LONDON (Alliance News) - Gulfsands Petroleum PLC shares dropped on Friday after it said it will need to source USD15 million of new capital to fund its planned operational activities over the forthcoming twelve months or risk losing some of its licenses if it does not complete minimum work commitments on time.
Gulfsand shares were down 16% to 23.00 pence per share on Friday morning.
The oil and gas exploration and production company focusing on the Middle East and North Africa said its Syrian asset Block 26 "remains the company's most important asset" and said it is the "highest priority to do all possible to ensure the security of this asset."
Gulfsands holds a 50% interest in Block 26, which is not involved in any production or exploration activities as force majeure has been declared following the introduction of EU sanctions against Syria.
The company said there can be no certainty as to when it can return to normal operations in the country.
Gulfsand's Moroccan assets, the Fes, Moulay Bouchta and Rharb Sud blocks, all carry minimum work obligations. On the Rharb license, the company is required to drill a further three wells before November 2015 to meet its requirements, and this has already been extended numerous times.
Gulfsands said it is in discussions to extend the Fes license for additional exploration, but said it will need to lay out its schedule of when the drilling commitments will be completed.
"In order for the group to implement the anticipated minimum work programme for Morocco, set out above, excluding the acquisition of new seismic data on the Fes block, it will need to invest approximately USD11.0 million in capital expenditure over the next 12 months with much of this to be committed to in the next three to six months," said the company.
"To continue with its Moroccan programme referenced above, the group will thus need to fund operational expenditure of approximately USD20 million over the next twelve months, excluding the acquisition of new seismic data on the Fes block," it added.
It said it will fund this using gas sales revenue from the Rharb field which will start in the second quarter and from the planned disposal of its Colombian and Tunisian assets.
Gulfsands said failure to complete work commitments will "put our licenses and our significant investment in those licenses at risk of total loss".
Its immediate focus is on bringing three wells into production in Morocco to generate gas revenue as soon as possible.
The LTU-1 well is expected to come online in the second quarter, followed by the DOB-1 well in the third and the DRC-1 well in the fourth. However, Gulfsands did say bringing the three wells into production will depend on funding, completion of pipe line tie-backs, drilling and finalising gas sales agreements.
"Until gas production has commenced and gas sales arrangements have been finalised, it is not possible to state with certainty either the daily volumes of gas that can be produced on a sustainable basis or the sales price that can be realised from gas sales," said Gulfsands.
If the wells are brought into production on schedule, the company said revenue will begin improving its results from the first quarter of 2016.
In Tunisia and Colombia, Gulfsands is attempting to sell or divest from its assets "as a matter of priority". In the meantime it will focus on reducing expenditure and said it has committed USD3.2 million of cash as collateral for guarantees of minimum work commitments in Colombia, but has not needed to make any provisions for Tunisia.
"The company will need to fund its business running costs for the next twelve months, including the one-off costs of the restructuring of our corporate overhead and of our operations in Tunisia and Colombia, which are estimated to total USD8.5 million," it said.
Gulfsands said its current aggregate annual operating expenses and overheads were running at around USD11 million at the start of March, and said it plans to reduce this by 30% by the end of the financial year.
At March 1, Gulfsands reported a cash balance of USD800,000, but said after the deduction of current liabilities, it has USD3 million in net working capital to fund ongoing expenses.
"Taking account of the anticipated timing of expenditures and revenue receipts, the group will realistically need access to approximately USD15 million of new capital to fund its currently planned operational activities over the forthcoming twelve months," said Gulfsands.
"Irrespective of the precise extent of the company's exploration activity going forward, the requirement for working capital funding is immediate and discussions with major shareholders are underway urgently to that effect," it added.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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