2009 Audited Financial Statem

RNS Number : 3832J

Gulfsands Petroleum PLC

30 March 2010

 



Immediate Release

30 March 2010

Gulfsands Petroleum plc

2009 Audited Financial Statements

London, 30 March 2010:  Gulfsands Petroleum plc ("Gulfsands", the "Group" or the "Company" - AIM: GPX), the oil and gas production, exploration and development company with activities in Syria, Iraq and the USA, announces its annual results for the twelve months ended 31 December 2009.

A full copy of the audited Annual report & Accounts of Gulfsands Petroleum plc for the year ended 31 December 2009 is available to download on the Group's website, www.gulfsands.com

HIGHLIGHTS

Financial

·     Revenues up by 57% to $84.4 million (2008: $53.6 million)

·     Profit after tax of $27.8 million vs. loss of $5.4 million (restated) in 2008

·     Cash from operating activities up by 117% to $43.5 million (2008: $20.0 million (restated))

·     Loss of $14.2 million in US business before intra-group interest after impairment charge of $6.4 million (2008 : loss of $0.3 million afer impairment charge of $1.7 million (restated))

·     Free cash balances at year-end of $57.6 million (2008 : $36.8 million)

Operations

·     Group 2P working interest reserves up by 25% to 50.7 mmboe (2008 : 40.4 mmboe)

·     2P working interest reserves in Syria up by 31% to 46.0 mmbbls (2008 : 35.2 mmbbls)

·     Working interest production  in Syria up by 70% during 2009 to 8,500 bopd at year-end

·     Khurbet East early production facility upgraded to 18,000 bopd capacity

·     Commercial development approval obtained for Yousefieh field

Outlook

·     Four well exploration campaign in Syria in 2010

·     500km2 of 3D seismic to be acquired on Block 26

·     Two exploration wells and additional 3D seismic to be acquired in Tunisia

·     US business to be sold when market conditions favourable

Strategy

Our long-term objective is to deliver significant growth in shareholder value via the exploration and development of oil and gas fields in the Middle East and North Africa ("MENA") region.

We intend to achieve this primarily by investment in early stage exploration and appraisal opportunities but do not rule out the acquisition of more mature assets if the opportunity exists for us to add material value.

Where possible we prefer to act as operator, as this allows us to retain control of project execution risk and financial exposure, but will invest in non-operated situations if we are confident that our own interests are sufficiently protected and the operator is capable of managing the business just as well, if not better, than us.

Our first priority is to maximise the potential in Syria, in particular to capture the available upside in Block 26 before the final expiry of the exploration period in August 2012. We will also be looking for ways to add further assets in Syria, capitalising on the strength of the relationships that we have forged over the last decade.

We have ambitions to build a significant business in Iraq in the mid to longer term, where we believe that the opportunities for smaller E&P companies will increase in coming years. Our focus will remain outside Kurdistan until we are satisfied that the issues concerning the exploitation of Kurdistan's hydrocarbon potential have been satisfactorily resolved. We will seek to participate in projects that offer significant upside and can deliver returns that are commensurate with the challenges presented by those projects, and we will assess our risk exposure and capital commitment both on an individual project basis and for the country as a whole.

We will seek attractive opportunities to enter other countries in the region, but will scrutinise such opportunities carefully to ensure they represent compelling justification for investment.

We intend to dispose of our US business as and when we assess the time is right to do so. In the meantime we will pursue a strategy of selective reinvestment in this business in order to be in a position to commence a disposal process when market conditions are favourable.

Finally, we aim to follow a relatively conservative financing policy, ensuring that any leverage is kept at prudent levels and that we have the financial resources available to finance necessary investment even in adverse economic conditions.

Business Strengths

We consider our key strengths in achieving our strategy to be:

·    The relationships that we have formed in Syria and elsewhere in the MENA region, primarily via Mahdi Sajjad, our President

·    The reputation for efficient cost effective operation that we have built up in Syria

·    The balanced and complementary skill set and expertise of our executive team

·    The enthusiasm, competence and dedication of our staff

Commenting on the annual results, Ric Malcolm, CEO of Gulfsands, stated:

"I am pleased to report on a year of substantial progress and delivery on production and reserves underpinning a strong financial performance and a maiden profit"

A presentation to analysts will be held at the offices of Buchanan Communications, 45 Moorfields London. EC2Y 9AE this morning at 8.30am. A copy of the presentation to be given to analysts together will be available on the Company's website, www.gulfsands.com. 

A webcast of the presentation to analysts can be viewed at http://mediaserve.buchanan.uk.com/2010/gulfsands300310/registration.asp and following the presentation, a recording will be available on the Company's website, www.gulfsands.com.

For more information please contact:

Gulfsands Petroleum (London)	[phone]
Richard Malcolm, Chief Executive Officer Andrew Rose, Chief Financial Officer Kenneth Judge, Director: Corporate Development & Communications
Buchanan Communications Limited (London)	[phone]
Bobby Morse Ben Romney Chris McMahon	[phone]
RBC Capital Markets (London)	[phone]
Josh Critchley Tim Chapman Matthew Coakes Martin Eales

ABOUT GULFSANDS:

Gulfsands is listed on the AIM market of the London Stock Exchange.

Syria

Gulfsands owns a 50% working interest and is operator of Block 26 in North East Syria.  The Khurbet East oil field was discovered in June 2007 and commenced commercial production within 13 months of the discovery. This field is producing at an average gross production rate of approximately 17,000 barrels of oil per day through an early production facility. In January 2010, approval was received for the commercial development of the Yousefieh oil field, discovered in November 2008 and located approximately 3 kilometres from the Khurbet East oil field. Block 26 covers approximately 8,250 square kilometres and encompasses existing fields which currently produce over 100,000 barrels of oil per day, and are operated mainly by the Syrian Petroleum Company.  The current exploration licence expires in August 2010 and is extendable for a further two years.  Gulfsands' working interest 2P reserves in Syria at 31 December 2009 were 46.0 mmbbls.

Iraq

Gulfsands signed a Memorandum of Understanding in January 2005 with the Ministry of Oil in Iraq for the Maysan Gas Project in Southern Iraq, following completion of a feasibility study on the project, and is negotiating details of a definitive contract for this regionally important development.  The project will gather, process and transmit natural gas that is currently a waste by-product of oil production and as a result of the present practice of gas flaring, contributes to significant environmental damage in the region. The Company is actively engaged in discussions with respect to financing and potential equity partners.  Gulfsands has no reserves in Iraq.

Gulf of Mexico, USA

The Company owns interests in 37 leases offshore Texas and Louisiana which include 24 producing oil and gas fields with proved and probable working interest reserves at 31 December 2009 of 4.6 mmboe.

Certain statements included herein constitute "forward-looking statements" within the meaning of applicable securities legislation. These forward-looking statements are based on certain assumptions made by Gulfsands and as such are not a guarantee of future performance. Actual results could differ materially from those expressed or implied in such forward-looking statements due to factors such as general economic and market conditions, increased costs of production or a decline in oil and gas prices. Gulfsands is under no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable laws.

More information can be found on the Company's website www.gulfsands.com

Dealing Disclosure Requirements

Under the provisions of Rule 8.3 of the Takeover Code (the "Code"), if any person is, or becomes, "interested" (directly or indirectly) in 1% or more of any class of "relevant securities" of Gulfsands, all "dealings" in any "relevant securities" of that company (including by means of an option in respect of, or a derivative referenced to, any such "relevant securities") must be publicly disclosed by no later than 3.30 p.m. (London time) on the London business day following the date of the relevant transaction. This requirement will continue until the date on which the offer becomes, or is declared, unconditional as to acceptances, lapses or is otherwise withdrawn or on which the "offer period" otherwise ends. If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire an "interest" in "relevant securities" of Gulfsands, they will be deemed to be a single person for the purpose of Rule 8.3.

Under the provisions of Rule 8.1 of the Code, all "dealings" in "relevant securities" of Gulfsands by the potential offeror or by Gulfsands, or by any of their respective "associates", must be disclosed by no later than 12.00 noon (London time) on the London business day following the date of the relevant transaction.

A disclosure table, giving details of the companies in whose "relevant securities" "dealings" should be disclosed, and the number of such securities in issue, can be found on the Takeover Panel's website at www.thetakeoverpanel.org.uk.

"Interests in securities" arise, in summary, when a person has long economic exposure, whether conditional or absolute, to changes in the price of securities. In particular, a person will be treated as having an "interest" by virtue of the ownership or control of securities, or by virtue of any option in respect of, or derivative referenced to, securities.

Terms in quotation marks are defined in the Code, which can also be found on the Panel's website. If you are in any doubt as to whether or not you are required to disclose a "dealing" under Rule 8, you should consult the Panel.

Chairman's Statement

Dear Shareholder,

It gives me much pleasure to report on another year of solid progress towards our goal of becoming a leading independent exploration and production company in the Middle East and North Africa ("MENA") region. A number of key achievements are worthy of mention.

Proven & probable working interest reserves increased by 25% to more than 50 mmboe, all of which increase related to our assets in Syria.

We ended the year with unrestricted cash balances of $ 57.6 million and no debt.  This strong financial position has been crucial to our ability to continue to function unimpeded by the very difficult financial circumstances of the past eighteen months and leaves the Group well placed to fund our plans for development and exploration in Syria from our own resources.

The "investment profile" of the Group improved significantly during the course of the year.  We are now covered actively by research analysts at eight independent brokerage firms.  Liquidity in our shares has improved considerably, with an approximate average daily volume of 420,000 shares during the first two months of 2010.  More than 200 institutional investors are now represented on our share register, while our previous Chief Executive and Chief Financial Officer have ceased to be substantial shareholders following sales of their shares.

We made a number of key management appointments during the year, the foremost being that of Khalid Almogharbel, a Syrian citizen with many years experience working for Schlumberger in the Middle East, as our Operations Manager for Syria and as General Manager of our joint venture with the Syrian Petroleum Company.

I would like to take this opportunity to thank the Syrian Government, the Syrian Petroleum Company and Syria's General Petroleum Corporation for the exemplary level of support and cooperation we continue to receive from them.  As but one example, the increase in the capacity of the early production facility in Khurbet East to 18,000 bopd was achieved at minimal cost and within a timeframe of months that would not have been possible without such assistance.  Your Board regards the strong relationship we enjoy with our Syrian partners as one of the Group's most important intangible assets.

I would also like to welcome Sinochem, our new Chinese partners in Block 26, and we look forward to a long and fruitful collaboration.

Against this backdrop we approach the coming year with confidence. Our overriding priority is to complete the full field development of the Khurbet East field but we are also proceeding "full ahead" in our pursuit of the remaining exploration potential of Block 26.

As this Report goes to press, there are modestly encouraging signs of a pending improvement in relations between Syria and the United States.  Any progress in this direction can only be to the Company's advantage.

Our efforts to secure additional exploration opportunities in a new country in the MENA region have recently borne fruit in the form of the farm-in to two exploration licences in Tunisia, where we believe there is significant potential.

Finally, we continue to believe that our longstanding efforts in Iraq will begin to show tangible results as the obstacles to development of that country's massive oil and gas resources have at last begun to be removed.  We are cautiously optimistic of being able to report positive progress in this regard during the year.

Yours sincerely,

Andrew West

Chairman

29 March 2010

CHIEF EXECUTIVE'S REPORT

2009 was a very successful year for the Group as a whole.  In Syria, the focus was primarily on increasing oil production and reserves through the drilling of the Khurbet East oil field.  This resulted in a 70% increase in production over the year to approximately 17,000 bopd (gross) by year-end, exceeding our year-end target of 16,000 bopd (gross). 2P oil reserves at Khurbet East have increased by 28% to 38 mmbbls and Yousefieh 2P oil reserves have increased 42% to 8 mmbbls.  After production of 2.3 mmbbls in 2009, we now have 46 mmbbls of 2P oil reserves in Syria compared with 35 mmbbls a year ago (all reserves numbers on a working interest basis).

This production performance from Syria has delivered the Group its first profit after tax of $27.8 million and has placed us in a strong financial position with net cash of $57.6 million at year-end. Assuming no unexpected surprises, we anticipate being able to meet all capital expenditure requirements in Syria and the USA throughout the forthcoming year from operating cash-flow.

Syria

At Khurbet East, seven wells were drilled, three of which were delineation wells and four were producers. The upgrading of processing facilities at the early production facility (EPF) from 10,000 to 18,000 barrels of oil per day (bopd) capacity was completed safely in July, and tenders were issued in October for a new central production facility (CPF) with a capacity of 50,000 barrels of fluid per day (bfpd), the contract for which is expected to be awarded imminently. In addition, two appraisal wells on the Yousefieh oil field were successfully completed. Both wells flowed oil to surface on test, and approval by the Syrian Government to develop the field was received in January 2010.

A large three dimensional (3D) seismic survey of approximately 850 km² of good quality data was acquired in the first six months of the year on time, safely and within budget.  In combination with seismic data acquired from a previous adjacent 3D survey, a total of approximately 1,100 km² of data has now been processed and a preliminary interpretation completed.  Four exploration prospects and two leads have been identified. The exploration well on the first prospect (Zaman-1), completed in February 2010, discovered only a small non-commercial oil pool.  Drilling of the second exploration well, Hanoon-1, is nearly complete and the results are anticipated in April.

A second smaller 3D seismic survey was acquired on a sole risk basis in November over the Taramish anticlinal structure located in the northeast corner of Block 26. The processed data was delivered in March 2010 and interpretation is underway.

In order to accommodate our expanding workforce in Syria, now numbering over 70 people (including contract staff), we have moved to new offices located just outside the city of Damascus and strengthened our management team with appointment of Khalid Almogharbel as Operations Manager. 

A new HSE policy and management system was adopted by the Group during the year and a HSE Manager appointed to the Damascus office.  I am pleased to report that Gulfsands' excellent safety record has been maintained in 2009 with no lost-time injuries being reported during the year, nor indeed since operations began in 2006.

USA

Results for the year in the USA were very disappointing from a number of perspectives.  The delay in repair of third party infrastructure has been significantly more protracted than anticipated following damage incurred by Hurricanes Gustav and Ike in 2008.  At the time of writing our working interest production is approximately 1,700 boepd, significantly below budget due to a number of facilities still not being fully operational. In addition, gas sales prices fell from an average of $9.4/mcf in 2008 to an average of $3.9/mcf in 2009.  As a result of these and other difficulties, the US business made a loss for the year of $14.2 million before intra-group interest (2008 as restated: $0.3 million).  However, we anticipate the US will make a positive contribution during 2010 assuming a reasonably trouble free hurricane season and oil and gas prices remaining at or above current levels. This will include some investment expenditure with possibly two exploration wells in addition to a number of work-overs.

The USA assets are now non-core to the Group and we intend to commence the process of divestment during 2010.

New Business Initiatives

The focus for the Group continues to be the active exploitation of potential in Block 26 in Syria.  However, we are also looking to expand our footprint in Syria and are proactively seeking new opportunities. 

In Iraq, participation in the Maysan Gas Project remains an objective for the Group.  During the year, a thorough technical and commercial audit and review of the project, by third parties, was undertaken that has reinforced our desire to pursue the project and finalise negotiations as soon as possible.  We are also looking for opportunities in Iraq that would allow direct participation in enhanced oil recovery projects that, if appropriately structured, have the potential to deliver a relatively attractive rate of return.

We have expanded our search for new business opportunities to the Middle East and North Africa region generally and recently announced a farm-in to two exploration permits in Tunisia, one onshore and one offshore, held by AUDAX Resources. This will involve us in the acquisition of 3D seismic and the drilling of two exploration wells during the course of 2010.

Objectives for 2010

We believe that a significant quantity of oil remains undiscovered in Block 26 and requires an active exploration programme to capture this potential, prior to the end of the exploration period in August 2012. We plan to drill four exploration wells in 2010 on newly defined prospects and to acquire another large 3D seismic survey in order to delineate future exploration targets. 

Production for 2010 is anticipated to average approximately 18,000 bopd delivered to the export pipeline via a newly built 22 km pipeline and storage facility at the EPF.  We aim to bring Yousefieh into production by mid-year.

Development drilling will continue at the Khurbet East field with four development wells and at the Yousefieh Field with one well, in preparation to ramp up oil production through the CPF once this has been brought into operation. 

Outlook

2010 and 2011 will continue to be capital intensive years in Block 26 as we continue to explore aggressively and construct and commission the CPF, but all costs are anticipated to be met from cash flow.  At the date of this statement, we are in a strong financial position with a cash balance of over $70 million, no debt and a forecast surplus cash flow for 2010. Thereafter, surplus cash-flows generated in Syria will be re-invested in new projects, both within Syria and elsewhere in the Middle East. 

We believe that a solid foundation for the Group has now been achieved in Syria that enables Gulfsands to look to the future with great excitement and optimism and to continue to build an ever stronger E&P company by focusing on our strengths and capitalising on the opportunities that lie before us. 

Richard Malcolm

Chief Executive Officer

29 March 2010

OPERATIONS REVIEW

SYRIA

Production

Gross oil production from the Khurbet East field increased by 70% during 2009: at the start of the year production was just over 10,000 bopd from five wells and by the end of the year this had risen to approximately 17,000 bopd from seven wells. Production in the first seven months of the year was constrained by the capacity of the Early Production Facility, but this was alleviated in August by the addition of another two phase separation unit, thereby increasing the throughput capacity to 18,000 bopd.

Production as at the end of March 2010 stood at approximately 17,000 bopd from seven wells. Throughout the period under review the Khurbet East field has produced oil with minimal amounts of water (less than 0.3% by volume) and with negligible pressure loss, implying the likely presence of a strong water drive from the flanks of the field. The central area of the field, where the currently producing wells are all located, exhibits exceptional reservoir quality with multi-Darcy permeability arising from the "vugular" nature of the carbonates.

To date all production has been trucked to the SPC processing facilities at the Souedieh-3 station, a distance of some 30km by road. Despite an upgrade to the road undertaken during the year, the volume of truck movements at current production levels is not sustainable in the medium term and therefore work is under way to build a 22 km 8" pipeline to replace the trucking operation. It is anticipated that this will be completed in mid 2010.

Wells

During the year a total of nine production and appraisal wells were drilled using a single rig: seven on Khurbet East and two on Yousefieh. The two Yousefieh wells were both vertical appraisal wells, whereas the Khurbet East wells comprised three vertical appraisal wells to delineate the southern extremities of the field and four production wells, two vertical and two horizontal. Two of the Khurbet East wells were on production by the end of 2009 and two were suspended as future producers. The depths of the wells on both fields ranged from 1986 metres to 2139 metres true vertical measured depth.

The production wells on Khurbet East drilled in 2009 cost an average of $2.7 million to drill (50% for Gulfsands' interest) and took an average of 29 days from spud to rig release. The exploration and appraisal wells cost an average of $3.5 million to drill (50% for Gulfsands' interest) and took an average of 35 days from spud to rig release (the additional time and cost being mainly due to logging and testing).

On Khurbet East, KHE-7, which was the final well drilled in 2008, was completed in January 2009. KHE-7 was a step-out appraisal well to the north intended to delineate the northern extent of the field. While oil shows were encountered the porosity was found to be much lower than in the central portion of the field. The well was suspended for further evaluation and well testing. KHE-8, a step-out appraisal well to the south, was drilled in March, and encountered a 23 metre gross (15 metre net) oil-bearing section with reasonable porosity. The well flowed 20-23° API oil to surface on test following acid stimulation and under nitrogen lift at a rate of 617 bopd, and was suspended as a potential future producer. The rig then commenced a three development well programme. KHE-9 was drilled in April as a vertical well in the central area of the field: it flowed 3,040 bopd through a 48/64" choke under an open hole drill stem test ("DST") and was placed on production in early July. KHE-10 was drilled in May/June as a horizontal producer with a bottom hole location some 700 metres northwest of KHE-9: it penetrated a 260 metre horizontal section of the reservoir and was placed on production in early August. KHE-11, another horizontal producer, was then drilled in July and penetrated a 60 metre section of the uppermost portion of the reservoir. Under test the well produced oil at a rate of 1660 bopd through a 48/64" choke, but with an associated water cut of some 30%. The well was completed as a future producer but suspended pending further testing to identify the source of the water. The rig then moved on to drill KHE-12, a far step out appraisal well some 3.2 km further south than KHE-8, aimed at delineating the southern boundary of the field and locating the field-wide oil water contact ("OWC"). Whilst the presence of residual oil was identified in a six metre section of core, the well flowed water under test leading to the interpretation that it lay beneath the field OWC. The KHE-13 vertical development well was drilled in November at a location approximately equidistant between the KHE-1 discovery well and KHE-8. The well flowed 1,020 bopd under test through a 32/64" choke with negligible amounts of water, and was placed on production in January 2010. Finally, KHE-14 was spudded in December at a location 4.9 km south of the KHE-1 discovery well, between the KHE-8 and KHE-12 locations, as an appraisal well intended to intersect the field OWC. An oil column of 14 metres gross (six metres net) was encountered, and the well flowed 27° API oil to surface under open-hole DST using nitrogen lift at a rate of 613 bopd through a 2" choke. Although a definitive OWC was not observed on wireline logs or drilling data it was established that oil was produced from a vertical depth of 1580 metres sub-surface, nine metres lower than the previous deepest oil flow observed in the field. This well result has caused the estimate of the volume of oil-in-place in Khurbet East to be revised upwards.

On Yousefieh, the Y-2 appraisal well, located 1.8km to the east of the Y-1 discovery well (drilled in November 2008), was drilled in January/February and found a gross oil column of 36 metres (16 metres net). Under a DST conducted at that time the well flowed predominantly water, which was suspected to be from a non-reservoir interval. A workover was conducted in August and after acid treatment the well flowed oil to surface at a rate of 139 bopd through a 2" choke under nitrogen lift with a water cut of 49%. The Y-1 discovery well was re-entered in August to conduct remedial cementing operations on the production liner, which was then perforated across a 14.5 metre interval and flowed 356 bopd of oil to surface through a 48/64" choke with a water cut of less than 1%. Using nitrogen lift and a 2" choke the flow rate was improved to 823 bopd. The Y-3 appraisal well, located 500 metres to the south-east of Y-1, was drilled in September/October and encountered a gross oil column of 60 metres (net 49 metres) and an OWC at 1590 metres subsurface. Under an open-hole DST the well flowed 24-25° API oil to surface at a rate of 226 bopd through a 32/64" choke with no water. It is believed that the lower flow rate compared with Y-1 is a result of formation damage sustained during drilling and coring operations. An application for commercial development of the Yousefieh field was submitted in December and approval received for this development in January 2010. First oil from the field is anticipated by mid-April 2010.

Health & Safety

A rigorous health & safety framework has been implemented in 2009. A detailed health & safety manual has been developed a copy of which is made available to all employees. The drilling department holds regular safety meetings, drills and inspections both on a regular scheduled basis and prior to undertaking certain tasks. No lost time incidents have been recorded since drilling operations commenced in 2006. A full time HSE manager has been recruited and HSE training for all new recruits, as well as refresher sessions for existing staff, is being implemented.

Exploration Programme

850 km² of 3D seismic data over an area surrounding the Khurbet East and Yousefieh fields was acquired during H1 2009 using the Chinese firm BGP as seismic contractor. This was then processed by PGS in Cairo and the processed data was delivered to Gulfsands in September and October. The analysis of this data resulted in the identification of at least four prospects for exploration drilling in 2010, together with numerous potential leads that may evolve into prospects after further analysis and study. In addition in H2 2009 64 km² of 3D seismic was acquired on a sole-risk basis over an area known as Taramish located at the north-east corner of the block, and the processed data was delivered to Gulfsands in March 2010.

The first exploration well, Zaman-1, located approximately 4.5 km south of the Khurbet East field and targetting the same Cretaceous Massive formation as is under production at Khurbet East, was completed in February 2010. The well encountered good quality reservoir, with an interpreted four metre oil column, but flowed water under test and so has been suspended as a potential future water disposal well. The second well, Hanoon-1, targeting a smaller Cretaceous target 10km to the north of the Khurbet East field, was spudded at the end of February 2010, and the results are likely to be known in April.

Plans for 2010

In 2010 we intend to drill two further exploration wells on Block 26 after Hanoon-1, four development wells on Khurbet East and a development well on Yousefieh. In facilities terms, our key project is the construction of a permanent central production facility at Khurbet East to replace the early production facility. This will have a design capacity of 50,000 barrels of fluid per day and be capable of handling a minimum of 35,000 bopd of oil allowing for the eventuality of associated water production.  We will also be tying in the Yousefieh field to the early production facility during H1 2010 via its own dedicated two phase separation unit, with a view to putting the field on production during April 2010.

We plan to acquire further 3D seismic data over at least a 500 km² area of Block 26 adjacent to the west of the 2009 seismic area, with the aim of maximising the exploration prospectivity of the Block before the final relinquishment of the exploration licence in August 2012. We intend to exercise our option in August 2010 to extend the current exploration period for a further two years, and an area comprising 25% of the original licence area has been identified for relinquishment in accordance with the terms of this extension.

USA

Operations

Operations in 2009 were dominated by the ongoing effects of Hurricanes Gustav and Ike in 2008 which caused damage both to our own facilities and to third-party infrastructure such as pipelines.

Production, which on a working interest basis had averaged 1,433 boepd and 2,575 boepd in 2008 and 2007 respectively, averaged only 1,144 boepd in 2009 because a significant element of production remained shut-in during the year pending repairs to third party pipeline infrastructure. The composition of 2009 WI production was  51% gas (3,526 mcfd), 44% oil (503 bopd) and 5% NGLs (2,217 galls/d). After tax and royalties, net interest production in 2009 was 883 boepd.

Production started the year at just over 800 boepd (working interest) having been below 400 boepd in October 2008 in the immediate aftermath of the hurricanes, and increased to 1,683 boepd in December as production from key properties, notably Eugene Island 32 and Eugene Island 57 was progressively restored. However during the year certain other non hurricane-related problems with third party infrastructure were encountered, for example at the West Delta 59 property, which caused production from this field to be shut in as of July 2009. This field returned to production during March 2010 once construction of a new oil pipeline was completed. Since year-end production has continued to increase and at the end of March was running at approximately 1,700 boepd (working interest), comprising 37% oil and 63% gas.

Total repair costs arising from the 2008 hurricanes amounted to $ 5.8 million over 2008 and 2009, of which it is estimated that at least $1.1 million is recoverable from insurance. Although damage, and subsequent repairs, to facilities occurred on numerous properties, approximately 75% of the repair and restoration expenditures were concentrated in two properties (Eugene Island 32 and Vermillion 315/332).  Repairs to these facilities were undertaken quickly and production was restored during the first half of 2009.

Operational highlights include the successful installation of a caisson and compressor at West Cameron 310 leading to increased gas production, acid stimulation of several wells in the Vermillion 379 property that yielded increased oil production, and production finally re-commencing from the Eugene Island 57 field in November. During the year 24 wells on 6 properties were plugged and abandoned and 3 structures were decommissioned.

Portfolio rationalisation continued during 2009, with the outright sale of the Galveston Island 215/186 property and the South Pass 49 Unit, and the sale with a retained over-riding royalty of the South Marsh Island 234/235 property. These transactions involving non-core assets also reduced the division's future abandonment obligations (although in present value terms the balance sheet provision has, in fact, increased). 

Plans for 2010

With the hurricane recovery process nearly complete, we intend to undertake a selective re-investment programme in 2010. Plans include participating in the drilling of four additional wells within the central area (Eugene Island, South Marsh Island, Vermillion) and an aggressive work-over and re-completion programme concentrating on the Eugene Island 32 field.   We will also continue to look for opportunities to rationalise the portfolio where we can harvest value or reduce future abandonment liabilities.

Reserves and contingent resources

The Group's reserves at 31 December 2009 are based on estimates made by management and reviewed by independent petroleum engineers. For the Syrian assets the review was performed by Senergy (2008: RPS Energy), and for the USA by Netherlands Sewell & Associates ("NSA") (2008: same).

Definitions for Proved and Probable reserves are contained in the Glossary.

Working interest reserves in Syria represent the proportion, attributable to the Group's 50% participating interest, of forecast future crude oil production during the economic life of the Block 26 PSC, including the share of that production attributable to Syrian Petroleum Company ("SPC"). In assessing the economic life it has been assumed that the option to extend the life of the PSC for a further 10 years after its initial expiry date is exercised. Working interest reserves in the USA represent the proportion, attributable to the Group's participating interests, of forecast future oil and gas production during the economic life of the properties in question, before deduction of state production taxes and overriding royalty interests. Working interest reserves have been derived from the net revenue interest reserves data contained in the NSA report, by grossing up for the percentage production tax and royalty "burden" applicable to each property. The reserves-weighted average burden at 31 December 2009 was 23%.

Entitlement reserves in Syria represent the Group's estimated share of working interest reserves after deducting the share of forecast future production attributable to SPC. This proportion is impacted by assumptions as to future development expenditure and future oil prices. For the calculation as at 31 December 2009 the average price of Brent crude was assumed to be $70/bbl in 2010, rising to $80/bbl in 2012 and constant thereafter. Entitlement reserves in the US represent the Group's estimated net revenue interest reserves after deduction of the equivalent share of oil and gas production attributable to state production taxes and overriding royalty interests.

RESERVES TABLE
Working Interest Basis		Syria		USA			Group Total
As at 31 December 2009		Oil & NGLs mmbbls		Oil & NGLs mmbbls	Gas bcf		Oil & NGLs mmbbls	Gas bcf	Oil & Gas mmboe
Proved		21.2		1.5	12.4		22.7	12.4	24.8
Probable		24.8		0.6	3.1		25.4	3.1	25.9
Proved & Probable		46.0		2.1	15.5		48.1	15.5	50.7
Possible		36.2		0.1	1.4		36.3	1.4	36.5
Proved, Probable & Possible		82.2		2.2	16.9		84.4	16.9	87.2
Movements in Proved & Probable reserves during year
As at 31 December 2008		35.2		2.4	16.5		37.6	16.5	40.4
Discoveries & Additions		-		-	-		-	-	-
Disposals		-		(0.1)	(0.5)		(0.1)	(0.5)	(0.2)
Revisions		13.1		(0.0)	0.8		13.1	0.8	13.2
Less Production		(2.3)		(0.2)	(1.3)		(2.5)	(1.3)	(2.7)
At 31 December 2009		46.0		2.1	15.5		48.1	15.5	50.7
Entitlement Basis		Syria		USA			Group Total
		Oil & NGLs mmbbls		Oil & NGLs mmbbls	Gas bcf		Oil & NGLs mmbbls	Gas bcf	Oil & Gas mmboe
As at 31 December 2009
Proved		9.5		1.2	9.3		10.7	9.3	12.3
Probable		7.9		0.4	2.4		8.3	2.4	8.7
Proved & Probable		17.4		1.6	11.7		19.0	11.7	21.0
Possible		10.7		0.1	1.0		10.8	1.0	11.0
Proved, Probable & Possible		28.1		1.7	12.7		29.8	12.7	32.0
Movements in Proved & Probable reserves during year
As at 31 December 2008		14.3		1.8	12.6		16.1	12.6	18.2
Discoveries & Additions		-		-	-		-	-	-
Disposals		-		(0.1)	(0.4)		(0.1)	(0.4)	(0.1)
Revisions		4.3		0.1	0.5		4.4	0.5	4.5
Less Production		(1.2)		(0.2)	(1.0)		(1.4)	(1.0)	(1.6)
At 31 December 2009		17.4		1.6	11.7		19.0	11.7	21.0

Financial Review

Selected Operational and Financial Data
		2009		2008 (restated)		Change %
		mmboe		mmboe
Production : working interest		2.7		1.2		119%
Production : entitlement		1.6		0.8		90%
		US$ MM		US$ MM
Revenue		84.4		53.6		57%
Gross Profit		46.5		26.2		77%
Operating Profit / (Loss)		28.6		(6.9)		n/a
Net Profit / (Loss) after tax		27.8		(5.4)		n/a
Net cash provided by Operating Activities		43.5		20.0		117%
Capital Expenditures		(25.8)		(19.0)		36%
Decommissioning costs net of escrow cash released		(0.9)		(2.7)		-66%
Cash balance at end of year		57.6		36.8		57%

Market Conditions

Following the dramatic falls in energy prices in the second half of 2008, in 2009 oil prices firmed steadily over the year, with Brent finishing the year at $78/bbl having started the year at $36/bbl. US natural gas prices however continued falling to a low of $1.8/mcf in August before climbing back to finish the year at $5.8/mcf.

Production and sales prices

(excludes NGLs)

		Working Interest Production			Entitlement Production			Average Sales Price			Premium / (discount) to Brent	Premium / (discount) to Henry Hub
		Oil bopd	Gas mcf/d		Oil bopd	Gas mcf/d		Oil US$/bbl	Gas US$/mcf		Oil US$/bbl	Gas US$/mcf
2009		6,249	-		3,367	-		57.3	-		(4.4)	-
Syria		503	3,526		399	2,669		60.5	3.9		(1.2)	(0.1)
USA		6,752	3,526		3,766	2,669
Total
2008
Syria		4,494	-		2,655	-		61.1	-		(10.9)	-
USA		461	5,262		352	4,021		102.3	9.4		2.6	0.5
Total		4,955	5,262		3,007	4,021

The Syrian production figures for 2008 are quoted from the start up of production in July 2008.

Group

The financial statements for the year ended 31 December 2008 have been restated in order to correct the misclassification in that year and in prior years of certain items of expenditure in the US business, which were classified as capital expenditure when they should properly have been charged to the income statement as operating expenses. The net effect on the 2008 financial statements has been to increase group profit by $4.3 million, and a fuller explanation is given below in the USA section of this review. The comparative 2008 figures referred to throughout this review are the restated numbers.

In addition to this restatement the Group has reclassified certain cash flows relating to inventory and capital expenditure from operating cash flows to investing cash flows. This reclassification has had no impact on the reported results or financial position of the Group for prior periods.

Income Statement

The group recorded a maiden net profit in 2009 of $27.8 million (2008: loss of $5.4 million), driven by strong production growth in Syria. As in 2008, there was a marked difference between the performance of Syria (net profit $48.4 million) and that of the USA (net loss, excluding interest owed to Group, of $14.2 million). Commentary on the results of each unit is given below.

Group revenues grew 57% to $84.4 million (2008: $53.6 million), of which $70.5 million arose from Syria and $13.9 million from the USA. Average entitlement production net to Gulfsands' interest was 4,250 boepd (3,367 bopd in Syria and 883 boepd in the USA), a 16% increase over the previous year (2008: 3,750 boepd, measuring Syrian daily production from the start of production in late July).

Cost of sales rose by 39% to $38.0 million (2008: $27.4 million), impacted inter alia by a rise in impairment charges in the USA to $6.4 million (2008: $1.7 million), and a higher depletion charge in Syria commensurate with the increase in production.

Administrative expenses fell significantly to $15.5 million from $30.3 million in 2008, but this reflected primarily the sharp drop in charges attributable to the Group's share incentive schemes ($1.1 million in 2009 vs. $12.6 million in 2008). The principal reason for the high share-based payment charge in 2008 was the options granted to incoming and existing management, a high proportion of which vested immediately and so had a disproportionate impact on the income statement. Excluding these charges and foreign exchange gains or losses the underlying group administrative expenses increased by 15% to $14.9 million (2008: $13.0 million), primarily as a result of increased staff and office costs in London and Damascus.

After deduction of hurricane repair costs of $2.3 million (2008: $2.8 million), Group operating profit came to $28.6 million, compared with a loss of $6.9 million in 2008. After crediting interest income of $0.3 million (2008: $1.2 million) and deducting a non-cash charge of $1.1 million (2008: $1.7 million) for the unwinding of the discount in the decommissioning provision, pre-tax profits amounted to $27.8 million (2008: loss of $7.3 million).

There was no material tax charge in 2009 and none is expected to arise in the next few years as all local tax obligations in Syria are settled on the Group's behalf by the Syrian Petroleum Company.

Unit Revenues and Costs (per boe)
		Syria			USA
		2009	2008		2009	2008 (as restated)
		$/boe	$/boe		$/boe	$/boe
Gross Revenue		57.3	61.1		41.2	70.1
Less royalties and production share		(26.4)	(25.0)		(9.4)	(16.4)
Net Revenue		30.9	36.1		31.8	53.7
Production and transport costs		(2.3)	(1.9)		(32.0)	(25.2)
Operating cash flow		28.6	34.2		(0.2)	28.5
Depletion		(4.3)	(4.0)		(4.5)	(10.2)
Decommissioning accrual		-	-		(2.5)	(3.2)
Operating profit / (loss) before G&A		24.3	30.2		(7.2)	15.1

Cash Flow

Cash from operating activities increased by 117% to $43.5 million (2008: $20.0 million).

Capital expenditure totalled $25.9 million, of which $5.4 million was spent on exploration activity, $18.1 million on development activity, $1.8 million on increases in material inventory and the balance on non oil & gas assets. In addition $0.9 million (2008: $2.7 million) was spent on decommissioning assets in the US Gulf of Mexico, net of releases of cash held in escrow as collateral.

The exercise of options yielded cash of $3.6 million.

The Group has historically invested, and intends to continue to invest, significant sums in exploration and development capital expenditure. The Group has been debt free since 2006 and has financed exploration and development investment from both cash generated from operations and equity investments since that time. The Group's current investment plans for 2010 and 2011 may be financed by cash generated from operations under all reasonably foreseeable scenarios.

Balance Sheet

The balance sheet remains strong with no outstanding debt and unrestricted cash balances at year-end of US$57.6 million, of which all but $14.1 million was held in US dollars. There were additional restricted cash balances of $12.0 million (2008: $13.2 million), held as collateral for decommissioning liabilities aggregating $31.6 million (2008: $26.3 million), all of which related to the US assets. The increase in decommissioning liabilities arises from an increase in future cost estimates and the use of a lower discount rate than last year. Trade and other receivables increased to $21.9 million (2008: $15.5 million), owing to timing differences in the receipt of cost recovery payments in Syria.

No hedges against oil and gas price movements were in place at year-end or during the year.

Syria

Income Statement

Working interest production averaged 6,249 bopd in 2009 (2008: 4,494 bopd, measured from the start up of Syrian production in July 2008), all of which was oil. Entitlement production amounted to 3,367 bopd (2008: 2,655 bopd). The average sales price was $57.3/bbl, representing a $4.4/bbl discount over average Brent (2008: $61.1/bbl, representing a $10.9/bbl discount). Having been in excess of $12.0/bbl at the beginning of the year, the discount to Brent narrowed during 2009 and during the second half averaged $3.3/bbl, or 4.7% in percentage terms.

Revenues increased by 177% to $70.5 million (2008: $25.5 million). Cost of sales increased to $15.1 million (2008: $4.1 million), of which production costs were $2.3 million (2008: $ 0.5 million), transportation costs were $ 2.9 million (2008: $0.8 million), and depletion charges accounted for $9.9 million (2008: $2.8 million). Unit production costs per working interest barrel were $1.01/bbl, similar to 2008 ($0.71/bbl).  Administrative expenses were up by 123% to $6.9 million (2008: $3.1 million), owing to higher staff and local office costs and the Group ceasing to capitalise a portion of overheads in Syria upon the declaration of commerciality of the Khurbet East field in 2008.

The Syrian operations recorded a net profit of $48.4 million, an increase of 164% over the $18.3 million recorded in 2008.

Cash Flow

Cash from operations was $54.4 million, and included $5.6 million in sales proceeds retained from the previous year's production pending the completion of certain assay tests on the Khurbet East oil. Capital expenditure was $22.1 million, including development and inventory expenditure of $16.5 million and exploration of $5.4 million. The net cash surplus for the Syrian operations was $32.5 million.

USA

Income Statement

Production in 2009 averaged 1,144 boepd on a WI basis (883 boepd on an NRI basis), compared with 1,433 boepd (1,095 boepd NRI) in 2008, a drop of 20%, owing to the continued shut-in of production for most of the year as a consequence of damage to third party infrastructure caused by the 2008 hurricanes. The composition of 2009 WI production was 51% gas (3,526 mcfd), 44% oil (503 bopd) and 5% NGLs (2,217 galls/d). Average sale prices were significantly down on 2008 levels: we received an average of $3.9/mcf for our gas (2008: $9.4/mcf) and $60.5/bbl for our oil (2008: $102.3/bbl). Gas sales prices were in line with the Henry Hub marker price but oil sales prices were $2.3/bbl below WTI because of a pipeline charge connected with the Eugene Island properties that was deducted from revenues.

As a result revenues were down by half on the prior year at $13.9 million (2008: $28.1 million). Cost of sales however reduced by only 2% to $22.8 million (2008: $23.3 million), which resulted in a gross loss, after hurricane expenses, of $11.2 million (2008: gross profit of $2.1 million).

Within cost of sales, non-cash items amounted to $8.8 million (2008: $7.0 million), comprising depletion of $2.4 million (2008: $5.4 million) and an impairment charge of $6.4 million (2008: $1.7 million). Impairment charges have occurred as a result of a combination of lower forecast gas prices in future years and increased estimates of the present value of future decommissioning liabilities. Hurricane repair costs (net of expected insurance recoveries of $1.1 million) were $2.3 million (2008: $2.8 million), other repair and workover costs were $3.5 million, decommissioning costs expensed (in excess of existing provisions) were $0.7 million (2008: $3.0 million) and the balance was general lease operating expenses.

Administrative expenses were $2.7 million (2008: $3.2 million) and the non-cash charge to unwind the discount on the decommissioning provision was $1.1 million (2008: $1.7 million), resulting in a loss for the year before interest of $14.2 million (2008 as restated: loss of $0.3 million).

Cash Flow

Cash flow from operations was negative to the tune of $5.1 million. $2.1 million of decommissioning costs were paid (2008: $5.6 million), which was partially funded by a release of $1.2 million (2008: $2.9 million) of cash held in escrow. Capital expenditure was $3.4 million, largely comprising $1.5 million for a recompletion on the Eugene Island 32 property and $0.9 million on drilling the B-8 Side Track on the West Cameron 498 property. The net cash deficit for the year for the US operations was $13.0 million, which was funded by an increase in the loan from the parent company.

Prior Year Restatement

Following the prior year restatements contained in the 2008 financial statements, a full internal assessment was undertaken in 2009 of the accounting systems and processes of Gulfsands USA, involving external consultants. This has resulted in a number of changes to the accounting software and to internal processes and procedures, and certain staff changes within the accounts department. As part of this process it came to light that over a number of years up to 2008, certain items of expenditure had been erroneously classified as capital items when they should have been charged to the income statement as operating expenses. The aggregate amount so misclassified over the years was $9.7 million, most of which related to financial years up to and including 2007. The restatement of prior years' accounts has resulted in reductions to fixed assets (and thereby to depletion and impairment charges) and a corresponding increase in operating expenses. Because of certain timing differences, the reduction in impairment charges in 2008 more than offset the increase in operating expenses, resulting in a $4.3 million reduction in the 2008 loss before interest and tax to a loss of $1.1 million (previously reported a loss of $5.4 million).

Financial Risk Management

The financial risks concerning the group comprise pricing risk, currency risk, liquidity risk and access to capital.

Pricing risk arises because all of the Group's oil and gas production is sold under short term pricing arrangements and so the Group is exposed to movements in oil and gas prices. To date this exposure has not been hedged since the Board has taken the view that the Group's cash flow is sufficient to bear any reasonably foreseeable downturn in prices without affecting our core business. However this policy is kept under frequent review.

Currency risk arises because the Group's sales are denominated in US dollars but a proportion of its expenses are in euro (some procurement costs) and sterling (head office costs). The risk is mitigated by retaining a proportion of our cash resources in these currencies.

Liquidity risk concerns the Group's ability to access funds to meet its obligations as they fall due. Our policy is to maintain sufficient cash balances and readily realisable investments for this purpose, given that the Group has no bank lines of credit available to it. Sums in excess of what is needed to meet near-term obligations are invested in a money market fund which holds a diverse portfolio of short-term financial instruments rated A1 or better, resulting in a greater spread of risk and an improved return compared with what we would otherwise be able to achieve. It is the Board's intention to seek to put in place one or more bank credit lines as and when Syrian country risk becomes more readily acceptable in the international banking market.

Access to capital depends on conditions prevailing in the equity market for independent E & P companies generally and the sentiment among the Group's shareholders in particular. Considerable efforts have been devoted in 2009 to communicate with our shareholders, to cultivate new investors and to build relationships with research analysts and equity sales desks at brokerage houses, in order to widen the following of Gulfsands by the investment community generally.

Andrew Rose

Chief Financial Officer

29 March 2010

CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2009
				2009		2008 (restated)
		Notes		$'000		$'000
Revenue		3		84,415		53,600
Cost of sales
Depletion				(12,289)		(8,165)
Impairment				(6,420)		(1,655)
Other costs of sales				(19,250)		(17,567)
Total cost of sales				(37,959)		(27,387)
Gross Profit				46,456		26,213
General administrative expenses				(14,947)		(13,033)
Foreign exchange gains / (losses)				538		(4,729)
Share based payments				(1,124)		(12,572)
Total administrative expenses				(15,533)		(30,334)
Other operating expenses - hurricane repairs				(2,316)		(2,750)
Operating profit / (loss)				28,607		(6,871)
Discount expense on decommissioning provision				(1,056)		(1,667)
Net interest income				293		1,229
Profit / (loss) before taxation				27,844		(7,309)
Taxation				(12)		1,932
PROFIT/(LOSS) FOR THE YEAR - attributable to equity holders of the company				27,832		(5,377)
Earnings/(loss) per share (cents):
Basic		4		23.32		(4.65)
Diluted		4		23.06		(4.65)

CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2009
				2009		2008 (restated)		2007 (restated)
		Notes		$'000		$'000		$'000
ASSETS
Non-current assets
Property, plant and equipment				82,569		77,055		42,631
Intangible assets				7,091		343		28,593
Long term financial assets				11,990		13,167		16,078
				101,650		90,565		87,302
Current assets
Inventory-materials				4,165		2,401		-
Trade and other receivables				21,867		15,536		11,154
Cash and cash equivalents				57,623		36,812		18,533
				83,655		54,749		29,687
Total Assets				185,305		145,314		116,989
LIABILITIES
Current liabilities
Trade and other payables				13,411		11,245		6,672
Provision for decommissioning				3,683		5,877		10,952
				17,094		17,122		17,624
Non-current liabilities
Deferred tax liabilities				-		-		1,932
Provision for decommissioning				27,937		20,430		16,824
				27,937		20,430		18,756
Total Liabilities				45,031		37,552		36,380
NET ASSETS				140,274		107,762		80,609
EQUITY
Capital and reserves attributable to equity holders
Share capital		5		12,971		12,814		11,997
Share premium				101,929		98,530		79,389
Share-based payments reserve				15,429		14,305		1,733
Merger reserve				11,709		11,709		11,709
Retained losses				(1,764)		(29,596)		(24,219)
TOTAL EQUITY				140,274		107,762		80,609

CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2009
				2009		2008 (restated)
				$'000		$'000
Cash flows from operating activities
Operating profit / (loss)				28,607		(6,871)
Depreciation, depletion and amortisation				12,781		8,351
Impairment charge				6,420		1,655
Decommissioning costs paid in excess of provision				696		2,987
Share-based payment charge				1,124		12,572
(Profit) / Loss on disposal of assets				(284)		9
Increase in receivables				(6,239)		(4,066)
Increase in payables				198		4,672
Net cash provided by operations				43,303		19,309
Interest received				293		1,229
Taxation paid				(66)		(524)
Net cash provided by operating activities				43,530		20,014
Investing activities
Exploration and evaluation expenditure				(5,358)		(1,762)
Oil and gas properties expenditure				(18,082)		(13,952)
Increase in inventory				(1,764)		(2,401)
Disposal of oil and gas assets				455		-
Other capital expenditures				(630)		(923)
Change in long term financial assets				1,177		2,911
Decommissioning costs paid				(2,073)		(5,566)
Net cash used in investing activities				(26,275)		(21,693)
Financing activities
Cash proceeds from issue of shares				3,556		19,958
Net cash provided by financing activities				3,556		19,958
Increase in cash and cash equivalents				20,811		18,279
Cash and cash equivalents at beginning of year				36,812		18,533
Cash and cash equivalents at end of year				57,623		36,812

NOTES

1.   Basis of preparation and accounting policies

The financial information set out in this document does not constitute the company's statutory accounts for the years ended 31 December 2009 or 2008, but is derived from those accounts. Statutory accounts for 2008 have been delivered to the Registrar of Companies and those for 2009 will be delivered following the company's Annual General Meeting. The auditors have reported on those accounts: their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498 (2) or (3) Companies Act 2006 or equivalent preceding legislation.

Whilst the financial information included in this preliminary announcement has been completed in accordance with International Financial Reporting Standards ("IFRS"), this announcement does not itself contain sufficient information to comply with IFRS. The Company expects to publish full financial statements that comply with IFRS in its Annual Report and Accounts 2009.  A copy of the 2009 Annual Report and Accounts may be downloaded from the Group's website www.gulfsands.com.

The financial information has been prepared in accordance with the going concern basis of accounting. The use of this basis of accounting takes into consideration the Group's current and forecast financing position, additional details of which are provided in the 2009 Annual Report and Accounts.

2.  Correction of errors in prior periods

The Group has restated the Income statements, Balance sheets and Cash flow statements as reported for prior periods. In prior periods the Group had erroneously classified certain repair costs as capital expenditure for its Gulf of Mexico assets for the periods ended 31 December 2006 to 31 December 2008. As a consequence depletion, impairment costs and other costs of sales recorded in these periods have been misstated. Further details of these restatements are shown in note 30 to the audited Annual Report & Accounts which is available to download from the Group's website www.gulfsands.com. In addition the Group has restated certain cash flows relating to capital investments from operating activities to investing activities within the Consolidated cash flow statement.

3.  Segmental information

There are two reportable segments, the USA and Syria. Both segments are involved with production and exploration of oil and gas.

The Group revenue and results for the year is analysed by reportable segment as follows:

		2009
		USA		Syria		Other		Total
		$'000		$'000		$'000		$'000
Revenues from external parties		13,962		70,453		-		84,415
Inter-segment revenue		648		-		382		1,030
Total segment revenue		14,610		70,453		382		85,445
Depletion charges		(2,372)		(9,917)		-		(12,289)
Impairment		(6,420)		-		-		(6,420)
Hurricane repairs		(2,316)		-		-		(2,316)
Other costs of sales		(14,023)		(5,227)		-		(19,250)
General administrative expenses before
depreciation		(2,670)		(5,467)		(6,317)		(14,454)
Inter-segment administrative expense		-		(1,030)		-		(1,030)
Depreciation and amortisation		(16)		(329)		(148)		(493)
Foreign exchange gains / (losses)		-		(98)		636		538
Share based payments		-		-		(1,124)		(1,124)
Profit / (loss) before interest and taxation		(13,207)		48,385		(6,571)		28,607
Interest expense and unwinding of discount		(1,056)		-		(33)		(1,089)
Interest income from external parties		82		38		206		326
Inter-segment interest		(3,910)		-		3,910		-
Taxation		(10)		(2)		-		(12)
Profit / (loss) for the year		(18,101)		48,421		(2,488)		27,832
		2008 (restated)
		USA		Syria		Other		Total
		$'000		$'000		$'000		$'000
Revenues from external parties		28,121		25,479		-		53,600
Inter-segment revenue		127		-		-		127
Total segment revenue		28,248		25,479		-		53,727
Depletion charges		(5,359)		(2,806)		-		(8,165)
Impairment		(1,655)		-		-		(1,655)
Hurricane repairs		(2,750)		-		-		(2,750)
Other costs of sales		(16,249)		(1,318)		-		(17,567)
General administrative expenses before
depreciation		(3,208)		(3,026)		(6,603)		(12,837)
Inter-segment administrative expense		-		(127)		-		(127)
Depreciation and amortisation		(49)		(124)		(23)		(196)
Foreign exchange gains / (losses)		-		74		(4,803)		(4,729)
Share based payments		-		-		(12,572)		(12,572)
(Loss) / Profit before interest and taxation		(1,022)		18,152		(24,001)		(6,871)
Interest expense and unwinding of discount		(1,668)		-		(3)		(1,671)
Interest income from external parties		464		133		636		1,233
Inter-segment interest		(3,618)		-		3,618		-
Taxation		1,932		-		-		1,932
(Loss) / Profit for the year		(3,912)		18,285		(19,750)		(5,377)

Central costs have not been apportioned to the reportable segments and are included within 'Other' above. 

4.   Earnings per share   

The basic and diluted earnings per share have been calculated using the earnings for the year ended 31 December 2009 of $27,832,000 (2008 loss (restated): $5,377,000).  The basic earnings per share was calculated using a weighted average number of shares in issue of 119,334,527 (2008: 115,520,651). The weighted average number of ordinary shares, allowing for the exercise of share options, for the purposes of calculating the diluted earnings per share was 120,681,343 (2008: 115,520,651).   

5.   Share capital

Group and Company

				2009 Number		2008 Number
Authorised:
Ordinary shares of 5.714 pence each				175,000,000		175,000,000
				2009		2008
				$'000		$'000
Allotted, called up and fully paid:
120,222,500 (2008 - 118,522,500) ordinary shares of 5.714 pence each				12,971		12,814
The movements in share capital and share options were:
		Weighted average exercise price of options		Number of share options		Number of ordinary shares
At 1 January 2009		£1.64		10,165,000		118,522,500
Share options exercised for cash		£1.31		(1,700,000)		1,700,000
Share options lapsed		£1.86		(40,000)		-
Share options issued		£1.87		385,000		-
At 31 December 2009		£1.71		8,810,000		120,222,500

Glossary of terms

A glossary of terms may be found in the annual report which is available to download at Gulfsands Petroleum plc www.gulfsands.com

 

END

 

 

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