TIDMGPX
RNS Number : 2350H
Gulfsands Petroleum PLC
16 August 2016
GULFSANDS PETROLEUM PLC
Results for the six months ended 30 June 2016
16 August 2016
Gulfsands Petroleum plc ("Gulfsands", the "Group" or the
"Company" - AIM: GPX), the oil and gas company with activities in
Syria, Tunisia, Colombia and Morocco, is pleased to announce its
results for the six months ended 30 June 2016.
For further information, please refer to the Company's website
at www.gulfsands.com or contact:
Gulfsands Petroleum Plc +44 (0)20 7464 4490
John Bell, Managing Director
Andrew Morris, Finance Director
James Ede-Golightly, Non-Executive Chairman
Cantor Fitzgerald Europe
Sarah Wharry
Craig Francis +44 (0)20 7894 7000
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). Upon the
publication of this announcement via Regulatory Information Service
("RIS"), this inside information is now considered to be in the
public domain.
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.
Gulfsands Petroleum plc
Interim Report 2016
Gulfsands Petroleum plc is an independent oil and gas
exploration and production company, incorporated in the United
Kingdom, whose shares are traded on the Alternative Investment
Market of the London Stock Exchange (symbol: GPX).
The Group has interests in an oil development project in the
Syrian Arab Republic (under force majeure as a result of EU
sanctions), and oil and gas exploration projects in Morocco,
Tunisia and Colombia.
2016 Half-Yearly Summary
-- Group working interest 2C Contingent Resources of 87.3 mmboe.
-- Involvement in Syrian operations remains suspended during continuation of EU sanctions.
-- Despite a challenging market environment, continued an
ongoing programme to farm-out/divest Moroccan, Tunisian and
Colombian assets.
-- Open offer completed, with 354,837,296 shares subscribed for
and admitted to AIM on 14 January 2016, raising GBP14.2 million
($20.4 million).
-- The Convertible Loan Facility was repaid in full on 14
January 2016 which with rolled up interest and facility fees
totalled $14.5 million.
-- Cash available for use by the Group at 30 June 2016 of $1.8 million.
-- Restricted cash balances of $2.2 million after provisions against recovery.
-- Exploration write-offs and impairments of $1.4 million in the period.
-- Continued significant reduction in the ongoing expenses across the Group.
Post period highlights
-- GBP1.5 million ($1.9 million) raised on 12 August 2016 by a
placing of 47,272,344 new ordinary shares at 3.125 pence per
share.
-- An agreement has been reached with ONHYM, subject to the
usual government approvals and certain conditions precedent, to
extend the Moulay Bouchta Petroleum Agreement by twelve months and
reduce the minimum work obligations under the contract.
Managing Director's and Chairman's Statement
Dear Shareholder
During 2016 to date the Board has continued to focus on
realigning the strategy of the Group to be consistent with its
financial capacity and risk tolerance. It continues to pursue
restructuring and farm-out or divestiture of its non-Syrian assets,
while the Syrian assets remain a core part of the Group's strategy
with management monitoring the situation closely to ensure our
ongoing readiness to return to operation when the political
situation allows and EU sanctions are lifted.
During the period the Company significantly strengthened its
Balance Sheet with the completion of a $20.4 million Open Offer,
underwritten by our major shareholders. The proceeds were, in part,
used to repay the $14.5 million debt outstanding under the
Convertible Loan Facility and as a result the Company is now debt
free.
The major shareholders once more demonstrated their continued
support for the Company with a $1.9 million mid-market equity
placing in August 2016, which should fund the Company's operational
costs into 2017. Further capital will be required during 2017, as
explained further in Note 2 (Going concern) of this Half-Yearly
Financial Report.
In Morocco, the Company's remaining licence, Moulay Bouchta,
which covers an area of some 2,800 km(2) , was due to expire in
June 2016 but the Company has engaged in constructive discussions
with the Office National des Hydrocarbures et des Mines ("ONHYM")
and an agreement has been reached, subject to the usual government
approvals and certain conditions precedent, to restructure the
minimum work program and secure an extension of twelve months to
complete that work.
Elsewhere in Morocco, the Company continues discussions with
ONHYM to resolve the outstanding issues of potential penalties for
non-fulfilment of work obligations, outstanding balances of
training budgets and the status of the restricted cash held as
performance guarantees, for the Rharb and Fes permits which expired
in 2015. The Group believes there are no grounds for any potential
claims for financial sums and penalties, and therefore continues to
request that ONHYM release of guarantee funds called back to the
Group. The Company has notified ONHYM that if these issues are not
resolved then Gulfsands reserves the right to proceed with
arbitration as set out under these Petroleum Agreements.
Gulfsands holds a 100% working interest in the Chorbane contract
in Tunisia and the Group continues to discuss with Entreprise
Tunisienne d'Activités Pétrolières ("ETAP") the execution of the
minimum work obligations under the Chorbane PSC which runs until
July 2017. The Group is looking to divest or farm-down its 100%
interest in exchange for a carried work programme.
The Group holds 100% working interests in two Colombian
exploration blocks; Llanos Block 50 and Putumayo Block 14. The
gross commitments of these blocks are inconsistent with the Group's
revised strategy and so the Company continues a farm-out process to
divest or farm-out the contacts. The current phase of the Llanos 50
Block expires in November 2016 and it is not practical to complete
the minimum work programme in that timeframe without a
restructuring of the contract. As a result, the asset has been
fully impaired in this Half-Yearly Financial Report. The farm-out
process for the Putumayo 14 Block continues but has not yet
identified an executable deal. The Company continues discussions
with Agencia Nacional De Hidrocarburos ("ANH") to find a practical
solution to these contracts.
Financial overview
The Group posted a loss for the period of $4.8 million,
including E&E impairments of $1.4 million relating to the
Llanos 50 in Colombia and Moulay Bouchta in Morocco. The Group
continues to focus on controlling costs to a sustainable level
given the activities of the Group. At 30 June 2016 the Group had
total cash and cash equivalents of $1.8 million. At the date of
this Report the Group had unaudited cash and cash equivalents of
$3.4 million following an equity placing of $1.9 million with our
three major shareholders.
The Group also now has zero debt after repaying the entire $14.5
million outstanding under the Convertible Loan Facility as part of
the $20.4 million Open Offer which completed in January 2016.
Managing Director's and Chairman's Statement
The Group continues to have material work obligations that must
be completed under its various exploration licences and if these
obligations are not met, the Group may be forced to forfeit its
working interests in these contracts and any sums of restricted
cash lodged with host governments as guarantees for our performance
of the minimum work obligations. Furthermore some of the agreements
contain provisions for the payment of penalties if the minimum work
obligations are not fulfilled. The Company 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. Given the low oil price environment and current market
sentiment for exploration work, as well as some licenses nearing
expiry, there is no certainty that any or all of the farm-outs will
occur, and alternatively, the Company may divest or dispose itself
of assets as is deemed necessary.
The 2016 Half-Yearly Financial Statements have been prepared on
a going concern basis, and further details on this can be found in
note 2 to this Half-Yearly Financial Report.
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
On 22 July 2016 Mr. Alastair Beardsall stepped down as Executive
Chairman, as well as a Director and Executive of the Company. At
the same time Mr. John Bell assumed the role of Managing Director,
Mr. Andrew Morris assumed the role of Finance Director and Mr.
James Ede-Golightly assumed the role of Non-Executive Chairman.
The new Management team is familiar with the challenges that the
Company faces and, the Board believes, they have the right blend of
skills to navigate the Company through the waters ahead.
Mahdi Sajjad continues to pursue the Group in the High Court and
in the Lebanese Arbitration Court regarding the circumstances
surrounding his removal from the role as the Company's Chief
Executive. The Group strongly refutes both claims and is currently
engaged in defending them as well as pursuing its own counterclaim
against Mr. Sajjad. More details are available in note 10 of this
Half-Yearly Financial Report.
Outlook for the rest of 2016 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 Company seeks to build on its good relationship
with ONHYM to resolve the remaining issues regarding the Rharb and
Fes contracts and progress, ideally with a partner, the work
program for Moulay Bouchta. In Colombia, where the Company is in
active engagement with the ANH and potential industry partners, and
in Tunisia, we will continue to try and find a practical way
forward for all our contracts while managing the exposure for the
Group to an acceptable level. We continue to encourage potential
partners to visit our data room so they may properly assess,
firsthand, the opportunities on offer.
With financing secured to cover operational costs into 2017 the
Management team remains focused on continuing the realignment of
the Company into one that has a sustainable business model where
liabilities and obligations meet the risk appetite of our
shareholders.
John Bell James Ede-Golightly
Managing Director Non-Executive Chairman
15 August 2016
Operations Review
Syria
Gulfsands is the operator of the Block 26 Production Sharing
Contract ("PSC") and holds a 50% working interest in the PSC along
with Sinochem Group (also 50% working interest). Gulfsands is not
presently involved in any activities on Block 26 as Force Majeure
has been declared in respect of the PSC following the introduction
of EU sanctions in Syria. The Group has ensured that it remains
compliant with all applicable sanctions in relation to Syria and
intends to return to production activities as soon as is permitted
under EU law.
Position during 1H 2016
-- Continued compliance with applicable sanctions.
-- Block 26 facilities, wells and infrastructure remain secure and predominantly functional.
-- Limited presence maintained in Damascus.
Block 26 PSC
The Block 26 PSC grants rights to the joint venture contractors
to develop and produce hydrocarbons from fields discovered within
the Block and approved for commercial production by the Syrian
authorities. Under the Group's operatorship, two oil fields
containing reservoirs of Cretaceous age have been discovered,
appraised, approved for development and subsequently put into
production, Khurbet East (2008) and Yousefieh (2010). Rights to the
benefits of production from discovered fields last for a minimum of
25 years from the date of development approval with an extension of
a further ten years thereto at the partners' option (Gulfsands
joint venture partner in Block 26 is Sinochem Group, a Chinese
conglomerate primarily engaged in the production and trading of
chemicals and fertilizer, and exploration and production of oil).
The Production Licence area approved for the development and
production of both fields covers a contiguous area of 115 km(2)
located in the eastern portion of the much larger original Block 26
area. During 2011, combined gross production from both fields
reached a level of just under 25,000 barrels of oil per day before
the impact of EU sanctions resulted in the curtailing of production
levels.
Two additional oil and gas discoveries within reservoirs of
Triassic age (Butmah and Kurrachine) have been identified beneath
the Cretaceous aged oil producing reservoir in the Khurbet East
field, and these also have been granted development approval but
are yet to be developed. A further oil discovery was made late in
2011 in the Cretaceous aged reservoirs penetrated by the Al Khairat
exploration well, a few kilometres east of the Yousefieh field.
This discovery awaits further evaluation work, and is not currently
incorporated into the Company's existing Production Licence
areas.
Operation of the Khurbet East and Yousefieh fields during the
production phase has been undertaken by Dijla Petroleum Company
("DPC"), a joint operating company formed between Gulfsands,
Sinochem and Syrian General Petroleum Corporation ("GPC") for this
purpose, to which staff of both Gulfsands and GPC had previously
been seconded. Since the introduction of EU sanctions on 1 December
2011 and the subsequent declaration of Force Majeure under the PSC,
Gulfsands has had no involvement with the operations of DPC, and
Gulfsands staff seconded to DPC have been withdrawn, leaving DPC
under the management of GPC secondees.
Contingent Resources
The Group has evaluated that, as at 1 January 2016, it holds
within the Massive, Butmah and Kurrachine reservoirs of Khurbet
East field, and the Yousefieh field, 2C Contingent Resources of
69.7 mmbo of oil and condensate, and 33.4 bcf of gas (working
interest basis).
The Group has also evaluated that, as at 1 January 2016, the oil
discovery at Al Khairat contains 2C Contingent Resources of 12.0
mmbo of oil (working interest basis). The Al Khairat resource
volumes have been subject to external audit.
Sanction compliance
Gulfsands has taken extensive legal advice with respect to its
obligations under the sanctions in place, has liaised regularly
with relevant regulators and generally acted cautiously to be
certain of remaining compliant with all relevant sanctions.
Management continues to liaise closely with the relevant regulatory
authorities while continuing to keep GPC fully informed of the
breadth and scope of restrictions on our activities as a result of
continuing to comply with applicable sanctions.
Operations Review
Morocco
Gulfsands is the operator of the onshore Moulay Bouchta
exploration permit in northern Morocco which incorporates a proven
conventional oil and gas petroleum system. Moroccan hydrocarbon
exploration and exploitation permits are subject to a tax/royalty
fiscal system which is considered favourable by international
standards.
Moulay Bouchta contract
Contract expiry Initial Exploration Phase expired
date: 19 June 2016, agreement has been
reached with Office National des
Hydrocarbures et des Mines ("ONHYM")
to extend Initial Exploration Phase
to 19 June 2017 subject to usual
government approvals being granted
and certain conditions precedent.
Minimum work An agreement has been reached with
obligation: ONHYM to revise the minimum work
obligation to the acquisition and
processing of 200 km of 2D seismic
data; reprocessing and interpretation
of selected legacy 2D seismic lines;
and a legacy oil field reactivation
study. (Agreement subject to usual
government approvals being granted
and certain conditions precedent).
---------------- ---------------------------------------
The Group was awarded the Moulay Bouchta exploration permit
during 2014. Gulfsands Petroleum Morocco Limited ("GPML") holds a
75% participating interest (and operatorship) in the contract with
an eight year exploration period while ONHYM retained a 25%
participating interest, the attributed cost of which will be
carried by Gulfsands until a commercial hydrocarbon discovery is
made, at which point ONHYM will acquire a 25% working interest in
the relevant newly created exploitation permit.
The Moulay Bouchta permit encompasses an elongated area running
west to east covering approximately 2,820 km(2), and is located to
the north of the cities of Rabat, Meknes and Fes. It covers terrain
where the existence of a working petroleum system has been
confirmed with the discovery and development of three shallow light
oil fields, the most recent of which was the Haricha Field which
had produced a total of 2.7 mmbo of oil and 7.8 bcf of gas from
three separate horizons between 750-900 metres vertical depth when
production ceased in 1990. The prospectivity for oil within Moulay
Bouchta is considered to relate mainly to the potential for deeper
and possibly larger hydrocarbon bearing structures within Jurassic
and Miocene aged reservoirs within the permit area. In addition in
the west of the permit towards the boundary with Circle Oil's Sebou
permit and Rharb Centre permit (now Rharb Occidental) shallow
Miocene biogenic gas deposits also may be present, similar to those
discovered on these western contiguous permits.
An agreement has been reached with ONHYM, subject to the usual
government approvals and certain conditions precedent, to extend
the duration of the Initial Phase of the Exploration Period from
two years to three years; the Initial Phase will now run to 19 June
2017 (previously 19 June 2016). A revised work programme for the
extended Initial Phase has been agreed with ONHYM, subject to the
usual government approvals and certain conditions precedent,
of:
-- acquisition of 200 km 2D line seismic;
-- reprocessing and interpretation of selected legacy 2D seismic data; and
-- legacy field study with the aim to identify any potential for re-activation.
GPML plans to execute a focussed work programme, incorporating
acquisition of 200 km 2D line seismic over an oil prospective area
identified to the east of the depleted Haricha oil field. Following
re-interpretation of existing 2D legacy seismic data on the permit,
and prior to the acquisition of further 2D data, the Group has
identified best estimate Prospective Resources of 11.4 mmboe of oil
and gas (75% working interest) within the Moulay Bouchta permit
area. These resources have been subject to external audit.
Additional reprocessing and interpretation of selected 2D lines
to the east of the depleted Haricha oil field has resulted in the
identification of new lead concepts, with gross recoverable
Prospective Resources now estimated at 149 mmbo. , this estimate
has not been subject to external audit.
The Group is seeking to farm-down or divest its interest in the
Moulay Bouchta Petroleum Agreement, to reduce its future financial
commitments.
Operations Review
Morocco (continued)
Other exploration contracts
Exploitation concessions located on former Rharb Centre
permit
The Group also holds interests in three exploitation concessions
lying within the former Rharb Centre permit area as follows:
-- Zhana 1, a 25 year concession that expires in June 2025 (GPX: 65%, ONHYM: 35%);
-- Zhana 2, a 15 year concession that expires in February 2018 (GPX: 75%, ONHYM: 25%); and
-- Sidi Amer 1, a 15 year concession that expires in July 2019 (GPX: 75%, ONHYM: 25%).
There are four wells on these three concessions that penetrate
depleted, or near depleted gas reservoirs. The Group has no plans
to re-enter or produce from these four legacy wells or gas fields
as such activities have been evaluated to be economically
unattractive.
Expired Rharb and Fes contracts
The Rharb and Fes exploration contracts both expired during
2015.
The Group continues to discuss with ONHYM the status of the
restricted cash totalling $6.0 million previously held as
performance guarantees for these permits (Rharb $1.0 million and
Fes $5.0 million). The Group believes there are no grounds for any
potential claims for financial sums and penalties, and therefore
continues to request from ONHYM release of these funds back to the
Group.
On 25 January 2016 Gulfsands gave notice to ONHYM that if
various matters; including that of any potential penalty for
non-fulfilment of the minimum exploration work programme; and the
return of guarantee funds called; are not resolved within a 60-day
period then Gulfsands reserves the right to proceed with
arbitration as set out under the Rharb and Fes Petroleum
Agreements.
Tunisia
Gulfsands has a 100% interest in the operated Chorbane
exploration permit onshore Tunisia covering approximately 1,942
km(2). The permit is subject to a PSC signed in 2009. The fiscal
terms of the PSC are considered reasonable when compared to others
in North Africa and on an international basis.
Chorbane contract
Contract expiry Second Exploration Phase, July
date: 2017
Minimum work Drilling of one exploration well;
obligation: and acquisition of 200 km of 2D
seismic data.
---------------- ----------------------------------
Based on the evaluation of legacy seismic and well data on the
permit, the Group has identified a drill ready oil exploration
target at the Sidi Agareb prospect location on the east of the
permit. Target horizons are Eocene and Cretaceous aged formations.
The exploration risk level associated with the drilling of the
identified Sidi Agareb prospect is considered to be medium for
light oil in the Eocene and Cretaceous formations, which exhibit
moderate to good reservoir quality. The west of the permit is
prospective for wet gas in deeper Jurassic aged formations which
are anticipated to be of low reservoir quality. Exploration risk
for Jurassic wet gas is estimated to be high.
The Group has identified best estimate Prospective Resources of
44 mmboe of oil and gas (100% working interest) within the Chorbane
permit area, with 27 mmbo associated with the Sidi Agareb prospect.
This resource estimate has been subject to external audit.
The Group requires funding to execute the work programme on this
permit and plans to divest the asset or alternatively farm-down its
100% interest in exchange for a carried work programme.
Operations Review
Colombia
Gulfsands has Exploration and Production Contracts ("E&P
contracts") over two onshore contract areas, Llanos Block 50 ("LLA
50") and Putumayo Block 14 ("PUT 14"), covering approximately 514
km(2) and 464 km(2) respectively. Gulfsands is operator of both
Blocks with 100% working interest. Both contracts were awarded as
part of the Ronda 2012 national licensing round, and are subject to
tax/royalty systems incorporating additional "X" factors royalties
and work programme contributions.
Llanos Block 50 contract
Contract expiry First exploration phase, November
date: 2016
Minimum work Acquisition of 103 km of 2D seismic
obligation: data to be captured in a new survey;
and drilling of one exploration
well.
---------------- --------------------------------------
Putumayo Block 14 contract
Contract expiry First exploration phase, November
date: 2017
Minimum work Acquisition of 93 km of 2D seismic
obligation: data to be captured in a new survey;
and drilling of one exploration
well.
---------------- --------------------------------------
Blocks LLA 50 and PUT 14 are located towards the eastern flanks
of the Llanos and Caguan-Putumayo Basins respectively. These Basins
have been prolific concerning oil exploration and related
production operations over several decades, and continue to be so.
PUT14 is considered prospective for oil over several horizons,
similar to Blocks located nearby within the basins where
discoveries have been made and production is underway, the
prospective horizons for oil are primarily within the Cretaceous
Villeta sandstone and shale sequences.
The Group requires funding to execute the work programme on both
Blocks, and plans to divest these assets or alternatively farm-down
its 100% interest, however for the LLA 50 contract the imminent
expiry in November 2016 makes it unlikely that a partner could be
found without a restructuring of the licence prior to its
maturity.
Financial Review
Financial highlights for the six months ended 30 June 2016
-- The loss before taxation for the first half of 2016 was $4.8
million (H1 2015: $31.3 million).
-- Gulfsands has continued to reduce its office expenses which,
excluding restructuring costs, have reduced by 53% in the period
compared with the first half of 2015.
-- $1.0 million of E&E assets related to the Colombian
Llanos 50 contract have been fully impaired in the period, in
addition to a further impairment of $0.4 million of E&E asset
additions related to the Moroccan Moulay Bouchta Petroleum
Agreement.
-- The Group continues to carry its investment in its Syrian interest at $102.0 million.
-- Open offer completed, with 354,837,296 shares subscribed for
and admitted to AIM on 14 January 2016, raising GBP14.2 million
($20.4 million).
-- The Convertible Loan Facility was repaid in full on 14
January 2016 which with rolled up interest and facility fees
totalled $14.5 million.
-- Cash and cash equivalents increased by $1.4 million in the
period to $1.8 million at 30 June 2016 (31 December 2015: $0.4
million).
Operating performance
General administrative Six months Six months
expenses ended ended
30 June 2016 30 June 2015
$' 000 $' 000
----------------------------- ------------- -------------
Office expenses (2,297) (4,919)
Partner recoveries 126 418
Restructuring costs (34) (786)
Depreciation, amortisation
and loss on disposal
of PPE (86) (100)
Office expenses capitalised 443 1,864
----------------------------- ------------- -------------
General administrative
expenses (1,847) (3,523)
----------------------------- ------------- -------------
General administrative expenses for the first half of 2016 total
$1.8 million (H1 2015: $3.5 million). This decrease reflects
further progress with the restructuring process with one-off
restructuring costs reducing by $0.7 million and a substantial
reduction in the underlying office expenses which have decreased by
some 53%, resulting from the increasing efforts to manage costs to
fit the current business model and strategy.
Exploration and Evaluation (E&E) asset impairments for the
period totalled $1.4 million (H1 2015: $22.1 million) and relate to
the Colombian Llanos 50 block and Moroccan Moulay Bouchta permit.
The financial commitments of the Llanos 50 contract are
inconsistent with the Group's revised strategy and Gulfsands had
therefore during 2015 initiated a farm-out process for this
contract. To date there has been limited traction with this process
and given: the licence expiry date for the initial exploration
phase in November 2016; 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 licence
expiry; the expenditure to date attributed to the Llanos 50
contract of $1.0 million has been fully impaired at 30 June 2016.
Alongside this, the recovery of restricted cash balances of $1.5
million held as performance guarantees in relation to the minimum
work obligation under this contract have also been fully provided
against at 30 June 2016.
In addition costs capitalised to E&E assets under the Moulay
Bouchta contract during the period have also been fully impaired
totalling $0.4 million. This is in line with the impairment of the
Moulay Bouchta E&E asset at year end as a result of the licence
expiry date for the initial exploration phase being in June 2016
and it not being possible to complete the outstanding work
commitments on the permit before this date. The Moulay Bouchta
E&E asset has only been impaired and not written-off as
Management are currently in discussions with ONHYM with regards to
extending the licence for a further twelve months. These
discussions are progressing with an agreement reached subject to
the usual government approvals and certain conditions
precedent.
The Group reported a loss before tax for the half year ended 30
June 2016 of $4.8 million (H1 2015: $31.3 million).
Financial Review (continued)
Balance Sheet
The Group's intangible exploration and evaluation assets are
held at a net book value of $6.4 million at 30 June 2016 (31
December 2015: $7.1 million) and relate to Tunisian and Colombian
assets only. Capital expenditures for the six months to 30 June
2016 totalled $0.6 million (H1 2015: $5.7 million) and
predominantly relate to capitalised local office and London Head
Office costs attributed to the Moroccan Moulay Bouchta and
Colombian Llanos 50 and Putumayo 14 licences. Management has
reviewed the carrying value of all its remaining E&E assets at
the date of this Report and notes that there are uncertainties
caused by the upcoming expiry dates on certain contracts and the
potential non-fulfilment of work obligations in the necessary
timeframes which could result in termination of those contracts.
Management's strategy is to protect the value of all of its
exploration and evaluation assets, and it is seeking contract
extensions and the restructuring of certain of its work obligations
to allow the contracts to be appropriately farmed-down or divested.
It should be noted that if Management is unsuccessful in its
strategies for the E&E assets, the carrying value of the
related assets and the restricted cash securing those work
obligations could become impaired. The contract/licence expiry
dates, capital commitments and restricted cash balances held are
detailed further in note 6 to the Half-Yearly Financial Report.
The Group's investment in DPC, the entity established in Syria,
pursuant to the PSC, to administer the Group's Syrian oil and gas
development and production assets (and which is considered to also
include the related rights to production under the PSC), is
recorded as an available-for-sale investment. Due to the unknown
duration of EU sanctions in force against Syria and uncertainty
over the eventual outcome of events in the country, any valuation
attributed to the investment is highly subjective and subject to
material change and uncertainty. At 31 December 2015 Management
reviewed their internal valuation methodology and concluded that as
a result of the further passage of time and the high degree of
judgement required, it was no longer possible to reliably estimate
the investment's fair value. Management therefore decided to carry
forward the last valuation which could be reliably determined,
being the $102 million previously disclosed. At 30 June 2016
Management have reviewed the carrying value of this
available-for-sale financial asset and are of the opinion that no
impairment is required to the carrying value. The Board's view is
that there has been little significant change to the circumstances
and status of the Group's Syrian interests. The Board is still
unable to provide a firm view as to the eventual outcome and the
timing of resolution of the situation in Syria that would lead to
the EU lifting sanctions against Syria, allowing Gulfsands to
return, however, they continue to consider that its position in
respect of its interests remains strong and all indications are
that the Syrian authorities expect Gulfsands and its partner to
return to operational control of their interests in accordance with
the terms of the PSC as soon as circumstances permit. Although the
carrying value is subject to significant uncertainty, Management
believes it remains appropriate in the circumstances, although not
necessarily reflective of the value of the Group's investments in
its Syrian operations over the long-term.
Inventory held at 30 June 2016 totalled $1.1 million (31
December 2015: $1.1 million) and solely relates to Moroccan
exploration and production inventory. Due to Management's revised
strategy to farm-out/divest its remaining Moroccan licence, it is
anticipated that the inventory will not be utilised on future
drilling and production activities in Morocco and instead value
will be extracted via disposal. Therefore a provision of $1.1
million was made at 31 December 2015 to reduce the value of the
inventory to its expected net realisable value of $1.1 million and
this has been maintained at 30 June 2016. There has been interest
in the inventory during the period but as yet no firm sale
transaction.
At 30 June 2016, the Group has decommissioning and/or
restoration obligations in respect of a number of wells and well
sites in Morocco under the Moroccan Hydrocarbon Code totalling $0.4
million (31 December 2015: $0.4 million). The wells and well sites
are located on the expired Rharb and Fes permits and on the three
exploitation concessions located within these permits. These
include the three discoveries on the Rharb Centre permit: LTU-1,
DRC-1 and DOB-1, which have all been temporarily suspended.
Included within the decommissioning and/or restoration obligations
are obligations on all legacy wells drilled prior to the Group's
acquisition of those interests. It is anticipated that the
fulfilment of these obligations can be completed via rigless
operations. As the Rharb and Fes petroleum contracts expired during
2015, at 30 June 2016 all decommissioning provisions are disclosed
as current liabilities and no discount rate has been applied to the
estimated cost of decommissioning works.
Subsequent to the closing of the Open Offer the Convertible Loan
Facility was discharged in full on 14 January 2016. The balance
outstanding on the Convertible Loan Facility at this date was $14.5
million inclusive of rolled up interest and facility fees.
Financial Review (continued)
Balance Sheet (continued)
At the end of 2015, the Company made an Open Offer to all
Qualifying Shareholders (which excluded those shareholders resident
in Australia and the US) to provide an opportunity to subscribe for
an aggregate of 354,837,296 Open Offer Shares (representing a
subscription of 350,733,941 new ordinary shares and a purchase of
4,103,355 Treasury Shares) on the basis of 3.01 Open Offer Shares
for every 1 existing share held as at the Record Date, at an Open
Offer Price of 4.0 pence per Open Offer Share. The Open Offer
closed for acceptances at 11:00 a.m. on 12 January 2016 and the
Company announced that it had received valid acceptances in respect
of 151,760,157 Open Offer Shares from Qualifying Shareholders.
Pursuant to the Underwriting, a further 203,077,139 Open Offer
Shares were subscribed for by Waterford and Blake, a company owned
and controlled by Mr. Griffiths, such that a total of 354,837,296
Open Offer Shares were subscribed for under the Open Offer. The
Company therefore raised aggregate gross proceeds of
GBP14,193,491.84 through the Open Offer. The 350,733,941 new
ordinary shares were admitted to trading on AIM on 14 January 2016.
The Company also sold its 4,103,355 treasury shares to Qualifying
Shareholders under the terms of the Open Offer. Following the issue
of the new ordinary shares and the sale of the treasury shares, at
30 June 2016 Gulfsands had 472,723,441 ordinary shares of 1.0 pence
each in issue.
Cash flow
The total increase in cash and cash equivalents during the six
months ended 30 June 2016 was $1.4 million (H1 2015: cash decrease
$6.4 million). Operating cash outflow decreased in the period to
$2.5 million (H1 2015: $3.9 million) largely as a result of the
significant reduction in office expenses across the Group resulting
from the increasing efforts to manage costs to fit the current
business model and strategy. Investing cash outflow decreased
during the period to $1.6 million (H1 2015: $7.4 million). The
reduction is due to the limited operational activity taking place
during the period with the majority of expenditure actually
relating to unpaid working capital from 2015, paid post
fundraising. Cash received from financing activities totaled $5.6
million and consisted of funds raised under the Open Offer of $20.4
million, less Open Offer finance costs incurred of $0.4 million and
the repayment of the Convertible Loan Facility subsequent to the
closing of the Open Offer which totaled $14.5 million.
Financial position
At 30 June 2016 the Group had total unrestricted cash and cash
equivalents of $1.8 million (31 December 2015: $0.4 million).
Restricted cash balances at 30 June 2016 (which are presented as
long-term financial assets in the Balance Sheet) totaled $2.2
million (31 December 2015: $3.7 million), and represent funds
securitised as collateral in respect of future work obligations -
with amounts not provided against principally in respect of the
Group's Colombian Putumayo 14 licence. At 30 June 2016, provisions
have been made totaling $3.2 million (31 December 2015: provisions
made totaling $2.8 million) which relate to restricted cash
balances securitised as collateral in respect of future work
obligations on the Llanos 50 and Moulay Bouchta permits. During the
period, $1.0 million of restricted cash balances were called by
ONHYM in relation to the Rharb Petroleum Agreement, these funds had
been previously fully impaired at 31 December 2015 but are
disclosed in note 11 to the Half-Yearly Financial Report, along
with $5.0 million similarly drawn under the Fes Petroleum
Agreement, as contingent assets as Management are challenging the
grounds on which they were called. It should be noted that if
Management is unsuccessful in their strategy of contract/licence
extensions and farm-outs then the carrying value of the remaining
restricted cash securing the work obligations may become
impaired.
The condensed set of financial statements included in this
Half-Yearly Financial Report have been prepared on a going concern
basis of accounting which has been approved by the Board. The basis
on which the Board has reached this decision is detailed in note 2
to the Half-Yearly Financial Report.
INDEPENT REVIEW REPORT TO GULFSANDS PETROLEUM PLC
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the Half-Yearly Financial Report for the
six months ended 30 June 2016 which comprises the Consolidated
Income Statement, the Consolidated Balance Sheet, the Consolidated
Changes in Equity, the Consolidated Cash Flow Statement and notes
to the Half-Yearly Financial Report.
We have read the other information contained in the Half-Yearly
Financial Report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
Directors' responsibilities
The Half-Yearly Financial Report, including the financial
information contained therein, is the responsibility of and has
been approved by the Directors. The Directors are responsible for
preparing the Half-Yearly Financial Report in accordance with the
rules of the London Stock Exchange for companies trading securities
on AIM which require that the Half-Yearly Financial Report be
presented and prepared in a form consistent with that which will be
adopted in the Company's annual accounts having regard to the
accounting standards applicable to such annual accounts.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the Half-Yearly
Financial Report based on our review.
Our report has been prepared in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the
rules of the London Stock Exchange for companies trading securities
on AIM and for no other purpose. No person is entitled to rely on
this report unless such a person is a person entitled to rely upon
this report by virtue of and for the purpose of our terms of
engagement or has been expressly authorised to do so by our prior
written consent. Save as above, we do not accept responsibility for
this report to any other person or for any other purpose and we
hereby expressly disclaim any and all such liability.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity", issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the Half-Yearly Financial Report for the six months ended 30
June 2016 is not prepared, in all material respects, in accordance
with the rules of the London Stock Exchange for companies trading
securities on AIM.
Emphasis of matter - Fair value of the Group's producing
operations in Syria
Without modifying our conclusion on the Half-Yearly Financial
Report for the period ended 30 June 2016, we draw attention to the
disclosures made in note 7 to the Half-Yearly Financial Report
concerning the valuation of the Group's suspended producing
operations in Syria, which is recorded at $102 million following
the loss of joint control in December 2011. There is significant
uncertainty as to the duration of the EU sanctions imposed in
December 2011 and the eventual outcome of events in Syria. The
potential impact any outcome will have on the carrying value from
the producing operations in Syria is not known.
INDEPENT REVIEW REPORT TO GULFSANDS PETROLEUM PLC
(continued)
Emphasis of matter - Going concern
Without modifying our conclusion on the Half-Yearly Financial
Report for the period ended 30 June 2016, we have considered the
adequacy of the disclosures made by the Directors in note 2 to the
Half-Yearly Financial Report concerning the Group's ability to
continue as a going concern. The Group requires additional funding
and careful management of its commitments in order to meet both
capital and administrative obligations and liabilities as they fall
due. The Directors believe, based upon discussions with major
shareholders that the Group will be able to secure the necessary
funds, but there are currently no binding agreements in place.
These conditions, along with the other matters explained in note
2 to the Half-Yearly Financial Report, indicate the existence of a
material uncertainty which may cast significant doubt about the
Group's ability to continue as a going concern. The condensed
financial statements do not include the adjustments that would
result if the Group was unable to continue as a going concern,
which would principally relate to the impairment of the Group's
non-current assets as licence commitments would not be met and
licences may then be revoked with restricted cash balances not
recovered.
BDO LLP
Chartered Accountants and Registered Auditors
London
United Kingdom
15 August 2016
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHSED 30 JUNE 2016
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2016 2015 2015
(Unaudited) (Unaudited) (Audited)
Notes $' 000 $' 000 $' 000
General administrative expenses (1,847) (3,523) (6,965)
Exploration costs written-off/impaired 5 (1,386) (23,546) (53,799)
Restricted cash balances
forfeited/provided against (1,479) (3,500) (5,750)
Inventory impairment - - (1,117)
---------------------------------------- ------ ------------ ------------ -------------
Operating loss 4 (4,712) (30,569) (67,631)
Loan financing cost (51) (536) (1,351)
Other finance income 4 8 13
Other finance expenses (10) (152) (188)
Foreign exchange gains/(losses) 18 (65) (43)
Loss before taxation (4,751) (31,314) (69,200)
----------------------------------------- ------ ------------ ------------ -------------
Taxation - - -
---------------------------------------- ------ ------------ ------------ -------------
Loss for the period - attributable
to owners of the parent company (4,751) (31,314) (69,200)
========================================= ====== ============ ============ =============
Loss per share attributable
to the owners of parent company
(cents)
Basic and diluted 4 (0.01) (26.52) (58.70)
----------------------------------------- ------ ------------ ------------ -------------
There are no items of comprehensive income not included in the
Income Statement.
All operations are continuing.
CONDENSED CONSOLIDATED BALANCE SHEET
AS AT 30 JUNE 2016
31 December
30 June 2016 2015
(Unaudited) (Audited)
Notes $' 000 $' 000
ASSETS
Non-current assets
Property, plant and
equipment 36 159
Intangible assets 5 6,349 7,168
Long-term financial
assets 8 2,212 3,691
Investments 7 102,000 102,000
110,597 113,018
---------------------------------------- ------ ------------- ------------
Current assets
Inventory 1,096 1,096
Trade and other receivables 252 790
Cash and cash equivalents 1,841 420
3,189 2,306
---------------------------------------- ------ ------------- ------------
Total assets 113,786 115,323
----------------------------------------- ------ ------------- ------------
LIABILITIES
Current liabilities
Trade and other payables 3,376 5,719
Loan facility - 14,406
Provision for decommissioning 448 448
3,824 20,573
---------------------------------------- ------ ------------- ------------
Non-current liabilities
Trade and other payables 3,355 3,427
3,355 3,427
---------------------------------------- ------ ------------- ------------
Total liabilities 7,179 24,000
----------------------------------------- ------ ------------- ------------
Net
assets 106,607 91,324
==================================== === ====== ============= ============
EQUITY
Capital and reserves attributable
to equity holders
Share capital 9 18,178 13,131
Share premium 109,411 105,926
Merger reserve 11,709 11,709
Treasury shares - (11,502)
Retained losses (32,691) (27,940)
Total equity 106,607 91,324
===================================== ====== ============= ============
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHSED 30 JUNE 2016
Share Share Merger Treasury Retained Total
capital premium reserve shares profit equity
$'000 $'000 $'000 $'000 $'000 $'000
----------------- --------- --------- --------- --------- --------- ---------
At 31 December
2014 13,131 105,926 11,709 (11,502) 41,291 160,555
Options settled
or exercised - - - - (31) (31)
Loss for the
period - - - - (31,314) (31,314)
----------------- --------- --------- --------- --------- --------- ---------
At 30 June 2015 13,131 105,926 11,709 (11,502) 9,946 129,210
Loss for the
period - - - - (37,886) (37,886)
----------------- --------- --------- --------- --------- --------- ---------
At 31 December
2015 13,131 105,926 11,709 (11,502) (27,940) 91,324
Share raise 5,047 3,485 - 11,502 - 20,034
Loss for the
period - - - - (4,751) (4,751)
At 30 June 2016 18,178 109,411 11,709 - (32,691) 106,607
================= ========= ========= ========= ========= ========= =========
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTHSED 30 JUNE 2016
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2016 2015 2015
(Unaudited) (Unaudited) (Audited)
Notes $' 000 $' 000 $' 000
---------------------------------------- ------ ------------ ------------ -------------
Cash flows from operating
activities
Operating loss for continuing
operations (4,712) (30,569) (67,631)
Depreciation, depletion
and amortisation 72 100 507
Loss on disposal of tangible
fixed assets 15 - 10
Exploration costs written-off/impaired 5 1,386 23,548 53,799
Restricted cash balances
forfeited/provided against 8 1,479 3,500 5,750
Inventory impairment - - 1,117
Decrease/(increase) in receivables 237 (79) 516
(Decrease)/increase in payables (1,028) (341) 522
Finance expenses paid (10) (19) (101)
Interest received 4 8 13
Foreign exchange gains/(losses) 18 (65) (43)
----------------------------------------- ------ ------------ ------------ -------------
Net cash used in operating
activities (2,539) (3,919) (5,541)
----------------------------------------- ------ ------------ ------------ -------------
Investing activities
Exploration and evaluation
expenditure (1,615) (7,387) (10,085)
Inventory purchased - (49) -
Other capital expenditures (3) (12) (30)
Net cash used in investing
activities (1,618) (7,448) (10,115)
----------------------------------------- ------ ------------ ------------ -------------
Financing activities
Loan draw-down - 5,000 8,200
Net funds received under
open offer 9 5,969 - -
Open offer finance costs (391) - -
Other payments in connection
with options exercised - (31) (31)
Net cash generated by financing
activities 5,578 4,969 8,169
----------------------------------------- ------ ------------ ------------ -------------
Decrease in cash and cash
equivalents 1,421 (6,398) (7,487)
Cash and cash equivalents
at beginning of period 420 7,907 7,907
Cash and cash equivalents
at end of period 1,841 1,509 420
========================================= ====== ============ ============ =============
NOTES TO THE HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHSED 30 JUNE 2016
1. General information
This Half-Yearly Financial Report was approved by the Board of
Directors and authorised for issue on 15 August 2016.
This condensed set of financial statements for the six months
ended 30 June 2016 is unaudited and does not constitute statutory
accounts as defined by the Companies Act.
The information for the year ended 31 December 2015 contained
within the condensed financial statements does not constitute
statutory accounts as defined in Section 435 of the Companies Act
2006. The financial statements for the year ended 31 December 2015
have been delivered to the Registrar of Companies and the auditor's
report on those financial statements was unqualified, and did not
contain a statement made under Section 498 of the Companies Act
2006. The auditor's report included an emphasis of matter in
respect of the fair value of the Group's suspended operations in
the Syrian Arab Republic, and in respect of the Group's ability to
continue as a going concern.
2. Accounting policies
This Half-Yearly Financial Report, which includes a condensed
set of financial statements of the Company and its subsidiary
undertakings ("the Group") has been prepared in accordance with the
recognition and measurement criteria of International Financial
Reporting Standards ("IFRS").
Basis of preparation
The condensed set of financial statements included in this
Half-Yearly Financial Report has been prepared on a going concern
basis of accounting which has been approved by the Board. The basis
on which the Board has reached this decision is as follows:
Going concern
As at the date of this Report, the Group has cash balances
immediately available to it totalling approximately $3.4 million
with net current trade and other payables of approximately $1.1
million and ongoing costs approximating $0.3 million per month.
Restricted cash balances and the work commitments to which they
relate are described in note 6 to the Half-Yearly Financial
Report.
Significant focus has been given during the last 18 months to
strengthening the Balance Sheet of the Group. On 13 January 2016,
the Company announced the results of an Open Offer undertaken at a
price of 4.0 pence per Open Offer Share, on the basis of 3.01 Open
Offer Shares for every 1 Existing Share held. The Open Offer closed
for acceptances at 11:00 am on 12 January 2016 and the Company
announced that it had received valid acceptances in respect of
151,760,157 Open Offer Shares from Qualifying Shareholders, and
that pursuant to the Underwriting, a further 203,077,139 Open Offer
Shares had been subscribed for by Waterford and Blake, a company
owned and controlled by Mr. Griffiths, such that a total of
354,837,296 Open Offer Shares had been subscribed for under the
Open Offer representing share proceeds of approximately GBP14.2
million ($20.4 million). At the closing of the Open Offer and after
satisfaction of the Convertible Loan Facility, the Group had cash
and cash equivalents of $5.6 million. These funds were utilised to
clear down outstanding current payables from 2015 and to fund
ongoing costs during the first half of 2016, with closing cash and
cash equivalents at 30 June 2016 of $1.8 million.
On 12 August the Company raised approximately GBP1.5 million
($1.9 million) by a placing of 47,272,344 new ordinary shares at
3.125 pence per share ("Placing Shares"), the mid-market closing
price per ordinary share on 9 August 2016 (the "Placing"). The
Placing Shares were subscribed for by existing shareholders in the
Company, Waterford Finance & Investment Limited, companies
owned and/or controlled by Mr. Griffiths and ME Investments Limited
(together the "Significant Shareholders"), and the proceeds will be
used for general working capital purposes. Following the Placing
the total number of ordinary shares in the Company in issue is
519,995,785.
NOTES TO THE HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHSED 30 JUNE 2016
The Group has continued a strategy of reducing costs and trying
to reduce its net financial exposure to its oil and gas operations.
The Group is running a farm-out process for its interests in
projects in Colombia, Tunisia and Morocco and is optimistic to
recover its performance bonds where appropriate and receive some
consideration in recognition of the work already completed on the
various projects. The Group is also seeking to recover the
restricted cash, placed with banks as a guarantee for the
completion of exploration activities on the Rharb and Fes permits,
which had been drawn on by ONHYM on licence expiry. However, there
is no certainty that these initiatives will be successful or that
material cash in-flow will be achieved.
Based on ongoing estimated cash flows, if the farm-out
initiatives and recovery of previously called guarantees are not
successful, assuming the contingent liabilities disclosed in note
10 to this Half-Yearly Financial Report do not crystallise and fall
due, the Group's cash forecast indicates that further funding would
be required at some point in the second quarter of 2017.
Based upon its experience and ongoing discussions with existing
shareholders and potential partners, the Board is confident that
the Group will be able to access appropriate resources to finance
the strategy that it is moving forward with, however there are no
binding agreements or commitments in place.
Following the completion of a review of the going concern
position of the Company and Group at the meeting of the Board of
Directors on 11 August 2016, including the uncertainties described
above, the Board has concluded that, with current consolidated cash
and cash equivalents totaling $3.4 million and taking into account
both the Board's strategy of farming-down or divesting assets and
the new financial resources that the Board might reasonably expect
to become available, the Company and the Group will have sufficient
resources to continue in operational existence for the foreseeable
future, a period not less than twelve months from the date of
approval of this Financial Report. Accordingly, the Directors
consider it appropriate to continue to adopt the going concern
basis in preparing this Half-Yearly Financial Report.
Notwithstanding the confidence that the Board has in its ability
to finance the Group's re-shaped business, the Directors, in
accordance with Financial Reporting Council guidance in this area,
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. This Half-Yearly Financial Report
does not include the adjustments that would result if the Group was
unable to continue as a going concern.
New accounting standards, amendments and interpretations issued
and effective during the period
The condensed set of financial statements have been prepared
using accounting bases and policies consistent with those used in
the preparation of the audited financial statements of the Group
for the year ended 31 December 2015 and those to be used in the
year ending 31 December 2016.
Since the 2015 annual report and accounts was published, no new
standards and interpretations have been issued that would have a
material financial impact on adoption on the condensed financial
statements for the six months ended 30 June 2016.
NOTES TO THE HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHSED 30 JUNE 2016
3. Segmental information
The Group currently operates in three principal geographical
areas: Morocco, Colombia and Tunisia with suspended operations in
Syria. All segments are involved with oil and gas exploration or
production activities. The other column represents corporate and
head office costs. The Group's revenue, results and certain asset
and liability information for the period are analysed by reportable
segment as follows.
30 June 2016 (Unaudited) Syria Morocco Tunisia Colombia Other Total
$'000 $'000 $'000 $'000 $'000 $'000
-------------------------- -------- -------- -------- --------- -------- --------
Total administrative
expenses (57) (315) (210) (121) (1,144) (1,847)
Exploration costs
written-off/impaired - (379) - (1,007) - (1,386)
Restricted cash balances
forfeited/provided
against - - - (1,479) - (1,479)
Operating loss (57) (694) (210) (2,607) (1,144) (4,712)
Net financing costs (39)
--------
Loss before taxation (4,751)
-------------------------- -------- -------- -------- --------- -------- --------
Total assets 102,480 1,251 5,320 1,077 3,658 113,786
Total liabilities (3,770) (2,408) (69) (42) (890) (7,179)
E&E capital expenditure - 379 25 179 - 583
-------------------------- -------- -------- -------- --------- -------- --------
30 June 2015 (Unaudited) Syria Morocco Tunisia Colombia Other Total
$'000 $'000 $'000 $'000 $'000 $'000
-------------------------- -------- --------- -------- --------- --------- ---------
Total administrative
expenses (111) (57) (198) (94) (3,063) (3,523)
Exploration costs
written-off/impaired - (23,546) - - - (23,546)
Restricted cash balances
forfeited/provided
against - (3,500) - - - (3,500)
Operating loss (111) (27,103) (198) (94) (3,063) (30,569)
Net financing costs (745)
---------
Loss before taxation (31,314)
-------------------------- -------- --------- -------- --------- --------- ---------
Total assets 102,382 28,581 5,278 1,582 12,027 149,850
Total liabilities (3,723) (5,652) (45) (43) (11,177) (20,640)
E&E capital expenditure - 5,455 25 245 - 5,725
-------------------------- -------- --------- -------- --------- --------- ---------
31 December 2015 Syria Morocco Tunisia Colombia Other Total
(Audited) $'000 $'000 $'000 $'000 $'000 $'000
-------------------------- -------- --------- -------- --------- --------- ---------
Total administrative
expenses (180) (950) (418) (112) (5,305) (6,965)
Exploration costs
written-off/impaired - (53,799) - - - (53,799)
Restricted cash balances
forfeited/provided
against - (5,750) - - - (5,750)
Inventory impairment - (1,117) - - - (1,117)
Operating loss (180) (61,616) (418) (112) (5,305) (67,631)
Net financing costs (1,569)
---------
Loss before taxation (69,200)
-------------------------- -------- --------- -------- --------- --------- ---------
Total assets 102,574 1,385 5,294 1,913 4,157 115,323
Total liabilities (3,929) (3,211) (74) (49) (16,737) (24,000)
E&E capital expenditure - 7,773 75 654 - 8,502
-------------------------- -------- --------- -------- --------- --------- ---------
NOTES TO THE HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHSED 30 JUNE 2016
4. Loss per share
The calculation of the basic and diluted earnings per share is
based on the following shares in issue:
6 months ended 6 months ended Year ended
30 June 2016 30 June 2015 31 December 2015
(Unaudited) (Unaudited) (Audited)
-------------------------------------------- --- --------------- --------------- ------------------
Weighted average number of ordinary shares 451,188,178 117,886,145 117,886,145
Options - 197,102 79,659
------------------------------------------------- --------------- --------------- ------------------
Weighted average number of diluted shares 451,188,178 118,083,247 117,965,804
------------------------------------------------- --------------- --------------- ------------------
The basic and diluted loss per share has been calculated using
the loss for the six months ended 30 June 2016 of $4.8 million (six
months ended 30 June 2015: $31.3 million, year ended 31 December
2015: $69.2 million). The basic loss per share was calculated using
a weighted average number of shares in issue less treasury shares
held of 451,188,178 for all periods. The weighted average number of
ordinary shares, allowing for the exercise of share options, for
the purposes of calculating the diluted loss per share was
451,188,178 (six months ended 30 June 2015: 118,083,247 and year
ended 31 December 2015: 117,965,804).
Where there is a loss, the impact of share options is
anti-dilutive and hence, basic and diluted loss per share are the
same.
5. Intangible assets
Exploration and Evaluation
Assets Computer
Syria Morocco Tunisia Colombia software Total
$'000 $'000 $'000 $'000 $'000 $'000
---------------------------- --------- --------- -------- --------- --------- ---------
Cost:
At 1 January 2015 10,505 46,555 5,195 1,225 2,370 65,850
Additions - 7,773 75 654 2 8,504
Change in decommissioning
estimates - (529) - - - (529)
Exploration expenditure
written-off - (51,007) - - - (51,007)
At 31 December
2015 10,505 2,792 5,270 1,879 2,372 22,818
---------------------------- --------- --------- -------- --------- --------- ---------
Additions - 379 25 179 - 583
Disposals - - - - (299) (299)
At 30 June 2016 10,505 3,171 5,295 2,058 2,073 23,102
---------------------------- --------- --------- -------- --------- --------- ---------
Accumulated amortisation:
At 1 January 2015 - - - - (1,518) (1,878)
Charge for period - - - - (360) (8)
---------------------------- --------- --------- -------- --------- --------- ---------
At 31 December
2015 - - - - (1,878) (1,878)
Charge for period - - - - (8) (8)
Disposals - - - - 291 291
At 30 June 2016 - - - - (1,595) (1,595)
---------------------------- --------- --------- -------- --------- --------- ---------
Accumulated impairment:
At 1 January 2015 (10,505) - - - (475) (10,980)
Charge for the
period - (2,792) - - - (2,792)
---------------------------- --------- --------- -------- --------- --------- ---------
At 31 December
2015 (10,505) (2,792) - - (475) (13,772)
Charge for the
period - (379) - (1,007) - (1,386)
---------------------------- --------- --------- -------- --------- --------- ---------
At 30 June 2016 (10,505) (3,171) - (1,007) (475) (15,158)
---------------------------- --------- --------- -------- --------- --------- ---------
Net book value
at 30 June 2016 - - 5,295 1,051 3 6,349
---------------------------- --------- --------- -------- --------- --------- ---------
Net book value
at 31 December
2015 - - 5,270 1,879 19 7,168
---------------------------- --------- --------- -------- --------- --------- ---------
NOTES TO THE HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHSED 30 JUNE 2016
5. Intangible assets (continued)
Syria
The accumulated costs of E&E assets in Syria represent the
Group's share of the drilling costs of the Al Khairat, Twaiba and
Wardieh wells and certain 3D seismic surveys. The Al Khairat well
was successfully tested but commercial development approval is yet
to be granted by the government of the Syrian Arab Republic. The
Twaiba and Wardieh wells are still under evaluation.
Following the imposition of EU sanctions against the oil
industry in Syria, an impairment test was conducted and the
carrying value of all E&E assets in Syria was impaired to nil
as it is was unclear whether the Group would be able to apply for
commercial development approval in the manner contemplated by the
Production Sharing Contract. That position remains at the date of
this Report.
Morocco
Moroccan E&E assets at 30 June 2016 represent exploration
expenditure on the Moulay Bouchta permit. The Initial Exploration
Phase expired on the 19 June 2016, however post 30 June 2016 an
agreement has been reached with ONHYM to extend this for a period
of 12 months and to revise the minimum work commitments, this is
subject to the usual government approvals and certain conditions
precedent. However at 30 June 2016 given the uncertainty, the
expenditure capitalised during the period has been fully impaired
in line with the treatment at 31 December 2015. Gulfsands are
continuing a farm-out process for the Moulay Bouchta contract.
Tunisia
At 30 June 2016 the Tunisian E&E assets represent
expenditures under the Chorbane contract including additions during
2013 and 2014 to increase participation in the contract. A two year
extension to the PSC was granted on 22 December 2015, extending the
contract date to 12 July 2017. Management's strategy is to
farm-down or divest the Group's interests in the PSC and has
initiated a farm-out process. Management has reviewed its
intentions for the Chorbane asset, and believes it is too early to
make a prediction on the likelihood of a successful farm-out or to
determine what price could be achieved. Therefore they have
concluded that there are no indicators of impairment and no
impairment of the carrying value is required. The asset carrying
value could become impaired should the Group fail to satisfy the
work obligations or to realise sufficient value from any divestment
or farm-out.
Colombia
The Group has interests in E&P contracts over two blocks in
Colombia: Llanos 50 and Putumayo 14, which expire in November 2016
and November 2017 respectively. For Llanos 50, given the licence
expiry date for the initial exploration phase in November 2016, the
outstanding work commitments on the permit which could not
physically be fulfilled before this date, and the limited farm-out
interest, the expenditure to date attributed to the Llanos 50 block
of $1.0 million has been fully impaired at 30 June 2016.
For the Putumayo 14 block, at 30 June 2016 $1.9 million costs
have been incurred and capitalised. Management's strategy is to
farm-down or divest the Group's interests in Putumayo 14 and a
broker has been engaged to run the farm-out process in-country.
Management has reviewed its intentions for these assets, and
believes it is too early to make a prediction on the likelihood of
a successful farm-out or to determine what price could be achieved.
Management intend to apply for an extension on this contract.
Therefore they have concluded that there are no indicators of
impairment and no impairment of the carrying value is required.
Both the assets carrying value and the related restricted cash
amounts could become impaired should the Group fail to satisfy the
work obligations or to realise sufficient value from any divestment
or farm-out.
NOTES TO THE HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHSED 30 JUNE 2016
6. Work obligation commitments
At 30 June 2016, the Group had the following capital commitments
in respect of its exploration activities:
Colombia
Llanos 50 - licence expiry date and deadline for fulfilment of
capital commitments; November 2016
-- Drilling of one exploration well.
-- 2D seismic minimum 103 km.
-- The Company has also undertaken to spend $100,000 on an
additional work programme obligation which may be satisfied via the
acquisition of an additional 5 km of 2D seismic.
-- Total commitments outstanding estimated at $13.9 million.
$1.5 million (31 December 2015: $1.5 million) of deposits have
been lodged to support guarantees given to the Agencia Nacional de
Hidrocarburos in respect of completion of these minimum work
commitments. These have been fully provided against at 30 June 2016
as, given the licence expiry date for the initial exploration phase
in November 2016, the outstanding work commitments on the permit
could not physically be fulfilled before this date and therefore it
is likely the deposit would not be recoverable.
Putumayo 14 - licence expiry date and deadline for fulfilment of
capital commitments; November 2017
-- Drilling of one exploration well.
-- 2D seismic minimum 93 km.
-- The Company has also undertaken to spend $100,000 on an
additional work programme obligation which may be satisfied via the
acquisition of an additional 5 km of 2D seismic.
-- Total commitments outstanding estimated at $16.1 million.
$1.7 million (31 December 2015: $1.7 million) of deposits have
been lodged to support guarantees given to the Agencia Nacional de
Hidrocarburos in respect of completion of these minimum work
commitments.
Morocco
Moulay Bouchta permit - initial exploration phase expiry date
and deadline for fulfilment of capital commitments; June 2016
-- Acquisition and processing of 500 km of 2D seismic.
-- Reprocessing and interpretation of selected legacy 2D seismic
lines and the existing 3D seismic data.
-- Legacy oil field reactivation survey.
-- Total cost of commitments estimated at $3.5 million.
An agreement has been reached with ONHYM, subject to the usual
government approvals and certain conditions precedent, to extend
the duration of the Initial Phase of the Exploration Period from
two years to three years; the Initial Phase will now run to 19 June
2017 (previously 19 June 2016). A revised work programme for the
extended Initial Phase has been agreed with ONHYM, subject to the
usual government approvals and certain conditions precedent,
of:
-- acquisition of 200 km 2D line seismic;
-- reprocessing and interpretation of selected legacy 2D seismic data; and
-- legacy field study with the aim to identify any potential for re-activation.
$1.75 million (31 December 2015: $1.75 million) of deposits have
been lodged to support guarantees given to ONHYM in respect of
completion of these minimum work commitments. These were fully
provided against at 31 December 2015 as, given the licence expiry
date for the initial exploration phase in June 2016, the
outstanding work commitments on the permit could not physically be
fulfilled before this date and therefore it is likely the deposit
would not be recoverable. After the potential forfeiture of
restricted cash balances, a further $1.75 million potential penalty
for non-completion of the minimum work obligations could be
enforced on the Group. This has been provided for as a liability
within these accounts. This treatment has been maintained at 30
June 2016 notwithstanding the agreement with ONHYM.
NOTES TO THE HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHSED 30 JUNE 2016
6. Work obligation commitments (continued)
Tunisia
Chorbane permit - second phase of contract expiry date and
deadline for fulfilment of capital commitments; July 2017
-- Drilling of one exploration well.
-- Acquisition of 200 km of 2D seismic data.
-- Total commitments outstanding estimated at $10.7 million.
The deposits referenced in this note are shown as restricted
cash amounts within long-term financial assets on the Balance
Sheet. There were no other material obligations or contracts
outstanding in relation to ongoing projects not provided or
disclosed in this Half-Yearly Financial Report.
7. Available-for-sale financial assets
The Group is party to a PSC for the exploitation of hydrocarbon
production in Block 26 in Syria. Pursuant to the PSC the Group
operates its Syrian oil and gas production assets through a joint
venture administered by DPC in which the Group has a 25% equity
interest. The Group lost joint control of DPC on 1 December 2011
following the publication of European Union Council Decision
2011/782/CFSP. For the purposes of EU sanctions, DPC is considered
to be controlled by General Petroleum Corporation. Since the Group
has neither joint control nor significant influence over the
financial and operating policy decisions of the entity, it carries
its investment in DPC and the associated rights under the Block 26
PSC as an available-for-sale financial asset.
Due to the unknown duration of EU sanctions in force against
Syria and uncertainty over the eventual outcome of events in the
country, any valuation attributed to the investment is highly
subjective and subject to material change and uncertainty. At 31
December 2015, Management reviewed their internal valuation
methodology and determined that as a result of the further passage
of time and the high degree of judgement required, it was no longer
possible to reliably estimate the investment's fair value.
Management therefore concluded to carry forward the last valuation
which could be reliably determined, being the $102 million
previously disclosed in the 2015 Half-Yearly Financial Report.
At 30 June 2016 the Directors have reviewed the carrying value
of this available-for-sale financial asset and are of the opinion
that no impairment is required to the carrying value. Although the
carrying value is subject to significant uncertainty, Management
believes it remains appropriate in the circumstances, although not
necessarily reflective of the value of the Group's investments in
its Syrian operations over the long-term. Management reiterate that
there is a high degree of subjectivity inherent in the valuation
calculated for impairment purposes, due to the unknown duration of
the sanctions and the eventual outcome of events in Syria.
Accordingly, it may change materially in future periods depending
on a wide range of factors and an impairment may then be required.
The 2015 Annual Report and Accounts, available on the Company's
website, discloses sensitivity analysis for this valuation in note
4.2.
8. Long-term financial assets
Long-term financial assets comprise balances held in bank
accounts subject to escrow agreements as collateral for performance
bonds issued.
6 months
ended Year ended
30 June 31 December
2016 2015
$'000 $'000
------------------------------ --------- -------------
Restricted cash balances 5,441 6,441
Provision against recovery
of restricted cash balances (3,229) (2,750)
Total restricted cash
balances 2,212 3,691
------------------------------- --------- -------------
Restricted cash balances at 30 June 2016 includes deposits
collateralising guarantees given to state regulators to secure
minimum exploration work commitments on the Moroccan Moulay Bouchta
and Colombian Llanos 50 and Putumayo 14 Petroleum Agreements. The
restricted cash balances related to the Moulay Bouchta and Llanos
50 Petroleum Agreements have been fully provided against at 30 June
2016. Further details of the minimum work obligations which these
guarantees relate to are set out in note 6 to this Half-Yearly
Financial Report.
NOTES TO THE HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHSED 30 JUNE 2016
9. Share capital
30 June 31 December
2016 2015
----------------------------------- ------------ ------------
Allotted, called
up and fully paid: $' 000 $' 000
472,723,441 (31 December 2015:
121,989,500) ordinary shares of
1.0 pence each 7,345 2,298
121,989,500 (31 December 2015:
121,989,500) deferred shares of
4.715 pence each 10,833 10,833
---------------------------------------- -------- ------------
Total share capital 18,178 13,131
---------------------------------------- -------- ------------
On 17 September 2015, each of the Company's existing ordinary
shares were subdivided into one ordinary share of 1 pence and one
deferred share of 4.7142865 pence. Consequently, there are in issue
121,989,500 deferred shares. The rights of both the ordinary and
the deferred shares are as set out in the Articles of Association
as amended 15 September 2015. Deferred shares on issue do not have
voting rights and are not entitled to dividends.
At the end of 2015, the Company made an Open Offer to all
Qualifying Shareholders (which excluded those shareholders resident
in Australia and the US) to provide an opportunity to subscribe for
an aggregate of 354,837,296 Open Offer Shares (representing a
subscription of 350,733,941 new ordinary shares and a purchase of
4,103,355 Treasury Shares) on the basis of 3.01 Open Offer Shares
for every 1 existing share held as at the Record Date, at an Open
Offer Price of 4.0 pence per Open Offer Share. The Open Offer
closed for acceptances at 11:00 a.m. on 12 January 2016 and the
Company announced that it had received valid acceptances in respect
of 151,760,157 Open Offer Shares from Qualifying Shareholders.
Pursuant to the Underwriting, a further 203,077,139 Open Offer
Shares were subscribed for by Waterford and Blake, a company owned
and controlled by Mr. Griffiths, such that a total of 354,837,296
Open Offer Shares were subscribed for under the Open Offer. The
Company therefore raised aggregate gross proceeds of
GBP14,193,491.84 through the Open Offer. The 350,733,941 new
ordinary shares were admitted to trading on AIM on 14 January 2016.
The Company also sold its 4,103,355 treasury shares to Qualifying
Shareholders under the terms of the Open Offer. As part of the
Underwriting on subscription of the shares the Convertible Loan
Facility was also satisfied so that net funds received on the Open
Offer totaled $6.0 million.
Following the issue of the new ordinary shares and the sale of
the treasury shares, at 30 June 2016 Gulfsands had 472,723,441
ordinary shares of 1.0 pence each in issue, which represent the
total number of voting rights in the Company.
The movements in share capital and share options during the
period were:
Weighted
Number Number Number average
Number of deferred of of restricted price
of ordinary shares share share of options
shares options options (GBP)
---------------------- ------------- -------------- ---------- --------------- ------------
At 31 December
2015 121,989,500 121,989,500 465,000 136,693 1.83
Share capital
raised under
Open Offer 350,733,941 - - - -
Restricted
share options
lapsing unexercised - - - (19,065) -
Share options
lapsing unexercised - - (465,000) - 2.35
---------------------- ------------- -------------- ---------- --------------- ------------
At 30 June
2016 472,723,441 121,989,500 - 117,628 0.06
---------------------- ------------- -------------- ---------- --------------- ------------
On 12 August 2016 the Company raised approximately $1.9 million
by a placing of 47,272,344 new ordinary shares at 3.125 pence per
share. Following the Placing the total number of ordinary shares in
the Company in issue is 519,995,785. See note 12 to this
Half-Yearly Financial Report for further details.
NOTES TO THE HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHSED 30 JUNE 2016
10. Contingent Liabilities
Legal claim - Mahdi Sajjad
On 13 April 2015, Mahdi Sajjad was removed from his role as the
Company's Chief Executive Officer. The Company has been advised by
Mayer Brown International LLP, acting on behalf of Mr. Sajjad, the
action taken on 13 April 2015 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
contract terminated on 8 May 2015 and claims certain payments are
now due under his employment contract. Mr. Sajjad has brought a
claim in the High Court against Gulfsands Petroleum Levant Limited
("Gulfsands Levant"), a subsidiary of the Group, which arises out
of his removal by the Board as CEO and termination of his
employment. Mr. Sajjad claims that the Board's action entitled him
to terminate an employment contract with Gulfsands Levant on 8 May
2015 and subsequently to receive a payment of GBP412,000 comprising
of annual salary and hardship allowance plus interest at GBP90.30
per day running from 8 May 2015. In the alternative, Mr. Sajjad
claims damages for fundamental breach of his contract with
Gulfsands Levant and claims that he is entitled to damages arising
out of Gulfsands Levant's failure to pay notice up to 31 March
2017. Gulfsands Levant strongly refutes these claims. Gulfsands
Levant has brought a counterclaim for GBP75,160 against Mr. Sajjad
in relation to a payment to HM Revenue & Customs in respect of
his unpaid tax and National Insurance contributions during the
period 2008-2014. Mr. Sajjad has also brought a claim in the
Employment Tribunal against Gulfsands Levant for constructive
unfair dismissal based on the same factual circumstances as his
High Court claim. He is currently claiming GBP89,922 by way of
compensation. Gulfsands Levant strongly refutes the claim.
In October 2015 Mr. Sajjad also brought a claim before the
Lebanese Arbitration Board against Gulfsands Petroleum (MENA)
Limited ("Gulfsands (MENA)") in relation to the branch office in
Beirut. He claims that he was employed by Gulfsands (MENA) as a
manager of the branch from August 2011 until 1 October 2015 when he
was allegedly dismissed. He claims $400,000 for four years
non-payment of salary plus interest, $100,000 as compensation for
'abusive/summary' dismissal and $16,666 for two months notice plus
interest. Gulfsands (MENA) strongly refutes the claims. To date, no
hearing has been set. The Company continued to pay Mr. Sajjad as an
Executive Director for the period from 14 April 2015 to 8 May 2015,
when Mr. Sajjad terminated his employment contract (as required
during his notice period), and as a Non-Executive Director for the
period 9 May 2015 to 30 June 2015 when he was not re-elected as a
Director at the Company's Annual General Meeting. The Group is
currently engaged in defending Mr. Sajjad's claims and in pursuing
its counterclaim against Mr. Sajjad.
Claim by Al Mashrek Group in Syria
Al Mashrek Global Investment Ltd ("Al Mashrek") has filed a
claim with the Courts in Damascus, Syria, against Gulfsands
Petroleum Levant Limited (incorporated in Cayman Islands) ("GPLL")
and the Syrian registered branch of GPLL on the grounds that Al
Mashrek was not properly notified of the Open Offer completed in
January 2016 and hence lost the opportunity to subscribe for new
shares in the Open Offer and as a result Al Mashrek's equity was
subsequently diluted.
The Court of Appeal of Damascus has issued an order of
provisional attachment on GPLL's moveable and immovable assets,
including GPLL's share of Block 26, to secure Al Mashrek's claim of
an amount of Syrian pounds equivalent to $2.0 million.
While Gulfsands continues to investigate the alleged claim it is
determined to protect its rights in Syria. Gulfsands are seeking
legal advice on this matter. Management believe the outflow of
funds in relation to this claim to be possible but not probable and
therefore no provision has been made in this Half-Yearly Financial
Report.
NOTES TO THE HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHSED 30 JUNE 2016
10. Contingent Liabilities (continued)
Penalties sought by ONHYM under the Rharb Petroleum
Agreement
On 9 November 2015, the extension period of the Rharb Petroleum
Agreement expired and the Company submitted a request to further
extend the Rharb Petroleum Agreement for a period of two years to
allow the Company to appraise the gas discoveries made in
2014/15.
On 30 November 2015, the Company received a response from ONHYM,
dated 26 November 2015, advising that its request for an extension
to the Rharb Petroleum Agreement had been rejected and furthermore
that:
-- Gulfsands Morocco will forfeit its $1.0 million in restricted
cash held as a performance guarantee in relation to its minimum
work obligation under the Rharb Petroleum Agreement;
-- ONHYM is seeking a penalty equal to the estimated cost of the
minimum exploration work programme of the Rharb Petroleum Agreement
less the costs actually incurred in respect of exploration work
required, whereby ONHYM is claiming a sum of $7.5 million;
-- ONHYM advised they will also, by separate request, seek the
outstanding amount under the training obligation of the Rharb
Petroleum Agreement; and
-- ONHYM was seeking an update on the Company's progress in
relation to the abandonment of the legacy producing wells and the
cleaning and restoring of the well sites in the Rharb Centre permit
area.
The Company strongly refutes the claims for financial sums and
penalties and is seeking legal advice. In January 2016 Gulfsands
advised ONHYM in writing that they had 60 days notice to resolve
the matter or Gulfsands would reserve the right to proceed with
arbitration under Article 22 of the Rharb Petroleum Agreement. To
date ONHYM have not reiterated the request for payment of the
penalty and there has been no further correspondence or dialogue on
this matter.
In this Half-Yearly Financial Report the $1.0 million restricted
cash balance has been fully provided against and decommissioning
and restoration provisions of $0.4 million covering all Gulfsands
drilled wells and legacy wells have been provided for. Management
believe the claims for training obligations and the penalty are
unlikely to succeed and therefore any cash outflow in relation to
these claims to not be probable and therefore no provision has been
made for these in this Half-Yearly Financial Report.
11. Contingent Assets
Recovery of guarantee amounts under the Rharb Petroleum
Agreement
As detailed above on 30 November 2015, the Company received a
response from ONHYM stating Gulfsands Morocco will forfeit its $1.0
million in restricted cash held as a performance guarantee in
relation to its minimum work obligation under the Rharb Petroleum
Agreement. ONHYM drew this amount in January 2016.
Gulfsands have provided ONHYM with details of the costs actually
incurred in respect of the exploration work required to be carried
out during the extension period and these costs significantly
exceed the $15 million estimated costs of the minimum exploration
work programme. Therefore Gulfsands believe that in accordance with
the Rharb Petroleum Agreement no penalty payment is due. As a
result the $1.0 million drawn by ONHYM was not drawn in accordance
with the provisions of the Rharb Petroleum Agreement as no penalty
was due and therefore should be refunded back to Gulfsands. Of the
$1.0 million, $0.5 million is due back to a third party if released
by ONHYM.
In January 2016 Gulfsands advised ONHYM in writing that they had
60 days notice to resolve the matter or Gulfsands would reserve the
right to proceed with arbitration under Article 22 of the Rharb
Petroleum Agreement. In March 2016 a letter was received from ONHYM
stating they were unable to grant Gulfsands request to return the
drawn funds under performance guarantee, there has been no further
correspondence or dialogue on this matter since this date but
Gulfsands are seeking legal advice.
No asset has been recognised in this Half-Yearly Financial
Report for this contingent asset.
NOTES TO THE HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHS ENDED 30 JUNE 2016
11. Contingent Assets (continued)
Recovery of guarantee amounts under the Fes Petroleum
Agreement
On 16 October 2015 the Company announced that the extension
period of the Fes Petroleum Agreement expired on 24 September 2015
and the request to further extend the agreement was not granted by
ONHYM, and furthermore that:
-- ONHYM advised that Gulfsands Morocco will forfeit its $5.0
million in restricted cash held as a performance guarantee in
relation to its minimum work obligation under the Fes Petroleum
Agreement and the restricted cash had been drawn by ONHYM; and
-- ONHYM had requested details of the costs incurred during the
six year extension period in order to determine if a penalty was
payable, with such penalty being the estimated cost of the minimum
exploration work programme of $18.5 million, less the costs
actually incurred in respect of exploration work required to be
carried out during the extension period.
Gulfsands provided ONHYM with details of the costs actually
incurred in respect of the exploration work required to be carried
out during the extension period and these costs significantly
exceed the $18.5 million estimated costs of the minimum exploration
work programme. Therefore, Gulfsands believes that in accordance
with the Fes Petroleum Agreement no penalty payment is due. As a
result the $5.0 million drawn by ONHYM was not drawn in accordance
with the provisions of the Fes Petroleum Agreement as no penalty
was due and therefore should be refunded back to Gulfsands. Of the
$5.0 million, $1.5 million is due back to a third party if released
by ONHYM.
In January 2016 Gulfsands advised ONHYM in writing that they had
60 days notice to resolve the matter or Gulfsands would reserve the
right to proceed with arbitration under Article 22 of the Fes
Petroleum Agreement. In March 2016 a letter was received from ONHYM
stating they were unable to grant Gulfsands request to return the
drawn funds under performance guarantee, there has been no further
correspondence or dialogue on this matter since this date but
Gulfsands are seeking legal advice.
No asset has been recognised in this Half-Yearly Financial
Report for this contingent asset.
12. Post balance sheet events
Financing
On 12 August 2016 the Company raised approximately GBP1.5
million ($1.9 million) by a placing of 47,272,344 new ordinary
shares at 3.125 pence per share ("Placing Shares"), the mid-market
closing price per ordinary share on 9 August 2016 (the "Placing").
The Placing Shares were subscribed for by existing shareholders in
the Company, Waterford Finance & Investment Limited, companies
owned and controlled by Richard Griffiths and ME Investments
Limited (together the "Significant Shareholders"), and the proceeds
will be used for general working capital purposes. Following the
Placing the total number of ordinary shares in the Company in issue
is 519,995,785.
Moulay Bouchta contract amendment
An agreement has been reached with ONHYM, subject to the usual
government approvals and certain conditions precedent, to extend
the duration of the Initial Phase of the Exploration Period from
two years to three years; the Initial Phase will now run to 19 June
2017 (previously 19 June 2016). A revised work programme for the
extended Initial Phase has been agreed with ONHYM, subject to the
usual government approvals and certain conditions precedent,
of:
-- acquisition of 200 km 2D line seismic;
-- reprocessing and interpretation of selected legacy 2D seismic data; and
-- legacy field study with the aim to identify any potential for re-activation.
Glossary of Terms
ANH Agencia Nacional De Hidrocarburos
bcf Billion cubic feet of gas
boe Barrels of oil equivalent where the gas component is
converted into an equivalent amount of oil using a conversion rate
of 1 bcf to 0.1667 mmboe
Contingent Resources Contingent Resources are those quantities
of petroleum estimated, as of a given date, to be potentially
recoverable from known accumulations by the application of
development projects, but are not currently considered to be
commercially recoverable due to one or more contingencies.
Contingent Resources are further categorised by the SPE into 1C, 2C
and 3C according to the level of uncertainty associated with the
estimates.
DPC Dijla Petroleum Company
E&E Exploration and evaluation
E&P contracts Exploration and production contracts
ETAP Entreprise Tunisienne d'Activités Pétrolières
GPC General Petroleum Corporation
GPLL Gulfsands Petroleum Levant Limited
GPML Gulfsands Petroleum Morocco Limited
Griffiths Companies owned and controlled by Richard Griffiths
IFRS International Financial Reporting Standards
LLA 50 Llanos Block 50
mmbo Millions of barrels of oil
mmboe Millions of barrels of oil equivalent
ONHYM Office National des Hydrocarbures et des Mines (Morocco)
Prospective Resources Prospective Resources are those quantities
of petroleum estimated, as of a given date, to be potentially
recoverable from undiscovered accumulations. They are further
categorised by the 2007 SPE PRMS into Low, Best and High estimates.
The quoted Low, Best and High estimates are the 90% probability
("P90"), 50% probability ("P50") and 10% probability ("P10") values
respectively derived from probabilistic estimates generated using a
Monte Carlo statistical approach.
PSC Production Sharing Contract
PUT14 Putumayo Block 14
Waterford Waterford Finance and Investment Limited
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR FELLFQVFXBBK
(END) Dow Jones Newswires
August 16, 2016 02:01 ET (06:01 GMT)
Gulfsands Petroleum (LSE:GPX)
Historical Stock Chart
From Apr 2024 to May 2024
Gulfsands Petroleum (LSE:GPX)
Historical Stock Chart
From May 2023 to May 2024