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Good COP, bad COP

News of an oil discovery offshore Tunisia helped offset slightly disappointing financial and operating results from Circle Oil

Somewhat disappointing first-half financial results from Circle Oil (COP) were overshadowed by very exciting news that the company has made a large oil discovery offshore Tunisia.

IC TIP: Buy at 26p

The Mahdia well in Tunisia found roughly 100m barrels of oil, according to a preliminary company estimate. That was nearly double analysts' pre-drill expectations, and Circle Oil owns 100 per cent of the licence, where five further prospects are already mapped.

Unfortunately, the company encountered problems drilling the well, so was unable to properly log it or conduct flow testing. Delays also meant drilling costs overran considerably. Nevertheless, if it proves to be commercially viable, the discovery could be worth as much as $650m (£390m), or 56p a share, more than double Circle Oil's current share price.

Meanwhile, rising output at Circle Oil's producing assets in Egypt and Morocco resulted in decent top-line growth. But the cost of sales increased by a third, while administrative costs rose by a half, contributing to a steep fall in profits. Receivables from oil sales in Egypt also increased to $48m, from $42m at the year-end, while interest costs have moved up following the first drawdown from a new $100m debt facility.

Broker Investec Securities forecasts full-year pre-tax profits of $23.5m, giving EPS of 4.2¢.

CIRCLE OIL (COP)

ORD PRICE:26pMARKET VALUE:£146m
TOUCH:25p-26p12-MONTH HIGH:26pLOW: 17p
DIVIDEND YIELD:nilPE RATIO:10
NET ASSET VALUE:45¢*NET DEBT:8%

Half-year to 30 JunTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
201342.314.72.6nil
201447.89.41.7nil
% change+13-36-35-

£1=$1.67

*Includes intangible exploration assets of $112m, or 20¢ a share