Gulfsands Petroleum Regulatory News (GPX)

2 May 2007 07:00

Gulfsands Petroleum PLC02 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", "theGroup" or "the Company"), the oil and gas production, exploration anddevelopment company with activities in the USA, Syria and Iraq announces itspreliminary 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 assetsmaking 2006 the first financial year in which the Company has independentlymanaged those assets. We are therefore especially proud of the achievement ofour Gulf of Mexico team in delivering such strong results in terms of bothfinancial performance and in reserves growth. This comes in spite of thenegative impact to operations in key Gulf fields as a result of residualhurricane related damage to pipelines during the first 4 and a half months of2006 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-lookingstatements are based on certain assumptions by Gulfsands and as such are not aguarantee of future performance. Actual results could differ materially fromthose expressed or implied in such forward-looking statements due to factorssuch as general economic and market conditions, increased costs of production ora decline in oil and gas prices. Gulfsands is under no obligation to update orrevise 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 theend of 2006 we had restored production in the USA Gulf of Mexico back topre-storm levels; commenced an active drilling programme in Syria; drilled asuccessful exploration well in the USA Gulf of Mexico; increased the Group's oiland gas reserves in the Gulf of Mexico; and, returned the Group toprofitability. Syria In the Syrian Arab Republic, Gulfsands as the 50% working interest owner andoperator in Block 26 completed an additional 266 line kilometers of 2D seismicand commenced an active drilling programme consisting of four well commitmentdrilling wells to be completed by August 2007. Two wells were drilled duringcalendar 2006 with results that are as yet inconclusive. A subsequent well,Khurbet East-1, commenced drilling in February 2007. This third well hasalready encountered good oil shows in two separated prospective reservoirs with22.5 metres of net oil pay in the Cretaceous Massive Formation commencing at1,917 metres and some 26.4 metres of net oil pay shown on wireline logs in theTertiary Chilou B Formation starting at 1,319 metres. The Company obtained anoil sample from the Massive Formation with an estimated API gravity of 21degrees at surface conditions. No similar wireline pressure or fluid recoveryoperations could be conducted over the Chilou B due to the large diameter of thehole at this shallow depth. There remain additional reservoir targets in thiswell below the Massive Formation. The well is expected to be at planned totaldepth of 3,700 metres by mid May with production testing to follow. The Company is also in discussions regarding an oil and natural gas developmentproject in Syria in cooperation with other parties in the region. USA The Group's USA reserves increased significantly during 2006 primarily as aresult of extensive workovers and recompletions of existing wells in the Gulf ofMexico which resulted in proved and probable reserves totaling 44.6 BCFGE (7.4MMBOE) as of 31 December 2006. These reserve additions replaced 389% of theGroup's 2006 produced oil and gas volumes. Also significant to USA operationswas restoring production to pre-storm levels of approximately 3,000 boepd by theend of 2006. Iraq The Group continues to make progress in its discussions with the Iraq OilMinistry on the Misan Gas Project along with other business initiatives in Iraq. The Misan Gas Project is a midstream project that will gather gas currentlybeing flared at oil fields in Southern Iraq and bring the gas to a centralprocessing plant to be cleaned of impurities and to have the light hydrocarbonliquid fraction (natural gas liquids) removed. The natural gas will then betransmitted for further distribution and use in Iraq. It is intended that theextracted hydrocarbon liquids will then be transferred to a southern port forstorage, offloading and export. The Group signed a Memorandum of Understandingfor this Project in January 2005. Outlook In summary, 2006 was an active and successful year for the Group, resulting in asignificant increase in our oil and gas reserves and the commencement ofexploration in Syrian Block 26, including the recently announced success atKhurbet East. Financially the Company experienced increases in each of its profit, turnover,cash flow from operations, fixed assets, net assets and shareholders' funds forthe year. The Group's current activities in Syria, the USA Gulf of Mexico andonshore Gulf Coast, and Iraq together with its solid financial position allprovide significant potential for expansion during 2007 and beyond. Andrew WestChairman30 April 2007 GULFSANDS PETROLEUM PLCConsolidated Profit and Loss AccountYears 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 45,012Cost 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 itemsShare 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 6,766before interest Unwinding of discount on (2,223) (1,370) (1,234) (2,604)decommissioningInterest receivable 1,193 1,413 205 1,618Interest payable - (2,510) (1,822) (4,332) Profit/(loss) on ordinary activities 2,101 (2,410) 3,858 1,448before 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 GulfsandsPetroleum 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 SheetAs at 31 December 2006 2005 Notes $'000 $'000Fixed 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 PLCConsolidated Cash Flow StatementYears 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 financeInterest received 1,193 1,619 - 1,619Interest 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 disposalsPurchase of Minority Interest (277) - - - Net cash outflow from acquisitions and disposals (277) - - - FinancingCash proceeds from issue of shares 3,931 56,651 - 56,651Contributions to subsidiary undertaking - 101 - 101Warrants exercised for cash - 1,689 - 1689Issue costs of share capital - (464) - (464)Receipts from new loans - 1,474 1,329 2,803Repayment of loans - (10,820) (9,751) (20,571)Payments in respect of warrants - restructuring - (3,550) - (3,550)costsMinority 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 historicalcost convention and in accordance with applicable UK accounting standards andthe 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 fullstatutory accounts within the meaning of Section 240 of the Companies Act 1985.The figures are extracted from the audited full financial statements for theyear ended 31 December 2006 which will be filed with the Registrar of Companiesand sent to shareholders in due course. These financial statements consolidate the accounts of Gulfsands Petroleum plcand all its subsidiary undertakings (the 'Group'), drawn up to 31 December eachyear. 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 operationsand the majority of all costs associated with foreign operations are paid inU.S. dollars and not the local currency of the operations. Therefore, thereporting and functional currency is the U.S. dollar. Gains and losses fromforeign currency transactions, if any, are recognised in current profit or lossfor the period. (b) Oil and gas properties The Group follows the full cost method of accounting for oil and gas propertiesunder which expenditure on pre-license, license acquisition, exploration,appraisal and development activities is capitalised. All capitalised explorationand development expenditures are recorded within an appropriate cost pool withintangible fixed assets, except that certain exploration and appraisal costs maybe held outside a cost pool pending determination of commercial reserves, withinintangible fixed assets. The Group has two cost pools: USA and Syria. TheGroup's definition of commercial reserves is proven and probable reserves. Pre-license acquisition, exploration and appraisal costs of individual licenseinterests held outside a cost pool remain un-depreciated pending determinationbut subject to there being no evidence of impairment. When a decision to developan oil and gas property has been taken, or if there is evidence of impairment invalue, the costs are transferred to the appropriate cost pool within tangiblefixed assets. Costs carried within each pool are depreciated on a unit of production basisusing the ratio of oil and gas production in the period to the estimatedquantity of commercial reserves at the end of the period plus production in theperiod. Changes in estimates of commercial reserves or future development costsare dealt with prospectively. When events or changes in circumstances indicate that the carrying amount ofexpenditure within a cost pool may not be recoverable from future net revenuesfrom oil and gas reserves attributable to that pool, a comparison between thenet book value of the cost pool and the discounted future cash flows from thatcost pool is undertaken. To the extent that the carrying amount exceeds therecoverable amount, the pool is written down to its recoverable amount andcharged as additional depreciation. (c) Decommissioning Where a material liability for the removal of production facilities and siterestoration at the end of the production life of a field exists, a provision fordecommissioning is recognised. The amount recognised is the present value ofestimated future expenditure determined in accordance with local conditions andrequirements. Accretion expense is recognised to represent the unwinding of thediscount of the present value of the provision for decommissioning. A tangiblefixed asset of an amount equivalent to the provision is also created anddepreciated on a unit of production basis. Changes in estimates are recognisedprospectively, with corresponding adjustments to the provision and theassociated 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 2005Weighted average number of shares: Number Number For basic earnings per share 95,565,086 85,442,295Options 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 aunit-of-production basis, using the ratio of oil and gas production in theperiod to the estimated quantities of proved and probable reserves at the end ofthe period plus production in the period, on a field-by field basis. Proved andprobable reserve estimates are based on a number of underlying assumptionsincluding oil and gas prices, future costs, oil and gas in place and reservoirperformance, which are inherently uncertain. Management uses establishedindustry techniques to generate its estimates and regularly references itsestimates against those of external consultants. However, the amount ofreserves that will ultimately be recovered from any field cannot be known withcertainty until the end of the field's life. Included in oil and gas properties above are capitalized decommissioning costswith 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 andin their opinion, no impairment provision is considered necessary. 4. Intangible fixed assets Exploration and Computer Total evaluation assets - Software SyriaCost: $'000 $'000 $'000 At 1 January 2006 5,691 38 5,729Additions 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 representactive exploration projects. These amounts will be written off to the profitand loss account as exploration expense unless commercial reserves areestablished or the determination process is not completed and there are noindications of impairment. The outcome of ongoing exploration, and thereforewhether the carrying value of E&E assets will ultimately be recovered, isinherently uncertain. The Directors have reviewed the oil and gas E&E costs forpossible impairment. No provision for impairment is considered necessaryagainst E&E cost incurred in the oil and gas field under exploration as at 31December 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 - - 3,931Share based payment charge (note 19) - - 851 - 851Retained 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 premiumof 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 reservesin 2006 in accordance with FRS 20. 6. Annual General Meeting The Annual General Meeting of Shareholders will take place at 11:00 A.M. onThursday 28 June 2007 at the offices of College Hill Associates Limited locatedat 78 Cannon Street in London, England. All shareholders are welcome to attend. This information is provided by RNS The company news service from the London Stock Exchange