Xcite Energy secures offtake deal and US$20 mln financing from BP for Bentley oil field

Xcite Energy Ltd (TSX-V, AIM: XEL), a developer of heavy oil assets in the UK North Sea, said its unit Xcite Energy Resources Ltd (XER)  has secured an offtake agreement with BP Oil International Ltd, under which BPOI will sell the crude from XER’s Bentley field in return for an incentive-based fee per barrel.

The offtake fee is directly related to the realised price achieved by BPOI for the Bentley crude oil in relation to the prevailing Brent crude price, incentivising BPOI to maximise the price per barrel achieved for XER by minimising the discount to Brent crude.

BPOI have undertaken that when Xcite moves to full field development, an associated BP company will procure US$20 million of financing from a commercial bank for Xcite with credit support from BP PLC (LSE: BP), for the purpose of assisting with the full development of the Bentley field, the terms of which will be negotiated in due course.   

Xcite CEO Richard Smith commented: "We are delighted to welcome BP Oil International as our offtake partner in the Bentley field. This is a relationship that brings the global resources and expertise of the BP oil trading organisation to manage the marketing and selling of the Bentley crude, together with assistance in financing the work programme as we move towards first oil on the field. This is another watershed for the company, which underpins the value of Bentley crude through field life and significantly progresses the plan for development."

Xcite will be drilling the first development well in the Bentley heavy crude field in the current first quarter of 2010. Last October it announced reaching an agreement with Fugro Well Services Ltd to drill and test the well, called  9/3b-R, on a risked basis. Fugro will bear a material percentage of the cost of the well in return for a commitment to be engaged to carry out future work if the well is successful. Fugro has joined the Bentley Alliance, a management and operational structure created by Xcite to direct the Bentley field into full field development.

The Bentley field is among the largest undeveloped heavy oil prospects in the North Sea. Its resource estimate was last year upped to 690 million barrels of oil (mbo) with the upside at nearly 890 mbo following a 3D seismic survey.

The most likely aggregate contingent and prospective resources stand at 160 million barrels, valued at US$1 billion at a flat price of oil of US$80/barrel, while the upside estimate puts its overall value at US$2 billion.

Arbuthnot in December 2009 initiated coverage of Xcite,  giving it  a ‘strong buy’ rating and setting the target price at 133 pence, which still more than favourably compares to the stock’s current value of 49.50pence.

The broker said that projects like the “extremely undervalued” Bentley viscous oil field give the oil and gas industry the opportunity to boost reserves and further extend the productive life of a very mature oil province in decline, foreseeing a significant increase in investment into such projects.http://www.proactiveinvestors.co.uk/companies/news/12692/xcite-energy-secures-offtake-deal-and-us20-mln-financing-from-bp-for-bentley-oil-field-12692.html