Tethys Petroleum: Annual Report

Tethys Petroleum Limited today announced its Annual Results for the year ended December 31, 2013.

Corporate Highlights

— Completion of a farm-out of 66.66% of the Tajik Bokhtar Production Sharing Contract agreement to subsidiaries of Total Exploration and Production SA and China National Petroleum Corporation for USD63.4 million

— Conditional sale of 50% (plus one share) of the Kazakh oil and gas assets to SinoHan Oil and Gas Investment BV for USD75 million plus potential future bonuses

— Acquisition (completed early January 2014) of a 56% interest of Blocks XIA, XIM and XIN in Georgia for USD 9.6 million

— Decision to discontinue operations in Uzbekistan

— Drilling of AKD08 and AKD09 in Kazakhstan

Financial Highlights

— Oil and gas revenue from continuing operations of USD36.95 million – an increase of 10% on 2012 (USD33.63 million)
— Loss for the year from continuing operations of USD10.54 million – a decrease of 50% on 2012 (USD20.96 million). In addition there was a loss of USD7.10 million from the discontinued Uzbekh operation which was primarily a write-down of assets
— Basic & diluted loss per share of USD0.03 cents from continuing operations (2012: USD0.07 cents)
— Capital Expenditure of USD23.81 million – an increase of 36% on 2012 (USD17.50 million)
— Cash and cash equivalents of USD25.10 million – an increase of USD23.35million on 2012 (USD1.75 million)

Reserve Highlights

Annual audited net reserve results of: 1P (Proved) – 13.03 million barrels oil equivalent (“boe”), 2P – (Proved plus Probable) – 23.29 million boe and 3P – (Proved plus Probable plus Possible) – 36.70 million boe. With the addition of 2013 production, these figures represent an increase on the 2012 year end volumes.

The above reserve data does not reflect the conditional sale of 50% of the Kazakh operations announced on Nov 1, 2013.

President’s Message

Dr. David Robson, Executive Chairman and President said, “2013 was a landmark year for Tethys as it developed our strategic partnerships in all its areas of operations. These partnerships have strengthened our projects in our focus areas financially, operationally and strategically.

“In Tajikistan, we completed the farm-out of a 66.66% interest of the Tajik Bokhtar Production Sharing Contract to subsidiaries of Total Exploration and Production SA and China National Petroleum Corporation for USD63.4 million. The endorsement of our belief in the super-giant potential of this section of the Amu-Darya basin by a super-major and the Chinese state oil and gas company is a great accomplishment for Tethys and puts us in a strong position to now capitalise on this potential through a partnership with financial and technical strength. We look forward to acquiring the necessary additional seismic later this year in order to locate a deep well, and then drilling in 2015, which will be an exciting time for the Company. We also welcome the news that the Chinese will commence construction of a gas pipeline from Tajikistan to China, which border each other, and which could carry any gas from a discovery, accelerating monetization. In addition, this farm-out released valuable funds which were invested in other areas of the business.

“Turning to Kazakhstan, in 2013 we signed a conditional sale of 50% (plus one share) of the Kazakh oil and gas assets to SinoHan Oil and Gas Investment BV for USD75 million plus potential future bonuses. SinoHan are a subsidiary of Beijing-based, Hanhong Private Equity Management Company, a well-known Chinese private equity firm. Globally, Hanhong is working on managing several international resources funds valued at more than USD1 billion. This is an excellent transaction for Tethys in terms of the valuation it received for its assets and also in bringing in a strong financial partner with a shared vision of the potential which these assets have, both in terms of the underlying oil production that provides valuable cash flow to support the business, and the exciting growth story in the gas market which has now opened up after the completion of the gas pipeline to China from Kazakhstan which is in close proximity to the field. We also maintain operational control and run day-to-day operations. Once this transaction completes after the necessary government consents expected mid-year 2014, the exploration and developments programmes will both move into full swing. We expect to approximately triple gas production from now until 2015 when we also expect to realize a significantly higher gas price due to selling into the Chinese market for the first time. These are shallow, cheap wells to drill and our first two wells drilled in 2014 have been successful which bodes well for the forward programme. In addition we will continue to explore and our shareholders are looking forward to drilling the Klymene exploration prospect later in the year targeting over 400 million barrels of unrisked mean prospective recoverable resources of oil. Our reserves have remained steady which provides a valuable underpinning revenue stream whilst we push forward in other areas. It is planned to increase current oil production from these reserves through the drilling of a horizontal well later this year, targeting the fractures in the Jurassic Limestone which has not been extensively produced to date, but contain significant reserves.

“We entered a new country with the acquisition (completed early January 2014) of a 56% interest of Blocks XIA, XIM and XIN in Georgia with Tethys being the Operator of all these PSC’s. We believe that with the application of more modern technologies than have previously been applied these PSC’s hold world class potential for conventional and non-conventional oil and gas production. The opportunity to enter Georgia, a country with a very good business climate, 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 acreage with direct access to world markets and good commercial terms. We believe that these transactions will add significantly to Tethys’ current portfolio in Central Asia and will complement these projects adding to future shareholder value. The new seismic acquired to date has already allowed us to identify some good prospects and we plan to drill a well later in the year.

“Turning to recent events in Ukraine, where we do not operate, we would like to stress that, whilst this is disturbing for that particular country, we do not see this affecting the countries in which we operate. Kazakhstan and Tajikistan have experienced a long period of stability now and all the signs are that this will continue going forward. Georgia has a democratically-elected government that has strong popular support and indeed is very pro-business with a stable relationship with Russia. Countries in the former Soviet Union tend to be unfairly grouped together when in fact they are all uniquely independent and different.

“We are now in three countries and have, what we believe to be, the right partnerships for each of those countries. We believe it is a diversified portfolio that provides good oil and gas production to support the business with very exciting exploration upside that we will capitalise on in order to bring shareholder value in 2014 and beyond.”