Circle Oil to conduct strategic review to reduce debts

Energy company Circle Oil is to conduct a strategic review to put in place a "sustainable long term financing structure" for the business.

In a statement, the company said it had been considering “a number of options” to reduce debt and ensure it has sufficient cash flows to fund future operations.

“The scope of the options being considered under the strategic review include, but are not limited to, 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.”

It said there could be "no certainty" as to whether any such agreement, offer or transaction would be forthcoming or as to the terms. Investec Bank has been appointed to act as financial advisor in relation to the review.

On December 14th, the company announced that following the redetermination of its Reserve Based Lending (RBL) borrowing base, it expected its borrowing base to be reduced, potentially giving rise to a shortfall.

In the interim, given continuing oil price volatility, Circle has remained in "constructive discussions" with International Finance Corporation (IFC).

It said it was “pleased to announce that those discussions have culminated in agreement by IFC to suspend the December 2015 redetermination until April 15th 2016 with any repayments required under the RBL facility, which is currently drawn to $57.5 million, being postponed until that date”.

“IFC has indicated its willingness to consider further waivers as may be required to continue the strategic review process based on circumstances applying at the time of any application.”

Circle Oil said its cash flows and financial position “remain under significant pressure”, primarily due to the uncertainty and irregularity of US dollar receipts from EGPC.

Chief executive Mitch Flegg said the agreement with IFC to defer the December 2015 redetermination and to provide a waiver in relation to any immediate repayments was a "welcome development" and one which gives the company "the headroom to progress the strategic review and to put in place a sustainable long term financing structure for the business".

“Circle has excellent assets across our regions of operation and our aim, mindful of the sustained low oil price environment and the company’s stressed financial position is to maximise the value from these assets for the benefit of all stakeholders,” he added.