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Monday, 28 January 2013
Tethys Petroleum leads the way in Central Asia with “world-class” assets and blue-sky potential
As the only independent oil and gas company operating in three Central Asian republics, Tethys Petroleum (TSE:TPL) (LON:TPL) has a strong foothold on its “world-class” assets with enormous potential for future growth.
Indeed, the company stepped its game up further recently, announcing late last month that it had completed a farm-out agreement for the Bokhtar Production Sharing Contract (PSC) in Tajikistan with subsidiaries of the French super-major Total S.A. (NYSE:TOT) and the China National Oil and Gas Exploration and Development Corporation (CNODC) - part of the Chinese State company CNPC.
“We have an enormous area in Tajikistan – almost the size of Switzerland,” says the company’s president and executive chairman, Dr. David Robson.
“We were the first people there and we have an extremely good production sharing contract with the country.”
In fact, Robson points out that Tethys helped the nation write aspects of its petroleum legislation.
“Before us, there wasn’t really anybody there and that gives us first mover advantage in a part of one of the most prolific basins in the world, particularly for gas and condensate, but also for oil.”
“Potential exists for some of the largest gas fields being there that have never been drilled before.”
Tethys says it has done extensive technical work in the area, including drilling, seismic and a large aerial graviometry survey that led to a resource report, which confirmed the potential, at mid-case level, of around 27.5 billion barrels of oil equivalent (boe) comprising over 114 trillion cubic feet of gas and about nine billion barrels of oil and condensate in the 35,000-square-kilometre Bokhtar area.
French giant Total and China’s CNODC will each both take a third of a share in the project, while Tethys’ participation in the program will be largely carried - with over $70 million being spent on the Canadian firm’s behalf. As such, it is only required to pay 33 per cent of its share of the costs of the upcoming program, and this is expected to amount to around $9 million. Tethys’ Tajik subsidiary, Kulob Petroleum, will also receive $60 million for back costs.
Robson calls it a “tremendous deal” for the company.
“Total and CNPC are world class companies and we look forward to working with our new partners in Tajikistan, which in our view has world class potential.”
The deal is crucial to Tethys as the cost of drilling deep wells in the area is $50 to $60 million dollars each, and is “intrinsically risky but with giant potential” as the region has never been drilled before.
“This farm-out also provides significant additional funding for our company to accelerate our other current projects,” Robson says.
Tethys also operates in Kazakhstan and relatively recently entered Uzbekistan.
In Kazakhstan, the company has been busy advancing its discovery of oil at the Doris field, the first discovery made in that part of the North Ustyurt geological basin.
Last April, the company released the updated prospective resource report for its Kazakhstan assets, prepared by Gustavson Associates, which estimated gross unrisked recoverable mean prospective oil resources of 1.23 billion barrels and 634.4 billion cubic feet (bcf) of gas, which is equivalent to1,336 billion boe.
Since discovering “very good quality oil” with its first deep exploration well in Kazakhstan, Robson says the company has been successful in finding yet another oilfield and appraising further what it already owned.
“Over the last year, we brought on-stream our new production facility that enables us to clean the oil better, but also significantly increases the capacity of production at the field itself,” the company’s president points out.
“We also inaugurated our new terminal.”After trucking its oil about 450 kilometres for a time, Robson says Tethys decided it made much more sense to build its own rail loading facility closer to the field.
“We still have improvements to make on the delivery system, so to speak, but its working pretty well right now,” Robson says.
“We’ve now achieved 4,000 barrels of oil per day (bbls/d), which is well below what we feel the field and surrounding structures can produce, but still a significant increase from the 2,000 bbls/d we were producing last year.”
Robson says that there a number of locations to be drilled that will increase reserves and production further, and once Tethys boosts production rates to appropriate levels, the company is looking to build an export pipeline.
“Initially, it will be quite a small pipeline,” Robson says, adding, that the company will be able to eliminate trucking from the equation, which is a significant factor to improving its cash flow.
Tethys is also working toward improving its oil pricing, and along with plans to install more storage at the field and treatment facilities at the terminal, its ultimate goal is to secure a production contract which would enable the company to export its oil from Kazakhstan. The company is currently producing oil under a pilot production license and will file for a production contract in the future.
“In Kazakhstan, one can sell on the local domestic market with a pilot production consent, but to be able to export your oil, you need to have a production contract,” Robson explains.
He adds that the process is basically an upgrade, but the laws require a company to have its field “fairly well appraised” and proven accurately.
Robson adds that the company has held off thus far on applying for a production contract until sufficient appraisal work had been carried out.
In the meantime, Tethys is in the process of applying for an export contract - separate to the production contract – a process which has been a bit “bogged down” by government changes and is not a certainty.
“We’re hoping in the next year we will see a significant increase to the realized oil prices either through an export licence, or the issuance of a Production Contract” Robson says.
In Uzbekistan, Tethys is the only Western company currently operating in the oil and gas sector. It operates as the contractor under the Production Enhancement Contract (PEC) for the North Urtabulak oilfield, in partnership with NHC Uzbekneftegas. Recently Tethys signed another PEC for a new field named Chegara and is awaiting final governmental consents to commence activities.
“The first field is very much in decline now,” says Robson.
“However, we have our new Chegara field to the south which is in its very early stages of development with a lot more potential, where we are waiting for a final presidential decree to move ahead.”
The longer term focus in Uzbekistan is exploration, and last year Tethys signed a memorandum of understanding to explore a block in the North Ustyurt Basin of Uzbekistan – the same basin where the company operates in Kazakhstan and where it discovered the Doris oilfield.
Looking ahead, Robson says that as well as investing in its core assets to increase production Tethys will also evaluate acquiring additional acreage for increases, while also looking at other countries in central Asia should opportunities arise that fit into the Tethys strategy, such as Turkmenistan.
“It’s not an easy country to get into, but if anyone can get there, we can.
“There are oilfields there into which I believe we could get a foothold with production, and there are enormous deposits.”
With producing operations and plenty of blue sky potential, Robson says that Tethys is a prime company to invest in if investors are seeking exposure to the Central Asian oil and gas sector – noting that its stock is “low compared to where it has been”.
“When we listed in Toronto 5 ½ years ago, we had one gas field in Kazakhstan where today we have oil production, gas production and exploration success in three countries, and an amazing area in Tajikistan as well as a fantastic reputation in the whole region.
“If you are looking to invest in a proven, stable area, with enormous potential and the best company working there – full stop, then you’ve got to consider investing in Tethys.”
Tethys shares have risen more than 27 per cent in the past month. The dual-listed company’s stock has increased by about 30% in the past year.