Serinus Energy plc (LON:SENX) has announced its preliminary financial results for 2020.
OPERATIONAL
· The company and its subsidiaries have continued to operate safely and effectively through the COVID-19 pandemic, with the successful implementation of operational and monitoring protocols to ensure the health and safety of our employees.
· Production for the year averaged 2,340 boe/d (2019 – 1,389 boe/d), comprised of;
o Romania – 1,788 boe/d (2019 – 961 boe/d).
o Tunisia – 552 boe/d (2019 – 428 boe/d).
· Serinus exited December 2020 with a production rate of 2,122 boe/d, with a December average of 2,061 boe/d (Romania 1,561 boe/d and Tunisia 500 boe/d). Production declined over the fourth quarter due to delays in specialist pump technicians crossing national borders due to COVID-19 restrictions as well as natural declines in Romania.
· 1P audited reserves at 31 December 2020 increased by 101% to 5.8 MMboe and 2P audited reserves decreased by 9% to 9.6 MMboe.
· The Company received approval from the Romanian National Agency for Mineral Resources (“NAMR”) to amend the last outstanding work commitment for the third exploration phase of the Satu Mare Concession and was granted a 12-month concession license extension until 27 October 2021 plus additional time equivalent to the duration of the “Romanian State of Emergency/Alert” which began on 9 March 2020 and currently remains in force.
· The amendment replaces the previous seismic commitment, which the company was unable to fulfill due to the restrictions imposed as a result of the COVID-19 pandemic, with a modified work commitment to drill two wells, one to be drilled to a depth of 1,000 metres and the second to be drilled to a depth of 1,600 metres.
· During 2020 the Company permitted and finalised plans to drill the M-1008 development well which will qualify as one of these commitment wells.
· On 23 February 2021, the Company announced the M-1008 well flowed at 4.0 MMscf/d (approximately 666 boe/d) from two perforated zones and will be tied into the Moftinu Gas Plant.
FINANCIAL
· Completed a successful placing of 787,936,852 ordinary shares to raise gross proceeds of $21.3 million announced on 27 November 2020, of which $16.5 million was paid to the EBRD to retire the Convertible Loan.
· During 2020, Serinus generated revenues of $24.0 million (2019 – $24.4 million), comprised of $16.9 million (2019 – $15.2 million) from Romania and $7.1 million (2019 – $9.2 million) from Tunisia.
· Capital expenditures of $5.5 million (2019 – $4.9 million) were incurred for the year and predominantly consisted of costs incurred drilling M-1004, and preparation work for M-1008.
· Funds from operations for the year was $7.3 million (2019 – $8.1 million) and normalized EBITDA was $6.6 million (2019 – $7.0 million).
· Net realised prices ($/boe) averaged $28.06 (2019 – $48.12), a decrease of 42%, comprised of;
o Realised oil price ($/bbl) averaged $35.56 (2019 – $61.67), a decrease of 42%.
o Realised gas price ($/Mcf) averaged $4.38 (2019 – $7.27), a decrease of 40%.
· Production expenses ($/boe) were reduced by 30% to $9.67 (2019 – $13.78) largely due to increased production and careful cost management.
· Cash balance as at 31 December 2020 was $6.0 million.
As stated in the Company’s news release on 22 March 2021, upon the approval and registration of BDO London office as a qualified third-party auditor in Poland by the Polish Securities Regulator, Serinus will be able to release its audited Annual Report for 2020, which will include the BDO audit opinion.
2020 HIGHLIGHTS
OPERATIONAL
· Serinus Energy plc and its subsidiaries (“Serinus”, the “Company”, or the “Group”) have continued to operate safely and effectively through the COVID-19 pandemic, with the successful implementation of operational and monitoring protocols to ensure the health and safety of our employees.
· Production for the year averaged 2,340 boe/d (2019 – 1,389 boe/d), comprised of;
o Romania – 1,788 boe/d (2019 – 961 boe/d).
o Tunisia – 552 boe/d (2019 – 428 boe/d).
· Serinus exited December 2020 with a production rate of 2,122 boe/d, with a December average of 2,061 boe/d (Romania 1,561 boe/d and Tunisia 500 boe/d). Production declined over the fourth quarter due to delays in specialist pump technicians crossing national borders due to COVID-19 restrictions as well as natural declines in Romania.
· 1P audited reserves at 31 December 2020 increased by 101% to 5.8 MMboe and 2P audited reserves decreased by 9% to 9.6 MMboe.
· The Company received approval from the Romanian National Agency for Mineral Resources (“NAMR”) to amend the last outstanding work commitment for the third exploration phase of the Satu Mare Concession and was granted a 12-month concession license extension until 27 October 2021 plus additional time equivalent to the duration of the “Romanian State of Emergency/Alert” which began on 9 March 2020 and currently remains in force.
· The amendment replaces the previous seismic commitment, which the company was unable to fulfill due to the restrictions imposed as a result of the COVID-19 pandemic, with a modified work commitment to drill two wells, one to be drilled to a depth of 1,000 metres and the second to be drilled to a depth of 1,600 metres.
· During 2020 the Company permitted and finalised plans to drill the M-1008 development well which will qualify as one of these commitment wells.
· On 23 February 2021, the Company announced the M-1008 well flowed at 4.0 MMscf/d (approximately 666 boe/d) from two perforated zones and will be tied into the Moftinu Gas Plant.
FINANCIAL
· On 21 December 2020, Serinus fully retired the outstanding Convertible Loan held by the European Bank of Reconstruction and Development (“EBRD”) amounting to $33.0 million, in exchange for consideration of $16.5 million and the subscription by the EBRD, at no cost, for 112,925,402 ordinary shares.
· During 2020, Serinus generated revenues of $24.0 million (2019 – $24.4 million), comprised of $16.9 million (2019 – $15.2 million) from Romania and $7.1 million (2019 – $9.2 million) from Tunisia.
· Capital expenditures of $5.5 million (2019 – $4.9 million) were incurred for the year and predominantly consisted of costs incurred drilling M-1004, and preparation work for M-1008.
· Funds from operations for the year was $7.3 million (2019 – $8.1 million) and normalized EBITDA was $6.6 million (2019 – $7.0 million).
· Net realised prices ($/boe) averaged $28.06 (2019 – $48.12), a decrease of 42%, comprised of;
o Realised oil price ($/bbl) averaged $35.56 (2019 – $61.67), a decrease of 42%.
o Realised gas price ($/Mcf) averaged $4.38 (2019 – $7.27), a decrease of 40%.
· Production expenses ($/boe) were reduced by 30% to $9.67 (2019 – $13.78) largely due to increased production and careful cost management.
· Completed a successful placing of 787,936,852 ordinary shares to raise gross proceeds of $21.3 million announced on 27 November 2020, of which $16.5 million was paid to the EBRD to retire the Convertible Loan.
· Cash balance as at 31 December 2020 was $6.0 million.
SERINUS AT A GLANCE
Serinus is an oil and gas exploration, appraisal and development company. The Group acts as the operator for all of its assets and has operations in two business units: Romania and Tunisia.
ROMANIA
In Romania the Company currently holds one large concession area, Satu Mare, approximately 3,000km2, located in a highly sought-after hydrocarbon province. The Moftinu Gas Project is what the Group hopes to be the first of many shallow gas developments. The concession is extensively covered by legacy 2D seismic and the Group considers the concession to have multiple sizable prospects available for further exploration.
TUNISIA
The Company’s Tunisian operations are comprised of five concession areas. Of the five concession areas the Company Is currently focused on three of those areas which have discovered oil and gas reserves and are currently producing. The largest asset in the Tunisian portfolio is the Sabria field, which is a large oilfield play that has been historically under-developed. Serinus considers this to be an excellent asset for remedial work to increase production and in time, with proper reservoir studies, an excellent asset upon which to conduct further development operations.
2021 OUTLOOK
CORPORATE
2020 was a transformational year for the Company. Despite the disruptions caused by a global pandemic and the concurrent commodity price crashes, Serinus demonstrated the resilience of our cash flows, the drive and determination of our operating teams and the ability to maintain positive cash flows through the bottom of the commodity cycle. During the course of the year the Company was able to negotiate with its debt holder, the EBRD, for the retirement of US$33.0 million of outstanding debt. This agreement saw Serinus extinguish the Convertible Loan by repaying $16.5 million and issuing 112,925,402 shares to the EBRD. To finance this transaction and create a debt-free cash flowing business Serinus completed a placing which raised gross proceeds of $21.3 million in exchange for 787,936,852 ordinary shares. The Group finalized the payment and issuance of shares to the EBRD on 21 December 2020. At 31 December 2020, the EBRD owned 9.9% (2019 – nil%) of the outstanding shares in issue.
The elimination of all of the Company’s legacy debt allows the business to focus on utilizing cash flow to continue increasing production and cash flow. Ultimately this strategy is expected to add considerable value to its shareholders.
ROMANIA
2020 was the first full year of results that demonstrated the cash flow generation capabilities of our Romanian business unit. During the year the low-cost, robust cash flow was demonstrated even during the deepest declines in the oil and gas commodity cycle. The Company remains optimistic about the future growth prospects throughout the Satu Mare concession.
During the year, the Company drilled an additional development well (M-1004) in the Moftinu field. The well initially flowed at 6.0 MMscf/d during testing and has performed as expected. This increased production helped increase the positive cash flow from operations from the Romanian business unit. During the year Serinus renegotiated the terms of the concession as announced 13 October 2020, to extend and adjust the work commitments. The Company anticipates that these work commitments will be completed during 2021, allowing the Company to enter the fourth exploration phase, with further commitments to be negotiated. The Company continues to explore other opportunities to enhance current production such as compression at the gas plant.
Subsequent to year-end, the Company drilled, completed and tested a new development well (M-1008) on the Moftinu field. This well was tested at 4.0 MMscf/d from two perforated zones and has been placed on production.
TUNISIA
Tunisia continued to provide positive cashflow to the Group as three fields were operating for the entirety of 2020. The Company is optimistic about 2021 having identified work programs that will materially enhance current production with limited capital requirements.
During the year, the Company completed a coil-tubing workover in the Sabria field, that has seen positive results on production. The Company is identifying other wells to complete similar work on as well as introducing the first pumps into the three operating fields.
The Company is in discussion with Tunisia’s Director General of Hydrocarbons (“DGH”) with regards to the expiry of the Zinnia concession at the end of 2020 and Sanrhar at the end of 2021. The Company has initiated discussions for a license extension in Ech Chouech that is set to expire at 30 June 2022.
COVID-19
The Company continues to place the health, safety and wellbeing of all our staff as our top priority. The Company continues to follow government recommendations such as enhanced sanitation of work sites, social distancing and wearing masks. Where government advice has required, the Company has closed or reduced the presence of staff in our Head Office, Administration Office and our Business Unit Offices. Our field operations continue to modify daily tasks and routines to ensure safe practices for all staff. Existing operations have remained in production and our producing assets have seen no significant operation setbacks resulting from the COVID-19 pandemic.
SERINUS INVESTMENT THESIS
Investment in Serinus offers shareholders an ability to access international oil and gas upstream operations with strong cash flow generation through the oil and gas commodity cycle. Our low-cost onshore asset base provides significant near-term production growth opportunities. The size of the existing asset base allows for significant organic growth without incremental asset acquisition cost in areas where our technical knowledge has been refined over the years that Serinus has operated these concession areas. Serinus offers a compelling growth opportunity where risks are mitigated by our extensive experience in our operating areas and the low-cost nature of our assets.
Serinus’ operations in Romania are focused on the large Satu Mare Concession Area. The Satu Mare Concession Area is located in the North West of Romania along-side the Hungarian border. This large block contains the Moftinu gas field and the Company believes that numerous shallow gas opportunities with similar characteristics to the Moftinu field are present in the immediate surrounding area. In addition, the southern portion of the concession offers excellent exploration opportunities for large oil prospects as across the southern boundary of the Satu Mare concession is the Suplacu de Barcau oil field (held by OMV Petrom). This is a significant oilfield estimated to have produced in excess of 100 million barrels.
In Tunisia, the Company’s operations are focused on the Sabria, Chouech Es Saida (“Chouech”) and Ech Chouech fields. Sabria is a very large conventional oilfield where our independent reservoir engineers have accessed a field with 445 million barrels of oil equivalent originally in place. Of that number approximately 1.2% has been recovered to date. This is a very low recovery factor for a conventional oilfield and the Company expects to increase that recovery factor materially. The Chouech and Ech Chouech fields in southern Tunisia offer excellent opportunities to increase production from existing oilfields through the application of standard oilfield practices. Serinus’ Tunisian assets can be typified as existing discovered and producing oilfields where field optimization provided the path to production, revenue and cash flow growth with no exploration risk.
In addition to the strong asset base Serinus has a strong and experienced management team. Within each jurisdiction, we have local experts managing the operations. Within the Company we have significant technical and commercial experience and are able to apply that experience across our business units.
SERINUS’ STRATEGY
VISION
The Group’s goal is to transform the potential of its extensive land base in Romania and Tunisia into enhanced shareholder value through the efficient allocation of capital.
STRATEGY
Serinus is focused on significant growth potential within its existing concession and license holdings in Romania and Tunisia through the development of low cost, high return projects, as follows:
1. Leverage Land Position:
· One concession in Romania with two work commitments remaining in the current exploration phase.
· Five exploration and production concessions in Tunisia with all work commitments completed.
· Extensive oil and natural gas exploration and development potential within multiple play horizons.
2. Commitment to Shareholders:
· Cohesive management team with a commitment to enhancing shareholder value.
· Extensive experience and a proven track record of the allocation of shareholder capital.
3. Manage Risks:
· Managing surface and subsurface risks through constant evaluation and introduction of new technologies.
· Allocate capital to projects with attractive returns at relatively low risk profiles.
· Operator of all concessions allows for cost control.
4. Focus on Growth:
· Leverage cash flow to grow through expanded exploration and development on existing asset base.
· Seek acquisitions that will provide synergies at a cost that is accretive to shareholders.
CHAIRMAN’S REPORT
Dear shareholders,
First and foremost, I hope to find you in good health.
It is my pleasure to address you in March 2021 but with respect to the year 2020, it was a very peculiar year for all of us.
We started 2020 full of optimism, aiming higher and ensuring that our Company was ready for unprecedented development of its production and operations in both Romania and Tunisia. The hard reality of 2020 and a global pandemic very quickly altered our ambitious plans and we immediately reacted to focusing on the protection of staff and securing continuity of operations. The fact that we have employees in five countries with different legal systems, lockdown rules, travel restrictions and pandemic mitigations even further complicated daily management of our businesses and our COVID-19 response, but I am proud to say that we have managed to do so with minimal interruptions to the business.
Recognising the severity of the disruptions caused by the pandemic the Board of Directors led by example and very quickly undertook to voluntarily sacrifice a portion of their remuneration to preserve liquidity. I believe this displayed our commitment towards the Company and confidence in the business. As already stated, the Company has carried out is operations without interruption and has not been forced to dismiss or make redundant any of its employees in these very difficult times. Our commitment to our employees remains strong.
Despite low commodity prices and the impact on demand due to COVID-19, Serinus’ business continued to generate positive cashflow, thanks to the low operating cost base, effectiveness of actions undertaken to maintain operational integrity and the asset diversification between Romania and Tunisia.
There were however also negative consequences of the global pandemic. Negative market fluctuations affected commodity prices which declined so significantly such that the Company was unable to make the requisite debt payment to the EBRD in June. The Company’s management however took this as the opportunity to address the balance sheet once and for all and as a result of positive discussions with the EBRD we have completed a debt restructuring, leaving the Company debt-free. A successful $21.3 million equity placing demonstrated the equity markets belief in the operations and prospects of the Company and its ability to generate cashflow even in the difficult environment of 2020. I would like to take this opportunity to thank existing and new shareholders for their support and facilitating the Company’s transition.
Serinus is listed on two stock exchanges and as such we have always kept shareholder interaction amongst our priorities. In 2021 the Company will continue to proactively engage with investors as well as strive for transparency and the timely provision of relevant information. In addition, as we aim to be a leader in disclosure and best market practices, we look to develop our plans to advance our reporting of environmental, social responsibility and corporate governance issues.
On a personal note, I would very much like to thank our management team for their continuing commitment to the Company, extensive efforts and the energy shown by the team whilst having to work remotely, where possible.
Finally, I take this opportunity to say thank you for sharing our belief in Serinus as we look forward to a healthy, prosperous and successful 2021.
Yours sincerely,
Lukasz Rędziniak, Chairman of the Board of Directors
25 March 2021
