TIDMXEL
RNS Number : 3701I
Xcite Energy Limited
25 March 2015
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART
DIRECTLY OR INDIRECTLY IN, INTO OR FROM ANY JURISDICTION WHERE TO
DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR
REGULATIONS OF SUCH JURISDICTION
TSX-V, LSE-AIM: XEL
25 March 2015
Xcite Energy Limited
("Xcite Energy" or the "Company")
Results for the Year Ended 31 December 2014
Xcite Energy announces its results for the year ended 31
December 2014.
Highlights
-- Uplift in Bentley 2P oil reserves from 250 MMstb to 257 MMstb
in February 2014, with a further 48 MMstb of Contingent Resources
assigned.
-- Signed Memoranda of Understanding with AMEC, Aibel, Arup,
Baker Hughes, COSL and Teekay.
-- Signed collaboration agreements with Statoil, Shell and
EnQuest to evaluate potential development and operational synergies
with neighbouring fields.
-- Re-financed balance sheet, with new debt financing of US$135
million of secured 12% coupon Bonds, with repayment of the existing
US$80 million unsecured 12.5% loan notes. Cash balance at year end
of GBP32.5 million.
-- Extension to the Bentley field licence from the Department of
Energy and Climate Change until 31 December 2016.
-- Continuing discussions with potential co-venturer partners
despite challenging oil price environment.
Commenting on today's announcement, Rupert Cole, Chief Executive
Officer, said:
"Despite yet another challenging year across the oil industry,
we have continued to make significant progress with the Bentley
development project in those areas within our control. We believe
that this work supports our commercial discussions with the
contractor group and ongoing funding discussions with potential
co-venturer partners. Our focus remains on delivering the financing
required to bring the Bentley field into production."
Chairman's Review
I am pleased to present my first report to shareholders as
Chairman, having taken over from my predecessor, Roger Ramshaw, in
May last year. Roger ably led the company from its formation and
public floatation and I would like to pay tribute to his
contribution.
Our industry is currently facing major challenges, but I remain
optimistic that we will successfully transition through the next
phase of our journey towards development of the Bentley oil field.
A year ago, we commented on the changing environment in the UK
North Sea, and how our experience had seen a reduction of the
resource allocation into the region and the beginning of
restrictions on development spending, which combined with a
continuing escalation of the cost base, was leading to projects
being delayed or cancelled and new investment simply not being
made.
Today, we have a much lower oil price environment to contend
with, currently around $55 per barrel, and many more oil companies
announcing reduced investment in development and exploration spend,
delayed or cancelled projects, further sales of assets and ongoing
headcount reductions. It is clearly a difficult environment for all
participants and definitive Government and industry action needs to
be taken to ensure the continuing health of the UK North Sea
sector. The measures announced in the Budget are certainly a step
in the right direction.
Oil & Gas UK recently released its annual Activity Survey
for 2015, in which it reiterated the three major challenges facing
the UK's offshore oil and gas basin: high costs, high taxes and an
under-resourced regulator. On this basis, it has called for a major
effort on cost reduction, production improvement and fresh
investment. Importantly, Oil & Gas UK also highlighted the need
for the right balance between investment and cost control,
recognising that cost control alone would diminish the industry
and, that to survive, investment must be sustained with an urgent
need for significant regulatory and fiscal reform.
We fully support Oil & Gas UK in its conclusions, and
believe that the Wood Review identified another key issue which the
industry does not yet embrace; being the need for much greater and
genuine collaboration. Perhaps surprisingly for an industry such as
ours, collaboration is not a natural operating model and the wider
adoption of this would represent a substantial behavioural change
in the way that operators, service providers and the Government
interact for mutual benefit. Indeed, this has also been highlighted
by the Oil & Gas Authority, together with the need for a
cultural shift in the industry to adopt behaviour that is likely to
tackle the challenges ahead.
We experienced the changing environment in 2013 first-hand and
realised that a different approach was needed to attract investment
for new development projects. The cost environment was
unsustainable, projects were rarely, if ever, delivered on-time or
on-budget, and the fiscal environment of the UK North Sea was
neither sufficiently stable nor attractive enough to enable this
situation to continue.
In this environment, we engaged with a number of key integrated
service providers to develop an innovative commercial structure
which comprised collaboration and greater accountability and
apportionment of risk and reward. The intention was to develop a
structure to align all the key stakeholders on the successful
delivery of the development project, on-time and on-budget whilst
providing sustainable and long term production volumes in an
efficient manner. As a result, we are now working with major,
international companies to provide the key services and assets
required for the Bentley development project. We believe this is an
innovative structure for the UK North Sea, which is designed to
address some of the major risks and deliver a successful, economic
field development.
We have made considerable progress in many areas within our
control, but we cannot escape the fact that the current oil price
environment has had a further substantial impact on the industry
and availability of resources and investment globally to new
development projects. Nevertheless, we continue with our innovative
approach to managing this changing environment, in particular in
relation to pursuing the funding required for Bentley, as an
important UK North Sea development project. The development work we
have undertaken has been primarily focused on the field development
plan, but we have also achieved further validation in the key areas
of costs, execution strategy and subsurface definition, in order to
support our funding discussions.
We remain fully committed to progressing the Bentley field
towards a successful outcome. On behalf of the Board, I would like
to thank the entire Xcite team for their continuing hard work and I
look forward to being able to deliver the positive news that
shareholders are awaiting.
Chief Executive's Review of 2014
Overview of 2014
At this time last year, we set out our principal objectives for
2014 - to select our key preferred development partners for the
Bentley field; to commence a number of engineering programmes to
achieve greater definition of the development concept; to agree
draft contracts with a view to signing for the project execution
phase following approval of the field development plan ("FDP"); and
to continue to work to clarify the funding requirements based on
the work with our partners and thus be able to evaluate the
available funding options. On the back of these objectives, we also
set out our intention to work towards the submission of a full FDP
including a funding package, however, it became clear during the
latter half of 2014 that the impact of the declining oil price had
further changed the commercial environment and we updated the
market throughout the year on the impact of these changes.
In spite of the increasingly challenging environment, we have
achieved much of what we set out to do, with the signing of
important Memoranda of Understanding ("MOU") with development
contractors, the drafting of commercial contracts, the completion
of key pre-FEED / assurance engineering programmes, continuing
discussions with potential co-venturers and ongoing work on
developing asset financing solutions for our principal field
development assets. We also entered into two collaboration
agreements, which have the potential to deliver material capital
and operational cost savings in the future. We also took the
prudent step of re-financing our balance sheet through the issue of
a US$135 million two year bond and a US$5 million private placement
of ordinary shares.
In February 2014, we confirmed 2P Reserves for the Bentley field
of 257 million stock tank barrels ("MMstb") in an updated Reserves
Assessment Report ("RAR"), with an NPV10 (after tax) value of
approximately US$2.1 billion. This RAR also assigned a further 48
MMstb of P50 Contingent Resources to the Bentley field,
representing the additional economic production barrels that could
still be achieved after an initial 35 year facilities life cut-off
had been applied to the development plan. The RAR was followed at
the end of March, with the confirmation from DECC of an extension
to the Bentley oil field licence until 31 December 2016, which was
a material extension to our licence terms. More recently, in
January 2015, we relinquished the licences to blocks 9/3c and 9/3d
in accordance with their terms - neither block was material, with
only approximately 16 MMstb of PMean prospective resources assigned
to them in aggregate in the RAR and with zero economic value. It is
intended that the RAR as at 31 December 2014, which will be
published in due course, should incorporate much of the work
undertaken during the past year for the current development plan,
together with the updated acreage and the recent fiscal changes in
the 2015 Budget.
The selection of development partners during 2014 was initiated
with our signing of an MOU with Amec Group Limited ("AMEC") and
with Ove Arup & Partners Limited ("Arup") in April, for the
design and development of Arup's self-installing, steel ACE mobile
offshore production unit ("MOPU"). This was closely followed later
that month with an MOU with Teekay Shipping Norway AS ("Teekay")
for the supply of a bridge-linked Sevan FSO facility. The pre-FEED
engineering for the FSO was completed at the end of 2014. In July,
we signed an MOU for the engineering, procurement and construction
of the ACE platform with Aibel AS ("Aibel"), followed in September
by a successful offshore geotechnical survey, which completed the
overall offshore assurance process for this phase. The Baker Hughes
Limited ("Baker Hughes") MOU in October 2014 set out the principles
for the provision of oil field services and we have been working
extensively with Baker Hughes to develop and enhance our
sub-surface and drilling strategy. In November, China Oilfield
Services Limited ("COSL") became the final key partner to join the
development group, when we signed an MOU for the provision of a
new-build N Plus Class jack-up drilling rig, which is due to be
built in the Keppel FELS yard in Singapore. The N Plus Class
drilling rig will be one of the largest harsh environment, deep
water jack-up rigs in operation in the UK North Sea, which will
allow for an additional four wells to be drilled from the MOPU, and
we believe it will offer several material advantages to optimise
the drilling strategy.
During the year we also entered into collaboration agreements
with the Operators of two neighbouring fields; the first in May
2014, with Statoil (UK) Limited ("Statoil") and Shell UK Limited,
which allowed all parties to share field-specific technical and
operational information to evaluate potential synergies and
collaboration between the Bentley and neighbouring Bressay fields.
The second, in September, with Statoil and EnQuest Heather Limited,
enabled the sharing of field-specific technical and operational
information to evaluate the potential of common gas import
infrastructure between the Bentley, Kraken and Bressay fields.
These initiatives are part of a longer term strategy, which have
the potential to enhance the future economics of these fields by
offering material capital and operational cost savings; they also
align with our underlying collaboration model which we believe was
one of the key areas highlighted by the Wood Review as being
important for the continued success of the UK North Sea. Xcite
Energy's actions clearly demonstrate our support for this approach
to maximise economic recovery and we hope that the Government will
also support such behaviour for the benefit of the UK North Sea as
a whole.
We re-financed our balance sheet in June, raising a total of
US$140 million (GBP83.1 million) through the placing of a US$135
million (GBP80.1 million) secured, two year bond and a private
placement of ordinary shares, which enabled us to repay the
outstanding loan notes and provided additional capital to complete
the pre-FEED / assurance engineering work programme.
The development group model
We established our commercial development model against the
early backdrop of a tightening industry environment, as the
Chairman has already mentioned, but it was also driven by the need
to drive for a more competitive and efficient cost base with shared
accountability into our development project and exercise greater
control over the key aspects of a field development; an important
goal, especially in the current challenging oil price
environment.
The development group which we selected are not only leaders in
their respective fields, but also companies that have demonstrated
their willingness to operate within a new, innovative and
collaborative model for the Bentley development, in which they are
accountable for delivering key elements of the project with a
balanced risk and reward mechanism. The more work we have
undertaken with the development group partners, the greater our
conviction has become that this collaborative model will deliver a
cost-effective, efficient and sustainable project in the future. As
with many innovative solutions, it is not always straightforward,
but we have achieved a great deal during 2014.
We successfully completed the planned technical and engineering
programmes, which have delivered greater functional and cost
definition at this stage, and we have advanced our reservoir
modelling to provide more subsurface certainty as part of our
overall reserves strategy, which will be incorporated into an
updated Reserves Assessment Report in due course. We are making
good progress with our commercial discussions with partners and
have reached agreement on many of the fundamental principles, which
are being integrated into the contract documentation. An integral
part of this contractual structure is the early definition of
project costs and, given the current environment, we are continuing
to do further work in this area in order to capitalise on the cost
benefit opportunities that are slowly working through into the
sector. We anticipate that this will allow a further revision to
the cost and execution strategy to further maximise economic
recovery and this will continue to be a core focus during 2015.
Funding the development
We have consistently stated that the technical and commercial
workstreams were our focus for 2014, and that we would only be able
to submit a formal FDP when we could demonstrate to DECC both the
technical and financial capability required. As mentioned above,
the technical and engineering work streams are largely complete and
our commercial negotiations with development group companies
continue to make progress.
Given the impact on the project economics, we remain focused on
optimising the overall project costs and also on accessing
alternative sources of capital in order to limit the development
capital sought from any potential co-venturer and, so far as
possible, mitigate the impact of the current investment
environment. During the year we spent valuable time creating an
asset financing model to fund the construction of the MOPU. In
recent months, it is clear that the declining oil price is
affecting the overall project financing environment and, as a
result, we have extended these discussions into new geographic
regions where there appears to be a longer term strategic view.
We have also actively continued our discussions and diligence
process with a number of potential co-venturers during the year.
Whilst the development financing landscape has remained difficult,
we have committed a great deal of time and energy into addressing
the important issues relating to the Bentley development to support
these discussions. Our emphasis has been on delivering a
cost-effective and sustainable development plan, supported by a
clearly defined execution strategy with an externally validated
cost base, whilst continuing reservoir modelling which has been
focused on delivering greater subsurface clarity and certainty. We
continue to actively pursue our process to deliver a co-venturer
partner.
Outlook
Whilst recognising the current uncertainty in the industry, we
believe that the anticipated development timeline for the Bentley
field should mitigate short term oil price volatility and we remain
optimistic about the long term economic viability of the project,
which should also benefit from the tax changes announced in the
recent Budget. We have undertaken a significant amount of work over
the past year, which has moved the development plan forwards and
created a greater level of certainty with which to engage potential
co-venturers. With a project the size of Bentley, and in the
current market environment, the Company remains focused on
optimising costs and reducing risk and uncertainty, which is even
more important than it was 12 months ago. Having completed our
engineering programmes in 2014, we are entirely focused on
developing our commercial and funding discussions in 2015.
Once again, I strongly encourage shareholders to read the
information and updates provided by the Company, rather than
uninformed sources. We will inform the market when we have relevant
and material news to share, as would be expected and in accordance
with our public company reporting obligations.
The following tables summarise the Group's performance in the
year ended 31 December 2014 and the comparatives for the years
ended 31 December 2013 and 31 December 2012.
Year ended Year ended Year ended
31 December 31 December 31 December
---------------------------------------------- ------------- ------------- -------------
Income Statement Information 2014 2013 2012
---------------------------------------------- ------------- ------------- -------------
GBPm GBPm GBPm
---------------------------------------------- ------------- ------------- -------------
Revenue - - 13.3
---------------------------------------------- ------------- ------------- -------------
Other income - 11.4 -
---------------------------------------------- ------------- ------------- -------------
Net (loss)/profit (3.2) 6.6 (1.7)
---------------------------------------------- ------------- ------------- -------------
(Loss)/earnings per share (basic) in pence (1.1p) 2.3p (0.7p)
---------------------------------------------- ------------- ------------- -------------
(Loss)/earnings per share (diluted) in pence (1.1p) 2.0p (0.7p)
---------------------------------------------- ------------- ------------- -------------
Year ended Year ended Year ended
31 December 31 December 31 December
----------------------------------------- ------------- ------------- -------------
Cash Flow Information 2014 2013 2012
----------------------------------------- ------------- ------------- -------------
GBPm GBPm GBPm
----------------------------------------- ------------- ------------- -------------
Net cash flow from operations 2.7 (0.6) (9.5)
----------------------------------------- ------------- ------------- -------------
Net cash flow from investing activities (25.7) (6.3) (127.5)
----------------------------------------- ------------- ------------- -------------
Net cash flow from financing activities 33.6 3.2 98.4
----------------------------------------- ------------- ------------- -------------
As at As at As at
31 December 31 December 31 December
--------------------------- ------------- ------------- -------------
Balance Sheet Information 2014 2013 2012
--------------------------- ------------- ------------- -------------
GBPm GBPm GBPm
--------------------------- ------------- ------------- -------------
Cash and cash equivalents 32.5 21.9 25.6
--------------------------- ------------- ------------- -------------
Total assets 310.4 269.5 251.8
--------------------------- ------------- ------------- -------------
Current liabilities 3.6 49.0 45.6
--------------------------- ------------- ------------- -------------
Long term liabilities 81.0 3.5 0.5
--------------------------- ------------- ------------- -------------
Total net assets 225.9 217.0 205.8
--------------------------- ------------- ------------- -------------
The Company's full Financial Results for the Year Ended 31
December 2014 can be found at the following link:
http://www.rns-pdf.londonstockexchange.com/rns/3701I_-2015-3-24.pdf
The Company has filed copies of its audited financial statements
and management discussion and analysis in respect thereof for the
year ended 31 December 2014. These documents can be found for
viewing by electronic means on the System for Electronic Document
and Analysis Retrieval at www.sedar.com
ENQUIRIES:
+44 (0) 1483 549
Xcite Energy Limited 063
Rupert Cole / Andrew Fairclough
+44 (0) 203 100
Liberum (Joint Broker and Nomad) 2222
Clayton Bush
+44 (0) 207 425
Morgan Stanley (Joint Broker) 8000
Andrew Foster
+44 (0) 203 772
Bell Pottinger 2500
Henry Lerwill
Glossary
"2P" means proved plus probable Reserves.
"MMstb" means millions stock tank barrels.
"NPV10" means net present value in money of the day using a 10%
forward discount rate, which values do not represent fair market
value.
Forward-Looking Statements
Certain statements contained in this announcement constitute
forward-looking information within the meaning of securities laws.
Forward-looking information may relate to the Company's future
outlook and anticipated events or results and, in some cases, can
be identified by terminology such as "may", "will", "should",
"expect", "plan", "anticipate", "believe", "intend", "estimate",
"predict", "target", "potential", "continue" or other similar
expressions concerning matters that are not historical facts. These
statements are based on certain factors and assumptions including
expected growth, results of operations, performance and business
prospects and opportunities. While the Company considers these
assumptions to be reasonable based on information currently
available to us, they may prove to be incorrect. Forward-looking
information is also subject to certain factors, including risks and
uncertainties that could cause actual results to differ materially
from what we currently expect. These factors include risks
associated with the oil and gas industry (including operational
risks in exploration and development and uncertainties of estimates
oil and gas potential properties), the risk of commodity price and
foreign exchange rate fluctuations and the ability of Xcite Energy
to secure financing. The Company disclaims any intention or
obligation to update or revise any forward-looking statements
whether as a result of new information, future events or otherwise,
except as required under applicable securities regulations.
Neither the TSX Venture Exchange nor its Regulation Services
Provider (as that term is defined in the policies of the TSX
Venture Exchange) accepts responsibility for the adequacy or
accuracy of this release.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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