Serinus Energy plc (LON:SENX) Chief Executive Officer Jeffrey Auld and Chief Financial Officer Andrew Fairclough caught up with DirectorsTalk for an exclusive interview to discuss first quarter results, challenges faced over the last few months & how they’ve been mitigated and why the share price has dropped this week.

Q1: Andrew, could you just summarise for us your thoughts on Serinus Energy’s first quarter results?

A1: I think for a quarter performance, it’s exceptionally strong.

We generated revenue of just over $13 million and we generated a record earnings for a quarter of $1 million dollars so it’s been a significantly successful financial quarter for us. Cash flow for the period was $3.1 million and we continue to invest in the business. We spent $1.5 million dollars in the quarter, ahead of some significant capital programmes for the following quarters of the year. Cash at the end of the year was $6.2 million as well.

So, we’ve generated cash through the period, we’ve invested through the period and it has been very strong for us. We’ve stabilised production in Romania, quarter on quarter, and we’ve delivered just over 1,115 barrels of oil equivalent per day in the period.

So, it has been a good financial outcome for us. Operationally, we are exactly where we said we would be, and we are positioning ourselves for two significant programmes in each of Tunisia and Romania.

Q2: Jeffrey, what challenges have you faced over the past few months?

A2: That’s a good question, it’s been a pretty dynamic first quarter. I think like many companies, we are starting to see the effects of inflation, we use propane as a refrigerant in our gas plant, just as an example, and propane prices have increased 68% so we’ve had cost increases across the business. We’ve managed to mitigate many of them, but I think the biggest challenge is trying to keep the costs down in the face of some pretty heavy inflation, globally that we really don’t have a means of controlling.

We’ve also seen some very strong commodity prices but there have been disruptions to the supply chain and those have continued. The good news on that is we’re starting to see fabrication delivery times compressed so instead of what we went through last year, where every time we talked to a supplier, the delivery times were getting a little bit longer, we’re in a happy place where every time we talk to a supplier, delivery timelines are getting a little bit shorter.

So, we’ve had challenges, some of them are global and some of them look like they’re challenges that may be passing so it’s been an interesting quarter.

Q3: Now, you did say that you’ve been able to mitigate some of those, how have you been doing that?

A3: Things like inflation, when we’re planning a well campaign, we keep an eye on the spot prices of rolled steel in the market because that’s the best guide we can find to what our tubulars will cost. We started seeing rolled steel futures going up at the end of last year and so we bought tubulars for all of our work overs in Tunisia and we bought tubulars for our work in in Romania.

Andrew commented on the strong financial quarter, one of the benefits of having those strong finances, which weren’t just driven by high commodity prices but certainly were helped, is that we’re able to do things like this to try to mitigate inflation by carrying a little bit more inventory. We went very much to a ‘just in time’ inventory, now we’re expanding inventory again, simply because rolled steel prices and tubular have doubled in price and so we were able to buy before that cost increased came so our well costs haven’t inflated.

So, there’s interesting ways to try to mitigate it. It is global inflation and keeping your eye on futures that give it a lead indicator to what the fabricated products might be doing is one way that we do that.

Q4: Andrew mentioned earlier about the investment in two programmes that are up and coming. Can you just reminder us of what those work programmes are in Tunisia and Romania?

A4: We’re kicking off very shortly in Tunisia with a workover programme on the Sabria W-1 well, that’s a well we’re looking to put artificial lift in so we’re going to put a pump into that. Immediately upon completion of that work over, we’re going to move the rig to the N-2 well,  that was a well that was damaged when it was originally drilled many, many years ago. It goes right into our formation, and we’re going to pull the bottom hole completion out and the bottom hole assembly out and we’re going to see if we can get that well to produce again. So, that’s going on in Tunisia, that is imminent, all the equipment, everything’s sitting in the field waiting for a rig. The rig is with a competitor in Tunisia doing a workover programme for them, as soon as they release that from their workover programme, we’ll have that rig for our 90-day program.

In Romania, we’ve just finished a 2D seismic programme that we started planning in November. We planned, designed and executed it, got the results back, in a 5-month program and that was designed to highlight where we wanted to drill on our next three prospects that surround the Moftinu gas field. So, those locations have now identified, we’re permitting those, permitting in Romania is a fairly bureaucratic process so that’s into the hands of the bureaucrats, although we keep pushing them. As soon as we have those permits in place, we’ll kick off a three well drilling programme, prospects that are adjacent to the gas field, they’re within 5 kilometres of the gas field so were we to have a discovery, we could tie those back into the gas field very quickly.

So that’s the work we’re planning, it’s a busy, busy second half of the year. The first half of the year has been putting everything in place to get doing the operational work in the field.

Q5: Now, despite the strong financial results, operations performing very much as you’ve been highlighting quarter on quarter, the artificial lift programme about to start with Sabria W-1 and also permitting for the Romanian exploration company underway, the shares have fallen sharper this week. Could you share your views on that?

A5: We understand it’s about production and we’ve tried very hard to communicate that shallow gas fields, they’re great, they’re a quick pop of gas and then they decline sharply so you get cash flow right up front and that’s what Moftinu did. The trick here is to fill in behind them so you keep your invested capital, the gas plant, you keep that optimised, and that’s what we’re doing.

I think the frustration is that the production is lumpy because we’re a small company, we’ve stabilised the production in Romania quarter on quarter, it’s flat, we’ve stabilized that by putting compressors in but that production will not grow until we get these new wells in place. These new wells, it takes time to run 2D seismic, it takes time to permit locations, it takes time to interpret seismic so there’s a time component that’s built in.

I think one of the things that we really try to highlight is that will be a lumpy cash flow, it will be lumpy production but the strength of our business is a control of costs, such that in those periods where production is declining before we get our next project on stream, we’re generating strong cash flow, we’re building the business, building the investible capital of the business. So, the operating cash flow is accruing to the next phase of investment and that’s what happened here.

I think we’re all very, very disappointed with the share price, however, we do understand that it’s about production, we believe we have a lot of very interesting projects coming up in the second half, it’s always been about the second half, and as painful as it is for us, we sit and we wait for our projects to come to fruition in the second half.

Serinus Energy plc (LON:SENX) Chief Executive Officer Jeffrey Auld and Chief Financial Officer Andrew Fairclough caught up with DirectorsTalk for an exclusive interview to discuss their annual financial results, how the business is positioned for growth and the plans for future growth.

Q1: Andrew, these are a really good set of results. Could you just summarise them for us?

A1: Yes, they are good results. We generated $40 million of revenue and produced nearly $8.5 million of net income, this is the first time the company has a delivered positive net income which is, I think, a very telling sign.

We’ve got extremely good and strong cash generation, nearly $12.5 million of EBITDA this year, and we close the year with a net cash position of nearly $8.5 million which reflects the position of the company at this point in time.

We’ve been helped by strong commodity prices in the last part of the year but we have stable production in Tunisia and we introduced two compressors in Romania late in the year and evaluating their impact. These are shallow onshore wells in Romania which decline, which we’ve highlighted in the past, and so we need to actively manage them until we drill new wells and bring on new production.

Current pricing as well remain strong, brent this morning was over $115 per barrel and gas prices in Romania have been in the $30-$40 per MCF range so again, strong pricing in our two key territories.

Q2: How is Serinus Energy now positioned to grow the business?

A2: The company has gone through a significant evolution over the last five/six years with the new management coming in, the cost base has been reduced significantly and so it is now appropriate for the business that we have.

We’re focused on two territories, in one of which, Romania, we’ve built a new gas plant, brought on production in Romania. We’ve cleaned up the balance sheet, we’ve eliminated all of the legacy debt that was in the business and now I think turned a corner. The EBRD recently sold out of their holding so we’ve completely moved on from that era and we’ve had a significant improvement in financial performance. Over the last couple of years, through the COVID period, we’ve actually emerged with a very strong stable platform with good strong cash generation, a low cost base and the ability now to entirely invest in our business.

We’ve got clearly defined opportunities that we want to pursue and do that with.

Q3: Jeffrey, what are your plans then for future growth?

A3: I think, Serinus Energy, as Andrew says, has gone through a fairly significant transition and there’s a couple of markers that are very, very important.

The first thing you need to do is allow the cashflow that’s being generated by the business, allow that to be accessed by the business so that the business can invest that cashflow. That was the whole process of reducing and ultimately eliminating the legacy debt and that’s been done.

Cleaning up the cost base so the company runs efficiently so that regardless of the oil price, regardless of the gas price, the company is in a position where it can allocate cash to make a return and that’s been done. So, we’re now in a position where we have a strong foundation to build upon and it’s taken a while to get there, these were considerable challenges for the business.

Where we sit now, Andrew talked a little bit about the work programme that we have for this year where we’re going to drill three wells in Romania. We’re looking at installing pumps in Tunisia, artificial lift in Tunisia and so we now need to stretch our vision a little bit farther into the future and start generating growth for the future. These are the immediate term projects that we have on our plate. We have a good set of assets, there’s lots of work we can do with those assets but I think it’s time to stretch.

Andrew also said, this is the first time ever in the history of the company that we’ve generated positive earnings. That’s an important milestone because like allowing the cash to be invested in the business, freeing up the cash to be invested in the business, earnings that are retained in the business ultimately can used in the business or can be distributed so it’s a foundation to move ahead.

The next step is to take a harder look at our assets, to look at the less low hanging fruit so what we’re looking at now is the low hanging fruit that hasn’t been executed upon on because of capital constraints, we can now look a little bit farther. For example, in our Chouech Es Saida fields in the south of Tunisia, deep underneath these fields are the same gas play that OMV uses to provide gas for its Nawarwa pipeline system. So, we believe there’s deep gas potential underneath the current existing fields, we have the infrastructure in place and in the coming years, we’d look to execute upon that.

Sabria, we always talk about how big is and how it’s got a 1% recovery factor, certainly putting artificial lift in and pumps will allow the business to increase that recovery factor but there’s also an element of getting out and doing more work and that may well mean more wells. So, longer term into the future, this isn’t this year, it may be next year, but it’s probably two or three years out where we start looking at additional wells into the Sabria field to produce more of that oil that’s in place.

In Romania, we continue upon the path of looking to open up new fields, ideally, we would hope to have another gas plant, another couple of plants, gas security in Europe is a topical subject right now and we’d like to be part of that. We think we have an asset that can do that.

So, in the longer term, beyond this year’s work programme, that’s the sort of things we’d like to do to start really building growth into the business but to do that, we had to get the foundation fixed and I think these results, with the first ever set of earnings demonstrated by the business, show that the foundation is fixed and now we can move on to that next higher growth phase.

Serinus Energy plc (LON:SENX) is the topic of conversation when Shore Capital’s Analyst Craig Howie caught up with DirectorsTalk for an exclusive interview.

Q1: You recently took part in a site visit at Serinus Energy, what can you tell us about that?

A1: In summary, we visited the company’s Moftinu gas plant, which has capacity of 15mmcfd and in proximity to which a 105km 2D seismic survey has been underway to de-risk identified prospects to the north. This comes ahead of a planned three well exploration programme scheduled for commencement in Q3 2022. We visited the four producing wells currently supplying the Moftinu plant, and the recently-installed compressor at Moftinu-1003, and also observed approximate drilling locations for this year’s planned three well campaign.

Q2: What changes have you made to your forecasts?

A2: With Serinus having reported a US$0.8m net profit for the nine months to September 2021, our recently upgraded estimates indicate FY21F revenues of US$41m and adjusted EBITDA of c.US$12m. Whilst we forecast healthy earnings progression through this year and next, we believe that the company’s cash generative qualities are particularly underappreciated – forecasting FY22F funds flow from operations of c.US$15m and noting the extremely strong European gas prices which currently prevail. 

Q3: How do you view the company in terms of a valuation? 

A3: Our Risked NAV estimate is broadly unchanged at 8.5p/share and, with the shares continuing to trade at a very substantial discount to this “above consensus” figure, we remain confident that the company is a story which offers compelling value at current levels. Our revised forecasts indicate that the shares trade on an FY22F enterprise value/funds flow from operations ratio of just 1.2x, falling to 1.0x in FY23F.

Q4: How do you view the outlook for Serinus Energy?

A4: It remains our view that the shares were disproportionately punished by last year’s results from Sancrai, which was of course a single well which only ever accounted for a small proportion of our sum-of-the-parts. In any case, we now see the tide turning from a news flow perspective, expecting preliminary results to confirm an FY21F adjusted bottom-line profit. We expect the forthcoming three well programme to provide important drilling catalysts, whilst the EBRD’s recent exit from the register has already been a positive development, in our opinion.

Serinus Energy plc (LON:SENX) Chief Executive Officer Jeffrey Auld and Chief Financial Officer Andrew Fairclough caught up with DirectorsTalk for an exclusive interview to discuss Q1 2021, production average, financial highlights and growth plans for the year.

Q1: First off, how would you describe the first quarter of 2021 for Serinus Energy?

A1: I think we had a good strong quarter, obviously commodity prices around the world were helping in the first quarter, certainly we didn’t have some of the disruptions that we had in the first quarter of last year.

The cashflow continues to be strong out of our fields and the first half of 2021 is the preparation works for all of the capital improvements that we’re making to the fields, we should show the effects of those through the second half.

So, really the first quarter showed the strength of cashflow generation of the business and it had our teams working hard to put in place the developments that we’ve talked to in the market. Those would be the artificial lift programs in Tunisia, the workovers in Tunisia, compression well on the Moftinu gas plant and most importantly, we’re looking forward to the drilling of the Sancrai-1 well.

Q2: Jeffrey, first quarter production average was 2,097 BOE per day and with an exit production rate at the end of March of  2,240 BOE per day. Can you explain for us what is happening there?

A2: There’s lots of moving parts here so I’ll go through some of the critical changes through the quarter.

I think what we can see is the exit rate coming out of March, the production is back on its rising trend so through the quarter, we did a couple of things. Firstly, as we exited 2020, Moftinu gas field has a natural decline rate and that was progressing, we drilled the 1008 well, and that 1008 well is probably the last development well into the field. It went into the eastern edge of the field, we produce all of the Moftinu wells from four zones, the lowest zone is called the A1 and in the 1008 well, the A1 was filled with water so we shut that flooding sleeve, we shut the zone off in the 1008 well, and the 1008 well produces now from the three upper zones.

At the same time, because we had the rig in the field, we took the precautionary step of closing the A1 in the Moftinu 1007 well, and we do this to make sure that we don’t overproduce or pull that zone too hard, that could have the effect of pulling water up and you could lose a whole well, all four zones in the 1007 well could be lost so it’s a precautionary reservoir maintenance type measure. So that means that the 1007 well is now producing from three zones so a little bit less gas, but the A1 will produce from the 1003/1004 well, and it will produce longer.

We also had increases in Tunisia so the decrease that we saw by maintaining the field in a more prudent manner was offset to some manner by the increases from the workovers that we’re seeing in Tunisia.

So, the Tunisian wells that we worked over towards the latter end of the year have gradually increased production, steadily increased production almost every day so when we get our reports in the morning, we get to see the increases every day so that’s good to see.

So, there’s moving parts here where you have reservoir maintenance in Romania and increases in production in Tunisia but the point here is a month by month production figure is really not something we’re looking at too closely in the business. We’re looking at the longer term production trends, we’re trying to get to those targets where we set and we’re also being prudent with the management of fields. We’re in this for a long game so over producing in a short term really, to the detriment of longer and leaving gas behind, is not something this company is going to do.

I think those are the big pieces of the production but the point is, we come out of March with the average, it’s rising again, we’re back on track so again, a good quarter but lots of technical work had to be done in the quarter.

Q3: Andrew, financials continue to be consistent, what were the highlights in your opinion?

A3: Yes, very consistent. Revenue was $7.6 million, we continue to invest in the business for growth, CapEx was $3.5 million, and that was primarily relating to our spend on the Moftinu 1008 well that we completed in the quarter and pre-drilling costs as we start moving towards Sancrai-1.

We continue to generate positive cash flow, we generated EBITDA of $2.6 million in the quarter and we closed the quarter $5.3 million of cash so we see it as a very consistent and strong cash generating quarter for us.

Q4: What are Serinus Energy’s growth plans for the coming year?

A4: Well, I alluded to the major growth plans for the coming year in my first answer. I think in order of how they will occur in, in chronological order, we are getting ready to drill the Sancrai-1 well in June, that is a well that we’ll drill a prospect of 7.4 kilometres south of the Moftinu gas field. We look at the Sancrai prospect as being a very much a lookalike, that has identified with existing wells, old legacy Wells, 3d and 2d seismic, and we look at it as a lookalike to Moftinu so that’s the first thing that will happen.

Secondly, we’ve commissioned and we are fabricating compressor skids for wells in Moftinu and that will allow the Moftinu gas field to produce stable, the pressures will be stabilised. It will allow the field to produce for longer and it’s a normal evolution of a development of a gas field so we’ll put those in.

We’re looking to put artificial lift into the Sabria field in Tunisia, people will remember that Sabria is, according to our reserve engineers, 445 million barrels of oil originally in place of which less than 1% has been recovered. It’s a conventional oil field and it doesn’t have a single pump on it anywhere so we’re very much looking forward to putting the pumps in the field and that is very material for us. And we look towards that program as the program that delivers the bulk of the production increases to get us to our annual targets. That could happen in the latter half of the year, we do have a partner in the Sabria field, which is the Tunisian state oil company, they have been hit very, very hard by the pandemic, and so we’re working very closely with them trying to accelerate but a Tunisian state oil company that’s under the burdens of a pandemic, it takes time for us to work through that.

Throughout the year, this one’s a little bit out of chronological order, we’re looking at doing further workovers in the southern fields in Tunisia. We’ve seen very good steady, it’s not immediate production jumps, so you don’t do a work over and get a hundred more barrels a day, but you do get a steady growth, cleaning out the well, putting a pump in, running that pump at the proper frequency and we’ve seen those increases in Tunisia and we’re continuing to see those increases.

So, those are some pretty big projects they can deliver the production increases that we’re looking for the year get delivered in the latter half of the year and so we’re very much working hard towards those targets.