22 May 2008 14:00
THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO THE UNITED STATES
TSX-V, LSE-AIM: XEL
May 22, 2008
Xcite Energy Limited
("Xcite Energy" or "the Company")
Results for the 3 Month Period Ended March 31, 2008
Xcite Energy is a heavy oil company focused on the development of discovered resources in the United Kingdom North Sea. The Company holds a 100% working interest in Block 9/3b, the Bentley field, one of the largest undeveloped discoveries in the United Kingdom North Sea.
The Company is listed on the AIM Market of the London Stock Exchange (AIM) and the TSX Venture Exchange (TSX-V).
The Company today announces its financial and operational results for the 3 month period ended March 31, 2008 and its outlook for the remainder of 2008.
PERIOD HIGHLIGHTS and KEY MILESTONES
Operational
Successful appraisal well completed on Bentley in February 2008
Commercial potential of the field confirmed and key objectives met
Subsequent update in April 2008 highlighted forecast flow rate of over 4,000 barrels of oil per day from a single production well using current technologies
Financial
Cash balance as at March 31, 2008 was £8.56 million
Investment in additional share capital of £0.48 million during the period
2008 OUTLOOK
RPS Energy, independent reserve engineers, to prepare an updated Competent Person's Report
Work continues on track to commercialise the Bentley field on Block 9/3b, targeting a Field Development Plan and the commencement of early phased development in the expected timescale
Other identified business opportunities currently being reviewed
Richard Smith, Xcite Chief Executive Officer commented
"Following a period of high investment, with the successful appraisal well on the Bentley field in Block 9/3b, we are well placed to continue with the next stage of the programme to commercialise Bentley."
The Company has also filed its Management Discussion and Analysis and Interim Financial Statements. These documents can be found for viewing by electronic means on the System for Electronic Document and Analysis Retrieval at www.sedar.com
ENQUIRIES:
| Xcite Energy | +44 (0) 1330 826 740 | |
| Richard Smith | Chief Executive Officer | |
| Rupert Cole | Chief Financial Officer | |
| Thomas Weisel Partners (UK) Limited | +44 (0) 20 7877 4300 | |
| Paul Colucci | Managing Director | |
| Paul Newman | Managing Director | |
| Strand Partners Ltd. | +44 (0) 20 7409 3494 | |
| James Harris | Director | |
| Warren Pearce | Associate Director | |
| Pelham Public Relations | +44 (0) 20 7743 6676 | |
| Alisdair Haythornthwaite | Director | |
| Katherine Stewart | Account Executive |
The TSX-V does not accept responsibility for the adequacy or accuracy of this release.
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", "target", "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 the Company' prospectus filed with the Canadian securities regulatory authorities, available at www.sedar.com. The Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required under applicable securities regulations.
Management's Discussion and Analysis
The Management's Discussion and Analysis ("MD&A") of the operating and financial results of Xcite Energy Limited ("XEL" or the "Company") should be read in conjunction with the Company's interim unaudited consolidated financial statements and related notes thereto for the three month period ended March 31, 2008, the audited consolidated financial statements and related notes thereto for the fourteen month period ended December 31, 2007 and the annual MD&A of the Company. This MD&A is dated May 21, 2008. These documents and additional information about XEL are available on SEDAR at www.sedar.com.
XEL is an oil issuer and disclosures pertaining to oil activities are presented in accordance with National Instrument 51-101 ("NI-51-101").
This MD&A includes an analysis of the XEL results from January 1, 2008 to March 31, 2008 and from January 1, 2007 to March 31, 2007, which include the results of the operating subsidiary Xcite Energy Resources Limited ("XER"). In this MD&A, XEL and XER are together defined as the "Group". All figures and the comparatives figures contained herein are expressed in Pounds Sterling unless otherwise noted.
Certain statements in this MD&A may be regarded as "forward-looking statements" including outlook on oil prices, estimates of future production, estimated completion dates of constructions and development projects, business plans for drilling and exploration, estimated amount and timing of capital expenditures and anticipated future debt levels. Forward-looking statements often, but not always, are identified by the use of words such as "seek", "anticipate", "believe", "plan", "estimate", "expect", "targeting" and "intend" and statements that an event or result "may", "will", "should", "could" or "might" occur or be achieved and other similar expressions.
Information concerning resources may also be deemed to be forward looking statements as such estimates involve the implied assessment that the resources described can be profitably produced in the future. These statements are based on current expectations, estimates and projections that involve a number of risks and uncertainties, which could cause actual results to differ from those anticipated by the Group. The reader should not place undue importance on forward looking statements and should not rely upon this information as of any other date. While the Company may elect to, it is under no obligation and does not undertake to update this information at any particular time, unless required by applicable securities law.
Summary of Results
The following table summarises the Group's performance for the three months ended March 31, 2008 and the comparative for the three months ended March 31, 2007. The Group has no trading revenue in either period. The interim consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS and IFRIC interpretations) issued by the International Accounting Standards Board (IASB). The interim consolidated financial statements of the Company have also been prepared in accordance with IFRS's adopted by the European Union and therefore they comply with Article 4 of the EU IAS Regulation.
| Quarter ended March 31, 2008 (unaudited) | Quarter ended March 31, 2007 (unaudited) | |
| £ | £ | |
| Net profit/(loss) | 22,244 | (184) |
| Earnings/(loss) per share (basic and diluted) | 0.00p | (0.00p) |
| Total assets | 27,787,366 | 2,288,051 |
Liquidity and Capital Resources
The net funds from the Private Placement and the Public Offering in 2007 were allocated to drilling the appraisal well on Block 9/3b to satisfy the work programme obligations to the BERR. XER spudded the Block 9/3b appraisal well in December 2007 and continued into February 2008 to conduct a successful drill stem test.
The cash balance as at March 31, 2008 was £8.56 million, compared with £21.07 million as at December 31, 2007, the decrease being attributable to the Block 9/3b drilling spend, offset by additional investment in share capital of £0.48 million during the period.
Following the success of the drill stem test in February 2008, the remaining proceeds from the 2007 financings are being used to plan for the development of the Bentley field, including fluid and reservoir studies, field development studies and marketing and refining studies, together with the review of other business development opportunities and general corporate working capital requirements.
Lease and Contractual Commitments
On November 12, 2007 the Group committed to a work programme to drill the appraisal well on Block 9/3b through a contract with AGR Peak Well Management Limited for £7.5 million (US$15 million), of which £7.0 million remained committed at December 31, 2007. This commitment was fulfilled by March 31, 2008.
Operations and Administrative Expenses
The Group is in the development phase and as such no revenue is yet being generated from the Group's assets. Certain key milestones as set out in the original Prospectus for the Initial Public Offering have been achieved in the period under review, principally being the successful testing of the Block 9/3b-5 appraisal well.
In the period under review, total costs of £12.50 million (3 months to March 31, 2007: £0.09 million) have been capitalised as Exploration and Evaluation ("E&E") Assets in Intangible Assets relating to Block 9/3b, which reflect the work that has been done by XER in the period in bringing forward Block 9/3b, both technically and commercially through the drilling of the appraisal well on Block 9/3b. These costs have been capitalised in accordance with the Group's accounting policies and will be amortised against the revenue from production, if any, from the Bentley field.
The Group has not incurred any additional material research and development costs or deferred development costs over and above those costs capitalised as E&E assets. XEL has incurred costs of operating as a public company during the period, including investor relations, Non-Executive Director fees and Stock Exchange fees amounting to £0.08 million for the three months to March 31, 2008.
In January 2007, XER received £0.26 million, from a former business partner as non-performance payments in respect of costs relating to the Block 9/3b asset following that partner's withdrawal from its relationship with XER under its contractual terms. This cash injection enabled XER to settle a number of third party liabilities with business partners, with the remaining amount being used for further expenditure relating to Block 9/3b. This non-performance payment has been offset against the capitalised costs of Block 9/3b.
Share Options, Warrants and Rights
On January 18, 2008 Mr Scott Cochlan, a Non-Executive Director of the Company, was awarded 100,000 share options over the Company's ordinary share capital. All such options vested immediately with an exercise price of CAD$2.09 (£1.04) and a term of five years.
No new share warrants or rights over the Company's ordinary share capital were issued in the three month period to March 31, 2008. See Note 11 to the interim consolidated financial statements for details of share warrants exercised during the three month period to March 31, 2008.
Income
Interest income received on funds invested during the three months ended March 31, 2008 amounted to £0.19 million (2007: £0.00 million).
Disclosure Controls and Procedures
In conformance with the Canadian Securities Administrators Multilateral Instrument 52-109, the Company has filed certificates signed by the Chief Executive Officer and the Chief Financial Officer that, amongst other things, deal with the matter of disclosure controls and procedures.
Outstanding Share Capital
The following table outlines the movement in the ordinary share of the Company during the period.
| Ordinary Shares | |
| As at December 31, 2007 | 60,550,000 |
| Issue of shares through Broker warrant exercise | 812,500 |
| Issue of shares through warrant exercise | 51,300 |
| As at March 31, 2008 | 61,413,800 |
During the period, the Company received additional funds of £0.48 million through the exercise of certain warrants over the ordinary share capital of the Company.
As at the date of signing this MD&A, the number of shares in issue was 61,413,800 as set out in Note 11 to the interim consolidated financial statements and the total number of outstanding share options and warrants over the ordinary share capital of the Company was 3,900,000 and 11,826,000 respectively, which would be equal to 15,726,000 further ordinary shares upon full conversion of these options and warrants.
Risk Management
The principal risk factors facing the Group are as follows:
Exploration and development
The nature of oil exploration is such that there is no assurance that exploration activities will be successful. Industry statistics show that few properties that are explored go on to being fully developed. Operations can also be adversely affected by weather conditions and drilling rig and other operating equipment availability outwith the control of the Group.
Commodity pricing
The Group has no control over the market price of crude oil. Suitable hedging arrangements will be considered to mitigate the volatility of oil prices when the Group enters into the production phase.
Financing
Future field development will depend upon the ability of the Group to secure financing, whether this is by joint venture projects, farm down arrangements, public financing or other means.
Currency
The Group's reporting and functional currency is Pounds Sterling. However, the market for heavy crude is in US Dollars. The Group does not currently engage in active hedging to minimise exchange rate risk although this will remain under review as the Group approaches the production phase.
Resource estimation
Oil reserve estimation techniques are inherently judgemental and involve a high degree of technical interpretation and modelling techniques. Incorrect resource estimation may result in inappropriate capital investment decisions being made.
Significant Accounting Judgements and Estimates
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The Directors make estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual costs. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying value of assets and liabilities within the next financial period are discussed below.
(a) Income taxes
There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.
(b) Fair value of share options and warrants
The Company has valued the fair value of outstanding share options and warrants over the Company's shares using the Black-Scholes valuation methodology. The Company uses judgement to derive such valuation model assumptions that are mainly based on market conditions existing at the Balance Sheet date.
(c) Impairment of Exploration and Evaluation ("E&E") assets
A review is performed at the end of each financial period for any indication that the value of the Group's E&E assets may be subject to impairment. In the event of any such indication, an impairment test is carried out and, if necessary, an impairment representing the surplus of capitalised cost over estimated recoverable value of the related commercial oil reserves is charged. Estimated recoverable value is based upon anticipated discounted net cash flows attributable to such reserves.
Financial Instruments and Other Derivatives
Details regarding the Group's policies in respect of financial instruments are disclosed in Notes 1 and 10 to the interim consolidated financial statements.
2008 Outlook
The three months to March 31, 2008 was a period of high investment by the Company in Block 9/3b. Management believe that after having met the costs of the appraisal well, the Group has sufficient funds to enable it to move forward with the planning of the next stage of the programme to commercialise the Bentley field on Block 9/3b, to compete successfully in future UK licensing rounds and to pursue other identified business opportunities in accordance with its business strategy.
Following the successful drilling and testing of the appraisal well in January 2008, the Group's long term prospects are dependent on the investment of significant capital sums for the commercialisation of the Bentley field on Block 9/3b.
Consolidated Income Statement
| Note | 3 month period ended March 31 2008 (unaudited) £ | 3 month period ended March 31 2007 (unaudited) £ | ||
| Administrative expenses | (163,272) | (374) | ||
| Operating loss | 3 | (163,272) | (374) | |
| Finance income - bank interest | 185,516 | 190 | ||
| Profit/(loss) before tax | 22,244 | (184) | ||
| Tax expense | 5 | - | - | |
| Profit/(loss) for the period attributable to equity shareholders of the parent company | 12 | 22,244 | (184) | |
| Earnings per share attributable to equity shareholders of the parent company: | ||||
| Basic and diluted | 6 | 0.00p | (0.00p) | |
Consolidated Statement of Recognised Income and Expense
| 3 month period ended March 31 2008 (unaudited) £ | 3 month period ended March 312007 (unaudited) £ | |
| Profit/(loss) for the financial period | 22,244 | (184) |
| Total recognised income and expense for the period | 22,244 | (184) |
| Attributable to: | ||
| Equity shareholders of the parent company | 22,244 | (184) |
Consolidated Balance Sheet
| Note | March 31 2008 £ (unaudited) | December 31 2007 £ (audited) | ||
| Assets | ||||
| Non-current assets | ||||
| Intangible assets | 7 | 19,081,040 | 6,582,176 | |
| Current assets | ||||
| Trade and other receivables | 8 | 144,577 | 82,789 | |
| Cash and cash equivalents | 8,561,749 | 21,067,134 | ||
| Total current assets | 8,706,326 | 21,149,923 | ||
| Total assets | 27,787,366 | 27,732,099 | ||
| Liabilities | ||||
| Current liabilities | ||||
| Trade and other payables | 9 | 4,597,220 | 5,042,672 | |
| Total liabilities | 4,597,220 | 5,042,672 | ||
| Net assets | 23,190,146 | 22,689,427 | ||
| Equity | ||||
| Share capital | 11 | 22,252,625 | 21,774,150 | |
| Retained earnings | 12 | (606,404) | (730,422) | |
| Merger reserve | 12 | 218 | 218 | |
| Other reserves | 12 | 1,543,707 | 1,645,481 | |
| Total equity | 23,190,146 | 22,689,427 |
These interim consolidated financial statements were approved by the Board of Directors and authorised for issue on May 21, 2008 and were signed on its behalf by:
……………………………….. ………………………………..
Richard Smith Rupert Cole
Chief Executive Officer Chief Financial Officer
Consolidated Cash Flow Statement
| 3 month period ended March 31 2008 (unaudited) £ | 3 month period ended March 312007 (unaudited) £ | |
| Net cash flow from operating activities | ||
| Profit/(loss) for the period after tax | 22,244 | (184) |
| Adjustment for interest received | (185,516) | (190) |
| Movement in working capital | ||
| Trade and other receivables | (61,788) | (2,235) |
| Trade and other payables | (445,452) | (52,433) |
| Net cash flow from operations | (670,512) | (55,042) |
| Cash flow from investing activities | ||
| Exploration and evaluation assets | (12,498,864) | (167,678) |
| Contribution to costs received | - | 257,683 |
| Interest received | 185,516 | 190 |
| Net cash flow from investing activities | (12,313,348) | 90,195 |
| Cash flow from financing activities | ||
| Net proceeds from issue of new shares | 478,475 | - |
| Cash flow from financing activities | 478,475 | - |
| Net (decrease)/increase in cash and cash equivalents | (12,505,385) | 35,153 |
| Cash and cash equivalents as at January 1 | 21,067,134 | 44,702 |
| Cash and cash equivalents as at March 31 | 8,561,749 | 79,855 |
| Cash and cash equivalents comprise: | ||
| Cash available on demand | 8,561,749 | 79,855 |
Notes to the Interim Consolidated Financial Statements
1 Accounting Policies
Basis of preparation
The interim consolidated financial statements for the three months ended March 31, 2008 have been prepared in accordance with IAS 34 Interim Financial Reporting. However, the interim consolidated financial statements for the three months ended March 31, 2008 have not been reviewed or audited by the Company's auditors.
These unaudited interim consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards following the same accounting policies and methods of computation as the consolidated financial statements for the financial period ended December 31, 2007. These unaudited interim consolidated financial statements do not include all the information and footnotes required by generally accepted accounting principles for annual financial statements and therefore should be read in conjunction with the audited consolidated financial statements and the notes thereto in the Xcite Energy Limited ("XEL" or "the Company") annual report for the fourteen month period ended December 31, 2007.
Basis of consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Xcite Energy Resources Limited ("XER"). Together, these comprise the "Group". All inter-company balances and transactions have been eliminated upon consolidation.
New accounting standards adopted during the period
During the period the Group has adopted no new standards for the first time.
New standards and interpretations not yet applied
The following new standards and interpretations, which have been issued by the IASB and the IFRIC, are effective for future periods and have not been adopted early in these interim consolidated financial statements. A description of these standards and interpretations, together with (where applicable) an indication of the effect of adopting them, is set out below. None are expected to have a material effect on the reported results or financial position of the Group.
The IASB issued a revised IAS 1 'Presentation of Financial Statements' in September 2007 effective for accounting periods beginning on or after January 1, 2009.
The IASB published revisions to IAS 32 'Financial Instruments: Presentation' and consequential revisions to other standards in February 2008 to improve the accounting for and disclosure of puttable financial instruments. The revisions are effective for accounting periods beginning on or after January 1, 2009 but together they may be adopted earlier.
The IASB published a revised IFRS 3 'Business Combinations' and related revisions to IAS 27 'Consolidated and Separate Financial Statements' following the completion in January 2008 of its project on the acquisition and disposal of subsidiaries. The standards improve convergence with US GAAP and provide new guidance on accounting for changes in interests in subsidiaries. The cost of an acquisition will comprise only consideration paid to vendors for equity; other costs will be expensed immediately. Groups will only account for goodwill on acquisition of a subsidiary; subsequent changes in interest will be recognised in equity and only on a loss of control will there be a profit or loss on disposal to be recognised in income. The changes are effective for accounting periods beginning on or after July 1, 2009, but both standards may be adopted together for accounting periods beginning on or after July 1, 2007.
Amendment to IAS 23 'Borrowing Costs' was issued in May 2007 and is effective for accounting periods beginning on or after January 1, 2009. The amendment requires borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset to be added to the cost of that asset.
IFRIC 11 'IFRS 2 - Group and Treasury Share Transactions' was issued in November 2006 and is effective for annual periods beginning on or after March 1, 2007. IFRIC 11 clarifies the accounting for share based transactions which fall within the scope of IFRS 2.
IFRIC 12 'Service Concession Arrangements' was issued in November 2006 and is effective for annual periods beginning on or after January 1, 2008. IFRIC 12 prohibits private sector operators from recognising as their own those infrastructure assets which are owned by the grantor.
IFRIC 13 'Customer Loyalty Programmes' was issued in June 2007 and is effective for annual periods beginning on or after July 1, 2008. IFRIC 13 requires the fair value of revenue relating to customer loyalty rewards to be deferred until all related obligations to the customer have been fulfilled.
IFRIC 14 'IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction' was issued in June 2007 and is effective for annual periods beginning on or after January 1, 2008. IFRIC 14 clarifies how any asset to be recognised should be determined, in particular where a minimum funding requirement exists.
IFRS 8 'Operating Segments' was issued in November 2006 and is effective for annual periods beginning on or after January 1, 2009. It requires reportable operating segments to be based on the entity's own internal reporting structure. It also extends the scope and disclosure requirements of IAS 14 Segmental Reporting, the standard which it is replacing. IFRS 8 will require the publication of segment reports, which will, as a minimum, disclose net result and total assets on a segment by segment basis based on management's own internal accounting information.
Status of EU endorsement
Entities in EU Member States which report in accordance with EU-endorsed IFRS can only apply IFRSs and IFRICs where the endorsement process has been completed at the date of approval of their financial statements. Of the standards and interpretations listed above, the following had not yet been endorsed by the European Union at the date these interim consolidated financial statements were authorised for issue:
IFRIC 12 'Service Concession Arrangements';
IFRIC 13 'Customer Loyalty Programmes';
IFRIC 14 'IAS 19 - The limit on a defined benefit asset';
Amendment to IAS 23 'Borrowing Costs';
IFRS 3 'Business Combinations (revised)';
Amendments to IAS 1 'Presentation of Financial Statements: A Revised Presentation';
Amendments to IAS 27 'Consolidated and Separate Financial Statements';
Amendment to IFRS 2'Share-Based Payment: Vesting Conditions and Cancellations'; and
Amendments to IAS 32 and IAS 1 'Puttable Financial Instruments and Obligations Arising on Liquidation'.
2 Segment Information
The Group only operates in a single business and geographical segment. The Group's single line of business is the exploration and evaluation of oil and gas reserves and the geographical segment in which it currently operates is the North Sea.
3 Operating Loss
The operating loss on ordinary activities is stated after charging the following:
| 3 month period ended March 31 2008 (unaudited) £ | 3 month period ended March 31 2007 (unaudited) £ | |
| Operating lease costs | 11,025 | - |
4 Staff Costs and Directors' Emoluments
The average number of persons employed by the Group (including Executive Directors) during the period was as follows:
| | 3 month period ended March 31 2008 (unaudited) | 3 month period ended March 31 2007 (unaudited) |
| Technical and administration | 5 | 3 |
| | | |
The aggregate payroll costs of staff and Executive Directors were as follows:
| | 3 month period ended March 31 2008 (unaudited) £ | 3 month period ended March 31 2007 (unaudited) £ |
| Wages and salaries | 205,556 | 108,208 |
| Social security costs | 25,420 | 13,851 |
| | 230,976 | 122,059 |
b. Executive Directors' emoluments
| | 3 month period ended March 31 2008 (unaudited) £ | 3 month period ended March 31 2007 (unaudited) £ |
| Wages and salaries | 159,675 | 108,208 |
| Social security costs | 19,937 | 13,851 |
| | 179,612 | 122,059 |
The Executive Directors comprise the key management personnel of the group.
In addition to the above, during the three month period ended March 31, 2008, the Group paid to Roger Ramshaw, Gregory Moroney and Scott Cochlan in their capacity as Non-Executive Directors of the Company fees of £11,250, £3,000 and £3,000 respectively. There were no such equivalent payments for the 3 month period ended March 31, 2007.
5 Taxation
| | 3 month period ended March 31 2008 (unaudited) £ | 3 month period ended March 31 2007 (unaudited) £ |
| Overseas tax charges | - | - |
Current tax is calculated at the rates prevailing in the respective jurisdictions. XEL is incorporated in the British Virgin Islands, a jurisdiction subject to a tax exemption. XER is incorporated in the UK and therefore subject to current tax on taxable profits at a rate of 30% (March 31, 2007: 30%).
6 Earnings/(Loss) per Share
Basic earnings/(loss) per share is calculated by dividing the profit/(loss) attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. The calculation of basic earnings/(loss) per ordinary share is based on a profit of £22,244 (March 31, 2007: loss of £184) and on 61,108,316 (March 31, 2007: 21,800,000), being the weighted average number of ordinary shares in issue during the period.
Details of potentially dilutive financial instruments are given in Note 11 to these financial statements.
7 Intangible Assets
| | Licence Fees | |
| Exploration and Evaluation Assets | March 31 2008 (unaudited) £ | December 31 2007 (audited) £ |
| Cost and carrying value: | | |
| At January 1, 2008 / November 1, 2006 | 126,567 | 66,297 |
| Additions during period | - | 60,270 |
| At March 31, 2008 / December 31, 2007 | 126,567 | 126,567 |
| | Appraisal and Exploration Costs | |
| | March 31 2008 (unaudited) £ | December 31 2007 (audited) £ |
| Cost and carrying value: | | |
| At January 1, 2008 / November 1, 2006 | 6,455,609 | 2,036,813 |
| Additions during period | 12,498,864 | 4,676,479 |
| Contributions to costs received | - | (257,683) |
| At March 31, 2008 / December 31, 2007 | 18,954,473 | 6,455,609 |
| | Total | |
| | March 31 2008 (unaudited) £ | December 31 2007 (audited) £ |
| Cost and carrying value: | | |
| At January 1, 2008 / November 1, 2006 | 6,582,176 | 2,103,110 |
| Additions during period | 12,498,864 | 4,736,749 |
| Contributions to costs received | - | (257,683) |
| At March 31, 2008 / December 31, 2007 | 19,081,040 | 6,582,176 |
The costs associated with the appraisal of Block 9/3b have been capitalised in accordance with the Group's accounting policy in Note 1.
Based on the Group's success in drilling its appraisal well on Block 9/3b, and in view of the forecast revenue streams and cash flows of this project, management is satisfied that the carrying amount of the related intangible assets as disclosed above will be recovered in full and that there is no need for any impairment provision. The situation will be monitored by management and adjustments made in future periods if future events indicate that such adjustments are appropriate.
8 Trade and Other Receivables
| | March 31 2008 (unaudited) £ | December 31 2007 (audited) £ |
| Indirect taxes receivable | 140,902 | 79,114 |
| Other receivables | 3,675 | 3,675 |
| | 144,577 | 82,789 |
9 Trade and Other Payables
| | March 31 2008 (unaudited) £ | December 31 2007 (audited) £ |
| Trade payables | 3,605,196 | 2,857,762 |
| Social security and other taxes payable | 36,359 | 33,919 |
| Accruals and other creditors | 955,665 | 2,150,991 |
| | 4,597,220 | 5,042,672 |
10 Financial Instruments
The Group's principal financial instruments are other receivables, trade and other payables and cash, which are denominated in various currencies. The main purpose of these financial instruments is to finance the Group's ongoing operational requirements.
The Group does not currently trade in derivative financial instruments. The principal financial risks faced by the Group are credit risk, liquidity and foreign currency risk. Policies for the management of these risks, which have been consistently applied throughout the period, are shown below.
Non-market risk
a) Credit risk
Receivables relate to VAT recoverable and an office rent deposit. As such, they are regarded as low risk.
b) Liquidity risk
Group management has responsibility for reducing exposure to liquidity risk and for ensuring that adequate funds are available to meet anticipated requirements. It operates according to the policies and guidelines established by the Board. Cash management is carried out centrally.
| | Carrying Amount | |
| | March 31 2008 (unaudited) £ | December 31 2007 (audited) £ |
| Financial assets – loans and receivables | | |
| - Cash | 8,561,749 | 21,067,134 |
| - Receivables (current) | 144,577 | 82,789 |
| | 8,706,326 | 21,149,923 |
| Financial liabilities – measured at amortised cost | | |
| - Payables (current) | 4,597,220 | 5,042,672 |
The management believes that as all financial instruments are short term, the fair values for all such items equate to their carrying amount.
Of the above cash balance of £8.56 million, the Group had a cash balance of £0.05 million (December 31, 2007: £7.11 million) held in escrow by an independent firm of solicitors in order to satisfy certain contractual requirements for the drilling of the appraisal well on Block 9/3b.
The accounting policies for financial assets and financial liabilities are disclosed in Note 1.
Market risk
c) Interest rate and foreign currency risks
The currency and interest profile of the Group's financial assets and liabilities are as follows:
| | | Interest Free Liabilities | |
| | | March 31 2008 (unaudited) £ | December 31 2007 (audited) £ |
| Sterling | | 2,724,879 | 2,807,605 |
| CAD$ | | 1,259 | 62,947 |
| USD$ | | 1,871,082 | 2,172,120 |
|
| | 4,597,220 | 5,042,672 |
| | Floating rate assets | Interest free assets | Total | |
| | March 31 2008 (unaudited) £ | March 31 2008 (unaudited) £ | March 31 2008 (unaudited) £ | |
| Sterling | 6,892,643 | 144,577 | 7,037,220 | |
| CAD$ | 74,436 | - | 74,436 | |
| USD$ | 1,594,670 | - | 1,594,670 | |
| | 8,561,749 | 144,577 | 8,706,326 | |
| | Floating rate assets | Interest free assets | Total | |
| | December 31 2007 (audited) £ | December 31 2007 (audited) £ | December 31 2007 (audited) £ | |
| Sterling | 16,460,016 | 82,789 | 16,542,805 | |
| USD$ | 4,607,118 | - | 4,607,118 | |
| | 21,067,134 | 82,789 | 21,149,923 | |
Sterling floating rate assets earn interest at circa 25 basis points below the Bank of England Base Rate per annum. US$ floating rate assets earn interest at circa 25 basis points below the Federal Reserve Rate per annum. Cash deposits are only kept with banks with "AA" rating or better. The policy of the group is to ensure that all cash balances earn a market rate of interest and that interest rate exposures are regularly reviewed and managed.
(d) Interest rate sensitivity analysis
Interest rate sensitivity analysis has been determined based on the exposure to interest rates for financial instruments during the financial period.
Based on the Group's cash balances during the period, if interest rates had been 50 basis points higher/lower and all other variables were held constant, the Group's profit for the period ended March 31, 2008 would increase/decrease by £12,877 (March 31, 2007; the Group's loss would decrease/increase by £18).
11 Share Capital
| | March 31 2008 (unaudited) Number of shares | December 31 2007 (audited) Number of shares |
| Authorised | | |
| - Ordinary shares of no par value each | Unlimited | Unlimited |
| Issued and fully paid up | | |
| - Ordinary shares of no par value each | 61,413,800 | 60,550,000 |
| | March 31 2008 (unaudited) £ | December 31 2007 (audited) £ |
| Authorised | | |
| - Ordinary shares of no par value | Unlimited | Unlimited |
| Issued and fully paid up | | |
| - Ordinary shares of no par value | 22,252,625 | 21,774,150 |
Shares issued
During the three month period ended March 31, 2008 the Company issued a further 863,800 ordinary shares for a total consideration of £478,475 following the exercise of certain warrants.
Stock Option Plan
An element of the Group's reward strategy is the implementation of the Stock Option Plan, the purpose of which is to provide an incentive to the Directors, officers and key employees of the Group to achieve the objectives of the Group; to give suitable recognition to the ability and industry or such persons who contribute materially to the success of the Group; and to attract and retain persons of experience and ability, by providing them with the opportunity to acquire an increased proprietary interest in the Company.
The Stock Option Plan is administered by the Remuneration and Nominating Committee. At March 31, 2008 there were 3,900,000 options outstanding (December 31, 2007: 3,800,000).
Share warrants
The Company had the following outstanding warrants over the ordinary share capital of the Company at March 31, 2008:
| Security | Holder | Number of ordinary shares | Exercise price | Market price at grant date | Expiry date |
| Warrants (1) | Shareholders of the company | 9,948,700 | US$1.50 | US$1.00 | May 7, 2009 |
| Broker warrants (2) | Thomas Weisel Partners (UK) Limited | 700,000 | US$1.00 | US$1.00 | June 26, 2009 |
| Broker warrants (3) | Various | 1,012,500 | CAD$1.60 | CAD$1.60 | Nov 15, 2009 |
| Warrants (4) | Ammonite | 163,500 | US$1.00 | US$1.00 | Nov 15, 2009 |
On June 26, 2007, pursuant to the Private Placement, XEL issued 20,000,000 units consisting of ordinary shares and 20,000,000 half-warrants at US$1.00 per unit. Each whole warrant entitles the holder to purchase one ordinary share in XEL at an exercise price of US$1.50 per share at any time until May 7, 2009. On February 15, 2008 the Company received consideration of US$75,000 in respect of the exercise of 50,000 of such warrants and on March 12, 2008 the Company received consideration of US$1,950 in respect of the exercise of 1,300 of such warrants.
Pursuant to the Private Placement, the Company issued to Thomas Weisel Partners (UK) Limited (formerly Westwind Partners (UK) Limited) 1,400,000 broker warrants to purchase 1,400,000 ordinary shares at an exercise price of US$1.00 at any time until June 26, 2009. On January 31, 2008 Thomas Weisel Partners (UK) Limited exercised a total of 700,000 of these warrants for a consideration of US$700,000.
Pursuant to the Initial Public Offering, XEL issued a total of 1,125,000 broker warrants to the following institutions: Thomas Weisel Partners (UK) Limited 843,750 (75%); Mirabaud Securities Limited 112,500 (10%); Wellington West Capital Markets Inc. 112,500 (10%); and MGI Securities 56,250 (5%), with each warrant entitling the holder to purchase one ordinary share in XEL at an exercise price of CAD$1.60 at any time until November 15, 2009. On February 7, 2008, Wellington West Capital Markets Inc. exercised a total of 112,500 of these warrants for a consideration of CAD$180,000.
XER entered into an agreement with Ammonite Capital Partners L.P. ("Ammonite") in January 2007 in connection with its proposed funding activities. The agreement contained provisions for XER to award Ammonite warrants over ordinary shares in XER under certain circumstances. XEL assumed responsibility for this agreement at the time that XEL acquired XER. The agreement provided for Ammonite to receive a total of 163,500 warrants, each over one ordinary share in XEL (the "Ammonite Warrants"), with each warrant entitling the holder to purchase one ordinary share in XEL at an exercise price of US$1.00 at any time until November 15, 2009.
12 Retained earnings and other reserves
| Retained Earnings £ | Merger Reserve £ | Other Reserves £ | Total £ | |
| At November 1, 2006 | (133) | 218 | - | 85 |
| Loss for the period to December 31, 2007 | (730,289) | - | - | (730,289) |
| Fair value of share warrants and options | - | - | 1,645,481 | 1,645,481 |
| At January 1, 2008 (audited) | (730,422) | 218 | 1,645,481 | 915,277 |
| Transfer upon exercise of share warrants | 101,774 | - | (101,774) | - |
| Profit for the period to March 31, 2008 | 22,244 | - | - | 22,244 |
| At March 31, 2008 (unaudited) | (606,404) | 218 | 1,543,707 | 937,521 |
The following explains the nature and purpose of each reserve within owners' equity:
| Retained Earnings | Cumulative net gains and losses recognised in the Group Balance Sheet. |
| Merger Reserve | The difference between the nominal value of the shares issued to acquire a subsidiary and the nominal value of the shares acquired. |
| Other Reserves | The fair value of share based payment instruments and warrants over shares granted by the Company at the date of grant and still outstanding. |
13 Commitments and contingencies
The Group had no commitments or contingencies as at March 31, 2008 other than as accounted for in these interim consolidated financial statements.
14 Subsequent events
On April 30, 2008 the Group announced a results update to the Block 9/3b-5 appraisal well, confirming belief in the commercial potential of the Bentley field, one of the largest undeveloped heavy oil fields in the North Sea in which the Group has a 100% interest.
Following review and interpretation of the appraisal well data, together with the hydrocarbon and fluid samples recovered from the drill stem test, the Group's well test partner, Schlumberger Limited ("Schlumberger"), confirmed that the forecast flow rate from a single production well in the reservoir would be circa 4,400 barrels of oil per day with zero water cut under production well conditions.
Based on these well test results and the Schlumberger data review and interpretation work, the Group believes that commercially viable production rates are achievable through the application of horizontal well technology coupled with appropriate artificial lift techniques, including submersible pumps.
The Group is now planning the next phase of the development process for the Bentley field, which will utilise enhanced oil recovery techniques consistent with the qualities of the reservoir and characteristics of the crude oil.