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Xcite Energy Limited is a heavy oil appraisal and development company, with current interests in three licence blocks in the UK North Sea, all of which are held with 100% working interests through its wholly-owned UK subsidiary, Xcite Energy Resources Limited. Its primary focus is in bringing the Bentley oil field on Block 9/3b into...
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Xcite Energy’s US$155 mln loan strengthens negotiating position, says FD Cole
June 22 2012, 4:52pm
Xcite Energy (LON:XEL, CVE:XEL) today landed a US$155 million loan which will fund a substantial portion of the Phase 1B Bentley oilfield development.
The money is secured against around 25 per cent of Bentley’s current reserves. And the firm will now pursue other options to secure the remainder of the project’s funding requirements.
This may include a farm-out of project equity to an industry partner, and Xcite has already hired corporate deal makers Rothschild and Jefferies in this regard. However, Xcite is confident that Bentley is a robust North Sea asset and only prepared to sell a stake on the company’s terms.
And, according to finance director Rupert Cole, today’s reserve based funding has strengthened the company’s hand for any potential deal in the future.
“To make sure of a strong negotiating position with potential partners it is important that we have plenty of options,” Cole told Proactive Investors.
“So we will work through those options over the next 3-5 months, as we go through 1A and we get results from testing.
“We do believe there will be a lot of interest (once Xcite is ready to move forward), and in the meantime we are keeping our powder dry.”
Xcite says that any industry tie-up would come after it has completed the upcoming testing work, which will signal the end of the Phase 1A development programme.
Aside from a partnership Xcite’s other options include other forms of industry participation, convertible debt, mezzanine debt or equity based funding.
The US$155 million loan is conditional on the successful completion of certain aspects of the Phase 1A development programme – the most significant being an obligation for 45,000 barrels of cumulative oil production, from a 90 day production test.
That test will start in the coming weeks. It will be followed by a separate and much shorter test.
In this morning’s stock marker statement Rupert Cole said the company was very pleased to have secured the loan from such a ‘high quality banking consortium’.
The five year arrangement has been arranged with a consortium including Royal Bank of Scotland, Societe Generale and General Electric’s finance arm.
“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."
Analysts also welcomed the news.
“Overall this looks like a substantial step forward for the Bentley project and highlights that a number of third parties have reviewed the project plan and reservoir model, and see that Bentley is a commercial project subject to the results of Phase 1A,” Oriel Securities analyst Nick Copeman said in a note to clients.
Similarly Sam Wahab, at Seymour Pierce, also says it is positive news.
“It adds further clarification to the company’s potential financing in the event of a satisfactory first phase development programme,” Wahab said in a note.
“The share price has come off in recent weeks along with the sector in general, and we could see this trend reversing this morning given the increased funding security.”
Oriel see the stock as a ‘buy’, while Seymour Pierce gives it an ‘add’ rating.
