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Press Release: Tethys Petroleum Press Release: 2016 Annual Results

3 Apr 2017 6:00 am

Tethys Petroleum Press Release: 2016 Annual Results

GRAND CAYMAN, CAYMAN ISLANDS--(Marketwired - March 31, 2017) - Tethys Petroleum Limited (TSX:TPL)(LSE:TPL) today announced its Annual Results for the year ended December 31, 2016.

Corporate Highlights - 2016
   -- Conversion of USD6.3m of loans by Olisol Petroleum Limited (together with 
      Olisol Investments Limited "Olisol") into ordinary shares of Tethys at 
      USD0.10 per share; 
 
   -- Binding Amended and Restated Investment Agreement entered into with 
      Olisol for a private placement of 181m shares for proceeds of CAD9.8m and 
      underwriting of a further equity fundraising of 50m shares for proceeds 
      of CAD2.7m for a total of CAD12.5m. Olisol failed to provide Tethys with 
      any of the purchase price by the extended closing date of October 27, 
      2016 and has sought to terminate the Amended and Restated Investment 
      Agreement and to demand repayment of working capital funding provided; 
 
   -- Olisol affiliated company, Eurasia Gas Group ("EGG"), makes claims 
      against the company in the Kazakhstan courts leading to restrictions over 
      the Company's Kazakhstan bank accounts which, despite several court 
      rulings in Tethys favour and a temporary lifting of the restrictions, 
      remain in place to this day; 
 
   -- Gas supply contract agreed with Intergas Central Asia ("ICA") for the 
      period January 1, 2016 to December 31, 2016. There was a temporary 
      stoppage of gas supplies in mid-October although gas supplies to ICA 
      resumed in early December; 
 
   -- The Company's partners in Tajikistan filed for arbitration following the 
      Company's cash call defaults from September 2015 onwards seeking the 
      Company's withdrawal from the project and assignment of its interest, as 
      well as payment of unpaid cash calls; 
 
   -- Reduction in par value of the Company's ordinary shares from USD0.10 to 
      USD0.01 approved by shareholders and the Grand Court in the Cayman 
      Islands; 
 
   -- In connection with the transactions with Olisol, John Bell moved from 
      Executive Chairman to co-Non-Executive Chairman along with Alexander 
      Abramov, who also became co-Non-Executive Chairman. John Bell, David 
      Henderson, David Roberts and James Rawls all informed the Company that 
      they would not stand for re-election at the Company's May 31, 2016 Annual 
      General Meeting. Alexander Abramov was removed from the Board and was 
      replaced as Chairman of the Board by William Wells. Following the 
      appointment of Mattias Sjoborg and Medgat Kumar the Board of Directors of 
      the Company now comprises William Wells (Chairman), Adeola Ogunsemi, 
      Mattias Sjoborg and Medgat Kumar. In other board and management changes 
      Kenneth May was appointed as interim Chief Executive Officer replacing 
      Julian Hammond and subsequently confirmed as permanent CEO. 
 
   -- The Company announced a new cost optimisation programme that once fully 
      implemented should save the Company an estimated USD2.5m a year. The 
      programme followed an extensive review into costs and operations that was 
      started after the Company's Annual General Meeting in May; 
 
   -- The Company successfully defended legal proceedings brought against it in 
      Kazakhstan in relation to the USD7.5m debenture originally issued to AGR 
      Energy Limited No.1.; 
 
   -- Private placements with two individual investors raised USD1.4m for the 
      issuance to each investor of 43,951,698 ordinary shares at USD0.01593 per 
      share and 96,150,000 warrants exercisable at USD0.031 per share for three 
      years from the date of grant. The investors each have the right to be 
      appointed to the Board, have entered into a Relationship Agreement with 
      the Company and provide strong in-country partners for the Company in 
      Kazakhstan and internationally; 
 
   -- Allegations were made against employees of the Company's Kazakhstan 
      subsidiary, Tethys Aral Gas LLP, by the former Chairman of Tethys and 
      owner of Olisol, Alexander Abramov and resulted in searches and seizures 
      at the Company's offices in Almaty. The allegations were dismissed by the 
      authorities but have since been appealed by Alexander Abramov and 
      investigations are ongoing; 
 
   -- Loan restructuring, including three year extension of maturity dates and 
      no interest or principal payments until the maturity dates agreed with 
      Annuity and Life Reassurance Ltd in relation to two loan agreements 
      comprising USD5.3m of borrowings. 

Corporate Highlights - Q1 2017
   -- Georgian exploration commitments modified so that Tethys will not be 
      required to complete the previously agreed 50 km of 2D seismic 
      acquisition in Block XIN by June 30, 2017. This avoids potential 
      penalties of up to USD2.0m which may have been imposed if the commitments 
      had not been met; 
 
   -- Transfer of the registered legal addresses of the Company's three 
      Kazakhstan subsidiaries, Tethys Aral Gas, Kul-bas and Tethys Services 
      Kazakhstan from Almaty to Aktobe City completed and plans announced to 
      relocate Tethys main administrative office from Almaty to Aktobe City 
      during the first half of 2017; 
 
   -- Tethys and each of its Kazakhstan subsidiaries commenced legal action 
      against Olisol, EGG and certain of their respective principals and in the 
      Court of Queen's Bench of Alberta. The legal action was to seek, among 
      other things, damages arising from failure to meet contractual 
      obligations under the Amended and Restated Investment Agreement on 
      October 27, 2016 and damages arising from unlawful interference with 
      Tethys' business activities, including issuing erroneous press release 
      information about Tethys as alleged. Tethys intends to enforce its rights 
      and legitimate interests to the fullest extent permitted by law, to 
      protect its investors, assets, investments, management and employees; 
 
   -- Amendments agreed to the Company's rig loan including extending the 
      maturity date by 18 months; 
 
   -- The Company applied to the United Kingdom Listing Authority ("UKLA") to 
      cancel the standard listing of the Company's ordinary shares from the 
      Official List of the UKLA and the cancellation of trading in the Shares 
      on the Main Market of the London Stock Exchange with effect from May 2, 
      2017 to reduce the costs of maintaining dual listings. The shares will 
      continue to trade on the Toronto Stock Exchange and the Company will 
      combine its UK share register with the Canadian register to further 
      reduce costs; 
 
   -- The Company announced a ten well shallow gas well drilling program which 
      is expected to cost approximately USD6 million. The Company will have 
      until the end of 2018 fiscal year to pay these costs and expects to be 
      able to pay from increased production. Following mobilization, the 
      Company hopes to begin drilling on or about May 1, 2017. Additionally, 
      the Company will work over three existing wells and tie in two wells 
      drilled but not tied into production. This program is designed to add 
      twelve or more new wells to existing production; 
 
   -- The Company also announced the signing of a lease contract with MSI to 
      build and install a mini-compressor in Bozoi. Installation is expected 
      during the July 2017 time period. This is new technology for Central Asia 
      and is intended to enhance gas production prior to the new wells being 
      tied in. After new production is tied in, then the mini-compressor will 
      be used on older wells to extend the life of wells. 

Financial Highlights - 2016
   -- Oil and gas sales and other revenues decreased by 47% to USD11.7m from 
      USD22.1m due to a natural decline in production volumes and a price 
      reduction for oil in USD terms as a result of the Tenge devaluation from 
      August 2015; 
 
   -- The loss for the current year of USD46.9m is lower than the loss of 
      USD74.6m in 2015 due to additional depletion in the prior period 
      following the reclassification of assets previously shown as held for 
      sale and a large deferred tax charge due to the significant devaluation 
      of the Kazakhstan Tenge. In addition to this, there was a significant 
      reduction in production expenses and administrative costs as a result of 
      cost optimisation efforts; 
 
   -- The current year was impacted by a USD25.6m write-off of Tajikistan 
      exploration and evaluation expenditure (2015: USD25.9m) and a USD1.2m 
      impairment charge against Kazakhstan oil properties. Finance costs were 
      higher due to an increase in net debt and higher interest rates. The 
      prior year had a large foreign exchange loss following the devaluation of 
      the Tenge and a write down of the Company's interest in the Aral Oil 
      Terminal joint venture, neither of which recurred in 2016; 
 
   -- Adjusted EBITDA at negative USD3.3m decreased by 69% from negative 
      USD10.6m for the prior year as a result of reduced costs which more than 
      offset the reduction in revenue; 
 
   -- Net debt increased to USD32.8m from USD28.8m as a result of interim 
      finance obtained as part of larger strategic transactions which did not 
      complete. A number of the group's loans were restructured and maturity 
      dates extended subsequent to the end of the year as described above; 
 
   -- Total non-current liabilities reduced significantly from USD34.6m to 
      USD12.9m due to loans becoming due in less than one year and being 
      reclassified to current liabilities; 
 
   -- The number of ordinary shares outstanding increased to 508m from 337m as 
      a result of: 
 
          -- 37m shares issues to Olisol in March and a further 26m in April on 
             conversion of USD6.3m of debt at USD0.10 per share; 
 

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