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.
-- 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.
-- 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."
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.
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.
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.
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:
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.
The call is being webcast and can be accessed at:
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
Media / IR Enquiries
Ben Brewerton / Adam Cubbage / James Styles
+44 207 831 3113
+852 2217 2999
Source: Tethys Petroleum Limited