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Tethys signs MOU with PetroChina for gas sales

Last updated: 09:33 02 Mar 2015 EST, First published: 10:33 02 Mar 2015 EST

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Tethys Petroleum (TSE:TPL) (LON:TPL) has signed a memorandum of understanding with PetroChina International, another key step toward selling gas into the growing Chinese market.

The news came as the  Central Asia-focused oil and gas producer provided a corporate update for shareholders, reiterating its new strategy of focusing on capital discipline and the generation of cash flow from existing reserves and maturing exploration property.

The company's Kazakhstan subsidiary signed the MOU with PetroChina to explore the feasibility of a long-term relationship in natural gas and crude oil deliveries to China, it said. 

Tethys currently has the right to export gas to China, and can sell oil on the domestic market. It will obtain the right to export oil once its Akkulka exploration contract converts to a production contract, the company said.

"I am happy to present the strategy and vision of Tethys under the new direction of myself and the Board," said executive chairman John Bell, who came on late last year after Tethys decided to overhaul its board and executive management.

"The current oil price environment continues to deliver new challenges for Tethys, as it does for the whole oil and gas industry. We have made a number of positive changes, extensively reducing our costs and also diversifying our revenue stream through our increase in production and pricing for gas. 

"This provides some flexibility in these difficult times but the oil price environment remains volatile. The receipt of the loan funds provides important working capital for the company until the expected completion of the Sinohan transaction which will recapitalize the company."

Indeed, in recent months, the company has made a series of changes to withstand the current environment, including the reduction of its 2015 exploration budget in Tajikistan by nearly a third, and a new US$6 million loan. It also reached a deal to restructure its Georgian project and remove its current funding obligations of about US$4 million under the farm-out signed in July 2013. 

In Kazakhstan, where Tethys recently doubled its gas production and received approval to extend its gas production contract for another 15 years, work is about to begin on the AKK14 and AKK05 workovers, which are anticipated to be brought on stream in the second quarter. 

Tethys said these additional wells are expected to further increase the production level to above 570 mcm per day. The company has also agreed on a sale oil price at the wellhead of US$13 a barrel for January and February, it added.

It is expected that these lower prices will continue to the end of the first quarter, but the oil and gas producer is now less reliant on oil sales than in the past due to the increase in gas volumes and pricing in early 2015 --- a trend which it expects to continue in the short term.

Shares of Tethys were up almost 3 percent in Toronto, at 17.5 cents early Monday.

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