GRAND CAYMAN, CAYMAN ISLANDS–(Marketwired – Nov. 13, 2015) – Tethys Petroleum Limited (“Tethys” or the “Company”) (TSX:TPL)(LSE:TPL) today announces its third quarter 2015 financial results and activity update.
Financial Highlights
- Loss for the period of USD3.7 million (Q3: 2014 USD2.4 million)
- Basic and diluted loss per share of USD0.01 (Q3: 2014 USD0.01)
- Oil and gas revenue of USD5.7 million (Q3 2014: USD7.3 million)
- Capital expenditure of USD1.9 million (Q3 2014: USD6.2 million)
- Cash and cash equivalents at the end of Q3 2015 of USD4.3 million (Q3: 2014 USD10.1 million)
- Five individual financings since November 2014 raising USD23.2 million
Cost reduction highlights
- Following the change in leadership from Q4 2014; combined annual administrative and business development expenses reduced from USD19.5 million (2014) to below USD10.5 million target for 2015
- Administrative expenses for Q3 2015 reduced by 50% to USD2.1 million (Q3 2014: USD4.2 million)
- Business development expenses reduced by 100% (Q3 2014: USD0.5 million)
- Headcount reduced by 26% since Q4 2014 contributing to a staff costs reduction of 55% to USD1.1 million (Q3 2014: USD2.4 million)
- Eight offices closed or being closed including Guernsey, Washington, Dubai, Beijing, Toronto, Brussels, Maastricht and Tbilisi, resulting in monthly office cost reductions of 54% from USD0.5 million to USD0.2 million.
- Production expenses reduced by 39% to USD1.8 million (Q3 2014: USD3.0 million)
Q3 Operational Highlights
- Gas production up 81% to 3,121 barrels of oil equivalent (“BOE”)/day (2014: 1,721 BOE/day)
- Total Production up 16% to 4,823 BOE/day (Q3 2014: 4,166 BOE/day). Gas production was down in the quarter compared to Q2 due to planned necessary overhaul of Compressor #1 which was completed successfully in late August
- Re-started well AKD05 with a Progressive Cavity Pump in mid-August after a successful workover
- Continued optimisation of operating costs, resulting in a year-to-date cost of USD8.73 per bbl of oil and USD20.05 per Mcm (USD0.57 per Mcf) for gas, with Q3 costs being the lowest for both oil and gas by far this year, USD6.26 per bbl and USD15.70 per Mcm respectively (Q3 2014: USD9.30 per bbl and USD30.23 per Mcm). This reflects the effect of the cuts made earlier in the year along with Kazakh Tenge devaluation in the latter part of the quarter. Realised oil and gas prices for the quarter averaged USD12.24 per bbl and USD63.40 per Mcm respectively, and were affected by the Tenge devaluation in late August
- Akkulka Production Contract (gas) was expanded by 363% to 396.2 km2 (97,901 acres) from surface to the base of the Paleogene interval, effective July 10, 2015
Post Q3 Highlights
- Achieved final Georgian Government approval for the reduction and change of the work programme for Blocks XIA, XIM and XIN which will result in a more phased approach and reduced financial commitments in 2016-2017, the 2015 commitments of ground gravity having been met during Q3
- Current average Q4 production to date is 4,353 BOE/day
- Current November production averages 4,266 BOE/day, comprising 1,771 bopd of oil and 2,495 boepd gas (c. 423.9 Mcm/d or 14.97 MMcf/d), the gas rates in part affected by higher Winter season delivery pressures in the Bukhara-Urals pipeline
- Letter of intent for a US$15 million interim financing and C$25.5 million private placement signed with Olisol Investments Limited
John Bell, Executive Chairman of Tethys said:
“In what has been one of the toughest oil markets of my 30 year career, I am proud of what has been achieved at Tethys so far this year and more specifically in the third quarter. We have reduced costs significantly whilst delivering increased production safely and without incident.
We have closed five financings since I joined the Company in November 2014, without which the Company would have faced insolvency. Most recently, we have reached conditional agreement with Olisol on a potentially transformational refinancing which we will work as hard as we possibly can to drive the process to a swift conclusion.”
Kazakhstan
In January 23, 2015, the Company announced that its wholly-owned Kazakh subsidiary, TethysAralGas LLP, had received permission from the Ministry of Energy of the Republic of Kazakhstan to extend the Kyzyloi Gas Production Contract for another 15 years, from June 14, 2014 to December 31, 2029.
The Ministry of Energy granted this contract extension following the Kazakh State Reserves Committee’s approval of the new State Reserves for Kyzyloi previously announced in May 2014. The Kyzyloi contract area has been increased by 56 percent to 449 km2 (110,950 acres) and now encompasses a larger gas bearing area including the AKK05 gas well (successfully worked over in Q2 2015) and also the successful, but currently suspended, AKK08 & AKK10 gas wells.
Oil production from the Akkulka Contract in Q3 was 1,702 bopd (Q3 2014: 2,445 bopd). The Company produces oil from three wells under a pilot production licence: AKD01, AKD05 and AKD06. These wells have been performing to expectation although AKD05 and AKD06 have been off during most of the past winter and all of the spring due to restricted transshipment and trucking and higher water cuts but AKD05 was put back on production in August 2015 which involved bringing staff back from unpaid leave. Moderate capacity progressive cavity pumps have been installed as planned on AKD05 and on AKD06 and it is expected that at some time in the future the AKD01 well will also require a large volume pump; a large volume Electrical Submersible Pump (ESP) has been scoped but not yet purchased.
Gas production from Kyzyloi and Akkulka Contracts in Q3 has been 3,121 boepd (2014: 1,721 boepd). Gas production increased by 81% in the current quarter compared with the same quarter in the prior year (71% period to date compared with prior year period) as a result of incremental production from the shallow gas development programme that came on stream on January 1, 2015. Currently, the Company produces dry gas from a total of 16 wells at a depth of approximately 480-600m below surface, comprising eight producing wells in the Kyzyloi field and eight in the Akkulka field with combined current production of typically 440-450 Mcm per day.
During Q3 2015 Compressor #1 engine was overhauled. An overhaul Compressors #2 and #3 engines and replacement of compression cylinders are required and proposed to be undertaken when funding allows. If one of these went offline in the interim then it would have a negative impact on production.
The recently completed Bozoi-Shymkent-China gas pipeline means that, for the first time, Tethys has two potential gas export routes that provide alternatives to sell its gas; the route taking gas to the more populous south eastern part of Kazakhstan and, ultimately to China, and the existing Bukhara Urals trunk line that transports gas from Central Asia into Russia. Currently, the Chinese pipeline is only taking domestic gas within Kazakhstan to Shymkent and it is not known when exports to China will commence. The Company expects to realise a higher net sales price to China should exports commence but it is unknown at this time what the price will be. Recently, gas prices have fallen in China mirroring the trend in world prices. The Company still believes that the long term price for gas will rise in the region, in particular dry gas imported via pipeline from Central Asia and that Chinese demand will increase over the medium to long term, especially with the substitution in China of a greater percentage of energy use from gas instead of coal.
During Q1 2015, the Company signed a Memorandum of Understanding (“MOU”) with PetroChina with respect to co-operation in potential future gas sales.
The Kul-Bas Exploration and Production Contract was due to expire on November 11th, 2015. The Company is seeking to extend the Kul-Bas contract for an additional two year period and hopes that as it has a successful history of extending contracts in Kazakhstan that it will be able to extend this contract too, but this is not guaranteed. Within this contract area is the Klymene prospect.
Olisol Private Placement
On 9th November, Tethys entered into a non-binding and indicative letter of intent with Olisol Investments Limited (“Olisol”) setting out proposed terms upon which Olisol Petroleum Limited (“OPL”), a wholly-owned subsidiary of Olisol, will provide Tethys with a US$15 million interim debt facility (“the Interim Financing”), subscribe to a C$25.5 million private placement of 150 million new ordinary shares at a price of C$0.17 per ordinary share (the “Placing”) and commit to backstop a further equity fundraising of 50 million shares at C$0.17 per share (the “Further Financing”).
The Company has agreed to grant OPL a limited period of exclusivity the until 11:59 p.m. Calgary time on November 23, 2015 (unless such date is extended by request of one of the parties) in connection with the Interim Financing, the Placing and Further Financing.
In the event that OPL does not provide Tethys with certain confirmation of funds by November 23, 2015, Olisol will pay Tethys a US$1.25 million break fee. The Company and Olisol have substantially progressed the binding documentation for the transaction. The Company expects to provide an update on these agreements prior to the expiration of the exclusivity period.
Tajikistan
On October 12, 2015 the Company announced that it had received a notice to withdraw from the Joint Operating Agreement and Shareholders Agreement dated June 18, 2013 relating to the Bokhtar PSC in Tajikistan (the “JOA”) and the underlying PSC (the “Contract”) from CNPC Central Asia B.V. (“CNPC”) and Total E&P Tajikistan B.V. (“Total”).
The notice of withdrawal was served on the basis that Tethys has not made the payment on October 9, 2015 for the September Cash Call (approximately USD1.28 Million) issued by the Bokhtar Operating Company. Tethys has also not made payment for the October 2015 Cash Call (approximately USD0.78 million). Pursuant to the notice of withdrawal, Total and CNPC state that they jointly require Tethys’ subsidiary, Kulob Petroleum Limited, to completely withdraw from the JOA and assign all of its participating interests derived from the Contract and the JOA to Total and CNPC in proportion to their respective participating interests.
Tethys is considering its position under the JOA, the Contract and under applicable laws and equity and, as stated in its announcement on October 9, 2015, Tethys will use all commercially reasonable efforts to protect its interest in the Bokhtar PSC in Tajikistan.
Olisol and Tethys are working together in good faith and using all commercially reasonable efforts to cure the Tajikistan defaults and the notice of withdrawal or have them set aside.
Current Financial Position
There can be no certainty that the Interim Financing, the Placing or the Further Financing will be completed or that the Investment Agreement will be entered into. The Company currently does not have sufficient funding to meet its funding obligations in the next twelve months and therefore, without the Transaction, there is significant doubt about the Company’s ability to continue as a going concern. If this Transaction does not proceed, there can be no assurance that management will be successful in securing alternative funding or that management would have sufficient time to implement any alternative transaction, which would be required to enable the Company to continue as a going concern.
Financial results
The full third quarter Condensed Interim Financial Statements together with Management’s Discussion and Analysis document have been filed with the Canadian securities regulatory authorities. Copies of the filed documents may be obtained via SEDAR at www.sedar.com or on Tethys’ website at www.tethyspetroleum.com. The summary financial statements are attached to this press release. Investors are advised to review the third quarterly 2015 financial statements and the notes to those financial statements in detail as they contain important information.
The Company’s third quarter 2015 financial statements are prepared under International Financial Reporting Standards (“IFRS”).
Tethys is focused on oil and gas exploration and production activities in Central Asia and the Caspian Region. This highly prolific oil and gas area is rapidly developing and Tethys believes that significant potential exists in both exploration and in discovered deposits.
Forward Looking Information
Some of the statements in this document are forward-looking. Forward-looking statements include statements regarding the intent, belief and current expectations of the Company or its officers with respect to the expected ability of the Company to realize higher net sales price to China, the increase in long term price for gas and in Chinese demand for gas, the Interim Financing, the Placing and the Further Financing, and curing defaults under the Bokhtar PSC. When used in this document, the words “expects,” “believes,” “anticipates,” “plans,” “may,” “will,” “should” and similar expressions, and the negatives thereof, are intended to identify forward-looking statements. Such statements are not promises or guarantees, and are subject to risks and uncertainties that could cause actual outcomes to differ materially from those suggested by any such statements including with respect to completion of the Placing, the Interim Financing and Further Financing and receipt of proceeds, required shareholder approval and required regulatory approvals, use of proceeds, and receipt of funds pursuant to the Interim Financing within anticipated timeframes, effective implementation of a Relationship Agreement with OPL. In addition, there is significant uncertainty whether CNPC and Total will agree to any alternative remedy in respect of the default under the JOA by Tethys, if no such agreement is reached whether Tethys will be able to retain any interest in the Tajik asset or if as an alternative Tethys is forced to assign or sell its interest in the Tajik asset whether it will realize any proceeds from such assignment or sale. In addition, there is a risk that gas sales to China will not occur and a risk that the long term price for gas and in Chinese demand for gas will not increase as expected.
The forward-looking statements are based on the following assumptions: that exports of gas from Kazakhstan to China will commence, an investment agreement will be entered into with OPL, that the Placing and Further Financing will be completed and all shareholder required approvals will be obtained, that conditions will be fulfilled and funds received under the Interim Financing within anticipated timeframes, the fact that the Bokhtar PSC Partners will allow the Company to negotiate a cure to the default under the JOA.
See our Annual Information Form for the year ended December 31, 2014 for a description of risks and uncertainties relevant to our business, including our exploration activities. The “forward looking statements” contained herein speak only as of the date of this press release and, unless required by applicable law, the Company undertakes no obligation to publicly update or revise such information, whether as a result of new information, future events or otherwise.
Disclaimer
No part of this announcement constitutes, or shall be taken to constitute, an invitation or inducement to invest in the Company or any other entity, and shareholders of the Company are cautioned not to place undue reliance on the forward-looking statements.
Tethys Petroleum Limited Condensed Consolidated Statement of Financial Position (unaudited)
(in thousands of US dollars)
As at
30 September 2015 31 December 2014
Non-current assets
Intangible assets 86,553 47,630
Property, plant and equipment 116,506 13,804
Restricted cash 2,147 623
Investment in joint arrangements 4 4
Trade and other receivables 2,500 -
Deferred tax - 258
207,710 62,319
Current assets
Cash and cash equivalents 4,286 3,112
Trade and other receivables 9,023 634
Loans to joint arrangements 2,501 -
Inventories 976 -
Restricted cash 674 116
Assets of a disposal group
classified as held for sale - 172,514
17,460 176,376
Total assets 225,170 238,695
Equity
Share capital 33,684 33,645
Share premium 321,784 321,724
Other reserves 43,104 42,845
Accumulated deficit (229,657) (198,560)
Non-controlling interest 6,095 6,096
Total equity 175,010 205,750
Non-current liabilities
Trade and other payables 153 -
Financial liabilities - borrowings 22,842 5,489
Provisions 831 -
Deferred tax 438 -
24,264 5,489
Current liabilities
Financial liabilities - borrowings 9,637 5,139
Derivative financial instruments 1,331 -
Current taxation 343 364
Trade and other payables 14,071 4,102
Provisions 514 1,759
Liabilities of a disposal group
classified as held for sale - 16,092
25,896 27,456
Total liabilities 50,160 32,945
Total equity and liabilities 225,170 238,695
Tethys Petroleum Limited
Condensed Consolidated Statement of Comprehensive Income (unaudited)
(in thousands of US dollars)
Three months ended Nine months ended
30 September 30 September
2015 2014 2015 2014
Sales and other revenues 5,736 7,261 18,528 21,165
Sales expenses (1,182) (534) (3,563) (1,776)
Production expenses (1,811) (2,963) (8,578) (9,975)
Depreciation, depletion and
amortisation (3,716) (281) (25,004) (580)
Business development
expenses - (461) - (1,781)
Administrative expenses (2,073) (4,181) (7,608) (14,388)
Restructuring costs (586) - (2,907) -
Transaction costs of assets
held for sale - (114) (1,065) (245)
Share based payments (93) (20) (358) (216)
Profit on sale of fixed
assets 10 - 53 -
Foreign exchange loss (716) (98) (931) (168)
Fair value gain/(loss) on
derivative financial
instrument 236 - (233) 17
Loss profit from jointly
controlled entity (15) (44) (250) (1,312)
Finance costs (321) (215) (2,848) (1,200)
Loss before tax from
continuing operations (4,531) (1,650) (34,764) (10,459)
Taxation 833 (712) 3,754 20
Loss for the period from
continuing operations (3,698) (2,362) (31,010) (10,439)
Loss for the period from
discontinued operations net
of tax (11) (57) (88) (702)
Loss and total comprehensive
income for the period (3,709) (2,419) (31,098) (11,141)
Loss and total comprehensive
income attributable to:
Shareholders (3,711) (2,321) (31,097) (10,845)
Non-controlling interest 2 (98) (1) (296)
Loss and total comprehensive
income for the period (3,709) (2,419) (31,098) (11,141)
Loss per share attributable
to shareholders:
Basic and diluted - from
continuing operations (USD) (0.01) (0.01) (0.09) (0.03)
Basic and diluted - from
discontinued operations
(USD) - - - -
Tethys Petroleum Limited
Condensed Consolidated Statement of Cash Flows (unaudited)
(in thousands of US dollars)
Three months ended Nine months ended
30 September 30 September
2015 2014 2015 2014
Cash flow from operating
activities
Loss before tax from
continuing operations (4,531) (1,650) (34,764) (10,459)
Loss before tax from
discontinued operations (11) (57) (88) (704)
Adjustments for:
Share based payments 93 20 358 216
Net finance cost 321 215 2,848 1,200
Depreciation, depletion
and amortisation 3,716 281 25,004 580
Profit on sale of fixed
assets (10) - (53) -
Fair value (gain)/loss on
derivative financial
instruments (236) - 233 (17)
Net unrealised foreign
exchange gain (87) (147) (61) (64)
Loss from jointly
controlled entity 15 44 250 1,312
Movement in provisions (1,308) (200) (3,298) (520)
Net change in working
capital (3,085) (613) (970) (1,161)
Cash used in operating
activities (5,123) (2,107) (10,541) (9,617)
Corporation tax paid - - (134) (148)
Net cash used in operating
activities (5,123) (2,107) (10,675) (9,765)
Cash flow from investing
activities
Interest received 46 50 137 148
Expenditure on exploration
and evaluation assets (1,588) (1,633) (5,530) (6,199)
Expenditure on property,
plant and equipment (350) (4,583) (2,389) (12,118)
Proceeds from sale of fixed
assets 8 - 121 -
Movement in restricted cash (87) (14) (238) (474)
Movement in advances to
construction contractors (11) (304) 179 (2,032)
Movement in value added tax
receivable 339 72 1,058 (21)
Net change in working
capital 598 (1,063) (924) (251)
Net cash generated
from/(used in) investing
activities (1,045) (7,475) (7,586) (20,947)
Cash flow from financing
activities
Proceeds from issuance of
borrowings, net of issue
costs 5,000 3,884 23,235 11,604
Repayment of borrowings (288) (1,113) (4,953) (8,204)
Interest paid on borrowings (311) (434) (1,219) (1,357)
Proceeds from issuance of
equity - - - 14,947
Share issue costs - (133) - (1,379)
Payment of other liabilities (27) (27) (83) (126)
Net cash generated from
financing activities 4,374 2,177 16,980 15,485
Effects of exchange rate
changes on cash and cash
equivalents 1,138 (206) 1,699 (437)
Net (decrease)/increase in
cash and cash equivalents (656) (7,611) 418 (15,664)
Cash and cash equivalents at
beginning of the period 4,942 17,678 3,868 25,731
Cash and cash equivalents at
end of the period 4,286 10,067 4,286 10,067
Cash and cash equivalents at
end of the period
comprises:
Cash in assets of a disposal
group held for sale - 2,153 - 2,153
Cash and cash equivalents 4,286 7,914 4,286 7,914
4,286 10,067 4,286 10,067
About Tethys
Tethys is focused on oil and gas exploration and production activities in Central Asia and the Caspian Region. This highly prolific oil and gas area is rapidly developing and Tethys believes that significant potential exists in both exploration and in discovered deposits.
CONTACT INFORMATION: CAMARCO (Financial PR)
Ginny Pulbrook / Billy Clegg / Georgia Mann
+44(0)203 757 4983
or
Tethys Petroleum Limited
info@tethyspetroleum.com
www.tethyspetroleum.com