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Tethys Petroleum Signs Tajikistan Production Sharing Contract

Source: 6/13/2008, Location: Asia

Tethys Petroleum Limited announced that Tethys’ CEO Dr David Robson and Gul Sherali, the Minister of Energy and Industry of the Republic of Tajikistan, signed the first ever Production Sharing Contract (PSC) awarded in Tajikistan.

The awarding of the PSC was the culmination of many months of close collaboration between Tethys personnel and the Tajikistan government.

The final area awarded to Tethys’ subsidiary Kulob Petroleum Limited (“KPL”) under the PSC is almost four times the size that was originally under discussion. The total net area covered under the PSC is approximately 34,785 km2 (8.6 million acres). The area under the PSC (The “PSC Area”) is in the south-western part of Tajikistan and surrounds and includes the original Kulob Area, a large highly prospective region which has existing oil and gas discoveries but which has seen limited exploration to date. The PSC Area includes the Khatlon Region and the area around the capital city, Dushanbe and includes more than 50 different prospective structures which have already been identified in the area by Tajik Geology.

Tethys believes that the PSC Area has considerable potential for oil and gas condensate. The area includes almost the entire Tajik portion of the Afghan-Tajik basin, an extension of the prolific Amu Darya basin which contains giant and supergiant gas and gas condensate fields in nearby Turkmenistan and Uzbekistan.

A proven hydrocarbon system exists in the PSC Area but only limited exploration has taken place in the past. Several reservoir horizons are present and both sweet light oil and gas condensate has been produced. Salt tectonics dominate the southern part of the area where numerous salt domes provide the potential for substantial hydrocarbon traps. Figures produced by the US Geological Survey in 2006 estimate the mean unrisked resources for the Afghan portion of the Afghan-Tajik basin (which lies to the south of the PSC Area), to be some 1.5 billion barrels of oil, 8.1 trillion cubic feet (230 billion cubic metres) of gas and 370 million barrels of Natural Gas Liquids.

The PSC Area includes several oil and gas condensate discoveries and KPL will carry out both appraisal and rehabilitation of these deposits as well as exploration for new targets. The rehabilitation activities are aimed at establishing early cash flow whilst exploring for high potential deeper prospects.

Under the Production Sharing Contract KPL will recover 100% of its costs from up to 70% of total production (the maximum allowed under the newly approved production sharing legislation of Tajikistan) and the remaining production (termed “Profit Oil and Gas”) will be shared 70% to KPL and 30% to the Government whose share includes all taxes, levies and duties.

The terms are fixed over the life of the PSC which is twenty-five years, and the Government has certain obligations to fulfil during the next month to bring it into effect. Amendments to certain legislation have now been passed by both houses of the Tajik Parliament and are expected to be brought into law imminently.

KPL is currently 100% owned by Tethys Tajikistan Limited (“TTL”), a wholly owned subsidiary of Tethys.

Tethys previously announced it is taking a 49% partner in its Tajik projects and signed a Shareholder Agreement at the end of 2007. Under the Agreement TTL and the investment company Sangam Limited (“Sangam”) have formed a joint company named “Seven Stars Energy Corporation” (“SSEC”) owned and funded 51% by TTL and 49% by Sangam. This process is nearly complete and the ownership of KPL will then be transferred to SSEC.

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