Dear Friends and Investors,
The year and the quarter ended on a stabilizing and promising note; however, the overall outcome of 2023 could have been better.
Production from Blocks 3&4 stabilised during the 4th quarter at nearly 8,400 bopd giving an overall average of close to 8,800 bopd for the year. We have invested significantly in the Blocks in 2023, not only to make up for the lost time and lower investment during the pandemic years 2020-2021 but also as an affirmation of our long-term belief in the potential in the Blocks. Two such notable long-term investments are the 3D seismic acquisition and Gas-to-Power project.
The Gas-to-Power project aims to reduce routine flaring of the associated gas produced on Blocks 3&4. Instead, the gas will be used as a power source to generate electricity for the production facilities and downhole pumps in the field. This will remove the need for the use of diesel generators which today make up a substantial part of the field’s emissions. The project is a major milestone in improving Tethys Oil’s environmental footprint and a significant investment. To date the company has invested more than MUSD 15 and expects to invest a further MUSD 10 before the end of 2024. A substantial part of these investments is expected to be recouped through lower operating expenses – which we expect to realise towards the second half of 2024.
The major seismic campaign to cover the entire central part of Blocks 3&4 that has been ongoing for several years will be completed in 2024. A significant investment of MUSD 6 in 2024 (MUSD 11.6 in 2023) that we expect will bear fruit in the coming year’s exploration activities. With these major projects completed the operator projects both lower operating and capital expenditures in the years beyond 2024.
We have yet to see the effects of the investments on the reserves and production on Blocks 3&4, but we feel confident that this will soon be the case. In the near term, however, the book value of Oil and gas properties has grown to a level which is not yet reflected in its current performance, and we have thus made an impairment test resulting in an impairment. After the impairment the carrying value of the asset is still an impressive MUSD 190, in line with its historical level and significantly above our current market capitalisation. This value is no less impressive given that the value does not reflect the many upsides which we expect the coming year’s exploration and appraisal activities will unlock, not least with the latest state-of-the-art 3D seismic in our possession. Let’s not forget that Blocks 3&4 is an asset that has confounded sceptics many times in the past with its hidden treasures.
On Block 58 we are fast approaching the moment of truth with the drilling of the first exploration well in the Fahd area, Kunooz-1, expected to commence before the end of the first quarter.
Our operations on Block 56 have seen continuous activity in the past year with the Extended Well Test proving the productive capacity of the Al Jumd discovery, producing over 60,000 barrels gross, 332 bopd from only two wells. The quest to turn the Eastern Flank trend into our next producing field continued at the end of the fourth quarter with a return to Sarha-3 for a workover and the drilling of the Menna-1 exploration well further south in the trend. Both wells have encountered hydrocarbons across multiple zones and we are looking forward to testing which will commence imminently.
The upcoming test results from Menna-1 and Saraha3 will be important data points for the field development plan for Block 56 which is currently in progress. A number of important key metrics are being established such as production potential, the reserve and resource base, as well as an assessment of the overall prospectivity of the Block.
Our asset portfolio remains highly promising and with many moving parts. The level of activity is such that our board of directors has elected to defer the decision on shareholder distribution for now and decided to review our asset portfolio composition to make sure we are optimised to deliver on our best opportunities. These are exciting times if also somewhat trying.
So, bear with us, and stay with us. 2024 promises to either be flat or the vigorous start of a new growth phase, led by the commercialisation of Block 56 and of course if the Fahd exploration well on Block 58 is a success…
Stockholm, February 2024
Magnus Nordin
Managing Director