Dear friends and investors,
The second quarter 2020 will stand out as an extraordinary quarter in many ways and for a long time to come. For Tethys the principal focus has been to ensure the safety and wellbeing of all our co-workers and partners and maintain an operational momentum as close to normal as possible.
I am extremely pleased and grateful to be able to report that both goals were successfully achieved! And despite the difficult environment caused by the pandemic, we also managed to stay cash flow neutral during the quarter. However, we are fully aware that the situation has not returned to normal, and we maintain a high readiness to be able to continue safe and efficient operations in this surreal world.
At the onset of the quarter it was by no means obvious that either of the aforementioned goals would be achieved. But thanks to the strong dedication from all Tethys people we managed to stay safe and continue operating almost as usual, but under quite unusual circumstances. The operator of Blocks 3&4 managed to deliver functioning operations meeting all safety and production goals while implementing a rigorous anti-covid-19 regime in the field. Our host country, the Sultanate of Oman, implemented strict health measures while managing to assure that the oil sector could continue to function. I would here like to express our thanks and gratitude to both for these outstanding achievements.
Turning to the financial situation, we note with satisfaction that the impact of the fall in oil price was mitigated by cost reductions and deferral of investments. Towards the end of the quarter, oil prices rebounded somewhat following the gradual restoration of demand and responding to the large production cuts effected by the OPEC+ group of oil producers. The OPEC+ agreement has also affected Tethys and in April, after being informed by the operator that our production would be subject to limitations, we subsequently elected to suspend our financial and production guidance for the year. Average production for the second quarter 2020 came in lower than the previous quarter, but we still reached a healthy 10,600 barrels per day. And while the limitations remain, our production is likely to fluctuate on a monthly basis.
Thanks to the rapidly implemented investment deferrals by the operator for Blocks 3&4, we expect our capital expenditures to significantly come down for the remainder of the year, which coupled with the recovering oil price should leave us in a rather comfortable financial situation going forward. Even after a distribution of over MUSD 17 to our shareholders during the quarter, our balance sheet remains strong with MUSD 60 of cash.
Some of that cash will be put to use in our exploration efforts and not the least in our new Block 58. This Block borders our other operated Block 49 and holds some very interesting geological features that hopefully will translate into oil fields in the not too distant future. But we will do the work by the book. We will start by reprocessing, integrating and further interpreting existing seismic. This will increase our understanding of the block in general, but also aim to firm up the promising leads already identified. When the initial work is completed, we will address the further work programme, which includes the drilling of at least two exploration wells.
Other parts of our cash will go to drill an exploration well on Block 49. We are in final negotiations with several rig contractors and are confident we will drill before the end of the year.
On Block 56, where we hold a non-operated 20 percent interest, we have started the initial planning of a possible new seismic campaign.
While we expect to increase our exploration investments going forward, we will of course continue to look for opportunities to distribute cash to our shareholders.
So stay with us, we offer the opportunity of substantial growth from our promising portfolio of Omani exploration assets Blocks 49, 56 and 58 on top of the solid base provided by Blocks 3&4.
Stockholm, August 2020