Xcite Energy‘s (LSE: XEL) shares have been falling this week, after the company announced on Monday that it had raised around $140m from investors. 
Management has stated that it will use the proceeds of this fund raising to refinance $80m of existing debt, as well as general corporate expenses and Bentley field development.
However, this credit was hardly acquired on favourable terms. Indeed, the bulk of Xcite’s new funds were raised with the placing of bonds, carrying an interest rate of 12%, issued at 90% of face value.
Subscribers will also buy shares at a price of 68.5p, to raise the equivalent of the remaining 10%. The bonds have a two-year term and carry an additional 3% payment-in-kind interest coupon, which can be paid in cash or via the issuance of additional shares, at the company’s choice.
Further, an additional equity fund raising will see $5mln of shares being issued; 4.3mln shares each priced at 68.5p.
Still, Xcite’s management issued an upbeat statement with the news of the fund raising. According to Xcite CEO Rupert Cole:
“This new financing package comes at an important time for the company…It provides us with a stable platform to continue our planned activities this year…The planned work program will…provide a greater level of cost and schedule definition, enabling us to develop the longer term financing needed for the first phase development of the field, for which we shall continue to evaluate a number of options including asset financing, reserves based lending and additional development partners.”
Regional progress
However, there are signs that the North Sea is starting to become an attractive place to invest again, great news for Xcite.
At the end of last week, Premier Oil (LSE: PMO) received final government approval to press ahead with the development of the Catcher field in the North Sea. The Catcher project will cost around $2.5bn and will add 6% to the UK’s annual oil output.
Actually, the cost of the Catcher project gives us some idea of how much it will cost Xcite to bring the Bentley field into production. A total of $1.6bn of will be spent on Catcher, with first oil production slated to start during 2017.
Luckily, the Catcher project has been made possible due to the receipt of small field tax allowances. Small field allowances were introduced by the government to incentivise development of the remaining oil fields within the North Sea. It would appear that these allowances are attracting investment.
Risky business
Of course, whether you decide to buy, sell or hold Xcite is a decision only you can make.
Nevertheless, Xcite’s performance over the past few weeks has been slow to say the least and it will be a long time before the company can bring its Bentley field into full production.
One thing that investors need to remember is, that the oil business can make you rich but it can also make you poor. Indeed, while the Bentley could prove to be a winner for Xcite, it could also be a flop.
