TIDMTPL
Tethys Petroleum Limited: Second Quarter 2014 Financial Results and Activity Update
FOR: TETHYS PETROLEUM LIMITED
TSX, LSE SYMBOL: TPL
August 14, 2014
Tethys Petroleum Limited: Second Quarter 2014 Financial Results and Activity Update
GRAND CAYMAN, CAYMAN ISLANDS--(Marketwired - Aug. 14, 2014) - Tethys Petroleum Limited ("Tethys" or the
"Company") (TSX:TPL)(LSE:TPL) today announced its Second Quarter 2014 Financial Results and activity update.
Financial Highlights
=- Reduced loss from continuing operations for Q2 2014 by 17% to USD3.7
million (Q1 2014: USD4.4 million)
=- Revenue for Q2 2014 of USD7.1 million increased by 5% (Q1 2014: USD6.8
million)
=- Production expenses for Q2 2014 of USD3.2 million reduced by 15% (Q1
2014: USD3.8 million)
=- Capital expenditure of USD4.8 million (Q1 2014: USD7.3 million)
=- Administrative expenses were slightly down from the previous quarter
with continuing actions being taken by the Company to reduce spend where
practical
=- Administrative expenses during the six months ended June 30, 2014,
versus the comparative period 2013, have been negatively affected by
approximately USD0.4 million as a result of the weakening of USD against
GBP, plus some unforeseen tax expenses.
Corporate Highlights
=- Testing of four successful shallow gas exploration wells: AKK17, AKK18,
AKK19 and AKK20, which tested at an aggregate rate of approximately 650
Mcm/d (23MMcf/d - 3,833 boepd) from the Tasaran horizon
=- Extension of the Kyzyloi Production Contract for a further 15 years to
June 2029, allowing further time for development of this area, subject
to final Kazakh document submission and regulatory approval
=- Renewal of Kazakh gas sale contracts through December 2014
=- Raised USD15 million of equity finance through the issue of 36,894,923
new ordinary shares for the shallow gas programme in Kazakhstan
=- Release, post period end, of the USD3.88 million deposit placed into
escrow with respect to the conditional sale to SinoHan Oil & Gas
Investment No.6 B.V. ("SinoHan") of a 50% (plus one share) interest in
the Company's Kazakhstan business. The deposit has been released as a
minimal interest bearing loan that will be deducted from consideration
upon completion of the sale, demonstrating the confidence of both the
Company and SinoHan in the pending completion of the sale which is now
dependent upon Kazkhstan governmental approvals and waiver of the Kazakh
State's pre-emptive right on the transaction under the same terms.
Denise Lay, Director and Chief Financial Officer of Tethys, commented; "During Q2, the Company concentrated on
advancing its shallow gas programme in Kazakhstan, which is proceeding very well and which should result in
significantly increased cash flow in 2015, and on meeting its commitments on the Tajikistan joint project with
Total SA and CNPC as well as maintaining its position in Georgia. We continue to scrutinize our costs,
particularly operating and administration costs, in order to maintain an efficient and cost effective operation
of our business. Some further cost reductions are expected, however, we are a public company, listed on the
main boards of two major stock exchanges, with exploration and production activities spanning three countries
and working in challenging operating and political environments. Although it may be possible to achieve further
efficiencies and cost reductions, if the Company is to maintain and develop its high potential asset base then
there is a cost associated with this. Our active strategy to bring in partners to our projects has already
borne fruit, with Total SA and CNPC in Tajikistan, the SinoHan deal in Kazakhstan (in which SinoHan have just
released their escrowed deposit), and we have ongoing discussions on Georgia. Such deals will reduce costs to
Tethys, and have additional benefits such as cost recoveries from the use of our technical personnel by the
Tajik joint venture. Further development of this strategy should see additional reductions in Tethys' costs
whilst maintaining and advancing the Company's substantial exciting asset portfolio."
Operations Update
KAZAKHSTAN
Shallow Gas Programme Update
All key items related to the implementation of the shallow gas programme remain on track. Construction work on
the gas dehydration project has commenced, and this equipment is scheduled to be operational before year end.
Construction work for the shallow gas tie-ins has begun, with pipeline delivery expected in Q3, thus allowing
sufficient time to tie-in the new gas wells prior to year end.
Following on from the successful testing programme of the new shallow gas wells, the State reserve reports are
nearing completion, and will be submitted in due course for approval. When this next phase of the gas
development programme is brought on stream it is anticipated that this will realise an approximately three-fold
increase in gas production. Negotiations continue for a new gas sales contract which the Company expects to
sign before year end, and with a significantly higher sales price than the current contract.
KBD01 - Kalypso
This well successfully encountered hydrocarbons in Jurassic sands and in carbonates of Permo/Carboniferous age
in the north-western part of the Company's acreage in Kazakhstan. Following a successful cementing procedure in
Q4 2013, a comprehensive stimulation and subsequent testing programme commenced in mid-December on the Permo-
Carboniferous interval, after delays primarily caused by the sourcing of equipment, inclement weather and the
remote location. This interval is approximately 4,100 metres below the surface and electric logs run over this
section, together with drilling data, indicate more than 100 metres of gross potential hydrocarbon bearing
section. The initial hydraulic fracturing has now been carried out, with data indicating that this operation
was successful, and with some permeability indicated. The next stage will be to acidize or frac with propant
the interval, and following this procedure flow testing will be attempted to ascertain whether or not this zone
can achieve commercial flow rates of what is interpreted to be gas condensate. The option to sidetrack a new
production section is also being considered (discussions are ongoing with Schlumberger on this issue). Further
stimulation and testing work on this well is subject to adequate funding being in place. Similar reservoirs in
the area have reacted well to stimulation and techniques now applied in other regions (e.g. North America)
should work on this well. Total SA has recently acquired the acreage adjacent to Kalypso to the west.
Klymene
The Klymene prospect is planned to be drilled to a total depth of 2,750 metres targeting a large structure in
the south-west of the Kul-Bas block, and will target three horizons in the Lower Cretaceous and Upper Jurassic.
State approval for the Klymene exploration well project is expected by end-October, and commencement of
drilling operations is planned upon receipt of funds from the SinoHan acquisition. The Klymene prospect has the
potential to be an order of magnitude bigger than the Doris oil discovery and surrounding prospects (the
geographical area of the prospect is up to ten times the areal extent of the Doris oil field). It appears to
have good four-way structural closure and positive hydrocarbon indications ("bright spots") on the recently
acquired and interpreted seismic. Independent prospective resources assessment by Gustavson Associates assign
total unrisked mean recoverable oil resources of 422 million barrels to the structure. Total SA has recently
acquired the acreage to the south of Klymene.
SinoHan Farm-out Update
In November 2013, Tethys announced that it had entered into a definitive agreement for the sale of 50% (plus
one share) of its Kazakh oil & gas assets to SinoHan, part of HanHong, a Beijing, PRC based private equity
fund. In order to complete this transaction it is necessary to obtain Kazakh governmental permissions,
including a waiver on the pre-emption right of the Kazakh government to purchase on the same terms as the
current buyer. During this process no guidance is provided by the Kazakh State on timing or whether in fact it
will take up this right, but, looking at historical precedence, the Company deems it unlikely that this right
would be exercised. Once this transaction completes, Tethys will receive USD71.12 million (USD75 million less
the released escrow deposit). Furthermore SinoHan will be required to invest funds into the new JV prior to
Tethys investing any additional funds, equal to the amount that Tethys has spent over and above USD20 million.
As at June 30, 2014 this amounted to approximately USD2.0 million.
The voluntary release of the USD3.88 million deposit which was placed into escrow upon the signing of the deal
demonstrates the confidence of both the Company and of SinoHan in the pending completion of the sale and of a
desire to progress the new partnership whilst this approval is outstanding.
Once the SinoHan deal is completed it is intended to carry out further work to increase and maintain shallow
gas production, carry out additional drilling on the Doris oilfield and on the Doto structure using horizontal
wells aimed at increasing oil production, install equipment on the Doris oilfield to reduce operating costs and
enable a production contract to be obtained (which would result in significantly higher net realised prices for
oil) and complete and tie-in the Dione oil discovery which has been tested but is not yet on production. These
works would be in addition to the work on Kalypso and Klymene detailed above, and should further enhance
revenue from the project.
TAJIKISTAN
Kulob Petroleum Limited (KPL), a subsidiary of Tethys Petroleum Limited and a Contractor Party in the Bokhtar
Production Sharing Contract in Tajikistan (in partnership with subsidiaries of Total S.A. and the China
National Oil and Gas Exploration and Development Corporation), has completed its first Technical Service
Agreement (TSA) for Bokhtar Operating Company (BOC), the operating company for the joint-venture. KPL was
selected by BOC and has concluded the Working State Requirement 0 (termed WSOR 0), the first key piece of
engineering work for the first deep exploration well that is planned to be drilled in the Bokhtar PSC area.
This work consisted of detailed analysis of the existing wells drilled in the region and the preparation of a
preliminary geological prognosis for the deep exploration well. The results of this work will enable more
detailed engineering planning to be carried out on a well design to meet the unique challenges of the well, and
to finalise long lead equipment specifications enabling key equipment orders to be placed in sufficient time to
allow for manufacturing and delivery prior to the planned spud date in the latter part of 2015. Tethys was very
pleased to be selected by BOC for this groundbreaking piece of work and will be bidding for further related
work on the deep drilling project. The Drilling Manager for the project is a Tethys secondee, agreed by the
partnership.
BOC signed a contract on April 7, 2014 with BGP Inc., China National Petroleum Corporation, for a large 2D
seismic acquisition programme to add to the surveys already conducted by Tethys. All seismic equipment is now
in country with BGP currently obtaining the final permissions from the Tajik government to commence full
operations which are expected imminently.
This new wide line 2D survey is specially designed to image the deep targets described in the Independent
Resource Report and consists of a first phase of 826 kms with an option for an additional 200 kms, all to be
acquired within 2014 and the first three quarters of 2015. As well as 2D acquisition and processing, a
concurrent low cost passive seismic survey is planned and a Magnetotellurics survey is also being acquired now
along the dip lines. Processing of all these data will be concurrent so interpretation and mapping will be
underway from early 2015. This whole data set will enable the identification of the best possible location to
spud the first deep well in the later part of 2015.
An Independent Resource Report on the Bokhtar PSC area (dated June 30, 2012), prepared by Gustavson Associates
in accordance with Canadian National Instrument 51-101, estimates Gross unrisked mean recoverable prospective
resources of 27.5 billion barrels of oil equivalent, consisting of 114 trillion cubic feet (3.22 trillion cubic
metres) of gas and 8.5 billion barrels of oil.
GEORGIA
Geochemical and rock mechanic studies are underway to further evaluate the unconventional play on the Company's
acreage which Tethys believes has substantial upside potential. In addition, several conventional targets have
been identified from seismic as well as potential drilling locations for unconventional wells. Capital
expenditure on this work is minimal and it is currently not expected that significant investment will be
required in Georgia until 2015, when these assessments have been completed. Initial discussions are also
underway with potential partners for this project.
An Independent Resource Report on the Company's Georgia acreage (dated July 1, 2013), prepared by Gustavson
Associates in accordance with Canadian National Instrument 51-101, estimates Gross unrisked mean recoverable
prospective resources of 3.216 billion barrels of oil equivalent, consisting of 2.913 billion barrels of oil
plus 1.8 trillion cubic feet (51.4 billion cubic metres) of gas.
The full Quarterly Results together with Management's Discussion and Analysis have been filed with the Canadian
securities regulatory authorities. Copies of the filed documents may be obtained via SEDAR at www.sedar.com or
on Tethys' website at www.tethyspetroleum.com. The summary financial statements are attached to this press
release.
The Company's Second Quarter 2014 financial statements are prepared under International Financial Reporting
Standards ("IFRS").
The above highlights along with other financial details will be further discussed in a scheduled conference
call. Details of the conference call can be found below:
Conference Call:
A conference call will be held at 9:00AM EDT (2:00PM BST) on Friday, August 15, 2014. The North American
conference call number is 877-546-5021 and the outside North America conference call number is 857-244-7553.
The conference call code to use is 65299376. Please call in about 10 minutes before the starting time in order
to be patched into the call.
Webcast:
The call is being webcast and can be accessed at:
http://www.media-server.com/m/p/8sw38fhh
Tethys is focused on oil and gas exploration and production activities in Central Asia and the Caspian Region.
This highly prolific oil and gas area is rapidly developing and Tethys believes that significant potential
exists in both exploration and in discovered deposits.
The references in this press release to "Prospective Recoverable Resources" means those quantities of petroleum
estimated to be potentially recoverable from undiscovered accumulations by application of future exploration
and development projects. Prospective resources have both an associated chance of discovery and a chance of
development. There is no certainty that any portion of these resources will be discovered. If discovered, there
is no certainty that it will be commercially viable to produce any portion of these resources. The product
types that may reasonably be expected from potential production consist of oil, condensate, natural gas and
associated gas.
The resource estimates contained or referred to are estimates only and are not meant to provide a determination
as to the volume or value of hydrocarbons attributable to any prospect. There are numerous uncertainties
inherent in estimating quantities of resources and cash flows that may be derived, including many factors that
are beyond the control of the Company. The following is a non-exhaustive list of factors which may have a
significant impact on the above estimates of prospective resources: despite the classification that they are as
yet undiscovered but may be potentially recoverable the Company may be unable to carry out the development or
their potential recovery; the activity may not be economically viable; the Company may not have sufficient
capital or time to develop them; there may be no market or transportation routes for the potential production;
legal, contractual, environmental and governmental concerns might not allow for the recovery being undertaken;
reservoir characteristics might prevent recovery. The recovery of the resources is subject to the following
risks and uncertainties: market fluctuations, the proximity and capacity of oil and gas pipelines and
processing equipment, government regulation, political issues, export issues, competing suppliers, operational
issues (exploration, production, pricing, marketing and transportation), extensive controls and regulations
imposed by various levels of government, lack of capital or income, the ability to drill productive wells at
acceptable costs, the uncertainty of drilling operations, factors such as delays, accidents, adverse weather
conditions, and the availability of drilling rigs and the delivery of equipment.
This press release contains "forward-looking information" which may include, but is not limited to, prospective
resource estimates, the potential for successful discoveries and their commercialisation, and our exploration
targets. Such forward-looking statements reflect our current views with respect to future events and are
subject to certain assumptions, the fact that the Company will be successful in confirming the existence of the
accumulations of petroleum in respect of its exploration targets, and subject to certain risks and
uncertainties, the risk that limited discoveries will result from exploration wells and as a result the risk
that any or all of the prospective resources will not become recoverable. See our Annual Information Form for
the year ended December 31, 2013 for a description of risks and uncertainties relevant to our business,
including our exploration activities. The "forward looking statements" contained herein speak only as of the
date of this press release and, unless required by applicable law, the Company undertakes no obligation to
publicly update or revise such information, whether as a result of new information, future events or otherwise.
Tethys Petroleum Limited
Condensed Consolidated Statement of Financial Position (unaudited)
(in thousands of US dollars)
As at
--------------------------------------
June 30, 2014 December 31, 2013
Non-current assets
Deferred tax 317 322
Intangible assets 43,676 31,074
Property, plant and equipment 14,899 15,291
Restricted cash 682 660
Investment in joint arrangements 4 4
59,578 47,351
Current assets
Trade and other receivables 1,496 1,358
Advances - 4,000
Cash and cash equivalents 11,642 25,109
Restricted cash 616 475
Assets of a disposal group classified
as held for sale 169,546 156,325
183,300 187,267
Total assets 242,878 234,618
Equity
Share capital 33,645 28,756
Share premium 321,857 307,295
Other reserves 42,817 42,621
Accumulated deficit (191,057) (182,533)
Non-controlling interest 6,256 6,454
Total equity 213,518 202,593
Non-current liabilities
Financial liabilities - borrowings 6,370 -
6,370 -
Current liabilities
Financial liabilities - borrowings 1,211 4,965
Derivative financial instruments -
warrants - 17
Current taxation 139 144
Trade and other payables 3,429 4,946
Provisions 200 520
Liabilities of a disposal group
classified as held for sale 18,011 21,433
22,990 32,025
Total liabilities 29,360 32,025
Total equity and liabilities 242,878 234,618
Tethys Petroleum Limited
Condensed Consolidated Statement of Comprehensive Income (unaudited)
(in thousands of US dollars)
Three months ended Six months ended
----------------------------------------------------
June 30, June 30,
June 30, 2013 June 30, 2013
2014 Restated 2014 Restated
Sales and other revenues 7,123 8,862 13,904 19,336
Sales expenses (498) (881) (1,242) (1,525)
Production expenses (3,214) (2,882) (7,012) (6,243)
Depreciation, depletion
and amortization (148) (3,386) (299) (7,769)
Business development
expenses (580) (608) (1,320) (977)
Administrative expenses (5,082) (4,708) (10,207) (9,198)
Transaction costs of
assets held for sale (116) - (131) -
Share based payments (77) (215) (196) (546)
Gain on Tajik farm-out - 8,659 - 8,659
Foreign exchange
(loss)/gain - net (77) (58) (70) 73
Fair value loss on
derivative financial
instrument - net 36 462 17 32
(Loss)/profit from
jointly controlled
entity (65) 131 (1,268) 388
Finance costs - net (382) (834) (985) (1,517)
(Loss)/profit before
taxation from
continuing operations (3,080) 4,542 (8,809) 713
Taxation (588) (1,300) 732 (2,154)
(Loss)/profit for the
period from continuing
operations (3,668) 3,242 (8,077) (1,441)
Loss for the period from
discontinued operations
net of tax (153) (544) (645) (188)
(Loss)/profit and total
comprehensive income
for the period (3,821) 2,698 (8,722) (1,629)
(Loss)/profit and total
comprehensive income
attributable to:
Shareholders (3,675) 2,829 (8,524) (1,400)
Non-controlling interest (146) (131) (198) (229)
(Loss)/profit and total
comprehensive income
for the period (3,821) 2,698 (8,722) (1,629)
(Loss)/earnings per
share attributable to
shareholders:
Basic and diluted - from
continuing operations (0.01) 0.01 (0.03) -
Basic and diluted - from
discontinued operations - - - -
Tethys Petroleum Limited
Condensed Consolidated Statement of Cash Flows (unaudited)
(in thousands of US dollars)
Three months ended Six months ended
----------------------------------------------------
June 30, June 30, June 30, June 30,
2014 2013 2014 2013
Cash flow from operating
activities
(Loss)/profit before
taxation from
continuing operations (3,080) 4,542 (8,809) 713
Loss before tax from
discontinued operations (155) (599) (647) (130)
Adjustments for
Share based payments 77 215 196 546
Net finance cost 386 834 985 1,517
Depreciation,
depletion and
amortization 148 3,535 299 8,513
Fair value gain on
derivative financial
instruments (36) (462) (17) (32)
Net unrealised foreign
exchange loss/(gain) 72 (67) 83 (115)
Gain on Tajik farm-out - (8,659) - (8,659)
Loss/(profit) from
jointly controlled
entity 65 (131) 1,268 (388)
Movement in deferred
revenue - 1,054 - (560)
Movement in provisions (178) - (320) -
Net change in working
capital (639) (162) (548) 1,257
Cash (used in)/generated
from operating
activities (3,340) 100 (7,510) 2,662
Corporation tax paid (10) (226) (148) (226)
Net cash (used
in)/generated from
operating activities (3,350) (126) (7,658) 2,436
Cash flow from investing
activities
Interest received 48 42 98 92
Expenditure on
exploration and
evaluation assets (1,349) (279) (4,566) (513)
Expenditures on
property, plant and
equipment (3,486) (771) (7,535) (1,801)
Transfer to restricted
cash (460) (607) (460) (625)
Investment in joint
venture - (4) - (4)
Repayment of loan
receivable from joint
venture - 400 - 400
Proceeds of Tajik farm-
out - 63,405 - 63,405
Movement in advances to
construction
contractors (2,681) (954) (1,728) (912)
Movement in value added
tax receivable 177 661 (93) 1,545
Net change in working
capital 554 (1,146) 812 (2,091)
Net cash (used
in)/generated from
investing activities (7,197) 60,747 (13,472) 59,496
Cash flow from financing
activities
Proceeds from issuance
of borrowings, net of
issue costs 1,013 3,977 7,720 4,714
Repayment of borrowings (1,062) (1,125) (7,091) (2,987)
Interest paid on
borrowings (440) (622) (923) (1,183)
Proceeds from issuance
of equity 14,947 475 14,947 523
Share issue costs (1,198) - (1,246) -
Payment of other
liabilities (27) (71) (99) (142)
Net cash generated from
financing activities 13,233 2,634 13,308 925
Effects of exchange rate
changes on cash and
cash equivalents (333) (78) (231) (72)
Net increase/(decrease)
in cash and cash
equivalents 2,353 63,177 (8,053) 62,785
Cash and cash
equivalents at
beginning of the period 15,325 1,358 25,731 1,750
Cash and cash
equivalents at end of
the period 17,678 64,535 17,678 64,535
Cash and cash
equivalents at end of
the period comprises:
Cash in assets of a
disposal group held for
sale 6,036 - 6,036 -
Cash and cash
equivalents 11,642 64,535 11,642 64,535
17,678 64,535 17,678 64,535
FOR FURTHER INFORMATION PLEASE CONTACT:
Tethys Petroleum Limited
Sabin Rossi, Vice President Investor Relations
srossi@tethyspetroleum.com
OR
Media / IR Enquiries
London
FTI Consulting:
Ben Brewerton / Adam Cubbage / James Styles
+44 207 831 3113
OR
Asia Pacific
Quam IR:
Anita Wan
+852 2217 2999
OR
Tethys Petroleum Limited
info@tethyspetroleum.com
Web: http://www.tethyspetroleum.com
Twitter: https://twitter.com/tethyspetroleum
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