Circle Oil eyes fundraising or debt restructuring

As its lending facilities are likely to soon contract, Circle Oil has begun to explore a possible equity fundraising as well as, or instead of, a debt restructuring.

The AIM-listed company, which recently agreed an extension of its reserve-based lending (RBL) facility with lender International Finance Corporation, said it was working on the assumption of concluding its balance sheet improvements by the first quarter of next year.

Circle currently has $57.5m drawn from its facility. Broker Investec noted that, based on recent RBL redeterminations in the sector, it expects the facility to be reduced by $5-10m, reflecting lower oil prices and the company's maturing Egyptian production.

An operational update from the company more encouragingly revealed the final two successful wells in the Moroccan campaign for 2015 have been tied-in and that two new producing wells are currently being drilled in Egypt, with a framework been established to enable payment for gas sales from the NW Gemsa field.

Investec said that news of the potential capital shortfall was not unexpected.

"Therefore the ultimate issue remains largely the same, ie Circle has too much debt. As a result, it needs to deleverage either through new equity - strategic investor, ala Ithaca - an asset sale or a merger. Without one of these events, Circle cannot organically deleverage, in our view."

Circle's asset base remains attractive "and if a deal or strategic investor can be secured, we believe value can ultimately be released".