Tethys announced that TethysMunaiGaz, its 100% owned Kazakh subsidiary, has signed a joint venture agreement to construct and operate a rail oil loading terminal ("Terminal") in Kazakhstan. It will be owned 50/50 with a new local partner, Eurasia Gas LLP, who has strong experience in the oil distribution business in Kazakhstan.
Under phase one oil production Tethys is currently selling unprocessed oil at the field from the AKD01 oil discovery well at the well site under an early oil production scheme. The oil is then trucked 430 kilometres to a location near Emba, where it is processed and then transported to local refineries. This early oil scheme was introduced to realize some immediate cash flow, but also to gain experience of trucking logistics in the region with trucking of up to 750 bopd.
For phase two oil production infrastructure is currently being installed at the field to process the oil to meet refinery specifications and also to increase production from AKD01 from 750 bopd to 3,000 - 4,000 bopd. The construction of the Terminal will significantly reduce the trucking distance and will result in lower operating costs and improved margins, as well as reducing the number of trucks required to transport this volume of oil. Both the second stage oil production infrastructure and the Terminal are planned to be operational by June 2010 whereupon production is planned to be increased to 3,000 - 4,000 bopd. The higher oil quality after processing and additional pricing power from larger cargoes should translate into higher realized prices for Tethys.
A site has already been identified for the Terminal and detailed preliminary planning has already been carried out by Eurasia Gas LLP. It is planned to initially install a simple technical scheme to ensure operations can commence as soon as possible, with further storage and infrastructure upgrades planned for later in the year which will provide for greater efficiency and reduced transport costs in the long run.
Julian Hammond, Deputy Chief Executive and Chief Commercial Officer, commented, "We are delighted to sign this agreement to progress the second phase of production which will generate valuable cash flow that can be reinvested in the Company whilst we appraise the Doris oil discovery and explore for further oil in the immediate area, where the recently acquired and interpreted 3D seismic program has identified exploration targets in addition to the highly prospective targets we already had. Eurasia Gas have strong experience in the oil distribution business and this relationship will strengthen our position in the region. This is an important step for Tethys in building an efficient transportation network to facilitate oil sales to market in the quickest and most efficient manner."
Initial testing of the AKD03 (Dione) well is expected to commence shortly, and the company is progressing activities on the AKD04 Doris appraisal well and the KBD01 high potential exploration well. The company will update on these activities in due course.
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