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The share price of Xcite Energy (LSE:XEL) jumped 28.6% on the day, following the announcement that “its 100% owned subsidiary, Xcite Energy Resources Ltd (“XER”), has entered into a Collaboration Agreement with Statoil (U.K.) Ltd. (“Statoil”) and Shell U.K. Ltd. (“Shell”), which allows all the Parties to make available and share field-specific technical and operational information for the evaluation of potential synergies and collaboration between the Bentley and Bressay Fields.”
While I’m reasonably certain that blokes were not falling backward off their pub stools as the crawler made its way across BBC News screens, it sure did get an overwhelming response from investors who were paying attention, for not only did the share price spike to 82.00 from yesterday’s close of 63.75, it did so on the strength of a volume of nearly 5.9 million shares traded leading the AIM All-Share Index.
For a stock that has taken some lumps recently, having traded as high as 125.0 on 24 September 2013 and having dropped to 60.25 on 31 March 2014, the company’s announcement today may have turned out to be with wind beneath its wings that it has been needing.
Some have called Xcite “an oil minnow,” implying that it is swimming with sharks in a very big pond. To some extent, this is most certainly true, when you compare its £240.11 million market cap with the likes of Shell at £92,357.38 million. Xcite may be a minnow, but it is a smart minnow; smart enough to swim alongside Shell and Statoil. In fact, it’s almost certain that an oil minnow would have an extremely difficult time surviving entirely on its own in the turbulent North Sea. Even some larger fish have moved to quieter waters in hopes of gaining more production with significantly fewer difficulties.
The agreement is really huge news for Xcite, giving it access to important information that would otherwise be very difficult to obtain – information that could be critical to its success, and even to its survival. Although we aren’t privy to the details of the agreement or what ultimately brought it to pass, it is evident that each party expects that the synergies wrought as a result of the pact will be beneficial to all concerned.
A good deal of how attractive North Sea exploration and development will be in the future – for anyone – depends on the results of the upcoming Scottish referendum. But here’s my take on the effect of that, regardless of the outcome: It’s much better to have a big fish as a friend when the water gets rough. This deal could be the biggest thing in Xcite history. Savvy shareholders have already recognized that.
