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Xcite Energy reserves upgrade confirms group’s expectations, says FD Cole

The recent changes to the Bentley field development plan, which was subsequently reviewed by the Department of Energy and Climate Change (DECC), provides the basis for today's revised reserves estimate, finance director Rupert Cole told Proactive Investors

Xcite Energy (LON:XEL, CVE:XEL) today unveiled an upgrade to the Bentley field oil reserves that increased 2P reserves from 28 to 116 million barrels of oil.

These reserves are estimated to be worth US$1.46 billion, Xcite said.

The recent changes to the Bentley field development plan, which was subsequently reviewed by the Department of Energy and Climate Change (DECC), provides the basis for today's revised reserves estimate, finance director Rupert Cole told Proactive Investors.

In December, Xcite revealed a new approach to the development, splitting the first stage production work programme into two parts - Phase 1A and Phase 1B. Earlier this month the Department of Energy and Climate Change (DECC) provided its view of the plan for Phase 1B and Phase 2.

The confirmation that the DECC was broadly satisfied with the new development plan allowed Xcite’s consultants, TRACS, to upgrade the 2P reserves in today’s audit, Cole explained.

"Today's report confirms what we've been expecting, with 116 million barrels in the core area and it is good that we've crossed that line now," Cole said.

The new report addresses the shortfall, perceived by some investors, in reserves following last year's reserve report.

Prior to that report Xcite shares had been one of London AIM market's top performers but a subsequent change in investor sentiment saw the shares drop dramatically from around 330p (521 Canadian cents) to as low as 79p (125 Canadian cents).

"The company’s valuation based on the reserves is important and we hope that this is going to be reflected now."

He adds: "A great deal more work has been done for the field development plan and there is a greater degree of certainty that comes with that," Cole said.

“This additional work done after the reserves report in May last year has been important for TRACS and DECC.”

Phase 1A is expected to begin shortly. This will see Xcite drill two development wells and carry out an extended production test, which is expected to last 90 days in total. This is a technical test, not a headline flow rate test, with around 30 days flow being expected to confirm and calibrate the reservoir model.

Cole says the Rowan Norway rig is set to leave the port of Dundee imminently, depending on weather conditions.

"We are looking at the weather at the moment. If there is an opportunity then it is probable that we'll be making a move."

As such, Xcite remains broadly on schedule to start drilling operations around the end of February, Cole added.

Last week, Xcite hosted an analyst and media day in Dundee, where the newly built Rowan Norway rig is currently moored ahead of a development drilling programme.

Analysts were told that two wells will be drilled and a 90 day production test will be completed as part of the programme.

It is believed that Xcite may be able to start work on the first development well at some point this month. That requires approval from the DECC. The rig was inspected by DECC last Wednesday.

Xcite shares shot up over 40 per cent in opening deals this morning to trade at an intraday high of 205p, although some profit taking has seen the price pull back.

At 9:20am in London, Xcite shares were up 13p (21 Canadian cents), or 8.5 per cent, trading at 167.75p (265 Canadian cents) each.

The stock was the top performer on AIM last week gaining around 90 per cent to trade as high as 187 pence each.