Establishment of MENA Region Strategic relationship with Arawak; US$20 million Convertible Loan Financing
London, 19th November, 2014: 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, Colombia and the U.S.A. is pleased to provide the following corporate update, including confirmation of the establishment of a strategic relationship with Arawak Energy International Limited (“Arawak”), an oil and gas exploration and development company, registered in the Dubai International Finance Centre , relating to the acquisition and development of new business opportunities in the Middle East and North Africa (“MENA”) region (“Projects”). In addition, Arawak has agreed to provide Gulfsands with a US$20 million convertible loan facility for the further development of the Group’s existing Moroccan interests, and for working capital purposes.
- Establishment of strategic relationship with Arawak to acquire and develop new Projects in the MENA region
- Arawak to provide Gulfsands with financing for the acquisition and development of these future Projects
- Gulfsands and Arawak to pursue the acquisition of Projects with existing oil and gas reserves requiring development or re-development
- Gulfsands to operate new Projects with a 30% interest and Arawak 70%
- A Convertible Loan Facility of up to US$20 million for the development of the Group’s existing Morocco interests, and for working capital purposes
- Preparations for the commencement of initial production at LTU-1 in Morocco underway, targeting first gas before year end
- Continued focus on overhead reduction and sale or partial divestiture of non-core assets within the portfolio being actively pursued as part of a re-focusing of the Group’s activities and portfolio of projects
A conference call for analysts and investors will be hosted by the Company at 9.00am this morning on the following telephone numbers:
UK Toll Number: +44 (0)203 428 1542
UK Toll Free Number: +44 (0)808 237 0040
Pin code: 55847318#
A recording of the conference call will be made available from midday today on the following number:
UK Toll Number: +44 (0)20 3426 2807
UK Toll-Free Number: +44 (0)808 237 0026
PIN Code / Reference: 652216#
MENA Region Strategic Relationship
The relationship with Arawak is focussed on new business opportunities across the MENA region where Gulfsands’ reputation as a successful operator of oil and gas production and exploration projects is anticipated to assist the companies to identify, acquire and operate one or more high value oil and gas and related trading and infrastructure projects (the “Projects”).
The relationship is anticipated to operate through special purpose joint venture companies established to acquire individual MENA region opportunities with Arawak taking a 70% interest and Gulfsands holding a 30% interest and acting as Operator. Arawak has also agreed to provide Gulfsands with financing for the acquisition and development of certain Projects sought to be acquired by the companies through this strategic relationship.
Arawak’s commitment to provide financial assistance with respect to the acquisition and development of Projects sought to be acquired by the companies through this strategic relationship upon terms that are considered beneficial to the Company, has been an important consideration in Gulfsands’ decision to enter into this relationship. It is therefore anticipated that the establishment of this relationship will enable Gulfsands to pursue the acquisition of Projects that might otherwise be considered to be beyond its reach.
MENA Region Business Strategy
Since the imposition in December 2011 of relevant EU sanctions concerning business activities in Syria and the Company’s declaration of Force Majeure that followed shortly thereafter, Gulfsands has ensured its activities have remained compliant with all relevant sanctions and other restrictions on its business affairs. Gulfsands is committed to maintaining that position until such time as EU and other relevant regulations permit the Company to resume operational activities on Block 26 in north-east Syria, where the Company’s assets remain shut-in and secure.
Pending the Company’s return to operations in Syria, it has qualified and commenced operations as an operator of oil and gas exploration and development projects in Morocco, Tunisia and Colombia. Following the Company’s recent exploration success in Morocco with the LTU-1 well, the Company is moving forward with plans to commercialise the production of gas from that discovery as soon as possible. Preparations for the commencement of test production at LTU-1 in Morocco are now underway with first gas expected before year end.
With the establishment of this strategic relationship and following the LTU-1 discovery and the award earlier this year of the Moulay Bouchta licence in Morocco, the Company intends to re-shape the focus of its activities and its portfolio of projects in the MENA region. The Company is therefore looking to introduce industry partners to a number of its projects and the sale or partial divestiture of non-core assets within the portfolio is being actively pursued. Further announcements on these initiatives will be made as soon as definitive agreements are signed.
The focus of Gulfsands and Arawak will be on seeking to acquire Projects with existing oil and gas reserves requiring development or re-development and preferably with existing production infrastructure in place. In addition, the companies intend to pursue exploitation and exploration projects offering high potential upside, but modest technical risk. It is anticipated that Gulfsands can assist in pursuing these objectives by leveraging its already strong working relationships with host governments, MENA region operators and local business interests.
US$20 Million Convertible Loan Facility
In addition to joining with Gulfsands in the establishment of the strategic relationship and provision of financing of the Projects associated with that agreement, Arawak has agreed to provide Gulfsands Petroleum Holdings Limited, a subsidiary of the Company, with a three year loan facility of up to US$20 million (the “Loan Facility”).
The Loan Facility (including amounts drawn, accrued but unpaid interest and fees) is convertible at any time prior to maturity into ordinary shares of the Company, initially at a price of eighty pence (80p), a premium of approximately 100% to the share price at the close of trading on 18th November 2014.
In the event that the Company issues new shares prior to conversion, repayment or maturity of the Loan Facility, Arawak shall have the right but not the obligation to subscribe for new shares, up to the amount of the Loan Facility outstanding at that time, at the same subscription price per share as paid by the other subscribers. If Arawak elects not to participate in such issue of new shares, the mechanics of conversion of the Loan Facility provide that an adjustment be made in order that Arawak’s conversion rights will continue to represent an entitlement to the same proportion of the Company’s issued share capital after the new issue of shares as they represented prior to such new issue of shares.
Except with the prior agreement of Arawak, in the event of a new issue of shares the Company is required to apply any proceeds of such issue in excess of $10 million to the repayment of amounts outstanding under the Loan Facility at that time.
Gulfsands may require conversion of the outstanding balance of the Loan Facility into ordinary shares of the Company in the event Gulfsands’ share price, on an unadjusted basis, exceeds one hundred and four pence per share (104p) for a period of more than twenty consecutive trading days at any time prior to the expiry of the term of the facility.
Interest at the rate of 10% will be capitalised quarterly and repaid at the end of the term. A commitment fee will also be capitalised quarterly and repaid at the end of the term, equivalent to 3% of available undrawn amounts during the twelve month availability period.
An initial advance of US$10 million is to be made available immediately, half to fund the Group’s ongoing exploration and development activities in Morocco and half to provide working capital for the Group’s general corporate purposes. The conditions precedent to drawdown of the initial advance are expected to be met shortly.
Two further advances, each of US$5 million, are to be made available contingent upon additional exploration drilling success in Morocco, satisfactory to Arawak. The further advances will be available exclusively to progress the Group’s Morocco work programme.
The Loan Facility will be secured by a floating charge over all of the assets of Gulfsands Petroleum Holdings Limited and a share mortgage over the shares in Gulfsands Petroleum Morocco Limited (the holding company for the Group’s interests in Morocco) with further credit support provided by a guarantee from the Company.
The Loan Facility contains Representations, Warranties and Indemnities in favour of Arawak and provides for Events of Default and a Negative Pledge all customary for a facility of this type.
Gulfsands is entitled to retain any Collateralised Deposits released to it during the term of the Loan Facility together with the first $5 million proceeds of any Farm-out arrangement into which it enters with respect to its Morocco interests, provided that such cash is retained and applied to the Group’s Morocco work programme.
Gulfsands may prepay the facility on 60 days’ notice.
As Arawak is providing the Loan Facility to assist the Group with funding exploration and development activities which are considered important to the continuation of the Group’s crucial status as a recognised operator in the MENA region, Arawak may require repayment of the Loan Facility in certain circumstances, namely in the event of (a) a change of control of the Company, (b) the dismissal of two or more of the Company’s executive directors, (c) the removal of two of the directors of the Company at a General Meeting, and (d) Gulfsands’ termination of the strategic relationship with Arawak.
In all circumstances of prepayment, a prepayment fee of $1 million is payable, less any interest already capitalised or paid on the amount prepaid. If no drawing is made and the facility is cancelled, a cancellation fee of $1 million will be payable.
The Loan Facility, the Group’s continued focus on overhead reduction and work currently underway to re-shape the Group’s portfolio are initiatives anticipated to provide the Group with working capital for the next twelve months.
The Directors are acutely conscious of the difficulties currently and prospectively afflicting the exploration and production sector, in particular with respect to access to capital markets for small-cap companies, and are accordingly committed to strict management of the Group’s available cash resources.
It is the Directors’ intention to pursue the strategic relationship with Arawak with a particular focus on projects which will provide the Group with opportunities within the MENA region that will deliver cash generative activity for the Group.
Andrew West, the Company’s Chairman, commented:
“Since the introduction of EU sanctions related to Syria, Gulfsands has pursued a strategy in the MENA region seeking to create a viable new business for our shareholders while retaining key technical staff and the Company’s core technical and commercial competence.
It is essential to ensure that the Company’s status as a recognised MENA region operator is maintained, so that the Company is qualified and well positioned to return to its former role as operator of Block 26 in Syria as soon as applicable sanctions permit and also to realise new opportunities to be pursued under the strategic relationship with Arawak.
This strategic relationship with Arawak should be of very considerable value to the Group as it pursues further value-creation opportunities in the MENA region. The Board is highly appreciative of the endorsement of the Group’s strategy which these arrangements represent.
The Company’s Board and management will of course continue strenuous efforts to reduce all aspects of the Group’s overheads, to restructure existing exploration overhead commitments and to structure future commitments, to the fullest extent possible, to minimise the Group’s future funding requirements.”
For further information on the matters referred to in this announcement, please refer to the Company’s website www.gulfsands.com
+44 (0)20 7024 2130
Mahdi Sajjad, Chief Executive Officer
Kenneth Judge, Commercial Director
+44 (0)20 7466 5000
RBC Capital Markets
+44 (0)20 7653 4000
+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.