From the name of the company you may think Gulfsands Petroleum has assets in the Persian Gulf; however, their production is in the less exotic, but more politically stable, Gulf of Mexico. As of the 31st of December 2006, the company had 27.3Bcf of gas and 2.36 MMBbls of oil reserves offshore Texas and Louisiana, with another 2.1Bcf of possible recoverable gas.
Although reserves in the US are small, they provide a valuable cash flow to the company. Earlier this year the company announced that production from these small fields had reached a historic high of 3,400boepd. This production consists of a healthy mix of natural gas and oil/condensate, and with the prices of both commodities showing significant strength at Henry Hub in Texas, cash flow from these assets should remain strong.
So While the US provides low risk, stable cash flow, Gulfsands memorandum of understanding with the Ministry of Oil in Iraq for the development of waste gas from oil fields in the south of the country brings a bigger prize but with considerable execution risks. Gas in the region is currently treated as a waste product and is flared from existing fields. The total gas being flared from facilities around the Maysan project area is thought to be about 350MMcfd. This project is a massive undertaking for a company the size of Gulfsands Petroleum, with estimated development expenditure is in the region of $500m USD, but is potentially a company-transforming project and one to keep in mind.
So we have low risk cash flow in the US, and higher risk / reward potential in Iraq. Yet the most interesting asset within Gulfsands Petroleum is a 50% working interest (wi) in Syrian block 26. Other parts of the block 26 (not licensed to Gulfsands) have seen production as high as 100,000bopd; therefore, without question, this is a highly prospective block for oil or gas exploration. The first well of the campaign, Tigris-1, was drilled to a total depth of 4,500m, logged and cored, but the results were inconclusive. Gulfsands disappointment with Block 26 ended with Tigris-1.
Khurbet East-1, the second exploration well, contained a gross oil column of 31m within the Cretaceous Massive formation at 1,917m. The logs indicated that approximately 22.5 metres of this oil column was potentially payable and, upon fluid sampling, found 21 degrees API oil at surface conditions. Moreover, the Tertiary Chilou B formation demonstrated oil shows at a depth of 1,319m with a total possible net payable section of 26.4 metres was encountered. Because the high wellbore diameter of KHE-1 prevented proper testing of the pressure and accurate collection of fluid samples from the shallower formations, the management decided that a second appraisal well should be drilled. KHE-1 reached a total depth of 3,800m and continued to intersect oil-bearing reservoirs in the Triassic. The deepest zone in the well was put on a drill stem test and flowed 35 degree API oil at 478bopd, with a gas to oil ratio (GOR) of 2Mcf/bbl produced. Gas is important as it produces a natural reservoir drive mechanism, forcing oil from the high-pressure reservoir towards the lower pressure perforated wellbore. Associated gas from this section of the well would have been approximately 1MMcfd. A good result from only one of a possible four productive zones identified within the well.
Gulfsands then drilled KHE-2 which encountered the Massive formation at 1,931 metres, the gross oil column in this well was 49 metres, with 29 metres as net payable. Only the top 10 metres of the payable section was tested; the section flowed at a maximum of 1,085bopd on nitrogen lift. Over a longer-term test, following the Nitrogen lift, the well flowed at 710-820bopd. From the results gathered, the management concluded that the formation had excellent permeability and that the well may respond favorably to gas lift or mechanical pump enhancement. All wells that produce from the Massive formation on block 26 are put onto artificial lift after initial production. Unfortunately for the company, the results of the Chilou "B" formation tests were less impressive with water present in the reservoir, and low permeability.
In November KHE-3 will be drilled to a depth of 2,150 metres to further appraise the Massive formation. An independent evaluation of the logs indicated an increase of net payable in KHE-1 from 22.5 metres in line with KHE-2 at 29 metres, and this result enhances the recoverable reserve estimates. No oil water contacts have been observed, nor any water recovered in the oil produced, which helps the oil saturation levels within these reservoirs. As a result, the management's expectations of the Khurbet East field have now increased and KHE-3 may push these expectations even higher if successful. The management has now estimated gross recoverable in excess of 100MMboe and plans to rapidly commercialise this field leading to possible production in 2008.
Gulfsands Petroleum has had a enviable success rate from wells drilled in the US Gulf States, which has led to production in excess of 3,000boepd. This has created good cash flow and a healthy operating balance for the company. Initially, the Syrian campaign got off to a slow start with the Tigris-1 well, but fortunes soon changed after the drilling of Khurbet East. To date, success on the field has been impressive. Moreover, the company has identified further exploration prospects and leads on block 26 beyond the Kurhbet East discovery, and is seeking additional acquisitions in Syria and Kurdistan. Quite rightly, the immediate future plans of the company involve fast-tracking Khurbet East through to production and appraisal of reserves. Investors will be keen to see how the company develops as further results emerge from the project.