Tethys Oil AB (publ)

Good morning, ladies and gentlemen, and most welcome to this review of the Tethys Oil second quarter 2024. We have quite a lot to talk about and some actually rather positive numbers to review. So let's get going. First, speaking of reviews, we announced a strategic review of our portfolio in February. That has been ongoing and has generated a number of interesting questions and interesting ideas for the board to review. That's in parallel to running all the business as usual, of course, which is also showing strong progress with the Block 56 Field Development Plan submitted in early June. The Block 58, first well, the Canoes 1 rig is finally on site, being inspected. We expect spurts within the next week. And on Blocks 3 and 4, we are starting to see good progress both on the implementation of the gas to power project, but also on its impact on the operating costs. Production from three and four, which remains our only commercial production until we have the commerciality on block 56, came in at 7,688 barrels per day for the quarter. That's down a bit from the first quarter. We should, however, remember that that was severely impacted by some quite extreme weather conditions in both April and May. Revenue, pretty stable. EBITDA up a bit, but more encouraging and actually quite significant. Cash flow from operations increased from six to nine, almost $20 million for the quarter. And we started building a cash on our cash pool again from the low of $14.9 million cash in the bank by the end of the first quarter we now come above $18 million for the second quarter. Both these are strong indicators that things are moving in the right direction. We've also signed a loan facility agreement with Abu Dhabi Commercial Bank. and for $60 million, and this is a facility that we can use if needed, and it gives us the necessary ability both to continue the strategic review from a position of optionality and also, of course, to make sure that we can fulfill all our commitments and the ongoing commitments in the various blocks. Turning to the first point here, the strategic portfolio review, Let me first remind you what we are talking about. This is the Sultanate of Oman, and the blue areas are the ones where we are partners. We have 30% in blocks three and four, our commercially producing assets. We have 65% in block 56, where an FTP has been submitted, and we hope to have commercial production or commerciality very shortly. 58, where we have 100%. and where we are starting to drill a well within the next week or so. And we have 49 where we have drilled a well that is undergoing some review for a block that we still believe can be quite prospective. It's the Rub al-Khali Basin in Oman, completely different to what else we have. But we do believe there is both conventional and possibly unconventional potential in that block. When we started the review, we noted that we did not really see that we had full values for what we have on our balance sheet, and we felt a bit misunderstood from the capital markets what we are trying to do and also the asset values we are dealing with. We've been pursuing this Omani strategy for several years now, where we are trying to take what we've learned from Blocks 3 and 4 and apply that to other parts of Oman, in particular areas where what we've learned from three and four can be an advantage to unlocking potential overlooked by others, just as three and four was such a case from the beginning. We conducted a successful long-term production test on block 56, which has now brought us to the FTP situation, the field development situation. While we were affected by sinking production from three and four, which didn't really see any clear turnaround signs. So we wanted to see what would possibly be out there. We have been assisted by the eminent investment bank Jeffries Financial Group as advisors to the board. And we have come up with a number of interesting opportunities and ideas for the board to review. This will continue. We want to make sure that we do the right thing, and we also want to make sure, of course, that we have the best possible understanding of what's in our portfolio, ranging from the non-operated 3 and 4 through the operated and soon hopefully commercial 56 and for the now upcoming well, high-profile well, I should say, on Block 58. The portfolio review will continue. And of course, if there are any updates, we'll let you know. And in parallel, do follow us for what's happening on the quite exciting milestones to come about, in particular, 56 and 58 in the near term. The loan facility has been signed. It gives us up to $60 million of credit to guarantee that we can fulfill our commitments. that we also can evolve and continue the work that we want to do on our blocks. It's a five-year, 60 million facility. And now it's a facility we can draw on it if needed. We don't have to draw on it if we don't need it. It also shows that the banks at least believe that we do have some strong value in our asset portfolio. And, of course, then in particular in the producing blocks three and four. PETA, our CFO, will give you more detail on this facility later in the call. But the ongoing strategic review, the loan facility, are important pillars for how we continue to evolve. Turning to the production of Block Stream 4, our main cash flow stream. You've seen production come down, and really not until the end of the first quarter this year did we start to see a stabilization. Then we were hit by rain, severe rain in the mountains surrounding the flat plains where the production from 3 and 4, in particular Box 3, was situated, which caused some flooding. which caused the shutter in both the facilities, but in particular a number of wells, and they are not fully up and running yet. We saw a lot come back in June, but we are still running at reduced capacity in the field. The operator is confident this will be rectified early in the third quarter, and we would expect to see a fairly strong second half of the year. Turning to three and four, these are vast blocks. The producing areas are the Farah South field and the Shahad fields with the surrounding areas, these are Wan and Ulfa, Erfan fields. We have discoveries in the south of block four, the Jari one in particular. Massive seismic has been shot to the tune of close to $100 million growth over the last years. We are now in the western part of Block 4, where we're almost done. The seismic survey is about 95% complete. This is, of course, something that will have an impact on the CAPEX going forward when the seismic is completed. And in particular, we will have a complete inventory for the remaining potential on Blocks 3 and 4. We've also seen from the development well drilled and the appraisal well drilled over the quarter that the far south field continues to outperform, whereas the carbonates in Shahad and in Block 4 are much more fickle and more difficult to predict. But with that knowledge and understanding, the joint venture's understanding of the producing areas, is continue to strengthen. And that also gives us confidence that we will see a stabilization on the production side from three and four for the rest of the year. And we have tweaked our guidance a little bit. Petra will deal more with this later today. But we are still quite confident that we will come in around the 8,000 burners of oil per day for the full year for Tethys. which coupled with the good oil prices we've had so far and what would be also the oil prices we have locked in through the pricing mechanism for the third quarter suggests a strong third quarter on top of the strong second quarter we've already had. Returning to what is maybe more for the future and the immediate future, the Block 56. A geologically interesting block that covers both the eastern flank of the Omani salt basin, the main producer in Oman, and also the central area of the block, which is sort of between the tertiary basin coming in from the ocean and the salt basin petering out into the highs of the Block 56. We are quite close to infrastructure, as you can see. To the left on the block, we have the Karim field area in production for a good 15 years now with ample infrastructure. We are simply a continuation of that play, the eastern flank play. You can see from the next slide here, which is the seismic cross section, how the eastern flank truncates towards the Hug of Rich, creating one large pinch out where the oil migration comes from the central parts of the salt basin and moves towards the Hug of Rich where it comes to a stop. And this is, of course, the main basis for our interest in Block 56. We've already seen, and I think we've done about some 15 wells have been drilled on block. All but one have encountered oil. A very similar situation to what we had in blocks three and four now more than 10 years ago. Lots of oil, unclear how the distribution, quality, and trap mechanism. And that's, of course, what we have put in a lot of work to try to understand that. That's taken us as far as to the field development plan, which is the initial development for the known discoveries on 1956. We will, of course, continue the exploration first on the eastern flank between the Hook of Rich and the Block Boundary, but then also in the Tertiary Basin to the right on this slide, where we have some quite interesting leads and also a completely different petroleum system suggesting both different oil qualities and also different reservoir mechanisms. In the eastern flank, what we're looking at now, we are primarily in shallow plastics and slightly deeper carbonates, whereas the tertiary basin part is, we are looking more at block three and four lookalikes, the older rocks being charged by newer oil from the tertiary basin. Zoom in on the eastern flank. We see the extension of the KSF trend as it truncates towards the hook of arc. And all we have had some good tectonic activity, a lot of trapping. But we are also indications of stratigraphic traps here that we would expect to be considerably larger than what we have seen from the structural traps. The structural traps have proven sufficiently well understood and sufficiently large to suggest commerciality for the block with the FTP that we have submitted. It's pretty uncomplicated from a technical perspective. We have the small rig here that we used to drill the well in December, January. And we have the pumps and the rudimentary but quite sufficient production facilities and tanks in the Aljumd area. This one is the Aljumd 2 well. Aljumd is the first structure that was drilled here, the first discovery on the block, which we have appraised and put on test. So we produced some 60,000 barrels. Aljumd is the first part of the field development plan. And what we hope to do is, of course, to open up the shut-in wells. in the aljumd area, and then drill additional wells while also having a comprehensive drilling program on the additional discoveries. We can simply turn to the next slide. And the field development first part covers the aljumd, sarha, and minna discoveries. They will form the basis. And then there will be continued appraisal and exploration along the more than 12 leads that we have identified along the eastern flank, while of course firming up the leads in the tertiary area and what we call the central area of the bloc. The FTP was submitted in early June and we have an ongoing dialogue with the ministry to have it approved as soon as possible. Some additional color, as you can see also in this part. It's quite flat. It's a stony area, not many sand dunes. It's quite easy to work here. And we are considerably closer to the ocean than we are in Blocks 3 and 4. But the surface conditions are optimal for running an oil field. Turning to 58, a block that we've had since 2020. What enticed us originally was the Vahad structure. We have firmed it up from a lead to a prospect. We have done seismic over the South Lahan area, which in itself is a completely separate play, which is really analogous to the oil fields you see in block six, just to the right of the boundary line. Lahan will be the subject of further exploration after we are done with the Fahad area. Fahad is large. We are looking at a Canoes 1. It's actually targeting 120 million barrels of unrisked prospective resources. Well mapped on the surface. I think we are quite confident that the structure is there, the trap is there. It's a well-defined prospect. We are primarily hopeful that we will have oil in the carbonates, the Buha and the Hufai, which are exactly the same rocks that we produce from Block 4 in the Block 3 and 4 area. One of the main risks here is certainly reservoir. As we know from three and four, these carbonates can be quite fickle. We don't have any wells into these carbonates in this part of Oman. We believe we have a good understanding both of the depositional environment and of the migration system. So I think we are quite confident we will find something And the main risk, I'd say, is the reservoir quality. We hold the chance of success to be just under 20%. But with a potential of up to 120 million barrels, I think we can safely say that this is one of the most interesting wells to be drilled in Oman this year. It's not expected within the next week or so. Docs three and four, apart from the ongoing oil production, There's also been an environmental initiative, the Gas to Power Project, where we use associated gas to convert that into electricity, saving both on the occasional flaring of the gas, but more importantly, on the import of diesel to cover the electricity supply for pumps, et cetera. This will have a double impact, both in getting the carbon footprint down, duly so, from less flaring and less diesel consumption, but also getting the OPEX down from the less use of diesel. So we are quite happy with the operator for having delivered this so far and for phase two now moving on. On that note, I would like to hand the floor to Petter for the more detailed look at the financials and our loan facility. And as I said, the financials are better than for many a quarter. Petter, please.

Thank you, Magnus. Yes, indeed, it's a pleasure to present these financial numbers in the second quarter 2024. Revenue-wise, it was stable versus the previous quarter. as the higher oil price offset slightly lower production. But the improved profitability and cash flow came as a result of lower expenditure, both operating expenditure and capital expenditure, as we'll get into in a while. And we ended the quarter with $18 million in cash compared to 50 in the previous, and that is the first quarter since Q3 2022 where we had an improving cash position. We continue to operate at full net entitlement at 52% for blocks three and four, as we have used the full cost allowance given to us under the PSA terms. And after several quarters of underlift, we in this quarters had an overlift of 23,000 barrels with an ending position of a slight overlift position. of about 2,300 barrels. And that has significance for our cash flow in the quarter. Operating expenses is one of the bright points of this report, I would say. Operates per barrel improved sequentially from $20 to $18 per barrel as a combination of seasonality and cost savings kicked in in the second quarter. And in particular, we can see some cost savings and operator overheads and workovers, but also some of the effects of gas to power starting to trickle through. And the improved OPEX result in also an improved EBITDA, which went to $15.7 million in the second quarter compared to $13 in the first quarter, and which in turn, of course, translates into improved operating cash flow. So the cash flow from operations in the quarter was just about $15 million before working capital. And with a positive working capital effect in this quarter of 4.5 million compared to a negative effect of 6.7 in the first quarter, makes for a big swing in the cash generation of the company. And the main reason for that is the movement from being significantly underlifted to being slightly overlifted in the quarter. CAPEX was also a contributor to a slightly improved cash flow. On blocks three and four, we have seen CAPEX trending down for several quarters, and that trend continued in the second quarter as expenditure on a number of projects decreased. We are, however, expecting a similar level of CAPEX for blocks three and four in the second half of the year as in the first half of the year. And on top of that, in the third quarter, we expect to see the capex of the drilling of the canoes well on block 58. All in all, this resulted in a positive cash generation of about $3 million on the bottom line, and ending the quarter with a healthy $18 million in cash. Speaking of liquidity in cash and financing, Just last week, we concluded the loan agreement with Abu Dhabi Commercial Bank, a $60 million facility with the use of funds being particularly blocks three and four capex. And we will have the $60 million available for about 12 months, and thereafter, it is subject to a fixed amortization schedule. It is subject to the customary covenants, and in terms of pricing, we currently see this being about a single-digit interest rate on the drawn funds. It is, as Ninus says, a facility that we can elect to use as much of it as we want. We are not committed to drawing down the full facility, and we'll do so on the basis of need going forward. Now, it does give us a significant backup to support the block 3 and 4 asset, and it also allows us to free up cash to invest in other assets in our portfolio. So by drawing on these funds, we will be able to support the investments on 3 and 4, and thus freeing up more cash for the other assets. It's worth mentioning that it does come with some requirements on hedging of interest rates and oil sales, and we will come back to that when that is implemented. but currently we would see the interest rate hedging having a positive effect on the interest rates, lowering those, and the oil sales arrangements will be subject to what the markets can offer us at that time. But it's only up to 35% of our average sales. It's also worth mentioning that we continue to build cost pool in blocks three and four. It was 33 million at the end of the quarter. as we have been unable to recover all the costs that we have spent on the block, that is expenditure we expect to get back from that asset through entitlement in the future as expenditure comes more into balance in relation to revenues. So we essentially can see that as deferred cash flows. Forward-looking production and financial guidance. We now believe the production to be for the full year around 8,000 barrels per day plus minus 200. That is mainly due to the effects of the severe weather in the first half of the year. We ended the first half of the year with about 7,800 barrels per day. We do expect to be able to do better in the second half. but it all depends on how quickly those wells can come back and perform as expected and, of course, the effects of the drilling program. So the change is mainly due to the effect we have already seen in production during the first half of the year. Operating expenditures, we continue to believe it to be around $17.50 per barrel. This is due to the OPEX coming down in the second half of the year, as we had expected, the whole time and as cost savings kick in and some of the effects of gas to power. Investment, we now believe to be around $77 million for the full year from previously $90 to $94 million. That is primarily the deferral of the exploration well on Block 56 to next year and the second well of Block 58 to next year as we have received the license extension. And all these investments will be financed by our own cash flow, cash on hand, and the debt facility we now have available to us, giving us lots of ability to continue to progress our assets and create value irrespective of the cash flow being generated in each quarter. So it does put us in a very strong position for value creation and being able to act in a long-term fashion when it comes to those assets in the portfolio. And with that, I'd like to hand over to Magnus to talk a bit about the Algerian projects.

Thank you very much, Petar. So indeed, we have had a new venture strategy, always basically. We have from time to time discussed the opportunities to enter a second country outside of Oman. In no way are we unhappy with what we have in Oman and what we're doing in Oman. Rather, as you can see, we are stepping up work there and getting to a point where we hope now we'll have our second commercial bot shortly. But Algeria is a vast country with considerable geological potential. So it's been on our radar screen for more than 10 years, actually, and we have on and off looked at opportunities there. We have now gone as far that we actually signed a heads of agreement with Sonatrac, the state oil company of Algeria, and we are in negotiations for two blocks that we believe have substantial potential to generate value. We have had a number of meetings, and we are also now refining our geological models of those particular blocks, not only Algeria in general. The MOU, the House of Agreement, was for six months, and it will expire in September, early October. Of course, there's no guarantee that we'll actually sign an exploration production sharing agreement in Algeria, but we have identified opportunities we'd like to pursue. And we are far advanced in the negotiations. So all I can say is we will try to land this. And we will be very hopeful about entering Algeria, where we see considerable potential. And so stay tuned, and we'll see how far we can take it. That brings us to the end of the second quarter review. So just to remind you, what is the most important part going forward? Well, it is, of course, the drilling of the canoes well, which, if it comes in, will have a substantial impact on our future. It is, of course, the field development plan of 56 to get the approval to start commercial production from Block 56. And, of course, an update on how we are progressing with the strategic review and what the ultimate conclusion for the company's positioning and options will be. So do stay with us. We expect a rather interesting and eventful third quarter. Questions?