Serinus Energy plc (LON:SENX) has announced the release of its interim results for the nine months ended 30 September 2020.
HIGHLIGHTS
Operational
· Serinus Energy plc (“Serinus”, the “Company”, or the “Group”), has continued to operate safely and effectively through the COVID-19 pandemic, with the successful implementation of operational and monitoring protocols in line with the recommendations of local jurisdictions to ensure the health and safety of our employees.
· For the nine months ended 30 September 2020, average production (boe/d) increased by 1,247 or 107% to 2,415 (2019 – 1,168), consisting of 1,841 (2019 – 814) in Romania and 574 (2019 – 354) in Tunisia, an increase of 1,027 or 126% and 220 or 62%, respectively.
· The production exit rate (boe/d) at 30 September 2020 was 2,211 consisting of 1,730 in Romania and 481 in Tunisia.
· The Company performed routine maintenance on the Moftinu Gas Plant in September, which was completed ahead of schedule, safely and on-budget, and production restarted with no issues.
· Due to the effects of the COVID-19 pandemic, the Company was unable to fulfil its existing work commitment to complete a 3D seismic acquisition programme by 28 October 2020. The Company worked closely with the Romanian National Agency for Mineral Resources (“NAMR”) to agree to a programme that would satisfy the Company’s commitment and could be completed given the restrictions imposed by the pandemic.
· Subsequent to the third quarter, the Company received approval from 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 licence extension until 27 October 2021.
· The amendment replaces the previous seismic commitment 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.
· The Company has permitted and finalised plans to drill the M-1008 development well, which is anticipated to be spud in January 2021. M-1008 will qualify as one of the commitment wells under the licence extension and amended work commitment as announced on 13 October 2020.
· The Company filed a Request for Arbitration with the Secretariat of the International Court of Arbitration of the International Chamber of Commerce seeking a declaration affirming the Company’s rightful claim of ownership of Oilfield Exploration Business Solutions S.A.’s (“OEBS”) 40% participating interest (“40% Interest”) in the Satu Mare Concession and an order to formally compel OEBS to take all necessary steps to transfer the 40% Interest to the Company as a result of OEBS’ failure to carry out its obligations under the Joint Operating Agreement.
Financial
· For the nine months ended 30 September 2020 the Company generated $18.2 million (2019 – $15.5 million) in gross revenue or $16.9 million (2019 – $14.3 million) net of royalties. This consisted of $12.8 million (2019 – $9.8 million) in Romania and $5.4 million (2019 – $5.7 million) in Tunisia.
· For the nine months ended 30 September 2020 funds from operations amounted to $5.9 million (2019 – $5.6 million).
· For the nine months ended 30 September 2020 realised crude oil price per barrel (“bbl”) averaged $34.81 (2019 – $61.20) and realised natural gas price per thousand cubic feet (“mcf”) averaged $4.28 (2019 – $7.45).
· Capital expenditure for the nine months ended 30 September 2020 of $3.7 million (2019 – $3.0 million). This was largely related to the successful drilling of the M-1004 producing well in January 2020.
· The Company has continued to focus on cost management and has lowered the production expense per barrel for the nine months ended 30 September 2020 to $8.96 (2019 – $11.96). This cost reduction allows the Company to successfully manage the significant decline in commodity prices.
· The Company is currently in ongoing discussions with the European Bank of Reconstruction and Development (“EBRD”) with regards to the renegotiation of the current debt and has received a waiver from the EBRD, as announced on 2 November 2020, formally waiving compliance with the debt service coverage ratio for the period ending 31 December 2020 together with a waiver to complete the restructuring of the terms and conditions of the Convertible Loan which has been deferred until 26 February 2021.
OPERATIONAL UPDATE
In Romania, the Company currently has three wells producing from the Moftinu field and has permitted a fourth well (M-1008) which is expected to be drilled in January 2021. During the third quarter, the Company undertook a routine maintenance shutdown of the Moftinu Gas Plant, which was completed ahead of schedule, safely and on-budget. Production has restarted with no issues and the Company has only experienced a slight decrease in production during the third quarter due to the shutdown as well as natural declines.
Subsequent to the third quarter, the Company received approval from NAMR to amend the last outstanding work commitment for the third exploration phase of the Satu Mare Concession and was granted a 12-month licence extension until 27 October 2021. The amendment replaces the previous seismic commitment 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. The Company has received approval to include the drilling of the previously planned M-1008 well as the first of these commitments. It is anticipated that the second commitment well, to be drilled to a depth of 1,600 metres, will be drilled on the Sancrai prospect. The Sancrai prospect lies directly to the south of the Moftinu gas field and, should this well be successful, the Company anticipates that the well may be tied-in to the Moftinu Gas Plant thus offering the Company an early production opportunity.
Tunisia continued to operate safely from the Sabria, Chouech and Ech Chouech fields. The Company has finalised, with third party engineering support, an artificial lift programme whereby the first subsurface pumps may be installed in the Sabria field to increase the productivity of existing producing wells. The Company is also continuing to identify programmes to replace older pumps and other low-cost workovers that have demonstrated positive production increases. The travel restrictions created by the COVID-19 pandemic have slowed the Company’s ability to execute these production enhancements and throughout this period the Company has continued to work with its contractors to find ways to mitigate these disruptions safely.
OUTLOOK
COVID-19
The Company continues to place the health, safety, and wellbeing of all staff as our top priority. The Company continues to follow government recommendations for each jurisdiction to ensure that the Company abides by local rules, such as social distancing and wearing masks. Our producing fields continue to modify daily tasks and routines to ensure safe practices for all staff. Existing operations have had no operational setbacks resulting from the COVID-19 pandemic.
Romania
During September 2020, the Company successfully completed a routine maintenance shutdown programme of the Moftinu Gas Plant. The gas plant was restarted with no issues and production has returned to normal. Permits for the M-1008 production well have been finalised and the Company is targeting a spud date in January 2021. The Company and its contractors have worked diligently to ensure that proper protocols are in place to deal with the uncertainty regarding the COVID-19 pandemic and is confident the well can be drilled while maintaining safe protocols for all employees and contractors during the drilling programme.
Subsequent to the quarter, the Company received approval from NAMR to amend the last outstanding work commitment and received a 12-month extension for the Satu Mare Concession until 27 October 2021. A further extension, corresponding to the duration of the Romanian “State of Emergency/State of Alert”, will be added to the extension once the COVID-19 related “State of Emergency/State of Alert” has been lifted. The modified commitments require the Company to drill two exploration wells, one to a total depth of 1,000 metres and the second well to a depth of 1,600 metres. The M-1008 well, to be drilled to a depth of 1,000 metres will be accepted as one of these wells and the second, deeper well is expected to be drilled in Sancrai directly south of the Moftinu field.
Tunisia
During the nine months ended 30 September 2020, the Company performed additional work in the Chouech and Ech Chouech fields focused on pump replacements and pump performance within existing wells. The Company is continually monitoring the COVID-19 pandemic and commodity prices and is planning additional workover projects to enhance production. Oil prices have recovered after the initial disruptions associated with the onset of the COVID-19 pandemic in March and April. Gas prices in Tunisia have maintained pre-pandemic levels. The Company continues to identify work in Tunisia focused on low capital, high return production enhancements that can be implemented in the future.
FINANCIAL REVIEW
Liquidity, Debt and Capital Resources
In Romania, the Group invested $2.6 million (2019 – $2.0 million) in the nine months ended 30 September 2020 primarily to drill, complete, and tie-in the M-1004 well. Romania continued to be a significant cash flow generating unit during the period as production increased from the addition of M-1004. For the nine months ended 30 September 2020 the Moftinu field generated an after-tax netback per boe of $18.18 (2019 – $36.10).
In Tunisia, the Group invested $1.1 million (2019 – $1.0 million) for the nine months ended 30 September 2020. The capital was spent in the Chouech field, related to workovers on the CS-1 and CS-3 wells. Tunisia continued to see positive production from the Sabria, Chouech, and Ech Chouech fields during the quarter while realising an after-tax netback per boe of $11.48 (2019 – $26.24) for the nine months ended 30 September 2020.
Funds from operations increased to $5.9 million (2019 – $5.6 million) for the nine months ended 30 September 2020. This increase is mainly attributable to the additional production from both operating segments that more than offset the decrease in commodity prices in 2020.
The Convertible Loan with the EBRD was due to be repaid in four annual instalments commencing 30 June 2020. On 24 June 2020, the Company announced an agreement with the EBRD to pay $2.0 million of the $8.4 million debt payment that was due at 30 June 2020 and defer the balance of $6.4 million, for a period of one year. The outstanding balance will be combined with the 30 June 2021 payment for a combined payment of $15.6 million due on 30 June 2021 and is reported as a current liability at 30 September 2020.
On 28 September 2020, the Group announced that it had received a waiver from the EBRD formally waiving compliance with the financial covenant for the period ended 30 September 2020.
| As at ($000) | 30 September 2020 | 31 December 2019 |
| Current assets | 13,169 | 15,243 |
| Current liabilities | 35,465 | 32,194 |
| Working capital deficit | (22,296) | (16,951) |
The working capital deficit of the Group at 30 September 2020 was $22.3 million, an increase of $5.3 million since 31 December 2019, largely due to the deferral of $6.4 million of the debt repayment, which is included in current liabilities at 30 September 2020.
Included in current liabilities at 30 September 2020 was $15.6 million of EBRD debt (31 December 2019: $7.7 million); accounts payable of $12.5 million (31 December 2019: $16.2 million), of which $6.0 million relates to Brunei and dates back to 2012/2013; decommissioning provision of $6.6 million (31 December 2019: $6.3 million); income taxes payable of $0.6 million (31 December 2019: $1.4 million); and lease obligations of $0.2 million (31 December 2019: $0.5 million). Included in the asset retirement obligations are $1.8 million relating to Brunei, $1.0 million relating to Canada, $0.3 million relating to Romania, and $3.5 million relating to Tunisia. The obligations in Canada are offset by cash held on deposit as restricted cash of $1.1 million (2019 – $1.1 million) in current assets.
Going Concern Statement
The Group’s ability to settle its obligations as they come due is dependent on its ability to generate future cash flows from operations and/or obtain the necessary financing. The Group has modelled cash flow forecasts in order to identify how available funds could be managed in order to allow the Group to meet its obligations as they fall due or identify where additional funding may be required. Given the above, there are material uncertainties as to whether the Group can meet all its cash obligations as they fall due.
The ability to generate sufficient future cash flows from operations to meet obligations as they fall due and the continued availability of existing facilities, should loan covenants not be met, represent material uncertainties that may cast significant doubt on the ability of the Group to continue as a going concern. Refer to note 2 below for further information.
