Monday, 14 January 2013

Tethys Petroleum: City broker hails 'transformational' farm-out deal

Tethys Petroleum’s (LON:TPL TSE:TPL) deal to bring in major new partners into the massive Bokhtar project in Tajikistan was a transformational event in the story of the company’s development, according to City broker Seymour Pierce.
Last month Tethys struck the deal with French major Total and state-backed Chinese firm CNPC (China National Petroleum Company). Now, each of the new partners will own a 33% stake in the project – and Tethys’s 85% owned subsidiary KPL will own the other 33%.
The deal secures funding for an important phase of exploration that aims to further advance the project, which is currently estimated to host an eye-watering 27.5bln barrels of oil.
As such it provides immediate validation of Tethys's considerable resource base in Tajikistan, Seymour Pierce analyst Sam Wahab said in a note.
And by committing the new partners to certain spending commitments the deal opens the door to a significant work programme.
Importantly, Tethys's participation in the programme is largely carried - with up to US$80mln being spent on the Canadian firm's behalf. As such, it is only required to pay 33% of its share of the costs of the upcoming programme and this is expected to amount to around US$9mln.
Additionally KPL is also due payments totalling US$60mln from the new partners in relation to certain back-costs, but Wahab believes the new partners bring more than just money to the party.
“We feel the combination of equity partners is highly complementary to Tethys’ progressive strategy in Tajikistan, with Total contributing extensive technical competencies and CNPC providing a route to market,” the analyst says.
Wahab expects the full details of the 2013-14 work programme will be finalised in the current quarter. Though he says this year’s work is likely to consist of seismic and desktop work, with deep exploration drilling starting next year.
Separately he expects Tethys to continue to make progress in Kazakhstan, with exploration and development drilling targeting a 1.3bln barrel recoverable resource base.
Seymour Pierce rates Tethys as a ‘buy’ with a 90p a share target.

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