On Dec 21st while many investors were thinking about their christmas break - Tethys Petroleum (TPL) signed a transformational deal with subsidiaries of Total S.A. (“Total”) and the China National Oil and Gas Exploration and Development Corporation (“CNODC”).
The farm out highlights are as follows:
• The interest in the PSC will be held equally by the three partners namely Kulob Petroleum Limited (“KPL”), Total E&P Tajikistan B.V. (a subsidiary of Total S.A.) and CNODC Coop UA (a subsidiary of CNODC).
• Tethys owns an indirect 85% controlling interest in KPL.
• KPL will receive 66.67% of back costs amounting to a payment of approximately USD60 million in cash upon completion. As funding for this project to date has been provided almost entirely by Tethys, monies received by KPL from this transaction will first be utilised to repay these loans to Tethys. The exact amount to be confirmed by the Tajikistan government.
• KPL will be partially carried on a USD80 million initial work programme such that it will pay 33.33% of its share of costs (therefore the funding obligation will be approximately USD8.9 million of the USD80 million work programme).
• The initial work programme is expected to comprise of further seismic data acquisition followed by a deep exploration well. Full details of the 2013-2014 work programme will be announced in Q1 2013.
• The PSC will be operated by a Joint Operating Company to be set up and owned by KPL, Total and CNODC, in proportion to their ownership in the PSC.
The farm-out is subject to final Tajik governmental approvals and State consents. Closing will take place once these approvals and all other conditions precedent under the FOA are satisfied and is expected to take place in the first quarter of 2013.
An Independent Resource Report of the Bokhtar PSC (dated June 30, 2012), prepared in accordance with Canadian National Instrument 51-101, estimates Gross unrisked mean recoverable prospective resources of 27.5 billion barrels of oil equivalent, consisting of 114 trillion cubic feet (3.22 trillion cubic metres) of gas and 8.5 billion barrels of oil.
Dr David Robson, Executive Chairman and President of Tethys, said:
“This is a tremendous deal for Tethys and extremely beneficial for the country of Tajikistan. It rewards us for taking the first steps into Tajikistan in 2006 and validates our extensive technical work to date. Total and CNPC are world class companies and we look forward to working with our new partners in Tajikistan which in our view has world class potential! Our partners each bring additional strengths to the project with extensive experience and skills in exploring and developing giant petroleum deposits and with the new pipelines carrying gas from Central Asia to China providing a potential export route for any sizeable gas discovery. This farm-out also provides significant additional funding for our Company to accelerate our other current projects.” END.
The deal is clearly a transformational one for Tethys and values their Tajikistan asset at $190mln. That’s quite a decent wedge when you consider the companies market cap today sits at just a snip above £100mln.
The under valued story continues when you look at their current cash generation and production that is solid and growing.
The company issued a new corp presentation a couple of days ago – you can access it here.
There are not many companies out there the size of Tethys that have major deals in place, are effectively debt free, cash generative and have a growing production base. The market may want to take a ‘wait and see’ approach until the Tajikistan government provide final approvals. This could present investors with an excellent opportunity at discounted prices but it’s not without risk of course.
MXP long term holders will recognise the ‘shape’ of Tethys as a business model. It’s like a young MXP just without the poor past management and hideous debt cloud that has choked most of the upside life out of the stock during the last 2 years. MXP is still alive today (just) and that’s down to their production base/cash flow. Tethys shares a similar production profile, similar assets in similar regions. The difference between them at present is that one has managed to bag a major farm out on a very large prospect.
MXP may well still secure a partner/drill deal on NUR-1 and complete their deep well – but even if they do, the damage of dilution/debt arrangement have already taken their toll. Tethys appears to have achieved something that RXP, MXP and other smaller regional players have not – and thats a decent farm out deal.
Tethys BoD’s appear very well connected when you look at the regions where they have successfully gained licences. This could bode well for future licence block awards.
The ShareHub has set an 80p target on TPL which could revise up if production is increased substantially in 2013.
Current price 36.5p