Grim tidings for AIM investors

24 May 2016, Week 20, Issue 640

Debt-laden Circle Oil has warned there could be little or no value left for the company’s shareholders, in another blow for investors in London’s Alternative Investment Market (AIM). The company, which has operations in Tunisia, Egypt, and Morocco made the announcement late last week on May 20. The bad news stems from the company’s US$77.5 million debt pile, which may effectively wipe out any value in its equity.

The company owes US$57.5 million to the International Finance Corp. (IFC), the private banking arm of the World Bank, which promotes investments in developing countries. The other US$20 million of debt is held by KGL Investment through a convertible loan.

Circle had previously initiated a strategic review to consider its options. Some of the proposals it placed on the table have included restructuring its debt, selling assets, a merger with another company and raising additional capital through a share issue.

The company said it was working to finish the review process as quickly as possible and that despite the bleak warning given, management would continue to weigh all options to maximise value for shareholders. However, the firm reiterated that the outcome of the strategic review was likely to lead to little or no residual value for equity holders.

Falling crude prices and the adverse impact relating to payments for oil produced in Egypt put the company’s cash flows and financial position under intense pressure. As of December 31, Circle Oil had cash of US$10 million and receivables due from Egypt and Morocco of US$21.6 million.

Circle Oil boasts a portfolio of low-risk, near-term production, while also having exploration potential. The firm’s shares began trading on AIM in October 2004. It holds assets in the Rharb Basin in Morocco, the Ras Marmour permit and Beni Khalled permit in Tunisia, the Mahdia permit offshore Tunisia, and the northwest Gemsa permit in the Zeit Bay area of Egypt.


Petroceltic pain

Circle Oil’s struggles are the latest to hit shareholders in energy explorers and producers this year with the sliding crude prices. Another source of bleak tidings for AIM investors came recently when Worldview International gained apparent control of Petroceltic’s assets in Africa and Europe when a long-standing dispute forced the company into examinership. 

Despite Worldview being set to take control of Petroceltic by June, the company has continued working on its Ain Tsila project. 

A statement from the company on May 23 said it had drilled the AT-13 well, its second in the Ain Tsila development campaign of a planned 24 wells. The recent well reached a total depth of 2,020 metres and penetrated 73 metres of gas and condensate-bearing Ordovician formation. Well results will be confirmed later this year when batch completion, stimulation and testing are carried out. 

The rig will move on to drill the AT-11 well, also targeting the Ordovician. Petroceltic has a 38.25% stake in the Isarene permit, home of the Ain Tsila field. Sonatrach has a 43.38% stake while Enel has 18.38%. 


SDX listing

Despite the cautionary tales of Circle and Petroceltic, some companies are determined to buck the trend. SDX Energy announced its shares had been admitted to the exchange on May 20. The company, which works in Egypt and Cameroon, said it had raised around GBP7.6 million (US$11 million) through a placing and subscription. 

SDX had production of 1,519 barrels of oil equivalent per day in 2015 and reserves of 7.34 million boe, at North West Gemsa and Meseda, with gross mean prospective resources of 585 billion cubic feet (16.57 billion cubic metres), of which 322 bcf (9.12 bcm) were net. 

The company’s production can generate cash with Brent prices as low as US$15 per barrel, it said, and it plans to carry out workovers and development drilling this year, in addition to a carried exploration well. 

AIM will “provide a supportive platform to help us achieve our ambitious growth objectives,” said SDX’s CEO, Paul Welch, formerly the CEO of Chariot Oil & Gas. “The new funds raised will enable us to significantly increase production in Meseda, our resilient, high-margin producing asset and also complete the work programme on South Disouq, our high impact exploration opportunity in Egypt. We believe that we are uniquely placed to thrive in this low oil price environment and look forward to the next chapter in our story with confidence.”