Gulfsands Petroleum, a London listed oil and gas explorer, is abandoning its Syrian exploration program and says it hopes to rebuild an exploration and production base outside the country.
“The overriding objective is to build, as quickly as practicable, a viable non-Syrian leg to the business, within the capacity of the Company’s present and prospective financial resources to sustain,” the company said in a statement.
The news follows an exploration update from the company stating that its exploration program was broadly on track. The company’s exploration license expires in August this year. Gulfsands called the decision “a matter of financial and operational prudence.”
Gulfsands took a hit to its cashflow on 11 December when it was forced to declare force majeure at Block 26 after the declaration of EU sanctions against the Syrian regime. The block is Gulfsands’s only cast-generating asset.
Block 26 covers approximately 5,414 km2 and encompasses existing fields which can currently produce over 100,000 barrels of oil per day, and are operated mainly by the Syrian Petroleum Company.
Gulfsands’s working interest 2P reserves in Syria at 31 December 2010 were 53.6 million barrels.
With $120 million cash reserves and current expenditure of $500,000 a month, Gulfsands says it is “well-placed to endure a long period of continued uncertainty in its Syrian operations.”
The company has owed to it as Syrian state firm General Petroleum Company continues to pump 4,000 barrels per day from Block 26, and has no debt.
Gulfsands also announced that its Chief Financial Officer has quit. Andrew Rose, who has been at Gulf sands for over three years, is slated to leave on 30 April 2012. Gulfsands says the resignation was amicable.
Sanctions were imposed on the Syrian regime in response to a suppression of a civilian uprising.
“The Board believes that the situation in Syria will be resolved in due course and that the Company will be able to resume profitable operation,” Gulfsands said in a statement. “All efforts are being made and will continue to be made to that end. It is clearly not possible to estimate when such a resolution will occur.”
Gulfsands has been caught between the need to maximize the potential of an asset into which they have already sunk costs and the risk that, if the political scene in Syria changes dramatically, they may not be the ones to produce the oil it has spent its cash reserves to find.
The company may be particularly vulnerable to political pressure in the event of regime change, after its close commercial links with Rami Makhlouf, Syrian businessman with dominant position in several sectors of the Syrian economy and the first cousin of Syrian president Bashar al-Assad, were reported by the Financial Times in August.
The Al Mashreq Investment Fund, which is controlled by Makhlouf, owns a 5.7% stake in Gulfsands. Maklouf has been included on an EU sanctions blacklist, prompting Gulfsands to suspend Makhlouf’s voting rights and cease payments to him.
Gulfsand’s shares on the London Stock Exchange are down over 6% in morning trading, and have lost over 47% of their value over the last 12 months.
