Circle Oil endures tough year as prices fall

Circle Oil has launched a strategic review of its cost base after falling oil prices sunk the company’s financial performance last year.

The Limerick-based oil exploration company, which has significant operations in the Middle East, posted an operating loss of $48.02m (€44m) as oil prices halved during 2014.

The loss compared to an operating profit of $32.35m the previous year.

“The impact of oil price volatility has been felt across the industry and Circle has not been immune from these effects,” Circle Oil chairman Steve Jenkins said.

“This industry backdrop combined with the cost overruns on both the Mahdia block and on block 49 in Oman, have resulted in Circle undertaking a thorough review of its cost base and capital expenditure commitments. The objective of this review is to ensure that the group is able to operate profitably in a lower oil price regime.”

Revenue for 2014 fell 9% to $84.62m from $93.34m in 2013, principally reflecting lower oil prices. Group operating profit, before write-offs and impairments, was down 28% to $23.31m.

The significant operating loss was endured primarily on the back of large write-offs of assets in Oman and the Grombalia block in Tunisia, following the expiration of the license on the latter.

These writeoffs exceeded $57.4m, while Circle’s Egyptian assets also had impairment costs of almost $14m, reflecting the lower price environment.

The fall in oil prices has caused the group to seek better value in services provided to its operations in Morocco, in particular necessitating both local management and contract changes with its suppliers, according to the company.

Cash generated from its operations in the year climbed to $54.7m from $53.37m the previous year, while capital expenditure increased significantly to $103.1m from $41.25m reflecting increased drilling.

Despite lower revenues, the company has been somewhat insulated from the downturn in the global oil industry due to both the low lifting costs in Egypt and strong gas production at stable prices in Morocco, it indicated in its preliminary results released yesterday.

The benefit of continuing drilling success was somewhat negated by the turmoil in international oil markets, however.

In light of the lower oil price environment, Circle aims to reduce its costs further, while maintaining oil and gas production in Egypt and increasing resources and gas sales in Morocco.

Three new production wells will be drilled in Egypt in 2015, which will minimise the decline in production rates. The company said it needs to ensure it is lean enough to profitably explore, develop and produce hydrocarbons in a market where $60 a barrel prices may prove to be a more common occurrence.

Meanwhile, UK- and Irish-listed exploration company Fastnet said it continues to conduct due diligence on a number of potential mergers and acquisitions but are yet to identify a suitable opportunity. The company has also undergone a comprehensive review of general and administrative costs, reducing overheads by more than 40% since December 2014 to $1.9m a year.

Applications have also been submitted for new licensing options over portions of the previous Mizen and Molly license areas in the Celtic Sea.