Syria-focused AIM-listed oil minnow Gulfsands Petroleum (LSE: GPX) has suddenly become one of the market’s hottest stocks this month. At the beginning of this week, shares in the company surged higher by as much as 150% in a few days on heavy volume, peaking at just under 13p on Tuesday morning.
However, since Tuesday, investors have become suspicious of the rapid rise, and the shares have given up most of their gains. That said, Gulfsands’ shares are still up by around 200% over the past two weeks.
Hard to explain
The sudden explosion of interest in Gulfsands is difficult to explain as there’s been little in the way of positive news released by the company for several weeks. On 18 March the company reported its full-year results for 2015, revealing a loss of $69m for the year. But it’s unlikely this hefty loss would have inspired such an aggressive rally.
Even Gulfsands’ management appears to be scratching its head over the recent rally. Management has been forced to issue a statement confirming it knows of no reason for a spike in the company’s share price twice in the past two weeks.
There is one possible explanation for the sudden spike in demand for Gulfsands’ shares. It emerged last weekend that Syrian oil tycoon Ayman Asfari had bought 50m Gulfsands shares, or 10.5% of the company, through his ME Investments vehicle. Ayman Asfari also runs oilfield services provider Petrofac and is considered by many to be an extremely shrewd operator with his finger on the pulse in the Middle East.
Asfari’s investment has given rise to speculation that the respected oil investor knows something others don’t. This could be that EU oil sanctions against Syria are about to be lifted, allowing Gulfsands to restart its production in the region, or there’s a possibility that Asfari could be looking to take over the whole company.
Built on sand
It should be made quite clear that at this point that sanctions against Syria remain in place, and Asfari hasn’t sought to increase his influence over the company. What’s more, Gulfsands is running out of cash fast.
At the end of 2015, the company had only $0.4m available to it. After conducting an open offer during January, raising a total of £14.2m and then repaying a convertible loan facility, the company has been left with a cash balance of $5.6m for the rest year.
While Syrian sanctions remain in place, Gulfsands isn’t generating any revenue and operating expenses amounted to $7m last year. Management is trying to cut costs to improve the company’s survivability, but it’s pretty clear Gulfsands needs a spell of good luck quickly to help turn things around.
The bottom line
So overall, after gaining 200% in two weeks Gulfsands might look like an attractive investment to some, but the recent gains aren’t backed up by any concrete evidence. With this being the case, it might be wise to avoid the company until there are some serious material developments.
