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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