Tethys Petroleum Ltd Tethys Petroleum Press Release: 2016 Annual Results

 
TIDMTPL 
 
 
   March 31, 2017 
 
   Tethys Petroleum Press Release 
 
   (TSX: TPL, LSE:TPL) 
 
   2016 Annual Results 
 
   GRAND CAYMAN, CAYMAN ISLANDS- Tethys Petroleum Limited today announced 
its Annual Results for the year ended December 31, 2016. 
 
   Corporate Highlights - 2016 
 
 
   -- Conversion of USD6.3m of loans by Olisol Petroleum Limited (together with 
      Olisol Investments Limited "Olisol") into ordinary shares of Tethys at 
      USD0.10 per share; 
 
   -- Binding Amended and Restated Investment Agreement entered into with 
      Olisol for a private placement of 181m shares for proceeds of CAD9.8m and 
      underwriting of a further equity fundraising of 50m shares for proceeds 
      of CAD2.7m for a total of CAD12.5m.Olisol failed to provide Tethys with 
      any of the purchase price by the extended closing date of October 27, 
      2016 and has sought to terminate the Amended and Restated Investment 
      Agreement and to demand repayment of working capital funding provided; 
 
   -- Olisol affiliated company, Eurasia Gas Group ("EGG"), makes claims 
      against the company in the Kazakhstan courts leading to restrictions over 
      the Company's Kazakhstan bank accounts which, despite several court 
      rulings in Tethys favour and a temporary lifting of the restrictions, 
      remain in place to this day; 
 
   -- Gas supply contract agreed with Intergas Central Asia ("ICA") for the 
      period January 1, 2016 to December 31, 2016. There was a temporary 
      stoppage of gas supplies in mid-October although gas supplies to ICA 
      resumed in early December; 
 
   -- The Company's partners in Tajikistan filed for arbitration following the 
      Company's cash call defaults from September 2015 onwards seeking the 
      Company's withdrawal from the project and assignment of its interest, as 
      well as payment of unpaid cash calls; 
 
   -- Reduction in par value of the Company's ordinary shares from USD0.10 to 
      USD0.01 approved by shareholders and the Grand Court in the Cayman 
      Islands; 
 
   -- In connection with the transactions with Olisol, John Bell moved from 
      Executive Chairman to co-Non-Executive Chairman along with Alexander 
      Abramov, who also became co-Non-Executive Chairman. John Bell, David 
      Henderson, David Roberts and James Rawls all informed the Company that 
      they would not stand for re-election at the Company's May 31, 2016 Annual 
      General Meeting. Alexander Abramov was removed from the Board and was 
      replaced as Chairman of the Board by William Wells. Following the 
      appointment of Mattias Sjoborg and Medgat Kumar the Board of Directors of 
      the Company now comprises William Wells (Chairman), Adeola Ogunsemi, 
      Mattias Sjoborg and Medgat Kumar.In other board and management changes 
      Kenneth May was appointed as interim Chief Executive Officer replacing 
      Julian Hammond and subsequently confirmed as permanent CEO. 
 
 
   -- The Company announced a new cost optimisation programme that once fully 
      implemented should save the Company an estimated USD2.5m a year. The 
      programme followed an extensive review into costs and operations that was 
      started after the Company's Annual General Meeting in May; 
 
   -- The Company successfully defended legal proceedings brought against it in 
      Kazakhstan in relation to the USD7.5m debenture originally issued to AGR 
      Energy Limited No.1.; 
 
   -- Private placements with two individual investors raised USD1.4m for the 
      issuance to each investor of 43,951,698 ordinary shares at USD0.01593 per 
      share and 96,150,000 warrants exercisable at USD0.031 per share for three 
      years from the date of grant. The investors each have the right to be 
      appointed to the Board, have entered into a Relationship Agreement with 
      the Company and provide strong in-country partners for the Company in 
      Kazakhstan and internationally; 
 
   -- Allegations were made against employees of the Company's Kazakhstan 
      subsidiary, Tethys Aral Gas LLP, by the former Chairman of Tethys and 
      owner of Olisol, Alexander Abramov and resulted in searches and seizures 
      at the Company's offices in Almaty. The allegations were dismissed by the 
      authorities but have since been appealed by Alexander Abramov and 
      investigations are ongoing; 
 
   -- Loan restructuring, including three year extension of maturity dates and 
      no interest or principal payments until the maturity dates agreed with 
      Annuity and Life Reassurance Ltd in relation to two loan agreements 
      comprising USD5.3m of borrowings. 
 
 
   Corporate Highlights - Q1 2017 
 
 
   -- Georgian exploration commitments modified so that Tethys will not be 
      required to complete the previously agreed 50 km of 2D seismic 
      acquisition in Block XIN by June 30, 2017. This avoids potential 
      penalties of up to USD2.0m which may have been imposed if the commitments 
      had not been met; 
 
   -- Transfer of the registered legal addresses of the Company's three 
      Kazakhstan subsidiaries, Tethys Aral Gas, Kul-bas and Tethys Services 
      Kazakhstan from Almaty to Aktobe City completed and plans announced to 
      relocate Tethys main administrative office from Almaty to Aktobe City 
      during the first half of 2017; 
 
   -- Tethys and each of its Kazakhstan subsidiaries commenced legal action 
      against Olisol, EGG and certain of their respective principals and in the 
      Court of Queen's Bench of Alberta. The legal action was to seek, among 
      other things, damages arising from failure to meet contractual 
      obligations under the Amended and Restated Investment Agreement on 
      October 27, 2016 and damages arising from unlawful interference with 
      Tethys' business activities, including issuing erroneous press release 
      information about Tethys as alleged. Tethys intends to enforce its rights 
      and legitimate interests to the fullest extent permitted by law, to 
      protect its investors, assets, investments, management and employees; 
 
   -- Amendments agreed to the Company's rig loan including extending the 
      maturity date by 18 months; 
 
   -- The Company applied to the United Kingdom Listing Authority ("UKLA") to 
      cancel the standard listing of the Company's ordinary shares from the 
      Official List of the UKLA and the cancellation of trading in the Shares 
      on the Main Market of the London Stock Exchange with effect from May 2, 
      2017 to reduce the costs of maintaining dual listings. The shares will 
      continue to trade on the Toronto Stock Exchange and the Company will 
      combine its UK share register with the Canadian register to further 
      reduce costs; 
 
   -- The Company announced a ten well shallow gas well drilling program which 
      is expected to cost approximately USD6 million. The Company will have 
      until the end of 2018 fiscal year to pay these costs and expects to be 
      able to pay from increased production. Following mobilization, the 
      Company hopes to begin drilling on or about May 1, 2017. Additionally, 
      the Company will work over three existing wells and tie in two wells 
      drilled but not tied into production. This program is designed to add 
      twelve or more new wells to existing production; 
 
   -- The Company also announced the signing of a lease contract with MSI to 
      build and install a mini-compressor in Bozoi. Installation is expected 
      during the July 2017 time period. This is new technology for Central Asia 
      and is intended to enhance gas production prior to the new wells being 
      tied in. After new production is tied in, then the mini-compressor will 
      be used on older wells to extend the life of wells. 
 
 
   Financial Highlights - 2016 
 
 
   -- Oil and gas sales and other revenues decreased by 47% to USD11.7m from 
      USD22.1m due to a natural decline in production volumes and a price 
      reduction for oil in USD terms as a result of the Tenge devaluation from 
      August 2015; 
 
   -- The loss for the current year of USD46.9m is lower than the loss of 
      USD74.6m in 2015 due to additional depletion in the prior period 
      following the reclassification of assets previously shown as held for 
      sale and a large deferred tax charge due to the significant devaluation 
      of the Kazakhstan Tenge. In addition to this, there was a significant 
      reduction in production expenses and administrative costs as a result of 
      cost optimisation efforts; 
 
   -- The current year was impacted by a USD25.6m write-off of Tajikistan 
      exploration and evaluation expenditure (2015: USD25.9m) and a USD1.2m 
      impairment charge against Kazakhstan oil properties. Finance costs were 
      higher due to an increase in net debt and higher interest rates. The 
      prior year had a large foreign exchange loss following the devaluation of 
      the Tenge and a write down of the Company's interest in the Aral Oil 
      Terminal joint venture, neither of which recurred in 2016; 
 
   -- Adjusted EBITDA at negative USD3.3m decreased by 69% from negative 
      USD10.6m for the prior year as a result of reduced costs which more than 
      offset the reduction in revenue; 
 
   -- Net debt increased to USD32.8m from USD28.8m as a result of interim 
      finance obtained as part of larger strategic transactions which did not 
      complete. A number of the group's loans were restructured and maturity 
      dates extended subsequent to the end of the year as described above; 
 
   -- Total non-current liabilities reduced significantly from USD34.6m to 
      USD12.9m due to loans becoming due in less than one year and being 
      reclassified to current liabilities; 
 
   -- The number of ordinary shares outstanding increased to 508m from 337m as 
      a result of: 
 
          -- 37m shares issues to Olisol in March and a further 26m in April on 

             conversion of USD6.3m of debt at USD0.10 per share; 
 
          -- 44m shares issued to each of Prax Pte Ltd, and Jin Guang Ltd in 
             November 29, 2016 at USD0.01593 per share in cash; 
 
          -- 20m shares issued to Annuity and Life Reassurance Limited in 
             December on prepayment of USD0.3m of debt at USD0.01593 per share; 
 
   -- Cash and cash equivalents at December 31, 2016 were USD0.4m (2015: 
      USD3.3m) although there was an additional USD2.6m of restricted cash 
      which became available to the Company in January 2017. 
 
 
   Reserve Highlights 
 
 
   -- Total Gross (i.e. before the application of Kazakh Mineral Extraction 
      Tax) Oil and Gas Reserves consisting of "Proved" 1P reserves of 12.17m 
      boe (2015: 13.18m boe) and "Proved plus Probable" 2P reserves of 22.90m 
      boe (2015: 23.97m boe); 
 
   -- The NPV10 value after tax of the Company's Kazakh reserves (Proved plus 
      Probable) as at December 31, 2016 was USD157.6m (2015: USD183.6m); 
 
   -- The reserves in this press release are estimated with an effective date 
      of December 31, 2016. 
 
 
   The reserve report was prepared by Gustavson Associates in full 
accordance with the requirements of National Instrument 51-101, 
Standards of Disclosure for Oil and Gas Activities of the Canadian 
Securities Administrators. The Company's 2016 Annual Information Form 
dated March 31, 2017 includes more detailed disclosure and reports 
relating to petroleum and natural gas activities for 2016. Both oil and 
gas reserves are based on availability of sufficient funding to allow 
development of the known accumulations. The estimated value (NPV10) of 
the reserves does not represent fair market value. 
 
   A barrel of oil equivalent ("boe") conversion ratio of 6,000 cubic feet 
(169.9 cubic metres) of natural gas = 1 barrel of oil has been used and 
is based on the standard energy equivalency conversion method primarily 
applicable at the burner tip and does not represent a value equivalency 
at the wellhead. 
 
   Outlook 
 
   The Company's objective is to become a leading oil and gas exploration 
and production Company in Central Asia, by exercising capital discipline, 
by generating cash flow from existing discoveries and by maturing large 
exploration prospects within our highly-attractive frontier acreage. The 
Company produces both oil and natural gas in order to balance its 
product portfolio and currently operates in three separate jurisdictions 
in Central Asia and the Caspian Region, though the Board is considering 
farming down or selling the Tajikistan and Georgian assets to focus on 
the assets in Kazakhstan. The Company was served with a withdrawal 
notice from its partners in Tajikistan during 2015 although is 
contesting this in arbitration proceedings. 
 
   The Company's long-term ambition is to achieve a significant role in the 
production and delivery of hydrocarbons from the Central Asian region to 
local and global markets, especially to the Chinese market. In common 
with many oil and gas companies, in implementing its strategies, the 
Company regularly considers farm-out/farm-in and joint venture 
opportunities and new projects which provide synergy with the Company's 
activities. Meanwhile, the specific focus of management in the short 
term is to: 
 
 
   -- resolve the Company's current issues in Kazakhstan, including disputes 
      with EGG and Olisol; 
 
   -- work with the Company's new partner in Kazakhstan to market the Company's 
      oil and gas for better pricing and obtain funding from a Kazakh bank to 
      restructure loans and fund operations; 
 
   -- complete the process of restructuring the Company's loans which are 
      falling due in 2017; 
 
   -- seek drilling company partners, or other investors, to fund drilling in 
      the Company's licence areas in Kazakhstan on a deferred payment or 
      contingent production sharing basis. This would include shallow and deep 
      gas targets, Akkulka enhanced oil recovery and the Klymene exploration 
      well on the Kul-bas licence; 
 
   -- continue to evaluate farm-out or other value realisation opportunities 
      with respect to Tajikistan and Georgia; 
 
   -- continue to review and implement further restructuring and cost 
      optimisation across the business; and 
 
   -- maintain and increase shallow gas production in the near-term and drill 
      for deep gas in the medium-term with the objective to supply gas to China 
      through the newly built pipeline, once operational and additional funding 
      is secured. 
 
 
   Full Annual Results and other documents 
 
   The full Annual Results together with Management's Discussion and 
Analysis and Annual Information Form will be filed with the Canadian 
securities regulatory authorities. Copies of the filed documents may be 
obtained via SEDAR at www.sedar.com or on Tethys' website at 
www.tethyspetroleum.com. The summary financial statements are attached 
to this press release. 
 
   The Company's 2016 Consolidated Financial Statements are prepared under 
International Financial Reporting Standards ("IFRS"). 
 
   We draw attention to the section entitled "Going concern" in note 1 to 
the Consolidated Financial Statements which describes the material 
uncertainties relating to the Company's adoption of the going concern 
basis in preparing the Financial Statements for the year ended December 
31, 2016 that may cast significant doubt about Tethys Petroleum 
Limited's ability to continue as a going concern. 
 
   About Tethys 
 
   Tethys is focused on oil and gas exploration and production activities 
in Central Asia and the Caspian Region. This highly prolific oil and gas 
area is rapidly developing and Tethys believes that significant 
potential exists in both exploration and in discovered deposits. 
 
   Disclaimer 
 
   Some of the statements in this document are forward-looking. 
Forward-looking statements include statements regarding the intent, 
belief and current expectations of the Company or its officers with 
respect to the potential that exists in both exploration and in 
discovered deposits in Central Asia and the Caspian Region, the savings 
to be achieved under the cost optimisation programme, the outcome of the 
appeal regarding allegations made against employees of Tethys Aral Gas 
LLP, the Company's plans to relocate its main administrative office in 
Kazakhstan from Almaty to Aktobe City, the outcome of legal action 
against Olisol, EGG and certain of their respective principals, the 
Company's plans to cancel its listing in the United Kingdom and combine 
its United Kingdom share register with its Canadian register, the cost, 
timing and success of the proposed shallow gas drilling programme in 
adding 12 new wells to production, the timing of installation and 
success of the mini compressor in enhancing gas production, the 
availability of sufficient funding to allow development of the known 
accumulations described above under "Reserve Highlights" and the 
Company's objectives, ambitions and short-term focus areas described 
above under "Outlook". When used in this document, the words "expects," 
"believes," "anticipates," "plans," "may," "will," "should" and similar 
expressions, and the negatives thereof, are intended to identify 
forward-looking statements. Such statements are not promises or 
guarantees, and are subject to risks and uncertainties that could cause 
actual outcomes to differ materially from those suggested by any such 
statements including risks and uncertainties with respect to the 
potential that exists in both exploration and in discovered deposits in 
Central Asia and the Caspian Region, the savings to be achieved under 
the cost optimisation programme, the outcome of the appeal regarding 
allegations made against employees of Tethys Aral Gas LLP, the Company's 
plans to relocate its main administrative office in Kazakhstan from 
Almaty to Aktobe City, the outcome of legal action against Olisol, EGG 
and certain of their respective principals, the Company's plans to 
cancel its listing in the United Kingdom and combine its United Kingdom 
share register with its Canadian register, the cost, timing and success 
of the proposed shallow gas drilling programme in adding 12 new wells to 
production, the timing of installation and success of the mini 
compressor in enhancing gas production, the availability of sufficient 
funding to allow development of the known accumulations described above 
under "Reserve Highlights" and the Company's objectives, ambitions and 
short-term focus areas described above under "Outlook". 
 
   No part of this announcement constitutes, or shall be taken to 
constitute, an invitation or inducement to invest in the Company or any 
other entity, and shareholders of the Company are cautioned not to place 
undue reliance on the forward-looking statements. Save as required by 
the Listing Rules and applicable law, the Company does not undertake to 
update or change any forward-looking statements to reflect events 
occurring after the date of this announcement. 
 
   See our Annual Information Form for the year ended December 31, 2016 for 
a description of risks and uncertainties relevant to our business, 
including our exploration activities. 
 
   FOR FURTHER INFORMATION PLEASE CONTACT: 
 
   Tethys Petroleum 
 
   [e-mail] 
 
   Web: http://www.tethyspetroleum.com 
 
 
 
   Tethys Petroleum Limited 
 
   Consolidated Statement of Financial Position 
 
   (in thousands of US dollars) 
 
 
 
 
                                       2016       2015 
 
Non-current assets 
Intangible assets                       42,732     64,202 
Property, plant and equipment          103,115    113,397 
Restricted cash                          2,238      2,233 
Investment in joint arrangements             4          4 
Trade and other receivables              1,237      2,457 
Deferred tax                               208        226 
                                       149,534    182,519 
Current assets 

Cash and cash equivalents                  449      3,272 
Trade and other receivables              6,532      3,710 
Inventories                                676        879 
Restricted cash                          2,713        215 
                                        10,370      8,076 
 
Total assets                           159,904    190,595 
 
Non-current liabilities 
Trade and other payables                    44        133 
Financial liabilities - borrowings           -     22,873 
Deferred tax                            11,913     10,792 
Provisions                                 910        846 
                                        12,867     34,644 
Current liabilities 
Financial liabilities - borrowings      33,249      9,159 
Derivative financial instruments             -        275 
Current taxation                           522        398 
Trade and other payables                19,838     14,189 
Provisions                                 200        360 
                                        53,809     24,381 
 
Total liabilities                       66,676     59,025 
 
Equity 
Share capital                            5,081     33,696 
Share premium                          358,444    321,803 
Other reserves                          43,648     43,166 
Accumulated deficit                  (320,041)  (273,189) 
Non-controlling interest                 6,096      6,094 
Total equity                            93,228    131,570 
 
Total equity and liabilities           159,904    190,595 
 
 
 
 
 
   Tethys Petroleum Limited 
 
   Consolidated Statements of Comprehensive Income (Loss) 
 
   (in thousands of US dollars except per share information) 
 
 
 
 
                                                           2016      2015 
 
Sales and other revenues                                   11,734    22,135 
 
Sales expenses                                            (2,443)   (4,210) 
Production expenses                                       (5,285)  (10,232) 
Depreciation, depletion and amortisation                  (9,971)  (28,731) 
Exploration and evaluation expenditure written off       (25,627)  (25,918) 
Impairment charges                                        (1,176)         - 
Administrative expenses                                   (5,461)   (9,492) 
Restructuring costs                                       (1,915)   (3,247) 
Transaction costs of assets held for sale                       -   (1,065) 
Share based payments                                        (482)     (450) 
Profit on sale of fixed assets                                  -        53 
Foreign exchange gain/(loss)                                  117   (1,715) 
Fair value gain on derivative financial instrument            275       824 
Loss from jointly controlled entity                             -   (2,796) 
Finance costs                                             (5,313)   (3,329) 
                                                         (57,281)  (90,308) 
 
Loss before tax from continuing operations               (45,547)  (68,173) 
 
Taxation                                                  (1,303)   (6,430) 
 
Loss for the year from continuing operations             (46,850)  (74,603) 
 
Loss for the year from discontinued operations net 
 of tax                                                         -      (28) 
 
Loss and total comprehensive income for the year         (46,850)  (74,631) 
 
Loss and total comprehensive income attributable to: 
Shareholders                                             (46,852)  (74,629) 
Non-controlling interest                                        2       (2) 
 
Loss and total comprehensive income for the year         (46,850)  (74,631) 
 
Loss per share attributable to shareholders: 
Basic and diluted - from continuing operations (USD)       (0.12)    (0.22) 
Basic and diluted - from discontinued operations (USD)          -         - 
 
 
 
 
 
 
   Tethys Petroleum Limited 
 
   Consolidated Statements of Cash Flows 
 
   (in thousands of US dollars) 
 
 
 
 
                                                          2016      2015 
 
Cash flow from operating activities 
Loss before tax from continuing operations              (45,547)  (68,173) 
Loss before tax from discontinued operations                   -      (28) 
                                                        (45,547)  (68,201) 
Adjustments for: 
 Share based payments                                        482       450 
 Net finance cost                                          5,313     3,329 
 Depreciation, depletion and amortisation                  9,971    28,731 
 Unsuccessful exploration and evaluation expenditures     25,627    25,918 
 Impairment charges                                        1,176         - 
 Profit on sale of fixed assets                                -      (53) 
 Fair value gain on derivative financial instruments       (275)     (824) 
 Net unrealised foreign exchange gain                      (318)     (114) 
 Loss from jointly controlled entity                           -     2,796 
 Movement in provisions                                  (1,901)   (4,646) 
 Net change in working capital                             1,249       752 
Cash used in operating activities                        (4,223)  (11,862) 
Corporation tax paid                                        (33)     (136) 
Net cash used in operating activities                    (4,256)  (11,998) 
 
Cash flow from investing activities 
 Interest received                                             -       183 
 Expenditure on exploration and evaluation assets          (619)   (5,798) 
 Expenditure on property, plant and equipment              (789)   (2,495) 
 Proceeds from sale of fixed assets                           23       121 
 Movement in restricted cash                             (2,503)       214 
 Movement in advances to construction contractors           (47)       416 
 Movement in value added tax receivable                      650     1,284 
 Net change in working capital                               225   (1,275) 
Net cash generated used in investing activities          (3,060)   (7,350) 
 
Cash flow from financing activities 
Proceeds from issuance of borrowings, net of issue 
 costs                                                     7,930    28,107 
Repayment of borrowings                                  (1,395)  (10,269) 
Interest paid on borrowings                              (3,369)   (1,448) 
Proceeds from issuance of equity                           1,400         - 
Movement in other non-current liabilities                  (114)     (313) 
Net cash generated from financing activities               4,452    16,077 
 
Effects of exchange rate changes on cash and cash 
 equivalents                                                  41     2,675 
 
Net decrease in cash and cash equivalents                (2,823)     (596) 
Cash and cash equivalents at beginning of the year         3,272     3,868 
Cash and cash equivalents at end of the year                 449     3,272 
 
 
 
   This announcement is distributed by Nasdaq Corporate Solutions on behalf 
of Nasdaq Corporate Solutions clients. 
 
   The issuer of this announcement warrants that they are solely 
responsible for the content, accuracy and originality of the information 
contained therein. 
 
   Source: Tethys Petroleum Limited via Globenewswire 
 
 
  http://www.tethyspetroleum.com/ 
 

(END) Dow Jones Newswires

April 03, 2017 02:01 ET (06:01 GMT)

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