2011-12-02

Tajikistan Update

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TETHYS PETROLEUM LIMITED PRESS RELEASE

FOR IMMEDIATE RELEASE

Tajikistan Update

DUSHANBE, TAJIKISTAN, Friday, December 2, 2011: Tethys Petroleum Limited ("Tethys" or the "Company" (TSX:TPL) (LSE:TPL)) today provided an overview of its Tajikistan asset and the recently signed Option Agreement.

·       Tethys has a Production Sharing Contract for 25-years (signed June 2008) covering an area of 35,000 km2.

·       Excellent commercial terms: Tethys takes 91% of the oil/gas during the cost recovery period and 70% after costs have been recovered. There are no other taxes, levies or duties.

·       The Afghan-Tajik basin is part of and an extension of the Amu-Darya basin, one of the most prolific gas/condensate basins in the world. The Amu-Darya basin has many giant fields such as the South Yolotan Field in Turkmenistan with 749 TCF reserves (the second largest gas field in the world) andTethys believes Tajikistan has similar potential.

·       Tethys is targeting the same stratigraphic horizons in Tajikistan existing below the salt layer. These horizons have never been drilled.

·       1.14 Billion barrels oil equivalent (7 TCF) audited unrisked Prospective Resources are contained within the block.

·       A detailed data acquisition programme is well under way, and expected to be finished in 2012. A deep well targeting the undrilled subsalt horizons is planned to be located by year-end 2012.

·       EOL09 exploration oil discovery – 36° API oil. Testing of the well is ongoing.

·       The Persea exploration well is expected to reach total depth (TD) in December 2011. Subsequent to test results, the prospect could be quickly commercialised.

·       The Beshtentak 20 oil well has now tested at over 600 bopd of good quality (38° API oil) with further workovers and new well planned on the Beshtentak field.

·       A Gas Sales Agreement has been finalised to commercialise the associated gas from the Beshtentak 20 well.

·       Oil sales have already commenced, with an approximate price of $60/barrel.

·       The Asset is Currently run through a Joint Venture, Seven Stars Energy Corporation (“SSEC”), owned 51% by Tethys and 49% by Sangam Ltd.

Option Agreement Currently the rights to the Bokhtar PSC are owned by Seven Stars Energy Corporation, of which Tethys owns 51% and Sangam Ltd, the partner, owns 49%. 2% of Tethys ownership is non-voting shares so both entities have equal control currently.

Tethys signed an option agreement with the Sangam Ltd which provides Tethys the right to purchase 34% of the equity of Sangam Ltd for US$7 million in cash with this option expiring on December 31st, 2011.

Post–deal equity in SSEC:

Tethys: 85%
Sangam: 15%

To date, Tethys has funded 100% of oil and gas activities through a loan to SSEC. As of April 1st 2011, the loan stood at US$49,920,200. After the exercise of the Option Agreement, the full US$49,920,000 loan will be reduced to zero and Tethys equity in SSEC will increase from 51% to 85%. The net affect of this on Tethys future cash flow (for the loan amount) is only a reduction of $7,488,000.

The cost to Tethys of the transaction is US$7,000,000 in cash as of the date of the exercise of the Option Agreement and US$7,488,000 of future oil and gas revenues (in the form of dividends paid by SSEC) dependent on potential future cash flow.

Deal benefits

·      Acquire over 388 million barrels of prospective resources.

·      Acquire greater rights to reserves in the Beshtentak field that are currently not evaluated.

·      Reduce the interest of a non-funding partner, thereby increasing the Return on Capital Employed going forward.

·      Obtain control of the Tajikistan joint-venture.

·      Create a share structure much more favourable for a farm-in partner, with discussions ongoing with several parties.

The Asset: The Bokhtar Production Sharing Contract

Tethys primary asset in Tajikistan is the Bokhtar Production Sharing Contract ("Bokhtar PSC"), which covers a total area of approximately 35,000km2 (8.65 million acres). The area included in the PSC (the "PSC Area") is in the south-western part of Tajikistan and and is a large, highly prospective region which has existing oil and gas discoveries but which has seen limited exploration to date. The PSC is held by Kulob Petroleum Limited (“KPL”), a wholly–owned subsidiary of SSEC.

Tethys believes that the PSC Area has considerable potential for oil and gas condensate. The area includes almost the entire Tajik portion of the Afghan-Tajik basin, an extension of the prolific Amu Darya basin, which contains giant and supergiant gas and gas condensate fields in nearby Turkmenistan and Uzbekistan. The South Yolotan Field in Turkmenistan has been independently evaluated at 749 TCF of gas reserves [Gaffney, Cline and Associates. Ltd, October 2011, as quoted on the Chamber of Commerce and Industry of Turkmenistan website] and the Dauletobad field was originally attributed with 60 TCF of gas reserves [U.S. Geological Survey, Reston, Virginia: 2004]. The Company is unable to confirm that the information in respect of the Yolotan Field and Dauletobad Field was prepared in accordance with the COGE Handbook as required by Canadian rules relating to disclosure of gas reserves.

A proven hydrocarbon system exists in the PSC Area, but only limited exploration has taken place in the past. Several reservoir horizons are present and both sweet, light oil as well as gas condensate has been produced. Salt tectonics dominate the southern part of the area where numerous salt domes provide the potential for substantial hydrocarbon traps. TRACS, the independent reserve/resource auditors, have attributed 1.14 Barrels of Oil Equivalent (7 TCF) of unrisked resources to the PSC Area. The prospective resources were determined as at December 31, 2010. Reference is made to pages 66 to 68 of the Company's Annual Information Form dated March 23, 2011 available on sedar.com for a discussion relating to the prospective resources, including the description thereof and risks and uncertainties associated with recovery of Prospective Resources. Reference is also made to the cautionary statement under “Forward Looking Information and Cautionary Statement Regarding Prospective Resources”.

Under the Production Sharing Contract, the Contractor (KPL) recovers 100% of capital and operating costs from up to 70% of total production (the maximum allowed under the production sharing legislation of Tajikistan) and the remaining production (termed "Profit Oil and Gas") is shared 70% to KPL and 30% to the State, whose share includes all taxes, levies and duties on oil and gas production.

The terms are fixed over the twenty-five year life of the PSC, which was signed in 2008.

Strategy in Tajikistan

The primary strategy in Tajikistan is to undertake a comprehensive geological and geophysical data gathering exercise with the intention of locating and drilling the first deep exploration well below the regional salt layer. This deep well will target very large prospective resources, as set out in the TRACS resource report. These prospects have never been drilled before in Tajikistan but are prolific producers from the same reservoirs in the adjacent countries of Uzbekistan and Turkmenistan.

This programme is firmly on track and consists of the following:

·      In 2008, Tethys obtained and analysed the State geophysical information and well data of the shallower drilling that had been undertaken in the Soviet period and compiled an extensive database, which was combined with a regional geological model built in-house.

·      In 2009-10, Tethys designed and acquired a regional 2D seismic program whereby 693km of good quality 2D seismic was obtained and interpreted.

·      In 2011, Tethys carried out an aeromagnetic graviometry survey over more than half of the PSC Area. This data complements the acquired seismic data, State geophysical information and well data. The aeromagnetic graviometry survey is currently under evaluation.

·      In 2012, following on from the results of the aeromagnetic graviometry survey, it is planned to acquire focused 2D or 3D seismic data over key prospective areas with the intention of identifying the location for the first deep well.

·      As well as the deeper exploration programme, Tethys has been undertaking a shallower exploration programme, and also rehabilitating old oil and gas fields with the intention of generating early cash flow to take advantage of the good contract terms and high oil/gas prices in Tajikistan.

·       The East Olimtoi (EOL09) exploration well is located in the south-east of the PSC Area, south of the town of Kulob and only some 10 kilometres north-west of the Afghan border. The well testing programme is continuing with additional specialist equipment due to arrive at the field in December 2011 to attempt to establish continual flow of oil from the Alai zone, where oil has been recovered. The nearest oilfield in the region is the Beshtentak field some 75 km to the north-west which produces oil from the Bukhara limestone. This is the first exploration oil discovery in Tajikistan since independence.

·      The Persea 1 exploration well, located near the town of Kurgon-Teppa in the south-west part of the PSC Area, is primarily targeting the Bukhara limestone formation in a four-way dip closed structure with the overlying Alai formation forming a potential secondary target. The planned total depth of this well is 2,700 metres and it is expected that this will be reached in December 2011.

·      The Beshtentak oil well BST20 located in the Baljuvon regionhas recently been worked over by applying modern perforating and acidisation techniques and applying natural gas lift. The well has recently been flow testing at rates of over 600 barrels of oil per day (“bopd”). The oil has an API gravity of 38° and no water is being produced. Initial sales agreements have been signed and the first payments from oil sales have been received. There are additional workover candidates on the Beshtentak field, which has gross prospective resources of 11.7 million barrels of oil and 16.1 billion cubic feet (0.23 billion cubic metres) of gas as quoted by the Company's independent reserves and resources assessment effective December 31, 2010. (Reference is made to pages 66 to 68 of the Company's Annual Information Form dated March 23, 2011 available on sedar.com). There is good infrastructure to facilitate transport and sales of oil with oil currently being sold at approximately $60 per barrel. Funds from the announced financing will also be used to focus on this field and increasing production on this field in the short-term with an immediate cash flow impact due to 91% produced oil and gas going to the contractor.

Dr. David Robson, Chairman and Chief Executive Officer, commented on the potential acquisition, “This is an incredible opportunity to increase our equity holding in one of our key assets in an area that has huge geological upside with excellent fixed commercial terms over 25 years. Our exploration strategy is firmly on track to finish off the geophysical data gathering and then to locate the first deep well in 2012. Oil production now covers all in-country costs, and we aim to increase this production in 2012 with further work on the Beshtentak field. This acquisition should result in a multiple of its cost in resulting shareholder value should we execute our program in Tajikistan and demonstrate further success going forward.”

Tethys is focused on oil and gas exploration and production activities in Central Asia with activities currently in the Republics of Kazakhstan, Tajikistan and Uzbekistan. This highly prolific oil and gas area is rapidly developing and Tethys believes that significant potential exists in both exploration and in discovered deposits.

Forward Looking Information and Cautionary Statement regarding Prospective Resources

This press release contains "forward-looking information" which may include, but is not limited to, statements with respect to our operations. Such forward-looking statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions, including the risk that Option will not be exercised and the exercise of the Option will not be completed on the terms contemplated, the risk that the Company may be unable to complete its data and drilling programs or the planned well workovers within the timeframes contemplated. In addition, there is no certainty that any portion of the prospective resources will be discovered, and if discovered, there is no certainty that it will be commercially viable to produce any portion of the prospective resources. The term “prospective resources” is based on the definition in the COGE Handbook. See our Annual Information Form for the year ended December 31, 2010 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.

This press release does not constitute an offer or a solicitation of an offer to buy, securities of Tethys Petroleum in the United States or to United States persons. Tethys Petroleum's securities have not been and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act"), or any state securities laws and may not be offered or sold within the United States or to United States persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.

For more information please contact:

Tethys Petroleum Limited
Sabin Rossi
Vice President Investor Relations
Office: +1 416 572 2065
+1 416 572 2201 (FAX)
info@tethyspetroleum.com
Web: http://www.tethyspetroleum.com
Mobile site: m.tethyspetroleum.com

In Europe: Tethys Petroleum Limited
Veronica Zhuvaghena
Vice President Corporate Communications
Office: +44 1481 725911
+44 1481 725922 (FAX)

In Asia‐Pacific: Quam IR
Anita Wan
Associate Director
Office phone/fax: +852 2217 2999