Tethys Petroleum to acquire Georgian block interests

Tethys Petroleum Ltd. will acquire interests in and become operator of several production-sharing contract areas in the Kura basin near Tbilisi in eastern and central Georgia.

Through subsidiaries, Tethys will acquire a 56% interest in PSCs covering Blocks XIA, XIM, and XIN in eastern Georgia near Tbilisi. In a separate transaction Tethys Petroleum will acquire a 100% interest in PSCs covering Blocks VIII and XIG near Tbilisi and in the Kartli area farther west.

The blocks cover a combined area of more than 6,400 sq km. The transactions are subject to approval of appropriate Georgian authorities and other conditions including rescheduling of the work programs on Blocks VIII and XIG. Tethys Petroleum refers to the blocks as Project Iberia and Project Tamar and did not name the sellers.

Tethys Petroleum said the partners in the Project Iberia blocks are well-established Georgian oil and gas companies and that it expects to work closely with their specialists in implementing operatorship. All participants are discussing the swapping of equity to give shared ownership in all of the acreage.

The company said the areas have potential for conventional and unconventional oil and gas in several horizons. It said they provide good commercial terms and international oil pricing in proximity to two large oil pipelines, a gas trunkline, and a railway.

The initial work program on Blocks XIA, XIM, and XIN is to involve 350 line-km of 2D seismic acquisition and a contingent exploratory well. Initial seismic is expected to start this summer and be completed by mid-2015. The data will complement the large existing volume of 2008-11 seismic and geological studies and would satisfy the minimum work program. Drilling is to start in second-half 2014.

The current minimum work program on Blocks VIII and XIG totals 500 line-km of 2D seismic plus further 3D detailing. One exploratory well on Block XIG and one exploratory well plus one exploratory/appraisal well on Block VIII are a contingent commitment.

The seismic commitment is currently to be completed by September 2014 but a condition for completing the Tamar transaction is to restructure this schedule with the Georgian government to provide for more time to complete this program and afford flexibility. Completion of this transaction is conditional upon this work program being satisfactorily restructured to Tethys Petroleum’s satisfaction.

Tethys Petroleum calls the commercial terms “very attractive.” On the Project Iberia blocks, 100% of costs can be recovered from up to 50% of production and the investor takes 50% of the remaining production, this falling to 40% after cumulative revenues exceed cumulative costs. All taxes, levies, and duties are included in the state’s share of production with the only other tax being a stabilized royalty of 24.19 Georgian Lari/ton ($1.95/bbl).

Commercial terms are similar on the Project Tamar blocks but with the investor share of profit oil being 40% before and 35% after payback.

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