LONDON (Alliance News) - Circle Oil PLC looks set to lose its struggle to keep the company afloat after the board Wednesday admitted there is little chance that shareholders will realise any value from their investment in the company, which posted a staggering USD120.0 million loss.
The company had its shares suspended on Wednesday as the company's position has become dire.
Circle Oil launched a strategic review of the business back in March as it attempted to find a way to repay its overdue debt and assessed the opportunity of selling or merging the business with another, but the company has so far failed to find a way to address its deteriorating position.
To put the producing company's problems into perspective, Circle Oil's pretax loss in 2015, prior to the review being launched, amounted to USD120.2 million compared to the loss of USD53.9 million that was posted in 2014.
The company was also laden with USD77.5 million worth of debt at the end of the year, a small rise from 2014 levels, and only had cash of USD8.2 million, which had declined by 76% from USD34.5 million at the end of 2014.
Luckily, Circle Oil's current lender, International Finance Corp, has been providing numerous extensions to the debt repayments due from the London-listed firm, with the latest due to expire on July 22. However, the sentiment Wednesday suggested the likelihood of further extensions is dwindling.
"In March 2016, the group announced it was to undergo a strategic review of the group's business," said Circle Oil. "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."
Circle Oil said it will definitely need to raise more funds in July to keep going as it has financial obligations it needs to settle in August. The company has also engaged a reserves auditor called LR Senergy to evaluate its oil and gas reserves, which could impact its reserve based lending facilities.
The pity of the situation is that Circle Oil's producing operations in both Morocco and Egypt are generating cash and progressing successfully, but the company still finds itself in a precarious position at a time when the wider oil and gas market is already struggling to secure financing as it suffers from weaker sentiment and lower oil prices.
However, the company is struggling to secure regular, consistent payments from Egyptian General Petroleum Corp, the state-owned oil company which purchases Circle Oil's gas and condensate.
That has forced Circle Oil to rely on the funds being generated from its operations in Morocco, extracting funds out of the business to help keep the wider business afloat.
Looking at the 2015 results in more detail, Circle Oil reported a steep decline in revenue to USD38.9 million from USD84.6 million, but operations remained profitable as they generated a gross profit of USD4.3 million. However, that is down from USD30.9 million a year ago.
Exploration write off costs fell to USD41.2 million from USD57.4 million but impairments soared to USD67.7 million from USD13.9 million. Administrative costs also rose but share option expenses and the foreign exchange loss were both lower in the year.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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