Reserves and Resources Statement

Reserves and Resources
Up until 2015, hydrocarbons related to the known discoveries of Yousefieh and Khurbet East were classified as Reserves. During 2015 these Reserves were reclassified to Contingent Resources as a result of the continuing EU sanctions in Syria. The Company recognises that it cannot give a definite timeline for the resumption of the development of the discovered fields within Block 26 that was suspended following the declaration of Force Majeure in 2011. In such a circumstance the SPE PRMS Guidelines suggest that if the (re)commencement of development cannot be guaranteed to be within five years from the date of evaluation then the volumes of hydrocarbons should be classified as Contingent Resources rather than Reserves. The Company concluded in December 2015 that the uncertainty in any timeline over which EU sanctions in Syria may be lifted required that the volumes of oil, gas and condensate previously reported as Syrian Reserves be reclassified by the Company as Contingent Resources.

Since 2015 this classification as Contingent Resources has continued, even though, as at 31 December 2019, the Board believes that EU sanctions will be lifted well within five years (its base case assumption for the impairment review is three years). The Board will continue to monitor all activity focussed on resolving the situation in Syria and will reconsider the basis for reversing this reclassification in line with any future developments.

Over the last two years, the Gulfsands team has undertaken significant internal technical work to review estimated resources as part of the preparation for its return to Syria when circumstances allow. During 2019, independent consultants, Oilfield Production Consultants (“OPC”) were commissioned to review, audit and validate this work, and prepare a Competent Persons Report (“CPR”) for the Board. This exercise included a comprehensive review of the Block 26 exploration and production interests (Contingent Resources and Prospective Resources) in accordance with the definitions and guidelines set forth in the 2018 Petroleum Resources Management System (“PRMS”) approved by the Society of Petroleum Engineers (“SPE”).

In estimating the Resources, it has been assumed that the period of time elapsed during which the Group has declared Force Majeure on its Block 26 development and production activities, will ultimately be added as an equivalent time period extension to the contractually specified Exploration Period and Production Concession Periods , though there can be no guarantee that this extension will be granted.

Contingent Resources
The Group has evaluated, and was supported in its view by the CPR, that it holds within the Massive, Butmah and Kurrachine reservoirs of Khurbet East field, and the Massive of the Yousefieh field, 2C Contingent Resources of 67.3 mmbbls of oil and condensate, and 35 bcf of gas (working interest basis). The Group has also evaluated, and was supported in its view by the CPR, that the oil discovery at Al Khairat contains 2C Contingent Resources of 10.4 mmbbls of oil (working interest basis).

The CPR was originally undertaken effective 1 January 2019 but has been rolled forward, updated and reconfirmed as of 31 December 2019, taking into account, amongst other things the production that has occurred during 2019.

Unrisked working interest basis
As at 1 January 2020

         

 

 

Constituent

1C 2C 3C  
Syria Block 26          
(Working interest 50%)          
Khurbet East & Yousefieh Oil, Condensate and Gas, mmboe 48.2 73.2 99.6  
           
           
Al Khairat discovery Oil and Gas, mmboe 5.0 10.5 18.3  
           
             
 
Total mmboe 53.2 83.7 117.9  

Please note, certain figures may not add up due to roundings
“Oil” includes condensate and NGLs
Gas is converted to mmboe at the conversion factor 1 bcf = 0.1667 mmboe

Prospective Resources

OPC reviewed the portfolio of nine identified prospects within Block 26, and in doing so, validated them as Prospects under PRMS definitions and also estimated associated Prospective Resources, on a risked and un-risked basis.  This work was rolled forward, updated and reconfirmed as of 31 December 2019, and is summarised below:

Prospective Resources (Unrisked)

The following table is a summary of OPC’s estimate of the oil and gas Prospective Resources (Unrisked) attributable to Block 26 as of 1 January 2020. The figures are based on Gulfsands net 50% working interest ownership:

     
 ConstituentLowMidHigh
     
Total Oil mmstb154320542
Total GasBscf8781,3561,947
Total Resourcesmmboe300546867

Prospective Resources (Risked)

The following table is a summary of OPC’s estimate of the oil and gas Prospective Resources (Risked) attributable to Block 26 as of 1 January 2020. The figures are based on Gulfsands net 50% working interest ownership:

    
 Risked HCIIP (mmboe)Risked Prospective Resources (mmboe)
   
Total419134

Economic Evaluation

OPC also undertook an economic evaluation of the Block 26 project, though of course, this evaluation did not take into account any of the above-ground risks associated with the assets.

Any valuation is sensitive to input assumptions including discount rates used, preservation of current PSC terms, oil price assumptions, timing of resumption of operations, and anticipated capex and opex costs including cost inflation.  The OPC Economic Evaluation considered these factors, including related sensitivities. This sensitivity analysis indicated, as at 31 December 2019 (using the year-end oil price curve), a central range of Expected Monetary Value (“EMV”) of the Block 26 assets, including both Contingent and Prospective Resources, of $1 billion – $1.5 billion (net share to Gulfsands).