Oman-focused Tethys Oil has launched a strategic review of its operations, amid some disappointment over the company’s valuation.
Speaking on a conference call for the company’s results, managing director Magnus Nordin said there had not been one specific event that triggered the review.
“There are a number of factors pointing in the same direction. We have a market cap considerably below the portfolio value. We have to look at why that is the case.”
Nordin said a recent farm out process, on Block 58, had provided strong interest in the company’s operations.
Furthermore, delays on Block 56, where an extended well test was delayed by nine months, pushed back commercial production. “That has created an opportunity to possibly realign … with a focus on increasing growth, growing shareholder value and be a good partner for our host country.”
Tethys CFO Petter Hjertstedt said the company was fully financed and that it was entering the review process without prejudice. “We’ve initiated a public process to see what opportunities arise, without prejudice.”
Hjertstedt said Tethys was “not putting anything on pause, or changing our commitments. We’re open to see how best we can realise that value.”
The strategic review should take around two months, Nordin said.
The impression from Tethys’ management was one of frustration with public markets. “The sentiment for oil and gas stocks is on the very low side, at least in European markets,” Nordin continued. “There is a clear misalignment in valuations”, he continued, when contrasting market cap with how Tethys is valued within the industry.
Flat or forward
Tethys produced around 8,800 barrels per day in 2023 and expects 2024 to be largely flat. The company relies on Blocks 3 and 4, where spending has been high – as a result of a gas-to-power investment. The company took an impairment of $36.9 million on the blocks’ valuation, reducing them to $190mn.
There have also been operational challenges. It drilled four exploration wells on Blocks 3 and 4 in 2023, one was dry, three were non-commercial.
This year, Tethys will shift its exploration to other blocks. It will test the Menna-1 well early this year, in Block 56, and plans two exploration wells in Block 58.
By 2025, opex at Blocks 3 and 4 will come down, while Tethys may have exploration successes to develop on other areas. Given the strategic review, though, it is unclear how the company will have changed.
Nordin said 2024 would either be “flat or the vigorous start of a new growth phase, led by the commercialisation of Block 56 and of course if the Fahd exploration well on Block 58 is a success …”