Serinus Energy plc (LON:SENX) has announced the release of its interim results for the Six Months Ended 30 June 2020.
HIGHLIGHTS
Operational
· Serinus Energy plc has continued to operate safely and effectively through the COVID-19 crisis, 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 six months ended 30 June 2020, average production (boe/d) increased by 1,815 or 267% to 2,495 (2019 – 680), comprised of 1,903 (2019 – 372) in Romania and 592 (2019 – 308) in Tunisia, an increase of 1,531 or 412% and 284 or 92%, respectively.
· The first half production exit rate (boe/d) at the end of June 2020 was 2,514 comprised of 1,931 in Romania and 583 in Tunisia.
· The Company’s Romanian 3D acquisition programme, due to be completed in the first half of 2020, has been postponed due to the restrictions caused by COVID-19 since mid-March.
· Production increases in Tunisia have been lower than anticipated due to the inability of the Company to mobilize necessary technical experts across national borders due to the COVID-19 pandemic.
· The Company has lowered the production expense per barrel, which averaged $8.68 (2019 – $16.54), in the face of a significant decline in commodity prices experienced during the period.
Financial
· For the six months ended 30 June 2020 the Company generated $13.3 million (2019 – $6.4 million) in gross revenue or $12.4 million (2019 – $6.4 million) net of royalties. This was comprised of $9.9 million (2019 – $3.0 million) in Romania and $3.4 million (2019 – $3.4 million) in Tunisia.
· For the six months ended 30 June 2020 funds from operations amounted to $4.3 million (2019 – $1.4 million).
· For the six months ended 30 June 2020 realised crude oil price per barrel (“bbl”) averaged $31.96 (2019 – $63.07) and realised natural gas price per thousand cubic feet (“mcf”) averaged $4.74 (2019 – $7.82).
· Capital expenditures for the six months ended 30 June 2020 of $3.1 million (2019 – $1.6 million).
· Given the ongoing uncertainty of the COVID-19 crisis and the difficulty in moving personnel and equipment during this crisis all future capital investment plans have been postponed. Capital will only be allocated to ensure the safe and continued operation of our production facilities.
· On 22 June 2020, the Group agreed with its lender, the European Bank for Reconstruction and Development (“EBRD”), to pay $2.0 million of its 30 June 2020 payment under the Convertible Loan and defer the remaining $6.4 million for a period of 12 months.
FIRST HALF 2020 HIGHLIGHTS
Operational
· Serinus Energy plc (“Serinus”, the “Company”, or the “Group”), has continued to operate safely and effectively through the COVID-19 crisis, 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 six months ended 30 June 2020, average production (boe/d) increased by 1,815 or 267% to 2,495 (2019 – 680), comprised of 1,903 (2019 – 372) in Romania and 592 (2019 – 308) in Tunisia, an increase of 1,531 or 412% and 284 or 92%, respectively.
· The first half production exit rate (boe/d) at the end of June 2020 was 2,514 comprised of 1,931 in Romania and 583 in Tunisia.
· The Company’s Romanian 3D acquisition programme, due to be completed in the first half of 2020, has been postponed due to the restrictions caused by COVID-19 since mid-March.
· Production increases in Tunisia have been lower than anticipated due to the inability of the Company to mobilize necessary technical experts across national borders due to the COVID-19 pandemic.
· The Company has lowered the production expense per barrel, which averaged $8.68 (2019 – $16.54), in the face of a significant decline in commodity prices experienced during the period.
Financial
· For the six months ended 30 June 2020 the Company generated $13.3 million (2019 – $6.4 million) in gross revenue or $12.4 million (2019 – $6.4 million) net of royalties. This was comprised of $9.9 million (2019 – $3.0 million) in Romania and $3.4 million (2019 – $3.4 million) in Tunisia.
· For the six months ended 30 June 2020 funds from operations amounted to $4.3 million (2019 – $1.4 million).
· For the six months ended 30 June 2020 realised crude oil price per barrel (“bbl”) averaged $31.96 (2019 – $63.07) and realised natural gas price per thousand cubic feet (“mcf”) averaged $4.74 (2019 – $7.82).
· Capital expenditures for the six months ended 30 June 2020 of $3.1 million (2019 – $1.6 million).
· Given the ongoing uncertainty of the COVID-19 crisis and the difficulty in moving personnel and equipment during this crisis all future capital investment plans have been postponed. Capital will only be allocated to ensure the safe and continued operation of our production facilities.
· On 22 June 2020, the Group agreed with its lender, the European Bank for Reconstruction and Development (“EBRD”), to pay $2.0 million of its 30 June 2020 payment under the Convertible Loan and defer the remaining $6.4 million for a period of 12 months.
OPERATIONAL UPDATE
In Romania, the Company currently has three wells producing from the Moftinu field. The Company has begun the permitting process for M-1008 which was expected to be drilled in late 2020 or early 2021. Currently all drilling plans have been postponed due to the COVID-19 crisis. The Company expects to advance this well as soon as it is deemed safe and restrictions imposed by the Romanian Government are lifted. The Company had permitted a 148 km2 3D seismic acquisition programme in the Capleni area just north of the Moftinu Gas Plant and reached land access agreements with all landowners within the seismic acquisition area. The Company had ordered the mobilization of the seismic equipment and staff to begin the programme, however, due to restrictions imposed by the declaration of a state of emergency in Romania as a result of the COVID-19 pandemic and the impacts on travel and services in Romania and the Satu Mare County, the Company and its seismic contractor have postponed the programme. The Company is in constructive discussions with the Romanian regulatory authorities to agree an extension to this commitment.
Production has continued to increase in Tunisia from more efficient subsurface pumps and the steady decrease in water cuts. Since returning the Chouech and Ech Chouech fields to production following their prolonged shut-in due to social disturbances, the Company has seen steady improvements in production. The Company has continued to identify programs to replace older pumps and other low-cost workovers that have demonstrated positive production increases. These programs will be implemented when there is more certainty with regard to the restrictions dictated by the COVID-19 crisis.
OUTLOOK
COVID-19
The Company’s top priority is the health, safety and wellbeing of all our staff throughout this difficult time. During the second quarter, Tunisia and Romania have reopened their offices with strict safety measures, such as social distancing, reduced daily occupancy and wearing masks. Field operations have had modifications to ensure social distancing and to ensure safe practices and have continued to operate with no setbacks. Governments around the world are implementing strategies to reopen their economies gradually, therefore the Group is closely monitoring each jurisdiction and will continue to abide by the recommendations set forth by their local jurisdiction.
Romania
All capital plans in Romania have been postponed as well as the scheduled maintenance programme at the Moftinu Gas Plant that was set for May 2020, which is now scheduled for September 2020. Our teams have designed an incremental maintenance programme considering the postponed gas plant turn-around and has ensured this change will not have any negative impacts to the safety or performance of the gas plant.
The Company had previously announced that it had fully permitted and was preparing to commence a 3D seismic acquisition programme in the Capleni area. This programme has been delayed by the governmental restrictions on the movement of personnel and equipment and the limitations of large gatherings during this period. The Company has agreed with its seismic contractor to extend the existing contracts by one year to allow for the future completion of this programme. Subject to the ongoing uncertainty regarding the COVID-19 crisis the Company hopes to recommence this programme in early 2021.
The M-1008 production well has been permitted and was expected to be drilled in late 2020 or early 2021, however due to the COVID-19 restrictions, it is uncertain when any further work may be completed for the drilling of this well.
Tunisia
The Company continues to identify work in Tunisia focused on low capital, high return production enhancements that can be implemented in the future. During the period the Company performed additional work in the Chouech and Ech Chouech fields focused on pump replacement and pump performance, resulting in a gradual but progressive increase in production. Due to the COVID-19 crisis, there have been minor disruptions due to the availability of service providers, delaying further pump enhancement work. The Company will continue to monitor the crisis and the commodity prices to determine when to continue with the workover programs.
FINANCIAL REVIEW
Liquidity, Debt and Capital Resources
In Romania, the Group invested $2.3 million (2019 – $1.4 million) in the six months ended 30 June 2020 primarily to drill, complete, and tie in the M-1004 well. Romania remained a significant cash flow generating unit during the period as production increased from the addition of M-1004. The Moftinu field generated a netback per boe of $21.34 (2019 – $34.72) for the first half of the year.
In Tunisia, the Group invested $0.8 million (2019 – $0.2 million) for the six months ended 30 June 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 realizing a netback per boe of $9.42 (2019 – $27.61) for the first half of the year.
Funds from operations increased to $4.3 million (2019 – $1.4 million) for the six months ended 30 June 2020. This increase is mainly attributable to increased production from the Moftinu field in 2020 offset by lower commodity prices.
The Convertible debt with the EBRD was due to be repaid in four instalments commencing 30 June 2020, when 25% of the principal and accrued interest at that date would be repayable with the three remaining repayments made annually thereafter on 30 June. On 22 June 2020, the Company entered into an agreement with the EBRD to defer $6.4 million of the $8.4 million debt payment that was due at 30 June 2020, for a period of one year and paid $2 million to the EBRD. The outstanding balance will be combined with the 30 June 2021 payment for a combined payment of $14.9 million due on 30 June 2021 and is reported as a current liability at 30 June 2020.
On 22 June 2020, the Group received a waiver from the EBRD formally waiving compliance with the financial covenant for the period ended 30 June 2020.
| As at($000) | 30 June2020 | 31 December 2019 |
| Current assets | 13,002 | 15,243 |
| Current liabilities | 35,117 | 32,194 |
| Working capital deficit | (22,115) | (16,951) |
The working capital deficit of the Group at 30 June 2020 was $22.1 million, an increase of $5.2 million since 31 December 2019, largely due to the 30 June 2021 debt payment now being classified as current.
Included in current liabilities at 30 June 2020 was $14.9 million of EBRD debt (31 December 2019: $7.7 million); accounts payable of $13.3 million (31 December 2019: $16.2 million), of which $6.0 million relates to Brunei and dates back to 2012/2013; decommissioning provision of $6.3 million (31 December 2019: $6.3 million), income taxes payable of $0.3 million (31 December 2019: $1.4 million); and lease obligations of $0.3 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, 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
Serinus Energy’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.
