Company Q&A: Gulfsands looks to higher oil production and exploration success in 2011

Gulfsands Petroleum (LON:GPX) is targeting higher oil production and exploration success in the coming year, according to its corporate development and communication director Ken Judge.

The Middle East focused oil junior has just closed the book on a successful 2010, during which it has been developing the infrastructure around its oil production assets in Syria.

It has been very active with the drillbit in the past year, bringing new production wells online as well as finding new oil and gas resources through exploration.

Gulfsands’ priority assets are found in Syria and Tunisia, and it also has oil and gas interests in Iraq, Italy and the United States.

We caught up with Ken Judge to find out what the coming months have in store for the oil firm.

Proactive: 2010 was an incredibly busy year for Gulfsands. What should we expect this year from the company? What do  you expect to be the major landmarks and value triggers?

Judge: It was indeed a very busy and productive year for Gulfsands with two drilling rigs running continuously after mid-year.

We completed the new 22 kilometre production pipeline and we have started to prepare for the construction phase of the 50,000 barrels of fluid per day Central Processing Facility (CPF).

Work on the CPF progressed to the point where we hired Saipem as the selected contractor for the €94 million project, which is expected to be completed in the third quarter of next year.

During the first quarter of 2011 we expect to commence construction of the CPF while also concentrating our efforts on de-bottlenecking the current production facilities so as to maximize production through the new pipeline. 

We also have a full exploration programme for 2011 which will include the drilling of up to 5 exploration wells so with a little luck, we may have yet another exploration success on Block 26 in the coming year.

Proactive: What would you need to achieve for 2011 to be described as a successful year?

Judge: Assuming we are successful with our production de-bottlenecking efforts, we hope to be able to deliver slightly higher production rates for Block 26 production over those we were achieving at the end of 2010. 

We would like to end 2011 with the construction of the CPF right on track for completion during 2012 and also have at least one exploration success confirmed from our 2011 exploration programme.

Proactive: The Sidi Daher exploration well in is expected to spud next month Tunisia. Tell us a little more about the agreement you have brokered with ADX Energy, the operator of the Chorbane Block.

Judge: The Chorbane farm in represents the onshore element of our farm in arrangements with ADX Energy.

Gulfsands has already earned a 30 percent interest in two contiguous offshore blocks (Kerkouane in Tunisian waters and Pantelleria in Italian waters) following the successful drilling of the Lambouka target the 3rd quarter of last year.

Gulfsands is earning an additional 40 percent interest in the onshore Chorbane block that includes the Sidi Daher target and in the event of a discovery on the Chorbane block. 

We will be entitled to take over as operator of the Chorbane joint venture.

Proactive: How much do expect this earn-in deal to cost?

Judge: Gulfsands is paying 80 percent of the first US$5 million of the Sidi Daher well costs and 40 percent of additional costs above US$5 million. 

As the well is now anticipated to cost approximately US$6.8 million, Gulfsands present estimate of its share of the well costs is approximately US$4.8 million.

Proactive: Will the current unrest in Tunisia have any lasting impact on the project?

Judge: The recent unrest had little impact on the planning operations for the Sidi Daher well.

In fact during this period, we received notification from the Tunisian authorities that the licence for the Kerkouane block had been extended for 3 years, indicating that the government ministries continued to function normally through most of the period of unrest. 

It is anticipated that drilling operations at Sidi Daher will now commence before the end of February.

Proactive: Gulfsands is now profitable and highly cash generative. How will you use those funds? When would you consider paying a dividend?

Judge:  Our strong cash flows will permit the company to undertake both development of the CPF and a significant level of exploration activity without need for additional funding. 

In fact our cash flows are projected to be so strong that despite spending approximately US$100 million on development and exploration activities during 2011, we should end the year with an increase in the already significant cash balances we held at the end of 2010.

For the foreseeable future we will remain focused on expanding our asset base though a high level of exploration activity and where possible, the selective acquisition of value adding assets. 

We have a substantial new business and asset evaluation programme underway and are hopeful this will identify potential asset acquisitions or farm-in opportunities during the coming year. 

Therefore, for the foreseeable future we will focus on achieving our business expansion and development objectives and that will necessarily make it unlikely we will embark on a programme to pay dividends until we have achieved those objectives.