Tethys Petroleum Begins Gas Production in Kazakhstan

Commercial gas production from Tethys Petroleum's Kyzyloi gas field in Kazakhstan commenced Dec. 19.

Tethys' three compressor units were fired up this morning and gas began flowing from the Kyzyloi Field into the major Bukhara-Urals trunkline, marking an important milestone for Tethys and commencing production from what Tethys believes to be the first non-state, dedicated dry gas development in Kazakhstan, and a significant step in the development of the Kazakh gas market.

Gas flows from the Kyzyloi field along a 35 mile (56 kilometres) pipeline to Tethys' compressor station adjacent to the tie-in point to the major Bukhara-Urals export trunkline system where three gas fired compressors compress the gas into the trunkline. These compressors have the ability to pump gas into the line at a pressure of up to some 785 psi (54 atmospheres). This is the sales point for the gas, and Tethys' control and measurement system is fully integrated with that of the trunkline which is owned and operated by the Kazakh State company Intergas Central Asia.

The initial production is being sold under the long-term take-or-pay contract signed with the gas trading company GazImpex in January 2006. This contract relates to 30 billion cubic feet (Bcf) (850 million cubic metres (MMcm)) of gas from the initial Kyzyloi development only, and has been assigned to Kazakhstani Petrochemical Company Kemikal LLP, who will utilise the gas in the domestic Kazakh market.

The planned gas supply volumes for this month and for January 2008 have now been invoiced with the contract price being US$1.03 per thousand cubic feet (Mcf) (US$34.5 per Mcm) including VAT which Tethys can offset against VAT costs on the Kyzyloi project. The average daily contract quantity for the next two months estimated at 21.2 million cubic feet (MMcf) (600 thousand cubic metres (Mcm)) from an initial six wells and is expected to increase to approximately 22.1 MMcf (625 Mcm) of gas per day by March of 2008.

Dr David Robson, Chairman, President and Chief Executive Officer of Tethys, commented, "I am delighted that we have commenced commercial production from the Kyzyloi Field. This has been a major effort; the construction of a pipeline, gas gathering system and compression station in this remote area close to the Aral Sea with extreme climatic conditions. I would like to thank our highly professional engineering and project team for their hard work and dedication in successfully completing this project, which also involved a complex tie-in to one of Central Aria's major export trunklines. I would also like to thank our contractors, our suppliers, our gas buyer and of course Intergas Central Asia for their involvement in this project.

"With this step Tethys has come of age as a gas producer, and I look forward to further expansion of gas production from this project and further development of Tethys' gas business in Kazakhstan. We have received substantial help and support from the Kazakh government agencies, and the regional and local administration with respect to this project, which I believe is a first in Kazakhstan for a non-state body, and I believe marks a significant step forward for the development of the Kazakhstan gas industry."