Xcite Energy shares advance after Bentley data deal

Xcite Energy (LON:XEL, CVE:XEL) shares advanced over 10% in London on Monday after it agreed to sell technical data from well tests on the Bentley field to an unnamed buyer for £10mln (US$15mln).

This comes just weeks after Xcite officially launched a farm-out process to find a development partner for the Bentley project.

In the statement, which also included the oil junior’s financial results, chief executive Rupert Cole said the transaction was ‘complementary’ to the farm out process.

“This has been done without compromising the company's intellectual property and is a good commercial outcome that provides additional working capital,” he said.

Once the binding agreement with the unnamed buyer is completed the cash will be added to the £20.4mln the group had on the balance sheet at the end of March.

The technical data deal is something of an unusual transaction.

Typically in a farm-out process, where a data room is set up, a potential partner wouldn’t pay to access technical information. Instead it would merely sign confidentiality agreements.

So, a potential partner paying £10mln upfront to find out more about the project could be considered to be a positive step forward, according to Oriel Securities analyst Peter Griffith.

“Someone has stumped up money to have a look [at the data], they wouldn’t do that if they weren’t serious,” Griffiths said.

In a call with Proactive Investors, Xcite chief Rupert Cole would not comment specifically on the potential ramifications in this regard.

However, he did point out that unlike information obtained via a data room, this information would have wider rights of use.

Analysts, however, believe the relevance of the data would be largely confined to the Bentley field, and it is most likely that the information is being bought by a potential partner.

Until a farm-out deal is announced, investors are left to come to their own conclusions about what exactly the buyer’s motivation is.

From an investor’s point of view, the value of the data beyond the context of the Bentley field is not known, and it remains to be seen whether the deal is in fact part of the buyer’s due diligence, and a precursor to making Xcite an offer.

VSA Capital’s oil experts describe the news as a positive step in the farm-out process.

“Whilst it is still a very early first step in the process it does show that there is interest from industry in this asset; however, it is no guarantee that a farm out will occur in the longer term,” the broker said in a note.

As is common for oil companies at this crucial phase in their development  Xcite’s results showed it was loss-making; for the first three months of 2013 the shortfall was £1.7mln.

However, the business’s economics were recently enhanced by an upgrade in reserves to 198mln barrels in the proven (1P) category and 250mln barrels and 312mln barrels respectively for the 2 and 3P reserve estimates.

Finally, success in the 27th licensing round in the North Sea added blocks 9/4a, 9/8b and 9/9h to the portfolio and, with them, four identified prospects to the future exploration and appraisal programmes in the wider Bentley area.