WTI (Feb) $74.25 +69c, Brent (Mar) $77.05 +75c, Diff -$2.80 +6c
USNG (Feb) $3.45 -23c, UKNG (Feb) 119.0p +2.49p, TTF (Feb) €47.31 +€0.54

Oil price

Oil continues to rise gently, back to last autumns levels and with the API stats showing a very decent draw of 4 millions barrels of crude oil.

Kistos

Kistos has provided a trading and operational update ahead of its results for the year ended 31 December 2024. 

Production and reserves

• Proforma production for 2024 averaged 8,050 boepd, in line with FY24 guidance
• Year-end net 2P reserves estimated to be 24.6 mmboe (Company estimate)
• FY25 production guidance set at 8,000 boepd – 9,000 boepd

Financial

As at the 31 December 2024:

• Total cash of $144 million(1), following receipt of $84 million in tax rebates in December 2024  relating to the Company’s Norwegian assets (the anticipated receipt of which was noted in the Company’s Interim Results)
• Tax rebates receivables of approximately $65 million in respect of investments in the 2024 calendar year payable in December 2025
• Proforma net debt(2) of approximately $45 million (including tax rebates within the next year)
• Undrawn cash facilities of a further $20 million in place
• Hybrid Bond debt, contingent on operational milestones being met, including the offload of 500,000 barrels (gross) of Balder crude oil from the Jotun FPSO between the 31 December 2024 and 31 May 2025 has reduced to $30 million (originally $45 million)
• Based on the timeline outlined by the operator, Kistos now expects the start-up of Jotun to occur around mid-year and, therefore, as previously announced on 21 August 2024 expects there will be no payments due under the Hybrid Bond terms

(1) Includes $30 million of cash deposited in escrow as collateral against Decommissioning Security Agreements and $2 million deposited in escrow against Letters of Credit under gas storage capacity arrangements.
(2) Non-IFRS measure. Proforma net debt is a measure that management believe is useful as it provides an indicator of the Group’s overall liquidity. It shows the impact to net debt as if the 2024 Norwegian tax rebate of approximately $65 million had been received as at the 31 December 2024 and is defined as unrestricted cash and cash equivalents less the fair value of outstanding bond debt excluding the Hybrid Bond which, in management’s view, represents contingent consideration rather than bond debt due to the payment triggers associated with it. This is a change in the presentation of net debt, previously net debt was not shown on a proforma basis, excluding the impact of the Norwegian tax rebate, and defined as unrestricted cash and cash equivalents less the face value of outstanding bond debt excluding the Hybrid Bond

Operational

• The Jotun FPSO upgrades are nearing completion as per the operator’s announcements
• Kistos holds 10% interest in the Balder Area
• The operator (Vär Energi) estimates that the Balder Future project will target gross production of 80 kboepd through the Jotun FPSO and gross 2P reserves of 150 mmboe
• Balder Phase V, targeting 2P reserves in excess of 30 mmboe, is progressing with a six-well drilling campaign due to commence in the first quarter of 2025, using the COSL Pioneer semi-submersible drilling rig
• Completion of the drilling campaign is expected in 2026
• On the wider Balder field, Phase VI and future 2C projects are continuing to be matured to increase recovery from the prolific Balder field with an investment decision for Phase VI expected in the first half of 2025
• Having acquired the UK gas storage facility with working gas capacity of 17.8 million therms, Kistos has already increased it to 22.1 million therms (by 24%) and the Company has a road map to increase it to 35.0 million therms, which is a further 62% increase by recommissioning
• The economic evaluation to potentially take this project to a final investment decision is ongoing
• The anticipated change of operator in the Greater Laggan Area is expected to take place in H1 2025, with the expectation the new operator will provide additional momentum in sanctioning development projects to extract near-term value from the area, such as Glendronach

Andrew Austin, Executive Chairman of Kistos, commented:
“Our production assets performed well throughout 2024, ensuring we achieved production guidance and delivered strong cash flow. The receipt during December 2024 of the 2023 tax rebate of $84 million relating to our Norwegian assets further simplified and strengthened our balance sheet. We expect to receive approximately $65 million of tax rebates in 2025 in respect of investments made during 2024, which continues to demonstrate the strong investment environment in Norway. With proforma net debt of approximately $45 million and strong access to liquidity, the Company remains well-placed to fund existing developments and future growth opportunities.   

As we enter 2025, a major milestone remains the further expansion of our production profile in Norway, driven by first oil from the Balder Future development. The next major development chapters in the area will also commence this year, with Balder Phase V commencing drilling, whilst we anticipate that Vär Energi will focus significant resources on maturing the Phase VI and 2C opportunities which have been identified on the Balder area. Coupled with planned exploration in the area, there remains material potential to convert resources to reserves, thereby extending field life and improving field economics.

Our portfolio continues to offer significant potential organic growth opportunities, from new oil production in Norway, to gas developments in the Greater Laggan Area and expansion of capacity at our UK gas storage facility. Furthermore, given our robust cash position, the Board continues to assess acquisition opportunities that offer value accretive expansion.”

Kistos is looking in good shape right now given the deck it has been given by the UK Government and its fiscal policy that is driving away investors and killing off the domestic oil & gas industry. But as this update shows, Kistos is bearing up and with ongoing production sitting at around 8/- b/d and looking likely to be on a decent long term rising trend, particularly with Balder coming on stream later this year.

The company has made the debt, cash and near cash very clear and it’s very positive. As seen above in the RNS Kistos has $144m of cash after receipts of $84m in December for the tax rebate and will receive another of $65m in December 2025 so pro forma net debt of $45m with undrawn cash facilities of a further $20m in place leaving the balance sheet ‘simple and strong’. 

With the Balder hybrid debt leaving the picture we know that production from the development will commence later this year and it leaves the company well placed, Balder Future leads to Phase V and there is more exploration behind that for significant potential upside.

Elsewhere the substantial amount of growth opportunities are not limited to Norway, the GLA is a good gas development and with the arrival of Prax, Glendronach should move up the pecking order. I remain very optimistic about the potential for the UK gas storage business and of course Kistos is always assessing acquisition opportunities for ‘value accretive expansion’ and so I remain as confident as ever in the high quality management team to deliver for shareholders who we must remember the Chairman and the Board are  significant stakeholders…

SYRIA UPDATE

Interview with Gulfsands’ Managing Director John Bell regarding Developments in Syria

Following recent developments in Syria, and tied in with yesterday’s news that the USA has announced it is ‘easing select restrictions’ on the country’s transitional Government, I recently sat down with the man who is in the know, John Bell, Managing Director of Gulfsands Petroleum. 

Readers will know that I have always felt Gulfsands to be a jewel in the Syrian desert, and I have followed it throughout the 13 years of civil war in the country, and of course it’s laudable “Project Hope” humanitarian initiative. Whilst Gulfsands (which formerly had the ticker GPX) had to leave the quoted space in London, it has been extremely keen to maintain the discipline of a quoted company to the extent of producing Annual Reports and even a recent CPR, as well as staying ‘quoted’ on Asset Match, a platform for a range of companies in differing stages of development. I have regularly reported on price movements on the platform and indeed that directors John Bell and Andrew Morris have been buying stock when offered.

Things are moving fast in Syria. I know that what John was able to tell me is important to Syria as a nation, but also the many international companies including Gulfsands who have remained committed to the country in the last thirteen years, and many investors.

Since the interview just a few days ago, there has been further activity showing promising developments including the issue by the USA of a ‘general licence’ lasting six months which authorises certain transactions with the Syrian government importantly including some energy sales and incidental transactions. Whilst European officials have not yet lifted sanctions, I would imagine that they will be encouraged by the strong and swift action from the USA.

In other good news international flights are now starting to operate in and out of Damascus International airport.

Overview and My Thoughts

Before running the interview in full below, I would like to thank John for his time with me, allowing us all to catch up on what I hope will be an exciting future for both the company and the country of Syria. Whilst we come at it from an investment point of view, we are all ultimately most concerned about the plight of the Syrian people after what has been a dreadful time in recent years.

With a review of my Bucket List imminent I am considering including Gulfsands even though at the moment it is only available on Asset Match. I think that it would be an interesting wide ball and one to be considered.

As regular readers will know, I have been following Gulfsands for many years and have a great deal of respect for what the Management team, led by John Bell, have done over the last few years to reposition the company. Recent developments in Syria mean that all these efforts may be about to pay-off and reward long-term, patient investors.

While it is impossible to predict how the domestic and geo-politics of Syria will work out over the coming year, all the signs appear positive. This is undoubtedly a time of great opportunity for Syria and the Syrian people.

As you will hear below, Gulfsands trades at a massive discount to potential NPV of the Syrian project, and its readiness to return when circumstances allow (which recent developments suggest may now be sooner rather than later) mean that this investment has the potential to turbocharge any portfolio. This is before taking into account their other business development plans in the MENA region, which I intend to explore further with the company at a future time.

The Asset Match platform provides an opportunity to trade right now and ambitions to re-list in due course give options for further liquidity in the future, and so I believe Gulfsands is  worthy for consideration in the 2025 Bucket List.

The Interview

1. Q)            John, it was a tumultuous end to 2024 in Syria. How has this affected Gulfsands, which has long held interests in the North East of the country?
2. A)             Thanks Malcy, and thank you for your time today. Tumultuous to say the least. Recent developments in Syria caught a lot of people by surprise, and the dust is still settling. While there are a lot of challenges ahead, I’m cautiously optimistic for the Syrian people. And that’s the fundamental priority here – how can Syria and the Syrian people get back on their feet and construct a peaceful future.

As for Gulfsands, you’re right that we have been present in Syria for over 20 years now. We declared force majeure in 2011 to comply with international sanctions, and so have not undertaken any active operations since, although we retained our office in Damascus. We have, as you know, always stated our intention to return to operations when circumstances allow.

Prior to 2011, we had invested over $300 million in Block 26 as part of a production-sharing contract (“PSC”) with the Syrian Government. Production from our field was at almost 25,000 boe/d before the civil war broke out. We hope that the time is now approaching when a return to operations looks feasible.

1. Q)            When do you think you might be able to return? 
2. A)             That’s a good question. We do not want to hurry back until the time is right, but we actually believe that the energy sector is an essential part of the peace-building, early recovery and reconstruction process of the country. That is precisely why we’ve long advocated for Project Hope – a humanitarian and economic stimulus initiative which would see international energy companies returning to operations and in turn, the sector providing significant revenue to fund the humanitarian and recovery needs of the Syrian people.

Rebuilding the energy sector will be a key element of the rebuilding of Syria. That is why we believe it should be a priority for the new Syrian government.

In addition to generating revenue for the country, building indigenous supply will also help provide a level of energy independence, help alleviate the chronic energy shortages in Syria, and meet the drastic need for fuel for heating and transportation, especially over the winter months. A revitalised energy sector, with the involvement of competent international energy companies, will also enable the start of the environmental clean-up, helping begin to reverse the environmental devastation and health risks caused by illegal and unsophisticated oil field practices in recent years.

1. Q)            What do you mean by illegal and unsophisticated oil field practices?
2. A)             Since around 2017, the Syrian Democratic Forces (SDF) have been haphazardly operating oil fields in North East Syria, including Gulfsands’ Block 26. We consider this production to be unlawful and in violation of our pre-existing agreements with the sovereign government.

More importantly, the SDF have been operating these fields with little regard to the environment or wellbeing of local populations. We have seen devastating evidence of environmental destruction and increased health issues for local people. Only a return to legitimate production, with market-leading technologies, know-how and practices led by international energy companies, can turn the tide, begin to repair the damage, and ultimately benefit the Syrian people.

1. Q)            So what, in your opinion, needs to happen for Syria to move forward, and for Gulfsands to return to operations?
2. A)             It has never been for us, nor will it ever be, to comment on the political way forward in Syria. It is for the Syrians to decide what they want. Our hope is simply that the territorial and sovereign integrity of Syria will be respected as outlined in UN Security Council Resolution 2254.

As it pertains to Gulfsands’ operations, we have a valid sovereign PSC and we look forward to starting the process of lifting force majeure on that contract as soon as possible. In order to do that, the new Syrian Government will need to be comfortable with our planned work programs, and the security situation in the North East will also need to be assured.

It is important to us that we rebuild our relationships,  and reintegrate with the existing government institutions, and ensure there is appropriate communications and oversight. With these safeguards in place, we can help kickstart the rebuilding process for all Syrians. We must also ensure knowledge-sharing to rebuild capability and capacity within country, as there has been a huge erosion and leakage of Syrian energy sector expertise over the last decade or more.

In addition, of course, the current sanctions regimes in the US, UK and EU will need to be amended to allow international companies, such as Gulfsands, to return and indeed allow any flow of much needed foreign direct investment. It is well reported that the current sanctions are a top priority topic to be resolved between the new Syrian government and those governments imposing the sanctions. We hope that progress is made on this matter for the sake of the Syrian people in the near term.

1. Q)            As you say, before declaring force majeure, Gulfsands had production of almost 25,000 bopd. I also recall that your Market Cap in early 2011 was around $750m. How do you see the value of B26 if sanctions are lifted and you are able to return? 
2. A)             That’s right, we did have a valuation of $750 million at the peak, but that was also before a full appreciation of the upside in the block.

Now it’s not for me to speculate what the share price should be, and there are many ways to look at this. One good point of reference, perhaps, is our most recent CPR undertaken by OPC at last year (as at 1 January 2024), which we have disclosed in our Annual Report. This looked at the existing producing assets together with our Field Development Plan (“FDP”), as well as the risked Prospective Resources of an identified step-out exploration programme.

OPC calculated that, without taking into account what they called “above ground” issues, such as political issues and sanctions risks, the Expected Monetary Value of Gulfsands’ share was US$1.8 bn. So that shows the potential.

The CPR also gave us, as at 1 January 2024, net 2C Contingent Resources of 110.4 mmboe  (gross 220.8 mmboe). Importantly, OPC confirmed that under sanction lifting and a return to operations, the vast majority of our Contingent Resources will be reclassified back to being 2P Reserves (as they were pre-crisis).

The other exciting thing about this CPR is that it confirms that under our FDP we can get to 33,000 boepd within the existing well count and over 50,000 boepd within the existing discoveries. Our high impact, and ready to execute, exploration programme can take this to over 100,000 boepd on a risked basis.

As you can see, while we have been unable to operate in Syria for many years, we have not rested on our laurels and have re-analysed all data that had been collected pre-crisis, which has both increased the resources/reserves attributable to our existing discoveries (as at 1st January 2024, net 110.4 mmboe  (gross 220.8 mmboe)), and we have also identified an extensive exploration programme that we plan to implement upon return.

1. Q)            So despite the damage caused by the SDF through its oilfield practices in recent years, you remain optimistic about the potential of your Block 26 assets?
2. A)             In a word, yes. We need to get boots back on the ground to fully evaluate the situation, but our understanding is that, with targeted investment, we could get production back above pre-2011 levels within short order and further beyond that by following our FDP and Exploration programme.
3. Q)            You said that ‘targeted investment’ would be required to return to operations in Block 26. What level of investment are you planning?
4. A)             The return to Syria will, of course mean increased expenditure and investment to prepare for, and implement, our return. Our existing Major Shareholders have been very supportive throughout the crisis and so they may provide that financing themselves. We are therefore not looking for external financing at this stage, however, we have not yet finalised our financing plans and so that may provide an opportunity for some new investors to join the register in due course.

I should also add that we are of course not only focused on Syria. We also have a number of other MENA business development opportunities in the pipeline, which we plan to finance on a case-by-case basis, either at a PLC level or via our dedicated Abu Dhabi subsidiary GMEL. Perhaps we can discuss those on another occasion.

1. Q)            Remind me how potential investors can invest in Gulfsands?
2. A)             While we delisted from AIM in 2018, we have sought to keep high governance, reporting and disclosure standards as can be seen from our Annual Report each year. We have also maintained a trading facility on theAsset Match platform where shares trade at periodic auctions. There will be an auction closing during Q1 this year and details can be found at assetmatch.com .

The company is looking at all options to return to a listing on a senior international market and as soon as the appropriate opportunity arises, we intend to do so, thus enabling those historic shareholders and potential new investors in the company to participate in the exciting prospects I hope I have outlined.

Original article   l   KeyFacts Energy Industry Directory: Malcy's Blog