Tethys to Export Kazakh Gas to China After Hanhong Tie-Up

Tethys Petroleum Ltd., an explorer focused on Central Asia, plans to export Kazakh natural gas to China and double output after securing a Beijing-based partner.

Tethys plans to increase gas production in Kazakhstan to about 1 million cubic meters (6,100 barrels of oil equivalent) a day from about 3,000 barrels now, Executive Chairman David Robson said. The Guernsey, U.K.-based company may export the fuel east as soon as 2015 through the planned Kazakhstan-China pipeline after agreeing to sell half of its fields for $75 million to a unit of Hanhong Private Management Co.

“We can do it fairly quick,” Robson said Nov. 20 in an interview in London. “It’s probably one of the best prices ever paid for a barrel of oil in the ground in Kazakhstan.”

Tethys pumps most of its oil and gas in the country. It joined with Total SA and China National Petroleum Corp. in December to explore the Bokhtar area in Tajikistan, adjacent to South Yoloten, Turkmenistan’s largest gas field. Any discovery there may be also exported to China, Robson said in February.

CNPC started building a pipe from Kazakhstan’s largest city of Almaty to the border town of Khorgos this year. In September, KazTransGas and a partner began filling a section between the towns of Bozoi and Shymkent in southern Kazakhstan. Both links will be part of the longer pipeline from the Caspian Sea to China.

Tethys rose 4.4 percent to close at 35.5 pence in London.

Georgia, Myanmar

“We’ve just agreed effectively an initial three-year budget” with Hanhong, Robson said. He expects the accord between the two companies will be approved by the Kazakh authorities by the middle of next year. “We are working with them today as if we’ve got the deal done,” he said.

Hanhong will pay Tethys a possible further $30 million depending on the exploration success, Robson said. The partners may invest more than $25 million in Kazakhstan next year.

“It sounds unrealistic that Tethys can develop the field to such an extent in three years” because the pace of output would deplete its Kazakh gas reserves, said Murat Alikhanov, an analyst at Almaty-based Visor Capital. In addition, the country has rules on gas exports such as restrictions that mean shipments being handled by the state, Alikhanov said.

Tethys, which had $51.2 million at the end of September and will get $55 million more in cash from the Hanhong deal, has been seeking new projects. It secured interests in Georgia in July and decided not to bid for Myanmar blocks, Robson said.

“There are projects in Kazakhstan available but the pricing for me is too expensive,” he said. “Kazakhstan is no longer a cheap place to work,” partly because of labor costs, excessive regulation and changing taxation.

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