First quarter report 2016

(For a full report, see attached file)
* Production amounted to 12,212 barrels per day, up 11 per cent compared
to the fourth quarter 2015
* Revenue amounted to MUSD 20, down 24 per cent compared to fourth
quarter 2015
* EBITDA amounted to MUSD 10, down 25 per cent compared to fourth
quarter 2015
* Net result amounted to MUSD -2, down from fourth quarter 2015 net
result of MUSD 3
* Earnings per share amounted to USD -0.07 during first quarter 2016
* Nine new wells completed during the quarter on Blocks 3 and 4 Oman.
One new structure successfully drilled in the Shahd area and put in
|   | MUSD (unless specifically stated) | First quarter 2016 | Fourth quarter
2015 | First quarter 2015 |
|   |   |   |   |   |
|   | Net daily production before government take (bbl) | 12,212 | 10,956 |
8,714 |
|   | Net barrels sold, after government take (bbl) | 531,918 | 366,746 |
308,892 |
|   |   |   |   |   |
|   | Average selling price per barrel, USD | 35.70 | 47.90 | 63.80 |
|   |   |   |   |   |
|   | Revenue | 20 | 26 | 25 |
|   | EBITDA | 10 | 13 | 13 |
|   | Operating result | -1 | 3 | 5 |
|   | Result for the period | -2 | 3 | 8 |
|   | Net cash | 45 | 51 | 46 |
|   | Investments in oil and gas properties | 15 | 7 | 16 |
|   |   |   |   |   |
|   | Earnings per share, USD | -0.07 | 0.09 | 0.22 |
* Starting 1 January 2016, the Tethys Oil group will present the
financial reports in USD. Please note that all comparative financials
have been restated. For further information, please see Accounting
principles on page 15.
Letter to shareholders
Dear friends and investors
Are oil prices approaching a ’new normal’ within the oil industry?
Possibly. Almost two years into the most dramatic price disruption we
have seen in a generation, signs are that the forces of supply and
demand eventually can make a mark also in this highly political
industry. I have always maintained that the price of oil, the most
analysed commodity in the world, is impossible to predict in the short
term. Anything can happen both on the upside and the down side. But in
the longer run market forces will prevail and an equilibrium will arise
where supply and demand meet and a new balance is established.
And the forces at work are not that difficult to identify. Demand comes
first. Are there signs that demand for oil will remain steady or will it
even grow higher? Then supply. First and foremost – is there oil
available to produce? Are there willing suppliers who have access to
capital to make the necessary investments to bring the oil into
production? What is their cost of production? With a view on these
questions, a price model is not that difficult to put in place.
In the first years of this century a vast miscalculation of demand
(China rising), led to under investment and a subsequent substantial
price increase. From a low of under USD 10 per barrel in 1999 to a top
of close to USD 150 per barrel seven years later. Not surprisingly
capital rushed in to support new investments and production increased.
And for a good eight years (with a brief drop in the aftermath of the
financial crises in 2008), prices above USD 100 per barrel became a ’new
But at this price, the other side of the equation got out of whack. The
high profit margins led to over investments. At the same time costs
increased as the oil service industry (rigs, seismic companies, mud
loggers, frackers etc) could all increase their share of the pie and
make substantial profits. And suddenly a classic case of over supply was
a fact.
The trigger for the price drop turned out to be political at first. Low
cost producers saw their market share being threatened by high cost
producers, and made the (logical) calculation that if they increase
production above current demand prices would fall and high cost
producers would have to go out of business. Thus, production would fall,
prices stabilise and lower cost producers would prevail.
From a Tethys Oil point of view, we do not mind this scenario as we
belong to the low cost producers. And trying to look at the data in a
reasonably sober way, rebalancing seems under way. Among the production
with the highest costs is the American shale production, which is
reliant on hydro fracking and other specialised techniques. And from
Houston the message is clear, rig utilisation has been falling month by
month and capital is drying up and long term projects are being delayed
or scrapped. High cost producers are producing what they can from
existing wells to meet interest payments on loan. And eventually,
natural decline will dry out these high cost reservoirs. Over the last
months, the shale production in USA is finally falling.
So the signs are definitely there. For healthy projects, costs are
coming down as service companies cut prices. The markets are rebalancing
and prices show signs of stabilising at levels which make it possibly
for companies like Tethys Oil to plan ahead and focus on growth.
Even in the first quarter 2016, when the oil price reached a low below
USD 30 per barrel, Tethys Oil continued to stay cash flow positive with
a cash flow from operations of MUSD 10. Our average selling price fell
25 per cent quarter on quarter down to USD 35.7 per barrel. We report
revenues of MUSD 20. Our EBITDA for the quarter amounted to MUSD 10, and
our net result for the period amounted to MUSD -2. Our net cash was MUSD
45 as per 31 March 2016.
Our investments continue and we see substantial growth opportunities
with good profit margins in our core Omani asset. We have intensified
our efforts to assess the remaining potential of these prolific blocks.
We have mapped more than ten undrilled structures in the areas covered
by 3D seismic surrounding the producing fields. All potentially oil
bearing. Some of these prospective structures are larger than others.
The key to understanding these blocks is the realisation that the
producing areas are separate reservoirs, not connected and relatively
small. But there are many of them! About 25 of them are so far in
production. Our in-house prospect inventory, now also taking in leads
emerging in the south central part of Block 4, is rapidly approaching 30
and of course work continues.
What this implies for Tethys Oil, is that if the new normal turns out to
be USD 40 or 50 per barrel of oil for the foreseeable future, we see
costs come down, margins remain healthy and primarily we see ample
organic growth in our core asset. New projects may or may not
materialise. Efforts to add to our portfolio continue. But our core
focus remains on Blocks 3 and 4 onshore Oman.
So stay with us, we are far from done!
Stockholm in May 2016
Managing director
Conference call
Date: 2016-05-03
Time: 10.00 CET
To participate in the conference call you may choose one of the
following options:
To participate via phone, please call:
Sweden: +46 8 505 564 74
Switzerland: +41 225 675 541
UK: +44 203 364 5374
North America: +1 855 753 2230
To participate via web:
Link to webcast:
For further information, please contact: Magnus Nordin, managing
director, phone: +46 8 505 947 00
Morgan Sadarangani, CFO, phone: +46 8 505 947 00
(For a full report, see attached file)