Tethys Oil AB: Third quarter and nine months report - 30 September 2018
Third quarter 2018 (second quarter 2018)
· Production from Oman, Blocks 3&4 amounted to 11,857 bopd (11,733 bopd)
· Revenue and other income of MUSD 42.3 (MUSD 36.4)
· EBITDA of MUSD 30.1 (MUSD 24.3)
· Net result of MUSD 18.2 (MUSD 15.0)
· Earnings per share amounted to USD 0.53 (USD 0.44)
· Appraisal programme of 2017 discoveries continued with one well drilled
· Testing operations at Luja-1 has commenced
· Seismic acquisition of 2,750 km2 on Blocks 3&4 has been completed, interpretation ongoing
|MUSD (unless specifically stated)|| Third|
|Net daily production from Oman, Blocks 3&4 before government take (bbl)||11,857||11,733||12,259|
|Net barrels produced, after government take (bbl)||567,258||555,201||586,464|
|Net barrels sold, after government take (bbl)||579,360||529,194||568,796|
|Average selling price per barrel, USD||74.3||65.6||48.6|
|Revenue and other income||42.3||36.4||28.5|
|Result for the period||18.2||15.0||4.8|
|Earnings per share (after dilution), USD||0.53||0.44||0.14|
|Investments in oil and gas properties||12.6||13.2||4.1|
|MUSD (unless specifically stated)|| Nine|
|Net daily production from Oman, Blocks 3&4 before government take (bbl)||11,723||12,339||12,162|
|Net barrels produced, after government take (bbl)||1,664,145||1,751,612||2,308,342|
|Net barrels sold, after government take (bbl)||1,620,552||1,698,827||2,316,404|
|Average selling price per barrel, USD||68.1||51.0||51.8|
|Revenue and other income||112.9||89.2||119.3|
|Result for the period||42.3||22.1||33.1|
|Earnings per share (after dilution), USD||1.24||0.64||0.97|
|Investments in oil and gas properties||39.5||32.2||40.4|
Letter to shareholders
Dear Friends and Investors,
This has been quite a good quarter for Tethys Oil. As a matter of fact, we are proud to announce one of Tethys Oil's best quarters ever. Our quarterly results are on par with our best quarters in 2014, when the oil price was about 50 percent higher than this quarter and our production was 30 percent lower. Both Revenue and other income and EBITDA are up by double digits, 16 and 24 percent respectively, compared with the second quarter of 2018. Cash generation is strong and after distributing MUSD 19 to our shareholders during the first half of 2018, our cash position has grown by more than 50 percent since the start of the year.
Oil price increase
Our achieved oil prices increased from USD 65.6 per barrel in the second quarter 2018 to USD 74.3 per barrel in the third quarter 2018, corresponding to over a 13 percent increase. As Tethys Oil's oil sales price is calculated with an effective two-month lag to spot prices, we are yet to see the full benefit of even higher oil prices.
The oil price development is of course an important reason for the strong quarter. But equally important is our stable production and for that matter also the cost of our production. Operating expenditure at USD 10.1 per barrel for the quarter underlines the robustness of the Blocks 3&4 operations.
Our oil production in Oman increased slightly in the third quarter 2018 and amounted to 11,857 bopd, compared to 11,733 bopd in the second quarter 2018. It is almost in the middle of our guidance of a monthly average production of between 11,000-13,000 bopd. While the Farha South and Shahd fields remain the backbone of our production they are, however, either at plateau production or in decline with limited expansion potential. This further underscores the importance of the Erfan, Ulfa and Samah discoveries made in 2017, to make up for this shortfall.
The final steps in the construction of the Ulfa Early Production Facilities (EPF) are currently being taken and we expect the facility to be commissioned during November. At present, limited production from the Ulfa and Samah discoveries is run through a temporary flow line to the Farha South production facility partly crowding out Farha production. Once the Ulfa EPF is up and running, a number of Ulfa and Samah wells presently shut in can be put on stream and the Farha South production facility can be freed up. As a result, we are anticipating our production to increase towards the higher end of our production guidance by year-end.
Appraisal and exploration
So price, production and cash generation are doing fine. But the story does not end there. To maintain and/or increase production over time reserves must at least be replaced and preferably increased. The appraisal programme has gone well, however with some delay. We drilled three appraisal wells in the first half of the year and continued in the third quarter with the drilling of a fourth well, Samah-2. In addition, two new wells on Ulfa are currently being drilled, and before year-end we plan to spud an additional well on each of Ulfa and Samah. The results we have gained from the wells drilled are in line with expectations, or slightly better. However, the revised time plan of the Ulfa EPF has resulted in a delay of that part of the appraisal test programme which relates to pressure data and production levels. More comprehensive data will be gathered beginning when Ulfa EPF is on stream, which will be important to continue the maturation process. It is yet to be seen how far along we will be in the process of maturing our contingent resources into reserves by year-end.
That brings us to the most important parameter for future growth - Exploration:
The seismic acquisition carried out on Blocks 3&4 this year is starting to yield results. Interpretation of the processed data is being matured, and an exploration well is planned to be spudded in the fourth quarter 2018 within the seismic area east of the Farha South infrastructure. A second exploration well about 10 km northeast of the Ulfa discovery is also planned for fourth quarter 2018.
In the southern part of Block 4, the testing of the far field exploration well Luja-1 has finally commenced. Extensive evaluation of the well is ongoing. The results of the testing and evaluation will be important to assess the exploration potential of the southern part of Block 4.
Outside of Blocks 3&4 we are happy to note progress on our new operated Block 49. We were awarded this large block in southern Oman less than a year ago and the results of the work we have carried out to date are well in line with our expectations with the seismic reprocessing yielding more and better information than we had hoped for. The reprocessing and reinterpretation of vintage 2D seismic data greatly enhanced resolution and interpretability of the subsurface. After integration of all available data in Tethys Oil's geological model, the presence of a source rock as well as potential reservoir rock has been confirmed. We are still in the early part of the exploration phase and the geological risk remains high, but the play concepts we have developed have not been contradicted by the work so far. The next step is to further increase our understanding of potential trapping mechanisms on Block 49 and to achieve this we are currently making plans to acquire additional seismic data.
Third quarter 2018 in focus
As I stated at the start of this letter, our financial results for the third quarter 2018 have been very positive. We report revenue and other income of MUSD 42.3 and our EBITDA amounted to MUSD 30.1. During the third quarter 2018, cash flow from operations amounted to MUSD 37.6 and investments in oil and gas amounted to MUSD 12.6. The strong cash flow resulted in an increase in our net cash position, which at the end of the quarter stood at MUSD 63.7.
To summarise, we expect our oil production to increase towards the higher end of our production guidance by year-end, and to sell our production at higher prices. In addition, we have exciting exploration and appraisal activity with new wells to be drilled in the fourth quarter 2018, the testing of the Luja well and an upcoming seismic acquisition on our operated exploration Block 49. In November, we will also distribute the second instalment of SEK 1.00 per share in the 2018 dividend. So stay with us - I am confident our next report will offer some interesting progress.
Stockholm in November 2018
This report has been subject to review by the auditors of the Company.
For further information, please contact:
Magnus Nordin, managing director, phone: +46 8 505 947 00
Jesper Alm, CFO, phone: +46 8 505 947 00
Date: 6 November 2018
Time: 11.00 CET
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