Annual Report • Apr 23, 2014
Annual Report
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Tethys Oil AB is a Swedish upstream energy company focused on oil and gas exploration and production onshore areas with known discoveries. Tethys core area is Oman, where the company is one of the largest licence holders with licence interests in three onshore blocks. Tethys also has licences in Lithuania and France. Tethys Oil has oil reserves and commercial production in Oman and Lithuania.
| MSEK (unless specifically stated) | 2013 | 2012 | 2011 | 2010 | 2009 |
|---|---|---|---|---|---|
| Production, before government take, bbl | 1,709,706 | 1,399,518 | 423,469 | 41,764 | – |
| Average daily production, bbl | 4,684 | 3,824 | 1,160 | 114 | – |
| Net sales, after government take, bbl | 850,926 | 776,248 | 147,228 | 18,898 | – |
| Average selling price per barrel, USD | 106.63 | 110.35 | 107.37 | 80.56 | – |
| Net sales of oil and gas | 592 | 584 | 104 | 11 | – |
| Operating result | 285 | 336 | 83 | 101 | -29 |
| EBITDA | 479 | 509 | 84 | 101 | -13 |
| Result for the period | 240 | 314 | 69 | 80 | -43 |
| Earnings per share, SEK | 6.76 | 9.11 | 2.12 | 2.60 | -1.62 |
| Cash and cash equivalents | 295 | 248 | 93 | 191 | 14 |
| Shareholders' equity | 1,100 | 860 | 456 | 380 | 203 |
| Non-current liabilities | 422 | 417 | 2 | – | – |
| Investments | 290 | 875 | 208 | 29 | 82 |
| Number of shares at the end of the year | 35,543,750 | 35,543,750 | 32,543,750 | 32,504,489 | 32,073,935 |
| Market capitalization at the end of the year | 2,399 | 1,893 | 1,432 | 1,845 | 1,331 |
| Share price at the end of the year, SEK | 67.50 | 53.25 | 44.00 | 56.75 | 41.50 |
| 2P-reserves in Oman (million barrels of oil) | 15.2 | 14.3 | – | – | – |
The Annual General Meeting of shareholders of Tethys Oil will be held on Wednesday 14 May 2014, 3 p.m. at Van der Nootska Palatset, S:t Paulsgatan 21 in Stockholm. The notice and the complete proposals of the Board of Directors etc. are available at www.tethysoil.com. To be entitled to participate, shareholders must be included in the register of shareholders maintained by Euroclear Sweden AB, in their own names, as of Thursday 8 May 2014 and must notify Tethys Oil no later than Thursday 8 May 2014. According to the Swedish Companies Act, a shareholder who wishes to attend by proxy, must present a proxy in writing, dated and signed by the shareholder.
Tethys Oil aims to offer high return on capital through investments and growth in oil and gas projects. Tethys Oil has not paid any dividends since the company was publicly listed in 2004. The board has proposed that no dividends are paid for 2013.
Tethys Oil's dividend policy is reviewed annually, and will be determined by assessment of future growth potential and the company's financial position in combination with the company's long term capital structure targets. When Tethys generates sufficient cash flow to meet all objectives and obligations, excessive cash will be returned to the company's shareholders through dividends or used to buy back Tethys Oil shares. For the AGM 2014, the board has proposed an authorization for the Board to resolve on repurchase of shares.
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The company plans to publish the following financial reports: Three month report 2014 (Jan–Mar 2014) on 6 May 2014 Six month report 2014 (Jan–Jun 2014) on 19 August 2014 Nine month report 2014 (Jan–Sep 2014) on 4 November 2014 Year-end report 2014 (Jan–Dec 2014) on 10 February 2015
Tethys Oil provides continuous operations updates and reports major developments in accordance with the listing agreement with NASDAQ OMX Stockholm.
We have closed the books for yet another year. When we summarize 2013, we can conclude that Tethys stands stronger than ever before, both operationally and financially. And let me specially welcome all the new friends and investors that have joined us since Tethys was listed on the MidCap segment of the main market of NASDAQ OMX Stockholm stock exchange in May last year. Since the listing, the overall number of shareholders in Tethys has increased by almost 50 per cent.
2013 was the first year we knew we had all of Blocks 3 and 4 to work on for a long time. Priority number one for 2013 was to stabilize and if possible increase production as water injection and other optimization efforts gained ground. In this respect we were spectacularly successful. We have increased our production from Blocks 3 and 4 onshore Oman by 24 per cent to 1.7 million barrels of oil, corresponding to 4,556 barrels of oil per day ("bopd"). With the discovery of the Lower Buah as reservoir in area 4, production at year end reached new heights. In 2014, we have reported record production three month in a row. We are now close to bring our average daily production above 7,000 bopd.
The increased production, combined with continued high average oil prices of USD 107 per barrel, resulted in a revenue growth to MSEK 592. The year ended with record net sales during the fourth quarter and a healthy EBITDA margin of 77 per cent of revenues.
The production increase in late 2013 and early 2014 is primarily a result of the successful exploration and appraisal work on area 4 on Block 4. The producing Lower Buah reservoir has so far exceeded our expectations and is rapidly turning into our best producing reservoir. This illustrates the need for continued exploration on the Blocks to support our growth. Our second priority for 2013 was to expand the seismic coverage. Which we did. We acquired 1,671 square kilometres of 3D seismic and 850 square kilometres of 2D seismic. The results from the studies are very promising and we have mapped a large number of new prospects.
In 2013, we also reported our first reserves, turning Tethys into a real oil upstream oil company with production, reserves and lots of exploration potential. During the year we increased our 1P reserves with 200 per cent and our increase in 2P reserves represents an internal reserve replacement ratio of 153 per cent. We now stand at 10.8 million barrels of oil ("mmbo") of 1P, 15.2 mmbo of 2P and 20.0 mmbo of 3P.
All in all 35 wells were drilled in 2013. A majority of the wells were injection or water wells associated with the water injection programme on the Farha South field.
As we have entered 2014, we are in a position to grow the company faster than we imagined a year ago. We have budgeted for a CAPEX net to Tethys of MUSD 60 (or almost MSEK 400). About 60 per cent will be spent on continued development, including the final phase of the Farha South water injection programme and the drilling of additional production wells in all three producing areas. The number 4 area is planned to be connected to the processing plant at Saiwan East, and facilities will be continually upgraded to handle increased production.
We will increase the exploration / appraisal programme in 2014, and wells will be drilled in many areas of the blocks, including the South Farha South area and the Lower Buah prospects. We also plan to spud the first Masira Graben exploration well before summer. This is a previously undrilled area, and the uncertainty is higher.
At current production and prices we are able to fully fund Block 3 and 4 activities from our cash flow. After years of first developing the infrastructure of our Omani fields and the increase and stabilization of high production through water injection, we will also be able to set money aside for a rainy day. We have called an early redemption of our bond and have put a credit line in place offering leverage. With cash in hand and a strong belief in the growth prospects of Tethys, we believe we should be in a position to return some money to shareholders while still strengthening our exposure to growth. To achieve this, we propose to make available a share buyback facility to be used if opportunity arises. We can see no stronger way to reiterate our strong believe in the growth prospects for Tethys. In Oman, and maybe – in the future – in other parts of the world.
Amid all this success and confidence in the future, we have also faced tragedy on a personal level. Our former chairman and founder Vince Hamilton passed away on 10 March 2014, after losing his battle against cancer. Vince left the day-to-day
business of the company in October last year, but his brilliant geological mind was still with us. And still is. Not least in what is proving to be the largest single discovery in Oman made by us so far, the Lower Buah formation in the B4EW4 structure (exploration area 4). Vince was instrumental in having this structure drilled, and he followed the appraisal drilling as late as February this year. We continue to work in his spirit, and take our lead from his knowledge of geology. Vince has inspired a new generation of Tethys staff, and we are confident we can continue to grow the company along the same line that we have for these this first ten years as a public company.
Tethys was listed on First North in April 2004. Operations evolved quickly, but success was not imminent. But now I put this year's annual report in your hands, which gives evidence of a very successful 2013. So stay with us. We owe it to Vince, and all our friends and investors, to become even more successful in the future. We are here to keep growing and we have the means to do so!
Stockholm in April 2014
Magnus Nordin Managing Director
Tethys Oil was founded
Award of first licence in Denmark
Acquisition interests in Turkey and Denmark
Acquisition of interests in Spain
IPO and listing on First North
Award of licence in France, Attila
Award of licence in Oman, Block 15
First Company-operated well drilled in Denmark
Drilling starts in Block 15. The reservoirs produced hydrocarbons of good quality
Acquisition of interests in Blocks 3 & 4 in Oman.
Award of licence on Gotland in Sweden
Encouraging results from appraisal drilling on Block 3 & 4
20 per cent of Blocks 3 & 4 farmed out to Mitsui
Early production from Blocks 3 & 4 begins
Farha South field on Block 3 expands rapidly
Acquisition of additional licence in France, Bassin d'Ales
Three year extension of the licence for Block 15
Field development plan approved for Blocks 3 & 4
Vincent Hamilton, Tethys Oil's cofounder and previous chairman passed away in Geneva on Monday March 10, 2014, at the age of 50. Vincent Hamilton co-founded Tethys Oil in 2001 and was the company's chairman from its inception until October 2013.
Vincent sold his entire holding of Tethys shares and resigned as chairman in October 2013. He left Tethys in order to work to support and fund the medical research foundation Victory NET, which he recently founded. The purpose of the foundation is to find new treatments for neuroendocrine tumors (NETs). Vincent Hamilton passed away after a long battle against neuroendocrine cancer.
He is survived by his wife Mona and their three children.
In Spain, 2007
At Møns Klint in Denmark, 2005 In France, 2007
Tethys Oil shall have a well-balanced and self-financed portfolio of oil and natural gas assets. The company also aims to conduct business in an economical, socially and environmentally responsible way, to the benefit of all stakeholders.
The company's strategy is:
In the company's existing assets, a proactive role with strategic partners is key to maximizing the potential of the projects. Growth will primarily come from appraisal projects where oil has previously been discovered, but was deemed sub-commercial for various reasons.
Tethys Oil has licencens in three countries: Oman, Lithuania and France. Two of the licences are in production, Blocks 3 & 4 in Oman and Gargzdai in Lithuania. During 2013 the company also had licenses in Sweden, which have expired and were not renewed. On the French licences, the work programmes have been delayed primarely for political reasons. It is unclear when the work programme can be resumed.
| Country | Licence | Area km² | Interest % | Phase | Partners |
|---|---|---|---|---|---|
| Oman | Blocks 3&4 | 34,610 | 30 | Production | CCED, Mitsui, Tethys Oil |
| Oman | Block 15 | 1,389 | 40 | Exploration | Odin Energy, Tethys Oil |
| Lithuania | Gargzdai | 884 | 25* | Production | Odin, GeoNafta, Tethys Oil |
| Lithuania | Rietavas | 1,594 | 14* | Exploration | Chevron, Odin, Tethys Oil |
| Lithuania | Raseiniai | 1,535 | 26* | Production | Odin, Tethys Oil, private investors |
| France | Attila | 1,986 | 40 | Exploration | Galli Coz, Tethys Oil |
| France | Alès | 215 | 37,5 | Exploration | Tethys Oil, Mouvoil |
* The interest in the Lithuanian licences are held indirectly
Tethys Oil's net working interest reserves in the Sultanate of Oman as per 31 December 2013, amounted to 10.8 million barrels of oil ("mmbo") of proved reserves (1P), 15.2 mmbo of proved and probable reserves (2P) and 20.0 mmbo of proved, probable and possible reserves (3P).
(Audited by DeGolyer and MacNaughton)
| mmbo | 1P | 2P | 3P |
|---|---|---|---|
| Total 31 Dec 2012 | 5.3 | 14.3 | 18.7 |
| Production 2013 | -1.7 | -1.7 | -1.7 |
| Revisions | 5.7 | 0.1 | -1.6 |
| Discoveries* | 1.5 | 2.5 | 4.6 |
| Total 31 Dec 2013 | 10.8 | 15.2 | 20.0 |
* 2P discoveries are almost entirely from exploration area 4 on Block 4 (B4EW4), Oman.
In 2013 Tethys Oil added 1P reserves of 7.2 mmbo, representing an increase of 200 per cent. The company added 2P reserves 2.6 mmbo, representing an increase of 21 per cent. The 3P reserves increased with 3.0 mmbo, representing an increase of 16 per cent. The increase in 2P reserves represents an internal reserve replacement ratio of 153 per cent.
(Audited by DeGolyer and MacNaughton)
| mmbo | 1P | 2P | 3P |
|---|---|---|---|
| Farha South Field, Oman |
8.9 | 11.7 | 13.5 |
| Saiwan East Field, Oman* |
0.7 | 1.3 | 2.8 |
| Exploration area 4 (B4EW4), Oman |
1.2 | 2.2 | 3.7 |
| Total** | 10.8 | 15.2 | 20.0 |
* Includes B4EW3, Oman.
** Numbers may not add up due to rounding.
The reserves in the Farha South field are from the Barik reservoir section only. The reserves in the Saiwan East field, which includes the B4EW3 area, are in the Khufai reservoir. The reserves in the B4EW4 area are in the Lower Buah reservoir.
The review of the reserves in Oman has been conducted by independent petroleum consultant DeGolyer and MacNaughton ("D&M"). The report has been calculated using 2007 Petroleum Resources Management System (PRMS), Guidelines of the Society of Petroleum Engineers (SPE), World Petroleum Council (WPC), American Association of Petroleum Geologists (AAPG) and Society of Petroleum Evaluation Engineers (SPEE).
Tethys Oil's indirect share of reserves in the Gargzdai license in Lithuania, according to the agreement with Odin Energi A/S, amounts as per 31 December 2012 to 0.8 mmbo of 1P reserves, 1.7 mmbo of 2P and 2.8 mmbo of 3P. Tethys share of the Lithuanian production amounted in 2013 to 46,633 barrels. The review of the reserves in Lithuaniahas been conducted by independent petroleum consultant Miller Lents Ltd.
Proved reserves are those quantities of petroleum which can be estimated with reasonable certainty (more than 90 per cent) to be commercially recoverable from known reservoirs and under current economic conditions and operating methods.
Probable reserves are those unproved reserves which are more likely than not to be recoverable. There should be at least a 50 per cent probability that the quantities are technological and commercially recoverable under current or future economic conditions.
Possible reserves are reserves that are less likely to be available for extraction. Proved plus probable reserves plus possible reserves has a probability of more than 10 per cent that the quantities are technological and commercially recoverable under current or future economic conditions.
Contingent Resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies.
Prospective Resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects. Prospective resources have both an associated chance of discovery and a chance of development. Prospective Resources are further subdivided in accordance with the level of certainty associated with recoverable estimates assuming their discovery and development and may be sub-classified based on project maturity.
Tethys Oil has not announced any current audited numbers of resources in Oman or in Lithuania. A number of in-house estimates however shows that the exploration programme planned for 2014 has the potential to add another 3–20 mmbo net to Tethys from wells to be drilled into new Barik and Lower Buah structures in Block 3 and 4 onshore Oman. Tethys believes it is still too early to assign resource numbers to the exploration wells to be drilled in the Masira Graben area and to test other reservoirs than the known producers, The Barik, the Khufai and the Lower Buah.
Tethys produces oil from two areas, Blocks 3 and 4 onshore Oman and the Gargzdai licence onshore Lithuania. Tethys Oil has 30 per cent interest in Block 3 and 4 Oman and an indirect interest of 25 per cent of Gargzdai Lithuania.
Production in Oman during 2012 was from the Farha South oil field and the Saiwan East oil field. During the first half year 2013, production from the new discovery on exploration area 4 on Block 4 (B4EW4) was added. The producing Lower Buah reservoir has during the year developed into one of the best producing
reservoirs on the Blocks. The implementation of water injection on Farha South has stabilized an increased production from this field. At year end, approximately 70 per cent of the water injection programme was implemented. Infill production drilling both in the Barik fault blocks of the Farha South field as well as in the Khufai layer of the Saiwan East field have also contributed to the year's production.
The production in Oman for the full year 2013 amounted to 1,663,069 (1,345,854) barrels, a growth of 24 per cent compared to 2012. Compared to December 2012, Block 3 and 4 production increased by 40 per cent from 4,420 bopd to 6,203 bopd in December 2013.
Production from the Gargzdai licence in western Lithuania has continued to decrease from 144 bopd in fourth quarter 2012 to 114 bopd in fourth quarter 2013. This decline is slightly steeper than expected, and remedial efforts are planned. Tethys Oil's interest of 25 per cent in Gargzdai is held indirectly through Odin Energi A/S, an associated Danish company.
The Sultanate of Oman is located on the tip of the eastern Arabian Peninsula, neighbouring United Arab Emirates in the northwest, Saudi Arabia in the west and Yemen in the southwest. The coast is formed by the Arabian Sea on the south and east and the Gulf of Oman on the northeast, with a coastline of 2,092 kilometres. The area of Oman amounts to 212,500 square kilometres. The capital is Muscat and the population amounts to 3.3 million.
Oman has been an exporting oil country since the early 1970's, but in comparison with other Gulf states the production is smaller. In 2012 about 922,000 barrels per day (BP Statistical Review of World Energy June 2013), about half of the Norwegian oil production. Like many countries in the region, Oman is highly dependent on its hydrocarbons sector.
Oman's Ministry of Oil and Gas coordinates the state's role in the country's hydrocarbon sectors. Petroleum Development Oman (PDO) holds the vast majority of Oman's oil reserves and is responsible for 70 per cent of its production, according to the Middle East Economic Survey. In addition to the government's 60% ownership stake in PDO, Shell (34%), Total (4%), and Portugal's Partex (2%) all own
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stakes in PDO. The main oil production is concentrated to the western parts of the country. (Source: EIA Independent Statistics & Analysis)
Oman is an important crude oil exporter, particularly to Asian markets. In 2012, over 95 per cent of the country's oil exports went to countries in Asia, with half going to China. The exported crude is called Oman blend.
Blocks 3 & 4 are located in the eastern part of Oman and covers an area of 34,610 square kilometres, corresponding to an area the size of Belgium. Tethys Oil is one of the largest concession holders in Oman. Tethys has a 30 per cent interest in the Blocks. Partners are Mitsui (20 per cent) and the operator CC Energy Development S.A.L (Oman branch) (50 per cent). The production licences are valid until 2040. CCED is operator.
Block 15 is situated in the north western part of central Oman and covers an area of about 1,400 square kilometres. Tethys Oil has a 40 per cent interest in the licence and Odin Energi the other 60 per cent. The licence is valid until October 2014.
Source: BP Statistical Review of World Energy June 2013
A licence is usually divided into two parts – an exploration licence and a production licence. A company normally has to undertake certain work within an area during a specified period of time in order to receive an exploration licence. These work commitments are normally geological, geochemical or geophysical studies (seismic studies) and drilling operations. Oil companies do not necessarily have to pay money in order to receive exploration licences. Payment is instead the commitment of work. In some cases, a licence fee to the host country is statutory.
If commercial volumes of oil or natural gas are discovered, the exploration licence converts into a production licence, where a royalty and/or a tax is applicable, or a production sharing agreement, where a certain share of the recovered oil or natural gas goes directly to the country. The division of oil and natural gas between the licencee and the country in a production licence varies widely throughout the world. The duration of a production licence is usually 20–30 years.
Block 15
Block 3
Block 4
Muscat
With a steadily increasing production since the field came on stream in 2010, the Farha South oil field has turned into the cash flow generating center of Tethys' Omani operations. The revenues from Farha South has financed the development of the field and the further appraisal and exploration of the blocks.
The first well to be drilled on Block 3 and 4 with Tethys as partner was the Farha South-3 well in early 2009. The well was a delineation well to the discovery well, made by an earlier operator, and the drilling target was the Lower Al Bashir sandstone formation at a depth of around 1,900 metres. A production flow with very high quality oil of some 750 bopd was also recorded from the Lower Al Bashir reservoir. However, oil shows were also observed whilst drilling in the shallower Barik sandstone. The Barik layer was tested with a down hole Electrical Submersible Pump (ESP) and flowed in excess of 1,000 bopd. The oil from the Barik layer is of high quality, more than 40 degrees API and does not contain any sulfur. All though the Lower Al Bashir flowed on test, a long term production test has revealed the reservoir to be tight. The Barik however, has since it was put on long term production test, proved itself to be a reliable producer. The main part of Tethys' oil reserves are located in the producing Barik sandstone at the Farha South oil field.
The Barik sandstone is a fine grained, porous sandstone in several layers, separated by tight layers. The Barik layer in the Fahra South oil field is not one large continuous reservoire. The oil is instead trapped in smaller, usually adjacent fault blocks. These faults are relatively small and 3D seismic has been essential in the mapping of drillable fault blocks. By year end 2013, a total of 16 fault blocks are in production.
The low content of gas combined with the absence of a water drive in the Barik layer, which gives a natural pressure support, make pumps and water injections necessary to reach a satisfactory production and extraction rate. The work programme in 2013 was largely focused on expanding the water injection programme on the Farha South field. A total of 18 water injection wells and 5 water supply wells were drilled on the field.
A large 3D seismic programme was conducted in 2013, covering 510 square kilometres of the area south of the current production area. In 2014, wells are planned to be drilled in undrilled fault blocks in this southern extension of the field. If the wells drilled in the South Farha South area, as the new area is called, are successful, it will be a strong indication that the Farha trend extends into the south outside the currently producing area.
A completely new pilot programme will also be initiated to better understand the Lower Al Bashir reservoir. In addition to the flows established on the Farha South oil field, it also flowed at the exploration area number 4 area on Block 4. It is however a tricky reservoir. If successful, the Lower Al Bashir could turn into a major asset.
Geological formations is natural formations and structures in the rock and ground which have occurred as a result of usually very slow geological processes of different kind and ages.
A formation is a rock unit that is distinctive enough in appearance that a geologic mapper can tell it apart from the surrounding rock layers. The thickness of formations may range from less than a meter to several thousand metres. The term "formation" is often used informally to refer to a specific grouping of rocks, such as those encountered within a certain depth range in an oil well.
On Blocks 3 & 4 in Oman, reservoirs in formations like Khufai, Barik, Lower Al Bashir, Buah and Masirah Bay have been explored. Currently the production comes from reservoirs in Khufai, Barik and Lower Buah.
Other formations where Tethys Oil has encountered oil is for example Lower Al Bashir and Masirah Bay.
Situation end December 2013
Oil producing fault blocks Drilled fault blocks Prospective fault blocks Faults
4 km
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Water injection is a method to increase oil recovery from an existing reservoir. Water is injected to support pressure of the reservoir and to sweep or displace oil from the reservoir, and push it towards a well. Normally only 30 per cent of the oil in a reservoir can be extracted, but water injection increases that percentage and maintains the production rate of a reservoir over a longer period.
The Saiwan East area is both very promising and very complicated. From this area, Tethys has had the highest test flows from a new well, when Saiwan East 3 tested over 10,000 bopd. In addition, the area has been estimated to hold over 1 billion of heavy oil in place. However, the natural decline of the Saiwan East oil field wells have been substantial, and the field is now producing at a modest rate from the Khufai carbonate. And the heavy oil will require enhanced oil recovery techniques in order to maybe be able to flow to surface.
The producing Khufai limestone in the Saiwan East oil field was discovered in 2009. The targets of the Saiwan East-2 well was to evaluate the oil findings made by previous operators in the Miqrat-, Amin- and Buah layers. An over 400 metres column of heavy oil saturation in the target formations was also confirmed. The new oil discovery of lighter oil in the Khufai was however made when the well was drilled deeper than originally planned. In the subsequent Saiwan East-3 well, the Khufai flowed in excess on 10,000 bopd on test. The Khufai limestone at about 1,600 metres depth has however turned out to be more complex than first anticipated. The various densities in different areas of the field seem to have big impact on where conventional oil has been found. The results from the Saiwan East-4 well underscored both the complexity and the potential of the field. SE-4 encountered unexpectedly large quantities of oil with different gravities and viscosities than previously believed possible.
The oil produced at the Saiwan East oil field oil has a density of 32 degrees API with some sulfur content. 3D seismic is essential to identify structures and faults and possible oil bearing fractures.
When drilling on Saiwan East, and also on the exploration areas on Block 4 drilled in 2013, more or less heavy oil is encountered. It is estimated that the heavy oil play could hold some 1 billion of oil in place. But heavy oil has a higher density than light crude, and commercial production is often more complicated. Testing operations with the objective to verify mobility of the heavy oil and to assess possible production rates has been conducted. The results were cautiously encouraging. Liquid samples were obtained. However, the results suggest that any potential production from the heavy oil in Saiwan East will require enhanced oil recovery techniques.
No additional tests on the heavy oil are planned for the near future, with plenty of other possibilities on the blocks that have higher chance of resulting in an immediate cash flow. But the heavy oil of the area is a challenge and big opportunity.
Both the light sweet crude and the heavy oil constitute large possibilities for the future. In light of the strategy, to priority drilling of wells with high chance of success that could be put on stream fast, no near time activity is planned at the Saiwan East oil field.
The Lower Buah oil discovery was made in March 2013. During the year, it was appraised with five more wells, and is rapidly turning into a major production area. Not only has the Lower Buah reservoir already created substantial cash flow, it has opened up a totally new oil play. A similar Lower Buah structure was discovered in 2014, and more leads are planned to be tested with the drill bit during 2014.
In late 2012, an exploration well was spudded on area 4 on Block 4 (B4EW4). The well targeted five potential reservoir formations, four of which are proven hydrocarbon bearing reservoirs in other locations in Oman. Three month later, the well flowed close to 3,000 bopd on test from, and a new prolific layer had been discovered, the Lower Buah.
The well was drilled on a dense grid of high quality 2D seismic data approximately 20 km west of the Saiwan East oil field. The well was drilled to a final total depth of 3,030 metres. Strong oil shows were recorded during drilling in the Lower Al Bashir, Buah, Khufai and Masirah Bay formations. The testing program was designed to evaluate the Khufai and Buah reservoirs.
In 2013, the area 4 discovery was appraised with five additional wells. Three wells were drilled in the Lower Buah layer, all of which with good flows ranging from 1,000 to in excess of 3,000 bopd. The strategy with the appraisal has been to gradually expand the appraised area, with the target to first increase production and get cash flow. In the reserve report as per 31 December 2013, Tethys had 2.2 mmbo of proven and probable oil reserves in the area 4 discovery. However, the oil water oil contact has so far not been determined. In 2014, the so far most aggressive step out well was spudded, the B4EW4-7 appraisal well. This well could have a significant effect on the reserves.
A new exploration well spudded in August 2013 on a look alike structure to B4EW4 designated area 5 (B4EW5). The new structure was identified from new 3D seismic and located some 7 km south of B4EW4 also in block 4. The B4EW5 well primarily targeted the Lower Buah and Khufai sections.
The exploration well was drilled to a total depth of around 3,000 metres and recorded oil shows in five separate formations. The well was completed in the Lower Buah. The B4EW5 discovered oil and proved the viability of the Buah play concept, although the initial flows of some 200 BOPD were a bit disappointing.
In December 2013, a new Lower Buah exploration well was spudded on the area 6 (B4EW6) structure. with similar characteristics to the B4EW4 structure. B4EW6 is located approximately 13 km south of the B4EW4 discovery. The structure was previously undrilled and showed similar characteristics to the B4EW4 structure.
In February, drilling had finished and the well tested in excess of 2,200 bopd from the Lower Buah formation. The well is hooked up to the production system to undergo a long term production test.
An active drilling programme will continue to explore and appraise the Lower Buah play in 2014, with several newly mapped similar structures to be tested by the drill bit.
Exploration area 4
Exploration area 5
Exploration area 6
3 km
Block 15 is situated in the north western part of central Oman and covers an area of about 1,400 square kilometres. Tethys Oil has a 40 per cent interest in the licence and Odin Energi the other 60 per cent. The licence is valid until October 2014.
Block 15 was Tethys first licence in Oman, and since the drilling of Jebel Aswad-1 (JAS-1) in 2007, which flowed 2,626 boepd on test from the Natih limestone reservoir, Oman has been Tethys core area. JAS-1 was followed by JAS-2 in 2008, which tested only water.
Since 2009, Tethys' investments in Oman have been focused on Block 3 and 4, but in the summer of 2013, a long term production test commenced using a Early Production System. The testing continued into the fourth quarter, however with disappointing results. Production from the JAS-1 well fell from 200 barrels per day of condensate to less than 20 barrels per day. The sidetrack to the JAS 2 well which was completed in early October underwent extensive testing from several layers but flowed only water. Consequently both wells have been suspended and the production test terminated.
The evaluation of the JAS structure suggested that the amounts of hydrocarbons present were too small to be commercially viable, partly given the tightness of the reservoir. Attention is to turn back to further evaluation of other opportunities on Block 15.
The terms of the agreement with the Omani government typically allows the holder of the licence to recover their costs up to 40 per cent of the value of total oil production. This is referred to as cost oil. After deducting any allowance for cost oil, the remaining oil production is typically split 80/20 between the government and the joint venture partners. If there is no cost oil to be recovered, the joint venture partners receive their share of 20 per cent of the oil produced. The terms of the agreement thus result in the joint partnership's share of production in the interval 20–52 per cent, depending on available recoverable cost. So far on Blocks 3 & 4, Tethys and its partners share has been in the high end of the interval, 52 per cent. The estimated recoverable costs as per 31 December 2013, net to Tethys Oil, amounted to MUSD 77.
Tethys' share of oil produced on Blocks 3 & 4 is sold to Mitsui and the sales volume is estimated three months in advance. The selling price received by Tethys Oil is determined for each calendar month based on the monthly average prices of the two month future price of Omani Blend. The Omani Blend and hence Tethys Oil's achieved oil price is therefore typically priced with a two month lag to spot prices. During the twelve month period 2013, prices have been trading between high levels of around USD 115 per barrel and low levels of around USD 97 per barrel. The oil produced on Blocks 3 & 4 is of higher quality than Omani Blend. Because of the better quality, Tethys Oil receives a premium compared to Brent. The premium was in 2013 around USD 1.00 per barrel.
Due to high exploration costs, oil companies often co-operate. A typical oil concession could be held by five different companies with 20 per cent each in the licence. The company with the operating responsibility, called the operator, can either carry out the work themselves or acquire the services on contract. The operator is responsible for the day-to-day operations, and has the overall responsibility for implementing the work programme approved by the license partners.
The Japanese company Mitsui is a multilateral company pursuing business that ranges from product sales, worldwide logistics and financing, through to the development of major international infrastructure and other projects in the following fields: Iron & Steel Products, Mineral & Metal Resources, Infrastructure Projects, Motor Vehicles & Construction Machinery, Marine & Aerospace, Chemicals, Energy, Food Resources, Food Products & Services, Consumer Services, IT, Financial & New Business and Transportation Logistics. www.mitsui.com
CC Energy Development (CCED) is a part of Consolidated Contractors Company (CCC). CCC is the largest engineering and construction company in the Middle East. The CCC Group has expanded to include several subsidiaries, augmenting CCC's regional and international status. Today, CCC leads the industry in the adoption of new technology to improve construction efficiency and enhance project controls. www.ccc.gr
Chevron is a US based company and one of the world's leading integrated energy companies and conducts business worldwide. Chevron is involved in virtually every facet of the energy industry. Chevron explore for, produce and transport crude oil and natural gas; refine, market and distribute transportation fuels and lubricants; manufacture and sell petrochemical products; generate power and produce geothermal energy; provide energy efficiency solutions; and develop the energy resources of the future, including research for advanced biofuels. www.chevron.com
Odin Energi A/S is a privately owned Danish Exploration and Production company with producing assets in Lithuania and Russia and appraisal assets in Oman & offshore Latvia.
www.odinenergi.com
Geonafta is a Lithuanian company and one of the leading oil production companies that is distinguished for the stability and versatility of its activities. The company not only carries out oil exploration, prospecting and production in the licenced areas owned by the company, but also provides deep drilling and other services related to oil works to other oil companies in Lithuania.
www.geonafta.lt
| Licence | Area, km² | Interest, % | Partners | Expiration date |
|---|---|---|---|---|
| Gargzdai | 884 | 25 | Odin Energi, Geonafta | Until further notice |
| Rietavas | 1,594 | 14 | Odin Energi, Chevron, private investors | Sept 2017 |
| Raseiniai | 1,535 | 26 | Odin Energi, private investors | Sept 2017 |
Tethys Oil holds indirect interests in three Lithuanian licences. All licences are onshore and cover some 4,000 square kilometres of the Baltic Sedimentary Basin. Tethys Oil has an indirect ownership of 25 per cent in the Gargzdai licence, 14 per cent in the Rietavas licence and 26 per cent in the Raseiniai licence.
In contrast to Oman, where the licences are owned directly by the joint venture company, the Lithuanian interests are owned indirectly through shares in Odin Energi and Jyllands Olie. These companies hold shares in Lithuanian companies UAB Minijos Nafta (Gargzdai) and UAB TAN Oil (Rietavas and Raseiniai).
Oil was discovered in Lithuania some 60 years ago, but the current production is minor and the production is located in the western part of the country. The oil is located quite deep and the production comes from a number of small fields.
Oil shows were first encountered in Lithuania in sedimentary rocks dated as latest Ordovician to earliest Silurian in well Vilnius-1 in 1949, and extensive oil exploration began in 1958. The first oil commercial accumulation in Silurian carbonate reservoirs, Kudirka, was discovered in 1983.
The carbonate reservoirs were found to vary in quality and the reservoirs in central and southern Lithuania are showing the most favourable characteristics. These reservoir units are considered to be the most prospective for oil exploration. Lithuanian crude oil is of rather high quality and almost without sulphuric impurity and the expenses incurred during the refining process are far lower than the norm.
Lithuanian oil production had its peak at the millennium, when the production amounted to close to 10,000 barrels of crude oil per day. In 2012 the number was 2,000 barrels per day. (EIA) The main reason for the decrease is depletion of the
current oil sources and slow progress in oil exploration.
The Garzdai licence is located in the western part of Lithuania and covers an area of 884 square kilometres. The licence is Tethys Oil's second producing licence. Tethys indirect ownership in the licens is 25 per cent and Lotos Geonafta is operator.
The licence is producing a stable but somewhat declining amount of oil. The oil produced at the Gargzdai licence has an API of about 42 degrees and is normally sold on weekly basis to a nearby refinery. The price is based on and set close to the daily Brent price.
Tethys share of the Lithuanian production in 2013 was on average 128 barrels of oil per day.
A pilot CO2 production enhancement project has been carried out and is under evaluation. Existing seismic data has also been re-interpreted to identify additional possible locations for infill drilling. In addition, at least two undrilled structures remain on the license, both of which are being surveyed for potential drilling locations.
The Rietavas licence is located east of Gargzdai and covers an area of 1,594 square kilometres. Tethys indirect ownership is currently 14 per cent and Chevron acts as operator. Chevron has further obtained an option to acquire additional interest in the Rietavas licence at a predetermined price, to be exercised within three years. If the option is exercised, Tethys indirect interest in the Rietavas licence will be reduced to 5.6 per cent. The licence is valid until 2017.
The Rietavas licence has oil discoveries in the Cambrian sandstonesand is yet quite unexplored.
The exploration and appraisal work on the Rietavas license, fully financed by Chevron, has continued. On the Silale oil field, the old well Silale-1 was re-opened in January 2012, and during the second quarter an appraisal well Silale-5 was drilled 1.5 kilometres west of Silale-1 to further appraise the Silale field. The Cambrian sandstones are oil bearing in both wells, and the wells have been in intermittent production throughout the year yielding a small cash contribution from oil sold. Cores were taken in Silale-5, and are now being analysed and the production data is continually being evaluated.
Outside the Silale area, in the north eastern corner of the Rietavas license some 20 kilometres from Silale-5, a further exploration well – Rietavas-1- was drilled during the fourth quarter. The well reached its total depth in the Cambrian sandstones and a full set of cores from the Cambrian as well as the overlying shale were recovered and is undergoing analysis.
The work programme in Rietavas licence is expected to continue in 2014, and preparations are currently ongoing for a further exploration well in the southern part of the licence, south of the Silale field. Preparations for a 3D seismic programme are also in progress. The work programme is fully funded by US oil major Chevron.
The Raseiniai licence is the most eastern of Tethy's licence interests in Lithuania. The
licence covers an area of 1,535 square kilometres and Tethys's indirect ownership is 26 per cent. Odin Energy is the operator. The licence is valid until 2017.
The Raseiniai licence covers a so far unexplored trend of Silurian reefs similar to, but expected to be of larger size, the Ordovician reefs found on Gotland. The Silurian/ Ordovician shale section is present also in the Rietavas and Raseiniai licences.
On the Raseiniai license, the acquisition of data in a partly EU funded 3D seismic study covering 80 square kilometres has been completed in the fourth quarter. The seismic study is partly EU funded and aims to define oil traps and to identify potentially oil bearing fracture systems.
The Lapgiriai-1 well was drilled on the licence in the second quarter to a total depth of 1,129 metres. The well confirmed the presence of oil in the Silurian lime stone formation and during subsequent production testing small amounts of oil were produced to surface.
Tethys has interests in two French licences. The licence Permis du Bassin D'Alès, anexploration and production licence in the Alès basin in southern France. The Attila licence is located in the oil and gas producing Paris basin, some 250 kilometres east of Paris.
Currently there are no on-going activities on the French licences. Due to political reasons, it is uncertain if or when any oil and gas exploration can be conducted in France.
| Licence Area km² |
Interest % | Partners | Expiry date | |
|---|---|---|---|---|
| Attila | 1,986 | 40 | Galli Coz | 2015 |
| Alès | 215 | 37,5 | MouvOil | 2015 |
An oil company having business in different parts of the world will sooner or later meet issues about Corporate social responsibility ("CSR"), where environment of course is the most obvious. Tethys Oil always strives to conduct the business in an economically, socially, and environmentally responsible way. The ethical requirements are the same regardless of where in the world the business takes place. The company will always follow good oilfield practice and act as good citizens and will under all circumstances aim to follow the best available practices, even if this will go beyond local laws.
In an oil project the operator is the main responsible for the day to day work and the business on the site. Tethys Oil is currently not acting as operator in any of its active assets. The activities in Tethys different projects are therefore decided in cooperation with partners and primarily the operator. Assets not operated by Tethys are independently reviewed by Tethys Oil out of a HSES (health, safety, environmental and social) perspective and Tethys will closely monitor any contractor or operator. Wherever changes can be favourably employed, such will be recommended. Most countries today have strong environmental laws and standards which of course are a great help to an oil company in assuring correct practises are followed. Tethys Oil's guidelines for CSR and how the company and its employees shall behave are described in the company's CSR policy which permeates the total business and is a part of the corporate culture.
The agreements that Tethys Oil has with the host nation and its partners prescribes that the licence owner commits to be careful with the environment, surroundings and the people in the neighborhood who will be affected and all the work in the area will be done by "good oil praxis". All subcontractors that are used are subject to the same conditions. In Oman, preference shall be given to Omani contractors and Omani Nationals. The company shall also establish a fund for the Ministry of Oil and Gas. This fund will be used for internal and external training courses, participation in international seminars, contribution to scholarships etc, which can support the oil industry.
According to the Joint Ventures Agreements, the operator must implement a HSE plan that follows both international and local standards for the oil industry. A programme for follow up and evaluation of the HSE plan has to be included.
Global oil production
Source: BP Statistical Review of World Energy June 2013
The global oil production increased in 2012 by 2.2 per cent. The key drivers of long-run oil supply include oil prices, exploration and development of new and existing reserves, behavior of key OPEC member countries, technological innovation in the petroleum supply chain, and geopolitical events.
Technological innovation in the petroleum and other liquids supply chain is the key component of the shift to diversified supply sources. Increases in supply come inter alia from new ways of appraising wells, such as 3D seismic imaging, from new drilling and completion techniques, such as horizontal drilling and multi-stage hydraulic fracturing.
Advances in technology make production in previously inaccessible regions more feasible, while higher oil prices make production in those regions economically viable. At the same time, the rising complexity of the energy sector increases the costs of oil extraction. Annual capital spending for the industry has more than tripled in the past 10 years, to USD 550 billion in 2011, while the amount of oil produced per dollar of investment has declined.
Regardless of other supply developments that have recently gained considerable market attention, including tight oil in the United States and bitumen from oil sands and tar sands in Canada, OPEC petroleum liquids production continues to be critical for world oil markets.
Saudi Arabia, Iran, and Iraq combined have a large share of the world's oil reserves and resources that are relatively easy to produce. Saudi Arabia, for many decades the only holder of substantial spare oil production capacity, has played a critical role as the major swing supplier in response to disruptions in other supply sources and to economic fluctuations affecting oil demand. Both Iraq and Iran have the reserves and other resources needed to raise their capacity and production well above current levels if they can successfully address some of the internal and external "above-ground" challenges that have kept their respective oil sectors from realizing their potential for more than 30 years.
The global oil consumption increased in 2012 by 0.9 per cent. The primary driver of oil consumption growth is the economy, but global demand in the next few years will also be affected by the broader economic impacts of the North American supply revolution. In much of the OECD, relatively slow economic growth and static or declining population levels contribute to declines in liquids consumption. In addition, many OECD governments have
Europe Brent Spot Price FOB (dollars per barrel)
Global oil reserves (thousand million barrels)
adopted policies that mandate improvements in the efficiency of motor vehicles. The United States is the largest liquid fuels consuming nation in the OECD, and it will probably remain so in the foreseeable future.
Virtually all global liquids demand growth comes from non-OECD countries, particularly China and India, as strong economic growth increases consumption in the transportation and industrial sectors. As China's economy moves from dependence on energy-intensive industrial manufacturing to a more service-oriented economy, the transportation sector becomes the most important source of growth in liquid fuels use. This trend will likely continue in the future, with producers in Russia and Central Asia also increasing production in the eastern regions of the two countries to meet new Asian demand.
Rising prices for liquids increase the costcompetitiveness of other fuels, leading many users of liquids outside the transportation and industrial sectors to switch to other sources of energy when possible.
After experiencing exceptional volatility during the 2008 financial crisis, oil prices have been more stable in the last two years. Unrest in North Africa and the Middle East, along with prospects for improved economic growth in the years that followed the global recession of 2008-2009, have helped keep prices relatively high.
The average oil price for Brent oil in 2013 was USD 108.55 per barrel which is lower relative to the 2012 (USD 111.57). The high price level in recent years, has enabled production of oil from discoveries previously not commercial recoverable. Example of such high cost categories are unconventional reservoirs such as shale oil, oil sands and deep water reservoirs.
Liquid petroleum pumped from a well is called crude oil. Crude oil consists of mostly hydrocarbons, but to different extent also of oxygene, nitrogen and helium. The oil industry normally names the oil from its geographical origin, for example West Texas Intermediate (WTI), Brent and Omani Blend. Crude oil is also classified after its chemical composition, primarily density and sulfur. Crude oil with low sulfur content is classified as sweet and crude oil with low density as light. The density of crude oil is measured in relationship to the density of water according to American Petroleum Institute (API); if the oil's API is higher than 10 it is light and would float on water. If the density is lower than 10, it's heavy and would sink. Sweet and light oil is considered more attractive since it requires less refining than sour and heavy oil.
Around one-half of the world's proved oil reserves are located in the Middle East, and 80 per cent are concentrated in eight countries, of which only Canada and Russia are not OPEC members. In the end of 2012, proved world oil reserves, as reported by BP statistical review, were estimated at 1,669 billion barrels – almost 1 per cent higher than the estimate for 2011. Most increases in proved reserves since 2000 have come from revisions to reserves in discovered fields rather than new discoveries. Proved reserves of crude oil are the estimated quantities that geological and engineering data indicate can be recovered in future years from known reservoirs, assuming existing technology and current economic and operating conditions.
Shale oil is a so called non-conventional oil. Unlike conventional drilling, done by a vertical drilling straight down in the underground to the liquid oil, the shale oil is not found in reservoars, but in small porous accumulations in the shale. This means that horizontal drilling must be added and water and chemicals have to be used together with high pressure to crack the shale and release the oil and gas.
When considering shale resources, it is important to distinguish between technically recoverable resources and economically recoverable resources. Technically recoverable resources represent the volumes of oil and natural gas that could be produced with current technology, regardless of oil and natural gas prices and production costs. Economically recoverable resources are resources that can be produced profitably under current market conditions. The economic recoverability of resources depends on three main factors:
Experience with shale gas in the United States and other countries suggests that economic recoverability can be influenced significantly by both above-ground factors, as well as by geology. Key positive aboveground advantages in the United States and Canada that may not apply in other locations include major private ownership of subsurface rights (often by surface owners) that provides a strong incentive for development, availability of many independent operators and supporting contractors with critical expertise and suitable drill rigs, preexisting gathering and pipeline infrastructure, and availability of water resources for use in hydraulic fracturing.
Given variation across shale formations in both geology and above-ground conditions, it is not clear that similar proportions of technically recoverable resources will prove to be economically recoverable across different shale formations. Tight oil and shale gas resources have been revolutionary in the United States—providing 29 per cent of the country's total crude oil production and 40 per cent of its total dry natural gas production in 2012—because they have proven to be quickly producible in large volumes at relatively lower costs than the large amounts of other types of oil and natural gas resources that had been identified previously.
Source: EIA Energy Outlook if nothing else is quoted
Source: EIA/ARI World Shale Gas and Shale Oil Resource Assessment.
Note that this map shows a distorted projection of the world, where northern landmasses are exaggerated.
29
Corporate governance practices refer to the decision-making systems through which owners, directly or indirectly, control a company. Tethys Oil AB is a publicly traded company listed on NASDAQ OMX Stockholm, Mid Cap. Tethys Oil adheres to the Swedish Code of Corporate Governance ("the Code"). The code is published on www.bolagstyrning.se , where a description of the Swedish Corporate Governance model can be found. This Corporate Governance Report 2013 is submitted in accordance with the Swedish Annual Accounts Act and the Code. It explains how Tethys Oil has conducted its corporate governance activities during 2013. Tethys Oil does not report any deviations from the code. The report has been reviewed by the company's auditors, please see page 35.
External:
Swedish Companies Act
Swedish Code of Corporate Governance
Articles of Association
Board instructions, Rules of procedures
Polices such as Administration Policy, Hedging Policy, Information Policy, CSR Policy etc
Tethys Oil's shares have been traded on the NASDAQ OMX Stockholm since 2 May 2013. Previously the share was traded on NASDAQ OMX First North since 2004. At year end 2013 the share capital amounted to MSEK 5,924, represented by 35,543,750 shares, each with a par value of SEK 0.17. All shares represent one vote each. At 31 December 2013, the number of shareholders was 3,958 (2,655). Of the total number of shares, foreign shareholders accounted for approximately 56 per cent, approximately 79 per cent of the total shares were owned by legal entities, approximately 21 per cent by private individuals. For further information on share, share capital development and shareholders, see page 37 and Tethys Oil's website.
The Annual General Meeting (AGM) must be held within six months of the close of the fiscal year. All shareholders who are listed in the share registry on the record date, and who have notified the company of their participation in due time, are entitled to participate in the AGM. The AGM was held in Stockholm on 22 May 2013. The AGM was attended by about 70 shareholders, representing about 34 per cent of the votes and share capital in the company. The resolutions passed by the meeting included the following;
The minutes recorded at the Annual General Meeting can be found at Tethys Oil's website.
In accordance with the Nomination Committee Process approved by the 2013 AGM, the Nomination Committee for the 2014 AGM consists of members appointed by four of the larger shareholders of the Company based on shareholdings as per 30 June 2013. The names of the members of the Nomination Committee were announced and posted on the Company's website on 21 August 2013, i.e. within the time frame of six months before the AGM as prescribed by the Code of Governance.
The Nomination Committee for the 2014 AGM has held 4 meetings during its mandate and informal contacts have taken place between such meetings. The Nomination Committee report, including the final proposals to the 2014 AGM, is published on the Company's website together with the notice of the AGM.
The Nomination Committee's assignment is to produce proposals for the following matters, which will be presented to the AGM for resolution:
The work of the Nomination Committee has during 2013 included evaluation of the Board's work, competence and composition, as well as the independence of the members. The Nomination Committee also considered other criteria such as the background and experience and also taken part of the board evaluation.
The nomination committee for the AGM 2014 consisted of the following members:
The articles of association stipulate that the board of directors of Tethys Oil shall consist of no less than three and no more than ten board members with no more than tree deputy board members. Board members are elected for a maximum of one year at a time. The board of directors of Tethys Oil consisted from the AGM 2013 until 11 October 2013 of six directors and no deputies. On 11 October 2013, Vincent Hamilton, the Chairman of the board, resigned. Since then, the board has consisted of five members and Staffan Knafve has been appointed as new Chairman. Four board members are independent from the Company, the Company's management and the Company's larger shareholders, and five board members are independent from larger shareholders/ interested parties.
The Board of directors' work is governed by annually adopted rules of procedure. The Board of directors supervise the work of the Managing director by continually following up the Company's operations. The Board of directors also ensures that the Company's organisation, administration and control are properly managed. The Board of directors adopts strategies and goals and resolves on larger investments, acquisitions and disposals of business activities or assets. The Board of directors also appoints the Managing director and determines the Managing director's salary and other compensation.
The Chairman of the board of directors supervises the work and is responsible for it being well organised and efficient. This entails, among other things, continually following the Company's operations in contact with the Managing director and being responsible for other board members receiving the information and documentation needed to ensure high quality discussions in and well founded decisions by the board of directors. The Chairman is responsible for the evaluation of the Board of directors' and the Managing director's work and represents the Board of directors in ownership matters.
According to the current rules of procedure the board of directors shall, after the constituent board meeting following the AGM, hold a minimum of 7 planned meetings during the financial year.
During 2013 the board held 7 scheduled meetings and 8 extraordinary meetings.
| Name | Independence | Board meetings | Audit committee |
Remuneration committee |
|---|---|---|---|---|
| Staffan Knafve | Yes | 15/15 | 5/6 | 3/3 |
| Magnus Nordin | No | 15/15 | – | – |
| Katherine Stövring | Yes | 15/15 | 6/6 | 3/3 |
| Jan Risberg | Yes | 15/15 | 6/6 | 3/3 |
| Per Brilioth | Yes | 7/8 | 3/4 | 2/2 |
| Vincent Hamilton | Yes | 13/13 | – | – |
| Håkan Ehrenblad | Yes | 7/7 | 2/2 | 1/1 |
| John Hoey | Yes | 7/7 | 2/2 | 1/1 |
| February | Year-end report 2012 |
|---|---|
| March | Policies and strategy |
| April | Annual report 2012, Listing application, Listing prospectus |
| May | First quarter report 2013; Constituent meeting and adoption of manuals and policies |
| June | |
| August | Second quarter report 2013 |
| September | Strategy, financing and hedging |
| October | Resignation of Vincent Hamilton |
| November | Third quarter report 2013 |
| December | Budget 2014 |
The Chairman of the Board is responsible for assessing the Board's work including the performance of individual board members. This is done on an annual basis. The assessment focuses on such factors as the Board's way of working, number of meetings and effectiveness, time for preparation, available competence and individual board members influence of the Board's work. The Nomination Committee takes part of the results, and it is a component in the Nomination Committee's work to submit proposals concerning board members.
The Board has established a Remuneration committee for the period up to and including the AGM 2014, consisting of all board members with the exception of the Managing director Magnus Nordin. Staffan Knafve is the Chairman of the committee. The Remuneration committee convened 3 times in 2013. The work has mainly focused on establishing principles for remuneration to management and to monitor and evaluate variable remuneration. The Remuneration committee reports to the Board, normally in conjunction with the following Board meeting.
The board has established an Audit committee for the period up to and including AGM 2014, consisting of all board members with the exception of the Managing director Magnus Nordin. Jan Risberg is the chairman of the committee. The Audit Committee convened 6 times in 2013. The work has mainly focused on supervising the Company's financial reporting and assessing the efficiency of the Company's financial internal controls and internal audit, with the primary objective of providing support to the Board in the decision making processes regarding such matters. The Audit Committee also regularly liaises with the Group's statutory auditor as part of the annual audit process and reviews the audit fees and the auditor's independence and impartiality. The Audit committee reports to the Board, normally in conjunction with the following Board meeting.
Pursuant to its Articles of Association, Tethys Oil must have one or two auditors, and no more than two deputies. A registered firm of auditors may be appointed as the company's auditor.
Tethys Oil's auditor is PricewaterhouseCoopers AB with Klas Brand as Lead partner and Johan Malmqvist as partner. PricewaterhouseCoopers AB was elected as the Company's auditor at the AGM 2009.
Tethys Oil AB's auditor: PricewaterhouseCoopers AB
| Klas Brand | Johan Malmqvist |
|
|---|---|---|
| Role | Lead partner | Partner |
| Born | 1956 | 1975 |
| Company Auditor | ||
| since | 2012 | 2010 |
The auditing firm has, besides the audit, conducted a limited number of other assignments on behalf of Tethys Oil. These assignments mainly consisted of services associated with auditing, such as in-depth reviews during audit. Remuneration to the auditors of Tethys Oil is paid in accordance with approved current accounts. In 2013, remuneration to PricewaterhouseCoopers AB amounted to TSEK 1,512. For details on remuneration to auditors, see note 12, Auditor's fees.
The executive management in Tethys Oil consists of the Managing director and the Chief financial officer.
The Board of directors has adopted an instruction for the Managing director which clarifies the responsibilities and authority of the Managing director. According to the instruction, the Managing director shall provide the Board of directors with decision data in order to enable the Board to make well-founded decisions and with documents to enable it to continually monitor the activities for the year. The Managing director shall take the decisions needed for developing the business, within the legal framework, the business plan, the budget and the instruction for the Managing director adopted by the Board of directors as well as in accordance with other guidelines and instructions communicated by the Board of directors.
Remuneration to the executive management includes four main components:
The basic salary shall be in line with market conditions, be competitive, and shall take into account the scope and responsibilities associated with the position, as well as the skills, experience and performance of the executive. The basic salary shall be reviewed annually to ensure that it remains competitive. In order to assess the competitiveness of the salary and benefit packages offered by the Group, comparisons may be made to those offered by similar companies. Executives include managing director and chief financial officer (CFO).
Variable salary to employees will be based upon their individual contribution to the Compa-ny's performance. The yearly variable salary for executives shall normally be within the range of 1–4 monthly salaries. At the end of each year, the Managing director will make a recom-mendation to the Remuneration Committee regarding the payment of the yearly variable salary to employees. The Remuneration Committee will recommend to the Board of Directors for approval the level of the yearly variable salary of the Managing director, and the CFO. For other employees, the Remuneration Committee will only be involved if the award exceeds USD 10,000 per employee.
The pension benefits comprise a defined contribution scheme with premiums calculated on the full basic salary. The pension contributions shall be in relation to the basic salary and is set on an individual basis.
A termination period of twelve months applies between the Company and managing director and nine months between the company and the CFO. Both are entitled to 12 months payments if the Company terminates their contracts.
The Board is entitled to deviate from the proposed guidelines if special reasons exist.
| Pension | ||||||
|---|---|---|---|---|---|---|
| Executive | Basic salary |
Variable salary |
Other benefits |
arrange ments |
Total 2013 |
2012 |
| Magnus Nordin | 1,545 | 400 | 11 | 243 | 2,199 | 1,230 |
| Morgan Sadarangani | 1,033 | 280 | 11 | 162 | 1,485 | 866 |
The increase in remuneration to management relate to partly an increase of basic salaries, but mainly to variable salaries and implementation of pension arrangements.
Remuneration to the board of directors during 2013 amounted to a total of TSEK 1,375, allocated among the board members in the way shown in the below table. The annual general meeting 2013 resolved that remuneration of the chairman of the board of directors shall be TSEK 450 per annum and of the other members TSEK 175 per member per annum.
| Remuneration to Board, TSEK | 2013 | 2012 |
|---|---|---|
| Total approved remuneration | 1,375 | 350 |
| Chairman | 450 | – |
| Director | 175 | 100 |
| Chairman Audit committee | 50 | 25 |
| Member Audit committee | 25 | – |
| Chairman Remuneration committee | 25 | 25 |
| Member Remuneration committee | 25 | – |
Remuneration is not paid for service of the boards or directors of subsidiaries. Magnus Nordin, who is employed by Tethys Oil, does not receive any remuneration for his service on the board of directors.
The Board of directors has the ultimate responsibility of the internal control for the financial reporting. Tethys Oil's system of internal control, with regard to financial reporting, is designed to minimize risks involved in financial reporting process and ensure a high level of reliability in the financial reporting. Furthermore, the system of internal control ensures compliance with applicable accounting requirements and other requirements that Tethys Oil must meet as a listed company.
Tethys Oil's main assets are owned in partnership and furthermore, Tethys Oil only holds non-operated interest. The focus of internal control is therefore to ensure reliability and accuracy of the operator's financial information. The control is conducted by monthly and quarterly cost controls, quarterly budget reviews and interviews with operator to understand and explain deviations. Furthermore, non-operating partners can and have conducted a JV audit during 2013. The JV audit focused on accuracy and reliability of financial reporting and also on key processes, i.e financial reporting process, budget process and general administra-tive and control processes.
Tethys Oil continually works on improving the financial reporting through evaluating the risk of errors in the financial reporting and related control activities. Control activities include following up on instructions and the application of accounting principles. The Board of directors is responsible for and monitors the control activities, which involve all levels of the organisation. The activities limit the identified risks and ensure correct and reliable financial reporting. The Group's central financial department analyses and follows up on budget deviations, draws up forecasts, follows up on significant variations between periods and reports to the Board of directors, which minimizes the risks for errors in the financial reporting. The control activities also include following up on the authorization manual and accounting principles. These control activities also include the operators in partnerships. The Board of directors further decides on specific control activities and internal auditing and auditing of operators in partnerships. The financial department regularly follows up on deviations and irregularities and report to the Audit committee. This structure is considered sufficient and suitable given the size and nature of the company's business. As an example of special control activities, an in-depth Joint Venture audit was made during 2013 on the operator of Blocks 3&4 together with the other nonoperating partner Mitsui.
The Board has adopted an information policy for the purpose of ensuring that the external information is correct and complete. There are also instructions regarding information security and how to communicate financial information.
Both the Board and the management follow up on the compliance and effectiveness of the company's internal controls to ensure the quality of internal processes. The Board receives detailed monthly reports on the financial situation and development of the business to this end. The Audit committee ensures and monitors that control activities are in place for important areas of risk related to financial reporting.
| Staffan Knafve | Magnus Nordin | Jan Risberg | Katherine H. Stövring | Per Brilioth | |
|---|---|---|---|---|---|
| Function | Chairman of the Board (since Oct 2013), Chair man of the Remunera tion committee |
Managing Director, Director |
Director, Chairman of the Audit Committee |
Director | Director |
| Elected | 2012 | 2001 | 2004 | 2012 | 2013 |
| Born | 1958 | 1956 | 1964 | 1965 | 1969 |
| Education | Bachelor of Law, Stock holm University |
Bachelor of Arts, Lund University and Master of Arts, University of Cali fornia Los Angeles |
Bachelor of Science Master of Law, Univer in Economics and sity of Oslo and MSc in business, Stockholm Business Management, University London Business School |
Bachelor of Science in Business Administration, Stockholm University and Master of Finance, London Business School |
|
| Experience | Several senior posi tions in different Nordic investment banks |
Several executive posi tions in different oil companies |
Several senior position in Corporate Finance |
Several executive posi tions in the energy and shipping industry |
Executive positions in com panies investing in the Rus sian oil and gas sector |
| Other Board duties | Chairman Investment Committee at Coeli Asset Management and Member Finance Com mittee at Royal Swedish Automobile Club. |
Board member of Mino taurus AB, Minotaurus Energi AS and Cassan dra Oil AB. |
Chairman Ovation Sports SA |
Board member of Vostok Nafta Investment Ltd, Black Earth Farming Ltd, RusFor est AB, Avito AB, X5 Group AB and Svenska Fotografis ka museet AB. |
|
| Shares in Tethys Oil as of 31 Decem-ber 2013 |
70,000 | 1,464,127 | 843,419 | – | 5,000 |
| Board attendance | 15/15 | 15/15 | 15/15 | 15/15 | 7/8 |
| Audit committee attend ance |
5/6 | – | 6/6 | 6/6 | 3/4 |
| Remuneration commit tee attendance |
3/3 | – | 3/3 | 3/3 | 2/2 |
| Remuneration for board and committee work |
475,000 | – | 225,000 | 225,000 | 225,000 |
| Independent of the com pany and management |
Yes | No | Yes | Yes | Yes |
| Independent of the company's major share holders |
Yes | Yes | Yes | Yes | Yes |
| Magnus Nordin | Morgan Sadarangani | |
|---|---|---|
| Function | Managing director | Chief financial officer |
| With Tethys Oil since | 2004 | 2004 |
| Born | 1956 | 1975 |
| Education | Bachelor of Arts, University of Lund and Master of Arts, Univer sity of California Los Angeles |
Master of Economics in Business Administration, University of Uppsala. |
| Experience | Several executive positions in different oil companies | Different positions within SEB and Enskilda Securities, Corporate Finance, 1998–2002. |
| Board duties | Board member of Minotaurus AB, Minotaurus Energi AS and Cassandra Oil AB. |
None |
| Shares in Tethys Oil as of 31 December 2013 |
1,464,127 | 144,200 |
To the annual meeting of the shareholders of Tethys Oil AB (publ), corporate identity number 556615-8266
It is the Board of Directors who is responsible for the Corporate Governance Statement for the year 2013 on pages 30–34 and that it has been prepared in accordance with the Annual Accounts Act. We have read the corporate governance statement and based on that reading and our knowledge of the company and the group we believe that we have a sufficient basis for our opinions. This means that our statutory examination of the Corporate Governance Statement is different and substantially less in scope than an audit conducted in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden.
In our opinion, the Corporate Governance Statement has been prepared and its statutory content is consistent with the annual accounts and the consolidated accounts.
Stockholm, 22 April 2014 PricewaterhouseCoopers AB
Klas Brand Authorized Public Accountant Lead Partner
Johan Malmqvist Authorized Public Accountant Partner
born in 1958. Member of the board since 2012 and Chairman of the board since October 2013. Chairman of the remuneration committee and member of the audit committee.
born in 1956. Managing Director. Employed since 2004.
Magnus Nordin,
born in 1956. Managing Director and Member of the Board since 2001.
Morgan Sadarangani, born in 1975. Chief Financial Officer and corporate secretary.
Employed since 2004.
born 1964. Member of the board since 2004 and Chairman of the audit committee and member of the remuneration committee.
Katherine H. Støvring, born in 1965. Member of the board since 2012 and member of the audit committee and the remuneration committee.
born in 1956. Authorized Public Accountant, Lead partner. Company's auditor since 2012. PricewaterhouseCoopers AB, Gothenburg.
Per Brilioth
born in 1969. Member of the board since 2013 and member of the audit committee and the remuneration committee.
born in 1975, Authorized Public Accountant. Company's auditor since 2010. Pricewaterhouse-Coopers AB, Gothenburg.
Tethys Oil's shares have been traded on the NASDAQ OMX Stockholm since 2 May, 2013. Previously the share was traded on NASDAQ OMX First North since 2004. With the purpose of improving liquidity and reducing the spread between buyers and sellers of Tethys Oil shares, the company has assigned Öhman Fondkommission AB to act as a liquidity provider for the shares of the company.
Tethys Oil's registered share capital at 31 December 2013 amounts to SEK 5,923,958 represented by 35,543,750 shares with a quota value of SEK 0.17. All shares in Tethys Oil represent one vote each. All outstanding shares are common shares and carry equal rights to participation in Tethys Oil's assets and earnings. Tethys Oil does not have an incentive program for employees. As per 31 December 2013 the Board of Directors had remaining outstanding authorization from the AGM to issue up to 10 per cent of the shares up until the next AGM.
Since the company's inception in September 2001 and up to 31 December 2013 the parent company's share capital has developed as shown below:
| Year | Share capital development | Quota value, SEK | Change in number of shares |
Total number of shares |
Change in total share capital, SEK |
Total share capital, SEK |
|---|---|---|---|---|---|---|
| 2001 | Formation of the Company | 100.00 | 1,000 | 1,000 | 100,000 | 100,000 |
| 2001 | Share issue | 100.00 | 4,000 | 5,000 | 400,000 | 500,000 |
| 2001 | Split 100:1 | 1.00 | 495,000 | 500,000 | – | 500,000 |
| 2003 | Share issue | 1.00 | 250,000 | 750,000 | 250,000 | 750,000 |
| 2004 | Split 2:1 | 0.50 | 750,000 | 1,500,000 | – | 750,000 |
| 2004 | Share issue | 0.50 | 2,884,800 | 4,384,800 | 1,442,400 | 2,192,400 |
| 2006 | Non-cash issue | 0.50 | 400,000 | 4,784,800 | 200,000 | 2,392,400 |
| 2006 | Share issue | 0.50 | 876,960 | 5,661,760 | 438,480 | 2,830,880 |
| 2006 | Share issue | 0.50 | 80,000 | 5,741,760 | 40,000 | 2,870,880 |
| 2007 | Share issue | 0.50 | 300,000 | 6,041,760 | 150,000 | 3,020,880 |
| 2007 | Exercise of warrants | 0.50 | 2 | 6,041,762 | 1 | 3,020,881 |
| 2007 | Share issue | 0.50 | 125,000 | 6,166,762 | 62,500 | 3,083,381 |
| 2007 | Set-off issue | 0.50 | 226,000 | 6,392,762 | 113,000 | 3,196,381 |
| 2008 | Split 3:1 | 0.17 | 12,785,524 | 19,178,286 | – | – |
| 2008 | Share issue | 0.17 | 4,800,000 | 23,978,286 | 800,000 | 3,996,381 |
| 2008 | Exercise of warrants | 0.17 | 1,800 | 23,980,086 | 300 | 3,996,681 |
| 2009 | Share issue | 0.17 | 1,300,000 | 25,280,086 | 216,667 | 4,213,348 |
| 2009 | Share issue | 0.17 | 2,000,000 | 27,280,086 | 333,333 | 4,546,618 |
| 2009 | Exercise of warrants | 0.17 | 176,186 | 27,456,272 | 29,364 | 4,576,045 |
| 2009 | Exercise of warrants | 0.17 | 592,819 | 28,049,091 | 98,803 | 4,674,849 |
| 2010 | Exercise of warrants | 0.17 | 252,080 | 28,301,171 | 42,013 | 4,716,862 |
| 2010 | Exercise of warrants | 0.17 | 137,429 | 28,438,600 | 22,905 | 4,739,767 |
| 2010 | Exercise of warrants | 0.17 | 754,942 | 29,193,542 | 125,824 | 4,865,590 |
| 2010 | Share issue | 0.17 | 250,000 | 29,443,542 | 41,667 | 4,907,257 |
| 2010 | Share issue | 0.17 | 250,000 | 29,693,542 | 41,667 | 4,948,924 |
| 2010 | Exercise of warrants | 0.17 | 482,528 | 30,176,070 | 80,421 | 5,029,345 |
| 2010 | Exercise of warrants | 0.17 | 185,795 | 30,361,865 | 30,966 | 5,060,311 |
| 2010 | Exercise of warrants | 0.17 | 84,971 | 30,446,836 | 14,162 | 5,074,473 |
| 2010 | Exercise of warrants | 0.17 | 2,057,653 | 32,504,489 | 342,942 | 5,417,415 |
| 2011 | Non-cash issue | 0.17 | 39,261 | 32,543,750 | 6,544 | 5,423,958 |
| 2012 | Share issue | 0.17 | 3,000,000 | 35,543,750 | 501,667 | 5,925,625 |
Tethys Oil aims to offer high return on capital through investments and growth in oil and gas projects and does therefore not expect to pay any dividends during the coming years. Possible future dividend policy will be determined by the company's financial position and an assessment of future growth potential.
The 20 largest shareholders in Tethys Oil as per 31 March 2014.
| Name | Number of shares | Capital and votes |
|---|---|---|
| UBS AG Clients Account | 2,989,514 | 8.4% |
| MSIL IPB Clients Account | 2,444,439 | 6.9% |
| SIX SIS AG | 2,040,324 | 5.7% |
| Nordnet Pensionsförsäkring AB | 1,517,040 | 4.3% |
| Magnus Nordin1,2 | 1,464,127 | 4.1% |
| Pictet & Cie | 1,347,980 | 3.8% |
| Försäkringsaktiebolaget Avanza Pension | 1,250,306 | 3.5% |
| Per Bergström | 1,000,000 | 2.8% |
| JPM Chase NA | 892,386 | 2.5% |
| Fonden Zenit | 870,096 | 2.4% |
| Jan Risberg | 843,419 | 2.4% |
| JP Morgan Bank | 651,153 | 1.8% |
| Friends Provident International | 600,000 | 1.7% |
| Handelsbanken Fonder AB | 549,573 | 1.5% |
| BNY Mellon SA/NV | 522,320 | 1.5% |
| BK Julius Baer & Co | 438,145 | 1.2% |
| Grebbeshult Holding AB | 406,800 | 1.1% |
| Håkan Ehrenblad | 400,000 | 1.1% |
| Banque Öhman S.A. | 386,000 | 1.1% |
| Robur Försäkring | 376,079 | 1.1% |
| Total, 20 largest shareholders | 20,989,701 | 59.1% |
| Other, approx. 4,800 shareholders | 14,554,049 | 40.9% |
| Total | 35,543,750 | 100.0% |
Source: Euroclear Sweden AB and Tethys Oil AB
1 Partly through company
2 Incl 60,000 shares lent to Öhman Fondkommission AB
Distribution of shareholdings in Tethys Oil as per 31 March 2014.
| Size categories as of 31 March 2014 | Number of shares |
Percentage of shares, % |
Number of shareholders |
Percentage of shareholders, % |
|---|---|---|---|---|
| 1 – 1,500 | 1,483,333 | 4.17% | 3,857 | 80.71% |
| 1,501 – 30,000 | 4,773,236 | 13.43% | 809 | 16.93% |
| 30,001 – 150,000 | 5,620,623 | 15.81% | 81 | 1.69% |
| 150,001 – 300,000 | 1,867,600 | 5.25% | 9 | 0.19% |
| 300,001 – | 21,798,958 | 61.33% | 23 | 0.48% |
| Total | 35,543,750 | 100.00% | 4,779 | 100.00% |
Source: Euroclear Sweden AB and Tethys Oil AB
The final transaction price in 2013 was SEK 67.50 corresponding to a total market capitalization of MSEK 2,399. During the year the price of Tethys' share rose by
26.8 per cent. During the same period, NASDAQ OMX Stockholm rose by 23.2 per cent. The highest transaction price in 2013 was SEK 72.50 on 4 September and the lowest was SEK 54.25 on 4 January. In the year Tethys' shares were traded for almost SEK 2,286 million. The trading in the share averaged approximately SEK 9,143,758 per day and the turnover velocity was 109 per cent.
| Group | 2013 | 2012 | 2011 | 2010 | 2009 |
|---|---|---|---|---|---|
| Operational items | |||||
| Production before government take, bbl | 1,709,706 | 1,399,518 | 423,469 | 41,764 | n.a. |
| Production per day, bbl | 4,684 | 3,687 | 1,160 | 114 | n.a. |
| Net sales after government take, bbl | 850,926 | 776,248 | 147,228 | 18,898 | n.a. |
| Achieved oil price, USD/bbl | 106.63 | 110.35 | 107.37 | 80.56 | n.a. |
| Items regarding the income statement and balance sheet | |||||
| Net sales, TSEK | 591,931 | 583,990 | 103,538 | 11,066 | n.a. |
| EBITDA, TSEK | 479,308 | 529,847 | 83,750 | 101,320 | n.a. |
| EBITDA-margin, % | 80.97% | 90.73% | 80.89% | n.m | n.a. |
| Operating result, TSEK | 285,329 | 336,300 | 83,057 | 100,661 | -28,985 |
| Operating margin, % | 48.20% | 57.59% | 80.22% | n.a. | n.a. |
| Net result, TSEK | 240,185 | 313,962 | 68,991 | 80,069 | -42,503 |
| Net margin, % | 40.58% | 53.76% | 66.63% | n.a. | n.a. |
| Cash and cash equivalents | 295,011 | 248,038 | 93,105 | 190,512 | 13,620 |
| Shareholders' equity, TSEK | 1,100,366 | 860,122 | 455,559 | 380,055 | 202,770 |
| Balance sheet total, TSEK | 1,563,406 | 1,374,237 | 464,862 | 384,069 | 222,680 |
| Capital structure | |||||
| Equity ratio, % | 70.38% | 62.59% | 98.00% | 98.95% | 91.06% |
| Leverage ratio, % | 11.56% | 19.66% | n.a. | n.a. | n.a. |
| Adjusted equity ratio, % | 70.38% | 62.59% | 98.00% | 98.95% | 91.06% |
| Interest coverage ratio | 10.63 | 22.98 | n.a. | n.a. | n.a. |
| Investments, TSEK | 288,511 | 875,301 | 208,392 | -115,282 | 81,681 |
| Profitability | |||||
| Return on shareholders' equity, % | 24.50% | 47.73% | 16.51% | 27.48% | neg. |
| Return on capital employed, % | 20.72% | 40.44% | 20.37% | 41.37% | neg. |
| Employees | |||||
| Average number of employees | 17 | 19 | 12 | 9 | 10 |
| Share related data | |||||
| Dividend per share, SEK | n.a. | n.a. | n.a. | n.a. | n.a. |
| Cash flow from operations per share, SEK | 9.45 | 15.37 | 3.49 | 5.97 | neg. |
| Number of shares at year end, thousands | 35,544 | 35,544 | 32,544 | 32,504 | 28,049 |
| Shareholders' equity per share, SEK | 30.96 | 24.20 | 14.00 | 11.69 | 7.23 |
| Weighted number of shares for the year, thousands | 35,544 | 34,465 | 32,521 | 30,849 | 26,274 |
| Earnings per share before and after dilution, SEK | 6.76 | 9.11 | 2.12 | 2.60 | -1.62 |
| Parent | 2013 | 2012 | 2011 | 2010 | 2009 |
|---|---|---|---|---|---|
| Items regarding the income statement and balance sheet | |||||
| Operating result, TSEK | -11,849 | 39,880 | -7,318 | -5,366 | -5,366 |
| Operating margin, % | neg. | neg. | n.a | n.a. | n.a. |
| Net result, TSEK | -102,722 | -82,793 | -14,669 | -31,903 | -30,327 |
| Net margin, % | neg. | neg. | n.a | n.a. | n.a. |
| Cash and cash equivalents | 30,863 | 187,263 | 3,943 | 51,517 | 12,278 |
| Shareholders' equity, TSEK | 178,675 | 281,397 | 249,960 | 262,901 | 226,005 |
| Balance sheet total, TSEK | 587,690 | 752,411 | 302,657 | 314,746 | 226,800 |
| Capital structure | |||||
| Equity ratio, % | 30.40% | 37.40% | 82.59% | 83.53% | 99.65% |
| Leverage ratio, % | 202.68% | 71.64% | n.a. | n.a. | n.a. |
| Adjusted equity ratio, % | 30.40% | 37.40% | 82.59% | 83.53% | 99.65% |
| Interest coverage ratio | n.a. | n.a. | n.a. | n.a. | n.a. |
| Investments, TSEK | 53,868 | 535, 260 | 47,888 | 71,982 | 62,999 |
| Profitability | |||||
| Return on shareholders' equity, % | neg. | neg. | neg. | neg. | neg. |
| Return on capital employed, % | neg. | neg. | neg. | neg. | neg. |
| Employees | |||||
| Average number of employees | 6 | 6 | 6 | 6 | 6 |
| Share related data | |||||
| Dividend per share, SEK | n.a. | n.a. | n.a. | n.a. | n.a. |
| Cash flow from operations per share, SEK | neg. | neg. | neg. | 0.11 | neg. |
| Number of shares at year end, thousands | 35,544 | 35,544 | 32,544 | 32,504 | 28,049 |
| Shareholders' equity per share, SEK | 5.03 | 7.92 | 7.68 | 8.09 | 8.06 |
| Weighted number of shares for the year, thousands | 35,544 | 34,465 | 32,521 | 30,849 | 26,274 |
| Earnings per share before and after dilution, SEK | -2.89 | -2.40 | -0.45 | -1.03 | -1.15 |
Operating margin Operating result as a percentage of yearly turnover.
Net margin Net result as a percentage of yearly turnover.
Shareholders' equity as a percentage of total assets.
Net interest bearing debt as a percentage of shareholders' equity.
Shareholders' equity plus equity part of untaxed reserves as a percentage of total assets.
Earnings before interest, taxes, depreciation, depletion, amortisation and exploration costs (EBITDA) divided by net financial result.
Investments Total investments during the year.
Profitability Return on shareholders' equity Net result as percentage of average shareholders' equity.
Return on capital employed Net result plus financial costs as a percentage of average capital employed (total assets less non interests-bearing liabilities).
Number of employees Average number of employees full-time.
Shareholders' equity per share Shareholders' equity divided by the number of outstanding shares.
Weighted numbers of shares Weighted number of shares during the year.
Net result divided by the number of outstanding shares.
n.a. Not applicable.
(An English translation of the Swedish original)
Ownership in subsidiary companies is 100% unless otherwise stated.
The consolidated financial statements of the Tethys Oil Group (hereafter referred to as "Tethys Oil" "Tethys" or the "Group"), where Tethys Oil AB (publ) (the "Company") with organisational number 556615-8266 is the parent company, are hereby presented for the twelve months 2013 ended 31 December 2013. The amounts relating to the comparative period (equivalent period of last year) are shown in parenthesis after the amount for the current period. Segments of the Group are geographical markets. The numbers in the tables in this report may not add exactly due to rounding.
Tethys Oil is a Swedish company, which together with subsidiaries is focused on exploration for and production of oil and natural gas. Tethys Oil aims to maintain a well balanced portfolio of high risk/high reward exploration opportunities coupled with lower risk exploration and appraisal development assets. The company's strategy is twofold: to explore for oil and natural gas near existing and developing markets; and to develop proven reserves that have previously been sub-economic due to location or technological reasons. As at year end 2013 the company had interests in licences in Oman, France and Lithuania.
| Quarterly volumes | Q4 2013 | Q3 2013 | Q2 2013 | Q1 2013 | |
|---|---|---|---|---|---|
| Tethys' share of quarterly production before government take, (bbl) | |||||
| Oman, Blocks 3 & 4 | |||||
| Production | 488,522 | 430,763 | 387,734 | 356,050 | |
| Average daily production | 5,310 | 4,682 | 4,261 | 3,956 | |
| Lithuania, Gargzdai | |||||
| Production | 10,507 | 11,589 | 12,105 | 12,432 | |
| Average daily production | 114 | 126 | 133 | 138 | |
| Total production | 499,028 | 442,352 | 399,839 | 368,482 | |
| Total average daily production | 5,424 | 4,808 | 4,394 | 4,094 |
Tethys has production from two areas, Blocks 3 and 4 onshore Oman and the Gargzdai licence onshore Lithuania. Tethys Oil has 30 per cent interest in Block 3 and 4 Oman and an indirect interest of 25 per cent of Gargzdai Lithuania.
Production from Block 3 and 4 onshore Oman comes from two fields – the Farha South and Saiwan East oil fields, and from test production from the exploration well B4EW4 on Block 4. Production rates vary, mainly due to the on-going development and continued fine tuning of the infrastructure. Production from Oman accounts for 98 per cent of total production.
The terms of the Exploration and Production Sharing Agreement ("EPSA") on Block 3 and 4 in Oman allows the joint venture partners to recover their costs up to 40 per cent of the value of total oil production, this is referred to as cost oil. After deducting any allowance for cost oil, the remaining production is split 80/20 between the government and the joint venture partners. If there are no investments to be recovered the joint venture partners receive after government take 20 per cent of the oil produced. The terms of the EPSA thus result in the Joint venture partners' share of production after government take in the interval 20–52 per cent, depending on available recoverable cost. So far on Block 3 and 4, the joint venture share of production after government take has been in the high end of the interval, 52 per cent, as commercial production relatively recently commenced and large investments have been made. The estimated recoverable costs as per 31 December 2013, net to Tethys Oil, amounts to MUSD 77.
Production from Gargzdai licence in western Lithuania has gradually decreased during the period. Tethys Oil's interest in Gargzdai is held indirectly through Odin Energi A/S, an associated Danish company.
During 2013, Tethys Oil sold 850,926 (776,248) barrels of oil after government take from Block 3 and 4 in Oman.
This resulted in net sales during 2013 of MSEK 592 (584).
Important factors affecting net sales:
The increase in underlift position during 2013 is close to 14,000 barrels, whereas during 2012 the decrease in the underlift position was close to 76,000 barrels. During 2012 more oil was sold than the entitlement share of production and the opposite has been true for 2013. This is the most important explanation to why sales increase of 1 per cent between 2013 and 2012 is not as high as the production increase of 24 per cent between the years. The underlift position as per 31 December 2013 amounts to 13,261 barrels.
Tethys average selling price per barrel amounted to USD 107 (110) per barrel during the full year 2013.
The selling price received by Tethys Oil is determined for each calendar month based on the monthly average prices of the two month future price of Omani blend (see chart on next page). During the full year 2013, Omani blend prices have been trading between high levels of USD 115 per barrel and low levels of USD 97 per barrel. Twelve months 2013 prices are lower compared to equivalent period last year.
Tethys Oil reports a net result after tax for the full year 2013 of MSEK 240 (314), representing earnings per share of SEK 6.76 (9.11).
Earnings before interest, tax, depletion and amortisation (EBITDA) during 2013 amounted to MSEK 479 (509).
The result was impacted by an increase in underlift position during 2013 compared to a decrease in 2012. In line with the farmout agreement and presented as Other income, Tethys Oil received in the first quarter 2013 from Mitsui a bonus amounting to MSEK 65 (MUSD 10) as commercial production exceeded 10,000 bopd for 30 consecutive days and following the approval of the Field Development Plan ("FDP") in December 2012.
Tethys Oil holds indirect interest in the three Lithuanian licences, through the interests in associated companies Jylland Olie and Odin Energi. Total result from Tethys Oils shares in the associated companies amounted to MSEK 5 (49) for 2013. The result for 2012 also includes a received dividend for a whole financial year, which was accounted for in the income statement as the acquisition of the associated companies was still on-going during this period (for more information, please see note 6).
Exploration costs amounting to MSEK 56 (118) has negatively affected the result of the full year 2013. The exploration costs mainly regard Block 15 and are made as a consequence from the negative results from the JAS-1 long term production test. All investments related to the long term well test have been expensed and remaining capitalized costs relate to the general licence which is still being reviewed for prospective structures.
Depletion, depreciation and amortisation ("DD&A") for the full year 2013 amounted to MSEK 138 (55). Higher DD&A during the full year 2013 compared to equivalent period last year is referable to depletion of oil and gas properties which furthermore only relate to Blocks 3&4. The increase in the depletion charge resulted from the high level of investments in permanent production facilities and field development on Blocks 3&4 during the full year 2012 which has increased oil and gas properties. Higher production rates during 2013 have also increased the depletion rate.
Operating expenses (OPEX) amounted during the full year 2013 to MSEK 152 (96). Operating expenses are related to oil and gas production on Block 3 and 4 in Oman, including; permanent production costs (more direct production costs e.g. field staff, tariffs); general and administrative costs relating to the office in Muscat; well workovers; other (fees, operator's overhead contribution); and accruals. Furthermore over and underlift adjustments are made within the Operating expenses category. The categories are presented with amounts in note 10.
OPEX amounted during 2013 to USD 14.0 per barrel (USD 10.4 per barrel). The more direct production costs (permanent production costs) amounted to USD 7.5 per barrel (USD 7.8 per barrel). The increase in overall OPEX per barrel is mainly explained by well workovers and transfer of late incoming expenses from 2012. The direct production cost per barrel has been reduced despite the trucking of oil related to B4EW4 area which is more expensive transportation than pipeline.
Furthermore, due to an underlift position as per 31 December 2013 amounting to 13,261 barrels, the Operating expenses during the full year 2013 have been decreased by MSEK 1.
Administrative expenses amounted to MSEK 31 (29) for the full year 2013. Administrative expenses are mainly salaries, rents, listing costs and outside services. The administrative expenditures during the full year 2013 are higher compared with same period last year mainly due to the main market listing on NASDAQ OMX Stockholm, conducted during the second quarter.
The result for 2013 has been impacted by net foreign exchange losses and interest on long term debt. The currency exchange effect of the group amounts to MSEK -1 and most of the effect relates to the weaker US dollar in relation to the Swedish krona. Currency translation differences between the parent company and subsidiaries are non cash related items. Interest on long term debt amounted to MSEK -38 during 2013. The currency exchange effect and interest on long term debt is part of net financial result amounting to MSEK -45 (-22) during 2013.
Oil and gas properties as per 31 December 2013 amounted to MSEK 1,012 (919). Investments in oil and gas properties of MSEK 290 (875) were incurred for the twelve month period ended 31 December 2013. The high investments during 2012 include cost oil repayment to Mitsui (for more information please see Annual report 2012 page 37).
| Country | Licence name |
Book value 31 Dec 2013 |
Book value 31 Dec 2012 |
Investments 2013 |
|---|---|---|---|---|
| Oman | Block 15 | 0.2 | 27 | 25 |
| Oman | Block 3,4 | 1,011 | 890 | 263 |
| France | Attila | – | – | 1 |
| France | Alès | – | – | – |
| Lithuania | Gargzdai3 | – | – | – |
| Lithuania | Rietavas3 | – | – | – |
| Lithuania | Raseiniai3 | – | – | – |
| New ventures | 0.1 | 0 | 1 | |
| Total | 1,012 | 919 | 290 |
3 The interest in the three Lithuanian licences are indirectly held through a shareholding in two Danish private companies, which in turn hold shares in Lithuanian companies holding 100 per cent of the licences. The two Danish companies, Odin Energi and Jylland Olie, are not consolidated in Tethys Oils financial statements due to the ownership structure, which is why there are no oil and gas properties related to the licences. The ownership of Jylland Olie and Odin Energi are presented in the balance sheet under Shares in associated companies.
The book value of oil and gas properties includes currency exchange effects of MSEK -5 (13) during the full year 2013, which are not cash related items and therefore not included in investments. For more information please see above under Result – Net financial result.
Tethys Oil's net working interest reserves in the Sultanate of Oman as per 31 December 2013, amounted to 10.8 million barrels of oil ("mmbo") of proven reserves (1P), 15.2 mmbo of proven and probable reserves (2P) and 20.0 mmbo of proven, probable and possible reserves (3P).
| (Audited by DeGolyer and MacNaughton) | ||||
|---|---|---|---|---|
| -- | -- | -- | -- | --------------------------------------- |
| Mmbo | 1P | 2P | 3P |
|---|---|---|---|
| Total 31 Dec 2012 | 5.3 | 14.3 | 18.7 |
| Production 2013 | -1.7 | -1.7 | -1.7 |
| Revisions | 5.7 | 0.1 | -1.6 |
| Discoveries4 | 1.5 | 2.5 | 4.6 |
| Total 31 Dec 2013 | 10.8 | 15.2 | 20.0 |
4 2P discoveries are almost entirely from B4EW4, Oman.
In 2013 Tethys Oil added 1P reserves of 7.2 mmbo, representing an increase of 200 per cent. The company added 2P reserves 2.6 mmbo, representing an increase of 18 per cent. The 3P reserves increased with 3.0 mmbo, representing an increase of 16 per cent. The increase in 2P reserves represents an internal reserve replacement ratio of 153 per cent.
| Reserves, 31 December 2013 |
|---|
| (Audited by DeGolyer and MacNaughton) |
| Mmbo | 1P | 2P | 3P |
|---|---|---|---|
| Farha South Field, Oman | 8.9 | 11.7 | 13.5 |
| Saiwan East Field, Oman5 | 0.7 | 1.3 | 2.8 |
| B4EW4, Oman | 1.2 | 2.2 | 3.7 |
| Total6 | 10.8 | 15.2 | 20.0 |
5 Includes B4EW3, Oman.
6 Numbers may not add up due to rounding.
The reserves in the Farha South field are from the Barik reservoir section only. The reserves in the Saiwan East field, which includes the B4EW3 area, are in the Khufai reservoir. The reserves in the B4EW4 area are in the Lower Buah reservoir.
The review of the reserves in Oman has been conducted by independent petroleum consultant DeGolyer and MacNaughton ("D&M"). The report has been calculated using 2007 Petroleum Resources Management System (PRMS), Guidelines of the Society of Petroleum Engineers (SPE), World Petroleum Council (WPC), American Association of Petroleum Geologists (AAPG) and Society of Petroleum Evaluation Engineers (SPEE).
Tethys Oil's indirect share of reserves in the Gargzdai license in Lithuania, according to the agreement with Odin Energi A/S, amounts as per 31 December 2012 to 0.8 mmbo of 1P reserves, 1.7 mmbo of 2P and 2.8 mmbo of 3P. The review of the reserves in Lithuania has been conducted by independent petroleum consultant Miller Lents Ltd.
| Licence | Tethys Oil, | Total area, | |
|---|---|---|---|
| name | % | km² | Partners (operator in bold) |
| Block 15 | 40% | 1,389 | Odin Energy, Tethys Oil |
| Block 3 & 4 | 30% | 34,610 | CCED, Mitsui, Tethys Oil |
Blocks 3 and 4
During the full year 2013, investments amounting to MSEK 263 were made on Blocks 3 & 4.
Of the total investment amount, MSEK 248 consists of new investments in the blocks and the remaining MSEK 15 emanate from that part of investments previously made by Mitsui on Tethys Oil's behalf under the Carry agreement and was recovered by Mitsui during the first quarter from Tethys Oil's share of cost recovery oil entitlement.
Of the investments of MSEK 248 made by Tethys Oil during the full year 2013, most has been spent on appraisal drilling, seismic and water injection wells.
Investments during 2013 were 12 per cent lower than the original investment budget for 2013 and 26 per cent lower than the revised budget which was communicated in conjunction with the second quarter report 2013. The main reason has been deferred infrastructure investments and the delay of a rig during the year.
Four rigs are currently employed on the Blocks. A fourth rig was contracted in the fourth quarter to further speed up drilling activity and started drilling early in January 2014.
A total of 35 wells were completed on the Blocks during 2013. The drilling programme on Farha South on Block 3 has been focused on the water injection programme, with 18 water injector wells, 5 water source wells and 3 producer wells completed during the year. In addition 2 appraisal/exploration wells were drilled and have been put into production.
On Block 4, 2 exploration wells, 5 appraisal wells and one production well were drilled during the year. An exploration well was drilled on area 4 on Block 4 (B4EW4) at the beginning of the year. Several oil bearing reservoir layers were encountered and one of these, in the Lower Buah limestone, has been in production since the discovery. This discovery has been appraised with five appraisal wells in 2013. Three appraisal wells were completed in the Lower Buah layer, and have been in production since completion, contributing significantly to the production from Block 4. The B4EW4-5 well, the second appraisal well into the Lower Buah section of the B4EW4 structure, was drilled some 500 metres southeast from the discovery well (B4EW4-1) and flowed in excess of 2,000 bopd. The B4EW4-6 well, the third appraisal well into the Lower Buah, was drilled approximately 1,100 metres northeast from the discovery well (B4EW4-1). This well flowed in excess of 3,000 bopd, yielding the best test results so far from the B4EW4 area. Appraisal drilling will continue during 2014. The production from area 4 is trucked to the processing plant at the Saiwan East field.
An exploration well was also drilled on area 5 on Block 4. The structure is a look-a-like structure to the producing structure on area 4, and was identified from recently completed 3D seismic. The well has been completed in the Lower Buah and produced by natural flow in excess of 200 bopd on 28/64 inch choke.
In 2013, 1,671 square kilometres of 3D seismic and 850 square kilometres of 2D seismic were acquired. The processing of the seismic surveys was completed and interpretation was ongoing as per year-end 2013. The seismic data includes the area 4 on Block 4. The result from the study is being used to guide the drilling programme in 2014, and a number of prospects have already been identified.
The long term production test commenced during the summer 2013 using the Early Production System put in place earlier in 2013. The testing continued into the fourth quarter however with disappointing results. Production from the JAS-1 well drilled in 2007 fell from 200 barrels per day of condensate to less than 20 barrels per day. The sidetrack to the JAS 2 well which was completed in early October underwent extensive testing from several layers but flowed only water. Consequently both wells have been suspended and the production test terminated. The evaluation of the JAS structure suggested that the amounts of hydrocarbons present were too small to be commercially viable, partly given the tightness of the reservoir. Attention is to turn back to further evaluation of other opportunities on Block 15.
| Licence | Tethys Oil, | Total area, | |
|---|---|---|---|
| name | % | km² | Partners (operator in bold) |
| Gargzdai7 | 25% | 884 | Odin, GeoNafta, Tethys Oil |
| Rietavas7 | 14% | 1,594 | Chevron, Odin, Tethys Oil |
| Raseiniai7 | 26% | 1,535 | Odin, Tethys Oil, private investors |
7 The interest in the three Lithuanian licences are indirectly held through a shareholding in two Danish private companies, which in turn hold shares in Lithuanian companies holding 100 per cent of the licences. The two Danish companies, Odin Energi and Jylland Olie, are not consolidated in Tethys Oils financial statements due to the ownership structure, which is why there are no oil and gas properties related to the licences. The ownership of Jylland Olie and Odin Energi are presented in the balance sheet under Shares in associated companies.
Regarding licences Rietavas and Raseiniai, the two Lithuanian holding companies are undergoing reconstruction. Presented in the table is the indirect ownership expected after the reconstruction. As per 31 December 2013 the indirect ownership was 11 per cent and 21 per cent in Rietavas and Raseiniai respectively.
The production on the Gargzdai licence is declining according to expectations. A pilot CO2 production enhancement project has been carried out and is under evaluation. Existing seismic data has also been re-interpreted to identify additional possible locations for infill drilling. In addition, at least two undrilled structures remain on the license, both of which are being surveyed for potential drilling locations.
The exploration and appraisal work on the Rietavas license has continued.
On the Silale oil field, the old well Silale-1 was re-opened in January 2012, and during the second quarter an appraisal well Silale-5 was drilled 1.5 kilometres west of Silale-1 to further appraise the Silale field.
The Cambrian sandstones are oil bearing in both wells, and the wells have been in intermittent production throughout the year yielding a small cash contribution from oil sold. Cores were taken in Silale-5, and are now being analysed and the production data is continually being evaluated.
Outside the Silale area, in the north eastern corner of the Rietavas license some 20 kilometres from Silale-5, a further exploration well – Rietavas-1- was drilled during the fourth quarter. The well reached its total depth in the Cambrian sandstones and a full set of cores from the Cambrian as well as the overlying shale were recovered and is currently undergoing analysis.
The work programme in Rietavas licence is expected to continue in 2014, and preparations are currently ongoing for a further exploration well in the southern part of the licence, south of the Silale field. Preparations for a 3D seismic programme are also in progress. The work programme is fully funded by US oil major Chevron.
On the Raseiniai license, the acquisition of data in a partly EU funded 3D seismic study covering 80 square kilometres was conducted during the year. The seismic study aims to define oil traps and to identify potentially oil bearing fracture systems. Processing and interpretation is expected to be carried out during first quarter 2014. The Lapgiriai-1 well was drilled on the licence in the second quarter to a total depth of 1,129 metres. The well confirmed the presence of oil in the Silurian lime stone formation and during subsequent production testing small amounts of oil were produced to surface.
| Licence | Tethys Oil, | Total area, | |
|---|---|---|---|
| name | % | km² | Partners (operator in bold) |
| Attila | 40% | 1,986 | Galli Coz, Tethys Oil |
| Alès | 37.5% | 215 | Tethys Oil, Mouvoil |
On the French licences, the work programmes have been delayed at the request of the government. It is unclear when the work programme could be resumed.
| Licence | Tethys Oil, | Total area, | |
|---|---|---|---|
| name | % | km² | Partners (operator in bold) |
| Gotland Större (incl. Gotland Mindre) |
100% | 581 | Tethys Oil |
Evaluation of the work within the Gotland licences has been carried out during the year. The data is not without encouragement for finding more oil on Gotland. However given Tethys success in other areas, management's assessment is that Gotland has become too small for Tethys. The Gotland Större licence expired in December 2013, and the Gotland Mindre licence will not be renewed when upon its expiry in February 2014.
Cash and bank as at 31 December 2013 amounted to MSEK 295 (248). A large part of cash and cash equivalents are kept in USD which has depreciated against SEK during the reporting period. The currency exchange effect on cash and cash equivalents amounted during the full year 2013 to MSEK -1.
The activity level on Blocks 3&4 is increasing resulting in a higher level of investments. During 2014 there will be an increased focus on exploration and appraisal, following the B4EW4 discovery and the seismic programme conducted during 2013. Tethys Oil's share of the total Joint Venture investment budget (CAPEX) for 2014 on Blocks 3&4 amount to MSEK 400. The investment budget is expected to be fully financed by cash flow from operations.
Tethys Oil's operations in Lithuania is expected to continue to be self-financed from oil production on the Gargzdai licence and financed by Chevron on the Rietavas licence.
In accordance with the 2010 farmout agreement, Mitsui commenced during first quarter 2012 recovering the MUSD 60 paid on behalf of Tethys Oil from the proceeds of Tethys Oil's share of cost recovery oil entitlement. Under the carry agreement, Tethys Oil has allocated its entire share of cost recovery entitlement to Mitsui until the full MUSD 60 was recovered by Mitsui. As per January 2013 the final balance cost recovery repayment was allocated to Mitsui.
Tethys Oil's interests in three Lithuanian licences are held through two private Danish companies. (For more information regarding the ownership structure, please refer to note 6.) As per 31 December 2013 the shareholding in the two associated Danish companies, Odin Energi and Jylland Olie, amounted to MSEK 184.
Tethys Oil's share of net profit during the full year 2013 from Odin Energi and Jylland Olie, which indirectly hold the Lithuanian licences, amounted to MSEK 5 (49) during 2013. The result was mainly generated from selling 47,485 barrels of oil (Tethys Oil's indirect share) during the full year 2013 at an average price of USD 107 (109) per barrel. During the second quarter a dividend from the Lithuanian investments was received amounting to MSEK 8 (17).
For the comparative full year period 2012, the dividend received was accounted for in the income statement as the acquisition of the associated companies was still on-going during this period.
Tethys Oil receives cash flow from the Lithuanian investments only through dividends from the associated companies, which is normally received annually. For more information, please see note 6.
As per 31 December 2013, Tethys Oil holds oil price put options (Brent) amounting to MSEK 5 (–). The total numbers of put options are 715,000, equalling 65,000 options per month from February to December 2014. The options will expire each month and all have strike price USD 90 per barrel, where one option equals the right to sell one barrel. The put options were acquired to secure oil price at USD 90 per barrel without limiting upside potential should oil prices be higher at each monthly lifting. The acquisition of put options was made to match expected expenditures 2014. The average premium paid was USD 1.37 per barrel.
The Parent company reports a net result after tax for the full year 2013 amounting to MSEK -103 (-83). The result of the year has been significantly impacted by write downs of shares in subsidiaries. The write downs amounted to MSEK -62 (MSEK -157) and are a consequence of exploration costs in the group during the reporting period. The exploration costs mainly relate to Block 15 and are made following the negative results following the extended well test of the Jebel Aswad structure. Administrative expenses amounted to MSEK -22 (-12) for the full year 2013. Net financial result amounted to MSEK -91 (-123) during the full year 2013. Interest paid on the bond loan and the weaker US dollar has had a negative impact on net financial result during the full year period 2013. The exchange rate losses regard translation differences and are non cash related. Investments during the full year 2013 amounted to MSEK -54 (-535). Financial investments are financial loans to subsidiaries for their oil and gas operations. The turnover in the Parent company relates to chargeouts of services to subsidiaries.
In Tethys Oil's oil and natural gas operations there are two main categories of agreements; one that governs the relationship with the host country; and one that governs the relationship with partners.
The agreements that govern the relationship with host countries are referred to as licences or Exploration and production sharing agreements (EPSA or PSA). Tethys Oil holds its interest directly through aforementioned agreements in Oman, France and Sweden. The agreements with host countries have a time limit and are normally divided into periods. Financial commitments and or work commitments normally relates to the different periods. Tethys Oil has fulfilled its commitments on Block 15 and Blocks 3 and 4 in Oman for the current period. In the other areas of operations the commitments are either fulfilled or there are no commitments of which Tethys Oil can be held liable for. In some of Tethys Oil's areas of interest there are requirements of work to be done or minimum expenditures in order to retain the licences, but no commitments of which Tethys Oil can be held liable for.
The agreements that govern the relationship with partners are referred to as Joint Operating Agreements (JOA). Except for Sweden where Tethys Oil is the sole licence holder, Tethys Oil has JOAs with its partners in all areas of operation. Other than the aforementioned agreements, there are no individual agreements or similar circumstances relating to the business which are of crucial significance for the group's operations or profitability.
The initial commitment of the new credit facility is MUSD 50. The interest rate of the Facility will be floating, and be in the range of LIBOR + 3.75 per cent to LIBOR + 4.00 per cent per annum, depending on the level of utilization of the Facility.
At the Annual General Meeting of shareholders on 22 May 2013 Vincent Hamilton, Staffan Knafve, Magnus Nordin, Jan Risberg and Katherine Støvring were re-elected members of the Board. Per Brilioth was elected as new director. No deputy directors were appointed. At the same meeting Vincent Hamilton was appointed Chairman of the Board. In October 2013 it was announced that Vincent Hamilton resigned as Chairman and director of the company for medical reasons. The board of directors resolved to appoint Staffan Knafve to succeed Vincent Hamilton as Chairman of the company.
The work of the Board is subject to an established work procedure that defines the distribution of work between the Board and the Managing Director. The work procedure is evaluated each year and revised if deemed appropriate. The Board had 15 meetings during 2013. Most importantly the Board has adopted the interim reports of the year as well as the budget of 2013. Following Vincent Hamilton's resignation, the five member board has consisted of 4 non-executive directors. These four non-executive directors are also members of the Audit committee and the Remuneration committee. Jan Risberg is Chairman of the Audit committee and Staffan Knafve is Chairman of the Remuneration committee.
The intention of the Board of Directors is to propose to the 2014 AGM the adoption of a Policy on Remuneration for 2014. The Remuneration Committee has adopted a policy that fundamentally will be the proposition to the 2014 AGM, containing the following elements of remuneration for the executive management; basic salary; pension arrangements; yearly variable salary; non-financial benefits.
For a detailed description on Remuneration applied in 2013 and Policy on Remuneration as adopted by the Remuneration Committee, refer to page 33 of the Corporate Governance report and note 14 of the consolidated financial statements.
At the end of the year, Tethys Oil had a total of 17 (18) employees. Of these, 7 (5) were women. In addition, contractors and consultants are engaged in Tethys Oil's operations.
All oil and gas related operations impact the environment and therefore entail risk. Directly or indirectly through joint venture operations, the Group complies with the environmental legislation and regulations applicable in each country. Areas which are normally regulated include air pollution, discharges to watercourses, water use, handling of hazardous substances and waste, land and groundwater contamination, and restoration of the environment around the facilities after operations have ceased. Directly and indirectly through joint venture partnerships, Tethys Oil strives to minimise the environmental impact and avoid the occurrence of accidents.
For more information, see the section Corporate Social Responsibility.
Tethys Oil AB (publ), with organizational number 556615-8266, is the parent company in the Tethys Oil Group. The wholly owned subsidiaries Tethys Oil Oman Limited, Tethys Oil Block 3&4 Limited, Windsor Petroleum (Spain) Inc, Tethys Oil Denmark AB, Tethys Oil Canada AB, Tethys Oil Spain AB, Tethys Oil Turkey AB, Tethys Oil France AB, Tethys Oil Suisse S.A., Tethys Oil Exploration AB, Tethys Oil Canada Ltd and Tethys Oil Middle East North Africa BV are part of the group. The Tethys Oil Group was established 1 October 2003.
As per 31 December 2013, the number of outstanding shares in Tethys Oil amount to 35,543,750 (32,543,750), with a quota value of SEK 0.17 (SEK 0.17). All shares represent one vote each. Tethys Oil does not have any incentive program for employees.
A statement of risks and uncertainties are presented in note 1, page 62.
The Board of directors propose that no dividend be paid for the year.
The Board of Directors propose that the unrestricted earnings of SEK 101,679,894 of which the loss for the year, SEK 102,722,238, be brought forward.
The result of the group's and parent company's operations and the financial position at the end of the financial year is shown in the following income statement, balance sheet, cash flow statement, statement of changes in equity and related notes. Balance sheet and income statement will be resolved at the Annual General Meeting, 14 May 2014.
| TSEK | Note | 2013 | 2012 |
|---|---|---|---|
| Net sales of oil and gas | 4 | 591,931 | 583,990 |
| Depreciation, depletion and amortisation | 3 | -137,834 | -55,385 |
| Exploration costs | 9 | -56,146 | -117,521 |
| Other income | 5 | 65,235 | 56 |
| Operating expenditures | 10 | -151,867 | -95,518 |
| Net profit/loss from associates | 6 | 4,761 | 49,043 |
| Other losses/gains, net | 11 | -38 | -42 |
| Administrative expenses | 12–14 | -30,714 | -28,323 |
| Operating result | 285,329 | 336,300 | |
| Financial income and similar items | 15 | 4,865 | 14,673 |
| Financial expenses and similar items | 16 | -49,941 | -36,798 |
| Net financial result | -45,076 | -22,125 | |
| Result before tax | 240,253 | 314,175 | |
| Income tax | 17 | -68 | -213 |
| Result for the year | 240,185 | 313,962 | |
| Other comprehensive result | |||
| Items that may be subsequently reclassified to profit or loss: | |||
| Currency translation differences | 59 | -23,630 | |
| Other comprehensive result for the year | 59 | -23,630 | |
| Total comprehensive income for the year | 240,244 | 290,332 | |
| Number of shares outstanding | 20 | 35,543,750 | 35,543,750 |
| Number of shares outstanding (after dilution) | 20 | 35,543,750 | 35,543,750 |
| Weighted number of shares | 20 | 35,543,750 | 34,464,515 |
| Earnings per share, SEK | 20 | 6.76 | 9.11 |
| Earnings per share (after dilution), SEK | 20 | 6.76 | 9.11 |
| TSEK | Note | 31 Dec 2013 | 31 Dec 2012 |
|---|---|---|---|
| ASSETS | |||
| Non current assets | |||
| Oil and gas properties | 9 | 1,011,559 | 919,523 |
| Office equipment | 18 | 1,817 | 2,086 |
| Investment in associates | 6 | 184,282 | 188,161 |
| 1,197,658 | 1,109,770 | ||
| Current assets | |||
| Other receivables | 19 | 64,935 | 14,618 |
| Prepaid expenses | 997 | 1,812 | |
| Derivative instruments | 7 | 4,805 | – |
| Cash and cash equivalents | 295,011 | 248,038 | |
| 365,748 | 264,467 | ||
| TOTAL ASSETS | 1,563,406 | 1,374,237 | |
| SHAREHOLDERS' EQUITY AND LIABILITIES | |||
| Shareholders' equity | 20 | ||
| Share capital | 5,924 | 5,924 | |
| Additional paid in capital | 552,060 | 552,060 | |
| Other reserves | -26,525 | -26,585 | |
| Retained earnings | 568,908 | 328,723 | |
| Total shareholders' equity | 1,100,366 | 860,122 | |
| Non current liabilities | |||
| Debt | 21 | 393,008 | 388,862 |
| Provisions | 8 | 29,226 | 28,279 |
| 422,234 | 417,141 | ||
| Current liabilities | |||
| Accounts payable | 1,274 | 684 | |
| Other current liabilities | 24,977 | 12,762 | |
| Accrued expenses | 22 | 14,556 | 83,529 |
| 40,807 | 96,975 | ||
| Total liabilities | 463,040 | 514,116 | |
| TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES | 1,563,406 | 1,374,237 | |
| Pledged assets | 24 | 988,824 | 625,683 |
| Contingent liabilities | 25 | – | 15,648 |
| TSEK | Share capital | Paid in capital | Other reserves | Retained earnings | Total equity |
|---|---|---|---|---|---|
| Opening balance 1 January 2012 | 5,424 | 438,329 | -2,955 | 14,761 | 455,559 |
| Comprehensive income | |||||
| Result for the year | – | – | – | 313,962 | 313,962 |
| Period result | – | – | – | 313,962 | 313,962 |
| Other Comprehensive income | |||||
| Currency translation differences 2012 | – | – | -23,630 | – | -23,630 |
| Total other comprehensive income | – | – | -23,630 | – | -23,630 |
| Total comprehensive income | – | – | -23,630 | 313,962 | 290,332 |
| Transactions with owners | |||||
| Share issue 2012 | 500 | 119,500 | – | 120,000 | |
| Issue costs | – | -5,769 | – | – | -5,769 |
| Total transactions with owners | 500 | 113,731 | – | 114,231 | |
| Closing balance 31 December 2012 | 5,924 | 552,060 | -26,585 | 328,723 | 860,122 |
| Opening balance 1 January 2013 | 5,924 | 552,060 | -26,585 | 328,723 | 860,122 |
| Comprehensive income | |||||
| Result for the year | – | – | – | 240,185 | 240,185 |
| Period result | – | – | – | 240,185 | 240,185 |
| Other Comprehensive income | |||||
| Currency translation differences 2013 | – | – | 59 | – | 59 |
| Total other comprehensive income | – | – | 59 | – | 59 |
| Total comprehensive income | – | – | 59 | 240,185 | 240,244 |
| Closing balance 31 December 2013 | 5,924 | 552,060 | -26,525 | 568,908 | 1,100,366 |
| TSEK | Note | 1 Jan 2013–31 Dec 2013 | 1 Jan 2012–31 Dec 2012 |
|---|---|---|---|
| Cash flow from operations | |||
| Operating result | 285,329 | 336,300 | |
| Interest received | 15 | 414 | 550 |
| Interest paid | 16 | -38,000 | |
| Income tax | 17 | -68 | -213 |
| Adjustment for exploration costs | 9 | 56,146 | 117,521 |
| Adjustment for depletion, depreciation and amortisation and other non cash related items |
9 | 137,797 | 12,830 |
| Total cash flow from operations before change in working capital | 441,617 | 466,988 | |
| Change in receivables | -49,228 | -13,850 | |
| Change in liabilities | -56,379 | 76,710 | |
| Cash flow from operations | 336,011 | 529,847 | |
| Investment activity | |||
| Investment in oil and gas properties | 9 | -274,652 | -493,364 |
| Oil and gas properties from cost oil repayment | -15,432 | -381,240 | |
| Dividend from associated companies | 6 | 8,640 | – |
| Investment in long term receivables | -614 | – | |
| Investments in derivate instruments | 7 | -6,453 | -697 |
| Cash flow from investment activity | -288,511 | -875,301 | |
| Financing activity | |||
| Share issue, net after issue costs | 20 | – | 114,231 |
| Bond issue, net after issue costs | – | 387,553 | |
| Cash flow from financing activity | – | 501,784 | |
| Cash flow for the year | 47,500 | 156,330 | |
| Cash and cash equivalents at the beginning of the year | 248,038 | 93,105 | |
| Exchange gains/losses on cash and cash equivalents | -526 | -1,398 | |
| Cash and cash equivalents at the end of the year | 295,011 | 248,038 |
| TSEK | Note | 1 Jan 2013–31 Dec 2013 | 1 Jan 2012–31 Dec 2012 |
|---|---|---|---|
| Depreciation and amortisation | -70 | -110 | |
| Other income | 5,142 | 2,781 | |
| Net profit/loss from associates | 6 | 4,761 | 49,043 |
| Other losses/gains, net | 11 | -38 | -42 |
| Administrative expenses | 12–14 | -21,644 | -11,792 |
| Operating result | -11,849 | 39,880 | |
| Financial income and similar items | 15 | 20,311 | 70,362 |
| Financial expenses and similar items | 16 | -49,023 | -36,363 |
| Write down of shares in group company | 23 | -62,161 | -156,673 |
| Net financial result | -90,873 | -122,673 | |
| Result before tax | -102,722 | -82,793 | |
| Income tax | 17 | – | – |
| Result for the year * | -102,722 | -82,793 | |
| Number of shares outstanding | 20 | 35,543,750 | 35,543,750 |
| Number of shares outstanding (after dilution) | 20 | 35,543,750 | 35,543,750 |
| Weighted number of shares | 20 | 35,543,750 | 34,464,515 |
* As there are no items in the parent company's other comprehensive income, no separate report on total comprehensive income is presented.
| TSEK | Note | 31 Dec 2013 | 31 Dec 2012 |
|---|---|---|---|
| ASSETS | |||
| Non-current assets | |||
| Other fixed assets | 18 | 64 | 104 |
| Shares in subsidiaries | 23 | 1,538 | 1,538 |
| Long term receivables to group companies | 365,329 | 372,960 | |
| Investment in associates | 6 | 184,282 | 188,161 |
| 551,213 | 562,763 | ||
| Current assets | |||
| Other receivables | 19 | 500 | 519 |
| Prepaid expenses | 309 | 1,866 | |
| Derivative instruments | 7 | 4,805 | – |
| Cash and cash equivalents | 30,863 | 187,263 | |
| 36,477 | 189,648 | ||
| TOTAL ASSETS | 587,690 | 752,411 | |
| SHAREHOLDERS' EQUITY AND LIABILITIES | |||
| Shareholders' equity | 20 | ||
| Restricted equity: | |||
| Share capital | 5,924 | 5,924 | |
| Statutory reserve | 71,071 | 71,071 | |
| Unrestricted equity: | |||
| Share premium reserve | 480,989 | 480,989 | |
| Retained earnings | -276,587 | -193,794 | |
| Result for the year | -102,722 | -82,793 | |
| Total shareholders' equity | 178,675 | 281,397 | |
| Non current liabilities | |||
| Debt | 21 | 393,008 | 388,862 |
| 393,008 | 388,862 | ||
| Current liabilities | |||
| Accounts payable | 1,247 | 684 | |
| Other current liabilities to group companies | 2,044 | 836 | |
| Accrued expenses | 22 | 12,716 | 80,632 |
| 16,007 | 82,152 | ||
| Total liabilities | 409,015 | 471,014 | |
| TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES | 587,690 | 752,411 | |
| Pledged assets | 24 | 988,824 | 625,683 |
| Contingent liabilities | 25 | – | – |
| Restricted equity | Non restricted equity | |||||
|---|---|---|---|---|---|---|
| TSEK | Share capital |
Statutory reserve |
Share premium reserve |
Retained earnings |
Net result |
Total equity |
| Opening balance 1 January 2012 | 5,424 | 71,071 | 367,258 | -179,124 | -14,669 | 249,960 |
| Transfer of prior year net result | – | – | – | -14,669 | 14,669 | – |
| Comprehensive income | ||||||
| Loss for the year | – | – | – | – | -82,793 | -82,793 |
| Period result | – | – | – | – | -82,793 | -82,793 |
| Total comprehensive income | – | – | – | – | -82,793 | -82,793 |
| Transactions with owners | ||||||
| Share issue 2012 | 500 | – | 119,500 | – | – | 120,000 |
| Issue costs | – | – | -5,769 | – | – | -5,769 |
| Total transactions with owners | 500 | – | 113,731 | – | – | 114,231 |
| Closing balance 31 December 2012 | 5,924 | 71,071 | 480,989 | -193,794 | -82,793 | 281,397 |
| Opening balance 1 January 2013 | 5,924 | 71,071 | 480,989 | -193,794 | -82,793 | 281,397 |
| Transfer of prior year net result | – | – | – | -82,793 | 82,793 | – |
| Comprehensive income | ||||||
| Loss for the year | – | – | – | – | -102,722 | -102,722 |
| Period result | – | – | – | – | -102,722 | -102,722 |
| Total comprehensive income | – | – | – | – | -102,722 | -102,722 |
| Closing balance 31 December 2013 | 5,924 | 71,071 | 480,989 | -276,587 | -102,722 | 178,675 |
| TSEK | Note | 2013 | 2012 |
|---|---|---|---|
| Cash flow from operations | |||
| Operating result | -11,849 | 39,880 | |
| Interest received | 15 | 15,860 | 6,103 |
| Interest paid | 16 | -38,000 | – |
| Adjustment for non cash related items | 18 | -4,691 | 22,293 |
| Total cash flow from operations before change in working capital | -38,680 | 68,276 | |
| Change in receivables | 1,575 | 130,859 | |
| Change in liabilities | -66,144 | 16,788 | |
| Cash flow from in operations | -103,249 | 215,923 | |
| Investment activity | |||
| Dividend from associates | 6 | 8,640 | – |
| Investment in long term receivables | -56,026 | -535,215 | |
| Investment in other fixed assets | 18 | -30 | -45 |
| Investments in derivative instruments | -6,453 | – | |
| Cash flow from investment activity | -53,868 | -535,260 | |
| Financing activity | |||
| Share issue, net after issue costs | 20 | – | 114,231 |
| Bond issue, net after issue costs | – | 387,553 | |
| Cash flow from financing activity | – | 501,784 | |
| Cash flow for the year | -157,118 | 182,447 | |
| Cash and cash equivalents at the beginning of the year | 187,263 | 3,943 | |
| Exchange gains on cash and cash equivalents | 718 | 873 | |
| Cash and cash equivalents at the end of the year | 30,863 | 187,263 |
Tethys Oil AB (publ) ("the Company"), corporate identity number 556615- 8266, and its subsidiaries (together "the Group" or "Tethys Oil") are focused on exploration for and production of oil and natural gas. The Group has interests in exploration licences in Oman, France and Lithuania. The Company is a limited liability company incorporated and domiciled in Stockholm, Sweden. The Company is listed on NASDAQ OMX Stockholm.
These consolidated financial statements have been approved for issue by the Board of Directors on 22 April 2014.
The annual report of Tethys Oil AB/the Group have been prepared in accordance with prevailing International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRIC) interpretations adopted by the EU Commission and the Swedish Annual Accounts Act (1995:1554). In addition RFR 1 "Supplementary Rules for Groups" has been applied as issued by the Swedish Financial Reporting Board.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 2.
The consolidated financial statements have been prepared under the historical cost basis except as disclosed in the accounting policies below.
The accounting principles applied in the preparation of these consolidated financial statements are set out below. The same accounting principles were used in the Annual report 2012 and have been consistently applied to all the years presented, unless otherwise stated. The Annual report of the Group has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, the Annual Accounts Act and RFR 1 "Supplementary rules for groups". The Annual report for the Parent company has been prepared in accordance with the Annual Accounts Act and Swedish Financial Accounting Standards Council's RFR 2 "Accounting for legal entities". RFR 2 means that the parent company in the annual report for the legal entity shall apply IFRS' rules and statements as adopted by the EU, so far this is possible within the framework of the Annual Accounts Act and with regard to the connection between accounting and taxation. The recommendation states which exceptions and additions that shall be or are allowed to be made from IFRS. The accounting principles of the Parent company are the same as for the Group, except in the cases specified below in the section entitled "Parent Company accounting principles".
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company's accounting policies. These areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 1.
The following standards have been adopted by the Group for the first time for the financial year beginning on or after 1 January 2013: IFRS 13 Fair value measurements and revised IAS 1 Presentations of financial statements.
IFRS 13, 'Fair value measurement', aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The standard have implied that new more disclosures have been made in the financial statements but not any significant effect on the consolidated financial statements of the Group.
Amendment to IAS 1, 'Financial statement presentation' regarding other comprehensive income. The amendment includes a requirement to group items presented in Other comprehensive income on the basis of whether they are potentially reclassifiable to profit or loss subsequently.
The following new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2013. They are not mandatory for the 2013 consolidated financial statements and have not been applied in preparing these consolidated financial statements. These standards might lead to significant changes in the accounting and standard practice for the industry. Careful consideration will be required to assess the practical implication for the Group.
IFRS 9, 'Financial instruments', addresses the classification, measurement and recognition of financial assets and financial liabilities. The standard has not been fully completed and is expected to be effective from 1 January 2018. The Group is yet to assess IFRS 9's full impact.
IFRS 10, 'Consolidated financial statements' builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The Group is yet to assess IFRS 10's full impact and intends to adopt IFRS 10 from 1 January 2014.
IFRS 11, 'Joint arrangements' focuses on the rights and obligations of the parties to the arrangement rather than its legal form. There are two types of joint arrangements: joint operations and joint ventures. Joint operations arise where the investors have rights to the assets and obligations for the liabilities of an arrangement. A joint operator accounts for its share of the assets, liabilities, revenue and expenses. Joint ventures arise where the investors have rights to the net assets of the arrangement; joint ventures are accounted for under the equity method. Proportional consolidation of joint arrangements is no longer permitted. The Group has assessed IFRS 11's full effect and the conclusion is that it will have no impact on financial statements of Tethys Oil.
IFRS 12, 'Disclosures of interests in other entities' includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, structured entities and other form of interest. The Group is yet to assess IFRS 12's full impact and intends to adopt IFRS 12 from 1 January 2014.
Subsidiaries are all entities (including special purpose companies) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.
The group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest's proportionate share of the acquiree's net assets.
Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group.
As stated above, a subsidiary that is controlled by the Group will be fully consolidated within the results of Tethys Oil. Joint control exists when the Group does not have the control to determine the strategic operating, investing and financing policies of a partially owned entity without the co-operations of others. When this is the case the entity is proportionally consolidated.
Oil and gas operations are conducted by the Group as co-licencees in unincorporated joint ventures with other companies. The Group's financial statements reflect the relevant proportions of production, capital costs, operating costs and current assets and liabilities of the joint venture applicable to the Group's interests.
An investment in an Associated company is an investment in an undertaking where the Group exercises significant influence but not control, generally accompanying a shareholding of at least 20 per cent but not more than 50 per cent of the voting rights. Such investments are accounted for in the consolidated financial statements in accordance with the equity method and are initially recognized at cost. The difference between the acquisition cost of shares in an associated company and the net fair value of the assets, liabilities and contingent liabilities of the associated company recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment. The Group's share in the post-acquisition results of the associated company is recognised in the income statement and the Group's share in post-acquisition movements in other comprehensive income of the associated company is recognised directly in other comprehensive income of the Group. When the Group's accumulated share of losses in an associated company equals or exceeds its interest in the associated company, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.
Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group's percentage in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.
Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('functional currency'). The consolidated financial statements are presented in Swedish Kronors (SEK) which is the currency the Group has elected to use as the presentation currency.
Monetary assets and liabilities denominated in foreign currencies are translated at the rates of exchange prevailing at the balance sheet date and foreign exchange currency differences are recognised in the income statement. Transactions in foreign currencies are translated at exchange rates prevailing at the transaction date. Exchange differences are included in financial income/expenses in the income statement. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the balance sheet rate of exchange.
The balance sheets and income statements of foreign Group companies are translated for consolidation purposes using the current rate method. All assets and liabilities of the subsidiary companies are translated at the balance sheet date rates of exchange, whereas the income statements are translated at average rates of exchange for the year, except for transactions where it is more relevant to use the rate of the day of the transaction. The translation differences which arise are recorded directly in the foreign currency translation reserve within other comprehensive income. Upon disposal of a foreign operation the translation differences relating to that operation will be transferred from equity to the income statement and included in the result on sale. Translation differences arising from net investments in subsidiaries, used for financing exploration activities, are recorded directly in other comprehensive income.
For the preparation of the financial statements for the reporting period, the following exchange rates have been used.
| 31 December 2013 | 31 December 2012 | |||
|---|---|---|---|---|
| Currency | 2013 Average |
2013 Period end |
2012 Average |
2012 Period end |
| SEK/CHF | 7.05 | 7.40 | 7.38 | 7.23 |
| SEK/EUR | 8.68 | 9.03 | 8.78 | 8.75 |
| SEK/LTL | 2.52 | 2.55 | 2.56 | 2.62 |
| SEK/USD | 6.52 | 6.58 | 6.82 | 6.61 |
| Summary of currency exchange rate effect on operating result | -13,621 |
|---|---|
| Administrative expenses | 623 |
| Other losses/gains, net | – |
| Net profit/loss from associate | – |
| Operating expenses | 6,851 |
| Other income | -2,943 |
| Exploration costs | 2,336 |
| Depreciation, depletion and amortization | 6,216 |
| Net sales of oil and gas | -26,704 |
| Comparison with 31 December 2012, TSEK |
The table above presents the currency exchange effect on operating result compared with 2012, by applying the average exchange rate of 2012 on 2013 accounts.
Operating segments are based on geographic perspective and reported in a manner consistent with the internal reporting provided to the Executive Management. Information for segments is only disclosed when applicable.
Non-current assets, long-term liabilities and provisions consist for the most part solely of amounts that are expected to be recovered or paid more than twelve months after the balance sheet date. Current assets and current liabilities consist solely of amounts that are expected to be recovered or paid within twelve months after the balance sheet date.
Oil and gas properties are initially recorded at historical cost, where it is probable that they will generate future economic benefits. All costs for acquiring concessions, licences or interests in production sharing contracts and for the survey, drilling and development of such interests are capitalised on a field area cost centre basis. This includes capitalisation of decommissioning and restoration costs associated with provisions for asset retirement (see "Provisions"). Oil and gas properties are subsequently carried at cost less accumulated depreciation, depletion and amortisation (including any impairment). Gains and losses on disposals are determined by comparing the proceeds with the carrying amounts of assets sold and are recognised in income. Routine maintenance and repair costs for producing assets are expensed to the income statement when they occur.
Proceeds from the sale or farm-out of oil and gas concessions in the exploration stage are off set against the related capitalised costs of each cost centre with any excess of net proceeds over all costs capitalised included in the income statement. In the event of a sale in the exploration stage any deficit is included in the income statement.
Oil and gas properties are categorised as either producing or non-producing.
Producing oil and gas properties are depleted on a unit-of-production basis over the proved and probable reserves of the field concerned, except in the case of assets whose useful lives differ from the lifetime of the field, in which case the straight-line method is applied.
In accordance with the unit of production method, net capitalised costs to reporting date, together with anticipated future capital costs for the development of the proved and probable reserves determined at the balance sheet date price levels, are depleted based on the year's production in relation to estimated total proved and probable reserves of oil and gas. Depletion of a field area is charged to the income statement once commercial production commences, under Depletion, depreciation and amortisation.
Proved reserves are those quantities of petroleum which, by analysis of geological and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under current economic conditions, operating methods and governmental regulations. Proved reserves can be categorised as developed or undeveloped. If deterministic methods are used, the term reasonable certainty is intended to express a high degree of confidence that the quantities will be recovered. If probabilistic methods are used, there should be at least a 90 per cent probability that the quantities actually recovered will equal or exceed the estimates.
Probable reserves are those unproved reserves which analysis of geological and engineering data suggests are more likely than not to be recoverable. In this context, when probabilistic methods are used, there should be at least a 50 per cent probability that the quantities actually recovered will equal or exceed the sum of estimated proved plus probable reserves.
Exploration costs relate to non-producing oil and gas properties and are recognised in the income statement when a decision is made not to proceed with an oil and gas project, or when expected future economic benefits of an oil and gas project are less than capitalised costs. No depletion is charged to non-producing oil and gas properties.
Costs related to non-producing oil and gas properties and directly associated with an exploration well are capitalised until the determination of reserves is evaluated. If it is determined that a commercial discovery has not been achieved, these exploration costs are charged to the income statement as exploration costs.
The field will be transferred from the non-production cost pool to the production cost pool within oil and gas properties once commercial production commences, and accounted for as a producing asset.
Tethys Oil continuously assesses its producing oil and gas properties for any need for impairment. This is performed in conjunction with each balance sheet date or if there are events or changes in circumstances that indicate that carrying values of assets may not be recoverable. Such indicators include changes in the Group's business plans, relinquished licences, changes in raw materials prices leading to lower revenues and, for oil and gas properties, downward revisions of estimated reserve quantities.
Testing for impairment losses is performed for each cash generating unit, which corresponds to licence right, production sharing agreement or equivalent owned by Tethys Oil. A cash generating unit thus usually corresponds to each acquired asset in each country in which Tethys Oil carries on oil and gas operations. Impairment testing means that the balance sheet item amount for each cash generating unit is compared to the recoverable amount for the assets, which is the higher of the fair value of the assets less sales expenses and the value in use. The value in use of the assets is based on the present value of future cash flows discounted by a discount rate; see also Note 9 under the section Impairment testing. An impairment loss is recorded when an asset's or a cash generating unit's recorded value exceeds the recoverable amount. Impairment losses are charged to the income statement, under Depletion, depreciation and amortisation.
Interest on borrowings to finance the acquisition of producing oil and gas properties is charged to income as incurred. Interest on borrowings to finance fields under development is capitalized within oil and gas properties until production commences.
The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables and other liabilities. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.
Tethys Oil reports a financial asset or a financial liability in the balance sheet when the company becomes a party to the instrument's contractual terms. The company derecognises a financial liability or part thereof when the obligation stated in the relevant contract is fulfilled or otherwise terminated.
Tethys Oil bases the fair value of financial instruments depending on available market data at time of valuation. Data are categorised into three categories; Level 1: quoted prices in active markets. Level 2: valuation based on observable market data. Level 3: valuation techniques incorporating information other than observable market data. The reported value – after any impairment – of accounts receivable and accounts payable is assumed to equate to their fair value, since these entries are short-term in nature.
Financial assets and liabilities at fair value through profit or loss are financial assets held for trading. A financial asset and liabilities are classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets and liabilities in this category are classified as current assets or liabilities if expected to be settled within 12 months; otherwise, they are classified as non-current. Currently the Group hold derivate instruments in this category as described in Note 7.
Financial assets and liabilities carried at fair value through profit or loss are both initially and subsequently recognised at fair value, and transaction costs are expensed in the income statement.
Receivables and other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as noncurrent assets. The group's receivables comprise 'trade and other receivables' and 'cash and cash equivalents' in the balance sheet. Receivables and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. Assets are also measured less provision for impairment.
Other liabilities are non-derivative financial liabilities with fixed or determinable payments that are not quoted in an active market. They are included in current liabilities, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current liabilities. Other liabilities are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
The group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a 'loss event') and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. For loans and receivables category, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate. The carrying
amount of the asset is reduced and the amount of the loss is recognised in the consolidated income statement
Other tangible fixed assets are stated at cost less accumulated depreciation. Depreciation is based on cost and is calculated on a straight line basis over the estimated economic life of 3 to 5 years for office equipment and other assets.
Additional costs to existing assets are included in the assets' net book value or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.
The net book value of any replaced parts is written off. Other additional expenses are deemed to be repair and maintenance costs and are charged to the income statement when they are incurred. The net book value is written down immediately to its recoverable amount when the net book value is higher. The recoverable amount is the higher of an asset's fair value less cost to sell and value in use.
Cash and cash equivalents comprise cash at bank and in hand, including offsetting bank overdrafts, short-term deposits, money market funds and commercial paper that have a maturity of three months or less at the date of acquisition.
Share capital consists of the registered share capital for the Parent Company. Share issue costs associated with the issuance of new equity are treated as a direct reduction of proceeds. Excess contribution in relation to the issuance of shares is accounted for in the item additional paid-in-capital.
The currency translation reserve contains unrealised translation differences due to the conversion of the functional currencies into the presentation currency.
Retained earnings contain the accumulated results attributable to the shareholders of the Parent Company.
A provision is reported when the Company has a legal or constructive obligation as a consequence of an event and when it is more likely than not that an outflow of resources is required to settle the obligation and a reliable estimate can be made of the amount. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as financial expense.
On fields where the Group is required to contribute to site restoration costs, a provision is recorded to recognise the future commitment. An asset is created, as part of the oil and gas property, to represent the discounted value of the anticipated site restoration liability and depleted over the life of the field on a unit of production basis. The corresponding accounting entry to the creation of the asset recognises the discounted value of the future liability. The discount applied to the anticipated site restoration liability is subsequently released over the life of the field and is charged to financial expenses. Changes in site restoration costs and reserves are treated prospectively and consistent with the treatment applied upon initial recognition.
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised costs using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or a shorter period where appropriate.
Revenues from the sale of oil and gas are recognised in the income statement net of royalties in kind or in cash (government take). Revenues associated with the sale of crude oil are recognized at the fair value of the consideration received or receivable when the significant risks and rewards of ownership have been transferred, which is when title passes from the Company to the customer. For Tethys Oil's operations, customers take title when the crude oil is loaded onto a tanker.
Crude oil and natural gas produced and sold, below or above the Company's working interest share in the related oil and gas property, results in production underliftings, or overliftings. Underliftings are recorded as Other receivables valued at operating cost, and overliftings are recorded in Other current liabilities and accrued at the sales value. Underliftings are reversed from Other receivables when the crude oil is lifted and sold, with the sales proceeds recorded as revenue and the cost of the oil expensed. Overliftings are reversed from Other current liabilities when sufficient volumes are produced to make up the overlifted volume.
Blocks 3&4, being Tethys Oil's main and only producing oil and gas property, is governed by an Exploration and Production Sharing Contract (EPSA). Under the EPSA, revenues are derived from cost recovery oil and gas and profit oil and gas. Cost recovery oil and gas allows Tethys Oil to generally recover all investments and operating expenses (CAPEX and OPEX). Profit oil and gas is allocated to the host government and contract parties in accordance with their respective equity interests.
Incidental revenues from the production of oil and gas are offset against capitalised costs of the related cost centre until quantities of proven and probable reserves are determined or commercial production has commenced. Service income, generated by providing technical and management services to joint ventures, is recognised as other income.
Presented income taxes include tax payable or tax receivable for the reporting period, adjustments in regard to previous year's taxes and changes in deferred tax.
Valuations of all tax liabilities/claims is in nominal amounts and are prepared in accordance with tax legislation and tax rates decided or announced and at which they are likely to be resolved.
The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
The majority of the pension obligations of the Group are governed by legally required social costs. Additional pension schemes exists which are funded through payments to insurance companies. These are defined contribution plans. A defined contribution plan is a pension plan under which the group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions should this legal entity not hold sufficient assets to pay all employees the benefits relating to employee service in the current or prior periods.
Severance pay is payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for the severance pay. The Group recognises severance pay when it is demonstrably committed to either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing severance pay as a result
of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after the balance sheet date are discounted to their present value.
Tethys Oil recognises the following related parties: associated companies, jointly controlled entities, members or the family of the key management personnel or other parties that are partly, directly or indirectly, controlled by key management personnel or of its family or of any individual that controls, or has joint control or significant influence over the entity.
The Parent Company has prepared its Annual Report in compliance with Swedish Annual Accounts Act and recommendation RFR 2, Accounting for Legal Entities of the Swedish Financial Reporting Board.
Holdings in subsidiaries are recognized in the Parent Company financial statements according to the cost method of accounting. The values of subsidiaries are tested for impairment when there is an indication of a decline in the value.
The Parent Company's financial statements recognize untaxed reserves including deferred tax. The consolidated financial statements, however, reclassify untaxed reserves to deferred tax liability and equity.
The Group's activities expose it to a number of risks and uncertainties which are continuously monitored and reviewed. Presented below are the main risks and uncertainties of the group as identified by the directors and how the group handles these risks.
At its current stage of development Tethys Oil is partly commercially producing oil and partly exploring for and appraising undeveloped known oil and/ or natural gas accumulations. The operational risk is different in these different parts of Tethys Oil's operations. The main operational risk in exploration and appraisal activities is that the activities and investments made by Tethys Oil and its partners will not evolve into commercial reserves of oil and gas.
The oil price is of significant importance to Tethys Oil in all parts of operations as income and profitability is and will be dependent on prices prevailing from time to time. Significantly lower oil prices will reduce current and expected profitability in projects and can make projects sub economic. Lower oil prices could also decrease the industry interest in Tethys Oil's projects regarding farmout or sale of assets. As per 31 December 2013, Tethys Oil owns 715,000 put options, equalling 65,000 options per month from February to December 2014. These put options have a strike price of USD 90 per barrel to secure oil price during 2014 without limiting any upside potential should market oil prices be higher. These put options therefore reduce the oil price risk during 2014 significantly.
Tethys Oil's has a flexible approach towards oil price hedging, based on an assessment of the benefits of the hedge contract in specific circumstances. Based on analysis of the circumstances Tethys Oil will assess the benefits of forward hedging sales contracts for the purpose of establishing a secured cash flow. If Tethys Oil believes that the hedging contract will provide an enhanced cash flow or if the risk of not being able to meet investment commitments is high, then Tethys Oil may choose to enter into an oil price hedge.
| Total effect on net result (MSEK) | 28 | -28 |
|---|---|---|
| Shift in oil price (USD/barrel) | +5 | -5 |
| Net result in financial statements (MSEK) | 240 | 240 |
The oil price hedges described above were not included in the effects above as there were no hedges in place relating to 2013.
An operational risk factor is access to equipment in Tethys Oil's project. Especially in the drilling/development phase of a project the group is dependent on advanced equipment such as rigs, casing, pipes etc. A shortage of theses supplies can present difficulties for Tethys Oil to fulfil projects. Through its operations Tethys Oil is furthermore subject to political risk, environmental risk and the risk of not being able to retain key personnel.
Tethys Oil has operations, alone or with partners, in several different countries and can therefore be subject to political risk. The political risks are monitored and factored in when evaluating possible projects. Asset diversification is again Tethys Oil's principal approach to deal with this risk. Specifically, Tethys Oil also deals with political risk by emphasising continuous close dialog with host country authorities and interest groups, nationally as well as locally. Tethys Oil holds its oil and gas interest through licences, directly or indirectly, which are granted by national governments. Tethys Oil's operations are often also subject to local permits. Therefore Tethys Oil and the industry are subject to a wide range of political risks on different levels and the business is highly sensitive to political changes.
Oil and gas operations can be environmentally sensitive. Tethys Oil devotes considerable effort and expense to identify and mitigate any perceived environmental risk. The operations are subject to extensive regulatory control with regard to environmental matters, both on national and international levels. Environmental legislation regulates inter alia the control of water and air contamination, waste material, licensing requirements, restrictions on carrying out operations in environmentally sensitive and littoral areas.
Tethys Oil is dependent on certain key personnel, some of whom have founded the company at the same time as they are some of the existing shareholders and members of the Board of Directors of the company. These people are important for the successful development of Tethys Oil. The company actively tries to strike an optimal balance between its dependence of key personnel and its methods for retaining these.
Tethys Oils direct interests are held through agreements with host countries, for example licenses or production sharing agreements. These agreements are often limited in time and there are no guarantees that the agreements can be extended when a time limit is reached.
The Group's activities expose it to a variety of financial risks, mainly categorized as exchange rate risk and liquidity risk. The Group's risks are continuously monitored and analysed by the Board of directors and management. The aim is to minimise potential adverse effects on the Group's financial performance.
The Group is exposed to fluctuations in the foreign exchange markets as fluctuations in exchange rates can negatively affect the operating profit, cash flow and equity. The major proportion of the Group´s assets relate to international oil and gas discoveries valued in USD and which generate revenues in USD. During 2012, all of Tethys Oil's oil sales and operative expenditures were denominated in USD. The exchange risk effect the Group by transaction risk and translation risk.
Transaction exposure arises in the cash flow when invoicing or the costs of invoiced goods and services are not in the local currency. By operating in several countries, Tethys Oil is exposed to fluctuations in a number of currencies. Presented below is the exposure to currencies with reference to items in the financial statements:
| Net sales 2013 | 100 per cent in USD |
|---|---|
| Investments 2013 | 99 per cent in USD |
| External financing 2013 | no external financing was made during 2013 |
Tethys Oil does not currently hedge exchange rates. The Group's policy is to hold a large portion of liquidity in USD to reduce the exchange rate risk.
Exchange-rate changes affect the Group in conjunction with the translation of the income statements of foreign subsidiaries to SEK as the Group's operating profit is affected and when net assets in foreign subsidiaries are translated into SEK which can negatively affect the Group's operating profit and statement of financial position. The Group does not hedge its translation exposure and fluctuating currency rates might negatively affect the operating profit and financial position of the Group.
| Total effect on equity (MSEK) | 133 | -133 |
|---|---|---|
| Shift in SEK/USD | +10% | -10% |
| Equity in financial statements (MSEK) | 1,100 | 1,100 |
| Total effect on net result (MSEK) | 39 | -39 |
| Shift in SEK/USD | +10% | -10% |
| Net result in financial statements (MSEK) | 240 | 240 |
By operating in several countries, Tethys Oil is exposed to fluctuations in a number of currencies. Income is and will also most likely be denominated in foreign currencies, US dollars in particular. Furthermore, Tethys Oil has since inception been equity and debt financed through share and bond issues and also financed by asset divestment. Additional capital could be needed to finance Tethys Oil's future operations and/or for acquisition of additional licences. The main risk is that this need could occur during less favourable market conditions.
In September 2012, Tethys Oil issued a secured three-year bond loan of TSEK 400,000, which run with a fixed interest rate of 9.50 per cent per year and the maturity date of the bonds is 7 September 2015. As per the terms and conditions of the bond, the Company shall make semi-annual interest payments, in March and September every year, until the maturity of the bond.
| Fall due profile on Tethys Oil's | ||||
|---|---|---|---|---|
| financial liabilities | 31 December 2013 | 31 December 2012 | ||
| TSEK | <1 year | 1–3 year | <1 year | 1–3 year |
| Interest bearing loans | 449,353 | – | 403,305 | |
| Interest | 38,000 | 38,000 | 38,000 | 76,000 |
| Accounts payables and other | ||||
| liabilities | 26,251 | – | 13,446 | – |
| Total | 64,251 | 487,353 | 51,446 | 479,305 |
Tethys Oil's policy is to limit credit risk by limiting the counter-parties to major banks and oil trading companies. Tethys Oil is selling all of its oil through Mitsui Energy Trading Singapore which is part of Mitsui & C.o Ltd. As at 31 December 2013 the Group's receivables on oil sales amounted to TSEK 62,616 (TSEK 12,589), this also represent the maximal exposure on accounts receivable. There is no history of default. Cash and cash equivalents are maintained with banks having strong long-term credit ratings. Maximal exposure regarding other financial assets are those presented in the balance sheet.
It is the responsibility of the Board of Directors to overview the Group's capital structure and financial management, approve certain business regarding acquisition, investments, possible lending as well as on-going monitoring exposure to financial risks.
The nominal value of accounts payables, cash and bank and accounts receivables is a fair approximation of those line items. The nominal amount of the bond loan was TSEK 400,000 and issued at a fixed annual interest rate of 9.50 per cent and it was trading at 6.80 per cent as per 31 December 2013 (7.97 per cent).
| 2013 | |||||
|---|---|---|---|---|---|
| Financial assets and liabilities at fair value through profit or loss |
Receivables and other receivables |
Other liabilities |
|||
| – | – | – | |||
| – | 64,935 | – | |||
| – | 295,011 | – | |||
| 4,805 | – | – | |||
| – | – | 393,008 | |||
| – | – | 1,274 | |||
| – | – | 24,977 | |||
| 2012 | ||||||
|---|---|---|---|---|---|---|
| TSEK | Financial assets and Receivables liabilities at fair value and other through profit or loss receivables |
Other liabilities |
||||
| Other long term receiva bles |
– | – | – | |||
| Other receivables | – | 14,618 | – | |||
| Cash and bank | – | 248,038 | – | |||
| Debt | – | – | 388,862 | |||
| Accounts payables | – | – | 684 | |||
| Other current liabilities | – | – | 12,762 |
* Note that Derivative instruments are put options. These instruments can be sold and are categorized as level 2 in accordance with IFRS 7. The valuation is made based on available market prices of the Brent oil price.
Estimates and judgements are continuously evaluated and are based on historical experience and other factors, including expectations of future events which are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets within the next financial year are discussed below.
The business of the Group is the exploration for, development of and production of oil and gas reserves. Estimates of oil and gas reserves are used in the calculations for impairment tests and accounting for depletion and site restoration. Changes in estimates in oil and gas reserves, resulting in different future production profiles, will affect the discounted cash flows used in impairment testing, the anticipated date of site decommissioning and restoration and the depletion charges in accordance with the unit of production method.
The Group determines if the carrying value for investments in associated companies has suffered any impairment where any objective evidence of impairment exists. Objective evidence could for example come from reserve report updates, production reports and other third party studies of the asset. This assessment is performed to identify where the carrying value exceeds its recoverable amount. The recoverable amounts have been determined based on value in use calculations. Assessments used in these calculations include judgement of the future cash flows, discount rates and exchange rates.
Amounts used in recording a provision for site restoration are estimates based on current legal and constructive requirements and current technology and price levels for the removal of facilities and plugging and abandoning of wells. Due to changes in relation to these items, the future actual cash outflows in relation to the site decommissioning and restoration can be different. To reflect the effects due to changes in legislation, requirements and technology and price levels, the carrying amounts of site restoration provisions are reviewed on a regular basis. The effects of changes in estimates do not give rise to prior year adjustments and are treated prospectively over the estimated remaining commercial reserves of each field. While the Group uses its best estimates and judgement, actual results could differ from these estimates.
The Group annually tests, on a field by field basis, oil and gas properties to determine that the net book amount of capitalized costs within each field less royalties and deferred production or revenue related taxes is covered by the anticipated future net revenue from oil and gas reserves attributable to the Group's interest in related fields (note 9). The Group will use its judgement and make assumptions to perform these tests.
The company has not recorded a deferred tax asset in relation to the tax losses carried forward as there is uncertainty as to if the tax losses may be utilised (note 15).
All events up to the date when the financial statements were authorised for issue and which have a material effect in the financial statements have been disclosed. Please see note 28.
The Group´s accounting principle for segment describes that operating segments are based on geographic perspective and reported in a manner consistent with the internal reporting provided to the executive management, which is considered to be the chief operating decision maker. Previous years, the company's chief operating decision maker has been considered to be the Board of Directors. There have been no changes to the operating segments due to the change of operating decision maker. The operating result for each segment is presented below.
| Group income statement Jan–Dec 2013 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| TSEK | Dubai | France | Lithuania | Oman | Sweden | Switzerland | Other | Total | |
| Net sales | – | – | – | 591,931 | – | – | – | 591,931 | |
| Depreciation, depletion and | |||||||||
| amortisation | -91 | – | – | -137,225 | -70 | -448 | – | -137,834 | |
| Exploration costs | – | -885 | – | -51,357 | – | – | -3,904 | -56,146 | |
| Other income | – | – | – | 65,235 | – | – | – | 65,235 | |
| Operating expenses | – | – | – | -151,867 | – | – | – | -151,867 | |
| Net profit/loss from associates | – | – | 4,761 | – | – | – | – | 4,761 | |
| Other losses/gains, net | – | – | – | – | -38 | – | – | -38 | |
| Administrative expenses | -4,627 | -11 | – | -2,674 | -21,644 | -1,563 | -193 | -30,714 | |
| Operating result | -4,717 | -897 | 4,761 | 314,042 | -21,753 | -2,011 | -4,097 | 285,329 | |
| Total financial items | -45,076 | ||||||||
| Result before tax | 240,253 | ||||||||
| Income tax | -68 | ||||||||
| Result for the period | 240,185 |
| Group income statement Jan–Dec 2012 | ||||||||
|---|---|---|---|---|---|---|---|---|
| TSEK | Dubai | France | Lithuania | Oman | Sweden | Switzerland | Other | Total |
| Net sales | – | – | – | 583,990 | – | – | – | 583,990 |
| Depreciation, depletion and | ||||||||
| amortisation | -164 | – | – | -54,531 | -110 | -580 | – | -55,386 |
| Exploration costs | – | -17,664 | – | -98,223 | – | -840 | -793 | -117,521 |
| Other income | 56 | – | – | – | – | – | – | 56 |
| Operating expenses | – | – | – | -95,518 | – | – | – | -95,518 |
| Net profit/loss from associates | – | – | 49,043 | – | – | – | – | 49,043 |
| Other losses/gains, net | – | – | – | – | -42 | – | – | -42 |
| Administrative expenses | -4,840 | -1 | – | -2,886 | -11,792 | -8,205 | -600 | -28,323 |
| Operating result | -4,948 | -17,665 | 49,043 | 332,831 | -11,944 | -9,624 | -1,393 | 336,300 |
| Total financial items | -22,125 | |||||||
| Result before tax | 314,175 | |||||||
| Income tax | -213 | |||||||
| Result for the period | 313,962 |
As per 31 December 2013 (and comparative periods) in Tethys Oil, the only oil producing area is Oman, from which net sales are recorded. Net sales, operating expenses and depletion, which is presented in notes 4, 9 and 10, therefore only relate to Oman and Block 3 and 4 in particular.
Regarding Oil and gas properties and Office equipment, segment reporting is provided in note 9 and 18. Please refer to note 3 regarding Credit risk exposure on accounts receivables.
During the full year 2013, Tethys Oil sold 850,926 (776,248) barrels of oil after government take from Block 3 and 4 in Oman. This resulted in net sales during 2013 of TSEK 591,931 (583,990). The average selling price amounted to USD 106.63 per barrel during 2013 (110.35).
Tethys Oil is selling all of its oil through Mitsui Energy Trading Singapore, which is part of Mitsui & Co Ltd. All oil sales is from Block 3 and 4 Oman and are made on a monthly basis.
In accordance with the farmout agreement with Mitsui from 2010, Tethys Oil received from Mitsui a bonus amounting to MSEK 65 (MUSD 10) as commercial production exceeded 10,000 bopd for 30 consecutive days and following the approval of the Field Development Plan ("FDP") December 2012. The bonus was received during the first quarter 2013.
Parts of the administrative expenses in Tethys Oil are charged to oil and gas projects where the expenditures are capitalised. In case of Tethys Oil being the operator, these administrative expenditures are, through the above, also funded by the partners. The chargeout to the projects where Tethys Oil is operator is presented in the consolidated income statement as Other income. All other internal chargeouts are eliminated in the consolidated financial statements.
Tethys Oil holds an indirect interest of three Lithuanian companies holding three licences; Gargzdai, Rietavas and Raseiniai licences. The interest is held through two Danish private companies which are part of the Odin Group of companies, Odin Energi and Jylland Olie. The table below presents the ownership and the result from associates for the full year 2013 and 2012.
| Tethys Oil AB | Ownership | Ownership | Ownership | |||
|---|---|---|---|---|---|---|
| Odin Energi | 50% | Jylland Olie | 42%8 | Jylland Olie | 42% | |
| UAB Minijos Nafta | 50% | UAB TAN Oil | 50% | UAB TAN Oil | 50% | |
| Gargzdai licence | 100% | Raseiniai licence | 100% | UAB LL Investicos | 50% | |
| Rietavas licence | 100% | |||||
| Tethys Oil's indirect interest | 25% | 21%9 | 11%9 | |||
| TSEK | UAB Minijos Nafta | UAB TAN Oil | UAB LL Investicos | |||
| Tethys Oil's share of profit loss from associates | 1 Jan – 31 Dec 2013 | 1 Jan – 31 Dec 2013 | 1 Jan – 31 Dec 2013 | |||
| Gross revenue | 36,740 | 103 | – | |||
| Royalty | -3,516 | -10 | – | |||
| Net revenue | 33,224 | 93 | – | |||
| Depreciation | -5,893 | -160 | – | |||
| Appraisal/development costs | -1,176 | -383 | – | |||
| Operating expenditures | -16,181 | -66 | – | |||
| Administrative expenditures in Lithuanian company | -3,046 | -843 | – | |||
| Operating result | 6,929 | -1,360 | – | |||
| Financial income | 38 | 1,526 | – | |||
| Financial expenditures | -189 | -1,167 | – | |||
| Profit before tax | 6,779 | -1,001 | – | |||
| Tax | -1,017 | – | – | |||
| Tethys share of net profit from associates | 5,762 | -1,001 | – | |||
| Total share of net profit from associates 2013 | 4,761 |
8 Tethys Oil's interest in Jylland Olie amounts as per 31 December 2013 to 42 per cent but will after a reconstruction of Jylland Olie amount to 40 per cent. Tethys Oil's interest in Rietavas and Raseiniai licences are undergoing a reconstruction. Indirect interests of 14 respectively 26 per cent are expected after the reconstruction has been effectuated. The indirect interests as per 31 December 2013 are 11 respectively 21 per cent in Rietavas and Raseiniai licences.
| TSEK | ||||
|---|---|---|---|---|
| Tethys Oil's share of profit loss from associates | 1 Jan – 31 Dec 2012 | 1 Jan – 31 Dec 2012 | 1 Jan – 31 Dec 2012 | |
| Gross revenue | 43,066 | – | 153 | |
| Royalty | -3,553 | – | -16 | |
| Net revenue | 39,513 | – | 137 | |
| Depreciation | -7,117 | – | -110 | |
| Appraisal/development costs | -8,132 | – | – | |
| Operating expenditures | -13,801 | – | -919 | |
| Administrative expenditures in Lithuanian company | -2,967 | -606 | -207 | |
| Estimated administrative expenditures in Danish company | -206 | -87 | -87 | |
| Operating result | 7,291 | -693 | -386 | |
| Financial income | 143 | 30,911 | 1,132 | |
| Financial expenditures | -417 | – | -481 | |
| Profit before tax | 7,016 | 30,218 | 265 | |
| Tax | -545 | -4,530 | – | |
| Tethys share of net profit from associates | 6,472 | 25,687 | 265 | |
| Total share of net profit from associates | 32,424 | |||
| Tethys Oil's share of dividend paid from Minijos Nafta | 16,618 | |||
| Total share of net profit from associates 2012 | 49,042 | |||
| TSEK | 31 Dec 2013 | 31 Dec 2012 | ||
| 1 January | 188,161 | – | ||
| Acquisitions | – | 188,161 | ||
| Tethys share of net profit from associates | 4,761 | – | ||
| Dividend from associates | -8,640 | – | ||
| Balance end of period | 184,282 | 188,161 |
För en översikt av Tethys Oils ägarstruktur i Litauen, vänligen se sidan 42 i förvaltningsberättelsen.
As per 31 December 2013, Tethys Oil holds oil price put options (Brent) amounting to MSEK 5 (–). The total numbers of put options are 715,000, equalling 65,000 options per month from February to December 2014. The options will expire each month and all have strike price USD 90 per barrel, where one option equals the right to sell one barrel. The put options were acquired to secure oil price at USD 90 per barrel without limiting upside potential should oil prices be higher at each monthly lifting. The acquisition of put options was made to match expected expenditures 2014. The average premium paid was USD 1.37 per barrel.
Tethys Oil estimates that Tethys Oil's share of site restoration regarding Block 3&4 amounts to TSEK 29,226 (28,279). As a consequence of this provision, oil and gas properties have increased with an equal amount.
| Remaining | ||||||
|---|---|---|---|---|---|---|
| Country | Licence name | Phase | Expiration date | commitments | Tethys Oil, % | Partners (operator in bold) |
| Oman | Block 15 | Exploration | Oct 2014 | None | 40% | Odin Energy, Tethys Oil |
| Oman | Block 3,4 | Production | Jul 2040 | None | 30% | CCED, Mitsui, Tethys Oil |
| France | Attila | Exploration | 20159 | None | 40% | Galli Coz, Tethys Oil |
| France | Alès | Exploration | 2015 | MUSD 1.510 | 37.5% | Tethys Oil, MouvOil |
| Lithuania | Gargzdai11 | Production | No expiration date | None | 25% | Odin, GeoNafta, Tethys Oil |
| Lithuania | Rietavas11 | Exploration | Sep 2017 | MLTL 6.2 | 14% | Chevron, Odin, Tethys Oil, private investors |
| Lithuania | Raseiniai11 | Exploration | Sep 2017 | MLTL 6.6 | 26% | Odin, Tethys Oil, private investors |
| TSEK | 31 Dec 2013 | 31 Dec 2012 |
|---|---|---|
| Producing cost pools | 1,011,151 | 889,970 |
| Non-producing cost pools | 409 | 29,553 |
| Total oil and gas properties | 1,011,559 | 919,523 |
| TSEK | Other non–cash adjustments |
Currency exchange diff |
DD&A12 | Exploration costs | Investments | |||
|---|---|---|---|---|---|---|---|---|
| Country | Asset type | Book value 31 Dec 2013 |
1 Jan–31 Dec 2013 |
1 Jan–31 Dec 2013 |
1 Jan–31 Dec 2013 |
1 Jan–31 Dec 2013 |
1 Jan–31 Dec 2013 |
Book value 1 Jan 2013 |
| Oman Block 3&4 | Producing | 1,011,151 | 211 | -4,915 | -137,834 | – | 263,080 | 889,970 |
| Oman Block 15 | Non-producing | 248 | – | -4 | – | -51,357 | 24,666 | 26,943 |
| France Attila | Non-producing | – | – | – | – | -674 | 674 | – |
| France Alès | Non-producing | – | – | – | – | -211 | 211 | – |
| Sweden Gotland | Non-producing | – | – | – | – | -2,498 | 101 | 2,397 |
| New ventures | Non-producing | 161 | – | – | – | -1,405 | 1,352 | 214 |
| Total | 1,011,559 | 211 | -4,918 | -137,834 | -56,146 | 290,084 | 919,523 |
| TSEK | Other non–cash adjustments |
Currency exchange diff |
DD&A12 | Exploration costs | Investments | |||
|---|---|---|---|---|---|---|---|---|
| Country | Asset type | Book value 31 Dec 2012 |
1 Jan–31 Dec 2012 |
1 Jan–31 Dec 2012 |
1 Jan–31 Dec 2012 |
1 Jan–31 Dec 2012 |
1 Jan–31 Dec 2012 |
Book value 1 Jan 2012 |
| Oman Block 3&4 | Producing | 889,970 | 26,42813 | -17,062 | -54,508 | – | 860,646 | 74,466 |
| Oman Block 15 | Non-producing | 26,943 | – | 930 | – | -98,223 | 10,565 | 113,671 |
| France Attila | Non-producing | – | – | – | – | -10,118 | 401 | 9,717 |
| France Alès | Non-producing | – | – | – | – | -7,546 | 1,620 | 5,764 |
| Sweden Gotland | Non-producing | 2,397 | – | – | – | – | 197 | 2,200 |
| New ventures | Non-producing | 214 | – | – | – | -1,633 | 1,249 | 833 |
| Total | 919,523 | 26,428 | -16,132 | -54,508 | -117,520 | 874,604 | 206,651 |
Impairment testing
In Tethys Oil's impairment testing, the Company uses its best efforts to estimate production profiles, general cost and development environment, an oil price of USD 100 per barrel (USD 100) and a discount rate of 10 per cent (10 per cent) to calculate future free cash flows. There was no impairment of assets required for the financial year ended 31 December 2013.
Exploration costs during 2013 are mainly related to Block 15 where an extended well test did not support commerciality of the project. Other exploration costs mainly relate to projects that were terminated during the year. Exploration costs are further described in the administration report.
| TSEK Investments Block 3&4 |
1 Jan 2013– 31 Dec 2013 |
1 Jan 2012– 31 Dec 2012 |
|---|---|---|
| Categories | 12 months | 12 months |
| Drilling – Exploration/Appraisal | 58,319 | 6,869 |
| Drilling – Development | 103,350 | 111,273 |
| G&G | 67,252 | 6,463 |
| Facilities | 60,978 | 138,634 |
| Pipeline | 4,787 | 57,077 |
| Mitsui repayment | 15,575 | 381,240 |
| Tethys sole cost | 2,759 | 5,337 |
| Other capex | -1,191 | 21,980 |
| Accruals | -48,749 | 131,767 |
| 263,080 | 860,641 |
TSEK Oil & gas properties Block 3&4 Categories 31 Dec 2013 31 Dec 2012 Drilling – Exploration/Appraisal 119,543 61,509 Drilling – Development 349,923 247,719 G&G 109,524 42,469 Facilities 362,068 302,489 Pipeline 74,532 70,069 Other capex 134,960 120,655 Tethys sole cost 22,253 19,585 Abandonment provision 28,215 28,134 Accruals 1,246 50,227 Accumulated depreciation -191,113 -52,885 1,011,151 889,970
9 In accordance with the licence terms, Tethys Oil has in connection with the licence extension filed a mandatory application of relinquishment of part of the licence which is still pending approval from French authorities.
10 Tethys Oil has a commitment towards the partner MouvOil and the French authorities to pay for seismic and drilling. The work is estimated to amount to MUSD 1.5.
11 The interest in the three Lithuanian licences are indirectly held through a shareholding in two Danish private companies, which in turn hold shares in Lithuanian companies holding 100 per cent of the licences. The two Danish companies, Odin Energi and Jylland Olie, are not consolidated in Tethys Oils financial statements due to the ownership structure, which is why there are no oil and gas properties related to the licences. The ownership of Jylland Olie and Odin Energi are presented in the balance sheet under Shares in associated companies. Regarding licences Rietavas and Raseiniai, the two Lithuanian holding companies are undergoing reconstruction. Presented in the table is the indirect ownership expected after the reconstruction. As per 31 December 2013 the indirect ownership was 11 per cent and 21 per cent in Rietavas and Raseiniai respectively.
12 Depletion, depreciation and amortisation
13 Other non cash related items regard provision for site restoration.
| TSEK | Group | Parent | ||
|---|---|---|---|---|
| Operating expenditures | 2013 | 2012 | 2013 | 2012 |
| General & Administrative | 25,278 | 14,641 | – | – |
| Production cost Early Production Facilities |
– | 44,869 | – | – |
| Production cost Permanent Produc tion Facilities |
62,907 | 11,409 | – | – |
| Well workovers | 19,251 | 1,690 | – | – |
| Over- / Underlift | -1,215 | 452 | – | – |
| Other | 9,496 | 10,165 | – | – |
| Accruals | 22,721 | 12,292 | – | – |
| Transferred costs from previous year | 13,428 | – | – | – |
| Total | 151,867 | 95,518 | – | – |
| TSEK | Group | Parent | ||
|---|---|---|---|---|
| Other losses/gains, net | 2013 | 2013 | 2012 | |
| Foreign exchange gains | 24 | 47 | 24 | 47 |
| Foreign exchange losses | -62 | -89 | -62 | -89 |
| Total | -38 | -42 | -38 | -42 |
Other losses/gains, net are losses and gains relate to payment of receivables and payment invoices and are categorized as operational.
| TSEK | Group | Parent | |||
|---|---|---|---|---|---|
| Remuneration to company auditor | |||||
| include: | 2013 | 2012 | 2013 | 2012 | |
| PwC: | |||||
| Audit fee | 757 | 804 | 644 | 761 | |
| Audit-related fees | 290 | 287 | 290 | 287 | |
| Tax consultation | – | – | – | – | |
| Other | 465 | 71 | 460 | 71 | |
| Total | 1,512 | 1,162 | 1,394 | 1,119 |
| TSEK | Group | Parent | ||||
|---|---|---|---|---|---|---|
| Administrative expenses | 2013 | 2012 | 2013 | 2012 | ||
| Personnel costs | -12,998 | -15,590 | -7,099 | -4,282 | ||
| Rent | -2,069 | -2,183 | -760 | -743 | ||
| Other office costs | -1,463 | -2,073 | -499 | -545 | ||
| Listing costs | -3,335 | -1,275 | -3,335 | -1,275 | ||
| Costs of external relations | -1,691 | -1,734 | -1,647 | -1,632 | ||
| Other costs | -9,158 | -5,468 | -8,305 | -3,315 | ||
| Total | -30,714 | -28,323 | -21,645 | -11,792 |
| Average number of employees | 2013 | 2012 | |||
|---|---|---|---|---|---|
| per country | Total | Total men | Total | Total men | |
| Parent company | |||||
| Sweden | 6 | 3 | 6 | 3 | |
| Total parent company | 6 | 3 | 6 | 3 | |
| Subsidiary companies in Sweden | – | – | – | – | |
| Subsidiary companies foreign | |||||
| Oman | 6 | 4 | 4 | 3 | |
| Switzerland | 1 | – | 4 | 3 | |
| United Arab Emirates | 4 | 3 | 4 | 3 | |
| Total subsidiary companies foreign | 11 | 7 | 12 | 9 | |
| Total group | 17 | 10 | 18 | 12 |
| TSEK | 2013 | 2012 | ||||
|---|---|---|---|---|---|---|
| Salaries, other |
Salaries, other |
|||||
| Salaries, other remuneration | remune | Social | remune | Social | ||
| and social costs | ration | costs | ration | costs | ||
| Parent company | ||||||
| Sweden | 5,212 | 1,887 | 3,321 | 961 | ||
| Total parent company | 5,212 | 1,887 | 3,321 | 961 | ||
| Subsidiary companies in Sweden | – | – | – | – | ||
| Subsidiary companies foreign | ||||||
| Oman | 2,443 | – | 1,842 | – | ||
| Switzerland | 432 | -50 | 5,156 | 1,215 | ||
| United Arab Emirates | 3,074 | – | 3,096 | – | ||
| Total subsidiary companies foreign | 5,949 | -50 | 10,094 | 1,215 | ||
| Total group | 11,161 | 1,837 | 13,415 | 2,176 |
| TSEK | 2013 | 2012 | ||||
|---|---|---|---|---|---|---|
| Salaries and other remuneration | Board and | Board and | ||||
| distributed between the board | Managing | Other | Managing | Other | ||
| and other employees | Director | employees | Director | employees | ||
| Parent company | ||||||
| Sweden | 2,199 | 3,013 | 1,230 | 2,091- | ||
| Total parent company | 2,199 | 3,013 | 1,230 | 2,091 | ||
| Subsidiary companies in Sweden | – | – | – | – | ||
| Subsidiary companies foreign | ||||||
| Oman | – | 2,443 | – | 1,842 | ||
| Switzerland | – | 432 | 2,542 | 2,614 | ||
| United Arab Emirates | – | 3,074 | – | 3,096 | ||
| Total subsidiary companies foreign | – | 5,949 | 2,542 | 7,552 | ||
| Total group | 2,199 | 8,962 | 3,772 | 9,643 |
The group currently has 15 full time employees. In November 2012, Vincent Hamilton resigned as Chief Operating Officer to concentrate on his duties as chairman of the board. As per agreement Vincent Hamilton received twelve months payment which is included in the remuneration 2012.
Magnus Nordin as Managing Director and Morgan Sadarangani as Chief Financial Officer are entitled to twelve months payment and nine months payment respectively if the Company terminates their employment.
In 2013 and 2012 one woman has been a member of the Board of directors and no women has been member of the executive management.
| Salaries and other remune ration to management |
Total | ||||
|---|---|---|---|---|---|
| during 2013, TSEK | Salaries | Bonus Benefits Pensions | 2013 | ||
| Magnus Nordin | 1,545 | 400 | 11 | 243 | 2,199 |
| Morgan Sadarangani | 1,033 | 280 | 11 | 162 | 1,485 |
| Total | 2,578 | 680 | 22 | 405 | 3,684 |
Salaries and other remune-
| ration to management | Total | ||||
|---|---|---|---|---|---|
| during 2012, TSEK | Salaries | Bonus Benefits Pensions | 2012 | ||
| Vincent Hamilton | 2,542 | – | – | 2,542 | |
| Magnus Nordin | 1,220 | – | 10 | – | 1,230 |
| Morgan Sadarangani | 826 | – | 10 | 30 | 866 |
| Total | 4,588 | – | 20 | 30 | 4,638 |
| TSEK | |||||
|---|---|---|---|---|---|
| Salaries and other remunera | Atten | ||||
| tion to board members (in their | Remune | Total | Total | dance | |
| capacity as board members) | Salaries | ration | 2013 | 2012 | 2013 |
| Håkan Ehrenblad | – | 125 | 125 | 100 | 7/7 |
| Vincent Hamilton | – | 180 | 180 | – | 13/13 |
| John Hoey | – | 125 | 125 | 100 | 7/7 |
| Staffan Knafve | – | 322 | 322 | – | 15/15 |
| Magnus Nordin | – | – | – | – | 15/15 |
| Jan Risberg | – | 328 | 328 | 150 | 15/15 |
| Katherine Stovring | – | 263 | 263 | – | 15/15 |
| Per Brilioth | – | 138 | 138 | – | 7/8 |
| Total | – | 1,481 | 1,481 | 350 |
At the Annual General Meeting of shareholders on 22 May 2013 Vincent Hamilton, Staffan Knafve, Magnus Nordin, Jan Risberg and Katherine Støvring were re-elected members of the Board. Per Brilioth was elected as new director. No deputy directors were appointed. At the same meeting Vincent Hamilton was appointed Chairman of the Board. In October 2013 it was announced that Vincent Hamilton resigned as Chairman and director of the company for medical reasons. The board of directors resolved to appoint Staffan Knafve to succeed Vincent Hamilton as Chairman of the company.
There have not been any agreements on pensions for any of the directors of the board. For the Managing director and the CFO, the pension costs follow a defined contribution plan.
It is the aim of Tethys Oil to recruit, motivate and retain executives capable of achieving the objectives of the Group, and to encourage and appropriately reward superior performance in a manner that enhances shareholder value. Accordingly, the Group operates a Policy on Remuneration which ensures that there is a clear link to business strategy and a close alignment with shareholder interests, and aims to ensure that executives are rewarded fairly for their contribution to the Group's performance.
The Company's Policy on Remuneration for executives, has been approved by the Remuneration Committee and is described here below. The term 'executives' refers to the Managing Director and Chief Financial Officer (CFO).
The Remuneration Committee is to receive information on, and to determine matters regarding the remuneration of Group management. The Committee is responsible for reviewing the Policy on Remuneration and the compensation of executives and for making recommendations thereon to the Board of Directors. The proposed compensation level, criteria for variable salary and other employment terms for the Managing director are submitted by the Remuneration Committee to the Board for approval. For other executives, the Managing director is responsible for proposing appropriate terms of compensation for approval to the Remuneration Committee and for reporting to the Board.
There are four key elements to the remuneration package of executives in the Group:
1) basic salary;
2) pension arrangements;
3) yearly variable salary;
4) non-financial benefits.
The Remuneration committee is evaluating long term share price incentive programme as a fifth element to the remuneration package to executives and other employees.
The basic salary shall be in line with market conditions, be competitive, and shall take into account the scope and responsibilities associated with the position, as well as the skills, experience and performance of the executive. The basic salary shall be reviewed annually to ensure that it remains competitive. In order to assess the competitiveness of the salary and benefit packages offered by the Group, comparisons may be made to those offered by similar companies. In such circumstances, the comparator group is chosen with regard to:
a) Swedish companies in the same industry;
b) the size of the company (turnover, profits and employee numbers);
c) the diversity and complexity of their businesses;
d) the geographical spread of their businesses; and
e) their growth, expansion and change profile.
Periodic benchmarking activities may also be undertaken to ensure that remuneration packages remain in line with local market conditions.
The Company considers that a yearly variable salary is an important part of the remuneration package where associated performance targets reflect the key drivers for value creation and growth in shareholder value. At the end of each year, the Managing director will make a recommendation to the Remuneration Committee regarding the payment of the yearly variable salary to employees based upon their individual contribution to the Company's performance. After consideration of the Managing director's recommendations, the Remuneration Committee will recommend to the Board of Directors for approval the level of the yearly variable salary of the Managing director, and the CFO and other employees, to the extent that such award is in excess of USD 10,000 per employee. The yearly variable salary for executives shall normally be within the range of 1 – 4 monthly salaries.
The pension benefits comprise a defined contribution scheme with premiums calculated on the full basic salary. The pension contributions shall be in relation to the basic salary and is set on an individual basis but shall not be higher than what is tax deductible.
Non-financial benefits shall be based on market terms and shall facilitate the discharge of each executive's duties.
A mutual termination period of six months applies between the Company and the executives. In addition, severance terms are incorporated into the employment contracts for the executives that give rise to compensation in the event the Company terminates their employment or in the event of change of control of the Company. The Managing director and the CFO are entitled to 12 months and 9 months payments respectively if the Company terminates their contracts.
| TSEK Interest income |
Group | Parent | |||
|---|---|---|---|---|---|
| 2013 | 2012 | 2013 | 2012 | ||
| 414 | 550 | 15,860 | 6,102 | ||
| Gain on currency exchange rates | 4,451 | 14,123 | 4,451 | 14,123 | |
| Dividend from group companies | – | – | – | 50,13714 | |
| Total | 4,865 | 14,673 | 20,311 | 70,362 |
14 Dividend from group companies was received from Tethys Oil Denmark AB and Tethys Oil Exploration AB.
| TSEK | Group | Parent | ||||
|---|---|---|---|---|---|---|
| 2013 | 2012 | 2013 | 2012 | |||
| Interest expenses | -38,000 | -12,667 | -38,000 | -12,667 | ||
| Currency exchange losses | -5,288 | -22,626 | -5,229 | -22,387 | ||
| Other financial expenses | -6,652 | -1,505 | -5,794 | -1,309 | ||
| Total | -49,941 | -36,798 | -49,023 | -36,363 |
The group's income tax charge of TSEK 68 (TSEK 213) relate to a tax negotiated in Switzerland by the Swiss subsidiary Tethys Oil Suisse S.A. The company has not recorded a deferred tax asset in relation to the tax losses carried forward since there is uncertainty as to if the tax losses may be utilised. The tax losses are in another jurisdiction than where main profits are generated. Tax losses carried forward amounted to TSEK 179,806 (TSEK 139,245). There are no time limits to the utilization of the tax losses.
In Oman, Tethys Oil's oil and gas operations is subject to an Exploration and Production Sharing Agreement (EPSA). Under the EPSA, Tethys Oil receives its share of oil after government take (i.e net after royalties taken in kind). Omani income taxes are paid on behalf of Tethys Oil by the government and from the government take. As Omani income tax is not paid directly by Tethys Oil and are taken in kind before net sales, these taxes are not presented in the income statement. Based on this, taxes presented in the income statement are expected to be low in the future.
| TSEK | Group | Parent | ||||||
|---|---|---|---|---|---|---|---|---|
| Office equipment | 2013 | 2012 | 2013 2012 |
|||||
| Assets | ||||||||
| 1 January | 4,890 | 4,048 | 1,045 | 1,000 | ||||
| Additions | 418 | 842 | 30 | 45 | ||||
| Disposals | – | – | – | – | ||||
| 31 December | 5,308 | 4,890 | 1,075 | 1,045 | ||||
| Depreciations | ||||||||
| 1 January | -2,804 | -1,750 | -941 | -831 | ||||
| Depreciation charges of the year | -687 | -1,054 | -70 | -110 | ||||
| Disposals | – | – | – | – | ||||
| 31 December | -3,491 | -2,804 | -1,011 | -941 | ||||
| Net book value | 1,817 | 2,086 | 64 | 104 | ||||
| TSEK | Net book value, office equipment | |||||||
| 2013 | 2012 | |||||||
| Dubai | 104 | 459 | ||||||
| France | – | – | ||||||
| Lithuania | – | – | ||||||
| Oman | 598 | 24 | ||||||
| Sweden | 64 | 104 | ||||||
| Switzerland | 1,051 | 1,499 | ||||||
| Other | – | – | ||||||
| 1,817 | 2,086 |
| TSEK | Group | ||||
|---|---|---|---|---|---|
| Other receivables | 2013 | 2012 | 2013 | 2012 | |
| VAT | 1,280 | 1,062 | 355 | 357 | |
| Receivables Oil sales | 62,616 | 12,589 | – | – | |
| Other | 1,039 | 967 | 145 | 162 | |
| Total | 64,935 | 14,618 | 500 | 519 |
As per 31 December 2013, the number of outstanding shares in Tethys Oil amounts to 35,543,750 (35,543,750), with a quota value of SEK 0.17 (0.17). All shares represent one vote each. Tethys Oil does not have any incentive program for employees.
Other reserves within Shareholders' equity relate only to currency translation reserves.
Earnings per share before dilution are calculated by dividing profit for the year attributable to ordinary shareholders of the Parent Company by weighted average number of ordinary shares outstanding during the year. There are no dilution effects for 2012 and 2013.
In September 2012, Tethys Oil issued a secured three-year bond loan of TSEK 400,000. The bonds were issued at 100 per cent of the nominal value and run with a fixed interest rate of 9.50 per cent per year and it was trading at 6.80 per cent as per 31 December 2013 (7.97 per cent). The maturity date of the bonds is 7 September 2015. The bonds are listed on NAS-DAQ OMX Stockholm. The transaction costs amounted to TSEK 12,447 and are depreciated during the maturity time of the bond. Non current liabilities amounted at 31 December 2013 to TSEK 393,008 (388,862). Commencing in September 2013, Tethys Oil has the option to call an early redemption of the bond loan. The cost of calling the bond from September 2013 to September 2014 is to repay 104.5% of the nominal amount to all bond holders. From September 2014 and onwards, the repayment rate is reduced.
| TSEK | Group | Parent | |||
|---|---|---|---|---|---|
| Accrued expenses | 2013 | 2012 | 2013 | 2012 12,667 |
|
| Accrued interest | 12,667 | 12,667 | 12,667 | ||
| Accrued investments in oil and gas properties |
– | 67,961 | – | 67,961 | |
| Other accrued expenses | 1,889 | 2,901 | 49 | 5 | |
| Total | 14,556 | 83,529 | 12,716 | 80,632 |
As per 31 December 2013, pledged assets amounted to TSEK 988,824 (625,683). Pledged assets are mainly a continuing security with regard to the bonds where Tethys Oil has entered into a pledge agreement. The pledge relates to all shares in the subsidiary Tethys Oil Block 3&4 Ltd for the benefit of the bond holders and the value of the pledge is equal to the shareholders' equity value in Tethys Oil Block 3&4 Ltd. Of pledged assets, TSEK 500 (500) relate to a pledge in relation to office rental.
There are no remaining outstanding contingent liabilities as per 31 December 2013. As per 31 December 2012 contingent liabilities amounted to TSEK 15,648. The background for the contingent liability as per 31 December 2012 was an agreement between Tethys Oil and Mitsui from 2010, whereby Mitsui undertook to fund Tethys Oil's share of non exploration related capital expenditure up to MUSD 60 on Blocks 3 and 4 effectively from 1 January 2010. As per 31 December 2011, Mitsui had fulfilled the undertaking and started during the first quarter 2012 to recover the MUSD 60 paid on behalf of Tethys Oil from the proceeds of Tethys Oil's share of cost recovery production entitlement. During the full year 2012, Mitsui received MUSD 58 from Tethys Oil's cost recovery. The remaining MUSD 2 was recovered by Mitsui during the first quarter 2013, which is why there are no outstanding contingent liabilities as per 31 December 2013.
| Parent company book amount |
Parent company book amount |
||||||
|---|---|---|---|---|---|---|---|
| Number of | Nominal value | 31 December 2013, | 31 December 2012, | ||||
| Company | Reg. Number | Reg. office | shares | Percentage | per share | TSEK | TSEK |
| Tethys Oil Denmark AB | 556658-1467 | Sweden | 1,000 | 100% | SEK 100 | 100 | 100 |
| Tethys Oil Spain AB | 556658-1442 | Sweden | 1,000 | 100% | SEK 100 | 100 | 100 |
| Tethys Oil Turkey AB | 556658-1913 | Sweden | 1,000 | 100% | SEK 100 | 100 | 100 |
| Tethys Oil Exploration AB | 556658-1483 | Sweden | 1,000 | 100% | SEK 100 | 100 | 100 |
| Tethys Oil France AB | 556658-1491 | Sweden | 1,000 | 100% | SEK 100 | 100 | 100 |
| Tethys Oil Canada AB | 556788-2872 | Sweden | 1,000 | 100% | SEK 100 | 100 | 100 |
| Tethys Oil Oman Ltd | 95212 | Gibraltar | 100 | 100% | GBP 1 | 362 | 362 |
| Tethys Oil Block 3&4 Ltd | 101981 | Gibraltar | 1000 | 100% | USD 1 | 9 | 9 |
| Tethys Oil Suisse SA | 660-1139007-2 | Switzerland | 100 | 100% | CHF 1,000 | 567 | 567 |
| Windsor Petroleum (Spain) Inc. 549 282 | British Virgin Islands | 1 | 100% | USD 1 | – | – | |
| Total | 1,538 | 1,538 | |||||
| TSEK | Parent company | Parent company | |||||
| Shares in subsidiaries | 31 December 2013 | 31 December 2012 | |||||
| 1 January | 1,538 | 26,456 | |||||
| Acquisitions | – | – | |||||
| Shareholder's contribution | 62,161 | 131,755 | |||||
| Write down of shares in group companies | -62,161 | -156,673 | |||||
| 31 December | 1,538 | 1,538 |
The write down of shares in group companies 2013 is related to the exploration costs described in note 9, and further described in the Administration report. The exploration costs during 2013 were mainly related to Block 15 and the negative results from the extended well test on the Jebel Aswad structure.
In 2010, Mitsui acquired 20 percentage point in Block 3 and 4 Oman. Apart from a cash consideration, Mitsui undertook to pay Tethys Oil's share of non-exploration related capital expenditure up to MUSD 60 on Blocks 3 and 4 effectively from 1 January 2010. As per 31 December 2011, Mitsui had fulfilled the undertaking and additional investments relating to Tethys Oil's share in Blocks 3 and 4 must be paid by Tethys Oil directly.
As per a carry agreement between Tethys Oil and Mitsui, Mitsui has up until has since the first quarter 2012 started to recover the MUSD 60 paid on behalf of Tethys Oil from the proceeds of Tethys Oil's share of cost recovery oil entitlement. Under the carry agreement, Tethys Oil will allocate its entire share of cost recovery entitlement to Mitsui until the full MUSD 60 has been recovered by Mitsui. The allocated cost recovery to Mitsui is treated as investments in oil and gas properties, thereby creating a result effect over a longer period of time through depletion. During the full year 2012, the amount received by Mitsui from Tethys Oil's cost recovery entitlement amounted to TSEK 381,240 (MUSD 58). The remaining cost recovery entitlement to be allocated to Mitsui (MUSD 2 as at 31 December 2012) is presented as a contingent liability. In January 2013 the final balance of MUSD 2 was allocated to Mitsui.
The Group receives income from the joint venture of Block 15 in Oman where it also holds 40 per cent interest. Tethys Oil charges some administrative expenditure from the subsidiary Tethys Oil Oman Ltd to the joint venture of Block 15. These administrative expenditures are, through the above, also funded by the partner in Oman by 60 per cent. The chargeout to the joint venture is presented in the income statement as "Other income". During the first nine months 2013, Tethys Oil Suisse S.A., a wholly owned subsidiary of Tethys Oil AB, has paid rent to Mrs Mona Hamilton amounting to CHF 66,000. Mrs Mona Hamilton is the wife of Vincent Hamilton, the former Chairman of Tethys Oil. The rent of office space is a commercially based agreement between Tethys Oil Suisse S.A. and Mrs Mona Hamilton. The office rental agreement was cancelled as per 31 December 2012 and after the nine month notice period, there have been no further rental payments after 30 September 2013.
The initial commitment of the new credit facility is MUSD 50. The interest rate of the Facility will be floating, and be in the range of LIBOR + 3.75 per cent to LIBOR + 4.00 per cent per annum, depending on the level of utilization of the Facility.
The Board of Directors and the Managing Director declare that the consolidated financial statements have been prepared in accordance with IFRS as adopted by the EU and give a true and fair view of the Group's financial position and results of operations. The financial statements of the Parent Company have been prepared in accordance with generally accepted accounting principles in Sweden and give a true and fair view of the Parent Company's financial position and results of operations. The statutory Administration Report of the Group and the Parent Company provides a fair review of the development of the Group's and the Parent Company's operations, financial position and results of operations and describes material risks and uncertainties facing the Parent Company and the companies included in the Group.
Stockholm, 22 April 2014
Staffan Knafve, Chairman of the Board
Per Brilioth, Director Katherine Støvring, Director
Jan Risberg, Director Magnus Nordin, Managing Director
corporate identity number 556615-8266
We have audited the annual accounts and consolidated accounts of Tethys Oil AB (publ) for the year 2013. The annual accounts and consolidated accounts of the company are included in the printed version of this document on pages 42–72.
The Board of Directors and the Managing Director are responsible for the preparation and fair presentation of these annual accounts in accordance with the Annual Accounts Act and of the consolidated accounts in accordance with International Financial Reporting Standards , as adopted by the EU, and the Annual Accounts Act, and for such internal control as the Board of Directors and the Managing Director determine is necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error.
Our responsibility is to express an opinion on these annual accounts and consolidated accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the annual accounts and consolidated accounts are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts and consolidated accounts. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the annual accounts and consolidated accounts, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company's preparation and fair presentation of the annual accounts and consolidated accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors and the President, as well as evaluating the overall presentation of the annual accounts and consolidated accounts.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the parent company as of 31 December 2013 and of its financial performance and its cash flows for the year then ended in accordance with the Annual Accounts Act. The consolidated accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the group as of 31 December 2013 and of their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act. Our opinions do not cover the corporate governance statement on pages 30–34. The statutory administration report is consistent with the other parts of the annual accounts and consolidated accounts.
We therefore recommend that the annual meeting of shareholders adopt the income statement and balance sheet for the parent company and the group.
In addition to our audit of the annual accounts and consolidated accounts, we have also audited the proposed appropriations of the company's profit or loss and the administration of the Board of Directors and the Managing Director of Tethys Oil AB (publ) for the year 2013.
The Board of Directors is responsible for the proposal for appropriations of the company's profit or loss, and the Board of Directors and the Managing Director are responsible for administration under the Companies Act.
Our responsibility is to express an opinion with reasonable assurance on the proposed appropriations of the company's profit or loss and on the administration based on our audit. We conducted the audit in accordance with generally accepted auditing standards in Sweden.
As a basis for our opinion on the Board of Directors' proposed appropriations of the company's profit or loss whether the proposal is in accordance with the Companies Act.
As a basis for our opinion concerning discharge from liability, in addition to our audit of the annual accounts and consolidated accounts, we examined significant decisions, actions taken and circumstances of the company in order to determine whether any member of the Board of Directors or the Managing Directoris liable to the company. We also examined whether any member of the Board of Directors or the Managing Directorhas, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.
We recommend to the annual meeting of shareholders that the profit be appropriated in accordance with the proposal in the statutory administration report and that the members of the Board of Directors and the Managing Directorbe discharged from liability for the financial year.
Stockholm, 22 April 2014
PricewaterhouseCoopers AB
Klas Brand Johan Malmqvist Lead Partner Partner
Authorized Public Accountant Authorized Public Accountant
| AGM | Annual General Meeting |
|---|---|
| EGM | Extraordinary General Meeting |
| IPO | Initial Public Offering |
| SEK | Swedish krona |
| TSEK | Thousands of Swedish kronor |
| MSEK | Millions of Swedish kronor |
| USD | US dollar |
| TUSD | Thousands of US dollars |
| MUSD | Million US dollars |
| CHF | Swiss francs |
| TCHF | Thousands of Swiss francs |
| bbl | Oil production is often given in numbers of barrels per day. One barrel of oil = 159 litres, Barrel Volume measurement. |
| boe | A volume unit used when oil, gas and NGL are to be summarized. The concept is tied to the amount of energy released upon combustion of different types of petroleum. Because oil equivalents depend on the amount of energy, it is not constant and different conversion factors are used. In "Oil Field Units" for example, are 5,800 cubic feet of gas = 1barrel of oil equivalents. |
| bopd | Barrels of Oil per Day |
| mbo | Thousand Barrels |
| mboe | Thousand Barrels of Oil Equivalents |
| mboepd | Thousand Barrels of Oil Equivalents per Day |
| mbopd | Thousand Barrels of Oil per Day |
| mmbo | Million Barrels |
| mmboe | Million Barrels of Oil Equivalent |
| API | A specific gravity scale developed by the American Petroleum Institute (API) for measuring the rela tive density of various petroleum liquids, expressed in degrees. API gravity is gradated in degrees on a hydrometer instru-ment and was designed so that most values would fall between 10° and 70° API gravity. |
|---|---|
| Block | A country's exploration and production area is divided into different geographical blocks. An agree ment is entered into with a host country granting the company the right to explore and produce oil and gas in the des-ignated area, in return for paying to the government licence fees and royalties on production. (Also referred to as Concession(s) or Licence(s)). |
| Blowout | Uncontrolled release of oil, gas or water from an oil well. |
| Brent | A reference oil for the various types of oil in the North Sea, used as a basis for pricing. West Texas Intermedi ate (WTI) and Dubai are other reference oils. |
| Concession Agreement entered into with a host country granting the company the right to explore and produce oil and gas in a designated area, in return for paying to the government licence fees and royalties on production. (Also re-ferred to as Block(s) or Licence(s)). |
|
| Condensate A mixture of the heavier elements of natural gas, i.e. pentane, hexane, heptane etc. Is a liquid at atmos pheric pressure. Also called natural gasoline or nafta. |
|
| Cost oil | A share of oil produced used to cover ongoing opera tions costs and to recover past exploration, appraisal and development expenditures. |
| Crude oil | The oil produced from a reservoir, after the gas is removed in separation. Crude oil is a fossil fuel formed by plant and animal matter several million years ago. |
| EPSA | Exploration Production Sharing Agreement |
| Fault | A fracture within rock structures where relative motion has occurred across the fracture surface. |
| Farm out/ farm in |
The holder of shares in an oil licence may transfer (farm out) shares to another company in exchange for this company taking over some of the work com mitments in the licence, such as paying for a drilling or a seismic investigation within a certain period. In return, the company brought in receives a share in any future revenues. If the conditions are met the company may retain the licence shares if not the shares are taken back by the orig-inal holder. This is known as "farm-in" and "farm-out". |
| not flow easily. It is referred to as "heavy" because its density or specific gravity is higher than that of light crude oil. Heavy crude oil has been defined as any liquid petroleum with an API gravity less than 20°. It is therefore more difficult to produce than lighter oil and its combustion is more polluting. |
|
|---|---|
| Hydrocar bons |
Naturally occurring organic substances composed of hydrogen (H) and carbon (C). If an occurrence primarily contains light hydrocarbons, they are most often in gas form in the reservoir, and are then called a gas field. If it is primarily heavy hydrocarbons, they are in liquid form in the reservoir, and called an oil field. Under certain conditions both can exist in the reservoir where a gas cap lies above the oil. Oil always contains a certain ele-ment of light hydrocarbons that are freed in production, also known as associated gas. |
| HSE | Health, Safety and Environment |
| Injection wells |
Wells to be used for injection of fluids into reservoir for enhancement of hydrocarbon recovery. By inject ing gas or water (or both) the degree of recovery can be increased. |
| Leads | Leads are possible accumulations of hydrocarbons where more geological data needs to be gathered and evaluations need to be performed before they can be called prospects, where drilling is considered to be feasible. |
| License | A permit to search for and produce oil and gas. Oil and natural gas assets are usually owned by the coun try in which the accumulation is discovered. The oil companies obtain permission from the respective country's gov-ernment to explore for and extract oil and natural gas. These permits can be called conces sions, permits, pro-duction sharing agreements or licenses depending on the country in question. A license usually consists of two parts an exploration permit and a production licens |
| LOGS | The result of surveys which gather information from the wellbore and surrounding formations which typi cally consist of traces and curves. These can be inter preted to give information about oil, gas and water. |
| Onshore | Designation for operations on land. |
| Offshore | Designation for operations at sea. |
| Operator | The member of a joint venture, designated to lead the work on an oil or gas license or field. The company needs approval from the authorities in the country. |
| Porosity | The porosity of a rock is determined by measuring the amount of cavities inside, and determining what percentage of the total volume that consists of cavitie |
|---|---|
| Profit oil | The remaining share of oil produced after royalty been paid and cost recovery through the cost oil. The profit oil is shared according to the production shar ing agreement and working interests. |
| Prospect | A geographical area which exploration has shown contains sedimentary rocks & structures that may be favourable for the presence of oil or gas. |
| PSA | Production Sharing Agreement |
| Reserves | See page 45 |
| Reservoir | An accumulation of oil or gas in a porous type of rock with good porosity, such as sandstone or limestone. |
| Seismic data |
Seismic investigations are made to be able to describe geological structures in the bedrock. Sonar signals are transmitted from the ocean surface or the surface of the ground (pings), and the echoes are captured by special measurement instruments. Used to localise occurrences of hydrocarbons. |
| Spud | To initiate drilling. |
| Sandstone | Sandstone is a sedimentary rock composed mainly of sand-sized minerals or rock grains. Most sandstone is composed of quartz, but also often consists of feld spar, rock fragments, mica and numerous other min eral grains held together with silica or another type of cement. The relatively high porosity and permeability of sandstone makes it to a valuable rock in reservoirs. |
| WTI | West Texas Intermediate – the primary reference oil used as a basis for pricing of oil in North America. |
Tethys Oil AB Hovslagargatan 5B SE-111 48 Stockholm Sweden Telephone +46 8 505 947 00 Fax +46 8 505 947 99 E-mail: [email protected]
Landsten Reklam 2014. Design Henrik Strömberg. Printed in Sweden.
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