Syria Operations UpdateAugust 26th, 2011

  • Oil discovered at Yousefieh East
  • Safa-1 discovers non-commercial heavy oil
  • Gross oil production in excess of 24,000 bopd

Gulfsands Petroleum plc (“Gulfsands”, the “Group” or the “Company” – AIM : GPX), the oil and gas production, exploration and development company with activities in Syria, Iraq, Tunisia, Italy and the USA, is pleased to provide this update on operations in Syria.

Block 26 Drilling Operations

Yousefieh East Exploration Well (Yous-6)

The Yousefieh East exploration well (“Yous-6”) has been drilled using the Crosco-E401 rig to test an undrilled structural high in Cretaceous age carbonates located approximately 3 kilometres to the east of the Yousefieh field discovery well (note, this well was erroneously referred to as Yousefieh-8 in a Gulfsands Petroleum plc News Release dated 11 July 2011). The Yous-6 well was deviated at an angle of up to 36 degrees to the vertical in order to avoid obstructions to drilling operations on the surface directly above the target location.

The Yous-6 well encountered oil bearing Cretaceous Massive Formation reservoir at a depth of 2045 metres Measured Depth Below Rotary Table (“m MDBRT”) or 1560 metres True Vertical Depth Sub-Sea (“m TVDSS”), 28 metres deep to prognosis. The well penetrated the hydrocarbon bearing Massive reservoir section at an angle of approximately 29 degrees to the vertical. Two twelve metre core sections, parts of which were oil stained, were recovered from the wellbore over the interval 2055-2079m MDBRT (1569-1590m TVDSS). Interpretation of wireline logs indicates a gross porous reservoir interval of 18.1 metres was encountered overlying a non-porous interval, and having a net oil column of 12.8 metres, average porosity of 18% and average oil saturation of 69%.

Pressure data obtained via wireline logs indicates that the oil bearing reservoir is slightly depleted versus initial reservoir conditions, indicating that the Yousefieh East structure is likely to represent an eastern flank extension of the Yousefieh field which is currently on production at approximately 2,600 barrels of oil per day (“bopd”). Reservoir permeability in the Yous-6 net reservoir section is interpreted to be of similar quality to that encountered in the main producing areas of the Yousefieh field.

The Yous-6 well was production tested and produced at an average oil flow rate of approximately 250 bopd of 20 degree API oil for 4 hours on 2 inch choke under nitrogen assisted lift conditions with no water production. The well will be tested further following acidization of the reservoir in a rig-less operation.

Due to a thinner oil column encountered in this well versus other Yousefieh wells, the Yous-6 well will require the installation of permanent artificial lift facilities in order to flow continuously. The Yous-6 well is located within the Yousefieh field Development Licence Area and can be quickly tied back and produced into the existing Yousefieh field production facilities once artificial lift facilities are secured. Procurement of the relevant equipment is in progress.

The impact of Yous-6 on Yousefieh reserves will be evaluated as part of the year-end reserves review.

Safa-1 Exploration Well

Operations have been completed on the Safa-1 exploration well which was drilled using the Crosco M-501 rig. This well targeted a fault-bound dip closed structure of Cretaceous aged reservoir on trend and approximately 7 kilometres north of the Khurbet East Field.

The Safa-1 well is interpreted to have encountered the Cretaceous Shiranish Formation at 1937m MDBRT (1448m TVDSS) and the Cretaceous Massive Formation at 1953m MDBRT (1464m TVDSS). Three consecutive core sections were cut between 1942m and 1975m MDBRT (1453m and 1486m TVDSS), with a total recovery of 31.4 metres of core, sections of which were stained with viscous oil. Evaluation of wireline logs indicates a net reservoir interval of 9.9 metres with an average porosity of 13% and an average oil saturation of 74%.

Well testing operations were conducted in open hole over sections of the gross reservoir column in three stages, however only formation water of low salinity plus traces of viscous oil were recovered to surface, even after an acidification of the net reservoir interval was performed.

The Safa-1 exploration well therefore has been plugged and abandoned as a non-commercial heavy oil discovery.

Forward Drilling Programme

Gulfsands drilling operations in Syria Block 26, using the Crosco E-401 and M-501 drilling rigs, will continue as planned with the drilling of one development and one exploration well.

The Khurbet East-20 well is planned as a delineation well to further evaluate the northern flank of the Khurbet East field. The Wardieh-1 exploration well will target a new exploration play, a combined structural/ stratigraphic trap located on the southern flank of the Souedieh Field at the Cretaceous “Massive” level.

Block 26 Oil Production

Production operations on Block 26 continue without interruption. Combined gross oil production from the Khurbet East and Yousefieh fields has averaged in excess of 24,000 bopd to date during the month of August following commissioning of an additional Khurbet East sub-station facility on 6 August 2011.

This release has been approved by Richard Malcolm, Chief Executive of Gulfsands Petroleum Plc who has a Bachelor of Science degree in Geology with 30 years of experience in petroleum exploration and management. Mr Malcolm has consented to the inclusion of the technical information in this release in the form and context in which it appears.

ABOUT GULFSANDS:

Gulfsands is listed on the AIM market of the London Stock Exchange.

Syria
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 is producing at an average gross production rate of approximately 24,000 barrels of oil per day through early production facilities. A second field discovery, the Yousefieh field, was brought on-stream in April 2010, and is currently producing approximately 2,600 barrels of oil per day. 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.

Tunisia
Gulfsands has acquired or 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 the Chorbane permit remains subject to the completion of the Company’s farm-in obligations and the Company’s interest in each of these permits remains subject to final 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 in late 2010 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-in 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’ forward work commitment for the Chorbane permit includes the drilling of one exploration well for which Gulfsands will pay 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 identified 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. The Sidi Daher exploration well is anticipated to be drilled during the third quarter of 2011.

Iraq
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. Gulfsands has no reserves in Iraq.

Gulf of Mexico, USA
The Company owns interests in 30 leases offshore Texas and Louisiana, which include 20 producing oil and gas fields with proved and probable working interest reserves at 31 December 2010 of 3.2 mmboe (figures adjusted for the disposal of non-core properties in December 2010).

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.