Eurasia Capital is initiating coverage of Tethys Petroleum with a BUY rating, 12-month target price C$2.00 per share. You can access the full report on www.eurasiac.com
Tethys Petroleum Limited
Attractive portfolio: Tethys Petroleum Limited (TPL), a Toronto listed company, offers unique exposure to large-scale oil and gas resources in Central Asia. TPL has five exploration and production projects in the vast hydrocarbon basins of Kazakhstan, Tajikistan and Uzbekistan where several global major oil and gas companies are currently operating. TPL believes that the contract areas have significant exploration and production potential and it may create more value by applying modern methods and technologies in its operations. In our view, TPL will expand its portfolio to more exploration and production projects in the near future, in particular in Uzbekistan.
Significant Growth Potential: TPL has recently discovered oil in its Akkulka property, Kazakhstan and the company may materially upgrade its oil reserves. Well AKD01 successfully tested oil in two zones, a lower zone interpreted as being a Jurassic dolomite sequence and an upper zone interpreted as Cretaceous sandstone. We estimate potential recoverable oil in place in lower and upper zones to be 149mn bbls. We believe the likelihood for further increase in oil reserves is substantial from Kulbas exploration property.
Prime Location: TPL properties are located close to the existing gas pipelines that put the company in a favorable position to sell gas from its current production to domestic market and future production to Russia and China. TPL, one of few international oil and gas companies, enjoys strong government support and friendly business environment in the region that will contribute to TPL’s operations expand further.
Generous tax environment: TPL offers exposure to Kazakhstan’s oil & gas fiscal regime, which is less burdensome than that governing Russian oil & gas companies. PSA in Tajikistan is one of the most generous in the world with 70% of output going to TPL after cost recovery. In Uzbekistan, TPL has to pay just 15% tax on income from its operations in North-Urtabulak field.
We are initiating coverage of TPL with a BUY rating, 12-month target price C$2.00/share. Our 12-month target price is based on a combined DCF and resource-based valuation approach. We apply DCF valuation to TPL’s producing and near production assets and use resource-based valuation EV/Resources for valuing undeveloped oil & gas resources in Kazakhstan and Tajikistan. Our 2010 combined DCF and resource-based valuation results in equity valuation of US$342mn or US$1.93/share (C$2.06/share). We set our target price at C$2.00/share which represents 94% upside to current TPL’s share price of C$1.03 (05.02.2010). We note that we conservatively estimated recoverable oil (30mn bbls) in Akkulka, Kazakhstan in our DCF valuation, and believe that oil reserves will be materially upgraded following the appraisal drilling results. This leaves ample room for the company valuation to increase beyond our projections.
About Tethys Petroleum Limited
Tethys Petroleum Limited (TPL) is an oil and gas exploration and production company listed on the Toronto Stock Exchange in Canada and the KASE Exchange in Almaty, Kazakhstan with current market capitalization of C$162 million. Tethys is focused on Central Asia and the Caspian Region, with its current projects in Kazakhstan, Tajikistan and Uzbekistan. www.tethyspetroleum.com
About Eurasia Capital
Eurasia Capital is a Hong Kong-based pan-regional investment bank with focus on Mongolia, China, Russia and Central Asia. The Firm offers cross border M&A and advisory, capital raising, sales & trading and research services to its international and regional clients including government agencies, major energy and resource companies, sovereign wealth funds, private equity groups and global portfolio investors. www.eurasiac.com
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