On 10 August, Tethys announced it had terminated financing talks with AGR Energy after AGR asked for changes to terms that were unacceptable to Tethys. At the same time, Tethys received a $5m loan from Nostrum Oil & Gas (NOG) in exchange for a period of exclusivity for NOG to undertake due diligence, to be completed by 24 August. Under the exclusivity agreement, NOG will have two business days to announce an intention to make an offer for Tethys. The indicative proposal from NOG announced by Tethys on 10 August was at C$0.2185/share in cash, with the option for eligible shareholders to take NOG shares, and made subject to completion of due diligence and the making of a formal offer. Tethys has not accepted or agreed to the terms of any offer or proposed offer at this stage.
The indicative bid would see Tethys receive a 15% premium to the price AGR Energy had agreed. Should the bid progress, Nostrum has the resources to invest the necessary capital required to propel Tethys’ assets towards and beyond cash break even. We point investors to our recent update note, where our valuation of 22p/ share is now based on assumed gas price and volume increase in 2016. Should the deal not progress, we are mindful that capital needs for Tethys’ work programme (including the Tajikistan campaign) could lead to material dilution.
NOG approached Tethys for the entire share capital of the company, at a price of C$0.2185/share (equivalent to 11.05p/share). The offer would represent a 15% premium to the price of the (now terminated) agreement with AGR and give the assets the backing of a well-capitalised company with country/regional expertise. Nostrum has provided $5m interim funding to Tethys, which would be repayable in February 2016 at an interest rate of 9%.