Fourth quarter and year-end report – 31 December 2020

Fourth quarter 2020 (third quarter 2020)

  • Production from Blocks 3&4, Oman, at 11,072 barrels per day (10,651 barrels per day)
  • Revenue and other income of MUSD 22.3 (MUSD 20.4)
  • EBITDA of MUSD 10.2 (MUSD 9.5)
  • Earnings per share amounted to USD -0.09 (USD -0.06)
  • Free cash flow MUSD 9.0 (MUSD -11.7)
  • Blocks 3&4: Exploration well Anan-1 successfully drilled with good oil flow rates
  • Block 49: Exploration well Thameen-1 spudded
  • Block 49: Tethys Oil in farm out to EOG Resources of 50%, subject to government approval
  • Block 56: Tethys Oil has entered into an agreement to acquire a further 45 percent interest, and assume operatorship of Block 56 in the Sultanate of Oman, subject to government approval
  • Investment guidance 2021: MUSD 47

Reserves and Contingent Resources:

  • 2P internal reserve replacement ratio of 120 percent
  • Year-end 2020 2P Reserves of 26,922 mbo and 2C Contingent Resources of 13,904 mbo

Dividend & Distribution:

  • The board of directors proposes an ordinary dividend of SEK 2.00 per share (2020: SEK 2.00), to be paid after the 2021 AGM
  • The board of directors proposes an extraordinary distribution of SEK 2.00 by way of a mandatory share redemption programme following the 2021 AGM (2020: SEK 3.00)
MUSD (unless specifically stated) Fourth quarter 2020 Third quarter 2020 Fourth quarter 2019 Full
Net daily production from Oman, Blocks 3&4 before government take (barrels per day) 11,072 10,651 13,475 11,336 12,832
Net entitlement barrels (bbl) 529,699 509,559 592,164 2,157,385 2,383,086
Net entitlement as share of production (percent) 52% 52% 48% 52% 51%
Achieved selling price per barrel, USD 42.3 42.8 61.4 47.7 64.2
Revenue and other income 22.3 20.4 36.2 101.1 150.8
EBITDA 10.2 9.5 21.3 50.4 92.9
Operating result -0.7 -1.0 0.7 5.8 37.1
Net result for the period -2.9 -2.1 -0.3 3.3 38.3
Earnings per share (after dilution), USD -0.09 -0.06 -0.01 0.10 1.12
Net cash 55.1 48.0 75.1 55.1 75.1
Free cash flow 9.0 -11.7 4.9 6.7 31.4
Investments in oil and gas properties 11.0 8.6 26.2 45.4 65.2

Letter to shareholders

Dear Friends and Investors,

We have made it five weeks into the year 2021 but the pandemic has not let go. Masked faces are the order of the day and the social restrictions we had to adopt in 2020 are still with us. Focus remains on keeping everyone healthy and maintaining operations as close to normal as possible. The buzzwords from 2020 continue to rule the day. Perseverance, caution, resilience and patience. But the financial markets present us with an outlook that is reassuringly rosy as economic growth seems to pick up again and oil prices have come back.

And the fourth quarter of 2020 was not at all a bad quarter for Tethys Oil. We persevered through hard work, focused action and a cautious attitude by all our co-workers. Block 3&4 operations showed remarkable resilience and the robustness of the Blocks are demonstrated clearly through high production, lower opex and positive cash flow.

Backed by a production of 11,072 barrels of oil per day – four percent higher than in the third quarter – we report revenues and other income of MUSD 22.3, up nine percent from the third quarter 2020. Our EBITDA amounted to MUSD 10.2, up seven percent compared with the third quarter 2020. During the quarter, free cash flow was MUSD 9.0 and investments in oil and gas amounted to MUSD 11.0. And we end the year with a strong net cash position of MUSD 55.1.

The fourth quarter also saw some very significant developments for the future growth of Tethys Oil. We have agreed to increase our interest in Block 56 to 65 percent and to take over operatorship of this potentially very prolific block. Analysis of additional data over our operated Block 58 continues to strengthen our hopes for this strategic Block in south-western Oman. And in Block 49, as we neared the drilling of the Thameen-1 exploration well, we have agreed to partner with EOG Resources.

The Thameen-1 well started drilling on the last day of the fourth quarter and we should have results before the end of February. The well is designed to primarily evaluate two potentially hydrocarbon bearing structures but also to give data to assess the overall potential for Block 49 both for conventional and unconventional hydrocarbons.

So, for all the challenges and absurdities of 2020, Tethys Oil came through the fourth quarter and the full year very well. Our asset mix improved and adding one new block while negotiating one farm in and one farm out is indeed an excellent outcome for the year. But the performance of Blocks 3&4 continues to be the source of cash flow to enable the continued growth of Tethys Oil.

Average production from Blocks 3&4 came in at more than 11,300 barrels of oil per day in 2020. Our net production for the year amounted to 4.1 million barrels and in August we passed a very significant milestone when gross production from the Blocks passed the 100 million barrel mark. When production started in 2010 I would have considered that number to be unreachable. But it was not and more importantly for the future: On block reserves have never been higher than at the end of 2020. For the ninth year in a row Tethys Oil’s Reserve Replacement Ratio exceeds 100 percent! This despite deferred investments and minimal exploration efforts during the year. At the end of 2020, 2P reserves stood at 26.9 million barrels, with the 2P reserves replacement ratio reaching 120 percent.

We have had a good year and we stand strong with ample cash reserves and the highest reserve number in Tethys Oil’s history. From this position of strength, we are able to continue our cash distribution to shareholders without holding back on our plans for growth. In 2020 we distributed SEK 5 per share and together with buy backs distributions totalled MUSD 26. Given the continued likelihood of price and production volatility facing 2021 we propose a slightly smaller but still significant cash distribution of SEK 4 per share or MUSD 15, before any buybacks.

We will remain vigilant in 2021, but for the longer run we remain unreservedly optimistic. We believe there will be a market for our product for numerous years yet and we aim to be better than many in supplying that product. That is why we will increase our exploration efforts in 2021 and fund significant work programmes on our operated Blocks 56 and 58. Blocks 3&4 should see some significant exploration wells drilled in 2021 and our focus on Block 56 will be to evaluate the production potential of the Al Jalmud trend into production while assessing and firming up the significant exploration potential of the central parts of Block 56. But first and certainly not least we look forward to the result of the Thameen well on Block 49 expected before the end of February!

So stay with us. As the world will emerge from the shadows of Covid-19 Tethys Oil will stand ready to meet the demand for oil and natural gas in the most efficient and environmentally friendly way we can. We expect Blocks 3&4 to continue to provide the backbone of our production and cash flow for the coming years and we are getting into a position to be ready to grow by an order of magnitude should some, let alone should all, of our exploration efforts be successful!

Stockholm, February 2021

Magnus Nordin,
Managing Director

Conference call
Date: 9 February 2021
Time: 10.00 CET

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