Circle Oil has announced its results for the year ended December 31, 2008.
Thomas Anderson, Chairman of Circle, said, "Circle intends to continue its aggressive exploration program while expanding production levels in Egypt and providing additional pipeline capacity for the increased production capability we now have in Morocco. As our production increases, it is pleasing to note that oil prices are also recovering from their lows and remain quite firm. This favorable background, together with our drilling and development actions, will result in a substantial increase in Circle's revenues.
"I said in Circle's last annual report that I was looking to the future with confidence and enthusiasm. The results for the past 12 months clearly underpin this view and I believe that our team can transform Circle into a substantial oil and gas producer over the coming years."
The Company has enjoyed tremendous success in the year ended December 31, 2008 as it has moved from being an explorer into a producer of both oil and gas. The decision taken a couple of years ago to focus on the acquisition of lower risk, near production assets in Morocco, Tunisia and Egypt has undoubtedly been proven the correct strategy for Circle, as reflected by the drilling results achieved over the past nine months, particularly in Morocco and Egypt.
The Company announced last autumn that it was commencing a 15 well drilling program on its North African licenses and began with wells being drilled in Morocco and Egypt. To date a total of 12 wells have been completed and commercial hydrocarbons have been discovered in 9 of these wells, a remarkable hit rate by any standards, with 2 wells which intersected hydrocarbons yet to be tested. Great credit is due to our team for this success.
In Morocco, drilling began with the ONZ-6 well and a discovery was announced in early November 2008 with the well testing gas at a sustained rate of 3.32 MMscfd. Discoveries followed in December in CGD-9, testing gas at 8.86 MMscfd, in February 2009 in KSR-8 which has two zones testing at rates of 12.48 and 6.76 MMscfd, in April in well DRJ-6 with a 4 metre gas sand that has yet to be flow tested and in May in well CGD-10 which tested 3.9 MMscfd. The results of the final well of the 6 well program KSR-9 have just been announced and this well also discovered gas in two zones which tested at 8.05 MMscfd and 4.66 MMscfd.
On the production front, ONZ-4 which was acquired as part of our original agreement with ONHYM went into production in September 2008 but steady production was not achieved until November due to infrastructural problems in the main pipeline. ONZ-6 is now also in production and the combined rate of flow from both wells is 55-60,000m3/day which is in line with the current requirements of the CMCP paper mill in Kenitra. Negotiations have commenced with a number of other large gas users in the area and we expect to be selling gas to these companies in due course.
As reported in the release of 16 February 2009 on the KSR-8 discovery, the drilling program was severely hampered from early January 2009 by unprecedented rains and extensive flooding in the Rharb Basin. This flooding did not subside until late March resulting in a considerable amount of standby expense as the drill sites were inaccessible and the tying in of new discoveries into the main trunk line was halted. The drilling has now been completed and tie in plans are back in motion.
In Tunisia, the Serdouk well was drilled on the Grombalia permit. The well confirmed the prospect stratigraphy and structure but no oil was encountered primarily due to the lack of permeability in the formations and it was plugged and abandoned.
In Egypt, we have had tremendous success on the NW Gemsa permit beginning with the announcement in October 2008 of the Al Amir SE-1 ST discovery. This well tested 41 API oil and flowed at rates of 3,388 bopd and 4.25 MMscfd. We then re-entered the Al Amir-1X discovery well, which was originally drilled in 2005, to drill a new sidetrack section of the well to reappraise it as a potential producer. The sidetrack confirmed the upper pay zone but also discovered a new lower pay zone in the Gharib formation dolomites. Both zones contain heavy oil of 16 API.
In January 2009, the Company drilled an appraisal well on the Al Amir SE field, Al Amir SE-2X. This well discovered oil and gas in two pay zones: the upper is 22' thick, the lower 20' thick. The lower zone was tested and flowed at sustained average rates of 5,785 bopd and 7.8 MMscfd. In February 2009 the Company applied to the Egyptian General Petroleum Company for the necessary permits to bring the Al Amir field into production. The development lease was granted and production commenced at 1,450 bopd increasing to 3,000 bopd for a period but now stabilized at 2,000 bopd as a number of receiving tanks and other infrastructural equipment is refurbished at the Gaswarina facility where our oil is piped. Once this work is completed the production levels from Al Amir will be increased.
The drill rig then moved to drill targets Shehab in the centre and Geyad in the northern part of the NW Gemsa licence. The Shehab-1 well encountered significant hydrocarbon bearing sandstones with 22' of net pay in the Kareem formation. It was decided not to test these formations at this location but to do so in a future well in an updip location. The timing of the drilling of this well has yet to be decided. The rig then moved to drill the Geyad-1 well where a new discovery was made in the Kareem formation with 29' of net pay that flow tested 40 API oil at a sustained rate of 2,809 bopd and gas at 3.04 MMscfd. The drill rig has now moved back to Al Amir to drill additional appraisal wells there.
In tandem with our extensive drilling campaign, an offshore seismic study was also carried out on the Mahdia license in Tunisia, results of which will be used to firm up the locations for the initial well to be drilled on that acreage. Tender documents were also received from eight seismic contractors for the large 3D study proposed for the southern portion of our Block 49 in Oman. These tenders are currently being assessed and it is hoped to award the contract so that the field acquisition can commence in the fourth quarter this year.
I am also very pleased to report that we are soon to be joined in Namibia by a well funded partner, Petroholland, who will carry out a significant exploration program on our Namibian licence at no cost to Circle Oil for its 20% retained interest in the license. I wish Petroholland every success in their exploration efforts in this area.
Looking ahead, Circle intends to continue with its aggressive exploration program while expanding its production levels in Egypt through additional appraisal wells on each of its discoveries there. In Morocco we will tie in our recent discoveries to fill the existing pipeline and lay a new trunk line to Kenitra to take the increased production capacity that we now have. All of these actions will result in a substantial increase in the Company's revenues which in time is planned to cover the cost of the ongoing exploration program. The Company is also seeking to increase its production base by acquiring development or production assets. A number of such projects in the Middle East /North Africa region are currently being assessed.
As our oil production increases it is pleasing to note that oil prices which almost touched US $150 per barrel last July and then plummeted to the mid US $30's per barrel is now trading in the region of US $70 per barrel and remains quite firm. This is very good news for Circle as its cost of production in the NW Gemsa concession is very low.
I said in last year's annual report that I was looking to the future with confidence and enthusiasm. The results for the past 12 months clearly underpin this view and I believe that our team can transform Circle into a substantial oil and gas producer over the coming years.
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