Is Xcite Energy (LON:XEL) ready to walk a path last trodden by Gulf Keystone Petroleum (LON:GKP) with a debt for equity swap that will dilute existing investors out of sight?
Well, based on the latest update from the company, the answer to that question appears to be a resounding yes.
Which then begs the question: just what was Friday’s sharp share price rise all about?
We don’t have the answer. However Monday’s update provided some insight into the process of refinancing the E&P, which owns the Bentley heavy oil field in the North Sea.
The kernel of its dilemma is US$135mln of senior secured debt.
Xcite has been in restructuring negotiations bondholders for most of the year now.
In fact the date on which these liabilities crystalised was pushed out to September 30 to allow the parties to “resolve terms” of a deal.
With that deadline just over a fortnight away comes this morning’s advisory and this line, four paragraphs down a five paragraph statement…
“Whilst terms of the restructuring have still to be agreed, the company now believes that there will be a minimal residual equity stake attributed to the company's existing shareholders following the restructuring.”
Xcite said it will update investors once further information “can be made available”.
The company is just one of a handful of former E&Ps that borrowed heavily in the boom times and are now faced with the reality of oil below US$50 a barrel.
Mentioned in the introduction is Gulf Keystone, which is undergoing an even more painful US$500mln debt for equity swap that will similarly cede control of the firm to bondholders.