GRAND CAYMAN, CAYMAN ISLANDS -- (Marketwired) -- 11/14/17 -- Tethys Petroleum Limited ("Tethys" or "the Company") (TSX: TPL) today announced its results for the quarter ended September 30, 2017.
Q3 Financial Highlights
(all figures reported in USD unless stated otherwise. 2016 amounts are for the quarter ended September 30, 2016)
-- Oil and gas sales and other revenues decreased by 17% to USD2.6 million
from USD3.1 million, however, net revenues increased by 43% to USD3.5
million from USD2.5 million because there were no sales expenses in the
current quarter and sales expenses which had been accrued for the period
May to December 2016 were released during the current quarter. The
previous gas marketing agreement was terminated in November 2016;
-- Oil revenues increased by 221% due to higher production, which was up by
149% to 170,024 bbls or 1,828 bopd following the installation of an
Electrical Submersible Pump ("ESP") in early June 2017 and a higher oil
price, up 12%;
-- Gas revenues were 59% lower due to the combination of the natural
decline in production of 16% and the reduced price, which was 30% lower;
-- The loss of USD2.9 million was lower than the Q3 2016 loss of USD4.0
million due mainly to the lower sales expenses referred to above and
lower production expenses, partly offset by a higher depreciation,
depletion and amortisation charge;
-- Adjusted EBITDA improved to USD1.7 million from negative USD0.8 million,
mainly due to the lower sales expenses and production expenses, which
more than offset the reduction in revenue. Administrative expenses were
also significantly lower despite high legal costs;
-- Total assets reduced by 20% to USD149.1 million as a result of the loss
for the period and a full impairment of the Tajikistan asset taken in
December 2016;
-- Net debt remained unchanged between September 30, 2017 and September 30,
2016 at USD32.3 million.
Operational Highlights
Oil
-- Oil production in Q3 2017 averaged 1,848 bopd compared with 742 bopd in
Q3 2016 reflecting enhanced production as a result of the installation
of the ESP in early June 2017;
-- Oil production cost per barrel in Q3 2017 reduced to USD4.16 compared
with USD8.84 in Q3 2016 as a result of ongoing cost optimisation and
deferral of some costs;
-- Oil prices averaged USD7.66 per barrel in the quarter compared with
USD6.84 in Q3 2016, an increase of 12%, reflecting better contract terms
from the customer and a stronger Kazakhstan Tenge.
Gas
-- Current quarter gross gas production averaged 1,767 boe/d (300 Mcm/d)
compared with 2,106 boe/d (358 Mcm/d) in Q3 2016, reflecting a natural
decline in overall production;
-- Gas production cost per Mcm in the current quarter decreased to USD10.57
compared with USD14.76 in Q3 2016 due to the timing of recognition of
some costs and the decrease in gas production and would have been lower
still but for some non-variable costs of production. Costs were also
impacted when shown in USD due to the strengthening of the Kazakhstan
Tenge;
-- Gas was sold at a net price equivalent to USD42.95 per Mcm for the
quarter compared with USD61.53 in Q3 2016 reflecting a decrease in the
Tenge gas price received and the strengthening of the Tenge.
Q3 Significant Events and Transactions
-- On July 28, 2017, the Company announced that because its shallow gas
well drilling program had begun later than originally intended,
discussions were underway to modify the programme. This would involve
reducing the number of wells drilled in 2017 from 10 to 8, obtaining and
interpreting new seismic then drilling the 2 wells not drilled in 2017
in early 2018 based on the new data and adding 2-3 additional wells.
This would result in a 4-5 well drilling program in 2018 with the
intention of maintaining and improving shallow gas production on a
continuing basis.
On September 28, 2017, the Company announced that it had signed
contracts to build the pipeline to connect the new wells. The total
contract value is approximately USD5 million and, like the drilling
contract with Great Wall, the majority of payments are not due until
2018 when the Company expects to be able to pay from increased
production revenues.
On October 25, 2017, the Company announced that Great Wall had completed
drilling the fourth gas well and was preparing to commence drilling the
fifth well.
Testing of the first two wells drilled, KYZ-111 and KYZ-110, has been
completed and shows potential production rates of between 53 and 60
Mcm/day on a 12mm choke indicating these should be successful commercial
wells. Testing of the third well, AKK-23, is ongoing with preliminary
results showing a potential production rate of approximately 60 Mcm/day
on a 20mm choke.
Whilst the program is ongoing, the Company is continually reviewing its
plans and making revisions to them to achieve the optimal outcome and to
reflect changes in circumstances.
-- On July 26, 2017, the Aktobe City Court (the "City Court") found in
favour of Tethys Services Kazakhstan LLP ("TSK"), a wholly owned
subsidiary of Tethys, in a proceeding brought by Alexander Skripka
("Skripka"). Skripka alleged that his employment agreement with TSK had
been improperly terminated and that, among other things, he was entitled
to reinstatement of his position with TSK and recovery of certain wages.
The City Court found that the employment agreement had been properly
terminated and that Skripka has no entitlement to further employment
with TSK or to any recovery of wages;
-- On August 8, 2017, Tethys commenced an action against RBK Bank seeking
an order that it provide Tethys with access to records regarding the
loan (the "RBK Loan") that it provided to EGG, and which is integral to
the action Eurasia Gas Group LLP ("EGG") brought against the Company's
wholly owned subsidiary Tethys Aral Gas LLP ("TAG"). TAG is seeking
access to such records as it believes such records will support it in
its appeal in the proceedings involving EGG and is awaiting the results
of its action;
-- On August 10, 2017, TAG filed an application for rehabilitation with the
Special Economic Court of Aktobe Region (the "Rehabilitation Court").
This followed a decision by the Court of Appeal in Almaty on August 2,
2017 which found in favour of EGG in its appeal of the decision of the
lower court made in Tethys' favour in February 2017 in relation to a
lawsuit that arose in connection with a contract for oil sales between
EGG and TAG dated 2012. The Rehabilitation Court denied the application
for rehabilitation, however a new application was submitted and accepted
for consideration by the Rehabilitation Court on November 1, 2017.
As was the case with the first application, the new application is
subject to review and approval by the Rehabilitation Court. Pending such
review and approval, TAG will continue business as usual, provided that
no creditor can take any adverse action against TAG in such review
period, including EGG attempting to enforce the decision of the Court of
Appeal in Almaty. In addition, TAG can, if circumstances change,
withdraw its application for rehabilitation at any time;
-- On August 25, 2017, the Company announced that following the
abovementioned announcement in relation to TAG's rehabilitation filing,
Tethys was notified by the TSX that it was performing an expedited
review of the eligibility criteria for the continued listing of the
Company's ordinary shares on the TSX.
On September 1, 2017, the Company announced that following a detailed
written submission by the Company and a meeting of the Continued Listing
Committee of the TSX (the "Committee") held on August 31, 2017, which
was attended by the Company's management and legal counsel, the TSX
decided to allow the Company to retain its listing on the TSX subject to
its Remedial Review Process. The Company was granted up to 120 days to
comply with all requirements for continued listing, beginning August 24,
2017. A further meeting of the Committee is scheduled to be held on
Thursday, December 14, 2017 to review the position at that time. As
suggested by the TSX, and as discussed below, subsequent to quarter end,
the Company has commenced the process for applying to transfer the
listing of its ordinary shares from the TSX to the TSX Venture Exchange;
-- Also on August 25, 2017, the Company announced the appointment of George
Pool as its new General Director in Kazakhstan. George is a US national
and a resident of Kazakhstan. Fluent in Russian, he has over 20 years'
wide-ranging experience of the culture and business practices of the
Former Soviet Union and Latin America having worked on projects in
Kazakhstan, Russia, Uzbekistan, China, Panama, Ecuador, Europe and the
USA;
-- On September 28, 2017, the Company announced that TAG had been notified
by the competent authority in Kazakhstan of its approval of the
continuation of the Company's Akkulka Oil Field Pilot Production Project
(the "Project") from January 1, 2018 to March 10, 2019. This period
coincides with the related Akkulka Exploration Licence and Contract
under which the Project is carried out. The approval of the Project
allows TAG to continue to produce oil and sell it on the Kazakhstan
internal market which it has done since January 2011. Oil is currently
being produced from the AKD-01 well in the Akkulka area. The Company is
evaluating investing in a gas utilization facility for flared gas which
is a prerequisite to apply for a full production licence. This in turn
would allow a proportion of oil production to be sold for export at a
higher price than can be achieved on the internal market;
-- Also on September 28, 2017, the Company announced that it acknowledged
the Olisol Petroleum press release dated September 26, 2017 but did not
intend to issue a response to each of the points raised since a number
of them were incorrect or unclear.
Significant events and transactions subsequent to the period end
-- On October 25, 2017, the Company announced that, as referred to above ,
the TSX initiated a review of the eligibility criteria for the continued
listing of the Company's ordinary shares on the TSX. At the same time
the TSX encouraged the Company to consider its qualifications for a
listing on the TSX Venture Exchange ("TSXV") or NEX, a subsidiary of
TSXV, in order to ensure, to the extent possible, uninterrupted trading
for the Company's ordinary shares. The Company has evaluated the costs
and benefits of its listing on the TSX versus a possible listing on the
TSXV and concluded that it would be prudent to pursue a listing on the
TSXV given the Company's current stage of development. The Company has
therefore submitted an application to move its listing from the TSX to
the TSXV under the TSXV's streamlined application process and is hoping
to complete the process before the end of the year. In the event that
the Company does not meet the TSXV's continued listing requirements for
any reason in the future it remains open to the Company to step down to
NEX, which would continue to provide a marketplace for trading in the
Company's ordinary shares;
-- Also on October 25, 2017, the Company announced that the illegal actions
being taken against the Company by Olisol Petroleum Limited, its
affiliate EGG and EGG's private bailiff (together "Olisol") which the
Company had previously announced on September 28, 2017 were
unfortunately continuing and having an adverse financial impact on the
Company and its business which could potentially put its operations in
jeopardy. Despite the Ministry of Justice of the Republic of Kazakhstan
("RoK") notifying the Company that the actions of the bailiff were
illegal under RoK law and it had suspended the bailiff's licence to
operate, Olisol has continued to attempt to disrupt the Company's oil
deliveries by sending bailiffs and security personnel to the field.
In addition, payments to the Company for its gas sales have been delayed
whilst the Company works to reverse the actions of the bailiff which
included writing to the Company's oil and gas buyers and local
refineries seeking to divert payments for the benefit of EGG. As a
consequence of delayed gas payments, the Company has not been able to
make certain scheduled payments on time, including its monthly payments
to the secured rig loan lenders which were due on September 30 and
October 31.
The Company and its legal advisers are also in active discussions with
its customers to provide them with the legal assurances they require in
order to release payments to the Company given the correspondence from
the bailiff. In the meantime, the Company is continuing to produce and
deliver oil and gas and these operations have continued uninterrupted,
despite the difficulties referred to above
-- On November 6, 2017, Addition #9 to the Company's Kul- bas Exploration &
Production Contract was signed which is the final stage in the extension
of the contract until November 2019. This contract area contains the
KBD02 ("Klymene") prospect which has the potential to be an order of
magnitude bigger than the Company's Doris oil discovery and surrounding
prospects (the geographical area of the prospect is up to ten times the
areal extent of the Doris oil field).
-- On November 14, 2017, the Company signed agreements to sell its two
drilling rigs and related equipment. The sale proceeds are due to be
paid prior to delivery of the rigs to the buyer and will be applied in
first priority to immediately repay the related rig loans in full, ahead
of the contractual loan maturity dates. Completion of the sale is
anticipated to take place in December.
The full Q3 results, together with Management's Discussion and Analysis, have been filed with the Canadian securities regulatory authorities. Copies of the filed documents may be obtained via SEDAR at www.sedar.com or on the Tethys website at www.tethyspetroleum.com. The summary financial statements are attached to this press release.
The Company's Q3 2017 financial statements are prepared under International Financial Reporting Standards (IFRS).
Adjusted EBITDA and Net debt shown in this press release do not have any standardised meaning as prescribed under IFRS and, therefore, are considered non-GAAP measures. Further details on these items is provided in Management's Discussion and Analysis.
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.
Disclaimer
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, the cost, timing, payment for and outcome of the shallow gas well drilling program and the possibility of further changes to the program from unforeseen circumstances, the outcome of legal proceedings with EGG, Olisol and RBK Bank, whether the Rehabilitation Court will accept TAG's application for rehabilitation and whether TAG will withdraw its application for rehabilitation at some future time, the outcome of the TSX's Remedial Review Process and whether uninterrupted trading in the Company's shares will be possible, whether the Company's application to move its listing to the TSXV will be approved, whether the Company will be able to secure payment for its overdue gas sales receivables and whether the illegal actions of Olisol and its bailiff will continue and potentially put the Company's operations in jeopardy, the potential of the Klymene prospect and whether the rig sales will complete in December as anticipated. 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 and the Caspian Region, the cost, timing, payment for and outcome of the shallow gas well drilling program and the possibility of further changes to the program from unforeseen circumstances, the outcome of legal proceedings with EGG, Olisol and RBK Bank, whether the Rehabilitation Court will accept TAG's application for rehabilitation and whether TAG will withdraw its application for rehabilitation at some future time, the outcome of the TSX's Remedial Review Process and whether uninterrupted trading in the Company's shares will be possible, whether the Company's application to move its listing to the TSXV will be approved, whether the Company will be able to secure payment for its overdue gas sales receivables and whether the illegal actions of Olisol and its bailiff will continue and potentially put the Company's operations in jeopardy, the potential of the Klymene prospect and whether the rig sales will complete in December as anticipated.
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 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.
See our Annual Information Form for the year ended December 31, 2016 for a description of risks and uncertainties relevant to our business, including our exploration activities.
See also notes 10 and 14 of our September 30, 2017 Condensed Consolidated Interim Financial Statements for the status of loan restructuring and an update on litigations, claims and assessments involving the Company and its subsidiaries.
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.
Tethys Petroleum Limited
Consolidated Statement of Financial Position (unaudited)
(in thousands of US dollars)
As at
September December
30, 2017 31, 2016
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Non-current assets
Intangible assets 42,893 42,732
Property, plant and equipment 97,079 103,115
Restricted cash 166 2,238
Investment in joint arrangements 4 4
Trade and other receivables 1,568 1,237
Deferred tax 95 208
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141,805 149,534
Current assets
Cash and cash equivalents 186 449
Trade and other receivables 6,517 6,532
Inventories 562 676
Restricted cash 6 2,713
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7,271 10,370
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Total assets 149,076 159,904
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Non-current liabilities
Trade and other payables - 44
Financial liabilities - borrowings 5,808 -
Deferred tax 11,246 11,913
Provisions 997 910
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18,051 12,867
Current liabilities
Financial liabilities - borrowings 26,712 33,249
Current taxation 560 522
Trade and other payables 21,515 19,838
Provisions 26 200
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48,813 53,809
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Total liabilities 66,864 66,676
Equity
Share capital 5,081 5,081
Share premium 358,444 358,444
Other reserves 43,806 43,648
Accumulated deficit (331,215) (320,041)
Non-controlling interest 6,096 6,096
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Total equity 82,212 93,228
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Total equity and liabilities 149,076 159,904
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Tethys Petroleum Limited
Consolidated Statements of Comprehensive Income (Loss) (unaudited)
(in thousands of US dollars except per share information)
Three months Nine months
ended September 30 ended September 30
2017 2016 2017 2016
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Sales and other revenues 2,593 3,119 5,928 10,103
Sales expenses 919 (665) 919 (2,132)
Production expenses (1,004) (1,979) (3,112) (4,503)
Depreciation, depletion and (3,155) (2,473) (8,225) (8,256)
amortisation
Administrative expenses (1,043) (1,354) (3,606) (4,379)
Restructuring costs - 23 (104) (1,400)
Share based payments (51) (20) (158) (183)
Profit on sale of fixed assets - - - 10
Foreign exchange (loss)/gain 262 20 91 141
Fair value gain on derivative - 4 - 275
financial instrument
Finance costs (1,322) (893) (3,402) (4,835)
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(5,394) (7,337) (17,597) (25,262)
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Loss before tax from continuing (2,801) (4,218) (11,669) (15,159)
operations
Taxation (78) 182 495 512
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Loss from continuing operations and (2,879) (4,036) (11,174) (14,647)
total comprehensive income
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Loss and total comprehensive income
attributable to:
Shareholders (2,879) (4,196) (11,174) (14,649)
Non-controlling interest - 160 - 2
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Loss and total comprehensive income (2,879) (4,036) (11,174) (14,647)
for the year
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Loss per share attributable to
shareholders:
Basic and diluted - from continuing (0.01) (0.01) (0.02) (0.04)
operations (USD)
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Tethys Petroleum Limited
Consolidated Statements of Cash Flows (unaudited)
(in thousands of US dollars)
Three months Nine months
ended September 30 ended September 30
2017 2016 2017 2016
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Cash flow from operating activities
Loss before tax from continuing (2,801) (4,218) (11,669) (15,159)
operations
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Adjustments for:
Share based payments 51 20 158 183
Net finance cost 1,322 893 3,402 4,835
Depreciation, depletion and 3,155 2,473 8,225 8,256
amortisation
Profit on sale of fixed assets - - - (10)
Fair value gain on derivative - (4) - (274)
financial instruments
Net unrealised foreign exchange 32 109 99 (246)
gain
Movement in provisions (3) (100) (278) (1,736)
Net change in working capital (2,115) (883) 416 (1,099)
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Cash (used in)/generated from (359) (1,710) 353 (5,250)
operating activities
Corporation tax paid (4) (7) (22) (28)
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Net cash (used in)/generated from (363) (1,717) 331 (5,278)
operating activities
Cash flow from investing activities
Expenditure on exploration and (57) (90) (161) (545)
evaluation assets
Expenditure on property, plant and (408) (228) (1,412) (509)
equipment
Proceeds from sale of fixed assets - - - 33
Movement in restricted cash 1,991 (2) 4,779 146
Movement in advances to 96 193 96 (6)
construction contractors
Movement in value added tax 433 131 391 559
receivable
Net change in working capital 161 200 (67) 239
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Net cash generated from/(used in) 2,216 204 3,626 (83)
investing activities
Cash flow from financing activities
Proceeds from issuance of - 4,430 - 7,930
borrowings, net of issue costs
Repayment of borrowings (2,079) (715) (2,823) (1,289)
Interest paid on borrowings (61) (903) (815) (2,616)
Movement in other non-current (22) (22) (43) (90)
liabilities
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Net cash (used in)/generated from (2,162) 2,790 (3,681) 3,935
financing activities
Effects of exchange rate changes on (322) (177) (539) (46)
cash and cash equivalents
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Net decrease in cash and cash (631) 1,100 (263) (1,472)
equivalents
Cash and cash equivalents at 817 700 449 3,272
beginning of the year
Cash and cash equivalents at end of 186 1,800 186 1,800
the year
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Contacts:
Tethys Petroleum
info@tethyspetroleum.com
http://www.tethyspetroleum.com
