Gulfsands Petroleum plc (“Gulfsands”, or the “Company” – AIM : GPX), the oil and gas production, exploration and development company with activities in Syria, Iraq, Tunisia, Italy and the USA, wishes to provide the following update on the European Union’s (“EU”) recent announcement of additional sanctions in relation to Syria.
The EU has imposed successive rounds of sanctions on Syria since May this year, the most recent measures being those adopted in the Council Decision of 1 December, as published in the Official Journal of the European Union on 2 December.
Gulfsands and its subsidiaries (collectively “the Group”) are subject to these EU sanctions, have at all times complied with them and will continue to comply with them, as from time to time amended. The Directors have taken and will continue to take legal advice and to liaise as appropriate with HM Treasury to this end.
The most recent amendment to the sanctions is the inclusion on the designated list of inter alia General Petroleum Corporation (“GPC”), the Syrian government’s principal holding company responsible for investments in the oil and gas sector and coordination of oil and gas production by foreign operating companies.
Pursuant to the Block 26 Production Sharing Agreement (“the PSC”), GPC is the Syrian government’s representative and effectively the Group’s partner in the production of oil from Block 26. This is the case for all foreign companies operating in Syria, several of which are also subject to the EU sanctions.
The fundamental effect of the additional sanctions is to preclude the Group, until further notice, from engaging in activities, including funding activities, connected with the production, delivery or sale of crude oil from its Block 26 fields.
Declaration of Force Majeure
The Directors have been advised that these restrictions constitute grounds to invoke the force majeure provisions of the PSC and the Group has now given notice accordingly.
Emerald Energy, a wholly-owned subsidiary of Sinochem, a Chinese state-owned company and the Group’s 50% working interest partner in Block 26 (together the “Contractor”), has agreed to the issuing of this declaration of force majeure and to it being binding upon the Contractor under the PSC.
Based upon preliminary indications from GPC, the Syrian state is prepared to accept this notice of force majeure. In this eventuality, the PSC will not be terminated and the Group’s rights under the PSC will be preserved.
However, GPC has indicated that the Syrian state intends, during the pendency of the force majeure period, to produce oil from Block 26, at its own cost and using its own resources, as the state deems circumstances to require. The PSC provides that the Syrian state has the power to effect such a requisition during a period of national emergency. The PSC also provides that such requisition shall be limited to the period of the emergency and that the Group shall be compensated for the oil so produced.
The immediate consequence of the force majeure declaration is that the Group cannot expect for the foreseeable future to receive any revenue from its Syrian assets, which comprise substantially all of its revenue-generating activities. In this connection, it should be noted that the Group has no debt and substantial net cash balances, which as of 30 November exceeded $120 million.
Continuing Presence in Syria
The Group is not precluded by the EU sanctions from continuing to maintain a presence in Syria. In this regard, the Directors are conscious that the Group employs approximately 100 Syrian nationals and residents in Damascus and in the field. All of these employees have played some role in building the Group to its present state and a number of the senior team have contributed extremely valuable technical competence. These people represent both an important intangible asset of the Group and a team to whom the Group owes considerable humanitarian obligations at this difficult time. It is accordingly the Directors’ present intention that these employees will be retained and will continue to be paid in full.
The Group has built, over the past few years, an asset base of substantial long-term value in Syria. It is to be presumed that Syria will eventually emerge from the present upheaval and it is the Directors’ resolve to seek to ensure that, when that day arrives, the Group is positioned to retain its assets and to re-commence production activities. Accordingly, the Group will for the time being, continue to maintain its presence in Syria.
For more information please contact:
Gulfsands Petroleum (London)
Richard Malcolm, Chief Executive Officer
Andrew Rose, Chief Financial Officer
Kenneth Judge, Director: Corporate Development & Communications
+44 (0)20 7434 6060
+44 (0)20 7466 5000
RBC Capital Markets (London)
+44 (0)20 7653 4000
Gulfsands is listed on the AIM market of the London Stock Exchange.
Gulfsands owns a 50% working interest and is operator of Block 26 in North East Syria. The Khurbet East oil field was discovered in June 2007 and commenced commercial production within 13 months of the discovery. This field has been producing at an average gross production rate of approximately 21,500 barrels of oil per day through early production facilities during August 2011. A second field discovery, the Yousefieh field, was brought on-stream in April 2010, and has been producing at approximately 2,600 barrels of oil per day. Current restrictions on Block 26 oil production which came into force during September 2011 are discussed elsewhere in this release. Block 26 covers approximately 5,414 km2 and encompasses existing fields which currently produce over 100,000 barrels of oil per day, and are operated mainly by the Syrian Petroleum Company. The current exploration license expires in August 2012. Gulfsands’ working interest 2P reserves in Syria at 31 December 2010 were 53.6 mmbbls.
Gulfsands is acquiring working interest positions in two exploration permits in Tunisia (Chorbane and Kerkouane Permits) and one exploration permit in Southern Italy (G.R15.PU) from ADX Energy Ltd the operator of all three permits. The Company’s interest in these permits remains subject to the completion of the Company’s farm obligations and various approvals from the governments of Tunisia and Italy.
Kerkouane Permit — Offshore Tunisia
G.R15.PU Permit (Pantelleria Permit) — Offshore Italy
G.R15.PU, is located offshore the island of Pantelleria southwest of Sicily in Italian waters and the Kerkouane Permit is located offshore northeast Tunisia. The two permits are contiguous and comprise a total area of approximately 4,500 km2.
The operator has identified multiple leads and targets on these permits. Drilling operations were recently completed at the Lambouka-1 well where gas was encountered in the Abiod Formation. However, as a result of down-hole problems, no fluid samples or gas flow were established. The well was suspended with the intention of re-entering at a later date and drilling and testing the reservoir in a sidetrack hole up-dip of the existing discovery.
Gulfsands has completed its earn commitments with respect to the Kerkouane and Pantelleria Permits with the drilling of the Lambouka-1 well. Gulfsands has earned a 30% working interest in both permits by paying approximately 35% of the cost the Lambouka-1 well and reimbursing the operator for a portion of various pre-drill costs that include a recently completed 3D seismic programme.
Chorbane Permit — Onshore Tunisia
The Chorbane permit is located in central Tunisia and covers an area of 2,428 km2. The permit is surrounded by several producing oil fields and extensive oil & gas infrastructure. Gulfsands’ work commitment for the Chorbane permit included the drilling of one exploration well, the Sidi Dhaher- 1 well, which was concluded recently with the announcement on 3rd October, 2011 of a potential oil discovery. Gulfsands was responsible for paying 80% of the first $5 million in drilling costs, and 40% of the drilling costs in excess of $5 million, so as to earn a 40% interest in the permit.
A number of prospects and leads have been indentified within the permit, the most prospective being a large tilted horst block (“Sidi Daher”) where the operator has identified multiple potential targets estimated to hold recoverable mean un-risked prospective resources of 175 billion cubic feet of gas (“bcfg”) and 44 million barrels of oil from Tertiary and Cretaceous aged reservoirs.
Gulfsands signed a Memorandum of Understanding in January 2005 with the Ministry of Oil in Iraq for the Maysan Gas Project in Southern Iraq, following completion of a feasibility study on the project, and is negotiating details of a definitive contract for this regionally important development. The project will gather, process and transmit natural gas that is currently a waste by-product of oil production and as a result of the present practice of gas flaring, contributes to significant environmental damage in the region. The Company is actively engaged in discussions with respect to financing and potential equity partners. Gulfsands has no reserves in Iraq.
Gulf of Mexico, USA
The Company owns interests in 14 leases offshore Texas and Louisiana, which include 9 producing oil and gas fields with proved and probable (2P) working interest reserves at 31 December 2010 of 2.1 mmboe (figures adjusted for the disposal of non-core properties in December 2010 and September 2011).
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.