Xcite waits for green light on Bentley field

Published on Saturday 13 September 2008 13:59

OIL explorer Xcite Energy is due to receive confirmation of the commercial viability of its Bentley heavy oil field in the North Sea, allowing the firm to bring it into production next year.

The Bentley prospect, 100 miles east of Shetland, is one of the North Sea's largest unproven heavy oil reserves, and Xcite, which has its operational headquarters in Banchory, hopes to produce an initial 40,000 barrels a day.

A positive report on the field's reserves from geologists RPS Energy, due this month, would also encourage the firm to seek promotion next year from the Alternative Investment Market to a full listing on the main market.

"All the engineering and testing work was done by January and now we are awaiting a competent persons report that will tell us how commercial it is," said chief executive Richard Smith.

"We would be looking to list on the main exchange and hopefully this report will allow us to be compliant."

Smith, formerly of Halliburton, was joined by former colleagues of the firm and Conoco to form Xcite in 2002. It bid successfully for a 100% working interest in Block 9/3b in the Bentley field.

The firm completed a private placing of shares in June last year to raise $20m, and in November raised a further $30m by taking it public. It is now quoted on Aim and in Toronto.

Heavy oil is viscous crude oil, requiring sophisticated drilling techniques and technology for commercial development.

It is more expensive and more complicated to recover, but improvements in technology coupled with higher oil prices makes it a more viable option.

Reserves that have lain fallow for more than 30 years are now coming on stream.

With conventional lighter oil production expected to decline in the North Sea, the opportunity to recover this denser oil will help sustain the region.

"Heavy oil was the Cinderella of the oil fields but is becoming a major part of the next stage in the North Sea's development," said Smith.

"We are looking at bringing our field into full production by 2012. The high oil price helps. We don't need it to be $140 a barrel, though it does need to be no lower than $40. Any lower than that would be a concern."

Shareholders, who have seen the firm's valuation slip, largely due to lack of news flow, will be encouraged by recent developments.

Interest in heavy oil has increased since StatoilHydro concluded two separate transactions, including an agreement with Chevron to acquire its total interests in the Mariner and Bressay fields.

The company is already the largest heavy oil producer in the North Sea with its Grane heavy oil field on the Norwegian Continental Shelf currently producing 220,000 barrels a day. It is also the operator of the Peregrino heavy oil field development off Brazil's shores.

Analysts believe the latest developments in the North Sea could lead to the development of a heavy oil 'hub' in the area, providing joint development possibilities for the Bentley field.