Harry Norman: Hello this is Harry Norman for Proactive Investors, and welcome to another Proactive audio interview.
Todays is 23rd June 2011 and I’m talking with Ken Judge, director of Corporate Development and Communications for Gulfsands Petroleum. Listed on the AIM market, oil and gas producers sector, stock ticker GPX, share price 226.75p, market cap £276.6 million. Web address: gulfsands.com.
Ken, thank you very much for joining us for this interview.
Ken Judge: Thanks for having me Harry.
Harry Norman: Please give investors a brief introduction to Gulfsands Petroleum, the company’s focus and its ambitions.
Ken Judge: The company is an exploration production company, focused on the MENA region, Middle East and North Africa. Principally Syria, Tunisia and Iraq.
In Syria we have quite significant producing assets and have made three discoveries that have been declared, or are shortly to be declared, commercial. And we are in the process of expanding that production to a level by late next year, that should reach about 33,000 barrels a day.
So we are actively engaged in production and exploration in Syria, in exploration in Tunisia, onshore and offshore. And in Iraq we’re engaged in business development activities.
Harry Norman: How are Gulfsands producing assets on Block 26 in Syria performing? And what work is in hand to increase production on Block 26?
Ken Judge: Producing assets in Block 26 are performing at record levels. We’ve had a very good run in greatly increasing our production. It’s averaging over 21,000 barrels a day now.
And we have plans in hand, and well advanced, to expand the existing facilities we have which are currently limited to about 24,000 barrels a day of production.
We expect in the second half of this year to be able to lift our current production from 21,000 barrels a day, to 24,000 barrels a day.
In parallel with that, we are expanding our production capacity through the construction of the central processing facility, which should be completed in the fourth quarter of next year. And that will give us the capacity to lift production from 24,000 barrels a day, to around 33,000 barrels a day.
So the assets are producing terrifically well, and we’ve produced 16 million barrels of oil so far, without producing any water. And the assets themselves have performed terrifically all over the course of the last three and a half years.
Harry Norman: What can you tell investors about progress made with the plan to drill up to 12 wells on Block 26 this year?
Ken Judge: We’ve got a very active development and exploration programme this year. Stood roughly 50:50 with six exploration wells, including one appraisal well, and six development wells to be drilled in the course of this year.
We’re on track with that, and we’ve obviously announced in recent days another discovery on Block 26 in making a third discovery, which we’re in the process of having declared commercial.
We intend to undertake about the same level of activity next year. This is part of a two year project to drill a dozen wells this year, split roughly 50:50 exploration and production
And next year another half dozen exploration wells, four, five or six, depending on where we finally land on the number of development wells we require, will also be drilled.
Harry Norman: What hopes does Gulfsands have for acquiring new onshore, or offshore, hydrocarbon licences in Syria Ken?
Ken Judge: It’s publically known that we’ve made application in joint venture with Eni, one of the world’s largest oil and gas companies, and Italy’s national leading oil company.
For several blocks, two blocks out of the eight blocks that were offered for tender by the Syrian Government in December last year. And awards to the successful tenders was expected sometime during the second quarter of this year.
Now there’s been a bit of slippage in that date, so we don’t yet know whether we’ve been successful in acquiring one or other of the two blocks. Or maybe both blocks, but we’re optimistic we’ll at least land with one.
And the Government has also at the same time announced its intention later this year to offer three of the large blocks offshore, and invited a list of qualified potential bidders. It runs for about 18 companies, and we intend to participate in making bids for at least one of those three offshore blocks, and perhaps all three.
So we’re quite optimistic, the hydrocarbon opportunity in Syria has much yet to be discovered. And the Syrian Government has been providing tender rounds, both onshore and offshore, intended to bring foreign investment into the country to enable exploration of those discoveries.
Harry Norman: What are your thoughts on operating an oil exploration and production company in Syria?
Ken Judge: Well we have, obviously, seen in recent days some very interesting press coverage, and news of this Arab unrest.
Having just returned from Syria with my colleagues, as I was there all last week, we’ve continued our activities whether they are in Damascus or in the field in the north east, uninterrupted throughout this period that you’ve seen on television or in the press. Without interruption, without interference or any consequence to our production, which has reached record levels.
So in recent days we’ve been setting record levels of production for the company, and we’re actively working on projects to expand that production up to 24,000 barrels a day, in the second half of this year.
So our experience historically of working in Syria with the Syrian Government, with the Syrian Petroleum Company, or the General Petroleum Corporation, has been tremendous. We’ve had a tremendous level of cooperation in the timing of approvals for development licences and the development plans for those fields that have been approved for commerciality.
And we see every evidence of that continuing right to this very day. So our activities on the ground in Syria you would describe as running as smoothly as they’ve ever run, and anticipated to continue to do so.
Harry Norman: What is the situation with Gulfsands’ Tunisian assets Ken?
Ken Judge: We have two interests in Tunisia, one offshore, which was a joint venture drilled offshore last yearand we have a 30% interest in that Lambouka joint venture. And we had a successful offshore well, which was a gas discovery, last year.
In the onshore we have a 40% interest in a joint venture, which is soon to start a well on the Chorbane block, which is sort of in the mid-south of the country. And we’re anticipating that starting of that well will take place in the next of weeks.
We have 40% interest in that joint venture, and we’re quite optimistic about a potential discovery there. And the target is around about 62 million barrels of oil equivalent, which should be able to be commercialised relatively quickly. Both because of the existence of significant infrastructure in the area, and we would have rights to access that infrastructure.
But also because the Tunisian Government is extremely motivated to try and increase its production of both gas and oil at this time.
Harry Norman: What are your thoughts about operating in Tunisia, Ken?
Ken Judge: Well rather interestingly, Tunisia was I think the first country to be impacted by what’s now referred to as the “Arab Spring”, throughout the entire period of the noise and unrests that we saw on television in Tunisia.
The Tunisian Regulatory Authority, the Oil Ministry etc. continued all of their work uninterrupted. And perhaps we even got better service out of them in this time, when licences were being extended. Approval was being given for exploration wells to be drilled in the south, as I mentioned earlier, on the Chorbane block.
So our experience of working there historically has been terrific, we’ve had very good cooperation and made very welcome. But in recent days, that experience is probably even a little bit better than it has been in the past.
Harry Norman: What can you tell investors about Gulfsands’ residual assets in the Gulf of Mexico, and about your hopes to develop business interests in Iraq?
Ken Judge: Well the topics are actually linked, because our Gulf of Mexico assets have reached a level of relevance now where it’s a distraction from the rest of our business. Those assets currently produce roughly 600 barrels of oil equivalent a day.
And we have a well publicised programme to dispose of those assets, which we expect to be able to complete before the end of this year.
We’ve made a couple of disposals already, and they’ve been quite cash generative for us. So the sale of these assets in onshore and offshore, the Gulf of Mexico, is likely to produce a little more cash. And we intend to apply that cash in capturing further opportunities, whether they be in Iraq, or elsewhere in the MENA region. And we have a very active programme to capture additional assets in Iraq as we speak.
Harry Norman: Given that in April Gulfsands had $100 million in the kitty, and is self-financing with oil at $80 a barrel or more, what does the company’s financial situation look like going forward Ken?
Ken Judge: Well Harry rather interestingly, for our budget we assumed a Brent price of $80 a barrel, which is what you’re referring to and at that price, we were anticipating a realised oil price of approximately $75 a barrel.
Through the first four months of this year, I think we’ve averaged just over $100 a barrel realised. Obviously a very significant jump above what we had budgeted, and that flows through to the bottom line.
This year we will spend approximately $100 million on exploration, development and construction facilities. All of which was expected based on a Brent price of $80 to be self-funded from cash flow coming from the field.
Now obviously we’re making quite a lot more money than we had budgeted to be making, and therefore one would anticipate that by the end of the year, first thing we would expect to have carried out the capital projects that I mentioned.
But also that we probably accumulate another, somewhere between $20 million and $40 million of additional cash, on the basis that the Brent price average is somewhere between US$100 and US$120 a barrel.
Harry Norman: What can investors expect from Gulfsands over the next 12 to 18 months Ken?
Ken Judge: Well we’re certainly going to be able to deliver on our anticipated increases in production. We’re well on track to lift production from currently 21,000 barrels a day to 24,000 barrels a day.
We are on track with the construction of our central processing facility, which is due to be completed and handed over to us in the fourth quarter of next year. And that will enable us to increase production of 33,000 barrels a day.
And at the same time, as I mentioned earlier, we’re generating a significant amount of cash, which is giving us cash surpluses that we hadn’t anticipated to be able to generate.
And therefore, we’re a little further on the front foot in looking for new business opportunities elsewhere in the MENA region. And we are working quite earnestly to try to take advantage of perhaps the nervousness of some companies, or the inability of some companies, to finance themselves in the Middle East at the moment.
And, of course, with Gulfsands sitting on well over $100 million in the bank, and anticipated to have quite a bit more in the kitty by the end of the year, we’re very well placed to take advantage of any weakness that some of these smaller companies around the Middle East might have.
Harry Norman: Remember Proactive Investors, it’s not an investment advice service. Make sure you register at proactiveinvestors.co.uk for our weekly newsletter, which will keep you informed about our articles, interviews and events. Thank you for listening.