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Gulfsands Petroleum unburdens US Gulf of Mexico assets to Hillcrest

09th December 2014

Gulfsands Petroleum has confirmed of the execution of a sale and purchase agreement for the disposal of the company's US Gulf of Mexico interests

Gulfsands Petroleum unburdens US Gulf of Mexico assets to Hillcrest
The transaction is anticipated to relieve the group of potentially significant and unpredictable future financing requirements to support GP USA's activities in the US Gulf of Mexico

"The completion of the sale of GP USA will conclude a process to divest non-core assets that commenced in 2010 and has released a significant amount of cash that has been re-invested in our business since that time,” said Mahdi Sajjad, CEO of GP USA.

“We are delighted that Hillcrest, which has an experienced management team and is operator of oil and gas interests in Texas has taken on our experienced team of professionals in Houston and will be relocating its activities to our former Houston office from where it will run its wider portfolio of interests which it seeks to expand beyond this acquisition.”

Hillcrest is purchasing all of the group's shareholding and loan interests in Gulfsands Petroleum subsidiary GP USA and at closing on 19 December, 2014 will pay USD 50,000 in cash and assume responsibility for the future funding of GP USA's activities, continue the employment of all of GP USA's staff and indemnify the group in respect of any further responsibility for GP USA, including in respect of GP USA's lease of the Houston office.

GP USA is the owner of Darcy Energy LLC and a number of non-operated minority interests in oil and gas production permits in the shallow waters of the US Gulf of Mexico and mostly located offshore the state of Louisiana.

During 2013, these non-operated working interests produced, on average, approximately 175 net barrels of oil equivalent per day (BOEPD) and at 31 December 2013, remaining working interest proven and probable reserves represented approximately 1.4 million barrels of oil equivalent. The interests held by GP USA consist of six non-operated producing assets and five non-producing assets and as of the end of 2013 had a carrying value of approximately USD 2.4m in the group's financial statements.

During 2013, GP USA's loss for the year was approximately USD 1.6m and is estimated for the ten month period to the end of October, 2014 to have been approximately USD 1.5m. During this ten month period, the Group has provided GP USA with funding of approximately USD 2.5m, largely to facilitate cash flow timing issues associated with GP USA's decommissioning and well work-over activities on its portfolio of non-operated interests.

The group has estimated GP USA's 2015 decommissioning expenditures at approximately USD 2.4m and the net present value of decommissioning expenditures over the life of the entire portfolio at approximately USD 12.0m. These are anticipated to be funded by a combination of GP USA retaining restricted cash deposits of approximately USD 2.8m, Hillcrest's own financial resources and the setting aside of GP USA revenues.

The transaction is anticipated to relieve the group of potentially significant and unpredictable future financing requirements to support GP USA's activities in the US Gulf of Mexico, while Hillcrest, an operator of oil and gas interests in Texas, intends to apply its financial and technical resources to expanding GP USA's net production by investing in drilling additional production wells and well work-overs on GP USA's portfolio where the opportunity exists.

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