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Bokhtar PSC Area

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Tethys’ asset in Tajikistan is an interest in the Bokhtar Production Sharing Contract (" Bokhtar PSC") which covers a total area of approximately 36,000 sq. km (8.90 million acres) in the Afghan Tajik basin west of the Pamir mountains. The area included in the PSC (the "PSC Area") is in the south-western part of Tajikistan and is a large, highly prospective region which has existing oil and gas discoveries but which had seen limited exploration to date.

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, part 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]*. A proven hydrocarbon system exists in the PSC Area, but only limited comprehensive and deep 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 and thrust tectonics dominate the licence area providing the potential for substantial hydrocarbon traps.

Under the PSC, the Contractor (BOC) 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 BOC 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 2013.

Tajikistan is also a potential significant supplier of energy to China. In March 2014, Chinese news agency Xinhuan reported that CNPC Trans-Asia Gas Pipeline Company Limited signed an agreement with Tajiktransgaz on jointly establishing a natural gas pipeline company to manage the construction of Line D (the Tajikistan section) of the Central Asia-China Gas Pipeline (the first three lines originate in Turkmenistan and transit Uzbekistan and Kazakhstan). This agreement aims to add 25 billion cubic meters in gas supply to China from Turkmenistan annually and the contracts for construction of the Tajikistan section of Line D were announced in year 2014.

Tajikistan Strategy

The primary strategy in Tajikistan is for the BOC to continue 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, the so called ‘pre-salt’ area. It is intended this deep well will target very large prospective resources. 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.

Bokhtar PSC Farm Out

In June, 2013 Tethys announced the completion of a farm-out agreement with subsidiaries of Total Exploration and Production ("Total") and China National Petroleum Corporation ("CNPC") whereby each acquired a one third interest in its Bokhtar Production Sharing Contract (the "Bokhtar PSC") in south Tajikistan. An operating company, the Bokhtar Operating Company, has been established and is jointly owned and managed by the three partners.

As part of the acquisition, the Tajik Government added a further 1,186.37 km2 of highly prospective acreage not previously included in the Bokhtar PSC, and has also extended the first relinquishment period under the PSC by five years until 2020.

Tethys' subsidiary Kulob Petroleum Limited ("KPL") (which holds the Company's interest in the Bokhtar PSC) received some US$63 million relating to its past costs. It also has a part carry on an US$80 million initial work programme whereby KPL contributes only US$9 million towards this programme.

All previous exploration under the original PSC will now fall under the jointly owned BOC and any additional work to the existing wells or future targets moving forward will be decided upon equally among each party in the BOC.

Arbitration

The Company’s indirectly held subsidiary, Kulob Petroleum Limited, (“KPL”) the contracting partner in the Bokhtar Production Sharing Contract, has been informed by legal counsel representing Total and CNPC (the “Partners”), that on 19 May, 2016, the Partners had filed for arbitration proceedings at the International Court of Arbitration. The filed arbitration request is in relation to the Notice of Dispute received by KPL on January 8, 2016, which is in connection to the previously announced Notice to Withdraw issued by Partners on October 11, 2015, following the cash call default of September 2015. The Notice to Withdraw was rejected by KPL, which lead to the Partners issuing a Notice of Dispute. Tethys has been actively engaged with the Partners to reach an amicable resolution. Tethys Board of Directors and management team are evaluating its options and maintain an open channel of communication with Partners for further discussion.