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Well... couldn't resist buying a few as a punt initially. Beside the risk of the well the other big risk I see is POO sensitivity.
If the well succeeds, substantial funding for CAPEX will be needed (though this is spread over a considerable period of time and to some extent can be funded from cashflows). Looking at the quotes in the Arbuthot note from the CPR, the IRR & NPV looks fine - at $80 oil. However, should the POO slip back it may be hard to obtain project finance.
From the CPR, I note that horizontal drilling will be neded to get decent flows, which has to be proven (but a 70% CoS is ascribed). The OPEX forecast looks to be around $20/bbl, so a drop to say, $60 oil would impact the economics significantly.
It'll be interesting to watch this story develop.
Cheers,
Mark
oil barrel presentation at www.oilbarrel.com
throws some light on the alliance but stil not clear
RG
I asked Charles Lucas Clements after lunch at Oilbarrel (hall was empty and most had gone home so there was just myself (and another mate of mine) who were chatting to him) how the Alliance would work, how do the service companies get paid ..etc..
He said that the way the Alliance works is that a certain proportion of agreed uninvoiced services that are provided by AMEC, Transocean, Fugro ...et al are allocated a certain value which, as an alliance member, equates to a % of Excite's Energy's value.
The Alliance members have opted to not invoice for some/all of their services or assistance/costs and in return they will retain that same % post drill of hopefully a much more valuable company. Obviously as these members have some money at stake here then they would allocate their best staff/personnel to the job as well so a win-win both for XEL and for the potential ROI's of Alliance members.
I didn't ask how much of the Company these members currently "own" between them and in what form (shares, options...etc) so I dont know how it all fits together. So in that respect its is a bit hazy and typical of something put together by a bunch of engineers all eager to just get on with things..
JPGH
I am certain that the Ardmore field (Tuscan) was developed in a somewhat similar fashion via the rowan gorrilla rig.
It did not end well, and perhaps some lessons have been learnt on service companies taking risk.
http://www.oilvoice.com/n/Ardmore_ReDevelopment_Upadata_Administrative_Receiver_Appointed_For_Acorn_North_Sea_Limited/ec6765c6.aspx
Regards,
FH
nb have xel in my ISA
Hi,
I've just started reading up on Xcite and have a rather basic question, if anyone can help?
Xcite plan on drilling a well in June/July which should confirm commerciality on Bentley and allow them to book reserves. The COS has been independently assessed in the CPR as 70% and may be higher as the company have completed a 3D seismic since it was published. The Arbuthnot note frequently highlights the importance of this well and stress that Bentley is much more of a development play than an exploration one, which is encouraging. BUT, if this well failed to get a commercial flow, where would this leave the company?
Without meaning to come across as a drama queen; Would that mean the whole field (and company, given that Bentley is their only asset) are uncommercial? Or just that Xcite would need to raise more cash for another well (as this one will swallow the £25m raised in the recent placing)?
I'm trying to get an idea of the downside if the next well failed. There are plenty of good reasons to be positive about their future but I just want to make sure I have a clear idea about how risky an investment it is, before possibly taking the plunge.
Thanks a lot.
Corkboy
I recently viewed Xcite’s presentation at oilbarrel and have invested within my ISA. There is a possibility that the upcoming well test fails to lead to a commercial flow rate. However I believe the reasons for being positive include
1) Heavy oil has not always been developed in the past as it is more expensive to do so. However with higher oil prices more heavy oil has been developed. With this there is an increased understanding of how to get heavy oil out of the ground. There has been an increase in the development of such wells recently, such as Bankers Petroleum for example. Developing heavy oil is not the 'Black Art' that some think it is.
2) Xcite seem to have a good team of technical people who know their stuff (spoke for a while with one of the technical directors) and have put together the Bentley alliance which gives Xcite access to a larger pool of engineering manpower and knowledge.
3) The engineers working on the current project worked for Conocco Phillips on the original project so should be extremely familiar with previous test work, issues they faced and how to resolve them etc.
4) The reservoir has good permeability
5) The company has predicted some worst case physical properties. Oil has been developed before with these properties. The Competent Persons Report provides some analysis of the viscosities, permeabilities and implied mobilities.
If the well test does not lead to a commercially viable flow rate then what will happen will depend upon how ‘bad’ the test result is. There are a number of alternative technical options available to them (I am not a guru in the art of drilling wells. I am a process engineer!). They may need to drill more wells than previously anticipated thus increasing the capital expenditure. Without question they would need more funding for the next stages. So… the test may not give a simple yes or no answer but the road to a full field development would definitely become costlier and take longer to develop.
At least we know the oil is there, there is a market for it and it is in a politically stable (well for the most part) country. Xcite is a ‘one trick pony’ and there is an element of risk but IMO it is one of the less risky plays if there is such a thing!
This is my first post. I am not sure if it is of much use but maybe it will encourage others to add more if there is significant interest out there.
All the best,
Gladders
Corkboy
I refer you to the arbuthnot report which provides a detailed history of the previous wells drilled into this field - none of them have delivered a flow that could be described as commercial, but the reasons for that are well understood.
The key point is that the previous wells have proved the presence of oil, so that is not in question. The understanding of the geology is well advanced and Bressay provides a very good model which helps understanding enormously. According to arbuthnot the Bressay field is effectively an overflow/extension of Bentley so there are very close parallels there.
The most recent well failed to achieve a good flow rate because of problems resulting from dissolved gas which interfered with extraction. Same thing happened on Bressay and has apparently been resolved. XEL plan to use the same technical fix on Bentley.
So the whole point of the next well is to prove that the technical fixes devised since the last well do actually work in practice.
If the results disappoint then the implications/impact will depend on exactly what underlies the disappointment. If the well did not encounter any oil or the reservoir properties were not as expected then that would be astonishing and XEL would have to re-interpret the data and rebuild their model of the field - and then try again. But remember there have already been 5 wells and additional 3D seismic was shot last year, so XEL do know a heck of a lot about this field, so this is really very unlikely.
If the field and its contents turn out as expected but the flow rate is disappointing then the extraction technique will have to be reconsidered and a better methodology devised - then tried out. You;d expect that second attempt at extraction to be done on the same well - ie no need to drill another new well. So that would involve delay and some additional cost but nothing like the cost of driling a well.
Either way disappointing results ought not to mean the end of the project - just a delay and time for reflection.
Bottom line, I don;t think a disappointing result would kill the project.
However it would certainly trigger a retreat in the SP.
I expect to see a substantial rise before drilling results are out and I will be actively considering heavy top-slicing so as to take out my original stake as a risk mitigation strategy.
Seems to be some extensive buying today (up 7.8% @ 79), on the back of last weeks rise as well...Anyone have an insight as to the large sudden moves over the last three business days. Are people getting in ahead of the June drill?
Not really up to speed with this one but its been on the watch list since trading in the 50's.
Ta
New note out from Arbuthnot :
http://www.arbuthnotsecurities.co.uk/Research/id/3808
They have increased their low case NPV to 123p (from 76p) after factoring in the benefit from an annual field tax allowance of £160m. (As the CPR was published before the UK budget announcement, the terms were not included in the original economic analysis).
Base case NPV now 384p (was 328p).
FWIW, I added a few more recently at 70p. Nice rise in the shares today.
Cheers,
Chris
Couple of media snippets.
From The Times
http://business.timesonline.co.uk/tol/business/markets/article7124619.ece
May 13, 2010
In the know: RBS ... Lloyds ... Xcite
...........Tiddler to watch
Xcite Energy rose 12p to 78½p after Arbuthnot, its broker, told clients that the shares could go as high as 123p and urged them to buy. The North Sea oil company raised £25 million in March to fund test drilling at its Bentley field this summer. The company is working with BP, which will market its oil and provide $20 million of debt........
From the Daily Mail
http://www.dailymail.co.uk/money/article-1277913/MARKET-REPORT-Is-Jardine-prey-predator.html?ito=feeds-newsxml#ixzz0nmfbhfzg
.......Xcite Energy, which owns the Bentley Field in the UK North Sea, jumped 12p to 78.5p on an Arbuthnot recommendation and target price of 123p.....
Strong since the rig confirmed (drilling scheduled for mid Sept now with the Ocean Nomad)
Hoping for 100p to be touched during the drilling, and of course with good luck a lot lot higher after drilling success.
Canadian broker comment :
http://www.moneyam.com/InvestorsRoom/posts.php?tid=14549&from=236
.
Latest broker note is here by the way :
http://www.arbuthnotsecurities.co.uk/Research/id/4330
All set to go and "Ready for action".
.
Rather than post this on what next after Dana, where a number of people hold xcite, I will put this here:
Any word on the spud for the Ocean Nomad-thought it was mid september?
Looking out of my window reminds me why I would have preffered a true summer spud. I hope they get a clean run at the testing window to remove any ambiguity once and for all.
Xcite state that the switch from a jackup to a semisub gives them greater option's in drilling the well,but I would have preffered a jackup for testing/ offloading any oil produced.
The recent fundraising has allowed them to switch to a semi sub and drill a pilot hole to gather data and place horizontal.
They are also looking for evidence of a tar mat at the base of the hydrocarbon column.
I think my main problem is that successful heavy oil tests are not new-Mariner and Bressay both had them yet are still undeveloped.
FWIW I am out of xcite feeling the result will be a binary one (as it needs to be hugely positive to attract the development capital) , and therefore holds a lot of risk, and is to much of a gamble.
FH
Nice spike this morning in XEL I see :)
Looks like some of the Dana money is finding a new home.
Morning FH
Well we came in on the placing (one of the biggest participants AIUI) and weve just finished a slice exercise so weve recovered virtually all our cost and will let the rest run for free.
Not entirely convinced about the deliverability fo the reservoir but the story is good enough for a run. Expanding the drilling programme looks very sensible in terms of data recovery and possibility of the EPS. Its a good story and the BB crowd like it so lots of PI interest (as reflected int he rise in the past 48 hours driven by the PI dominated SCAP and WINS action.
http://www.iii.co.uk/articles/articledisplay.jsp?article_id=10118476§ion=ShareDealing
Stock to Watch: Xcite Energy
Edmond Jackson
20.09.10 12:41
This article ............
http://www.thisismoney.co.uk/investing/share-tips-and-fund-tips/article.html?in_article_id=515476&in_page_id=23&position=moretopstories
Investment extra: Hang on to Xcite Energy
By Ian Lyall
25 September 2010
Xcite Energy is living up to its name. The shares ha.................