Serinus Energy Inc.: Q1 2018 results

Q1 2018 Highlights

Production in Q1 2018 was 380 boe/d compared to 690 boe/d in Q1 2017. The decrease of 45% from Q1 2017 was primarily due to the shut-in of the Chouech Es Saida field since February 28, 2017 and lower production from the Win-12bis well in Sabria, after being shut-in from May 22 until early September 2017, stemming from the social unrest in the southern part of the country. Oil weighting was 73% in Q1 2018 compared to 75% in Q1 2017.

During Q1 2018, Brent prices averaged US$66.80 per bbl, as compared to US$53.68 per bbl in Q1 2017, an increase of 24%, reflecting the continued climb of oil prices since August 2017 when Brent averaged US$51.70 per bbl. The company's realised oil price averaged US$66.00 per bbl in Q1 2018, compared to US$50.89 per bbl in Q1 2017, an increase of 30%.

Funds from operations for the three months ended March 31, 2018 was US$2.5 million as compared to $0.2 million for the three months ended March 31, 2017, an increase of US$2.3 million. The additional funds from operations in the current period in 2018 was primarily attributable to a US$2.6 million insurance recovery attributable to the well incident in December 2017. This increase was partially offset by US$0.4 million of transaction costs incurred during the quarter related to the company's continuance to Jersey and AIM listing transaction.

The net earnings for the three-month period ended March 31, 2018 was US$1.0 million, compared to a net loss of US$2.1 million in Q1 2017.

The well incident costs of US$4.0 million associated with the emergency operations in December 2017 on the Moftinu 1001 well were fully recognised in 2017. During the first quarter of 2018, the company submitted its first interim insurance coverage claim related to the Moftinu 1001 well incident and recognised US$2.6 million in the statement of operations in Q1, 2018. The company received insurance proceeds of US$1.9 million in Q1 2018, with the remaining US$0.7 million reported as an insurance receivable on the balance sheet. Subsequent to March 31, 2018, the company received the US$0.7 million related to its first interim insurance claim and a second interim claim is in progress. The well incident has resulted in delays to the construction of the gas facility, which is located on the wellsite of the Moftinu 1001 well. First production is expected to commence late Q2, 2018. The company has also constructed the platform and access roads and has secured a drilling rig and well services for the immediate drilling of the replacement well, Moftinu 1007, located approximately 300 m from the Moftinu 1001 well site. This well is expected to spud late May. The redrill portion will form the final part of the company's insurance claim.

On March 7, 2018, the company's shareholders voted in favour of the continuance to Jersey. On May 3, 2018, the company continued to Jersey, Channel Islands. In connection with the Continuance, the company changed its name from Serinus Energy Inc. to Serinus Energy plc and adopted new charter documents. The company is proceeding with the process to list on AIM market of the London Stock Exchange with completion planned for mid-May 2018.

General & Financial Highlights

Revenue, net of royalties, for three-month period ended March 31, 2018 decreased to US$2.0 million, compared to US$2.6 million in Q1 2017, due to lower production.

Total royalties paid decreased from $0.3 million in Q1 2017 to $0.2 million in Q1 2018. Much of this decrease was due to lower production offset by higher average commodity prices.

Operational Highlights

Production volumes decreased by 45% in the first quarter of 2018 to 380 boe/d compared to 690 boe/d in the first quarter of 2017. The decrease in production in Q1 2018 was attributable to the shut-in of the Chouech Es Saida field since February 28, 2017 and lower volumes from the WIN-12bis well in Sabria arising from the prolonged shut-in of the Sabria field from May to September 2017. The production volumes at Chouech Es Saida in the prior period were additionally impacted by lower production due to the CS-3 and CS-1 wells which went down in the middle of December 2016 and remained off-line in the first quarter of 2017 pending pump replacement and workovers.

In Romania, the company incurred capital expenditures of US$2.1 million for the three months ended March 31, 2018. The expenditures consisted of the construction of the Moftinu gas facilities in the period of US$1.6 million and costs associated with the Bucharest office of US$0.6 million.

Outlook

The company is focusing on Romania as the impetus for growth over the next several years. The Moftinu gas development project is a near-term project that is expected to begin producing from the gas discovery well Moftinu-1000 and the Moftinu 1007 well which is scheduled for to be drilled, completed and ready for production by late Q2, 2018. Construction of the gas processing facility with 15 Mmcf/d of operational capacity is in its final phase with expected first gas production late Q2 2018.

The company is also progressing the drilling program to meet work commitments for the extension to October 2019 and plans to drill two additional development wells, Moftinu-1003 and Moftinu-1004 during the latter half of 2018. The European Bank for Reconstruction and Development is the loss payee under the relevant insurance policy and if it insists on allocating all insurance proceeds relating to the replacement well, Moftinu-1007, toward repaying the company's indebtedness to the EBRD, the company will delay the drilling of the Moftinu 1004 well until early 2019. Combined with the production of the Moftinu 1000 and Moftinu 1007 wells, the Corporation expects the gas plant to be operating at full capacity by early 2019.

In Tunisia, the company is currently focusing on improving production from Sabria following the shut-in and plans to focus on carrying out low cost incremental work programs to increase production from existing wells, including the Sabria N-2 re-entry and installing artificial lift on another Sabria well, having determined that production at its oil field can be restarted in a safe and secure environment with sufficient comfort that there will be no further production disruptions for the foreseeable future. The Corporation views Sabria as a large development opportunity longer term.

For the Chouech Es Saida field, the company is evaluating the restart of the field including timing and costs to replace the electric submersible pump for the CS-3 well. The company views the level of activity pursued in Tunisia as dependent on the following thresholds being achieved and maintained. In terms of oil prices, incremental vertical wells become economic at Brent oil prices of ~US$45 per bbl, with potential multi-leg horizontal wells lowering the threshold to below US$30 per bbl in Sabria. The current capacity of surface facilities would only allow for 1 to 3 incremental wells for each of Sabria and Chouech Es Saida/Ech Chouech. As well for Chouech Es Saida/Ech Chouech, the STEG El Borma gas plant is nearly at its effective capacity. Further gas developments from this concession may have to be delayed until the completion of the Nawara Pipeline for material gas pipeline capacity to come online.

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