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The share price of Circle Oil (LSE:COP) jumped nearly 30% today on the news of a major oil find about 120 km off the coast of Tunisia. Shares closed Monday at 17.75. Institutional investors took most of the gain in pre-trading following the announcement, with Circle’s shares opening today at 21.75, gaining modestly throughout the trading day to close at 22.75, a 28.17% increase on the day. The increase brings Circle back into the range it had been trading within this year until falling dramatically in early July. Circles share price has remained below 20.00 pence since 03 July.
Some Facts About Oil
Oil is typically considered to be a risky investment. There are several reasons for that.
First of all, oil is hard to find. Advanced technology has helped significantly over the past several decades in terms of locating deposits, so that is a plus.
Second, oil is hard to get to. Funny thing about oil. It is rarely, if ever, found on top of the ground or on top of the water, with the exception of times following disasters like the Deepwater Horizon. God must have had our safety and the environment in mind when He tucked the oil deep under the earth’s crust.
Third, oil is usually found in unfriendly environments. Often that unfriendly environment is geographical and geophysical. In the case of Circle Oil, those environments can be politically unfriendly. The northern coast of Africa, Egypt and Oman would not necessarily be my first choice of places to drill. However . . .
Fourth, you have to go where the oil is, if you are going to succeed.
Some Facts About the Find
Today’s report is preliminary, as indicated in Circle Oil’s report.
However, CEO Chris Green’s excitement was clearly evident when he said that, “We are extremely pleased to add this potential large discovery to our portfolio in Tunisia. We intend to take our appraisal effort forward on the Mahdia Permit as quickly as possible following this proof of the El Mediouni petroleum accumulation and will provide further updates of our plans in due course.”
Initial indications are that the EMD-1 discovery could produce 100 million barrels of oil. In investor language, that’s about $10 billion worth. The kind of reward has the potential to minimize and pay back the price of the financial risks quite handsomely.
Plus, investors take note: Circle is the only game in town as far as the El-Mediouni well. It holds 100% of the interest in the project.
Whilst this announcement is significant in its own right, further positive announcements relative to Circle’s actual ability to produce from the oil in place could be the impetus to drive the company’s share price proportionately higher. Of course, by that time, the real risk-takers will be the ones who see the rewards they had envisioned when they risked their investments whilst the stock was priced at 21.75.
