Serinus Energy Plc (LON:SENX) Chief Executive Officer Jeffrey Auld caught up with DirectorsTalk for an exclusive interview to discuss the background of the company & himself, key takeaways from the interim results, their 5-year plan and what investors can expect in the coming months.
Q1: I think it’d be a good start if you could provide us with a brief introduction into Serinus Energy, for those of us that are a little less familiar with your business.
A1: Well, the company is principally a gas company, we also have oil. We produce gas in Romania and we produce oil with some associated gas in Tunisia. So, an oil and gas company, we produce from onshore assets and those assets are towards the lower cost end of the assets.
In Romania, we have a large land block called the Satu Mare concession, and it’s about 3000 square kilometres so a big chunk of land with lots of legacy drilling on it and traditionally the Romanians had looked for oil and had bypassed the shallow gas and we are looking for the shallow gas. So, in many cases, we know where it is because people had gone through those zones before looking for deeper oil and so our business model in Romania is to pursue shallow, low cost gas options.
In Tunisia, we have five license areas, one of which is a large oil field that was discovered by Amoco in the ’80s and has been very, very underdeveloped for a number of reasons, and we are looking to develop that field, it’s got 358 million barrels of oil in place. Significantly in the very, very southern tip of Tunisia, we have two concession areas and both of those have producing oil fields on them.
So, an oil and gas production company with assets in Romania and Tunisia.
Q2: And what can you tell us about yourself Jeffery?
A2: Well, I’m Canadian, I was born a Canadian, I moved to London 25 years ago and I started out with one of the British oil companies. I was a new ventures guy and I was looking around the world for assets for them and they put me through business school, I went to business school here in London and came out of business school having done quite well in my class and Goldman Sachs made me an offer I couldn’t refuse.
So I went from being an oil guy to an investment banker and I worked in the energy and power group within Goldman, doing equity capital markets and a lot of M&A, started out here in London and Goldman transferred me to New York and so the bulk of my time with Goldman was in New York.
I left Goldman and I joined one of my former clients at a company called PetroKazakhstan and two and a half years into that we sold that company, which had obviously assets in Kazakhstan, but was listed on the New York Stock Exchange, we sold that to CNPC for $4.2 billion.
I then took a bit of time off and came back into banking, I was the Head of Energy and Power for Canaccord here in London and then I was the Head of European EMEA Oil and Gas for Macquarie. In 2013, I stepped back from investment banking, I sort of retired and I was approached by some of the major shareholders of SENX and they asked me if I would take a look at the company and see if I thought that we could do something to make the company perform better.
And, so at the third quarter/fourth quarter of 2016, I stepped into the role of CEO of Serinus and since then, we’ve been running the company.
Q3: Just talking about performance, you’ve recently published interim results for the three months to the end of March, what were the key takeaways investors should take from those results?
A3: Well, we had a very good first quarter, ironically because of course March things started getting a little bit strange so we had a very good quarter.
I think the things that investors should focus on are the bedrock fundamentals of any resource company, in that we managed to increase our production for the same period so for the first quarter of 2020 versus the first quarter of 2019. 2020, we had about 2,300 barrels of oil a day equivalent and that’s compared to 2019 when we had 317 barrels so a dramatic increase in production.
Now, of course, increasing production is great, but if you increase your costs exponentially as well, that’s not so good so then I would point to the production cost per barrel of that production. So, the first quarter of 2020, we had an average production cost of $9.30 and that’s compared to $22.47 cents in the first quarter of 2019 so you can see that not only did we increase our production quite dramatically, we lowered the cost of that production.
Of course, what came next in 2020, that cost of production is very, very important so as the commodity prices fell, because we’d reduced our costs, because we’d managed to make this business so much more efficient. So, our production cost is low, the commodity price drops, we’re still able to generate cashflow at that lower commodity price level. Now I think we’d all love to see higher commodity prices, but of course, the point here right now in this part of the cycle, is being able to survive and still generate cashflow.
So, I would point to the production, I’d point to lower costs and then the result of that is obviously the operating cashflow, and that has risen commensurately so those I think are the highlights that I’d point to in the first quarter.
Q4: Some good, strong results there. Looking forward, what can you tell us about your 5-year plan?
A4: I can tell you that in the last couple of months it’s changed. The plan has always been and will always be to replicate the success we had in Romania, of finding these gas fields, and putting gas plants on top of them and moving them quickly to production. That plan doesn’t change, of course, the Coronavirus pandemic has slowed things down and made it operationally more difficult to progress with explorations, progress with development. The good news of course, is we already managed to get our first Romanian plant into production, but advancing the second and the third and essentially doing a cookie-cutter pattern of gas plants and gas fields in Romania over five years, we think there’s four or five more gas plants that we can build of roughly the same size as our existing gas plant.
In Tunisia, we have a great oil field, it’s a little bit like an unloved child, no one ever has put the right technology or the right applications on that field for a variety of reasons, whether it’s being an under-capitalized owner or whether it’s been Tunisia going through a revolution and having social disruptions. We feel that, in August 2019, we came out of that period of social disruptions and we were able to start allocating capital again.
So, in Tunisia, we’ll continue to allocate capital, things like putting pumps into the field, this is a field that was discovered by Amoco in the ’80s, it doesn’t have one single pump on it, it still produces just by the natural pressure of the field.
So the 5-year plan is to repeat the success in the shallow gas business in Romania and in Tunisia, to do, I guess what the Texans would call block and tackling an oil field, just working that oil field, not spending huge amounts of money on it, but working it so that it produces better and that should provide very dramatic and significant growth over the next 5 years, if we do that properly.
Q5: And just to come to the more immediate timeframe, what should investors be looking out for in terms of news flow from Serinus Energy?
A5: I think we will have our interim first half results coming out in August and I think those results will show the revenue effect of the Coronavirus pandemic but it will also show that operationally the business has been able to move ahead. We haven’t had operational disruptions, our production has been stable, so we haven’t had production losses because of this so I think the next catalyst is to show how we’ve performed through this sort of unprecedented disruptions.
We would have hoped to have had results announcing that we completed the seismic program in Romania, but of course, because we can’t move equipment and large seismic crews around the country right now, that’s postponed.
So, I think the next news event operationally will be, as we come out of these lockdowns, giving our investors an idea of how we’re going to get these programs back on track, because right now we’ve had to postpone or delay most of the programs.
We’re lucky, no one in the field has been infected, but we certainly can’t have 100-man, seismic crew running around the fields of Northern Romania, when we have limitations on large gatherings so the next events are announcing those plans to be back on track.
