You may not be familiar with Tajikistan, but Tethys Petroleum (TPL) is a name you should familiarise yourself with. That’s because Tethys, through an 85 per cent owned subsidiary, holds the exploration rights to nearly a quarter of the landlocked Central Asian country and two of the world's largest oil companies, Total SA and China National Petroleum Corp (CNPC), have just paid Tethys a lot of money to explore there. Admittedly, the political and geological risks involved are substantial. But if you’re willing to put some risk capital on the table, the shares could turn out to be 10-baggers, maybe more.
- Farm-out deal recently completed with supermajors
- Massive exploration upside
- Flush with cash
- Increasing oil and gas production in Central Asia
- Considerable political risk
- Exploration is inherently risky
Should drilling next year prove what Tethys and its partners think is in the ground - as much as 27.5bn barrels of oil-equivalent recoverable resources, or a little more than all the remaining exploitable resources and reserves in the UK North Sea - Tethys would seemingly be ripe for a takeover.
The company signed a formal joint venture agreement with Total and China's state-run oil behemoth last month and now they each own a third of the massive Bokhtar licence in Tajikistan. And what a licence it could turn out to be.
Tethys has already found small supplies of oil on Bokhtar but the real prize is believed to lie below the regional salt layer, in deep zones that have never been tested in Tajikistan but are prolific producers in the Amu-Darya basin in nearby Uzbekistan and Turkmenistan. The Amu-Darya basin extends onto Tethys' Bokhtar licence and the giant and super-giant gas fields in adjacent Turkmenistan have no doubt caught eye of the major oil companies.
A handful of discovered fields there contain tens or even hundreds of trillion cubic feet (Tcf) of natural gas, and preliminary seismic work shows similar structures are located on Tethys' Bokhtar licence. To put this into perspective, one of London’s most successful exploration companies of the past few years, Cove Energy, helped discover roughly 30 trillion cubic feet of recoverable natural gas offshore Mozambique. It owned an 8.5 per cent interest in the licence area and was acquired in 2012 Thailand's PTT Exploration and Production in a £1.2bn deal.
TETHYS PETROLEUM (TPL) | ||||
|---|---|---|---|---|
| ORD PRICE: | 43p | MARKET VALUE: | £123m | |
| TOUCH: | 42-43p | 12-MONTH HIGH/LOW: | 65p | 25p |
| FWD DIVIDEND YIELD: | nil | FWD PE RATIO: | na | |
| NET ASSET VALUE: | 76¢* | NET DEBT**: | 7% | |
| Year to 31 Dec | Turnover ($m) | Pre-tax profit ($m)*** | Earnings per share (¢)*** | Dividend per share (¢) |
|---|---|---|---|---|
| 2010 | 14.7 | -26.2 | -0.2 | nil |
| 2011 | 30.3 | -28.9 | -0.1 | nil |
| 2012 | 38.1 | -2.70 | 0.00 | nil |
| 2013† | 114 | 43.1 | 0.20 | nil |
| 2014† | 125 | 48.0 | 0.10 | nil |
| % change | +9 | +11 | - 50 | - |
Normal market size: 5,000 Matched bargain trading Beta:1.62 £1=$1.51 *Includes intangible assets of $107m, or 37¢ a share **Does not include funds from the joint venture *** Underlying PBT and EPS †Seymour Pierce adjusted forecasts | ||||
Under the agreement with Tethys, Total and CNPC have coughed up a combined $63m so far to reimburse Tethys’ KPL subsidiary for past costs, as well as agreeing to pay the vast majority of an $80m initial work program scheduled to begin shortly. The trio have yet to release full details about their work program but it is expected to consist of advanced seismic surveying and data interpretation in 2013, followed by one or several deep exploration wells in 2014.
Yet Tethys doesn't plan on merely standing still until then. Flush with cash from the joint venture deal, the company is embarking on a substantial drilling and exploration campaign at its other licences in Kazakhstan, Uzbekistan and Georgia. Much of the focus in 2013 will be on Kazakhstan, however, where Tethys is expected to double gas production by the end of the year by drilling five new wells. It also plans on drilling several oil exploration wells, the first of which is due to spud in early August.
Analysts at First Energy Capital forecast total production of around 7,500 barrels of oil-equivalent per day (boepd) in 2013, rising to 9,964 boepd in 2014. They estimate this will generate around $28m and $44.2m in cash flow this year and next, respectively, which will be used for further exploration and development.
