First quarter report – 31 March 2020

First quarter 2020 (fourth quarter 2019)

  • Production from Blocks 3&4, Oman, at 13,032 barrels per day (13,475 barrels per day)
  • Revenue and other income of MUSD 37.3 (MUSD 36.2)
  • EBITDA of MUSD 21.9 (MUSD 21.3)
  • Net result of MUSD 12.1 (MUSD -0.3)
  • Earnings per share amounted to USD 0.35 (USD -0.01)
  • Free cash flow MUSD 9.2 (MUSD 4.9)
  • Net cash MUSD 78.0 (MUSD 75.1)
  • Blocks 3&4: Production limitations imposed until end of 2020
  • Blocks 3&4: Seismic acquisition on the northern part of Blocks 3&4 completed
  • Block 56: Final government approval of farm-in transaction received
MUSD (unless specifically stated) First quarter 2020 Fourth quarter 2019 First quarter 2019 Full
Net daily production from Oman, Blocks 3&4 before government take (barrels per day) 13,032 13,475 11,901 12,832
Net entitlement barrels (bbl) 585,801 592,164 556,967 2,383,086
Net entitlement as share of production (percent) 49 48 52 51
Average selling price per barrel, USD 63.1 61.4 61.6 64.2
Revenue and other income 37.3 36.2 32.7 150.8
EBITDA 21.9 21.3 17.2 92.9
Operating result 9.2 0.7 5.6 37.1
Net result for the period 12.1 -0.3 6.4 38.3
Earnings per share (after dilution), USD 0.35 -0.01 0.19 1.12
Net cash 78.0 75.1 82.7 75.1
Investments in oil and gas properties 15.4 26.2 11.6 65.2

Letter to shareholders

Dear Friends and Investors,

These are trying times. Almost overnight the world has gone from being a familiar place to becoming an alien world. Whole countries are under lockdown while epidemiologists lead the fight against a potent, invisible enemy. Ordinary activities, such as meeting friends and colleagues, driving your car on a family outing or flying to a business meeting in a foreign city, have become distant memories. And with their curtailment has come an unprecedented collapse of demand for our industry’s product, resulting in maybe the sharpest and fastest drop in oil prices ever experienced.

But the world has mobilised vast resources to meet the threat, so sooner or later normality will return. Most likely it will be a different normal, but that new normal will still need energy. And we intend to be there to supply it.

But for now, focus is on the immediate. For Tethys Oil, the safety of our co-workers and partners is a top priority and we have implemented a number of measures, including enabling work from home, to ensure that everyone can continue to live and work safely while minimising the risk of contagion. The operator of Blocks 3&4 has responded strongly by increasing health and safety measures even further to ensure smooth and safe operations under these circumstances.

Financially we are in a good position to weather the price downturn. We are debt free and as at March 31 we had a net cash balance of 78 million dollars. Cash reserves that will support us through also a prolonged price downturn.

Our host country, the Sultanate of Oman, has joined up with a number of oil producing countries, OPEC+, to help stabilise prices by limiting production. The operator of Blocks 3&4 has informed us that we should expect production to be capped at a level equivalent to 30 percent below the first quarter 2020 average, for the remainder of the year. Despite these cuts and the drop in oil prices we remain confident that thanks to our strong result in the first quarter and ongoing cost savings, operations from Blocks 3&4 will be cash flow neutral on a full year basis in 2020. And of course, no oil is lost through the production limitations. We are simply keeping it in the ground, the cheapest form of storage, in order to produce and sell it at higher prices in a, hopefully, not too distant future.

Let us so turn to the quarter under review which was actually a very strong quarter for Tethys Oil. In the quarter, we generated more that 9 million dollars of free cash, the majority of which we distributed directly back to shareholders through an accelerated share buy-back program to a value of 5.8 million dollars. We now own almost 9 percent of our own shares, that our Board of Directors is proposing to the AGM to cancel and thereafter ask for a further mandate to repurchase up to 10 percent of the shares in issue. Even after the buy-backs in the first quarter, we have increased our cash position compared to the year end. In fact, our position is such that, despite the oil price headwinds and production limitations, the board can recommend to the AGM to go ahead with distributing an additional SEK 5 per share to our shareholders.

Production of 13,032 barrels of oil per day in the first quarter was in line with the third quarter 2019 and only three percent lower than the record high fourth quarter 2019. This gives us confidence that we will quickly be able to get back to high production numbers as soon as market circumstances allow.

On the exploration front we completed the large seismic acquisition on the northern part of Blocks 3&4 and will soon start to interpret the seismic to be ready to drill as soon as prices recover.

On Block 49 we are ready to drill an exciting exploration well and here the market downturn has worked in our favour. A tight rig market is rapidly opening up as rigs are being idled with downward pressure on rates as a result.

On our newly acquired Block 56, where we hold a non-operated 20 percent interest, a testing program was successfully completed with oil to surface. We know now that one of the play concepts works, although commerciality is yet to be determined at least in the current price environment. Further south in the block our review of existing seismic has confirmed that play concepts working on Blocks 3&4 could be present also in Block 56 but most likely new seismic will be needed to define drillable prospects.

So, while these may be turbulent times, there is still cause for optimism. The world is fighting an enemy and the world will win and a new normality will arrive. At that time, we are hopeful that our exploration efforts will have borne fruit and that Blocks 3&4 production can be quickly ramped up to supply that new world with the energy needed to make up for lost time!

Stay with us – we are here to stay!

Stockholm in May 2020

Magnus Nordin,
Managing Director

This report has not been subject to review by the auditors of the Company.

For further information, please contact:
Magnus Nordin, managing director, phone: +46 8 505 947 00
Petter Hjertstedt, Acting CFO, phone: +46 8 505 947 00

Conference call
Date: 5 May 2020
Time: 10.00 CET

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This information is information that Tethys Oil AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact persons set out above, at 7:30 CEST on 5 May 2020.