Xcite Energy starts operations at Bentley oil field pilot well in UK North Sea

The well is targeting the largest undeveloped heavy oil field in the region, estimated to contain 160 million barrels

Xcite Energy (LON:XEL,TSX-V: XEL) said that drilling operations have begun on the 9/3b-R pilot well on the Bentley field in the UK North Sea.

The well is targeting the largest undeveloped heavy oil field in the region, and management's base recovery estimate for Bentley is 160 million barrels of oil. Reassessment of 3D seismic had prompted Xcite to raise the estimate from the previous independently assessed contingent resources of 122.5 million barrels on a most likely basis.

The group announced today that the Ocean Nomad semi-submersible drilling rig has arrived on location and that the 65 day well programme has commenced. It has also contracted Knutsen OAS (UK) Lrd to provide an offtake tanker to store well products from the planned well test.

Xcite holds 100 percent working interest in the field.

By drilling a slant pilot well through the reservoir, Xcite expects to optimise horizontal well placement, whilst collecting a range of data to assist the planning of the First Stage Production (FSP) programme.

The well will then be suspended for re-use at a later date as part of the FSP, which would potentially provide early oil revenues and consequently reduce funding requirements for the production programme. Subsequently this off-take will be sold to Xcite’s partner BP (LON:BP) - who will also conduct blending and refinery tests on the Bentley oil.

With the support of its development partners, collectively known as the Bentley Alliance, Xcite has been making rapid progress in the development of the Bentley field over the past year.

Should the resource be converted to 2P (proven and probable) reserves, Xcite would become the third largest independent producer in the North Sea.

Only yesterday, Xcite secured up to £20 million in new capital with a deal for an equity line facility. It entered a Standby Equity Distribution Agreement (SEDA) with an investment fund managed by Yorkville Advisors, the YA Global Master SPV Ltd.

"This SEDA facility is a very useful part of our funding options,” Xcite Energy chief executive Richard Smith said. “We are very pleased to have the independent financial capacity that Yorkville can provide at this vital time in our corporate development."

Xcite plans to use the SEDA funding to assist its future working capital requirements, and to avoid delays as it progresses towards the first stage production of the Bentley field.

In a recent interview with Proactive investors chief financial officer Rupert Cole confirmed that the Bentley oil field has 3 value creation points with major announcements due in late October or early November. Xcite Energy has BP as a significant partner and stated their arrangements are not under threat despite BP’s current issues. Cole expanded on the early production system of 15,000 bopd ramping up to 60,000 - 80,000 bopd in future years.

In an update from Arbuthnot Securities earlier this month oil and gas analyst Dougie Youngson said Xcite is wrongly perceived to be an exploration play, whereas in reality it is a development story. In the note entitled “Ready for Action”, Youngson looked ahead to Xcite’s upcoming work programme at the Bentley field and said that a lot of the Bentley field’s risks have already been removed, “In our view, a positive result from the next well will warrant a re-rating for the company both in terms of its asset base and its future potential.”