Xcite Energy this morning told investors that drilling operations are progressing satisfactorily. It also announced that it has now contracted a shuttle tanker and a pipeline for the start of the Bentley field’s production phase.

It also announced that it has now contracted a shuttle tanker and a pipeline for the start of the Bentley field’s production phase.

Xcite said the Bentley 9/3b-7 well has so far been drilled to a depth of 6,684 feet. And drilling to the reservoir section will soon follow – after a liner has been set, cemented and pressure tested.

It has signed a time charter contract with Teekay Navion Offshore for the ‘Scott Spirit’ shuttle tanker, which will be used as the in-field storage and offtake facility during Phase 1A of the Bentley field development.

And Ocean Installer has been contracted to provide the 1.8 kilometre pipeline that will connect the Rowan Norway jack-up rig to the Scott Spirit vessel.

This morning, the company told investors the Rowan Norway jack-up drilling rig is making good progress. 

The 36” hole and 30” conductor pipe have been completed, while the 262 hole has been directionally drilled and the 20” surface casing has now been set and cemented, it said.

“Completion of these upper hole sections, safely and as planned, gives a firm foundation for the rest of the Phase 1A work programme planned to be undertaken within the 240 days initial term under the rig contract, which commenced in early March,” Xcite said in a stock market statement.

Phase 1A of the development programme will see Xcite drill two development wells and carry out an extended production test, which is expected to last 90 days in total. 

This will be a technical test, not a headline flow rate test, with around 30 days flow being expected to confirm and calibrate the reservoir model.

In February, Xcite upgraded the Bentley field’s oil reserve estimate. Xcite increased 2P reserves from 28 to 116 million barrels of oil. These reserves are estimated to be worth US$1.46 billion, it said.

It was a choice stock in 2010. A successful appraisal drilling result and flow test proved that that Bentley heavy oil reservoirs could produce economically. Those findings helped lift the shares from 80p to just over 400p by January 2011.

Subsequently the group has focussed on the development of the Bentley oilfield, which is located around 160 kilometres east of the Shetlands.  During the past year Xcite has upgraded its oil reserves up to the £116 million mark and it has completed a three step field development plan, which is now underway.

But, on AIM the shares suffered a notable fall from grace, which saw the Xcite price fall all the way back towards the 80p mark by the end of the year.

“The uncertainty in the capital markets has added to the normal challenges of a North Sea project, but the Xcite team has maintained its focus on the prize and shown remarkable flexibility to overcome problems,” Ramshaw said in today’s results statement.

During the past year Xcite has upgraded its oil reserves up to the 116 million barrel mark and it has completed a three step field development plan, which is now underway.

“It has been, without doubt, a demanding year, but the expected value of the company remains unchanged and we look forward to the results of the Phase 1A work programme and the future development of the Bentley field.”

Drilling began earlier this month on the wells that will form the basis of the Phase 1A programme. 

Xcite says this work programme will be just as important for the company as the successful appraisal well, drilling in 2010, which demonstrated the field’s commercial flow rates and prompted the rally that created a great deal of excitement and interest among investors.

Phase 1A of the development programme will see Xcite drill two development wells and carry out an extended production test, which is expected to last 90 days in total. 

To support the development Xcite raised just over £55 million in new capital, via draw downs to equity line facilities and more conventional share placings, and it ended 2011 with £38.8 million in cash.

There have also been a number of drawn downs and fundings in the current year, totalling around £44 million so far.

Xcite actually reported a small paper profit for the year as much of the work confined to the desktop, and payments to contractors are currently being held in escrow, and thanks to a strengthening dollar.

It said net profit for the year, ended December 31, was £129,563.  At the end of the year it had £47.1 million in two escrow accounts to meet in contractor commitments.