Monday, Dec 12, 2011

LONDON (Dow Jones)--Oil and gas explorer Gulfsands Petroleum PLC (GPX.LN) said Monday it has invoked the force majeure provisions of its production sharing contract in Syria, after the European Union stepped up pressure on the country's regime with additional sanctions against three state-owned oil companies.

The immediate consequence of the force majeure declaration is that Gulfsands can't expect for the foreseeable future to receive any revenue from its Syrian assets, which comprise the vast majority of its revenue-generating activities.

The company, however, noted that it has no debt and substantial net cash balances, which at Nov. 30 exceeded $120 million.

Gulfsands owns a 50% working interest and is operator of the 5,414 square kilometer Block 26 in North East Syria, with Sinochem, a Chinese state-owned company its partner on the block. Sinochem agreed to the issuing of the force majeure declaration.

General Petroleum Corporation, Syria's representative and effectively the group's partner in the production of oil from Block 26, indicated that the state is prepared to accept the notice of force majeure, but also intends to produce oil from the block during the force majeure period, at its own cost and using its own resources.

In this eventuality, the production sharing contract between the companies won't be terminated and Gulfsands' rights under the contract will be preserved, it said.

The contract provides that not only does the Syrian state have the power to do so, it also provides that Gulfsands is compensated for the oil produced, though the company didn't give any further details.

Gulfsands' assets on Block 26 include the Khurbet East oil field which has been producing at an average rate of around 21,500 barrels of oil a day during August. A second field discovery, the Yousefieh field, was brought on-stream in April 2010, and has been producing at around 2,600 barrels of oil a day.

Shares at 0905 GMT were down 18.5 pence, or 9.9%, at 167.7 pence, in a slightly lower Alternative Investment Market--down 0.1%.

-By Iain Packham, Dow Jones Newswires; 44-20-7842-9269; iain.packham@dowjones.com

(END) Dow Jones Newswires

12-12-11 0932GMT