Circle Oil shareholders in ‘nightmare’ debt warning

Shares in Circle Oil slumped after the Irish-based North African energy firm, which has a large band of small Irish shareholders, issued a grim warning about its debt pile.

Circle Oil shareholders in ‘nightmare’ debt warning

The company is the latest small oil and gas explorer and producer to face a “nightmare” following the collapse in global oil prices, a leading analyst said.

Five years ago, the EU imposed a freeze on a 17% stake in Circle Oil held by Libya Oil Holdings, which was then controlled by former leader Colonel Gaddafi.

That shareholding has remained frozen ever since following the overthrow and killing of Gaddafi and the country’s unresolved civil wars.

Shares tumbled 66% yesterday, to 68 pence, in London, more than halving its stock market value to £3.25m (€4.23m) as the company warned negotiations over a $77.5m (€69m) debt pile will mean “it is likely there will be little or no value attributed to Circle Oil plc equity holders”.

Some $20m of the debt is held by way of a convertible loan by KGL Investment Company and $57.5m by International Finance Corporation — part of the World Bank which promotes investments in developing countries.

“As was previously announced, the scope of the options being considered under the strategic review include, but are not limited to, a debt restructuring, a sale of one or more of the company’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 company and the raising of capital in the form of a subscription for new ordinary shares in the company by one or more third parties,” Circle said.

The woes facing Circle Oil are the latest to strike shareholders in energy explorers and producers (E&P) this year, as crude oil prices have slid.

Irish shareholders lost out last month after Worldview International gained control of Petroceltic’s assets when a long-running dispute led to the company being forced into examinership.

Shares in Providence Resources have been suspended since April after the Barryroe oil and gas explorer led by Tony O’Reilly jnr unexpectedly lost a multi-million euro legal dispute in London with an international drilling company over delays in the Celtic Sea.

Ahead of the suspension, the shares had traded at 18 cent, valuing the company then at €25.2m.

There has been no update on talks with its debt holders.

“It has been a nightmare for small-cap energy companies,” said Darren McKinley, analyst at Merrion Capital.

“The problem for some small (energy) companies is that they have speculative assets and large debts. And with oil prices having fallen from as high as $150 to an average $45 in the first quarter, liquidity is an issue for all of them,” he said.

The outlook, however, has improved as global oil prices have risen in recent weeks, the analyst said.

Davy Stockbrokers analyst Job Langbroek said the outlook for Circle Oil shareholders appeared grim.

“Circle Oil has warned the outcome of its strategic review is likely to lead to little or no residual value for shareholders.

“As the current oil and gas cycle works out, it looks like debt may be the undoing of equity value in another E&P group.”

Despite cash-generating assets in Egypt and Morocco, Circle’s “quantum of the debt will make it difficult to achieve an outcome favourable for shareholders,” he Langbroek said.

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