by Jamie Ashcroft and Giles Gwinnett
—Adds broker comment—
Shares in Gulfsands Petroleum(LON:GPX) rose today after it announced the acquisition of new assets in northern Morocco, which could deliver revenues next year.
The AIM-quoted oil firm has struck a deal with Caithness Petroleum to buy Cabre Maroc Ltd, which owns a portfolio of licences spanning 13,352 square kilometres. Caithness will retain minority participating interests in two projects.
“Gulfsands has carefully assessed numerous opportunities to diversify its business and we are delighted that our much preferred opportunity, the acquisition of Cabre Maroc, has been concluded,” said chief executive Ric Malcolm.
“We believe this acquisition represents a tremendous opportunity to develop a substantial business in Morocco, with potential near term cash flow and exciting exploration upside and in a country well recognised for its stability and attractive fiscal terms.”
Gulfsands is paying US$30mln for the assets, comprising a $19mln cash payment and $11mln of Caithness’s share of future costs, and it must also put up $11.5mln as a guarantee of future exploration commitments to the Moroccan regulator ONHYM.
The Rharb Centre permit, which hosts a proven conventional and shallow depth gas play, is among the priority assets in the newly acquired portfolio.
“The company believes that there is meaningful near term value potential contained within the proven conventional and shallow depth gas play in the Rharb Centre permit, together with significant exploration upside related to the fold and thrust belt structures identified in the adjacent Rharb Sud, Fes and Taounate permits.”
Five wells have previously been drilled within the Rharb Centre permit, all of which encountered gas. The wells have subsequently been completed with successful extended production tests.
An assessment of the discoveries in July this year put 2P (proved + probable) reserves at 0.6bn cubic feet, with 2C (best estimate) contingent resources of 1.4bn cubic feet and P50 (50% probability) prospective resources of 24.4bn cubic feet.
It is planned that gas will be produced from these discoveries and sold via existing nearby gas infrastructure to local industry. This is expected to start in the third quarter of 2013 and, based on current development plans, Gulfsands says it could be selling around 7mln cubic feet per day in 2014.
The current plans allow for five years of production at that level.
Gulfsands also plans to carry out an extensive drill programme, of between five to nine wells, next year.
Malcom told a live webcast this morning: “Based on these assumptions, cash flow generated after tax would exceed the group’s general and administration costs on an annualised basis and pay-back of the acquisition of Cabre Maroc would be approximately three years.”
The company says the individual gas prospects being targeted are relatively modest in terms of reserves, but because they are at shallow depths the drilling and completion costs are particularly low – at around $1.5mln per well.
Also the gas is said to be almost pure, about 99% methane which means minimal processing is required allowing for a short ‘cycle time’ from discovery to production. This can be a matter of weeks rather than years, it said.
“When taken together with our move to strengthen our position in Tunisia where we will operate onshore for the first time, 2013 hails the start of a new phase of activity for the group.”
Broker N+1 Singer also reckons the move is positive.
“A major step for Gulfsands in accessing a meaningful position in a hot industry region and a new geographical focus after having lost much of what the company had built up in Syria,” it said in a note.
Shares rose 0.65% to stand at 115.75p each.
