Year end report and fourth quarter report 2013

FOURTH QUARTER 2013

  • 21 per cent increase in production from Oman and Lithuania compared to
    fourth quarter 2012. Production from Oman and Lithuania amounted to 499,028
    barrels corresponding to 5,424 barrels per day
  • Year-end audited reserves Block 3&4 Oman net to Tethys: a) 1P reserves 10.8
    million barrels (5.3) b) 2P reserves 15.2 million barrels (14.3) c) 3P
    reserves 20.0 million barrels (18.7)
  • Second appraisal well in the Lower Buah layer on the B4EW4 structure flows
    in excess of 2,000 barrels per day 
  • Record flow rates from third appraisal well - flows in excess of 3,000
    barrels per day
  • Record net sales of MSEK 193 (170)
  • EBITDA of MSEK 148 (177). The comparative figure includes one-off effects
    relating to non-operational items
  • Net result after tax MSEK 45 (145). The result has been further impacted
    negatively by exploration costs amounting to MSEK 56 (5) related primarily
    to Block 15 onshore Oman
  • Earnings per share before and after dilution of SEK 1.26 (4.07)  

 

TWELVE MONTHS 2013

  • 22 per cent increase in production from Oman and Lithuania compared to
    2012. Production from Oman and Lithuania amounted to 1,709,706 barrels ·Net
    sales of MSEK 592 (584)
  • Net result after tax MSEK 240 (314)
  • Earnings per share before and after dilution of SEK 6.76 (9.11)  

 

SUBSEQUENT EVENTS

  • New oil discovery onshore Oman – Exploration well B4EW6 encounters oil,
    testing in progress
  • Fourth appraisal well in the Lower Buah layer on the B4EW4 structure
    drilling
  • Capex budget 2014 for Blocks 3&4 amounts to MUSD 60 (approximately MSEK
    400)
  • Tethys Oil’s share of production from Oman during January 2014 amounted to
    198,954  barrels corresponding to 6,418 barrels per day

 

(For table, please see attached file)

 


Dear Friends and Investors

2013 was another successful year for Tethys Oil. We increased our production
from Blocks 3 and 4 onshore Oman by 24 per cent to 1.7 million barrels of oil,
corresponding to 4,556 barrels of oil per day (“bopd”) (1.3 million barrels and
3,677 bopd in 2012). The trend continued throughout 2013 with a substantial
increase in December bringing average daily production above 6,000 bopd.
Compared to December 2012, Block 3 and 4 production increased by 40 per cent
from 4,420 bopd to 6,203 bopd.

Financially, 2013 revenues increased to MSEK 592 (MSEK 584), while EBITDA fell
back a little to MSEK 479 (MSEK 509) primarily due to timing related issues and
slightly higher opex associated with well work overs at the Farha South oil
field. The result for the full year stands at MSEK 240 (MSEK 314). 2013 ends
with record production and record net sales during the fourth quarter and a
healthy EBITDA margin of 77 per cent of revenues paling only in comparison with
fourth quarter 2012 where the EBITDA margin was more than 100 per cent of
revenues, following certain non-operational one off items.  The average oil
prices remained high at USD 107 per barrel in 2013, slightly lower than in 2012
(USD 110 per barrel).

The production increase is primarily a result of the successful exploration and
appraisal work associated with the B4EW4 discovery on Block 4. The producing
Lower Buah reservoir has so far exceeded our expectations and is rapidly
turning in to our best producing reservoir. However, the water injection
programme on Farha South and infill production drilling both in the Barik fault
blocks of the Farha South field as well as in the Khufai layer of the Saiwan
East field have also contributed. All in all 35 wells were drilled in 2013. And
2014 is off to an promising start. Today we have the pleasure of announcing a
new discovery in the B4EW6 structure. Testing operations of the Lower Buah are
in progress. This structure looks very similar to B4EW4, and we are hopeful
results will also be similar.

The year-end reserve report for Blocks 3 and 4 presents a very strong base
case. Our 1P reserves from the producing Barik, Khufai and Lower Buah
reservoirs stand at 10 million barrels (mmbo), 2P at 15 mmbo and 3P at 20 mmbo.
The 2P reserve replacement ratio is a healthy 153 per cent.

The 1P reserves have more than doubled, primarily following the successful
water injection program in the Barik reservoir of the Farah South Field. The 2P
number increased by 21 per cent which is less than we had expected, but this is
due to the ‘work in progress’ nature of the appraisal drilling ongoing on the
B4EW4 structure. As per 31 December 2013, this structure holds 2P reserves of
2.3 mmbo and 3P reserves of 3.9 mmbo. We believe however that the 2P number
will move closer to the 3P number as appraisal drilling continues. We believe
there is a strong chance that the current appraisal well B4EW4-7 should be a
significant step in that direction.

So far, we have only explored about ten percent of the total area of the
Blocks. All of our reserves and production comes from this fraction of our
licence. A large part of the exploration programme in 2013 focused on seismic
studies. We acquired 1,671 square kilometres of 3D seismic and 850 square
kilometres of 2D seismic. The studies have resulted in the mapping of a large
number of new prospects, and if the drill bit confirms these prospects to be
commercial oil fields, we will be in a position to multiply Tethys’ reserves
over the next couple of years.

But before we get completely carried away by Blocks 3 and 4, let us say a few
words about our other projects. In Lithuania, production continues from the
Gargzdai licence as well as exploration/appraisal drilling on the Rietavas
licence. Both licences have interesting upside, but we do not expect any
conclusive results in the near term. Our Lithuanian eastern most licence
Raiseiniai show more of a fast track. A 3D seismic study was completed in
December 2013 and is currently being interpreted. Preliminary data suggests the
presence of both potentially oil bearing reefal structures as well as
potentially oil bearing fracture zones in the carbonate matrix. Interpretation
continues, and we hope to be able to give more details early in the second
quarter.

And while we are in the Baltic region, let us revisit our project on Gotland –
for the last time. It is not without regret but we have decided to not renew
our Swedish licenses. In light of our success in Oman and the large potential
in our non-Swedish areas of operation, Gotland has simply become too small to
warrant further work.

The same, unfortunately, goes for another of our early projects, the Jebel
Aswad discovery on Block 15. The long term production test carried out during
the second half of 2013 did not yield the results we were hoping for. We must
therefore conclude that the Jebel Aswad discovery is too small to warrant
further investments and we do not expect further work to be carried out in this
area of Block 15. We will however continue to evaluate other leads on the
Block.

So, let us get back to Blocks 3 and 4 and look forward. The budget for 2014
calls for CAPEX net to Tethys of MUSD 60 (or almost MSEK 400). About 60 per
cent will be spent on continued development, including the final phase of the
Farha South water injection programme and the drilling of additional production
wells in all three producing areas. The number 4 area (B4EW4) on Block 4 is
planned to be connected to the processing plant at Saiwan East, and facilities
will be continually upgraded to handle increased production.

Exploration and appraisal efforts will continue in 2014. Seismic acquisition
was an important part of the 2013 explorations programme. Exploration drilling
will be more in focus during 2014. The seismic data acquired last year will be
very important in guiding the drill bit in 2014. Broadly speaking from an
exploration view point 2014 can be divided into several separate project areas.

Barik exploration along the Farha trend will continue. Wells are planned in
undrilled fault blocks near the producing Farha South field but also in the
extension mapped on last year’s 3D seismic. If the wells drilled in the South
Farha South area, as the new area is provisionally called, are successful, it
will be strong indication that the Farha trend extends into the south outside
the currently producing area.

Drilling activity will be high in the “Lower Buah area” on Block 4, with
continued appraisal in area 4 (B4EW4). We also expect several newly mapped
similar structures to be tested by the drill bit during the year.

Maybe the most exciting wells will be the once planned to be drilled in the
Masira Graben area in the eastern part of Block 4. This is a previous undrilled
area and the 2D seismic acquired during 2013 suggest the presence of several
leads and prospects in a multitude of different reservoir environments.
However, with no nearby well data to correlate the seismic interpretation,
uncertainty remains high and the results from the first exploration well will
be very interesting in order to determine the prospectivity of this large Block
4 area. We plan to spud the first Masira Graben exploration well before summer.

Exploration wells are also planned to be drilled in areas where previous
operators have reported oil shows and at least one well within the 3D area
covering the western part of Block 4.

It is always difficult to assign numbers to prospective resources but we have
run a number of scenarios in-house and believe that the exploration programme
planned for 2014 has the potential to add another 3-20 mmbo net to Tethys from
wells to be drilled into new Barik and Lower Buah structures. The exploration
wells to be drilled in the Masira Graben area and to test other reservoirs than
the known producers, The Barik, the Khufai and the Lower Buah, naturally also
have potential but we believe it is still too early to assign resource numbers
to these.

A completely new pilot programme will also be initiated to better understand
the Lower Al Bashir (LAB) reservoir. The LAB has flowed oil both from the Farha
South field and the number 4 area on Block 4, but it suffers from a tricky
reservoir. If successful, the LAB could turn into a major asset.

And on a final note, the seismic crews will also not go completely idle. The
work programme contains plans for an additional 1,000 square kilometres of 3D
seismic.

But now we have said enough, this report speaks for itself and as for 2014? –
well, stay with us. We have a very exciting and comprehensive work programme,
and although we do not know what will happen, we strongly believe that we have
a great possibility to significantly increase both production and reserves.

 

Stockholm in February 2014

 

Magnus Nordin

Managing Director

 

 

For further information, please contact:

Magnus Nordin. Managing Director. phone: +46 8 505 947 02.
e-mail:magnus@tethysoil.com

or

Morgan Sadarangani. CFO. phone +46 8 505 947 01. e-mail:morgan@tethysoil.com