Audio Interview Transcript with David Robson, President and CEO of Tethys Petroleum

Harry Norman: Hello, this is Harry Norman for Proactive Investors, and welcome to another Proactive audio interview. Today is the 3rd February 2011 and I’m talking with David Robson, President and CEO of Tethys Petroleum. Listed on the TSX basic materials energy sector. Stock Ticker TPL.  Share price 1.63 dollars Canadian. Market cap 306.39 million dollars Canadian. Tethys Petroleum is also listed on the KASE, the Kazakhstan Stock Exchange. Web address:  www.tethyspetroleum.com. David, thank you very much for joining us for this interview.

David Robson: It’s good to talk to you Harry.

Tethys Petroleum is focused on oil and gas exploration, development and production in Central Asia.  From an oil and gas perspective what is interesting about Central Asia?

Well of course Central Asia is a vast area covering many different countries and it also covers many different sedimentary basins with enormous potential for oil and gas.

Many of them are either poorly explored or unexplored.  So really it’s the geologic potential for oil and gas, is the main thing that attracts people to Central Asia.

Given that Tethys Petroleum operates in three countries, Kazakhstan, Tajikistan and Uzbekistan, what is Tethys Petroleum’s business strategy?

Each of these countries is different.  Kazakhstan being the most mature on a business perspective.  Uzbekistan, say in the middle and Tajikistan really just beginning to develop it’s oil and gas resources.

So we have a good spread across some different countries with different types of resource, and obviously different systems under which we’re working.

So not only does it balance our technical risk, as we’re working in separate basins, it balances our political and fiscal risk by working in different countries, yet having a very broad footprint across the whole of the area.  Indeed I believe we’re the only independent oil and gas company working in three of the Central Asian Republics.

In Kazakhstan you have natural gas production from two shallow gas fields, Kyzyloi and Akkulka and you’ve recently received approval for moving into pilot production at your Doris oil discovery.  Please would you talk us through your assets in Kazakhstan and your immediate plans for them?

Yes, you’re correct, we have two producing gas fields, Kyzyloi and Akkulka we brought on relatively recently.  These are shallow gas fields at a depth of about 450 metres producing almost pure methane.  In fact, I believe that the Kyzyloi development was the first non-state dry gas development in Kazakhstan.

So we’re producing gas from these shallow fields.  We pump out gas into the trans-continental Bukhara-Urals pipeline system, and that project is moving forward.  There are more gas deposits in the area which we will tie in as what you might term Phase III, likely when the new Chinese-Kazakh gas pipeline becomes operational in 2013.

Meanwhile in the deeper section we have been exploring and made a discovery of very good quality light oil, a field which we call Doris.  This is the first discovery of oil in this whole area, a real wildcat, and really based on a different type of geological model, and in fact based to a degree on the North Sea as to what we thought we might have in the deeper horizons.

Doris has now been appraised.  We have a number of wells being drilled to appraise Doris and to really ascertain just how big the field is.  Meanwhile as you say, we’ve now obtained Pilot Production consent.  We are producing oil right now, but we expect to ramp our production up to about 4,000 barrels a day by the middle of this year, and then beyond that as we move to the full field development, which clearly depends on the appraisal programme and the results of that programme.

You describe Tajikistan as having enormous gas potential and you’re involved in exploring for giant and super giant fields through a 51% operating interest in the Bokhtar Production Sharing Contract which covers 35,000 square kilometres. How does a relative tiddler like Tethys manage interests on this scale?

Part of our philosophy is to get into these new basins early and I think, with first new advantage we are able to secure the most attractive areas and also the most attractive commercial terms.

We have extremely good commercial terms under the Bokhtar PSC.

Obviously, it comes with its challenges.  We’ve had to effectively build an oil & gas industry in Tajikistan.  There was very little there when we arrived. We’ve done that by focusing on employment of local staff, building up our oil operating company there and operating across the region as a whole.

We are right now involved both in shooting seismic and drilling wells, exploration wells and development wells as applying more modern technology such as radial drilling.

So although it’s a big area, with our staff there, we’re very active and I think are giving a pretty good coverage.

Of course, it’s a 25-year Production Sharing Contract.  So we have some time to explore and exploit this fantastically attractive area with the potential for, as you mentioned, super giant gas fields, such as those that exist in Turkmenistan.

In Uzbekistan Tethys has Production Enhancement Contracts with Uzbekneftegaz, what can you tell us about Tethys’s current activities in Uzbekistan and your discussion with Uzbekneftegaz, about exploration?

Right now we’re producing on a field called North Urtabulak.  We’re drilling new wells there, we’re working over wells, and we’re just in the process right now of completing a new horizontal well. We’ve also been applying this radial drilling technology, the first time it’s been applied, certainly in Uzbekistan, and that’s without doubt shown to be successful.

So we are very busy on that field, and that field is a very mature field in its last stages, if you like, of development.  Meanwhile, we are hoping to acquire additional fields in the surrounding area. Uzbekneftegaz has been effectively named as a preferred partner on this type of development and we are also discussing with them the potential for exploration activity in Uzbekistan.

We must remember that our new Doris oil discovery is only some 35 kilometres north of Uzbek border.  We believe that there is the potential for oil to the south of the border where to date none has been discovered.

So I think there is mutual interest in seeing that area explored.

Tethys raised 100 million dollars US through a public offering in October and generated 3.17 million dollars US in revenue from operations in Kazakhstan and Uzbekistan in the third quarter of 2010. Where does this leave Tethys Petroleum’s financial situation going forward?

The money we raised has really focused on developing our current projects over this year and that is what we’re doing with the capital.  That involves obviously, the appraisal and further exploration at Doris and satellites around Doris, including the very exciting Kalypso exploration prospect, and obviously our work in Tajikistan and in Uzbekistan.

As I mentioned we expect to see oil production increase significantly in Kazakhstan by mid-year, generating substantially increased revenues and basically sticking to our current programme.  The company is well funded and will enable us to move forward, as I say, and to complete our programme in Kazakhstan and our other areas by the end of this year.

Obviously, if we find additional projects then we will need to look at how we fund those, but right now our revenues from both Kazakhstan and Uzbekistan are expected to rise significantly over the next few months and added on to obviously the capital we raised from our shareholders at the end of last year.

What can investors expect form Tethys Petroleum over the next 12 to 18 months, David?

Well certainly, one of the main focuses is clearly the exploration and appraisal of our Doris oil discovery.  By this time next year, we should be in a position to know just how big Doris discovery itself is, and then decide how we’re going to do the full field development, principally with respect to what direction we might build the pipeline.

Potentially Doris is very substantial.  Currently the McDaniel Associates Consultants Limited (“McDaniel”) our reserve auditors, have given us un-risked perspective resources for the Doris area of about 663 million barrels.

Clearly we have to prove this up, but if the field is anything like that size, it will need fairly substantial pipeline to develop it.  So we should have a pretty good idea in a year’s time where we are with that.

We will have completed by then further exploration drilling in Tajikistan, both for oil and for gas, and I hope to have discovered some more deposits there. As I mentioned earlier, I hope we’ve increased production from our existing field in Uzbekistan and potentially added new fields and exploration there, as well as looking at perhaps areas around in other parts of Central Asia.

So I’m looking forward to an extremely exciting year, and I would say by this time next year the company certainly should have moved forward very, very significantly.

What do the Tethys Petroleum team bring to operating in Central Asia?

We adopt a very locally focused approach, bringing in cost-effective methods that an independent operator can do by employing local staff.  Basically, all of our staff in Kazakhstan are Kazakh nationals, having been trained up and working very effectively.

We’re doing the same in those other areas.  So we’re operating a low cost base.  We’re integrating into the local environment and as I say, I think we can bring a lot of benefit, certainly in countries such as Tajikistan, to the local economy, and of course that all instils back to the company itself.

I believe that Tethys has the potential to become a significant, if not dominant force as an independent in the Central Asian space, and we’re very keen to do that.  Our operating team are well used to working in that part of the world, and I’m sure we will be very successful.