Gulfsands Petroleum update

We have been asked to comment upon the shareholder movements last week that involve major shareholder Waterford Finance & Inv Ltd increasing their holding by a shade under 10m shares in the oil explorer to 32.5m shares (27.57%) whilst Soyuzneftgas Capital Limited reduced their holding to nil from just under 8m. Essentially the stocks was sold from one to the other with an additional circa 2m shares being purchased on Waterford’s part. Waterford F&I is the investment vehicle of Russian investor Michael Kroupeev. Kroupeev was of course a major shareholder in Emerald Energy before it was sold to the Chinese state-backed group Sinochem for £532m.To square the circle here, the partner of Gulfsands in their Syrian fields Block (26) is? Yes, you guessed it- Sinochem.

So, the positions on the monopoly board that is GPX are being re-arranged and with the arrival of financier Richard Griffiths in recent weeks this makes it all the more intriguing for shareholders… As I have relayed before, there is one thing that this man really knows how to do and that is make money.

As the end game in Syria draws nearer, with the elections on 4^th June and, it seems the terrible war increasingly being pushed towards a victory conclusion by the Assad regime, at my recent meeting with GPX management and CEO Mahdi Sajjad they made it clear that they do not expect the EU sanctions to remain in place perhaps beyond the end of this year (that of course is pure conjecture). GPX posted their investor presentation this week and the one take away for me that stands out here is the comment by management that they stand ready for the field’s operation once more and can produce immediately 20,000 barrels a day. Net effect of such a move on the stock price? In my opinion a price starting with a 2 (and 2 digits after it not 1!)

I personally took the opportunity to top up my own holding in the shares on the dip back to the late 40’s just over a week ago and rather suspect that I will not have the chance to do so again now. Market speculation is that in anticipation of a lifting of the EU sanction over the next 12 months, that Waterford are positioning themselves with a solid bid platform (a move over 30%, including acting “in concert” with another shareholder triggers a bid per UK takeover rules). Not only I, but Richard Griffiths and other institutional shareholders know what the embedded value of this company is, and it must be remembered that the CEO Mahdi last bought shares for his family trust at 117p in May 2012 and Chairman Andrew West at 179p. Mahdi Sajjad actually holds over 8m shares in total with the entire management team approx. 10% in aggregate. If a bid is actually tabled then I would guess that somewhere around 150p would stand a chance of success amongst the balance shareholders.

The alternate explanation for the increased stock holding on Waterford’s part of course is that they are ensuring they have a blocking stake (25% typically required) in the event of a third party low ball bid by one of the usual suspects – CNOOC (China National Offshore Oil Corp) or Indian Oil Corp. Whichever way you take it however, Waterford’s and Griffiths’ stake building speaks loud and clear that they, unsurprisingly, see value in the stock at this current price.

One final point, at my meeting with management they relayed their own frustrations at the current equity value and while not overtly saying so, I got the impression that when out of the closed period (which was early April) that they would be looking to buy stock. The absence of purchasing could be for many reasons or, it could be that they are “restricted” from doing so. This would of course add credence to some type of corporate news be it an approach or news on the Morroco drill…

Clear disclosure – Richard Jennings and the Titan funds have holdings in Gulfsands Petroleum. This piece should not be taken as an advocation to buy (or sell) these instruments and you should always take independent financial advice in relation to your own circumstances.