Tethys Oil AB (SSE: TETY): Encouraging results at Kunooz-1
• Large and extensive natural fractures have been encountered over 500 m (gross thickness) in the Birba and Buah formations at the Kunooz-1 well, resulting in very high permeabilities. The matrix porosity is low.• The presence of these large fractures could support significant volumes of fluids or gas in the formation.
• Due to the fractures, 80 mbbl of drilling fluids were lost in the formation and no cuttings could be recovered. The nature of the formation fluid (gas, oil or water) is therefore uncertain.
• Tethys will now perform a well test to clean-up and produce the well to understand the hydrocarbon potential of the Birba and the Buah.
• We view this update as positive as it reduces the geological risk of the well down to the nature of the formation fluid. We are therefore increasing our chance of success from 21% to 30%. However, we have removed the resources associated with the Khufai (~32 mmbbl) from our ReNAV.
• Overall, our target price of SEK80 per share is unchanged. It has been set in line with the offer price (SEK58.70 per share) plus 50% of our risked value for Kunooz (50% of SEK45 per share).
• The acceptance period for the offer expires on 2 December, which leaves ~ one month to test the Kunooz-1 well. This is a very material well and, in case of success, Tethys shareholders might seek a higher price to sell the company.
• We continue to view the offer by Roc Oil as a put option with a strike price of SEK58.70 per share if the Kunooz well test is not successful. Tethys’ shares currently trade below this price, which suggests an asymmetric return in favour of existing shareholders.
Valuation
The offer for the company (SEK58.70 per share) is very close to our ReNAV for the company based on Blocks 3&4 plus Block 56 (SEK54 per share). Our ReNAV for Kunooz on Block 58 is SEK45 per share. The overall unrisked value of the prospective resources at Block 58 alone (>400 mmboe) is >SEK700 per share.
Tethys Petroleum is an oil and gas exploration and production company focused on projects in Central Asia. Through its subsidiaries, Co. is engaged in the exploration for, and the acquisition, development and production of, oil and natural gas resources in Kazakhstan, Tajikistan and Uzbekistan.
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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