Gulfsands Petroleum’s shares dropped 6% to 5.88p in London in early trading after the firm announced its decision to back out of Morocco.
The business said it made the call after its search for a project partner to develop the Moulay Bouchta asset had failed.
Gulfsands said the move would free it up to focus on the Levant region.
Managing director John Bell said: “Our clearly stated strategy continues to be to focus capital and management resources on the Levant region and to manage down the non-core parts of our business. Today’s important and necessary decision is another key step towards achieving that goal.”
But the firm said the Moroccan Government could call in $1.75million held as performance guarantees under the Moulay Bouchta contract.
“Further possible penalties could apply,” Gulfsands warned.
The company also said it was still pursuing the government for the return of guarantees worth $6million linked to separate petroleum agreements.