13th Dec 2005 07:00
Gulfsands Petroleum PLC13 December 2005 13 December 2005 Gulfsands Petroleum PLC("Gulfsands" or "the Group") Gulfsands Completes Restructuring of Gulf of Mexico Operation Gulfsands Provides Update on Gulf of Mexico Production Gulfsands Petroleum PLC (symbol GPX), the AIM listed oil and gas exploration,development and production company with activities in the USA, Syria and Iraq,is pleased to report that the Company has completed the financial andoperational restructuring of its Gulf of Mexico subsidiary, Northstar GulfsandsLLC. The Company has taken direct ownership in approximately 52.6% of all theproperty interests formerly held by Northstar Gulfsands LLC into GulfsandsPetroleum USA Inc., a wholly owned subsidiary of Gulfsands Petroleum PLC, andconcurrently has repaid all outstanding debt accruing to its 52.6% interest inNorthstar Gulfsands LLC. Gulf of Mexico Restructuring The Company successfully completed a partition of Northstar Gulfsands LLCeffective 1 November 2005 by taking directly into Gulfsands Petroleum USA Inc.an approximate 52.6% working interest ownership in the properties formerly heldin Northstar Gulfsands LLC. In conjunction with this partition, the Companysimultaneously acquired 52.6% of the liabilities of Northstar Gulfsands LLCwhich primarily consisted of the mezzanine debt and warrants in that entity. Atclosing, Gulfsands retired its entire portion of the mezzanine debt includingwarrants that were held by the mezzanine lender for total consideration of$24.18 million. The restructuring of the Gulf of Mexico operations shouldresult in significant savings to the Company of approximately $3 million for the2006 calendar year due to the elimination of interest expense and associatedlending fees, plus a reduction in overhead. Additional savings will also be incurred on any new Gulf of Mexico projectsundertaken by the Company as there will no longer be a 4% overriding royaltypayable on new projects. Also, each month going forward certain contracts onexisting oil and gas hedges in place expire and allow the Company to takefurther advantage of the high oil and gas spot prices which are at a premium tothe prices the Company currently receives for a portion of the volumes which arebeing hedged. Current hedges represent approximately 40% of pre-Hurricane Ritaaverage daily production levels and will be down to approximately 25% offorecasted daily production by mid-year 2006 and less than 15% of forecasteddaily production by year-end 2006. All hedges will have expired by May 2007.However, as a result of the partition the Company will be required to take anon-recurring, non-cash one time charge of approximately $1.4 million to theProfit and Loss Account for the year ending 31 December 2005 primarilyassociated with goodwill that was recognized on the consolidated balance sheetof the Company following the formation of Northstar Gulfsands LLC. As a result of the partition, Gulfsands has retired all debt within the Company,incurred significant cost savings, and has retained the use of the cash flowthat is being generated from its interests in 39 Gulf of Mexico producing fieldsto fund further exploration and development in the Gulf of Mexico and elsewherewithin the Company. Following this transaction, Gulfsands owns a direct workinginterest of approximately 30.3 billion cubic feet of natural gas equivalents ofproved and probable reserves with a net present value of approximately $129million per the 30 June 2005 reserve report prepared by Netherland Sewell &Associates, Inc. Gulfsands has a working interest in 64 offshore blockscomprising approximately 216,000 gross acres offshore Texas and Louisiana. Operational Update Since the events of Hurricane Rita, Gulfsands' shut-in production has beenslowly coming back on-line toward a return to pre-Rita production levels, aspipelines and onshore facilities are being repaired by pipeline operators.Current production is approximately 40% of the pre-storm levels and continuedincreases are expected over the coming months. The Company anticipates beingback to pre-storm daily production levels during the second quarter of 2006.Prior to Hurricane Rita, Gulfsands net working interest production wasapproximately 3,000 barrels of oil equivalent per day, or approximately 6,000barrels of oil equivalent per day to the former subsidiary company NorthstarGulfsands LLC in which Gulfsands owned a 52.6% ownership interest prior to thepartition of that entity. The reduced production from the Gulf of Mexico during the fourth quarter willresult in reduced turnover and operating profit for the second half of 2005 ascompared to the first half of the year. This reduced operating profit combinedwith the write-off of goodwill may result in a small retained loss for the 2005calendar year before any potential USA income tax expense. However, even thoughproduction volumes have been down since Hurricane Rita, this event will have nonegative impact on the overall proven and probable reserves for the Company inthe Gulf of Mexico. John Dorrier, CEO of Gulfsands Petroleum, said: "Mezzanine debt finance played a critical initial role in the building ofGulfsands' business in the Gulf of Mexico. The Company however believes that itis prudent to retire that debt and the attached warrants before pursuing anexpansion program of drilling and acquisition of additional interests in theGulf. The funds for this restructuring were raised at the Company's IPO inApril and this transaction completes a fundamental objective of the IPO.Additionally, even though it is taking longer than expected to return dailyproduction in the Gulf to pre-storm levels, the Company's reserves base isunaffected and the exploration program will further benefit the Company's growthin reserves and production." Enquiries:Gulfsands Petroleum (Houston) 001-713-626-9564David DeCort, Chief Financial Officer College Hill (London) 020-7457-2020Ben Brewerton / Nick Elwes Seymour Pierce (London) 020-7107-8000Richard RedmayneJonathan Wright Note to Editors • Gulf of Mexico, USA The Group owns interests in 64 offshore blocks comprising approximately 216,000 gross acres which includes 39 producing oil and gas fields offshore Texas and Louisiana with proved and probable reserves of approximately 30.3 billion cubic feet of natural gas equivalents, consisting of 14.94 billion cubic feet of natural gas and 2.56 million barrels of oil as of 30 June 2005 with a net present value of approximately $129 million. • Syria In Syria, Gulfsands owns a 50% working interest in Block 26 and is the operator. The block covers 11,000 square kilometres and surrounds areas which currently produce over 100,000 barrels of oil per day from existing fields. The Group commenced the acquisition of an extensive 2D seismic programme during August 2005 and anticipates the drilling of the first well during the first half of 2006. Gulfsands has identified 31 exploitation and exploration prospects and leads with mean resources potential exceeding 1 billion barrels of recoverable oil. • Iraq Gulfsands signed a Memorandum of Understanding in January 2005 with the Ministry of Oil in Iraq for the Misan Gas Project in Southern Iraq and is currently negotiating the definitive contract for the project. The project will gather, process and transmit natural gas that is currently a waste by-product of oil production in the region and will end the environmentally damaging practice of gas flaring. Gulfsands has completed a feasibility study and expects to conduct further technical work and commercial discussions with the Iraq Oil Ministry. • Onshore USA Gulfsands operates onshore in the USA through its 80% owned subsidiary company Darcy Energy LLC. At the Emily Hawes field, initial gas production commenced in the summer of 2005. The first well in the Barb Mag oil field has been drilled and wireline logged with some 38 feet of potential net pay and production tested at 1.5 million cubic feet of natural gas and 36 barrels of condensate per day. Production from this well should commence during the first quarter of 2006. Darcy Energy has a 34.375% and 37.5% working interest in these fields respectively. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Gulfsands Petroleum