Tethys Oil: Focus on production and exploration - ABG

Guidance and estimates down on production issues
One step forward on Block 56
Discounts long-term oil price of ~USD 68/bbl

Estimates down on production challenges
Q1 revealed production issues related to the Anan field, causing the guidance to be lowered to 10.5-11k boe/d from 11-11.5k boe/d (note that the revised guidance assumes no improvement on Anan). Consequently, we lower our 2022e production estimates, still expecting a H2 production ramp-up, but from a lower base. In total, FY’22 production is revised down to ~400 boe/d, in the mid-range of guidance. We make close to no changes to our ‘23e-‘24e production estimates.

One step forward on Block 56
In its Q1 report, Tethys reported that the appraisal well on Block 56 produced initial flowrates of 700 bpd. The result aligned well with the company’s expectations and moves the company one step closer to a commercial development. Following the result, Tethys is initiating a long-term, six-month test, before drilling two more wells in Q3’22 this year. To our understanding, it is still too early to talk firmly about commerciality, but the two wells in Q3 should add more colour to the potential. In Q2’22, Tethys will perform similar flowrate testing to another discovery (Sarha-3) on Block 56.

Discounts oil price of ~USD 68/bbl
Our SOTP valuation (which does not include any value for Block 56) estimates that Tethys discounts a long-term oil price of ~USD 68/bbl. We estimate a 9.1% dividend yield in ‘22e and 11.5% in ‘23e. We estimate that Tetthys holds SEK 14.8/sh in cash.
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