Xcite facing liquidation after bondholder blow

Future of Bentley field in doubt after debt for equity deal rejected

THE future of North Sea-focused Xcite Energy has been thrown into doubt after bondholders moved to liquidate the company.

Shares in Xcite, which has hit funding problems as it bids to bring the Bentley heavy oil field east of Shetland into production, have been suspended on the Alternative Investment Market (AIM) after bondholders rejected a deal that would have significantly diluted the interests of shareholders. That proposal would have resulted in $149 million (£115m) of bonds issued by the company being traded for shares in the firm, leaving shareholders with just 1.5 per cent of the share capital.

The deal was thrown out by bondholders, who signalled their intention to have a liquidator appointed to the company in the British Virgin Islands, where Xcite is registered.

Xcite, whose UK subsidiary Xcite Energy Resources (XER) employs nine full-time staff at its office in Aberdeen and a similar number in Guilford, said its directors believe that liquidation is “unlikely to result in the return of any value to the Company’s existing shareholders”.

It had previously indicated that bondholders would pursue action against the company if the proposed restructuring was not supported.

Xcite’s plight underlines the challenges North Sea operators have faced in bringing oil discoveries into operation at current oil prices. A recent report by the Oil and Gas Authority found that more than three billion barrels of oil and gas are held in discoveries that firms have no plans to develop, as the majors consolidate operations and shift investment to lower cost areas.

Brent crude was trading at around $58 per barrel yesterday afternoon, having reached more than $110 per barrel in June 2014. Shares in Xcite have plunged from 22p in October a year ago to 1.71p at the close of trading on Monday.

Ian McLelland, head of natural resources at Edison Investment Research, said the prospect of Xcite being liquidated is a “big blow for everyone”. He noted that the company’s future could have been secured if the debt for equity deal was agreed, but said bondholders “decided to cut their losses” because there was “so much bad feeling” felt by retail shareholders over the deal.

Mr McLelland said: “It’s a case of bad timing. Oil prices are low but recovering [and] Xcite has done a lot of work to reduce costs [on the Bentley field]. The project makes sense. The problem is that it is big, there is uncertainty and it is competing against other assets in the North Sea that people are looking to sell.”

According to Edison’s most recent valuation, the net worth of Bentley to Xcite was between $800 million and $900m.

Asked if Xcite’s difficulties were likely to be mirrored by other companies in the North Sea, Mr McLelland said: “It is an issue for everyone, [but] Bentley is more complicated than many [projects]. Not only is it very big, a lot of investment is required to make the economics work.”

He added: “This is a big blow for everyone and suggests that management could not broker a deal to sell its prized Bentley asset at pretty much any reasonable price.”

The bondholders and the proposed liquidator confirmed that XER and its assets are not expected to be the subject of any enforcement action, with XER expected to remain as a going concern throughout the process.

Xcite was not answering calls yesterday. A recorded message directed callers to its website.