Circle Oil PLC: 2016 Interim Results

RNS Number : 4220L

Circle Oil PLC

30 September 2016

30 September 2016

CIRCLE OIL PLC

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

2016 INTERIM RESULTS - UNAUDITED

Circle Oil plc (AIM: COP), the international oil and gas exploration, development and production company, announces its results for the six month period ended 30 June 2016.

SUMMARY

Strategic Review

In March 2016, Circle announced it was to undertake 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.

On 29 June 2016, the Company provided an update to the market that it believed that no value will be attributable to Circle Oil plc equity holders. At the Company's request, the Company's shares were suspended from trading on the AIM market with immediate effect. This position remains unchanged. In the event the suspension is not lifted, the listing will be cancelled after six months as set out in the AIM rules.

The Company has received a number of offers from interested parties for different combinations of the Group's assets and corporate entities. Presently, the Company is in an advanced stage of negotiations with a shortlist of parties.

The Company has a reserve based lending facility (the "Facility") with the International Finance Corporation (IFC), a member of the World Bank Group and other syndicate members ("B Lenders"). The IFC remains the principal lender on the Facility. Since July 2015, the Company and IFC (on behalf of itself and the B Lenders) have agreed numerous temporary waivers in respect of the Facility.

The current waiver expires on 30 September 2016. To date, IFC, as facility agent, has been unable to obtain authorisation from one of the B Lenders on a further waiver extension. Notwithstanding this, the Company is also in detailed discussion with IFC for additional funding in order to finance the Strategic Review process through to conclusion.

Negotiations with IFC (and B Lenders) are ongoing and the Company is hopeful that a way forward can be identified in the very near future that will allow the Company to complete the Strategic Review process mentioned above.

There is, therefore, currently a material uncertainty as to the outcome of discussions regarding the Facility and any additional funding. Therefore, the Directors do not consider the going concern basis of accounting to be appropriate in preparing the interim accounts, given the requirement for the Company to publish accounts today.

The effect of this on the consolidated financial statements is that all Group assets and liabilities have been restated to their estimated recoverable value as at 30 June 2016.

Financial Summary

Operating loss for the period was US$0.9 million compared to an operating profit of US$5.5 million for H1 2015. Revenue for the period was US$14.1 million (H1 2015: US$22.3 million). Impairments and write-offs to assets as a result of preparation of accounts on a basis other the going concern is US$148.4 million. The overall loss for the period was US$149.8 million.

CIRCLE OIL PLC

INTERIM REPORT

FOR THE SIX MONTHS ENDED 30 JUNE 2016 - UNAUDITED

Table of Contents Page

Chief Executive Officers Statement 3

Condensed Consolidated Income statement 5

Condensed Consolidated Statement of Financial Position 6

Condensed Consolidated Cashflow Statement 7

Consolidated Statement of Changes in Equity 8

Notes to the Financial Statements 9

CHIEF EXECUTIVE OFFICER'S STATEMENT

OPERATIONS

Morocco

In our operated onshore blocks in Morocco we have seen a steady performance in early 2016. We continue with a streamlined team in Rabat overseeing fulfilment of the two major gas supply contracts. Efforts to maintain a safe, efficient and low cost operation are the main focus, and increased utilisation of our operated pipeline is the prime objective. A significant new customer is progressing plans for a new spur line to their factory from our existing 8" line which could also permit further branch connections in future. Discussions continue with both existing customers and potential new industrial partners moving into the Kenitra region regarding gas sales contracts.

The cumulative production from Circle operated wells in the Sebou Permit through to the end of June 2016 was 11.34 Bcf. Sebou average daily gas sales were 5.99 MMcf/d during the first half of 2016. Gas demand in-country remains buoyant and Circle has been somewhat shielded from falling commodity prices due to attractive fiscal terms and fixed price gas contracts (average price realised during the period of US$8.64/Mcf). There is potential for a further improvement on current pricing levels as new contracts are negotiated. Production during the year has been fed from nine wells, these are utilised at periods and rates most appropriate for maximisation of efficient recovery over the lifetime of the anticipated contracts.

On 27 June an earth movement near to the town of Kenitra in northern Morocco resulted in the temporary closure of the Office National des Hydrocarbures et des Mines (ONHYM) owned and operated 4" gas pipeline spur to the CMCP factory. There were no injuries associated with the incident and the pipeline was closed as a precaution while the situation was assessed and repairs were implemented. As of the date of this report, repairs are complete and gas supplies have been restored.

Our ongoing technical analysis has identified and re-prioritised a series of untapped resources. These have been assessed in the light of the performance of all wells to date and have upgraded parameters which take account of all wells drilled, including results from Lalla Mimouna.

In partnership with ONHYM, and subject to the outcome of the Strategic Review, the Sebou and Lalla Mimouna work programmes for 2017 will be confirmed over the next months and may include drilling of two commitment wells on the Lalla Mimouna permit where new targets exist independent of earlier drilling.

Egypt

During the first half of 2016 the operator successfully drilled 2 new production wells. Both wells required side-tracks and involved a rapid collaborative effort to ensure these were successfully targeted. AASE-23 encountered the top of the reservoirs at a depth of 9,590 ft MD, and flowed at over 4,000 bopd on test. It commenced long-term production at 740 bopd in February. AASE-24 also encountered the reservoirs at 9,486 ft MD flowing at over 1,700 bopd on test. Long-term production commenced at 490 bopd in May.

At the end of June 2016, thirteen wells in the Al Amir SE field (AASE) and three wells in the Geyad field were on production, with a combined average gross production rate of 7,235 boepd for the first half year period. Water injection through seven wells in AASE and one well in the Geyad field is providing continuing pressure support and quantities are adjusted to maximise recovery efficiency and optimise production levels. Water production has averaged 3,357 bwpd and is being comfortably managed with existing production and disposal facilities.

Five workovers have been conducted up to 30 June 2016, three on AASE and two on Geyad field. These were directed at maintaining production from existing zones and have had the combined effect of restoring approximately 650 bopd of production that would have been lost without artificial lift. The export gas line to the SUCO facility at Zeit Bay is currently flowing at approximately 7.5 MMcf/d with a total delivered to the terminal of 11.2 Bcf at the end of June 2016. Valuable condensate and natural gas liquids are stripped out of the gas and sold to EGPC with gross average daily rates of about 55 bbls of condensate and 12 tonnes of LPG.

An active well management work programme and selective investment continues to sustain field performance. Expenditure is budgeted during the second half of the year for further well workovers, if needed. Discussions on field unitisation are at an advanced stage and await final submissions from both sides with EGPC and GANOPE both keen to promote a resolution for the benefit of enhanced total resource management in coming years.

Tunisia

The offshore Mahdia permit (Circle Oil 100%) contains the El Mediouni structure which was tested by Circle's EMD-1 well in August 2014 and is a potentially large discovery. A farmout process begun in 2015 was suspended when the overall Strategic Review commenced in March.

At Ras Marmour onshore, Circle Oil and the operator, Exxoil, await clarification of permit status and the approvals to drill the onshore Sedouikech-1 well which targets a productive sand in the Early Cretaceous Meloussi formation. This is the proven reservoir in the adjacent Robbana field.

At Beni Khalled, Circle continues to evaluate its commitments in the current price environment for seismic and drilling services. The operator Exxoil continues to review tenders in respect of the necessary 3D seismic with a view to future appraisal of the existing gas discovery and its suspected oil rim.

Mitch Flegg

Chief Executive Officer

30 September 2016

circle Oil PLC

CONDENSED CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 30 JUNE 2016 - UNAUDITED

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2016 - UNAUDITED

Circle Oil PLC

CONDENSED CONSOLIDATED statement of financial position

AT 30 JUNE 2016 - UNAUDITED

Circle Oil PLC

CONDENSED CONSOLIDATED cash flow statement

FOR THE SIX MONTHS ENDED 30 JUNE 2016 - UNAUDITED

Circle Oil PLC

consolidated STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2016 - UNAUDITED

Circle Oil PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2016

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.

In March 2016, Circle announced it was to undertake 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.

On 29 June 2016, the Company provided an update to the market that it believed that no value will be attributable to Circle Oil plc equity holders. At the Company's request, the Company's shares were suspended from trading on the AIM market with immediate effect. This position remains unchanged. In the event the suspension is not lifted, the listing will be cancelled after six months as set out in the AIM rules.

The Company has received a number of offers from interested parties for different combinations of the Group's assets and corporate entities. Presently, the Company is in an advanced stage of negotiations with a shortlist of parties.

The Company has a reserve based lending facility (the "Facility") with the International Finance Corporation (IFC), a member of the World Bank Group and other syndicate members ("B Lenders"). The IFC remains the principal lender on the Facility. Since July 2015, the Company and IFC (on behalf of itself and the B Lenders) have agreed numerous temporary waivers in respect of the Facility.

The current waiver expires on 30 September 2016. To date, IFC, as facility agent, has been unable to obtain authorisation from one of the B Lenders on a further waiver extension. Notwithstanding this, the Company is also in detailed discussion with IFC for additional funding in order to finance the Strategic Review process through to conclusion.

Negotiations with IFC (and B Lenders) are ongoing and the Company is hopeful that a way forward can be identified in the very near future that will allow the Company to complete the Strategic Review process mentioned above.

There is, therefore, currently a material uncertainty as to the outcome of discussions regarding the Facility and any additional funding. Therefore, the Directors do not consider the going concern basis of accounting to be appropriate in preparing the interim accounts, given the requirement for the Company to publish accounts today.

The effect of this on the consolidated financial statements is that all Group assets and liabilities have been restated to their estimated recoverable value as at 30 June 2016:

· At that date all assets are considered as realisable as current assets within one year;

· cash and other liquid assets have been measured at fair value at 30 June 2016 and are considered as realisable as current assets within one year;

· capitalised costs and other assets where a reduced value or no value is expected to be recovered have been impaired or written-off as follows:

- production and development assets have been impaired to what the Directors believe reflects the net realisable value of these assets under a liquidation or similar process.

- exploration and evaluation assets have been written-off in full as no value is expected to be recovered for these assets

- trade receivables for oil and gas have been impaired to reflect what Directors believe is recoverable taking current market environment into consideration.

- property, plant and equipment value has been written-off in full as no value is expected to be recovered for these assets;

Circle Oil PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2016

· liabilities are only recognised if an obligation exists at the balance sheet date; and

· reserves relating to value attributed to employee Long Term Incentive Plan, which have been deemed to no longer have any value at 30 June 2016, have been transferred to retained losses

These estimated recoverable values are substantially below the range of values recently evidenced in the Strategic Review process, but are a direct consequence of the Company being required to prepare the accounts on a basis other than going concern.

Adoption of new and revised Standards

The following new and revised Standards have been mandatorily adopted by the Group during the period. Their adoption is not expected to have any material impact on the Group.

IFRS 14 Regulatory Deferral Accounts (effective for accounting periods beginning on or after 1 January 2016)

IFRS 11 (amendments) Accounting for Acquisitions of Interests in Joint Operations (effective for accounting periods beginning on or after 1 January 2016)

IFRS 10, IFRS 12 and IAS 28 (amendments) Investment Entities; Applying the Consolidation Exception (effective for accounting periods beginning on or after 1 January 2016)

IAS 16 and IAS 38 (amendments) Clarification of Acceptable Methods of Depreciation and Amortisation (effective for accounting periods beginning on or after 1 January 2016)

IAS 16 and IAS 41 (amendments) Agriculture: Bearer Plants (effective for accounting periods beginning on or after 1 January 2016)

IAS 27 (amendments) Equity Method in Separate Financial Statements (effective for accounting periods beginning on or after 1 January 2016)

Annual Improvements to IFRSs: 2012-2014 Cycle (effective for accounting periods beginning on or after 1 January 2016)

2. Basic and diluted earnings per share

Basic earnings per share and diluted earnings per share at the end of the period were as follows:

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 anti-dilutive for the period ended 30 June 2016 which resulted in a decrease in loss per share. The Group had total potential ordinary shares outstanding of 143,876,346 at 30 June 2016 (2015: 147,608,751).

Circle Oil PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2016

3. Segmental reporting

Sales revenue in Africa of US$14.13 million (H1 2015: US$22.29 million) consists of US$6.63 million in oil sales and US$0.5 million in gas and associated liquid sales in Egypt together with US$7.0 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 2016

3. Segmental reporting (continued)

Circle Oil PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2016

3. Segmental reporting (continued)

Circle Oil PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2016

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 2016 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.

As there is a material uncertainty as to the outcome of certain discussions regarding the RBL and any additional funding from IFC the Directors do not consider the going concern basis of accounting to be appropriate in preparing the interim accounts. As a consequence, the decision has been taken to write down in full the carrying values of exploration and evaluation assets to a Nil value at 30 June 2016.

Circle Oil PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2016

5. Production and development assets

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

Circle Oil PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2016

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.

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 Directors performed the assessment as at 30 June 2016, as required by IAS 36, being the reporting date.

As there is a material uncertainty as to the outcome of certain discussions regarding the RBL and any additional funding from IFC the Directors do not consider the going concern basis of accounting to be appropriate in preparing the interim accounts. As a consequence, the Directors have decided to write-down the value of the production and development assets to a net realisable value of US$6.9 million which the Directors believe fairly reflects the sales value of these assets in a case of liquidation. These assets have been re-classified as current assets in the Statement of Financial Position.

These estimated recoverable values are substantially below the range of values recently evidenced in the Strategic Review process, but are a direct consequence of the Company being required to prepare the accounts on a basis other than going concern.

6. Finance revenue

7. Finance costs

8. Cash and cash equivalents

Cash balances at 30 June 2016 of US$7.3 million (H1 2015: US$17.1 million) include restricted cash amounts of US$1.3 million (H1 2015: US$1.8 million).

Circle Oil PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2016

9. Loans and borrowings

At 30 June 2016 the amount outstanding on loans was as follows:

10. Reconciliation to net cash generated from operations

11. Contingent liabilities

In Morocco, a small number of legal claims against Circle Oil Morocco remain outstanding. Where Circle Oil Morocco believes it may be required to, or it may be commercially appropriate to settle, a provision has been made. As at 30 June 2016, this provision is US$0.27 million.

The Group has not recognised all liabilities associated with the implementation of a liquidation or similar process nor has it made any provision for such costs in the financial statements at 30 June 2016.

12. Interim Report

Copies of the Interim Report are available by download from the Group's web-site atwww.circleoil.net

Glossary

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 Consultants (+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 35 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 listed on AIM in October 2004.

Internationally, 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 Oil is available on its website atwww.circleoil.net.

The company news service from the London Stock Exchange

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