THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO THE UNITED STATES Xcite Energy (
Offering Price (per Ordinary Share) C$1.60 (£0.805) Number of Ordinary Shares in the Offering to be issued by the Company 18,750,000 Percentage of the enlarged issued Share capital in the Offering 31% Ordinary Shares in issue on Admission 60,550,000 Basic market capitalisation at the Offering Price £48,742,750 Number of Fully Diluted Shares in issue following the Offering 76,022,500 Estimated Net proceeds of the Offering receivable by the Company* £13,221,010*Net proceeds receivable by the Company are stated after deduction of the Offering expenses of approximately £1,872,740 Company Background Xcite Energy is an exploration and development company currently focused on the appraisal and development of heavy oil resources in the North Sea on the UK Continental Shelf (the "UKCS"). Xcite Energy has a 100% working interest in Block 9/3b, the Bentley Field, situated in the North Sea. The block was offered in the United Kingdom's 21st Seaward Licensing Round, administered by the BERR. The 9/3b Licence, offered as part of the UK government's "Promote Licence" initiative, was awarded to XER with effect from October 1, 2003 and contains the 1977 Bentley heavy oil discovery. RPS Energy Canada Ltd. has assigned best estimate contingent and prospective resources of 109 million barrels of oil ("mmbbls") and P50 oil-in-place volumes of 592 mmbbls for Block 9/3b. Business Objectives and Milestones The executive management team of the Company includes experienced oil professionals with over 100 years of combined industry experience. The Company's principal objectives are:
-- To acquire further heavy oil properties in the North Sea by
participating in the 25th Seaward Licensing Round and other
future licensing rounds;
-- To have commenced full field production on Block 9/3b by mid-2011; and
-- To further the Group's growth through acquisition and joint venture
opportunities.
The Company has identified the following milestones to commence production
on Block 9/3b.
-- Rig secured for appraisal well and testing in Q4 2007; -- Six month extended well test, commencing in Q4 2008; -- Initiate an early production system in Q2 2009; and -- Full Field Development in Q2 2011.Use of Proceeds The principal purposes to which the Company intends to use the proceeds of the Offering are as follows:
Testing of Block 9/3b Appraisal Well . . . . . . . ......C$15,000,000 Drilling Contingencies . . . . . . . .. . .. . . . .....C$10,000,000 Working Capital and General Corporate Purposes . . ... . .C$5,000,000Richard Smith, Chief Executive Officer of Xcite Energy, commented: "We are very pleased with the strong institutional support we have received which has given us the financial resources to pursue our field development plan for the Bentley heavy oil discovery. "Xcite Energy's management have no doubt that the importance of heavy oil in the North Sea will continue to grow as the demand for resources increases whilst supply tightens, and heavy oil technology and extraction methods improve. "Xcite Energy intends to become a leading player in this expanding sector and intends to be a significant independent North Sea heavy oil producer, targeting net production of 60,000 bopd and reserves of 250 mmbbl by 2012." NOTES TO EDITORS Further Details on Block 9/3b The location of Block 9/3b is within the northern North Sea, approximately 160km east of the Shetland Isles on the western edge of the Viking Graben. This block covers slightly more than 200 km2. Analogous commercial production of heavy oil is located in Block 13/22a (the Captain Field) approximately 250 km away. Other nearby heavy oil discoveries yet to be developed are the Bressay field immediately north of Block 9/3b, the Kraken accumulation in neighbouring Block 9 /2b to the west of Block 9/3b and the Mariner field in Block 9/11, approximately 35 km southwest of Block 9/3b. Based on 2D seismic data analysis two structures within Block 9/3b have established accumulations of heavy oil known as the Bentley field. Bentley has been drilled by three of the four wells on Block 9/3b, being wells 9/3-1 (Amoco, 1977), 9/3-2A (Conoco, 1983) and 9/3-4 (Conoco, 1986). Based on the same 2D analysis, Block 9/3b also contains one identified prospect and one identified lead (Prospect A, Lead B). RPS Energy Canada Ltd's estimate of unrisked barrels of oil-in-place ranges from 508 mmbbls to 691 mmbbls:
Stock Tank Volume of Oil Initially-In-Place P90 P50 P10
("STOOIP")
Bentley Field (mmbbls) 313 370 440
Prospect A (mmbbls) 147 163 180
Lead B (mmbbls) 48 59 71
Total STOOIP (mmbbls) 508 592 691
Reservoir simulations result in a best estimate of net contingent and
prospective resources of 109 mmbbls:
Contingent Resources Low Best High Bentley Field (mmbbls) 37 68 176 Prospective Resources Prospect A (mmbbls) 17 30 72 Lead B (mmbbls) 6 11 28 Total Contingent & Prospective (mmbbls) 60 109 276Focus on Heavy Oil in the North Sea Heavy oil is viscous crude oil, requiring proven, modern drilling techniques & technology for commercial development. UK heavy oil is generally classified as having an API (a measure of the relative density compared to water) between 10 degrees and 22degrees. It is often known for having high levels of sulphur and heavy metals, though the North Sea has exceptionally low levels. Heavy oil is found around the world and there have been successful large scale offshore projects in Brazil, Venezuela, the Far East and the North Sea. Recently there has been increased interest in developing heavy oil resources in the North Sea. This increased interest has been influenced by a number of factors, including (i) the economic potential of in-place undeveloped heavy oil resources in the North Sea, which are estimated by the BERR to be in excess of 9 Bbbls; (ii) the advancement of new technologies, including horizontal wells and reliable down-hole pumps, which are achieving increased recovery of heavy oil; and (iii) high oil prices, which encourage larger players to reconsider heavy oil developments. Heavy oil development in the North Sea has recently garnered attention with announcements by StatoilHydro that it has concluded two separate transactions on the UKCS, including an agreement with Chevron to acquire its total interests in the Mariner and Bressay fields on the UKCS. StatoilHydro is already the largest heavy oil producer within the North Sea with its Grane heavy oil field on the Norwegian Continental Shelf currently producing 220,000 bbls/d. Hydro is also currently the operator of the Peregrino heavy oil field development offshore Brazil, which holds an estimated 300 to 600 Mmbbls of recoverable reserves. While StatoilHydro has stated that it is too early to confirm the commerciality of these UKCS heavy oil interests, based on StatoilHydro's heavy oil experience, management of Xcite Energy believes that these acquisitions are an important step forward in the possible commercialisation of these fields and other heavy oil fields in the North Sea. Furthermore, given the proximity of StatoilHydro's UKCS heavy oil interests to Block 9/3b, commercialisation of these fields may have a positive effect on the Company's activities in Block 9/3b. For example, successful commercialisation could potentially result in the development of a heavy oil "hub" in the area, providing joint development possibilities for the Bentley field. Senior Management Team Richard Smith, aged 59, Chief Executive Officer Prior to joining Xcite in 2003, Mr. Smith was Programme Director at Granherne, a company within the Halliburton Group of companies. He was responsible for the creation and formation of a business providing programme management services to clients in the international onshore and offshore oil and gas business. Mr. Smith is a Chartered Engineer and has over 25 years of experience in engineering and business management in onshore and offshore oil and gas projects. He is a Fellow of the Institute of Civil Engineers and a Corporate Member of the Institute of Marine Engineers and the Royal Institute of Naval Architects. Rupert Cole, aged 48, Chief Financial Officer Prior to joining Xcite in 2003, Mr. Cole was Programme Management Business Advisor at Granherne, a company within the Halliburton Group of companies. He was responsible for providing strategic, commercial and financial advice to upstream oil and gas service providers. From 1990 to 1996, Mr. Cole was finance director at Harpur, an international downstream service provider to major oil companies. Mr. Cole is a chartered accountant and has over 20 years of experience in corporate finance. Stephen Kew, aged 54, Head of Exploration and Development, Executive Director Mr. Kew is a Petroleum Engineer and has over 34 years of development engineering and project management experience in petroleum industry, with 25 years in Conoco where he previously worked on Block 9/3b, giving him significant insight into the Bentley field. He is an associate of the Institution of Chemical Engineers, a member of the Society of Petroleum Engineers and President of the Scottish Oil Club. Richard West, aged 64, Programme Manager, Bentley Prior to joining Xcite, Mr. West spent 15 years working for Britoil/BP as the Engineering Manager for the Forties field. Mr. West has over 30 years experience in international oil field development, including the implementation of the Conoco MacCulloch field development in the North Sea. This field development used the first fully tariffed FPSO solution in the North Sea and has delivered beyond expectations. Non-Executive Directors Roger Ramshaw, aged 58, Non-Executive Chairman From 2002, until his retirement in 2003, Mr. Ramshaw was the Chairman and Managing Director of ConocoPhillips (UK) Ltd where he led the company's exploration, development and production business on the UKCS. From 1999 to 2002, he was President of Conoco Venezuela Ltd., leading the Company's successful heavy oil development in the region. Mr. Ramshaw has over 30 years of domestic and international experience in operations, project and commercial activity in the petroleum industry. Gregory J. Moroney, aged 56, Non-Executive Director Mr. Moroney is the Founding and Managing Member of Energy Capital Advisors LLC of Greenwich, Connecticut, which he founded in 2003 to assist independent energy companies and energy fund managers in North America in their fund-raising activities. Mr. Moroney is also a director of BreitBurn Energy Partners, L.P., an oil and gas limited partnership listed on NASDAQ. From 1993 to 2002, he was head of the Structured Finance Group for the Energy and Natural Resource Sector - Western Hemisphere at Deutsche Bank Securities in New York. Mr. Moroney has over 25 years of experience as an energy finance specialist. A. Murray Sinclair, aged 46, Non-Executive Director Since June, 2003, Mr. Sinclair has been the Managing Director of Quest Capital Corp., an asset backed lending organisation listed on the TSX, AMEX and AIM which focuses on providing financial services, specifically mortgages and bridge loans, to small and mid-cap companies. Since December, 1996, Mr. Sinclair has also been a director of Quest Management Corp., a management company wholly-owned by Quest Capital Corp. Over-Allotment Option The Company has granted the Agents an option (the "Over-Allotment Option") to cover over-allotments, if any, and for market stabilization purposes. The Over-Allotment Option may be exercised by the Agents, in whole or part, for a 30-day period following the closing of the Offering, and entitles the Agents to purchase from the Company up to that number of Ordinary Shares as is equal to 15% of the aggregate number of Ordinary Shares sold pursuant to the Offering, at the Offering price. Forward-Looking Statements Certain statements contained in this announcement constitute forward- looking information within the meaning of securities laws. Forward-looking information may relate to the Company's future outlook and anticipated events or results and, in some cases, can be identified by terminology such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "intend", "estimate", "predict", "potential", "continue" or other similar expressions concerning matters that are not historical facts. These statements are based on certain factors and assumptions including expected growth, results of operations, performance and business prospects and opportunities. While the Company considers these assumptions to be reasonable based on information currently available to us, they may prove to be incorrect. Forward-looking information is also subject to certain factors, including risks and uncertainties that could cause actual results to differ materially from what we currently expect. These factors include changes in market and competition, governmental or regulatory developments and general economic conditions. Additional information identifying risks and uncertainties are contained in Xcite Energy' prospectus filed with the Canadian securities regulatory authorities, available at www.sedar.com. General The Ordinary Shares issued pursuant to the Offering have not been, and will not be, registered under the United States Securities Act of 1933, as amended (the "Act") and may not be offered or sold in the United States absent registration or any applicable exemption from the registration requirement of such Act. Accordingly, this announcement shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or same would be unlawful prior to qualification under the securities laws of any such jurisdiction. Capitalized terms used and not defined herein shall have the meaning ascribed to them in the final prospectus of the Company dated November 7, 2007. Glossary "API" means American Petroleum Institute units of specific gravity of liquid petroleum. "Best Estimate" is considered to be the best estimate of the quantity that will actually be recovered from an accumulation and, if probabilistic methods are used, this term is a measure of central tendency of the uncertainty distribution (most likely/mode, P50/median, or arithmetic average/mean). "boe" means barrel of oil equivalent. "Chance of Discovery" means the probability of discovering hydrocarbons which may range in recoverable volume from the Low Estimate to the High Estimate. "Chance of Success" or "CoS" means the likelihood, expressed as a percentage or a fraction, of a prospect containing any hydrocarbons. "contingent resources" means those quantities of oil and gas estimated on a given date to be potentially recoverable from known accumulations but are not currently economic. "cp" means centipoise, units of viscosity. "crude oil" means a mixture that consists mainly of pentanes and heavier hydrocarbons, which may contain sulphur and other non-hydrocarbon compounds, that is recoverable at a well from an underground reservoir and that is liquid at the conditions that is recoverable at a well from an underground reservoir and that is liquid at the conditions under which its volume is measured or estimated. It does not include solution gas or natural gas liquids. "discovered resources" means those quantities of oil and gas estimated on a given date to be remaining in, plus those quantities already produced from, known accumulations. Discovered resources are divided into economic and uneconomic categories, with the estimated future recoverable portion classified as reserves and contingent resources, respectively. "field" means an area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature and/or stratigraphic condition. "FPSO" means Floating, Production, Storage and Offloading Vessel. "GOR" means gas to oil ratio. "heavy oil" means oil with API gravity of less than 22 degrees and reservoir viscosity greater than 5 cp. "High Estimate" is considered to be an optimistic estimate of the quantity that will actually be recovered from an accumulation and, if probabilistic methods are used, this term reflects a P10 confidence level. "Kv:Kh" means the ratio of vertical permeability(kv) to horizontal permeability (kh). "lead" means an identified potential hydrocarbon trap which requires further work before becoming a drill-ready prospect. "Low Estimate" is considered to be a conservative estimate of the quantity that will actually be recovered from an accumulation and, where probabilistic methods are used, this term reflects a P90 confidence level. "mD" means millidarcies, units of permeability. "mgKOH/g" means milligrams of potassium hydroxide (KOH) per gram, units of TAN. "MMstb" means millions of stock tank barrels measured at 14.7 psia and 60TM Fahrenheit. "original resources" means those quantities of oil and gas estimated to exist originally in naturally occurring accumulations; they are, therefore, those quantities of oil and gas estimated on a given date to be remaining in known accumulations, plus those quantities already produced from known accumulations, plus those quantities in accumulations yet to be discovered. Original resources are divided into discovered resources, which are limited to known accumulations, and undiscovered resources. "P10" means a 10% probability that the value will be equal to or greater than stated value "P50" means a 50%probability that the value will be equal to or greater than stated value. "P90" means a 90% probability that the value will be equal to or greater than stated value. "petroleum" means oil and/or gas. "prospect" means an identified potential hydrocarbon trap which is sufficiently well defined and de-risked to merit the drilling of an exploration well. "prospective resources" means those quantities of oil and gas estimated on a given date to be potentially recoverable from undiscovered accumulations. If discovered, they would be technically and economically viable to recover. "psi" means pounds per square inch. "psia" means pounds per square inch absolute. "reserves" means those quantities of oil and gas anticipated to be economically recoverable from discovered resources. "reservoir" means a porous and permeable underground formation containing a natural accumulation of producible oil or gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs. "stb" stock tank barrel(s) measured at 14.7 psia and 60TM Fahrenheit. "STOIIP" means stock tank volume of oil initially-in-place. "TAN" means Total Acid Number. "TVDSS" means true vertical sub-sea depth. "undiscovered resources" means those quantities of oil and gas estimated on a given date to be contained in accumulations yet to be discovered. "wt%" means weight percentage. The following measures and abbreviations shall have the meanings set forth below: Oil Liquids Bbl(s) = Barrels Boe = Barrels of oil equivalent Mbbls = thousand barrels MMboe = million barrels of oil equivalent MMbbls = million barrels Mcf = thousand cubic feet Bbbls = billion barrels bbls/d = barrels per day
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Contact Information: Enquiries: Xcite Energy 013 3082 6740 Richard Smith Chief Executive Officer Rupert Cole Chief Financial Officer Westwind Partners 020 7290 9716 Paul Colucci Managing Director Strand Partners Ltd. 020 7409 3494 James Harris Director Warren Pearce Associate Director Pelham Public Relations 020 7743 6676 Alisdair Haythornthwaite Katherine Stewart Lucy Frankland