Investor Presentation - Proactive Investors

Investor Presentation
AIM: GPX
November 2009

Gulfsands Overview
• Strong financial position
– No debt, 2009 year‐end cash balance estimated ~US$55 MM
– 2009 capex of $35MM all funded from operating cash flow (~US$55MM)
• Net production (WI)
– currently 9,500 boepd
– 10,500 boepd estimated by end‐2009
• Exciting stage in evolution of Group :
– Potential to build significant business in Syria
– Major strategic opportunities in Iraq
• Reserves (WI):
– 1P : 22 mmboe, 2P : 40 mmboe, 3P : 64 mmboe
• New Management Team
– Clear vision and strategy
2

Management Team
NON EXECUTIVE CHAIRMAN
• Andrew West ‐ Investment Banker
EXECUTIVE
• Ric Malcolm, CEO (joined Oct 08)
– Geologist : ex OMV, Mobil, Ampolex (Australian E&P), Woodside
• Mahdi Sajjad, President
– Founder of GPX : long experience in Middle East energy & mining
• Andrew Rose, CFO (joined Aug 08)
– Investment Banker : ex CFO of Burren Energy
• Ken Judge, Director Corporate Development & Communications
– Lawyer : background in energy & mining, director of several listed co’s
OTHER SENIOR MANAGEMENT
• Jack Oden, VP Exploration (ex BHP)
• Rick Bresler, VP Project Engineering (ex Worley, ABB)
• Ian Conway, VP Petroleum Engineering (ex BP, Maersk, Exxon)
• Khalid Mugharbel, Operations Manager (ex Schlumberger)
3

Vision
• Gulfsands Petroleum will in the longer term become one of the pre‐eminent
E&P companies in the Middle East and will be viewed as a preferred
operator and partner
• Characterised by:
– Focus
– High impact projects
– Significant interests
• Objective:
– Establish a strong base for
future growth
4

Syria
• 50% operated interest in Block 26 (PSC)
• 2 discoveries in last 2.5 years
• Current production 8,500 bopd (WI)
• Reserves (WI) 1P : 18 mmbo, 2P : 35
mmbo 3P : 58 mmbo
• Current key focus of the company
– Significant exploration upside
– Production above expectations
5

Syria : Statistics
ECONOMY
• President : Bashar al‐Assad (2000)
• Population: 20.4 million (60% < 30)
• Religions : Sunni, Shia, Christian,
Jewish
• GDP US$40 bn (1) , 2009E growth 5.2% (2)
– Agriculture 25%, industry 25%, services
50%
• Main exports : oil & gas
(1)
Source : UK FCo
(2)
Source : IMF
DAILY OIL PRODUCTION
Production rapidly decreasing
ENERGY
• Proved oil reserves : 2.5 bn bbls
• Natural Gas reserves : 8.5 tcf
• Oil production : 2008 398,000 bpd
• Gas production : 2008 230 bcf pa
• Net exports : oil 155,000 bpd
INTERNATIONAL RELATIONS
• Syria Accountability Act 2003
• Thawing of US relations under Obama
administration (re‐appointment of US
ambassador being considered)
• Good relations with EU (France)
6

Syria : Oil & Gas Infrastructure
Block 26
Oudeh, Tishrine and
Sheikh Sulaiman PSA’s
(Tanganyika, sold to Sinopec Dec
08)
Euphrates Graben
(Shell and Total have had
operations in the area since the
1980’s)
Palmyrides
(PetroCanada and INA have
each announced gas
developments)
7

Block 26
Gulfsands Petroleum 50% (Operator)
• Emerald Energy (Sinochem) 50%
• Syrian Petroleum Company (SPC)
represents state interest
• Current exploration period to August 2010
• Option for 2 year extension to August 2012
• Neighbouring fields: > 100,000 bopd
• Export Pipeline 260,000 bopd capacity runs
through KHE field
8

Syria : Block 26 – Production Sharing Terms
• Royalty
• 12.5% of gross oil production
• Cost Recovery Oil
• 50% of gross production less royalty
• Exploration costs recovered 100%
• Development costs at 25% per year over 4 years
• Cost Recovery Oil in excess of the recoverable
costs treated as Profit Oil
• Profit Oil
• Contractor 35%/SPC 65% up to 25,000 bopd
• Contractor 33%/SPC 67% for more than 25,000
and less than 50,000 bopd
• Sliding scale at higher production rates
• Production Bonuses payable to SPC
• $2m payable on reaching 25,000 bopd
• $5m payable on reaching 50,000 bopd
• Taxes
• SPC pays Contractor income taxes from SPC
share of profit oil
• Gulfsands entitlement is 50% of
contractor
BASED ON 2P RESERVES
9

Khurbet East Field Reservoir Performance
• Khurbet East Field: discovered June
2007 and 13 months later production
commenced through an Early
Production Facility
North
KHE-7
KHE-1, 2, 3, 4, 5H, 6H,
10H (Jun 09),11H (Jul 09)
KHE-9
KHE-8
• Gross oil production now 4.5 million
barrels
• Gross production rate reached the year
end target of 16,000 bopd mid Sept.
KHE-12
(Aug 09)
• Negligible pressure loss, ~0.2%
– Strong aquifer support
• Production wells at crest of reservoir
have encountered “vugs” yielding
exceptional reservoir quality
“VUGS “
ENCOUNTERED
• OWC yet to be established
– Oil down to 1570 m SS in KHE‐8
appraisal (basis for 2008 reserves)
– KHE‐12 encountered oil in core
down to 1605 m SS, likely within an
oil‐water transition zone
1 km
Depth Structure Map
Top “Massive”
10

Khurbet East Field Reservoir Quality
KHE-2 from 1935.28 to 1936.28 m
ft
Dark patches are interpreted as open
vugs up to ~10 inches diameter
No. / Cum.%
100
90
80
70
60
50
40
30
20
10
0
0.5
Well KHE-2 from 1930 – 1970 m
d =
0.8 ins
1 5.7 10 100 196.2
Sq.in.
d =
2.7 ins
d =
14 ins
• Centre of field demonstrates exceptional reservoir
quality, permeability from well tests 10 Darcy++
– Vugs present in all production wells to date
– In general terms, the greater the number of large
vugs, the higher the oil‐in‐place and recovery factor
11

Khurbet East Total Field Production
Achieved Y/E production target of 16,000 bopd in mid-September
12

Khurbet East Field & Yousefieh Discovery
3 km
KHE-8
KHE-9
KHE-
10H
KHE-
1,3, 4,11H
KHE-
2, 6H
KHE-7
YOU-1
YOU-3
KHE-12
YOU-2
N
1 km
DEPTH STRUCTURE
TOP RESERVOIR
13

Yousefieh Discovery (November 2008)
SW
1 KHE 2
1 YOUS 2
NE
• Appraisal well Y‐2 (Feb 2009) tested the interpreted eastern limit
of the Field
KHE
7
2
1
3
1 2
YOUS
N
14

Yousefieh Oil Pool
• Yousefieh‐1 discovered 63 m net oil
column in high quality reservoir Nov 08
– Average porosity of 18.6%
– Permeability 600 – 1,100 mD
– Flowed at a rate of 1,460 bopd on 48/64”
choke over 4 hour test period (23° API)
Yousefieh Field
Top Reservoir Depth Structure
• Yousefieh‐2 found 16m net oil column
– Average porosity 16%
– Flowed 17 API oil at 139 bpd under
artificial lift on 2” choke over 12 hour test
Yous-1
Yous-2
• Yousefieh‐3
– Yousefieh‐3 appraisal currently underway
Yous-3
• Future Plans
– Submit commerciality application
– Yousefieh on early production through
the EPF
N
1 km
15

Block 26 Reserves (at year end 2008)
• Khurbet East Field
– 1P 34.2 MMstb gross
– 2P 59.2 MMstb gross
– 3P 99.7 MMstb gross
• Yousefieh Field
– 1P 1.2 MMstb gross
– 2P 11.3 MMstb gross
– 3P 16.7 MMstb gross
• Net Entitlement Reserves
– 1P 8.1 MMstb
– 2P 14.3 MMstb
– 3P 21.9 MMstb
Reserves Determined by:
KHE: RPS Ltd
Yousefieh: Fugro Robertson
16

Khurbet East : Facilities
Central Processing Facility :
• Plan for 33,000 bopd through a
50,000 bfpd Central Processing
Facility
• Completion scheduled for mid‐2011
• Estimated cost ~$50 million
• Award of contracts in December ‘09
Early Production Facility:
• Capacity 18,000 bopd (previously
10,000 bopd)
• Expansion was completed in July ’09
• $600,000 installed cost
• Installation of additional storage &
30km long 8” pipeline to export oil &
replace trucking operation
• Completion anticipated April 2010
17

Block 26 WI Production (actual and target)
Tie in additional wells at Khurbet East EPF
Achieved Y/E WI production target of 8,000 bopd by mid-September
Commission KHE CPF
Khurbet East and Yousefieh Production
18

Unit Profits & Cash Flow / bbl
Syria : Per Barrel Profits and Cash Flow H1 2009
Based on Working Interest Barrels
US$/bbl
Average Brent 51.9
less Discount ‐7.9
Revenue 44.0
Less SPC share / MMS taxes & royalties ‐41% ‐18.0
Net Revenue 26.0
Production Costs ‐2.0
DD&A ‐4.0
G&A ‐2.3
Net Profits Interest (accrued) ‐0.8
Lifting costs ‐9.1
EBIT 16.9
Operating Cash Flow 21.6
19

Exploration ‐ 2009 3D Seismic Programme
• Data acquisition completed in May 2009 of approx 850 km 2
• In conjunction with previously
acquired data, provides approx 1200
km 2 of contiguous 3D seismic data in
Khurbet East / Yousefieh fairway
• Processing near completion in Cairo
with PGS is good quality. Delivery of
final processed data expected in
early October with data
interpretation and prospect
delineation to follow end November
• A number of “leads” have been
identified in the 3D area
20

Inline 971
Exploration ‐ Prospects and New 3D Seismic Leads
N
0 10
kms
1
2
3
6
Khurbet
East
Souedieh
Khurbet
Yousefieh
Inline 1031
9
8
WC
4 5
SPC PA
6
7
2007 3D KHE
9
10
2007 3D NAO-W
Naour West 2009 3D Regional
NHW
K-Dolomite Fm
Fields
Prospects
Disc.
EC
Massive Fm
AGZ
Prod
Field
Field
Appr.
3D
Leads
21

22
Provisional Timeline

USA
• Non‐operated interests in 30 oil & gas
producing fields, shallow GOM
• Working interests range from 2% to 53%
• Original business of Gulfsands
• Current production 1,300 boepd (WI)
• Reserves: 4mmboe 1P, 5 mmboe 2P
• Mature asset base, limited further upside in
existing portfolio
23

Group WI Production (actual and target)
Commission KHE Full Production Facility
Expand Khurbet East EPF
24

Iraq
• Strategic business focus
– Seeking to build a long‐term E&P business
– Active since 2003
• Maysan Gas Project
– Turning flared gas into condensate, LPGs
and dry gas for electricity generation
• E&P Opportunities
– 73 discovered fields of which 50 remain
undeveloped
– Proven reserves 115 billion barrels of oil
25

Strategy
• Maximise potential in Syria :
– Capture Block 26 upside before expiry Aug 2012
– Pursue new projects : capitalise on strong local relationships
• Build significant business in Iraq
– Maysan project & and other new opportunities
– Limit corporate capital commitment and risk exposure
• Maintain value of USA assets
– Prudent investment to maintain value
– Look to divestment when “fair value” realizable
• Concentrate on organic growth in near term
– Seek “ground floor” opportunities
– Acquisitions only if compelling justification exists
• Maintain strong balance sheet and cash flow headroom
26

Summary Investment Case
• In Syria:
– Exploration ‐ potential for multiple
discoveries in 2010
– Oil production likely to continue to
increase
– New projects being sought
• In Iraq:
– Maysan Gas Project ongoing
– Exploring opportunities to partner with
Major oil companies
• The Company:
– Established track record in exploration,
appraisal & development
– Clearly defined vision and strategy
– Strong balance sheet and cash flow
27

Appendix
H1 2009 Financials
28 28

Income Statement
Unit prices -49%, volumes +260%
Depl’n / boe: $6.7 Syria vs. $12.5 in US
Lower disc. rate on US P&A liabilities
Includes excess P&A costs of $0.2 MM
($2.3 MM H1 08)
Staff increases, new offices UK & Syria
c.£6 MM of cash kept in £ sterling
Total repair cost $5.5 MM, insurance
claim ~ $0.9MM ($2.7MM expensed 08)
No tax liability likely in US for some
years
Note : owing to rounding the column subtotals may not add exactly
29

Cash Flow Statement
Increase in deferred sales proceeds
$12.4 MM before w/cap movements
Decommissioning costs paid more
than funded by escrow releases
Options exercise
Note : owing to rounding the column subtotals may not add exactly
30

Balance Sheet
Escrow cash backing US decomm. liabilities
Includes $9.9 MM of deferred sales proceeds
Pro-forma $41.8 MM with deferred proceeds
Total provision $30.8 MM (incr. of $4.5 MM)
Note : owing to rounding the column subtotals may not add exactly
31

Segmental performance
Note : owing to rounding the column subtotals may not add exactly
32

33
Unit Profits & Cash Flow / bbl

34
Syria : Realised Sales Price vs. Brent (inception to date)

2009 Updated Guidance
• Group average 2009 WI Production ~ 7,750 bopd (unchanged from June)
– Syria : 6,400 bopd
– US : 1,350 boepd (slower than expected recovery from Hurricane)
• Past costs in Syria will be fully recovered by year‐end 2009
• Group Operating Costs ~ $16 MM
– Excludes DD&A, P&A costs
• Operating Cash Flow : ~ $55MM @ average Brent $60/bbl
– Previously $50 MM @ average Brent $55/bbl
• Capex : ~ $35MM
– Previously $47MM : all central production facility capex now deferred to 2010
• Estimated year‐end free cash balances ~ $55 MM
– Previously $40 MM
– Excludes escrow cash for US decommissioning liabilities
35

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