Interim Results

RNS Number : 7759S

Gulfsands Petroleum PLC

16 September 2010

 



16 September, 2010

 Gulfsands Petroleum plc

Half-Yearly Financial Report

SIX MONTHS TO 30 JUNE 2010

Unaudited

Half-Yearly Results for the Six Months Ended 30 June 2010

HIGHLIGHTS

Strategic

·    Entry by farm-in to ADX Energy's two permits in Tunisia and one permit in Italy

Operations

·    Average Group working interest production 9,689 boepd vs. 6,165 boepd in H1 2009

·    Syrian working interest production in August averaged 9,600 bopd vs. 8,255 bopd in Jan 2010

·    2 exploration wells and 4 development wells drilled in Syria

·    Lambouka 1 gas discovery in Tunisia

Financial

·    Revenue up by 81% to $52.5 million (H1 2009: $29.0 million)

·    Profit after tax up nearly five times to $18.7 million (H1 2009 : $3.9 million)

·    Net Cash from Operating Activities nearly tripled to $27.9 million (H1 2009: $9.8 million)

·    US operations made small operating profit before impairment charges vs. loss in H1 09

·    Cash balance at period end of $68.6 million (31.12.09 : $57.6 million). No debt

Outlook

·    4 more exploration wells before year-end : 3 in Syria and 1 in Tunisia

·    Expect to award contract to build Khurbet East central production facility by end of year

·    Continuing to seek new business opportunities in Syria and elsewhere in MENA region

Gulfsands' Chairman, Andrew West, said:

"During the first half of the fiscal year Gulfsands has consolidated a solid financial and strategic platform for its future growth.  We will continue to maximise the value from our existing assets with a comprehensive drilling campaign in Syria over the next few months, whilst pursuing other opportunities to take the business to its next phase of strategic development."

For further information please contact:

Gulfsands Petroleum (London)

Richard Malcolm, Chief Executive Officer

Andrew Rose, Chief Financial Officer

Kenneth Judge, Director of Corporate Development

[phone]

Buchanan Communications Limited (London)

Bobby Morse Ben Romney

Chris McMahon

[phone]

RBC Capital Markets (London)

Josh Critchley

Matthew Coakes

Martin Eales

[phone]

These half-yearly results, together with a copy of the presentation to be given to analysts at 9.30am today and a webcast thereof, can be viewed on http://mediaserve.buchanan.uk.com/2010/gulfsands160910/registration.asp and a recording will be available on the Gulfsands' website: www.gulfsands.com thereafter.

CHAIRMAN'S STATEMENT

Dear Shareholder,

It gives me pleasure to report another six months of solid progress in the affairs of Gulfsands Petroleum, the highlights of which include a fivefold increase in net profit to approximately $19 million, an increase in net cash (excluding escrow balances) to $68.6 million and an increase in working interest daily production to approximately 11,500 boepd as at time of writing. Without question Gulfsands has now developed into a highly profitable and fast growth oil and gas company.

It is particularly pleasing that our Gulf of Mexico interests made a small contribution at the operating profit level (before impairment charges) for the six months against a loss in the same period last year.  Our strategy of "husbanding" these assets for eventual disposal remains unchanged; recent events elsewhere in the Gulf of Mexico do, of course, mean that the timing and terms of disposal remain matters of considerable uncertainty.

Our entry into Tunisia marks the first tangible step in our strategy to expand our E & P activities into other promising markets in the Middle East/North Africa ("MENA") region, where we feel we have a significant competitive advantage.  We are pleased with the terms on which we were able to secure this participation, with limited cost yet considerable upside should we have any drilling success.  The results of the Lambouka-1 offshore well, just released at the time of writing, are less conclusive than we might have wished for but offer a modestly encouraging early prognosis. We look forward to drilling the next well in Tunisia, which will be onshore, during the fourth quarter.

In Syria we continue aggressively to pursue exploration activities both within our existing Block 26 and outside it. The exploration drilling campaign will continue through this year with three more wells scheduled in 2010 and a further five exploration wells anticipated in 2011. We are also participating in the licensing round currently underway in Syria and will be keeping shareholders informed as to developments.

On the field development front, we now expect to award the tender for the Khurbet East Central Production Facility during the second half of the year.  This process has taken longer than we originally hoped and planned.  However, the consequences of the delay to the tendering process are mitigated significantly by the way in which we have been able to increase production from the Early Production Facility considerably beyond its nameplate capacity.  The security of this existing production will in turn be much enhanced by the dedicated pipeline which is now very close to completion, and which will eliminate our dependence upon trucking.

Although we are not yet at a stage to say anything specific on the public record, numerous initiatives are currently underway designed both to promote our long term strategic objectives in Syria, Iraq and the wider MENA region and to exploit the very considerable operational credibility and political capital we have established in the region.  You may be assured that your management team is leaving no stone unturned in this regard.  The particular challenges and difficulties which pertain to the MENA region and to those who seek to do business therein are self-evident.  It is not possible to predict with certainty either the success or the timing of success of individual initiatives.  However, the opportunities for substantial profit and transformational growth are undoubted.  I am confident that, over the coming months, the Group's new business activities will culminate in one or more tangible developments of real strategic value.  Nor am I aware of any other E&P company of our size which is better positioned - financially, operationally or politically - to capitalise upon such opportunities. 

My Board colleagues and I look to the coming months with eager anticipation.

Yours sincerely,

Andrew West

Chairman

15 September 2010

CHIEF EXECUTIVE'S STATEMENT

The Group has delivered a solid performance in the first half of 2010 with Group working interest production averaging 9,689 barrels of oil equivalent per day ("boepd"), an increase of 56% compared to the same time last year. This performance is reflected in a pleasing financial result with revenues up by 81% to $52.5 million and profit after tax of $18.7 million, nearly five times that in the first half of 2009. 

In Syria, production from the Yousefieh oil field commenced in April 2010 and, together with production from the Khurbet East oil field, reached a gross production milestone of 10 million barrels by the end of July, just two years after production start-up. Two of the three wells drilled at Khurbet East and one well at Yousefieh were successfully completed as producers.  Two of the four originally planned 2010 exploration wells have also been drilled so far this year, but with disappointing results. This outcome however does not reflect the highly prospective nature of Block 26, as our exploration commercial success rate in Block 26 stands at a healthy ratio of one in three wells drilled.

The US business made a small operating profit before impairment in the first half compared to a loss in the same period in 2009, but the result is below expectation as a result of lower than anticipated production rates. Our intention remains to sell this business in its entirety, but we believe it is prudent to wait until the post-Macondo regulatory environment in the Gulf of Mexico is more stable before commencing this process. In the meantime, efforts are being made to opportunistically rationalise our portfolio: we sold a small package of assets in the first half of the year and negotiations are currently in train to sell a further such package following an approach from a third party. We are also aiming to restore production to near historic levels through selective investment in workovers and new drilling opportunities.

As part of our growth strategy in the MENA region, we have farmed into two permits in Tunisia, one offshore with 30% interest and one onshore with 40% interest, both of which have an exploration prospect to be drilled in 2010.  This entry into Tunisia delivers a potential new opportunity set for the Company at a low entry cost and includes operatorship of the onshore block in a success case.  Offshore, drilling of the Lambouka Prospect has resulted in the discovery of gas in the Aboid carbonate reservoir. The well has been suspended to be re-entered at a later date in order to drill a side-track hole up-dip of the discovery well and to flow-test it, an operation that could not be undertaken in the discovery well due to down-hole operational issues. The offshore permit also holds a significant existing gas/condensate resource discovered at Dougga-1 in 1981.

Business development activities in Iraq, in particular the Maysan Gas Project, have stalled as a result of the protracted political process to appoint a new prime minister and government.

Outlook

Going forward, we will continue to explore aggressively and to pro-actively seek new opportunities in the MENA region to build value for shareholders, aided by our strong financial position with no debt and a cash balance at the half year point of $68.6 million.

In Syria, following the relinquishment of 25% of Block 26, we have approximately two years remaining to fully explore, drill prospects and appraise discoveries before the exploration licence lapses in August 2012.  This effort will remain the primary focus of the Group.  Given the highly prospective nature of the block, a second drilling rig has been contracted, commencing late September, that will allow the drilling of an additional exploration well this year (making five in total, one more than originally planned). This will be followed by the drilling of a deep appraisal well to evaluate the commercial significance of hydrocarbons encountered in the Triassic Butmah and Kurrachine Dolomite Formations by the Khurbet East-1 discovery well in 2007. We are also taking part in the current license bid round in Syria, which closes in December 2010.

Completion of a 22 kilometre 8-inch pipeline to the SPC-operated export facilities is anticipated in late September and will precipitate the closure of our trucking operation and debottlenecking of oil production at the Early Production Facility.  Selection of a contractor to build the Central Production Facility, planned to have an oil production capacity of 33,000 barrels per day and with water handling capacity, has been delayed as a result of tender process issues. It is now anticipated that a contract will be awarded by the end of 2010, with commissioning anticipated by the end of 2012.

The next two years will be an active and exciting period for us and we move forward with great enthusiasm and optimism.

Operations Review

Production and sales prices (excluding NGLs)

		Working interest production		Entitlement production		Average sales price		Premium / (discount) to Brent	Premium / (discount) to Henry Hub
		Oil	Gas	Oil	Gas	Oil	Gas
		bopd	mcf/d	bopd	mcf/d	US$/bbl	US$/mcf	US$/bbl	US$/mcf
Six months ended 30 June 2010
Syria		8,412	-	3,264	-	71.5	-	(5.8)	N/A
USA		514	4,231	397	3,267	75.1	5.9	(2.3)	1.1
Total		8,927	4,231	3,661	3,267
Six months ended 30 June 2009
Syria		5,087	-	2,998	-	44.0	-	(7.7)	N/A
USA		501	3,193	393	2,504	46.4	4.0	(5.3)	(0.1)
Total		5,588	3,193	3,391	2,504
Year ended 31 December 2009
Syria		6,249	-	3,367	-	57.3	-	(4.4)	N/A
USA		503	3,526	399	2,669	60.5	3.9	(1.2)	(0.1)
Total		6,752	3,526	3,766	2,669

Syria

Gross production from Block 26 increased from approximately 16,547 bopd in January 2010 (all Khurbet East) to 19,209 bopd in August (17,419 bopd from Khurbet East and 1,790 bopd from Yousefieh), as a result of the tie-in of a new production well on Khurbet East and the start up of Yousefieh production in April. The Khurbet East reservoir in particular has continued to demonstrate strong aquifer support, with only 12 psi of reservoir pressure depletion since the start of production two years ago. Water production from both fields is still negligible. Gulfsands' share of Block 26 production, to its 50% working interest, averaged 8,412 bopd in H1 2010 compared with 5,087 bopd in H1 2009, an increase of 66%.

Two horizontal production wells, KHE-15H and 17H, were drilled on Khurbet East. KHE-15H was drilled with a 210 metre horizontal section in just 19 days at a gross cost of below $2.0 million (Gulfsands share below $1.0 million), and has produced at a rate of approximately 2,500 bopd since tie-in in June, allowing production rates from other wells in the field to be reduced for reservoir management purposes. KHE-17H will not be tied in until late September after the 8 inch pipeline is in operation, due to capacity constraints at the early production facility. The pipeline has been completed and is expected to commence operations imminently. KHE-16, a vertical delineation well located 1.5km north-east of the KHE-1 discovery well, was drilled to assess the potential for the field to extend in this direction. It encountered 9 metres of high quality reservoir some 39 metres deeper than pre-drill prognosis, and flowed water to surface. The well has been suspended and studies will be carried out to determine the effect, if any, on the oil-in-place and reserves of the field.

On Yousefieh, the Y-4H horizontal production well was drilled in August to a measured depth of 2,817 metres, and included a net reservoir pay section of 710 metres, by some way the longest horizontal producing section drilled to date by Gulfsands. The well is currently awaiting delivery of a flowline prior to hook-up for production testing operations.

The year began with the drilling of two exploration wells, Zaman and Hanoon, each targeting the same Massive formation as is the source of production for Khurbet East and Yousefieh oil fields. Zaman, located 4.5 km to the south of the Khurbet East field, encountered 4 metres of good quality oil bearing reservoir, but flowed only water. The well was suspended as a potential future water disposal well. Hanoon, located 8 km north of Khurbet East, found evidence of oil in the target formation, but the reservoir consisted of tight dolomite and limestone, resulting in testing recovering only non-commercial amounts of oil to surface.

In August, a seismic acquisition programme started that will cover an area of 1,025km² adjacent to the west of the existing greater Khurbet East seismic area. Processed data is expected to be available in Q1 2011, and will result in a total contiguous area of 3D seismic data in excess of 2,200 km². Also in August the last 25% of the original area of Block 26 was relinquished, leaving a total remaining exploration area of 5,414 km².

USA

Working interest production in H1 2010 was 1,277 boepd, of which 572 bopd was oil & Natural Gas Liquids ("NGLs") and the rest gas, an increase of 18% over H1 2009 (1,078 boepd). Production during the period peaked at over 1,600 boepd in March but declined thereafter owing to downtime for maintenance operations and the deferral by operators of planned workovers because of the economic impact of low gas prices. Since the end of the period production has picked up again as wells have come back on line, and is currently running at approximately 1,400 boepd.

Operational activity was primarily aimed at maintaining or increasing production from oil producing assets, with major workovers of existing wells at Eugene Island 32, re-completions at West Delta 59 and reservoir stimulation programmes at Vermillion 379.  Planned drilling activity at Eugene Island 32 has been deferred until late in Q4 2010.

The sale of the South Pass 49 and South Marsh Island 234/235 properties brought in $1.1 million in cash and negotiations are in progress to sell a further package of assets. If concluded, this would provide sufficient cash from the sale proceeds and the release of escrow deposits, currently backing abandonment bonds, to allow us to fully fund the planned drilling activity without recourse to other Group funds.

Tunisia

Gulfsands is completing the acquisition of working interests in two exploration permits in Tunisia (40% in Chorbane and 30% in Kerkouane permits) and one exploration permit in Southern Italy (Pantelleria).

In April 2010, a 3D seismic survey of 640 km² was acquired over the Lambouka prospect area of the Kerkouane and Pantelleria permits in Tunisia and Italy respectively.  Interpretation of this data provided additional confidence in the validity of the Lambouka structure and drilling commenced on 11 July using Atwood's "Southern Cross" semi-submersible drilling unit. Gas was discovered in carbonate reservoirs of the Aboid Formation, but as a result of down-hole operational issues, no pressure measurements or testing of the formation were possible. The well has now been suspended to be re-entered at a later date in order to drill a side-track hole and test the up-dip prospectivity of the existing gas discovery.

Drilling of the Sidi Daher Prospect in the onshore Chorbane permit is planned for late in Q4 2010.  The prospect has mean unrisked speculative resources of 60 mmboe and is planned to be drilled to a depth of approximately 2,150 metres for an estimated gross cost of approximately $5.6 million (Gulfsands share $4.5 million). 

Richard Malcolm

Chief Executive Officer

15 September 2010

Financial Review

Key performance indicators

			Six months ended 30 June 2010	Six months ended 30 June 2009 (restated)		Increase / (decrease) from H1 2009 to H1 2010	Year ended 31 December 2009
Financial KPIs
Working interest production	mmboe		1.8	1.1		58%	2.7
Production cost per barrel (working interest)	$/bbl		4.5	7.2		-37%	6.9
Cash flow available for exploration	$mm		21,317	(1,464)		n/a	22,613
Earnings per share	US cents		15.1	3.2		368%	23.1
Underlying reserves growth	%		n/a	n/a		n/a	75%
Non-financial KPIs
Lost time incidents	Number		None	None		n/a	None

Selected Financial Data

	Six months ended 30 June 2010	Six months ended 30 June 2009	Year ended 31 December 2009
	mmboe	mmboe	mmboe
Production: working interest	1.8	1.1	2.7
Production: entitlement interest	0.8	0.7	1.6
	US$MM	US$MM	US$MM
Revenue	52.5	29.0	84.4
Gross profit	33.0	13.5	46.5
Operating profit	19.3	4.0	28.6
Net profit after tax	18.7	3.9	27.8
Net cash provided by operating activities	27.9	9.8	43.5
Capital expenditure	(17.9)	(14.7)	(25.8)
Decommissioning costs (net of escrow cash released)	(1.1)	0.4	(0.9)
Cash balance	68.6	31.9	57.6

The H1 09 results have been restated to reflect minor prior year adjustments made in the financial statements for the year end 31 December 2009. Adjustments were made to re-categorise certain items previously classed as capital expenditure as operating expenditures. These adjustments, principally affecting 2008 and prior years, are more fully described in note 12 to the Half-Yearly Financial Report.

Revenue and Profit

Revenues grew by 81% to $52.5 million (H1 09: $29.0 million), reflecting increases in underlying oil and gas prices, an increase in entitlement production and a profit on the disposal of certain Gulf of Mexico properties of $1.1 million. Average working interest production in H1 10 was 9,632 boepd (8,412 bopd from Syria, 1,277 boepd from the US) compared with 6,165 boepd in H1 09 (5,087 bopd from Syria and 1,078 boepd from the US). Group entitlement production was 4,250 boepd, an increase of 11% over that in H1 09 (3,841 boepd). The entitlement production as a percentage of working interest production in Syria decreased from 59% in H1 09 to 39% as the Group has now recovered all historic costs associated with the initial exploration phase of the Block 26 Production Sharing Agreement. All production was sold in the period.

Revenue includes a profit on disposal of the South Pass 49 and South Marsh Island 234 / 235 properties in the Gulf of Mexico of $1.1 million.

The average realised price during the period was $71.8/bbl for oil sales and $5.9/mcf for gas. Syrian oil production realised an average price of $71.5/bbl, representing a $5.8/bbl discount to average Brent. US oil sales yielded an average price of $75.1/bbl, a $3.2/bbl discount to the average WTI price of $78.3/bbl. This discount mainly reflects a $7/bbl transportation tariff netted from our sales proceeds on the Eugene Island 32 property. The US gas sales realised $5.9/mcf, a premium to the average Henry Hub price of $4.7/mcf which reflects adjustments to prices achieved in prior periods. Excluding the effect of these items the Group sold its natural gas at an average premium to Henry Hub of approximately $0.2/mcf.

Excluding depletion and impairment charges, cost of sales increased marginally from $8.2 million in H1 09 to $8.3 million. The total production cost, excluding decommissioning costs, fell to $4.5/boe from $7.2/boe in H1 09 when calculated on a working interest basis. The cost of sales in Syria on the same basis was $1.7/bbl in H1 10. Depletion charges increased by 39% to $7.6 million (H1 09: $5.5 million): the unit depletion charge per boe on an entitlement interest basis increased to $9.6/boe from $7.9/boe in H1 09, predominantly reflecting increased expected costs of field development in Syria. An impairment charge of $3.6 million was made against certain US oil and gas properties which are subject to current sale negotiations, to write their carrying value down to their expected sale value. The resultant gross profit of $33.0 million was two and a half times that of H1 09 ($13.5 million).

General administrative expenses were $11.9 million compared to $7.5 million in H1 09, an increase of $4.4 million, owing to $1.4 million of staff and directors bonuses, $0.5 million of one-off costs connected with the unsuccessful bid approach for the Company in H1 10 and $2.3 million relating to one-off costs in Syria.

H1 09 included a charge for repairs to equipment following the 2008 hurricanes in the US Gulf of Mexico of $1.9 million. At 31 December 2009 an amount of $1.1 million was included as a receivable for an insurance claim that has now been agreed by the underwriters at $1.3 million and accordingly the income statement for H1 10 includes a credit of $0.2 million.

The operating profit for the period was $19.3 million compared with $4.0 million in H1 09. Syria made an operating profit of $28.5 million (H1 09 $15.6 million), the US made a loss of $2.4 million (H1 09 loss of $8.1 million), and general Group expenses were $6.7 million (H1 09 $3.3 million).

Financial Position and Cash Flow

Net cash provided by operations was $27.4 million compared with $9.5 million in H1 09. Working capital balances increased by approximately $3.7 million due primarily to a small increase in the payment period for our oil sales in Syria as a result of having reached full cost recovery. After interest and tax, the net cash from operating activities amounted to $27.9 million (H1 09: $9.8 million).

Capital expenditure was $18.9 million (H1 09: $16.2 million) of which $8.6 million was in Syria, $8.9 million was in Tunisia and $0.4 million was in the US. In the US sales proceeds of $1.1 million were received following the sale of properties and decommissioning payments of $1.1 million (H1 09: $0.6 million) were made. A further $1.0 million was placed into an escrow account to secure foreign exchange forward trading facilities.

The Group received $2.0 million as a result of the exercise of options during the period (H1 09 $1.5 million). Overall the Group increased its cash balances over the period by $10.9 million (H1 09 $4.9 million decrease), leaving cash balances at 30 June 2010 of $68.6 million (excluding $13.0 million of cash held in escrow accounts). The Group has no outstanding debt.

Risk management

A full review of the principal risks and uncertainties facing the Group and the steps taken to mitigate those risks and uncertainties is included in the 2009 Annual Report and Accounts. The Directors do not consider that the nature or exposure to these risks and uncertainties has changed significantly since the preparation of the 2009 Annual Report and Accounts.

The principal risks and uncertainties faced by the Group include the following:

External risks	Operational risks	Financial risks
Political interference	Oilfield accident	Cost control
Act of war or terrorism	Natural disaster	Liquidity and funding
Price and currency movements	Exploration failure
Retention of key staff	Partner approval	Reputational risks
	Equipment availability	Fraud and corruption

Going Concern

The Group had cash and bank balances available for immediate use of over $65 million at 30 June 2010 and no debt. Having reviewed the Group's forecasts for the period to 31 December 2011 and after making enquiries, the Directors expect the Group to remain cash positive throughout the period and have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Consequently the Directors believe that the Group is able to manage its financial and operational risks and, accordingly, they continue to adopt the going concern basis in preparing the Half-Yearly Financial Report.   

Andrew Rose

Chief Financial Officer

15 September 2010

INDEPENDENT REVIEW REPORT TO GULFSANDS PETROLEUM PLC

We have been engaged by the Company to review the condensed set of financial statements in the half year financial report for the six months ended 30 June 2010 which comprises the condensed consolidated income statement, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity, the condensed consolidated cash flow statement and related notes 1 to 13. We have read the other information contained in the half year financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half year financial report is the responsibility of, and approved by, the directors. The directors are responsible for preparing the half year financial report in accordance with the AIM rules of the London Stock Exchange.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half year financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting" as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half year financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. 

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half year financial report for the six months ended 30 June 2010 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the AIM rules of the London Stock Exchange.

Deloitte LLP

Chartered Accountants and Statutory Auditors

London, United Kingdom

15 September 2010

CONDENSED CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2010

			6 months ended		Year ended
			30 June 2010	30 June 2009	31 December 2009
			(Unaudited)	(Unaudited and restated*)	(Audited)
		Notes	$' 000	$' 000	$' 000
Revenue		2	52,492	28,981	84,415
Cost of sales
	Depletion	4 & 5	(7,575)	(5,467)	(12,289)
	Impairment	4	(3,646)	(1,741)	(6,420)
	Other cost of sales		(8,256)	(8,242)	(19,250)
	Total cost of sales		(19,477)	(15,450)	(37,959)
Gross profit			33,015	13,531	46,456
	General administrative expenses		(11,902)	(7,534)	(14,947)
	Foreign exchange (losses) / gains		(882)	720	538
	Share based payments		(1,156)	(743)	(1,124)
	Total administrative expenses		(13,940)	(7,557)	(15,533)
	Other operating expenses - hurricane repairs		191	(1,934)	(2,316)
Operating profit			19,266	4,040	28,607
	Discount expense on decommissioning provision	9	(625)	(525)	(1,056)
	Net interest income		73	341	293
Profit before taxation			18,714	3,856	27,844
	Taxation		18	-	(12)
PROFIT FOR THE PERIOD		2	18,732	3,856	27,832
Earnings per share (cents):
Basic		3	15.49	3.25	23.32
Diluted		3	15.09	3.23	23.06

* See note 12.

The results shown above relate entirely to continuing operations. Comprehensive income for all periods shown relates solely to the profit or loss shown above.

CONDENSED CONSOLIDATED BALANCE SHEET

AS AT 30 JUNE 2010

			30 June 2010	31 December 2009
			(Unaudited)	(Audited)
		Notes	$' 000	$' 000
ASSETS
Non-current assets
	Property, plant and equipment	4	77,631	82,569
	Intangible assets	5	17,533	7,091
	Long term financial assets	7	12,991	11,990
			108,155	101,650
Current assets
	Inventory - materials		4,337	4,165
	Trade and other receivables	6	25,036	21,867
	Cash and cash equivalents	7	68,562	57,623
			97,935	83,655
Total Assets			206,090	185,305
LIABILITIES
Current liabilities
	Trade and other payables	8	12,053	13,411
	Provision for decommissioning	9	2,747	3,683
			14,800	17,094
Non-current liabilities
	Provision for decommissioning	9	29,345	27,937
			29,345	27,937
Total Liabilities			44,145	45,031
NET ASSETS			161,945	140,274
EQUITY
Capital and reserves attributable to equity holders
	Share capital	10	13,045	12,971
	Share premium		103,812	101,929
	Share-based payments reserve		16,411	15,429
	Merger reserve		11,709	11,709
	Retained profit / (loss)		16,968	(1,764)
TOTAL EQUITY			161,945	140,274

CONDENSED CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2010

			6 months ended			Year ended
			30 June 2010	30 June 2009		31 December 2009
			(Unaudited)	(Unaudited and restated)		(Audited)
	Notes		$' 000	$' 000		$' 000
Cash flows from operating activities
Operating profit			19,266	4,040		28,607
Depreciation, depletion and amortisation	4		7,886	5,694		12,781
Impairment charge	4		3,646	1,741		6,420
Decommissioning costs paid in excess of provision			358	200		696
Share-based payment charge			982	743		1,124
Profit on disposal of assets			(1,144)	-		(284)
Increase in receivables			(1,382)	(6,153)		(6,239)
(Decrease) / Increase  in payables			(2,184)	3,268		198
Net cash provided by operations			27,428	9,533		43,303
Interest received			73	341		293
Taxation recovered / (paid)			403	(92)		(66)
Net cash provided by operating activities			27,904	9,782		43,530
Investing activities
Exploration and evaluation expenditure	5		(12,335)	(4,923)		(5,358)
Oil and gas properties expenditure	4		(4,770)	(9,196)		(18,082)
Increase in inventory			(172)	(1,826)		(1,764)
Disposal of oil and gas assets			1,100	-		455
Other capital expenditures			(606)	(624)		(630)
Change in long term financial assets			(1,001)	1,047		1,177
Decommissioning costs paid	9		(1,138)	(647)		(2,073)
Net cash used in investing activities			(18,922)	(16,169)	(26,275)
Financing activities
Cash proceeds from issue of shares			1,957	1,467		3,556
Net cash provided by financing activities			1,957	1,467		3,556
Increase / (decrease) in cash and cash equivalents			10,939	(4,920)		20,811
Cash and cash equivalents at beginning of period			57,623	36,812		36,812
Cash and cash equivalents at end of period	7		68,562	31,892		57,623

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 JUNE 2010

	Share capital	Share premium	Share based payments reserve	Merger reserve	Retained profit / (loss)	Total equity
	$'000	$'000	$'000	$'000	$'000	$'000
Six months ended 30 June 2010
At 1 January 2010	12,971	101,929	15,429	11,709	(1,764)	140,274
Options exercised	74	1,883	-		-	1,957
Share -based payment charge	-	-	982	-	-	982
Profit for the period	-	-	-	-	18,732	18,732
At 30 June 2010	13,045	103,812	16,411	11,709	16,968	161,945
Six months ended 30 June 2009
At 1 January 2009 (restated)	12,814	98,530	14,305	11,709	(29,596)	107,762
Options exercised	63	1,404	-	-	-	1,467
Share -based payment charge	-	-	743	-	-	743
Profit for the period (restated)	-	-	-	-	3,856	3,856
At 30 June 2009 (restated)	12,877	99,934	15,048	11,709	(25,740)	113,828

NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2010

1.      Basis of preparation

This half-yearly financial report, which includes a condensed set of financial statements of the Company and its subsidiary undertakings ("the Group") has been prepared using the historical cost convention and in accordance with the recognition and measurement criteria of International Financial Reporting Standards ("IFRS") including IAS 34 'Interim Financial Reporting' as adopted by the European Union ("EU").

This condensed set of financial statements for the six months ended 30 June 2010 is unaudited and does not constitute statutory accounts as defined by the Companies Act. They have been prepared using accounting bases and policies consistent with those used in the preparation of the audited financial statements of the Group for the year ended 31 December 2009 and those to be used in the year ending 31 December 2010. The information for the year ended 31 December 2009 does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006.

The financial statements for the year ended 31 December 2009 have been delivered to the Registrar of Companies and the auditors' report on those financial statements was unqualified, did not draw attention by way of emphasis of matter and did not contain a statement made under Section 498 of the Companies Act 2006.

The following amendments to existing standards and interpretations were effective for the six months ended 30 June 2010, but the adoption of these amendments to existing standards and interpretations did not have a material impact on the financial statements of the Group:

IFRS 3 (revised), Business Combinations

IAS 27 (revised), Consolidated and Separate Financial Statements

The condensed set of financial statements included in this half-yearly financial report has been prepared on a going concern basis of accounting for the reasons set out in the Financial Review section of this report.

This half-yearly financial report was approved by the Board of Directors and authorised for issue on 15 September 2010.

NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2010

2.       Segmental information

For management purposes, the Group operated in three geographical areas, Syria, Tunisia and the USA. All segments are involved with production and exploration of oil and gas.

The Group's revenue and results for the period is analysed by reportable segment as follows: 

	Six months ended 30 June 2010
	Syria		Tunisia		USA		Other		Total
	$' 000		$' 000		$' 000		$' 000		$' 000
Revenues from external parties	42,197		-		9,233		-		51,430
Inter-segment and other income	-		-		1,408		2,115		3,523
Total segment revenue	42,197		-		10,641		2,115		54,953
Depletion charges	(5,281)		-		(2,294)		-		(7,575)
Impairment	-		-		(3,646)		-		(3,646)
Hurricane repairs	-		-		191		-		191
Other cost of sales	(2,634)		-		(5,621)		(1)		(8,256)
General administrative expenses before depreciation	(3,295)		(148)		(1,669)		(6,479)		(11,591)
Inter-segment administrative expense	(2,099)		(6)		(10)		(346)		(2,461)
Depreciation and amortisation	(219)		-		(8)		(84)		(311)
Foreign exchange losses	(128)		-		-		(754)		(882)
Share based payments	-		-		-		(1,156)		(1,156)
Profit / (loss) before interest and taxation	28,541		(154)		(2,416)		(6,705)		19,266
Interest expense and unwinding of discount	-		-		(628)		(16)		(644)
Interest income from external parties	6		-		(19)		105		92
Inter-segment interest	-		-		(2,241)		2,241		-
Taxation	-		-		19		(1)		18
Profit / (loss) for the year	28,547		(154)		(5,285)		(4,376)		18,732

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

NOTES TO THE HALF-YEARLY FINANCIAL REPORT

FOR THE SIX MONTHS ENDED 30 JUNE 2010

2.       Segmental information (continued)

	Six months ended 30 June 2009
	Syria	Tunisia	USA	Other	Total
	$' 000	$' 000	$' 000	$' 000	$' 000
Revenues from external parties	23,847	-	5,134	-	28,981
Inter-segment revenue	-	-	-	-	-
Total segment revenue	23,847	-	5,134	-	28,981
Depletion charges	(3,648)	-	(1,820)	-	(5,468)
Impairment	-	-	(1,741)	-	(1,741)
Hurricane repairs	-	-	(1,934)	-	(1,934)
Other cost of sales	(1,880)	-	(6,362)	-	(8,242)
General administrative expenses before depreciation	(2,689)	-	(1,343)	(3,276)	(7,308)
Inter-segment administrative expense	-	-	-	-	-
Depreciation and amortisation	(159)	-	(18)	(48)	(225)
Foreign exchange gains	-	-	-	720	720
Share based payments	-	-	-	(743)	(743)
Profit / (loss) before interest and taxation	15,471	-	(8,084)	(3,347)	4,040
Interest expense and unwinding of discount	-	-	(531)	(8)	(539)
Interest income from external parties	169	-	64	122	355
Inter-segment interest	-	-	(1,844)	1,844	-
Taxation	-	-	-	-	-
Profit / (loss) for the year	15,640	-	(10,395)	(1,389)	3,856

		Year ended 31 December 2009
			Syria	Tunisia	USA	Other	Total
			$' 000	$' 000	$' 000	$' 000	$' 000
	Revenues from external parties		70,453	-	13,962	-	84,415
	Inter-segment revenue		-	-	648	382	1,030
	Total segment revenue		70,453	-	14,610	382	85,445
	Depletion charges		(9,917)	-	(2,372)	-	(12,289)
	Impairment		-	-	(6,420)	-	(6,420)
	Hurricane repairs		-	-	(2,316)	-	(2,316)
	Other cost of sales		(5,227)	-	(14,023)	-	(19,250)
	General administrative expenses before depreciation		(5,467)	-	(2,670)	(6,317)	(14,454)
	Inter-segment administrative expense		(1,030)	-	-	-	(1,030)
	Depreciation and amortisation		(329)	-	(16)	(148)	(493)
	Foreign exchange gains / (losses)		(98)	-	-	636	538
	Share based payments		-	-	-	(1,124)	(1,124)
	Profit / (loss) before interest and taxation		48,385	-	(13,207)	(6,571)	28,607
	Interest expense and unwinding of discount		-	-	(1,056)	(33)	(1,089)
	Interest income from external parties		38	-	82	206	326
	Inter-segment interest		-	-	(3,910)	3,910	-
	Taxation		(2)	-	(10)	-	(12)
	Profit / (loss) for the year		48,421	-	(18,101)	(2,488)	27,832

NOTES TO THE HALF-YEARLY FINANCIAL REPORT

FOR THE SIX MONTHS ENDED 30 JUNE 2010

2.       Segmental information (continued)

The segment assets and liabilities as at 30 June 2010 and the segment capital expenditure during the period ended 30 June 2010 were as follows:

	At 30 June 2010
	Syria		Tunisia		USA		Other			Total
	$' 000		$' 000		$' 000		$' 000			$' 000
Assets	88,021		8,859		53,670		55,540			206,090
Liabilities	(8,902)		-		(34,919)		(324)			(44,145)
Inter-segment balances	(22,346)		(9,014)		(52,179)		83,539			-
Exploration and evaluation expenditure	3,648		6,687		-		-			10,335
All other capital expenditure	4,478		-		606		42			5,126
Total capital expenditure during period	8,126		6,687		606		42			15,461
	At 30 June 2009
	Syria		Tunisia		USA		Other			Total
	$' 000		$' 000		$' 000		$' 000			$' 000
Assets	70,701		-		63,983		24,485			159,169
Liabilities	(7,423)		-		(37,240)		(678)			(45,341)
Inter-segment balances	(31,675)		-		(44,740)		76,415			-
Exploration and evaluation expenditure	4,923		-		-		-			4,923
All other capital expenditure	6,310		-		7,424		529			14,263
Total capital expenditure during period	11,233		-		7,424		529			19,186
	At 31 December 2009
	Syria		Tunisia		USA		Other			Total
	$' 000		$' 000		$' 000		$' 000			$' 000
Assets	82,004		-		58,072		45,229			185,305
Liabilities	(7,579)		-		(36,405)		(1,047)			(45,031)
Inter-segment balances	(8,823)		-		(47,370)		56,193			-
Exploration and evaluation expenditure	5,358		-		-		-			5,358
All other capital expenditure	14,982		-		3,376		349			18,707
Total capital expenditure during period	20,340		-		3,376		349			24,065

NOTES TO THE HALF-YEARLY FINANCIAL REPORT

FOR THE SIX MONTHS ENDED 30 JUNE 2010

3.       Earnings per share

The calculation of the basic and diluted earnings per share is based on the following shares in issue:

			6 months ended		Year ended
			30 June 2010	30 June 2009	31 December 2009
			(Unaudited)	(Unaudited)	(Audited)
Weighted average number of ordinary shares			120,913,771	118,762,500	119,334,527
Options and restricted shares			3,205,767	730,579	1,346,816
Weighted average number of diluted shares			124,119,538	119,493,079	120,681,343

The calculation of basic earnings per share is based on the profit attributable to equity shareholders and the weighted average number of ordinary shares in issue during the period. The diluted earnings  per share is calculated using the weighted average number of ordinary shares in issue on the assumption of conversion of all dilutive potential ordinary shares.

4.         Property, plant and equipment

			Oil and gas properties
			USA		Syria		Assets in the course of construction		Other fixed assets		Total
			$' 000		$' 000		$' 000		$' 000		$' 000
Cost:
At 1 January 2010			85,234		54,529		-		1,301		141,064
Additions			1,546		3,743		1,053		297		6,639
Disposals			(4,047)		-		-		-		(4,047)
At 30 June 2010			82,733		58,272		1,053		1,598		143,656
Accumulated depreciation and depletion:
At 1 January 2010			(31,331)		(12,723)		-		(641)		(44,695)
Charge for the period			(2,294)		(5,281)		-		(111)		(7,686)
Disposals			415		-		-		-		415
At 30 June 2010			(33,210)		(18,004)		-		(752)		(51,966)
Accumulated impairment:
At 1 January 2010			(13,800)		-		-		-		(13,800)
Impairment charge for the period			(3,646)		-		-		-		(3,646)
Disposals			3,387		-		-		-		3,387
At 30 June 2010			(14,059)		-		-		-		(14,059)
Net book value at 30 June 2010			35,464		40,268		1,053		846		77,631
Net book value at 31 December 2009			40,103		41,806		-		660		82,569

NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2010

5.       Intangible assets

				Exploration and evaluation assets				Computer software		Total
				Tunisia		Syria
				$' 000		$' 000		$' 000			$' 000
Cost:
At 1 January 2010				-		6,724		579			7,303
Additions				6,687		3,648		309			10,644
At 30 June 2010				6,687		10,372		888			17,947
Accumulated amortisation:
At 1 January 2010				-		-		(212)			(212)
Charge for the period				-		-		(202)			(202)
At 30 June 2010				-		-		(414)			(414)
Net book value at 30 June 2010				6,687		10,372		474			17,533
Net book value at 31 December 2009				-		6,724		367			7,091

6.       Trade and other receivables

			30 June 2010		31 December 2009
			$' 000		$' 000
Trade receivables			16,075		15,213
Insurance receivable			1,318		1,128
Underlift			425		502
Corporation tax recoverable			23		408
Prepayments and accrued income			4,878		1,427
Amounts due from oil and gas partnerships			2,317		3,189
			25,036		21,867

Underlift represents a cumulative net gas underlift position on certain of the Group's properties. This amount is due after more than one year.

NOTES TO THE HALF-YEARLY FINANCIAL REPORT

FOR THE SIX MONTHS ENDED 30 JUNE 2010

7.        Cash and cash equivalents

			30 June 2010		31 December 2009
			$' 000		$' 000
Cash at bank and in hand			68,562		57,623
Restricted cash balances			12,991		11,990
			81,553		69,613
Included in long term financial assets			12,991		11,990
Total cash and cash equivalents			68,562		57,623

The restricted cash balances include (i) amounts held in escrow to cover decommissioning expenditures under the requirements of the regulatory authorities that manage the oil and gas and other mineral resources in the Gulf of Mexico, (ii) a bank guarantee that is required under the terms of the Production Sharing Contract with the Syrian Petroleum Company and which is reduced quarterly as the obligations under the required work programmes are completed, and (iii) an amount held in escrow to cover potential short term foreign exchange contracts. 

8.       Trade and other payables

			30 June 2010		31 December 2009
			$' 000		$' 000
Trade payables			4,571		6,732
Accruals and other payables			7,482		6,679
			12,053		13,411

NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2010

9.       Provision for decommissioning

The provision for decommissioning relates to the expected future costs of plugging and abandoning the oil and gas properties held by Gulfsands Petroleum USA, Inc and Darcy Energy LLC. At 30 June 2010 the oil and gas properties have estimated plugging and abandonment dates up to 2024. The Group has no material decommissioning obligations relating to its operations in Syria. The portion of the provision for decommissioning expected to be settled within a year totalling approximately $2.7 million is included in current liabilities and the remainder totalling approximately $29.3 million is included in non-current liabilities in the consolidated balance sheet at 30 June 2010.

The provision for decommissioning was as follows:

At 1 January 2010		31,620
Changes in estimates		965
Additions less disposals		(338)
Costs in excess of provision		358
Decommissioning costs paid		(1,138)
Discount expense		625
At 30 June 2010		32,092
Less: current portion		2,747
Non-current portion		29,345

NOTES TO THE HALF-YEARLY FINANCIAL REPORT

FOR THE SIX MONTHS ENDED 30 JUNE 2010

10.        Share capital

			30 June 2010		31 December 2009
			Number		Number
Authorised:
Ordinary shares of 5.714 pence each			175,000,000		175,000,000
			30 June 2010		31 December 2009
			$' 000		$' 000
Allotted, called up and fully paid:
121,042,500 (2009 - 120,222,500) ordinary shares of 5.714 pence each			13,045		12,971

In January 2010 the Company introduced a Restricted Share Plan to award staff employed by the Group. Under the Restricted Share Plan awards are issued at a price of 5.714 pence per share. All restricted share plan awards are subject to vesting conditions.

The movements in share capital, share options and restricted shares were as follows:

			Number of ordinary shares		Number of share options		Number of restricted shares
At 31 December 2009			120,222,500		8,810,000		-
Share options exercised for cash			820,000		(820,000)		-
Share options and restricted shares issued			-		1,705,000		230,835
At 30 June 2010			121,042,500		9,695,000		230,835

The weighted average price of the options outstanding is set out below. The restricted shares have an exercise price of 5.714 pence per share.

			Weighted average price of options £
At 31 December 2009			1.71
Share options exercised for cash			1.53
Share options issued			3.20
At 30 June 2010			2.02

NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2010

11.        Post balance sheet events

Drilling of the Lambouka structure commenced on 11 July using Atwood's "Southern Cross" semi-submersible drilling unit. Gas was discovered in carbonate reservoirs of the Aboid Formation, but as a result of down-hole operational issues, no pressure measurements or testing of the formation were possible. The well has now been suspended to be re-entered at a later date in order to drill a side-track hole and test the up-dip of the existing gas discovery. At 30 June 2010 exploration and evaluation assets included an amount of $5.9 million in respect of the costs of drilling the Lambouka-1 well.

12.        Restatement of Half-Yearly Financial Report for the six months ended 30 June 2009

During the process of preparing the Annual Report and Accounts for the year ended 31 December 2009 the Group identified corrections required to the classification of certain capital expenditure which should more appropriately have been classed as operating expenditure in the financial statements of prior periods. The 2009 Annual Report included corresponding restatements of the Balance Sheets, Income Statements and Statements of Cash Flows as at, and for the periods ended 31 December 2008, 31 December 2007 and 31 December 2006 and the Half-Yearly Financial Report incorporates equivalent restatements for the six months ended 30 June 2009.

The effect of these restatements to the income statement, balance sheet and statement of cash flows for the six months ended 30 June 2009 is set out below:

Impact of prior period restatements on Condensed Consolidated Income Statement
for the six months ended 30 June 2009
				6 months ended 30 June 2009 (Unaudited)
				As originally stated					Current period			Prior years			As restated
				$' 000					$' 000			$' 000			$' 000
	Depletion			(5,552)					85			-			(5,467)
	Impairment			(1,783)					42			-			(1,741)
	Profit for the period			3,729					127			-			3,856
Impact of prior period restatements on Earnings per Share (cents)
for the six months ended 30 June 2009
							6 months ended 30 June 2009 (Unaudited)
				As originally stated					Current period			Prior years			As restated
	Earnings per share (basic)			3.14					0.11			-			3.25
	Earnings per share (diluted)			3.12					0.11			-			3.23

NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2010

12.       Restatement of Half-Yearly Financial Report for the six months ended 30 June 2009 (continued)

Impact of prior period restatements on Condensed Consolidated Balance sheet
as at 30 June 2009
				As at 30 June 2009 (Unaudited)
				As originally stated					Current period				Prior years			As restated
				$' 000					$' 000				$' 000			$' 000
	Property, plant and equipment			86,207					127				(2,606)			83,728
	All other assets			75,441					-				-			75,441
	Total Assets			161,648					127				(2,606)			159,169
	Total Liabilities			45,341					-				-			45,341
	Net Assets			116,307					127				(2,606)			113,828
	Retained losses			(23,261)					127				(2,606)			(25,740)
	All other capital and reserves			139,568					-				-			139,568
	Total Equity			116,307					127				(2,606)			113,828
Impact of prior period restatements on Condensed Consolidated Cash Flow Statement
for the six months ended 30 June 2009
				6 months ended 30 June 2009 (Unaudited)
				As originally stated					Current period				Prior years			As restated
				$' 000					$' 000				$' 000			$' 000
Cash flows from operating activities
	Operating profit			3,913					127				-			4,040
	Depreciation, depletion and amortisation			5,779					(85)				-			5,694
	Impairment charge / (credit)			1,783					(42)				-			1,741
Net cash provided by operating activities				7,956					-				-			7,956
Net cash used in investing activities				(14,343)					-				-			(14,343)
Net cash provided by financing activities				1,467					-				-			1,467
Decrease in cash and cash equivalents				(4,920)					-				-			(4,920)
Cash and cash equivalents at beginning of period				36,812					-				-			36,812
Cash and cash equivalents at end of period				31,892					-				-			31,892

NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2010

12.       Restatement of Half-Yearly Financial Report for the six months ended 30 June 2009 (continued)

Impact of prior period restatements on Condensed Consolidated Statement of Changes in Equity
for the six months ended 30 June 2009
				6 months ended 30 June 2009 (Unaudited)
				As originally stated				Current period				Prior years				As restated
				$' 000				$' 000				$' 000				$' 000
Retained losses
	At 1 January 2009			(26,990)				-				(2,606)				(29,596)
	Profit for the period			3,729				127				-				3,856
	At 30 June 2009			(23,261)				127				(2,606)				(25,740)

13.       Related party transactions

There were no related party transactions in the period other than the remuneration of, and issue of share options to, Directors of the Group.

 

END

 

 

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