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Thursday, 27 June 2013
Tethys Petroleum delivers the goods as it continues ambitious plans in Central Asia
Tethys Petroleum (TSE:TPL) (LON:TPL) is riding a high after wrapping up its farm-out deal with French major Total and China National Petroleum Corp (CNPC) in Tajikistan, with the block having more potential than the entire UK North Sea, according to executive chairman Dr. David Robson, who spoke to Proactive Investors after the announcement last week.
“Based on an independent resource report and the current gas consumption of China, there is enough gas there to supply the Chinese market for around 24 years, assuming gas demand doesn’t increase,” said Dr. Robson.
“There is absolutely enormous oil and gas condensate potential as well, justifying further pipelines being built from Tajikistan into China,” he added.
According to the terms of the farm-out deal, Total and CNPC each now own a one-third stake in the Bokhtar venture, in Tajikistan, while Tethys’s 85% owned Kulob Petroleum subsidiary has the other third. The Tajik authorities have also awarded the partners new acreage - a further 1,186 square kilometres - in the area, and the initial period under the production sharing contract has now been extended until 2020.
Kulob will receive a US$63mln payment for past costs, as well as a ‘carry’ on future work of up to US$80mln. As a result, it expects that it will only have to contribute US$9mln to the 2013/14 work program, the details of which will be “firmed up” in the next month.
“It effectively gives us a carried interest through a program that will enable two very substantial partners to provide the skills and technology to drill successfully into these target zones,” assured Dr. Robson.
The area is an extension of the Amu Darya Basin, which contains some of the world's largest gas and condensate fields. Indeed, the Bokhtar production sharing contract area, excluding the additional acreage given to the partners, is believed to host a massive 27.5 billion barrels of oil equivalent, comprising 114 trillion cubic feet of gas and 8.5 billion barrels of oil.
Exploration plans will be progressed with further seismic acquisition and the locating of deep exploration wells sometime next year to test the potential giant deposits thought to be present in the area.
“The first well will be quite deep, in the order of 7,000 metres. There is a layer of salt that we need to drill under, in very large Jurassic-age, high pressure reefs,” Dr. Robson explained of the plans, adding that the first well would likely cost between $40 to $50 million.
The $9 million that Tethys expects to contribute to the work program is anticipated to cover the company’s costs in the region over the next two years. “Total and CNPC will help us drill what we think will be an extremely large discovery. Shareholders can look forward to this being developed over the next couple of years, and with success, we will make sure we are a much larger company than we are today.”
Dr. Robson is also counting on expanding existing production from Kazakhstan, where the company just announced a busy program for the second half of this year, expected to cost over US$25 million. In August, it will drill the AKD08, or Doto well, after which as many as five shallow gas wells are planned near the Akkulka block. The Kalypso discovery well will also be stimulated and tested in the third quarter, which is located just 50 km from Tethys’ Doris oil discovery. Earlier this year, Tethys extended the Kul-Bas exploration and production contract in Kazakhstan for two more years, which covers the Akkulka contract area and the Kalypso well that has encountered several intervals with hydrocarbons.
Meanwhile, two work-overs are planned for two gas wells on its Kazakhstan properties. The schedule also includes seismic work, with a 2D program over the Kul-Bas block and a 3D campaign on the Akkulka block. According to Tethys, the respective seismic programs will improve the group’s understanding of the sub-surface and better focus the longer term work in the attractive area that has a proved commercial oil and gas system.
“We are drilling quite aggressively to find more oil, with there being a fairly simple pipeline route to tie into China. Any Kazakh discoveries can tie in rather quickly into existing infrastructure,” the chairman said. The company is also expanding the Aral oil terminal to add an additional 12,500 barrels of storage capacity. In Kazakhstan, Tethys updated its gross unrisked recoverable mean prospective oil resources last year, estimated at some 1.23 billion barrels of oil, plus 634 Bcf of natural gas.
And the Central Asia-focused company is not stopping there. As recently as May, the company signed a Protocol of Intent with the Uzbek State oil and gas company, Uzbekneftegaz (UNG), for exploration work in the North Ustyurt Basin of Northern Uzbekistan - the same basin that contains the Doris oil discovery. It has also inked a production enhancement contract for a new oil field named Chegara. Tethys is currently the only Western company operating in the oil and gas sector in Uzbekistan.
Speaking of the North Ustyurt Basin, Dr. Robson said it would likely take until the end of the year to negotiate the contract itself, with the company giving itself a one-year deadline from May. “Uzbekistan is still a little down the road from where Tajikistan is at the moment, as we need to spend some time maturing the assets before bringing them in.”
“It’s not a difficult place to drill. It’s not high pressure and there is some more potential to unravel given the different reservoirs than the Kazakh side of the border,” he said.
So far, Tethys has not disappointed. The company’s strong foothold in Central Asia and the building of a substantial exploration portfolio has paid off. It has cash of between $65-$70 million, and is cash flow positive from production, giving it the ability to meet any possible commitments in the near future.
The company’s oil and gas revenues surged 66 per cent in 2012 to $38.11 million, while it generated US$1.36 million in net cash from operating activities, compared to US$12.56 million used in 2011.
Investors are showing their confidence in the dual-listed oil and gas producer. In Toronto, its stock has surged almost 58 per cent year-to-date, currently sitting at roughly 82 cents. “We’re bringing a blend of oil and gas projects that more shareholders would like to see,” said Dr. Robson.