Tethys Oil AB (SSE: TETY): ~10% yield, stabilized production and very busy upcoming 6 months
• The 1Q23 financials were in line with our expectations with net cash of ~US$40 mm at the end of March.• 1Q23 production of 9,411 bbl/d had already been reported and is stable compared to 4Q22.
• The FY23 production guidance of 9-10 mbbl/d has been re-iterated.
• The company has declared a total distribution of SEK5 per share (SEK2 per share ordinary dividend + additional SEK3 per share mandatory redemption). This represents almost 10% dividend yield. In addition, Tethys has bought back US$2 mm in shares in 1Q23.
• On Block 56, the extended well test (EWT) has commenced and the AJ-2 well is now producing 350 bbl/d. Production testing at AJ-3 and AJ-4 is expected to start in May and June respectively.
• On Blocks 3&4, the exploration programme has yielded positive results in 1Q23 with the Elaf-1 well flowing oil to surface and the Rahbah-1 well now being tested. The Jari-1 well, which could unlock significant resources in a new area of the block, has encountered oil. Like other wells in the area, the reservoir needs to be stimulated.
• Tethys’ shares continue to provide investors with a combination of dividend yield with very high impact exploration. The total unrisked NAV of the drilling programme until YE23 is ~SEK275 per share. We re-iterate our target price of SEK120/sh.
Upcoming newsflow
Tethys is expected to provide further details on the prospective resources for the central area of Block 56 around mid year. We anticipate an increase in the resources estimates (50 mmbbl currently). The results of the EWT at Al-Jumd is also expected by the end of 2Q23. This could trigger ~1.5 mmbbl reserves booking. The Fad South prospect at Block 58 is expected to be drilled (unrisked NAV of SEK215 per share) in 3Q23. The Thameen-1 well (Block 49) will be re=tested in 2H23 (unrisked NAV of SEK37 per share). The Jari-1 well (Blocks 3&4) will also be stimulated in that period.
Valuation
Our ReNAV of SEK127/sh is based on the company’s 23.9 mmbbl 2P reserves, 14.6 mmbbl 2C resources and the FY23 activity programme. We assume a long term Brent price of US$70/bbl.
Tethys Oil AB is a Sweden-based energy company. The Company is focused on oil and gas exploration and production onshore areas with known discoveries. Its core area of focus is the Sultanate of Oman, where the Company holds licence interests in three onshore blocks. Tethys Oil has licences in three countries altogether: Oman, Lithuania and France. Two of the licenses are in production, namely Blocks 3 & 4 in Oman and Gargzdai in Lithuania. During 2013 the Company also had licenses in Sweden, however, they have expired and were not renewed. As of December 31, 2013, the Company had 10 wholly owned subsidiaries active in Sweden, Gibraltar, Switzerland and the British Virgin Islands, such as Tethys Oil Denmark AB, Tethys Oil Spain AB and Tethys Oil Turkey AB, among others.
Auctus Advisors is a specialist Equity Capital Markets and Advisory business with a focus in the Energy Sector.
The partners have complementary skill sets, with decades of experience across Equity Capital Markets, Investment Banking and the Energy industry. We have worked at Société Générale, Canaccord Capital, BMO Capital Markets and Schlumberger. Most recently we have worked together for many years at GMP FirstEnergy.
Auctus has been set up at the beginning of a new decade in which we see significant opportunities in the Energy space. Globally, demand for energy is at record levels and continues to grow. Conversely, investment in traditional energy sources has been severely constrained. We believe this imbalance creates opportunities for both companies and investors.
Auctus provides Corporate Broking, Equity Research and Investment Banking services.
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