Tethys Oil AB: Fourth quarter and year-end report - 31 December 2017
· Production amounted to 11,726 bopd (12,354 bopd)
· Revenue of MUSD 30.1 (MUSD 28.5)
· EBITDA of MUSD 19.7 (MUSD 18.2)
· Net result of MUSD 11.0 (MUSD 4.8)
· Earnings per share amounted to USD 0.32 (USD 0.14)
· Exploration well Samah-1, drilled 5 km south of the Ulfa discovery, had good oil flows to surface
· Exploration well V-1, targeting testing the Amin formation, did not encounter hydrocarbons
· Award of Block 49, onshore Oman, as operator
Reserves and Contingent Resources
· Year-end 2017 2P Reserves of 22,044 mbo and 2C Contingent Resources of 17,264 mbo
· 2P internal reserve replacement ratio of 114 percent
· The board of directors proposes an ordinary dividend of SEK 2.00 per share (2017: SEK 1.00), to be paid in two instalments of SEK 1.00 per share each in May and November 2018
· The board of directors proposes an extraordinary distribution of SEK 4.00 by way of a mandatory share redemption programme following the AGM 2018
|MUSD (unless specifically stated)||Fourth quarter 2017||Third quarter 2017||Fourth quarter 2016|
|Net daily production before government take (bbl)||11,726||12,354||12,268|
|Net barrels sold, after government take (bbl)||617,577||568,796||583,772|
|Average selling price per barrel, USD||53.9||48.6||46.0|
|Result for the period||11.0||4.8||1.5|
|Investments in oil and gas properties||8.2||4.1||15.0|
|Earnings per share (after dilution), USD||0.32||0.14||0.04|
|MUSD (unless specifically stated)||Full year 2017|| Full |
|Net daily production before government take (bbl)||12,261||12,235|
|Net barrels sold, after government take (bbl)||2,316,404||2,357,701|
|Average selling price per barrel, USD||51.8||40.5|
|Result for the period||33.1||2.7|
|Investments in oil and gas properties||40.4||48.5|
|Earnings per share (after dilution), USD||0.96||0.08|
Letter to shareholders
Dear Friends and Investors,
2017 turned into quite a successful year for Tethys Oil, with considerable success not least achieved within one of the most important activities of our industry - exploration and resulting discoveries. In 2017, we discovered significant amounts of oil in new structures near our producing fields in Blocks 3&4. The Erfan, Ulfa and Samah discoveries are all undergoing long term production tests and thus already contribute to our production. These three discoveries have added more than 17 million barrels of 2C contingent resources and the majority of some five million barrels of 2P reserves added in 2017. The increase in 2P reserves represents an internal reserve replacement ratio of 114 percent. A major focus for 2018 will be to complete the appraisal programmes on these discoveries and develop them into new oilfields and in the process mature the resources into reserves.
And we are hopeful success will breed success. The three discoveries give strong support to our so far identified leads and prospects. In the area just east of the Ulfa discovery, we have some ten leads which will be evaluated by the ongoing 3D seismic study covering 1,200 km2. Naturally we hope to mature the majority of these leads into drillable prospects.
2017 was a year with focus on exploration and appraisal. In addition to our three successful exploration wells, we also put five previously undrilled fault blocks on the Farha South field and one previously undrilled structure on the Shahd field into production.
We also produced 4.48 mmbo in 2017, very much in line with the 4.48 mmbo we produced during 2016. So production year on year remained stable. A number of factors have affected the production during the year. Besides technical factors, also Oman's participation in the OPEC production restriction agreement. An increase in average realised price per barrel of 28 percent compared to 2016 contributed to our revenue growth of 37 percent to MUSD 119.3. Our EBITDA increased even more in 2017, 78 percent, and amounted to MUSD 78.2.
In late 2017, our scope of operations increased when we as operator were awarded a new exploration license in Oman. Block 49 covers an area of 15,439 km2 with known oil shows in the south western part of the country at the Saudi Arabian border. We are looking forward to exploring this part of Oman.
We entered into 2017 with Brent oil prices at about USD 55 per barrel. During the first half of the year, prices were weak but since June, when the price briefly fell below USD 45 per barrel, the oil price has shown considerable strength and ended the year at USD 67 per barrel. Our average selling price for 2017 amounted to USD 51.8 per barrel, an increase of 28 percent compared with 2016.
Fourth quarter in focus
We produced 1.08 million barrels of oil in the fourth quarter 2017, corresponding to 11,726 barrels of oil per day. Fourth quarter 2017 production was lower than both the average for the year and the third quarter. The production in the last quarter 2017 was impacted by a number of factors, mostly related to mechanical upgrades and repair and upgrade of downhole pumps and repairs and upgrades of surface components. A shortage of workover capacity also led to wells being shut in longer than planned. Both reserves and production have also been affected by a lower than expected production from part of the Shahd area which has not responded as well as expected to water injection.
The lower daily production during the quarter was more than offset by the higher oil prices. Our average selling price in the fourth quarter amounted to USD 53.9 per barrel, an increase of 11 percent compared with the third quarter. For the quarter, we report revenues of MUSD 30.1, up 6 percent compared with the third quarter. Our EBITDA amounted to MUSD 19.7, up 8 percent compared with the third quarter. For the fourth quarter 2017 cash flow from operations after investments in oil and gas amounted to MUSD -3.7, and our net cash position decreased from MUSD 47.5 to MUSD 42.0 following payment of MUSD 14.7 relating to costs previously not cash called. Our operating expenses per barrel amounted to USD 8.4, slightly higher than in the third quarter. The result for the period amounted to MUSD 11.0, up 129 percent compared with MUSD 4.8 in the third quarter.
The production guidance for 2018 is a monthly average production of between 11,000-13,000 barrels of oil per day.
We expect the bulk of 2018 production to continue to come from the established Farha South, Shahd and Saiwan East fields, however with increasing decline from the older wells in these fields. 2018 production will also be affected by ongoing upgrades and improvements of field infrastructure as well as continued well workover and repair work. Production from the new discoveries will have a positive impact. Production from the appraisal programmes and long term production tests of the Erfan, Ulfa and Samah will contribute to 2018 and we would expect future production from the discoveries to account for an increasing share of overall production. Production may from time to time also be impacted by the OPEC production quota arrangement.
Reflecting the strong operational and financial position of Tethys Oil, the board of directors is proposing an ordinary dividend of SEK 2.00 per share, which is an increase of 100 percent compared to the ordinary dividend during 2017. Further, in line with Tethys Oil's long term capital structure target, the board of directors is proposing an extraordinary distribution of SEK 4.00 per share.
In 2018, Tethys Oil expects investments in Oman to amount to MUSD 53-62, the bulk of which will be spent on Blocks 3&4. The work programme will of course include the appraisal of the discoveries and the new seismic area as well as further exploration wells. Included is also upgrading of the infrastructure and production drilling on the older fields. On Block 49 work has commenced but, at least initially, at a lower pace than on Blocks 3&4.
2017 turned out to be very successful and offers great promise for the future. Let hope we can realise some of those promises in 2018 and find even more 'promise' for the future!
So stay with us, it seems the 'spark' is back in the oil industry.
Stockholm in February 2018
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
Jesper Alm, CFO, phone: +46 8 505 947 00
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 13 February 2018.
Date: 13 February 2018
Time: 10.00 CET
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