Xcite Energy increases most likely oil in place at Bentley Field to 690 million barrels

Xcite Energy’s Bentley Field just became a whole lot more interesting. Today the company announced that after the re-interpretation of 3D seismic over the field, which sits in Block 9/3b in the North Sea, the most likely Stock Tank Oil Initially In Place (‘STOIIP’) has increased to nearly 690 million barrels of oil with the upside at nearly 890 million barrels of oil.  The most likely aggregate contingent and prospective resources now stand at 160 million barrels of oil using conventional recovery techniques, giving a NPV(10) (Net Present Value discounted 10% per annum) of circa US$1 billion, using a flat oil price of US$80/barrel and a 15% discount for heavy crude.  Take the upside structure most likely case contingent and prospective resources of 235 million barrels, and the estimated NPV (10) jumps to circa US$2 billion. Block 9/3b is within the northern North Sea, approximately 160km east of the Shetland Isles on the western edge of the Viking Graben.

Since completing a private placing and dual listing in 2007 on the AIM and TSX markets, Xcite Energy’s sole focus has been advancing the Bentley Field towards development. Xcite Energy’s timing was pretty good, raising net proceeds of £22 million. Upon listing, Xcite Energy had a market capitalisation of £48 million. The substantial fundraising afforded the company the ability to fund a vertical well at Bentley in 2008, with the intention of garnering a better understanding of the oil and field characteristics. The 9/3b-5 appraisal well was drilled to a total depth of 4105ft. and, as anticipated, encountered heavy oil bearing Palaeocene Upper Dornoch Formation sands at 3712ft with 87ft gross (86 feet net) hydrocarbon column. During the drill stem test, 100% crude oil production was demonstrated at rates of up to 150 barrels of oil per day from the 50 foot section of the oil column that had been successfully perforated. Xcite stated at the time that the flow rate was within the expected range for a technical test of this design and nature.

So while many other North Sea oil and gas juniors struggled to stay afloat in the second half of 2008, Xcite had time on its side as it studied the results and reprocessed 3-D seismic data. Xcite also entered into an agreement to exchange of data from the 9/3b-5 appraisal well on the Bentley field with the data from the 3/28a-F(6) appraisal well on the StatoilHydro operated Bressay field, which was completed in Q42008.  The Bressay field is adjacent and to the north-west of Block 9/3b. More on the significance of StatoilHydro later.

With today’s announcement, Xcite’s next stated goal is to farm-out part of Bentley to another industry partner or to secure a financial partner to fund a horizontal well which is earmarked for drilling in late 2010. Based on the results of the last vertical well, the subsequent analysis work and close analogue comparison as confirmed by a recent independent third party report, this horizontal well with a downhole pump, is expected to flow at several thousand barrels of oil per day. This low risk well should achieve a ‘Reserves’ status on Bentley and thereby have a significant impact on the field valuation.

Heavy Oil field developments in the North Sea have been somewhat limited since many of the fields were first discovered two or three decades ago. At the time, oil and gas companies firmly had their sights set on the North Sea’s lighter oil, which at the time could be put into production using available production methods. Since then, however, a number of new production techniques have been developed to address successfully the issues presented by heavier oil fields.  It should come as no surprise to readers that in the 21st Century, heavy oil fields in the North Sea are well within the technical capabilities of the industry.

So while production techniques have advanced in the past two decades, so too has the landscape of the oil industry.  What has happened over the same time period is a shift in emphasis, with the Tier 1 oil producers tending to focus on really big discoveries that can add significant production and reserves replacement.  Hence companies like Shell will quite happily plough billions into tar sands projects in Central Canada where the recoverable oil is in the billion of barrels, rather than invest a comparatively paltry sum of $100 million in a small oil field in the North Sea. This has opened up the heavy oil sector to several niche players looking to exploit small to medium sized discoveries that are insignificant to a large player, but certainly material to a smaller company. The exception here is Xcite, with a very large oil field that should clearly be of interest to any oil company looking to put more Reserves on their books in a benign and well understood oil basin.


Heavy Oil fields are generally classified as having an API between 10 and 22 degrees.  North Sea crude tends to be low in sulphur and heavy metals, increasing their attractiveness to refineries as end users. There are plenty of heavy oil fields already in production in the North Sea, including Harding, Gryphon, Alba and Captain.  The Grane heavy oil field is the most significant development, producing 220,000 barrels of oil per day (operator StatoilHydro). In total the UK Department of Trade and Industry believes there is around 9 billion barrels of heavy crude oil resources in the North Sea, which could significantly extend its life as a hydrocarbon producing region.

So how does StatoilHydro fit into the picture? Very well would probably be the answer. With several heavy oil fields already in production and recently acquiring two fields virtually on Xcite Energy’s doorstep, the announced development plans for the Bressay Field in particular has implications for Xcite. Sharing data with StatoilHyrdo on Xcite’s last vertical well would also give it intimate knowledge of how the two fields compare.  While StatoilHydro has stated that it is moving ahead with the Bressay field development, it is probably too early to assess the potential for the development of a heavy oil 'hub' in the area, providing joint development possibilities for the Bressay and Bentley fields. It is clear from this activity, however, that North Sea heavy oil is a commercially viable commodity, with Bressay and Bentley being two of the leading contenders for commercial production, either stand alone or synergistically.


Xcite’s board of director’s know a thing or two about offshore developments too. Richard Smith and Rupert Cole, CEO and CFO respectively, worked together before Xcite at Granherne, an offshore and onshore downstream engineering and consultancy group which is part of Halliburton.  Stephen Kew, Head of Exploration and Development used to work for Conoco and actually worked on the Bentley Field in the 1990’s.  While Richard West, Xcite Operations Director and Bentley Programme Manager, spent fifteen years working as an engineering manager on the Forties Field for BP, before being responsible for major stand alone oil field development projects. This is a board of directors who understand what you need to serve up on a plate, with the trimmings, to get a bigger player or financial partner to step up. That is the goal, and Xcite look well on their way to achieving it.