WTI $63.10 + 34 c, Brent $71.97 -24c, Diff -$8.87 -58c, NG $2.67 +4c
Crude rose yesterday morning after releases of further action in the Gulf, the Saudis shot down two Houthi missiles allegedly Iranian made , further action inevitably follows. Later in the day more trade spats from both sides led equity markets down and Brent followed with WTI keeping its head above water.
Seeing the Annual Report from Gulfsands this morning made me think that the time is approaching to take a fresh look at the company and the data here is a perfect opportunity . Firstly one has to remember that Gulfsands delisted from Aim in April 2018 but the shares are currently traded on the secondary auction site facility provided by Asset Match. More of this later.
As expected, the company has increased its focus on its core assets in North East Syria and speaking recently with CEO John Bell the assets are ‘in good order, materially Undamaged and operationally fit according to in-country sources’. With involvement in Syria suspended as a result of EU sanctions no revenues come to Gulfsands but evidence suggests current production of around 20,000 b/d. Whilst this doesn’t tell us much it may indicate that the fields are operable and ‘demonstrate reservoir quality ‘. This is a substantial field, 2C contingent resources of 77.4 mmboe which was 2p and no reason why not still so and the area around the field has remained stable with no major disruptions in the last year.
With all this in mind it comes as no surprise that with the improving political situation after over eight years of war that the international community is ‘moving towards one of normalisation and reconstruction ‘. You only have to look at the Pompero/ Putin talks and the discussions with China and other Middle East countries that preparations are very much moving on and progress is being made. Wi th all these talks on the go it seems appropriate that investors should be preparing also to make an early move albeit aware of the risks involved.
In today’s statement the Board believes that ‘the block could contain over a billion barrels of recoverable resource with the potential for production levels of around 50,000 b/d from existing discoveries and over 100,000 b/d from a full block development.’ This has become evident after a lot of work analysing data and preparing for recomencement of operations which they believe could be restarted soon after it is permitted to do so.
The rest of Gulfsands has effectively been deemed to be non-core and the operations in Tunisia and Morocco have been closed with the CVL of the Cyprus subsidiary. In Colombia the Putumayo-14 licence was divested to Amerisur and whilst the Llanos-50 licence remains suspended talks with ANH continue in order to mutually terminate the licence.
During this process the Group has been funded by the major shareholders who topped up by another £4m in March 2018 which is expected to fund the G&A through to early 2020. Readers will remember how much the costs were being taken out of the business and now those costs are down another 10% to $2.9m falling to $2.5m for 2019.
So, whilst it is still early days and Gulfsands remains a speculative investment with obvious political risks, the announcement today provides enough of a reminder that Block 26 is still world class in nature. Almost entirely cleaned up of periferal non-core assets and costs trimmed to an efficient level the company is without doubt worth a look. As mentioned above the shares are traded on the secondary trading auction facility provided byAsset Match on a quarterly basis with the next auction on July 3rd. Given what the shares traded at before the troubles any collection of stock at this penny stock level might provide some serious upside for those happy to buy and hold and could provide quite a story down at the golf club….