Tethys: operations and update

Operations

In Kazakhstan, work continues on the gas project with the dehydration equipment having now been successfully tested in China and being shipped to Kazakhstan. Work is proceeding well on the installation of additional field pipelines, etc., and Tethys is on track for meeting its production target of three times current gas production by the Q1, 2015. This work is fully funded from the proceeds of the recent financing. Negotiations on possible sales contracts continue (following the usual Central Asian summer break) and Tethys hope to reach a conclusion on these negotiations before the end of the year to enable considerably increased volumes of gas to be supplied to buyers at higher prices for 2015 and beyond.

In terms of other operations, these are currently waiting on closure of the HanHong deal although planning is being carried out for horizontal and high angle drilling on the Doris oilfield in order to increase short-term production as well as plans to meet work commitments on both the Akkulka and Kul-Bas contracts. Obligations are being addressed to extend the Akkulka exploration contract beyond March 2015 and Tethys is waiting on the HanHong funding to move ahead with the necessary gas utilisation equipment and indeed to complete the appraisal of the area such that it can apply for a production contract thereby enabling it to achieve higher oil prices. The need to preserve flexibility with respect to the area under contract is clearly important as there are a number of other potential oil deposits (including the recently identified Akkulka Central prospect) which need to be included in any production contract following their appraisal. Tethys is receiving good support from the Kazakh authorities on this work. The presence of Total SA in the blocks around Tethys, where they are planning to drill a number of wells, reinforces the view that the company's assets have considerable potential.

The planned Klymene exploration well on the large Klymene prospect has been engineered and will be committed to once the HanHong monies are received. This is a large, relatively low risk exploration prospect with independent resource estimates in excess of 400 million bbls of oil.

To date, Tethys have not received the Article 36 consent (pre-emptive right waiver) from the Kazakh government for the deal signed with HanHong last November. The recent restructuring of the Kazakh Government Ministries relating to the energy sector has in Tethys view, led to further additional time being required by the Kazakh government to make a decision on waiving their pre-emption rights. HanHong have released early the US$ 3.88 million escrowed deposit on the deal and further discussions will be held with a view to extending the agreement's one year longstop date should this be necessary.

In Tajikistan, Tethys Bokhtar joint venture with Total SA and CNPC is operating effectively although there have been considerable delays in the commencement of the seismic work which is being carried out by the Chinese company, BGP. The work on the first well (which is currently programmed to be drilled at the end of next year) is being led by Tethys on behalf of the group (which is undoubtedly a significant endorsement of the ability of our corporate drilling team) and this work is progressing well although, with the depths, pressures and potential drilling challenges being highlighted by the partners, a considerable amount of long lead items will be required in order to drill what will be a demanding and technically challenging well. Work on the Tajikistan-China gas pipeline commenced on September 13, with a planned completion in 2016, this being a potential export route for Bokhtar gas to the growing Chinese market. Tethys regards Tajikistan and in particular the Bokhtar area as having huge upside potential for the future.

In Georgia, no additional significant capital expenditure has been incurred this year and only further limited expenditure is needed to meet our commitments on this attractive acreage with high potential. The work carried out to date indicates a number of very attractive areas both conventional and unconventional oil plays, close to existing fields, and we are working closely with our partners on the best way to optimise costs and move forward. However, we are examining our strategic options with our projects in Georgia despite their high short to medium term potential and the relative political stability as well as the ability to receive world oil prices at the field. As such, the Company is currently looking at the potential to bring in partners or divest some of its interest in the Georgian projects in order to reduce further the already small amount of planned capital expenditure on these projects.

Corporate

In response to the issues raised by the Company's major shareholders after the AGM, Tethys have been carrying out a comprehensive review of costs, efficiencies and strategy as well as corporate governance issues.

The stated objectives of the Company have always been to explore for large upside potential whilst producing and generating cash flow from more immediate projects in a portfolio, which balances political and fiscal risk across the Company's operating area.

This remains the Company's objective and this is the unanimous view of the Board of Directors. We do, however, appreciate that we need to make certain changes in order to optimise the Company's business model and address the issues referred to above.

Tethys recently announced the retirement of Russ Hammond on his 73rd birthday in October of this year. Russ has served the Company very well and his advice has been extremely important in the development of the corporation.

Tethys intend to bring to the Board a replacement for Russ - a new independent Non Executive Director, new to the Company, who will work closely with the Chairman to implement a Change Agenda in order to better focus the Company on its objectives, streamline management structures and overall costs and address the concerns of some of its major shareholders. This process will begin soon with the target of completing the initial review before the end of the year and implementation in the first quarter of next year. In addition Tethys is working on ensuring that the Board has a majority of directors who both are, and are seen to be, independent.

This review will be broad and comprehensive in order to refresh the Company, review and bear down on costs and re-focus it on its objectives in an effective and efficient manner.

The Company's stakeholders will be kept abreast of the progress of this review once the initial phase is complete and the Board anticipates that this will address both the concerns of the shareholders and help the business move forward in a more effective manner.

The Chairman of Tethys Petroleum, Dr. David Robson, commented: "I firmly believe that Tethys has excellent assets in areas that we know well and can operate effectively through our long-term relationships and ability to do business in the states of the former Soviet Union. The Company is unique given its geographic spread and, indeed, the potential which it has across the area with its ability to grow and develop its current assets using its technically skilled and capable workforce. This workforce is extremely committed, professional and focused on the Company's success and continues to work extremely hard in often remote and difficult parts of the world.

However, all things need to be able to evolve with time and the Company has grown from a small, single, stranded gas field in Kazakhstan to having the assets it has today following exploration success (the first oil discovery in the West Aral area of Kazakhstan and the first oil discovery in Tajikistan since independence), forming partnerships with oil majors and operating in environmentally challenging conditions, remote from any infrastructure, whilst following the rule of law and establishing itself as one of the most respected operators in the region.

We are firmly of the opinion that the potential of the Company's assets, geopolitical presence and operating team, is not reflected in the current share price. We are confident that the proposed Change Agenda combined with the continued implementation of the Company's commercial and operational strategy will help to address this and allow the Company to build a bright future in the interests of its shareholders, employees and the host governments of the countries in which it works."

Tethys is focused on oil and gas exploration and production activities in Central Asia and the Caspian Region. This highly prolific oil and gas area is rapidly developing and Tethys believes that significant potential exists in both exploration and in discovered deposits.

Adapted from press release by Hannah Priestley-Eaton

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