Tethys Petroleum Ltd V.TPL

News release - more details on Tajikistan

[crackiedog]

DUSHANBE, TAJIKISTAN--(Marketwire - Dec. 2, 2011) -

NOT FOR DISSEMINATION IN THE UNITED STATES OR FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES

Tethys Petroleum Limited ("Tethys" or the "Company") (TSX:TPL.TO - News)(LSE:TPL.TO - News) today provided an overview of its Tajikistan asset and the recently signed Option Agreement.

  
-- Tethys has a Production Sharing Contract for 25-years (signed June 2008)
    

 covering an area of 35,000 km2.     

    

    

-- Excellent commercial terms: Tethys takes 91% of the oil/gas during the    

 cost recovery period and 70% after costs have been recovered. There are    

 no other taxes, levies or duties.     

    

    

-- The Afghan-Tajik basin is part of and an extension of the Amu-Darya    

 basin, one of the most prolific gas/condensate basins in the world. The    

 Amu-Darya basin has many giant fields such as the South Yolotan Field in    

 Turkmenistan with 749 TCF reserves (the second largest gas field in the    

 world) and Tethys believes Tajikistan has similar potential.     

    

    

-- Tethys is targeting the same stratigraphic horizons in Tajikistan    

 existing below the salt layer. These horizons have never been drilled.     

    

    

-- 1.14 Billion barrels oil equivalent (7 TCF) audited unrisked Prospective    

 Resources are contained within the block.     

    

    

-- A detailed data acquisition programme is well under way, and expected to    

 be finished in 2012. A deep well targeting the undrilled subsalt    

 horizons is planned to be located by year-end 2012.     

    

    

-- EOL09 exploration oil discovery - 36 degrees API oil. Testing of the    

 well is ongoing.     

    

    

-- The Persea exploration well is expected to reach total depth (TD) in    

 December 2011. Subsequent to test results, the prospect could be quickly    

 commercialised.     

    

    

-- The Beshtentak 20 oil well has now tested at over 600 bopd of good    

 quality (38 degrees API oil) with further workovers and new well    

 planned on the Beshtentak field.     

    

    

-- A Gas Sales Agreement has been finalised to commercialise the associated    

 gas from the Beshtentak 20 well.     

    

    

-- Oil sales have already commenced, with an approximate price of    

 $60/barrel.     

    

    

-- The Asset is Currently run through a Joint Venture, Seven Stars Energy    

 Corporation ("SSEC"), owned 51% by Tethys and 49% by Sangam Ltd.   
  

Option Agreement

Currently the rights to the Bokhtar PSC are owned by Seven Stars Energy Corporation, of which Tethys owns 51% and Sangam Ltd, the partner, owns 49%. 2% of Tethys ownership is non-voting shares so both entities have equal control currently.

Tethys signed an option agreement with the Sangam Ltd, which provides Tethys the right to purchase 34% of the equity of Sangam Ltd for US$7 million in cash with this option expiring on December 31st, 2011.

  
Post-deal equity in SSEC: 
    

    

 -------------------    

 Tethys: 85%     

 Sangam: 15%     

 -------------------  
  

To date, Tethys has funded 100% of oil and gas activities through a loan to SSEC. As of April 1st 2011, the loan stood at US$49,920,200. After the exercise of the Option Agreement, the full US$49,920,000 loan will be reduced to zero and Tethys equity in SSEC will increase from 51% to 85%. The net affect of this on Tethys future cash flow (for the loan amount) is only a reduction of US$7,488,000.

The cost to Tethys of the transaction is US$7,000,000 in cash as of the date of the exercise of the Option Agreement and US$7,488,000 of future oil and gas revenues (in the form of dividends paid by SSEC) dependent on potential future cash flow.

Deal benefits

  
-- Acquire over 388 million barrels of prospective resources. 
    

    

    

-- Acquire greater rights to reserves in the Beshtentak field that are    

 currently not evaluated.     

    

    

-- Reduce the interest of a non-funding partner, thereby increasing the    

 Return on Capital Employed going forward.     

    

    

-- Obtain control of the Tajikistan joint-venture.     

    

    

-- Create a share structure much more favourable for a farm-in partner,    

 with discussions ongoing with several parties.  
  

The Asset: The Bokhtar Production Sharing Contract

Tethys primary asset in Tajikistan is the Bokhtar Production Sharing Contract ("Bokhtar PSC") which covers a total area of approximately 35,000km2 (8.65 million acres). The area included in the PSC (the "PSC Area") is in the south-western part of Tajikistan and is a large, highly prospective region which has existing oil and gas discoveries but which has seen limited exploration to date. The PSC is held by Kulob Petroleum Limited ("KPL"), a wholly-owned subsidiary of SSEC.

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. The South Yolotan Field in Turkmenistan has been independently evaluated at 749 TCF of gas reserves (Gaffney, Cline and Associates. Ltd, October 2011, as quoted on the Chamber of Commerce and Industry of Turkmenistan website) and the Dauletobad field was originally attributed with 60 TCF of gas reserves (U.S. Geological Survey, Reston, Virginia: 2004). The Company is unable to confirm that the information in respect of the Yolotan Field and Dauletobad Field was prepared in accordance with the COGE Handbook as required by Canadian rules relating to disclosure of gas reserves.

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 as well as 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. TRACS, the independent reserve/resource auditors, have attributed 1.14 Barrels of Oil Equivalent (7 TCF) of unrisked resources to the PSC Area. The prospective resources were determined as at December 31, 2010. Reference is made to pages 66 to 68 of the Company's Annual Information Form dated March 23, 2011 available on sedar.com for a discussion relating to the prospective resources, including the description thereof and risks and uncertainties associated with recovery of Prospective Resources. Reference is also made to the cautionary statement under "Forward Looking Information and Cautionary Statement Regarding Prospective Resources".

Under the Production Sharing Contract, the Contractor (KPL) recovers 100% of capital and operating costs from up to 70% of total production (the maximum allowed under the production sharing legislation of Tajikistan) and the remaining production (termed "Profit Oil and Gas") is shared 70% to KPL and 30% to the State, whose share includes all taxes, levies and duties on oil and gas production.

The terms are fixed over the twenty-five year life of the PSC, which was signed in 2008.

Strategy in Tajikistan

The primary strategy in Tajikistan is to undertake a comprehensive geological and geophysical data gathering exercise with the intention of locating and drilling the first deep exploration well below the regional salt layer. This deep well will target very large prospective resources, as set out in the TRACS resource report. These prospects have never been drilled before in Tajikistan but are prolific producers from the same reservoirs in the adjacent countries of Uzbekistan and Turkmenistan.

This programme is firmly on track and consists of the following:

  
-- In 2008, Tethys obtained and analysed the State geophysical information
    

 and well data of the shallower drilling that had been undertaken in the    

 Soviet period and compiled an extensive database, which was combined    

 with a regional geological model built in-house.     

    

    

-- In 2009-10, Tethys designed and acquired a regional 2D seismic program    

 whereby 693km of good quality 2D seismic was obtained and interpreted.     

    

    

-- In 2011, Tethys carried out an aeromagnetic graviometry survey over more    

 than half of the PSC Area. This data complements the acquired seismic    

 data, State geophysical information and well data. The aeromagnetic    

 graviometry survey is currently under evaluation.     

    

    

-- In 2012, following on from the results of the aeromagnetic graviometry    

 survey, it is planned to acquire focused 2D or 3D seismic data over key    

 prospective areas with the intention of identifying the location for the    

 first deep well.     

    

    

-- As well as the deeper exploration programme, Tethys has been undertaking    

 a shallower exploration programme, and also rehabilitating old oil and    

 gas fields with the intention of generating early cash flow to take    

 advantage of the good contract terms and high oil/gas prices in    

 Tajikistan.     

    

    

-- The East Olimtoi (EOL09) exploration well is located in the south-east    

 of the PSC Area, south of the town of Kulob and only some 10 kilometres    

 north-west of the Afghan border. The well testing programme is    

 continuing with additional specialist equipment due to arrive at the    

 field in December 2011 to attempt to establish continual flow of oil    

 from the Alai zone, where oil has been recovered. The nearest oilfield    

 in the region is the Beshtentak field some 75 km to the north-west which    

 produces oil from the Bukhara limestone. This is the first exploration    

 oil discovery in Tajikistan since independence.     

    

    

-- The Persea 1 exploration well, located near the town of Kurgon-Teppa in    

 the south-west part of the PSC Area, is primarily targeting the Bukhara    

 limestone formation in a four-way dip closed structure with the    

 overlying Alai formation forming a potential secondary target. The    

 planned total depth of this well is 2,700 metres and it is expected that    

 this will be reached in December 2011.     

    

    

-- The Beshtentak oil well BST20 located in the Baljuvon region has    

 recently been worked over by applying modern perforating and acidisation    

 techniques and applying natural gas lift. The well has recently been    

 flow testing at rates of over 600 barrels of oil per day ("bopd"). The    

 oil has an API gravity of 38 degrees and no water is being produced.    

 Initial sales agreements have been signed and the first payments from    

 oil sales have been received. There are additional workover candidates    

 on the Beshtentak field which has gross prospective resources of 11.7    

 million barrels of oil and 16.1 billion cubic feet (0.23 billion cubic    

 metres) of gas as quoted by the Company's independent reserves and    

 resources assessment effective December 31, 2010. (Reference is made to    

 pages 66 to 68 of the Company's Annual Information Form dated March 23,    

 2011 available on sedar.com). There is good infrastructure to facilitate    

 transport and sales of oil with oil currently being sold at    

 approximately $60 per barrel. Funds from the announced financing will    

 also be used to focus on this field and increasing production on this    

 field in the short-term with an immediate cash flow impact due to 91%    

 produced oil and gas going to the contractor.  
  

Dr. David Robson, Chairman and Chief Executive Officer, commented on the potential acquisition, "This is an incredible opportunity to increase our equity holding in one of our key assets in an area that has huge geological upside with excellent fixed commercial terms over 25 years. Our exploration strategy is firmly on track to finish off the geophysical data gathering and then to locate the first deep well in 2012. Oil production now covers all in-country costs, and we aim to increase this production in 2012 with further work on the Beshtentak field. This acquisition should result in a multiple of its cost in resulting shareholder value should we execute our program in Tajikistan and demonstrate further success going forward."

Tethys is focused on oil and gas exploration and production activities in Central Asia with activities currently in the Republics of Kazakhstan, Tajikistan and Uzbekistan. This highly prolific oil and gas area is rapidly developing and Tethys believes that significant potential exists in both exploration and in discovered deposits.Forward Looking Information and Cautionary Statement regarding Prospective Resources

undefined

This press release contains "forward-looking information" which may include, but is not limited to, statements with respect to our operations. Such forward-looking statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions, including the risk that the Option will not be exercised and the exercise of the Option will not be completed on the terms contemplated, the risk that the Company may be unable to complete its data and drilling programs or the planned well workovers within the timeframes contemplated. In addition, there is no certainty that any portion of the prospective resources will be discovered, and if discovered, there is no certainty that it will be commercially viable to produce any portion of the prospective resources. The term "prospective resources" is based on the definition in the COGE Handbook. See our Annual Information Form for the year ended December 31, 2010 for a description of risks and uncertainties relevant to our business, including our exploration activities. The "forward looking statements" contained herein speak only as of the date of this press release and, unless required by applicable law, the Company undertakes no obligation to publicly update or revise such information, whether as a result of new information, future events or otherwise.

This press release does not constitute an offer or a solicitation of an offer to buy, securities of Tethys Petroleum in the United States or to United States persons. Tethys Petroleum's securities have not been and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act"), or any state securities laws and may not be offered or sold within the United States or to United States persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.

Contacts

Sabin Rossi
Tethys Petroleum Limited
Vice President Investor Relations
Office: [phone]
[phone] (FAX)
[e-mail]

Veronica Zhuvaghena
In Europe: Tethys Petroleum Limited
Vice President Corporate Communications
Office: [phone]
[phone] (FAX)
www.tethyspetroleum.com
Mobile site: m.tethyspetroleum.com