November 11, 2009

AN INTERVIEW WITH RICHARD SMITH

CEO, XCITE ENERGY

(As of November 3, 2009)

We’re here with Richard Smith who’s leading the charge for

a company called Xcite Energy and needless to say there are

a few followers of the company that hope excitement is

about to follow.

David Pescod: Richard maybe it’s best for you to tell us

just what kind of a resource you’re working on in the North

Sea because we’ve seen numbers varying as low as 100

million barrels or as high as 200 million barrels.

Richard Smith: On a 1P, 2P and 3P basis the current numbers

being used now come from the Competent Person’s

Report issued at the beginning of the year are circa 100 to

160 million barrels. Since that report has been put out we

have reprocessed and re-interpreted the 3D seismic on the

whole field, which has increased management’s view to

about 160 million barrels of 2P recoverable reserves with

an upside of 220 million barrels and more with enhanced

oil recovery.

DP: Now you’ve come up with these numbers based on

some previous drilling?

RS: There’s been a total of 5 wells drilled on the block.

One by Xcite, three by Conoco and one by Amoco. We

have all the data and the information from the previous

wells together with our own well, and we also have information

on the well that was drilled by StatoilHydro on an

analogous field, called Bressay, just to the North of ours.

They drilled their well about 6 months after our well and we

have a data exchange agreement with them. We also have

the information on the other Bressay wells having dealt

with Chevron before the Bressay field was acquired by StatoilHydro.

The oil in Bressay is identical to Bentley oil in all

material respects and the reservoir sand is very similar for

porosity and permeability.

DP: I guess the good news is that you own almost 100% of

the field and the bad news is that this is low quality crude.

Xcite Energy

David Pescod 780-408-1750 Debbie Lewis 780-408-1748 Fax: 780-408-1501 Page 2

RS: Yes we own 100% of the field. As for quality, I think

what you have to say is that it is bio- degraded, and you

have to use downhole electrical pumps to bring it to the

surface. It is acidic, which is normal, but has no sulphur,

no nasty metals and has no wax. So it is a nice heavy oil.

When blended with a small amount of Brent you would

have relatively small price discounts. One of the very

strong advantages of this oil is that it has a very high diesel

cut. It has virtually no gasoline cut. For the European

market a high diesel cut is very attractive and it is a good

feedstock for refineries.

It also has useful properties for transformer oils and certain

coking requirements. Our independent marketing

study has reported a probable discount to Brent, before

blending, of 12% reducing to 8% over field life. However

we are in discussion with an international major whose

trading division has approached us to market and trade

our oil on a risk and incentivised basis. In return they

would provide an element of equity and debt financing for

the next well and the early production system. These are

on-going discussions and we intend to pursue this with

other potential partners also before agreeing on a deal

that can be announced.

DP: There’s one observer watching the company at this

point suggesting that the stock could be anywhere between

a 50% and 500% gain over the coming six months

and they suggest that it all depends on managements’

ability to wheel and deal because you need money, you

may need partners and for all they know there might even

be a takeover down the road, your thoughts?

RS: Well we do need money at a project level and the fact

that Bentley field has now moved into the project development

phase is important. We have financing at a corporate

level to be able to run the business, but obviously what

we are now in the process of doing is raising the project

money to bring the field into production through the alliance

structure and partners, which has the potential to

enable us to retain 100% of the equity in the Bentley field.

In the current market we shall require an element of equity

as well as debt financing and we’re in the process of securing

a part of that through the alliance at the moment.

In terms of the uplift in value, if you actually look at the

market capital of the company at the moment and the potential

recoverable reserves, the value of the oil in the

ground on a market cap basis is something like 35-40

cents a barrel.

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DP: Well it is pretty obvious you have an exciting 3, 4 ,5

months ahead of yourself here as this company gets going

but let’s ask the underlying basic question, what do

you see for the price of oil down the road?

RS: When we did our competent person’s report we also

had a marketing study done to look at the discounts and

future oil prices; we are using a base of $80 a barrel with

a small inflation rate from 2014, which is when we are

anticipating getting the field into production. With the

Statoil Bressay field just to the north of us, their chief

executive just made the announcement that they are

comfortable to go forward with heavy oil development on

the North Sea on an exactly comparable field, with a requirement

of about $70 a barrel.

We’re currently using oil prices close to the $80 that

we’re forecasting going forward, but we are robust on

Bentley down to about $60. So unless there is a fundamental

decline in oil price again to the $30/$40 level,

which is not matched by the cost side, we have a robust

development.

DP: Okay we like to end these interviews with our favourite

question, if you had to recommend a stock other than

your own, and of course we prefer stocks that double,

what would be your pick?

RS: Sterling Resources, which is a gas play with a similar

size field in terms of recoverable reserves if you take a

gas to oil equivalent ratio; they have about a 100 million

barrel equivalent field. They have recently chosen to go

the farm down route with a major utility supplier in

Europe called RWE. RWE is now going to take over as

operator after Sterling took the field to a point where the

reserves were sufficiently de-risked. They drilled a vertical

well, exactly the same as we drilled just recently, and

then this year drilled a horizontal well, which is what we

are doing in the next few months. After this second well,

RWE bought a major part the field for a price per barrel

equivalent to $15 per barrel for 1P, $10 per barrel for 2P

and $2 per barrel for contingent resources.

DP: Thank you very much!

We now have a reserves definition of contingent resources

development pending, which has a 70% probability

of commercial success, which substantially de-risks

this asset. Normal industry valuation comparables at this

stage of reserve definition gives you typically 2$-3$ a barrel

in the ground.

So in that context there is a multiple uplift in value even if

you only got back to typical business comparables today,

before taking account the value uplift after the next well

that should get us to 2P reserves.

DP: While you have to wheel and deal, raise money, get

partners in the next coming months the big date that most

people are looking forward to is when you actually drill

the next big well.

RS: The next well is planned to be drilled in February or

March of next year. We already have a contractor and alliance

partner on board to do that, which is Fugro. Fugro is

a substantial technical services company based in Holland,

which has a Euro 3 billion market cap. They have

just built a drill ship called the ”Synergy” and we have a

Heads of Agreement currently being turned into a contract

which provides for them to come onto the field on a risked

basis. They will effectively take performance and operational

risk with their unit and the weather risk, plus a reduced

day rate equating to a material percentage of the

cost of the well on a risked basis. This key partner in the

alliance is already on board.

We already made the announcement and the Synergy unit

will be coming on our field within the next few weeks, to

drill a pilot hole to test the sea bed conditions for a future

jack-up rig deployment on the field for an early production

system. That is a service that typically would cost 1.0$ to

1.5$ million and this is also part of the risk services that

they are putting into the alliance. We expect further partners

to join the alliance in the coming months that would

further reduce the actual cash cost of the well for Xcite.