Gulfsands Petroleum Plc Diverse Player

By Edward Roberts | Tue, 24 Oct 2006

Gulfsands Petroleum PLC is the holding company of an oil and gas exploration, development and production group based in Houston, Texas with activities focused in the USA, Syria and Iraq.

Gulfsands listed on AIM on the 8th of April 2005 raising £29.8m, and has since been positioning itself for an active drilling programme. Upon listing GPX had a 52.6% interest in Northstar Gulfsands, which owns interests in 39 producing oil and gas fields offshore Texas and Louisiana and operates 8 of those fields. Northstar Gulfsands has proved and probable reserves of 4.7 mmbbls of oil and some 29.2 bcf of gas as of November 1, 2004. Gulfands furthermore has 20% interest in the Syrian Block 26 with significant exploration potential, an Iraqi gas commercialisation agreement and some small gas interests onshore USA.

Syria

On the 10th of May 2005 GPX made their first significant acquisition. They acquired the remaining 80% of Devon Holding's Syria Block 26. The block covers 11,000 sq kms and surrounds areas which currently produce over 100,000 bopd from existing fields. The Company planned an extensive 2D seismic programme and identified 27 exploitation and exploration prospects and leads with mean resources potential of 1 billion barrels of recoverable oil. At the same time GPX then immediately farmed-out a 50% working interest (wi) in Block 26 to the Russian oil and gas company, SoyuzNefteGas (SNG), GPX remained the operator of the block. In November 2005 UK listed Emerald Energy (EEN) acquired SNG Overseas Limited which included the 50% wi in Syria Block 26 for a total of $16.9m USD.

In the northern portion of the Block, the leads include Cretaceous reservoir targets offsetting the large Souedieh, Rumailan, Hamzeh and Karatchok fields as well as the deeper and highly prospective Paleozoic reservoir targets. Data acquired in the southwest portion of Block 26 will provide additional seismic coverage over several previously identified Paleozoic reservoir leads. Gulfsands also expects that these data will aid in the identification of new exploration leads and prospects. Production is primarily from Cretaceous age reservoirs, and the estimated ultimate recovery from the fields already on Block 26 is in excess of 3 billion barrels of oil. Although the current producing intervals within these producing fields are not included within the Block 26 PSC, Gulfsands does have the rights to reservoirs beneath the existing fields and to all depths outside of existing fields within Block 26. From the existing 2D seismic GPX had identified drill-worthy 31 prospects and hoped to drill 4 wells by August 2007.

Iraq

Gulfsands signed a Memorandum of Understanding with the Ministry of Oil in Iraq for the Misan Gas Project in Southern Iraq. The project aimed to commercialise the flared gas, or "associated gas", produced as a by-product of oil production. Many oil fields have a gas cap which helps to recover the oil in place by creating a natural drive mechanism. The commercialisation of gas requires much more infrastructure and usually a strong local market, compared to oil that can be trucked or piped to a local refinery and exported. Moreover, since gas trades at a fraction of the value of oil production it's often seen as a waste or by-product of oil recovery and flared. With the strengthening gas price in Europe and the US more companies will come to realise the value of this flared-off gas, some fields are flaring-off as much as 200mmcfd, if that same amount of gas was liquefied and shipped to the US it would fetch about $1.4m.

Americas

The first exploration success for the company came on the 13th of June 2005 in the Gulf of Mexico. Northstar Gulfsands had a 10% wi in the well on Eugene Island block 83, the well subsequently tested 5.2mmcfd when tested and recoverable reserves were estimated between 8-10bcf. Workovers by Northstar also added 3.2bcf of recoverable reserves from 10 wells and the net working interest was 5,000-6,000boed. In July 2005 Northstar Gulfsands announced further drilling success with the completion of West Delta-1 and WD-2. Estimated reserves on these gas wells were 8-24bcf and 7-17bcf respectively.

GPX continued their run of exploration success with an onshore gas discovery by thier 80% owned Darcy Energy, this well put GPX on an impressive 4 out of 5 strike rate for their first year of AIM listing. The re-working and deepening of a well in the Barb Mag oilfield was successfully tested at 1.5mmcfd and 36bod of gas condensate.

Towards the end of 2005 the group went through a significant restructuring and appointed Mr Bolsover as the new Chairman of the group. Moreover, they took a direct ownership of 52.6% of the holdings in Northstar Gulfsands, they repaid all existing debt relating to the 52.6% interest. The 52.6% of Northstar interests were placed into a new GPX owned subsidiary called Gulfsands Petroleum PLC. That meant that the company now had a direct ownership of the Gulf of Mexico reserves and production and gave this new subsidiary immediate cash flow as a result.

On the 14th of December GPX had further drilling success in the Gulf of Mexico with the completion of the well on Eugene Island 58, they had 12.5% wi, but the well flowed at 8.2mmcfd and 134bod of gas condensate on completion. The successful exploration well was on the side track (13.15% wi) on the Ship Shoal Block 177, subsequent flow was tested at a rate of 5mmcfd and 31bod of oil. The success rate for offshore drilling was then running at 4 out of 6 successfully tested wells. Further drilling has resulted on another exploration success on Eugene Island 58 in January of this year, the well flowing 4.5mmcfd and 24bod condensate (GPX 25% wi).

Significant emerging player?

In January 2006 GPX and EEN signed a letter of intent with MB Drilling Overseas Limited. The drilling contract for two rigs, Rig 31 capable of drilling only shallow wells for one firm well and an optional shallow well, and Rig 3 for a one year term with 2 additional one year options. This will allow partners to drill at least two of the prospects on Syria Block 26.

The first prospect Souedieh North and is located in the northeast region of Block 26. This vertical well will be drilled to an approximate total depth of 7,216 feet with the primary objective being Cretaceous aged reservoirs similar to those producing in the adjacent Souedieh and Karachok oil fields. This prospect has the potential to contain in excess of 100 million barrels of recoverable oil. The Second prospect is known as Tigris, will also be located in the northeast region of the Block. This vertical well will be drilled to an approximate total depth of 14,760 feet with the primary objectives being a series of Carboniferous and Devonian sandstone reservoirs. The Tigris structure is directly underlying the Souedieh oil field (the largest known oil field in Syria), where oil is produced from the shallower Cretaceous reservoirs. Wireline log evaluation of an existing well on the structure drilled some years ago has identified pay zones within the objective reservoirs, and the Tigris-1 well is designed to evaluate these reservoirs and appraise this potential hydrocarbon accumulation. This prospect has the potential to contain in excess of 500 million barrels of recoverable oil equivalent (Ryder Scott independent report). The well is expected to spud in mid-to-late August 2006 after the rig completes an existing long-term drilling contract in Syria with another company.

GPX has had considerable drilling success from its initial listing on the AIM market. They have built up a healthy base of reserves and production in the politically stable US, and had some $78m cash on hand at the last interims to carry forward its ambitious drilling plans in Syria. GPX has a firm base form which to work from, but their larger Syrian prospects have yet to be proven. If these projects come into play on the scale of the recent Ryder Scott independent analysis of seismic, then GPX could be transformed into a significant player in the Middle East.