The sale of the data package: an Xciting enigma

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AIM-listed Xcite Energy issued an RNS on May 20 in which it announced that it had sold a package of data in respect of Xcite’s main asset: the Bentley field. The price tag is US$15m and there will be a milestone payment of US$1m upon regulatory milestones achieved -interestingly- by the purchaser.

The data concerned the 9/03b-6 and 6Z wells, as well as the recently concluded 9/03b-7 and 7Z extended pre-production well test (carried out in 2012). A regulatory milestone could be, for example,  a field development plan approval by the UK Department of Energy and Climate Change.

A sale of data “complementary to the recently commenced farm-out process”, as per the RNS, is unusual for the industry. The farm-out would be in connection with the next phase of the Bentley field development expected to lead in production by late 2015 for which US$700m will be necessitated.

Since the RNS, speculation has been rife among investors and there are several theories trying to assemble the puzzle together in a way that would hold together the various pieces of information.

The conservative explanation would be that the data sale was in support of the regulatory approval process for a neighbouring field which hasn’t gone through the same extent of testing. The obvious example would be Bressay in which Statoil holds an 81.6% stake scheduled to come into production one to two years later than Bentley.

The more bullish ones have argued that it was a statement of intent in connection with a possible acquisition of Xcite.

None of the above accounts, however, fully explain the complementarity to the farm-out process.

A more elaborate explanation is that Xcite also has an interest in the data purchaser’s regulatory milestones. In other words, is it possible that the development plan for a neighbour’s now includes Xcite’s Bentley in anticipation of a farm-out or even an acquisition? The obvious rationale here would be important economies of scale.

If that latter theory proved correct, Xcite’s plans to bring Bentley into production in late 2015 could be delayed as the company would need time before it was able to fully assess the merits of tying the Bentley plan into that of another field. So the data sale could also serve the purpose of buying time for Xcite whose cash balance stood only at approximately £8m at the end of Q1 (net of any amounts held in escrow in connection with phase 1A payments).

The unfolding of events in the coming few months will no doubt shed some more light on this unexpected twist in Xcite’s route to farm-in and production.

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