Corporate Update

January 22, 2015

GRAND CAYMAN, CAYMAN ISLANDS–(Marketwired – Jan. 22, 2015) – Tethys Petroleum Limited (“Tethys” or the “Company”) (TSX:TPL)(LSE:TPL) is pleased to provided a further update to our shareholders.

The Board and Executive Management believe that good progress has been made since the recent Board changes.

Key achievements:

--  Agreement to restructure Georgian project
--  Substantial Corporate G&A and Kazakhstan cost reductions
--  New US$6 million loan financing
--  Extension of Akkulka Exploration Contract for 4-years
--  Signed 2015 gas sales contract
--  Doubled gas production levels
--  Mechanical completion of dehydration facilities on time, on budget, zero


The Company is pleased to announce that it has reached agreement subject to finalising documentation with its partner, Georgian Oil and Gas “GOG,” to remove its current funding obligations of approximately US$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% (from 56%) and GOG will become Operator on the licences on Blocks XIA, XIM and XIN. Under the new percentages both partners still agree on any spending and work programs. In tandem with this, the partners are seeking to renegotiate a more efficient new work programme with the State in place of the existing work obligations and deadlines, principally on Block XIN (where a US$2.1m seismic programme is due by June 2015). These proposals will help to alleviate immediate funding obligations of Tethys and provide time for the Company to carry out a thorough and planned farm-out process or sale of it Georgian assets.

Cost Reductions

As previously announced the Company made immediate strategic changes to streamline the organization in the most practical way possible, and without compromising safe, reliable operations. In this first phase it was reported that the Board has already commenced an aggressive downsizing program with significant staff reductions and cost reductions in all key G&A areas. It was forecast at that time that those already identified cost reductions will progressively reduce the total for G&A and Business Development Costs from approximately US$21 million in 2014 to a target of approximately US$13 million in 2015. This amount excludes restructuring and employee redundancy costs which are non-recurring and will be reported separately.

In the second phase of this exercise in Kazakhstan, additional non-production related material cost reductions have now been identified as part of the cost cutting programme. These initiatives have now been implemented and will involve significant reductions in staffing levels within a new streamlined management structure, senior staff salaries, office costs, travel costs and administrative costs.

The Company has continued to implement an aggressive downsizing program corporately, including significant staff and cost reductions in all areas of the business. In conjunction with the downsizing programme the Dubai, Washington and Toronto offices have now been closed, effective December 31, 2014.

This exercise will continue going forward and the Company believes further cost reductions can be identified. The Company also believes that further cost savings will be identified once previously presented strategic initiatives have been realised, such as farming down or selling the Company’s Georgian asset. It is forecast that this will result in further reductions in the annual corporate G&A to approximately US$10.5 million/annum. Within this total is approximately US$3 million of G&A in Kazakhstan.

The Tethys Group’s headcount has been reduced from 419 in October 2014 to 348, a reduction of 17%. In this total the number of head office employees has been reduced from 55 to 32, a reduction of 42%. In Kazakhstan, the number of employees has been reduced to 88% of the previous number, from 348 to 305.

This has been implemented against the background of significant operational achievements. In 2014 additional shallow gas wells were drilled, the associated gas pipeline infrastructure was designed and constructed, and the dehydrator to deliver high specification gas into the main trunk lines was commissioned. All of this was carried out on schedule and on budget with no LTI’s under high levels of safety and quality and resulted in a doubling of gas production commencing in January 2015. Furthermore, the Akkulka Exploration Contract was extended for an additional four years and a new gas contract was negotiated and signed.

The Company has not yet experienced a reduction in realized oil prices in Kazakhstan following the severe fall in world-wide prices, due to the lag in affecting the domestic market in Kazakhstan. It is expected to see these falls reflected in January and February realized prices, with prices expected to stabilize in the coming months following these falls. Any falls in price should have less impact in the first quarter than other months due to lower forecast production levels as a result of winter weather. 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.

John Bell, Executive Chairman of Tethys, stated: “We have achieved many significant milestones in a short time period and I believe we have significantly progressed our objectives outlined in early December 2014. This Georgian restructuring takes away our current funding obligation under the farm in agreement. This combined with a new more efficient work programme being negotiated with the State should lead to lower capital expenditure in 2015 in respect of the Company’s Georgian asset and provide sufficient time to farm down or dispose of this asset. In this oil and gas price environment we need a leaner, more cost effective Company and with the changes we have implemented to date we are well on our way to achieving this. The recent signing of the loan funding should give us sufficient time to gain clarity on the timing of the Sinohan transaction completion, and also on further proposed asset disposals. I continue to look at other strategic initiatives to determine the best way to maximize the return to shareholders.”

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.

This press release contains “forward-looking information”. Such forward-looking statements reflect our current views with respect to future events, including finalizing documentation relating to an agreement reached with the Company’s Georgian partner, renegotiating a new work programme with the Georgian State, the farm-down or sale of the Company’s Georgian asset, the impact of our cost cutting programme and resultant cost savings, the impact of the recent severe fall in world-oil prices on the Company, growth potential for gas volumes produced and prices realized and the significant potential of exploration and discovered deposits. The forward looking statements are based on the following assumptions; that documentation will be finalized in connection with the agreement reached with the Company’s Georgian partner, that a new work programme will be agreed with the Georgian State, that the Company will be able to successfully farm-down or sell it Georgian asset on acceptable terms, that the reduction in staffing levels and other G&A cost reductions will result in cost savings of US$8 million in 2015 compared to 2014, that in the short-term the Company will be less reliant on oil sales that in the past due to the increase in gas volumes and pricing and that gas volumes produced by the Company and prices realized will continue to grow. These forward looking statements are subject to a number of risks and uncertainties, including the risk that documentation is not finalized in respect of the Company’s agreement with its Georgian partner, negotiations over a new work programme with the Georgian State are unsuccessful, the Company is unable to farm or farm down its Georgian asset, that the US$6 million loan financing will be delayed or not completed, that the Company will be more reliant on oil sales in the near term and that the severe fall in world oil prices will have a greater impact on the Company than anticipated, that gas production and realized pricing will not increase as anticipated, that the cost cutting program will be delayed or that it will not result in the reductions to our costs of the amounts set out in this press release. See our Annual Information Form for the year ended December 31, 2013 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.

Tethys Investor Relations
Tethys Petroleum Limited
Sabin Rossi
Vice President Investor Relations

Source: Tethys Petroleum Limited