Fourth quarter and year-end report – 31 December 2019
Fourth quarter 2019 (third quarter 2019)
- Record Production from Blocks 3&4, Oman, at 13,475 bopd (13,053 bopd)
- Record Reserves at year-end 2019 (see below)
- Revenue and other income of MUSD 36.2 (MUSD 40.7)
- EBITDA of MUSD 21.3 (MUSD 26.6)
- Net result of MUSD -0.3 (MUSD 14.9)
- Earnings per share amounted to USD -0.01 (USD 0.44)
- Exploration cost of MUSD 8.0 (MUSD 0.0)
- Blocks 3&4: Net entitlement 48 percent (52 percent) following the full recovery of the historic cost pool in the third quarter
- Blocks 3&4: Two exploration wells drilled and tested
- Block 56: Testing of three exploration wells ongoing
- Block 49: Preparations for exploration well proceeding
Reserves and Contingent Resources
- 2P internal reserve replacement ratio of 116 percent
- Year-end 2019 2P Reserves of 26,112 mbo and 2C Contingent Resources of 13,458 mbo
Dividend & Distribution
- The board of directors proposes an ordinary dividend of SEK 2.00 per share (2019: SEK 2.00), to be paid in two instalments of SEK 1.00 per share each in May and November 2020
- The board of directors proposes an extraordinary distribution of SEK 6.00 by way of a mandatory share redemption programme following the 2020 AGM (2019: SEK 6.00)
|MUSD (unless specifically stated)||Fourth quarter 2019||Third quarter 2019||Fourth quarter 2018|
|Net daily production from Oman, Blocks 3&4 before government take (bbl)||13,475||13,053||11,898|
|Net barrels produced, after government take (bbl)||592,164||624,433||569,177|
|Net barrels sold, after government take (bbl)||449,073||635,947||542,596|
|Average selling price per barrel, USD||61.4||65.4||77.9|
|Revenue and other income||36.2||40.7||44.4|
|Earnings per share (after dilution), USD||-0.01||0.44||0.58|
|Investments in oil and gas properties||26.2||14.5||16.2|
|MUSD (unless specifically stated)||Full
|Net daily production from Oman, Blocks 3&4 before government take (bbl)||12,832||11,767|
|Net barrels produced, after government take (bbl)||2,383,086||2,233,323|
|Net barrels sold, after government take (bbl)||2,259,849||2,163,148|
|Average selling price per barrel, USD||64.2||70.5|
|Revenue and other income||150.8||157.3|
|Earnings per share (after dilution), USD||1.12||1.82|
|Investments in oil and gas properties||65.2||55.8|
Letter to shareholders
Dear Friends and Investors,
To start, we would like to offer our sincere condolences to the people of our host country Oman for the loss of Sultan Qaboos bin Said, peace be upon his soul. Sultan Qaboos passed away on the 10th of January after having governed for 50 years, an era of immense progress for Oman. He will be greatly missed. He has been succeeded by his cousin Sultan Haitham bin Tarik, whom we wish every success in continuing to lead Oman on the path towards happiness and prosperity.
Looking at Tethys Oil’s operation and our progress in 2019 it is a delight to report the operational numbers for the fourth quarter and the full year 2019. We have produced more oil than ever before, on average 12,832 bopd which is nine percent higher than in 2018. In the fourth quarter, we produced even more and reached an all-time high of 13,475 bopd. Our strong cash generation continued in 2019 and we ended the year with net cash of MUSD 75.1. And reflecting the strong operational and financial position of Tethys Oil, the board of directors is repeating last year’s proposal of a distribution to shareholders of SEK 8.00 per share through dividend and extraordinary distribution.
We are also delighted to report our highest reserve numbers ever, and an increase in 2P reserves for the eighth consecutive year. At the end of 2019, 2P reserves stood at 26.1 million barrels, with the 2P reserves replacement ratio reaching 116 percent Our main asset, Blocks 3&4 continues to deliver solid results!
Financially, the higher production was offset by a decrease in oil prices by nine percent. Despite that, for 2019 we report revenues and other income of MUSD 150.8 almost in line with 2018. Our EBITDA for the year amounted to MUSD 92.9, the second highest we have ever had. Our revenues and EBITDA dropped in the fourth quarter, mainly as a result of lower oil prices, higher operational expenditures and slightly lower entitlement.
The record production in the second half of 2019 has resulted in Tethys Oil reaching the point where all historic capital investment has been recouped, resulting in our net entitlement from the oil production reducing to 48 percent in the fourth quarter. This drop in entitlement marks perhaps the second most important milestone of any upstream oil and gas development; the first milestone being the selling of the first barrel of oil. From the first geological study through early speculative seismic and the first tentative exploration well, the early production system, the building of pipelines and facilities until the establishment of a permanent commercial production stream – all the costs for those investments have now been recovered, this is further evidence of the project’s quality and profitability. Future investments, depending on production and oil prices levels, can now be recovered faster and any cost cutting will go straight to the bottom line.
The outlook for 2020 remains strong with continued high production levels in the range of 12,600 to 13,400 bopd expected from Blocks 3&4 as well as increased exploration activities on the Blocks. Following the somewhat disappointing exploration drilling results in 2019, with unsuccessful flow tests from three wells in the fourth quarter, a full rig year will be dedicated in 2020 to drilling exploration and appraisal wells. The seismic acquired in 2019 is being interpreted and new seismic is being collected so that by the end of 2020 we expect more than 80 percent of the most prospective areas of Blocks 3&4 will be covered by high resolution 3D seismic.
Considerable efforts to further upgrade infrastructure and optimise production capabilities will continue in 2020. The implementation of a pilot ‘gas to electricity’ project at the Shahd production facility is particularly notable. This project is a first step in planning and evaluating a comprehensive gas project that aims to lower flaring and cut diesel consumption used in power generation. It will be important in optimising fluid production, cutting operating costs, and perhaps most importantly, in reducing the ‘carbon footprint’ of Blocks 3&4.
For 2020 we expect investments on Blocks 3&4, Block 49 and Block 56 to amount to MUSD 64-71. We do also foresee operating expenses of USD 11.5 per barrel in 2020. The opex is somewhat higher than in fourth quarter 2019 and average for 2019, and is primarily related to a transition to a higher proportion of local staff and broadening of technical capabilities. Based on the envisaged production, investments, operating costs, and with an assumed oil price of USD 60 per barrel, we expect our 2020 production entitlement to be between 51-52 percent, albeit with quarterly variations. Any increase in oil price or production levels could result in costs being recovered more quickly and the entitlement volume dropping, but with a positive cash flow effect.
So, to summarise Block 3&4: It is now a fully repaid cash machine with remaining strong exploration potential to enable stable to growing production and continued reserves increase.
After more than 10 successful years on Blocks 3&4, we are happy to also look outside these Blocks to our 100 percent held exploration Block 49 and our newly acquired (though subject to final government approval) 20 percent interest in Blocks 56.
Block 49 is pure exploration, meaning it could create substantial value if hydrocarbons are found or it may turn into nothing. We have so far defined one drillable prospect, for which we are actively seeking a drilling rig. Drilling activity is, however, high in Oman, with a tight rig market, but we are working as hard as we can to secure a rig. And while we wait for a rig, geological and geophysical work continues on Block 49 and we hope to define further prospects for future work irrespective of the outcome of our first well.
In Block 56 the operator is busy carrying out the planned work programme of testing a number of previously drilled wells. We hope to be able to return to the result of the well testing, and what the future plans for this potentially very prolific block will be in a near future.
So, stay with us – I hope it’s clear why!
Stockholm, 11 February 2020
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
Date: 11 February 2020
Time: 10.00 CET
To participate in the conference call, you may choose one of the following options:
Link to webcast: https://edge.media-server.com/mmc/p/hf5hvex6
To participate via phone, please call:
Sweden: +46 8 566 426 51 / PIN: 62128236#
Switzerland: +41 225 809 034 / PIN: 62128236#
UK: +44 333 300 0804 PIN: 62128236#
United States (Toll-Free): +1 855 857 0686 PIN: 62128236#
This information is information that Tethys Oil AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation and the Securities Markets Act. The information was submitted for publication, through the agency of the contact person set out above, at 7:30 CET on 11 February 2020.