Update on Claims Made Against the Company and its Employees in Kazakhstan

November 06, 2016

GRAND CAYMAN, CAYMAN ISLANDS–(Nov. 6, 2016) – Tethys Petroleum Limited (TSX:TPL)(LSE:TPL) (“Tethys” or the “Company”) today provides an update to the previously announced failure by Olisol Petroleum Limited and Olisol Investments Limited (together “Olisol”) to fulfill their obligations under the Investment Agreement, claims made against Tethys subsidiaries in Kazakhstan by Eurasia Gas Group LLP (“EGG”) and other claims made against Tethys subsidiaries and employees.

Mr. Alexander Skripka is a principal of both Olisol and EGG and the Company’s former Chief Commercial Officer and Deputy General Director in Kazakhstan. Mr. Alexander Abramov is also a principal of Olisol and former Chairman of the Company. As previously announced, Mr. Abramov was removed as a director of the Company on November 3, 2016 by a majority vote of the Board and in accordance with its Articles of Association.

Investment Agreement with Olisol
On April 28, 2016 Tethys and Olisol signed an investment agreement under which Olisol, a company controlled by three Kazakhstan citizens including Mr. Skripka and Mr. Abramov, undertook by October 27, 2016 to provide equity investments to Tethys in the amount of CDN$9.8 million and also extended a working capital loan in the amount of US$5.7 million which Olisol could convert into additional shares (“Investment Agreement”). It was expected that Olisol would acquire at least 42% of the ordinary shares of Tethys and become a good in-country partner for Tethys in Kazakhstan.

Olisol did not perform its financing obligations under the Investment Agreement.

Prior to the anticipated closing date of the Investment Agreement Intergas Central Asia (“ICA”), the only buyer of the Company’s gas in Kazakhstan, unexpectedly notified the Company’s subsidiary Tethys Aral Gas LLP (“TAG”) that it would no longer take gas produced by TAG and was cancelling its gas sales contract with TAG.

Although the termination of the contract by ICA is questionable, as no grounds for termination were given and the Company disagrees with ICA’s right to terminate the contract, Olisol alleges that there has been a material adverse change in the Company’s business which gives it the right to terminate the Investment Agreement and to demand immediate repayment of its loan.

As announced on November 1, 2016 the Company continues to be in discussions with ICA and Governmental officials, and believes that there remains a reasonable prospect that ICA will reinstate the gas contract.

Further, the Company does not believe that the loss of the gas sales to date have been material to the Company or that Olisol has the right to terminate the Investment Agreement or that the loan is repayable, as the conditions for repayment under the contract have not been met. Olisol is obliged under the legally binding terms of the Investment Agreement to continue to provide Tethys with amounts reasonably requested by Tethys, to fund working capital requirements during the period ending on the latest of (i) the completion of the TAG Loan and (ii) the occurrence of the Closing Date. Olisol undertook to work with Tethys and a Kazakh bank to obtain a bank loan of not less than US$10 million for TAG (“TAG Loan”) and to date Olisol has not been able to complete the TAG Loan.

Disputes with Eurasia Gas Group
EGG is the sole buyer of oil produced by TAG. In 2012, EGG secured loan funding for TAG through a loan in its own name through RBK Bank JSC with Tethys assets securing this EGG loan and Tethys responsible to EGG for the loan. This was provided to TAG as a prepayment for crude oil to be delivered in future and with a commitment by Tethys that all oil would be sold to EGG as long as the loan was outstanding. To all intents and purposes this is a secured, interest bearing loan for TAG, with a fixed interest rate and repayment schedule.

EGG has not paid in full for oil purchases from TAG for more than 10 months. More than US$1.4 million is now owed by EGG and, after exhausting other efforts to secure payment, TAG wrote to EGG on October 13, 2016 demanding repayment within 10 days or that it would be forced to take court action to recover the amounts owed by EGG.

On October 26, 2016 the Company was notified of a claim lodged by EGG in the Almaty City Court against TAG. EGG is seeking an award equivalent to US$2.6 million for the alleged failure by TAG to deliver certain minimum volumes of crude oil to EGG. The Company’s view is that the claim is without merit or substance as TAG has no contractual obligation to deliver minimum volumes of crude oil to EGG, nor is there any penalty clause in contracts entered into between TAG and EGG for failure to deliver minimum volumes of crude oil.

Despite the Company only being notified of the claim on October 26, 2016 the Statement of Claim was filed on October 21, 2016 and on October 24, 2016 the Judge issued a freezing order on the bank accounts, production assets, shares and subsoil use contracts of TAG.

We have serious concerns about these actions as the lawsuit was accepted by the Court in breach of the statutory pre-trial dispute resolution procedure which requires a 30 day negotiation period prior to filing a lawsuit.

The Judge’s ruling also prohibited general meetings of the shareholders of TAG and the management of the company was prohibited from issuing certain resolutions and orders. In other words, the management of TAG is restricted from performing some of its functions according to its Charter. The freezing order was imposed on all bank accounts, and the company is unable to pay salaries to employees, suppliers or taxes due to Government authorities until the accounts are unblocked. It is also unable to receive payment of the more than US$3 million owed by ICA for gas sales and the US$1.4 million owed by EGG for oil sales.

A Court hearing date was set for November 1, 2016, however, EGG’s legal representatives failed to appear and the hearing was delayed for a week.

Criminal case against Tethys Aral Gas LLP and allegations against its employees. Searches and seizures at the office of Tethys Aral Gas LLP, Tethys Services Kazakhstan LLP and Kul-Bas LLP

On November 1, 2016 a judge of a regional court of Almaty issued a resolution to execute searches at the office of TAG as a result of a criminal case against TAG and its employees alleging theft. We understand that the case was initiated by Mr. Abramov. On November 2, 2016 the investigation division of the Internal Affairs Department of Almaty conducted searches of the Company’s offices.

We are informed by legal counsel in Kazakhstan that a freezing order of the sort described above imposed by a special inter-district economic court of Almaty in a simple civil case is quite unusual and that the involvement of armed law enforcement authorities to quickly conduct investigations in a case of this nature is highly unusual.

As a result of the searches and seizures, accounting documents, contracts, computers and servers of TAG were seized. Moreover, documents, computers and servers of Tethys Services Kazakhstan LLP and Kul-Bas LLP, companies affiliated with TAG, were also seized.

Furthermore, members of TAG management were required to attend interrogation on November 4, 2016 and this process is ongoing. The Company is concerned that if the management of TAG is arrested, TAG risks being deprived of its management.

We are concerned that the actions described above may deprive the Company of control over TAG, Tethys Services Kazakhstan LLP and Kul-Bas LLP.

Tethys, as the sole shareholder of TAG, Tethys Services Kazakhstan LLP and Kul-Bas LLP, will seek to protect its rights and legitimate interests through all legal means and will incur all commercially reasonable legal fees and expenses necessary to protect its investment, its management and employees from what it believes to be improper allegations.

Tethys will also take all reasonable steps at its disposal to return to normal business operations at the earliest time.

Tethys in Kazakhstan employs 280 personnel and the Company has invested circa. US$250 million in the Kazakhstan economy since it began its operations in Kazakhstan. The company has also paid over KZT7.4 billion in taxes.

Over recent years the President and the Government of Kazakhstan, the Chairman of the Supreme Court, the General Prosecutor and ministers have declared the country’s desire to improve the investment attractiveness of Kazakhstan and guarantee the supremacy of law and protection of proprietary rights. Based on these declarations, Tethys invested in the economy of Kazakhstan and is extremely concerned about the ongoing events described above.

The Company is preparing to appeal to the Head of the Executive Office of the President of the Republic of Kazakhstan, the General Prosecutor and other Kazakh Governmental agencies, foreign embassies and trade associations requesting their assistance and intervention to help resolve these issues.

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.

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 potential that exists in both exploration and in discovered deposits in Central Asia and the Caspian Region, reinstatement of the gas sales contract and resolution of the claims against the Company and its employees in Kazakhstan. 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 risks and uncertainties with respect to the potential that exists in both exploration and in discovered deposits in Central Asia, reinstatement of the gas sales contract and resolution of the claims against the Company and its employees in Kazakhstan, and the risk that the Company’s Kazakhstan subsidiaries may not be able to satisfy their obligations as they become due until such time as the freeze order has been lifted and payment for past gas sales has been received.

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. Save as required by the Listing Rules and applicable law, the Company does not undertake to update or change any forward-looking statements to reflect events occurring after the date of this announcement.

Tethys Petroleum