The Classic ‘Elephant’ Hunter Takes Aim In Central Asia

At the core of the Asian continent lie three former Soviet Union states that hold enormous conventional resource potential in vast, largely underexplored basins. In these larger states, bordering or near the Caspian Sea, the region’s terrain is considered to be as diverse and rugged in its extremes as any in the world with mountains, deserts, and harsh operating conditions.

For more than 20 years, Tethys Petroleum Ltd. has worked extensively in most of the oil- and gas-bearing areas in Kazakhstan, Tajikistan, and Uzbekistan and has honed its knowledge operating in these challenging environments and climates. It also has the distinction of being the only independent E&P company simultaneously operating in all three countries, where it has a mix of producing and exploration assets with near-term cash flow and significant upside potential.

Dr. David Robson, CEO, Tethys (Images courtesy of Tethys Petroleum Ltd.)

Tethys CEO David Robson, a geologist by background, believes some of the most prolific geologic basins in the world exist in Central Asia, where large-scale petroleum systems could potentially be found using more accurate geological models of the region and recently acquired data.

“You’ve got real opportunity in areas that have hardly been scratched,” he said. “And although there was some development done in Soviet times, there are still large areas that were not explored or have barely been explored.”

Strategically positioned

Tethys began working the Caspian region in earnest with a fairly limited role as a smaller independent, developing minor shallow gas fields in the area and initiating the first dry gas development in Kazakhstan.

“We started working in Kazakhstan in 2003, began our first gas development in 2005, and brought that onstream in 2007,” Robson said. “Now that was developing shallow gas at really quite shallow levels – only about 450 m (1,476 ft) – and that was the focus to getting cash flow going. That’s the way our company works; we like to get cash flow, and then we like to go out and explore for bigger things.”

The company has since grown into a more substantial role as a key Central Asia player, concluding, for example, the first production-sharing contract (PSC) in Tajikistan, where Robson also functions as a founder of the President’s Investment Council. More recently, proposals to diversify Tajikistan’s gas import and export infrastructure via the Navrouz project that will carry gas from Afghanistan has put the company at the forefront of regional development.

According to Robson, Tethys no longer is focused on exploiting small deposits but rather is targeting large and giant structures, particularly in Kazakhstan, which contains 3% of the world’s oil and where, in 2010, the company discovered a new oil province to the west of the Aral Sea with its Doris discovery well.

Wildcat success

In Kazakhstan, Tethys holds 100% working interest in the Kyzyloi production contract, the Akkulka exploration contract, the Akkulka production contract, and the Kul-Bas exploration and production contract, encompassing a net area of more than 8,000 sq km (3,089 sq miles).

With production from its Kazakh oil and gas assets driving cash flow, Tethys’ current major focus is the Doris oil field, which lies in the Akkulka exploration contract area. Robson considers Doris the company’s biggest achievement to date, noting that it is the first discovery of oil in this portion of the North Ustyurt basin, with the nearest producing field being several hundred kilometers away.

“We began our deep exploration program on this structure, which in those days was called Akkulka, looking for what we believed to be oil on the structure’s flanks,” he explained. “The area has been explored to an extent in the past by the Soviets and also by the Japanese national oil corporation. But they were using much more conventional geologic models. We’ve applied more up-to-date models, and we were successful in finding the Doris field, which we are now in the process of appraising and developing.”

According to Robson, this is a very productive field, with the first well flowing high-quality oil at approximately 7,000 b/d with a restricted choke. “This oil is very light. It’s got no sulfur. It’s got no paraffin. You can almost drink it,” Robson said. “It’s a green oil. It’s beautiful.”

Tethys brought Doris online in September 2010 following its discovery in February, installing the first oil infrastructure in the basin with its Phase 1 pilot production facility. The lack of infrastructure, the remote and hostile environment, and extreme temperatures from +55°C to -45°C (+131°F to -49°F) were not the only obstacles. Tethys’ operations are approximately 650 km (404 miles) away from the nearest major town, so shipping equipment proved to be a logistical challenge. Its recently opened oil loading terminal has resolved some of these transport issues, Robson explained.

“Solving the logistics is a key part of working in the whole area,” Robson said. “We’ve been trucking oil from the field to the nearest terminal point, which is about 450 km (280 miles) away over some quite tough terrain. But we inaugurated a new oil loading Aral Oil Terminal in January 2012 that is closer to the field, only 230 km (143 miles) away, which we’ll use as a trans-shipment point for bringing equipment to the field, thereby not having to move it 650 km (403 miles) by road. Instead, we’ll take it along by rail.”

Tethys also uses a fleet of 241 trucks that load oil to and from the terminal, and the company expects Doris production levels will increase significantly.

“We could already do that with more trucks, but we’re aiming to effectively improve the road,” Robson said. “And at some point in the future, we’ll need to build a pipeline.”

By the end of 2012, the terminal, a 50/50 joint venture with Olisol Investment Ltd., will be capable of handling around 12,000 b/d of oil, effectively increasing production two-fold from 2,000 b/d to 4,000 b/d, and that figure could be scaled up even further, Robson said. Doris has tested more than 13,000 b/d from the wells on the field and could potentially produce close to 7,000 b/d as a continual production rate. “We’re drilling at least two more exploration appraisal wells on the field this year, which we would anticipate enabling us to step production up even higher,” he said. “We’re also testing as part of that program a prospect downdip of Doris that looks to be very substantial in size.”

Pioneering deep exploration

In Tajikistan, which Robson referred to as the company’s “jewel in the crown,” Tethys is sitting on some of the world’s “most attractive” acreage and, longer term, hopes its deep exploration efforts will transform the country into a hydrocarbon exporter. It also recently made the first oil discovery since the country won independence in September 1991. Testing is under way to determine its commercial viability.

Tethys first broke ground in this untapped region negotiating the first PSC for the Bokhtar area to the southwest, which is nearly equivalent in size to Switzerland. Most significantly, the PSC includes almost the entire Tajik portion of the Afghan-Tajik basin, an underexplored extension of the greater Amu Darya basin. The Tajik portion’s deeper subsalt horizons could be analogous to the supergiant gas and gas condensate fields in neighboring Turkmenistan and Uzbekistan, Robson said.

“Southern Tajikistan is a geologist’s dream, with many different structures, reservoirs, and prolific source rocks,” he said. “Tethys’ 35,000-sq-km (13,514-sq-mile) area is an enormous part of this basin, containing anticlines and thrust structures, salt domes, and other associated oil and gas traps, and we believe from our recent work there is potential for enormous Jurassic reefs below the regional salt layer. A recent geophysical survey has identified what could be considerably large structures of gas, oil, or condensate below the salt; however, nobody knows because no well has ever been drilled below it.”

Robson believes Tethys’ pioneering exploration of these supergiant subsalt structures ultimately could prove to be transformative for the company, which is actively seeking investment partners for this project.

Uzbekistan also is driving cash flow. Here Tethys implemented the first use of radial drilling and is currently engaged in production-enhancing operations with NHC Uzbekneftegaz at the North Urtabulak oil field. The field, also situated in the prolific Amu Darya basin, is in its last stages of development.

“It’s got a little oil left, and we’re squeezing the last drops out of the sponge so to speak,” Robson said. “But we’re now in the process of negotiating with the Uzbek government for another field that is only 10 km (6 miles) away called Chegara, which is a producing field but is not as mature and has not been developed as much as our existing asset.”

The company also has signed a memorandum of understanding with the Uzbek national oil company to acquire exploration acreage in the northern part of the country near the Doris oil development across the Kazakh border.

“Companies have looked for oil there and have yet to find any,” he said, “but they have found gas. We think they’re not looking in the right place, and we think we know how to find oil there.”

The contract is expected to be finalized by year-end 2012.

More than 200 trucks are loaded with crude oil from the Doris field in Kazakhstan at the Tethys-operated Aral Oil Terminal, which was inaugurated in January.

Tapping the Asian market

In Robson’s view, the company’s central location in Asia is a strategic advantage both in terms of learning the lay of the land and maintaining good working relationships with neighboring – and energy-hungry – emerging economies like India and, particularly, China, which is making significant investments in regional oil and gas projects.

Within this broader context, Robson believes much of the market for its Central Asia resources will be to the east. As such, it has developed strong relationships in China and the Pacific Rim, with Robson serving as board director of the Pacific Basin Economic Council. Given China’s rising energy consumption in particular, Robson is bullish on regional natural gas prices in the long term.

“Today China uses only about 4% of natural gas in its primary energy mix, but the Chinese government has publicly stated they want to take that up to a level between 15% to 20%,” he said. “So even if you see no further energy growth in China, which I think is highly unlikely given that the economy is certainly growing, the increased demand for gas is massive.”

According to Robson, the gas will come as LNG from Australia or the Middle East or as pipeline gas, “but the logical place for that gas to come from is Central Asia,” he said.

“Tethys is a classic ‘elephant’ hunter,” Robson continued. “Its strategy is to increase production and short-term cash flow to become self-funding to continue financing this type of exploration and protect downside risks. This is the case in Tethys’ work in Kazakhstan and Tajikistan.

“But we see great opportunities in the Chinese market, in the European market, and potentially in the Indian market for our Central Asia energy resources, and indeed much of our focus will be to capitalize on these opportunities.”