Tethys Petroleum Aiming for the Stars

Oil and gas Initiation of coverage Central Asia Equity research 24 July 2009

Alexander Burgansky +7 (495) 258 7904 [email protected]

Irina Elinevskaya +7 (495) 258 7770, ext 5662 [email protected] Tethys Petroleum Aiming for the stars

Report date: 24 July 2009 Portfolio: Tethys Petroleum (TPL) offers exposure to large-scale hydrocarbon Rating common/pref. BUY/n.a. Target price (comm), CAD 1.28 resources in Central Asia via five existing projects in Kazakhstan, Uzbekistan and Target price (pref), CAD n/a Tajikistan. These areas have all yielded significant hydrocarbon discoveries, but Current price (comm), CAD 0.41 Current price (pref), CAD n/a all are still underexplored and underproduced, and we see opportunities here MktCap, $mn 50 through the application of modern exploration, drilling and recovery methods, and EV, $mn 46 the targeting of deeper horizons. TPL has two development projects, one Reuters TPL.TO Bloomberg TPL CN Equity redevelopment project and two exploration projects. Current 2P reserves amount ADRs/GDRs since n/a to 13.7mnboe, with further upside potential from possible reserves and risked ADRs/GDRs per common share n/a Common shares outstanding, mn 134.6 resources of 342.4mnboe, as well as significant exploration acreage. Change from 52-week high: -85.2% Date of 52-week high: 30/07/2008 Advantages: We are attracted by the combination of TPL’s existing Change from 52-week low: 5.9% Date of 52-week low: 07/04/2009 development projects, underpinning near-term cash flows, and its sizeable Web: www.tethyspetroleum.com exploration opportunities. In Kazakhstan, TPL benefits from the proximity of its Free float in $mn 43.9 Major shareholder with Pope Asset fields to gas transportation infrastructure. Exploration optionality is a material shareholding Management, 16% advantage, in our view. TPL’s Bokhtar production-sharing contract (PSC) in Average daily traded volume in $mn 0.0 Share price performance Tajikistan alone covers a land area equivalent to 84% of Switzerland and over the last 1 month -12.77% includes almost the entire Tajik portion of the prolific Afghan-Tajik basin. This is 3 months -7.87% an extension of the Amu Darya basin, on which the 6tcm South Yolotan field, in 12 months -82.77% Turkmenistan, was recently appraised.

We are initiating coverage of TPL with a BUY rating, target price CAD1.28/share. This is based on a DCF approach, while other valuation methods result in fair value estimates between CAD1.10-2.39/share, representing a premium of 169-484% to the current share price. TPL’s small scale and the absence of a strategic investor are bound to concern investors, particularly given the highly politicised nature of the Central Asian gas trade. Similarly, the development of Kyzyloi and Akkulka have attendant risks, particularly given that the terms of the Akkulka contract have yet to be finalised. That said, if things go well, the exploration upside from Tethys’s portfolio is a clear attraction, in our view.

Figure 1: Price performance – 52 weeks Figure 2: Sector stock performance – three months

CAD TPL.TO Relative to RENCASIA RENCASIA Frontera Resources 3 160 Big Sky Energy Tethys Petroleum 140 2.5 KazMunaiGaz E&P 120 BMB Munai 2 100 Caspian Holdings 1.5 80 Dragon Oil Zhaikmunai 60 1 Roxi Petroleum 40 Caspian Energy 0.5 20 Max Petroleum RENCASIA % 0 0 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul -100 -50 0 50 100 150 200 250 300

Source: Bloomberg Source: Bloomberg

Important disclosures are found at the Disclosures Appendix. Communicated by Renaissance Securities (Cyprus) Limited, regulated by the Cyprus Securities & Exchange Commission, which together with non-US affiliates operates outside of the USA under the brand name of Renaissance Capital. 15 May 2009 Tethys Petroleum Renaissance Capital

Contents

Investment summary 3 Valuation 4 DCF valuation 4 Peer group valuation 5 M&A-based valuation 7 PV20 plus other assets 11 Background 14 Ownership 15 Portfolio 17 Corporate governance 19 Management 19 Board of directors 22 Strategy and risks 24 Portfolio 26 Kazakhstan 27 Tajikistan 35 Uzbekistan 40 Financial review 43 Investment programme 43 Financial forecasts 45 Disclosures appendix 47 Analysts certification and disclaimer 47 Important issuer disclosures 47 Investment ratings 47 Renaissance Capital equity research distribution ratings 48

Renaissance Capital Tethys Petroleum 24 July 2009

Investment summary

Attractive portfolio

TPL offers investors exposure to very large-scale hydrocarbon resources in Central Asia via five existing projects in Kazakhstan, Uzbekistan and Tajikistan. These areas have all yielded significant hydrocarbon discoveries, but are still underexplored and underproduced, and we see key opportunities through the application of modern exploration, drilling and recovery methods, as well as the targeting of deeper, previously unreachable, horizons. TPL has two development projects, one redevelopment project and two exploration projects. Specifically, we note the following:

Kyzyloi and Akkulka, TPL’s two development assets in Kazakhstan, have proved and probable reserves of 13.2mnboe, with a further 0.5mnboe identified in Tajikistan. Commercial production at the Kyzyloi field started in Dec 2007, and was substantially increased earlier this year. With the tie-in of nine Central Akkulka wells expected in 2H09, we believe peak output of 7.9kboepd will be achieved in 2010. An offtake deal is in place for all the Kyzyloi-produced gas, with the Akkulka contract due to be announced imminently. TPL also offers exploration upside from the resources of the Kul-Bas exploration contract in Kazakhstan (containing risked resources of 72.7mnboe) and a very large-scale exploration acreage in Tajikistan with estimated risked resources of a further 264.4mnboe. The company’s production enhancement contract in Uzbekistan presents growth opportunities to enhance production primarily by optimising oil recovery at existing wells, introducing additional methods of artificial lift, drilling horizontal wells and re-drilling existing wells. Although net production is currently limited to less than 1,000bpd, we believe it could be increased 3-4x if well managed and properly funded.

Key advantages

We are attracted by the combination of TPL’s existing development projects, underpinning near-term cash flows and sizeable exploration opportunities. In Kazakhstan, Tethys benefits from the proximity of its fields to gas transportation infrastructure, which allows for higher offtake prices.

Exploration optionality is a material advantage, in our view. TPL’s Bokhtar PSC, in Tajikistan, alone covers a land area equivalent to 84% of Switzerland and includes almost the entire Tajik portion of the prolific Afghan-Tajik basin. This is an extension of the Amu Darya basin, where the 6tcm South Yolotan field in Turkmenistan was recently appraised.

Key risks

TPL’s small scale and the lack of a strategic investor are bound to concern investors, particularly given the substantial size of its exploration acreage and the highly politicised nature of the Central Asian gas trade. Similarly, the development of Kyzyloi and Akkulka are not without risk, particularly given that the terms of the Akkulka contract have yet to be finalised. That said, if things go well, the exploration upside potential of TPL’s portfolio is a clear attraction, in our view.

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Valuation

We set out our valuation of TPL below, based on a number of methodologies (as summarised in Figure 3). Typically for an early stage exploration and production company, the valuation range is quite wide at CAD1.10-2.39/share, representing a premium of 169%-484% to the current share price of CAD0.41.

Our 12-month target price of CAD1.28/share is based on a time-weighted DCF valuation and represents a 212% upside potential to the current share price. We therefore initiate coverage of TPL with a BUY rating.

Figure 3: Tethys Petroleum: Summary valuations Estimated equity value Valuation method $mn $/share CAD/share DCF (time-weighted 2010 and 2011 average) 156.0 1.16 1.28 Peer group multiples (based on EV/resources comparison with 134.2 1.00 1.10 Central Asian peer group) Peer group multiples (based on EV/production comparison with Novatek) 291.6 2.17 2.39 M&A-based valuation 223.2 1.66 1.83 PV20 plus other assets 221.5 1.64 1.81 Source: Renaissance Capital estimates

DCF valuation

Our DCF model for TPL spans the 3P production and capex levels outlined in the McDaniel Reserve Report (with some necessary adjustments), as well as visible production from the company’s Uzbek and Tajik properties, although these are substantially less significant.

The results of our DCF valuation for TPL are shown in Figure 4. As an ungeared company, we use a WACC of 16.62%, which essentially assumes a 8.62% risk-free rate (the current YtM for 10-year Kazakh sovereign paper), an 8% equity-risk premium and a beta of 1.0.

Figure 4: Tethys Petroleum: DCF valuation analysis, $mn (unless stated otherwise) 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E Net income (4.4) (0.7) 2.9 4.9 3.7 2.9 2.5 2.1 1.9 1.8 1.8 DD&A 14.0 13.4 10.3 8.0 6.2 4.8 3.6 2.8 2.2 1.7 1.3 Cash flow from operations 9.5 12.7 13.3 12.9 9.9 7.7 6.1 5.0 4.1 3.6 3.2 Capital expenditure (10.9) (6.4) (1.5) (1.5) (1.1) (1.1) (1.1) (1.1) (1.1) (1.1) (1.1) Net cash flow (1.4) 6.2 11.8 11.4 8.8 6.6 5.0 3.9 3.0 2.5 2.1 DCF value 28.2 34.3 33.8 27.6 20.8 15.4 11.4 8.2 5.7 3.6 2.1 Estimated value of 337.7mnboe of risked resources 101.3 101.3 101.3 101.3 101.3 101.3 101.3 101.3 101.3 101.3 101.3 Asia Oilfield Equipment 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 Cash (net debt) 2.6 8.8 20.6 32.0 40.9 47.5 52.5 56.4 59.4 61.9 63.9 Equity value 149.2 161.5 172.7 178.0 180.0 181.3 182.2 183.0 183.5 183.9 184.3 Equity value per share, $ 1.11 1.20 1.28 1.32 1.34 1.35 1.35 1.36 1.36 1.37 1.37 Equity value per share, CAD 1.22 1.33 1.42 1.46 1.48 1.49 1.50 1.50 1.51 1.51 1.51 Source: Renaissance Capital estimates

Our 2010 DCF value of TPL’s visible production amounts therefore to $28.2mn. To this we add the $101.3mn estimated value of TPL’s 337.7mnboe of risked resources in Kul-Bas and Bokhtar (valued at an average EV/resources valuation of $0.30/boe for its peer group, as shown below), and the value of Asia Oilfield Services (the OFS arm) at a YE09E cost of $17.0mn, as well as an estimated YE10 cash balance of $2.6mn. This results in the YE10 equity valuation of TPL of $149.2mn, or CAD1.22/share, 198% above the current share price. Our 12-month target price for Tethys of CAD1.28/share is the time-weighted average of 2010 and 2011 DCF estimates (each of which refer to a fair valuation as of the beginning of the period).

4 Renaissance Capital Tethys Petroleum 24 July 2009

Peer group valuation

Although TPL’s share price responded strongly (up 35% in one day) to the results of the TRACS reserves report, released on 12 May 2009, its share price then headed south, underperforming most of its peer group: Tethys’ shares have lost 27% of their value YtD vs a 71% gain for Central Asian oil and gas producers, and a 50% average increase in the share prices of Russian oil and gas companies. With its share price down 87% from the 2008 peak of CAD3.1, we believe TPL is attractively valued relative to its peer group.

Compared with the Central Asia universe, TPL's current EV/total resources multiple is just $0.13/boe, which is 57% below that of its peer group. Three distinct categories emerge from our analysis of asset-based market valuations (see Figures 5 and 7), specifically:

Exploration plays, with asset bases largely represented by resources, and which have yet to commence commercial production. The group’s market valuations of total resources range from $0.13/boe for TPL, to $0.44/boe for Caspian Energy. Excluding TPL, the peer group cap-weighted average is $0.30/boe. Early producers, which are essentially developing new fields but which hold substantial resources that remain to be moved into (2P) reserves. On our estimates, these companies trade at resources valuations of $0.15- 0.66/boe (with a cap-weighted mean of $0.59/boe). Importantly, the average EV/2P reserves multiple for this sub-group stands at $1.37/boe. Mature producers, specifically KazMunaiGas (KMG), for which (2P) reserves dominate its total resource endowments, and which has material production from developed assets. KMG trades at resources valuations of $1.76/boe and EV/2P reserves multiple of $2.13/boe. Figure 5: Peer group resource valuations vs maturity, $/boe

100% mature producers

80% KazMunaiGas

60% early producers

Zhaikmunai BMB Munai 40%

% of reserves in total resources 20% exploration companies

Tethys Petroleum Caspian Energy 0% Max Petroleum Roxi Petroleum - 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 Frontera Resources EV/Total Resources, $/boe

Notes: Total resources includes 2P reserves and other (possible or P3 reserves and risked best estimate prospective resources) Source: Company data, Renaissance Capital estimates

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Clearly, TPL, given the composition of its assets, production history and growth plans, belongs to the exploration group (along with Max Petroleum, Roxi Petroleum, Frontera Resources and Caspian Energy). Applying the average EV/total resources multiple of $0.30/boe to its total reserves and risked resources estimate of 356.1mnboe we get to the estimated EV of $106.8mn. To this, we need to add the valuation of its Uzbek property ($6.3mn) and the OFS assets ($17.0mn), both at cost, as well the $4.0mn cash position at the YE09 to arrive to an estimate of TPL equity value at $134.2mn, or CAD1.10/share, representing 169% upside potential to the current share price.

The comparison of financial multiples is complicated by the early stage of TPL’s production and its substantial exploration budget, meaning the company is unlikely to generate positive income until 2012, on our estimates. We also believe most of the company’s upside potential is related to exploration success, which does not feature in our financial model. Similarly, our model only reflects the effects of the current work programme and does not account for substantial near-term upside potential possible from additional investments (such as Akkulka Phase 4, a deep well and the installation of a gas lift system at the North Urtabulak field, and the launch of production from the eastern part of the Komsomolsk field, among others).

With this caveat in place, we compare, in Figure 8, Tethys’s current financial multiples with those of its FSU peer group. Unfortunately, among the oil and gas alternatives we cover, Tethys has few direct peers. Sibir Energy and Alliance Oil Company both have refining capacity, while Urals Energy is continuing to dispose of its key assets to Sberbank, and its shares have been suspended from trading until the release of its FY08 accounts. We believe Regal Petroleum is a close TPL peer, as it also focuses on gas developments, although in Ukraine. We estimate that based on a 2012E EV/EBITDA multiple Tethys is trading at a 12% premium to Regal, although in terms of 2012E EV/production valuation it represents an 84% discount.

Figure 9 sets out a much more detailed summary for the gas plays, including Russian giant Gazprom, Russia’s largest independent producer Novatek, and Regal Petroleum. We focus particularly on EV/production at plateau rates of output, although we acknowledge there is greater uncertainty about TPL’s future output than for its Russian gas peers. This greater risk, as well as the relative exploration potential from each portfolio, are bound to be considered by investors. Applying Novatek’s forward 2011E EV/production ($50.1/boe) to our forecast of Tethys’s output in 2011E (3.4mnboe) would yield an EV for its producing assets of $169.2mn. To this, yet again, we add the $101.3mn estimated value of TPL’s 337.7mnboe of risked resources in Kul-Bas and Bokhtar (valued at an average EV/resources valuation of $0.30/boe for its peer group, as shown above), and the value of Asia Oilfield Services (the OFS arm) at a YE09E cost of $17.0mn, as well as an estimated YE09 cash balance of $4.0mn. This results in the YE09 equity valuation of TPL of $291.6mn, or CAD2.39/share, 484% above the current share price.

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M&A-based valuation

Due to the stock-market shock caused by the ongoing global financial crisis, we believe the era of high M&A transaction multiples is over for some time. The valuations paid for FSU exploration and production assets have deteriorated accordingly (see Figure 6), from the high of $8.7/boe of total resources paid by ENI for Burren Energy (with assets in Turkmenistan) in Dec 2007, to the low of $0.11/boe marked by Macquarie Bank’s acquisition of a 25% stake in Max Petroleum earlier this year. We note that Urals Energy paid $1.4/boe and $2.3/boe of 2P reserves for 100% of Dulisma (in 2006) and 35.3% stake in TAAS Yuriakh Neftegazodobycha (in 2007) respectively, while Sberbank is to receive the assets shortly for just about $0.59/boe. Over 2003-2009, we estimate an average EV/2P reserves multiple of $3.45/boe was paid for FSU hydrocarbon producers, while the average EV/total resources multiple stands at $2.30/boe (although resource-rich plays have, understandably, demanded lower multiples).

Staying on the conservative side, and applying the 2003 average EV/Total resources multiple of $0.55/boe to TPL’s total resource base, and, similarly to the approach above, adding the valuation of its Uzbek property, the OFS assets at cost and YE09 net cash, we calculate the resulting value of TPL equity at $223.2mn, or CAD1.83/share, representing 347% upside potential to the current share price.

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Figure 6: FSU M&A transactions Gross net Gross 2P reserves, Gross total resources, EV/2P reserves, EV/Total resources, Date Buyer Target Net consideration, $mn Stake, % debt, $mn mn boe mn boe $/boe $/boe Feb 2003 Shell Kazakhstan Development Mertvyi Kultuk + 50% in Arman + 1.75% in CPC 41 100 6.11 246 6.75 0.17 May 2003 CNPC Actobemunaigas 150 25 822 822 0.73 0.73 Jun 2003 CNPC North Buzachi 70 35 250 250 0.80 0.80 Aug 2003 CNPC North Buzachi 130 65 250 250 0.80 0.80 Dec 2003 Nelson Resources North Buzachi 90 50 250 250 0.72 0.72 2003 481 48 1,578 1,818 0.63 0.55 Oct 2004 Sinopec First International Oil Company (FIOC) 160 85 25 25 7.53 7.53 Nov 2004 Nelson Resources Chaparral Resources (36% in Karakuduk) 24 60 32 62 62 1.16 1.16 Dec 2004 Nelson Resources Arman oil field (KazMunaiGas) 11 55 10.8 13 1.85 1.54 2004 195 80 32 98 100 2.81 2.75 Jan 2005 Arawak Energy Altius Energy Corporation 48 100 27 27 1.8 1.8 Feb 2005 Victoria Oil and Gas Feax Investments Company 15 100 13 13 1.2 1.2 Oct 2005 LUKOIL Nelson Resources 1,091 58 89 270 270 7.3 7.3 Oct 2005 CNPC International PetroKazakhstan 4,180 100 -144 503 503 8.0 8.0 Dec 2005 LUKOIL Nelson Resources 1,951 100 89 270 270 7.6 7.6 2005 7,285 94 34 1,083 1,083 7.21 7.21 Apr 2006 Urals Energy Dulisma 148 100 109 557 1.4 0.27 Jul 2006 NC KazMunaiGas Petrokazakhstan 1,372 33 -144 463 463 8.7 8.7 Jul 2006 NC KazMunaiGas KazGerMunai 1,092 50 -173 297 311 6.8 6.5 Aug 2006 CNPC E&D (PetroChina) PetroKazakhstan 2,735 67 -144 463 463 8.5 8.5 Sep 2006 LUKOIL Chaparral Resources 89 40 -24 61 61 3.3 3.3 Dec 2006 India Mittal Investments Caspian investment resources 980 50 176 575 989 3.7 2.2 Dec 2006 CITIC Group Nations Energy (95% in Karazhanbasmunai) 1,910 95 102 484 575 4.4 3.7 2006 8,326 64 -207 2,452 3,419 5.23 3.75 Jan 2007 NC KazMunaiGas CITIC Canada Energy 955 48 102 274 365 7.6 5.7 Apr 2007 KazMunaiGas (KMG EP) KazGerMunai 1,070 50 297 311 7.2 6.9 Apr 2007 CITIC Resources Hldg Ltd Renowned Nation 1,004 48 101 274 365 8.0 6.0 Jun 2007 Arawak Energy Saigak Investments 25 40 5.5 5.5 11.4 11.4 Aug 2007 Institutional investors Tethys Petroleum 22 18 11 131 11.1 0.9 Nov 2007 Urals Energy TAAS Yuriakh Neftegazodobycha 590 35.3 718 1,170 2.3 1.4 Dec 2007 KazMunaiGas (KMG EP) CITIC Canada Energy 876 48 101 484 575 4.0 3.3 Dec 2007 ENI Burren Energy 3,520 100 -379 232 361 13.5 8.7 2007 8,062 70 -75 2,296 3,284 4.99 3.49

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Figure 6: FSU M&A transactions (continued) Gross net Gross 2P reserves, Gross total resources, EV/2P reserves, EV/Total resources, Data Buyer Target Net consideration, $mn Stake, % debt, $mn mn boe mn boe $/boe $/boe Jan 2008 Petrolinvest EmbayugNeft 71 50 1.24 18 n/a 7.9 Jan 2008 Petrolinvest Capital Energy SA 128 100 50 111 2.6 1.2 Jan 2008 Petrolinvest Occidental Resources 311 49 174 n/a 3.6 Feb 2008 Roxi Petroleum Eragon Petroleum 196 59 30 n/a 11.1 CIS Holdings (South-West Gissar and Ustyurt fields in Mar 2008 LUKOIL 778 100 274 595 2.8 1.3 Uzbekistan) May 2008 KNOC Zhambyl field 85 27 252 n/a 1.2 Jun 2008 Jupiter Energy Ltd North West Zhetybai 39 100 21 21 1.9 1.9 Aug 2008 ONGC Imperial Energy 2,364 100 -220 920 1,558 2.3 1.4 2008 3,972 92 -220 1,266 2,759 2.44 1.49 Jan 2009 Vitol Group Arawak Energy 146 100 41 62 89 3.0 2.1 Jan 2009 Sberbank Dulisma and TAAS Yuriakh Neftegazodobycha 630 67 1,598 2,282 0.59 0.41 Feb 2009 Macquarie Bank Max Petroleum 8 25 88 10 1,057 12.0 0.11 Jun 2009 National Reserve Bank Timan Oil & Gas 102 48 50 191 609 1.37 0.43 Jun 2009 Emirates National Oil Dragon Oil 1,363 48 -449 636 763 3.8 3.1 2009 2,249 57 -270 2,497 4,800 1.48 0.77 Minimum 0.59 0.11 Max 13.54 11.36 Average 30,570 76 -705 11,270 17,263 3.45 2.30 Source: Company data, Bloomberg, Renaissance Capital estimates

Figure 7: Reserves valuations of Central Asian oil and gas companies Mcap, $mn EV*, $mn 2P reserves, mnboe Total reserves and resources, mnboe 2P reserves to total reserves and resources, % EV/2P reserves, $/boe EV/Total resources, $/boe Mature producers KazMunaiGas 8,892 4,551 2,133 2,583 83% 2.13 1.76 Early producers BMB Munai 43 29 85 195 43% 0.35 0.15 Zhaikmunai 495 817 535 1,235 43% 1.53 0.66 Total/average 538 846 619 1,430 43% 1.37 0.59 Exploration companies Caspian Energy 8 38 5 86 5% 8.06 0.44 Frontera Resources 8 78 0 265 0% n/a 0.29 Max Petroleum 129 345 10 1,067 1% 34.5 0.32 Roxi Petroleum 52 43 5 257 2% 8.04 0.17 Tethys Petroleum 50 46 14 356 4% 3.33 0.13 Total/average 248 549 34 2,031 2% 16.28 0.27 * For all companies with the exception of Tethys Petroleum consensus or last reported Net Debt is used for EV calculation; for Tethys Petroleum RC 2009 Net Debt estimate is used. Source: Company data, Thomson Financial, Renaissance Capital estimates

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Figure 8: Comparable multiples analysis for alternative oil & gas companies Country Reuters ticker Currency Current price MktCap, P/E EV/EBITDA EV/production EV/Reserves (2P), EV/Resources, 7/21/2009 $mn 2009E 2012E 2009E 2012E 2009E 2012E $/boe $/boe Sibir Energy Russia SBE.L GBP 1.74 1,107 R R R R R R 2.32 1.68 Urals Energy Russia UEN.L GBP 0.09 26 1.0 0.08 4.3 n/a 48 n/a 6.37 1.38 Volga Gas Russia VGAS.L GBP 1.08 143 R R R R R R 1.53 0.44 Alliance Oil Company Russia AOIL.ST SEK 85.91 1,934 11 4.3 6.2 2.8 134 70 4.61 3.46 Russia cap-weighted average 11.0 4.1 6.1 2.7 133 69 3.6 2.6 Regal Petroleum Ukraine RPT.L GBP 0.69 360 126 4.7 46.0 2.0 380 71 1.41 0.70 Tethys Petroleum Kazakhstan TPL.C CAD 0.41 50 n/a 17.0 n/a 2.3 21 11 3.33 0.13 FSU cap-weighted average 126 6.2 46 2.0 336 63.4 1.6 0.6 Russian (disc)/prem to FSU -91% -33% -87% 32% -61% 8% 119% 313% * For companies with Restricted ratings (R) EV is calculated based on last reported net debt. For all other companies 2009E net debt is used in the calculations.

Source: Company data, Thomson Financial, Renaissance Capital estimates

Figure 9: Gas producers valuations, $mn (unless stated otherwise) Net EV/(3P reserves plus EV/Production, Year Sales EBITDA PE, x P/CF, x EV/Sales, x EV/EBITDA, x ROCE, % EV/CE, x EV/2P reserves, $/boe income risked resources), $/boe $/boe Gazprom 2008 141,422 58,487 29,857 4.04 2.95 0.98 2.37 31.20 0.85 0.99 0.64 37.0 2009E 100,058 33,532 18,501 6.52 3.99 1.30 3.88 16.33 0.73 0.93 0.60 41.0 2010E 125,267 43,981 25,052 4.82 3.55 1.05 2.98 19.31 0.65 0.94 0.60 39.1 2011E 143,635 52,435 31,306 3.85 2.90 0.83 2.28 21.23 0.55 0.85 0.55 35.2 2012E 153,385 56,883 35,500 3.40 2.65 0.64 1.73 22.41 0.43 0.70 0.45 28.9 Novatek 2008 3,176 1,471 920 12.99 9.44 3.91 8.44 33.50 3.08 1.66 1.66 62.8 2009E 2,381 1,029 569 21.00 13.62 5.44 12.59 21.06 2.84 1.73 1.73 61.6 2010E 3,568 1,551 997 11.99 10.14 3.53 8.11 29.29 2.51 1.68 1.68 55.4 2011E 4,244 1,813 1,201 9.95 8.54 2.84 6.65 32.67 2.32 1.61 1.61 50.1 2012E 4,694 1,959 1,326 9.01 7.79 2.42 5.80 34.86 2.14 1.52 1.52 44.7 Regal Petroleum 2008 11.5 (22.8) (50.8) - - 22.18 - (28.28) 2.89 1.50 0.74 940 2009E 27.7 5.2 2.9 126 37.68 8.66 46.03 (0.84) 1.36 1.41 0.70 380 2010E 97.1 54.5 29.5 12.22 7.11 2.87 5.12 13.58 1.14 1.65 0.81 140 2011E 150.4 90.1 48.6 7.40 4.62 1.98 3.31 19.44 0.95 1.76 0.87 108 2012E 227.7 141.8 76.5 4.70 3.02 1.25 2.01 26.27 0.76 1.69 0.83 70.7 Tethys Petroleum 2008 5.4 (13.3) (22.7) - - 6.44 - (24.73) 0.43 2.51 0.10 34.2 2009E 19.7 (2.3) (11.0) - - 2.33 - (9.01) 0.37 3.33 0.13 20.6 2010E 46.5 9.4 (4.4) - 5.22 1.01 5.02 (3.78) 0.39 3.44 0.13 13.4 2011E 49.8 12.2 (0.7) - 3.93 0.82 3.35 (0.99) 0.36 2.98 0.12 12.1 2012E 44.0 13.0 2.9 17.02 3.75 0.66 2.25 2.50 0.28 2.13 0.08 11.1 Source: Company data, Micex, Thomson Financial, Renaissance Capital estimates

10 Renaissance Capital Tethys Petroleum 24 July 2009

PV20 plus other assets

A simpler way to look at the company’s value is to use the reserves auditor’s present values of the cash flows generated by the company’s proved, probable and possible reserves, discounted at 20% (the most conservative scenario), adding the value of other TPL assets.

McDaniel estimates PV20 for TPL assets in Kazakhstan at $74.9mn, as shown in Figure 10. Importantly, the reserves auditor uses a long-term oil price assumption in excess of $100/bbl, which is substantially more aggressive than our own view of $80/bbl. This results in the substantial overestimation of gas off-take prices from Tethys’s Akkulka field, in our view, leading to a much higher valuation vs the results of our DCF analysis.

In addition, TRACS has estimated PV20 for TPL assets in Tajikistan at $17.9mn, as shown in Figure 11. These were based off the base-case oil price assumption of $60/bbl.

To the combined PV20 valuation of $92.8mn we add the $101.3mn value of TPL’s 337.7 mnboe of risked resources in Kul-Bas and Bokhtar (valued at an average EV/resources valuation of $0.30/boe for its peer group, as shown earlier), the value of Uzbek property ($6.3mn) and Asia Oilfield Services ($17.0mn at YE09E cost), as well as an estimated YE09 cash balance of $4.0mn. This exercise yields a theoretical equity value for TPL of $221.5mn, or CAD1.81/share, which is 341% higher than Tethys’s current share price.

Figure 10: Tethys Petroleum – Present value of Kyzyloi and Akkulka reserves in Kazakhstan, $‘000 Discount rate Reserve category 0% 5% 10% 15% 20% Proved producing reserves 18,853 16,450 14,540 12,999 11,738 Proved developed reserves 67486 59123 55572 47338 43082 Proved undeveloped reserves 1668 1092 661 337 91 Total proved reserves 69,154 60,214 56,233 47,675 43,173 Probable reserves 56289 41070 30940 23959 18999 Proved and probable reserves 125,443 101,284 87,173 71,634 62,172 Possible reserves 45130 30799 22073 16472 12711 Proved, probable and possible reserves 170,573 132,083 109,246 88,106 74,883 Source: McDaniel Reserve Report

Figure 11: Tethys Petroleum – Present value of Beshtentak and Komsomolsk reserves Tajikistan, $‘000 Discount rate Reserve category 0% 5% 10% 15% 20% Proved producing reserves - - - - - Proved developed reserves 14,880 11,730 9,490 7,840 6,600 Proved undeveloped reserves - - - - - Total proved reserves 14,880 11,730 9,490 7,840 6,600 Probable reserves 10,120 8,020 6,440 5,230 4,270 Proved and probable reserves 25,000 19,750 15,930 13,070 10,870 Possible reserves 12,390 10,510 9,070 7,940 7,040 Proved, probable and possible reserves 37,390 30,260 25,000 21,010 17,910 Source: TRACS Reserve Report

11 24 July 2009 Tethys Petroleum Renaissance Capital

12 Renaissance Capital Zhaikmunai LP 25 March 2008

Introduction to Tethys Petroleum

24 July 2009 Tethys Petroleum Renaissance Capital

Background

TPL is an oil and gas exploration and production company, listed on the Toronto Stock Exchange (TSX) and the RFCA Exchange in Almaty, with a current market capitalisation of $50mn. TPL is focused on the development of oil and gas assets in Central Asia and the Caspian Region, with current projects in Kazakhstan, Tajikistan and Uzbekistan. The RFCA listing is secondary to the primary listing on the TSX, and, to date, no shares have traded on this secondary market pending the implementation of a settlement process. The company was incorporated under the name Tethys Petroleum Investments Limited, pursuant to the laws of Guernsey, on 12 Aug 2003, specifically to hold certain interests of CanArgo in Central Asia. CanArgo’s principal focus was on its exploration and appraisal programme in Georgia, and given the significant capital required to develop Tethys and its Kazakh assets, in 2006 CanArgo announced its decision to spin-out Tethys from CanArgo. The company’s name was changed to Tethys Petroleum Limited in Sep 2006. The company was continued under the laws of the Cayman Islands on 17 July 2008.

We detail the company’s corporate structure in Figure 12.

Figure 12: Tethys Petroleum: corporate structure

Tethys Petroleum Limited Cayman Islands TSX, RFCA

Tethys Petroleum Inc. Tethys Services Limited Delaware England 100% 100%

Rig “Talesto” UK-based operations UK-based operations

Tethys Kazakhstan Limited Tethys Tajikistan Limited Guernsey Jersey 100% 100%

Tethys Kazakhstan RO Tethys Tajikistan RO Kazakhstan Tethyda Limited Tajikistan 100% Cyprus 100% 100% Tethys Services Kazakhstan LLP Baker Hughes (Cyprus) Limited, Tethys Services Kazakhstan the contractor under the Tajikistan Ltd. 100% Production Enhancement Tajikistan Contract in Uzbekistan 100% Kazakh-based operations Operator under PSC TethysAralGaz LLP Kazakhstan Kulob Petroleum Limited 100% Jersey 100%

Bokhtar PSC Kyzyloi Production Contract Akkulka Exploration Contract

Kul Bas LLP Kazakhstan 100%

Kul Bas Exp & Prod Contract Asia Oilfield Equipment B. V. Netherlands 100%

Rig “Tykhe” Rig “Thoe” & Other Equipment Source: Company data

14 Renaissance Capital Tethys Petroleum 24 July 2009

Ownership

TPL was a wholly owned subsidiary of CanArgo until early 2007. However, as CanArgo’s principal focus was on its exploration and appraisal programme in Georgia, and, given the significant capital required to develop Tethys and its Kazakh assets, in 2006 CanArgo announced its decision to spin-out Tethys. Following this decision, CanArgo’s interest in Tethys was diluted through several share issuances during the 1Q07-2Q07. At 27 June 2007, the closing date of the сompany’s IPO on the TSX, CanArgo owned just 17.7% of Tethys. CanArgo’s shares were placed among portfolio investors on 30 July 2007 at a price of $2.95 per share. Since then, TPL has benefited from a diversified shareholder base, with no single party having significant ownership control.

Since its IPO in June 2007 (which raised $50mn of gross proceeds at $2.75/share), TPL has completed two public offerings, in June 2008 (raising $50mn gross at $2.35/share) and June 2009 (raising $20mn gross at $0.387/share), and issued more stock to part-pay for a coiled tubing workover unit in Jan 2009 and finance the acquisition of Rosehill Energy’s interest in Uzbekistan, completed in Apr 2009. Figure 13 summarises TPL’s share issuance, and Figure 14 sets out its share price performance.

Figure 13: History of share issues Company value prior Company value after Announcement Number of shares Size of the share % of the share issue Purpose of issue to the share issue, the completion of the date issued issue in $mn of pre-deal valuation $mn share issue, $mn Private placement to finance Kyzyloi field 24 Jan 2007 34,674,390 n/a 17.3 n/a n/a development Purchase of 30% of the TethysAralGaz 13 Mar 2007 30,000,000 n/a n/a n/a n/a subsidiary from minority holders 8 May 2007 Share consolidation in the ratio of one-to-five 26,934,878 n/a n/a n/a n/a 27 June 2007 IPO 18,181,818 n/a 50 n/a 115.8 27 June 2008 Public offering 21,276,596 109.3 50 46% 175.9 9 Jan 2009 Partial payment for a coil-tubing workover unit 1,400,000 37.0 0.8 2% 37.6 Purchase from Rosehill Energy of its entire interest in the production enhancement 27 Feb 2009 15,000,000 31.0 6.3 20% 37.3 contract for the North Urtabulak oilfield, in Uzbekistan 11 June 2009 Public offering 51,680,000 32.9 20 61% 51.3 Source: Company data, Thomson Datastream

Figure 14: Tethys Petroleum share price performance, CAD/share

0 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09

Source: Thomson Datastream

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Over June 2007-July 2008, TPL’s shares traded mostly in the CAD2-3/share range, peaking briefly at CAD3.95/share on 17 July 2007 and at CAD3.75/share on 19 Oct 2007. However, as the global crisis unravelled, TPL shares lost 80% of their pre- crisis value, and now trade close to CAD0.4/share.

Following the completion of the acquisition of Rosehill Energy’s interest in the production enhancement contract for the North Urtabulak oilfield in Uzbekistan for 15mn shares and the most recent equity placement for 51.68mn shares, we estimate, as set out in Figure 15, that former shareholders of Rosehill Energy currently own 11% of TPL (they are locked up up to Apr 2010). The largest institutional shareholder is Pope Asset Management (16%). TPL management, directors and employees own 0.77% of the outstanding charter capital; however, this share may increase to 2.4% if all share options are in-the-money (this does not seem the case in the short term, as the options’ exercise prices exceed $2/share).

Figure 15: Tethys Petroleum shareholders structure (based on shares outstanding)

Former Rosehill Energy shareholders, locked up up to April 11% 2010

16% Pope Asset Management

0.77%

Management

72%

Other shareholders

Source: Thomson Datastream, Bloomberg, Reuters

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Portfolio

Figure 16: Tethys Petroleum: Reserves and resources summary mmcm for gas, mnboe for oil, totals and Tajik reserves Reserves Resources Total reserves + Proved Probable 2P Possible 3P Unrisked Risked @20% risked resources, Developed Undeveloped Total reserves reserves gas oil gas oil mnboe Kyzyloi 638.0 140.4 778.4 417.3 1,195.7 258.0 1,453.7 - - - - 9.5 Akkulka 440.8 - 440.8 387.2 828.0 392.2 1,220.2 - - - - 8.0 Kul-Bas ------32,974.5 148.0 6,594.9 29.6 72.7 Total Kazakhstan 1,078.8 140.4 1,219.2 804.5 2,023.7 650.2 2,673.9 32,974.5 148.0 6,594.9 29.6 90.2 Beshtentak - - 0.0 0.2 0.2 0.1 0.4 - 11.7 - 2.3 2.7 Komsolmolsk - - - 0.3 0.3 0.3 0.5 1,633.7 170.7 326.7 34.1 36.8 Leads ------103,853.2 452.8 20,770.6 90.6 226.4 Total Tajikistan - - 0.0 0.5 0.5 0.4 0.9 105,486.9 635.2 21,097.4 127.0 265.9 Total, mnboe 7.1 0.9 8.0 5.8 13.7 4.7 18.4 905.5 783.2 181.1 156.6 356.1 Source: McDaniel Reserve Report, TRACS Reserve Report, Company data , Renaissance Capital estimates

TPL’s interests in Kazakhstan include a proven shallow gas field (Kyzyloi), producing from the Kyzyloi sand reservoir; the surrounding Akkulka exploration licence and contract area; and the Kul-Bas exploration and production contract area (in turn surrounding the Akkulka block). These lands are all within the Aktobe Oblast region of western Kazakhstan. The McDaniel Reserve Report estimates that TPL has net proved plus probable reserves of 2.02bcm of natural gas in the Kyzyloi field and the Akkulka block at 31 Dec 2008 (see Figure 16). The Kyzyloi field commenced production on 19 Dec 2007 and is connected to the main Bukhara– Urals gas trunk pipeline via a 56 km pipeline. Kyzyloi is now producing from eight wells, with three further wells scheduled to be brought on stream in 2010. We estimate the field’s output will peak at 241mmcm next year.Some of the shallow gas discoveries made at Kyzyloi sand level in the central part of the Akkulka Block are currently in the process of being brought into production in what is referred to as Phase 2 of the Kyzyloi/Akkulka shallow gas development. We estimate nine new wells will be commissioned at Akkulka by the end of 2009, with its production peaking at 296mmcm in 2010 in the absence of any further work. Additional potential remains to expand the project into Phases 3 and 4 by commissioning new wells targeting deeper reservoirs and upgrading existing infrastructure.

In Tajikistan, TPL has concluded the Bokhtar PSC, which covers about 35,000 km2. This PSC is for a term of 25 years in a large, highly prospective region that previously produced oil and gas. The contract area includes the Khatlon region and the area around the capital city, Dushanbe, and includes 133 different prospective structures that have already been identified in the area by Tajik Geology. According to the TRACS Reserve Report, these structures contain the best estimate of unrisked prospective resources volume of 1,133mnboe.

TPL believes the contract area has considerable potential for oil and gas condensate. The area includes almost the entire Tajik portion of the Afghan-Tajik basin, an extension of the prolific Amu Darya basin which contains giant and supergiant gas and gas condensate fields in nearby Turkmenistan and Uzbekistan. A hydrocarbon system exists in the contract area, but only limited exploration has taken place in the past. The contract area includes several oil and gas condensate discoveries, and TPL will carry out both appraisal and rehabilitation of these deposits, as well as exploration for new targets. The first work has been carried out on the Komsomolsk Field, near Dushanbe, and the Khoja Sartez field, near Kulob with gas being tested from both fields. Limited commercial production of gas has already commenced from Khoja Sartez and further work is planned for these fields and for the Beshtentak oilfield. In addition, a seismic acquisition programme has commenced.

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In Uzbekistan, TPL currently produces oil at the North Urtabulak field, pursuant to a production enhancement contract with the state-owned Uzbek oil company, Uzbekneftegaz (UNG). There are currently no reserves or resources booked under this contract. The contract represents a substantial opportunity to enhance production, primarily by optimising oil recovery at existing wells. Other opportunities for development within the field include performing rod pump optimisation, introducing additional methods of artificial lift, drilling horizontal wells under the salt hazard zone and re-drilling existing wells. We estimate net attributable production to TPL of 327kbbl in 2009, with existing potential to grow to 1.0-1.5mnbbl, funding permitted.

Figure 17: Tethys Petroleum: properties location map

Source: Company data

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Corporate governance

TPL’s TSX listing ensures the company’s compliance with high standards of corporate governance, subjecting it to strict guidelines and disclosures. In addition to general listing requirements, resource companies (mining and energy) are subject to additional disclosure standards, making TSX one of the most investor-friendly listings for early-stage resource plays globally.

Management Dr David Robson, president and CEO. Dr Robson's career has been primarily in operating oil and gas companies. He is chairman, president and CEO of Tethys Petroleum Group of Companies, listed on the TSX since 2007. Tethys Petroleum Limited was formerly a wholly owned subsidiary of CanArgo Energy Corporation founded by Robson in 1992 where he served as chairman and CEO until bringing Tethys public. CanArgo Energy Corporation is listed on the Oslo Stock Exchange in Norway. He was CEO and one of the founders of the London Stock Exchange-listed JKX Oil & Gas plc and prior to this he was employed in technical and commercial positions at Britoil plc, Hamilton Oil and Mobil. Trained as a geologist with a First Class B.Sc (Hons) degree in geology and a PhD in geochemistry, Robson also holds an MBA from the University of Strathclyde.

He has worked on oil and gas projects in the FSU since 1990, establishing the first non-state gas development project in Ukraine, the first non-state drilling in the Ukrainian Black Sea, and the first non-state exploration and development wells in Georgia. He is a Fellow of the Geological Society (FGS), a member of the Society of Petroleum Engineers (SPE), holds the Order of Honour for services to the Georgian hydrocarbon extraction industry and was formerly the energy sector representative on the UK government East European Trade Council (EETC).

Bernard Murphy, CFO. Murphy is a Fellow of the Institute of Chartered Management Accountants (FCMA) and prior to joining the company he has been working in a network providing accounting and finance services to SMEs. He has 30 years experience as a management accountant having previously worked for Courtaulds, BOC, BICC and for HSBC Actuaries and Consultants Limited as finance director, and in insurance with HSBC and Royal & Sun Alliance. Prior to his finance career he was awarded a B.Sc. (Hons) degree in civil engineering from Glasgow University.

Liz Landles, executive director and corporate secretary. Prior to joining TPL, Landles was officer and corporate secretary of CanArgo Energy Corporation from Aug 2002, having served as assistant corporate secretary since Dec 2000. She became executive vice-president of CanArgo in Nov 2005, having worked for CanArgo since Oct 1997, principally in an administrative role, and as a director of several CanArgo subsidiaries, including Tethys, where she was appointed as a director on incorporation, in Aug 2003. Landles holds an Advanced Diploma of Business Administration and is a fellow of The Institute of Business Administration (F.Inst.BA).

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Julian Hammond, chief commercial officer. Hammond was appointed as TPL’s vice-president, corporate development in July 2006, and became chief commercial officer in May 2007. He is responsible for TPL’s commercial development, including business development advice on strategy and the negotiation of acquisitions and divestments, as well as the management of equity, debt and trade finance for the company’s ongoing activities. Prior to joining TPL, Hammond worked for CanArgo Energy Corporation from April 1998 in various positions, including business development manager, where he managed CanArgo’s downstream refining and retail business in Georgia; commercial manager; and vice-president, investor relations. Prior to working for CanArgo, Hammond worked for Credit Suisse First Boston in London, Crossfield House Investments in Calgary and Montgomery Securities in San Francisco. He holds a BA in economics from University of Colorado.

Rosemary Johnson-Sabine OBE, vice-president exploration. Johnson-Sabine joined TPL as vice-president exploration in 2007. She leads exploration on TPL’s acreages in Kazakhstan and Tajikistan and also on possible new ventures. This includes geological and geophysical studies, particularly seismic acquisition and the location of exploration wells as part of a risked and balanced programme. Having started her career in exploration geophysics, Johnson-Sabine has, for many years, led exploration and new business teams for both major and independent oil and gas companies. This includes nearly 10 years with Chevron/Texaco, seven with Monument and seven with Amerada Hess. She has spent the past three years focused on Central Asia. Johnson-Sabine is a board member of the British Geological Survey, a member of SEG, EAGE and PESGB; holds a OBE for services to the UK oil and gas industry, and has a BSc in geology from the University of London.

Luka Chachabaia, vice-president operations. Chachibaia is an experienced oil and gas engineer including some 11 years working for Schlumberger in various engineering and management positions. Starting as a field engineer with Dowell Schlumberger, Chachibaia progressed to hold a variety of roles at Schlumberger, including operations manager, well services for Northern Europe, and business manager, well services in Libya. Chachibaia’s specialisation is oil and gas field operations management, including well construction, completion and stimulation, and he has worked in many parts of the world, including Kazakhstan, Turkmenistan, Azerbaijan, Georgia and Ukraine. Chachibaia holds a Masters Diploma in engineering geophysics.

George Mirtskhulava, vice-president commercial and head of TPL’s Kazakh business unit. Mirtskhulava is a general director of TSK, TAG, TMG and Kul Bas which are 100% owned Kazakh subsidiaries of TPL. He runs these organisations in Kazakhstan and across Central Asia. Mirtskhulava’s responsibilities also include pursuing new business ventures in Kazakhstan, obtaining relevant licence approvals, negotiating with future possible gas buyers, preparing commercial reports and liaising with local government authorities and business partners. He worked for CanArgo Energy Corporation in various positions over Dec 2000-Aug 2005, including as a commercial analyst, a financial analyst and a senior economist. Mirtskhulava previously worked in the finance and communications sectors from 1998 to 2000. He holds an LLM in Petroleum and Law Policy from the University of Dundee, law and engineering degrees from respective Georgian institutes, and is a Bachelor of Business Administration and General Management, a joint degree from the European School of Management, Tbilisi, Georgia and Preston University,

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Wyoming, USA. He is a member of The Association of International Petroleum Negotiators (AIPN).

Graham Wall, vice-president technical. Wall was appointed to his current role at TPL in July 2006. He is responsible for exploration and production activities, including drilling and testing, prospect evaluation, seismic acquisition and interpretation definition of the group’s reserves base and forward technical plans. Graham previously worked for CanArgo Energy Corporation since 2000, initially as senior geologist responsible for CanArgo’s exploration and development programme in Georgia. He was promoted to head of regional exploration and reserve determination in 2005, and then exploration manager of CanArgo in Jan 2006. Wall started his career as a minerals geologist working in gold projects in Australia and from Sep 1995-Dec 1999, was a mineral exploration geologist with ACA Howe International Ltd, UK working in Burkina Faso, Greece, Ghana, Russia (Siberia), the UK and Georgia. He holds a BSc (Hons) degree in exploration and mining geology, University of Wales, College of Cardiff, Cardiff, UK. He is a Fellow of the Geological Society (FGS), and a member of the Petroleum Exploration Society of Great Britain (PESGB). He has presented technical papers on central Georgian hydrocarbon systems and the development of fractured reservoirs.

Sabin Rossi, vice-president investor relations. Rossi holds a degree in English from The University of Colorado, Boulder, USA. Rossi was vicepresident investor relations and external affairs with CanArgo Energy Corporation, and prior to that held a number of business development and Consulting positions for think tanks and technology consulting companies including Forrester Research and Sprint; and independent consulting roles in energy and related industries. He is president of Tethys Petroleum Inc., USA, vice-president, Tethys Petroleum Limited, chairman and president designate of The America-Tajik Business Council, Washington, D.C., Representative on The American-Kazakh Business Council, Washington, D.C., former Representative on The American-Georgian Business Council and former representative on The American Chamber of Commerce in Almaty, Kazakhstan.

Ian Philliskirk, vice-president and general counsel. Philliskirk was appointed vice-president and general counsel of Tethys Petroleum Limited in Dec 2008, and is responsible for all legal and associated matters within the Tethys Petroleum Group, including current and future exploration and development contracts, sales contracts, acquisitions and disposals, financings and corporate compliance. Prior to joining the Tethys team, Philliskirk was a director of UK law firm Pinsent Masons LLP. He graduated in 1992 with an LL.B (Hons) Degree from University College London, and is a Barrister of Lincoln’s Inn, having been called to the bar in 1993. He subsequently held legal positions with UK government departments, including the Treasury Solicitors, before spending several years in Dubai, including seven years as group legal manager and company secretary of Dubai’s national oil company, Emirates National Oil Company (ENOC). During this time he was also legal adviser and company secretary to Dragon Oil Plc, (majority owned by ENOC), which operates in Central Asia.

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Board of directors

David Robson (chairman), Bernard Murphy and Liz Landles sit on TPL’s board. In addition, the company has five non-executive directors:

Rt. Hon. Peter Lilley MP. Lilley was educated at Clare College, Cambridge, where he studied natural science and economics. He was a director of Greenwell Montagu Securities (1986-1987) where he headed the oil investment department and which he joined in 1972. He is a non-executive director of JP Morgan Flemings Claverhouse Investment Trust plc and of IDOX plc and a member of the advisory board at the School of Management, University of Southampton. He is currently the Member of Parliament for Hitchin and Harpenden, in the UK. Lilley was formerly parliamentary private secretary to the chancellor of the exchequer, Nigel Lawson (1984-1987). His first ministerial appointment was as economic secretary to the treasury (June 1987), then financial secretary to the treasury (July 1989). He joined prime minister Margaret Thatcher's cabinet as secretary of state for trade and industry 1990-1992, secretary of state for social security 1992-1997, and was shadow chancellor and deputy leader of the Conservative Party responsible for overseeing renewal of policy until June 1999. He was an election observer for the 2005 Kazakhstan presidential elections.

Russ Hammond. Hammond was educated at St. Catherine’s College, Cambridge, where he obtained a Bachelors' degree in Economics. Previously, he was managing director of Greenwell-Montagu Securities. Hammond has been non-executive chairman of Terrenex Acquisition Corporation, an oil and gas and joint venture company, since 1992 and a non-executive director of Questerre Energy Inc., an oil and gas exploration and production company listed on the TSX, since 2000. He holds the Order of Honour for services to the Georgian hydrocarbon extraction industry.

Colin Smith. Smith has been a non-executive director of TPL since Aug 2006, and is also chairman of the company’s audit committee. Smith is a consultant to financial service organisations in Guernsey, including the Kraken Financial Group Limited, a multi-disciplinary financial services organisation, and Raven Russia Limited, the AIM-listed investment company that invests in commercial property in Russia and other CIS countries. Smith is also a non-executive director of the Da Vinci CIS Private Sector Growth Fund Limited, a listed investment fund. Prior to Sep 2007, he was a director in the audit and assurance division of the chartered accountancy practice of BDO in Guernsey. Smith graduated from the University of Glasgow with a degree in accountancy and qualified as a chartered accountant with the Institute of Chartered Accountants of Scotland in 1993. He is resident in Guernsey.

Paul Murphy. Murphy is currently managing director of Kraken Financial Group. Prior to joining Kraken, he was a director of MeesPierson Reads, one of the largest financial institutions in Guernsey, having previously worked in London for Touche Ross and Grant Thornton’s international tax practice. Murphy was a Chartered Tax Advisor for more than 15 years.

Piers Johnson. Johnson has more than 25 years’ experience as an oilfield engineer. He holds a B.Sc.(Hons) degree in Mechanical Engineering from Nottingham University, and is a chartered engineer with the Institution of Mechanical Engineers. He is past president chairman of the London section of the Society of Petroleum Engineers (SPE), a member of the petroleum Exploration Society of Great Britain and a member of the Institute of Energy. He is the founder and managing director of Oilfield Production Consultants (OPC) Limited, a petroleum

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and reservoir engineering consultancy specialising in operational procedures, integrated studies, well-site supervision and well-test analysis; and prior to this worked for Flopetrol Johnston Schlumberger as a well-test supervisor, location manager and district sales engineer (Asia). He has experience of oil and gas operations and field evaluations worldwide and is also a visiting lecturer in petroleum engineering at the Institute Francais du Petrol, in Paris.

23 24 July 2009 Tethys Petroleum Renaissance Capital

Strategy and risks

TPL’s objective is to build a diversified oil and gas exploration and production company with a mix of short-term cash flow and development potential focused on Central Asia in areas with substantial oil and gas potential. Specifically:

The company intends to exploit existing discoveries for immediate cash flow while investing in exploration potential for large potential upside. This approach will, in TPL’s view, provide investors with stable returns from ongoing operations while offering significant leverage on new discoveries. TPL is focusing on niche opportunities that have been overlooked in the past, but where upside can be achieved through the application of advanced management and technical skills. The company intends to use its own drilling equipment where cost-effective and necessary. In addition, TPL aims to secure dominant acreage positions in areas with large exploration upside and where it can build a significant presence. The company intends to bring in partners where appropriate to share risk and potentially enhance shareholder value.TPL exposes investors to a number of risks. Our main areas of concern are the following:

We believe the company’s shareholder base is too diversified for a small operator, lacking a single strategic investor. The company’s development activities are secured by the personal relationships of its CEO in countries with unstable legislative and operating environments. While offering substantial opportunities on one hand, this arrangement exposes investors to potential risk in case of the CEO’s departure or a change of interests. TPL’s key exploration assets, and a potential source of a significant future upside, are mostly gas fields, the development of which will require access to pipelines, which in turn may be congested or unavailable. The recent sharp decline in the consumption of Central Asian gas by Gazprom exemplifies such risk. We believe, however, that gas transportation routes from Central Asia will become more diversified in the future, including new potential pipeline projects to China and Europe. The Kyzyloi and Akkulka development is not without risk, including still uncertain terms for the Akkulka offtake agreement, increasing concerns. Much of the upside potential here relies on the success of exploration activities, which face greater licence-revocation, market-access and environmental concerns. Beyond these, we see significant risks to the company’s focus on Central Asia and its gas industry in particular. The licensing regime is not robust and the regulatory and legislative regimes governing the gas industry are likely to change substantially over coming years. We hope these changes will be for the better, but should they be stalled, delayed or derailed by political factors, TPL’s outlook would suffer. TPL is a small-cap company, focused on hydrocarbon industry in emerging markets, all of which expose potential investors to significant volatility risk.

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Operating and financial review

24 July 2009 Tethys Petroleum Renaissance Capital

Portfolio Introduction

TPL wholly owns five development properties, as summarised in Figure 18. The company’s activities in Kazakhstan and Tajikistan are governed by traditional licence agreements, while its working relationship is Uzbekistan is defined by a production enhancement contract.

Figure 18: Tethys Petroleum: Portfolio summary Property Acreage, km2 Summary of the opportunity Licence expiry date Kazakhstan Kyzyloi 287 Production June 2014 Akkulka 1,381 Appraisal, development and production Sep 2009 Kul-Bas 8,480 Exploration Nov 2030

The contract expires eight years after the last workover on a well under the Redevelopment and enhanced Uzbekistan production enhancement contract is production carried out. Three workovers are planned for 2009

Tajikistan 34,751 Exploration June 2033 Source: Company data

Kyzyloi and Akkulka are both in the production and development phase, with plans under way to complete Phase 2 of development this year. This will see the commissioning of nine wells in the Central Akkulka fields and their connection into Kyzyloi infrastructure – also requiring the upgrading of compressors at the tie-in point to the Bukhara-Urals trunk line, completed during 2Q09. This will increase daily output by 900mmcmpd by YE09, on our estimates, once the company receives production consent from the Kazakh authorities.

The Tajikistan contract and the Kul-Bas opportunity in Kazakhstan are pure exploration assets, where near-term activities are likely to include acquisition and processing of the 2D seismic data, well workovers at the Khoja-Sartez field and – funding permitting – two horizontal wells reaching the eastern part of the Komsomolsk field.

The Uzbekistan contract gives TPL rights for a specified proportion of output increased as a result of workover or drilling operations performed at the North Urtabulak field, in Uzbekistan, although it does not give TPL any direct ownership in the property. The company’s activities include workovers of existing wells, the installation of a gas lift system and the drilling of one deep horizontal well into a salt hazard area.

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Kazakhstan Appraisal and development

History

Kazakhstan represents the most significant operating asset for TPL. Although its exploration potential is limited when compared to, for example, Tethys’s interest in Tajikistan (discussed below). We believe the company’s two principal properties in Kazakhstan, Akkulka and Kyzyloi will provide the bulk of its operating cash flows over the next few years.

The Akkulka exploration licence and contract was entered into between the Kazakh State Committee for Investments and BN Munai, TPL’s predecessor, on 17 Sep 1998. The contract initially granted exploration rights for a period of five years; however it has been extended and is currently in effect until 17 Sep 2009. Although the terms of any subsequent production phase are not defined, the existing contract gives an exclusive right to apply for a production contract in the event of a commercial discovery (TPL has already applied for two of these), and the company believes a contract extension is possible, although not guaranteed. The original granting of the Akkulka exploration licence and contract extended over an area of approximately 166 km2, however the contract was subsequently amended to cover an area of approximately 1,380 km2 at Paleogene level (excluding the Kyzyloi field production contract area) and approximately 1,667 km2 at deeper levels. The Kyzyloi field licence and production contract for the production of gas on the Kyzyloi field was initially issued by the Kazakh government to the state holding company Kazakhgas on 12 June 1997 and was transferred to TPL on 15 May 2001. The contract was entered into between the Kazakh Ministry of Energy and Mineral Resources and TPL on 5 May 2005 for an initial period until 12 June 2007. However, in Jan 2005, the contract was extended until June 2014, subject to certain contractual amendments, which the company finalised in 2007. The Kyzyloi field licence and production contract grants TPL exploration and production rights over approximately 287.2 km2, and extends down to the base of the Paleogene sequence. All work commitments under the contract have been met.

Resources

The Kyzyloi and Akkulka contracts are located in the North Ustyurt sedimentary basin which is a rich hydrocarbon province, located on the southern margin of the Pre-Caspian basin between the Turgai, East Aral, South Mangyshlak and Central Caspian basins (see Figure 19). According to Petroconsultants, discovered volumes of hydrocarbons in the basin are slightly less than 2.8bn boe, of which 85.5% is oil. Most of the discovered oil is in several fields on the Buzachi arch and on its flanks in the westernmost onshore part of the Caspian Sea, where the boundary between North Ustyurt and Pre-Caspian basins is poorly defined. Gas fields were primarily discovered in the north eastern part of the basin. They usually contain biogenic gas in shallow Paleogene clastic reservoirs. Among them are the Shugarly-Shumyshty, Kyzyloi and Bozoi fields.

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Figure 19: Tethys Petroleum: location of Kyzyloi, Akkulka and Kul-Bas properties

Source: Company data

According to the McDaniel Reserve Report, completed in accordance with the Canadian reserves definitions and guidelines prepared by the Standing Committee on Reserves Definitions of the CIM (Petroleum Society), Kyzyloi and Akkulka contain 1,219 mmcm (8.0mnboe) of proved reserves, 2,024 mmcm (13.2mnboe) of proved and probable reserves, and 2,674 mmcm (17.5mnboe) of proved, probable and possible reserves, effective 31 Dec 2008, as summarised in Figure 20.

Figure 20: Kyzyloi and Akkulka: Reserves summary, mmcm mmcm for gas, mnboe for oil and total Proved Probable Possible 2P 3P Developed Undeveloped Total reserves reserves Kyzyloi 638.0 140.4 778.4 417.3 1,195.7 258.0 1,453.7 Akkulka 440.8 - 440.8 387.2 828.0 392.2 1,220.2 Kul-Bas ------Total 1,078.8 140.4 1,219.2 804.5 2,023.7 650.2 2,673.9 Total, mnboe 7.1 0.9 8.0 5.3 13.2 4.3 17.5 Source: McDaniel Reserve Report

McDaniel describes Kyzyloi as a shallow gas field containing sweet (no sulphur) natural gas, almost entirely methane, reservoired in sandstone of Paleogene age at depths of up to about 610 metres. The Kyzyloi pool was discovered in 1967 by the Kyz-G-11 well, and after drilling a number of appraisal wells the pool was left undeveloped. In the mid 1990s, a number of development wells were drilled by KazakhGas (then the state gas company), but no facilities or pipeline infrastructure were established. More than 20 wells were drilled inside the structure and 14 of these penetrated the gas-saturated reservoir. The original pool pressures were similar during the initial exploration in the mid-1990s, but TPL suspects some of the Kyzyloi wells had been leaking gas at the wellhead or behind casing to uphole zones from the time they were drilled until TPL worked them over in 2005.

The Akkulka contract contains seven Upper Eocene Kyzyloi sand gas pools, two close to the Kyzyloi contract area and five approximately five-19 miles to the southeast of Kyzyloi. Two new pools were discovered in 2008 in the deeper Upper

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Eocene Tasaran sand. According to McDaniel, the reservoir quality in the North- West Akkulka pool is similar to the Kyzyloi pool.

The Akkulka block has the potential for oil and gas deposits at several different horizons, with gas already having been discovered in shallow Paleogene sandstones similar to those of the Kyzyloi field. During the shallow gas exploration drilling programme that commenced in 2005, gas has been discovered and a number of new commercial accumulations identified by TPL. A number of additional shallow gas prospects and leads have been identified based on existing data and on the surface seismic data acquired recently. The McDaniel Prospective Resources Report, dated Apr 2007 and not updated since, gives mean risked prospective resources of 0.358bcm of identified shallow gas prospects in the Akkulka block. Since Apr 2007, four prospects identified in that report have been drilled to date, adding 0.226bcm to reserves.

In addition to these shallow discoveries, the Akkulka block presents opportunities for the exploration of deeper hydrocarbon-bearing horizons.

To this extent, seven Triassic-lower Jurassic prospects were identified by TPL in the Akkulka exploration licence and contract area. From 2005 to 2007, work concentrated on the reinterpretation of existing seismic to focus on the deeper potential of the contract area at lower Mesozoic levels (i.e. mid-lower Jurassic and Triassic). The nearest deep producing fields are some 96 km to the south in Uzbekistan. Analogies are notable in the Mangyshlak and Ustyurt basins and in Uzbek fields such as Kuanysh and Urga.

A robust structure has been identified and the first deep well on the Akkulka block spudded late in 2008 (well AKDO1) using TPL’s ZJ70 Telesto rig. The robust structure, founded on an old inverted high to the south east of the proven shallow gas fields Kyzyloi and Akkulka, is less faulted than the main high under these fields. The well is planned to drill to 3,500 metres and the exploration target can be regarded as substantially larger than the shallow targets but with commensurately higher risks. As of currently, the drilling is ongoing with the first results expected in September 2009.

Work programme

TPL became involved in the Akkulka and Kyzyloi contracts in 2005, and the ongoing development of the Kyzyloi and Northeast Kyzyloi pools provides an opportunity to commercialise the smaller Akkulka contract area pools. Although never originally envisaged as such, the company’s gradual entrenchment in Kazakhstan has shaped the phased development programme for Kyzyloi and Akkulka, as follows:

Phase 1 envisages the development of the Kyzyloi field only, where production started on 19 Dec 2007 and will average 589mmcmpd in 2009, on our estimates

Phase 2 will see the connection of Central Akkulka fields into Kyzyloi infrastructure and requiring the upgrade of the compressors at the tie-in point to Bukhara-Urals trunk line, completed in 2009. This will increase daily output to just over 1,000mmcmpd by YE09, on our estimates, once the company receives production consent from the Kazakh authorities.

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Phase 3 will seek the addition of 11 recent Kyzyloi Sand (450 metres) and Tasaran Sand (650 metres) discoveries, increasing the production rate to 2,000mmcmpd. As further wells are added in the Kyzyloi pool, Northeast Kyzyloi pools and Northwest Akkulka pool, additional field compression station is planned to be installed at the Akkulka cut-in point midway through 2010.

Phase 4 is poorly defined at present, as it requires further discoveries and will involve the expansion of current pipeline capacity.

The initial commitments under the contract primarily consisted of an expenditure of $14.78mn over the initial five-year term. Although only $13.2mn was spent by Sep 2003, TPL was successful in extending the contract for a further two years. As a result of the expenditure commitments having been satisfied for the prior years, the contract was further extended until 17 Sep 2007, with all these commitments having been met. In Feb 2007, a further extension for evaluation of potential reserves on the Akkulka block was agreed on with the Kazakh Ministry of Energy and Mineral Resources, effectively extending the contract until 17 Sep 2009. Under the latest extension to the contract, TPL has committed to spending an additional $1.85mn over 18 Sep 2007-17 Sep 2009.

The remaining work programme for 2009 and 2010 includes commissioning of three more shallow wells at the Kyzyloi field and the completion of the Phase 2 expansion at Akkulka, which involves production start-ups from nine new wells at Central Akkulka and infrastructure build-up. Additionally, the work programme includes the drilling of the deep AKDO1 well, described earlier, as well as the completion of Akkulka’s Phase 3.

Transportation and offtake

Production at the Kyzyloi field commenced in Dec 2007 from six wells. The field was temporarily suspended at the end of Nov 2008 while two additional compressors were installed at the main compression facility and other work was being undertaken to accommodate gas from the Akkulka pools. Production resumed on 5 Mar 2009 from eight wells, including the recently tied-in G-12 and G-16 wells. The ninth well is being held in reserve.

Gas flows into TPL’s 56 km pipeline which carries it to the Bukhara-Urals gas trunk line via the company’s own compressor station. This is the current sales point for the gas, and TPL’s control and measurement system is fully integrated with that of the trunk line which is owned and operated by the Kazakh state company Intergas Central Asia and forms part of the transcontinental Central Asia to Russia and Europe gas transportation network. This area’s infrastructure is mapped in Figure 21.

Initial production is being sold under the Kazakh Gas Supply Contract with PCK who utilise the gas in the domestic Kazakh market. This contract relates to up to 850 mmcm of gas from the Kyzyloi Field, or to gas delivered from the Kyzyloi Field until 1 Dec 2012 whichever is the earlier. The contract price is $32/mcm excluding VAT or $35.84/mcm including VAT at the current 12% rate.

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Figure 21: Tethys Petroleum: infrastructure around the Kyzyloi field

Source: Company data

Any additionally produced gas over and above the contracted volumes will be sold at market terms. In Dec 2006, GazImpex, a trading company, confirmed in writing to TPL its interest in purchasing gas production from the Akkulka block at a 15-25% discount to the Uzbek border price (representing the current market price for gas supplied from Uzbekistan into Kazakhstan), which we estimate will average $143/mcm in 2009 (assuming an average 2009 Brent oil price of $57.5/bbl). Given the recent deterioration in both, demand for gas, and Gazprom’s relations with Turkmenistan, its key supplier, we believe the final terms of the offtake agreement will be less beneficial. A recent decision by the Russian authorities to reduce the pace of tariff growth in Russia will also weigh down the realised prices, in our view; we therefore conservatively expect a 50% average discount in 2010 to $74.2/mcm. Still, this price would represent a significant premium to the Kyzyloi contract, particularly given that TPL bears no significant gas transportation costs. For the rest of 2009, we assume any Akkulka volumes produced will be sold under the terms of the existing Kyzyloi contract.

We believe it is likely that any gas produced from the Kul-Bas block would be available for marketing in a similar fashion.

Production plans

We forecast that over their lifetime, the Kyzyloi and Akkulka contracts will produce a total of 2.7bcm of natural gas, which is equivalent to their aggregate 3P reserves as estimated by McDaniel. We estimate, as summarised in Figure 22, that the company’s Kazakh production will peak at 493mmcm in 2010 before entering a declining stage from 2011. Our production profile is based on the following assumptions:

At Kyzyloi, our forecast assumes production continues in 2009 from eight wells (two of which were commissioned early this year) with three further wells being added in 2011. We assume each of these new wells will initially

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produce at a rate of 50mcmpd. Thereafter, we forecast average production will decline 25%/year to the economic limit. Earlier in May 2009, gas production from the Kyzyloi field was temporarily reduced at the request of Intergaz, a Kazakh state-owned company and the owner of the Bukhara-Urals trunk line. TPL has been advised that this is a temporary measure due to technical works, and the normal flow is expected to resume in Sep 2009, according to TPL. Currently, Kyzyloi production is approximately 280 mcmpd and we model it will average 581 mcmpd this year (including output from two new wells). TPL plans to bring the Central Akkulka pools on stream in 2009, which will require commissioning of nine new wells by Sep 2009 flowing 600mcmpd as of YE09. With the gradual commissioning of Phase 3 during 2010, we estimate YE10 flows of 780mcmpd and total 2010 output of 252mmcm in 2010, rising slightly to 256mmcm in 2011 before declining 20%/year to the economic limit. Our production forecasts take into consideration current and planned gas infrastructure capacities. All the wells in the Kyzyloi pool produce to a gas production facility located close to the KYZ-104 well. This facility provides gas dehydration and condensate removal and is capable of handling up to 750mmcm of gas per year.

Our forecasts assume the work programme will be completed up to (and including) a proportion of Phase 3. Additional production potential rests with the remaining targets identified for Phase 3, as well as Phase 4, but this, as noted above, may require additional discoveries and infrastructure build-up.

Figure 22: Gas production forecasts from Kyzyloi and Akkulka, mmcm 600

500

400

300

200

100

- 2007 2008 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Kyzyloi Akkulka

Source: Company data , Renaissance Capital estimates

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Kul-Bas exploration and production contract

History

The Kul-Bas exploration and production contract was signed between TPL and the Kazakh Ministry of Energy and Mineral Resources on 11 Nov 2005. The 25-year contract, with an initial six-year exploration period and a 19-year production period, grants TPL exploration and production rights over an original 10,881 km2 land plot surrounding the Akkulka block. Pursuant to the Kul-Bas exploration and production contract, 20% of the area is to be relinquished at the end of the second year of the contract, with 20% to be relinquished annually thereafter up to the end of the six- year exploration period, except with respect to combined exploration and production contracts. The first relinquishment was made in Nov 2007, and confirmed by the Kazakh authorities on 21 Dec 2008.As a result, the block is now effectively 8,480 km2. However, in order to allow it time to effectively explore the block, TPL applied to reduce and/or extend the relinquishments on the block. This application was granted by the Kazakh authorities in Feb 2009. In effect, the relinquishments will now be added to the contract as an amendment, under which 20% is relinquished by the end of year two (completed), 0% in year three (2008), 10% by the end of year four (2009), 20% by the end of the fifth contract year and all remaining territories, outside commercial discovery areas, by the end the of the sixth year.

Resources

The Kul-Bas exploration and production contract area surrounds the Akkulka block and has similar geological, tectonic and structural features to the Akkulka block. TPL regards this large area as underexplored, being subject to regional magnetic, gravity and seismic surveys in the Soviet-era, with limited stratigraphic wells (mainly very shallow) in the southern part surrounding the Akkulka Block. Since the end of the Soviet period, a state funded Turlan vintage seismic programme was carried out in the southern and eastern parts of the block with a later vintage (1995-1996) JNOC 2D programme over 90% of the block, with the northern and north western part (approximately 25% of the territory) of the contract area having been covered in an approximate 8 km x 8 km grid, and the southern and eastern section covered with a 4 km x 4 km grid.

Having made a preliminary assessment of the 1995-1996 vintage 2D seismic, TPL acquired a further 535 line km of seismic data in 2007, leading to its decision to drill three of the shallow gas anomalies in 2008. The wells confirmed the presence of gas; the KUL01 well, in particular, flowed 54mcmpd on a 16mm choke. To locate future wells and minimise exploration risks across the Kul-Bas acreage the extensive, but older, JNOC dataset was purchased in 2008 and approximately 2,000 line km is now being reprocessed to more modern standards. Prospects and leads may exist at both the Kyzyloi and the Tasaran sand level as well as deeper in the Cretaceous and these will all be targeted with the new improved data.

TPL considers the much larger Kul-Bas Block to also have significant oil and gas potential in deeper horizons ranging from the Carboniferous through to the Jurassic (the prospects are typically 3,000-3,500 metres below surface in the southern areas but are as shallow as 2,200 metres in the northern part of the block). Large condensate fields such as the Shakhpakhty gas/condensate field (48bcm) have been discovered in the same basin just to the south in northwestern Uzbekistan.

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With this in mind, the сompany began to reprocess approximately 2,000 line km of the extensive older JNOC seismic dataset late in 2008, both to firm-up shallow gas prospects and to highlight deeper plays seen in the Triassic and Carboniferous. The company currently plans to drill a 4,000-metre well in 2010 to test the best of the deeper oil prospects which are sizeable but with significant exploration risk remaining at present. JNOC had drilled a deep well on a structural nose in the central part of the Block in 1998, but the prospect does not appear to have a valid closure. The company intends to finish this re-processing and interpretation during 2Q09, with a view to identifying new prospects at both shallow and deep levels.

The 2007 seismic data specifically in-filled the unexplored western side of the Kul- Bas acreage and generally gave better definition illuminating deeper exploration targets. This seismic acquisition more than fulfilled the 2007 work obligations under the terms of the Kul-Bas licence. The 2008 work programme involved $3.0mn of capex and involved the drilling of three shallow wells, this was completed with wells KUL01-03. Actual expenditures slightly exceeded the minimum work programme. In 2009, TPL has a minimum commitment of $485k which is outlined for new seismic works, most likely to involve detailing the leads and prospects that are expected to be identified in the JNOC reprocessing.

A total of 11 Triassic – lower Jurassic leads were identified by the company in the Kul-Bas exploration and production contract area. Unrisked mean net prospective resources of 148mmbbl of oil and 32.8bcm of gas (totalling 342mnboe) were estimated in Apr 2007 for these prospects by McDaniel in the 2007 Resource Report. Applying the 20% risk factor customary for Central Asian basins, we arrive at a risked resource estimate of 34.2mnboe.

Work programme

The agreed work programme on this area will cost about $7.7mn over the initial six- year exploration period. At 31 Dec 2008, $5.2mn had been spent on work commitments under the contract, this being approximately 30% more than required during the period largely due to acquiring additional seismic data. The minimum work programme for 2009 amounts to $0.7mn, principally for the acquisition and processing of new 2D seismic data. Based on this work, the company plans to identify a series of targets, one of which will be explored with a deep well potentially scheduled for drilling in 2010.

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Tajikistan A major exploration opportunity

History

In June 2008, TPL concluded the Bokhtar PSC in Tajikistan, which covers 34,785 km2, equivalent to 84% of the size of Switzerland. The PSC is for a term of 25 years for a large highly prospective region which has existing oil and gas resources. The contract area includes the Khatlon region and the area around Dushanbe, and includes 133 different prospective structures which have already been identified in the area by the Tajik state geology service, and several existing oil and gas fields, including the Beshtentak, Khoja Sartez and Komsomolsk fields. Despite these discoveries, the area has seen limited exploration to date.The PSC allows TPL to use up to 70% of Tajik revenues for costs recovery, with the remaining 30% of production split 70:30 between Tethys and the Tajik government. Pursuant to the PSC, Tethys is required to select and relinquish portions of the contract area with the first relinquishment occurring after seven contract years.

On 24 Dec 2007, TPL entered into an agreement with Sangam Limited (representing a group of local Tajik interests) to transfer the PSC to a joint venture company, Seven Stars Energy Corporation (SSEC), in which TPL would hold a 51% interest, with Sangam holding the other 49%; and with TPL retaining operational control of the assets. The agreement was due to come into effect once certain conditions were met, which have not been met so far. Given the size of the PSC, we believe TPL will benefit from one or more partners entering this project, which could provide both local expertise and connections (such as Sangam), as well as funding and technology (potentially provided by a major international oil and gas company) necessary for the project’s completion.

Figure 23: Tethys Petroleum: location of the Bokhtar PSC area

Source: Company data

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Resource potential

TPL believes the PSC area has considerable potential for oil and gas condensate. It includes almost the entire Tajik portion of the Afghan-Tajik basin, an extension of the Amu Darya basin, which contains giant and supergiant gas and gas condensate fields in nearby Turkmenistan and Uzbekistan. According to the US Geological Survey, the mean unrisked resources for the Afghan portion of the basin, are 1,870mnboe of liquids and 229.5bcm of natural gas.

The Amu Darya basin is primarily natural gas prone (although with some significant oil fields) and contains some super-giant natural gas and condensate fields, such as the Dauletabad field in Turkmenistan (reported to have had initial estimated recoverable natural gas reserves of 1.7tcm) and other supergiant fields. Gaffney Cline & Associates recently carried out a reserves assessment on the South Yolotan field in the Turkmenistan portion of the Amu Darya basin, which may be the fourth- or fifth-largest in the world with estimated gas reserves of 6tcm.

TPL’s initial regional geological review suggests potential for large structures, especially sub-salt, in the Bokhtar area, possibly containing both oil and natural gas. Reservoir rocks are present, as are mature source rocks. The exploration potential of this large part of the Afghan-Tajik basin is significant, particularly in the deeper undrilled pre salt levels (at a depth of about 5,000 metres), which have analogues as quoted in Turkmenistan and Uzbekistan.

In early 2007, Gazprom was granted a licence to explore and develop the Sargazon gas field (with estimated recoverable 30bcm) and the Rengan gas field (estimated recoverable 35bcm) in southern Tajikistan, both of which are located within the boundaries of TPL’s PCS area. Gazprom estimates Tajikistan's total natural gas deposits at 3tcm, although Tajikistan’s Ministry of Energy and Industry retains a much bigger estimate of 30tcm.

According to the TRACS reserve report of TPL’s Tajikistan assets, the area contains 133 prospective structures containing the best estimate of unrisked prospective resources volume of 1,133mnboe. TRACS notes in its report that, due to constraints of data and time, TRACS were unable to confirm the presence of these structures. The lack of data also means it is not currently possible to estimate the probability of success for the prospects. In addition, a major unknown is the number of structures that have previously been drilled and hence is no longer a valid prospect as mapped. As a result, TRACS believe that the total ‘best estimate’ prospective oil resources given above may be optimistic. However, TRACS recognise that many if not most of these wells did not access deeper plays and that these may also hold additional gas resources. Given the risk characteristics of the area, we believe it is reasonable to apply a 20% risk factor to arrive to the risked resource estimate of 226.6mnboe.

Work programme

Existing conventional oil company data in the area consisted of mainly elderly Soviet-era geological maps, well logs and limited seismic data. The first phase of the company’s work on the area is focused on the development of existing gas and oil deposits, and on an active exploration work programme; with exploration drilling

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based on modern studies planned to start in 2010 and the first partial relinquishment due in 2015.

The company’s current work programme in Tajikistan consists of:

General geological and geophysical studies involving the acquisition of up to 1,000 km of deep penetrating (to 7,000 metres) seismic data Drilling of one exploration well at the East Olimtoi prospect in the south of the contract area, on the flank of a salt swell. The well has been pre-drilled to 2,046 metres by the Tajik state company, with this work being taken over by TPL in 2Q09 and drilling ahead. There are other similar salt swell flank prospects to be explored nearby. Pursuant to the PSC, TPL is required to fund a minimum work programme on the contract area, involving the acquisition of additional seismic data, gravity and magnetic data and exploration drilling. The proposed work programme will be carried out in two phases.

1. Phase 1, to be completed within 18 months from the effective date of the PSC, is expected to consist of: 1) geological studies; 2) reprocessing of existing seismic and other geophysical data; 3) acquisition of seismic and other geophysical data; and 4) initial rehabilitation activities on the Beshtentak and Khoja Sartez fields. The total minimum cost of Phase I is estimated at about $3.0mn. 2. On completion of Phase 1, TPL will determine whether to proceed with the Phase 2 of the work programme, or terminate the PSC. Phase 2, which is to be completed within 18 months of the completion of Phase 1, is expected to involve the commencement of the drilling of an exploration well to determine the oil and gas potential of the Bukhara formation and to perform additional rehabilitation activities if economically justified. The total minimum cost of the activities planned in both Phases 1 and 2 is estimated at about $5.0mn, compared with current spending to date of over $8.0mn. The work so far has been focused on the three principal fields included in the contract area, specifically the Beshtentak field, the Khoja Sartez field and the Komsomolsk field.

The Komsomolsk field

The Komsomolsk field is an abandoned, and now reworked, gas condensate field where production dates from the late 1960s lying just to the north and under the Tajik capital, Dushanbe. According to the TRACS report, the Komsomolsk field has 3P gas and condensate reserves of 530.8kboe and unrisked prospective gas resources of 103.8bcm and unrisked prospective gas condensate resources of 452.8mmbbls, amounting to total reserves and risked resources of 226.4mnboe. There were 27 prospecting and exploration wells drilled in the area, defining a Komsomolsk anticline that was first identified at surface and that continued and steepened with depth. Wells drilled to around 1,350 metres penetrated the Cretaceous and some six wells went to, and three wells went through, the Jurassic reservoir at approximately 2,150 metres. The field was shut-in in 1987, but limited production continued until 1993.

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According to Tajik MEI data, the field produced about 2.0bcm over 1966-2000, more than 50% of which was recovered in the first five years of production. Maximum stabilised single well production rates were recorded as 7,207mcmpd from well KOM183 and the field maximum production rate of 767mcmpd was achieved in 1968.

The field is separated into two parts by the Vardzob river, namely West Komsomolsk, where the vast majority of gas production has been from to date, and East Komsomolsk, where only minor gas has been produced to date, largely has a large part of East Komsomolsk lies under the northern suburbs of Dushanbe and where the drilling of vertical production wells was difficult in the past.

TPL has been evaluating and working-over wells on West Komsomolsk, and has to date carried out workover activities on three wells. It believes that additional potential remains in West Komsomolsk either through more comprehensive workover activities or new drilling. At the same time, the eastern part of Komsomolsk is largely undrained with the potential for additional gas production. Much of East Komsomolsk lies under the suburbs of Dushanbe and with the lack of expertise in directional drilling in the past had not been developed. The company has selected a location for an initial East Komsomolsk inclined directional development well which is likely to have a horizontal step-out to the top of the Hauterivian reservoir of some 701 metres from the surface location and will test all the reservoir sequence including the Jurassic. This well would be the first in up to three planned East Komsomolsk development wells, which the company plans to commence in 2009, given available finance using the new Rig Tykhe which is being mobilised to Tajikistan.

The Beshtentak field

The Beshtentak field lies 45 km north of the town of Kulob, and, according to the TRACS report, has proved oil reserves of 36.9kbbls (these are only related to the currently producing wells and belong to the State according to the PSC), 3P oil reserves of 59.3kbbls, 3P gas reserves of 150mmcm and unrisked prospective oil resources of 11.7mmbbls, amounting to total reserves and risked resources of 2.7mnboe, attributable to TPL. It was discovered in 1970 and there are currently 24 operational wells, four of which are currently producing from the shallow horizons (up to 2,000 metres) with limited potential due a to lack of investment and technology. No deep drilling has been carried out on the field to date. TPL is evaluating the remaining potential of the field with a view to moving ahead with a field redevelopment programme, potentially involving horizontal drilling and water injection.

The Khoja Sartez field

The Khoja Sartez field is a gas condensate accumulation located some 13 km to the west of Kulob, and, according to the TRACS report, contains contingent gas resources of 63.7mmcm. This deposit is developed on the flank of a clearly visible large salt dome and is at a much earlier stage of development than the Beshtentak field. Drilling has only been carried out in the surface layers to a depth of some 1,700 metres, with the Bukhara limestone as the primary reservoir target. TPL

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believes the deeper layers and other flanks of the dome have the potential to contain substantial volumes of gas condensate. Four wells have been drilled on the structure and a modern gas processing facility has been installed, but all the wells are currently shut-in, due to a lack of investment and adequate technology. The Khoja Sartez deposit appears similar to some of the large salt dome-related prospects in the southern Kulob area.

In Dec 2008, natural gas was successfully tested from the Khoja Sartez 22 (KJZ22) well at estimated rates (based on wellhead pressures) of up to 80cmpd on a 12 mm choke. This will be used to supply gas to the town of Kulob under the existing contract, as explained below.

Transportation and off-take

On 16 Jan 2009, Tethys signed the Tajik Gas Supply contract with Kulyabgaz (a wholly owned subsidiary of the State company Tajikgaz) to supply limited volumes (up to 65mcmpd) of gas to the town of Kulob Tajikistan at a fixed price of TJS300/mcm ($86/mcm at the exchange rate at that time). The initial limited gas supply is being delivered through a 12 km pipeline from the KJZ22 well, on the Khoja Sartez field.

No specific arrangements have yet been made for marketing any production from other properties including the Beshtentak Field. With regard to the Komsomolsk field, it is likely that any more significant volumes produced from East Komsomolsk will be marketed on a different basis, perhaps related to the import price of Uzbek gas.

Production plans

There are no current production plans outside the Kulyabgas contracted volumes, but even these are unlikely to start before 2010 as additional workover need to be completed. However, the Tajik PSC represents TPL’s most significant future exploration and production potential by far, in our view.

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Uzbekistan Enhanced production/redevelopment

History

TPL entered Uzbekistan earlier this year, having announced, on 27 Feb, the acquisition of Rosehill Energy’s interest in the North Urtabulak production enhancement contract for 15mn shares, or $6.3mn. The acquisition was completed in April. TPL currently produces oil at the North Urtabulak field, in southwestern Uzbekistan, pursuant to a production enhancement contract between Rosehill and the state-owned oil company of Uzbekistan, Uzbekneftegaz. Rosehill acquired the contract from Baker Hughes at the end of 2005 (Baker Hughes signed the original agreement with the Uzbek state-owned oil companies, Uzgeoneftegazdobycha and Uzneftepererabotka, in Aug 1999). The North Urtabulak oil and gas field lies in southern Uzbekistan, in the northern portion of the Amu-Darya basin. The nearest city is Karshi which is about 150 km east-southeast of the field. North Urtabulak produces from a Jurassic age reef structure at a depth of about 2,500 metres.

Figure 24: Tethys Petroleum: location of the North Urtabulak field

Source: Company data TPL’s role as contractor under the production enhancement contract comprises three components:

The conduct of workover operations at the North Urtabulak field. The drilling of a new horizontal well at the North Urtabulak field. The rehabilitation on agreed terms of the Umid and South Kemachi fields. The contract also gives TPL access to other fields, which the company believes has similar potential to the North Urtabulak field. Baker Hughes’s original contract in Uzbekistan was successful (the company was able to increase aggregate production at the field by 472.9kt during its six-year operatorship, at a total cost of $13.8mn) and it seems Rosehill had some positive results but lacked capital resources and impetus to fully exploit the field. TPL’s subsequent acquisition of the field should result in a greater realisation of the potential here, in our view. As shown in Figure 25, we currently model that, over the next five years, TPL will be able to add about a further 318kt of gross production at a total cost of $4.5mn (by adding continuing enhanced flows from already completed wells we estimate cumulative production gain will be 469kt).

40 Renaissance Capital Tethys Petroleum 24 July 2009

Figure 25: North Urtabulak field – Investments and production Aug 1999-late 2005 early 2006-early 2009 2009E-2013E Operator Baker Hughes Rosehill Energy Tethys Petroelum Cumulative Precise data for Rosehill’s production and 13.8 4.5 investment, $mn investments are not available, but it stated in early 2008 – two years after the start of its involvement Cumulative – that it had identified only 500kt of incremental additional gross 473 469 production, meaning it was able to add only 27kt production, kt during this period Source: Company data, Neft i Kapital, Renaissance Capital estimates

We believe TPL will be keen to substantially increase its level of investment and production in Uzbekistan, hence the $7mn potential additional capex outlay (as discussed below).

Resources

It is not clear yet whether the production enhancement contract allows the company to book any reserves. According to Soviet state reserve classification, initial recoverable oil reserves at the North Urtabalak field were 7.26mnt (53.0mnbbl); but these had declined to 4.14mnt (30.2mnbbl) by 1991, when the field’s output started to fall. These estimates were calculated under the assumption of standard Soviet recovery methods being used – an assumption that is clearly being challenged by the success of the work programme to date.

Work programme and production forecasts

The area around North Urtabulak was first mapped between 1959 and 1964. Seismic surveys were conducted in 1970 and 1972. The first well was drilled in 1972. As of 1997, there were 86 wells on the field: 59 producing, seven injection, two control and 18 abandoned. The field is operated by KashiNeft, a division of Uzgeoneftegazdobycha, in turn wholly owned by Uzbekneftegaz (UNG).

All the wells drilled to date have been vertical holes using conventional Russian technology. This does not allow for optimal oil recovery; in addition, Uzbekneftegas experienced difficulties drilling through the salt hazard zone, located in the northwest corner of the field. It is in this location that TPL envisages drilling a horizontal/deviated well. Other opportunities for development within the field include performing rod pump optimisation, introducing additional methods of artificial lift, drilling horizontal wells under the salt hazard zone and redrilling existing wells. Tethys is currently operating one Chinese workover rig which is servicing the current well stock.

Since 1999, more than 32 different wells have been worked over at the North Urtabulak Field, currently producing about 1mnbbl of oil annually. Incremental oil produced at these wells as a result of production enhancement procedures performed by TPL is allocated according to the terms, as outlined in Figure 26.

41 24 July 2009 Tethys Petroleum Renaissance Capital

Figure 26: North Urtabulak field – Terms of allocation of incremental production First three years of production Remaining five years of production Tethys Petroleum 50% 20% Uzbek partner 50% 80% Source: Company data

Once worked over, each contractor well is routinely tested twice a month with a flowing time of four-to-six hours. Field personnel from TPL and Uzbekneftegas agree on the flow rates which form the basis for production split.

At the end of 2008, the production run rate attributable to TPL was 920bpd. With no further investment, we believe this will decline 22% to 720bpd by the end of this year. However, further workover and drilling opportunities are available to significantly improve this figure. We note the following:

The current work programme in Uzbekistan includes workovers of six additional wells (six further targets have been identified and will be pursued given no funding constraints). At a cost of about $2mn, this work can result in average flow rates increasing to 1.25kbpd by YE09, according to the company. Use of the gas lift could further increase the flow to about 2kbpd by YE10 at a cost of up to $1mn. There is also the possibility of drilling a new well in an undrained salt hazard area in the North Urtabulak field, that would cost up to $4mn and could augment production by a further 500bpd. Opportunities on a similar scale are available at the nearby Chegara field, which TPL plans to pursue if funding becomes available. Overall, we believe a properly refinanced and managed redevelopment programme could result in the company reaching flow rates of 3-4kbpd over two-to-three years.

Transportation and offtake

Oil from North Urtabulak is mixed with oil from other nearby fields and pumped through a 219mm pipeline to a rail terminal at Senozavodsky, and transported by rail to a refinery in the Ferghana valley. The average price realised (ex-field) averages 50% of the Brent oil price.

42 Renaissance Capital Tethys Petroleum 24 July 2009

Financial review Investment programme

We estimate that over 2009-2011, TPL’s investment programme will amount to $44.4mn, with an $27.0mn estimated capex in 2009, $10.9mn in 2010 and $6.4mn in 2011. We stress that these estimates are based on the current knowledge of the company’s resource base, which is bound to change once the seismic and drilling results are announced. This may lead to a significant increase in the investment budget in case the results of the drilling programme are successful.

We detail TPL’s estimated 2009 capex programme in Figure 27, which spans the company’s existing properties in Tajikistan, Uzbekistan and Kazakhstan. The aim of the investment programme is to explore near-term development and appraisal opportunities in Tajikistan and Uzbekistan; to further expand the company’s gas development in Kazakhstan; and to acquire additional data to potentially enhance the value of the company’s exploration assets in Tajikistan.

Figure 27: Tethys Petroleum: 2009E investment programme 2009E Total capex 27.0 Kazakhstan 3.7 Kyzyloi development 1.2 Akkulka Phase 2 completion 0.6 Kul-Bas minimum work programme 0.7 Deep exploration well in Akkulka 1.2 Uzbekistan 5.2 New gas lift system 1.2 New deep well in an undrained (salt hazard) area 4.0 Tajikistan 14.0 Two new wells at the Komsomolsk field 7.0 Komsomolsk gas processing plant 2.0 Seismic contract 3.7 Well workovers 1.3 Drilling rigs plus ancillary equipment 3.5 Other 0.7 Source: Company data, Renaissance Capital estimates

We estimate TPL’s priority capex programme in 2009 at $27.0mn, including the following key items:

The commissioning of two new production wells at Kyzyloi and the completion of the Akkulka Phase 2 project, at a total estimated cost of $1.8mn. This will see the connection of the Central Akkulka fields to the Kyzyloi infrastructure, and will require the upgrading of compressors at the tie-in point to Bukhara-Urals trunk line, which is targeted for commercial launch in 3Q09. A minimum work programme for the Kul-Bas exploration block, agreed at $0.7mn for the acquisition and processing of new 2D seismic, potentially leading to the drilling of a deep well next year. The completion of a deep well at Akkulka block (AKDO1) for a total of $1.2mn. Drilling two new directional gas appraisal wells (KOM200 and KOM201) on the East Komsomolsk field in Tajikistan for a total cost of $7.0mn.

Construct the Komsomolsk Gas Processing Plant in Tajikistan for an expected cost of $2mn.

43 24 July 2009 Tethys Petroleum Renaissance Capital

Conduct additional seismic operations under the Bokhtar PSC in Tajikistan for an estimated cost of $3.66mn.

Add a gas lift compression system in the North Urtabulak oil field in Uzbekistan for an estimated cost of $1.2mn.

Drilling a new deep well into an undrained salt hazard area on the North Urtabulak oil field in Uzbekistan for an estimated cost of $4mn.

We also estimate $3.5mn of capex on drilling rigs and ancillary equipment In addition to these identified projects, we believe TPL may pursue a few other opportunities, depending on the availability of funding and drilling results from Kazakhstan, Tajikistan and Uzbekistan. These include: In Kazakhstan, about $8.0mn would be required to complete Phase 3 of the Akkulka project, which involves adding more wells in the Kyzyloi pool, Northeast Kyzyloi pools and Northwest Akkulka pool, as well as the installation of an additional field compression station at the Akkulka cut-in point. In Tajikistan, three additional workovers at the Khoja-Sartez field could be completed for a total cost of $0.6mn, on our estimates. In Uzbekistan, we estimate $2.0mn will be required to expand the current production enhancement contract into the neighbouring Chegara field Beyond the 2009 investment programme, we model only limited further work, including the commissioning of three new wells at the Kyzyloi field in 2010 and continuation with the previously agreed minimum work programme at Kul-Bas and in Tajikistan. These estimates are detailed in Figure 4. As noted earlier, we would not be surprised to see TPL’s capex programme change materially, depending on the results of its drilling and seismic programmes in 2009 and 2010, and its level of access to new funding opportunities. Still, we believe it is prudent to include in our financial model only those projects that are both planned and funded.

44 Renaissance Capital Tethys Petroleum 24 July 2009

Financial forecasts

We detail our production and financial forecasts for TPL in Figures 28-30. Below are the key operating assumptions in our model.

Our revenue forecasts are driven by production and pricing assumptions, described earlier and summarised in Figures 28 and 29. Given our forecast work programme for 2009-2010 and no additional significant investments thereafter, we believe TPL will produce 2.2mnboe in 2009, rising to 3.5mnboe in 2010 before starting to decline in 2011. This will allow the company to generate revenues of $19.7mn in 2009E and $46.5mn in 2010E, based on our current Brent oil price forecasts of $57.5/bbl for 2009 and $70/bbl for 2010.We forecast TPL will report operating costs of $4.9mn (including non-income taxes) and SG&A of $17.1mn in 2009, both fluctuating with inflation and future production levels. Our 2009 lifting costs assumptions are $10.1/mcm for gas and $4.0/bbl for crude.

The only other remaining significant cost item is tax, which includes royalties, mineral extraction tax, and corporate income tax, and is differentiated on a geographic basis:

In Kazakhstan, the royalty payment at the Kyzyloi field currently amounts to 2% of production pursuant to the existing contract. The mineral extraction tax on TPL’s Kul-Bas and Akkulka projects ranges from 0.5% to 1.5% of revenue earned from domestic sales, and is equal to 10% for export sales. Although we expect no income tax to be payable in 2009, in future years corporate income tax will become due on any net income taxable in Kazakhstan at a rate of 20%. An excess profit tax may also become due in the future, which could range from an additional 0-60%. In Tajikistan, the PSC allows for full (100%) cost recovery from up to 70% of total production from oil and natural gas – the maximum allowed under the country’s Production Sharing Law. The remaining production (called Profit Production) will then be split 70:30 between TPL and the Tajik State. Under the Bokhtar PSC, the Tajik state’s share of petroleum production includes all taxes, levies and duties which would otherwise be payable. Accordingly, no additional corporate income tax should be payable on any net revenue earned in Tajikistan under the Bokhtar PSC. In Uzbekistan, incremental oil produced as a result of production enhancement procedures performed by TPL is allocated according to the agreed terms (see Figure 26), and does not attract any tax other than standard income tax at 15%. Our model further incorporates priority capex forecasts as detailed previously. Importantly, we account for the exploration spending on both Kul-Bas and Tajikistan properties, but, at this stage, assume no exploration success and therefore no revenues or cash flows deriving from these additional investments.

45 24 July 2009 Tethys Petroleum Renaissance Capital

Figure 28: Tethys Petroleum – Production forecasts 2007 2008 2009E 2010E 2011E 2012E 2013E 2014E 2015E Production - gas Kyzyloi mmcm 5 171 212 241 222 166 125 94 70 Akkulka mmcm - - 110 252 256 205 164 131 105 Tajikistan mmcm - - - 24 21 16 12 9 7 Total gas output mmcm 5 171 322 517 499 387 301 234 182

Production - oil Uzbekistan kbbls - - 327 475 443 355 284 227 182 Total oil output kbbl - - 327 475 443 355 284 227 182

Total hydrocarbon production kboe 32 1,008 2,219 3,515 3,379 2,632 2,052 1,601 1,251 Total hydrocarbon production kboepd 0.1 2.8 6.1 9.6 9.3 7.2 5.6 4.4 3.4 Source: Company data, Renaissance Capital estimates

Figure 29: Tethys Petroleum – Pricing forecasts 2007 2008 2009E 2010E 2011E 2012E 2013E 2014E 2015E Brent $/bbl 72.7 97.7 57.5 70.0 80.0 80.0 80.0 80.0 80.0 Kyzyloi volumes $/mcm 32.0 32.0 32.0 32.0 32.0 32.0 - - - contracted Kazakh volumes above $/mcm - - 32.0 74.2 86.3 90.8 90.1 89.3 88.4 those contracted Tajik gas contract price TJS/mcm - - 300.0 300.0 300.0 300.0 300.0 300.0 300.0 Tajik gas contract price $/mcm - - 68.3 68.3 68.3 68.3 68.3 68.3 68.3 Realised oil price from $/bbl 36.4 48.8 28.8 35.0 40.0 40.0 40.0 40.0 40.0 North Urtabalak field Source: Company data, Renaissance Capital estimates

Figure 30: Tethys Petroleum – Financial forecasts, $mn

2007 2008 2009E 2010E 2011E 2012E 2013E 2014E 2015E Gas revenues 0.2 5.4 10.3 29.9 32.1 29.8 26.8 20.7 15.9 Oil revenues - - 9.4 16.6 17.7 14.2 11.4 9.1 7.3 Total revenues 0.2 5.4 19.7 46.5 49.8 44.0 38.2 29.8 23.2 Operating costs - 1.3 4.9 8.7 8.9 7.5 6.4 5.2 4.2 SG&A 27.1 17.4 17.1 28.4 28.7 23.5 19.2 15.7 12.9 DD&A 13.1 6.4 8.9 14.0 13.4 10.3 8.0 6.2 4.8 EBIT (40.0) (19.8) (11.2) (4.6) (1.1) 2.6 4.6 2.6 1.3 EBITDA (26.9) (13.3) (2.3) 9.4 12.2 13.0 12.6 8.8 6.1 EBITDA margin, % neg. neg. -12% 20% 25% 29% 33% 30% 26% Interest expense/income (1.7) 0.4 0.2 0.1 0.4 1.0 1.6 2.0 2.4 Other non-operating (0.1) (3.2) ------Pre-tax income (41.8) (22.7) (11.0) (4.4) (0.7) 3.7 6.2 4.7 3.6 Income tax - - - - - 0.7 1.2 0.9 0.7 Net income (41.8) (22.7) (11.0) (4.4) (0.7) 2.9 4.9 3.7 2.9 Source: Company data, Renaissance Capital estimates

46 Renaissance Capital Tethys Petroleum 24 July 2009

Disclosures appendix

Analysts certification and disclaimer

This research report has been prepared by the research analyst(s), whose name(s) appear(s) on the front page of this document, to provide background information about the issuer or issuers (collectively, the “Issuer”) and the securities and markets that are the subject matter of this report. Each research analyst hereby certifies that with respect to the Issuer and such securities and markets, all the views expressed in this document accurately reflect his or her personal views about the Issuer and any and all of such securities and markets. Each research analyst and/or persons connected with any research analyst may have interacted with sales and trading personnel, or similar, for the purpose of gathering, synthesizing and interpreting market information. Any ratings, forecasts, estimates, opinions or views herein constitute a judgment as at the date of this report. If the date of this report is not current, the views and contents may not reflect the research analysts’ current thinking. This document has been produced independently of the Issuer. While all reasonable care has been taken to ensure that the facts stated herein are accurate and that the ratings, forecasts, estimates, opinions and views contained herein are fair and reasonable, neither the research analysts, the Issuer, nor any of its directors, officers or employees, have verified the contents hereof unless disclosed otherwise below. Accordingly, neither the research analysts, the Issuer, nor any of its directors, officers or employees, shall be in any way responsible for the contents hereof, and no reliance should be placed on the accuracy, fairness or completeness of the information contained in this document. No person accepts any liability whatsoever for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection therewith. This document may not be relied upon by any of its recipients or any other person in making investment decisions with respect to the Issuer’s securities. This report does not constitute a valuation of the Issuer’s business, assets or securities for the purposes of the legislation on valuation activities for the Issuer’s country. Each research analyst also certifies that no part of his or her compensation was, or will be, directly or indirectly related to the specific ratings, forecasts, estimates, opinions or views in this research report. Research analysts’ compensation is determined based upon activities and services intended to benefit the investor clients of Renaissance Securities (Cyprus) Limited, RenCap Securities, Inc., Renaissance Capital Limited and any of their affiliates (the “Firm”). Like all of the Firm’s employees, research analysts receive compensation that is impacted by overall Firm profitability, which includes revenues from other business units within the Firm.

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Tethys Petroleum Limited RIC: TPL.TO Renaissance Capital has lead managed, co-lead managed, or acted as global co-ordinator for a listed public offering or the international private placement of the securities or related derivatives of the issuer in the last 12 months. Renaissance Capital expects to receive or intends to seek compensation for investment banking services from the issuer in the next 3 months. Before publication to verify the factual accuracy of information the company reviewed this report with the rating and target price removed.

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