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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Circle Oil | LSE:COP | London | Ordinary Share | IE00B034YN94 | ORD EUR0.01 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.625 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMCOP
RNS Number : 5696C
Circle Oil PLC
29 June 2016
29 June 2016
Circle Oil Plc
(The "Company") and its Subsidiaries ("Circle" or the "Group")
Preliminary results for the year ended 31 December 2015
Highlights
Post Period End
-- In March 2016, the Group announced it was to undergo a Strategic Review of the Group's business and assets with options being considered including, a debt restructuring, a sale of one or more of the Group's existing assets, a corporate transaction such as a merger with a third party, the sale of the entire issued, and to be issued, share capital of the Group and the raising of capital in the form of a subscription for new ordinary shares in the Group. This process is ongoing although the Directors believe that it is now likely that there will be no value attributable to Circle Oil plc equity holders
-- The Group's financial position remains under significant pressure given the unpredictable and infrequent payments from EGPC. As a result, the Company require additional funding during the course of July in order to be able to discharge its financial obligations from August 2016.
-- International Finance Corporation (IFC) have deferred the payments required under the existing RBL facility and waived any events of default in respect of this by issuing a number of waiver letters to the Company, the most recent of which will expire on 22 July 2016.
-- The Company's auditor has issued a disclaimer of opinion, on the basis of going concern. In assessing going concern the period considered by the Directors is to the completion of the Strategic Review, which is likely to be less than twelve months from the date of approval of the financial statements.
-- The Group engaged a leading reserves auditor, LR Senergy, to evaluate its oil and gas reserves and resource base. LR Senergy also evaluates the Group's reserves on behalf of its secured lenders. The results of the assessment are set out on pages 5 and 6 and recognise production over the year, the lower oil price environment and are also impacted by the change in assessor.
-- In February 2016, the Group announced the signing of a Memorandum of Understanding with SBS Porcher whereby SBS Porcher would pay for the construction of a pipeline extension to central Kenitra and off-take a minimum of 10,000 NM3 per day (c. 0.35 MMscf/d) at a price of MAD4.25 per NM3 (c. US$12/Mscf) representing both a substantial increase in current prices and an additional 6% of annual production volumes.
Highlights (continued)
Operational Review
-- Total gross production for the Group for the year was 3.64 million boe (gross) (1.58 MMboe net to Circle) made up of 2.71 MMbo and 3.23 bcf (557,000 boe) (gross) of gas and liquids in Egypt (1.08 MMbo and 1.29 bcf (223,000 boe) of gas net to Circle) and 2.14 bcf (369,000 boe) (gross) of gas in Morocco (1.61 bcf (277,000 boe) net to Circle).
-- Gross production in Egypt averaged 7,426 bopd and 8.86 MMscf/d equivalent to 8,953 boepd(1) (net to Circle 2,970 bopd, 3.54 MMscf/d and 3,581 boepd) in Egypt.
-- Average gross gas production of 5.85 MMscf/d (net to Circle 4.39 MMscf/d), 1,009 boepd (net to Circle 757 boepd) in Morocco through 2015.
-- Third drilling programme in Morocco completed. This comprised three wells in Lalla Mimouna exploration permit. Circle drilled 5 new wells in the Sebou permit of which 3 are now in production.
-- Relinquishment of Oman Block 49 and Block 52 after agreement reached with Ministry of Oil and Gas in Oman.
-- Extension of the exploration permit on the offshore Mahdia block for three years until 19 January 2018, where Circle currently has a 100% interest.
Financial Review
-- Revenue for 2015 of US$38.95 million was down 54% (2014: US$84.62 million) reflecting both lower oil prices and a decline in production.
-- The Group continues to focus on low-cost operating environments. Egypt 2015 operating cost was $5.22/bbl; in Morocco the 2015 operating cost was $0.58/Mcf.
-- Group operating loss, before write-offs and impairments was US$3.84 million (2014: US$23.31 million profit).
-- The Group incurred write-offs and impairments of US$108.82 million (2014: US$71.33 million).
-- Capex was US$28.43 million (2014: US$103.10 million) reflecting drilling activity in Morocco, with US$49.30 million impacting the 2015 cashflow, as capex incurred in 2014 was paid for.
-- Cash generated from operations was US$26.81 million (2014: US$56.26 million). Cashflows from Morocco remain steady. In Egypt, receipts continue to be unpredictable.
-- Successful negotiation of a two-year extension of the convertible loan with Circle Link S.ar.L ( a subsidiary of KGL Investment Company); US$10 million re-paid during 2015 to reduce balance of loan to US$20 million.
-- Throughout 2015, the Group remained in discussions with IFC regarding the borrowing base of the Reserve Based Lending (RBL) facility which was drawn to US$57.50 million. At year-end, the Group and IFC had not reached a solution.
-- At year end, cash and cash equivalents was US$10.03 million (2014: US$36.31 million) inclusive of restricted cash and bank guarantees. Net debt was US$67.47 million. As at the end of May 2016, net debt increased to US$69.62 million.
Chairman's Statement
2015 has been a challenging year for the industry and Circle has not been alone in focusing on the reduction of its cost base, capital expenditure commitments and its available liquidity.
This focus on cost reduction was most marked in the drilling campaign carried out during the year in Morocco. Unit well costs were reduced by over 30% over the duration of the campaign and the final well was drilled from spud to TD in only 9 days, which was considerably quicker than any well previously drilled by Circle. More importantly, the campaign led to three successful discoveries from the five wells drilled in the Sebou permit. These three wells have all been completed, are now tied-in and are producing through Circle's existing production facilities.
During this drilling campaign, we drilled the first three wells on our Lalla Mimouna exploration permit in Morocco. The first of these wells discovered gas and flowed to surface during a well test. The second and third wells had indications of gas but were not flowed to surface. Although the volume of gas found in these wells is lower than our pre-drill expectations, the wells have provided invaluable data, which is now being integrated into our regional interpretations in order to determine future drilling locations.
Production levels in Morocco remained consistent with the previous year at an average of 5.85 MMscf/d (gross) or 4.39 MMscf/d (net). Production is sold directly to industrial users in the Kenitra area of Morocco. At the start of the year we were selling gas to three major consumers, Super Cerame, CMCP and Keyes-Cemok. During the early part of the year the smallest of the three consumers (Keyes-Cemok) ceased trading and so no longer purchase gas from Circle. However, during the year negotiations commenced with a new consumer (SBS Porcher) which resulted, in early 2016, in the signing of a Memorandum of Understanding for a new gas sales contract. As part of this arrangement, SBS Porcher will pay for and construct a new pipeline extension linking the existing Circle-owned pipeline in the northern Kenitra region to their factory in the central Kenitra area.
In Egypt, gross oil production through 2015 averaged 7,426 bopd and 8.86 MMscf/d of wet gas giving a total of 8,953 boepd (3,581 boepd net to Circle). Although there were no new wells completed in 2015, the ongoing water flood and workover programmes continued in order to help maintain production levels. A two well infill drilling campaign commenced at the end of the year and both of these wells were successfully brought into production in the first half of 2016.
A major focus for Circle in Egypt has been to improve the regularity and quantum of US dollar payments from the Egyptian General Petroleum Corporation (EGPC). This represented a significant challenge in the second half of 2015 and despite an initial improvement in receipts post year-end, payment frequency and amounts have significantly declined in 2016 and put the Company's financial position under continued pressure
In Oman, the Shisr-1 exploration well was drilled on the onshore Block 49. Following mud losses in a carbonate formation, the well was plugged and abandoned without reaching the objective to avoid excessive cost overruns. The well site was cleared and an environmental certificate of release granted. Thereafter it was decided to relinquish both that block and our offshore Block 52. This was achieved by agreement with the Ministry of Oil & Gas (MOG) and a managed withdrawal was completed successfully within the year. Whilst we are disappointed to leave Oman, we believe that our technical and financial resources can be better utilized elsewhere in the existing portfolio.
In Tunisia there has been no drilling activity on any of our licences during 2015. In August it was announced that the Tunisian Authority has approved the application to renew the exploration permit on our offshore Mahdia block. The Permit was extended for three years until 19 January 2018 and Circle, as operator, currently has a 100% working interest in the Permit. The Mahdia permit contains the El Mediouni structure which was drilled by Circle's 2014 EMD-1 well encountering a 133 metre oil column in the Ketatna (Oligo-Miocene) carbonates.
The extension of the licence carries with it a one exploration well and one appraisal well commitment and a requirement to acquire 300 km(2) of 3D seismic. In the latter part of 2015 we launched a farm-out campaign to attract a suitable partner for the appraisal and development of this discovery. Although there were a number of expressions of interest in this opportunity, the campaign was conducted against a backdrop of extremely low oil prices and made the process challenging. The process was suspended as part of the Strategic Review (see below).
As a result of the June 2015 RBL redetermination, where IFC advised that the Group's Borrowing Base would reduce from the US$67.50 million level, the Group entered into discussions with IFC which culminated in an agreement in principle to extend the term of the RBL. Throughout the remainder of the year, the Group has remained in constructive discussions with IFC in respect of this issue. However, it became clear that despite Circle's low cost operations, the December 2015 redetermination of the Borrowing Base would also likely result in further reduction and as a consequence, there would be a shortfall.
Subsequent to the year end the Group announced that those discussions had resulted in agreement by IFC to suspend the December 2015 redetermination in order to allow the Group to initiate a Strategic Review process. The scope of the options being considered under the Strategic Review include, but are not limited to, a sale of one or more of the Group's existing assets, a corporate transaction such as a merger with a third party, the sale of the entire issued, and to be issued, share capital of the Company and the raising of capital in the form of a subscription for new ordinary shares in the Company by one or more third parties. The Board has appointed, Investec Bank plc, to act as financial advisor to the Group in relation to the Strategic Review. To date, the Group has received a number of indicative proposals however, after taking into account the Group's debt position and based on the current status of the proposals received to date, the Directors believe that it is now likely there will be no value attributable to Circle Oil plc equity holders.
The Directors have analysed its cash flow forecast with a view to assessing whether the financial statements should be prepared on a going concern basis. Analysis of the cash flow forecast has identified the need, to renegotiate existing funding arrangements or obtain additional funding in July 2016 in order for the Group to meet its on-going cash requirements. The Group has a significant short-term obligation of US$57.50 million payable in full in the event of default under the terms of the RBL facility signed with IFC and may be required to repay the Convertible Loan liability of US$20 million. In addition, the ongoing volatility and unpredictability of receipts from EGPC, which has continued to worsen, further exacerbates the challenging liquidity situation. In light of the above factors, management's forecasts indicate that it will not be able to pay the ongoing debt interest payments and operational cash requirements from August 2016 without additional funding. However, after making enquiries and considering the uncertainties described above, together with actions currently being undertaken with regard to the Strategic Review, the Directors have a reasonable expectation of the continued support from IFC to complete the Strategic Review process, the results of which are expected to be finalised in the coming months. As a consequence of this however, the Group's auditor has issued a disclaimer of opinion.
Oil and gas revenues were down by 54% to US$38.95 million as a result of lower oil prices, a strengthening US dollar against the Moroccan dirham and reduction in production in both Egypt (27%) and Morocco (10%). There was an operating loss of US$112.65 million compared to US$48.02 million in 2014. This was caused primarily by impairment of Sebou permit in Morocco and NW Gemsa permit in Egypt totalling US$67.67 million along with write-offs of exploration expenditure in Tunisia in the amount of US$40.89 million. The lower oil price environment and the revised reserves in the LR Senergy Competent Persons Report (CPR) necessitated the impairments. The reduction in Tunisia related to the decision to write-off the overrun in cost of the EMD-1 well in the offshore Mahdia permit and the full cost of the Ras Marmour permit.
Cash generated from operations at US$26.81 million was down 53% on the previous year compounded by decreased cash receipts from EGPC, which were down 50% compared to 2014.
Full details of the above noted matters are presented in the Financial Review on pages 10 to 13.
I once again acknowledge the contributions of Circle's staff, associates and partners in the current challenging environment for the sector in general.
Stephen Jenkins
Chairman
Operations Review
Introduction
In 2015 Circle consolidated its positions in Morocco and Egypt and withdrew from Oman. In recognition of the prevailing decline in oil prices, activity levels were reduced everywhere with a view to reducing costs and therefore little activity was conducted in Tunisia on our exploration blocks. Activities did include the drilling of commitment well Shisr-1 in Oman Block 49, completion of the third drilling campaign in Morocco, several workovers to maintain production in NW Gemsa, and final analysis of the results of the El Mediouni-1 well in Mahdia Block Tunisia. Since year end we have successfully concluded the two well drilling campaign in Al Amir South East (AASE) field in Egypt with both wells now on production.
The 2016 Competent Person's Report (CPR) on the status of reserves at year end 2015, has been completed by LR Senergy, an independent consultancy who have previously supplied reports to IFC in support of our RBL facility. This report shows that the 2P gross Producing and Undeveloped Reserves are estimated to be 18.04 MMboe or 7.65 MMboe net to Circle, (2014: 16.23 MMboe net). In addition, the P50 gross Unrisked Contingent Resources are estimated at 5.644 MMboe (2.81 MMboe net).
Reserves
Hot Features
Premium
Table 1: Producing and Undeveloped Reserves
----------------------------------------------------------------------------------------------------------------------
Gross on Licence Circle Working Interest Operator
--------------- -------------------------------------------- ------------------------------------------- ----------
Proved,
Probable
Proved, plus
Proved plus Probable plus Proved plus Possible
Proved (1P) Probable (2P) Possible (3P) Proved (1P) Probable (2P) (3P)
--------------- ------------ -------------- -------------- ------------ -------------- ------------- ----------
Oil & Liquids Reserves (MMstb)
----------------------------------------------------------------------------------------------------------------------
Egypt 9.795 13.889 18.511 3.918 5.556 7.405 PetroAmir
--------------- ------------ -------------- -------------- ------------ -------------- ------------- ----------
Morocco 0.000 0.000 0.000 0.000 0.000 0.000 Circle
--------------- ------------ -------------- -------------- ------------ -------------- ------------- ----------
Total (MMstb) 9.795 13.889 18.511 3.918 5.556 7.405
--------------- ------------ -------------- -------------- ------------ -------------- ------------- ----------
Gas Reserves (Bcf)
----------------------------------------------------------------------------------------------------------------------
Egypt 11.302 16.173 21.925 4.521 6.469 8.770 PetroAmir
--------------- ------------ -------------- -------------- ------------ -------------- ------------- ----------
Morocco 5.566 7.915 11.231 4.026 5.686 8.012 Circle
--------------- ------------ -------------- -------------- ------------ -------------- ------------- ----------
Total (Bcf) 16.868 24.088 33.156 8.47 12.155 16.782
--------------- ------------ -------------- -------------- ------------ -------------- ------------- ----------
MMboe (based on nominal conversion 5.8 Bcf=1 MMboe)
----------------------------------------------------------------------------------------------------------------------
Egypt 11.744 16.678 22.291 4.697 6.671 8.917 PetroAmir
--------------- ------------ -------------- -------------- ------------ -------------- ------------- ----------
Morocco 0.960 1.365 1.936 0.694 0.980 1.381 Circle
--------------- ------------ -------------- -------------- ------------ -------------- ------------- ----------
Total (MMboe) 12.703 18.042 24.228 5.392 7.651 10.299
--------------- ------------ -------------- -------------- ------------ -------------- ------------- ----------
Contingent Resources
Table 2: Unrisked Contingent Resources (Producing Fields)
------------------------------------------------------------------------------------------------------------
Gross on Licence Circle Working Interest Operator
--------------- --------------------------------------- -------------------------------------- ----------
Low (P90) Best (P50) High (P10) Low (P90) Best (P50) High(P10)
--------------- ----------- ------------ ------------ ----------- ------------ ----------- ----------
Oil & Liquids Reserves (MMstb)
------------------------------------------------------------------------------------------------------------
Egypt 0.000 3.386 7.957 0.000 1.354 3.183 PetroAmir
--------------- ----------- ------------ ------------ ----------- ------------ ----------- ----------
Morocco 0.000 0.000 0.000 0.000 0.000 0.000 Circle
--------------- ----------- ------------ ------------ ----------- ------------ ----------- ----------
Total (MMstb) 0.000 3.386 7.957 0.000 1.354 3.183
--------------- ----------- ------------ ------------ ----------- ------------ ----------- ----------
Gas Reserves (Bcf)
------------------------------------------------------------------------------------------------------------
Egypt 0.000 3.936 9.407 0.000 1.574 3.763 PetroAmir
--------------- ----------- ------------ ------------ ----------- ------------ ----------- ----------
Morocco 3.627 9.166 19.453 2.715 6.861 14.529 Circle
--------------- ----------- ------------ ------------ ----------- ------------ ----------- ----------
Total (Bcf) 3.627 13.102 28.860 2.715 8.435 18.292
--------------- ----------- ------------ ------------ ----------- ------------ ----------- ----------
MMboe (based on nominal conversion 5.8 Bcf=1 MMboe)
------------------------------------------------------------------------------------------------------------
Egypt 0.000 4.064 9.579 0.000 1.626 3.832 PetroAmir
--------------- ----------- ------------ ------------ ----------- ------------ ----------- ----------
Morocco 0.625 1.580 3.354 0.468 1.183 2.505 Circle
--------------- ----------- ------------ ------------ ----------- ------------ ----------- ----------
Total (MMboe) 0.625 5.644 12.932 0.468 2.809 6.336
--------------- ----------- ------------ ------------ ----------- ------------ ----------- ----------
Morocco
The predominant theme during 2015 was reduction of the cost base for our operations. The appointment of Marcel Lensvelt as interim Country Manager gave added impetus to initiatives started in early 2015. Service contracts were terminated and replaced or renegotiated to make use of lower cost providers. The drilling rig contract was not extended beyond the minimum period with a view to conserving cash and taking advantage of lower day rates for future campaigns. Staff numbers have been gradually reduced and a restructuring commenced to ensure more efficient operations during 2016 and beyond.
This focuses on the use of local experience to implement international practices appropriate to the commercial and technical environment. Towards the end of the year a new permanent Country Manager (Lonny Baumgardner) was appointed with broad international operating experience in Canada, Africa and the Middle East. Throughout these changes the key focus has been business continuity including the relationship with the state oil company and regulator, ONHYM, our partner and key advisor on local matters.
In the Sebou and Lalla Mimouna permits and any subsequently granted concessions Circle has a 75% share and ONHYM has a 25% share. Discoveries made within the exploration permits have the right, in the event of proven commerciality, of conversion to production concessions of up to 25 years with extensions in the event of remaining production after that period. In the currently lapsed Oulad N'zala concession (which was not producing at year-end), Circle had a 60% share and ONHYM had a 40% share. Discussions are advanced to apply for and be granted a new exploration permit in the Sebou area which could include all or part of the old Oulad N'Zala concession. It would be anticipated that Circle would have a 75% working interest in such a permit.
Gross gas production averaged 5.85 MMscf/d (1,009 boepd) through 2015. We started the year supplying three companies in the Kenitra industrial zone but the smallest of these, Keyes-Cemok ceased trading at the end of January. Our two remaining customers regularly take more gas than the minimum contracted and have both been keen to extend or increase consumption pending negotiations of further contracts with other parties.
Production start-up from Sebou was in November 2008 through a supply contract to the CMCP paper factory. Gross gas sales to all customers through to the end of December 2015 was 10.24 bcf (290.05 MMNm(3) , 1.77 MMboe). Total sales to CMCP are now in excess of 4.71 bcf (46%); to Super-Cerame (since August 2011) 5.46 bcf (53%) with less than 1% to Keyes Cemok (December 2012 to January 2015). Since late 2011 production has been transmitted through our owned (Circle 75%; ONHYM 25%) and operated dedicated 8-inch pipeline to Kenitra from the gathering stations in our permit. This has a capacity for 25 MMNm(3) /d and we plan to increase utilisation once contracts can be put in place underwritten by the available resources.
The third Sebou drilling campaign (started in 2014) recommenced in February 2015 with well KAB-1bis, a re-drill of the KAB-1 well which had failed to log the target anomaly due to mechanical difficulties associated with the geology. Unfortunately, the results confirmed an anomalous time/depth relationship and the expected anomaly was intersected close to a fault cut. The remaining gas potential up-dip of the fault is anticipated to be too small to be economic. Drilling then moved to the Lalla Mimouna block where the first well LAM-1 intersected the objectives close to prognosis and an unexpectedly thick sand sequence at its base. Subsequent test results provided good natural flows to surface, but were not as promising as expected pre-drill in terms of indicated volumes and the well was suspended for further analysis and potential workover/sidetrack. The second well, ANS-2, also encountered the anticipated anomaly levels which were found not to yield good wireline pressure/permeability readings and the well was suspended for further investigation at a later date. The third well, NFA-1, targeted a larger, shallower, but weaker anomaly class and did not encounter the expected anomaly sands. The rig was then moved back to Sebou and drilled an exploration well targeting a new anomaly type at KSS-A. This well was abandoned for mechanical reasons without reaching the objective. The following two wells CGD-13 and KSR-A were successfully drilled, tested, and put on stream, also completing the suspended SAH-W1 well adding at least 1.2bcf (2P case) to reserves in the current report. KSR-A, being an additional well to the first submitted Sebou programme was allowed against the commitment to drill 6 wells in Lalla Mimouna.
The latest CPR reserve estimates by LR Senergy takes account of the results of the drilling and development/production activity up to the KSR-A well at the end of the third campaign. For Sebou and its associated concessions, the P(50) value assigned to Gross Estimated Ultimate Recoverable Gas Reserves is 17.78 bcf (3.06 MMboe), 13.18 bcf (2.27 MMboe) net to Circle. The reduction from the year end 2014 report is partially accounted for by the re-categorisation of 9.17 bcf (1.58 MMboe) gross to Unrisked Contingent Resources. After production in the year the 2P Gross Producing and Undeveloped Reserves are estimated to be 7.92 bcf (1.37 MMboe), 5.69bcf (0.98 MMboe) net to Circle, these figures are similarly affected by the re-categorisation.
The commercial environment for further gas contracts in the Kenitra area is good for both traditional ceramic (and other) industries and newly arriving companies in the Atlantic Free Trade Zone adjacent to our pipeline. SBS Porcher (ceramic ware) have already signed an MOU to take a new gas contract, and other companies are in discussions with demand providing upward pressure on any new prices. For the future a planned Peugeot assembly line or its suppliers could also use natural gas rather than bottled Propane for part of their operations.
Egypt
As with Morocco there has been a drive to reduce the cost of production in our non-operated fields in Egypt. The operator (Northern Petroleum International Company, NPIC) has responded to the reduction in oil prices by repatriating some expatriate staff, and reducing local staff costs (overtime, extras, field movements). Capex has been reduced by delaying the planned drilling campaign and reducing from three firm and optional additional wells to two firm wells, one of which was started in December. However, essential workovers and maintenance have continued in order to maintain production as the field matures and water front advance / reservoir pressure maintenance require appropriate interventions.
The NW Gemsa concession contains the Geyad field, and Al Amir South East, and Al Ola (jointly headed AASE field), where the majority (83%) production is from AASE where the two named fields are one contiguous pressure/fluid system. Circle working interest is 40% with NPIC 50% (operator) and SDX Energy the remaining 10%. The field is run under the terms of a PSC as a joint venture with EGPC through PetroAmir (PA) operating company staffed by a mixture of local and seconded expatriates.
The year end 2015 CPR by LR Senergy includes reserve estimates based on full field decline models which do not take account of the two wells and sidetracks drilled since year end. The Gross Remaining 2P Reserves are: 16.68 MMboe (Oil 13.35 MMbbls, Gas 16.17 MMscf, Condensate 0.15 MMbbls, LPG 34,120 tonnes) with an additional Contingent 2C Resources (beyond 2028) of 3.74MMboe. Roughly 87% of the Reserves are in AASE.
Gross production from start-up in February 2009 through to the end of December 2015 was 20.40 MMbo and 22.04 MMscf of gas. Since February 2013 the gas export line to the SUCO facilities in Zeit Bay has allowed for associated wet gas production to be processed to dry sales gas, with the resulting extracted condensate and liquefied petroleum gas (LPG) available for sale at the terminal. At the end of December 2015 total sales gas were 9.45 MMscf, with 91,005 bbls of condensate and 20,201 tonnes of LPG. In the year 2015, gross production averaged 7,426 bopd and 8.86 MMscf/d of wet gas. Processing of the produced gas provided 67 bpd of condensate, 15 tonnes of LPG/d and 7,009 MMscf/d of dry sales gas.
Fluid offtake from the Geyad and AASE fields continues to be managed in the light of good oil field practice and the waterflood is proving effective to maximise recovery. Water injection was reduced in proximity to wells where water breakthrough was seen to be imminent or increasing. Seven workovers were conducted during the year, three production zone switches, one conversion to injector, and three ESP installation/maintenance interventions. One recompletion was unsuccessful. No new wells were drilled, but the two well campaign that started in December has been completed since year end. AASE-23 encountered a fault and was sidetracked to the reservoir, flowing at over 4,000 bopd on test. It commenced production at 740 bopd in January. AASE-24 also encountered a fault, and the sidetrack found both reservoirs. The well flowed at over 1,700 bopd on test and commenced production at 490 bopd in May. A further program of workovers is underway with the workover rig since year end.
Dynamic modelling of the reservoir is proceeding with both the operator and Circle finalising updated geologic models and history matches in order to move on to comparing expected future performance scenarios.
Discussions regarding unitisation of the field with the adjoining block holders (Dana/PetroKareem) are ongoing with an exchange of data completed and procedural plan in place.
Tunisia
During 2015 exploration activities in Tunisia have been minimal. The costs of necessary seismic acquisition and drilling fell during the year making it challenging to know when best to undertake remaining commitments. Circle Oil has three interests in Tunisia, the offshore Mahdia Block (3,024 km(2) ); the onshore Beni Khalled Concession (55 km(2) ); and the Ras Marmour concession (1,564 km(2) ).
In the Mahdia permit work was completed on the analysis of the El Mediouni-1 (EMD-1) well which encountered light oil shows through a 133 metre section of Ketatna carbonates. Formal government approval was granted for an extension of the permit through January 2018, with a work commitment of two further wells and 300 km(2) of 3D seismic (or equivalent in 2D line kms). Further technical work was undertaken by the Company to formulate future work plans and development scenarios. The work indicated that based on management's assumptions, the development of the Mahdia prospect would be economically feasible at existing oil prices (May 2016). A farm-out process on the block was initiated in late 2015, but has since been superseded by the strategic review process.
Tender processes were conducted for a 3D survey on the Beni Khalled concession. These were inconclusive in the light of falling rates for the seismic and the uncertainties in sharing mobilisation for a survey of less than 60 km(2) . Efforts to finalise an award for conduct of this work continue in 2016. The Bir Drassen gas discovery on this concession (Marathon 1991) tested at 23.5 MMscf/d gas and 28 bcpd. At the time this was not of commercial interest. The Beni Khalled field, discovered by the operator Exxoil in 2004 initially produced at 550 bopd it is currently produced sporadically according to the prevailing price and usually yields less than 80 bopd.
The Ras Marmour permit in the south-east of Tunisia is adjacent to several on- and off-shore oil fields. The Group holds a 23% working interest and the operator is Exxoil. The location for a well on the Isle of Djerba, Sedouikech-1, originally planned to be drilled in 2014, has been the subject of disputes due to changing legislation and the permit is currently considered to be in Force Majeure while these issues are being resolved.
Oman
At 1 January 2015 Circle operated onshore exploration Block 49 and offshore exploration Block 52 in Southern Oman, both 100% owned. During the year the decision was taken to relinquish both interests in order to minimise future exploration commitments. This was achieved by agreement with the Ministry of Oil & Gas (MOG) and a managed withdrawal was completed successfully within the year. All technical and other necessary data was submitted to MOG. Circle was disappointed to take these steps given the potential upside to our exploration portfolio provided by these blocks. However, it was an inevitable process in the light of the prevailing oil price, lack of proven success, and lack of time to complete further commitments when resources might become available.
At the beginning of the year operations were fully underway on Block 49 to drill the Shisr-1 exploration well on a stratigraphic prospect of Ordovician age. The target Hasirah and Ghudun sands were interpreted to be responsible for a strong 3D seismic anomaly with evidence downdip of sand presence (Dauka-1 well) and updip of complete pinch-out of this section (Ghudun-1 well). The well was operating from 19 January to 20 February. During the 8 1/2 " section losses occurred in the carbonate section and the drill assembly became stuck and was abandoned in the hole after unsuccessful fishing attempts. The well was plugged and abandoned at this time without reaching the objective to avoid excessive cost overruns. The well site was cleared and an environmental certificate of release granted. The failure of this well, made relinquishment inevitable at this time.
In Block 52, following the withdrawal from Block 49 and the unsuccessful efforts to farm-out an interest in the block to avoid well cost commitments at 100% exposure, a withdrawal without penalties was agreed with MOG in recognition of the significant expenditures made to date.
Mitchell Flegg
Chief Executive Officer
Financial Review
Financial results summary
2015 2014 % Increase/
US$000 US$000 (decrease)
Group revenue 38,945 84,624 (54)
Group operating loss (112,654) (48,019) 135
Group operating (loss)/profit
before write-offs and impairment (3,838) 23,313 -
Cash generated from operations 26,808 56,259 (52)
Available cash 8,228 34,508 (76)
Bank and other debt 77,500 75,000 3
Results for the financial year
In what was a very challenging year for Circle, oil and gas revenues fell to US$38.94 million, a decrease of 54% on 2014. This decline was as a result of a fall in oil prices along with a reduction in the volume of oil sold in Egypt. Revenues generated in Egypt in 2015 were US$25.19 million down 62% on 2014. In Morocco the dirham weakened significantly against the US dollar and together with a 10% decrease in sales volumes, resulted in revenues for the year falling to US$13.76 million, down 23% on 2014.
The average realised oil price fell from US$94.80 per barrel in 2014 to US$48.27 per barrel in 2015. Circle's share of liftings sold in Egypt fell from 1.46 million barrels to 1.06 million barrels, a decrease of 27%. In Morocco, average realised gas selling price fell from US$10.12/Mscf to US$8.64/Mscf and Circle share of production was 1.60 bcf a 10% decrease on the 2014 volume of 1.77bcf. Throughout the year, sustained efforts were made to reduce the overall cost base of the business, including the re-negotiation of numerous local supplier contracts in Morocco. The finance function was re-located to London so that it was a more integral part of the business. The Group continues to focus on low cost operating environments. In Egypt 2015 operating cost was US$5.22/bbl and in Morocco the operating cost was US$0.58/Mcf.
Group operating loss before write-offs and impairment for the year was US$3.84 million (2014: US$23.31 million profit).
As a result of the fall in oil prices during 2015 and the reduction in the group's oil and gas reserves, impairment charges amounting to US$46.72 million for the Sebou permit in Morocco and US$20.95 million for the NW Gemsa permit in Egypt were recognised. There was also a write-off of exploration and evaluation costs amounting to US$41.15 million in Tunisia. This related to management's decision to write-off US$35 million of the cost of the EMD-1 well in the offshore Mahdia permit which equates to the overrun in cost and the full cost of the Ras Marmour permit in Tunisia which is currently under force majeure.
As a consequence of the write-offs and impairment charges outlined above and the drop in oil and gas prices during 2015, the Group recorded an operating loss for the year of US$112.65 million (2014: US$48.02 million).
Finance revenue for the year amounted to US$0.81 million (2014: US$0.36 million) and consisted mainly of non-cash income relating to the movement in the decommissioning provision and the unwinding of deferred income interest.
Finance costs for the year amounted to US$8.35 million (2014: US$6.25 million) and reflect an increase in interest charges and transaction costs associated with the RBL facility provided by IFC and the write-off in value of the embedded derivatives associated with the convertible loan which at 31 December 2015 had a zero value. The non-cash charges associated with the RBL also increased as the loan switched from a non-current liability to a current liability and therefore no longer needs to be valued at amortised cost.
The Group recorded a loss after tax of US$120.28 million (2014: US$53.92 million).
Cash flow
Net cash generated from operations (after working capital changes) for 2015 amounted to US$26.81 million (2014: US$56.26 million) a decrease of US$29.45 million over the previous year.
Net cash used in investing activities relating to oil and gas assets amounted to US$49.30 million (2014: US$86.37 million) and comprised of US$21.12 million invested in exploration and evaluation assets in Morocco, Tunisia and Oman (2014: US$60.66 million) while US$28.18 million was invested in production and development assets in Egypt and Morocco (2014: US$25.70 million).
Net cash used by financing activities totalled US$3.44 million (2014: US$28.52 million generated) and related to a drawdown of US$12.50 million on the IFC RBL facility, a repayment of US$10 million of the convertible loan, RBL transaction costs paid of US$1.08 million (2014: US$2.54 million) and interest paid amounting to US$4.86 million (2014: US$2.35 million interest paid).
Group cash balances at year-end amounted to US$10.03 million (2014: US$36.31 million) including bank guarantees and other restricted amounts.
Statement of financial position
Assets have been valued on a going concern basis (see below for further details) using prevailing commodity prices and a medium term outlook. Should the Strategic Review process ultimately prove unsuccessful, further asset write-downs and impairments may prove necessary.
Total assets for the Group at 31 December 2015 amounted to US$179.29 million (2014: US$314.21 million) and comprised mainly oil and gas assets of US$141.78 million, US$27.48 million of trade and other receivables (including inventory) and cash at bank of US$10.03 million.
Net assets amounted to US$73.09 million at year end (2014: US$192.76 million) a decrease of US$119.67 million due mainly to the write-off of exploration and evaluation assets in Tunisia and the impairment charges in Morocco and Egypt all detailed above.
Working capital for the Group at 31 December 2015 amounted to a deficit of US$64.86 million (2014: US$7.88 million) a decrease of US$56.98 million due mainly to the RBL balance of US$57.50 million and the Convertible Loan of US$20 million both being re-categorised as current liabilities.
The Group had net debt at end of 2015 of US$67.47 million (2014: US$38.69 million) and a net debt to equity ratio of 86%.
Liquidity
The further decline in the oil price over 2015, reduced production in Egypt and continued, if not greater volatility in EGPC receipts have all had a detrimental impact on the Group's operational cashflows in 2015. Although cash inflows have declined, the Group also had significant drilling commitments in Oman and Morocco already contracted and these were unable to be substantially reduced, despite the progress made as a result of numerous sustained cost reduction efforts. As a consequence, the Group's liquidity position declined considerably over the year.
As part of its efforts to manage its overall liquidity position, the Group has arranged more flexible payment schedules with a variety of creditors to better enable the Group to manage its cashflows; the Group would like to thank these creditors for their flexibility. The Group has also made significant progress on improving the amount and timing of cash extraction from its operations in Morocco which has gone some way to alleviating the liquidity situation.
However, liquidity was further strained by the requirement to repay US$10 million under the Convertible Loan Agreement over 2015. Finally, as part of the June 2015 RBL re-determination process IFC advised that the Borrowing Base Amount (BBA) was to be substantially reduced from the US$67.50 million, at the time the Group's borrowing under the RBL facility was US$57.50 million. As a result, as announced in the interim results for the period ended 30 June 2015, the Company and IFC engaged in discussions which resulted in an in principle agreement to extend the RBL facility by one year to 2019. Since then, subsequent to year end these discussions have evolved and culminated in the Group signing a waiver letter with IFC that suspended the December 2016 redetermination process and postponed any principal repayments due under the RBL as well as requiring the Group to undertake the Strategic Review process. The initial waiver was for one month from 11 March 2016 and has been extended as the review progresses. The current waiver expires on 22 July 2016.
On 20 May 2016, the Group announced that it had received a number of indicative proposals, which were in the process of being evaluated, and is working to conclude the Strategic Review process as expediently as possible. After taking into account the Group's outstanding debt position and based on the current status of the proposals received to date, the Directors believe that it is now likely that there will be no value attributable to Circle Oil plc equity holders.
Going Concern
The Directors have analysed its cash flow forecast with a view to assessing whether the financial statements should be prepared on a going concern basis. Analysis of the cash flow forecast has identified the need, to renegotiate existing funding arrangements or obtain additional funding in July 2016 in order for the Group to meet its on-going cash requirements. The Group has a significant short-term obligation of US$57.50 million payable in full in the event of default under the terms of the RBL facility signed with IFC and may be required to repay the Convertible Loan liability of US$20 million. In addition, the ongoing volatility and unpredictability of receipts from EGPC, which has continued to worsen, further exacerbates the challenging liquidity situation. In light of the above factors, management's forecasts indicate that it will not be able to pay the ongoing debt interest payments and operational cash requirements from August 2016 without additional funding.
As explained above the Group is undergoing a Strategic Review with the support of its key secured lender, IFC. It is likely that the outcome of the Strategic Review will result in some form of restructuring. It is likely that this process will take time to complete. In the interim, the Group is likely to require additional short-term liquidity to meet ongoing operational requirements and complete the Strategic Review process.
As the Group is operating under a waiver arrangement from IFC, both the RBL liability and the Convertible Loan liability have been reclassified as current liabilities.
To date, the Group continues to receive support from IFC in the form of waiver letters and the Directors are not aware of any reason why IFC would discontinue this support during the Strategic Review process. However, the risk that the Group will be unable to successfully implement the numerous actions to address its current circumstances or that payments from EGPC will improve, represents a material uncertainty that may cast doubt upon the Groups ability to continue as a going concern, and that, therefore, the Group may be unable to realise its assets and discharge its liabilities in the normal course of business. Nevertheless, after making enquiries and considering the uncertainties described above, together with actions currently being undertaken with regard to the Strategic Review, the Directors have a reasonable expectation of the continued support from IFC to complete the Strategic Review process. For these reasons, they continue to adopt the going concern basis of accounting in preparing the annual financial statements. The period considered by the directors in assessing going concern is to the completion of the Strategic Review, which is likely to be less than 12 months from the date of approval of the financial statements. Should the going concern basis not be appropriate, adjustments would have to be made to reduce the value of the Group's assets to their realisable values. The financial statements do not include any adjustments to the carrying amount, or classification of assets and liabilities, if the company was unable to continue as a going concern in the future.
Susan Prior
Group Finance Director
INDEPENT AUDITORS' REPORT TO THE MEMBERS OF
CIRCLE OIL PLC
We have audited the financial statements of Circle Oil Plc for the financial year ended 31 December 2015 which comprise the Group Financial Statements: the Consolidated Income Statement, the Consolidated Statement of Other Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Cashflow Statement, the Consolidated Statement of Changes in Equity, the Parent Company Financial Statements: the Company Statement of Financial Position, the Company Cash Flow Statement and the Company Statement of Changes in Equity and the related notes 1 to 34. The relevant financial reporting framework that has been applied in the preparation of the group and the parent company financial statements is the Companies Act 2014 and International Financial Reporting Standards (IFRSs) as adopted by the European Union ("relevant financial reporting framework").
This report is made solely to the company's members, as a body, in accordance with Section 391 of the Companies Act 2014. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
As explained more fully in the Directors' Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view and otherwise comply with the Companies Act 2014. Our responsibility is to audit and express an opinion on the financial statements in accordance with the Companies Act 2014 and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors. Because of the matter described in the Basis for Disclaimer of Opinion Paragraph, however, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group's and the parent company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Reports and Consolidated Financial Statements to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Basis for disclaimer of opinion of financial statements
The audit evidence available to us was limited because the directors of the company have prepared cash flow forecasts and other information needed for the assessment of the appropriateness of the going concern basis of preparation of the financial statements for a period of less than twelve months from the date of approval of these financial statements, being until the completion of the Strategic Review Process, as described in Note 1 to the financial statements. We consider that the directors have not taken adequate steps to satisfy themselves that it is appropriate for them to adopt the going concern basis because the circumstances of the company and the nature of the business require that such information be prepared and reviewed by the directors and ourselves, for a period of at least twelve months from the date of approval of the financial statements. Consequently, it was not possible to obtain sufficient appropriate audit evidence regarding the use of the going concern assumption in the preparation of the financial statements.
INDEPENT AUDITORS' REPORT TO THE MEMBERS OF
CIRCLE OIL PLC
Disclaimer of opinion on financial statements
Because of the significance of the possible impact of the matter, described in the Basis for disclaimer of opinion on financial statements paragraph, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on the financial statements.
Matters on which we are required to report by the Companies Act 2014
Notwithstanding our disclaimer of an opinion of the financial statements:
-- In respect solely of the limitation on our work relating to the assessment of the appropriateness of the going concern basis of preparation of the financial statements, described above, we have not obtained all the information and explanations which we consider necessary for the purposes of our audit.
-- In our opinion the accounting records of the parent company were sufficient to permit the financial statements to be readily and properly audited.
-- The parent company statement of financial position is in agreement with the accounting records.
-- In our opinion the information given in the directors' report is consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the provisions in the Companies Act 2014 which require us to report to you if, in our opinion the disclosures of directors' remuneration and transactions specified by law are not made.
Gerard Casey
For and on behalf of Deloitte
Chartered Accountants and Statutory Audit Firm
Limerick
28 June 2016
Circle Oil PLC
CONSOLIDATED INCOME STATEMENT
FOR THE FINANCIAL YEARED 31 DECEMBER 2015
2015 2014
US$000 US$000
Revenue 38,945 84,624
Cost of sales (34,642) (53,764)
Gross profit 4,303 30,860
Administrative expenses (7,224) (5,866)
Share option expense (598) (975)
Exploration costs written-off (41,149) (57,396)
Impairment (67,667) (13,936)
Foreign exchange loss (319) (706)
Operating loss (112,654) (48,019)
Finance revenue 805 358
Finance costs (8,348) (6,254)
Loss before taxation (120,197) (53,915)
Taxation (79) (6)
Loss for the financial
year (120,276) (53,921)
Basic loss per share (21.26)c (9.56)c
============ =============
Diluted loss per share (21.26)c (9.56)c
============ =============
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
FOR THE FINANCIAL YEARED 31 DECEMBER 2015
2015 2014
US$000 US$000
Loss for the financial (53,921)
year (120,276)
Total income and expense - -
recognised in other comprehensive
income
Total comprehensive expense
for the financial year
- entirely attributable (53,921)
to equity holders (120,276)
============ ===============
Circle Oil PLC
CONSOLIDATED statement of financial position AT 31 DECEMBER 2015
2015 2014
US$000 US$000
Assets
Non-current assets
Exploration and evaluation
assets 63,552 97,411
Production and development
assets 78,063 148,647
Property, plant and
equipment 164 270
141,779 246,328
-------------- --------
Current assets
Inventories 23 408
Trade and other receivables 27,461 31,164
Cash and cash equivalents 10,028 36,308
37,512 67,880
-------------- --------
Total assets 179,291 314,208
============== ========
Equity and liabilities
Capital and reserves
Share capital 8,125 8,125
Share premium 167,953 167,953
Other reserves 1,571 8,051
Retained (deficit)/earnings (104,564) 8,634
Total equity 73,085 192,763
-------------- --------
Non-current liabilities
Trade and other payables 359 1,062
Bank borrowings - 43,427
Decommissioning provision 3,478 1,193
Total non-current
liabilities 3,837 45,682
-------------- --------
Current liabilities
Trade and other payables 24,790 46,714
Bank borrowings 57,500 -
Convertible loan -
debt portion 20,000 29,025
Derivative financial
instruments - 10
Current tax 79 14
Total current liabilities 102,369 75,763
-------------- --------
Total liabilities 106,206 121,445
-------------- --------
Total equity and liabilities 179,291 314,208
============== ========
Circle Oil PLC
CONSOLIDATED cash flow statement
FOR THE FINANCIAL YEARED 31 DECEMBER 2015
2015 2014
US$000 US$000
Operating activities
Net cash generated from
operations 26,808 56,259
Taxes paid (16) (25)
Net cash inflow from operating
activities 26,792 56,234
--------- ---------
Cash flows from investing
activities
Investments in exploration
and evaluation assets (21,118) (60,662)
Investments in production
and development assets (28,183) (25,703)
Payments to acquire property,
plant and equipment (28) (260)
Interest received 2 9
Net cash used in investing
activities (49,327) (86,616)
--------- ---------
Cash flows from financing
activities
Issue of share capital - 911
Working capital facility
- amounts repaid - (12,499)
Convertible loan - amounts (10,000) -
repaid
Reserve based lending facility
- amounts drawndown 12,500 45,000
Loan transaction costs
paid (1,079) (2,539)
Interest paid (4,862) (2,349)
Net cash (outflow)/inflow
from financing activities (3,441) 28,524
--------- ---------
Decrease in cash and cash
equivalents (25,976) (1,858)
Cash and cash equivalents
at beginning of year 36,308 37,938
Effect of foreign exchange
rate changes (304) 228
Cash and cash equivalents
at end of year 10,028 36,308
========= =========
Circle Oil PLC
STATEMENT OF CHANGES IN EQUITY
FOR THE FINANCIAL YEARED 31 DECEMBER 2015
Consolidated
Share-based Convertible Retained
Share Share payment loan - Translation earnings/ Total
capital premium reserve equity reserve (deficit) equity
US$000 US$000 US$000 portion US$000 US$000 US$000
US$000
At 1 January
2014 8,084 167,083 5,004 6,259 (3) 58,371 244,798
Share options
exercised 41 870 - - - - 911
Share option
expense - - 975 - - - 975
Reserve
transfer - - (4,184) - - 4,184 -
Net loss for
the
financial
year - - - - - (53,921) (53,921)
At 31 December
2014 8,125 167,953 1,795 6,259 (3) 8,634 192,763
========= ========== ============= ============= ============= =========== ==========
Share option
expense - - 598 - - - 598
Reserve
transfer - - (819) (6,259) - 7,078 -
Net loss for
the
financial
year - - - - - (120,276) (120,276)
At 31 December
2015 8,125 167,953 1,574 - (3) (104,564) 73,085
========= ========== ============= ============= ============= =========== ==========
Circle Oil PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEARED 31 DECEMBER 2015
1. Basis of preparation
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) interpretations adopted for use by the European Union. They have also been prepared in accordance with the Companies Act 2014 and are compliant with the rules of the Alternative Investment Market (AIM) of the London Stock Exchange.
The financial statements have been prepared on the historical cost basis, as modified by the recording of certain financial instruments at fair value through profit or loss.
2. Basis of consolidation
The consolidated financial statements include the financial statements of the Company and all of its subsidiaries made up to the end of the financial year. Subsidiaries are consolidated in the Group financial statements from the date on which control is obtained over financial and operating policies and decisions. Control is recognised where an investor is exposed, or has rights, to variable returns from its investment with the investee and has the ability to affect these returns through its power over the investee. All intercompany transactions, balances, income and expenses have been eliminated in full on consolidation.
3. Finance costs
2015 2014
US$000 US$000
Interest payable:
Convertible loan 2,744 4,062
Reserve based lending facility
interest 5,361 2,836
Working capital facility interest - 187
Amortisation of working capital
facility transaction costs - 329
Convertible loan transaction 48 -
costs
RBL facility transaction costs 594 -
Interest payable to suppliers 24 153
Unwinding of discount on decommissioning
provision - 34
Capitalised to exploration and
evaluation assets (423) (1,347)
8,348 6,254
==================== =================
Interest payable relating to the convertible loan includes interest paid of US$1.77 million (2014: US$1.80 million) and an effective interest expense of US$975,000 (2014: US$2.26 million). Interest payable relating to the reserve based lending facility includes interest paid of US$3.16 million (2014: US$1.16 million) and an effective interest expense of US$2.20 million (2014: US$1.68 million)
Circle Oil PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEARED 31 DECEMBER 2015
4. Basic and diluted earnings per share
The calculation of the basic earnings per share attributable to the ordinary equity holders of the Company is based on the following data:
2015 2014
US$000
US$000
Loss for the financial year
attributable to equity holders
of the parent (120,276) (53,921)
============ ===================
The basic weighted average
number of ordinary shares in
issue is calculated as follows:
Number of ordinary shares in
issue at start of financial
year 565,846,639 563,353,486
Adjustment for shares issued
during the financial year - 758,192
Weighted average number of
ordinary shares 565,846,639 564,111,678
==================== ===================
Basic loss per share (21.26)c (9.56)c
==================== ===================
Diluted loss per share (21.26)c (9.56)c
==================== ===================
Diluted loss per share is calculated using the weighted average number of ordinary shares assuming the conversion of its potential dilutive equity derivatives outstanding. All of the Group's potential ordinary shares were anti-dilutive for the financial year ended 31 December 2015 which resulted in no change between the basic and diluted loss per share. The Group had total potential ordinary shares outstanding of 144,404,897 at 31 December 2015 (2014: 105,976,440).
No options over shares were exercised during the financial year, resulting in the number of ordinary shares in issue at 31 December 2015 of 565,846,639 (2014: 565,846,639).
Circle Oil PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEARED 31 DECEMBER 2015
5. Exploration and evaluation assets
The movement on exploration and evaluation assets relating to oil & gas interests during the financial year was:
Exploration
Group Opening costs Carrying
Balance Additions written-off value
US$000 US$000 US$000 US$000
2015
Africa 97,411 7,029 (40,888) 63,552
Middle-East - 261 (261) -
Total 97,411 7,290 (41,149) 63,552
========== ============ ============= ===========
2014
Africa 45,668 58,300 (6,557) 97,411
Middle-East 35,685 15,154 (50,839) -
Total 81,353 73,454 (57,396) 97,411
========== ============ ============= ===========
Additions reflect exploration and evaluation activity during the financial year. Additions also include capitalised interest under IAS 23 Borrowing Costs of US$423,000 (2014: US$1.35 million). This was calculated by using the weighted average interest rate on the convertible loan and reserve based lending facility and applying this to the payments relating to each geographical area for the relevant portion of the financial year.
Exploration and evaluation assets at 31 December 2015 represent exploration and related expenditure on the Group's licences and permits in the geographical areas noted above, full details of which are set out in the Operations Review. The realisation of these intangible assets by the Group is dependent on the development of economic reserves and the ability of the Group to raise sufficient finance to bring the reserves to economic maturity and profitability. Should the development of economic reserves prove unsuccessful, the carrying value in the statement of financial position will be written-off.
As reported previously, the Directors decided to relinquish the Group's permits in Oman during 2015. All the relevant data has now been transferred to the Ministry of Oil and Gas in Oman. It is expected that both Circle Oil Oman Limited and Circle Oil Oman Offshore Limited will be wound-up during 2016.
Company
The carrying value of exploration and evaluation assets by geographical area for the Company was US$Nil (2014: US$Nil).
Circle Oil PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEARED 31 DECEMBER 2015
6. Production and development assets
Movement on production and development assets relating to oil & gas interests during the financial year was:
Cost Africa Total
US$000 US$000
At 1 January 2014 191,605 191,605
Additions - 2014 35,740 35,740
At 31 December 2014 227,345 227,345
============== =========
Additions - 2015 21,372 21,372
At 31 December 2015 248,717 248,717
============== =========
Accumulated depreciation Africa Total
US$000 US$000
At 1 January 2014 45,417 45,417
Charge for 2014 19,345 19,345
At 31 December 2014 64,762 64,762
============== =========
Charge for 2015 24,289 24,289
At 31 December 2015 89,051 89,051
============== =========
Impairment Africa Total
US$000 US$000
At 1 January 2014 - -
Charge for 2014 13,936 13,936
At 31 December 2014 13,936 13,936
============== =========
Charge for 2015 67,667 67,667
At 31 December 2015 81,603 81,603
============== =========
Carrying value Africa Total
US$000 US$000
At 31 December 2014 148,647 148,647
======== ========
At 31 December 2015 78,063 78,063
======== ========
Circle Oil PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEARED 31 DECEMBER 2015
Production and development assets (continued)
Additions during the financial year relate to expenditures incurred on the Group's interests in the NW Gemsa Concession in Egypt and the Sebou Permit in Morocco. As well as drilling costs, these include well appraisal and development costs together with construction of facilities and related expenditure.
Included in production and development assets are amounts relating to property, plant and equipment of US$13.95 million (2014: US$16.20 million) comprised of buildings, pipelines, storage facilities and machinery. Depreciation of US$2.36 million was charged for 2015 (2014: US$1.61 million) in respect of property, plant and equipment.
Depreciation of production and development assets is calculated on a unit of production basis, in accordance with the Groups net share (working interest) of each asset, using the ratio of oil and gas produced in the period to the estimated reserves at the end of the period plus production for the period. The amount calculated is charged to cost of sales in the Income Statement which for the current financial year amounted to US$24.02 million (2014: US$19.08 million). Reserve estimates are based on reports carried out by independent reserve engineers. A portion of the depreciation charge for the financial year is added to or deducted from oil inventories in Egypt at year-end depending on the actual inventory movement. The increase in depreciation charge for 2015 resulting from the apportioning of the charge to inventory was US$267,000 (2014: US$266,000 decrease).
The realisation of production and development assets by the Group is dependent on the successful operation of the Group's oil and gas interests in Africa and the continuing availability of adequate funding for these interests. Should the operation of the Group's oil and gas interests prove unsuccessful the carrying value in the statement of financial position may be subject to further impairment.
The Directors have considered whether facts or circumstances exist that indicate that production and development assets are impaired. Production and development assets have been assessed for impairment having regard to the likelihood of further development expenditures and ongoing production for each geographical area under the rules of IAS 36 Impairment of Assets. The key factors considered in this impairment test were an independent third party estimate of oil and gas reserves, expected sales price of oil and gas over the test period beginning with US$37.50 per barrel of oil in 2016, US$50 per barrel in 2017 and US$55 per barrel thereafter up to 2025, US$1.23 per Mscf of gas and between US$300 and US$440 per tonne of LPG in Egypt and US$8.58 per Mscf of gas in Morocco.
The estimated future costs were obtained from both internal and operator projected cashflow forecasts. Both revenue and costs were discounted to present value using pre-tax discount rates of 8% over a period of ten years for Egypt and five years for Morocco. A longer period of testing was used for Egypt as this gave a fairer view on the value of the asset as the life of field for the Egypt asset is in excess of twenty years. Management decided to use a discount rate of 8% as this was in line with the discount rate used in the RBL re-determination model which attributes value to Morocco and Egypt assets. The 8% discount rate was also viewed as being appropriate for low risk onshore operations such as those held by Circle.
Key assumptions were also made in respect of the future cost profiles of the ongoing development and production of each field/concession. The estimates used are consistent with operator and internal budgets and the Senergy CPR on reserves. The results of the tests outlined above indicated that there would be an impairment of US$20.95 million on the carrying value of the NW Gemsa permit in Egypt, caused primarily by the fall in oil price and the new reserves figures in the 2015 CPR. The impairment on the carrying value of the Sebou permit in Morocco is US$46.72 million.
Circle Oil PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEARED 31 DECEMBER 2015
Production and development assets (continued)
Below is a table outlining the % movement in the recoverable amount caused by (i) a 1% decrease and increase in discount rate, (ii) a 5% decrease and increase in sales price/volume in Egypt. The results of the sensitivity analysis tests were completed on the impaired value and indicated that no further impairment was necessary.
Discount rate 1% point lower 7% increase 1% point higher 6% decrease Price/volume 5% decrease 11% decrease 5% increase 11% increase
Below is a table outlining the % movement in the recoverable amount caused by (i) a 1% decrease and increase in discount rate, (ii) a 5% decrease and increase in sales price/volume in Morocco. The results of the sensitivity analysis tests further indicated that no impairment was required.
Discount rate 1% point lower 1% increase 1% point higher 1% decrease Price/volume 5% decrease 5% decrease 5% increase 5% increase
7. Trade and other receivables
Group 2015 2014
US$000 US$000
Trade receivables and accrued
income 26,556 29,414
Prepayments 789 992
VAT 116 758
------- -------
27,461 31,164
======= =======
Group trade receivables include US$13.41 million (2014: US$17.06 million) relating to amounts due from the Egyptian General Petroleum Company (EGPC) in respect of the sale of oil, gas and associated liquids of which US$10.81 million (2014: US$14.34 million) was overdue at year-end.
The Directors have reviewed the position in relation to overdue amounts and based on the level of cash receipts from EGPC, as noted above, and the reduction in overdue amounts at year-end and believe that a provision for impairment is not required.
Circle Oil PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEARED 31 DECEMBER 2015
Trade and other receivables (continued)
Company 2015 2014
US$000 US$000
Prepayments 215 205
VAT 127 49
342 254
=========== =======
8. Trade and other payables
(a) Current
Group 2015 2014
US$000 US$000
Trade creditors and accruals 24,207 46,069
Deferred revenue 458 499
Other creditors - taxes 125 146
------- -------
24,790 46,714
======= =======
Company 2015 2014
US$000 US$000
Trade creditors and accruals 2,138 2,520
Other creditors - taxes 134 103
Amounts due to Group companies - 3,166
------- -------
2,272 5,789
======= =======
(b) Non-current
Group 2015 2014
US$000 US$000
Deferred revenue 359 1,062
359 1,062
======= =======
Deferred revenue of US$817,000 (2014: US$1.56 million) (which includes both current and non-current) relates to an advance receipt for gas sales from an off-taker in Morocco. This amount will be credited to the Income Statement under the terms of an agreement entered into with the off-taker in March 2012 under which the selling price of gas is discounted by 5% until the advance payment is fully recouped. This is currently estimated to be five years from date of signing of the agreement.
An amount of US$153,000 (2014: US$226,000) relating to the unwinding of discounted interest on deferred revenue was credited to the Income Statement during the financial year.
Circle Oil PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEARED 31 DECEMBER 2015
9. Loans and borrowings
(a) Convertible loan - extended loan (April 2015)
On 27 April 2015, the convertible loan was further extended for an additional period of two years to 19 July 2017, with a further two optional extensions of one year each remaining.
Under the terms of this agreement the Group repaid US$10 million to KGL bringing the overall loan amount down to US$20 million. The interest rate was increased to eight per cent per annum, plus a payment-in-kind (PiK) fee. The conversion price was reduced to GBP0.136 per share for the extended period at a US$:GBP exchange rate of 1.5148.
The PiK fee applies to each period as follows:
From 19 July 2015 - 19 July 2017 1.5% per annum
From 19 July 2017 - 19 July 2018 4.5% per annum (only applies if extension option taken)
From 19 July 2018 - 19 July 2019 7.5% per annum (only applies if extension option taken)
This PiK fee is payable at the end of each relevant period and is payable, at the option of the Company, in either cash or shares.
Due to the one year extensions being optional, the convertible loan (the host contract) was accounted for as a hybrid financial instrument and the option to convert and the term extension option were embedded derivatives. Additional options (options entered into in consideration for entering into the host contract) on similar currency terms were also embedded derivatives. The host contract carrying value on initial recognition was based on the net proceeds of issuance of the convertible loan reduced by the fair value of the embedded derivatives and was subsequently carried at each reporting date at amortised cost.
The embedded derivatives were separated from the host contract as their risks and characteristics were not closely related to those of the host contract and the host contract was not carried at fair value. At each reporting date, the embedded derivatives were measured at fair value with changes in fair value recognised in profit or loss as they arose. The embedded derivatives and host contract were presented under separate headings in the Statement of Financial Position, in the prior financial year.
Due to the waivers being in place for the IFC Reserve Based Lending (RBL) Facility (see Note 19 (b)) the convertible loan may be viewed as being fully payable at 31 December 2015 and therefore switches from being a non-current liability to a current liability.
The above matters have been reflected as follows:
Current Liabilities
31 December 31 December
Group and Company 2015 2014
US$000 US$000
Convertible loan
Opening convertible loan - -
balance
Transfer from non-current 20,000 -
liabilities
Closing convertible loan 20,000 -
balance
=======
Circle Oil PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEARED 31 DECEMBER 2015
Loans and borrowings (continued)
Non-Current Liabilities
Group and Company 31 December 31 December
2015 2014
US$000 US$000
Opening convertible loan
debt portion - amortised
cost 29,025 26,763
Amounts repaid (10,000) -
Interest charged 2,744 4,062
Interest paid (1,769) (1,800)
Transfer to current liabilities (20,000) -
Closing convertible loan
debt portion - amortised
cost - 29,025
========= ==========
Derivative financial instruments
at 1 January 2015 - additional
option 10 134
Fair value movement - gain (Note
5) (10) (124)
--------- ----------
Closing derivative financial
instruments - additional option - 10
========= ==========
Derivative financial instruments - -
at 1 January 2015 - term extension
option
Fair value movement - gain (Note - -
5)
========= ==========
Closing derivative financial instruments - -
- term extension option
========= ==========
The table below represents the assumptions used in determining the fair value of the additional option over 30 million shares and the term extension option:
2015 2014
Option Term - years - 0.55
Share price - pence sterling - 10.07
Risk-free rate (%) - 0.28
Risk-free rate - first extension - -
period (%)
Risk-free rate - second extension - -
period (%)
Expected volatility (%) - 65.63
Expected volatility - first - -
extension period (%)
Expected volatility - second - -
extension period (%)
Dividend yield - -
The fair values of the conversion option, the additional option and the term extension option disclosed in the financial statements were determined using a valuation technique based on assumptions that are not supported by prices from observable current market transactions in the same instrument, they therefore qualify as a level 3 instrument under IFRS 7 (revised) Financial Instruments: Disclosures.
Circle Oil PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2015
Loans and borrowings (continued)
(b) Bank borrowings
Reserve based lending facility
On 14 March 2014, the Group signed a reserve based lending facility (the Facility) of up to US$100 million with IFC, a member of the World Bank Group.
IFC, hold US$50 million (Tranche A) of the Facility and has syndicated US$25 million (Tranche B).
At 31 December 2015 total loan commitments under the facility amounted to US$67.50 million (2014: US$75 million) under the agreed schedule. The Facility matures in June 2018 and is secured against the Company's producing assets in Egypt and Morocco. The interest rate on the RBL is between 5.25% and 5.5% plus LIBOR depending on the level of the facility utilised. The Facility is subject to a bi-annual re-determination and there are scheduled repayments in accordance with the lower of the agreed schedule or the outcome of the re-determination. In the June 2015 RBL Re-determination process, IFC advised that the Borrowing Base Amount (BBA) was to be substantially reduced from the US$67.50 million then available (of which Circle had borrowed US$57.50 million). As a result, the Company and IFC engaged in discussions which resulted in an in principle agreement to extend the RBL facility by one year to 2019. Since then, the discussions with IFC have evolved and culminated in the Group signing a waiver letter that suspended the December 2015 redetermination process and postponed any principal repayments under the RBL as well as requiring the Group to undertake the Strategic Review process
The loan has been valued at amortised cost under IAS 39 Financial Instruments at both the date of first drawdown and at each subsequent reporting date. The transaction costs are off-set against amounts drawn down. The interest on the loan is calculated on the net amount using the Effective Interest Rate method which takes all future cashflows (interest and repayments) into account.
Subsequent to year end, the Group signed a waiver letter with IFC that postponed any principal repayments due under the RBL and required the Group to undertake the Strategic Review process. The initial waiver was for one month from 11 March 2016 and has been extended as the review progresses. The current waiver expires on 22 July 2016.
As the RBL facility is subject to a waiver arrangement, the entire loan amount has been classified within current liabilities in the Group's Statement of Financial Position. This resulted in an interest charge of US$Nil (2014: US$1.68 million) for the year and an amortised loan balance of US$Nil (2014: US$43.43 million) at year-end.
The above matters have been reflected as follows:
Current Liabilities
2015 2014
US$000 US$000
Balance at 1 January - -
Transfer from non-current 57,500 -
liabilities
Balance at 31 December 57,500 -
======= =======
Circle Oil PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2015
Loans and borrowings (continued)
Non-Current Liabilities
2015 2014
US$000 US$000
Balance at 1 January 43,427 -
Amounts drawndown during
financial year 12,500 45,000
Transaction costs (624) (3,251)
Interest - non-cash 2,197 1,678
Transfer to current liabilities (57,500) -
Balance at 31 December - 43,427
========= ========
(c) Bank borrowings
Working capital facility
On 19 December 2012, Circle agreed a US$12.5 million secured revolving working capital facility (the Facility) with Ahli United Bank Egypt. The Facility had a term of two years and was secured primarily on Circle's receivable from EGPC to which it sells its oil and gas production from the NW Gemsa Concession in Egypt. As at 31 December 2015 details of amounts drawndown and repaid were as follows:
2015 2014
US$000 US$000
Balance drawndown at 1
January - 12,499
Drawdowns during the financial - -
year
Amounts repaid during financial
year - (12,499)
Balance drawndown at 31 - -
December
========== =========
The Facility attracted interest at a rate of LIBOR plus 4.25% and was used to fund ongoing expenditures in respect of Circle's interest in the NW Gemsa Concession in Egypt.
At 31 December 2015 the loan was fully repaid.
10. Cash and cash equivalents at year-end
The Group and Company cash balances at 31 December 2015 comprises the following:
Group 2015 2014
US000 US$000
Cash at bank 8,228 34,508
Restricted cash relating
to work programmes in Morocco 1,800 1,800
Total cash and cash equivalents 10,028 36,308
============= ==============
Glossary of terms
bcf Billion cubic feet
bbl Barrels of oil
bcpd Barrels of condensate per day
bopd Barrels of oil per day
boepd Barrels of oil equivalent per
day
CPR Competent Persons Report
EGPC Egyptian General Petroleum Company
GDP Gross Domestic Product
IAS International Accounting Standards
IFRS International Financial Reporting
Standards
IFRIC International Fiancial Reporting
Interpretation Committee
Km2 Square Kilometers
LIBOR London Interbank Offered Rate
LPG Liquid Petroleum Gas
LTIP Long Term Incentive Plan
MMbo Millions of barrels of oil
MMboe Millions of barrels of oil equivalent
Mscf Thousand standard cubic feet of
gas
MMscf Million standard cubic feet of
gas
MMscf/d Million standard cubic feet of
gas per day
NM3 Normal cubic metre
ONHYM Office National des Hydrocarbures
et des Mines
Ordovician Geological period extending from
500 to 435 million years ago
Stratigraphic An exploration prospect formed
prospect by a stratigraphic trap
2D Two dimensional
3D Three dimensional
P50 Probability of success of 90%
P90 Probability of success of 50%
For further information contact:
Circle Oil plc (+44 20 7182 4913)
Mitch Flegg, CEO
Investec (+44 20 7597 5970)
Chris Sim
George Price
James Rudd
Jonathan Wynn
Murray (+353 1 498 0300)
Joe Heron
Pat Walsh
In accordance with the guidelines of the AIM Market of the London Stock Exchange the technical information contained in the announcement has been reviewed and approved by Mitch Flegg, Chief Executive Officer of Circle Oil plc. Mitch Flegg, who has over 34 years of experience, is the qualified person as defined in the London Stock Exchange's Guidance Note for Mining and Oil and Gas companies.
Mitch Flegg holds a BSc in Physics from Birmingham University and is a member of the Society of Petroleum Engineers (SPE) and the Petroleum Exploration Society of Great Britain (PESGB).
Notes to Editors
Circle Oil plc (AIM: COP) is an international oil & gas exploration, development and production company holding a portfolio of assets in Morocco, Tunisia, and Egypt with a combination of low-risk, near-term production, and significant upside exploration potential. The Company's shares were admitted to trading on AIM in October 2004.The Company has assets in the Rharb Basin, Morocco; the Ras Marmour Permit in southern Tunisia; the Beni Khalled permit in northern Tunisia, the Mahdia Permit offshore Tunisia and the NW Gemsa permit in Zeit Bay area of Egypt.
Further information on Circle is available on its website at www.circleoil.net.
(1) Conversion factor 5.8 MMscf/d = 1,000 boepd
This information is provided by RNS
The company news service from the London Stock Exchange
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