Edison Investment Research issued a report on Gulfsands Petroleum (LON:GPX), a day after it reported a substantial improvement in its financial performance in H1 2010, while noting that production has increased further since the end of the period.
Investors were told that the next two years are going to be “active and exciting” with Gulfsands looking to the future with enthusiasm and optimism.
The financial highlights included an 81% jump in revenues to US$52.5 million after net cash from operating activities nearly tripled to US$27.9 million, while net profits increased fivefold to US$18.7 million.
Edison said the establishment of low-cost production in Syria has been the primary driver of Gulfsands’ share price over the past 12 months. Shares now trade in line with the research house’s core NAV of 290p, suggesting this is now largely priced into the stock.
The message from management as it presents 2010 interims is that there remains further exploration upside potential in Syria. Having extended its exploration licence in Syria to August 2012, Gulfsands’ five well exploration programme over the next six months provides numerous catalysts to unlock further upside potential, with limited downside risk given the low cost of drilling of around US$3.5 million per well, the report said.
Regarding the recent farm-in to ADX Energy (ASX:ADX) Tunisian and Italian assets, Edison said that at present, it is ascribing no value for the Tunisian assets, but this has the potential to change with further exploration activity.
With much of the current drilling programme focused on Syria, the impact of these assets is unlikely to come into play in the near term.
Gulfsands sees the onshore Chorbane prospect as its key foothold in Tunisia, which can be quickly commercialised in the event of a success, given nearby infrastructure and the availability of expertise through its Damascus-based team.