Xcite Energy Limited Full Year Results (6667S)

TIDMXEL

RNS Number : 6667S

Xcite Energy Limited

21 March 2016

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LSE-AIM: XEL

21 March 2016

Xcite Energy Limited

("Xcite Energy" or the "Company")

Results for the Year Ended 31 December 2015

Xcite Energy announces its results for the year ended 31 December 2015.

Highlights

 
 --   Revised Reserves Assessment Report (RAR) as at 31 
       December 2015, delivering unescalated, full field, 
       life cycle costs reduced to $30.29 per barrel, an 
       increase in 2P reserves to 267 MMstb and an NPV10 
       of approximately $2.5 billion. 
 --   Extension of the Bentley field P.1078 licence to 30 
       June 2017. 
 --   Progressing development funding proposals, which remain 
       subject to agreement of commercial structuring and 
       due diligence. 
 --   Initiated discussions with principal bondholders to 
       develop financial flexibility in advance of Bonds 
       maturity due on 30 June 2016. 
 --   Completed delisting from TSX-Venture Exchange on 30 
       September 2015. 
 --   Continuing cost reduction programme to reduce administrative 
       overheads. 
 --   Agreement to farm-out an interest in the P.1979 Licence 
       with Azinor Catalyst. 
 --   Profit in the year of $0.81 million reflecting reduced 
       overhead expenditure and a tax credit following positive 
       changes to the UK fiscal regime for the offshore oil 
       industry during 2015. 
 --   Cash balance of $20.78 million, of which $8.34 million 
       ring-fenced for remaining interest due under the senior 
       secured bonds. 
 --   Change in functional and presentation currency to 
       US dollars to reflect the primary economic environment 
       in which the Group operates. 
 

Commenting on today's announcement, Rupert Cole, Chief Executive Officer, said:

"We've worked hard to be able to incorporate lower industry costs into the development plan and the updated RAR, which now gives us about $30 per barrel life cycle costs and an NPV10 of $2.5bn - a good result in current market conditions and important for us to continue to demonstrate the robust economics of the Bentley field. Given that the Bonds are due on 30 June 2016, we have engaged with our bondholders to develop financial flexibility for the Group, while we continue to progress with the indicative funding proposals we have received. In spite of these extremely difficult market conditions, we continue to work hard for all stakeholders so that Bentley can become a major contributor to future North Sea oil production."

Chief Executive's Review of 2015

2015 was about creating the commercial structures that we need to attract the development capital required to move forward with the Bentley project and repay the outstanding bonds.

As the Chairman has already highlighted, sentiment in the industry, particularly in the North Sea, is extremely negative and the majority, if not all, major oil companies have significantly reduced their capital expenditure programmes. This is widely regarded as the worst and most sustained downtown the industry has seen.

As we have said repeatedly, this industry backdrop is one of the reasons we have placed emphasis on our concurrent strategy to pursue development and asset funding options, while maintaining dialogue and processes with the more traditional sources of funding from industry partners. Whilst these routes have their challenges and we have had to adapt and flex the model, our efforts are gaining traction and, as announced on 18 February 2016, we have received indicative proposals for development funding to support the Bentley project.

These proposals remain subject to completion of commercial structuring and diligence, but we are working hard to convert them into a deliverable funding package, which would meet the project expenditure and the delivery of key assets, principally being the mobile offshore production unit ("MOPU") and the floating storage offtake ("FSO") facility, in return for long term leases, thereby reducing a significant part, if not all, of the upfront capital required for the project. It is a common financing structure to lease FSOs, but the mobile characteristics of the MOPU, as well as the reduced decommissioning costs of this type of asset, facilitate a leasing structure which is commercially attractive. We believe that this 'asset light' approach to developing projects is a good way to manage capital, particularly in the current market conditions. In conjunction with developing these funding proposals, we have invited a number of shipyards into a tender process in order to align yard selection with the funding strategy.

It should be noted that, as these proposals remain ongoing and there is still no certainty that any of them will result in funding being secured by the Group or, if funding is secured, the terms or timing of such funding, and as the Bonds are due for repayment on 30 June 2016, we have initiated discussions with our principal bondholders in order to develop financial flexibility for the Group.

During the latter half of the year, we successfully completed a technical review of the first phase of the Bentley field development with the Oil & Gas Authority ("OGA"), to ensure that aspects of the plan meet OGA's policy objectives to maximise the economic benefit to the UK of its oil and gas resources. This was an extensive and detailed process and is an important achievement for the Company, as it further reduced risk and uncertainty around the First Phase Development project for us and potential funding partners. The OGA has identified the Bentley Field development as a priority and we found their approach to be supportive and pragmatic; we look forward to continuing our good relationship with them as we progress towards Field Development Plan approval. The industry needs to adapt and develop new, innovative ways to re-vitalise the UK North Sea, and we see OGA as a key part of supporting and facilitating such initiatives.

We have also completed the pre-FEED engineering required at this stage to support the development concept, and the OGA technical evaluation demonstrated that we have done enough technical work to support a field development approval process which, importantly, has enabled us to demonstrate this to potential funding partners. These are important milestones, but we continue to look for opportunities to maximise the value and reduce the risk in the Bentley development plan.

One clear benefit of the current low oil price environment is the impact on costs across the industry. We believe that there is a significant opportunity to lock in the lower costs at this point in the cycle and subsequently capitalise on any upturn in the oil price once the project achieves first oil in approximately three years after sanction. We have done a lot of work with suppliers and contractors on all aspects of the cost base to reduce risk and improve cost definition and analysis as the basis for the revised quotes received. This has delivered reductions in capex, opex, drillex and decommissioning, and the latest reserves assessment report from AGR TRACS as at 31 December 2015, dated 17 March 2016, delivers an updated unescalated, full life cycle cost for Bentley of approximately $30 per barrel. The Bentley 2P reserves have increased slightly to 267 MMstb due to accelerated production in earlier years from a revised drilling strategy which, combined with the revised cost base and taxation changes, has more than balanced the impact of the lower McDaniels 1 January 2016 oil price forecast to generate an NPV(10) post tax valuation of $2.5 billion for the full field development. At a time when material asset value write downs are commonplace, we believe this is a further endorsement of the economics of Bentley field and the Xcite Energy development plan.

The coming period is clearly critical for the Company and its future and we are working extremely hard to deliver an executable development funding package. We cannot influence the oil price or the market conditions, but we can continue to pursue all the options available to us and we remain focused on delivering a funding package that enables us to apply for Field Development Plan approval. However, as noted above, as the Bonds are due for repayment on 30 June 2016 we have begun engagement with our principal bondholders in order to develop financial flexibility for the Group.

In the Bentley field, Xcite Energy has an excellent, long term asset which we have thoroughly appraised and understood. We have developed a cost effective development plan that is economically robust throughout the oil price cycle and which has been technically evaluated by the OGA; we believe there remains significant upside from further management of costs at this point in the cycle. These are some of the key features underpinning our pursuit of a development funding strategy, which is beginning to gain the traction needed in spite of the unhelpful economic backdrop. We will continue to pursue all the options available to us, as we believe that Bentley will be a major contributor to future North Sea oil production.

Going Concern and Basis of Preparation of Financial Statements

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