Gulfsands Petroleum Provide Corporate Update

Source: www.gulfoilandgas.com 3/20/2015, Location: Africa

Gulfsands Petroleum plc, the oil and gas production, exploration and development company with activities in Morocco, provides the following update on the Group's current activities and other corporate matters.

Following the recent shareholder meeting of 3rd February 2015, the Board of Directors continues to review the Group's strategy and forward plans.

In order to conclude this review, additional dialogue with and input from shareholders is required. The following update and the Corporate Presentation posted concurrently on the Company's website is provided by way of background to that dialogue.

Over the past two years, the Group has made significant investments in the acquisition and exploration of its portfolio of licences in Morocco and has recently made three gas discoveries on the Rharb Centre licence.

To protect and preserve the value of this portfolio requires further, staged investment in drilling additional wells on Rharb Centre and undertaking seismic and other activities on the Fes, Moulay Bouchta and Rharb Sud blocks necessary to meet the minimum work obligations that attend these licences.

The Group is obliged to drill an additional three wells on the Rharb Centre licence in order to meet minimum work obligations associated with that licence, which expires in November 2015 following multiple extensions. The Company believes that its commitment to completion of the minimum work obligations will put it in a position to discuss with ONHYM both: the licence extensions to permit the long term exploitation of any gas discoveries made before November 2015; and a further exploration period so as to permit additional exploration on those areas of the existing Rharb licence as may be retained by the Group with the permission of ONHYM and the Oil Ministry.

The Company is also engaged in discussions with ONHYM over the timing of completing various exploration activities on its portfolio of licences such as will secure ONHYM's agreement to an extension of the term of the Fes licence beyond September 2015 when that licence would otherwise expire. The outstanding commitments on Fes include the acquisition of 350km of seismic data and the drilling of three wells. While there are a number of challenging issues to be addressed in the discussions with ONHYM, the Group is in dialogue with ONHYM to secure a suitable extension to the Fes licence and a further announcement of the outcome of these discussions will be made in due course.

The work commitment on the Moulay Bouchta licence includes the acquisition of 500km of seismic data. However the licence term extends to June 2016.

Failure to complete work commitments to the satisfaction of ONHYM will put our licences and our significant investment in those licences at risk of total loss.

Monetisation of Rharb Centre Gas Discoveries

The immediate focus of the Group's activities in Morocco is upon bringing the three discoveries made at LTU-1, DRC-1 and DOB-1 into production to generate revenues from local gas sales as soon as possible.

The current expectation is that the LTU-1 well can be brought onto production in the 2nd quarter 2015, with production from the DOB-1 well anticipated to follow early in the 3rd quarter.

The DRC-1 discovery is also planned to be brought onto production as soon as possible. Following discussions with ONHYM it has been agreed that one of the three wells to be drilled prior to 15 November should be drilled in the vicinity of the DRC-1 well to target an adjacent structure. Assuming the successful drilling of DRC-2 in the second quarter and the timely finalisation of gas transport and sales arrangements, it is anticipated that gas production from the DRC discovery should commence early in the 4th quarter of this year.

The achievement of the time lines associated with these activities will remain dependent upon a number of factors including the continued availability of funding, the completion of the pipe line tie-backs, the drilling of the DRC-2 well and the finalisation of discussions with ONHYM over gas sales arrangements. These factors are not under the Company's sole control.

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. However, Morocco's attractive fiscal regime enables the Company to retain 100% of gas sales revenues until recovery of relevant costs. Thereafter revenues are to be shared with ONHYM with 75% of gross revenue going to Gulfsands and the balance of 25% going to ONHYM. Direct costs of production are anticipated to be minimal.

Morocco is a gas-constrained country and gas prices currently being realised from adjacent production remain very strong.

It is accordingly reasonable to anticipate that, provided the three discoveries are brought into production in line with current expectations, significant aggregate revenue can be booked before the end of 1Q2016.

Oil exploration 2015: Fes, Moulay Bouchta and Rharb Sud Permits

For the remainder of 2015, the Company is required to continue its programme of seismic processing and evaluation so as to identify oil prospective targets on the Rharb Sud, Moulay Bouchta and Fes permits. Additionally, the Company is in discussion with ONHYM with respect to their requirement that new seismic data be acquired on the Fes licence area before September 2015. No drilling is anticipated on these permits before 2016.


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