London, 20th March, 2015: Gulfsands Petroleum plc (“Gulfsands”, the “Group” or the “Company” – AIM: GPX), the oil and gas production, exploration and development company with activities in Syria, Morocco, Tunisia and Colombia, provides the following update on the Group’s current activities and other corporate matters.
Following the recent shareholder meeting of 3rd February 2015, the Board of Directors continues to review the Group’s strategy and forward plans.
In order to conclude this review, additional dialogue with and input from shareholders is required. The following update and the Corporate Presentation posted concurrently on the Company’s website is provided by way of background to that dialogue.
Syria Block 26 remains the Company’s most important asset. It must and will continue to be the Company’s highest priority to do all possible to ensure the security of this asset pending a return to operations in Syria. It is not at present possible to predict with any certainty when such a return to operations will be possible.
Over the past two years, the Group has made significant investments in the acquisition and exploration of its portfolio of licences in Morocco and has recently made three gas discoveries on the Rharb Centre licence.
To protect and preserve the value of this portfolio requires further, staged investment in drilling additional wells on Rharb Centre and undertaking seismic and other activities on the Fes, Moulay Bouchta and Rharb Sud blocks necessary to meet the minimum work obligations that attend these licences.
The Group is obliged to drill an additional three wells on the Rharb Centre licence in order to meet minimum work obligations associated with that licence, which expires in November 2015 following multiple extensions. The Company believes that its commitment to completion of the minimum work obligations will put it in a position to discuss with ONHYM both: the licence extensions to permit the long term exploitation of any gas discoveries made before November 2015; and a further exploration period so as to permit additional exploration on those areas of the existing Rharb licence as may be retained by the Group with the permission of ONHYM and the Oil Ministry.
The Company is also engaged in discussions with ONHYM over the timing of completing various exploration activities on its portfolio of licences such as will secure ONHYM’s agreement to an extension of the term of the Fes licence beyond September 2015 when that licence would otherwise expire. The outstanding commitments on Fes include the acquisition of 350km of seismic data and the drilling of three wells. While there are a number of challenging issues to be addressed in the discussions with ONHYM, the Group is in dialogue with ONHYM to secure a suitable extension to the Fes licence and a further announcement of the outcome of these discussions will be made in due course.
The work commitment on the Moulay Bouchta licence includes the acquisition of 500km of seismic data. However the licence term extends to June 2016.
Failure to complete work commitments to the satisfaction of ONHYM will put our licences and our significant investment in those licences at risk of total loss.
Monetisation of Rharb Centre Gas Discoveries
The immediate focus of the Group’s activities in Morocco is upon bringing the three discoveries made at LTU-1, DRC-1 and DOB-1 into production to generate revenues from local gas sales as soon as possible.
The current expectation is that the LTU-1 well can be brought onto production in the 2nd quarter 2015, with production from the DOB-1 well anticipated to follow early in the 3rd quarter.
The DRC-1 discovery is also planned to be brought onto production as soon as possible. Following discussions with ONHYM it has been agreed that one of the three wells to be drilled prior to 15 November should be drilled in the vicinity of the DRC-1 well to target an adjacent structure. Assuming the successful drilling of DRC-2 in the second quarter and the timely finalisation of gas transport and sales arrangements, it is anticipated that gas production from the DRC discovery should commence early in the 4th quarter of this year.
The achievement of the time lines associated with these activities will remain dependent upon a number of factors including the continued availability of funding, the completion of the pipe line tie-backs, the drilling of the DRC-2 well and the finalisation of discussions with ONHYM over gas sales arrangements. These factors are not under the Company’s sole control.
Until gas production has commenced and gas sales arrangements have been finalised, it is not possible to state with certainty either the daily volumes of gas that can be produced on a sustainable basis or the sales price that can be realised from gas sales. However, Morocco’s attractive fiscal regime enables the Company to retain 100% of gas sales revenues until recovery of relevant costs. Thereafter revenues are to be shared with ONHYM with 75% of gross revenue going to Gulfsands and the balance of 25% going to ONHYM. Direct costs of production are anticipated to be minimal.
Morocco is a gas-constrained country and gas prices currently being realised from adjacent production remain very strong.
It is accordingly reasonable to anticipate that, provided the three discoveries are brought into production in line with current expectations, significant aggregate revenue can be booked before the end of 1Q2016.
Oil exploration 2015: Fes, Moulay Bouchta and Rharb Sud Permits
For the remainder of 2015, the Company is required to continue its programme of seismic processing and evaluation so as to identify oil prospective targets on the Rharb Sud, Moulay Bouchta and Fes permits. Additionally, the Company is in discussion with ONHYM with respect to their requirement that new seismic data be acquired on the Fes licence area before September 2015. No drilling is anticipated on these permits before 2016.
Tunisia and Colombia
It is the Company’s intention to farm-down or dispose of its interests in Tunisia and Colombia on the best terms available as a matter of priority and in the meantime to minimise further investment in both countries pending conclusion of these actions.
The Group has provided approximately US$3.2 million of cash as collateral for guarantees of minimum work obligations in Colombia but has no similar financial commitments with respect to its interests in Tunisia.
Business Running Costs
As is common in the oil and gas industry, the Group’s financial reporting policies result in the allocation of overheads and operating expenses among the various activities of the business. In consequence, the Group’s published accounts do not disclose a single figure aggregating these running costs. The Board believes that it is appropriate that shareholders be provided with disclosure of such an aggregate figure, in order to inform their understanding of the Group’s financial position and prospects.
Following a number of cost reductions measures already implemented over the past two years, as of 1st March, the Group’s aggregate annual operating expenses and overheads (inclusive of all compensation), net of all contributions from partners, were running at approximately $11 million. The Board has set a target to further reduce this figure by at least 30% by the end of the present financial year, assuming continuation of the Company’s Moroccan activities, and management has begun to implement cost reduction measures accordingly.
Operating expenses and overheads will be reduced further, potentially significantly, consequent upon any farm-down of our operated businesses, in each of which the Company is at present responsible for 100% of the paying working interest.
As at 1st March, 2015, the Group had unrestricted cash balances of approximately US$8.0 million. After deduction of current liabilities, net working capital available to fund ongoing expenses was approximately $3 million.
In order for the Group to implement the anticipated minimum work programme for Morocco, set out above, excluding the acquisition of new seismic data on the Fes block, it will need to invest approximately US$11.0 million in capital expenditure over the next 12 months with much of this to be committed to in the next three to six months.
In addition, the Company will need to fund its business running costs for the next twelve months, including the one-off costs of the restructuring of our corporate overhead and of our operations in Tunisia and Colombia, which are estimated to total $8.5 million.
Were the Company to reduce the scope of its activities to simple “care and maintenance” of the Syrian assets, these running costs could be reduced dramatically further.
To continue with its Moroccan programme referenced above, the Group will thus need to fund operational expenditure of approximately $20 million over the next twelve months, excluding the acquisition of new seismic data on the Fes block. Offsetting this funding requirement are the following actual and potential items:
- The Group had net working capital of approximately $3 million at 1 March 2015.
- It is anticipated that gas sales revenues from the Rharb Centre discoveries in the second half of the period will substantially offset the business running costs.
- The planned disposal of the Group’s interests in Tunisia and Colombia can also be anticipated to contribute to the estimated funding requirement but the timing and amount of those receipts is uncertain.
Taking account of the anticipated timing of expenditures and revenue receipts, the Group will realistically need access to approximately $15 million of new capital to fund its currently planned operational activities over the forthcoming twelve months. This does not assume any potential release of Moroccan restricted cash balances, which currently total $5.25 million net to Gulfsands.
The Board continues to pursue opportunities to farm down the Group’s interests in certain of its Moroccan licences so as to minimise the Group’s financial commitments to its exploration activities and is currently conducting discussions with several prospective industry partners with a view to achieving this objective expeditiously.
Arawak Energy Loan Facility
The current amount drawn under the Arawak Energy Loan Facility stands at US$10 million.
Arawak Energy has informed the Board that, in light of recent events surrounding the General Meeting, it does not intend to reinstate the Strategic Cooperation Agreement and has requested that the group provide it with proposals for the repayment of the outstanding loan balance. Inclusive of interest and pre-payment penalties the loan balance to be settled could amount to $11 million. This amount is in addition to the operational funding requirement identified above.
The Board is examining all options to secure the new capital required to fund its activities over the next twelve months and to facilitate the settlement of the Arawak Energy Loan Facility and will continue to engage with existing shareholders and third parties to that end.
Irrespective of the precise extent of the Company’s exploration activity going forward, the requirement for working capital funding is immediate and discussions with major shareholders are underway urgently to that effect.
Proposed Board Changes
The Board is in dialogue with shareholders concerning changes to its composition. A further announcement will be made when the proposed board changes have been finalised.
A new corporate presentation is now available on the Company’s website www.gulfsands.com.
For further information on the matters referred to in this announcement, please refer to the Company’s website www.gulfsands.com
|Gulfsands Petroleum||+44 (0)20 7024 2130|
|Andrew West, Chairman
Joe Darby, Senior Independent Director
|Buchanan||+44 (0)20 7466 5000|
|RBC Capital Markets||+44 (0)20 7653 4000|
|FirstEnergy Capital||+44(0)20 7448 0200|
Certain statements included herein constitute “forward-looking statements” within the meaning of applicable securities legislation. These forward-looking statements are based on certain assumptions made by Gulfsands and as such are not a guarantee of future performance. Actual results could differ materially from those expressed or implied in such forward-looking statements due to factors such as general economic and market conditions, increased costs of production or a decline in oil and gas prices. Gulfsands is under no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable laws.