TBILISI, GEORGIA — (Marketwired) — 07/08/13 — Tethys Petroleum Limited (TSX:TPL)(LSE:TPL) (“Tethys”), the oil and gas exploration and production company focused on Central Asia/Caspian Region, today announced the conditional acquisition of interests in a number of production sharing contracts (“PSCs”) in Georgia.
Tethys, through its subsidiary companies, will acquire a 56% interest in PSC’s covering Blocks XIA, XIM and XIN in eastern Georgia close to the capital city Tbilisi, and in a separate transaction will acquire a 100% interest in PSC’s covering Block VIII and Block XIG located near Tbilisi and in the Kartli area further west. In total, these blocks cover an area of over 6,400 square kilometres. Tethys will be the Operator of all these PSC’s and the transactions are subject to the approval of the appropriate Georgian authorities as well as other conditions precedent including rescheduling of the work programmes on Blocks VIII and XIG.
Terms highlights:
In the Block XIA, XIM and XIN transaction (Project "Iberia") Tethys will gain a 56% interest in these three PSCs for a payment of USD 9.6 million, which will be paid to the current owners by issuing 12,000,000 ordinary shares in Tethys (based on a price of CDN 0.84 per share) and funding a USD 4.4 million carry on the next USD 10 million work programme. The shares will be restricted from trading for 4 months and their issuance is subject to TSX approval.
In the Block VIII and XIG transaction (Project "Tamar") Tethys will gain a 100% interest in these PSC's for a payment of USD 6.4 million, which will be paid to the current owners by issuing 8,000,000 ordinary shares in Tethys (based on a price of CDN 0.84 per share). These shares will be restricted from trading for 4 months and their issuance is subject to TSX approval.
Completion of both transactions is conditional on appropriate Georgian governmental consent and on the waiver of any pre-emptive rights the Georgian government may have, together with satisfactory completion of Tethys' due diligence. In addition, the Project Tamar transaction is dependent on the restructuring of future work programme commitments related to these PSCs. Completion is expected to take place in Q3/Q4 2013.
The areas contain potential for both conventional and unconventional oil and gas at several different horizons.
An independent resource assessment (utilizing both seismic and well data) has been carried out on three Project Iberia blocks by Gustavson Associates in accordance with Canadian National Instrument 51-101 results in total Unrisked Mean Recoverable Prospective Resources in excess of 3.2 billion barrels oil equivalent. The key results (all figures Gross to the PSCs) are as follows:
Unrisked Mean Prospective Oil in Place - 34.8 billion barrels
Unrisked Mean Prospective Recoverable crude oil - 2.913 billion barrels
Comprising:
380 million barrels of conventional resources and;
2,533 million barrels of unconventional resources
Unrisked Mean Prospective Associated Gas - 1.815 trillion cubic feet (51.4 billion cubic metres)
Total Unrisked Mean Prospective Recoverable Resources - 3.215 billion barrels oil equivalent
No independent resource assessment has yet been carried out on the Project Tamar Blocks - this work is currently underway.
The partners in the Project Iberia Blocks are well-established Georgian oil and gas companies and Tethys expects to work closely with their specialists in implementation of Tethys' operatorship of all the PSCs. Discussions are also underway with these companies to potentially swap equity between the Iberia and Tamar blocks giving shared ownership in all of this acreage.
The PSCs provide good commercial terms and international oil pricing in proximity to two large oil pipelines, a trunk gas pipeline and a railway. The PSCs are located in Central Georgia near the capital city and hub of Tbilisi and on the main transport routes from Azerbaijan and Central Asia. The operating environment in Georgia is straightforward with several service companies available and with an efficient procedure for obtaining the limited governmental consents which are not already given as part of the PSCs.
Dr. David Robson, Executive Chairman and President of Tethys, said: “We are excited to acquire these world class assets with significant potential for conventional and non-conventional oil and gas production. This strategic move into Georgia, a country with a very good business climate and good operating environment, as Operator with a substantial acreage position and existing strong local partners is a very attractive opportunity. The independent evaluation carried out suggests potential of several billion barrels of oil in this acreage with direct access to world markets and very attractive commercial terms. These transactions significantly strengthen Tethys’ diversified portfolio adding to our projects in Central Asia and allowing us to continue to deliver shareholder value.”
The initial work programme on Blocks XIA, XIM and XIN is expected to comprise of 350 kilometres 2D seismic data acquisition and a contingent exploration well with the initial seismic work expected to commence this summer and be completed by summer 2015. This will complement the significant existing volume of modern (2008 – 2011) seismic and geological studies and would satisfy the Minimum Work Programme requirements on all three licences. Tethys will make a USD 1 million secured advance to fund this initial work which will be returned if the transaction does not complete. It is expected to have the first prospect drill ready in 2H 2014.
The current Minimum Work Programme on Blocks VIII and XIG is a total of 500 kilometres of 2D seismic acquisition plus further 3D detailing. One exploration well in Block XIG and one exploration well plus one exploration/appraisal well in VIII are also a contingent commitment. The seismic commitment is currently to be completed by September 2014 but a condition for completing the Tamar transaction is to restructure this schedule with the Georgian government to provide for more time to complete this programme and give work programme flexibility. The completion of this transaction is conditional upon this work programme being satisfactorily restructured to Tethys’ satisfaction.
The commercial terms of the PSCs are very attractive. On the Project Iberia Blocks, 100% of costs can be recovered from up to 50% of production and the investor takes 50% of the remaining production, this falling to 40% after cumulative revenues exceed cumulative costs. All taxes, levies and duties are included in the State’s share of production with the only other tax being a stabilised royalty of 24.19 Georgian Lari per ton (c. USD 1.95 per barrel). The commercial terms are similar on the Project Tamar Blocks but with the investor share of Profit Oil being 40% before and 35% after payback. The PSCs will be operated by a 100% owned Tethys subsidiary. Current realised oil prices are based on international oil benchmarks with a small discount – currently oil is selling at approximately USD 100 per barrel at the rail head.
Detailed Background
These blocks lie in the ESE-WNW Kura Basin where the geology is that of a late Tertiary intermontane basin between the Greater Caucasus Mountains in the north and the Lesser Caucasus to the south, compressing Tethyan sediments between. This has produced a number of exciting fairways for petroleum deposition including sub-thrust and over-thrust plays, anticlinal pop-up structures and deeper fault blocks. There are a number of different potential reservoirs of different ages and several prolific source rocks. The Kura Basin continues into Azerbaijan to the east where there are numerous oil fields, and the plays continue to the north forming the prolific fields in the North Caucasus. A total of 18 oil and gas accumulations have been discovered in Georgia to date, with 15 in the Kura Basin, including the Samgori field complex which has produced some 210 million barrels of crude oil to date at rates up to 70,000 barrels of oil per day. Oil quality in the area is good with crudes being sweet and light (Samgori crude is 40 degrees API). Most of these fields are in Middle Eocene fractured volcano-clastic sands and tuffs however oil has also been produced from Upper Eocene, Oligocene and Miocene sediments as well as from the Cretaceous. Production from fracture permeability remains a challenge in some reservoirs and modern technology is required to maximise production rates.
The Maikop / Upper Eocene shale oil play is potentially analogous to both the Bakken and Eagle Ford plays in the USA according to the Gustavson Associates report, and therefore these plays were used for parameters for the shale resource calculation. The shales are organic rich and geochemical studies indicate good total organic carbon and thermal maturity. The Maikop gross shale thickness is estimated to be up to 2,000 metres (significantly thicker than that reported for the Bakken Formation) with porosities ranging from 5 to 14%, commercial recovery from most likely 50% of the section and with recovery factors of 5 to 10% being applied. Most of the shale oil potential is currently identified in the Blocks XIM and XIN areas.
The conventional target zones in Block XIA are Eocene clastic reservoirs and Cretaceous carbonate reservoirs as well as unconventional Maikop potential. Several multi-level prospective leads have been mapped on older seismic lines as rollovers and thrusted anticlines. As well as the unconventional Maikop and Upper Eocene potential in Block XIM the conventional targets are primarily the clastic Miocene and Middle Eocene age horizons that are productive in the Norio and Satskhenisi fields to the north and in the Samgori oifield to the south-east. These plays appear to extend into Block XIG to the south. Block XIN currently has less data but is mapped as having thick Maikop potential as well as possible Eocene and Cretaceous plays.
Blocks VIII and XIG also exhibit Middle Eocene and Cretaceous potential as well as potential in the Jurassic. There are numerous seeps and oil shows in wells in Block VIII and encouragement seen from the Akhalakalki and East Kavtiskhevi wells especially where reports indicate oil was tested in the past from Cretaceous carbonates and fractured volcanic tuffaceous sandstones. These may have the potential for early oil production. Thrusted anticlines have been identified on seismic data.
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.
The references in this press release to “Prospective Recoverable Resources” means those quantities of petroleum estimated, as of July 1, 2013, to be potentially recoverable from undiscovered accumulations by application of future development projects. Prospective resources have both an associated chance of discovery and a chance of development. There is no certainty that any portion of these resources will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of these resources. The product types that may reasonably be expected from potential production consist of oil, condensate, natural gas and associated gas.
These are Unrisked Prospective Resources as of July 1, 2013 that have not been risked for chance of discovery or chance of development. If a discovery is made, there is no certainty that it will be developed or, if it is developed, there is no certainty as to the timing of such development.
The resources estimates contained or referred to are estimates only and are not meant to provide a determination as to the volume or value of hydrocarbons attributable to the Company’s properties. There are numerous uncertainties inherent in estimating quantities of resources and cash flows that may be derived, including many factors that are beyond the control of the Company. The following is a non-exhaustive list of factors which may have a significant impact on the above estimates of prospective resources: despite the classification that they are as yet undiscovered but may be potentially recoverable the Company may be unable to carry out the development or their potential recovery; the activity may not be economically viable; the Company may not have sufficient capital or time to develop them; there may be no market or transportation routes for the production; legal, contractual, environmental and governmental concerns might not allow for the recovery being undertaken; reservoir characteristics might prevent recovery. The recovery of the resources is subject to the following risks and uncertainties: market fluctuations, the proximity and capacity of oil and gas pipelines and processing equipment, government regulation, political issues, export issues, competing suppliers, operational issues (exploration, production, pricing, marketing and transportation), extensive controls and regulations imposed by various levels of government, lack of capital or income, the ability to drill productive wells at acceptable costs, the uncertainty of drilling operations, factors such as delays, accidents, adverse weather conditions, and the availability of drilling rigs and the delivery of equipment.
This press release contains “forward-looking information” which may include, but is not limited to, statements with respect to the completion of either acquisition or acquisitions, prospective resource estimates, the potential for successful discoveries and their commercialization, and our exploration targets. Such forward-looking statements reflect our current views with respect to future events and are subject to certain assumptions, including receipt of required approvals and a satisfaction of applicable conditions for the completion of either acquisition or acquisitions, the fact that the Company will be successful in confirming the existence of the accumulations of petroleum in respect of its exploration targets, and subject to certain risks and uncertainties, including the risk that approvals for completion of either acquisition or acquisitions may be delayed, the risk that limited discoveries will result from exploration wells and as a result the risk that any or all of the prospective resources will not become recoverable, as further explained above in this press release. See our Annual Information Form for the year ended December 31, 2012 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.
A barrel of oil equivalent (“boe”) conversion ratio of 6,000 cubic feet (169.9 cubic metres) of natural gas = 1 barrel of oil has been used and is based on the standard energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. The use of the word “Gross” means 100% of the PSC.
North America & Europe
Tethys Petroleum Limited
Sabin Rossi
Vice President Investor Relations
srossi@tethyspetroleum.com
Asia Pacific:
Tethys Petroleum Limited
Chris Justice
Communications Manager – Asia
cjustice@tethyspetroleum.com
FTI Consulting – London
Ben Brewerton / Natalia Erikssen
+44 207 831 3113
Tethys Petroleum Limited
info@tethyspetroleum.com
www.tethyspetroleum.com
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Source: Tethys Petroleum Limited