Tethys Petroleum Provides Update to Shareholders on Current Operations

Source: www.gulfoilandgas.com 12/1/2014, Location: Europe

Tethys Petroleum Limited provides an update to their shareholders on the current operations, forward plans and the strategic focus of the Company over the next 12 months.

Following the appointment of the new Executive Chairman, Mr. John Bell, and three new Non-Executive Directors of the Company, the Company believes that the Board of Directors has been strengthened and there is now a good balance between those long serving Directors and the fresh perspective of its new Directors. The Board is committed to operate at the highest level of integrity and transparency in order to govern the Company effectively.

The Board believes there is a significant value gap between the current share price and the net asset value of the business. A strategy to close this gap is outlined below; the Board believes that by executing this strategy over the coming weeks, months, and years, it can increase the intrinsic value of the assets, grow revenues, and importantly, bring confidence to shareholders.

Cost Reductions

The Company has made immediate strategic changes to streamline the organization in the most practical way possible, and without compromising safe, reliable operations. The Board has already commenced an aggressive downsizing program with significant staff reductions and cost reductions in all key G&A areas. It is forecast that those already identified cost reductions will progressively reduce the total for G&A, capitalised corporate costs and Business Development Costs from approximately US$23 million in 2014 to a target of approximately US$15 million in 2015. In addition the Company will be closing the Dubai, Washington and Toronto offices as soon as is practical. Management is currently working on further reductions in addition to those mentioned above and regular updates will be provided on the progress that is being made in all areas in due course. The Board has directed management to have a more focussed management structure with a principle focus on cost efficiency and greater accountability for the performance of our oil and gas operations.

Assets Overview

Kazakhstan

In Kazakhstan, the Company is currently producing oil and gas comprising approximately 2,400 barrels of oil per day ("bopd") and 260 thousand cubic metres per day (mcm/day) of gas. In September 2013, SinoHan Oil & Gas Investment 6 B.V. ("SinoHan"), a part of HanHong, made an offer to purchase 50% plus one share of the Company's Kazakhstan assets. The Company expects that the Kazakh State will have completed its due diligence in Q1 2015 at which point the Company can then complete the SinoHan transaction. Upon completion of the transaction, Tethys will receive approximately US$71 million in cash with SinoHan also obligated to fund the first US$9 million (as of Sep 30th 2014) of the forward work program. This deal is subject to the receipt of final government consents and possible pre-emption by the State under Article 36 of Kazakh law that would require the State to match the offer.

While the closing date is uncertain, SinoHan released US$3.88 million from escrow to progress the Kazakh operations and as previously announced has extended the agreement by six months to facilitate the due diligence by the State. The Board believes this transaction is in the best interest of the Company by providing cash liquidity for further project development and brings in a funding partner to fully develop our Kazakh asset base.

The SinoHan transaction alone values the Kazakhstan assets at US$150 million (plus upside potential bonuses); this equates to 27 pence a share (CDN$0.48) as compared to the current share price of 14 pence (CDN$0.26) for Tethys Petroleum Limited.

Even without the proceeds from the SinoHan transaction, the Company expects significant cash flow increases in the coming months from the sale of its gas production as a result of anticipated greater production and increased prices as described below.

The Company plans to double the current gas production by Q1 2015 at which point it will be able to inform the market of plans with further increases expected in Q2 2015. The negotiations for a new 2015 gas contract are progressing well and the Company expects to be able to announce later this month a price significantly higher than the current price of US$53/mcm. Further investment on increasing oil and gas production from these levels is dependent on the timing of funding from the completion of the SinoHan transaction.

The Board believes the SinoHan transaction is a good option with which to develop this project. However, even without this option, the Board believes that with the new shallow gas production and the anticipated higher gas price that the business also is very attractive as a stand-alone asset and provides solid cash flow with exciting exploration upside.

Strategically the Kazakhstan asset has good production but historically revenues have been limited by low oil and gas price realisation. The Board will put greater focus on this area to increase revenues and to achieve greater product price realisation for both going forward. The new gas contract for 2015 gas should demonstrate the Company is moving in the right direction in this important area.

As well as oil and gas production the Company believes that there is exciting exploration prospectivity within the Kazakhstan acreage. Tethys' early mover advantage in the North Ustyurt basin means that we have an established project with oil and gas infrastructure built over many years in an underexplored area where companies such as Total S.A. have recently picked up adjacent exploration acreage and are soon to commence drilling. The Klymene exploration prospect offers the potential of 422 million barrels of gross unrisked mean prospective recoverable resources and the Company sees this as the key focus for exploration in 2015.

Tajikistan

The Board believes that the project in Tajikistan offers world-class exploration potential, in partnership with Total Exploration and Production SA and China National Petroleum Corporation. This is a Production Sharing Contract over a large acreage position, with exceptional commercial terms, in a country bordering China. Hydrocarbon resources are of strategic interest to China, which is currently investing significantly on in country infrastructure including a new gas pipeline capable of transiting any gas discovered by the Company in the country.

This project will require significant additional capital over the next few years and the Board will ensure that the Company retains a material interest in this project at the same time as ensuring it is financed in the most optimal way. The Board believes that we can farm down part of this interest in order to receive immediate consideration and also to offset part of this large funding requirement going forward. This will result in a more manageable equity stake that is still material so that any success will have a significant impact on the value of the Company. The Board feels this strategy is the most prudent way to maintain meaningful exposure to these world-class assets and to stay in alliance with the two large and well-funded companies we are currently partnered with.

The Bokhtar Operating Company ("BOC") has commenced Phase 1 (of 2) of the wide line seismic programme and currently expects to complete all 826kms of Phase 1 in 2015. This Phase concentrates on the northern half of the PSC, and in particular the Obigarm highlands which is considered prospective for deep gas on all other geoscience studies which are ongoing. Phase 2 will be completed in Q4 2015. The seismic processing and interpretation will be completed in batches throughout 2015 so that sub salt maps are available in Q4 2015. Tethys and its two JV partners aim to have agreed a preferred first drilling location based on mapping in H2 2015.

Georgia

In early January 2014 the Company entered into a partnership with Georgian Oil and Gas ("GOG"), and acquired a 56% interest (GOG 44%) of Blocks XIA, XIM and XIN in Georgia with Tethys being the Operator of all these PSC's. Currently the Company is in discussions with its partner to offset its current funding obligations of approximately US$5 million through reducing its interest in these projects. This would provide time to carry out a thorough and planned farm out process in order to maximize this asset's value. The Board believes this asset has good potential, with excellent terms, but with limited capital available and funds required in its core assets of Kazakhstan and Tajikistan, it does not wish to commit any more significant capital to the Georgian projects.

New Executive Chairman

John Bell, Executive Chairman, commented, "I would like to take this opportunity to introduce myself to all the Shareholders of Tethys Petroleum Limited and to strongly reinforce that the new Board and I see our main directive is to serve the shareholders of the Company and ensure that we make decisions that maximize the returns for the owners of our Company. We will do this through diligent corporate governance and transparency, and ensure that the oversight the Board provides will direct the senior management of the Company in the most effective way possible.

Before I talk about the high quality assets I would like to mention our cost base. We have responded quickly and purposefully to major shareholder concerns that the G&A is too high for a Company such as Tethys. The new Board of Directors was elected less than two weeks ago and myself less than one week ago as Executive Chairman, and we have already clearly identified a cost cutting program to reduce the overheads by approximately 35% from 2014 to 2015. I can assure shareholders that we will look at further reductions on top of this figure but I am sure you will agree this is a significant reduction identified in a very short time since the Board changes. This is one example of our new approach to running the business where the fundamental principle of efficient allocation of capital is applied to every aspect of the business.

I am excited and enthused at the opportunity I see with Tethys and its assets. Starting with Kazakhstan and the growing gas market there and looking further forward, in capitalizing upon the immense gas demand of China, there is tremendous potential to grow revenues. I also see some exciting exploration prospects and through disciplined financing choices and efficient allocation of capital I believe the Company and shareholders can realize this potential effectively. I hope that the SinoHan transaction completes in a timely manner so as to realize these divestment funds and also to allow us to move forward with our new partners.

In Tajikistan we have first mover advantage and we are equal partners with two super majors, exploring in frontier areas with massive prospectivity. Tajikistan is truly a unique asset for a company of Tethys' size and the drilling of the first deep well will be an exciting event for the Company and Shareholders alike. We should soon see the first interpretations of the ongoing seismic program and I know our exploration team is greatly anticipating these initial results. I look forward to being able to realize the true value of these assets over the coming months and quarters.

In Georgia we have an attractive asset with good long-term potential. However our focus is very much on developing our assets in Kazakhstan and Tajikistan, therefore we will look at farming down or divesting these Georgian assets.

I believe that the Boards new approach to the business will provide a solid foundation to execute our strategy to generate value from these very high quality assets and to provide suitable returns to our shareholders."


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