Tethys Petroleum offers Doris to Hong Kong investors

The JR Ewing of the Central Asian steppe, David Robson, is in town to present to investors an intriguing oil strike located in the remote deserts of Kazakhstan.

For an oil exploration company to mutate into a something with real value, the Hollywood clichés of elated wildcatters in cowboy boots dancing a jig as a spurting well douses them with black gold are basically true. An oilman needs to get a strike before burning through all his cash.

'Doris' is the name of an oil strike in the Kazakh desert owned by Toronto-listed Tethys Petroleum. Dr David Robson, a veteran oilman who used to work for energy major Mobil and is now chairman of Tethys, has been in Hong Kong talking to local investors. His aim is not for any specific fundraising, but to explain what his firm is striving to do in Central Asia.

While delivering a presentation organised by Hong Kong brokerage Quam Securities about his firm's operations in Kazakhstan, Uzbekistan and Tajikistan, he mentioned the word 'wildcat'. (The definition of the word is a company that 'drills for oil in an area not known to be productive' -- Jock Ewing and Digger Barnes were a pair of wildcatters in the American TV series 'Dallas'.)

Spot the difference: JR Ewing and David Robson

To complement its existing operations in Tajikistan and Uzbekistan, Tethys has been looking for oil in the Akkulka area of Kazakhstan near the Aral Sea, a region that has previously seemed barren. They have discovered oil in an area they have named 'Doris'.

"It's a bleak place in the middle of nowhere where the temperature goes from +45°C to -45°C," says Robson. "But the oil is beautiful stuff: low paraffin and low sulphur content -- unlike most Kazakh crudes. It is nice, green oil that you could almost put straight in your car."

Their oil sits under a remote piece of desert. To extract it is still technically far easier than offshore drilling, on account of being unimpeded by that wobbling blue H2O between oil and platform that can cause so much trouble. Doris's oil is not found in a subterranean lagoon or a sunless grotto, but amid small holes within the rock itself, which looks rather like Swiss cheese.

Tethys acquired the plot in 2003 on the basis of geological modelling that suggested it had potential. They are now delineating the extent of their find, booking reserves and have received an extension to their exploration licence. Facilities are being upgraded at the site, and Tethys anticipates applying for a production contract in March.

The firm is listed on the Toronto Exchange with a secondary listing in Kazakhstan. It did look at a listing in Hong Kong, but that didn't work out.

Tethys' share price stands at C$1.47 -- in 2009, it traded in a range of C$0.35 to C$0.86. Next the company has to make some money from Doris, because, as it has built up its oil reserves, Tethys' balance sheet has accumulated a deficit of $88 million as of December 31, which gets netted off to result in current shareholder equity of $112 million -- there is very little external debt. The deficit has doubled from $44 million at the start of 2008.

Now that Tethys knows there is oil in its licensed area in commercial quantities, it needs to start turning some of it into dollars.

At first it could be via a trucking operation of up to 3,000 barrels a day, subject to booking State Reserves. They could make $3 million a month or more if the oil were exported, although Kazakh oil trades on average at a 20% discount to Brent crude. To export it, they would benefit from a pipeline, for which a feasibility study has to be undertaken, westwards to the Caspian and into Europe or east into China. But if it is to be transported in a pipeline, Tethys wants to ensure its superior-quality oil doesn't get commingled with inferior stuff.

In the end, what will happen to the company? If all goes well, Robson thinks that either its successful projects could be sold off or the entire company could be an M&A target in three years' time. Looking geographically, the discovery looks relatively close to China, so perhaps Doris will ultimately become betrothed to the Chinese.

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