Denise Lay, CFO, Speaks with Forbes
The prospect of tapping Central Asia and the Caspian for hydrocarbons has excited oil and gas companies of all colors and stripes for better parts of three decades. Activity gained momentum after the break-up of the Soviet Union with newly liberated republics chalking out their independent policy paths and allowing private sector petrodollars to flow in.
If media attention was ever wanting, Kazakhstan’s Tengiz, a bountiful oilfield discovered in 1979, ensured the region got plenty of it. More so, when oil major Chevron CVX +0.25% arrived in 1993 declaring its interest in the world’s deepest operating “super-giant oilfield” at depth of 12,000 feet. In the high risk, high reward world of oil and gas exploration independent upstarts came looking too.
Of late, one in particular – Toronto and London dually-listed Tethys Petroleum – has made a jolly good fist of it. Over the last three fiscal years that the company has been on my radar, I’ve seen it invest in Kazakhstan and divest in Uzbekistan, getting things going in Tajikistan and setting out its stall in Georgia.
A list of operations in former soviet republics (FSU) given geopolitical and operational challenges is no picnic whether it’s a greenfield or brownfield prospect. So what’s the company up to? “We call it a very ‘promising list’ with great acreage in Georgia, Tajikistan and Kazakhstan. In case of the latter, we not only have oil exploration acreage but we are already producing under a pilot scheme,” says Denise Lay, Chief Financial Officer of Tethys Petroleum.
“Initial feelers in Georgia have been positive, and we’re backing our tenacity for going into difficult areas, acquiring acreage and taking it through to the development stage. In Tajikistan, where the story is just beginning, we managed to farm out holdings and bagged Total and CNPC as partners.”
The CFO won’t be drawn into a linear discussion on potential return on capital employed, but activity at Tethys has reached fever pitch. It recently raised $15 million of equity finance through the issuance of new ordinary shares for its shallow gas program in Kazakhstan. In November 2013, the company agreed to sale of 50% (plus one share) of its Kazakh oil & gas assets to SinoHan, part of HanHong, a Beijing, China-based private equity fund.
Lay says capital intensive projects demand such market overtures, along with a cross-Atlantic equity markets presence that Tethys has. Revenue for Q2 2014 is up 5% on the previous quarter to $7.1 million, while company has been reducing losses from continuing operations with the Q2 figure down 17% to $3.7 million.
“We initially chose Toronto Stock Exchange (TSX) to list in 2007 because it has rigorous regulations and frameworks (for e.g. National Instrument 43-101). In meeting these, we made a statement of setting a quality standard right from the start of our corporate life as a medium sized publicly listed company.”
Then in July, 2011 Tethys made its debut on the London Stock Exchange ’s main market as craving for greater liquidity grew and a secondary listing seem to be a natural course of action. Looking back, Lay says many of the investors in Toronto were London-based funds that the company got to know over time.
“They provided some of impetus for the move, so obviously, we came to London where we have 2 to 3 times the volume of trading currently on the TSX. Furthermore, investors in London are more understanding of the operational climate in Central Asia and related international permutations.”
As for focusing on FSU exploration and production acreage, Lay says Tethys’ management team is in their zone in ex-Soviet markets right from the Chairman down to the management committee. Key executives have over 20 years experience in the region and the CFO herself is no stranger to FSU markets and cultures.
In fact, she is the only non-Russian CFO I’ve met over the last 10 years who has been schooled in Russian Literature as well as finance and accounting. Already a part Russophile, and having qualified as an accountant with KPMG in 1992, Lay embarked on a career specialization in the region just as the Soviet Union was breaking-up. Starting with an accounting secondment in Moscow, stints at Chevron, RICOH and Gallaher Group followed leading to the finance chief’s office at Tethys last year, having joined in 2009.
Along with her career progression, Lay has also seen the role of finance chiefs extended well beyond the core remit of number crunching. “Now it’s more about applying your ability to interpret, analyze, assess and evaluate the financial data you’ve put together with the ultimate objective of providing commentary on the impact of numbers for the benefit of executive colleagues. At Tethys, the finance team is increasingly involved with the commercial team. For instance, I work very closely with COO Graham Wall [who issues forecasts] and CEO Julian Hammond [on the commercial side], to carry out modelling and projections based on collaborative input.”
Such modelling is invariably sensitive to the oil price. The wider industry sees anything above $80 per barrel as conducive for investment and one suspects Tethys is no exception. “However, on the gas side we’re not putting a line in the sand regarding price levels,” Lay says.
One reason for doing so is the intense negotiation in Kazakhstan over potentially lucrative natural gas exports to China. “That’s also behind our recent capital raising exercises. We have two gas production licenses and need to get things going in Kazakhstan by January, as the country has built and opened a pipeline route to China, where we should be able to realize greater prices. Negotiations are ongoing, but certainly with the shallow gas program, we would be able to triple our current production.”
Tethys is already producing crude oil for the domestic Kazakh market and remains on track for an export license next year. But the company is not losing sight of the need for prudent management of operating expenditure.
“We use our own equipment to drill. We’ve worked on our own pipeline system from the field in Kazakhstan with an aim of joining the country’s primary pipeline infrastructure for export to China. It’s not an easy terrain and location, which made us invest in the Aral oil terminal in Shalkar 230km from our Doris oilfield. That’s significantly reduced our trucking risk and halved the journey expenditure.”
And the focus on potential exports eastwards in general and China in particular remains strong. For instance, the Tajikistan government is also interested in pulling a pipeline system to China, and Tethys would be well positioned there too. “Ultimately, it’s about the corporate story, strategic direction and when investment would yield returns. Our answer to that is a pretty good batting average in a hydrocarbon exploration region where we have the most expertise.”