Tethys believes that the PSC Area has considerable potential for oil and gas condensate. The area includes almost the entire Tajik portion of the Afghan-Tajik basin, part of the prolific Amu Darya basin, which contains giant and supergiant gas and gas condensate fields in nearby Turkmenistan and Uzbekistan. The South Yolotan Field in Turkmenistan has been independently evaluated at 749 TCF of gas reserves [Gaffney, Cline and Associates. Ltd, October 2011, as quoted on the Chamber of Commerce and Industry of Turkmenistan website] and the Dauletobad field was originally attributed with 60 TCF of gas reserves [U.S. Geological Survey, Reston, Virginia: 2004]*. A proven hydrocarbon system exists in the PSC Area, but only limited comprehensive and deep exploration has taken place in the past. Several reservoir horizons are present and both sweet, light oil as well as gas condensate has been produced. Salt and thrust tectonics dominate the licence area providing the potential for substantial hydrocarbon traps. In July 2012, an updated independent Resource Report for its Tajikistan assets has been issued. The estimated gross unrisked mean recoverable resources are 27.5 billion barrels of oil equivalent (BOE) - 114 trillion cubic feet of gas plus 8.5 billion barrels of oil and condensate. The new resource report was prepared by Gustavson Associates of the United States and has been prepared in accordance with the reporting requirements of NI 51-101 adopted by Canadian securities regulatory authorities. 
 

Under the PSC, the Contractor (KPL) recovers 100% of capital and operating costs from up to 70% of total production (the maximum allowed under the production sharing legislation of Tajikistan) and the remaining production (termed "Profit Oil and Gas") is shared 70% to KPL and 30% to the State, whose share includes all taxes, levies and duties on oil and gas production. The terms are fixed over the twenty-five year life of the PSC, which was signed in 2008.
 

The primary strategy in Tajikistan is to undertake a comprehensive geological and geophysical data gathering exercise with the intention of locating and drilling the first deep exploration well below the regional salt layer, the so called ‘pre-salt’ area. It is intended this deep well will target very large prospective resources. These prospects have never been drilled before in Tajikistan but are prolific producers from the same reservoirs in the adjacent countries of Uzbekistan and Turkmenistan.
 

This programme is firmly on track and consists of the following:
 

·                In 2008, Tethys obtained and analysed the State geophysical information and well data of the shallower drilling that had been undertaken in the Soviet period and compiled an extensive database, which was combined with a regional geological model built in-house.

·                In 2009-10, Tethys designed and acquired a regional 2D seismic program whereby 693km of good quality 2D seismic was obtained and interpreted.

·                In 2011, Tethys carried out an aeromagnetic graviometry survey over more than half of the PSC Area. This data complements the acquired seismic data, State geophysical information and well data. The aeromagnetic graviometry is now integrated.

·                In 2012, following on from the results of the aeromagnetic graviometry survey, it is planned to acquire focused 2D or 3D seismic data over key prospective areas with the intention of identifying the location for the first deep well.

 

 

As well as the deeper exploration programme, Tethys has been undertaking a shallower exploration programme, and also rehabilitating old oil fields generating early cash flow to take advantage of the good contract terms and high oil prices in Tajikistan.
 

The East Olimtoi (EOL09) exploration well is located in the southeast of the PSC Area, south of the town of Kulob and only some 10 kilometres north-west of the Afghan border. The well reached a total depth of 3,765 metres in August 2011. The well has been initially tested with oil being produced to surface, specialist equipment is being mobilized  to attempt to establish continual flow of oil from the Alai zone. The nearest oilfield in the region is the Beshtentak field some 75 km to the northwest, which produces oil from the Bukhara limestone. 
 

The Persea 1 exploration well is located near the town of Kurgon-Teppa in the south-west part of the PSC Area. The well reached a total depth of 2,655 metres in December 2011. The well targeted both the Bukhara limestone formation in a four-way dip closed structure and the overlying Alai formation forming a potential secondary target. Wireline logs show a 50 metre gross zone of possible hydrocarbons within a mixed sandstone and carbonate sequence assigned to the Alai formation, similar to that about to be tested in the East Olimtoi (EOL09 well).  Testing options are being evaluated.
 

The Beshtentak oil well BST20 located in the Baljuvon region has been worked over by applying modern perforating and acidisation techniques and applying natural gas lift. The well has produced at rates of over 600 barrels of oil per day ("bopd”). The oil has an API gravity of 38°. There are additional workover candidates on the Beshtentak field which has gross prospective resources of 11.7 million barrels of oil and 16.1 billion cubic feet (0.23 billion cubic metres) of gas as quoted by the Company's independent reserves and resources assessment effective December 31, 2010.
 

Two further workover candidates have been identified in other parts of the field (away from existing producers), which are interpreted to contain remaining bypassed oil and gas and work is progressing to fully assess these interesting opportunities, including potentially the acquisition of downhole seismic data. In addition to conducting recompletion work on these two wells it is planned to locate potentially one or two new high angle or horizontal crestal development wells, which would have the potential to achieve higher production rates than those obtained from the BST20 well.