Gulfsands, the AIM listed oil and gas company (AIM:GPX) with activities in Syria, Morocco, Tunisia and Colombia, is pleased to announce its results for the six months ended 30 June 2015.
2015 Half-Yearly Summary
- Group working interest Proved plus Probable Reserves of 73.5 MMboe.
- Syrian assets remain shut-in and secure during continuation of sanctions.
- Cash available for use by the Group of $1.5 million.
- Restricted cash balances after provisions for recoverability of $6.4 million.
- Drilling and testing of DRC-1 and DOB-1 proved up two further gas discoveries.
- Exploration and evaluation assets were impaired by $22.1 million in the period.
- Continued significant reduction in the ongoing office expenses across the Group.
- Initiated farm-out process for Moroccan and Colombian assets.
- The Company is preparing to raise approximately $22 million via an open offer to all shareholders.
Executive Chairman’s Statement
In the 2014 Annual Report I referred to several challenges for 2015, including restructuring of our portfolio, and refinancing of our business; I believe we are making progress on both of these.
The Group holds interests in several projects in Morocco, all at different stages in the exploration, development and production cycle; what is common to all our interests is that each has significant outstanding work commitments that need to be completed within the coming months. We have invested heavily in these assets, both in the acquisition of the interests and also in the field activities undertaken over the last two years. This investment has led to a better understanding of the sub-surface structures which in turn culminated in the three discoveries at LTU-1, DOB-1 and DRC-1. However, we have decided that our financial exposure to these Moroccan assets should be reduced and we are actively working with several parties who have expressed an interest in partnering Gulfsands, particularly in the Rharb Centre gas development area.
Gulfsands holds a 100% interest in the Chorbane contract in Tunisia. The current exploration period under the contract originally ran to mid-July 2015 and Gulfsands has submitted an application for a two year extension to this period, during which the work obligation of acquiring 200 km of 2D seismic and drilling one exploration well must be completed. If the application is successful the Group will look to farm-down its 100% interest in exchange for a carried work programme; if the application is unsuccessful, the contract will terminate.
The Group holds 100% interests in two Colombian exploration blocks. Under the contracts for Llanos Block 50 and Putumayo Block 14, the Group has a minimum work obligation of acquiring approximately 100 km of 2D seismic and drilling one exploration well on each block before November 2016 for Llanos Block 50 and November 2017 for Putumayo Block 14. The Group is actively seeking farm-in candidates to share the cost of the exploration programme on these blocks.
In addition Gulfsands is the operator of the Block 26 Production Sharing Contract (“PSC”) in Syria and holds a 50% working interest. The PSC is currently in force majeure as a result of the EU sanctions against Syria.
The Group posted a loss for the period of $31.3 million, predominantly as a result of exploration and evaluation asset impairments in the period of $22.1 million in relation to the Moroccan Fes permit. The financial commitments of the Fes contract are inconsistent with the Group’s revised strategy, and therefore Gulfsands has initiated a farm-out process for the Fes contract. However, given the Fes licence expiry date in September 2015, the outstanding work commitments on the permit which could not physically be fulfilled before this date, and the uncertainty of securing an industry partner before the licence expiry date, the expenditure to date attributed to the Fes permit of $22.1 million, inclusive of $10.5 million fair value attributed at acquisition, has been fully impaired at 30 June 2015.
Gulfsands completed exploration and evaluation asset investments of $5.7 million during the period, principally in Morocco. At 30 June 2015 the Group has unrestricted cash balances of $1.5 million with net current trade and other payables of $3.2 million and ongoing costs currently of $0.7 million per month.
The Company is preparing a financing to raise approximately $22 million via an open offer to all shareholders (“Fundraising”). The Company is preparing a circular for shareholders to include details of the Fundraising and a notice of an extraordinary general meeting to approve the resolutions to facilitate the Fundraising. The open offer to all shareholders will require the publication of an open offer prospectus.
At the end of June 2015 Arawak Energy Bermuda Limited assigned the Arawak Loan Facility to Weighbridge Trust Limited, for the benefit of Waterford Finance and Investment Limited (“Waterford”) and Richard Griffiths (and companies owned and controlled by him) (“Griffiths”). The facility is now referred to as the Weighbridge Loan Facility. It remains the intention of the Company to repay the Weighbridge Loan Facility as soon as the Fundraising is completed. The assignment allowed for the possibility of further draw-downs under the facility and in July 2015 a further $1.0 million has been drawn-down. A total of $11 million has been drawn-down under this facility at the date of this Report. Further draw-downs may be required prior to completion of the Fundraising, and based on discussions with all parties, the Directors have a reasonable expectation that the Group will be able to draw-down another $1.0 million under the facility.
The Group has material work obligations that must be completed under its various exploration contracts/licences and if these obligations are not met the Group may be forced to forfeit both its interest in these contracts/licences and any sums of restricted cash lodged with host governments as guarantees for our performance of the minimum work obligations.
The Group is currently engaged in discussions to restructure its minimum work obligations and to bring in partners to reduce the Group’s net exposure to such obligations to a level that the Board considers sustainable and financeable. Alternatively, it may divest itself of assets as is deemed necessary.
Notwithstanding the confidence that the Board has in its ability to finance the Group’s re-shaped business, the Directors conclude that at this time there is material uncertainty that such finance can be procured and failure to do so might cast significant doubt upon the Company’s and the Group’s ability to continue as a going concern and that the Company and the Group may therefore be unable to realise their assets and discharge their liabilities in the normal course of business.
Board and Management changes
In February 2015 Ken Judge left the Board and was served notice to terminate his executive services contract as legal counsel.
In April 2015 Mahdi Sajjad was removed from his role as the Company’s Chief Executive. Mayer Brown International LLP, acting on behalf of Mr Sajjad, claim that the action taken constituted a material adverse change to Mr Sajjad’s employment which he had not consented to. Furthermore, Mr Sajjad has elected to treat his employment terminated as of 8 May 2015 and claims certain payments are now due under his employment contract with Gulfsands Petroleum Levant Limited and in relation to his role as the Company’s Chief Executive. He further claims unfair dismissal. Mayer Brown International LLP have advised that Mr Sajjad intends to commence formal litigation proceedings. At the Company’s Annual General Meeting on 30 June 2015, Mr Sajjad was not re-elected as a Director of Gulfsands.
In April 2015 Andrew West stood down as Non-Executive Chairman and remains on the Board as a Non-Executive Director. Simultaneously I was appointed to the Board as a Director and Executive Chairman.
Also in April 2015 Andrew Morris was appointed to the Board as a Non-Executive Director.
In April 2015 Alan Cutler resigned from his executive role as Director – Finance and Administration; it is expected that Alan will step down from the Board and leave the Company during the third quarter of 2015.
At the Company’s Annual General Meeting in June 2015 Ian Conway retired as a Director and did not stand for re-election.
Following the above changes the Audit Committee is chaired by Andrew Morris and the Remuneration Committee is chaired by Joe Darby; John Bell and James Ede-Golightly are members of both committees.
Outlook for 2015 and beyond
The Group remains committed to maintaining its presence in Syria, and it considers its partnership with General Petroleum Corporation (“GPC”) as a key element for the safe stewardship of Block 26 while the various sanctions prevent Gulfsands from a more active role.
In Morocco the portfolio of interests vary greatly in nature; however to capitalise on these opportunities the Group will need to secure funds from existing and new investors or engage with new industry partners to farm-in to the projects to reduce the financial exposure to the Group. We shall continue to encourage potential partners to visit our data room so they may properly assess, firsthand, the opportunities on offer.
We shall seek to farm-out the assets we hold in Colombia and Tunisia ensuring we can benefit from any success but without being exposed to the full cost of exploration.
The Group faces many challenges over the coming months, including seeking extensions to contracts/licences and completing our work programmes, securing new funds sufficient to repay the Weighbridge Loan Facility and to provide the necessary working capital to allow progress to be made on our assets.
4 August 2015
For further information, and to view the full interim financials, please refer to the Company’s website www.gulfsands.com or contact:
Gulfsands Petroleum Plc
Alastair Beardsall, Chairman
+44 (0)20 7024 2130
Cantor Fitzgerald Europe
+44 (0)20 7894 7000
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