It is tough enough being an oil companyright now, even when you actually have some oil to sell. It is even harder if you dont. Thats the hurdlefacing North Sea heavy oil appraisal and development companyXcite Energy (LSE: XEL). The AIM-listed companysflagship Bentley oilfield has always looked an exciting prospect, onlyless sowith a barrel of Brent crude oil hovering around $50.
Earlier this year chief executive Rupert Cole assuredus that full field extraction costs were expected to be around $35 per barrel, relatively cheap for North Sea oil and attractive at the time, when Brent crude oil was trading at $65. If bearish analysts who claim oil could slump as low as $30 are proved correct, it wont be soreassuring.
Bumpy Bentley
Reservoir modelling and base case production profilessuggest that Bentley has big reserves and bags of promise, but itfirst has to get thestuff to market. Xcite lost $0.83m in the first six months of this year, and is expected to continue losing money for the next twoyears (and it will take even longer to turn a profit). It also has to secure fundingto construct amobile offshore production unit, and afloating storage and offloading vessel. Securing cash for investment isnt easy for any oil company right now, with investors wondering what kind of return they will get in an oversupplied market.
To make life even more frustratingfor investors, there has been a shortage of news flow lately, with only bland management statementsand the ever-unreliablerumour mill to plugthe gap. That partly explains why the share price is down from 65p to 28p over the last 12 months.
Off Message
There was a burst of activity on the message boards this morning on some very vague takeover rumours that seem to be going nowhere. So right now all investors can do is hope that no news is good news, and at 28p the worst of the share price falls are over. This could be a great buying opportunity, so how brave are you feeling? Or rather,patient? Heres the deal: you part with your money, wait two years for revenues and even longer for profits, and spend the interim dreaming of a juicy takeover bid, or dreadingmoney-burning delays in the project.
Xcites volatility isnt entirely down tooil price shifts. The share price for this risky exploration play has been swinging wildly since 2011. The oil price is just another challenge, but makes ittoo challenging from me. However, the companys much-vaunted multi-bagger potential will continue to tempt gamblers. For them, this stock can stillXcite.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.