North African oil explorer set for soaring profits

 

If you followed the shrewd investment company Audley Capital into Western Canadian (WTN), the coal company recently acquired by Walter Energy, the chances are you would have made substantial returns on your investment (particularly in March 2009 where the stock rose over 30 times from its lowest point).

Another company Audley Capital is backing is that of Circle Oil (COP), in which it holds approximately 6.5 per cent of the issued share capital:

Circle Oil PLC chart

Circle Oil is an AIM listed oil and gas explorer and producer with assets in Egypt, Morocco, Oman and Tunisia.

Not the most inspirational countries to name given events over the last four months and if you look closely at the chart, you will see that the sharp fall from the low 40s to the low 30s coincides with the North African/Middle East uprisings.

Notwithstanding that Gaddafi, through his state owned Libya Oil Holdings, has a 17.75 per cent stake in the company, which is effectively frozen because of actions taken by the Treasury.

This is not detrimental to Circle but the market's perception might be albeit it looks well and truly baked into the share price.

Moreover, the company may even attract predators if Gaddafi's assets are set to be sold off at auction, although I cannot see that happening for some considerable time.

Its production asset North West Gemsa in Egypt is ring-fenced by the military and has been unaffected by the tensions while it produces approximately 7,500 barrels of oil per day (bopd), which is expected to rise to 12,000 bopd by mid 2012.

Circle owns a 40 per cent interest in this asset and is due a Competent Persons Report (CPR) very soon to establish the remaining size of the reserves.

The Rhab Basin in Morocco could be a company changer if all its ducks come in line. It is currently acquiring 3D seismic data over a 120 square kilometre area which may take another four to five months to complete.

Nonetheless the prospects are relatively shallow at just 500-1500 metres and any discovery can be hooked up relatively inexpensively due to the local gas pipework that already exists.

In Oman there is a lot of excitement regarding its Block 49 in which it is pursuing the Sahmah and the Lower Haima/Huqf plays.

The Sahmah play in the Rub Al Khali Basin in Saudi Arabia has been a major provider of hydrocarbons for many years and Circle are hopeful that this play extends into the north of Block 49.

The company's exploration success rate has been exemplary with 21 out of 23 wells turning out to be successful.

Although Circle Oil is not profitable, its house broker Fox-Davies is expecting profits to soar next year with free cash flow estimated at $47.6 million (£29.4 million). The £186 million company also has about £40 million in the bank.

The mean consensus price target set by Evolution and Fox-Davies is 93.5p, some 181 per cent higher than the current price of 33p.

Major catalysts to rerate the shares are the CPR in Egypt and further exploration success in Oman, Tunisia and Morocco while the preliminary results should be out in about two to three weeks time.

Update

4Imprint (FOUR) – tipped as a buy at 271.5p, the stock closed at 284p. Continue to hold.

Bezant Resources (BZT) – tipped as a buy at 37.75p, the stock closed at 40p: keep holding in anticipation of a sale of its Mankayan project in the Philippines.

Avon Rubber (AVON) – tipped as a buy at 280p, the shares closed at 309.75p. It's a small profit but take it as the tracker funds would have by now done most of the buying. Will keep a close eye for buying later down the line

Immupharma (IMM) – tipped as a buy at 87p, the stock closed yesterday at 82p. Continue to hold as we await trial news about its Lupus treatment, Lupuzor.

Hambledon Mining (HMB) – tipped as a buy at 4.875p, the shares closed yesterday at 4.625p. Continue to hold, despite the small cap malaise as we await further drilling news at its Sekisovskoye concession in Kazakhstan.

Biofutures (BIP) - suggested to buy at 6p, the stock slipped to 4.875p – continue to hold for now, despite the poor performance.

GTL Resources (GTL) – suggested to buy at 88.5p, the stock closed at 76.5p yesterday. Continue to hold as we await the company's finals in mid-June.

Globo (GBO) – suggested as a buy at 17.25p, the stock closed yesterday at 24.4p. Continue to hold.

Optare (OPE) – tipped as a buy at 3p, the stock closed yesterday at 3.125p: Continue to hold as we await contract news. Lochard Energy (LHD) - tipped as a buy at 15.13p the stock closed at 12.625p. Continue to hold.

Evolution Group (EVG) – tipped as a buy at 78.5p the stock fell below 70p last week and should have been closed out.

ZincOx (ZOX) – tipped as a buy at 60p, the stock closed at 63.75p. A month ago, the directors announced various stock purchases between 53-54p amounting to circa £159,000, which bodes well for confidence in its prospects. Hold for now.

GB Group (GBG) – suggested to buy at 36.75p, the stock closed yesterday at 40.5p. Continue to hold

SocialGo (SGO) – suggested to buy at 3.55p, the shares closed yesterday at 1.85p. The shares were blasted after a sell recommendation by Red Hot Penny Shares, albeit the company says that sales are in line with management's expectations and that version 2 will be launched this summer (a slight slippage from June). Keep holding despite the disappointment.

Active Energy (AEG) – suggested to buy at 6.13p, the stock closed yesterday at 3p. The company is due to release its final results soon. Having already suggested to sell half at 6.625p, the company raised £1.8 million at 2.75p to help, initially, fund Red Line Engineering's quest to win lighting management business with the London Underground. Sit tight for the balance and await developments.

Edenville (EDL) – mentioned as a buy at 1.1p, the stock closed yesterday at 0.91p. Having already suggested to sell one's investment stake out at 2.51p, the balance should be in for free. The company will commence drilling at its Rukwa coalfield in July. Continue to hold.

Weatherly International (WTI) – suggested to buy at 8.1p, the shares closed yesterday at 8.85p. The company will be completing feasibility studies at its Tschudi copper-silver project along with the Berg Aukas lead-zinc asset in Namibia. Continue to hold or buy on weakness.

Toumaz Holdings (TMZ) – tipped as a buy at 8.625p, the stock closed at 7.255p. Continue to hold as the company addresses some time and cost saving technology as well as making life much easier for patients with wireless nodules contained in the plasters it provides.

Renewable Holdings (REH) – tipped as a buy idea at 15.25p, it closed yesterday at 15.25p. Its Carnegie Wave Energy investment, in which it holds 25.8 per cent of it, is starting to show commercial success in its trials and this could lead to a much larger deployment further down the line as it showcases its wave energy installation.

Bowleven (BLVN) – topped as a buy at 177.25p, the stock closed at 296.75p yesterday having already suggested to sell half the investment after it doubled several months back. Hold the balance for now. Tissue Regenix (TRX) – suggested as a buy at 16p, the stock has picked up from its lows and is now trading at 12.25p. Further positive trial studies of its dCELL combined with its £5.9 million in cash suggest we may have seen the bottom on this stock.

The material for this report comes from Sharescope, Fox-Davies Capital, The Independent and Circle Oil's website. The writer does not hold any shares or derivatives in the above mentioned companies except Globo, SocialGo and Weatherly International. Some clients of Optiva Securities may hold shares in the above named mentioned companies.