Another quarter with ATH production

We expect SEK 4.5/sh in free cash flow

Our MtM NAV points to SEK 89/sh

Strong production in Q3
Based on the monthly production reports issued by Tethys Oil, Q3 appears to be another quarter with record production figures. We estimate Tethys will report Q3 production of 13,052boe/d based on the monthly production reports. Volumes are up 1.3% q-o-q and up 10.1% y-o-y. We tweak our estimates from our previous assumption of 13,139boe/d in Q3, while the main part of estimate revisions is related to somewhat lower oil prices.

We estimate high cash generation in Q3
For Q3’19 we estimate that Tethys Oil will report operating cash flow of SEK 8.2/sh and a free cash flow of SEK 4.5/sh. In addition to good cash flow generation, we think organic growth initiatives will be the key topic for the report for this quarter as well. Here, the highest expectations relate to the results of the Yusr-1, as well as an update on plans for activity on Block 49 following processing of the acquired seismic.

Our MtM NAV points to SEK 89/sh
Using the spot oil prices and FX we estimate a NAV of SEK 89/sh as per year end 2019. Of this, SEK 26/sh is the net cash position at YE’19e. The NAV is conservative in the sense that it does not reflect upside from the ongoing exploration activities. On conventional multiples (assuming Brent at USD 65), we find a single digit P/E (5x-9x) and FCF yields in the range of 23-12% for ’20-21e. This is combined with a meaningful net cash position. Q3 will be reported on 5 Nov.

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