Xcite Energy (LSE: XEL) released yet another encouraging piece of news today regarding the development of its Bentley oil field.
The company announced that it had entered into a Memorandum of Understanding with Aibel AS, setting out the principles for executing the engineering, procurement and construction of the ACE offshore platform selected for the Bentley field.
This is yet another step in Xcite’s plan to prepare the Bentley field for production. Indeed, the agreement comes at an exciting time for Xcite, as the company has signed a number of similar agreements over the past few months.
Making progress
For example, last month Xcite raised around $140m from investors, to refinance $80m of existing debt, as well as general corporate expenses and Bentley field development.
Further, during May the company revealed that it had entered into a collaboration agreement with Statoil and Shell, allowing the parties to evaluate potential synergies between the Bentley and Bressay Fields.
And, over the space of the last 12 months, Xcite has signed an offtake agreement with BP, a memorandum of understanding with AMEC for the development of the Bentley field and another memorandum of understanding with Teekay Shipping for the provision of shipping services for Bentley field infrastructure.
So, Xcite has all the building blocks in place for the development of Bentley. But what’s next for the company?
The waiting game
It is unlikely that Xcite will be able to develop the Bentley field on its own. Based on the cost of other developments recently commissioned within the North Sea, the development of Bentley could cost upwards of $1.5bn — more than Xcite could ever afford.
Realistically, Xcite has two options open to it. Either the company farms out the Bentley field to a peers with deeper pockets, or Xcite puts itself up for sale.
Unfortunately, it is widely believed that Xcite is unlikely to receive any takeover or joint-venture offers to develop the Bentley field, until the Scottish referendum has taken place.
With this being the case, it would appear that investors have a long wait ahead of them before Xcite’s full potential is unlocked.
However, according to my figures the value of Xcite’s oil & gas reserves currently stands at around $2.1bn, or £1.2bn after tax. Significantly above Xcite’s market capitalisation of £207m, so it could be worth the wait.
Risky business
Of course, whether you decide to buy, sell or hold Xcite is a decision only you can make.
Nevertheless, Xcite’s performance over the past few weeks has been disappointing to say the least and it will be a long time before the company can bring its Bentley field into full production.
One thing that investors need to remember is, that the oil business can make you rich but it can also make you poor. Indeed, while the Bentley could prove to be a winner for Xcite, it could also be a flop.
