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Gulfsands Petroleum - making big strides towards strategic goals

In the year ended 31 December 2009, Gulfsands Petroleum (AIM: GPX) increased revenues by 57% to US$84.4m (FY08: US$53.6m), to turn a maiden net profit of US$27.8m compared to a loss of US$5.4m in the previous year. The company’s strong performance was driven by increased production in the Khurbet East oilfield in Syria. These strong results follows last week’s bid speculation after the company reported that it had rejected a preliminary approach, reportedly from two large Indian oil companies.

In Syria, Gulfsands reached gross production of approximately 17,000 barrels of oil per day (bopd) by the year’s end, which is up 70% on the previous year and exceeds the company’s target of 16,000bopd.

"I am pleased to report on a year of substantial progress and delivery on production and reserves underpinning a strong financial performance and a maiden profit", Gulfsands chief executive Ric Malcolm commented. Gulfsands said 2009 was another year of solid progress towards its goal of becoming a leading independent exploration and production company in the Middle East and North Africa, known as the MENA region.

The company’s operational performance was very strong during 2009. Across the whole group the combined 2P reserves (by working interest) increased by 25% to 50.7 million barrels of oil equivalent (mmboe) compared with 40.4mmboe at the end of 2008. The reserve growth was similarly driven by the Syrian operations, where the 2P working interest reserves were increased by 31% to 46.0mmbbls (FY08: 35.2mmbbls).

Furthermore, at Khurbet East the company’s early production facility was upgraded to a capacity of 18,000bopd. According to Gulfsands its Syrian operations are its first strategic priority, the company intends to capture the available upside in Block 26 before the final expiry of the exploration period in August 2012.

Overall during the twelve months, the company’s cash position was greatly improved, with cash from operating activities up 117% to US$43.5m (FY08: US$20m). Gulfsands ended the period with free cash balances US$57.6m (FY08: US$36.8m). This strong financial position has been crucial to the company’s ability to continue to function, unimpeded, through the very difficult financial circumstances of the past eighteen months, Gulfsands stated. Consequently, the company is well placed to fund our plans for development and exploration in Syria from its own resources.

The 2010 work program in Syria, will include the drilling of two further exploration wells on Block 26, after Hanoon-1, four development wells on Khurbet East and a development well on Yousefieh. The company will also be tying in the Yousefieh field to the early production facility during H1 2010, through its own dedicated two phase separation unit, with a view to putting the field on production during April 2010.

The key construction project is the permanent central production facility at Khurbet East, to replace the early production facility. The new facility will have a design capacity of 50,000 barrels of fluid per day and be capable of handling a minimum of 35,000 bopd of oil allowing for the eventuality of associated water production. 

A further seismic acquisition is planned to cover at least 500 square kilometres of Block 26, adjacent to the west of the 2009 seismic area to maximise the exploration prospectivity before the final relinquishment of the exploration licence in August 2012.

Whilst the Syrian business has performed strongly, Gulfsands’ US assets faired less well, with a US$14.2m loss before an intra-group interest-after-impairment charge of US$6.4m. In the previous year, the US business lost US$0.3m after impairments of US$1.7m.

Gulfsands intends to dispose of the US business, as and when the time is right to do so. In the meantime the company said it will pursue a strategy of selective re-investment in this business to enable it to begin the disposal process once market conditions are favourable.

The company said it is looking to the current financial year with confidence, with the overriding priority to complete the full field development of Khurbet East. Gulfsands is also proceeding full-ahead in terms of the unearthing the remaining exploration potential of Block 26, it said. The company noted that it looks forward to a long and fruitful collaboration with its new Chinese partners in Block 26, Sinochem.

Furthermore, Gulfsands said there are modestly encouraging signs of a pending improvement in relations between Syria and the United States, which can only be to the company's advantage.

Additionally it has secured exploration opportunities in a new country in the MENA region, having recently farmed-into to two exploration licences in Tunisia.

The longstanding efforts in Iraq will begin to show tangible results as the obstacles to development of that country's massive oil and gas resources have at last begun to be removed, Gulfsands stated.  The company said it is cautiously optimistic of being able to report positive progress in Iraq during the year.

Disclosure: The author holds no positions in the company