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Xcite Energy finalises terms of £24.9m placing to fund Bentley oilfield development

Xcite Energy (AIM: XEL) has announced the terms of its equity-based fundraising announced on 8 February. The company will issue shares at £0.40 per share to investors in the UK and at C$0.62 per share to North American investors. Xcite expects to raise aggregate gross proceeds of approximately £24.9 million (C$38.4 million). The proceeds will be used in the development of the Bentley oilfield in the North Sea.

The placing is anticipated to close on or about 18 March 2010.

Xcite said the net proceeds, together with US$4 million committed by Challenger Minerals, are expected to primarily fund the drilling and flow testing of the 9/3b-R pre-development well on the Bentley oilfield. Subsequently, the balance of the proceeds will be used for general working capital purposes.

To facilitate the equity financing the company hired Arbuthnot Securities in the UK and Octagon Capital Corporation and CIBC World Markets in Canada. The respective parties signed agency agreements on the 9th March.

With the support of its development partners, collectively known as the Bentley Alliance, Xcite has been making rapid progress in the development of the Bentley field. The planned pre-development well represents the company’s next step towards full production following the BP (LSE: BP) off-take agreement signed in January 2010.

The international oil major’s BPOI unit will sell the crude from the Bentley field in return for an incentive-based fee per barrel. The off-take fee is directly related to the realised price achieved by BPOI for the Bentley crude oil in relation to the prevailing Brent crude price, thus incentivising BPOI to maximise the price per barrel achieved for XER by minimising the discount to Brent crude.

Furthermore the FTSE100 constituent is also supporting the commercial development of the Bentley oilfield. BPOI will procure US$20 million of financing from a commercial bank for Xcite and provide credit support from BP once Xcite moves to full field development.

In January, Xcite said it will be drilling the development well in the current first quarter of 2010. Last October the company announced an agreement with Fugro Well Services Ltd to drill and test the 9/3b-R well, on a risked basis. Fugro will bear a material percentage of the cost of the well in return for a commitment to be engaged to carry out future work if the well is successful. Fugro has joined the Bentley Alliance, a management and operational structure created by Xcite to direct the Bentley field into full development.

According to Xcite, the Bentley field is among the largest undeveloped heavy oil prospects in the North Sea. Its resource estimate was last year upped to 690 million barrels of oil (mbo) with the upside at nearly 890 mbo following a 3D seismic survey.

Disclosure: The author holds no positions in the company