Assad end game in sight. Gulfsands Petroleum UPDATE – elevator MOVED TO floor level one & a half & rising by the day now…

UPDATE – 17/12/12 – Perhaps 21/12/12 will not in fact herald the end of the world for us all but for Assad?

We can see in the chart below that today’s price action is extremely encouraging with the stock rising decisively now through the long down trend that has been entrenched over the last 2 years and, importantly, the volume being the highest for some time – in fact, almost 3 times the daily average over the last year. This smells of institutional buying with the fund managers positioning themselves for the Syrian end game and/or a bid for the Company.

Next level to watch for is the 133-35p level that was the site of the summer peak and that I have no doubt will be reached either before Xmas or early in the New Year. For bulls of the stock we think the value realisation has not yet begun and there is 100p+ on a bid to be added to the stock price or back over 300p+ by the end of 2013 if the Assad regime falls and the production share revenues are re-introduced to the Company. In such a scenario it is a valuation impossibility that proper value would not be ascribed back to the company.

Reuters are reporting today that the French Foreign Minister Laurent Fabius believes that Syrian President Bashar al-Assad’s regime would fall soon and that the new opposition coalition had to be supported to prevent extremists taking control. “I think that the end is nearing for Bashar al-Assad,” Fabius told RFI radio.

We have covered covered Gulfsands quite extensively here at SBM over the last 8 months and posted a recent blog trailing our bull case for the stock which comprises one third of SBM’s editors’ Top 3 Picks for 2013 (see blog here – http://www.spreadbetmagazine.com/blog/have-gulfsands-petroleum-been-approached.html).

Here’s a snippet of what’s coming in the next edition of the mag and a valuation table courtesy of Edison Investment Research that should have bulls of the stock salivating if, and when, the sanctions that presently restrict GPX from receiving the 50% share of revenues from their Syrian fields are lifted…

The table assumes quite simply that the “force majeure” is lifted and GPX are able to recognise their 50% share in their accounts again. Under almost any oil price scenario and applying a heavy discount rate, the derived share price is a multiple of the current one. We think $80 per barrel of oil and a 10% discount rate is fair as highlighted.

Intro to mag piece – 

Our Gulfsands call is very simple – should Assad seek exile and flee the country or indeed he be deposed by the Syrian rebels, the sanctions on the receipt of oil revenues from Gulfsands 50% share with GPC (General Petroleum Corp of Syria) will likely be lifted and a very material uplift in the stock would occur. The market is valuing Gulfsands Syrian assets at zero whereas before they were valued at least at 200p per share. We can thus see very quickly the sort of re-rating that would occur on a resumption of activities there. It is also worth pointing out as we did during the summer that the Production Sharing terms remain in place with GPC and although the company is not presently receiving the revenues that it does accrue and so the asset base is increasing.

Two parties that seems also to be positioning themselves for the Syrian endgame is Soyuzneftegas Capital Limited & Waterford Finance & Investment Ltd who hold between them just under 27%. Waterford is the investment vehicle of Russian investor Michael Kroupeev, who held a controlling interest in Emerald Energy before it was sold to the Chinese state-backed group Sinochem for £532m. Yuri Shafranik is the former Russian energy minister and now chairman of Soyuzneftegas . It is also worth pointing out that he sits on the board of Waterford. Oh, and he also had a stake in Emerald Energy before it was bought by the Chinese… Should either party move to 30% the Takeover Panel is likely to deem them a “concert party” and so force a bid for the entire share capital.

Read the rest of the investment case in our New Year edition out at the end of the year and that will be packed full of trade ideas from all our contributors. Register your interest on the right.

Disclosure – We are long Gulfsands Petroleum.