Tethys Oil Annual Report 2017

FY2017 Annual Report · Tethys Oil

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Annual Report 2017

Contents

Letter to the shareholders
5
Tethys Oil
6
Expanding resource base
9
Operations
10
Tethys Oil Sustainability Report
22
Corporate governance report
26
Board of directors
32
Executive management
34
The Tethys Oil share
35
Payments to authorities
38
Key financial data
39
Administration report
41
48
Financial statements for the group
Financial statements for the parent company 52
56
Notes
69
Assurance
70
Auditor’s report
74
Definitions and abbreviations
75
Financial information
76
Address

Annual General Meeting
The Annual General Meeting will be held on 9 May
2018, 3:00 p.m. at Grand Hôtel, Södra Blasie-
holmshamnen 8, in Stockholm. To attend the AGM,
please see Tethys Oil’s website, www.tethysoil.com,
for more information.

Another successful year for Tethys Oil

• Expansion of Tethys Oil’s operations back into operatorship

with the award of Block 49.

• Exploration success
resulted in doubling
of combined resources
base of 3P reserves
and 3C contingent
resources

Reserves
mmbo
35

Contingent resources
New discoveries made in 2017, total 31 December 2017

mmbo
30

6.3

27.9

-4.4

6.3

29.7

-4.4

7.1

32.4

Possible

7.9

25.1

-3.5

Possible

3.0

20.0

-2.8

Possible

18.7

-1.7

Possible

Probable

Proven

Possible

Probable

Proven

Probable

Proven

3P 2012

Prod.

Add.

3P 2013

Prod.

Add.

3P 2014

Prod.

Add.

3P 2015

Prod.

Add.

3P 2016

Prod.

Add.

3P 2017

• Excellent

continuation of
the 2P reserves
replacement ratio
– amounted to
114 percent
in 2017

Prod.= Production

Add. = Additions

Reserve replacement ratio
200%

150%

100%

50%

2013

2014

2015

2016

2017

The Blocks 3&4 success story

Tethys Oil acquired an interest in Blocks 3&4 in 2007
and initiated the oil production on the blocks three years
later. Since August 2010 up until year end 2017, Tethys
Oil’s net production, before government take, amounts
to over 18.5 million barrels from Blocks 3&4. This has
been achieved as a result of the skills and hard work
of all the staff of Tethys Oil and the partner group, con-

tractors and suppliers. The oil produced on Blocks 3&4
has created significant values for the people of Oman,
the shareholders of Tethys Oil and the other stakeholders
of the joint venture group, and generated employment.
In 2017, Tethys Oil’s operations in Oman were expanded
when Tethys Oil as operator was awarded the licence for
the exploration Block 49.

Operational and financial summaryMUSD1 (unless specifically stated) (for year period or at year end)20172016201520142013Average daily production, before government take, bbl12,26112,2359,8047,6924,684Average selling price per barrel, USD51.840.558.1103.9106.6Revenues119.387.1107.0149.392.2EBITDA78.244.058.6108.074.8Net cash42.039.051.247.8-14.9Investments in oil and gas properties40.448.540.839.344.1Distribution to shareholders, SEK per share1.004.003.00––Market capitalization, MSEK2,3372,7992,0442,1682,3992P reserves in Oman (mmbo)22.021.418.217.815.22C contingent resources in Oman (mmbo)17.3––––1 Starting 1 January 2016, the Tethys Oil group presents the financial reports in USD. Please note that comparative financials from 2013–2015 have been restated.Letter to the shareholders

Dear friends and investors,
2017 turned out to be a very successful
year for Tethys Oil, where our ability for
organic value creation proved itself and
where we further increased our future
possibilities by adding the exploration
Block 49 to our assets. Through explora-
tion drilling in our existing Blocks 3&4,
we discovered significant amounts of oil
in previously undrilled structures. In fact
so much oil, that our combined resources
base of 3P reserves and 3C contingent
resources more than doubled from 29.7
mmbo to 59.7 mmbo. The increase in
2P reserves represents an internal reserve
replacement ratio of 114 percent. The new
discoveries, Erfan, Ulfa and Samah, added
more than 17 million barrels of 2C con-
tingent resources and the majority of some
five million barrels of 2P reserves added in
2017. A major focus for 2018 will be to
complete the appraisal programmes on
these discoveries and develop them into
new oilfields and in the process mature the
resources into reserves. In addition to our
three successful exploration wells, we also
put five previously undrilled fault blocks
on the Farha South field and one previ-
ously undrilled structure on the Shahd
field into production.

New exploration block in Oman
adds opportunities
In late 2017, our scope of operations
increased when we as operator were
awarded a new exploration license in
Oman. Block 49 is an onshore block that
covers a prospective but still rather unex-
plored area with known oil shows in the
South West of the Sultanate bordering the
Kingdom of Saudi Arabia. Block 49 cov-
ers an area of 15,439 km2 with known oil
shows. Block 49 is the kind of opportunity
Tethys Oil has been pursuing for some
time. We are grateful to the Government
of Sultanate of Oman for giving us the
opportunity to explore this part of Oman.
Tethys Oil’s 10 years of experience in
Oman, local knowledge and strong tech-
nical team, makes Tethys Oil well posi-
tioned to turn Block 49 into a success. The
work programme on the block has already
kicked off with geological studies and
review of legacy seismic data.

Financial performance
We produced 4.48 mmbo in 2017, in
line with the 4.48 mmbo produced dur-
ing 2016. An increase in average realised
price per barrel of 28 percent compared to
2016 contributed to our revenue growth of
37 percent to MUSD 119.3. Our strong
revenues, coupled with our low operating
costs, resulted in an EBITDA of MUSD
78.2, 78 percent higher than in 2016.

Additional distribution to our
Shareholders
The stable production on Block 3&4 pro-
vides us with a good cash flow, with gives
room for both continued investments in
Oman as well as further distribution to
our shareholders. Reflecting this strong
operational and financial position of Tethys
Oil, the board of directors is proposing an
ordinary dividend of SEK 2.00 per share, as
well as an extraordinary distribution of SEK
4.00 per share, in total SEK 6.00 per share.

Looking forward
Given our history of reserve replacement
pared with our recent exploration success, we
see large possibilities for continued organic
growth on Blocks 3&4. Next to bringing our
resources into reserves, the focus on explora-
tion continues. In late 2017, we launched

a 3D seismic study over 1,200 km2 east of
the Ulfa discovery in an area where we so
far have identified more than ten leads based
on the interpretation of old 2D seismic. The
exploration drilling continues into 2018 and
we are also upgrading of the infrastructure
on the fields in preparation for many years
of future production.

We expect our investments in Oman to
amount to MUSD 53–62 in 2018, the bulk
of which will be spent on Blocks 3&4.

We also give a production guidance for
2018, with a monthly average production
of between 11,000–13,000 barrels of oil
per day.

I now put this year’s annual report in your
hands. Stay with us, our success during
2017 shows that Blocks 3&4 still hold sig-
nificant growth potential, on top of almost
ten years’ of continuous development. And
we have an exciting new phase for Tethys
Oil with operatorship of Block 49.

Stockholm in April 2018

Magnus Nordin
Managing Director

Tethys Oil

Tethys Oil is a Swedish oil company with focus on onshore areas
with known oil discoveries. Tethys Oil’s core area is Oman, where
the Company holds interests in Blocks 3&4 and Block 49. The
reserve and resource base on Blocks 3&4 amounts to 22.0 mmbo
of 2P reserves and the 17.3 mmbo of 2C Contingent Resources.
The average oil production in 2017 from Blocks 3&4 amounted
to 12,162 bopd, (Tethys Oil’s share of gross production, before

government take). With a cash flow driven development approach,
Tethys Oil’s main operational target is incremental increases of
production and reserves from the Omani blocks. Tethys Oil also
has onshore exploration licences in Lithuania and France and
some production in Lithuania. The head office is located in Stock-
holm and the Company’s shares are listed on Nasdaq Stockholm
(TETY).

Core area Oman

Oman

Area

Interest

Phase

Blocks 3&4

29,130 km²

30%

Production/
exploration

2P Reserves
(mmbo)

2C Contingent
Resources
(mmbo)

Average daily
production
2017 (bbl)

22.0

17.3

12,162

Block 49

15,439 km²

100%

Exploration

–

Other areas

Lithuania

Area

Interest

Phase

Gargzdai

884 km²

Rietavas

1,594 km²

Raseiniai

1,535 km²

25%1

30%1

Production2

Exploration

1 The interest in the Lithuanian licences are held indirectly.
2 The average daily production from the Gargzdai licence amounted to

99 bopd in 2017.

France

Area

Interest

Phase

Attila

1,986 km²

40%

Exploration (dormant)

Consession boundaries
Sultanate of Oman
Tethys Oil holds 30 percent interest in
Blocks 3&4, where CC Energy Develop-
ment S.A.L. (Oman branch) is the opera-
tor. Tethys Oil also holds 100 per cent
interest and is operator in Block 49. These
blocks cover an area of 44,569 km2, which
makes Tethys Oil one of the largest conses-
sion holders in Oman in terms of acreage.

8
DNO

17
Petrotel

40
Petrotel

مدﻧﺳﻣ

MUSANDAM

ءﺎﺣدﻣ
MADHA
Open

43A
Open

31
ARA

44
ARA

9
Occidental

15
HCF

5
Daleel

27
Occidental

65
Government of Sultanate of Oman

30
Occidental

18
Open

تﺎﯾﻧﺎﻣﯾدﻟا رزﺟ
Juzor ad Daymaniyyat

43B
Open

47
Open

طﻘﺳﻣ
MUSCAT

41
Open

62
Occidental
62 Oil
Open

Vacant
Open

51
Open

42
OOCEP

61
BP

3
CC Energy

48
OOCEP

60
OOCEP

64
Open

59
Open

7
HCF

66
MOL

4
CC Energy

ةرﯾﺻﻣ
Masirah

50
Masirah Oil Ltd

NLS

Ghunaim

36
APEX

38
Open

49
Tethys Oil

57
Open

58
Open

6
PDO

53
Occidental

54
Lasso

55
Petrogas

56
Medco

67
Petrotel

ﺔﻟﻼﺻ
SALALAH

39
Petrotel

تﺎﯾﻧﻼﺣﻟا رزﺟ
Juzor al Hallaniyyat

52
ENI

100

100 km

Source: Sultanate of Oman Ministry of Oil and Gas

Targeting increase in production and reserves

License
acquisition

Production

Exploration

Development

Exploratory
drilling

Appraisal

Tethys Oil aims to have a well-balanced
and self-financed portfolio of oil assets,
offering production, development and
exploration potential. Tethys Oil’s business
model is to be active in the onshore explo-
ration, appraisal, development and pro-
duction stages of the upstream oil and gas
business cycle. The focus is on geographies
with proven petroleum systems, existing
infrastructure, an established institutional
framework and low political risk.

In all its activities Tethys Oil seeks a bal-
anced approach to risk. The strategic deci-

sion to focus purely on onshore explora-
tion and production of conventional oil is
a function of this approach. Onshore oil
exploration involves a lower financial expo-
sure due to lower drilling and development
cost. It also involves lower environmental
and safety risks than offshore drilling,
especially in harsh environments. The stra-
tegic decision to focus on geographies with
known oil discoveries allows Tethys Oil to
lower subsurface risk by seeking to explore
in areas with previously overlooked discov-
eries and plays using modern techniques
and technology.

Tethys Oil’s primary objective is to cre-
ate shareholder value and in doing so the
Company will have a balanced approach
to growth and shareholder distributions,
with a long term capital structure target of
a zero net cash position.

Tethys Oil’s operations should be con-
ducted in an economical, socially and envi-
ronmentally responsible way, to the benefit
of all stakeholders.

A major focus for Tethys Oil in 2018 will be to complete the
appraisal programmes on these discoveries and develop them into
new oilfields and in the process mature the resources into reserves.

Contingent Resources, Blocks 3&4 (Audited)

mbo

New discoveries made in 2017,
total 31 December 2017

10,129

17,264

27,328

The Company’s 2017 and 2016 year-end Reserves reports were
prepared by ERC Equipoise Limited (“ERCE”) and DeGolyer
and MacNaughton Canada Limited (“DMCL”) respectively, as
independent qualified Reserves evaluators. ERCE were engaged to
prepare the 2017 year-end Reserves report following the closure of
DMCL’s office in Calgary.

The audits of the Reserves in Oman has been conducted using
2007 Petroleum Resources Management System (PRMS), spon-
sored by the Society of Petroleum Engineers (SPE), World Petro-
leum Council (WPC), American Association of Petroleum Geolo-
gists (AAPG) and Society of Petroleum Evaluation Engineers
(SPEE).

technology

About Contingent Resources
Contingent Resources are those quantities
of petroleum estimated, as of a given
date, to be potentially recoverable from
known accumulations using established
technology
under
development, but which are not currently
considered to be commercially recoverable
due
to one or more contingencies.
Development of the Contingent Resources
in the new discoveries on Blocks 3&4 will
be contingent on the on-going appraisal
programme and also a work programme
and budget to access these resources.

Expanding resource base

Tethys Oil’s net working interest Reserves in Blocks 3&4 Oman
as per 31 December 2017 amount to 15,559 thousand barrels of
oil (“mbo”) of proven Reserves (1P), 22,044 mbo of proven and
probable Reserves (2P) and 32,414 mbo of proven, probable and
possible Reserves (3P). Tethys Oil’s net working interest resources
oil base in Oman amounts to 10,129 mbo of 1C, 17,264 mbo of
2C and 27,328 mbo of 3C Contingent Resources.

Development of reserves, Blocks 3&4 (Audited)

mbo

Total 31 December 2016

14,222

21,408

29,729

Production 2017

-4,439

Discoveries

Revisions

3,482

2,294

4,879

7,475

196

-350

Total 31 December 2017

15,559

22,044

32,414

In 2017 Tethys Oil replaced 5,776 mbo of 1P Reserves, repre-
senting a 1P Reserve replacement ratio (i.e. percentage of 2017
production replaced) of 130 percent; replaced 5,075 mbo of 2P
Reserves, representing a 2P Reserve replacement ratio of 114
percent; replaced 7,124 mbo of 3P Reserves, representing a 3P
Reserve replacement ratio of 160 percent.

In addition to Reserves, Tethys Oil also has Contingent Resources.
The estimated Contingent Resources are contained in the recent
discoveries made in 2017. Development of the Contingent
Resources in the new discoveries will be contingent on the on-
going appraisal programme and also a work programme and
budget to access these resources.

2P Reserve replacement ratio

2017

2016

2015

2014

2013

Reserve replace
ment ratio, %

114

171

113

193

154

Operations
Tethys Oil’s host country Oman

Oman – part of the oil fairway
Oman, strategically located in the south
eastern part of the Arabian Peninsula, over-
looks the Arabian Sea, the Sea of Oman
and the Arabian Gulf. It also overlooks the
strategic Strait of Hormuz at the point of
entry to the Arabian Gulf. Oman’s neigh-
bours includes United Arab Emirates,
Saudi Arabia and Yemen.

Oman is a beautiful country, combining
white sand beaches, rolling desert dunes
and expansive mountain ranges. Oman
is also the oldest independent state in
the Arab world with a long and exciting
history over thousands of years. Modern
archaeological discoveries suggest that
humans settled in Oman during the Stone
Age, i.e. more than 10,000 years ago.

Oman as an oil country
Most importantly for Tethys Oil, Oman
is also a major oil nation, the largest in
the Middle East that is not a member of
OPEC. Oman has in excess of 5 billion
barrels of estimated proven oil reserves,
ranking Oman as the 7th largest proved
oil reserve holder in the Middle East and
the 22rd largest in the world (BP Statisti-
cal Review of World Energy, June 2017).

Oman’s crude oil and condensate produc-
tion amounted in 2016 to over 1 mmbo
per day. In 2017, it was reduced to approx-
imately 970,000 bopd according to the
production adjustment agreement between
OPEC and certain non-OPEC members.

The largest producer in Oman is PDO,
who holds Block 6. Block 6 covers an
area of 90,874 km2 in north, central and
south Oman. In 2016, 681,000 barrels of
oil and condensate per day were produced
by PDO, corresponding to close to 70
percent of the total production in Oman.
PDO is owned by the Omani government
(60 percent), Shell (34 percent), Total (4
percent), and Partex (2 percent). Occiden-
tal Petroleum (Oxy), is the second-largest
producer in Oman, and produced about
100,000 bopd in 2016. Oxy is produc-
ing from Blocks 9, 27 and 62 in northern
Oman and the Mukhaizna field in Block
53 in the south.

Tethys Oil in Oman
In this highly prospective country, Tethys
Oil has its core area. With the desire and
ambition to become a dedicated and suc-
cessful player in the Omani oil and gas
industry, Tethys Oil acquired interest in

the licence for Blocks 3&4 in 2007. The
blocks cover an area of 29,130 km2 in
the central eastern part of Oman. Tethys
Oil, through its wholly owned subsidiary
Tethys Oil Block 3 & 4 Ltd, has a 30 per-
cent interest in Blocks 3&4. Partners
are Mitsui E&P Middle East B.V. with
20 percent and the operator CC Energy
(Oman branch)
Development S.A.L.
holding the remaining 50 percent. In
December 2017, Tethys Oil’s operations
in Oman expanded when the explora-
tion Block 49 was awarded to Tethys
Oil as operator. Block 49 covers an area
of 15,439 km2 in the south west part of
Oman, bordering Saudi Arabia. Tethys
Oil holds 100 percent of Block 49. The
combined area of Blocks 3&4 and Block
49 amounts to almost 45,000 km2, one of
the largest consession holders in Oman in
terms of acreage.

The partner group on Blocks 3&4 pro-
duced 40,500 bopd in 2017, correspond-
ing to about 4 percent of Oman’s total pro-
duction. The produced oil is lifted at the
Mina Al Fahal Terminal in Muscat, at the
Sea of Oman, and it therefore never passes
through the Strait of Hormuz.

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Muscat

SULTANATE
OF OMAN

Block 3

Block 4

Block 3

Block 49

Salalah

C
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1111

The use of modern technology

In hindsight it might seem like the explo-
ration, development and production ini-
tiation of crude oil on Blocks 3&4 have
been a straightforward and understand-
able process. However, numerous large
companies had explored for oil and gas for
40 years and drilled 27 exploration wells
in these two blocks. Most of the wells
encountered oil, but none were deemed
commercially successful.

What was deemed not hydrocarbon pro-
spective areas by previous operators have
turned commercial with the help of the
collective experience accumulated by the
partner groups’ specialists, new technology
and perseverance.

Production conditions vary from area to
area within the blocks, and when explor-
ing the blocks, it has been of great impor-

tance to adopt a comprehensive approach.
New discoveries have been made in new
areas, but new discoveries have also been
made in formations above or below exist-
ing discoveries.

3D seismic surveys have been a key factor
to the development of the blocks. Seismic
data has revealed that many of the non-
commercial wells drilled by previous oper-
ators would not have been drilled if 3D
data had been available prior to drilling.

In 2012, the Field Development Plan
for Blocks 3&4 was approved and the
exploration and production terms for the
licence were extended until 2040. Pro-
duction has been launched in three areas
on the blocks: Farha South, Saiwan East
and Shahd production areas. Since an
early production system was launched in

(before government

August 2010, Tethys Oil’s share of the
take)
production
has increased from some 200 bopd per
day to around 12,000 bopd in 2017. In
2017, four exploration wells were drilled
which resulted in the three new discoveries
Erfan, Ulfa and Samah.

Despite intense exploration and develop-
ment activity for over nine years, only a
minor part of the blocks has been explored.
Out of the total area of the blocks of 29,130
km2, only 6,000 km2 of seismic data have
been acquired so far. A new 3D seismic
campaign was launched late in 2017. The
survey is planned to cover a total area of
about 1,200 km2 in an area where more
than ten leads has been identified based on
the interpretation of old 2D seismic.

Gharif

Ghudun

Barik
Al Bashir
Miqrat

Amin

Buah

Shuram

Khufai
Masirah Bay

Formations

Geological formations are natural formations
and structures in the rock and ground which
have occurred as a result of usually very slow
geological processes of different kinds and
ages.

A formation is a rock unit that is distinctive
enough in appearance that a geologic mapper
can tell it apart from the surrounding rock layers.
The thickness of formations may range from
less than a metre to several thousand metres.
The term “formation” is often used informally
to refer to a specific grouping of rocks, such as
those encountered within a certain depth range
in an oil well.

On Blocks 3&4, reservoirs
formations
like Khufai, Barik, Lower Al Bashir, Buah and
Masirah Bay have been explored. Tethys Oil
has reserves and production in reservoirs in
the Khufai, Barik, Lower Al Bashir and Buah
formations.

1212

The Farha South production area (Blocks 3&4)

Farha South-3 was the first well to be
drilled on the blocks with Tethys Oil as a
partner in early 2009. Oil on Farha South
was originally discovered in 1986 by a pre-
vious operator, when the Lower Al Bashir
sandstone layer flowed oil. With Farha
South-3, oil was again found in the Lower
Al Bashir layer, which flowed more than
750 bopd on test in 2009. A long term
production test though revealed the reser-
voir to be tight.

The Barik sandstone, at an average depth
of 1,600 metres and overlaying the Lower
Al Bashir, also had excellent oil shows in
the Farha South-3 well. The Barik layer
flowed on test close to 400 bopd and was
put on long term production test where it
proved itself to be a reliable producer.

The oil of the Farha South is not trapped in
one large continuous reservoir. It is instead
trapped in a large number of smaller, usu-
ally adjacent fault blocks. These faults are
relatively small and 3D seismic has been
essential in the mapping of drillable fault
blocks. The only way to confirm that a
fault block is oil bearing is by drilling.

The low content of gas combined with the
absence of a water drive in the Barik layer
make pumps and water injection necessary.
Water is injected into the reservoir via injec-
tion wells in order to increase the pressure
and thereby stimulate production. 26 fault
blocks have by year end 2017 been drilled
and found being oil bearing, with five fault
blocks being added in 2017. 21 fault blocks
have been developed with water injection.

The oil from the Barik layer is of high qual-
ity, more than 40 degrees API and does not
contain any sulphur.

The Farha South-3 well was the start of
what today is the Farha South production
area. The area is today the largest produc-
tion area on the blocks holding 11.8 mmbo
of proved and possible reserves (2P) net to
Tethys Oil, corresponding to 53 percent of
Tethys Oil’s total 2P reserves on the blocks.
The field has produced the majority of
Tethys Oil’s total oil production to date.
In order to generate reserves and future
production, the drilling and developing of
new Farha South fault blocks will continue
in 2018 as well as continued development
of existing producing fault blocks.

Reserves (Audited) mmbo
Net Tethys Oil, 31 Dec 2017

Farha South oil field

9.2

11.8

16.1

Oil producing fault blocks

Oil producing fault blocks with water injection

Drilled fault blocks

Prospective fault blocks

Facts

First well with Tethys Oil as partner: Farha
South-3, 2009

Main producing layer: Barik sandstone at
depth of about 1,600 metres

Oil trapped in smaller, usually adjacent
fault blocks

Oil producing fault blocks: 26

Oil quality: more than 40 degrees API

API stands for the American Petroleum
Institute, which is the major United
States trade association for the oil and
natural gas industry. The API gravity
standard is used to compare densities
of petroleum liquids. It is a measure of
how heavy or light a petroleum liquid is
compared to water. If its API gravity is
greater than 10, it is lighter and floats
on water; if less than 10, it is heavier

and sinks. For example, if one petroleum
liquid is less dense than another, it has
a greater API gravity. Less dense oil or
“light oil” is preferable to more dense
oil as it contains greater quantities of
hydrocarbons that can be converted to
gasoline. The benchmark crude oil Brent
has an API of approximately 38 degrees.
Oman Blend has an API of approximately
32 degrees.

The Shahd production area (Blocks 3&4)

At the Shahd area, oil is extracted at greater
depths than the Farha South field, mainly
from the Lower Buah carbonate at 2,000
metres but also from the Khufai carbon-
ate and the Lower al Bashir sandstone.
The Shahd field was discovered in 2013
through the exploration well Shahd B-1,
in an area not previously explored with
the drill bit. When discovered, the Shahd
field opened up a new producing area, and
delivered substantial increase to Tethys
Oil’s total production and reserves.

The Shahd oil field is located approximately
20 km west of the Saiwan East oil field. The
oil from the Lower Buah layer holds a qual-
ity of approximately 38 degrees API. Like
the Farha South field, this area is also highly
faulted and the Lower Buah layer in the field
is not one large continuous reservoir. The oil
is instead trapped in separate structures. The

only way to confirm that an undrilled struc-
ture is oil bearing is by drilling. So far eight
structures have been put into production
with one being added in 2017.

Like the Fahra South field, water injec-
tion is needed on the Shahd oil field. A
water injection programme was launched
in 2015. Four structures have been devel-
oped with water injection. The geology is
however more complex than in the Farha
South area, and part of the Shahd area has
responded less well to the injection. The
implementation of the Shahd water injec-
tion programme continues and results are
being carefully monitored.

The area holds 5.6 mmbo of proved and
possible reserves (2P) net to Tethys Oil,
corresponding to 26 percent of Tethys
Oil’s total 2P reserves on the blocks.

Facts

Discovery well: Shahd B-1, 2013

Main producing
layer: Lower Buah
carbonate at depth of about 2,000 metres

Production also from Lower al Bashir and
Khufai

Oil producing structures: 8

Oil quality: approx. 38 degrees API

Reserves (Audited)
mmbo Net Tethys
Oil, 31 Dec 2017

Shahd oil field

3.4

5.6

8.9

Oil producing structures

Oil producing structures with water injection

Prospective structures

The Saiwan East production area (Blocks 3&4)

The Saiwan oil field was the second field to
be discovered and put on stream on Blocks
3&4. The field was discovered with the
drilling of the Saiwan East-2 well in 2009.
Here, the oil is produced from the Khufai
carbonate at depths ranging from 1,700 to
2,400 metres. This reservoir was previously
unknown as an oil producer in Oman. The
Saiwan East oil field is located just east of
the Shahd oil field. The oil from the Khufai
layer holds a quality of approximately 32
degrees API.

The field is the smallest so far discovered
on the blocks, holding 1.3 mmbo of
proved and possible reserves (2P) net to
Tethys Oil, corresponding to 6 percent of
Tethys Oil’s total 2P reserves on the blocks.

Large quantities of oil with different gravi-
ties and viscosities, including heavy oil,
have also been found in different forma-
tions on the field. Any potential produc-
tion from the heavy oil in Saiwan East will
require enhanced oil recovery techniques.

Facts

First well with Tethys Oil as partner:
Saiwan East-2, 2009

Main producing layer: Khufai carbonate at
depth of about 1,700–2,400 metres

Oil quality: on average approx. 32 degrees
API

Reserves (Audited)
mmbo, Net Tethys
Oil, 31 Dec 2017

Saiwan East oil field

0.6

1.3

1.8

Growth continues through exploration success

2017 turned into a successful year for
Tethys Oil, with considerable success not
least achieved within one of the most
important activities of the oil industry –
exploration and resulting discoveries. In
2017, the Blocks 3&4 partner group dis-
covered significant amounts of oil in new
structures near the existing producing areas
on Blocks 3&4.

Four exploration wells were drilled in
the 2017 drilling programme. First to
be drilled was the Erfan-1 well, that was
drilled some 6 km southwest of the Saiwan
East area on Block 4. Erfan-1 was a success
and flowed oil to surface from the Khufai
formation. The discovery has been further
appraised during the year by two successful
appraisal wells.

The exploration well Ulfa-1 was drilled on
a structure located on trend with the Farha
South field on Block 3. Ulfa-1 flowed oil

to surface from the Khufai formation. The
appraisal of the Ulfa discovery will start in
2018.

The Samah-1 was drilled on a structure
located 5 km south of the Ulfa discovery
on Block 3. The well was completed late in
2017 with good oil flows to surface.

The fourth exploration well, the V-1 well,
was drilled northeast of the fault block F
in Farha South area. The main target of
the well was to test the Amin formation,
a formation that does not
produce elsewhere on Blocks
3&4, but it did not encoun-
ter any hydrocarbons.

The Erfan, Ulfa and Samah
discoveries are all undergoing
long term production tests
and thus already contribute
to Tethys Oil’s production.

These three discoveries have added more
than 17 mmbo of 2C contingent resources
and the majority of some five mmbo of
2P reserves added in 2017. Development
of the Contingent Resources in the new
discoveries will be contingent on the on-
going appraisal programme and also a work
programme and budget to access these
resources. A major focus for Tethys Oil in
2018 will be to complete the appraisal pro-
grammes on these discoveries and develop
them into new oilfields and in the process
mature the resources into reserves.

Ulfa

Reserves (Audited) mmbo
Net Tethys, 31 Dec 2017

New areas

Contingent Resources (Audited) mmbo
Net Tethys, 31 Dec 2017

New areas

2.3

10.1

3.4

17.3

5.7

27.3

Samah

Seismic mapping, prospects and leads,
Blocks 3&4, Oman

Alam Station &
Pipeline System

BLOCK 4

BLOCK 3

Farha South Field

Ulfa
Samah

Shahd
field

Saiwan East Field

Erfan

BLOCK 3

Ongoing 3D seismic acquisition

3D seismic area

2D seismic area

Fields / structures in production

Prospects

Leads

A new 3D seismic campaign was
launched late in 2017. The survey
is planned to cover about 1,200
km² in an area where more than ten
leads has been identified based on
the interpretation of old 2D sesmic.
The 3D seismic will be essential to
mature as many leads as possible
into drillable prospects.

Vibrator truck

Receiver truck

Geophones (receivers)

GAS

OIL

WATER

Seismic studies

A key exploration activity is the use of geophysical
seismic. The principle behind seismic is that
sound waves travel at different speeds in
different materials and that the sound waves,
at the transition between different materials,
partly bend and reflect back to the surface.
Since rocks have different compositions, it is
possible, based on variations in the speed of
the sound wave and angle, to estimate the
location of structures that could hold oil and/
or natural gas reserves in an exploration area.

Single linear lines of seismic provide information
about the subsurface rocks directly beneath
the seismic equipment. This type of seismic
data is referred to as two-dimensional or 2D
seismic, because it provides data along two
axis, length and depth. If seismic acquisition
is done across multiple lines simultaneously,
the third dimension of width is gained, hence
referred to as three-dimensional seismic, or
3D seismic. 3D seismic offers much greater
density of information about the subsurface
but is much more costly and covers a smaller
area. Since the oil at Blocks 3&4 is trapped in
smaller fault blocks or structures, 3D seismic
has been essential in the mapping of possible
oil bearing structures.

Vibrator trucks at Blocks 3&4

HE Dr Mohammed bin
Hamad Al Rumhi, Minister
of Oil and Gas, and Magnus
Nordin, Managing Director
Tethys Oil, sign the EPSA
for Block 49.

The Montasar Oasis

1818

Block 49 – Tethys Oil’s new licence in Oman

Tethys Oil was awarded a new exploration
license by the Government of Sultanate of
Oman in the fourth quarter 2017. Block
49, Montasar, is an onshore block that cov-
ers a prospective but still rather unexplored
area in the Governorate of Dhofar in the
South West of Oman bordering the King-
dom of Saudi Arabia. Tethys Oil holds 100
percent of the license interest and is the
operator.

The Block 49 licence covers an area of
15,439 km2. More than 11,000 km of 2D
seismic data that has been acquired by pre-
vious operators has been made available to

Tethys Oil. Nine wells have been drilled
by previous operators within the block
boundaries, several of which are reported
to have encountered oil shows. Among the
legacy wells is the first well ever drilled in
Oman in 1955 (Dauka-1).

ernment company has a back-in right of up
to 30 percent against refunding of pro rata
past expenditure. The initial work com-
mitments during the first period include
geological studies, seismic acquisition and
processing and exploratory drilling.

The EPSA for Block 49 covers an initial
exploration period of three years with an
optional extension period of another three
years. In the event of Declaration of Com-
merciality the Term of the Agreement shall
be extended for a period of 15 years which
can be extended for another five years. In
case of a commercial discovery, Oman gov-

After more than ten years in Oman, Tethys
Oil has built a strong technical team. As
operator of the block, Tethys Oil is con-
fident the Company’s Omani experience
will be well suited to make Block 49 into
a success. The work programme is ongo-
ing with geological studies and studies of
legacy seismic data.

1919

Office and staff

Tethys Oil’s staff consist of 22 highly moti-
vated individuals from five different nation-
alities, ranging in age from early twenties to
mid seventies and with a balanced gender
representation (41 percent female and 59
percent male). A majority of the staff have
graduated from universities and colleges, pri-
marily with geosciences, engineering or busi-
ness administration.

Muscat Office
A team of highly trained subsurface special-
ists are based at Tethys Oil’s office in Mus-
cat. As per the Omani government directive
related to the employment, preference is
given to Omani nationals. The Muscat office
is the base for Tethys Oil’s CTO.

In addition, and as part of the Company’s
corporate social responsibility activities,
Tethys Oil is closely coordinating with Sul-
tan Qaboos University in Muscat in offering
Master degree sponsorship to Omani geosci-
ence graduate students.

Stockholm Office
Tethys Oil head office is located in central
Stockholm, Sweden. The Stockholm office is
the base for the Managing Director and the
CFO, along with Tethys Oil’s financial and
communication teams.

2020

Transportation and sales (Blocks 3&4)

All oil produced at the fields are trans-
ported through a pipeline to Qarn Alam
metering station, west of the blocks. Here
the oil volumes are recorded and the qual-
ity is measured. From Qarn Alam, the oil
is transported through the Omani national
pipeline system to the Mina Al Fahal ter-
minal in Muscat. At this terminal, the oil
is lifted and loaded into oil tankers. From
Muscat, the oil is shipped to different des-
tinations in Asia.

Licences in Oman are held through Explo-
ration and Production Sharing Agreements

(EPSA). The EPSA allows the joint opera-
tions partners to recover their costs from
a predetermined percentage of the value
of total oil production, this is referred to
as cost oil. After deducting any allowance
for cost oil, the remaining oil production
is split, also according to a predetermined
percentage, between the government and
the partners. The exact percentages differ
from licence to licence. Until oil has been
found and could be produced on a licence,
no cost could be recovered. If no commer-
cial oil discovery at all is made on an explo-

ration licence, the exploring oil company
stand all the risk.

Tethys Oil sells all of its oil from Blocks
3&4 on a monthly basis to Mitsui Energy
Trading Singapore, which is part of Mit-
sui & Co Ltd. Tethys Oil’s average selling
price is based on the monthly average price
of the two month future contract of Oman
blend as traded on the Dubai Mercantile
Exchange, including trading and quality
adjustments.

Operational areas outside Oman

Tethys Oil’s portfolio also includes Euro-
pean licences, with indirect interests in
three onshore licenses in Lithuania and
one dormant onshore licence in France.

Lithuania, on the Baltic Sea in the north
east part of Europe, is a small oil producer.
Oil was discovered in Lithuania some 60
years ago. From a peak at about 10,000
bopd some 20 years ago, the production
has now dropped to about 2,000 bopd. The
production is located in the western part of
the country. The Lithuania tax regime is

very attractive, so even smaller amounts of
oil can generate good value.

Tethys Oil’s Lithuanian licences cover an
area of some 4,000 km2. The Gargzdai
licence is in production with 99 bopd net
to Tethys Oil in 2017. The oil produced
at the Gargzdai licence has an API of
about 42 degrees and is normally sold on a
weekly basis to a nearby refinery.

The Rietavas and the Raseiniai licences are
exploration licences. Since the acquisition

of the licence interests in 2012, several
exploration wells have been drilled, which
have confirmed the presence of oil in the
area, and seismic studies been conducted.

The Attila licence is located some 250 km
east of Paris. Tethys Oil is reviewing the
prospectivety and potential for additional
work at the licence.

n
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B
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P

2121

Tethys Oil Sustainability Report

The Tethys Oil Sustainability Report 2017
comprises Tethys Oil AB (corporate iden-
tity number 556615-8266) and its sub-
sidiaries (together “the Group” or “Tethys
Oil”) and has been prepared in accordance
with the regulations in chapter 6 and chap-
ter 7 of the Annual Accounts Act.

Tethys Oil is an oil and gas exploration and
production company with a primary objec-
tive of creating shareholder value working
across the whole upstream industry lifecy-
cle of exploration, appraisal, development
and production. The Group considers a
sustainable approach to its operations and
projects to be critical to deliver long-term
shareholder value.

A central tenet of Tethys Oil’s business
model is to explore for and produce oil and
gas in an economically, socially, and envi-
ronmentally responsible way. The Group
applies the same standards to its activities
worldwide to satisfy both its commer-
cial and ethical requirements. Tethys Oil
strives to continuously improve its perfor-
mance and to act in accordance with good
industry practice and high standards of
corporate citizenship.

Tethys Oil seeks to be a sustainable and
profitable business
long-term. Sustain-
ability means running a business that is
not only profitable but in tune with the
requirements and expectations of all stake-
holders both inside and outside the Group.

Business model
Tethys Oil’s business model is to be active
in the onshore exploration, appraisal,
development and production stages of
the upstream oil and gas business cycle.
The focus is on geographies with proven
petroleum systems, existing infrastructure,
an established institutional framework and
low political risk.

In all its activities Tethys Oil seeks a bal-
anced approach to risk. The strategic deci-
sion to focus purely on onshore explora-
tion and production of conventional oil is
a function of this approach. Onshore oil
exploration involves a lower financial expo-
sure due to lower drilling and development
cost. It also involves lower environmental
and safety risks than offshore drilling,
especially in harsh environments. The stra-
tegic decision to focus on geographies with
known oil discoveries allows Tethys Oil to
lower subsurface risk by seeking to explore
in areas with previously overlooked discov-
eries and plays using modern techniques
and technology.

Policies and work within
Sustainability
Tethys Oil has adopted a code of conduct
and requires all staff, management and
board of directors to act in accordance
with that code.

Sustainability and Social Responsibility
has been high on the agenda for Tethys
Oils management during 2017. During
the course of 2017, Tethys Oil has worked
on renewing and updating its policies, pro-
cedures and operating framework to ensure
that high operating standards are upheld
and that the Group is in compliance with
regulatory requirements and the demands
of the investment community as well as
other stakeholders. The result of this is a
new and updated code of conduct as well
as policies within the following areas:

• Health, Safety and Environment
• Anti-Fraud
• Anti-Corruption
• Diversity and Non-discrimination
• Whistleblowing

Tethys Oil staff will be continuously
trained in the new policies through policy
workshops to ensure understanding of
Tethys Oil policy framework and allow the

staff to contribute to the Group’s contin-
ued development as a responsible actor.

Health, Safety and Environment
Tethys Oil’s activities are subject to the
Health, Safety and Environmental (HSE)
risks inherent in the oil industry. The
Group recognises that the prevention of
accidents and ill health is critical to the
efficient operation of its business and
therefore have established a Health, Safety
and Environment policy as well as proce-
dures. The ultimate responsibility for HSE
lies with the Managing Director. It is, how-
ever the responsibility of all Tethys Oil staff
to ensure compliance with the Group’s
policies and procedures for safe operations.

Tethys Oil has a responsibility for all activ-
ities that are a consequence of the Group’s
operations.

At a minimum, it is Tethys Oil’s duty to
ensure compliance with all relevant laws and
governmental instructions concerning HSE.

The genuine care for HSE is a core value for
the whole Group and shall be transparent
through all Tethys Oil’s plans and actions. It
is the Group’s objective to provide a healthy
and safe working environment for employ-
ees, contract personnel and members of the
general public who might be affected by the
activities of its operations. The Group will
have a systematic approach to HSE-man-
agement to achieve continuous improve-
ment toward the goal of no harm to people,
no accidents, no spills and strive for mini-
mum impact on the environment, thereby
contributing to sustainable development.

Until the award of Block 49 in Oman in
December 2017 all Tethys Oil’s activities
were non-operated and the operators of
the assets ultimately responsible for imple-
menting HSE policies and procedures. As
a non-operating partner, it is Tethys Oil’s
management’s responsibility to actively

Overview of Tethys Group Policy Framework

Code of Conduct

HSE policy

Diversity policy

Whistleblower policy

IT policy

Anti-corruption policy

Anti-fraud policy

Info and insider policy

encourage the operator to apply Tethys
Oil’s HSE policy where possible. This work
is mainly carried out within the framework
of the joint management committee.

As part of the work to become an opera-
tor Tethys Oil has developed an opera-
tions management system which includes
policies and procedures within the area
of Health, Safety and Environment. The
new HSE policies and procedures has been
implemented in accordance with Interna-
tional Association of Oil and Gas Produc-
ers (IOGP) standards.

Environment
Tethys Oil has a stated ambition to explore
for and produce oil and gas with a mini-
mum of environmental impact. In its
engagement as 30 percent interest holder
in Blocks 3&4, Tethys Oil has acted for
improved environmental focus in opera-
tions and proactive work to minimise
environmental impact, not least the risks
for spills and damage.

In Block 49 all exploration activities on
the license will be evaluated from an envi-
ronmental impact perspective in order to
ensure that operations are conducted in
accordance with Tethys Oil’s policies and
procedures including completion of envi-
ronmental impact assessments.

With regards to emissions the majority of
Tethys Oil’s emissions come from its 30
percent non-operated interest in Blocks
3&4. The main sources of emissions are
the flaring of associated gas and the use
of diesel to run generators for power. The
emissions by category are outlined below.
Emissions data is only available for 2017
following a thorough development of
measurements resulting in more compre-
hensive data collection and as a result there
is no comparable historical data.

Spills & Hydrocarbon releases Blocks 3&4
Two recordable spills were reported during
2017.

Actions
During 2017 significant actions were taken
to improve environmental conditions on
Blocks 3&4, in particular with regards to

handling of hazardous chemicals, and pre-
vention of spills.

All operations in the field are preceded by
an environmental impact assessment (EIA)
to be filed with the ministry of Oil and Gas.

During 2017 a project was initiated to
investigate the handling of the associ-
ated gas produced as a by-product of the
extracted oil. The aim of the project is to
utilise the associated gas for power genera-

tion instead of flaring, and thus displacing
the majority of the diesel-powered genera-
tors. This would significantly reduce die-
sel consumption and related emissions.
A front-end engineering design (FEED)
study has been commissioned for 2018
for what could potentially be a significant
multi-year project.

Health & Safety
Tethys Oil is committed to ensuring that
all operations that the Group conducts are

HSE Data Blocks 3&4 onshore Oman. Tethys Oil holds 30 percent interest.
Operator is CC Energy Development S.A.L. (Oman branch).

Tethys Oil’s share of atmospheric emissions from Blocks 3&4, Oman

Emissions via flaring and/or utilisation
(tonnes equivalent)

Combined Stationary and mobile emissions
from Diesel Fuel (tonnes equivalent)

Sulphur Dioxide

Nitrogen Dioxide

Carbon Monoxide

Carbon Dioxide

Methane

Nitrous Oxide

108

Carbon Dioxide

28,545

Methane

166

Nitrous Oxide

73,155

981

Water Usage Blocks 3&4
On Blocks 3&4 water is produced to be used for pressure support through reinjection
into the oil reservoirs.

(cubic metres)

Total Produced Water

Produced water –
reinjected

Produced water –
Evaporated

Blocks 3&4

1,465,208

1,313,289

154,088

Blocks 3&4 Health and safety

Unit of measure

2017 Actual

2016 Actual

Fatalities

Lost Time Incidents

Number

Lost Time Incident Frequency

#/mm Hrs

Total Recordable Cases

Number

Total Recordable Case Frequency

#/mm Hrs

Road Traffic Accidents

Number

Road Traffic Accident Frequency

#/mm km

0.94

1.50

0.34

–

0.58

1.56

0.27

Lost Time Incident (LTI) – is the sum of fatalities
and injuries where the impacted person is unable
to return to work the day (or days) after the injury.

Total Recordable Cases (TRC) – is the total
number of incidents reported including Lost Time
Incidents and more minor incidents which include
restricted work capacity and medical treatment.

done in a safe manner with genuine regard
for the wellbeing of the staff, contractors
and third parties. To ensure compliance
with Tethys Oil’s HSE policy, Tethys Oil
must foster a culture of transparent deci-
sion making, responsibility and thorough
planning. The Tethys Oil HSE policy
applies not only to Tethys Oil operations
but Group representatives should work to
ensure that the same standards are applied
in projects and joint ventures where the
Group has a non-operated interest.

Actions
The Tethys Oil board has raised its HSE
concerns with the joint venture and is
closely monitoring the further enhance-
ment of HSE standards.

Social Responsibility & Our
Relations to Society
Tethys Oil’s activities shall strive to create
shared prosperity between stakeholders.
Tethys Oil seeks to respect and gain the
respect of the people and governments of
countries in which the Group operates.
Good relations with host countries are pre-
requisites to Tethys Oil’s business. Wher-
ever the operations are conducted, the sov-
ereignty of the state is respected and the
rule of law, through Tethys Oil’s example,
should be observed and promoted.

Tethys Oil shall aim to optimise local con-
tent in all aspects of its business and to
promote the creation of in-country value.

The Group has a commitment to have
a beneficial impact on the community
through engaging in a dialogue with the
Group’s stakeholders, whether these are
local communities or relevant interest
groups, such as local governments and civil
society. The Group engages in an active
relationship with the stakeholders in order
to understand the concerns surrounding
the Group’s operations and jointly set goals.
Local people and their traditions shall be
respected. Tethys Oil strives to encourage
local employment and, where appropriate,
work with local communities to improve
their health, skills and welfare. The Group
shall further, where appropriate, engage in
capacity building, through the transfer of
skills and technologies. Tethys Oil shall
refrain from any actions that could have

implications for tribal, internal, or other
armed conflicts or acts of violence.

CSR Activities
During the course of 2017 Tethys Oil
has provided financial support to baby
care center in Qal`at al `Awamir, Oman.
The center allows female teachers to place
their below school-age children in day-care
helping them to work in order to support
their families.

Tethys Oil has also sponsored nursing
students at Sultan Qaboos University
(SQU). In 2017 a Nursing Get-together
was organised to facilitate collaboration
among the nursing students at SQU and
the various nursing institutions in Oman
and exchange of experiences and expertise
between academia and practical institu-
tions related to Nursing.

For several years Tethys Oil has offered
scholarships to master students in Geo-
science at SQU. The scholarships give
more students access to higher education,
demonstrates Tethys Oil’s long-term com-
mitment to Oman and has improved the
Group’s ability to recruit local talent. Dur-
ing 2017 Tethys Oil offered two scholar-
ships at SQU.

In 2018 Tethys Oil expects to continue its
local CSR activities with focus on activities
around Block 49.

Blocks 3&4
The joint venture partnership for Blocks
3&4 have an active In Country Value
(ICV) and Corporate Social Responsibil-
ity (CSR) Program. During 2017 a total
of USD 388,435 was spent on various
ICV and CSR projects including a health
awareness campaign in Mahout, building a
Theatre for the A-Nujabaa School in Adam
and sponsoring a Job Seekers Employabil-
ity Development Program in Muscat.

Our People
Tethys Oil recognises that its performance
as a Group is dependent upon the perfor-
mance of its employees as individuals. The
Group’s employees are the principle asset
of the Group and therefore aims to achieve
high employee satisfaction and high stand-
ards of performance. Tethys Oil shall

respect and promote employee’s rights,
including freedom of association and the
right to collective bargaining. Tethys Oil
shall further offer rewarding working con-
ditions and realise each employee’s indi-
vidual potential through training and job
promotion. The use of underaged bonded
or forced labour, direct or indirect should
never occur.

Tethys Oil has implemented a Diversity
and non-discrimination policy to ensure
that the diversity of the Tethys Oil staff is
respected and that all forms of discrimina-
tion are prevented.

Tethys Oil’s Position on Diversity and
Discrimination
• Tethys Oil seeks to recruit and retain the
best possible candidates for all positions
on the basis of merit regardless of gen-
der, sexual orientation, age, disability,
nationality, race or religion.

• The cultural diversity of the Group’s
employees is an asset and shall be respected.
Furthermore, Tethys Oil will not accept
any form of harassment or discrimination
of its employees for any reason.

• Tethys Oil’s staff shall always act with
the utmost integrity and respect when
dealing with colleagues, partners and
society.

• Tethys Oil’s staff, partners and contrac-
tors should feel free to voice concern or
report instances of discrimination with-
out fear of recrimination or harassment.

The diversity and non-discrimination
policy covers all aspects of the company’s
interaction with its employees including,
but not limited to, recruitment, retention
and remuneration.

Suspected cases of discrimination are to be
reported to the nearest supervisor or using
the Whistleblower procedure. In 2017 no
cases of discrimination were reported.

In 2017 Tethys Oil had a total of 22
employees (average of 19 full time employ-
ees) of five nationalities, and a balanced
gender representation of (41 percent
female and 59 percent male).

Human Rights
Tethys Oil has committed firmly to the
United Nations Global Compact (stated
further in the Code of Conduct), as well
as to follow the United Nations Guiding
Principles on Business and Human Rights.
The Group has made a commitment to
support internationally recognised human
rights wherever it operates.

Human Rights are to be understood as those
referred to in the Universal Declaration of
Human Rights (UDHR), the International
Covenant on Civil and Political Rights and
the International Covenant on Economic,
Social and Cultural Rights and in the Inter-
national Labour Organisation’s (ILO) Con-
ventions, and in relations to business activi-
ties, in the Global Compact, the OECD
Guidelines for Multinational Enterprises,
and the UN Guiding Principles.

While the Group respects all human rights,
it focuses primarily on those human rights
that potentially may be most impacted by
its operations. The Group furthermore
expects all its affiliated partners to respect
human rights and to observe highest stand-
ards of professional integrity.

In planning of operations, review of new
ventures and investment projects, if there is a
perceived risk of negative impact on human
rights, a thorough review is conducted. Dur-
ing 2017 Tethys Oil did not find that any of
its actions constituted a risk to human rights.
No grievances constituting abuses of human
rights by the company have been reported.

AntiCorruption, Fraud and
Whistleblower Protection
Anti-Corruption
Tethys Oil has zero tolerance for corrup-
tion. It is strictly prohibited for Tethys Oil
staff or contractors to give, authorize, offer,
promise, request, agree or receive gifts,
hospitality and entertainment to improp-
erly influence or reward acts or decisions,
or as an actual or intended compensation
for any improper benefit.

In order to prevent the misuse of pub-
lic office or company position or power
for private gain, or the misuse of private
power in relation to business, Tethys Oil
has adopted an anti-corruption policy and
clear procedures for employees to report
suspected cases of corruption. The policy
and procedures have been drawn up in
accordance with Transparency Interna-
tional’s Business Principles for Countering
Bribery.

Tethys Oil recognizes that accepting or
offering gifts or hospitality of moder-
ate value is customary and in accordance
with local business practice in many of the
countries that it operates. As a result of this
Tethys has implemented a policy requiring
all staff, or contractors who receive or offer
gifts on behalf of Tethys Oil should seek
approval from their supervising manager
and that a record is kept of donor, recipi-
ent as well as value.

During 2017 no cases of suspected corrup-
tion have been reported.

Anti- Fraud and Protection of Group
Assets
During the course of the year Tethys Oil
has also implemented an anti-fraud policy,
aimed at safeguarding the Group and its
staff from fraud and dishonest behavior.
For the purposes of the policy Tethys Oil
has defined fraud as:

“The theft or misuse of Tethys Oil’s funds or
other resources, by an employee or a third
party which may or may not involve the mis-
statement of financial records to conceal theft
or misuse.”

The
is
implementation of the policy
aimed at improving all Tethys Oil staff’s
knowledge and understanding of what
constitutes fraud, how to prevent, detect
and report suspected fraud and where the
responsibilities for investigation lies. The
policy also aims to assist in creating an
atmosphere of openness and trust where
staff feel comfortable and able to raise con-
cerns and sensibly and responsibly.

Whistleblower
Employees are encouraged to report sus-
pected or known cases, which they believe
may be illegal or a violation of this Code
of Conduct or any Group policies and
as a result Tethys Oil has implemented a
Whistleblower Policy. The aim of the policy
is provide an avenue for Staff to raise con-
cerns about improper, unethical or illegal
conduct and to obtain reassurance that they
will be protected from reprisals or victimi-
sation for whistleblowing in good faith.

This is a literal translation of the Swedish original report

Auditor’s report on the statutory sustainability report
To the general meeting of the shareholders in Tethys Oil AB
(publ), corporate identity number 556615-8266.

in scope than an audit conducted in accordance with International
Standards on Auditing and generally accepted auditing standards
in Sweden. We believe that the examination has provided us with
sufficient basis for our opinion.

Engagement and responsibility
It is the board of directors who is responsible for the statutory
sustainability report for the year 2017 on pages 22-25 and that it
has been prepared in accordance with the Annual Accounts Act.

The scope of the audit
Our examination has been conducted in accordance with FAR’s
auditing standard RevR 12 The auditor’s opinion regarding the
statutory sustainability report. This means that our examination of
the statutory sustainability report is substantially different and less

Opinion
A statutory sustainability report has been prepared.

Stockholm, 4 April 2018
PricewaterhouseCoopers AB

Johan Malmqvist
Authorized Public Accountant
Lead Partner

Ulrika Ramsvik
Authorized Public Accountant

Corporate governance report

systems

Corporate governance practices refer to
through
the decision-making
which owners, directly or indirectly, con-
trol a company. Tethys Oil is a publicly
traded company listed on Nasdaq Stock-
holm, Mid Cap. Tethys Oil adheres to the
Swedish Code of Corporate Governance
(“the Code”). The Code is published on
www.bolagsstyrning.se, where a descrip-
tion of the Swedish Corporate Govern-
ance model can be found. This Corporate
Governance Report 2017 is submitted
in accordance with the Swedish Annual
Accounts Act and the Code. It explains
how Tethys Oil has conducted its corpo-
rate governance activities during 2017.
Tethys Oil does not report any deviations
from the Code, Nasdaq Stockholm’s rule
book for issuers, recommendations from
the Swedish Securities Council, decisions
from Disciplinary Committee at Nasdaq
Stockholm or statements from the Swed-
ish Securities Council. The report has been
examined by the Company’s auditors,
please see page 31.

External and internal framework
for governance in Tethys Oil
External:
• Swedish Companies Act
(e.g. Swed-
legislation
• Accounting
ish accounting act, Swedish Annual
Accounts Act and IFRS)

• Nasdaq Stockholm’s rule book for issuers
• Swedish Code of Corporate Governance

Internal:
• Articles of Association
• Board instructions, Rules of procedures
• Polices such as Administration policy,

Information policy, CSR policy etc

Shareholders
Tethys Oil’s shares are traded on Nasdaq
Stockholm. At year end 2017 the share
capital amounted to MSEK 5.9, repre-
sented by 35,543,750 shares, each with a
par value of SEK 0.17. All shares represent
one vote each. At 31 December 2017, the
number of shareholders was 5,043 (5,529).
Of the total number of shares, foreign
shareholders accounted for approximately
67 percent. Lansdowne Partners LLP is the
only shareholder with a holding in excess
of 10 percent of shares and votes, with a
holding of 3,593,699 shares representing

10.1 percent of shares and votes. Tethys
Oil’s holding of its own shares amounted
to 1,644,163 (4.63%). For further infor-
mation on share, share capital develop-
ment and shareholders, see pages 35–37
and Tethys Oil’s website.

Annual General Meeting
The Annual General Meeting (“AGM”)
must be held within six months of the close
of the fiscal year. All shareholders who are
listed in the share registry on the record
date, and who have notified the Company
of their participation in due time, are enti-
tled to participate in the AGM. The AGM
was held in Stockholm on 17 May 2017.
179 shareholders were represented at the
AGM, representing 41 percent of the votes
and share capital in the company. The reso-
lutions passed by the meeting included the
following:

• Adoption of the income statements and
balance sheets for 2016 and discharge of
liability for the board of directors and
the Managing Director

• Re-election of Per Brilioth, Dennis Har-
lin, Magnus Nordin, Katherine Støvring
(since resigned) and Geoffrey Turbott
and election of Robert Anderson, Alex-
andra Herger and Per Seime as directors.
Dennis Harlin was elected chairman of
the board

• The chairman will be paid a fee of SEK
595,000 and each AGM elected mem-
ber not employed by the company will
be paid SEK 265,000. The chairman of
the audit committee will be paid SEK
90,000 and the chairman of the remu-
neration committee and the possible
technical committee will be paid SEK
65,000 respectively and each of the
committees’ members will be paid SEK
35,000 per committee assignment. The
total fees for committee work, includ-
ing committee chairmen fees shall not
exceed SEK 535,000. In addition, the
AGM approved a frame of SEK 250,000
for work by directors outside of regular
board work, payable following resolu-
tion of the board of directors

• Auditors will be paid as invoices are

approved

• Principles of remuneration to senior

executives

• Incentive programme as part of the
remuneration package to employees.
Issuance of 350,000 warrants where
each warrant entitled to subscription to
one new share in Tethys Oil. The war-
rants have a three year duration and the
strike price of the warrants was SEK
85.50 per share

• Authorization for the board to decide on
repurchasing own shares up to not more
than one-tenth of all outstanding shares
• Rules for the appointment and work of

the nomination committee

• Authorization for the board to resolve
to issue new shares and/or convertibles
with consideration in cash and/or with
consideration in kind or by set-off, to
enable the company to make business
acquisitions and to raise capital for the
Company’s business operations

• Authorization for the board to resolve to
purchase own shares in Tethys Oil AB

The minutes recorded at the AGM
can be found at Tethys Oil’s website,
www.tethysoil.com.

Nomination process
In accordance with the nomination com-
mittee process approved by the AGM
2017, the nomination committee for the
AGM 2018 consists of members appointed
by three of the largest shareholders of the
Company based on shareholdings as per 30
September 2017 and the chairman of the
board. The names of the members of the
nomination committee were announced
and posted on the Company’s website on
3 November 2017, i.e. within the time
frame of six months before the AGM as
prescribed by the Code.

The nomination committee for the AGM
2018 has held five meetings during its
mandate and informal contacts have taken
place between such meetings. The nomina-
tion committee report, including the final
proposals to the AGM 2018, is published
on the Company’s website together with
the notice of the AGM.

The Nomination Committee’s assignment
is to produce proposals for the following
matters, which will be presented to the
AGM for resolution:

• AGM chairman
• Board members
• Chairman of the board
• Board fees and remuneration for com-
mittee work allocated to each member

• Auditors and auditor’s fee
• Proposal regarding procedures and prin-
ciples for establishing a nomination
committee and issues pertaining thereto
for the AGM 2019

The work of the nomination committee
included evaluation of the board’s work,
competence and composition, as well as
the independence of the members. The
nomination committee also considered
other criteria such as the background and
experience and has also taken part of the
board evaluation. Further, the nomination
committee has considered the Company’s
Board diversity policy in its proposal for
board members. The Board diversity policy
is available on the Company’s website.

The nomination committee for the AGM
2018 consisted of the following members:

• Erik Norman, chairman of the nomina-
tion committee, representing himself,
• Viktor Modigh, representing Magnus

Nordin

• Mikael Petersson, representing Lans-
downe Investment Company Limited,
and

• Dennis Harlin, chairman of Tethys Oil

The board and its work
Board composition
The articles of association stipulate that the
board of directors of Tethys Oil shall con-
sist of no less than three and no more than
ten board members with no more than
three deputy board members. Board mem-
bers are elected for a maximum of one year
at a time. The board of directors of Tethys
Oil since the AGM 2017 has consisted of
eight directors and no deputies. Dennis
Harlin has been chairman of the board.
Seven board members are independent
from the Company, the Company’s man-
agement and the Company’s larger share-
holders, and eight board members are
independent from larger shareholders.

For further information on the board
members, please see pages 32–33.

Board of directors elected at the AGM 2017

Member

Elected

Position

Year of
birth

Nationality

Independent in
relation to the
Company

Independent
in relation to
the Company’s
larger
shareholders

Dennis Harlin

2015

Chairman

1941

Sweden

Robert Anderson

2017

Member

1953 United Kingdom

Per Brilioth

2013

Member

1969

Sweden

Alexandra Herger

2017

Member

1957

United States

Magnus Nordin

2001

Member

1956

Sweden

Per Seime

2017

Member

1946

Norway

Katherine
Støvring1

2012

Member

1965

United States

Geoffrey Turbott

2015

Member

1963

New Zeeland

1 Stepped down from the board in March 2018

Yes

Rules of procedure
The board of directors’ work is governed
by annually adopted rules of procedure.
The board of directors supervise the work
of the Managing Director by continually
following up the Company’s operations.
The board of directors also ensures that the
Company’s organisation, administration
and control are properly managed. The
board of directors adopts strategies and
goals and resolves on larger investments,
acquisitions and disposals of business
activities or assets. The board of directors
also appoints the Managing Director and
determines the Managing Director’s salary
and other compensation.

The chairman of the board of directors
supervises the work and is responsible for

it being well organised and efficient. This
entails, among other things, continually
following the Company’s operations in
contact with the Managing Director and
being responsible for other board mem-
bers receiving the information and docu-
mentation needed to ensure high quality
discussions and well-founded decisions
by the board of directors. The chairman is
responsible for the evaluation of the board
of directors’ and the Managing Director’s
work and represents the board of directors
in ownership matters.

According to the current rules of proce-
dure the board of directors shall, after the
constituent board meeting following the
AGM, hold a minimum of seven ordinary
meetings during a calendar year.

Timing and main items for ordinary meetings following AGM

May

August

Constituent meeting

Second quarter report

September–November

Strategy

November

December

February

April

May

Third quarter report

Budget approval

Fourth quarter and year-end report

Annual report and AGM

First quarter report

Assessment of the board’s work
The chairman of the board is responsible
for assessing the board’s work including the
performance of individual board members.
This is done on an annual basis through
a questionnaire which is anonymous for
the directors. The assessment focuses on
such factors as the board’s way of work-
ing, number of meetings and effectiveness,
time for preparation, available competence

and individual board members influence
of the board’s work. The nomination com-
mittee takes part of the results, and it is a
component in the nomination commit-
tee’s work to submit proposals concerning
board members.

The board’s work in 2017
During 2017 the board held 14 meetings
of which seven were ordinary and seven

extraordinary, in person, via telephone
and per capsulam. Attendance at the meet-
ings are shown in the table. Secretary at
the meetings was Chief Financial Officer
(“CFO”) Jesper Alm. Prior to each meet-
ing board members were provided with
an agenda and written information on the
matters to be covered. Each meeting has
included the possibility to discuss without
management representatives being present.

Board of directors and committee attendance

Member
Audit
committee1

Member
Remuneration
committee1

Member
Technical
committee1

Board
meetings

Audit
committee
meetings

Remuneration
committee
meetings

Technical
committee
meetings

Board member

Dennis Harlin (Chairman)

Robert Anderson2

Per Brilioth

Alexandra Herger2

Magnus Nordin

Richard Rettig3

Katherine Støvring4

Per Seime2

–

Yes

–

14/14

Yes (Chairman)

9/9

–

Yes

Yes (Chairman)

–

Yes

–

12/14

7/9

14/14

4/5

10/14

7/9

14/14

3/3

–

3/3

–

3/3

5/6

3/3

6/6

4/5

–

3/3

–

3/3

3/5

2/2

–

4/4

–

4/4

–

4/4

Geoffrey Turbott

Yes (Chairman)

–

Yes

1 Members as from the AGM 2017
2 Elected to the board at the AGM 2017
3 Stepped down from the board at the AGM 2017
4 Stepped down from the board in March 2018

Board committees
In order to increase the efficiency of its
work and enable a more detailed analysis of
certain matters, the board has formed com-
mittees: Audit, Remuneration and Techni-
cal. Committee members are appointed
within the board for a period of maximum
until the next AGM. The committee’s
duties and authorities are regulated in the
annually approved rules of procedure for
each committee. The committees perform
monitoring and evaluations resulting in
recommendations to the board of direc-
tors, where all decision making takes place.

Audit committee
The board has established an audit com-
mittee for the period up to and includ-
ing the AGM 2018, consisting of Geof-
frey Turbott as chairman and Katherine
Støvring (since resigned) and Per Seime
as members of the committee. The audit
committee convened six times in 2017.
The work has mainly focused on supervis-

ing the Company’s financial reporting and
assessing the efficiency of the Company’s
financial internal controls, with the pri-
mary objective of providing support to
the board in the decision making processes
regarding such matters. The audit commit-
tee also regularly liaises with the Group’s
statutory auditor as part of the annual
audit process and reviews the audit fees
and the auditor’s independence and impar-
tiality. The Audit committee reports to the
board, normally in conjunction with the
following board meeting.

Seime as chairman and Katherine Støvring
(since resigned) and Dennis Harlin as
members. The remuneration committee
convened five times in 2017. The work has
mainly focused on establishing principles
for remuneration to management, to mon-
itor and evaluate variable remuneration
and the application of the guidelines for
remuneration as well as to construct and
propose an incentive programme to the
AGM 2018. The remuneration committee
reports to the board, normally in conjunc-
tion with the following board meeting.

Members of the committee during 2017
prior to AGM 2017 consisted of Geoffrey
Turbott (chairman) with Dennis Harlin,
Per Brilioth, Richard Rettig and Katherine
Støvring as members.

Members of the committee during 2017
prior to AGM 2017 consisted of Per Brili-
oth (chairman) with Dennis Harlin, Rich-
ard Rettig, Katherine Støvring and Geof-
frey Turbott as members.

Remuneration committee
The board has established a remuneration
committee for the period up to and includ-
ing the AGM 2018, consisting of Per

Technical committee
The board has established a technical com-
mittee for the period up to and includ-
ing the AGM 2018, consisting of Robert

Anderson as chairman and Alexandra
Herger and Geoffrey Turbott as mem-
bers. The technical committee convened
four times in 2017. The work has mainly
focused on following up on work programs
and budgets, evaluation of and recommen-
dation on appointment of independent
qualified reserve auditor, oversight of the
reserves audit process, review of operations
management systems and technical review
of new ventures projects. The technical
committee reports to the board, normally
in conjunction with the following board
meeting.

The technical committee was established
in conjunction with the AGM 2017.

External auditors of the Company
Statutory auditor
Pursuant to its Articles of Association,
Tethys Oil must have one or two auditors,
and no more than two deputies. A regis-
tered firm of auditors may be appointed
as the Company’s auditor. Tethys Oil’s
auditor
is PricewaterhouseCoopers AB
with Johan Malmqvist as Lead partner
and Ulrika Ramsvik as co-signing auditor.
PricewaterhouseCoopers AB was elected as
the Company’s auditor at the AGM 2017.

Tethys Oil’s auditor: Pricewaterhouse-
Coopers AB

Johan
Malmqvist

Ulrika
Ramsvik

Role

Lead partner

Co-signing
auditor

Year of birth

Company auditor
since

1975

2015

1973

2014

The audit firm has, besides the audit, con-
ducted a limited number of other assign-
ments on behalf of Tethys Oil. These
assignments mainly consisted of services
associated with auditing, such as in-depth
reviews during audit. Remuneration to the
auditors of Tethys Oil is paid in accord-
ance with approved current accounts. In
2017, remuneration to Pricewaterhouse-
Coopers AB amounted to MUSD 0.2
(MUSD 0.1). For details on remuneration
to auditors, see note 10, auditor’s fees.

Independent qualified reserves auditor
Tethys Oil’s independent qualified reserves
auditor annually certifies Tethys Oil’s oil
reserves and resources, although such assets
are not included in the Company’s balance
sheet. The independent qualified reserves
auditor for the 2017 report was ERC
Equipoise Limited (“ERCE”). Independ-
ent qualified reserves auditor for the 2016
report was DeGoyler and MacNaughton
Canada Limited (“DMCL”). The selection
of ERCE followed the closure of DMCL’s
Calgary office, which office carried out the
audit in relation to the 2016 report. For
further information, see Reserves on page 9.

Managing Director and executive
management
The executive management in Tethys Oil
throughout 2017 has consisted of the
Managing Director (Magnus Nordin),
CFO (Jesper Alm) and the Chief Technical
Officer (“CTO”) (Fredrik Robelius).

for

The board of directors has adopted an
instruction
the Managing Direc-
the responsibilities
tor which clarifies
and authority of the Managing Director.
According to the instruction, the Managing
Director shall provide the board of directors
with decision data in order to enable the
board to make well-founded decisions and
with documents to enable it to continually
monitor the activities for the year. The Man-
aging Director is responsible for the day to
day business of the Company and shall take
the decisions needed for developing the
business – within the legal framework, the
business plan, the budget and the instruc-
tion for the Managing Director adopted by
the board of directors as well as in accord-
ance with other guidelines and instructions
communicated by the board of directors.

Remuneration policy to executive
management
Remuneration policy to the executive
management includes five elements:

• Basic salary
• Pension arrangements
• Yearly variable salary, including the right
to participate in share-based long-term
incentive

• Other benefits
• Severance arrangements

The board is entitled to deviate from the
proposed guidelines if special reasons exist.

Basic salary
The basic salary shall be in line with mar-
ket conditions, be competitive, and shall
take into account the scope and responsi-
bility associated with the position, as well
as the skills, experience, and performance
of the executive.

Pension arrangements
The pension benefits comprise a defined
contribution scheme with premiums cal-
culated on the full basic salary. The pen-
sion contributions shall be in relation to
the basic salary and is set on an individual
basis but shall not be higher than what is
tax deductible.

Variable salary
Senior executives shall be part of two vari-
able remuneration systems payable in cash
and/or in combination with a right to
acquire warrants in the Company in the
share based incentive programs. Variable
salary to senior executives will be based
upon their individual contribution to the
Company’s performance. The yearly vari-
able cash salary shall be within the range of
one to four monthly salaries per person and
year. The targets for variable cash remu-
neration shall be determined by the board
prior to each financial year and individual
agreements shall be arranged with each
participant, the content of which depends
on the participant’s position at the time
the agreement is arranged. The targets shall
be objectively quantifiable and related to
budget. The targets shall consist of finan-
cial and operational key indicators. The
yearly variable salary will be determined
annually in connection with publication
of the year-end report for the respective
financial year based on an evaluation of
the participants’ achievement of the targets
as described in the individual agreements.
Payment of variable cash remuneration
shall be conditional upon the participant
remaining employed for the duration of
the programme. The board has the right
to adjust the incentive program during
the term of the programme in the case
of, for example, extraordinary increases or
decreases in the group’s earnings.

Share based incentive programme
The share based incentive programme has
the purpose to retain and recruit qualified
and committed personnel on a global mar-
ket for oil companies. The programme is
available to all employees and is intended
to be re-occurring annually.

Other benefits
Non-financial benefits shall be based on
market terms and shall facilitate the duties
of each senior executive.

Severance arrangements
A termination period of twelve months
applies between the Company and Man-

aging Director and three to six months
between the Company and other members
of executive management. The Manag-
ing Director is entitled to twelve month’s
payments if the Company terminates the
contract and other members of executive
management are entitled to six to twelve
month’s payments.

Remuneration to executive management 2017
(amounts in SEK thousands)

Basic salary

Pension
arrange ments

Variable
salary

Share based long
term incentive

Other
benefits

Managing Director

2,186

Other executive
management

Total

3,548

5,734

549

317

866

680

967

1,648

1,277

1,161

2,438

162

174

Total
2017

4,704

6,155

10,860

Total
2016

4,164

5,844

10,008

The increase in remuneration to executive
management primarily relate to increased
base salaries. For further information,
please see note 12.

Remuneration to the board 2017
Remuneration to be paid to the board of
directors for the period between the AGMs
of 2017 and 2018 amounts to a total of
TSEK 2,615, allocated among the board
members in the way shown in the below
table. The annual general meeting 2017

resolved that remuneration of the chairman
of the board of directors shall be TSEK
595 per annum and of the other mem-
bers TSEK 265 per member per annum.
Remuneration is not paid for service of the
boards or directors of subsidiaries.

Magnus Nordin, who is employed by
Tethys Oil, does not receive any remunera-
tion for his service on the board of direc-
tors. Annual fees for committee members
are TSEK 35 per committee assignment

and annual fees for the chairman of the
audit committee is TSEK 90 and for each
of the remuneration and technical com-
mittee are TSEK 65. Further, if a member
of the board of directors, following a reso-
lution by the board of directors, performs
tasks which are outside the regular board
work, separate remuneration in the form
of hourly fees on market terms may be paid
by resolution of the Board of Directors, for
which purpose a frame of TSEK 250 was
allowed.

Remuneration to board and committee members for the period between the AGMs of 2017 and 2018
(amounts in SEK thousands)

Board of
directors

Audit
committee

Remuneration
committee

Technical
committee

Separate
remuneration

Member

Dennis Harlin

Robert Anderson

Per Brilioth

Alexandra Herger

Magnus Nordin

Per Seime

Katherine Støvring

Geoffrey Turbott

595

265

–

265

Total

2,185

Total

630

330

265

300

–

365

335

390

2,615

–

160

–

135

–

135

–

Financial reporting and control
The board of directors has the ultimate
responsibility of the internal control for
the financial reporting. Tethys Oil’s system
of internal control, with regard to financial
reporting, is designed to minimize risks
involved in financial reporting process
and ensure a high level of reliability in the
financial reporting. Furthermore, the sys-
tem of internal control ensures compliance
with applicable accounting requirements
and other requirements that Tethys Oil
must meet as a listed company.

Tethys Oil’s main assets are owned in part-
nership. The focus of internal control is
therefore to ensure reliability and accuracy
of the operator’s financial information.
The control is conducted by monthly and
quarterly cost controls, quarterly budget
reviews and interviews with operator to
understand and explain deviations.

Internal control
Tethys Oil continually works on improv-
ing the financial reporting through evalu-
ating the risk of errors in the financial

reporting and related control activities.
Control activities include following up
on instructions and the application of
accounting principles. The board of direc-
tors is responsible for and monitors the
control activities, which involve all levels
of the organisation. The activities limit the
identified risks and ensure correct and reli-
able financial reporting. The Company’s
central financial department analyses and
follows up on budget deviations, draws up
forecasts, follows up on significant varia-
tions between periods and reports to the
board of directors, which minimizes the
risks for errors in the financial reporting.
The control activities also include fol-
lowing up on the authorization manual
and accounting principles. These control
activities also include the operators in part-
nerships. The board of directors further
decides on specific control activities and
auditing of operators in partnerships. The
financial department regularly follows up
on deviations and irregularities and report
to the audit committee. This structure is
considered sufficient and suitable given the
size and nature of the Company’s business.

At the current size of the Company and the
fact that the Company holds non-operated
interest or early stage operated exploration
interest it is not considered necessary for a
dedicated internal auditor function.

Information and communication
The board has adopted an information
policy for the purpose of ensuring that the
external information is correct and com-
plete. There are also instructions regarding
information security and how to commu-
nicate financial information.

Monitoring
Both the board and the management fol-
low up on the compliance and effective-
ness of the company’s internal controls to
ensure the quality of internal processes. The
board receives detailed monthly reports on
the financial situation and development of
the business to this end. The audit com-
mittee ensures and monitors that control
activities are in place for important areas of
risk related to financial reporting.

Stockholm, 4 April 2018

Tethys Oil AB (publ)
The board of directors

This is a literal translation of the Swedish original report
Auditor’s report on the corporate governance statement

To the general meeting of the shareholders in Tethys Oil AB (publ), corporate identity number 556615-8266.

Engagement and responsibility
It is the board of directors who is responsible for the corporate
governance statement for the year 2017 on pages 26–31 and that
it has been prepared in accordance with the Annual Accounts Act.

The scope of the audit
Our examination has been conducted in accordance with FAR’s
auditing standard RevU 16 The auditor’s examination of the cor-
porate governance statement. This means that our examination of
the corporate governance statement is different and substantially
less in scope than an audit conducted in accordance with Inter-
national Standards on Auditing and generally accepted auditing
standards in Sweden. We believe that the examination has pro-
vided us with sufficient basis for our opinions.

Opinions
A corporate governance statement has been prepared. Disclosures
in accordance with chapter 6 section 6 the second paragraph
points 2–6 the Annual Accounts Act and chapter 7 section 31
the second paragraph the same law are consistent with the annual
accounts and the consolidated accounts and are in accordance with
the Annual Accounts Act.

Stockholm, 4 April 2018
PricewaterhouseCoopers AB

Johan Malmqvist
Authorized Public Accountant
Lead Partner

Ulrika Ramsvik
Authorized Public Accountant

Board of directors

Member

Function

Elected

Year of birth

Education

Experience

Dennis Harlin

Rob Anderson

Per Brilioth

Alexandra Herger

Chairman of the board and
member Remuneration
committee

Board member and chairman
of the Technical committee

Board member

Board member and member
Technical committee

2015

1941

2017

1953

2013

1969

2017

1957

Military Academy higher
technical course

MA Engineering, Christ’s
College, Cambridge University.
Chartered Engineer &
Fellow of the Institution of
Mechanical Engineers

Bachelor of Science in
Business Administration,
University of Stockholm,
Master of Finance, London
Business School

BA Geology, Ohio Wesleyen
University and Masters
studies Geology, University of
Houston

Brigadier general (ret.). Vice
president SAAB/Gripen
International 1996–2009.
Defence attaché in Switzerland
and Italy and seconded to
Ministry for Foreign Affairs

Engineer with deep
experience in oil installations
and major oil and gas field
developments

Executive positions in
companies investing in
emerging markets and the oil
and gas sector. Currently CEO
of Vostok New Ventures Ltd.

VP Global Exploration at
Marathon Oil, executive
positions at Shell and
Enterprise Oil

Other board duties

Member of the board of
directors Harlin Consulting AB

–

Board member: Panoro Energy
ASA and Tortoise Capital
Advisors.
Member: Women’s Leadership
Committee, Oil Council and
Leadership Texas, Foundation
for women’s resources

Chairman of the board: Pet
Sounds AB, Gavald Holdings
AB, Pet Sounds Digitalt AB,
Pomegranate Investment AB
and Thunderroad AB.
Board member: Vostok New
Ventures Ltd., Kontakt East
Holding AB, LeoVegas AB, Avito
AB, NMS Invest AB and Vostok
Emerging Finance Ltd.
Deputy board member: Digital
Agency Ryssland AB.

Shares in Tethys Oil
(per 31 December 2017)1

142,071

Board and committee
remuneration
(SEK thousands)2

Independent in relation
to the Company

Independent in relation
to the Company’s larger
shareholders

630

Yes

1 Privately, via company and insurance policy
2 Resolved upon at the AGM 2017

–

330

Yes

10,000

265

Yes

–

300

Yes

3232

Member

Function

Elected

Year of birth

Education

Magnus Nordin

Per Seime

Katerine Støvring

Geoffrey Turbott

Board member and
Managing Director

Board member, chairman of the
Remuneration committee and
member Audit committee

Board member and member
Audit committee

Board member, chairman
of the Audit committee and
member Technical committee

2001

1956

2017

1946

2012

1965

2015

1963

Bachelor of Arts, University
of Lund and Master of Arts,
University of California Los
Angeles

Master of Law, University of Oslo.
Master of Comparative Law,
University of Chicago Law School
(Oil & Gas)

Master of Law, University of
Oslo and M.Sc. in Business
Management, London
Business School

Former member of New
Zealand’s institute of
chartered accountants

Experience

Several executive positions
in different oil companies

Several executive positions
in the energy and shipping
industry

Worked with public companies
in which the Lundin family
holds a major shareholding
from 1995 to 2013, whereof
as Chief Financial Officer and
Vice President of Finance at
Lundin Petroleum AB from
2002 to 2013

Experienced oil and gas lawyer
with substantial client base on
the Norwegian Continental Shelf.
17 years as partner and head of
the oil and gas group in the law
firm Simonsen Vogt Wiig, Oslo.
International experience as Counsel/
General Counsel for Mobil Oil in
Norway, USA and Indonesia. Board
chairman for Premier Oil Norge
(2004–2013) and Nexen Exploration
Norge (2005–2014). General Counsel
in Kongsberg Gruppen for nine years.

Other board duties

Shares in Tethys Oil
(per 31 December 2017)1

Warrants in Tethys Oil (as
per 31 December 2017)

Minotaurus AB, Minotaurus
Fastigheter AB and
Minotaurus Energi AS

–

1,464,127

5,000

2015/18: 78,000
2016/19: 70,000
2017/20: 75,000

Board and committee
remuneration
(SEK thousands)2

Independent in relation
to the Company

Independent in relation
to the Company’s larger
shareholders

–

Yes

1 Privately, via company and insurance policy
2 Resolved upon at the AGM 2017

–

365

Yes

3333

–

335

Yes

Board member: Tetbury
Forestry Ltd and Progress
Land Ltd

–

390

Yes

Executive management

Magnus Nordin

Jesper Alm

Fredrik Robelius

Board member and Managing Director

Chief Financial Officer and secretary to the board

Chief Technical Officer

Employed since 2004

Employed since 2014

Employed since 2011

Born 1956

Born 1975

Born 1973

Education: Bachelor of Arts, University
of Lund and Master of Arts, University of
California Los Angeles

Education: M.Sc. Business Administration,
University of Lund

Experience: several executive positions in
different oil companies

Experience: various positions in Corporate
Finance at Pareto Securities

Education: PhD Engineering Physics, Uppsala
University; Postgraduate Diploma Petroleum
Engineering, Heriot-Watt University

Experience: energy engineering positions in
Fortum, petroleum engineering related positions
in Tanganyika Oil and Sinopec

Shares in Tethys Oil1: 1,464,127

Shares in Tethys Oil1: 5,750

Shares in Tethys Oil1: 7,000

Warrants2 2015/18: 78,000
Warrants2 2016/19: 70,000
Warrants2 2017/20: 75,000

Warrants2 2015/18: 39,000
Warrants2 2016/19: 47,000
Warrants2 2017/20: 48,000

Warrants2 2015/18: 43,000
Warrants2 2016/19: 45,000
Warrants2 2017/20: 48,000

1 Per 31 December 2017, privately, via company and via insurance policy.
2 Warrants in Tethys Oil, as per 31 December 2017.

3434

The Tethys Oil share

Tethys Oil’s shares are traded on Nasdaq Stockholm. With the
purpose of improving liquidity and reducing the spread between
buyers and sellers of Tethys Oil shares, Tethys Oil has assigned
Pareto Securities AB to act as a liquidity provider for the shares of
the Company.

Tethys Oil has a warrant programme as part of the remuneration
package to employees. Warrants have been issued following the
AGMs in 2015, 2016 and 2017. The terms for each warrant series
have been recalculated as a consequence of recalculation events.
The current terms are:

Shares outstanding
Tethys Oil’s registered share capital at 31 December 2017 amounts
to SEK 5,923,958 represented by 35,543,750 shares with a quota
value of SEK 0.17. All shares in Tethys Oil represent one vote
each. All outstanding shares are common shares and carry equal
rights to participation in Tethys Oil’s assets and earnings. As per 31
December 2017 the board of directors had remaining outstand-
ing authorization from the AGM to issue up to 10 percent of the
shares up until the next AGM. As per 31 December 2017, Tethys
Oil held 1,644,163 (4.6 percent) of its own shares which were
purchased during 2014 to 2017 at an average price of SEK 58.12.
The share repurchase programme is based on a mandate from the
respective AGM and repurchased shares are still part of the total
number of outstanding shares but however not included in the
number of shares in circulation, which amounts to 33,899,587.

Warrant
program

Issued

Allotted

Strike price,
SEK

No of shares
each warrant
entitle to

2015/2018

356,000

312,000

2016/2019

350,000

335,000

2017/2020

350,000

324,000

76.80

62.60

85.50

1.08

1.05

1.00

As the strike price of tranche 2016/2019 is below the share price as
per year-end 2017, the warrants of this tranche are included in the
fully diluted number of shares, whereas the warrants of the other
tranches are not included in the fully diluted number of shares.

Share capital development
Since the company’s inception in September 2001 and up to 31 December 2017 the parent company’s share capital has developed as
shown below:

Year

Share capital development

Quota value,
SEK

Change in number
of shares

Total number
of shares

Change in total
share capital, SEK

Total share
capital, SEK

2001

2003

2004

2006

2007

2008

2009

2010

2011

2012

2015

2016

Formation of the company

Share issue

Spilt 100:1

Share issue

Split 2:1

Share issue

Non-cash issue

Share issue

Exercise of warrants

Share issue

Set-off issue

Split 3:1

Share issue

Exercise of warrants

Share issue

Exercise of warrants

Share issue

Exercise of warrants

Non-cash issue

Share issue

Share split 1:2 (redemption shares)

Redemption

Bonus issue

Share split 1:2 (redemption shares)

Redemption

Bonus issue

100.00

1.00

0.50

0.17

0.08

0.17

0.08

0.17

1,000

5,000

500,000

750,000

1,500,000

4,384,800

4,784,800

5,741,760

6,041,760

6,041,762

6,166,762

6,392,762

19,178,286

23,978,286

23,980,086

27,280,086

28,049,091

28,549,091

32,504,489

32,543,750

35,543,750

71,087,500

35,543,750

71,087,500

35,543,750

1,000

4,000

495,000

250,000

750,000

2,884,800

400,000

956,960

300,000

125,000

226,000

12,785,524

4,800,000

1,800

3,300,000

769,005

500,000

3,955,398

39,261

3,000,000

35,543,750

-35,543,750

–

35,543,750

-35,543,750

–

100,000

400,000

–

250,000

–

1,442,400

200,000

478,480

150,000

62,500

113,000

–

800,000

300

550,000

128,167

83,334

659,232

6,543

500,000

–

-2,961,979

2,961,979

–

-2,961,979

2,961,979

100,000

500,000

750,000

2,192,400

2,392,400

2,870,880

3,020,880

3,020,881

3,083,381

3,196,381

–

3,996,381

3,996,681

4,546,618

4,674,849

4,758,183

5,417,415

5,423,958

5,923,958

Capital structure target and dividend policy
Tethys Oil’s primary objective is to create shareholder value and
in doing so the company will have a balanced approach to growth
and shareholder distributions, with a long term capital structure
target of a zero net cash position.

Share ownership structure
The 15 largest shareholders in Tethys Oil as per 28 February 2018.

For the financial year 2017, the board of directors proposes to the
AGM 2018 a total distribution of SEK 6.00 per share (AGM 2017
SEK 1.00), equal to MSEK 203 (MSEK 34). The distribution,
subject to approval by the AGM, is proposed to be made by a cash
dividend (SEK 2.00 per share) and by a mandatory share redemp-
tion program (SEK 4.00 per share).

Name

Lansdowne Partners LLP

Franklin Templeton

Grandeur Peak Global Advisors, LLC

Magnus Nordin

SEB Fonder

Liontrust

Avanza Pension

Carl Erik Norman

Russell Investments

John Hancock

Ruffer LLP

Treasurer of the State of North Carolina Equity Investment Fund

Peder Månsson

Norges Bank

Benedicte Berner-Eyde

Total, largest shareholders

Summary, others appr. 5,000 shareholders

Outstanding shares

Tethys Oil AB

Total number of shares (incl. Tethys Oils own holdings)

Source: Modular Finance, 28 Feb 2018

Number of shares

Share of capital and votes

3,593,699

1,804,781

1,501,231

1,464,127

1,160,236

1,032,530

738,426

585,000

584,020

447,764

440,000

422,910

382,974

349,036

284,000

14,790,734

19,108,853

33,899,587

1,644,163

35,543,750

10.1%

5.1%

4.2%

4.1%

3.3%

2.9%

2.1%

1.6%

1.3%

1.2%

1.1%

1.0%

0.8%

41.6%

53.8%

95.4%

4.6%

100.0%

Distribution of shareholdings
Distribution of shareholdings per 28 February 2018.

Holding

1 – 500

501 – 1,000

1,001 – 5,000

5,001 – 10,000

10,001 – 15,000

15,001 – 20,000

20,001 –

Total

Number of
shares

435,761

495,773

1,351,049

824,252

411,017

482,193

31,543,705

35,543,750

Percentage of
shares

1.23%

1.39%

3.80%

2.32%

1.16%

1.36%

88.75%

100.00%

Number of
shareholders

3,496

593

562

110

171

Percentage of
shareholders

70.06%

11.88%

11.26%

2.20%

0.62%

0.54%

3.43%

4,990

100.00%

Share statistics 2017
The final transaction price in 2017 was SEK 65.75 corresponding
to a total market capitalization of MSEK 2,229. During the year
the price of Tethys Oil’s share decreased by 16.5 percent. The high-

est transaction price in 2017 was SEK 81.75 on 2 January and the
lowest was SEK 52.25 on 31 August. The turnover velocity was 61
percent on Nasdaq Stockholm.

Share price development and turnover 2017

Jan
2017

SEK

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Share price

Turnover

1,000,000

800,000

600,000

400,000

200,000

Jan
2018

Feb

Share volume
per day

Payments to authorities

This report has been prepared in accordance with the law SFS
2015:812 (Lag 2015:812 om rapportering av betalningar till myn-
digheter) regarding payments to authorities. The reported amounts
refer to direct payments in excess of the threshold amount of SEK

860,000 and production sharing for the fiscal year 2017 for the
group in which Tethys Oil AB (publ) (“Tethys Oil”) is the parent
company.

Per project

Project

Oman

Blocks 3&4

Block 49

Total Oman

Total

Per Authority

Production sharing

Contract bonus

License costs

Total

Barrels (’000)

USD (’000)

2,131

111,040

–

2,131

–

111,040

–

100

–

250

111,040

350

111,390

Production sharing

Contract bonus

License costs

Total

Barrels (’000)

USD (’000)

Sultanate of Oman – Ministry of Oil & Gas

2,131

111,040

Sultanate of Oman – Ministry of Finance

Total Oman

Total

–

2,131

–

111,040

–

100

150

250

111,140

250

111,390

Production sharing
The category includes non-cash taxes and compensation to receiv-
ing state/authority in barrels of oil from Tethys Oil’s working
interest share of production. The presented amounts are based on
net entitlement and have been valued using the reported average
price for the period.

Contract bonus
This pertains to the acquisition of an exploration license for Oman
Block 49 where payment was made to Oman’s Ministry of Finance.

License costs
This pertains to costs for maintaining the exploration license for
Oman Block 49 where payment was made to Oman’s Ministry of
Oil and Gas and Oman’s Ministry of Finance.

Key financial data

Group

Operational items

2017

2016

2015

2014

2013

Production before government take, bbl

4,475,314

4,478,121

3,578,488

2,807,653

1,709,706

Production per day, bbl

12,261

12,235

9,804

7,692

4,684

Net sales after government take, bbl

2,316,404

2,357,701

1,805,056

1,464,228

850,926

Achieved oil price, USD/bbl

51.8

40.5

58.1

103.9

106.6

Items regarding the income statement and balance sheet

Revenue, MUSD

EBITDA, MUSD

EBITDA-margin, %

Operating result, MUSD

Operating margin, %

Net result, MUSD

Net margin, %

Cash and cash equivalents, MUSD

Shareholders' equity, MUSD

Balance sheet total, MUSD

Capital structure

Equity ratio, %

Leverage ratio, %

Investments, MUSD

Net cash, MUSD

Profitability

Return on shareholders' equity, %

Return on capital employed, %

Other

Average number of full time employees

Distribution per share, SEK

Cash flow from operations per share, USD

119.3

78.2

66%

38.4

32%

33.1

28%

42.0

228.5

244.7

93%

neg.

40.4

42.0

15.56%

18.97%

1.00

1.46

87.1

44.0

51%

-0.5

-1%

2.7

39.0

196.9

239.0

82%

neg.

48.5

39.0

1.29%

4.20%

4.00

1.53

107.0

58.6

55%

23.0

21%

23.4

22%

51.2

217.2

253.6

86%

neg.

40.8

51.2

149.3

108.0

72%

57.1

38%

49.4

33%

47.8

214.3

233.5

92%

neg.

39.3

47.8

92.2

74.8

81%

45.1

49%

38.1

41%

44.8

168.4

238.7

71%

12%

44.1

-14.9

10.85%

25.82%

25.56%

13.59%

30.87%

29.82%

3.00

1.69

n.a.

2.89

n.a.

1.45

Number of shares at year end, thousands

35,544

Of which repurchased shares at period end

1,644,163

1,329,224

1,083,669

298,160

n.a.

Number of shares at year end (excluding repurchased shares), thousands

33,900

34,215

34,460

35,246

35,544

Shareholders' equity per share, USD

Weighted number of shares (before dilution) for the year, thousands

Weighted number of shares (after dilution) for the year, thousands

Earnings per share before dilution, USD

Earnings per share after dilution, USD

6.43

34,170

34,385

0.97

0.96

5.54

34,324

34,372

0.08

6.11

34,964

0.67

6.03

35,524

1.39

4.74

35,544

1.07

Definitions of key ratios

Relevant reconciliations of alternative performance measures

MUSD

Operating result

Depreciation, depletion and amortization

Exploration costs

EBITDA

Cash and bank

Interest bearing debt

Net cash

Cash flow from operations

Investment in oil and gas properties

Cash flow from operations after investments

2017

2016

2015

38.4

39.5

0.3

78.2

42.0

–

42.0

50.1

-40.4

9.7

-0.5

44.4

0.1

44.0

39.0

–

39.0

52.7

-48.5

4.2

23.0

34.7

1.0

58.6

51.2

–

51.2

59.1

-40.8

18.3

2014

57.1

31.1

19.8

108.0

47.8

–

47.8

102.7

-39.3

63.4

2013

45.1

21.1

8.6

74.8

44.8

-59.7

-14.9

51.5

-44.1

7.4

Margins
Operating margin
Operating result as a percentage of yearly
turnover.

Net margin
Net result as a percentage of yearly
turnover.

Capital structure
Equity ratio
Shareholders’ equity as a percentage of
total assets.

Leverage ratio
Net interest bearing debt as a percentage of
shareholders’ equity.

Interest coverage ratio
Earnings before interest, taxes, deprecia-
tion, depletion, amortisation and explora-
tion costs (EBITDA) divided by net finan-
cial result.

Net cash/net debt
Cash and equivalents less interest bearing
debt.

Investments
Total investments during the year.

Profitability
Return on shareholders’ equity
Net result as percentage of average share-
holders’ equity.

Adjusted equity ratio
Shareholders’ equity plus equity part of
untaxed reserves as a percentage of total
assets.

Return on capital employed
Net result plus financial costs as a per-
centage of average capital employed (total
assets less non interests-bearing liabilities).

Other
Number of employees
Average number of employees full-time.

Shareholders’ equity per share
Shareholders’ equity divided by the num-
ber of outstanding shares.

Weighted numbers of shares
Weighted number of shares during the
year.

Earnings per share
Net result divided by the number of out-
standing shares.

n.a.
Not applicable.

n.m.
Not meaningful.

Administration report

(This is an English translation of the Swedish original)

Tethys Oil AB (publ)

Tethys Oil Block 3 & 4 Ltd.

Tethys Oil Montasar Ltd.

Tethys Oil Exploration AB

Tethys Oil France AB

Tethys Oil Oman Ltd.

Jyllands Olie ApS

Odin Energy A/S

40%

50%

Blocks 3&4, Oman

Block 49, Oman

Attila, France

UAB TAN Oil

Raseiniai, Lithuania

UAB LL Investicijos

Rietavas, Lithuania

UAB Minijos Nafta

Gargzdai, Lithuania

75%

50%

Ownership in subsidiary companies is 100% unless otherwise stated.

The consolidated financial statements of the Tethys Oil Group
(hereafter referred to as “Tethys Oil” or the “Group”), where
Tethys Oil AB (publ) (the “Company”) with organisational num-
ber 556615-8266 is the parent company, are hereby presented for
the twelve months period ended 31 December 2017. The amounts
relating to the comparative period (equivalent period of last year)
are shown in parenthesis after the amount for the current period.
Segments of the Group are geographical markets.

OPERATIONS

Tethys Oil is a Swedish oil company with focus on onshore areas
with known oil discoveries. Tethys Oil’s core area is Oman, where
the Group holds interests in Blocks 3&4 and Block 49. The reserve
and resource base on Blocks 3&4 amounts to 22.0 mmbo of 2P
reserves and the 17,3 mmbo of 2C Contingent Resources. The
average oil production from Blocks 3&4 amounted in 2017 to
12,162 barrels per day. With a cash flow driven development
approach, Tethys Oil’s main operational target is incremental
increases of production and reserves from the Omani blocks.
Tethys Oil also has onshore exploration licences in Lithuania and
France and some production in Lithuania.

Production
Tethys Oil’s core area is onshore Oman, where Tethys Oil holds a
30 percent non-operated interest in exploration and production
licence Blocks 3&4 and a 100 percent operated interest in explora-
tion licence Block 49. Tethys Oil also has non-operated interests in
three licenses onshore Lithuania and in one license onshore France.
The primary production comes from Blocks 3&4. The production
in 2017 on Blocks 3&4 was in line with the production in 2016
and amounted to 4.4 mmbo (4.4 mmbo in 2016). The produc-
tion in the fourth quarter 2017 was slightly lower than the aver-
age for the year, and was impacted by a number of factors, some
related to mechanical upgrades and repair of downhole pumps and
repairs and upgrades of surface components. A shortage of work-
over capacity led to some wells being shut in longer than planned.

Both reserves and production have also been affected by a lower
than expected production from part of the Shahd area which has
responded less well than anticipated to water injection. The imple-
mentation of the Shahd water injection programme will continue
and results are being carefully monitored. Production from the
appraisal programmes and long term production tests of the new
discoveries made in 2017 (Erfan, Ulfa and Samah) are contribut-
ing and are expected to contribute to 2018 production. Oman has,
following an agreement with OPEC (Declaration of Cooperation
OPEC and non-OPEC) in December 2016, imposed a produc-
tion recommendation relating to Blocks 3&4. The Declaration of
Cooperation OPEC and non-OPEC has been extended to cover
all of 2018, with a review planned in June 2018. The production
recommendation may affect Tethys Oil’s oil production and sales.
Tethys Oil has additional production in Lithuania.

The terms of the Exploration and Production Sharing Agreement
(“EPSA”) on Blocks 3&4 allows the joint operations partners
to recover their costs from up to 40 percent of the value of total
oil production, this is referred to as cost oil. After deducting any
allowance for cost oil, the remaining production is split 80/20
between the government and the joint operations partners. If there
are no costs to be recovered the joint operations partners receive
after government take 20 percent of the oil produced. The terms
of the EPSA thus result in the joint operations partners’ share of
production after government take in the interval 20–52 percent,
depending on available recoverable cost. So far on Blocks 3&4, the
joint operations partners’ share of production after government
take has been in the high end of the interval, 52 percent, as the
joint venture partners have continued to invest on Blocks 3&4.
The estimated recoverable costs as per 31 December 2017, net to
Tethys Oil, amounts to MUSD 44.2.

Production from the Gargzdai licence in western Lithuania has
gradually decreased during the period. Tethys Oil’s share of Gargz-
dai is indirectly owned through Odin Energi A/S, a Danish associ-
ated company.

Tethys Oil’s share of volumes, before government take

2017

2016

2015

2014

2013

Tethys Oil’s share of annual production, bbl

Oman, Blocks 3&4

Production

4,439,118

4,436,438

3,539,631

2,765,654

1,663,069

Average daily production, bopd

12,162

12,121

9,698

7,577

4,556

Lithuania, Gargzdai

Production

36,196

41,684

38,857

42,000

46,637

Average daily production, bopd

114

106

115

128

Total production

4,475,314

4,478,121

3,578,488

2,807,653

1,709,706

Total average daily production, bopd

12,261

12,235

9,804

7,692

4,684

Average daily production net to Tethys Oil, yearly

bopd

12,000

10,000

8,000

6,000

4,000

2,000

2010

2011

2012

2013

2014

2015

2016

2017

Reserves and Contingent Resources
Oman
Tethys Oil’s net working interest Reserves on Blocks 3&4 in Oman
as per 31 December 2017 amount to 15,559 thousand barrels of
oil (“mbo”) of proven Reserves (1P), 22,044 mbo of proven and
probable Reserves (2P) and 32,414 mbo of proven, probable and
possible Reserves (3P).

Tethys Oil’s net working interest resources of oil in Oman amounts
to 10,129 mbo of 1C, 17,264 mbo of 2C and 27,328 mbo of 3C
Contingent Resources.

Development of reserves, Blocks 3&4 (audited)

mbo

Total 31 December 2016

14,222

21,408

29,729

Production 2017

Discoveries

Revisions

-4,439

3,482

2,294

-4,439

4,879

196

-4,439

7,475

-350

Total 31 December 2017

15,559

22,044

32,414

In 2017 Tethys Oil replaced 5,776 mbo of 1P Reserves, repre-
senting a 1P Reserve replacement ratio (i.e. percentage of 2017
production replaced) of 130 percent; replaced 5,075 mbo of 2P
Reserves, representing a 2P Reserve replacement ratio of 114 per-
cent; replaced 7,124 mbo of 3P Reserves, representing a 3P Reserve
replacement ratio of 160 percent.

Reserves Blocks 3&4, 31 December 2017 (audited)

mbo

Farha South Field

Shahd Field

Saiwan East Field

New areas

9,206

3,441

631

2,281

11,756

16,061

5,634

1,250

3,405

8,856

1,805

5,692

Total 31 December 2017

15,559

22,044

32,414

In addition to Reserves, Tethys Oil also announces Contingent
Resources. The estimated Contingent Resources are contained in the
recent discoveries – Ulfa, Erfan and Samah. Development of the Con-
tingent Resources in the new discoveries will be contingent on the on-
going appraisal programme and also a work programme and budget to
access these resources.

Contingent Resources Blocks 3&4 (audited)

mbo

Total 31 December 2017

10,129

17,264

27,328

Tethys Oil’s 2017 and 2016 year-end Reserves reports were prepared by
ERC Equipoise Limited (“ERCE”) and DeGolyer and MacNaughton
Canada Limited (“DMCL”), respectively, as independent qualified
reserves evaluators. ERCE were engaged to prepare the 2017 year-end
Reserves report following the closure of DMCL’s office in Calgary.

The audits of the Reserves in Oman has been conducted using the
2007 Petroleum Resources Management System (PRMS), sponsored
by the Society of Petroleum Engineers (SPE), World Petroleum Coun-
cil (WPC), American Association of Petroleum Geologists (AAPG)
and Society of Petroleum Evaluation Engineers (SPEE).

Revenue

2017

2016

2015

2014

2013

31 December 2017 is 36,092 barrels. The valuation of both over
and underlift is based on market price.

Tethys Oil sells all of its oil through Mitsui Energy Trading Sin-
gapore, which is part of Mitsui & Co Ltd. All oil sales come from
Blocks 3&4 and are made on a monthly basis. The selling price is the
monthly average of the two month future price for Omani blend.

Result
Tethys Oil reports a net result after tax for 2017 of MUSD 33.1,
representing earnings per share of USD 0.96. The result for 2017
is up compared to 2016. Net result is mainly up due to higher oil
prices and the lower 2016 result due to the Export Reporting Error
(see note 4 on page 62).

Operating expenses

Operating expenses,
Blocks 3&4

2017

2016

2015

2014

2013

Barrels sold, bbl

2,316,404 2,357,701 1,805,056 1,464,228

850,926

Production costs, MUSD

32.6

33.5

38.4

32.7

20.5

Underlift (overlift)
movement, bbl

(8,062)

(50,754)

35,552

(26,088)

13,870

Oil price, USD/bbl

51.8

40.5

58.1

103.9

106.6

Net sales, MUSD

119.9

95.4

104.9

152.1

90.7

Well workovers, MUSD

2.3

3.1

4.5

4.4

3.0

Total operating
expenses, MUSD

Operating expenses per
barrel, USD

34.9

36.5

42.9

37.2

23.5

7.9

8.2

12.1

13.4

14.1

Underlift (overlift),
MUSD

Overlift adjustment
reporting error,
MUSD

(0.6)

(2.4)

2.2

(2.8)

1.5

–

(5.9)

–

Revenue, MUSD

119.3

87.1

107.0

149.3

92.2

Operating expenses during 2017 amounted to MUSD 34.9 com-
pared to MUSD 36.6 during 2016. Operating expenses are related
to oil and gas production on Blocks 3&4, and comprise expenses
for field staff, expenses related to maintenance, well workovers and
interventions and administration.

Revenue for 2017 is up 37 percent compared to revenue 2016
and the main reason is the increase in oil prices which are up
28 percent between the years and the impact in 2016 from the
Export Reporting Error (see note 4 on page 62). There has been an
increase in the overlift position during 2017.

Operating expenses per barrel since 2013 have been in the range
USD 8 to 14 per barrel. The reduction in operating expenses per
barrel since 2013 has been expected and is the result of general
cost reductions and higher production. During 2017 operating
expenses per barrel has been reduced compared with 2016.

During 2017, Tethys Oil sold 2,316,404 barrels of oil from Blocks
3&4, representing a 2 percent decrease in comparison with 2016
when 2,357,701 barrels of oil were sold. This resulted in net sales
during 2017 of MUSD 119.9 compared to MUSD 95.4 during
2016. In addition to Net sales, there has been an adjustment for
overlift amounting to MUSD 0.6 which together with Net sales
adds up to Revenue of MUSD 119.3. In 2016 the overlift adjust-
ment amounted to MUSD 8.3 of which MUSD 5.9 was related to
the Export Reporting Error.

The average selling price amounted to USD 51.8 per barrel during
2017, 28 percent higher compared to 2016. The average price for
Dated Brent oil during 2017 amounted to USD 54.1 per barrel.

Sale quantities for oil sales are nominated two months in advance
and are not based upon the actual production in a month; as a
result, sales quantities can be above or below production quanti-
ties. Where the sales quantity exceeds the quantity of barrels pro-
duced an overlift position occurs and where it is less, an underlift
position occurs. There was a movement to increase the overlift
between year-end 2017 and 2016. The total overlift position as per

Depletion, depreciation and amortisation

DD&A, Blocks 3&4

2017

2016

2015

2014

2013

DD&A, MUSD

39.5

44.4

34.6

31.0

21.0

DD&A per barrel, USD

8.9

10.0

9.8

11.2

12.6

Depletion, depreciation and amortisation (“DD&A”) for 2017
amounted to MUSD 39.5, which is lower than 2016 and attrib-
utable to a decreased DD&A rate per barrel. The DD&A charge
relates to Blocks 3&4.

Net back

Net back, Blocks 3&4,
USD/bbl

Oil price achieved (sales
barrels)

Revenue (after
government take)

2017

2016

2015

2014

2013

51.8

40.5

58.1

103.9

106.6

27.0

21.0

30.2

54.0

55.4

Operating expenses

7.9

8.2

12.1

13.4

14.1

Net back

19.1

12.8

18.1

40.6

41.3

The increase in net back per barrel during 2017 has mainly been
driven by the oil price development.

Net result from associated companies
Tethys Oil holds indirect interest in the three Lithuanian licences;
Gargzdai, Rietavas and Raseiniai, through associated companies
Jylland Olie and Odin Energi. The result from Tethys Oil’s share in
these associated companies during 2017 amounted to MUSD -0.3
compared to MUSD -0.7 during 2016. There has been a long term
trend of declining production from Gargzdai, which is in line with
expectations.

Administrative expenses
Administrative expenses amounted to MUSD 5.9 for 2017 com-
pared to MUSD 5.8 during 2016. Administrative expenses are
mainly salaries, rents, listing costs and external services. Admin-
istrative expenses have been stable between years 2017 and 2016.

Tax
In Oman, Tethys Oil’s oil and gas operations are governed by
EPSA:s whereby Tethys Oil receives its share of oil after govern-
ment take. Under the terms of the EPSA, Tethys Oil is subject to
Omani income taxes and royalties which are paid in full, on behalf
of Tethys Oil, from the government share of oil. As Omani income
tax is not paid directly by Tethys Oil but is taken in kind, these
taxes are not presented in Tethys Oil’s income statement.

Net financial result
The result for the full year 2017 has been impacted by net for-
eign exchange losses and fees on long term debt. The net currency
exchange effect of the group amounts to MUSD -3.9 and most of
the effect relates to the weaker US dollar in relation to the Swed-
ish krona. Currency translation differences recorded on loans
between the parent company and subsidiaries are non-cash related
items. Interest and fees related to the credit facility amounted
to MUSD 0.2 and other financial expenditures amounted to
MUSD 1.2. The currency exchange effect and fees on long term
debt is part of net financial result amounting to MUSD -5.3 for
the full year 2017 compared to MUSD 3.2 during 2016.

Investments and work programme
Summary of oil and gas interests (MUSD):

Country

Oman Blocks 3&4

Oman Block 49

Lithuania

France

New ventures

Total

Book value
31 Dec 2017

Book value
31 Dec 2016

Investments
Jan–Dec 2017

189.1

0.4

–

0.2

189.7

190.8

–

0.3

191.1

39.9

0.4

–

0.1

40.4

During 2017, total investments amounted to MUSD 40.4 of
which almost all relate to Blocks 3&4. Investments during the year
have been lower than investments in 2016.

Blocks 3&4

Investments Blocks
3&4, MUSD

Drilling

G&G

Facilities

Total investments
Blocks 3&4

2017

2016

2015

2014

2013

26.6

30.3

20.5

19.8

22.0

4.2

9.1

4.5

8.9

6.6

13.4

11.3

11.9

9.1

8.9

39.9

48.2

40.7

38.3

40.0

A total of three rigs and a work over unit were in operation on the
blocks at the end of the year. Ongoing maintenance and updating
work was conducted on all fields in 2017, including upgrading
flowlines and improving water handling.

Block 3: Farha South Field
A total of 14 appraisal/production wells were drilled on the Farha
South field in 2017 with the target to reach an optimal develop-
ment of the field. All wells encountered oil and have been con-
nected to the production system. Five of the 14 wells were drilled
in previously undrilled fault blocks AS, AZ, C, O and Y. All wells
in the new fault blocks were drilled vertically down to the Barik
sandstone.

In addition, 10 water injection wells and one water source well
were drilled on the field.

Block 4: Shahd and Saiwan East oil fields
Eight production wells were drilled in previously drilled structures
on the Shahd field in 2017 and one well was drilled on the Saiwan
East field. One appraisal well, the Shahd Q-1 well, was drilled in
a in a previously undrilled structure on the Shahd field. The well
encountered oil and was completed as a producer from the Khufai
layer. All wells encountered oil.

In addition, two water injection wells were drilled on the Shad
field.

Exploration on Blocks 3&4
The exploration well Erfan-1 was completed during the first quar-
ter 2017. Erfan-1 was drilled on a previously undrilled structure
located approximately 6 km south west of the Saiwan East field
on Block 4. The Khufai formation was the main target. Erfan-1
reached a total depth of 2,548 metres in the first quarter 2017
and the well flowed oil to surface from the Khufai formation. The
Erfan discovery was also appraised in 2017 with two successful
appraisal wells.

The exploration well Ulfa-1 was drilled in the first quarter 2017
and successfully completed and tested in the second quarter 2017.
Ulfa-1 was drilled on a previously undrilled structure located on
trend with the Farha South field within the Farha South 3D-area,
approximately 20 km north of the Shahd K area. The well was
drilled as a deviated well targeting the Barik, Lower Buah and
Khufai formations. Ulfa-1 reached a total vertical depth of 4,040
metres and the well flowed oil to surface from the Khufai forma-
tion. The appraisal of the Ulfa discovery will start in 2018.

The exploration well Samah-1 was spudded in late August 2017 on
Block 3. Samah-1 was drilled vertically to a total depth (TVD) of
4,142 m on a structure located 5 km south of the Ulfa discovery.

The well was completed in November and oil shows were recorded
in three formations Middle Buah, Lower Buah and Khufai. The
well was tested in late December 2017 with good oil flows to
surface.

value related to Minijos Nafta (Gargzdai) is zero and as there are
no formal or informal obligations related to Minijos Nafta, Tethys
Oil does not recognize any negative net result from Minijos Nafta.

During the fourth quarter 2017 the exploration well V-1 was
drilled on a structure 2 km northeast of the fault block F in Farha
South field. The main target of the well was to test the Amin for-
mation as a producer in Block 3. The well was drilled to a total
depth (TVD) of 2,530 m but did not encounter any hydrocarbons
in the Amin formation and a post drill analysis is on-going. The
evaluation will guide the continuing effort of the Amin play work.

The three successful exploration wells have been hooked up to the
Blocks 3&4 production system for long term testing.

Seismic acquisition
A new 3D seismic campaign was launched late in the fourth
quarter east of the Ulfa discovery. Some 320 km2 of seismic were
acquired in 2017. The survey continues in 2018 with the target
to cover a total area of about 1,200 km2. Tethys Oil has so far
identified more than ten leads based on the interpretation of old
2D seismic.

Block 49
In December 2017, Tethys Oil was awarded a new exploration
license in Oman. Block 49 is an onshore block that covers a
prospective but still rather unexplored area in the south western
Oman, bordering Saudi Arabia. Tethys Oil is the operator of Block
49 and holds a 100 percent license interest.

The Block 49 licence covers an area of 15,439 km2. More than
11,000 km of 2D seismic acquired by previous operators has
been made available to Tethys Oil. Nine wells have been drilled
within the block boundaries, several of which are reported to have
encountered oil shows. Among the legacy wells is the first well ever
drilled in Oman in 1955 (Dauka-1).

The EPSA for Block 49 covers an initial exploration period of three
years with an optional extension period of another three years. In
case of a commercial oil or gas discovery, the EPSA will be trans-
formed into a 15 year production license which can be extended
for another five years. In case of a commercial discovery Oman
Government Company, has a back-in right for a 30 percent inter-
est against refunding of past expenditure. The initial work com-
mitments during the first period include geological studies, seismic
acquisition and processing and exploratory drilling.

Production on the Gargzdai licence has decreased following nat-
ural decline of the wells. Old 2D seismic covering the Rietavas
licence has been reprocessed and interpreted to further evaluate
two leads.

Liquidity and financing
Cash and bank and Net cash as per 31 December 2017 amounted
to MUSD 42.0 compared to MUSD 39.0 as per 31 December
2016.

In May 2017 a dividend of SEK 1.00 per share was paid to share-
holders, which in total amounted to MUSD 3.9. Furthermore
MUSD 2.3 was used to repurchase 314,939 shares during the
twelve months ending 31 December 2017.

During the twelve months ended 31 December 2017, the cash
flow from operations amounted to MUSD 50.1 and investments
in oil and gas amounted to MUSD 40.4. For the twelve months
2017 the cash flow from operations after investments in oil and gas
amounted to MUSD 9.7.

Tethys Oil’s operations on Blocks 3&4 and Block 49, including
investment programme, are expected to be funded from cash flow
from operations and from available funds.

Tethys Oil’s operations in Lithuania are expected to be funded
from cash flow from operations and available cash in the associ-
ated Lithuanian companies.

Parent company
The Parent company reports a net result after tax for 2017 amount-
ing to MSEK 85.0 compared to MSEK 23.4 for 2016. Adminis-
trative expenses amounted to MSEK 31.2 for 2017 compared to
MSEK 31.3 for 2016. Net financial result amounted to MSEK
108.1 during 2017 compared to MSEK 46.6 for 2016. Currency
exchange losses related to loans to subsidiaries that were offset by
dividends from group companies is the main reason for the posi-
tive net financial result during the year.

Significant agreements and commitments
In Tethys Oil’s oil and natural gas operations there are two main
categories of agreements; one that governs the relationship with the
host country; and one that governs the relationship with partners.

Geological studies and studies of legacy seismic data is ongoing.

New ventures
A number of new ventures projects have been reviewed and several
continue to be evaluated.

Associated companies
Lithuania
As per 31 December 2017, the value of the shareholding in the
two associated Danish companies holding the interests in Lithu-
anian licenses, amounted to MUSD 0.0 compared to MUSD 0.3
at the end of 2016. The reduction in book value is explained by
a loss from associated companies of MUSD -0.3 (-0.7). The book

The agreements that govern the relationship with host countries
are referred to as licences or Exploration and Production Sharing
Agreements (EPSA or PSA). Tethys Oil holds its interest directly
through aforementioned agreements in Oman and France. The
agreements with host countries have a time limit and are normally
divided into periods. Financial commitments and or work com-
mitments normally relates to the different periods. Tethys Oil has
fulfilled its commitments on Blocks 3&4. On Block 49, Tethys
Oil’s initial work commitments during the first period of three
years include geological studies, seismic acquisition and process-
ing and exploratory drilling. In the other areas of operations the
commitments are either fulfilled or there are no commitments of
which Tethys Oil can be held liable for. In some of Tethys Oil’s

areas of interest there are requirements of work to be done or mini-
mum expenditures in order to retain the licences, but no commit-
ments of which Tethys Oil can be held liable for.

The agreements that govern the relationship with partners are
referred to as Joint Operating Agreements (JOA). Tethys Oil has
JOAs with its partners, if any, in all areas of operation.

Other than the aforementioned agreements, there are no indi-
vidual agreements or similar circumstances relating to the busi-
ness which are of crucial significance for the group’s operations or
profitability.

Board of directors
At the AGM of shareholders on 17 May 2017 Per Brilioth, Magnus
Nordin, Dennis Harlin, Katherine Støvring (since resigned) and
Geoffrey Turbott were re-elected members of the board. Alexandra
Herger, Rob Anderson and Per Seime were newly elected mem-
bers of the board. No deputy directors were appointed. At the same
meeting Dennis Harlin was appointed chairman of the board.

The work of the board is subject to an established work proce-
dure that defines the distribution of work between the board and
the managing director. The work procedure is evaluated each year
and revised if deemed appropriate. The board had 14 meetings
during 2017. The eight members of the board have consisted of
seven non-executive directors. These seven non-executive directors
are also members of the audit committee and the remuneration
committee. Geoffrey Turbott is chairman of the audit committee,
Per Seime is chairman of the remuneration committee and Rob
Anderson is chairman of the technical committee. For guidelines
for remuneration to management, see note 12.

Organisation
At the end of the year, Tethys Oil had an average number of
full time employees of 19 (19). Of these, 7 (7) were women. In
addition, contractors and consultants are engaged in Tethys Oil’s
operations.

The environment
All oil and gas related operations impact the environment and
therefore entail risk. Directly or indirectly through joint opera-
tions, the Group complies with the environmental legislation and
regulations applicable in each country. Areas which are normally
regulated include air pollution, discharges to watercourses, water
use, handling of hazardous substances and waste, land and ground-
water contamination, and restoration of the environment around
the facilities after operations have ceased. Directly and indirectly
through partnerships, Tethys Oil strives to minimise the environ-
mental impact and avoid the occurrence of accidents.

Sustainability report
In accordance with the Swedish Annual Accounts Act (ÅRL chap-
ter 6 11§) Tethys Oil has opted to issue the sustainability report
as a document separate from the financial statements. The sustain-
ability report can be found on pages 22 to 25 of this annual report.

Group structure
Tethys Oil AB (publ), with organizational number 556615-8266,
is the parent company in the Tethys Oil Group. Material subsidi-
aries include Tethys Oil Oman Limited, Tethys Oil Block 3&4
Limited, Tethys Oil Montasar Limited, Tethys Oil France AB and
Tethys Oil Exploration AB. The Tethys Oil Group was established
1 October 2003. The Group has branch offices in Muscat, Oman
and Dubai, the United Arab Emirates.

Share data
As per 31 December 2017, the number of outstanding shares in
Tethys Oil amount to 35,543,750, with a quota value of SEK
0.17. All shares represent one vote each. The Company has the
same amount of shares outstanding as per 31 December 2016.
Tethys Oil has a warrant based incentive programme for employ-
ees, for further information please see Note 21 on page 68. As the
subscription price is below the share price for one tranche of the
incentive program as per the 31 December 2017, the warrants of
this tranche are included in the diluted number of shares which
amount to 35,895,500 per 31 December 2017. If the subscription
prices have been below the share price during the reporting period,
the dilution effects have been included in the weighted average
number of shares in circulation after dilution.

As per 31 December 2017, Tethys Oil held 1,644,163 of its own
shares which have been purchased since commencement of the
programme during the fourth quarter 2014. The purpose of the
repurchasing program is to optimize the capital structure and
to enable any repurchased shares to be used as payment in con-
nection with, or financing of, acquisitions of companies or busi-
nesses. 314,939 shares were purchased during 2017. The repur-
chased shares are still included in the total number of shares, but
are not included in the average number of shares in circulation.
The weighted average number of shares in circulation during 2017
before dilution is 34,170,474 and after dilution 34,385,463.

After 31 December 2017 and up to the date of publication for this
report, Tethys Oil has not acquired any further shares.

Seasonal effects
Tethys Oil has no significant seasonal variations.

Transactions with related parties
See note 25.

Risk and uncertainties
A statement of risks and uncertainties are presented in note 1.

Appropriation of profit
The board of directors proposes a dividend of SEK 2.00 per share
(AGM 2017: SEK 1.00) equal to MSEK 67.8 (MSEK 34.2) or
MUSD 8.0 (MUSD 3.6). The board of directors proposes that the
dividend is to be paid in two equal instalments of SEK 1.00 per
share each, payable in May and November 2018. Proposed record
dates are May 14, 2018 and November 14, 2018. The board of
directors proposes an extraordinary distribution of SEK 4.00 per
share by way of a mandatory share redemption programme follow-
ing the AGM 2018 equal to MSEK 135.6 or MUSD 16.1.

It is also proposed that the balance of retained earnings after the
dividend be retained in the business as described below.

MSEK

Retained earnings

Profit for the year

218.1

85.0

303.1

The Board of Directors proposes that these earnings be appropriated as follows:

To the shareholders, a distribution of SEK 2.00 per share

67.8

To the shareholders, an extraordinary distribution of SEK 4.00
per share

To be retained in the business

135.6

99.7

303.1

Cash dividend
The board of directors’ proposal consists of a cash dividend
of SEK 2.00 per share amounting to SEK 67,799,174 and an
extraordinary distribution of SEK 4.00 per share amounting to
SEK 135,598,348. The dividend and extraordinary distribution
is subject to approval at the AGM 2018. The preliminary record
day for the dividend is 14 May 2018 and 14 November 2018.

As per 31 December 2017, the Group’s and the parent company’s
equity ratio amounted to 93.4 percent and 96.7 percent, respectively.
After the dividend, the Group’s and the parent company’s equity
ratio will amount to 92.6 percent and 93.2 percent, respectively.

Tethys Oil has generated significant cash flows in recent years and
the Group’s financial position is strong. The board has consid-
ered the Parent company and the Group’s consolidation needs
through a comprehensive valuation of the Parent company and
the Group’s financial position and the Parent company and the
Group’s possibilities to fulfil their commitments in the long term.
The Parent company and the Group’s financial position does not
give rise to any other conclusion than that the Parent company
and the Group can continue its operations and meet its obliga-
tions in the short and long term and make the necessary invest-
ments. The board believes that the size of the equity, even after
the proposed dividend, is in reasonable proportion to the scale of
the Parent company and the Group’s business as well as the risks
associated with conducting the business.

With reference to the above and what has come to the board’s
attention, it is the board’s assessment that the Parent company’s
and the Group’s financial position implies that the proposed divi-
dend is justifiable pursuant to Chapter 17, Section 3 second and
third paragraph of the Swedish Companies Act, i.e. with reference
to the requirements that the nature, scope and risks of business
put on the size of the Parent company’s and the Group’s equity as
well as the Parent company’s and the Group’s need to strengthen
its balance sheet, liquidity and financial position.

Financial statements
The result of the Group’s and Parent company’s operations and the
financial position at the end of the financial year is shown in the
following income statements, balance sheets, cash flow statements,
statements of changes in equity and related notes. Balance sheets
and income statements will be resolved at the AGM, 9 May 2018.

Financial statements for the group

Consolidated statement of comprehensive income

1 January – 31 December, MUSD

Revenue

Operating expenses

Gross profit

Depletion, depreciation and amortisation

Exploration costs

Share of net profit/loss from associates

Administrative expenses

Operating result

Financial income and similar items

Financial expenses and similar items

Net financial result

Result before tax

Income tax

Result for the period

Other comprehensive result

Items that may be subsequently reclassified to profit or loss:

Exchange differences

Other comprehensive result for the period

Total comprehensive result for the period

Attributable to:

Shareholders in the parent company

Non controlling interest

Number of shares outstanding

Number of shares outstanding (after dilution)

Weighted average number of shares (before dilution)

Weighted average number of shares (after dilution)

Earnings per share (before dilution), USD

Earnings per share (after dilution), USD

Note

3, 4

3, 8,

10-12, 21

2017

119.3

-34.9

84.4

-39.5

-0.3

-5.9

38.4

3.0

-8.3

5.3

33.1

–

33.1

4.5

37.6

–

2016

87.1

-36.6

50.5

-44.4

-0.1

-0.7

-5.8

0.5

9.4

-6.2

3.2

2.7

–

2.7

-7.0

7.0

4.4

-4.4

–

35,543,750

35,895,500

36,232,460

34,170,474

34,324,020

34,385,463

34,372,065

0.97

0.96

0.08

Consolidated balance sheet

As at 31 December, MUSD

Note

2017

2016

ASSETS

Non current assets

Oil and gas properties

Office equipment

Investment in associates

Current assets

Other receivables

Prepaid expenses

Cash and cash equivalents

TOTAL ASSETS

SHAREHOLDERS' EQUITY AND LIABILITIES

Shareholders' equity

Share capital

Additional paid in capital

Reserves

Retained earnings

Total shareholders' equity

Non current liabilities

Non current provisions

Current liabilities

Current provisions

Accounts payable and other current liabilities

Loan facility

Total liabilities

TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES

189.7

0.0

189.7

12.7

0.3

42.0

55.0

191.1

0.1

0.3

191.5

7.4

1.1

39.0

47.5

244.7

239.0

0.8

71.0

3.4

153.3

228.5

9.1

1.0

6.1

–

7.1

16.2

244.7

0.8

71.0

-1.1

126.2

196.9

8.8

1.9

31.4

–

33.3

42.1

239.0

Consolidated statement of changes in equity

MUSD

Share capital

Paid in capital

Other reserves

Retained earnings

Total equity

Attributable to shareholders of the parent company

Opening balance 1 January 2016

0.8

71.0

Comprehensive income

Result for the year 2016

Currency exchange differences for the year
2016

Total comprehensive income

Transactions with owners

Purchase of own shares

Dividends paid

Share redemption

Incentive programme

Total transactions with owners

Closing balance 31 December 2016

Opening balance 1 January 2017

Comprehensive income

Result for the year 2017

Currency exchange differences for the year
2017

Total comprehensive income

Transactions with owners

Purchase of own shares

Dividends paid

Incentive programme

Total transactions with owners

–

0.8

–

71.0

–

5.9

–

-7.0

7.0

–

1.1

–

4.5

–

139.5

217.2

2.7

–

2.7

-1.5

-3.7

-10.9

0.3

15.8

126.2

33.1

–

33.1

-2.3

-3.9

0.3

5.9

2.7

7.0

4.4

1.5

3.7

10.9

0.3

15.8

196.9

33.1

4.5

37.6

2.3

3.9

0.3

5.9

Closing balance 31 December 2017

0.8

71.0

3.4

153.3

228.5

Consolidated cash flow statement

1 January – 31 December, MUSD

Note

2017

2016

Cash flow from operations

Operating result

Interest received

Interest paid

Income tax

Adjustment for exploration costs

Adjustment for depletion, depreciation and other non-cash related items

Total cash flow from operations before change in working capital

Change in receivables

Change in liabilities

Cash flow from operations

Investment activity

Investment in oil and gas properties

Cash from associated companies, net

Cash flow from investment activity

Financing activity

Purchase of own shares

Share redemption

Dividend

Cash flow from financing activity

Period cash flow

Cash and cash equivalents at the beginning of the period

Exchange gains/losses on cash and cash equivalents

Cash and cash equivalents at the end of the period

38.4

–

-0.2

–

0.3

38.2

76.7

-5.4

-21.2

50.1

-40.4

–

40.4

-2.3

–

-3.9

6.2

3.5

39.0

-0.5

42.0

-0.5

–

-0.7

–

0.1

45.8

44.7

-1.8

9.8

52.7

-48.5

0.1

48.4

-1.7

-11.6

-4.1

17.4

13.1

51.2

0.9

39.0

Financial statements for the parent company

Parent Company income statement

1 January – 31 December, MSEK

Other income

Share of net profit/loss from associates

Administrative expenses

Operating result

Financial income and similar items

Financial expenses and similar items

Write down of shares in subsidiaries

Net financial result

Appropriations

Result before tax

Income tax

Result for the year1

Note

10–12, 21

2017

10.9

-2.8

-31.2

23.1

164.6

-53.6

-2.9

108.1

–

85.0

–

85.0

2016

10.6

-5.6

-31.3

26.3

85.1

-31.5

-7.0

46.6

3.1

23.4

–

23.4

1 As there are no items in the parent company’s other comprehensive income, no separate report on total comprehensive income is presented.

Parent Company balance sheet

As at 31 December, MSEK

Note

2017

2016

0.1

0.9

355.6

0.0

356.6

5.5

0.7

58.2

64.4

421.0

5.9

71.1

481.0

-262.9

85.0

380.1

5.7

35.2

40.9

421.0

0.2

1.0

275.3

2.7

279.2

2.8

0.7

104.6

108.1

387.3

5.9

71.1

481.0

-235.2

23.4

346.2

3.8

37.3

41.1

387.3

ASSETS

Noncurrent assets

Other fixed assets

Shares in subsidiaries

Long term receivables from group companies

Investment in associates

Current assets

Other receivables

Prepaid expenses

Cash and cash equivalents

TOTAL ASSETS

SHAREHOLDERS' EQUITY AND LIABILITIES

Shareholders' equity

Restricted equity:

Share capital

Statutory reserve

Unrestricted equity:

Share premium reserve

Retained earnings

Result for the year

Total shareholders' equity

Current liabilities

Accounts payable and other current liabilities

Other current liabilities to group companies

Total liabilities

TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES

Parent Company statement of changes in equity

Restricted equity

Unrestricted equity

MSEK

Share
capital

Statutory
reserve

Share
premium
reserve

Opening balance 1 January 2016

5.9

71.1

481.0

Transfer of prior year net result

Comprehensive income

Result for the year 2016

Period result

Total comprehensive income

Transactions with owners

Purchase of own shares

Dividends paid

Share redemption

Incentive programme

Total transactions with owners

Closing balance 31 December 2016

Opening balance 1 January 2017

Transfer of prior year net result

Comprehensive income

Result for the year 2017

Period result

Total comprehensive income

Transactions with owners

Purchase of own shares

Dividends paid

Incentive programme

Total transactions with owners

–

5.9

–

71.1

481.0

–

Retained
earnings

396.4

310.2

–

-14.6

-34.4

-102.6

2.6

149.0

235.2

23.4

–

-19.3

-34.2

2.4

51.1

Net
result

310.2

-310.2

23.4

–

23.4

-23.4

85.0

–

Total equity

471.9

–

23.4

14.6

34.4

102.6

2.6

149.0

346.2

–

85.0

19.3

34.2

2.4

51.1

Closing balance 31 December 2017

5.9

71.1

481.0

262.9

85.0

380.1

Parent Company cash flow statement

1 January – 31 December, MSEK

Note

2017

2016

Cash flow from operations

Operating result

Interest received

Interest paid

Adjustment for non cash related items

Total cash flow from operations before change in working capital

Change in receivables

Change in liabilities

Cash flow from operations

Investment activity

Dividend from associated companies

Investment in long term receivables

Cash flow from investment activity

Financing activity

Purchase of own shares

Dividends paid

Share redemption

Cash flow from financing activity

Cash flow for the year

Cash and cash equivalents at the beginning of the year

Exchange gains on cash and cash equivalents

Cash and cash equivalents at the end of the year

-23.1

0.0

-3.1

26.2

-2.7

-0.2

29.1

–

43.4

-19.3

-34.2

–

53.5

39.2

104.6

-7.2

58.2

-26.3

0.0

9.5

16.8

-1.2

-33.9

51.9

6.4

-71.9

65.6

-14.6

-34.4

-102.6

151.7

269.2

365.8

8.0

104.6

Notes

General information
Tethys Oil AB (publ) (“the Company”), corporate identity number 556615-
8266, and its subsidiaries (together “the Group” or “Tethys Oil”) are
focused on exploration for and production of oil and natural gas. The Group
has interests in exploration licences in Oman, France and Lithuania. The
Company is a limited liability company incorporated and domiciled in Stock-
holm, Sweden. The Company is listed on Nasdaq Stockholm.

These consolidated financial statements have been approved for issue by
the board of directors on 4 April 2018.

Basis of preparation
The annual report of Tethys Oil AB/the Group have been prepared in accord-
ance with prevailing International Financial Reporting Standards (IFRS) and
IFRS Interpretations Committee (IFRIC) interpretations adopted by the EU
Commission and the Swedish Annual Accounts Act (1995:1554). In addi-
tion RFR 1 “Supplementary Rules for Groups” has been applied as issued
by the Swedish Financial Reporting Board.

The preparation of financial statements in conformity with IFRS requires the
use of certain critical accounting estimates. It also requires management
to exercise its judgement in the process of applying the Group’s accounting
policies. The areas involving a higher degree of judgement or complexity, or
areas where assumptions and estimates are significant to the consolidated
financial statements are disclosed in note 2.

The consolidated financial statements have been prepared under the his-
torical cost basis except as disclosed in the accounting policies below.

Accounting principles
The accounting principles applied in the preparation of these consolidated
financial statements are set out below. The same accounting principles
were used in the Annual report 2016 and have been consistently applied to
all the years presented. The Annual report of the Group has been prepared
in accordance with International Financial Reporting Standards (IFRS) as
adopted by the EU, the Annual Accounts Act and RFR 1 “Supplementary
rules for groups”. The Annual report for the Parent company has been pre-
pared in accordance with the Annual Accounts Act and Swedish Financial
Accounting Standards Council’s RFR 2 “Accounting for legal entities”. RFR
2 means that the parent company in the annual report for the legal entity
shall apply IFRS’ rules and statements as adopted by the EU, so far this is
possible within the framework of the Annual Accounts Act and with regard
to the connection between accounting and taxation. The recommendation
states which exceptions and additions that shall be or are allowed to be
made from IFRS. The accounting principles of the Parent company are the
same as for the Group, except in the cases specified below in the section
entitled “Parent Company accounting principles”.

New accounting principles for 2017
IASB has issued several amendments to financial standards effective as
from 1 January 2017 of which no one has had any material impact on the
consolidated financial statements of the Group.

New standards and interpretations not yet adopted
A number of new standards and amendments to standards and interpreta-
tions are effective for annual periods beginning after 1 January 2017, and
have not been applied in preparing these consolidated financial statement.
None of these is expected to have a significant effect on the consolidated
financial statements of the Group, except the following set out below:

IFRS 15, ‘Revenue from contracts with customers’ deals with revenue rec-
ognition and establishes principles for reporting useful information to users
of financial statements about the nature, amount, timing and uncertainty
of revenue and cash flows arising from an entity’s contracts with custom-
ers. Revenue is recognised when a customer obtains control of a good or
service and thus has the ability to direct the use and obtain the benefits
from the good or service. The standard replaces IAS 18 ‘Revenue’ and
IAS 11 ‘Construction contracts’ and related interpretations. The standard
is effective for annual periods beginning on or after 1 January 2018 and
earlier application is permitted. The Group has assessed the impact of
IFRS 15 and has concluded that the standard will not cause any change in

timing, nor have any material effects on the Group financial reporting apart
from changes in presentation where the liftings position will be separately
disclosed. The effect of the standard on the Group reporting is illustrated in
the comparative table below.

Reporting of revenue under old accounting principles as presented in
disclosures

MUSD

Net sales,

2017

2016

2015

2014

2013

119.9

95.4

104.8

152.1

90.7

Underlift (overlift)

-0.6

-2.4

2.2

-2.8

1.5

Overlift adjustment Export Report-
ing Error

–

-5.9

–

Revenue

119.3

87.1

107.0

149.3

92.2

Reporting of revenue and other gains and losses under new accounting
principles as presented in disclosures

MUSD

Revenue

2017

2016

2015

2014

2013

119.9

95.4

104.8

152.1

90.7

Underlift (overlift)

-0.6

-2.4

2.2

-2.8

1.5

Overlift adjustment Export Report-
ing Error

–

-5.9

–

Net income from oil production

119.3

87.1

107.0

149.3

92.2

MUSD

2017

2016

2015

2014

2013

EBITDA, old accounting principles

EBITDA, new accounting principles

78.2

44.0

58.6

108.0

58.6

108.0

74.8

Earnings per share, old accounting

principles, USD per share

0.96

0.08

0.67

1.39

1.07

Earnings per share, new account-
ing principles, USD per share

0.96

0.08

0.67

1.39

1.07

Shareholders’ equity,
old accounting principles

Shareholders’ equity,
new accounting principles

228.5

196.9

217.2

214.3

168.4

228.5

196.9

217.2

214.3

168.4

IFRS 9, ‘Financial instruments’, addresses the classification, measurement
and recognition of financial assets and financial liabilities. The complete
version of IFRS 9 was issued in July 2014. It replaces the guidance in IAS
39 that relates to the classification and measurement of financial instru-
ments. IFRS 9 retains but simplifies the mixed measurement model and
establishes three primary measurement categories for financial assets.
The standard is effective for accounting periods beginning on or after
1 January 2018. The Group has elected not to adopt the standard early.
The Group has assessed the impact of IFRS 9 and has concluded that the
standard will not have any material effects on the Group financial reporting.

IFRS 16, ‘Leases’ In January 2016, IASB issued a new lease standard that
will replace IAS 17 Leases and the related interpretations IFRIC 4, SIC-15
and SIC-27. The standard requires assets and liabilities arising from all
leases, with some exceptions, to be recognized on the balance sheet. This
model reflects that, at the start of a lease, the lessee obtains the right
to use an asset for a period of time and has an obligation to pay for that
right. The accounting for lessors will in all material aspects be unchanged.
The standard is effective for annual periods beginning on or after 1 Janu-
ary 2019. Early adoption is permitted. The EU has not yet adopted the
standard. The standard will primarily impact the accounting of the group’s
operational leases. At present the group only has leases for office rent and
other leases concerning items of lesser value, such as copying machines.
Considering the few leases in the group, the preliminary assessment is that
the standard will have no material impact on the group.

There are no other IFRSs or IFRIC interpretations that are not yet effective
that would be expected to have a material impact on the Group.

Principles of consolidation
Subsidiaries are all entities (including structured entities) over which the
group has control. The Group controls an entity when the group is exposed
to, or has rights to variable returns from its involvement with the entity and
has the ability to affect those returns through its power over the entity. Sub-
sidiaries are fully consolidated from the date on which control is transferred
to the Group. They are de-consolidated from the date that control ceases.

The Group uses the acquisition method of accounting to account for busi-
ness combinations. The consideration transferred for the acquisition of a
subsidiary is the fair values of the assets transferred, the liabilities incurred
and the equity interests issued by the group. The consideration transferred
includes the fair value of any asset or liability resulting from a contingent
consideration arrangement. Acquisition-related costs are expensed as
incurred. Identifiable assets acquired and liabilities and contingent liabili-
ties assumed in a business combination are measured initially at their
fair values at the acquisition date. On an acquisition-by-acquisition basis,
the group recognises any non-controlling interest in the acquiree either at
fair value or at the non-controlling interest’s proportionate share of the
acquiree’s net assets.

Inter-company transactions, balances and unrealised gains on transactions
between group companies are eliminated. Unrealised losses are also elimi-
nated. Accounting policies of subsidiaries have been changed where neces-
sary to ensure consistency with the policies adopted by the Group.

Joint arrangements
Under IFRS 11 Joint Arrangements investments in joint arrangements
are classified as either joint operations or joint ventures. The classifica-
tion depends on the contractual rights and obligations of each investor,
rather than the legal structure of the joint arrangement. Tethys Oil has joint
operations.

Joint operations
Tethys Oil recognises its direct right to the assets, liabilities, revenues and
expenses of joint operations and its share of any jointly held or incurred
assets, liabilities, revenues and expenses. These have been incorporated
in the financial statements under the appropriate headings. The Group con-
ducts oil- and gas operations as a joint operation that does not have a
separate legal entity status through licenses which are held jointly with
other companies. The Groups financial statements reflect the Groups share
of production, capital costs, operational costs, current assets and liabilities
in the joint operations.

Associated companies
An investment in an Associated company is an investment in an undertak-
ing where the Group exercises significant influence but not control, gener-
ally accompanying a shareholding of at least 20 percent but not more than
50 percent of the voting rights. Such investments are accounted for in the
consolidated financial statements in accordance with the equity method
and are initially recognized at cost. The difference between the acquisi-
tion cost of shares in an associated company and the net fair value of the
assets, liabilities and contingent liabilities of the associated company rec-
ognised at the date of acquisition is recognised as goodwill. The goodwill
is included within the carrying amount of the investment and is assessed
for impairment as part of the investment. The Group’s share in the post-
acquisition results of the associated company is recognised in the income
statement and the Group’s share in post-acquisition movements in other
comprehensive income of the associated company is recognised directly
in other comprehensive income of the Group. When the Group’s accumu-
lated share of losses in an associated company equals or exceeds its
interest in the associated company, the Group does not recognise further
losses, unless it has incurred obligations or made payments on behalf of
the associate.

Unrealised gains on transactions between the Group and its associates are
eliminated to the extent of the Group’s percentage in the associates. Unre-
alised losses are also eliminated unless the transaction provides evidence
of an impairment of the asset transferred. Accounting policies of associ-
ates have been changed where necessary to ensure consistency with the
policies adopted by the Group.

Foreign currencies
Items included in the financial statements of each of the Group’s entities
are measured using the currency of the primary economic environment in
which the entity operates (‘functional currency’). The consolidated financial

statements are presented in US dollars (USD) which is the currency the
Group has elected to use as the presentation currency.

Transactions and balances
Monetary assets and liabilities denominated in foreign currencies are
translated at the rates of exchange prevailing at the balance sheet date
and foreign exchange currency differences are recognised in the income
statement. Transactions in foreign currencies are translated at exchange
rates prevailing at the transaction date. Exchange differences are included
in financial income/expenses in the income statement. Goodwill and fair
value adjustments arising on the acquisition of a foreign entity are treated
as assets and liabilities of the foreign entity and translated at the balance
sheet rate of exchange.

Presentation currency
The balance sheets and income statements of foreign Group companies
are translated for consolidation purposes using the current rate method.
All assets and liabilities of the subsidiary companies are translated at the
balance sheet date rates of exchange, whereas the income statements are
translated at average rates of exchange for the year, except for transac-
tions where it is more relevant to use the rate of the day of the transac-
tion. The translation differences which arise are recorded directly in the
foreign currency translation reserve within other comprehensive income.
Upon disposal of a foreign operation the translation differences relating
to that operation will be transferred from equity to the income statement
and included in the result on sale. Translation differences arising from net
investments in subsidiaries, used for financing exploration activities, are
recorded directly in other comprehensive income.

For the preparation of the financial statements for the reporting period, the
following exchange rates have been used.

31 December 2017

31 December 2016

Currency

2017 Average

2017 Period end

2016 Average

2016 Period end

SEK/USD

SEK/EUR

8.67

9.73

8.44

10.00

8.63

9.52

9.42

9.80

Segment reporting
Operating segments are based on geographic perspective and reported in
a manner consistent with the internal reporting provided to the Executive
Management.

Classification of assets and liabilities
Non-current assets, long-term liabilities and provisions consist for the most
part solely of amounts that are expected to be recovered or paid more than
twelve months after the balance sheet date. Current assets and current
liabilities consist solely of amounts that are expected to be recovered or
paid within twelve months after the balance sheet date.

Oil and gas properties
Oil and gas properties are initially recorded at historical cost, where it is
probable that they will generate future economic benefits. All costs for
acquiring concessions, licences or interests in production sharing con-
tracts and for the survey, drilling and development of such interests are
capitalised on a field area cost centre basis. This includes capitalisation
of decommissioning and restoration costs associated with provisions
for asset retirement (see “Provisions”). Oil and gas properties are sub-
sequently carried at cost less accumulated depreciation, depletion and
amortisation (including any impairment). Gains and losses on disposals
are determined by comparing the proceeds with the carrying amounts of
assets sold and are recognised in income.

Routine maintenance and repair costs for producing assets are expensed
to the income statement when they occur.

Proceeds from the sale or farm-out of oil and gas concessions in the explo-
ration stage are off set against the related capitalised costs of each cost
centre with any excess of net proceeds over all costs capitalised included
in the income statement. In the event of a sale in the exploration stage any
deficit is included in the income statement.

Oil and gas properties are categorised as either producing or non-producing.

Depreciation, depletion and amortisation
Producing oil and gas properties are depleted on a unit-of-production basis
over the proved and probable reserves of the field concerned, except in the
case of assets whose useful lives differ from the lifetime of the field, in
which case the straight-line method is applied.

In accordance with the unit of production method, net capitalised costs to
reporting date, together with anticipated future capital costs for the devel-
opment of the proved and probable reserves determined at the balance
sheet date price levels, are depleted based on the year’s production in rela-
tion to estimated total proved and probable reserves of oil and gas. Deple-
tion of a field area is charged to the income statement once commercial
production commences, under Depletion, depreciation and amortisation.

Proved reserves are those quantities of petroleum which, by analysis of
geological and engineering data, can be estimated with reasonable cer-
tainty to be commercially recoverable, from a given date forward, from
known reservoirs and under current economic conditions, operating meth-
ods and governmental regulations. Proved reserves can be categorised as
developed or undeveloped. If deterministic methods are used, the term
reasonable certainty is intended to express a high degree of confidence
that the quantities will be recovered. If probabilistic methods are used,
there should be at least a 90 percent probability that the quantities actually
recovered will equal or exceed the estimates.

Probable reserves are those unproved reserves which analysis of geologi-
cal and engineering data suggests are more likely than not to be recover-
able. In this context, when probabilistic methods are used, there should
be at least a 50 percent probability that the quantities actually recovered
will equal or exceed the sum of estimated proved plus probable reserves.

Exploration costs
Exploration costs relate to non-producing oil and gas properties and are
recognised in the income statement when a decision is made not to pro-
ceed with an oil and gas project, or when expected future economic benefits
of an oil and gas project are less than capitalised costs. No depletion is
charged to non-producing oil and gas properties.

Costs related to non-producing oil and gas properties and directly asso-
ciated with an exploration well are capitalised until the determination of
reserves is evaluated. If it is determined that a commercial discovery has
not been achieved, these exploration costs are charged to the income
statement as exploration costs.

The field will be transferred from the non-production cost pool to the pro-
duction cost pool within oil and gas properties once commercial production
commences, and accounted for as a producing asset.

Impairment
Tethys Oil continuously assesses its producing oil and gas properties for
any need for impairment testing. This is performed in conjunction with each
balance sheet date or if there are events or changes in circumstances that
indicate that carrying values of assets may not be recoverable. Such indica-
tors include changes in the Group’s business plans, relinquished licences,
changes in raw materials prices leading to lower revenues and, for oil and
gas properties, downward revisions of estimated reserve quantities.

Testing for impairment losses is performed when necessary for each cash
generating unit, which corresponds to licence right, production sharing
agreement or equivalent owned by Tethys Oil. A cash generating unit thus
usually corresponds to each acquired asset in each country in which Tethys
Oil carries on oil and gas operations. Impairment testing means that the
balance sheet item amount for each cash generating unit is compared to
the recoverable amount for the assets, which is the higher of the fair value
of the assets less sales expenses and the value in use. The value in use
of the assets is based on the present value of future cash flows discounted
by a discount rate; see also Note 8 under the section Impairment testing.
An impairment loss is recorded when an asset’s or a cash generating unit’s
recorded value exceeds the recoverable amount. Impairment losses are
charged to the income statement.

Interest
Interest on borrowings to finance the acquisition of producing oil and gas
properties is charged to income as incurred. Interest on borrowings to
finance fields under development is capitalized within oil and gas proper-
ties until production commences.

Valuation principles financial items
The Group classifies its financial assets in the following categories: at fair
value through profit or loss, loans and receivables and other liabilities. The
classification depends on the purpose for which the financial assets were
acquired. Management determines the classification of its financial assets
at initial recognition.

Tethys Oil reports a financial asset or a financial liability in the balance
sheet when it becomes a party to the instrument’s contractual terms.
Tethys Oil derecognises a financial liability or part thereof when the obli-
gation stated in the relevant contract is fulfilled or otherwise terminated.

Tethys Oil bases the fair value of financial instruments depending on avail-
able market data at time of valuation. Data are categorised into three cat-
egories; Level 1: quoted prices in active markets. Level 2: valuation based
on observable market data. Level 3: valuation techniques incorporating
information other than observable market data. The reported value – after
any impairment – of accounts receivable and accounts payable is assumed
to equate to their fair value, since these entries are short-term in nature.

a) Financial assets and liabilities at fair value through profit or loss
Financial assets and liabilities at fair value through profit or loss are finan-
cial assets held for trading. A financial asset and liabilities are classified in
this category if acquired principally for the purpose of selling in the short
term. Derivatives are also categorised as held for trading unless they are
designated as hedges. Assets and liabilities in this category are classified
as current assets or liabilities if expected to be settled within 12 months;
otherwise, they are classified as non-current.

Financial assets and liabilities carried at fair value through profit or loss
are both initially and subsequently recognised at fair value, and transaction
costs are expensed in the income statement.

b) Receivables and other receivables
Receivables and other receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active market.
They are included in current assets, except for maturities greater than 12
months after the end of the reporting period. These are classified as non-
current assets. The group’s receivables comprise ‘trade and other receiva-
bles’ and ‘cash and cash equivalents’ in the balance sheet. Receivables
and other receivables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method. Assets
are also measured less provision for impairment.

c) Other liabilities
Other liabilities are non-derivative financial liabilities with fixed or determi-
nable payments that are not quoted in an active market. They are included
in current liabilities, except for maturities greater than 12 months after the
end of the reporting period. These are classified as non-current liabilities.
Other liabilities are recognised initially at fair value and subsequently meas-
ured at amortised cost using the effective interest method.

d) Impairment of financial assets
The group assesses at the end of each reporting period whether there
is objective evidence that a financial asset or group of financial assets
is impaired. A financial asset or a group of financial assets is impaired
and impairment losses are incurred only if there is objective evidence of
impairment as a result of one or more events that occurred after the initial
recognition of the asset (a ‘loss event’) and that loss event (or events) has
an impact on the estimated future cash flows of the financial asset or group
of financial assets that can be reliably estimated. For loans and receivables
category, the amount of the loss is measured as the difference between
the asset’s carrying amount and the present value of estimated future
cash flows (excluding future credit losses that have not been incurred) dis-
counted at the financial asset’s original effective interest rate. The carrying
amount of the asset is reduced and the amount of the loss is recognised in
the consolidated income statement.

Fixed assets other than oil and gas
Other tangible fixed assets are stated at cost less accumulated depre-
ciation. Depreciation is based on cost and is calculated on a straight line
basis over the estimated economic life of 3 to 5 years for office equipment
and other assets.

Additional costs to existing assets are included in the assets’ net book
value or recognised as a separate asset, as appropriate, only when it is

probable that future economic benefits associated with the item will flow to
the Group and the cost of the item can be measured reliably.

The net book value of any replaced parts is written off. Other additional
expenses are deemed to be repair and maintenance costs and are charged
to the income statement when they are incurred. The net book value is writ-
ten down immediately to its recoverable amount when the net book value
is higher. The recoverable amount is the higher of an asset’s fair value less
cost to sell and value in use.

Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand, short-term
deposits, money market funds and commercial paper that have a maturity
of three months or less at the date of acquisition.

Equity
Share capital consists of the registered share capital for the Parent Com-
pany. Share issue costs associated with the issuance of new equity are
treated as a direct reduction of proceeds. Excess contribution in relation to
the issuance of shares is accounted for in the item additional paid-in-capital.

Should any Group company purchase parent company shares (repurchase
of own shares) the proceeds including any directly attributable transaction
costs (net after tax) will reduce equity attributable to the shareholders of
the parent company until the shares are annulled or realized. If the shares
are realized, proceeds net after directly attributable transaction costs and
tax effects are shown in equity attributable to the shareholders of the par-
ent company.

The currency translation reserve contains unrealised translation differ-
ences due to the conversion of the functional currencies into the presenta-
tion currency.

Retained earnings contain the accumulated results attributable to the
shareholders of the Parent Company.

Provisions
A provision is reported when Tethys Oil has a legal or constructive obligation
as a consequence of an event and when it is more likely than not that an
outflow of resources is required to settle the obligation and a reliable esti-
mate can be made of the amount. Provisions are measured at the present
value of the expenditures expected to be required to settle the obligation
using a pre-tax rate that reflects current market assessments of the time
value of money and the risks specific to the obligation. The increase in the
provision due to passage of time is recognised as financial expense.

On fields where the Group is required to contribute to site restoration costs,
a provision is recorded to recognise the future commitment. An asset is
created, as part of the oil and gas properties, to represent the discounted
value of the anticipated site restoration liability and depleted over the life
of the field on a unit of production basis. The corresponding accounting
entry to the creation of the asset recognises the discounted value of the
future liability. The discount applied to the anticipated site restoration
liability is subsequently released over the life of the field and is charged
to financial expenses. Changes in site restoration costs and reserves are
treated prospectively and consistent with the treatment applied upon initial
recognition.

Borrowings
Borrowings are recognised initially at fair value, net of transaction costs
incurred. Borrowings are subsequently stated at amortised costs using the
effective interest method, with interest expense recognised on an effective
yield basis. The effective interest method is a method of calculating the
amortised cost of a financial liability and of allocating interest expense
over the relevant period. The effective interest rate is the rate that exactly
discounts estimated future cash payments through the expected life of the
financial liability, or a shorter period where appropriate.

Revenue
Revenues from the sale of oil and gas are recognised in the income state-
ment net of royalties in kind or in cash (government take). Revenues asso-
ciated with the sale of crude oil are recognized at the fair value of the
consideration received or receivable when the significant risks and rewards
of ownership have been transferred, which is when title passes from Tethys
Oil to the customer. For Tethys Oil’s operations, customers take title when
the crude oil is loaded onto a tanker.

Underlift and overlift
Crude oil and natural gas produced and sold, below or above Tethys Oil’s
working interest share in the related oil and gas property, results in produc-
tion underliftings, or overliftings. Underliftings are recorded as Other receiv-
ables valued at market value, and overliftings are recorded in Other cur-
rent liabilities and accrued at the market value. Underliftings are reversed
from Other receivables when the crude oil is lifted and sold. Overliftings
are reversed from Other current liabilities when sufficient volumes are pro-
duced to make up the overlifted volume.

Profit oil and cost recovery
Blocks 3&4, being Tethys Oil’s main and only producing oil and gas prop-
erty, is governed by an Exploration and Production Sharing Contract (EPSA).
Under the EPSA, revenues are derived from cost recovery oil and gas and
profit oil and gas. Cost recovery oil and gas allows Tethys Oil to generally
recover all investments and operating expenses (CAPEX and OPEX). Profit
oil and gas is allocated to the host government and contract parties in
accordance with their respective equity interests.

Other
Incidental revenues from the production of oil and gas are offset against
capitalised costs of the related cost centre until quantities of proven and
probable reserves are determined or commercial production has com-
menced. Service income, generated by providing technical and manage-
ment services to joint operations, is recognised as other income.

Income taxes
Presented income taxes include tax payable or tax receivable for the report-
ing period, adjustments in regard to previous year’s taxes and changes in
deferred tax.

Valuations of all tax liabilities/claims is in nominal amounts and are pre-
pared in accordance with tax legislation and tax rates decided or announced
and at which they are likely to be resolved.

The tax expense for the period comprises current and deferred tax. Tax is
recognised in the income statement, except to the extent that it relates
to items recognised in other comprehensive income or directly in equity.
In this case, the tax is also recognised in other comprehensive income or
directly in equity, respectively. Deferred income tax is recognised, using the
liability method, on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the consolidated finan-
cial statements. Deferred income tax assets are recognised only to the
extent that it is probable that future taxable profit will be available against
which the temporary differences can be utilised.

Employee benefits
Short-term employee benefits such as salaries, social premiums and holi-
day pay, are expensed when incurred.

Pension obligations
The majority of the pension obligations of the Group are governed by legally
required social costs. Additional pension schemes exists which are funded
through payments to insurance companies. These are defined contribution
plans. A defined contribution plan is a pension plan under which the group
pays fixed contributions into a separate entity. The Group has no legal or
constructive obligations to pay further contributions should this legal entity
not hold sufficient assets to pay all employees the benefits relating to
employee service in the current or prior periods.

Share based incentive programme
Equity-settled share based payments are recognized in the income state-
ment as administrative expenses and as equity in the balance sheet. The
option is measured at fair value at the date of grant using the Black &
Scholes options pricing model and is charged to the income statement
without revaluation of the value of the option.

Severance pay
Severance pay is payable when employment is terminated by the Group
before the normal retirement date, or whenever an employee accepts volun-
tary redundancy in exchange for the severance pay. The Group recognises
severance pay when it is demonstrably committed to either: terminating
the employment of current employees according to a detailed formal plan
without possibility of withdrawal; or providing severance pay as a result
of an offer made to encourage voluntary redundancy. Benefits falling due
more than 12 months after the balance sheet date are discounted to their
present value.

Related party transactions
Tethys Oil recognises the following related parties: associated companies,
jointly controlled entities, members or the family of the key management
personnel or other parties that are partly, directly or indirectly, controlled by
key management personnel or of its family or of any individual that controls,
or has joint control or significant influence over the entity.

Parent Company accounting principles
The Parent Company has prepared its Annual Report in compliance with
Swedish Annual Accounts Act and recommendation RFR 2, Accounting for
Legal Entities of the Swedish Financial Reporting Board.

Financial instruments
Assets and liabilities are recognised initially at fair value plus transaction
costs and subsequently measured at amortised cost unless stated other-
wise. Financial assets are derecognised when the rights to receive cash
flows from the investments have expired, or have been transferred and the
Group has transferred substantially all risks and rewards of ownership. IAS
39 is not applied.

Subsidiaries
Holdings in subsidiaries are recognized in the Parent Company financial
statements according to the cost method of accounting. The values of sub-
sidiaries are tested for impairment when there is an indication of a decline
in the value.

Group contributions
The parent company uses the alternative method in accounting for group
contributions and records paid as well as received contributions as appro-
priations in the income statement.

Taxes
The Parent Company’s financial statements recognize untaxed reserves
including deferred tax. The consolidated financial statements, however,
reclassify untaxed reserves to deferred tax liability and equity.

Note 1, Risk management
The Group’s activities expose it to a number of risks and uncertainties
which are continuously monitored and reviewed. Presented below are the
main risks and uncertainties of the group as identified by the directors and
how the group handles these risks.

Operational risk management
Technical and geological risk
At its current stage of development Tethys Oil is partly commercially produc-
ing oil and partly exploring for and appraising undeveloped known oil and/
or natural gas accumulations. The operational risk is different in these
different parts of Tethys Oil’s operations. The main operational risk in explo-
ration and appraisal activities is that the activities and investments made
by Tethys Oil and its partners will not evolve into commercial reserves of
oil and gas.

Oil price
The oil price is of significant importance to Tethys Oil in all parts of opera-
tions as income and profitability is and will be dependent on prices pre-
vailing from time to time. Significantly lower oil prices will reduce current
and expected profitability in projects and can make projects sub economic.
Lower oil prices could also decrease the industry interest in Tethys Oil’s
projects regarding farmout or sale of assets. There were no oil price hedges
in place as per 31 December 2017.

Tethys Oil’s has a flexible approach towards oil price hedging, based on
an assessment of the benefits of the hedge contract in specific circum-
stances. Based on analysis of the circumstances Tethys Oil will assess the
benefits of forward hedging sales contracts for the purpose of establishing
a secured cash flow. If Tethys Oil believes that the hedging contract will
provide an enhanced cash flow or if the risk of not being able to meet
investment commitments is high, then Tethys Oil may choose to enter into
an oil price hedge.

Net result in financial statements (MUSD)

Shift in oil price (USD/barrel)

Total effect on net result (MUSD)

33.1

11.4

33.1

-5

-11.4

Access to equipment
An operational risk factor is access to equipment in Tethys Oil’s project.
Especially in the drilling/development phase of a project the group is
dependent on advanced equipment such as rigs, casing, pipes etc. A short-
age of theses supplies can present difficulties for Tethys Oil to fulfil pro-
jects. Limited access to drilling rigs has in the past led to cost increases
and has in part been the cause of project delays.

Political risk
Tethys Oil has operations, alone or with partners, in several different coun-
tries and can therefore be subject to political risk. The political risks are
monitored and factored in when evaluating possible projects. Asset diversi-
fication is again Tethys Oil’s principal approach to deal with this risk. Spe-
cifically, Tethys Oil also deals with political risk by emphasising continuous
close dialog with host country authorities and interest groups, nationally
as well as locally. Tethys Oil holds its oil and gas interest through licences,
directly or indirectly, which are granted by national governments. Tethys Oil’s
operations are often also subject to local permits. Therefore Tethys Oil and
the industry are subject to a wide range of political risks on different levels
and the business is highly sensitive to political changes.

Environment
Oil and gas operations can be environmentally sensitive. Tethys Oil devotes
considerable effort and expense to identify and mitigate any perceived envi-
ronmental risk. The operations are subject to extensive regulatory control
with regard to environmental matters, both on national and international
levels. Environmental legislation regulates inter alia the control of water
and air contamination, waste material, licensing requirements, restrictions
on carrying out operations in environmentally sensitive and littoral areas.

Key personnel
Tethys Oil is dependent on certain key personnel, some of whom have
founded the Company at the same time as they are among the existing
shareholders and members of the board of directors of the Company. These
people are important for the successful development of Tethys Oil. The
Company actively tries to strike an optimal balance between its depend-
ence of key personnel and its methods for retaining these.

Licenses
Tethys Oil’s direct interests are held through agreements with host coun-
tries, for example licenses or production sharing agreements. These agree-
ments are often limited in time and there are no guarantees that the agree-
ments can be extended when a time limit is reached.

Financial risk management
The Group’s activities expose it to a variety of financial risks, mainly catego-
rized as exchange rate risk and liquidity risk. The Group’s risks are continu-
ously monitored and analysed by the board of directors and management.
The aim is to minimise potential adverse effects on the Group’s financial
performance.

Foreign currency risk
The Group is exposed to fluctuations in the foreign exchange markets as
fluctuations in exchange rates can negatively affect the result, cash flow
and equity. The major proportion of the Group’s assets relate to interna-
tional oil and gas discoveries valued in USD and which generate revenues
in USD. During 2017, all of Tethys Oil’s oil sales and operative expenditures
were denominated in USD. The exchange risk affect the Group by transac-
tion risk and translation risk.

Transaction risk
Transaction exposure arises in the cash flow when invoicing or the costs of
invoiced goods and services are not in the local currency. By operating in sev-
eral countries, Tethys Oil is exposed to fluctuations in a number of currencies.
Tethys Oil further holds bank accounts denominated in foreign currencies
and is exposed to fluctuations in exchange rates. Presented below is the
exposure to currencies with reference to items in the financial statements:

Revenue

Investments

External financing at year end

2017

100% in USD

99% in USD

2016

100% in USD

99% in USD

Tethys Oil does not currently hedge exchange rates. The Group’s policy is
to hold a large portion of liquidity in USD to reduce the exchange rate risk.

Translation risk
Exchange-rate changes affect the Group in conjunction with the translation
of the income statements of group entities to USD as the Group’s operat-
ing profit is affected and when net assets are translated into USD which
can negatively affect the Group’s operating profit and statement of financial
position. The parent company has issued loans to its subsidiaries denomi-
nated in USD and exchange rate changes impact the income statement of
the parent company. The Group does not hedge its translation exposure
and fluctuating currency rates might negatively affect the operating profit
and financial position of the Group.

Net result in financial statements (MUSD)

Shift in SEK/USD

Total effect on net result (MUSD)

33.1

+10%

3.3

33.1

-10%

-3.3

Liquidity risks and capital risk
By operating in several countries, Tethys Oil is exposed to currency fluctua-
tions. Income is and will also most likely be denominated in foreign curren-
cies, US dollars in particular. Furthermore, Tethys Oil has since inception
been equity and debt financed through share and bond issues, bank loans
and also financed by asset divestment. Additional capital could be needed
to finance Tethys Oil’s future operations and/or for acquisition of additional
licences. The main risk is that this need could occur during less favourable
market conditions. Tethys Oil continuously ensures that sufficient cash bal-
ances are maintained in order to cover day to day operations. Management
relies on cash forecasting to assess Tethys Oil’s cash position (including
available amounts from lending facility) based on expected future cash flows.

Fall due profile on Tethys Oil’s

financial liabilities

31 December 2017

31 December 2016

MUSD

<1 year

1–3 year

<1 year

1–3 year

Accounts payables and other

liabilities

Total

6.1

–

31.4

–

Credit risk
Tethys Oil’s policy is to limit credit risk by limiting the counter-parties to
major banks and oil trading companies. Tethys Oil is selling all of its oil
through Mitsui Energy Trading Singapore which is part of Mitsui & Co. Ltd.
As at 31 December 2017 the Group’s receivables on oil sales amounted
to MUSD 12.1 (MUSD 7.1), this also represents the maximal exposure on
accounts receivable. There is no history of default. Cash and cash equiv-
alents are maintained with banks having strong long-term credit ratings.
Maximal exposure regarding other financial assets are those presented in
the balance sheet.

It is the responsibility of the board of directors to overview the Group’s capi-
tal structure and financial management, approve certain business regard-
ing acquisition, investments, possible lending as well as on-going monitor-
ing exposure to financial risks.

IAS 39 valuation categories and related balance sheet items

31 December 2017

Financial assets and

liabilities at fair value

Financial
assets at

Financial

liabilities at

MUSD

through profit or loss

amortised cost

Other receivables

Cash and bank

Accounts payable and

other current liabilities

–

12.7

42.0

–

6.1

31 December 2016

Financial assets and

liabilities at fair value

Financial
assets at

Financial

liabilities at

MUSD

through profit or loss

amortised cost

Other receivables

Cash and bank

Accounts payable and

other current liabilities

–

7.4

39.0

–

31.4

All financial assets and liabilities are current and the fair value of these
are deemed to be the carrying amount as the discounting effects are not
material

Events after the balance sheet date
All events up to the date when the financial statements were authorised
for issue and which have a material effect in the financial statements have
been disclosed.

Note 2, Critical accounting estimates and
judgements

Estimates and judgements are continuously evaluated and are based on
historical experience and other factors, including expectations of future
events which are believed to be reasonable under the circumstances. The
Group makes estimates and assumptions concerning the future. The esti-
mates and assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets within the next financial year
are discussed below.

Estimates in oil and gas reserves and resources
The business of the Group is the exploration for, development of and pro-
duction of oil and gas reserves. Estimates of oil and gas reserves and
resources are used in the calculations for impairment tests, in-house mod-
eling and accounting for depletion and site restoration. Changes in esti-
mates in oil and gas reserves and resources, resulting in different future
production profiles, will affect the discounted cash flows used in impairment
testing, the anticipated date of site decommissioning and restoration and
the depletion charges in accordance with the unit of production method.

Site restoration provision
Amounts used in recording a provision for site restoration are estimates
based on current legal and constructive requirements and current technol-
ogy and price levels for the removal of facilities and plugging and abandon-
ing of wells. Due to changes in relation to these items, the future actual
cash outflows in relation to the site decommissioning and restoration can
be different. To reflect the effects due to changes in legislation, require-
ments and technology and price levels, the carrying amounts of site resto-
ration provisions are reviewed on a regular basis. The effects of changes
in estimates do not give rise to prior year adjustments and are treated pro-
spectively over the estimated remaining commercial reserves of each field.
While the Group uses its best estimates and judgement, actual results
could differ from these estimates.

Impairment of oil and gas properties
Tethys Oil continuously assesses its producing oil and gas properties for
any need for impairment testing. This is performed in conjunction with each
balance sheet date or if there are events or changes in circumstances that
indicate that carrying values of assets may not be recoverable. Such indica-
tors include changes in the Group’s business plans, relinquished licences,
changes in raw materials prices leading to lower revenues and, for oil and
gas properties, downward revisions of estimated reserve quantities.

Tax
Tethys Oil has not recorded a deferred tax asset in relation to the tax losses
carried forward as there is uncertainty as to if the tax losses may be utilised
(note 15).

Note 3, Segment information
The Group’s accounting principle for segment describes that operating
segments are based on geographic perspective and reported in a manner
consistent with the internal reporting which is primarily based on income
statement ratios and provided to the executive management, which is con-

sidered to be the chief operating decision maker. The operating result for
each segment is presented below. Revenue and income relate to external
(non-intra group) transactions.

MUSD

Revenue

Operating expenses

Depreciation, depletion and amortisation

Exploration costs

Other income

Net profit/loss from associates

Administrative expenses

Operating result

Total financial items

Result before tax

Income tax

Result for the period

MUSD

Revenue

Operating expenses

Depreciation, depletion and amortisation

Exploration costs

Other income

Net profit/loss from associates

Administrative expenses

Operating result

Total financial items

Result before tax

Income tax

Result for the period

Oman

119.3

-34.9

-39.5

–

-2.0

42.9

Oman

87.1

-36.6

-44.4

–

-1.7

4.4

Group income statement Jan–Dec 2017

Lithuania

Sweden

Other

–

-0.3

–

-0.3

–

-3.5

–

-0.3

–

-0.4

-0.7

Group income statement Jan–Dec 2016

Lithuania

Sweden

Other

–

-0.7

–

-0.7

–

-3.6

–

-0.1

–

-0.4

-0.5

Total

119.3

-34.9

-39.5

-0.3

–

-0.3

-5.9

38.4

-5.3

33.1

–

33.1

Total

87.1

-36.6

-44.4

-0.1

–

-0.7

-5.8

-0.5

3.2

2.7

–

2.7

Oman is Tethys Oil’s only oil producing area from which revenue is recorded
as per 31 December 2017 (and comparative periods). Revenue, operating
expenses and depletion, which is presented in notes 4, 8 and 9, therefore
only relate to Oman and Blocks 3&4 in particular.

Regarding Oil and gas properties, segment reporting is provided in note
8. Please refer to note 1 regarding Credit risk exposure on accounts
receivables.

Note 4, Revenue

MUSD

Net sales,

Underlift (overlift)

Overlift adjustment Export

Reporting Error

Revenue

2017

119.9

-0.6

–

119.3

2016

95.4

-2.4

-5.9

87.1

2016 includes an overlift adjustment of MUSD 5.9 following the estimated
effects of an export reporting error on Blocks 3&4 (the “Export Reporting
Error”), which occurred during the period August 2010 to February 2016.
Tethys Oil estimates that its share of the overestimated volume of oil

amounts to 157,000 barrels (before government take). To rectify the over-
reported quantity of delivered oil, the Blocks 3&4 partners have agreed with
the pipeline operator and the Ministry of Oil and Gas to repay the over-lifted
amount in cash. Tethys Oil estimates, that Tethys Oil’s share of the cash
repayment, will amount to approximately MUSD 5.9, which consequently
has reduced Tethys Oil’s 2016 revenue and result with that amount.

Tethys Oil sells all of its oil to Mitsui Energy Trading Singapore, which is
part of Mitsui & Co Ltd. All oil sales come from Blocks 3&4 Oman and are
made on a monthly basis. Tethys Oil’s average selling price is based on
the monthly average price of the two month future contract of Oman blend
as traded on the Dubai Mercantile Exchange, including trading and quality
adjustments.

Note 5, Other income
Parts of the administrative expenses in Tethys Oil, such as overhead costs
in the Parent company, are charged to oil and gas projects where the
expenditures are capitalised. Other income in the Parent company during
2017 amounted to MSEK 10.9 compared to MSEK 10.6 in 2016. In case
of Tethys Oil being the operator in joint operations, these administrative
expenditures are, through the above, also funded by the partners if such

partners exist. The chargeout to joint operations projects where Tethys Oil
is operator is presented in the consolidated income statement as Other
income. All other internal chargeouts are eliminated in the consolidated
financial statements to the extent related to interest not held by Tethys Oil.
Tethys Oil is as per 31 December 2017 operator in Block 49, Oman and
hold 100% of the license interest.

Note 6, Associated companies
Tethys Oil holds an indirect interest of three Lithuanian companies hold-
ing three licences; Gargzdai, Rietavas and Raiseiniai licences. The interest
is held through two Danish private companies which are part of the Odin

Group of companies, Odin Energi and Jylland Olie. The table below presents
the ownership and the result from associates for the full year 2017.

owns

Tethys Oil AB (publ)

50%

Odin Energy A/S

50%

UAB Minijos Nafta

40%

Jyllands Olie ApS

75%

UAB TAN Oil

100%

Gargzdai, Lithuania

100%

Raseiniai, Lithuania

100%

UAB LL Investicijos

100%

Rietavas, Lithuania

Tethys Oil’s

indirect interest

25%

30%

MUSD

1 January

Tethys Oil’s share of net profit from associated companies

Dividend from associated companies

Exchange differences

Balance end of period

31 Dec 2017

31 Dec 2016

0.3

-0.3

–

1.7

-0.7

–

0.3

Note 7, Provisions
Tethys Oil estimates that Tethys Oil’s share of site restoration regarding
Blocks 3&4 amounts to MUSD 6.1 (4.8). As a consequence of this provi-
sion, oil and gas properties have increased with an equal amount. The
change in provision follows an annual review of the site restoration calcula-
tion where the number of wells drilled is one of the main components that
affect the provision’s net present value.

Tethys Oil has a non-current provision of MUSD 3.0 (4.0) from the estimated
total error amount of MUSD 5.9 from the Export Reporting Error on Blocks
3&4. Tethys Oil also has a current provision of 1.0 (1.9) MUSD related to
the Export Reporting Error.

MUSD

1 January 2017

Additions

Changes in estimates

Unwinding of discount

31 December 2017

Current

Non-current

Total

Abandonment

Other

Abandonment

Other

provision

provisions

Total

MUSD

provision

provisions

Total

4.8

–

1.0

0.3

6.1

–

6.1

5.9

–

-1.9

–

4.0

1.0

3.0

4.0

10.7

1 January 2016

–

Additions

-0.9

0.3

Changes in estimates

Unwinding of discount

10.1

31 December 2016

1.0

9.1

Current

Non-current

10.1

Total

4.0

–

0.5

0.3

4.8

–

4.8

–

5.9

–

5.9

1.9

4.0

5.9

4.0

5.9

0.5

0.3

10.7

1.9

8.8

10.7

Note 8, Oil and gas properties
The agreements that govern the relationship with host countries are
referred to as licences or Exploration and Production Sharing Agreements
(EPSA or PSA). Tethys Oil holds its interest directly through aforementioned
agreements in Oman and France. The agreements with host countries have
a time limit and are normally divided into periods. Financial commitments
and or work commitments normally relates to the different periods. Tethys
Oil has fulfilled its commitments on Blocks 3&4. In Block 49 the initial

work commitments during the first period include geological studies, seis-
mic acquisition and processing and exploratory drilling. In the other areas
of operations the commitments are either fulfilled or there are no commit-
ments of which Tethys Oil can be held liable for. In some of Tethys Oil’s
areas of interest there are requirements of work to be done or minimum
expenditures in order to retain the licences, but no commitments of which
Tethys Oil can be held liable for.

Country

Oman

France

Lithuania

Licence

Blocks 3&4

Blocks 49

Attila

Gargzdai2

Rietavas2

Raseiniai2

Phase

Production

Exploration1

Exploration

Production

Exploration

Expiration date

Tethys Oil

Partners (operator in bold)

July 2040

Nov 20201

Feb 2019

No expiration date

Sep 2022

30%

100%

40%

25%

30%

CCED, Mitsui, Tethys Oil

Tethys Oil

Galli Coz, Tethys Oil

Odin, GeoNafta, Tethys Oil

Odin, Tethys Oil, private investors

1 The exploration and production sharing agreement (EPSA) for Block 49 covers an initial exploration period of three years with an optional extension period of another three years. In case
of a commercial oil or gas discovery, the EPSA will be transformed in to a 15 year production license which can be extended for another five years. In case of a commercial discovery Oman
Government Company, has a right to acquire up to a 30% interest in Block 49 against refunding of past expenditure. The initial work commitments during the first period include geological
studies, seismic acquisition and processing and exploratory drilling.

2 The interest in the three Lithuanian licences are indirectly held through a shareholding in two Danish private companies, which in turn hold shares in Lithuanian companies holding 100
percent of the licences. The two Danish companies, Odin Energi and Jylland Olie, are not consolidated in Tethys Oils financial statements due to the ownership structure, which is why there
are no oil and gas properties related to the licences. The ownership of Jylland Olie and Odin Energi are presented in the balance sheet under Shares in associated companies.

MUSD

Producing cost pools

Non-producing cost pools

Total oil and gas properties

MUSD

Oman Blocks 3&4

Producing

Oman Block 49

Non-producing

France Attila

Non-producing

New ventures

Non-producing

Total

MUSD

Oman Block 49

Non-producing

France Attila

Non-producing

France Alès

Non-producing

New ventures

Non-producing

Total

MUSD

Depletion

1 January 2017

Depletion charge for the year

Impairment

Disinvestments

31 December 2017

MUSD

Depletion

1 January 2016

Depletion charge for the year

Impairment

Disinvestments

31 December 2016

31 Dec 2017

31 Dec 2016

189.1

0.6

189.7

Book value

adjustments

1 Jan–31 Dec

Other non–cash

DD&A

Exploration costs

Investments

1 Jan–31 Dec

Country

Asset type

31 Dec 2017

1 Jan–31 Dec 2017

-2.0

-39.5

Book value

adjustments

1 Jan–31 Dec

Other non–cash

DD&A

Exploration costs

Investments

1 Jan–31 Dec

Country

Asset type

31 Dec 2016

1 Jan–31 Dec 2016

Oman Blocks 3&4

Producing

190.8

-2.1

189.1

0.4

–

0.2

189.7

–

0.3

191.1

-2.0

–

2017

-39.5

–

2016

-44.4

–

2017

–

-0.3

2017

39.9

0.4

–

0.2

40.4

2016

–

-0.1

2016

48.2

–

0.3

48.5

190.8

0.3

191.1

Book value

1 Jan 2017

190.8

–

0.3

191.1

Book value

1 Jan 2016

189.1

–

0.1

189.1

-2.1

-44.4

Oman Blocks 3&4

-138.9

-39.5

–

Total

-138.9

-39.5

–

-178.4

Oman Blocks 3&4

-94.5

-44.4

–

Total

-94.5

-44.4

–

-138.9

Exploration costs during 2017 amounted to MUSD 0.3 and were mainly
related to new venture projects which were rejected or no longer pursued.
Exploration costs during 2016 amounted to MUSD 0.1.

MUSD

Investments Block 3&4