TPL SUM UPTETHYS PETROLEUM is the stock we have been buying since February. We now have sufficient holding to reflect our belief in it's potential and perceived probability. This is a 'large' investment weighting for us.
Reserves: 25.3m boe P2 Reserves
https://uk.advfn.com/news/UKREG/2012/article/51713065
Resources: Approx. 1.25bn boe (out of date really and soon to be upgraded)
Cash: Approx. $10m
Debt: $10m
Firstly I must thank ntbb for bringing TPL to my attention. I remember you saying something like TPL could be the next GKP and would you mind looking at it. I smiled at the time thinking - that's like saying “I have just found the next Beatles!” ;-) No offence intended ntbb, I am most grateful for your post.
Anyway, I got stuck into the research and very soon realised the stock ticked almost all of my E&P boxes. What followed was an intense few days of research where everything else was put on hold indefinitely. I say that because this was one of the most enjoyable research experiences I have had for many years. (Perhaps as far back as Dairy Crest around the time of the Unigate deal in the late 90's). Anyway, as I delved deeper into TPL it just seemed to get better and better (to my investment eye at least).
There are many exciting parts to this investment but what makes TPL really attractive to me on the 'risk' side is the Doris field production element. Invariably almost all E&P's find hydrocarbons these days. The risk to the investor is not so much if they find the stuff, it is if they can bring it to market without significant dilution. In this respect, TPL reminds me not of GKP but of EEN. 'Doris' is TPL's Khurbet East field imo. With 13,000 bopd tested already and one Well having tested 6000 bopd together with approx. 4000 bopd current production and more than $35 barrel net back (before they gain an export license) it is now looking pretty solid financially. They have plans to complete phase 2 (at a cost of less than $1m) & phase 3 of the AOT (train terminal) this year and this should increase production to 6300 bopd in Q3 2012 and 10-12k bopd by December (subject to the AKD07 Doris appraisal Well running to plan). The land is already owned btw.
This production and cash flow for me de-risks the investment significantly. When EEN moved into Syria they had 31 prospects to shoot at. I used to say of EEN that with Khurbet East “everything is possible” because it allowed expansion without serious dilution. In this respect I would say the same for TPL with Doris and unlike a popular stock like GKP, TPL is still only valued at £146m. They do not have billions of barrels of reserves at this point but we will come to that in due course.
Doris production has just moved to improved terms following this months commencement of operation at the AOT (train terminal) in Shalkar. TPL have until now had to truck the oil 450 km over mountain passes that are often un-passable during the winter months. This terminal halves that journey and cuts out the worst (most unreliable) roads. TPL now receive $40 barrel instead of $30.
$37 (net back) x 4k bopd = $4.4m per mth ($50m pa) from Doris current production.
By the end of 2012 this should have risen to between $125m to $150m net back just on domestic market Doris oil sales. The company expects to receive an export license by March 2013 at latest. This will allow an immediate enhancement whereby the $40 they receive now will rise to $60 barrel, at which time they should be netting back something nearer $200m pa with perhaps some more production included........and that as I say is just from Doris. The cost per barrel in bringing Doris production to market btw is currently $2.75 barrel and this is projected to fall to $2.5 barrel in H2 2012.
A comparison in Kazakhstan:
For me the only reason MXP has not been a success (and imo why TPL will be) is because MXP have failed to find their own Doris field. Both operators are in Kazakhstan and yet still the Market Caps of these companies do not reflect the stark fiscal diversity of the two. TPL has a MC of £146m and negligible debt whilst MXP is valued at £112m and has $100m debt. MXP have half the 2P reserves of TPL, (circa) half the Doris production of TPL and this will likely fall to a third the Doris production of TPL by end of 2012. On top of this the resources are nothing close to TPL (at least I believe that will be evident in 4 weeks time when the new Tajikistan Resources Report is completed and released). Essentially the MXP enterprise value is higher by almost £30m and yet MXP doesn't have the same means to drive expansion without significantly higher dilution. MXP already have an export license but TPL expects theirs through in under a year and exports only capture circa $5 barrel additional net back in Kazakhstan due to the additional taxation encountered. Doris field produces 46 degree API oil btw. It doesn't get much sweeter than this. MXP average API for their various fields is circa 35 degrees. (still good)
AKD07
TPL intend to spud the AKD07 Well fairly soon and the management have 3 objectivefor the well as follows:
1) Further appraisal of the Doris structure. The management believe the Doris structure is a Strat Trap and if successful they believe AKD07 will have significant impact on P2 reserves.
2) An exploration target called Dyna will also be tested. The management believe this to potentially be a Delta Fan system and if proven correct they would expect a greater pay than Doris. They say that as large as Doris is believed to be, Dyna may well be bigger as Fan Systems can be large.
3) A third exploration target is planned with this same drill.
The second aspect that stands out for me in TPL is the economics of the assets and contract terms in Kazakhstan and Tajikistan. On an export basis, Kazak production should return approx. $42 barrel net back against $100 oil and Tajik production something like $63 barrel. To use the favoured Kurdistan comparison 'one' barrel of reserves in Tajikistan is worth almost 'eight' barrels of reserves in Kurdistan because net backs there are nearer $8 barrel. This is a huge advantage to TPL because they already have a ratified (legal) PSC that allows a 70% claim of revenue for costs and 70% claim on profit oil. That is 91% claim on oil revenues to pay for the next drill and the next drill and so on. It also allows for costs incurred on one lead to be claimed on production from another. The PSC represents by far the best fiscal terms I have seen to date and that bodes well for take out down the road.
Just for fun, if I were to further adjust for shareholding in a company like GKP with their Market Cap some 15x that of TPL at this price I would need just 1 barrel production/reserves in TPL Tajikistan to equal the same net back per share of 120 barrels in GKP given the differential in net backs and market caps. In other words just 100m P2 in TPL = 12bn P2 in GKP at current Market Caps as far as the shareholder is concerned. I am not having a pop at GKP btw. I used to hold shares there for a time. It's just that when looked at in this context, the potential for TPL is clear to see.
Now most of the above has so far focussed on production from Doris but if we look at the potential oil and gas assets it really gets interesting.
TAJIKISTAN
First it is worth saying something about the management here because Dr David Robson has an excellent reputation in the area and he seems to be able to open doors where others cannot. He was the man who opened the door to Georgia for private companies and essentially wrote the Governments first PSC. He has also recently managed to persuade the Uzbekistan Government to issue TPL with the first license to a 'private oil company' in Uzbekistan. When you consider how much Exploration and production has been achieved in Uzbekistan over the years and all with national oil companies, this was no mean feat by the TPL CEO. More importantly though, I would like you to look at the following USGS report link.
https://pubs.usgs.gov/fs/2011/3154/
This shows the a map of the Amu-Darya Basin and Afghan-Tajik Basin.
This is the second most prolific Gas basin in the world. Notice the red outline and all the red and green dots within it. They are all large oil and gas discoveries. Now look to the top right and you will see Tajikistan outlined with a black dotted line. What Dr David Robson achieved here was to persuade the Tajik government to issue a PSC on a block which covers 99% of the Afghan-Tajik basin that falls within Tajikistan's borders. This is a Block the size of Switzerland 35,000 sq km and almost 25% of the country. Imo this is an extraordinary piece of negotiation. Can you imagine if they were to hit one of the mega structures that have been identified? A good many major oil companies and even national oil companies would no doubt start looking very closely at Tajikistan. What they will find is exceptional fiscal terms for PSC's but when they look at prospective area's they will see that TPL has already tied up 99% of the prolific geology all in one Block. If TPL strike it big and I know that is an 'IF' at this stage, they have a recipe for a bidding war imo and as shown in the bidding for the first round of already producing contracts in Northern Afghanistan recently, China often bids to levels considered non-commercial by other oilers including Dr David Robson in regard to the Afghan assets that China won. Add to this the fact that China borders Tajikistan and the recent energy plan issued by China whereby they intend for gas-fired power plants to rise to 10% of the countries electricity needs by the end of the decade. (This represents more than 400% growth on current - less than 2% - consumption figures). Tethys could become a very desirable asset in due course if one of the 130 prospects already identified delivers a proven commercial mega structure.
“Unsurprisingly, the People's Republic of China provides the principal catalyst; its government has made the expansion of gas-fired power plants a strategic priority. Less than 2 per cent of China's electricity is now generated in this manner, but Beijing intends to raise this to 10 per cent by the end of the decade. Some UK operators, such as Green Dragon Gas, moved quickly to exploit China's growing appetite for gas by utilising their experience of the unconventional drilling industry in North America. Nevertheless, China's increasing proportional reliance on gas, allied to the exponential growth in its generating capacity, means that the country will invariably place greater demands on global export markets, and thereby bolster prices.”
https://www.tethyspetroleum.com/tethys/newscontent.action?articleId=2176908&clipPageIdx=0&clipYearStr=2012&request_locale=EN_US
You may think I am getting ahead of myself here and I realise that but imo the whole of the Tajikistan asset is in the current share price for free.
The terms of the PSC are very good indeed. In fact the best I have seen. (70% cost recovery and 70% of profit oil net of all taxes).
It is worth noting that nobody has ever drilled in Tajikistan below the deep salt layer where mega structures have been found elsewhere in this basin area. Check out page 20 of the latest presentation to see how big some of the finds and even (relatively) small finds are and how prolific the basin is:
https://www.tethyspetroleum.com/tethys/irwebcasting.action
Turkmenistan for instance is the biggest Gas exporter in the world. That production all comes from this same basin area.
You can see the discoveries there. Geology doesn't lie. Nor does it stop at the border. If you check out page 22 of the Presentation you will see the 130 leads already identified on the Tajikistan block. The purple blobs are the deepest and I believe the yellow blobs are next up.
TPL issued a TRACS Report in 2007 showing 1.1bn boe Resources on this Tajikistan block. Since then they have completed extensive seismic work and a 'Aero Magnetic/Graviometry Survey' from which they have already reviewed results on more than 70 of the largest structures so far. These are considered very large prospects. The findings will be used in producing the next Resources report in 4 weeks time.
The company intends to commence with a Deep Drill on one of the perceived mega structures at the end of 2012. This drill will be using their own deep drilling rig “Telesto”. The cost will be approx. $40m and I am told “$40m drills don't target 100's of millions of barrels, they target billions”.
When I look at how big some of those prospects are on the survey and consider their relation to the 35000 sq km block (something like 180 km x 195 km), many of those prospects appear to be more than 30km long. Given the above comment and the sheer number and size of the prospects on the Block, I suspect the new Tajikistan Resources Report due end of May will be significantly higher than the previous 1.1bn boe and may even add a nought to the 2007 figure for all I know (this is pure guesswork mind). Remember this is held 85% by a company with a Market cap of Just £146m and already has strong production and assets in Kazakhstan.
As I said earlier the first deep drill is expected to spud at the end of 2012 and to spread the risk the company is in discussions with two parties with a view to a farm-in. The first is a major oil company. The second is an investment company. There are two potential targets are in the Dushanbe Step and the Vaksh valley, one in the lower SW corner and one approx half way up the block on the West side. One I believe is represented by the yellow blob obscured by the Persea marker on page 22 of the presentation. It is this that is the favoured site I understand because a) It is easier to access and also site the Rig, b) It would be easier to bring into production if the drill is successful and commercial and c) it is slightly shallower and therefore cheaper. I also think that because deep drills in the area approach the limit of the Telesto drilling rig owned by TPL (at 23k feet capability) this provides a level of additional safety for this site if chosen. Nothing is certain at this stage of course.
The company has said that the Graviometry survey indicates Jurassic Reefs present below the deep sub-salt level. Jurassic reefs tend to be very large structures in this basin.
Here is some data on former discoveries in the area. For instance: “As an example, one recent discovery in the eastern part of the basin, Kokdumalak, found reserves of 5 tcf of gas, 700 million bbl of oil, and 720 million bbl of condensate from an Upper Jurassic reef structure having an areal extent of only 26 sq km.”
Note the sheer amount of hydrocarbons found from just 26sq km of Jurassic Reef Structure. I would expect the first deep drill for TPL in Tajikistan to be at least 100 sq km if the Graviometry survey is anything to go by. Of course that is only a 2D perspective and we cannot correspond directly but it implies a probability of greater size if indeed it were to be discovered and commercial. A lot of 'IF's' I know. ;-)
https://www.ogj.com/articles/print/volume-89/issue-22/in-this-issue/general-interest/amu-daria-liquids-potential-indicated.html
I believe the major oiler currently considering this proposal is satisfied on issues of probability for each target. As I understand the situation so far, the primary question for them is “Do we want to enter Tajikistan at this stage.” Many Kurdistan investors will remember when Exxon entered Kurdistan. It was a big deal in the media. It tends to be high profile politically when any major oil company enters a new country and the decision is rarely taken lightly. The management have implied however that if they do not like the terms offered, they will go it alone. In other words “come what may, this deep drill will go ahead” barring something completely out of left field of course. That begs the question “Will TPL need to issue equity or just raise finance?” I think the answer may lie in the forthcoming results from the following 3 pending Well tests and the findings from the AKD07 Doris appraisal Well due to spud soon also.
3 Wells already Drilled but not flow tested yet:
EAST OLIMTOI – Tajikistan - Due to start testing any moment.
The potential closure covers an area of over 10 km2 in the East Olimtoi prospect alone.
Up to 32mtrs net pay
Up to 17% porosities
There are two further sandstone zones in the Alai formation which appear oil bearing based on wireline logs and which will be tested after a stable and representative flow rate has been achieved from the upper Alai sandstone unit.
High pressure (some 512 atmospheres (7,524 psia) displaced heavy mud and oil ran to surface. Implies good potential flow rates and recovery rates imo (my comment not theirs)
Awaiting acidisation or nitrogen-lifting using coiled tubing, subject to availability of equipment. All parts are now in the country evidently (from my conversation with the company today)
Plans for stimulation of the Alai reservoir and plans to perforate two further zones
27th May 2011
East Olimtoi EOL09
"While drilling at a depth of 3,342 metres in sandstones of the Alai formation (a secondary target) there was a strong flow of live oil to the surface accompanied by 33% gas in the drilling mud. After closing of the blowout preventer the well was successfully stabilised and drilling operations have now recommenced."
The oil, which appears to be of medium density, flowed despite drilling with heavy mud (1.57 SG) reflecting a pressure of some 512 atmospheres (7,524 psia) in the reservoir.
https://www.tethyspetroleum.com/tethys/newscontent.action?articleId=1929852&p=4&yearStr=2011&request_locale=EN_US
31st May 2011
This is Dr David Robson's reaction to it
Webcasting date 31st May 2011: https://www.tethyspetroleum.com/tethys/newslist.action
9th June 2011
"Electric logs have now been run in the well over the Alai interval (a secondary target) which, as previously announced produced live oil and gas to surface whilst drilling and showing high formation pressures. The electric logs have confirmed the probable presence of moveable hydrocarbons in the interval from 3,341 to 3,500 metres. Independent petrophysical interpretation indicates up to 32 metres of net hydrocarbon bearing pay in the section with porosities of up to 17%. No oil-water contact is interpreted in this section of the well. The potential closure covers an area of over 10 km2 in the East Olimtoi prospect alone.
The well is currently drilling ahead at a depth of 3,544 metres in the Suzak shale which separates the Alai from the Bukhara limestone. Depending on formation pressures it is planned to set 7 inch casing at the base of the Suzak Shale prior to drilling through the Bukhara. It is planned to conduct production testing on all zones of interest after the drilling has been completed in approximately 3-4 weeks.
The mapping shows three additional structures around the salt piercement that could be drilled following completion of the EOL09 well. There are also similar prospective structures in the area."
https://www.tethyspetroleum.com/tethys/newscontent.action?articleId=1941824&p=3&yearStr=2011&request_locale=EN_US
15th August 2011
"The East Olimtoi (EOL09) exploration well has just reached its total depth of 3,765 metres in the Akdzhar formation. Electric logs are currently being run in the Bukhara and Akdzhar sections as well as the lower part of the overlying Alai formation. The initial results from the raw logs indicate some zones of interest in the Bukhara limestone sequence but further data gathering and analysis is required. The Alai formation showed both good oil and gas shows while drilling (with oil and gas to surface) and the electric logs through this interval indicate several hydrocarbon bearing zones with no evidence of any oil-water contact. "
https://www.tethyspetroleum.com/tethys/newscontent.action?articleId=2007674&p=2&yearStr=2011&request_locale=EN_US
12th Sept 2011
"Testing operations are underway on the East Olimtoi EOL09 exploration well located south of the town of Kulob some 10 km north of the Afghan border. This well reached a total depth of 3,765 metres in the Akdzhar formation and testing operations are being undertaken on the overlying Bukhara and Alai formations. Currently the well is flowing a mixture of completion brine and oil from the upper Alai sandstone interval, this oil being of good quality with an API gravity of approximately 36 degrees. The current section open to testing includes this upper Alai sandstone unit as well as the lower Alai limestone interval and the upper part of the Bukhara formation. The well was drilled with heavy drilling fluid (weighted with barite), which was required to control the well when it intersected the upper Alai reservoir. Barite is currently being observed in the flow lines which the company believes is also inhibiting flow at present. It is anticipated that the well will clean up in due course, however the cleanup period may take some time. The Company is currently evaluating methods of speeding up the clean up of this well including acidisation or nitrogen-lifting using coiled tubing, subject to availability of equipment.
There are two further sandstone zones in the Alai formation which appear oil bearing based on wireline logs and which will be tested after a stable and representative flow rate has been achieved from the upper Alai sandstone unit. The lower part of the Bukhara interval was also tested but was found to have low permeability at this location although with the potential for production in future wells using production enhancement techniques such as hydraulic fracture stimulation. Mobilization of such equipment to Tajikistan would take a significant amount of time, as such the company has chosen to focus on the upper zones of this particular well at this time."
https://www.tethyspetroleum.com/tethys/newscontent.action?articleId=2035214&p=2&yearStr=2011&request_locale=EN_US
14th November 2011
"The East Olimtoi (EOL09) exploration well testing programme is continuing with additional specialist equipment due to arrive at the field in November 2011 to attempt to establish continual flow from the Alai zone, where oil has been recovered."
https://www.tethyspetroleum.com/tethys/newscontent.action?articleId=2091123&p=1&yearStr=2011&request_locale=EN_US
9th Jan 2012
"At East Olimtoi testing operations will continue on the EOL09 well with plans for stimulation of the Alai reservoir and plans to perforate two further zones. The coiled tubing unit necessary to optimally carry out this work is now in country but additional parts are still in transit from Uzbekistan and the unit is expected to be on-site within the next two months."
https://www.tethyspetroleum.com/tethys/newscontent.action?articleId=2139396&p=0&yearStr=2012&request_locale=EN_US
PERSEA – Tajikistan - The same kit will be used to test here after they have finished East Olimtoi
15th August 2011
“The Persea 1 exploration well 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 well is currently at a depth of 606 meters where casing has been run. The planned total depth of this well is 2,700 metres and it is expected that this will be reached by October. The well is located near the town of Kurgon-Teppa in the south-west part of the PSC area with the nearest field in the same Bukhara horizon being Kyzyltumshuk to the immediate south and south-east of the prospect.”
https://www.tethyspetroleum.com/tethys/newscontent.action?articleId=2007674&p=2&yearStr=2011&request_locale=EN_US
12th September 2011
“The Persea 1 exploration well, located near the town of Kurgon-Teppa is progressing within the 12 1/4" hole section. This well 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 October 2011.”
https://www.tethyspetroleum.com/tethys/newscontent.action?articleId=2035214&p=2&yearStr=2011&request_locale=EN_US
20th October 2011
“The Persea PER01 exploration well is now drilling ahead after a short period of suspension waiting on additional casing to arrive in country. The well is currently at a depth of 1,573 metres and is expected to reach total depth of 2,700 metres. This well is targeting a four-way dip closed prospect at Alai and Bukhara levels close to the town of Kurgon-Teppa. If successful this well could be brought on stream quickly being in an easily accessible area with infrastructure.”
https://www.tethyspetroleum.com/tethys/newscontent.action?articleId=2069220&p=1&yearStr=2011&request_locale=EN_US
14th November 2011
“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 well is currently at a depth of 2,425 meters. The planned total depth of this well is 2,700 metres and it is expected that this will be reached in later November 2011.”
https://www.tethyspetroleum.com/tethys/newscontent.action?articleId=2091123&p=1&yearStr=2011&request_locale=EN_US
19th December 2011
“The Persea 1 well, drilled some 5 kilometres from the town of Kurgan Teppa, reached a total depth of 2,655 metres. Wireline logs show a 50 metre gross zone of possible hydrocarbons within a mixed sandstone and carbonate sequence assigned to the Alai formation, similar to that about to be tested in the East Olimtoi (EOL09 well). Because of hole stability issues the section was drilled with relatively high mudweights which tends to mask hydrocarbon shows whilst drilling.
The Company now intends to run 7-inch liner in preparation for a production test with the aim of establishing commercial flow of hydrocarbons from this zone. The actual testing itself will be carried out in the first half of 2012 with the cost to be financed by internally generated cash flow.”
https://www.tethyspetroleum.com/tethys/newscontent.action?articleId=2124628&p=0&yearStr=2011&request_locale=EN_US
9th January 2012
“At Persea, the PER01 well is now cased and awaiting production testing of the Alai zone, which is potentially, hydrocarbon bearing from the wireline logs which were run on the well. This testing is likely to be carried out later in the year.”
https://www.tethyspetroleum.com/tethys/newscontent.action?articleId=2139396&p=0&yearStr=2012&request_locale=EN_US
KALYPSO – Kazakhstan - To be tested later in the year.
https://uk.advfn.com/news/UKREG/2011/article/49095809
Kalipso wildcat Exploration Well awaiting approval for comprehensive testing program on Carboniferous & 2 Jurasic targets. 100 Meters Gross pay in deeper section 4128mtrs.
Worth noting that Nelson Resources discovered a similar field to this in Kazakhstan 15yrs ago. Even when the oil price was sub-$30 barrel they were planning an FDP of 50k bopd so despite the lowish production rates per well (for this geography at least). It appear this type of formation can be very commercial. The Kalypso drill only cost $1.4m according to company filings.
I think if we can get half decent flow rates from this limestone pay then this could be a large find. Worthy of a farm in once proved up perhaps. I believe the Alibekmola Field was eventually sold to a consortium of big oilers. Luke Oil was one participant. Obviously modern flow stimulation techniques will help here of course. All we need is some flow to work with once the Government authorisation to test comes through.
NELSON - Alibekmola Field
https://www.rigzone.com/news/article.asp?a_id=6287
"in carbonate reservoirs, such as that at Alibekmola, initial well flow rates can range considerably, from a low of about 200 bopd, which is the case with Well No. 56, and up to 1,575 bopd, the flow rate from Well No. 58."
https://www.rigzone.com/news/article.asp?a_id=8197
OPERATIONS:
TPL operates in Kazakhstan, Tajikistan and Uzbekistan
KAZAKHSTAN
Block: Akkulka (WI: 100%)
Recent 3 year Extension of Exploration part of the contract to 2015.
Oil Production 4,000 bopd from Doris field
Gas Production 3,800 boe/d from Kyzyloi & Akkulka Gas fields
NOTE: These are shallow gas fields (450 mtrs)
Gas currently fetches just $32 per 1000 cubic metres (net of 12% VAT)
This equates to $5.50 per boe. Currently the company receives approx. $21k per day ($7.6m pa)
There is capacity to increase Gas production to 12,800 boe/d but this will not be done till new 'significantly higher' prices are available via the completion of the Kazak-China pipeline. This is due to complete late 2013. This is expected to increase the prices paid by at least 5-7x the current price. Essentially 2014 could well see a rise in production of 3.36x and a rise in payment per boe of 5x (minimum) this represents a potential rise in Gas revenue of 16.8x or more. Which equates to $128m pa or more net of 12% VAT.
Kazakhstan-China Pipeline information
https://205.254.135.7/countries/cab.cfm?fips=KZ
TAJIKISTAN (described by the company as Tethys “Jewel in the Crown”)
Block: Bokhtar (WI: 85%)
The Bokhtar PSC has a term of 25 years.
If in respect of any development area, commercial production remains possible beyond the Initial Term, the Bokhtar PSC may be extended with respect to such development area for an additional term of not less than five years or to the end of the producing life of the development area.
Pursuant to the Bokhtar PSC, KPL, as contractor, is required to select and relinquish portions of the
Tajikistan Contract Area with the first relinquishment being after seven contract years in respect of
25% of the Tajikistan Contract Area (less any development areas) and at five year intervals thereafter in respect of 50% of the then remaining Tajikistan Contract Area (less any development areas). KPL is not required to relinquish any portion of the original Tajikistan Contract Area containing a development area or an area containing a declared commercial discovery for which a development plan has been sought and is awaiting approval by the Tajik State
Production from Beshtentaq Field via first workover well 243 bopd.
2 more Beshtentaq workovers are planned for 2012 and this will include a horizontal drill.
UZBEKISTAN
Block: North Urtabulak PEC – Contractor gets 50% incremental production for 3yrs then 20% for 5yrs.
PEC Service Agreement:
Production Term 8yrs
Production: 1000 bopd (this has been falling though)
Much of the management strategy in Uzbekistan seems to be to run a PEC to improve relations whilst looking to secure an exploration block just over the border from Kazakhstan because the company believe they understand the geology of that area better than the Uzbeks do. It's a case of convincing them that with our data they are better off giving us the contract than handling things in house as it were.
PRODUCTION:
Doris approx. 4000 bopd
Kyzyloi & Akkulka 3800 boe/d
Teshtentaq 243 bopd
North Urtabulak PEC 1000 bopd
FINANCIALS
Q4 2011 Conference Call
https://www.media-server.com/m/acs/c5e306a6a48dd93b53edcafd14581a44
Results RNS
https://uk.advfn.com/news/UKREG/2012/article/51852476
OVERHEADS:
This is my one criticism of the company.
I have checked their overheads against other companies and quite honestly the overheads are too high for a company of this size. I accept they do have operations in 3 countries but they also have offices around the world that I am not sure they really need at this stage. Currently they have a foot print worthy of a company 5x their market cap and reserves. Having said that they could quite possibly be 5x this size in 18 months time. Imo they have gotten ahead of themselves somewhat in this aspect of cost management and foot print. I like managements that treat every penny as if it were their own. This is a management failing imo and I would welcome a re-focus in this area.
TAXATION:
Taxation in Kazakhstan is a very complex subject but hopefully this will at least give some basics.
Mineral Extraction Tax (MET) $5 Increases as production volumes increase
Rent Tax on Export 19% on $100 oil (22% on $120 oil) (this is only the situation whilst we are using our tax losses).
Crude Oil Export Tax $5.46
Corporate Income Tax (CIT) 20% falling to 15% in 2014
Excess Profit Tax (EPT) 0-60% rather complicated to apply. I have a 24 page document on the subject. I think that tells you the story! ;-)
For domestic sales there is no Rent Tax on Export or Crude Oil Export Tax but there is still the other 3 (the MET is much lower though).
All in all we have been given a broad rule of thumb of 60% total deductions for Export oil in Kazakhstan. That would leave TPL with 40% of the revenue and the oil price expected would be 5-10% below Brent Crude. This is 46 degree API after all. Very clean and desirable.
The MXP examples do not include the CIT and EPT because a company can use tax losses to reduce these to zero. Still the MXP presentation is helpful in this regard. See page 7:https://www.maxpetroleum.com/uploads/mxpapril2012presentationfinal[0].pdf
Domestic
CIT and EPT also apply to domestic sales once the tax losses are used up. Estimated a total tax take of 35%. This gives c.$25 net profit based on a $40 realised price and a few dollars for opex.
As previously Mentioned. Tajik taxes are all wrapped up in their 30% take. The rest is ours.
“North Sea oil players eat your heart out!” ;-)
POLITICS & SECURITY:
The Kazak President was re-elected last year for another 5yr term with 95% of the vote.
The Tajikistan President is up for election again next year but the president won 80% of the vote in 2006 and won 72% of the vote in 2010 parliamentary elections.
One of my contacts in Washington DC recently quipped when I asked him about the countries: "These are BR's - Democracy will not get in the way of the leaderships business interests." ;-)
To be frank I am discounting Uzbekistan completely because I simply do not feel comfortable with the regime there at this point. Maybe I will change my mind in time. Kazakhstan and Tajikistan in contrast seem like countries we can do business with. They both appear to care about relations with the West as well as locally and indeed have US-Kazak and US-Tajik Councils in Washington DC.
I was also pleased to see Kazakhstan Authorities sanction a 3yr extension to the Akkulka exploration license which was due to run out very shortly. They would have been within their rights to say no and effectively inherit potentially large assets that have yet to be proved up by TPL. They would have had to wait for them but I think this still indicates a continued good relationship with the Kazak authorities and also a level of integrity on their behalf.
The company are increasingly gaining a reputation in Washington for being the 'Go-To' people when it comes to Tajik political understanding and contacts. I understand they are increasingly being sort out by political and business representatives interested in the country.
Tajikistan in particular is very keen on foreign investment right now and I understand it is not unusual for Tajik officials in Washington to stay at functions beyond midnight if it helps smooth the way to foreign investment initiatives. They have lobbied strongly in Germany also. For entrepreneurs looking for foreign opportunities, Tajikistan has a number of large and small infrastructure projects that the Government is looking to do deals on in order to encourage inward investment.
Tajikistan is unlike much of the other Stans in that it is primarily (and historically) a farming community. It is very poor but the countryside is beautiful in parts. Not unlike Switzerland or Austria in the mountainous regions. It has the potential to become a Switzerland of central asia in others ways too because of the significant potential for Hydro Electric Power here. For decades there has been a plan to build a huge Dam (the Rogun Dam project) and the current Government has in recent years made headway on the project and funding thereof. Citizens have bought shares in the project for instance. It is a very long term project and would still take 15yrs to fill even when finished but would not only supply all the countries Energy needs but also supply many of the countries around them. It would allow them to export their hydrocarbons once they have that industry up and running properly.
BBC Rogun Dam article:
https://news.bbc.co.uk/1/hi/world/asia-pacific/8580171.stm
The Dam plus the harnessed Oil & Gas potential would transform the financial standing of Tajikistan from abject poverty to rich list. The model would not be dissimilar to Norway's which uses HEP to cover 90% of their energy needs whilst exporting the majority of their Oil & Gas production. This has made Norway very rich indeed.
The Rogun Dam project though has also heightened tensions between Tajikistan and Uzbekistan.
These two countries have had bad diplomatic relations for two decades when the Soviet Union broke up. Unfortunately the breakup left Tajikistan totally reliant on Uzbekistan for it's electricity delivery because the whole system was and is based in Uzbekistan. Shortly after the breakup Uzbekistan withdrew electricity saying it was too expensive to maintain the network but most believe it was and is all over the dam and the need to reduce Uzbekistans water supply from the river in order to fill the dam when it is built. I think the following news items pretty much paint the picture:
https://www.turkishweekly.net/news/134961/gas-row-highlights-tajik-uzbek-tensions.html
https://www.washingtontimes.com/news/2012/apr/13/fight-over-gas-and-water-kindles-tajik-uzbek-rival/?page=all
Russia has troops based in Tajikistan's capital Dushanbe and they also provide troops for the Tajikistan-Afghanistan border. However Russia is behind in it's rent payments for the station site and Tajikistan is asking for the money.
In the meantime India is talking about stationing forces in the country too and Iran is politically very close also.
The upshot is that Tajikistan has fantastic potential and it has friends but the Uzbek situation is hindering economic progress. If it were me I would make sure relations were good with the Russians and build the dam anyway. He who controls the water supply has the whip hand imo provided you have the muscle to back it up. People can live without electricity but they can't without water. Once the water is diverted for the dam I think the Uzbeks will be buggered and will have no choice but to get reasonable on energy supply in order to find a mutually acceptable compromise. (They have a massive cotton industry that relies on the water.) It's not nice but that's politics. ;-)
DELIVERING ON PROMISES:
2011 was a tough year for the company in that they completed a lot of positive work but the financial balancing act of driving exploration while keeping within budgets and avoiding major dilution was hindered by a) Delays of obtaining equipment, b) An unusually severe winter, c) Bureaucracy and d) The former issues causing a 5 month delay on completion of the AOT at Shalkar. When I started investing in TPL late Feb 2012 it seemed to me to be a situation of moth balled activity in all but the most essential area's of the business. Now with the AOT up and running the planned cash flow should oil up the wheels again and they have plenty of high impact activities in the pipeline. (sorry for the puns)
Just a couple of examples of the problems they faced over the last year: After completing the drill on East Olimtoi, having 7500 psia Oil and Gas blow through the heavy mud and barite (which was supposed to hold it back) the Oil and gas flowed to the surface from 10,000 feet and they found that flow testing was now hindered by the barite on one of the 3 pay zones. TPL ordered a coiled tubing part from Uzbekistan but when it arrived at customs it sat there for 3 mths because of the political tensions between the two countries.
Problems on accessing parts for the AOT in Kazakhstan also held things up and one of the severest winters in recent history caused problems on trucking also. Then when they had completed the AOT, they needed 13 government agencies to sign it off. This wasn't too much of a problem and they managed to get 12 signed within a reasonable time frame but were held up for weeks by a lady who needed to come along and sign off the toilettes of all things.
Recently their luck seems to have changing. I have to say that I have come across managements that spin a line when things are not going to plan and they are normally shown up in the end. I have found though that this is a management whose claims check out in the end. I think they have just been unlucky but that bad luck has caused financial constraint in the past which in this situation effects everything. Imo everything was dependent on Doris and the AOT cash flow. Now that is up and running everything else should fall into place imo.
FUTURE PLANS:
I have talked about a number of plans and events already but it really comes down to this for me. I think the broad strategy is to appraise and develop the Kazakhstan assets and then perhaps sell them off to provide a war chest for Tajikistan. I don't think that is likely inside 18 mths though. Not least because the export license won't be issued till next year. That time will allow further developments to pan out in Tajikistan also. Testing East Olimtoi and Persea, plus workovers for Beshtentaq, deep Drill also planned for end of year etc. Clearly if they are to offload Kazakhstan then for safety's sake and also not to disaffect shareholders who would require the safety of meaningful production, they need production elsewhere in the stable. Any discovery in Tajikistan on East Olimtoi, Persea or from Beshtentaq work-overs for instance can be brought on stream in under a week by trucking and selling into the local market at $60 barrel. This has already been tested at Beshtentaq with the first workover. Any decent production level would revolutionise TPL's finances imo because the PSC terms are so commercial. Additionally the company are trying to secure producing assets in North Afghanistan in the next round so there may be income here also. East Olimtoi is just 10 km from the Afghan border so it makes sense. Selling Kazakhstan at a later point would make perfect sense to me if it were so decided by the management. This Tajik PSC is unique imo and really needs a strong focus to make the most of it.
Most recent interview with Dr David Robson
https://insider.thomsonreuters.com/link.html?cn=uid385018&cid=687160&shareToken=MTEyNTYxNTpiZDIxZDcxNS0xNDAyLTQ0YzEtODZjZS01NzY4MTlmNDVkZjU%3D
AFTER THOUGHTS:
The TPL shareholders have had to be patient over the last 12 months. It must have been very frustrating for them to watch so much potential just sit there waiting for the next move. Particularly so when 3 potentially successful drills have been stood there waiting for flow tests. I think the story has changed significantly over the last month though and there is a strong pipeline of news building too for the next 6 months. The probabilities for success now that the AOT is up and running are hugely enhanced imo. This looks a high probability play from here especially at the current market cap and I believe the stock is due a significant re-rating (possibly over the next 8 weeks). I look at the TPL thread and it seems to be one of the best kept secrets on the ADVFN boards apart from a few well respected Oil investors who are invariably always ahead of the market. Hopefully I can help raise that profile in some small way with this research. It doesn't need hype though. This is an exceptional story and an exceptional opportunity imo and it is worth considering that despite huge progress over the last 12 months the share price is still only 30% of the price it was 4 years ago. I cannot see that anomaly remaining for much longer.
DATA:
There is a huge amount of data and media on the company website. This is a link to the last Prospectus in late 2011. There is a huge amount of useful information here.
https://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDMzNDYwfENoaWxkSUQ9NDUyMDE1fFR5cGU9MQ==&t=1
MD&A 30th March 2012
https://www.tethyspetroleum.com/tethys/openfiledetail.action?articleId=2231642
DIRECTORS
Dr David Robson (Chairman, Chief Executive Officer and President)
Dr Robson's career has been primarily in operating oil and gas companies. He has been Chairman,
President and Chief Executive Officer, of Tethys Petroleum Group of Companies, since 2007. Tethys
Petroleum Limited was formerly a wholly owned subsidiary of CanArgo Energy Corporation which
was founded by Dr David Robson in 1997 where he served as Chairman and CEO until bringing
Tethys Petroleum public. He was Chief Executive Officer and one of the founders of the London Stock
Exchange listed company JKX Oil & Gas plc and prior to this he was employed in technical and
commercial positions in Britoil plc, Hamilton Oil and Mobil. Trained as a geologist with a First Class
B.Sc (Hons) degree in Geology and PhD in Geochemistry, Dr. Robson also holds an MBA from the
University of Strathclyde.
Dr Robson has worked on oil and gas projects in the former Soviet Union since 1990 in areas such as
Siberia, Sakhalin, Murmansk, and the Caspian region. He has a number of "firsts" such the
establishment of the first non-state gas development project in Ukraine, the first non-state drilling in
the fSU Black Sea, the first non-state exploration and development wells in Georgia and negotiation of
the first EBRD loan to a private sector project in Ukraine. He is a Fellow of the Geological Society
("FGS"), a member of the Society of Petroleum Engineers ("SPE"), and Member of European
Association of Geoscientists and Engineers. Dr Robson holds the Honour for services to the Georgian
hydrocarbon extraction industry and was made a Freeman of the ancient Georgian city of Telavi. He
was formerly the Energy Sector Representative on the UK Government's East European Trade Council
("EETC"). Dr Robson has spoken at numerous International conferences on fSU oil, gas and energy
and is one of the Company's representatives on the Pacific Basin Economic Forum ("PBEC").
Julian Hammond (Deputy Chief Executive Officer and Chief Commercial Officer)
In the role of Deputy CEO Mr. Hammond assumes any duties of the CEO that the CEO
delegates under the normal course of business. Mr. Hammond is also responsible for the commercial activities and development of the business of the Company, including financing the companies activities through instruments including equity, debt and trade finance and also negotiating any new Contracts or Licences associated with new business. His role includes being in overall charge of all sales contracts and off-take agreements for oil and gas produced by the Company. He also has overall management responsibility for the Company's business in Uzbekistan. Prior to joining the Company, Mr. Hammond worked for CanArgo Energy Corporation in various positions including Business Development Manager and Commercial Manager where he managed an oil refinery in Georgia and lead the establishment of a retail chain of gasoline stations that became the market leader in the capital city, Tbilisi. Previously Mr. Hammond worked for Credit Suisse First Boston in London and Montgomery Securities in San Francisco. Mr. Hammond holds a BA degree in Economics from the University of Colorado. Mr. Hammond is the son of Mr. Russ Hammond a Director of the Company.
Bernard Murphy (Chief Financial Officer)
Mr. Murphy is a Fellow of the Chartered Institute of Management Accountants (FCMA) and prior to joining the Company worked in a network providing accounting and finance services to SMEs. He has 30 years experience as a management accountant having previously worked for Courtaulds, BOC, BICC and for HSBC Actuaries and Consultants Limited as Finance Director, and in insurance with HSBC and Royal & Sun Alliance. Prior to his finance career he was awarded a B.Sc. (Hons) degree in Civil Engineering from Glasgow University. He is a member of the Executive Board of the Company.
Elizabeth Landles (Executive Director and Chief Administrative Officer)
Ms. Landles is a highly experienced administrator and is currently Executive Director, Chief
Administrative Officer and Corporate Secretary of the Company. She is also Director of many of the Company's subsidiaries and is responsible for human resources. Ms. Landles has over 12 years of experience in the oil and gas sector and was Executive Vice President and Corporate Secretary of
CanArgo Energy Corporation. She has been an Executive Director of Tethys Petroleum since its
incorporation in 2003. Ms. Landles holds an Advanced Diploma in Business Administration from the Institute of Business Administration and Management (an operating division of the Institute of
Chartered Secretaries and Administrators in the UK) and is a Fellow of The Institute of Business
Administration (F.Inst.BA). Ms. Landles is also a member of The Association of International
Petroleum Negotiators ("AIPN") and is one of the Company's representatives on the PBEC. She is a
member of the Executive Board of the Company. Prior to working in the oil and gas sector Ms. Landles worked in finance for several years.
Rt. Hon. Peter Lilley MP (Vice Chairman and Non-Executive Director)
Russ Hammond (Non-Executive Director)
Piers Johnson (Non-Executive Director)
James Rawls (Non-Executive Director)
Marcus Rhodes (Non-Executive Director)
HEAD OFFICE AND DIRECTORS' ADDRESS
Tethys Petroleum Limited
P.O. Box 524, St Peter Port
Guernsey, GY1 6EL, British Isles
Phone: +44 1481 725 911
Fax: +44 1481 725 922
Investor Relations: Mr Sabin Rossi srossi@tethyspetroleum.com
REGISTERED OFFICE
89 Nexus Way, Camana Bay,
Grand Cayman, KY1-9007
Cayman Islands
MAJOR SHAREHOLDERS
Pope Asset Management LLC
-
53,208,787 Shares
18.56%
I understand that George Soros is behind the largest shareholding. I know no more than that.
RIGS DATA from last Prospectus late 2011
Rig “Telesto”
ZJ70/4500L 2,000 hp (1,470 kW) 450 tonne hookload diesel mechanical
drilling rig which was constructed for the Company at the Sichuan Honghua
Petroleum Equipment Co., Ltd. factory in Chengdu, China. This has a nominal
drilling depth of over 7,000 m (23,000 ft) and is one of the largest rigs in
Central Asia. Telesto is currently in Kazakhstan.
Rig "Tykhe"
ZJ30/1700 CZ 1,080 hp (792 kW) 180 tonne hookload diesel truck mounted
mechanical drilling rig, which was constructed for the Company at the factory
in Nanyang, China. This rig has a nominal drilling depth of approximately
3,000 m (9,843 ft). Tykhe is currently in Tajikistan.
Rig "Thoe"
UP60/80 400 hp (294 kW) 80 tonne hookload diesel truck mounted mechanical
drilling rig with a nominal drilling depth of 2,000 m (6,562 ft) (with 24 kg/m
drilling pipes) and workover depth of 4,000 m (13,123 ft) (with 14 kg/m pipes).
Thoe is currently in Kazakhstan.
Rig "Pasithoe"
A50 330 hp (243 kW) 50 tonne hookload diesel truck mounted mechanical
drilling/workover rig. Pasithoe is currently in Tajikistan.
Rig "Melite"
A37, 37 tonne diesel truck mounted workover rig primarily used for pulling
tubing and light workovers in the Kyzyloi/Akkulka area.
In addition, the Group owns additional equipment such as a workover coiled tubing unit, 25 and 50
tonne cranes, GJC40-17 Cementing Unit, forklifts, trucks, and pipeline welding equipment.
I hope this was of some interest and have a good weekend all.