed to be approximately $2.5 billion.

A further nine MMstb of P50 contingent resources were assigned to the Bentley field, representing the additional economic production that could be achieved after an expected initial 35 year facilities life cut-off had been applied to the development plan.

Xcite’s most recent drilling programme, the pre-production wells 9/03b-7 and 7Z, was successfully concluded in September 2012, having flowed for 68 days. These produced approximately 149,000 barrels of Bentley crude and substantially increased the understanding of the field, thereby materially de-risking it and the next phase of development.

This production was sold on to a major refiner in Europe –  confirming that commercial development of Bentley was viable with existing technology.

First discovered in 1977, the Bentley field is located on the East Shetland Platform in the Northern North Sea, at the centre of a triangle in which the Bressay (operator: Statoil), Kraken (operator: EnQuest) and Bruce fields (operator: BP) are located.

In the 27th North Sea offshore oil exploration licensing round, Xcite was granted licences  over Blocks 9/4a, 9/8b and 9/9h which blocks contain four significant prospects – Chadwick, Cartwright, Camm and Clement). These were to subject of evaluation within the four year initial licence term on a drill or drop basis this month (Oct 2016).

The crisis and looming financial collapse was triggered after the company failed to reach an agreement with its bondholders to extend the deadline for repayment of $135 million in senior secured bonds.

These were issued in June 2014 – as North Sea Brent crude oil price benchmark hit a 12-year high of around $110-barrel – with repayment falling due on 30 June 2016. At this time, Xcite had met all banking covenants and paid in full all interest due to the bond-holders, but not the capital.

The bond holders agreed to extend the maturity repayment date to 30 September 2016 during which time they and the company agreed to talks to a potential re-structuring of the bonds.

At the same time, Xcite was actively hunting for a new investment partner to help finance the development to produce first-oil from Bentley. Later, Fairclough told share-holders that a prospective partner had been identified but provide no further details.

No such prospective partner publicly materialised, and bond-holders today announced they would lodge a writ to wind-up Xcite Resources.

In its unaudited interim results for the six months to 30 June 2016, Xcite losses deepened to $895 million, compared to losses of $578 million in the same period in 2015.

Fairclough said: “The past year has been extremely challenging across the oil and gas industry as was highlighted in our full year results, but we have continued to focus on our efforts to develop the funding required to take the Bentley field into development.

“Not only have we continued to engage with potential partners, but we have also worked hard to try to ensure that the Bentley development remains positioned as an attractive project in a highly capital-constrained environment.

Xcite Energy chart showing 'off-scale' cost of N. Sea oil compared to Bentley field
Xcite Energy chart showing ‘off-scale’ cost of N. Sea oil at $45-barrel (top right) compared to Bentley field  at $30-barrel (centre, right). NB. US shale oil average production costs are $25-barrel.

“Our Reserves Assessment Report set out the benefits of intensive interaction with suppliers and shipyards to deliver valid quotes and cost estimates – which further drove down the full field lifecycle cost per barrel for the Bentley field to a highly competitive $30-barrel.

“Despite the continuing low oil price environment, we have continued to engage with potential partners and have undertaken several due diligence processes during the past year.

“Whilst ‘traditional’ sources of funding for major offshore projects are continuing to stay away from the UK North Sea, we have spent a significant amount of time looking for alternative and innovative funding sources.

“We recently agreed principal commercial terms for development funding proposals for the first phase of the Bentley project. Whilst we are not able to expand on the details of this proposal until it is secured, the structure does require a partner to join Xcite Resources in the development and to either guarantee the full funding package or to provide any balance of funding required.”

Neither of the company’s brokers Liberum (also nominated advisor) nor Morgan Stanley made any comment.

But aghast industry observers were today asking: “How can so much oil and so much technical success result in a write-off of shareholder funds?”

See also:

Xcite Energy wind-up is a major blow to investor and regulator confidence in ageing N. Sea oil basin

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