Tethys Oil AB (SSE: TETY): Imminent development of Block 56 and high impact exploration drilling at Block 58
• 1Q24 production of 8,032 bbl/d had been previously reported.• The development plan for Block 56 is expected to be submitted to the government by the end of May. The associated reserves and resources are expected to be disclosed at that time. The development plan will include an EPF for Menna/Sarha and Al Jumd and a near field exploration strategy to rapidly increase production.
• The high impact Kunooz-1 well is expected to spud in June. The well is targeting 123.5 mmbbl unrisked prospective resources (unrisked NAV of ~SEK200 per share). This is the largest exploration prospect to be drilled Oman in 2024.
• At Block 49, Tethys has entered the second exploration period of the licence to assess the prospectivity beyond the Thameen-1 well. The well will be fracked in 2H24.
• Production has now stabilized at Blocks 3&4. While production was impacted by flooding in March and April, five appraisal wells out of six were successful in 1Q24 and should contribute to reserves replacement. 13 further appraisal wells and three exploration wells will be drilled during the balance of 2024 on the Blocks.
• Tethys is in exclusive negotiations with Sonatrach to enter the El Hadjira and El Haiad II areas in Algeria. Tethys is aiming to focus on existing development opportunities with an EPF and appraisal activities.
• Tethys is expected to provide further visibility on the ongoing strategic review process during 2Q24. This could include a (partial) divestment of Blocks 3&4 and an equalization of interests on the other Blocks.
• As the company’s profile is changing from mature production to growth, there will be no dividend distribution in 2024. We re-iterate our target price of SEK100/sh. The outcome of the ongoing strategic review process could be a catalyst to rerate the shares.
Reflections on financials
Underlying 1Q24 operating cash flow was just US$12.9 mm as opex over the period was ~US$1.5 mm higher than expected due to the ongoing gas to power project (expected to reduce opex from 2Q24). There was also a negative US$6.7 mm working capital movement that reflects a build-up in the underlift position (20.8 mbbl at the end of March vs 15.2 mbbl at YE13). This is expected to be reversed over the coming months.
Valuation
Our ReNAV of SEK99/sh is based on the company’s 21.7 mmbbl 2P reserves, 15.5 mmbbl 2C resources and the upcoming activity programme. The overall unrisked value of the prospective resources at Block 58 alone (453.9 mmboe) is >SEK700 per share.
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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