Interactive Investor

Circle Oil tipped to triple

3rd September 2014 14:43

Lee Wild from interactive investor

How fortunes change in the world of oil exploration. Less than two months after its share price began a 25% slump, Circle Oil announced a potentially large discovery in the Mahdia block offshore Tunisia. The shares have since gushed near to an 18-month high, and despite slightly disappointing first-half profits, eternally optimistic broker Investec still reckons the shares could nearly triple from here.

Higher cost of sales and an extra $1 million (£0.6 million) of administration costs due to initial delays at Mahdia meant a 26% slide in operating profit for the six months. That was despite 13% growth in revenue to $47.8 million following higher oil volumes in Egypt and increase in sales of gas in Morocco.

Now, Circle is drilling on the Sebou (CGD-12) permit, its second well of 12 in Morocco, where production is currently running at 7 million metric cubic feet per day.

"Recently completed operations offshore Tunisia and forthcoming operations in both Oman and onshore Tunisia have the potential to further enhance our asset base," says chairman Stephen Jenkins. All three regions could provide an operational catalyst in the months ahead.

"The recent potential discovery in EMD-1 offshore Tunisia opens and extends the prospectivity over the whole Mahdia permit and is a potentially game-changing event in Circle's development," adds Jenkins. Circle estimates 100 million barrels of oil recoverable.

Following that discovery, Investec beefed up its risked exploration net asset value by 20p to 70p, a significant premium to the current share price of 25.5p. Westhouse Securities plumps for a more conservative 31p.

Look for full-year revenue of $96.5 million, pre-tax profit of $23.5 million (down from $28.9 million in 2013, and earnings per share of 4.2 cents.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.