Xcite Energy Limited Interim consolidated financial statements ?· Interim consolidated financial statements…

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<ul><li><p>Xcite Energy Limited </p><p>Interim consolidated financial statements </p><p>For the 3 month period ended March 31, 2011 </p><p>(Unaudited) </p></li><li><p>Xcite Energy Limited </p><p>Interim consolidated financial statements </p><p>for the 3 month period ended March 31, 2011 </p><p>Contents </p><p> Page </p><p>Managements Discussion and Analysis .............................................................................................................. 1 </p><p>Consolidated Income Statement (in Pounds Sterling) ........................................................................................ 11 </p><p>Consolidated Statement of Comprehensive Income ........................................................................................... 11 </p><p>Consolidated Condensed Statement of Changes in Equity (in Pounds Sterling) ................................................ 12 </p><p>Consolidated Statement of Financial Position (in Pounds Sterling) ................................................................... 13 </p><p>Consolidated Statement of Cash Flows (in Pounds Sterling) ............................................................................. 14 </p><p>Notes to the Interim Consolidated Financial Statements .................................................................................... 15 </p></li><li><p>Xcite Energy Limited For the 3 month period ended March 31, 2011 </p><p>1 </p><p>Managements Discussion and Analysis </p><p>The Managements Discussion and Analysis (MD&amp;A) of the operating and financial results of Xcite Energy </p><p>Limited (XEL or the Company) should be read in conjunction with the Companys interim unaudited </p><p>consolidated financial statements and related notes thereto for the three month period ended March 31, 2011, the </p><p>audited consolidated financial statements and notes thereto for the year ended December 31, 2010 and the annual </p><p>MD&amp;A for the Company. This MD&amp;A is dated May 24, 2011. These documents and additional information </p><p>about XEL, including its annual information form dated October 26, 2010, are available on SEDAR at </p><p>www.sedar.com. </p><p>XEL is an oil issuer and disclosures pertaining to oil activities are presented in accordance with National </p><p>Instrument 51-101 (NI-51-101). </p><p>This MD&amp;A includes an analysis of the XEL results from January 1, 2011 to March 31, 2011 and from January </p><p>1, 2010 to March 31, 2010, which include the results of the operating subsidiary Xcite Energy Resources </p><p>Limited (XER). In this MD&amp;A, XEL and XER are together defined as the Group. All figures and the </p><p>comparative figures contained herein are expressed in Pounds Sterling unless otherwise noted. </p><p>Certain statements in this MD&amp;A may be regarded as forward-looking statements including outlook on oil </p><p>prices, estimates of future production, estimated completion dates of constructions and development projects, </p><p>business plans for drilling and exploration, estimated amount and timing of capital expenditures and anticipated </p><p>future debt levels. Forward-looking statements often, but not always, are identified by the use of words such as </p><p>seek, anticipate, believe, plan, estimate, expect, targeting and intend and statements that an </p><p>event or result may, will, should, could or might occur or be achieved and other similar expressions. </p><p>Information concerning reserves may also be deemed to be forward-looking statements as such estimates involve </p><p>the implied assessment that the resources described can be profitably produced in the future. These statements </p><p>are based on current expectations, estimates and projections that involve a number of risks and uncertainties, </p><p>including crude oil resource estimations, crude oil prices, exchange rates, interest rates, and prevailing rates of </p><p>taxation (see Risk Management section below), which could cause actual results to differ from those </p><p>anticipated by the Group. The reader should not place undue importance on forward-looking statements and </p><p>should not rely upon this information as of any other date. While the Company may elect to, it is under no </p><p>obligation and does not undertake to update this information at any particular time, unless required by applicable </p><p>securities law. </p><p>Summary of Results </p><p>The following table summarises the Groups performance for the eight most recent quarters. All of these results </p><p>are unaudited. The Group has no trading revenue in these periods. The interim unaudited consolidated financial </p><p>statements of the Company have been prepared in accordance with International Financial Reporting Standards </p><p>(IFRS) and International Financial Reporting Interpretations Committee (IFRIC) interpretations issued by </p><p>the International Accounting Standards Board (IASB). The interim unaudited consolidated financial </p><p>statements of the Company have also been prepared in accordance with IFRSs adopted by the European Union </p><p>(EU) and therefore they comply with Article 4 of the EU International Accounting Standards Regulation. The </p><p>financial data contained within the following table has been prepared in accordance with accounting policies that </p><p>have been applied consistently across all eight reporting periods. </p></li><li><p>Xcite Energy Limited For the 3 month period ended March 31, 2011 </p><p>2 </p><p> Q1 11 Q4 10 Q3 10 Q2 10 Q1 10 Q4 09 Q3 09 Q2 09 </p><p> 000s 000s 000s 000s 000s 000s 000s 000s </p><p>Net loss (13) (1,724) (212) (246) (265) (359) (249) (145) </p><p>EPS * (0.0p) (1.1p) (0.2p) (0.2p) (0.3p) (0.5p) (0.4p) (0.2p) </p><p>Total assets 99,158 102,801 54,688 48,281 48,282 24,790 23,240 23,507 </p><p>Long term liabilities 505 505 505 505 505 505 - - </p><p>* Loss per share (basic and diluted) in pence </p><p>The three months ended March 31, 2011 reports a small net loss for the period. This reduced loss compared </p><p>with previous periods has arisen due to foreign currency gains made in the period on currency exchange </p><p>transactions entered into in the normal course of business. Taking into account the currency gains realised, </p><p>the expenditure in the three months ended March 31, 2011 was materially consistent with previous periods. </p><p>The Company is not influenced by seasonality to any significant extent. The variations noted above in the net </p><p>results from quarter to quarter have arisen in line with the execution of the work programme for the Bentley </p><p>field, together with share-based payment charges in relation to the Companys Share Option Plan. </p><p>Liquidity and Capital Resources </p><p>The cash balance as at March 31, 2011 was 30.2 million (three months ended March 31, 2010: 24,243,904), </p><p>compared with 36.0 million as at December 31, 2010. The decrease in cash balance during the three months </p><p>ended March 31, 2011 has arisen due to the on-going working capital requirements, principally the settlement </p><p>of outstanding 9/3b-6 and 9/3b-6Z well creditors from the year end, with a corresponding offset from raising </p><p>funds of 15.0 million as a result of three SEDA draw-downs and the settlement of year end receivables. </p><p>Following a further two draw-downs during February 2011 totalling 10.0 million, through the issuance of </p><p>2,921,676 new ordinary shares, the SEDA facility was increased on March 18, 2011 by an additional 40 </p><p>million, bringing the total facility to 100 million. On March 28, 2011 a further draw-down of 5.0 million </p><p>was made, through the issuance of 1,558,314 new ordinary shares. As at the date of this MD&amp;A, there remains </p><p>unused SEDA facility of 56.25 million. </p><p>Taking into account the unused SEDA facility and the Groups financial obligations, the Group has forecast </p><p>that it has sufficient financial resources for working capital for the foreseeable future and to continue the </p><p>planning of the initial expenditure associated with the First Stage Production (FSP) of the Bentley field. </p><p>Lease and Contractual Commitments </p><p>At March 31, 2011 the Company had lease commitments relating to business premises of 66,248 (March 31, </p><p>2010: 593). </p><p>On February 14, 2011 the Company announced that XER had entered into a binding contract with British </p><p>American Offshore Limited (BAOL), part of Rowan Companies, Inc. (Rowan), for the Rowan Norway, a </p><p>harsh environment deep water jack-up rig, designed and built for simultaneous drilling and production. The </p><p>Rowan Norway is currently under construction and expected to be available to XER in the fourth quarter of </p><p>2011. The initial commitment period under this contract is 240 days, during which XER is expecting to </p><p>commence the first stage production on the Bentley field. As part of this contract an escrow account was set </p><p>up, into which USD$30 million has been deposited by the Group. A further USD$30 million will be provided </p><p>for the escrow account at the time that the jack-up rig is accepted by Rowan from the construction yard. </p></li><li><p>Xcite Energy Limited For the 3 month period ended March 31, 2011 </p><p>3 </p><p>Income </p><p>The Group has no operational revenues. This will continue until such time as commercial volumes of crude </p><p>oil are extracted from the Groups oilfield assets. </p><p>Interest income received on funds invested up to March 31, 2011 amounted to 31,991 (three months ended </p><p>March 31, 2010: 856). The increase in interest generated on funds invested between the two periods was as </p><p>a result of a significant increase in the level of average funds on deposit during the period. </p><p>Management has maintained its policy of keeping cash deposits with banks with AA equivalent rating or </p><p>better. The policy of the Group is to ensure that all cash balances earn a market rate of interest and that </p><p>interest rate exposures are regularly reviewed and managed. </p><p>Operations and Administrative Expenses </p><p>The Group only operates in a single business and geographical segment. The Groups single line of business </p><p>is the appraisal and evaluation of oil and gas reserves and the geographical segment in which it currently </p><p>operates is the North Sea. The Groups sole operational focus is the development of the Bentley field, but it </p><p>will continue to pursue other commercial opportunities as and when they arise. </p><p>During the three months ended March 31, 2011 the Group incurred total net administrative expenses of </p><p>45,230 (three months to March 31, 2010: 265,944). This included total foreign currency gains realised of </p><p>310,291 in the three months ended March 31, 2011 (three months to March 31, 2010: gains of 36,250). </p><p>Charges taken to the Profit and Loss account under the Companys Stock Option Plan were 65,949 during </p><p>the current quarter compared with 120,906 for the comparative period in 2010. In all other material respects </p><p>the Company has continued to incur operational overheads on a consistent basis quarter on quarter. </p><p>Additions to Exploration and Evaluation (E&amp;E) assets during the three months ended March 31, 2011 were </p><p>2,807,320 (three months ended March 31, 2010: 951,436). This represents a significant increase on the </p><p>comparable period last year due to a number of principal factors; planning and study work for the </p><p>forthcoming FSP, consultancy and study work for the publication of the Reserves Assessment Report </p><p>(RAR) in early May 2011, preparation of the Field Development Plan for submission to DECC and high-</p><p>value long-lead items. In addition, expenditure was incurred on general working capital, including staff </p><p>salaries and share based payment charges under the Stock Option Plan. </p><p>All such E&amp;E costs have been capitalised in accordance with the Groups accounting policies and will be </p><p>amortised against the revenue from production, if any, from the Bentley field. The Group has not incurred </p><p>any additional material research and development costs or deferred development costs over and above those </p><p>costs capitalised as E&amp;E assets. </p><p>Related Party Transactions </p><p>XEL has continued to provide, using a loan facility, its wholly owned subsidiary, XER, with net cash funding </p><p>of 19.8 million during the three month period to March 31, 2011 (three months to March 31, 2010: 0.59 </p><p>million) to finance XERs operational requirements. No interest is payable on the outstanding loan balance </p><p>from XEL, which is unsecured and repayable on demand. The total balance owing by XER to XEL at March </p><p>31, 2011 was 45.6 million (as at March 31, 2010: 23.2 million). </p><p>During the period the Executive Directors received the following remuneration: </p></li><li><p>Xcite Energy Limited For the 3 month period ended March 31, 2011 </p><p>4 </p><p> 3 months ended </p><p>March 31, 2011 </p><p>(unaudited) </p><p>3 months ended March 31, 2010 </p><p>(unaudited) </p><p>Wages and salaries 159,675 159,675 </p><p>Social security costs 19,706 19,891 </p><p>Share based payments 125,888 193,823 </p><p> 305,269 373,389 </p><p>In addition to the above, during the three month period ended March 31, 2011, the Group paid to Roger </p><p>Ramshaw, Gregory Moroney, Scott Cochlan and Timothy Jones in their capacity as Non-Executive Directors </p><p>of the Company fees of 4,500, 3,000, 3,750 and 3,000 respectively. The comparatives for the three </p><p>month period ended March 31, 2010 were 8,250, 3,000, 1,500 and 3,750 respectively. Charges in </p><p>respect of share based payments for the Non-Executive Directors in the three month period to March 31, </p><p>2011 were 20,199 (three month period to March 31, 2010: 31,099). </p><p>Share Options, Warrants and Rights </p><p>In the period to March 31, 2011, the Company issued no new share options under the Stock Option Plan and </p><p>issued no new broker warrants. </p><p>On March 14, 2011 the Company received consideration of CAD$11,300 (7,100) in respect of the exercise </p><p>of 18,225 broker warrants. </p><p>As at the date of signing this MD&amp;A there were 15,473,000 options outstanding and 844,283 broker warrants </p><p>outstanding, which would be equal to 16,317,283 further ordinary shares upon full conversion of these </p><p>options and warrants. </p><p>Disclosure Controls and Procedures </p><p>In conformity with the Canadian Securities Administrators National Instrument 52-109, the Company has </p><p>filed certificates signed by the Chief Executive Officer and the Chief Financial Officer that, amongst other </p><p>things, deal with the matter of disclosure controls and procedures. </p><p>Outstanding Share Capital </p><p>The following table sets out the ordinary shares issued during the period. No share options were exercised </p><p>during the three months to March 31, 2011. </p></li><li><p>Xcite Energy Limited For the 3 month period ended March 31, 2011 </p><p>5 </p><p> Ordinary Shares </p><p>As at January 1, 2011 158,703,998 </p><p>Issue of ordinary shares through SEDA Equity Line 4,479,990 </p><p>Issue of ordinary shares through broker warrant exercises 18,225 </p><p>As at March 31, 2011 163,202,213 </p><p>As at the date of signing this MD&amp;A, the number of shares in issue was 164,998,727 following a further </p><p>draw-down on the SEDA Equity Line of 6.0 million in consideration for 1,796,514 new ordinary shares in </p><p>the Company on April 28, 2011. </p><p>Risk Management </p><p>The principal risk factors facing the Group are as follows: </p><p>Exploration and development </p><p>The nature of oil exploration is such that there is no assurance that exploration activities will be successful. </p><p>Industry statistics show that few properties that are explored go on to being fully developed. Operations can </p><p>also be adversely affected by weather conditions and drilling rig and other operating equipment availability </p><p>out of the control of...</p></li></ul>


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