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Tethys Petroleum: A Growing Oil Producer Trading Below Book Value

July 26, 2014 | About:
maarnio

maarnio

2 followers

1 The Company

Tethys Petroleum (TETHF) is engaged in the acquisition, exploration, and development of crude oil and natural gas fields primarily in Kazakhstan, Tajikistan, and Georgia.

Number of shares (March 31, 2014)

299,577,744

Number of options (March 31, 2014)

33,827,400

Number of warrants (March 31, 2014)

2,202,538

Fully diluted number of shares

335,607,682

Share price

$0.33

Market cap

$98.5 million

Enterprise value

$85.9 million

P/S

2.8

P/B

0.5

Tickers

TETHF,TSX:TPL

1.1 History

Tethys was formed on August 12, 2003. The company had its IPO on June 27, 2007. Tethys commenced commercial gas production in December 2007 from its initial production project in the Kyzyloi Field in Kazakhstan.

1.2 Business Model

Tethys' objective is to build a diversified oil and gas exploration and production company with a mixture of oil and gas field development projects and long-term high potential exploration projects focused on the Central Asian and Caspian Region.

1.3 Assets

Tethys has projects in the Republic of Kazakhstan, Republic of Tajikistan and Georgia.

nimetön.png

(Source: Tethys)

The company has proved reserves of 14.1 MMboe in Kazakhstan and 10,928 MMboe in global resources.

nimetön.png

(Source: Tethys)

2 Management

The CEO Julian Hammond was Deputy CEO from February 2011 until July 2012 when he took over as CEO. Collectively, Tethys’ management team has over 130 years of industry experience.

2.1 Insider Ownership

Tethys’ directors and executive officers own 0.6% of the company.

Here is a table of Tethys’ insider activity during the last 30 days.

Name

Title

Trade Date

Shares Purchased

Current Ownership

Increase InShares

Julian Hammond

CEO

June 26

50,000

325,000 shares

+18.2%

William Wells

10% Owner

June 30-July 23

215,822

58,549,150 shares

+0.4%

There have been 265,822 shares purchased by insiders during the last 30 days.

Here is a table of Tethys’ insider activity by calendar month.

Insider buying / shares

Insider selling / shares

July 2014

115,822

0

June 2014

2,838,554

216,000

May 2014

2,380,769

180,000

April 2014

0

276,000

March 2014

0

0

February 2014

0

0

January 2014

184,385

20,000

December 2013

0

412,385

November 2013

200,000

22,000

October 2013

0

0

September 2013

14,000

174,450

August 2013

120

0

July 2013

11,393

0

June 2013

0

212,957

May 2013

12,000

215,700

April 2013

0

0

March 2013

0

139,200

February 2013

25,000

0

January 2013

0

195,500

There have been 5,782,043 shares purchased and there have been 2,064,192 shares sold by insiders since January 2013.

2.2 Compensation

Here is a table of the management’s compensation during the last three years.

nimetön.png

(Source: Management information circular)

The management’s total compensation has declined during the last three years.

3 Operating Summary

Here is a table of Tethys’ annual oil and gas production since 2010.

Year

Oil production (bopd)

Gas production (boe/d)

Oil & Gas production combined (boe/d)

2010

1,866

4,292

6,158

2011

2,861

3,508

6,369

2012

2,869

2,287

5,156

2013

2,778

2,044

4,822

The oil production has increased 49% since 2010 and the gas production has declined 52% since 2010.

4 Financial Summary

4.1 Current Situation

Tethys reported the first-quarter financial results on May 15 with the following highlights:

Revenue

$6.8 million

Net loss

$4.9 million

Cash

$13.7 million

Debt

$6.7 million

Production

4,025 boe/d

Tethys raised $15 million on May 14.

nimetön.png

(Source: Earnings release)

Oil production declined 37% year-over-year and gas production increased 16% year-over-year during the first quarter. Oil production is currently at approximately 2,750 barrels per day.

4.2 Historical Developments

Here is a table of Tethys’ revenue and earnings since 2007.

Year

2007

2008

2009

2010

2011

2012

2013

Revenue ($ millions)

0.2

5.4

8.6

14.7

30.3

33.6

36.9

Net loss ($ millions)

41.8

22.6

21.7

29.6

27.0

20.9

17.6

EPS

-1.26

-0.40

-0.20

-0.15

-0.10

-0.07

-0.05

Tethys’ revenue has increased 18,350% since 2007, and the negative earnings per share have decreased every year.

5 Shares

Here is a table of Tethys’ number of shares since 2007.

Year

2007

2008

2009

2010

2011

2012

2013

Number of shares (millions)

33.3

56.0

134.6

260.6

286.7

286.7

299.6

Tethys’ number of shares have grown 800% since 2007, but the revenue has grown 18,350%.

6 Outlook

Tethys’ goals in the short term are to:

  • complete the conditional sale of 50% (plus one share) of the Kazakh assets
  • carry out the shallow gas exploration and development programme in order to significantly increase natural gas production
  • secure appropriate funding, as required
  • fully appraise the Doris and Dione oil field discoveries in the Akkulka Block, Kazakhstan
  • continue exploration drilling and evaluation of the Akkulka and Kul-Bas licence blocks in Kazakhstan
  • explore and develop new licences in Georgia
  • develop the Tajik Bokhtar PSC together with the company’s new partners

7 Risks

The three main risks are negative earnings, country risk, and the oil and gas prices. Tethys’ all assets are located in the former Soviet Union countries, which carry some extra risk. Tethys is also a penny stock.

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8 Conclusion

Tethys is currently trading at a P/B ratio of 0.5. I believe the stock could have at least 100% upside potential during the next 12 months.

Disclosure: The author is long TSX:TPL

About the author:

maarnio
I have 15 years of investing experience. I have traded stocks, commodities and Forex markets.

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