Xcite Energy – broker Fox Davies suggests it is bid target

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I am not sure that anyone can call the share price of Bulletin Board Darling Xcite Energy (LSE:XEL) correctly. As such I make no comment on today’s results other than to republish a note from top broker Fox Davies and it is I who underline two phrases which grabs my eye. Clearly high risk/high reward. Over to the broker…

Xcite Energy – Long-term Delivery is (Always has Been) the Key Question: These results are not really the focal point, as it is what is to come that is more important. We have always said that we believe that the field will perform well enough in the first phases, but it is the longer-term performance that we have a concern with, more specifically, the operating costs juxtaposed against revenues (a function of crude price and production rate); we are not privy to the development plan, nor have we been given any insight in to the process the technical team have undertaken to mitigate any deterioration in the reservoir’s performance.

There is a question, however, whether it will even get in to production under the Company Xcite. M&A transactions are calling the bottom of the equity market as the equity values are not reflecting the underlying asset values, in which case the longer term performance will become somebody else’s issue.

In this news:

  • Safe and successful      completion of pre-production extended well test on the Bentley field,      producing over 149,000 barrels of Bentley crude which was sold to a major      refiner in Europe, to record the first revenue for the Group.
  • Pre-production extended well      test exceeded management expectations, successfully demonstrating      drilling, completion, production and export techniques, enabling the      development of a cost effective full field development solution, which      maximises the recovery of crude oil and associated economics.
  • Bentley field now      substantially de-risked and development-ready. Development can be      approached with a higher degree of certainty in terms of reservoir      performance, technical execution and financial outturn.
  • Signing of a US$155mm      Reserves Based Lending facility with a leading group of lending      institutions, which will form a substantial part of the funding      requirement for Phase 1B development of the Bentley field.
  • Strengthened balance sheet,      with new net equity capital financing of £63.4 million and new debt      financing of US$60 million during 2012. Cash balance at year end of £25.6      million.
  • Strengthened management team      and increased staffing levels, to support future project activity levels      moving into the development and production phase of the Bentley field.

Success in the 27th Licence Round provides new acreage to the Xcite Energy Resources Limited portfolio. Blocks 9/4a, 9/8b and 9/9h add four identified prospects to the future exploration and appraisal programmes in the wider Bentley area.

For a safer oil play but which still has real upside potential you might look HERE and HERE

Tom Winnifrith writes for 10 US and UK websites and can be followed on twitter @tomwinnifrith – you can also get links to all of his free articles on his own website www.TomWinnifrith.com

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