Xcite Energy Limited Announces Results for the Year Ended 31
December 2013
ABERDEENSHIRE, UNITED KINGDOM--(Marketwired - Mar 27, 2014) -
XCITE Energy Limited (TSX-VENTURE: XEL) (LSE: XEL)
NOT FOR RELEASE, PUBLICATION OR
DISTRIBUTION IN WHOLE OR IN PART DIRECTLY OR INDIRECTLY IN, INTO OR
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Xcite Energy Limited ("Xcite Energy"
or the "Company")
Results for the Year Ended 31
December 2013
Xcite Energy announces its results for the year ended 31
December 2013.
Highlights
- Material uplift in Bentley 2P oil reserves from 116 MMstb to
250 MMstb in April 2013, subsequently revised to 257 MMstb of 2P
oil reserves in February 2014.
- Signing of a memorandum of understanding with AMEC, setting out
commercial principles for future cooperation to support the
development of the Bentley field.
- Sale of technical well data for US$15.0 million (£9.8 million)
to a third party, contributing to an overall profit for the year of
£6.6 million.
- Strengthened balance sheet, with new debt financing of US$80
million unsecured 12.5% loan notes, with repayment in full of the
existing US$60 million unsecured 14% loan notes. Cash balance at
year end of £21.9 million.
- Continuation of the process to secure a development partner for
the Bentley field.
- Development of commercial principles with industry service
providers to share the financing, risk and reward of the Bentley
field development.
- Received confirmation of extension to Licence P.1078 from the
Department of Energy and Climate Change on the Bentley field until
31 December 2016.
Commenting on today's announcement Rupert Cole, Chief Executive
Officer, said:
"2013 has been another year of significant effort and progress
for Xcite, as we have adapted to challenging market conditions and
remained innovative in pursuit of a viable development plan for
Bentley. I am equally pleased with the start of 2014 following
confirmation of a material licence extension from DECC, which will
support our plans, together with important industry interest, to
bring them to fruition. Our substantial Bentley asset value remains
and I believe that we shall now be able to leverage that value to
commence development of the field."
Chairman's Review
2013 was another successful year for Xcite Energy, with steady
progress towards development of the Bentley field. It may not have
had the overt excitement generated by the pre-production extended
well test ("EWT") completed in 2012, but it represented another
milestone for the Company, as the analysis and evaluation of the
information gathered during the EWT led to material upgrade of 2P
reserves from 116 MMstb to 250 MMstb, early in the second quarter
of the year and subsequently to 257 MMstb in early 2014.
If I put Bentley into some context, the average UKCS discovery
size over the past ten years has been 25 million barrels of oil
equivalent and 90% of current fields in production on the UKCS are
producing less than 15,000 barrels of oil equivalent per day1. At
ten times the average size of a UKCS discovery, Bentley is
currently expected to have an economic field life of 50 years and
modelled to produce approximately 15,000 barrels of oil per day
after 17 years of production and approximately 8,500 barrels per
day after 35 years of production. As such, Xcite Energy believes
Bentley is a major development-ready asset of significant
importance to the UK North Sea.
Offshore heavy oil remains a relatively new development concept
in the North Sea and, as an independent company, we need to focus
on being able to deliver a cost effective and robust development
plan. The main purpose of the EWT was to achieve the key technical
and commercial objectives, which would provide us greater certainty
around that plan and enable us to materially reduce the overall
project risk. Following the successful EWT, we can now demonstrate
that the reservoir can be drilled and completed successfully, that
water production is predictable and manageable and that the oil
will flow to surface at sustainable commercial rates. We have
proven the methodology to dehydrate the oil to export quality on a
floating storage vessel which, together with an effective in-field
blending strategy, will allow the Bentley crude to be exported
directly to the market. The EWT data also allows us to continue
optimisation of the development plan and undertake further enhanced
oil recovery ("EOR") work programmes. This greatly increased
knowledge was also important to help address a changing industry
environment, which has seen a shift in the allocation of
development budgets and a tightening of available human resources,
both of which have had a clear impact on major new development
projects.
A changing environment in the UK North Sea
As we engaged with potential development partners from the
middle of 2013, we have confirmed the value of the EWT and
validated our understanding of the Bentley field. We believe the
EWT was a well-planned and thorough project, which produced high
quality data and supported an efficient development plan. The
reservoir successfully withstood technical diligence and the phased
development plan, we believe, remains the most appropriate approach
to develop the field. Overall, the EWT supported management's
belief that Bentley is a substantial oil field, with a long field
life and a high quality reservoir; there are few such opportunities
available in the North Sea.
During the course of this past year we have seen a reduction in
resource allocation in the North Sea, as many major oil companies
have come under pressure to restrict their development spend. This,
combined with escalating costs, has recently led to delays to a
number of major projects. Human resources, as already noted, has
continued to be a constraint in the basin, with many oil companies
having full project pipelines and limited spare capacity to manage
new projects. Furthermore, both existing participants and new
entrants to the North Sea appear to be seeking existing production
or developing fields through existing infrastructure, rather than
making new capital commitments to large, standalone
developments.
Against this market backdrop, it was important to provide
potential development partners with as much data and information as
possible and to pursue a range of potential funding routes in order
to be able to continue moving Bentley towards development. These
included discussions beyond oil companies to major industry service
providers, for whom the size, long field life and predictability of
Bentley offer the opportunity to participate in material, long term
contracts.
Progress through innovation
Discussions with industry service partners are progressing and,
while a number of farm-out discussions continue, progress is slow,
and our emphasis is now moving in favour of a development partner
solution which we can influence and direct. This approach would
engage key industry service providers to help fund and supply key
resources for the development plan, such as the floating storage
and offtake vessel, project management, drilling rig and drilling
management services, in return for incentivised contracts which
would potentially deliver enhanced returns based on agreed
performance targets. In the current market, we believe that this
approach enables us to progress Bentley without compromising any
farm-out discussion.
We remain focused on monetising the inherent value of Bentley
and nothing we have learned has undermined our confidence in the
field or in our development plan. Our conviction remains that we
have a viable, cost effective and efficient approach to developing
Bentley in the current environment and we shall maintain our
flexibility and innovative approach to progress the field
development plan.
In 2013, your management team worked hard to develop a range of
options and to create a strategy that accommodates all our
potential development partners. We look forward to evolving this
strategy and will update the market as we show material
progress.
1Source: Wood Mackenzie submission to the Wood Review, September
2013
Chief Executive's Review
Overview of 2013
2013 saw further progress for Xcite Energy as we expanded our
resource base, secured an extension for the Bentley licence into
2014, substantially increased reserves, advanced the development
plan of the Bentley field, provided short term financial stability
and progressed the longer term financing options for the Company.
2014 has commenced with real purpose, with confirmation of our
existing reserves and field economics despite an increasing cost
base and reduction in the near term future oil price assumptions.
We have also received confirmation of a material licence extension
on Bentley until the end of 2016.
In March 2013, we were formally awarded licences over blocks
9/4a, 9/8b and 9/9h, through the 27th Licensing Round. These
prospects lie to the east and south of Bentley and are a deeper oil
play in the Lower Palaeocene, Maureen Sandstone which we believe
may contain a lighter crude. In the event that these prospects
prove to be commercial discoveries, they are close enough to be
tied back into Bentley and would support Xcite Energy's current
strategy to use the Bentley infrastructure as a hub to develop the
surrounding prospects in a cost effective manner during the phased
development programme. This lighter crude could be used as a
diluent for the Bentley crude during production. That same month,
we also received an extension over the Bentley licence until 30
September 2014. We have worked closely with the Department of
Energy and Climate Change ("DECC") in recent months, and have
received confirmation of a material extension to the Bentley
licence until 31 December 2016, in order to facilitate the
continued progress of the Bentley field towards production.
April 2013 saw the release of our independent reserves
assessment report ("RAR") after the successful extended well test
("EWT"), effective as of 31 December 2013, which upgraded our 2P
reserves from 116 MMstb to 250 MMstb over a 35 year facilities
life, with an additional 46 MMstb mean contingent resources
assigned to production beyond the first 35 years, and mean unrisked
aggregate prospective resources of 97 MMstb in our nearby
prospects. This was recently updated in our independent RAR dated
25 February 2014, with a small increase in 2P reserves to 257 MMstb
and mean contingent resources to 48 MMstb. These increases arose
from preliminary optimisation to increase offshore fluid handling
capacity, offset by costs being inflated by approximately 3.5% and
the forward assumed oil price decline of approximately 2%, to
deliver an NPV10 (after tax) value for 2P oil reserves of
approximately $2.1bn. Prospective resources remained unchanged in
the current RAR.
Over the year we have been optimising the field development
solution, with a view to maximise economic recovery and reduce the
risks associated with the development plan. This work continues and
covers all technical and commercial aspects of the project
development; from the reservoir, focusing on optimal spacing and
positioning of wells, up to the pump where capacity and
multi-lateral well configuration will have an impact on flow rates,
then on to the platform where fluid handling and processing
equipment will influence production, and finally to the floating
storage and offtake vessel ("FSO") where dehydration, diluent and
market offtake requirements were demonstrated by the EWT. Early
results from the initial enhanced oil recovery ("EOR") laboratory
studies have been encouraging and have supported the potential for
EOR to play an important role in the ultimate recovery from the
Bentley field. An EOR pilot programme has been included in the
First Phase Development plan to further assess and quantify the EOR
opportunity.
The success of the Bentley EWT enabled the sale of the
associated data in May 2013 for $15 million. The value of this data
was further highlighted when Statoil referred to its interpretation
of the EWT data from Bentley in its decision to re-evaluate the
development concept for the Bressay field, the neighbouring
analogue to the north of Bentley, and to delay its field
development decision. Statoil stated that the data had given
positive indications that there was potential to simplify the
concept and investigate alternative development solutions. We
continue to work with them to support analysis of the data and its
application to Bressay, as we believe that there are significant
potential benefits from collaboration in any future wider area
development.
In June 2013, we signed a memorandum of understanding ("MoU")
with AMEC, setting out commercial principles for future cooperation
to support the development of Bentley. AMEC's expertise and track
record in delivering major UKCS offshore and heavy oil projects
will, we believe, complement Xcite Energy's own skillset to deliver
a best-in-class development solution.
During the summer, we submitted an Environmental Statement
("ES") to DECC for public consultation. The feedback received will
be addressed in due course, but we do not consider that it will
have a material impact on the current development concept. The ES
is one of the key components of the overall Bentley field
development plan ("FDP") and will be finalised prior to the final
submission of the formal FDP for approval, which will include a
demonstration of the technical capability and financial capacity of
the development partners.
Towards the end of 2013, we concluded a re-financing of the
outstanding loan notes, replacing them with $80 million unsecured
12.5% loan notes, with a term of 360 days.
We have also been working with existing and new banks on an
increased reserves based lending ("RBL") facility, founded on the
2013 development plan and increased reserves base to replace the
existing facility, which was based on the 2012, pre-EWT development
plan and reserves base. We do not currently intend to enter into a
new facility agreement until we have progressed the farm-out and
development partner discussions, which would enable us to more
accurately assess the overall financing required.
The commercial development model
A substantial part of this past year has been devoted to
preparing Xcite Energy and the Bentley field for the process to
find a development partner, as explained in the accompanying
Chairman's Review. We were diligent and thorough in our preparation
of the information to be used and maintaining flexibility and
generating viable options were key priorities. We have also been
conscious of the clear and significant changes in the market
environment and have sought to adapt to those as we progressed.
With the promoting of Bentley within our control, and external
market forces outside of it, we saw benefit in extending our
discussions beyond conventional oil companies into the major
industry service providers. A number of these organisations have
expressed an interest to work with us, based on a risk/reward based
commercial structure, with the catalyst from our perspective being
the successful EWT outcome. We believe that combining the current
development-ready status of Bentley, with the potential returns
driven by the size and longevity of the field and the limited
number of major development opportunities available in the North
Sea, has encouraged a number of the major industry service
providers to actively engage with us.
As these discussions have matured, we have identified what we
believe to be a flexible and cost effective commercial operating
structure, in which these potential development partners would
provide their respective assets and services in return for long
term contracts with Xcite Energy, and the opportunity to
participate in performance related upside. The costs of key
components of the project such as the FSO, platform and topsides,
project management, drilling rig and drilling management services,
could potentially be phased to align with the cashflows generated
by the first phase development. Importantly, we believe this
structure remains compatible with any future farm-out of Bentley
and, as we continue to define and reduce the front-end cash
requirements, may enable us to re-engage with parties who currently
have material capital constraints.
Outlook
Over the coming months, we plan to select our key preferred
development partners and commence engineering programmes to more
accurately define the development concept with a view to signing
binding contracts with them for the project execution phase
following approval of the FDP. In addition, we shall continue to
work to clarify the funding requirement for the Bentley
development, taking into account the relevant contributions from
each partner in the development group, and evaluate the available
financing options to take advantage of the cash flows generated
during the First Phase Development, with the emphasis on debt
finance.
At each step in the appraisal of Bentley since 2007, we have
faced market disruption and economic challenges. In spite of this,
we have delivered Bentley as a strategic, de-risked,
development-ready North Sea asset with 257MMstb of 2P reserves. It
is clear to us that innovation has always been core to our
business, our team and our success, and we intend to continue this
approach with a view to securing a funded development plan for
Bentley.
I would like to add my thanks to the entire Xcite team, who have
once again demonstrated outstanding commitment and skills in the
last twelve months.
The following tables summarise the Group's performance in the
year ended 31 December 2013 and the comparatives for the years
ended 31 December 2012 and 31 December 2011.
|
|
Year ended 31 December |
|
Year ended 31 December |
|
Year ended 31 December |
Income Statement Information |
|
2013 |
|
2012 |
|
2011 |
|
|
£m |
|
£m |
|
£m |
Revenue |
|
- |
|
13.3 |
|
- |
Other income |
|
11.4 |
|
- |
|
- |
Net (loss)/profit |
|
6.6 |
|
(1.7) |
|
0.1 |
(Loss)/earnings per share (basic) in pence |
|
2.3p |
|
(0.7p) |
|
0.1p |
(Loss)/earnings per share (diluted) in pence |
|
2.0p |
|
(0.7p) |
|
0.1p |
|
|
Year ended 31 December |
|
Year ended 31 December |
|
Year ended 31 December |
Cash Flow Information |
|
2013 |
|
2012 |
|
2011 |
|
|
£m |
|
£m |
|
£m |
Net cash flow from operations |
|
(0.6) |
|
(9.5) |
|
(12.6) |
Net cash flow from investing activities |
|
(6.3) |
|
(127.5) |
|
(22.0) |
Net cash flow from financing activities |
|
3.2 |
|
98.4 |
|
62.8 |
|
|
As at 31 December |
|
As at 31 December |
|
As at 31 December |
Balance Sheet Information |
|
2013 |
|
2012 |
|
2011 |
|
|
£m |
|
£m |
|
£m |
Total assets |
|
269.5 |
|
251.8 |
|
152.8 |
Current liabilities |
|
49.0 |
|
45.6 |
|
9.5 |
Long term liabilities (deferred tax) |
|
3.5 |
|
0.5 |
|
0.5 |
Total net assets |
|
217.0 |
|
205.8 |
|
142.7 |
The Company's full Financial Results for the Year Ended 31
December 2013 can be found at the following link:
http://www.rns-pdf.londonstockexchange.com/rns/2976D_-2014-3-26.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 2013. These documents can be found for
viewing by electronic means on the System for Electronic Document
and Analysis Retrieval at www.sedar.com
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
ENQUIRIES: Xcite Energy Limited Rupert Cole / Andrew Fairclough
+44 (0) 1483 549 063
Liberum (Joint Broker and Nomad) Clayton Bush / Tim Graham
+44 (0) 203 100 2222
Morgan Stanley (Joint Broker) Andrew Foster +44 (0) 207 425 8000
Bell Pottinger Mark Antelme / Henry Lerwill +44 (0) 207 861
3232
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