Have Gulfsands Petroleum been approached?

It looks like “sod and law” may be about to assert itself with regards to Gulfsands Petroleum. We are just completing our Top Picks for 2013 and Gulfsands is one of our picks! We postulate on the potential for a takeover of the Group if there looks to be an end in sight to the terrible humanitarian situation in Syria. We might be about to be beat to the punch looking at the price action today…

Below is a table courtesy of Edison Investment Research in which they value the company at almost 600p per share on a “Risked” NAV basis in the event of a resumption of the company’s Syrian activities. If there is an approach then a bidder would have to pay at least 200p per share and which still leaves discounts a helluva lot of political risk premium in the price.

Last week Russian comopany Soyuzneftegas Capital Limited announced that they had purchased an additional 2m shares in recent weeks (it looks like they were the buyer of the big cross just over a week ago of approx 1.2m shares at 78p and so cleared overhanging stock at the very least). With Waterford Finance owning over 15% too then a platform for a bid looks to be being built to us.

With the shares trading just recently at only a 15p premium to net cash of 66p per share the risk:reward scenario here has one of the best positive skews I’ve personally come across in my investing career. The chart below and heavy volume today give out faint smoke signals and absent any specific news out of Syria today that we can see there must be a reason for the volume. We expect an announcement to be forced from the company should the shares continue push ahead.

Disclosure – editor is long GPX.