Circle Oil Plc Regulatory News (COP)

Circle Oil Plc

INTERIM REPORT 2014

3 September 2014

CIRCLE OIL PLC

("Circle or the "Company" or "Group")

2014 INTERIM RESULTS

Circle Oil Plc (AIM: COP), the international oil and gas exploration, development and production company, is pleased to announce its results for the six month period ended 30 June 2014.

Financial Highlights

· Group revenue of US$47.8 million up by 13% (H1 2013: US$42.3 million)

· EBITDA of US$22.6 million down by 10% (H1 2013: US$25.2 million)

· Profit for the period of US$9.4 million down by 36% (H1 2013: US$14.7 million) due to additional expenditure relating to increased operational activity, the implementation of the senior debt facility and reduction in cost recovery in the North West Gemsa permit

· Available cash at 30 June 2014 of US$29.9 million up by 27% (H1 2013: US$23.5 million)

· Senior Debt Facility of up to US$100 million agreed with IFC in March 2014 - first drawdown in April

· Oil price achieved - Egypt - US$104.32/bo: Gas price achieved - Morocco - US$10.31/MMscf

Operational Highlights

· Exploration well EMD-1 drilled in the Mahdia Block offshore Tunisia, encountering total hydrocarbon column of 133 metres in the Birsa and Ketatna carbonates

· Third drilling campaign underway in Sebou and Lalla Mimouna permits in Morocco with a successful first well in SAH-W1

· Production from the gas trunk pipeline in Morocco raised to 7 MMscf/d

· New producers and one new injector successfully drilled in Egypt

· 2D seismic survey completed in Block 52 offshore Oman

Professor Chris Green, CEO, commented:

"Circle's continuing efforts in exploration and development activities for the first half of 2014 have been rewarded with a successful start to the third Moroccan drilling campaign in the SAH-W1 discovery in the Sebou permit. Oil production in Egypt continues on a solid footing and Moroccan gas production now contributes increasingly to our revenues. The ongoing drilling programme in Morocco and post period announcement of the EMD-1 potential discovery in the Mahdia Block gives further near and mid-term opportunity to grow the Company for the benefit of all stakeholders. An exciting period is ahead with the second half of the year including new drilling in both Morocco and onshore Oman."

CIRCLE OIL PLC

INTERIM REPORT

FOR THE SIX MONTHS ENDED 30 JUNE 2013 - UNAUDITED

Table of Contents Page

Chairman's Statement 3

Glossary 7

Condensed Consolidated Income statement 8

Condensed Consolidated Statement of Financial Position 9

Condensed Consolidated Cashflow Statement 10

Condensed Consolidated Statement of Changes in Equity 11

Notes to the Financial Statements 12

CHAIRMAN'S STATEMENT

Circle has seen further significant progress in the first half of 2014 and this has continued into the second half. The industrial off-take of our gas in Morocco, though our pipeline, was maintained and successful drilling in Egypt added new producers and one new water injector. Circle's share of oil and gas production continues to provide a firm foundation for the future. The recent potential discovery in EMD-1 offshore Tunisia opens and extends the prospectivity over the whole Mahdia permit and is a potentially game-changing event in Circle's development. With the drilling campaign in Morocco continuing with its second well and further operations planned in Oman, the Company has a very active and hopefully fruitful second half of the year ahead.

OPERATIONS

Morocco

Several potential drilling locations in both the Sebou and Lalla Mimouna permits have been delineated using the available 3D seismic coverage. Drilling activity commenced in the Sebou permit with the SAH-W1 well in May. The rig had to be released to another operator without testing the well, but wireline logging confirmed the presence of three gas bearing zones and these will be tested for production during the continuation of the drilling campaign later this year. The programme includes six wells in Sebou, the second of which (CGD-12) was spud on 25 August 2014, with a further six wells to follow in Lalla Mimouna over the coming 12 months.

The daily gas production rate from Sebou has averaged between 6.8 and 7 MMscf/d in the first half of 2014 and negotiations are well under way for further off-take to increase the supplies and revenue by year end. The cumulative production from Circle's wells in the Sebou Permit through to the end of June 2014 was 190.7 MMm3 (6.3 bcf).

The 2014 CPR reserves estimates were completed in mid-2014 and in the Sebou and Oulad N'Zala concessions, the 2P value of Gross Initial Gas Reserves was 30.2 bcf, with 22.33 bcf net to Circle, very similar to the 2013 estimate. Following production of 6.3 bcf through to the end of June 2014, the 2P Gross Remaining Reserves are estimated to be 23.9 bcf. The current drilling campaign is aimed to enlarge Circle's reserve base and further our production growth.

Egypt

The partners continue to successfully manage output at the Egyptian licence. At the end of June 2014 ten wells in the Al Amir SE field (AASE) and two wells in the Geyad field were on production, with a combined gross production rate of 11,592 boepd. Water injection through four wells in AASE and one well in the Geyad field is providing continuing pressure support to maximise recovery efficiency and maintain production levels.

Both the appraisal well AASE-19, spudded on 1 December 2013 and infill production well AASE-21, spudded on 9 March 2014, were successfully drilled and put into production in the first half of the year.

Water injection well AASE-22 was also drilled in H1 and has been completed for future water injection in the Rahmi.

A work-over programme on several AASE and Geyad field wells has been initiated to follow on from the drilling programme. This has been done to recomplete certain wells and remedy some mechanical problems to maintain a high level of production and injection in both fields.  

This process of good field management will be continued into 2015 through the development and implementation of the first dynamic reservoir model over both fields.

Cumulative water injection to the end of June 2014 was 20.9 MMbw. The export gas line to the SUCO facility at Zeit Bay is currently flowing at approximately 10 MMscf/d with a total delivered to the terminal of 12.9 bcf at the end of June 2014. Valuable condensate and natural gas liquids are stripped out of the gas and sold to EGPC with average daily rates of about 100 bbls of condensate and 20 tonnes of LPG.

The 2014 CPR reserves estimates were completed in mid-2014 and in the NW Gemsa concession, the 2P value of Gross Initial Oil Reserves was 38.3 MMbo and the 2P Gross Initial Raw Gas Reserves were estimated to be 43.14 bcf. This totals a 2P Gross Initial Reserves value of 45.73 MMboe (18.29 MMboe net to Circle). The minor change in Initial Oil Reserves from the 2013 CPR is due to additional infill well data and to the re-mapping of the re-processed 3D seismic. Following production of 15.58 MMbo through to the end of June 2014, the 2P Gross Remaining Reserves are estimated to be 22.72 MMbo.

Tunisia

Circle drilled the El Mediouni-1 well (EMD-1) in the north-central area of the Mahdia Permit in a water depth of 240 metres, 120 kilometres east of the port of Sousse. EMD-1 drilled to a TD of 1,200 metres MD in the Upper Ketatna carbonates. The stratigraphy encountered in the well was exactly as prognosed and very good light oil shows were encountered both in the Lower Birsa carbonate primary target and the Upper Ketatna carbonates secondary target over a combined interval of 133 metres.

The strong hydrocarbon indications encountered in the Birsa and Ketatna carbonates confirm the existence of a working petroleum system in the Mahdia Permit for this and other prospects. The robustness of the El Mediouni trap has also been proven. The losses incurred within the target formations, as described below, give further confirmation of high quality permeability. The gross oil zone interval in the Lower Birsa is 77 metres and the Upper Ketatna has a minimum interval of 48 metres, subject to confirmation by logs. Using known reservoir and fluid parameters from equivalent formations in the Gulf of Hammamet, the internally estimated most likely recoverable prospective resources discovered by the EMD-1 well are approximately 100 MMbo.

During the drilling of the target carbonates, severe mud losses occurred and multiple remedial operations to restore circulation were performed. The hole conditions in the well deteriorated rapidly and multiple attempts at open hole logging by wireline and tough logging conditions equipment failed and ultimately the decision was taken to terminate further efforts and suspend the well.

Circle has been granted a six month extension to the Mahdia permit to January 2015. It then has the right to elect for two additional renewals of the permit for 3 years each with a commitment of one well per period.

The award of the 2,792 sq km Takelsa permit (formerly Grombalia) on the Cap Bon peninsula through competitive bidding) was ratified by the Tunisian authorities in very late 2013, and Circle will be 100% working interest holder and operator. This is regarded as a key award towards creating increased Company value. The licence area includes existing oil and gas field concessions and other discoveries within or close to the block. Planning for the first exploration phase of three years of work commitments is in progress, starting with the acquisition of both 3D and 2D seismic, followed by the drilling of four low cost onshore exploration wells. 

Oman

Interpretation of the 2012 seismic programme was integrated with the 3D interpretation and an exploration well location selected in the southern part of onshore Block 49. Tendering to drill this well is completed with the principal target depth at about 1,900 metres MD and an intended spud date in late H2 2014.

An infill 2D seismic survey of 850 line kilometres was completed in May 2014 on offshore Block 52, to firm the nearshore Sawqirah Bay leads into drillable prospects. This survey is now being processed and will shortly be interpreted. There has been renewed interest in Circle's acreage following a successful discovery in the adjacent block to the north of our acreage. This augurs well for securing a farm-in partner to drill an exploration well in 2015.

As previously indicated, the Company had bid for an onshore Block in the 2013 bid round and continues to progress its bid with the relevant authorities.

FINANCIAL REVIEW

Circle has delivered strong revenue, gross profit and cash flow for the first half of 2014. Oil and gas sales revenue has increased by 13% to US$47.8 million (H1 2013: US$42.3 million) due principally to an 11% increase in volume of oil sold in Egypt with a similar increase in sales of gas in Morocco. Sales of gas and associated liquids in Egypt, which commenced in February 2013 contributed US$1.5 million in gross revenue terms in the first half of 2014 (H1 2013: US$0.6 million) representing an increase of 131%.

Gross profit for the period under review amounted to US$16.4 million (H1 2013: US$18.6 million) while operating profit was US$12.3 million (H1 2013: US$16.7 million).

The reduction in gross profit was due principally to a decrease in cost oil recovery of US$3.1 million and an increase in amortisation of US$1.9 million as a result of additional capital expenditure. The reduction in operating profit was due mainly to increased administration costs of US$1.0 million as a result of increased activity in operations from the drilling of the Mahdia well. In addition, share option expense (non-cash) of US$0.9 million was incurred during the period and related to share options granted under the new LTIP scheme which was approved by shareholders on the 17 December 2013. An unrealised foreign exchange loss of US$0.3 million was also incurred due to the strengthening of the US Dollar against the Moroccan Dirham during H1 2014.

Net financing costs increased by US$0.9 million due mainly to expenditure associated with putting in place the senior debt facility of up to US$100 million, and these included US$1.1 million of non-cash accounting charges.

EBITDA for the six month period was US$22.6 million (H1 2013: US$25.2 million) while the Group recorded a profit of US$9.4 million (H1 2013: US$14.7 million).

EGPC receipts continued at a regular level and our Egyptian receivables have remained at a similar level to 31 December 2013.

On 14 March 2014, Circle signed a reserve based lending facility agreement for up to US$100 million with IFC (a member of the World Bank Group). The facility matures in June 2018 and is secured against the Company's producing assets in Egypt and Morocco. IFC, hold US$50 million of the facility and are syndicating the remainder to a group of international and regional banks of which US$20 million has already been placed. During the period under review Circle drew down US$25 million from the facility. This was used to repay the working capital facility of US$12.5 million agreed with Ahli United Bank Egypt in December 2012 and also to release capital for investment in new exploration and development of the Company. 

Net cash generated from operations before working capital movements amounted to US$23.5 million for the period (H1 2013: US$25.2 million). Following working capital movements, net cash generated in H1 2014 amounted to US$25.1 million (H1 2013: US$23.7 million). Available cash at 30 June 2014 was up by 27% at US$29.9 million (H1 2013: US$23.5 million) while the Group had net financial gearing of 9% (H1 2013: 3%).

OUTLOOK

Circle has finished the first half of 2014 with increased revenue from its production in Egypt and Morocco. The Company is now drilling its second well, of twelve, in Morocco with this campaign having the potential to augment both our reserves and revenues in the country.

Recently completed operations offshore Tunisia and forthcoming operations in both Oman and onshore Tunisia have the potential to further enhance our asset base. Circle will endeavour to grow the business, in the MENA region, both through the drill bit and with carefully selected, value-driven operations and acquisitions.

Stephen Jenkins

Chairman

2 September 2014

Glossary

In accordance with the guidelines of the AIM Market of the London Stock Exchange, Professor Chris Green, Chief Executive Officer of Circle Oil Plc, an explorationist and geophysicist with over thirty years oil & gas industry experience, and Dr Stuart Harker, VP Geology, also with over 30 years experience, are the qualified persons as defined in the London Stock Exchange's Guidance Note for Mining and Oil and Gas companies, who have reviewed and approved the technical information contained in this announcement. In relation to Egypt Professor Green and Dr Harker have relied on primary information supplied by the operator in carrying out their review.

circle Oil PLC

CONDENSED CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 30 JUNE 2014 - UNAUDITED

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2014 - UNAUDITED

Circle Oil PLC

CONDENSED CONSOLIDATED statement of financial position

AT 30 JUNE 2014 - UNAUDITED

Circle Oil PLC

CONDENSED CONSOLIDATED cash flow statement

FOR THE SIX MONTHS ENDED 30 JUNE 2014 - UNAUDITED

Circle Oil PLC

consolidated STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2014 - UNAUDITED

Circle Oil PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2014

1. Basis of preparation

The condensed consolidated financial statements have been prepared using accounting policies consistent with International Financial Reporting Standards (IFRS) and in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting.

The accounting policies and methods of computation used in these interim financial statements are consistent with those used in the most recent annual audited financial statements and those envisaged for the year ended 31 December 2014 financial statements, with the exception of the following:

Adoption of new and revised Standards

The following new and revised Standards have been mandatorily adopted by the Group during the period. Their adoption has not had a material impact on the financial statements of the Group.

IFRS 10 Consolidated Financial Statements (effective for accounting periods beginning on or after 1 January 2014)

IFRS 11 Joint Arrangements (effective for accounting periods beginning on or after 1 January 2014)

IFRS 12 Disclosure of Interest in Other Entities (effective for accounting periods beginning on or after 1 January 2014)

IFRS 10, 12 & IAS 27 Investment Entities (effective for accounting periods beginning on or after 1 January 2014)

IAS 27 Consolidated and Separate Financial Statements (effective for accounting periods beginning on or after 1 January 2014)

IAS 27 Separate Financial Statements (effective for accounting periods beginning on or after 1 January 2014)

IAS 28 Investments in Associates and Joint Ventures (effective for accounting periods beginning on or after 1 January 2014)

IAS 32 Financial Instruments: Presentation (effective for accounting periods beginning on or after 1 January 2014)

IAS 36 (amendments May 2013) Recoverable Amount Disclosures for Non-Financial Assets (effective for accounting periods beginning on or after 1 January 2014)

IAS 39 (amendments June 2013) Novation of Derivatives and Continuation of Hedge Accounting (effective for accounting periods beginning on or after 1 January 2014)

2. Basic and diluted earnings per share

The calculation of basic earnings per share attributable to the ordinary equity holders is based on the following data:

Diluted earnings per share is calculated using the weighted average number of ordinary shares assuming the conversion of its potential dilutive ordinary shares outstanding which relate to the convertible loan and employee share options. All of the Group's potential ordinary shares were dilutive for the period ended 30 June 2014 which resulted in a decrease in earnings per share. The Group had total potential ordinary shares outstanding of 124,887,935 at 30 June 2014 (2013: 131,337,728).

Circle Oil PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2014

3. Segmental reporting

Sales revenue in Africa of US$47.79 million (H1 2013: US$42.33million) consists of US$36.97 million in oil sales and US$1.45 million in gas and associated liquid sales in Egypt together with US$9.37 million in gas sales in Morocco. Corporate comprises mainly of corporate expenses, cash and other assets and liabilities not directly attributable to an operating segment.

Circle Oil PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2014

3. Segmental reporting (continued)

Circle Oil PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2014

3. Segmental reporting (continued)

Circle Oil PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2014

4. Exploration and evaluation assets

The movement on exploration and evaluation assets which relate to oil and gas interests during the period was:

Oil and gas interests at 30 June 2014 represent exploration and related expenditure on the Group's licences & permits in the geographical areas noted above. 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 funds to develop these interests. Should the development of economic reserves prove unsuccessful, the carrying value in the statement of financial position will be written off.

The Directors have considered whether facts or circumstances exist that indicate that exploration and evaluation assets are impaired and consider that no impairment loss is required to be recognised as at 30 June 2014. Exploration and evaluation assets have been assessed for impairment having regard to the likelihood of further expenditures and ongoing appraisal for each geographical area.

Circle Oil PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2014

5. Production and development assets

The movement on production and development assets which relate to oil and gas interests during the period was: