Article Web Link: http://business.timesonline.co.uk/tol/business/markets/article6993043.ece

From The Times

January 19, 2010

Expect more deals as ‘boring’ Bunzl returns to takeover fray

Nick Hasell: Tempus

Xcite Energy

Viscous oil need not mean a sluggish share price. Ask Xcite Energy, the AIM-listed explorer that owns the licence to Bentley, one of the North Sea’s biggest undeveloped fields of heavier-grade oil. Its shares rose more than 16-fold last year, making Xcite one of the best half-dozen performers in the London stock market. The oddity is that, on most measures, they still look inexpensive.

The company is best considered a lower-risk developer rather than a wildcat explorer. Conoco discovered Bentley in 1977 but was looking for lighter oil and moved on. However, subsequent improvements in extraction technology and a persistently high oil price have made the field commercially feasible. On independent estimates of 160 million barrels of contingent resources, Xcite ranks as the third-biggest North Sea independent, behind Premier Oil and Dana Petroleum. Critically, at its present stock market value, Xcite is valued at less than $0.50 a barrel, against a peer-group average of between $2 and $3 a barrel.

The difficulty is that Xcite still needs to drill an additional well if it is to meet its target of first oil by summer next year, suggesting that a $40 million fundraising is required. Further, rather than “farming out” the field to an oil major, Xcite, run by former Conoco executives, is pursuing a partnership approach, a common model elsewhere in the world but unusual for the North Sea.

However, the presence of Statoil, of Norway, near by raises the prospect of shared costs — or an eventual bid. At 56p, this is worth a punt.