While Circle Oil continues to make headway on the ground, with strong production from its fields in Egypt and Morocco, it is clear that lower oil prices have taken their toll on the AIM-quoted E&P. Last year production averaged just over 4,897 barrels of oil equivalent per day (boepd) and 4.24 million cubic feet of gas per day (mmcfpd), 2P reserves in both countries moved in the right direction, up five per cent to 12.49 million boe in Egypt and up 19 per cent to 3.74 million boe in Morocco, while recent drilling results have also been positive.
Yet the lower oil price environment is having an impact: revenues of US$84.62 million were down nine per cent on 2013 levels while group operating profits, before write-offs and impairments, were down 28 per cent to US$23.31 million. The company has posted an operating loss of US$48 million, reversing the 2013 profit of US$32.35 million as a result of write-offs of its blocks in Oman and the Grombalia Block in Tunisisa and impairments on the assets in Egypt.
Despite this reversal into the red, Circle has to an extent, been partially insulated from the low prices compared to its peers due to both the low lifting costs in Egypt and strong gas production at stable prices in Morocco.
The company, which ended 2014 with available cash of US$34.5 million and has debts of almost US$60 million, has launched a strategic review of the cost base and funding options designed to “underpin profitability in a lower oil price environment”.
This review was also a result of the cost overruns on its projects on the Mahdia Block offshore Tunisia, which resulted in the EMD-1 light oil discovery, and Block 49 in Oman, where the Shisr-1 well was P&A due to drilling difficulties; when margins are tight there’s no scope for overruns and the company now plans to exit Oman, relinquishing both blocks there and no longer bidding for new acreage there.
Across North Africa, however, the company remains busy. It is currently drilling in Morocco, where stable gas prices and low drilling costs provide every incentive to keep the drillbit spinning. There will be ongoing drilling on the Sebou and Lalla Mimouna concessions, with at least three wells being drilled in the Lalla Mimouna concession in the area covered by the recent 3D seismic. Recent successful wells should help increase gas sales this summer.
In Egypt there will be three new production wells to minimise the decline in production rates from mature oilfields. Further appraisal of the EMD-1 discovery offshore Tunisia will depend on receiving Government approval of an extension for a further three years on the Mahdia Block and securing a farm-out partner to pursue further appraisal/exploration of this very prospective block.
The company has this week appointed a new CEO, Mitch Flegg, replacing long-time CEO Chris Green. Flegg is the former COO of Serica Energy, with extensive experience across a wide variety of E&P projects at all scales, from frontier exploration through appraisal, development and production.
Susan Prior, a chartered accountant, formerly of PwC, was appointed Group Finance Director in January 2015. Two new non-execs have also been appointed: Antony Maris, a petroleum engineer, currently COO of SOCO International, and David MacFarlane, the former FD of Dana Petroleum.