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Gulfsands Petroleum: Gripped by profit taking in wake of new discovery and growing production

Jan. 07, 2011 9:18 AM ET
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Profit taking in Gulfsands Petroleum (LON:GPX) shares represents a good entry point according to Charlie Sharp, analyst at City broker Matrix.

This morning the Middle East focused oil junior announced the Twaiba oil discovery in Syria alongside improving production at its nearby oilfields - Khurbet East and Yousefieh. However the news was offset somewhat by the news that another well in the programme, Zahraa-1, had not been as successful as Twaiba-1.

On AIM, the bears overshadowed the bulls in the wake of the mixed update. The shares dropped 29 pence, around 7 percent, to trade at 372.5 pence. 

The investor reaction means the stock has now given back the week’s earlier gains. Gulfsands started the week at around 375 pence and it had gained roughly 10 percent by reaching 411 pence in Wednesday’s trading. 

“We think the exploration results are a wash in value terms, with the Zahraa disappointment cancelled by the Twaiba success,” Sharp said in a note to clients.

“After a good run this week we can see some mild profit taking, but in our view that would represent a good entry point. 

“Our core value is 311 pence per share at US$80 per barrel and 382 pence per share at US$100 per barrel.”

He adds: “The stock then is well underpinned at current oil prices at around 365p by the producing assets. We maintain our ADD rating.”

Gulfsands confirmed the new oil find, which is just seven kilometres away from Khurbet East, this morning.

Its latest drilling success comes from the Twaiba-1 exploration well, which was drilled to 2,016 metres and it identified two net pay oil intervals within regionally productive Cretaceous aged reservoirs - the intervals are known as the Shiranish and the Massive formations.

Shiranish contains a net pay section of approximately 31 metres - from around 1,872 metres - it has average porosity of approximately 21 percent. The Massive formation, in Twaiba-1 contains a net reservoir section of about eight metres, with average porosity of 15 percent.  

Gulfsands is planning a production test for Shiranish and an open hole stem test for the Massive formation.

"The results from the Twaiba exploration well are very encouraging, as the net pay identified on wire-line logs is in excess of that assumed in our own pre-drill ‘high case’ estimates of speculative reserves of 9 million barrels,” chief executive Ric Malcolm said.  

“The forthcoming production test should provide additional valuable information required to understand the potential commercial significance of the hydrocarbons encountered in this sole risked well.”


Gulfsands also told investors that aggregate daily oil production, from Khurbet East and Yousefieh oilfileds, reached 20,800 barrels of oil per day (bopd). This representing a 21 percent increase over December 2009. 

It has now produced over 12.6 million barrels of oil from the two oilfields since they came online.

Meanwhile, City broker Fox-Davies, who currently rates GPX as a ‘hold’, upped its price target for the stock to 350 pence per share following the update.


“Positive news on the exploration side with a discovery at Twaiba that could be larger than pre-drill high estimate of close to 10 million barrels, albeit mitigated with lack of success at Zahraa,” the broker said in a note to clients. 

“Tests results will provide more definitive answers as to the characteristics and commercial potential of the oil but we take a lot of encouragement from the news today.

“We have raised our exploration potential of the assets leading to an increase of our target price.” 

A third City institution has it eyes on the Middle Eastern oil explorer. With Blackrock, a massive fund management business backed by Bank of America Merrill Lynch, literally taking an interest in the company.

Blackrock has bought a shares – plus ‘financial Instruments with similar economic effect’ - taking more than 5 percent stake in Gulfsands.

BlackRock Investment Management Ltd is now interested in 6,083,997 Gulfsands shares.

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