LONDON (Alliance News) - Gulfsands Petroleum PLC on Tuesday said a shareholder of the company has filed a claim against the business in Syria, claiming he was not informed about the open offer conducted earlier this year, which resulted in his stake being significantly diluted.
The claim has been filed with the Courts in Damascus by Al Mashrek Global Investment Ltd, a firm owned by Rami Makhlouf, an individual which has provided services through a different organisation to the company in Syria.
Makhlouf claims his stake in Gulfsands has been diluted because Al Mashrek was "not properly notified" of the open offer conducted by Gulfands in January this year, which raised a total of GBP14.2 million.
Makhlouf held a 5.94% stake in Gulfsands but that dropped dramatically to 1.48% after the open offer was conducted and is now claiming a considerable sum from the company as a result.
The court has issued an order of provisional attachment of the company's moveable and immoveable assets in Syria, including the company's stake in Block 26, to secure Makhlouf's claim which is equivalent to around USD2.0 million.
Gulfsands said it is still investigating the claim, suggesting Makhlouf may have grounds to try to secure those funds, but the company said it is "determined to protect it's rights in Syria".
The civil war in Syria had already frayed the relationship with Makhlouf, especially since 2011 when the UK and other nations imposed sanctions against certain people in the country, including Makhlouf and his associates.
Gulfsands entered Syria in 2000 and signed several commercial agreements with various companies that are owned by Makhlouf, and although Makhlouf is still owed funds from the company, Gulfsands suspended all payments once the sanctions were imposed. The company also suspended some of Makhlouf's rights that he held through the stake in the business.
Gulfsands said all the relationships with Makhlouf and his companies since 2000 were conducted on "arms-length commercial terms".
A company named Ramak was one of the Makhlouf entities that had been providing services to Gulfsands in Syria since 2000, supplying support and administrative work to the Block 26 joint venture to help identify opportunities within the exploration and production sector in the country.
Block 26 was, at the time, a joint venture in which Gulfsands held a 20% stake alongside its partner, Ocean Energy, which held the other 80%. However, the ownership of the block has changed since then, but the deal with Ramak had been amended so those services could continue to be supplied uninterrupted.
The block is now a 50:50 joint venture with Gulfsands and the Sinochem group of companies.
Since Ramak began providing services to the operation in 2000, it has been paid USD900,000 in milestone payments from the various partners, and Gulfsands has paid USD270,000 of those costs.
However, as Ramak is paid on certain milestones being achieved, it could be owed further funds in the future dependent on the success at the operation as it has a 2.5% net profit interest on the block which started to flow in 2010.
However, as Makhlouf is the owner of the business, Gulfsands has not made any payments since the sanctions were imposed in 2011.
"The board of Gulfsands Petroleum recognises the importance of the company's interest in Block 26, located in Syria, and will vigorously defend this action in the appropriate courts," said Chairman Alastair Beardsall.
Gulfsands has said it is committed to its operations in Syria, but has had to focus on other assets in Morocco, Tunisia and Colombia as activity in Syria is continuing to be impacted by the sanctions.
Another major shareholder of the company, Waterford Finance & Investment Ltd, has previously criticised the relationship between the London-listed company and Makhlouf. Waterford has been critical of Gulfsands in the past and back in 2014 claimed the company had a "track record of forming partnerships that have only resulted in a waste of the company's limited resources," citing relationships with Makhlouf that had failed to deliver value.
Waterford also predicted that the relationship with Makhlouf would be a "potential liability going forward" in a statement published in January 2015.
Alongside the fall in oil prices and other difficulties, Gulfsands reported a USD69.2 million pretax loss in 2015, after booking a significant amount of impairments, compared to the USD12.1 million loss reported in 2014.
Gulfsands shares were trading down 3.0% to 4.0 pence per share on Tuesday.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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