Circle Oil Sees Loss in 2006

Circle Oil showed a pretax loss in 2006 of 2.8 million Euro compared to a loss of 1.6 million Euro the previous year.

Mr. Thomas Anderson, Chairman of Circle Oil, said:

"It has been an exciting past year for Circle Oil as we move towards owning a more balanced portfolio. Our acquisitions in North Africa and our commitment to an aggressive drilling campaign give the Company the possibility of gaining production quickly and cash flow in the short to medium term.

Furthermore, in 2007, we have made real progress with our financing by concluding a US$30 million convertible loan agreement with our partners at KGL Petroleum. In short, we are well set for the future and I look forward to reporting to shareholders later in the year"

The last 12 months have been a period of great activity for Circle as the Company's strategy has shifted towards owning a more balanced portfolio. The Company now has large-scale exploration acreage in Oman and Namibia; combined with the addition of more advanced lower risk, mature exploration projects in Tunisia and Morocco.

The acquisition of these later stage exploration licenses in Morocco, June 2006, and Tunisia, in April 2007, gives Circle the possibility to achieve production quickly on lower risk, low-cost drilling and development acreage. This should lead to the Company generating rising cash flow from operations in the short to medium term.

Circle is committed to an aggressive well drilling campaign in both these countries over the next 18-24 months and is already taking the necessary steps to enable the drilling program to be carried out on a near continuous basis starting in July this year with only a break during the winter months. The Company is continuing to examine the possibility of acquiring other advanced acreage in Morocco, Tunisia and a number of other countries in North Africa and the Middle East. Progress on these negotiations will be reported to shareholders in due course.

In Morocco, in the Rharb, it is expected that the gas discovery made by ONHYM last August should go into production later this year. Discussions are presently underway to finalize Circle's acquisition of this discovery and once these have been successfully concluded we should move quickly to get the well into production. The gas from this discovery and any initial discoveries made by Circle in the Rharb can be piped through the existing pipeline network, to be sold to local industry.

The farming-out process of our large Namibian license has taken much longer to effect than originally expected. However, negotiations are ongoing with two interested groups. On the other hand, the two Omani licenses have attracted considerable attention, but the Company will not be in a position to conclude any farm-in agreement on the offshore Block 52 until the results of the seismic survey shot last winter have been processed and interpreted. The interpretation of the data is expected to be completed in the fourth quarter of 2007 and should considerably enhance the prospectivity of this area.

Our onshore Block 49 has generated most interest, primarily because of reported successful drilling in an adjacent Block. This report is to be coupled with our own new internal gravity modeling, which gives further evidence of the existence of an analogous salt basin within our Block and the possibility of a good "salt stringer" play.

Circle has recently secured office accommodation in Rabat and Tunis and is in the process of building its team in both countries to manage the exploration and development programs in each country. Country managers are being appointed in Morocco and Tunisia and a very experienced drilling supervisor will join the team shortly. The Houston office is being wound-down with its work being reassigned to our new UK offices in Wokingham, Berkshire where a number of additional specialists will be recruited over the coming months. The Houston staff has set up their own consultancy company with Circle's cooperation and their services are available to Circle should they be needed.

Given the level of activity of the work programs planned for the coming two years, I am delighted that the Company has concluded a US$30 million convertible loan agreement with KGL Petroleum, a substantial Kuwaiti company. The loan has a maturity of five years, is convertible into ordinary Circle shares at 0.25 per share, and carries a 6% coupon. In addition, KGL has the right to subscribe for an additional 15 million shares at a price of 0.50p per share for a three-year period. Once exercised, this option will generate an additional $15 million for Circle. Negotiations with a number of other institutions who may participate in increasing the financing are ongoing.

Once the financing is complete, together with Circle's current cash balances, the Company will have sufficient funds to carry out its planned initial drilling program in Tunisia and Morocco. It will also be able to undertake any additional follow-up drilling and bring into production the economic discoveries drilled during the program. The balance of the funds will be used to pay the initial costs of exploration work on other prospective assets currently being negotiated, and subject to the Company's wish and other approvals conduct a comprehensive 3D survey within Block 49 in Oman.


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