Preliminary Results
Gulfsands Petroleum PLC
02 May 2007
Preliminary Results for Year Ended 31 December 2006
Summary
• Strong overall performance in 2006
• Profit, turnover, net cash flow from operations, fixed assets, net
assets and shareholders' funds all up from year-end 2005
• Proved and probable reserves up 31%
London, 2nd May, 2007: Gulfsands Petroleum plc (AIM: GPX) ('Gulfsands', 'the
Group' or 'the Company'), the oil and gas production, exploration and
development company with activities in the USA, Syria and Iraq announces its
preliminary results for the year ended 31 December 2006.
HIGHLIGHTS
• Turnover (revenue) from continuing operations for the Group increased by
19% to $29.8 million (2005: $24.9 million);
• Profit before tax from continuing operations for the Group was $2.1
million (2005: loss of $2.4 million);
• Net cash inflow from operating activities for the Group increased by 395%
to $16 million (2005: $3.2 million);
• Net assets and shareholders' funds for the Group increased by 8% to $75.3
million (2005: $70.0 million);
• Fixed assets for the Group increased by 64% to $64.2 million (2005: $39.3
million);
• Average daily working interest production by year-end 2006 increased to
nearly 3,000 boepd (2005: 1,500 boepd);
• Proved and probable reserves in the USA, Gulf of Mexico and onshore Gulf
Coast, increased by 31% to 44.6 billion cubic feet of natural gas
equivalents (BCFGE), or 7.4 million barrels of oil equivalent (MMBOE), as of
31 December 2006 (34 BCFGE at 31 December 2005). The net present value of
the proved and probable reserves at 31 December 2006 (discounted at 10%)
increased to $197 million;
• In the USA Gulf of Mexico and onshore Gulf Coast, the Group's reserve
additions replaced 389% of 2006 produced oil and gas volumes;
• The Group participated in the drilling of one Gulf of Mexico exploration
well at a 25% working interest which was a discovery; and
• The Group drilled two exploration wells in Block 26, Syria, one of which
was completed for production testing and the other temporarily suspended for
further analysis. Subsequent to year-end a third exploration well commenced
drilling at Khurbet East in mid February 2007 and this well encountered two
prospective horizons with oil samples having been recovered from the
Cretaceous Massive Formation below 1,917 metres. The well has an overall
planned depth of approximately 3,700 metres.
Gulfsands' CEO, John Dorrier, said:
'In late 2005, Gulfsands took direct control of its USA Gulf of Mexico assets
making 2006 the first financial year in which the Company has independently
managed those assets. We are therefore especially proud of the achievement of
our Gulf of Mexico team in delivering such strong results in terms of both
financial performance and in reserves growth. This comes in spite of the
negative impact to operations in key Gulf fields as a result of residual
hurricane related damage to pipelines during the first 4 and a half months of
2006 as well as product prices which were somewhat weaker than in 2005.'
Certain statements included herein constitute 'forward-looking statements'
within the meaning of applicable securities legislation. These forward-looking
statements are based on certain assumptions 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.
For further information including the Company's recent investor presentation,
please refer to the Company's website www.gulfsands.net or contact:
Gulfsands Petroleum (Houston) +713-626-9564
John Dorrier, Chief Executive Officer
David DeCort, Chief Financial Officer
Gulfsands Petroleum (London) +44 (0)20-7182-4016
Kenneth Judge, Director of Corporate Development +44 (0)7733-001-002
College Hill (London) +44 (0)20-7457-2020
Nick Elwes
Paddy Blewer
Teather & Greenwood (London) +44 (0)20-7426-9000
James Maxwell (Corporate Finance)
Tanya Clarke (Specialist Sales)
CHAIRMAN'S STATEMENT
The year ended 31 December 2006 was a transitional year for the Group. By the
end of 2006 we had restored production in the USA Gulf of Mexico back to
pre-storm levels; commenced an active drilling programme in Syria; drilled a
successful exploration well in the USA Gulf of Mexico; increased the Group's oil
and gas reserves in the Gulf of Mexico; and, returned the Group to
profitability.
Syria
In the Syrian Arab Republic, Gulfsands as the 50% working interest owner and
operator in Block 26 completed an additional 266 line kilometers of 2D seismic
and commenced an active drilling programme consisting of four well commitment
drilling wells to be completed by August 2007. Two wells were drilled during
calendar 2006 with results that are as yet inconclusive. A subsequent well,
Khurbet East-1, commenced drilling in February 2007. This third well has
already encountered good oil shows in two separated prospective reservoirs with
22.5 metres of net oil pay in the Cretaceous Massive Formation commencing at
1,917 metres and some 26.4 metres of net oil pay shown on wireline logs in the
Tertiary Chilou B Formation starting at 1,319 metres. The Company obtained an
oil sample from the Massive Formation with an estimated API gravity of 21
degrees at surface conditions. No similar wireline pressure or fluid recovery
operations could be conducted over the Chilou B due to the large diameter of the
hole at this shallow depth. There remain additional reservoir targets in this
well below the Massive Formation. The well is expected to be at planned total
depth of 3,700 metres by mid May with production testing to follow.
The Company is also in discussions regarding an oil and natural gas development
project in Syria in cooperation with other parties in the region.
USA
The Group's USA reserves increased significantly during 2006 primarily as a
result of extensive workovers and recompletions of existing wells in the Gulf of
Mexico which resulted in proved and probable reserves totaling 44.6 BCFGE (7.4
MMBOE) as of 31 December 2006. These reserve additions replaced 389% of the
Group's 2006 produced oil and gas volumes. Also significant to USA operations
was restoring production to pre-storm levels of approximately 3,000 boepd by the
end of 2006.
Iraq
The Group continues to make progress in its discussions with the Iraq Oil
Ministry on the Misan Gas Project along with other business initiatives in Iraq.
The Misan Gas Project is a midstream project that will gather gas currently
being flared at oil fields in Southern Iraq and bring the gas to a central
processing plant to be cleaned of impurities and to have the light hydrocarbon
liquid fraction (natural gas liquids) removed. The natural gas will then be
transmitted for further distribution and use in Iraq. It is intended that the
extracted hydrocarbon liquids will then be transferred to a southern port for
storage, offloading and export. The Group signed a Memorandum of Understanding
for this Project in January 2005.
Outlook
In summary, 2006 was an active and successful year for the Group, resulting in a
significant increase in our oil and gas reserves and the commencement of
exploration in Syrian Block 26, including the recently announced success at
Khurbet East.
Financially the Company experienced increases in each of its profit, turnover,
cash flow from operations, fixed assets, net assets and shareholders' funds for
the year. The Group's current activities in Syria, the USA Gulf of Mexico and
onshore Gulf Coast, and Iraq together with its solid financial position all
provide significant potential for expansion during 2007 and beyond.
Andrew West
Chairman
30 April 2007
GULFSANDS PETROLEUM PLC
Consolidated Profit and Loss Account
Years Ended 31 December
Year Ended Year Ended
31 December 2006 31 December 2005
Continuing
Group Minority Total
Share Share Operations
Notes $'000 $'000 $'000 $'000
Turnover 29,750 24,926 20,086 45,012
Cost of sales (18,740) (13,866) (12,047) (25,913)
Gross profit 11,010 11,060 8,039 19,099
Administrative expenses before (4,455) (4,923) (1,330) (6,253)
exceptional items
Share based payments (851) - - -
Hurricane repairs (2,573) - - -
Total administrative expenses (7,879) (4,923) (1,330) (6,253)
Operating profit 3,131 6,137 6,709 12,846
Loss on disposal of subsidiary - (6,080) - (6,080)
Profit/(loss) on ordinary activities 3,131 57 6,709 6,766
before interest
Unwinding of discount on (2,223) (1,370) (1,234) (2,604)
decommissioning
Interest receivable 1,193 1,413 205 1,618
Interest payable - (2,510) (1,822) (4,332)
Profit/(loss) on ordinary activities 2,101 (2,410) 3,858 1,448
before taxation
Tax on profit/(loss) on ordinary (1,537) (1,551) - (1,551)
activities
Profit/(loss) on ordinary activities 564 (3,961) 3,858 (103)
after taxation
Minority interests - 13 (3,858) (3,845)
PROFIT/(LOSS) FOR THE YEAR 564 (3,948) - (3,948)
Earnings/(Loss) per share (cents):
Basic 2 0.59 (4.62) - (4.62)
Diluted 2 0.58 (4.62) - (4.62)
The 2005 profit and loss account 'Continuing group share' consists of Gulfsands
Petroleum plc's 52.6% of Northstar Gulfsands LLC ('NSGS') and other activity,
while the 'Minority share' column is the NSGS 47.4% partner share.
GULFSANDS PETROLEUM PLC
Consolidated Balance Sheet
As at 31 December
2006 2005
Notes $'000 $'000
Fixed assets
Tangible fixed assets 3 49,164 33,545
Intangible fixed assets 4 15,097 5,726
64,261 39,271
Current assets
Debtors 9,629 4,983
Cash at bank and in hand 26,724 36,561
36,353 41,544
Creditors: amounts falling due within one year (16,036) (3,436)
Net current assets 20,317 38,108
Total assets less current liabilities 84,578 77,379
Deferred tax liabilities (824) (173)
Provision for decommissioning (8,420) (6,958)
Equity minority interests - (260)
NET ASSETS 75,334 69,988
Capital and Reserves
Share capital 5 11,047 9,971
Share premium account 5 56,506 53,651
Other reserves 5 12,560 11,709
Profit and loss account 5 (4,779) (5,343)
SHAREHOLDERS' FUNDS 75,334 69,988
GULFSANDS PETROLEUM PLC
Consolidated Cash Flow Statement
Years Ended 31 December
Year Ended Year Ended
31 December 2006 31 December 2005
Continuing
Group Minority Total 2005
Share Share Operations
$'000 $'000 $'000 $'000
Net cash inflow from operating activities 15,999 3,232 6,272 9,504
Returns on investments and servicing of finance
Interest received 1,193 1,619 - 1,619
Interest paid - (1,732) (1,560) (3,292)
Net cash inflow/(outflow) from returns on 1,193 (113) (1,560) (1,673)
investments and servicing of finance
Taxation paid (1,111) - - -
Capital expenditure (29,572) (11,301) (5,024) (16,325)
Acquisitions and disposals
Purchase of Minority Interest (277) - - -
Net cash outflow from acquisitions and disposals (277) - - -
Financing
Cash proceeds from issue of shares 3,931 56,651 - 56,651
Contributions to subsidiary undertaking - 101 - 101
Warrants exercised for cash - 1,689 - 1689
Issue costs of share capital - (464) - (464)
Receipts from new loans - 1,474 1,329 2,803
Repayment of loans - (10,820) (9,751) (20,571)
Payments in respect of warrants - restructuring - (3,550) - (3,550)
costs
Minority share - payment as a result of disposal - (11,183) - (11,183)
of a subsidiary undertaking
Net cash inflow from financing 3,931 33,898 (8,422) 25,476
(Decrease)/increase in cash (9,837) 25,716 (8,734) 16,982
Cash at bank and in hand at beginning of year 36,561 10,845 8,734 19,579
Cash at bank and in hand at end of year 26,724 36,561 - 36,561
GULFSANDS PETROLEUM PLC
NOTES TO THE PRELIMINARY RESULTS
1. Basis of preparation
The financial information has been prepared in accordance with the historical
cost convention and in accordance with applicable UK accounting standards and
the Statement of Recommended Practice 'Accounting for Oil and Gas Exploration,
Development, Production and Decommissioning Activities'.
The financial information contained in this report does not constitute full
statutory accounts within the meaning of Section 240 of the Companies Act 1985.
The figures are extracted from the audited full financial statements for the
year ended 31 December 2006 which will be filed with the Registrar of Companies
and sent to shareholders in due course.
These financial statements consolidate the accounts of Gulfsands Petroleum plc
and all its subsidiary undertakings (the 'Group'), drawn up to 31 December each
year.
A full list of accounting policies is shown in the group financial statements.
The significant accounting policies are detailed below:
(a) Reporting currency
The financial information is presented in U.S. dollars. The Company's operations
and the majority of all costs associated with foreign operations are paid in
U.S. dollars and not the local currency of the operations. Therefore, the
reporting and functional currency is the U.S. dollar. Gains and losses from
foreign currency transactions, if any, are recognised in current profit or loss
for the period.
(b) Oil and gas properties
The Group follows the full cost method of accounting for oil and gas properties
under which expenditure on pre-license, license acquisition, exploration,
appraisal and development activities is capitalised. All capitalised exploration
and development expenditures are recorded within an appropriate cost pool within
tangible fixed assets, except that certain exploration and appraisal costs may
be held outside a cost pool pending determination of commercial reserves, within
intangible fixed assets. The Group has two cost pools: USA and Syria. The
Group's definition of commercial reserves is proven and probable reserves.
Pre-license acquisition, exploration and appraisal costs of individual license
interests held outside a cost pool remain un-depreciated pending determination
but subject to there being no evidence of impairment. When a decision to develop
an oil and gas property has been taken, or if there is evidence of impairment in
value, the costs are transferred to the appropriate cost pool within tangible
fixed assets.
Costs carried within each pool are depreciated on a unit of production basis
using the ratio of oil and gas production in the period to the estimated
quantity of commercial reserves at the end of the period plus production in the
period. Changes in estimates of commercial reserves or future development costs
are dealt with prospectively.
When events or changes in circumstances indicate that the carrying amount of
expenditure within a cost pool may not be recoverable from future net revenues
from oil and gas reserves attributable to that pool, a comparison between the
net book value of the cost pool and the discounted future cash flows from that
cost pool is undertaken. To the extent that the carrying amount exceeds the
recoverable amount, the pool is written down to its recoverable amount and
charged as additional depreciation.
(c) Decommissioning
Where a material liability for the removal of production facilities and site
restoration at the end of the production life of a field exists, a provision for
decommissioning is recognised. The amount recognised is the present value of
estimated future expenditure determined in accordance with local conditions and
requirements. Accretion expense is recognised to represent the unwinding of the
discount of the present value of the provision for decommissioning. A tangible
fixed asset of an amount equivalent to the provision is also created and
depreciated on a unit of production basis. Changes in estimates are recognised
prospectively, with corresponding adjustments to the provision and the
associated fixed asset.
2. Earnings/(loss) per share
Years ended 31 December
2006 2005
$'000 $'000
except per except per
share amounts share amounts
Profit/(loss) 564 (3,948)
Basic earnings/(loss) (cents per share) 0.59 (4.62)
Diluted earnings/(loss) (cents per share) 0.58 (4.62)
2006 2005
Weighted average number of shares: Number Number
For basic earnings per share 95,565,086 85,442,295
Options outstanding 930,600 904,290
For diluted earnings per share 96,495,686 86,346,585
3. Tangible fixed assets
Cost: Oil and gas Other fixed assets Total
properties - USA
$'000 $'000 $'000
At 1 January 2006 41,372 50 41,422
Additions 19,656 223 19,879
At 31 December 2006 61,028 273 61,301
Accumulated depreciation:
At 1 January 2006 (7,856) (21) (7,877)
Charge for the period (4,201) (59) (4,260)
At 31 December 2006 (12,057) (80) (12,137)
Net book value at 31 December 2006 48,971 193 49,164
Net book value at 31 December 2005 33,516 29 33,545
3. Tangible fixed assets (Continued)
Depreciation and amortization of oil and gas properties is calculated on a
unit-of-production basis, using the ratio of oil and gas production in the
period to the estimated quantities of proved and probable reserves at the end of
the period plus production in the period, on a field-by field basis. Proved and
probable reserve estimates are based on a number of underlying assumptions
including oil and gas prices, future costs, oil and gas in place and reservoir
performance, which are inherently uncertain. Management uses established
industry techniques to generate its estimates and regularly references its
estimates against those of external consultants. However, the amount of
reserves that will ultimately be recovered from any field cannot be known with
certainty until the end of the field's life.
Included in oil and gas properties above are capitalized decommissioning costs
with a net book value of $9,127,940 as at 31 December 2006.
The Directors have assessed the carrying value of the oil and gas properties and
in their opinion, no impairment provision is considered necessary.
4. Intangible fixed assets
Exploration and Computer Total
evaluation assets - Software
Syria
Cost: $'000 $'000 $'000
At 1 January 2006 5,691 38 5,729
Additions 9,375 11 9,386
At 31 December 2006 15,066 49 15,115
Accumulated depreciation:
At 1 January 2006 - (3) (3)
Charge for the period - (15) (15)
At 31 December 2006 - (18) (18)
Net book value at 31 December 2006 15,066 31 15,097
Net book value at 31 December 2005 5,691 35 5,726
The amounts for intangible exploration and evaluation ('E&E') assets represent
active exploration projects. These amounts will be written off to the profit
and loss account as exploration expense unless commercial reserves are
established or the determination process is not completed and there are no
indications of impairment. The outcome of ongoing exploration, and therefore
whether the carrying value of E&E assets will ultimately be recovered, is
inherently uncertain. The Directors have reviewed the oil and gas E&E costs for
possible impairment. No provision for impairment is considered necessary
against E&E cost incurred in the oil and gas field under exploration as at 31
December 2006.
5. Capital and reserves
Share Profit
Share premium Other and loss
capital account reserves account Total
$'000 $'000 $'000 $'000 $'000
At 1 January 2006 9,971 53,651 11,709 (5,343) 69,988
Options exercised 1,076 2,855 - - 3,931
Share based payment charge (note 19) - - 851 - 851
Retained profit for the year - - - 564 564
At 31 December 2006 11,047 56,506 12,560 (4,779) 75,334
The other reserve of $11,709,000 as at 1 January 2006 represents share premium
of Gulfsands Petroleum Ltd. of $19,008,000 less merger reserve of $7,299,000.
The share-based payment charge of $851,474 has been credited to other reserves
in 2006 in accordance with FRS 20.
6. Annual General Meeting
The Annual General Meeting of Shareholders will take place at 11:00 A.M. on
Thursday 28 June 2007 at the offices of College Hill Associates Limited located
at 78 Cannon Street in London, England. All shareholders are welcome to attend.
This information is provided by RNS
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