Tethys Oil AB (SSE: TETY): Lower production but positive appraisal results could trigger the development of a new field
• 2Q23 financials were above our expectations with net cash of ~US$34 mm at the end of June (we expected US$31 mm).• 2Q23 WI production at Blocks 3&4 of 8,994 bbl/d had already been reported. The field continues to underperform but net production has stabilized at ~ 9 mbbl/d. Tethys has taken the cautious view of changing its FY23 production guidance from 9-10 mbbl/d to ~9 mbbl/d (+/- 0.2 mbbl/d). We have reduced our FY23 production forecast to 9 mbbl/d as well as our production estimates in future periods (9 mbbl/d in 2024 and 8.5 mbbl/d in 2025 versus 10.5 mbbl/d and 9.7 mbbl/d previously).
• The positive results at the Elaf-1, Rahbah-1 and Jari-1 exploration wells (also on Blocks 3&4) could add production and reserves.
• The most important update is the result of the EWT at Al-Jumd on Block 56 with 34,699 bbl produced during 2Q23 (~385 bbl/d) with production varying from 150-700 bbl/d. 2 wells are in communication while the third well (drilled in a separate section of the structure) experienced an increase of water cut and will be worked-over.
• Following these results, the company has started looking at commercialization options for the Al-Jumd trend. The exact perimeter of the development could also include (i) resources targeted by an exploration well to be drilled in 2H23 and (ii) the Sarha-3 well (testing to resume in the coming months). We currently carry only 1.5 mmbbl for Al-Jumd, but the development could be much more material. A development of the area could be sanctioned in 2024 and would provide additional sources of production.
• We have changed our target price to SEK110 per share, which reflects the lower production at Blocks 3&4. The total unrisked NAV of the upcoming exploration programme until 1Q24 is ~SEK245 per share.
More on Blocks 56 and 58
Tethys is now expected to provide further details on the prospective resources for the central area at Block 56 in 1Q24 as the focus of 2023 has been on Al-Jumd. Further prospectivity has been identified at Block 58 following the interpretation of 450 km2 of 3D seismic data in South Lahan with additional prospective resources expected to be announced during 3Q23. The Fahd South prospect is now expected to be drilled in 1Q24 (unrisked NAV of SEK190 per share) instead of 3Q23. This results in lower capex in 2023 (US$81-86 mm vs U$85-95 mm previously).
Valuation
Our ReNAV of SEK110/sh is based on the company 23.9 mmbbl 2P reserves, 14.6 mmbbl 2C resources and the upcoming 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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