Xcite Energy breaks out. SBM Adds to Conviction Buy position
After seemingly being stuck at 77p-78p for weeks with warrants due to be exercised, Xcite Energy has suddenly perked up with a 6% rise to 85p. There’s been plenty of rumours of farm-in’s with BP, Statoil etc and precious little news out from the company on the extended well test in the Bentley Field for over 2 weeks now…
Meanwhile, volume is picking up and something looks to be afoot perhaps? Where volume goes – price generally follows in the AIM oilers.
Take a look at the 2 charts below that illustrate clearly someone getting in this morning. Knowing how leaky the markets are, there is always a reason for such moves and, given the woeful fundamental undervaluation of the stock and the clear chart breakout that indicates a move to 120p we have added to our Conviction Buy position (called at 73p on the 5 Jul 2012) today.
YTD Daily chart
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Update on Monday, August 20, 2012 at 1:58PM by Contrarian Investor UK
The Junior Oil Trust has bought into Xcite in July, now investors are waiting for the issue of warrants to put a floor on the share price. Further news due from Bentley extended well test that’s for sure.
The oil price has recovered well from the lows seen in June. Brent now trades at over $116/barrel and the rising trend looks set to continue. Demand from the developing world continues to be strong and the major producing countries, such as Saudi Arabia, would rather sell their oil at higher prices, so are unlikely to increase production.
This is good news for oil producing companies, particularly those that operate with Brent as their benchmark. All that remains is for the market to re-rate the extremely low valuations of oil shares. This is particularly the case with smaller, less liquid shares that have suffered excessively as a result of investors’ risk aversion. Industry players have accelerated their takeover activity seeking to take advantage of market anomalies and distressed situations. Portfolio investors are likely to follow this lead.
The Junior Oils Trust is well positioned to benefit from a sector rerating, holding stakes in well capitalised, producing companies with growing operations and active development programmes. One recent addition to the portfolio is Xcite Energy (XEL:LSE), a company focused in the North Sea. It recently raised fresh capital and is now well funded to continue with the development of the Bentley field, its key project. The prospects for this field now look very attractive and it could be transformational for the company, especially if it is successful in finding a farm-in partner.
During the month we took profits in our holding in Nautical Petroleum pending the takeover by Cairn Energy. We felt that the capital could be re-deployed in other, more prospective situations instead of waiting for settlement of a recommended transaction.