Who Invited Tethys?

Tethys Petroleum, a fairly young oil and natural gas company focusing exclusively on Central Asia, stands poised to alter the geopolitical landscape of the region.  In June it announced a three-way partnership with Total Exploration and Production and China National Petroleum Corporation (CNPC) to develop Tajikistan’s Bokhtar Basin covering 35,000 km2 and contains some 27.5 billion barrels oil equivalent (bboe).

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Ownership Breakdown

Not only will this nicely line the pockets of President Rahmon and his favored colleagues in the Ministry of Energy during his presumptive next term, but as Konstantin Parshin and Josh Kuchera outlined in March, the reserves, if proven to be substantial, will gravely weaken Uzbekistan’s coercive powers on its neighbor to the east.  With Tajikistan also supplying gas to hungry China, Tajikistan will be enriched while also potentially exerting downward pressure on contract prices in the future for existing suppliers.  As we discussed last year, the discovery may or may not prove to be a blessing for Tajikistan as a whole, but it is without a doubt bad news for Uzbekistan’s Karimov.

Uzbekistan has on numerous occasions cut off gas supplies to Tajikistan in the middle of winter.  Uzbekistan claims the cuts are due to nonpayment issues while others claim the moves are strictly politically motivated.  Some believe the 2013-2014 winter will witness another cut off. Pending export negotiations with CNPC, Tajikistan will likely enjoy first cut at the reserves.  As Tethys President and Chairman David Robson outlined in June,

“The initial part of the development, I think, would be focused on supplying gas to the local domestic market here in Tajikistan, which pays a pretty good gas price actually.”

Since CNPC is a partner in the project, one can safely assume that export to China is all but inevitable once the domestic Tajik market is satisfied.  Total’s role in the operation is, as of yet, fairly unclear.  As a company of nearly 100,000 employees working in all aspects of the oil and gas industry they could have been brought on as the trump card utility player in the mix—the company that can patch any holes that emerge in operations.

But who is this Tethys, the relatively small Canadian company that won the rights to call Tajikistan “the jewel in the Tethys crown” that is stirring the pot of power dynamics in the region?  How did they gain access to the Bokhtar’s estimated 114 trillion cubic feet of gas, twice Norway’s proven reserves, and 8.5 billion barrels of oil?

The name Tethys stems from the Tethys Sea which once covered the Aral, Black, Caspian and Mediterranean Sea areas of the world roughly 250 million years ago. This area fostered the micro-organism that would one day become 2/3 of the world’s recoverable hydrocarbon reserves.  Here’s a good NY Times article from a few years ago on the geology of the region.  Also, in Greek mythology Tethys was the daughter of Gaia and Uranus who ruled over the world’s rivers.  Rivers, stream, upstream, oil… you get it. Here’s their org chart by country:

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Tethys Subsidiaries

Tethys claims three current areas of operation in Central Asia with a fourth recently acquired in Georgia:

  • Uzbekistan – North Urtabulak Field
  • Kazakhstan – Kul-Bas, Akkulka and Kyzyloi Blocks
  • Tajikistan – Bokhtar Production Sharing Contract (PSC)

The parent company, Tethys Petroleum Limited, was founded in 2003, is based in St. Peter Port, The Channel Islands and is formally registered in the Cayman Islands where the corporate income tax rate is zero. Tethys management, including Chairman Robson, boasts 20 years of oil and gas experience in the Former Soviet Union so we can assume they know how to make deals with folks like Rahmon.  Robson was also previously the CEO of Tethys and CanArgo. He is currently employed by Tethys and also offers consulting services to Tethys via his own company, Vazon Energy.  In 2012 Vazon netted a healthy $2.4 million for services rendered to Tethys. Current Tethys CEO Julian Hammond also used to work for CanArgo.  One interesting character on the board of Tethys is Zalmay Khalizad, a Counselor at the Center for Strategic and International Studies and once a close collaborator of US president, George W. Bush. He is also the former US ambassador to Iraq and Afghanistan.

According to its website, Tethys has traditionally played by a “small business” strategy with long-term interests in its areas of operations.  It targets existing production sites with large upside that have historically been underexplored.  It claims that as an independent oil and gas producer it is able to cut through the politics that often bog down its largest competitors.  In the spirit of “fail small, win big” Tethys entered the region through a series of small projects in Kazakhstan and Uzbekistan that allowed it to prove its mettle and gain the trust of local partners.  Targeting actively producing reserves or rehabilitee wells in decline also allowed it to fund its own projects to a large extent.  The Bokhtar acquisition bucks this trend, however, given the enormous potential upside of Tajikistan’s Amu Darya reserves and its largely unexplored status.  Tethys is certainly punching above its weight in Bokhtar.

Bokhtar’s 35,000 square kilometers (8.7 million acres) and estimated 27.5 gross un-risked mean recoverable bboe likely necessitated the three-way partnership with Total and CNPC. Tethys’ limited operational capabilities (the company only claimed $38 million in revenue for 2012) and its need to mitigate perceived risk to gain Tajik government approval both likely necessitated partnerships and outside expert buy-in.

If successful, the Bokhtar reserves would allow for approximately 6 billion cubic meters (bcm) of gas production per year for 10 years according to Gustavson Associates, an independent oil and gas auditing firm.  Given that Tajik domestic consumption has never exceeded 1.8 bcm and was as low as 0.2 bcm in 011, the vast majority of production will be exported.

Although it has a long history in the region, the Bokhtar opportunity represents Tethys’ true emergence as one of the preeminent players in the Central Asian oil and gas game.  From a nitty gritty business perspective, the negotiations that allowed Tethys to oust other established organizations and acquire rights to Bokhar are truly fascinating.  To wrap up, here are a list of questions we would love to see answered by our readers:

  1. Who did Mr. Robson deploy to wine and dine Mr. Rahmon and his underlings?
  2. What side deals were agreed upon between Tethys and Tajik officials?
  3. How did CNPC’s teaming with Tethys weigh into the outcome?
  4. What specific deliverables and duties are included in Total’s share of the PSC?
  5. How will Uzbekistan and possibly Gazprom react to the development of Bokhtar?
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One comment

  1. coach マテラッセ 財布

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