Arden Partners have now updated their model for the recent Serinus Energy Plc (LON:SENX) full year 2022 results, updating the 2023 forecasts and publishing forecasts for 2024. They also update the valuation based on these changes.

Update to production based on Tunisia programme timing. For our production forecasts, we have updated these based on the implied 0.7mboe/d of net production in Q4 2022, the positive impact of the compressors installed at Satu Mare during 2022, the likely timing around new volumes from Sabria on the back of the ongoing ESP installation and workover programme, and removing volumes from the Ech Chouech licence until renewal of this is obtained. Overall, this sees our 2023 production forecast adjust from 1.5mboe/d to 1.0mboe/d, with the main impact here being the timing of the increased Sabria volumes, which we now allow for from June 2023.

Oil and gas prices adjusted for market movements. We have also adjusted our oil and gas price assumptions based on recent market moves. For 2023 we are now using a Brent price of US$85/bbl (from US$90/bbl previously), and for Romanian gas we are now using US$20.0/mcf (from US$27.9/mcf previously). European and UK gas prices have fallen significantly in recent months thanks to the relatively mild winter and wider recession fears counteracting the potential impact of China moving out of coronavirus restrictions and beginning to demand more LNG. Our view is that both oil and European/UK gas prices could both rise over the rest of 2023 as the impact of renewed China demand becomes more apparent.

Drive changes to our 2023 forecasts. The changes we have made to our 2023 production and oil/gas price assumptions then drive the changes to our 2023 revenue and EBITDA forecasts shown below. For free cash flow, we have also allowed for a partial working capital unwind (assuming a Tunisia oil cargo), and adjusted our CAPEX based on Serinus’ strategy of investing its operating cash. Our forecasts continue to show material operating cash generation, even at the lower commodity prices we have now assumed.

Forecasts also published for 2024. We have also published forecasts for 2024. These show a strong increase in production based on a full year of volumes from the ongoing Sabria W-1 and N-2 programme (which add around 500boe/d of net production combined), alongside assumption of an ESP also being installed in the Win12-bis well in late 2023, adding a further 750boe/d of net production. Our oil and gas price forecasts moderate further in 2024. Our 2024 forecasts are shown above and detailed below, and show substantially higher operating cash flow compared with 2023, on the back of the higher production.

Valuation updated. The changes to our forecasts flow down into our valuation, though our long-term oil and gas prices (US$65/bbl Brent, US$6/mcf Romania gas) remain unchanged. We have also updated for end 2022 reserves, made a number of changes to our long-term development assumptions, moved the upside from the ongoing Tunisia programmes into core NAV, rolled over our valuation date and updated for end 2022 net debt. Overall, this sees our core NAV adjust from 9p to 22p, and total risked NAV from 50p to 42p – substantial upside to current share price levels.

Conclusion. Serinus Energy has a material production portfolio across its assets in Tunisia and Romania, with the potential to grow this going forward as the company executes its work programmes. Production of 0.9mboe/d in 2022 delivered EBITDA of US$14.1m, based on high oil prices and strong gas price realisations as a result of the company’s independent gas trading activities. This provides Serinus with significant cash flows to re-deploy into the company’s ongoing work programme (end 2022 cash held was US$4.9m, with zero debt). Over the coming months, we expect the results from installation of an ESP in the W-1 well and workover of the N- 2 well on Sabria in Tunisia, potentially then followed by a further material Tunisia ESP installation later in 2023, all of which would add to Q4 2022 production of 0.7mboe/d. This continues to provide a busy news flow schedule for the shares, alongside opportunities for material additional production, at a time of relatively high oil and gas prices. Based on the existing asset position, ongoing work programme, and the production and news flow this should provide, alongside the levels the shares are now trading at, we have a positive outlook and a 42p total risked NAV.