Tethys Oil AB (SSE: TETY): >US$40 mm in net cash, 9% dividend yield, >120 mmbbl targeted by the drill bit in 2023
• Tethys held US$41.5 mm in cash and no debt at YE22.• Tethys is embarking on a potentially transformational drilling programme in 2023. The company has disclosed for the first time prospective resources at Block 58, with 184 mmbbl (mean) estimated across three prospects in the Fahd area. The prospects cover multiple sands (Buah, Ara and Khufai), which increase the probability of each well to encounter oil in at least one sand. The most material sand is the Buah with ~100 mmbbl of prospective resources.
• The first well at Block 58 will be drilled in 3Q23. We assume Tethys will drill the 124 mmbbl Fahd South well with an unrisked NAV of SEK205/sh (>3x the current share price) assuming ~US$5/bbl. The chance of success associated with each individual sand is 18-24%. The resources targeted by this well represents ~5x Tethys’ current 2P reserves. The FY23 exploration capex at Block 58 is only US$10.5 mm.
• Tethys also plans to drill an exploration well in the Central Area of Block 56 in 3Q23 with 50 mmbbl prospective resources.
• Four exploration wells will be drilled at Blocks 3 & 4 including the Jari-1 well in the southern area of Block 4 that could open significant potential upside. The company will also re-enter and stimulate the Thameen-1 well at Block 49 (SEK36/sh unrisked).
• The profile of Tethys has significantly changed. While the dividend yield is ~9% (SEK5/sh to be paid in 2023), the total unrisked NAV of the company is now >SEK560/sh. We re-iterate our target price of SEK120/sh as the impact of increasing costs and the delay to restoring the production plateau is offset by the exploration programme.
Production at Blocks 3&4 and capex guidance
Production at Block 3&4 continues to be impacted by delays to debottleneck the water handling facilities and to perform work-over activities. The well head production is currently constrained. FY23 production is expected to be 9-10 mbbl/d but should increase during the year given the level of investment in 2023. This does not include any contribution from Al Jumd, where testing operations are about to start. We assume 10.5 mbbl/d in 2024. The FY23 capex guidance is US$85-95 mm including US$65-75 mm at Blocks 3&4 with 47 new wells (36 in 2022) and US$8 mm at Block 56.
Valuation
Our ReNAV of SEK125/sh is based on the company 23.9 mmbbl 2P reserves, 14.6 mmbbl 2C resources and the FY23 activity programme with an unrisked NAV of SEK355/sh. A drilling success at Block 58 and Block 56 would open-up ~SEK210/sh of unrisked follow-on value.
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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