Tethys, PetroChina ink MOU to explore Kazakhstan's oil, gas sales to China

Mar 03, 2015 12:00 AM

Central Asia-focused Tethys Petroleum disclosed Monday that it has signed a Memorandum of Understanding (MOU) with PetroChina International Kazakhstan Ltd. (PetroChina).


  • Updated vision and strategy announced focused on capital discipline, the generation of cash flow from existing reserves and maturing exploration acreage
  • MOU signed with PetroChina to explore the feasibility of a long-term and mutually beneficial cooperation in natural gas and crude oil deliveries
  • Tajikistan 2015 exploration budget reduced by nearly a third
  • Proceeds of $6 million loan facility received
  • Restructuring agreement with Georgian Oil and Gas completed, removing current funding obligations of approximately $4million
  • In Kazakhstan work is about to commence on the AKK14 and AKK05 workovers which are anticipated to be brought on stream in 2Q 2015 and increase production to a planned level above 20.13 billion cubic feet per day (Bcf/d) or 570 million cubic meters per day (MMcm/d)
  • Sales oil price agreed at the well head of $13/barrel for January and February
  • An updated corporate presentation is now available on the Company's website www.tethyspetroleum.com

John Bell, executive chairman of Tethys, said: "I am happy to present the strategy and vision of Tethys under the new direction of myself and the Board. The signing of the MOU with PetroChina is another key step toward selling gas into the growing Chinese market and follows on from our recently published new independent reserve report stating an increase in our reserves in all categories. The current oil price environment continues to deliver new challenges for Tethys, as it does for the whole oil and gas industry. We have made a number of positive changes, extensively reducing our costs and also diversifying our revenue stream through our increase in production and pricing for gas. This provides some flexibility in these difficult times but the oil price environment remains volatile. The receipt of the loan funds provides important working capital for the Company until the expected completion of the Sinohan transaction which will recapitalize the Company. We look forward to updating our shareholders on our ongoing progress."

Strategy and Vision
Tethys Petroleum's vision is to become the leading independent exploration and production (E&P) Company in Central Asia, by exercising capital discipline, by generating cash flow from existing discoveries and by maturing large exploration prospects within our highly-attractive frontier acreage.

Tethys' Strategy is to:

  • Be recognized as an ethically-responsible, transparent company, delivering safe, reliable, operations through a culture of safety & performance related delivery
  • Focus on cost structures and capital efficiency - actively manage our portfolio by farming down/reducing our capital commitment whilst retaining materiality
  • Increase production, revenue and cash flow from existing discovered reserves and monetize low risk gas and oil prospects
  • Explore for 'elephant' prospects with 'company making' potential within existing acreage
  • Ultimately look to supply the growing energy demand of China
  • Combine international technical and management expertise with a strong local team

MOU Signed with PetroChina

Tethys Kazakhstan SA, a subsidiary of Tethys Petroleum Ltd., has signed an MOU with PetroChina International Kazakhstan Ltd. to explore the feasibility of a long-term and mutually beneficial cooperation in natural gas and crude oil deliveries. The main collaboration area to be explored by the parties is the proposed delivery of gas and crude oil for export to The People's Republic of China, and also for the internal market of the Republic of Kazakhstan. Tethys has the right to export gas to China already and can sell oil on the domestic market currently, obtaining the right to export oil upon conversion of the Akkulka Exploration Contract to a Production Contract.

Tajikistan Costs Reductions
The Company and its Joint Venture partners CNPC and Total in the Tajik Bokhtar PSC, have recently agreed to reduce this year's exploration budget by nearly a third through overhead cost reductions, a well-balanced selection of seismic acquisition parameters, and optimized timing of pre drilling costs in the current drilling contractor market. The previously agreed 2015 budget included a commitment for Kulob Petroleum Limited (the Contractor party of Tethys) to fund a total of up to $24 million in 2015. This number has now been reduced to c. $15 million with two-thirds of this total forecast to be due in 2H 2015.

These cost reductions have not affected the progress towards completion of the seismic survey aimed at locating the first deep exploration well planned for this acreage. As well as the reduction in the CAPEX program the joint venture partners have agreed to reduce the running costs of the Bokhtar Operating Company to reflect the lower oil price environment. Initial reductions have been formally agreed and Tethys believes there is room for additional cuts going forward.

$6 million Loan Financing Closed
The Company confirms that it received funds on time for the recently announced $6 million loan facility. The warrants associated with this financing have also been issued.

The Company has now signed an agreement with its partner, Georgian Oil and Gas (GOG), to remove its current funding obligations of approximately $4 million under the farm-out agreement signed in July 2013, through reducing its interest in these projects. Under the terms of the new agreement Tethys will reduce its interest to 49 percent (from 56 percent) and GOG will become Operator on the licences on Blocks XIA, XIM and XIN. In tandem with this, the partners have begun to renegotiate a more efficient new work program with the State in place of the existing work obligations and deadlines.

Gas production levels remain on target with the production level recently doubling from 2014 levels to 18.361 Bcf/d (520 MMcm/d). Work is about to commence on the AKK14 well, followed by the AKK05 well, with these being planned to be brought on stream in 2Q. These additional wells along with compressor optimization are anticipated to further increase the production level above 20.127 Bcf/d (570 MMcm/d).

Following on from the expected fall in realized oil prices for 1Q 2015 the Company confirms that it has agreed a sales oil price at the well head of $13/barrel for January and February. This is in line with similar recently reported realized prices by other Kazakh oil and gas companies. It is expected that these lower prices will continue to the end of the first quarter. These reduced price levels have less impact in the first quarter than other months due to lower forecast production levels as a result of winter weather. The forecast oil production for February and March is 1,130 barrels of oil per day (bopd) and 740 bopd respectively. The Company expects production to go back to over 2,000 bopd in May. Also, the Company is currently less reliant on oil sales than in the past due to the increase in gas volumes and pricing in early 2015, a trend the Company expects to continue in the short-term.

Alexander's Commentary

Change of face - change of phase

In the period of July 20 till August 3, 2015, Alexander will be out of the office and the site will not or only irreg

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