TIDMSENX
RNS Number : 6158T
Serinus Energy PLC
26 March 2021
26 March 2021
Press Release
Preliminary Annual Financial Results for 2020
Jersey, Channel Islands, 26 March 2021 -- Serinus Energy plc
("Serinus" or the "Company") (AIM:SENX, WSE:SEN) is pleased to
announce its preliminary financial results for 2020.
Operational
-- Serinus Energy plc and its subsidiaries ("Serinus", the
"Company", or the "Group") have continued to operate safely and
effectively through the COVID-19 pandemic, with the successful
implementation of operational and monitoring protocols to ensure
the health and safety of our employees.
-- Production for the year averaged 2,340 boe/d (2019 - 1,389 boe/d), comprised of;
o Romania - 1,788 boe/d (2019 - 961 boe/d).
o Tunisia - 552 boe/d (2019 - 428 boe/d).
-- Serinus exited December 2020 with a production rate of 2,122
boe/d, with a December average of 2,061 boe/d (Romania 1,561 boe/d
and Tunisia 500 boe/d). Production declined over the fourth quarter
due to delays in specialist pump technicians crossing national
borders due to COVID-19 restrictions as well as natural declines in
Romania.
-- 1P audited reserves at 31 December 2020 increased by 101% to
5.8 MMboe and 2P audited reserves decreased by 9% to 9.6 MMboe.
-- The Company received approval from the Romanian National
Agency for Mineral Resources ("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 license extension
until 27 October 2021 plus additional time equivalent to the
duration of the "Romanian State of Emergency/Alert" which began on
9 March 2020 and currently remains in force.
-- The amendment replaces the previous seismic commitment, which
the company was unable to fulfill due to the restrictions imposed
as a result of the COVID-19 pandemic, 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.
-- During 2020 the Company permitted and finalised plans to
drill the M-1008 development well which will qualify as one of
these commitment wells.
-- On 23 February 2021, the Company announced the M-1008 well
flowed at 4.0 MMscf/d (approximately 666 boe/d) from two perforated
zones and will be tied into the Moftinu Gas Plant.
Financial
-- Completed a successful placing of 787,936,852 ordinary shares
to raise gross proceeds of $21.3 million announced on 27 November
2020, of which $16.5 million was paid to the EBRD to retire the
Convertible Loan.
-- During 2020, Serinus generated revenues of $24.0 million
(2019 - $24.4 million), comprised of $16.9 million (2019 - $15.2
million) from Romania and $7.1 million (2019 - $9.2 million) from
Tunisia.
-- Capital expenditures of $5.5 million (2019 - $4.9 million)
were incurred for the year and predominantly consisted of costs
incurred drilling M-1004, and preparation work for M-1008.
-- Funds from operations for the year was $7.3 million (2019 -
$8.1 million) and normalized EBITDA was $6.6 million (2019 - $7.0
million).
-- Net realised prices ($/boe) averaged $28.06 (2019 - $48.12),
a decrease of 42%, comprised of;
o Realised oil price ($/bbl) averaged $35.56 (2019 - $61.67), a
decrease of 42%.
o Realised gas price ($/Mcf) averaged $4.38 (2019 - $7.27), a
decrease of 40%.
-- Production expenses ($/boe) were reduced by 30% to $9.67
(2019 - $13.78) largely due to increased production and careful
cost management.
-- Cash balance as at 31 December 2020 was $6.0 million.
As stated in the Company's news release on 22 March 2021, upon
the approval and registration of BDO London office as a qualified
third-party auditor in Poland by the Polish Securities Regulator,
Serinus will be able to release its audited Annual Report for 2020,
which will include the BDO audit opinion.
About Serinus
Serinus is an international upstream oil and gas exploration and
production company that owns and operates projects in Tunisia and
Romania.
For further information, please refer to the Serinus website (
www.serinusenergy.com ) or contact the following:
Serinus Energy plc
Jeffrey Auld, Chief Executive Officer
Andrew Fairclough, Chief Financial Officer
Calvin Brackman, Vice President, External
Relations & Strategy +4 4 208 054 2859
A rden Partners plc (Nominated Adviser &
Joint Broker)
Paul Shackleton / Dan Gee-Summons (Corporate
Finance)
Tim Dainton (Equity Sales) +44 207 614 5900
Shore Capital Stockbrokers Limited (Joint
Broker)
Toby Gibbs / John More (Corporate Advisory)
Jerry Keen (Corporate Broking) +44 207 408 4090
Camarco (Financial PR - London)
Billy Clegg
Owen Roberts +44 203 781 8334
TBT i Wspólnicy (Financial PR - Warsaw)
Katarzyna Terej +48 602 214 353
Forward Looking Statement Disclaimer
This release may contain forward-looking statements made as of
the date of this announcement with respect to future activities
that either are not or may not be historical facts. Although the
Company believes that its expectations reflected in the
forward-looking statements are reasonable as of the date hereof,
any potential results suggested by such statements involve risk and
uncertainties and no assurance can be given that actual results
will be consistent with these forward-looking statements. Various
factors that could impair or prevent the Company from completing
the expected activities on its projects include that the Company's
projects experience technical and mechanical problems, there are
changes in product prices, failure to obtain regulatory approvals,
the state of the national or international monetary, oil and gas,
financial , political and economic markets in the jurisdictions
where the Company operates and other risks not anticipated by the
Company or disclosed in the Company's published material. Since
forward-looking statements address future events and conditions, by
their very nature, they involve inherent risks and uncertainties,
and actual results may vary materially from those expressed in the
forward-looking statement. The Company undertakes no obligation to
revise or update any forward-looking statements in this
announcement to reflect events or circumstances after the date of
this announcement, unless required by law.
Translation : This news release has been translated into Polish
from the English original.
2020 Highlights
Operational
-- Serinus Energy plc and its subsidiaries ("Serinus", the
"Company", or the "Group") have continued to operate safely and
effectively through the COVID-19 pandemic, with the successful
implementation of operational and monitoring protocols to ensure
the health and safety of our employees.
-- Production for the year averaged 2,340 boe/d (2019 - 1,389 boe/d), comprised of;
o Romania - 1,788 boe/d (2019 - 961 boe/d).
o Tunisia - 552 boe/d (2019 - 428 boe/d).
-- Serinus exited December 2020 with a production rate of 2,122
boe/d, with a December average of 2,061 boe/d (Romania 1,561 boe/d
and Tunisia 500 boe/d). Production declined over the fourth quarter
due to delays in specialist pump technicians crossing national
borders due to COVID-19 restrictions as well as natural declines in
Romania.
-- 1P audited reserves at 31 December 2020 increased by 101% to
5.8 MMboe and 2P audited reserves decreased by 9% to 9.6 MMboe.
-- The Company received approval from the Romanian National
Agency for Mineral Resources ("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 license extension
until 27 October 2021 plus additional time equivalent to the
duration of the "Romanian State of Emergency/Alert" which began on
9 March 2020 and currently remains in force.
-- The amendment replaces the previous seismic commitment, which
the company was unable to fulfill due to the restrictions imposed
as a result of the COVID-19 pandemic, 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.
-- During 2020 the Company permitted and finalised plans to
drill the M-1008 development well which will qualify as one of
these commitment wells.
-- On 23 February 2021, the Company announced the M-1008 well
flowed at 4.0 MMscf/d (approximately 666 boe/d) from two perforated
zones and will be tied into the Moftinu Gas Plant.
Financial
-- On 21 December 2020, Serinus fully retired the outstanding
Convertible Loan held by the European Bank of Reconstruction and
Development ("EBRD") amounting to $33.0 million, in exchange for
consideration of $16.5 million and the subscription by the EBRD, at
no cost, for 112,925,402 ordinary shares.
-- During 2020, Serinus generated revenues of $24.0 million
(2019 - $24.4 million), comprised of $16.9 million (2019 - $15.2
million) from Romania and $7.1 million (2019 - $9.2 million) from
Tunisia.
-- Capital expenditures of $5.5 million (2019 - $4.9 million)
were incurred for the year and predominantly consisted of costs
incurred drilling M-1004, and preparation work for M-1008.
-- Funds from operations for the year was $7.3 million (2019 -
$8.1 million) and normalized EBITDA was $6.6 million (2019 - $7.0
million).
-- Net realised prices ($/boe) averaged $28.06 (2019 - $48.12),
a decrease of 42%, comprised of;
o Realised oil price ($/bbl) averaged $35.56 (2019 - $61.67), a
decrease of 42%.
o Realised gas price ($/Mcf) averaged $4.38 (2019 - $7.27), a
decrease of 40%.
-- Production expenses ($/boe) were reduced by 30% to $9.67
(2019 - $13.78) largely due to increased production and careful
cost management.
-- Completed a successful placing of 787,936,852 ordinary shares
to raise gross proceeds of $21.3 million announced on 27 November
2020, of which $16.5 million was paid to the EBRD to retire the
Convertible Loan.
-- Cash balance as at 31 December 2020 was $6.0 million.
Serinus at a Glance
Serinus is an oil and gas exploration, appraisal and development
company. The Group acts as the operator for all of its assets and
has operations in two business units: Romania and Tunisia.
Romania
In Romania the Company currently holds one large concession
area, Satu Mare, approximately 3,000km(2) , located in a highly
sought-after hydrocarbon province. The Moftinu Gas Project is what
the Group hopes to be the first of many shallow gas developments.
The concession is extensively covered by legacy 2D seismic and the
Group considers the concession to have multiple sizable prospects
available for further exploration.
Tunisia
The Company's Tunisian operations are comprised of five
concession areas. Of the five concession areas the Company Is
currently focused on three of those areas which have discovered oil
and gas reserves and are currently producing. The largest asset in
the Tunisian portfolio is the Sabria field, which is a large
oilfield play that has been historically under-developed. Serinus
considers this to be an excellent asset for remedial work to
increase production and in time, with proper reservoir studies, an
excellent asset upon which to conduct further development
operations.
2021 Outlook
Corporate
2020 was a transformational year for the Company. Despite the
disruptions caused by a global pandemic and the concurrent
commodity price crashes, Serinus demonstrated the resilience of our
cash flows, the drive and determination of our operating teams and
the ability to maintain positive cash flows through the bottom of
the commodity cycle. During the course of the year the Company was
able to negotiate with its debt holder, the EBRD, for the
retirement of US$33.0 million of outstanding debt. This agreement
saw Serinus extinguish the Convertible Loan by repaying $16.5
million and issuing 112,925,402 shares to the EBRD. To finance this
transaction and create a debt-free cash flowing business Serinus
completed a placing which raised gross proceeds of $21.3 million in
exchange for 787,936,852 ordinary shares. The Group finalized the
payment and issuance of shares to the EBRD on 21 December 2020. At
31 December 2020, the EBRD owned 9.9% (2019 - nil%) of the
outstanding shares in issue.
The elimination of all of the Company's legacy debt allows the
business to focus on utilizing cash flow to continue increasing
production and cash flow. Ultimately this strategy is expected to
add considerable value to its shareholders.
Romania
2020 was the first full year of results that demonstrated the
cash flow generation capabilities of our Romanian business unit.
During the year the low-cost, robust cash flow was demonstrated
even during the deepest declines in the oil and gas commodity
cycle. The Company remains optimistic about the future growth
prospects throughout the Satu Mare concession.
During the year, the Company drilled an additional development
well (M-1004) in the Moftinu field. The well initially flowed at
6.0 MMscf/d during testing and has performed as expected. This
increased production helped increase the positive cash flow from
operations from the Romanian business unit. During the year Serinus
renegotiated the terms of the concession as announced 13 October
2020, to extend and adjust the work commitments. The Company
anticipates that these work commitments will be completed during
2021, allowing the Company to enter the fourth exploration phase,
with further commitments to be negotiated. The Company continues to
explore other opportunities to enhance current production such as
compression at the gas plant.
Subsequent to year-end, the Company drilled, completed and
tested a new development well (M-1008) on the Moftinu field. This
well was tested at 4.0 MMscf/d from two perforated zones and has
been placed on production.
Tunisia
Tunisia continued to provide positive cashflow to the Group as
three fields were operating for the entirety of 2020. The Company
is optimistic about 2021 having identified work programs that will
materially enhance current production with limited capital
requirements.
During the year, the Company completed a coil-tubing workover in
the Sabria field, that has seen positive results on production. The
Company is identifying other wells to complete similar work on as
well as introducing the first pumps into the three operating
fields.
The Company is in discussion with Tunisia's Director General of
Hydrocarbons ("DGH") with regards to the expiry of the Zinnia
concession at the end of 2020 and Sanrhar at the end of 2021. The
Company has initiated discussions for a license extension in Ech
Chouech that is set to expire at 30 June 2022.
COVID-19
The Company continues to place the health, safety and wellbeing
of all our staff as our top priority. The Company continues to
follow government recommendations such as enhanced sanitation of
work sites, social distancing and wearing masks. Where government
advice has required, the Company has closed or reduced the presence
of staff in our Head Office, Administration Office and our Business
Unit Offices. Our field operations continue to modify daily tasks
and routines to ensure safe practices for all staff. Existing
operations have remained in production and our producing assets
have seen no significant operation setbacks resulting from the
COVID-19 pandemic.
Serinus Investment Thesis
Investment in Serinus offers shareholders an ability to access
international oil and gas upstream operations with strong cash flow
generation through the oil and gas commodity cycle. Our low-cost
onshore asset base provides significant near-term production growth
opportunities. The size of the existing asset base allows for
significant organic growth without incremental asset acquisition
cost in areas where our technical knowledge has been refined over
the years that Serinus has operated these concession areas. Serinus
offers a compelling growth opportunity where risks are mitigated by
our extensive experience in our operating areas and the low-cost
nature of our assets.
Serinus' operations in Romania are focused on the large Satu
Mare Concession Area. The Satu Mare Concession Area is located in
the North West of Romania along-side the Hungarian border. This
large block contains the Moftinu gas field and the Company believes
that numerous shallow gas opportunities with similar
characteristics to the Moftinu field are present in the immediate
surrounding area. In addition, the southern portion of the
concession offers excellent exploration opportunities for large oil
prospects as across the southern boundary of the Satu Mare
concession is the Suplacu de Barcau oil field (held by OMV Petrom).
This is a significant oilfield estimated to have produced in excess
of 100 million barrels.
In Tunisia, the Company's operations are focused on the Sabria,
Chouech Es Saida ("Chouech") and Ech Chouech fields. Sabria is a
very large conventional oilfield where our independent reservoir
engineers have accessed a field with 445 million barrels of oil
equivalent originally in place. Of that number approximately 1.2%
has been recovered to date. This is a very low recovery factor for
a conventional oilfield and the Company expects to increase that
recovery factor materially. The Chouech and Ech Chouech fields in
southern Tunisia offer excellent opportunities to increase
production from existing oilfields through the application of
standard oilfield practices. Serinus' Tunisian assets can be
typified as existing discovered and producing oilfields where field
optimization provided the path to production, revenue and cash flow
growth with no exploration risk.
In addition to the strong asset base Serinus has a strong and
experienced management team. Within each jurisdiction, we have
local experts managing the operations. Within the Company we have
significant technical and commercial experience and are able to
apply that experience across our business units.
Serinus' Strategy
Vision
The Group's goal is to transform the potential of its extensive
land base in Romania and Tunisia into enhanced shareholder value
through the efficient allocation of capital.
Strategy
Serinus is focused on significant growth potential within its
existing concession and license holdings in Romania and Tunisia
through the development of low cost, high return projects, as
follows:
1. Leverage Land Position:
-- One concession in Romania with two work commitments remaining
in the current exploration phase.
-- Five exploration and production concessions in Tunisia with all work commitments completed.
-- Extensive oil and natural gas exploration and development
potential within multiple play horizons.
2. Commitment to Shareholders:
-- Cohesive management team with a commitment to enhancing shareholder value.
-- Extensive experience and a proven track record of the allocation of shareholder capital.
3. Manage Risks:
-- Managing surface and subsurface risks through constant
evaluation and introduction of new technologies.
-- Allocate capital to projects with attractive returns at relatively low risk profiles.
-- Operator of all concessions allows for cost control.
4. Focus on Growth:
-- Leverage cash flow to grow through expanded exploration and
development on existing asset base.
-- Seek acquisitions that will provide synergies at a cost that is accretive to shareholders.
Chairman's Report
Dear shareholders,
First and foremost, I hope to find you in good health.
It is my pleasure to address you in March 2021 but with respect
to the year 2020, it was a very peculiar year for all of us.
We started 2020 full of optimism, aiming higher and ensuring
that our Company was ready for unprecedented development of its
production and operations in both Romania and Tunisia. The hard
reality of 2020 and a global pandemic very quickly altered our
ambitious plans and we immediately reacted to focusing on the
protection of staff and securing continuity of operations. The fact
that we have employees in five countries with different legal
systems, lockdown rules, travel restrictions and pandemic
mitigations even further complicated daily management of our
businesses and our COVID-19 response, but I am proud to say that we
have managed to do so with minimal interruptions to the
business.
Recognising the severity of the disruptions caused by the
pandemic the Board of Directors led by example and very quickly
undertook to voluntarily sacrifice a portion of their remuneration
to preserve liquidity. I believe this displayed our commitment
towards the Company and confidence in the business. As already
stated, the Company has carried out is operations without
interruption and has not been forced to dismiss or make redundant
any of its employees in these very difficult times. Our commitment
to our employees remains strong.
Despite low commodity prices and the impact on demand due to
COVID-19, Serinus' business continued to generate positive
cashflow, thanks to the low operating cost base, effectiveness of
actions undertaken to maintain operational integrity and the asset
diversification between Romania and Tunisia.
There were however also negative consequences of the global
pandemic. Negative market fluctuations affected commodity prices
which declined so significantly such that the Company was unable to
make the requisite debt payment to the EBRD in June. The Company's
management however took this as the opportunity to address the
balance sheet once and for all and as a result of positive
discussions with the EBRD we have completed a debt restructuring,
leaving the Company debt-free. A successful $21.3 million equity
placing demonstrated the equity markets belief in the operations
and prospects of the Company and its ability to generate cashflow
even in the difficult environment of 2020. I would like to take
this opportunity to thank existing and new shareholders for their
support and facilitating the Company's transition.
Serinus is listed on two stock exchanges and as such we have
always kept shareholder interaction amongst our priorities. In 2021
the Company will continue to proactively engage with investors as
well as strive for transparency and the timely provision of
relevant information. In addition, as we aim to be a leader in
disclosure and best market practices, we look to develop our plans
to advance our reporting of environmental, social responsibility
and corporate governance issues.
On a personal note, I would very much like to thank our
management team for their continuing commitment to the Company,
extensive efforts and the energy shown by the team whilst having to
work remotely, where possible.
Finally, I take this opportunity to say thank you for sharing
our belief in Serinus as we look forward to a healthy, prosperous
and successful 2021.
Yours sincerely,
Lukasz R dziniak, Chairman of the Board of Directors
25 March 2021
Report from the CEO
Dear fellow shareholders,
It is perhaps an understatement to say that 2020 was a unique
year. Serinus entered 2020 with a profound sense of accomplishment
and optimism. 2019 had been a year where the foundations were laid
for growth and further development of our business. We exited 2019
with the Chouech fields having been brought back onstream and the
Moftinu gas plant running and providing operating cash flow to the
business. The year began with a busy January in which the Company
successfully drilled the Moftinu-1004 well. The well was drilled on
budget, ahead of schedule and flowed at an excellent initial test
rate of 6.0 MMscf/d. Commodity prices were stable and the
expectation that the Company was set up for a year where we would
have a full year of operating cash flow from the Moftinu Gas Plant
allowing the Company to steadily bring production back onstream in
Tunisia and result in a transformative year for the Company.
Sadly, this was not how 2020 transpired. In early March as the
news began to focus on the COVID-19 pandemic the Company worked to
put in place protocols that would protect our teams and our
business. Our protocols focused primarily of the safety of our
workers both in our offices and in our field operations. We
increased the onsite consumables at our field operations to ensure
there was always at least one month's supply available. We worked
very hard to implement cleaning protocols that we hoped would
minimize our risk to the spread of infection. By mid-March it was
apparent that we would begin to enforce social distancing where
working conditions were able and we began to shut our offices and
work remotely. It is a great credit to our operating teams that we
were able to continue operations safely.
2020 was also the year that we had intended to complete the
commitment to the Romanian Government to conduct a seismic
acquisition programme on the Satu Mare Concession. This programme
was at such an advanced stage that final mobilization orders were
being prepared when the pandemic forced a halt to these works.
Prohibitions on movement between countries and prohibitions on
large gatherings made it impossible to complete this commitment. We
immediately began a consultative phase with the Romanian regulators
and ultimately agreed to an extension as well as a redefined
commitment that included a well on the Moftinu field and a well on
the Sancrai prospect to the southwest of Moftinu. The Company is
hopeful that Sancrai will provide another development similar to
the Moftinu field.
As the commodity prices suffered dramatic falls through March
and April it became apparent that the Company would not be in a
position to make the requisite debt payment to the EBRD in June.
The Company immediately engaged with the EBRD to seek solutions and
the EBRD accepted a payment of $2.0 million and a waiver on the
remaining 30 June 2020 debt payment until 30 June 2021. The bank
requested that both parties seek to look at longer-term solutions
by late 2020. The Company worked to prepare a proposal whereby the
EBRD would retire the entirety of the outstanding debt in exchange
for $16.5 million and 9.9% of the post restructuring equity. The
resulting equity transaction allowed Serinus to exit 2020 as a
debt-free business.
The dramatic disruptions of 2020 should not obscure the progress
that the Company has made. Whilst our focus remained on our staff's
safety and wellbeing, we also managed to achieve some important
milestones. Production for 2020 averaged 2,340 boe/d compared to
1,389 boe/d in 2019. This was achieved despite the disruptions
forced on the Company by the global pandemic. The Company continued
to focus on minimizing costs as we lowered our G&A to $4.61/boe
from $7.45/boe in 2019 and reduced our production expenses to
$9.67/boe from $13.78/boe in 2019. Our low-cost base allowed the
Company to generate $7.3 million of operating cash flow even in the
face of wildly volatile commodity prices. Perhaps the most
important achievement of 2020 is the one that is hardest to see;
the work that is done to allow for further growth and development
in the business. During 2020 our technical teams completed an
Artificial Lift Study in Sabria. This programme has technically
reviewed the possible outcomes of installing pumps into the Sabria
field in Tunisia for the first time. A great deal of preparation
has taken place in Romania preparing for the drilling of the
Moftinu-1008 well in January 2021 and preparing for the drilling of
the Sancrai-1 well later in the year. Whilst much of this work goes
unseen by the outside world it is fundamental to our success and
our teams have worked diligently and tirelessly to prepare us for
the next steps in our development of the Company.
In closing it is appropriate to thank our shareholders for their
support in what was a very trying year. We also owe gratitude to
our employees and their families. Our employees showed an eagerness
to find solutions and work through problems in a year that threw
many of these our way. In a year such as 2020 we should also spare
a thought for our teams' families who stood behind them and
supported them through a year that experience had prepared none of
us for. To our shareholders, stakeholders, employees and their
families I take this opportunity to say thank you and we look
forward to a safe, healthy and successful 2021.
Yours sincerely,
Jeffery Auld, Chief Executive Officer
25 March 2021
Report from the CFO
During 2020 the Company has faced a number of challenges, whilst
maintaining financial prudence in an uncertain environment and
successfully restructuring its capital structure to emerge from the
year with a more robust platform from which to execute its
strategy.
Liquidity, Debt and Capital Resources
The Company spent a total of $5.5 million (2019 - $4.9 million)
on capital expenditures during the year. These funds were primarily
spent in Romania, where the Group invested $4.2 million (2019 -
$3.9 million) related to the drilling and completion of M-1004,
along with initial work related to M-1008. The Group spent $1.3
million (2019 - $1.0 million) in Tunisia completing work on various
wells to enhance current well production.
During 2020, the Company's funds from operations decreased
slightly to $7.3 million (2019 - $8.1 million) mainly due to the
collapse in commodity prices. Considering the movement in working
capital, the cash flows generated from operating activities in 2020
were $6.8 million (2019 - $8.8 million).
In June 2020, as a result of the impact of the COVID-19 pandemic
on economic activity, combined with the collapse in commodity
prices, the Company reached an agreement with the EBRD to defer its
scheduled repayment of debt under the terms of the Convertible Loan
and paid $2.0 million of the debt payment obligation due on 30 June
2020, with the remaining $6.4 million deferred for 12 months, with
a condition to restructure the terms and conditions of the
Convertible Loan no later than 18 December 2020, which was
subsequently extended to 26 February 2021. On 26 November 2020, the
Company announced that it had conditionally agreed with the EBRD to
retire the debt facility, in exchange for consideration of $16.5
million and the subscription by the EBRD at no cost, for
112,925,402 ordinary shares (the "EBRD Shares"). On 27 November
2020, the Company announced it had successfully raised gross
proceeds of $21.3 million, and on 21 December 2020 announced that
the EBRD Shares had been admitted to AIM thereby concluding the
restructuring to retire all outstanding debt and resulting in
Serinus becoming a debt-free company.
The Company is now in a strong position to expand and continue
growing production within our existing resource base. As the
Company is now debt-free, the Company has adequate resources
available to deploy into both operating segments to deliver growth
and ultimately shareholder returns.
($000) Year ended 31 December
Working Capital 2020 2019
------------------------- ----------- ------------
Current assets 16,037 15,243
Current liabilities 22,236 32,194
------------------------- ----------- ------------
Working Capital deficit (6,199) (16,951)
------------------------- ----------- ------------
The working capital deficit at 31 December 2020 was $6.2 million
(2019 - $17.0 million).
Current liabilities as at 31 December 2020 was $22.2 million
(2019 - $32.2 million) comprised of:
-- Accounts payable of $14.3 million (2019 - $16.2 million)
which includes $6.0 million (2019 - $8.2 million) related to
historic work commitments in Brunei.
-- Decommissioning provision of $7.1 million (2019 - $6.3 million).
o Brunei - $1.8 million (2019 - $1.8 million).
o Canada - $1.0 million (2019 - $1.0 million) which are offset
by restricted cash in the amount of $1.2 million (2019 - $1.1
million) in current assets.
o Romania - $0.6 million (2019 - $nil).
o Tunisia - $3.7 million (2019 - $3.5 million).
-- Income taxes payable of $0.6 million (2019 - $1.4 million).
-- Current portion of lease obligations of $0.2 million (2019 - $0.5 million).
-- Current portion of long-term debt $nil (2019 - $7.7 million).
Financial Review - Year ended 31 December 2020
Funds from Operations
The Group uses funds from operations as a key performance
indicator to measure the ability of the Group to generate cash from
operations to fund future exploration and development activities.
The following table is a reconciliation of funds from operations to
cash flow from operating activities:
Year ended 31 December
($000) 2020 2019
------------------------------------- ------------ -----------
Cash flow from operations 6,781 8,778
Changes in non-cash working capital 536 (670)
------------------------------------- ------------ -----------
Funds from operations 7,317 8,108
------------------------------------- ------------ -----------
Funds from operations per share 0.03 0.03
------------------------------------- ------------ -----------
The decrease in funds from operations in 2020 was primarily
attributable to the low commodity price environment and the impact
on economic activity as a result of the COVID-19 pandemic.
Production increases in both operating segments year over year were
offset by the lower realised prices received. The comparative
period saw the Moftinu field come online in April 2019, and the
Chouech and Ech Chouech fields came online in the second half of
2019.
Both operating segments realised positive funds from operations
as Romania generated $10.7 million (2019 - $8.9 million) and
Tunisia generated $0.5 million (2019 - $3.4 million). Funds used in
Corporate were $3.9 million (2019 - $4.2 million) resulting in a
net funds from operations of $7.3 million (2019 - $8.1
million).
Production
Year ended 31 December 2020 Tunisia Romania Group %
----------------------------- -------- -------- ------- -----
Crude oil (bbl/d) 443 - 443 19%
Natural gas (Mcf/d) 654 10,643 11,297 80%
Condensate (bbl/d) - 14 14 1%
----------------------------- -------- -------- ------- -----
Total (boe/d) 552 1,788 2,340 100%
----------------------------- -------- -------- ------- -----
Year ended 31 December 2019
Crude oil (bbl/d) 339 - 339 25%
Natural gas (Mcf/d) 534 5,673 6,207 74%
Condensate (bbl/d) - 15 15 1%
----------------------------- -------- -------- ------- -----
Total (boe/d) 428 961 1,389 100%
----------------------------- -------- -------- ------- -----
Overall, the Company's production saw a significant increase
during 2020 as the Moftinu, Chouech and Ech Chouech fields were all
on production for the entire year as well as the addition of a
successful development well in Romania (M-1004). Production volumes
(boe/d) for the group increased by 951 or 68% to 2,340 for the year
(2019 - 1,389).
Romania's production volume (boe/d) increased by 827 or 86% to a
total of 1,788 (2019 - 961). This was primarily as a result the
first full year of production at the Moftinu field as well as the
successful drilling of an additional development well (M-1004).
During the year, Romanian production was predominantly from three
wells (2019 - two wells): M-1003, M-1004 and M-1007.
Tunisia's production volume (boe/d) increased by 124 or 29% to
552 (2019 - 428). This was a direct result of the Chouech and Ech
Chouech fields operating for the full year compared to partial
production in 2019. The Company completed workover projects within
the Chouech and Sabria fields that had positive results during the
year. The Company has further plans to initiate an artificial lift
program in 2021 to further enhance current production.
Oil and Gas Revenue
($000)
Year ended 31 December 2020 Tunisia Romania Group %
Oil revenue 5,762 - 5,762 24%
Gas revenue 1,361 16,740 18,101 75%
Condensate revenue - 167 167 1%
---------------------------- -------- -------- ------- -----
Total revenue 7,123 16,907 24,030 100%
---------------------------- -------- -------- ------- -----
Year ended 31 December 2019
---------------------------- -------- -------- ------- -----
Oil revenue 7,617 - 7,617 31%
Gas revenue 1,604 14,855 16,459 68%
Condensate revenue - 289 289 1%
---------------------------- -------- -------- ------- -----
Total revenue 9,221 15,144 24,365 100%
---------------------------- -------- -------- ------- -----
Realised Price
Year ended 31 December 2020 Tunisia Romania Group
-------------------------------- -------- -------- ------
Oil ($/bbl) 35.56 - 35.56
Gas ($/Mcf) 5.68 4.30 4.38
Condensate ($/bbl) - 32.85 32.85
-------------------------------- -------- -------- ------
Average realised price ($/boe) 35.28 25.84 28.06
-------------------------------- -------- -------- ------
Year ended 31 December 2019
-------------------------------- -------- -------- ------
Oil ($/bbl) 61.67 - 61.67
Gas ($/Mcf) 8.24 7.17 7.27
Condensate ($/bbl) - 54.79 54.79
-------------------------------- -------- -------- ------
Average realised price ($/boe) 59.12 43.22 48.12
-------------------------------- -------- -------- ------
Revenue during the year was relatively flat at $24.0 million
(2019 - $24.4 million) as the increase in production was largely
offset by the lower commodity prices during the year. The Group saw
the average realised price ($/boe) decrease by $20.06 or 42% to
$28.06 (2019 - $48.12).
The Group average realised oil prices ($/bbl) declined by $26.11
or 42% to $35.56 (2019 - $61.67), and average realised natural gas
prices ($/Mcf) decreased by $2.89 or 40% to $4.38 (2019 - $7.27).
Pricing has begun to recover through the latter part of 2020, with
the December average realised gas prices in Romania at $4.95/Mcf
and the December realised oil prices in Tunisia at $46.93/bbl.
Under the terms of the Sabria Concession Agreement the Group is
required to sell 20% of its annual crude oil production from the
Sabria concession into the local market, which is sold at an
approximate 10% discount to the price obtained on its other crude
sales. The remaining crude oil production is sold to the
international market, through a marketing agreement with Shell
International Trading and Shipping Company Limited. In 2020, the
Group completed two liftings (2019 - one), which occurred during
the second and fourth quarters.
Royalties
Year ended 31 December
($000) 2020 2019
------------------------ ------------ -----------
Tunisia 844 1,057
Romania 960 803
------------------------ ------------ -----------
Total 1,804 1,860
Total ($/boe) 2.11 3.67
Tunisia (% of revenue) 11.9% 11.5%
Romania (% of revenue) 5.7% 5.3%
------------------------ ------------ -----------
Total (% of revenue) 7.5% 7.6%
------------------------ ------------ -----------
Royalties were flat compared to the prior year at $1.8 million
(2019 - $1.9 million) which coincides with the relatively unchanged
revenue described above. The average royalty rate for the group was
7.5% (2019 - 7.6%).
The royalty structure for Romania royalties is a flat 7.5% for
gas revenues and 3.5% for condensate for the entire field. Tunisia
royalties vary based on individual concession agreements. Sabria
royalty rates vary depending on a calculation of cumulative
revenues, net of taxes, as compared to cumulative investment in the
concession, known as the "R factor". As the R factor increases, so
does the royalty percentage to a maximum rate of 15%. During 2020,
the royalty rate remained unchanged in Sabria at 10% for oil and 8%
for gas. Chouech and Ech Chouech royalty rates are flat at 15% for
both oil and gas.
Production Expenses
Year ended 31 December
($000) 2020 2019
------------------------------------ ------------ -----------
Tunisia 4,520 4,606
Romania 3,706 2,332
Canada 54 47
------------------------------------ ------------ -----------
Group 8,280 6,985
Tunisia production expense ($/boe) 22.33 29.46
Romania production expense ($/boe) 5.67 6.65
------------------------------------ ------------ -----------
Total production expense ($/boe) 9.67 13.78
------------------------------------ ------------ -----------
Overall, Group operating costs increased by $1.3 million or 19%
to $8.3 million (2019 - $7.0 million), however on a per boe basis,
the Group delivered a significant decrease in production expenses
($/boe) of $4.11 or 30% to $9.67 (2019 - $13.78) due to the
increased production during the year. Both operating units closely
monitored operating costs and implemented cost cutting measures
where possible to manage the impact of the lower commodity price
environment, while also seeing increased costs as a result of
health, safety and hygiene measures to protect staff during the
COVID-19 pandemic.
Romania's overall operating costs increased by $1.4 million or
59% to $3.7 million (2019 - $2.3 million) during the year, which
reflected a full year of operations compared to nine months in the
comparative period. Increased production reduced operating costs
per boe ($/boe) by $0.98 or 15% to $5.67 (2019 - $6.65).
Tunisia saw a full year of production from all three producing
concessions (Sabria, Chouech and Ech Chouech) and reduced operating
costs by $0.1 million or 2%, down to $4.5 million (2019 - $4.6
million). The full year of production had a significant impact per
boe as operating costs ($/boe) decreased by $7.13 or 24% to $22.33
(2019 - $29.46).
Canada production expenses relate to the Sturgeon Lake assets,
which are not producing and are incurring minimal operating costs
to maintain the property.
Operating Netback
Serinus uses operating netback as a key performance indicator to
assist management in understanding Serinus' profitability relative
to current market conditions and as an analytical tool to benchmark
changes in operational performance against prior periods. Operating
netback consists of petroleum and natural gas revenues less direct
costs consisting of royalties and production expenses. Netback is
not a standard measure under IFRS and therefore may not be
comparable to similar measures reported by other entities .
($/boe)
Year ended 31 December 2020 Tunisia Romania Group
Production volume (boe/d) 552 1,788 2,340
Realised price 35.28 25.84 28.06
Royalties (4.17) (1.47) (2.11)
Production expense (22.33) (5.67) (9.67)
----------------------------- -------- -------- --------
Operating netback 8.78 18.70 16.28
----------------------------- -------- -------- --------
Year ended 31 December 2019
Production volume (boe/d) 428 961 1,389
Realised price 59.12 43.22 48.12
Royalties (6.76) (2.29) (3.67)
Production expense (29.46) (6.65) (13.78)
----------------------------- -------- -------- --------
Operating netback 22.90 34.28 30.67
----------------------------- -------- -------- --------
The Group operating netback ($/boe) decreased by $14.39 or 47%
to $16.28 (2019 - $30.67). The main contributing factor to this
decrease is lower realised prices, offset by lower royalties and
production expenses as described above. The decrease in the
operating netback contributed to the Company realising a gross loss
of $2.8 million (2019 - gross profit of $1.9 million). The Company
incurred a net loss of $9.3 million (2019 - $1.9 million) inclusive
of an impairment of $10.3 million (2019 - $nil), a gain on
extinguishment of $12.0 million (2019 - $nil), and a release of
provision of $1.9 million (2019 - $nil).
Windfall Tax
Year ended 31 December
($000) 2020 2019
------------------------------------ ------------ -----------
Windfall tax 1,486 3,155
Windfall tax ($/Mcf - Romania gas) 0.38 1.52
Windfall tax ($/boe - Romania gas) 2.29 9.14
In Romania, the Group is subject to a windfall tax on its
natural gas production which is applied to supplemental income once
natural gas prices exceed 47.53 RON/Mwh. This supplemental income
is taxed at a rate of 60% between 47.53 RON/Mwh and 85.00 RON/Mwh
and at a rate of 80% above 85.00 RON/Mwh. Expenses deductible in
the calculation of the windfall tax include royalties and capital
expenditures limited to 30% of the supplemental income.
During 2020, the Group incurred windfall taxes within Romania of
$1.5 million (2019 - $3.2 million) which equates to $0.38/Mcf (2019
- $1.52/Mcf). This decrease is directly related to the reduction of
the realised gas prices during the year, as a result of which the
Company did not incur any windfall tax until October 2020 once
realised gas prices recovered sufficiently to generate windfall
tax.
Depletion and Depreciation
Year ended 31 December
($000) 2020 2019
----------------- ------------ -----------
Tunisia 2,912 2,576
Romania 11,739 7,216
Corporate 644 685
----------------- ------------ -----------
Total 15,295 10,477
Tunisia ($/boe) 14.39 16.48
Romania ($/boe) 17.95 20.59
----------------- ------------ -----------
Total ($/boe) 17.86 20.67
----------------- ------------ -----------
Depletion and depreciation expense increased by $4.8 million or
46% to $15.3 million (2019 - $10.5 million). The increase is due to
a full year of production from the Moftinu and Chouech fields. On a
per boe basis, the depletion and depreciation expense decreased by
$2.81 or 14% to $17.86 (2019 - $20.67).
General and Administrative ("G&A") Expense
Year ended 31 December
($000) 2020 2019
--------------------- ------------ -----------
G&A expense 3,944 3,788
G&A expense ($/boe) 4.61 7.45
G&A costs increased slightly during the year by $0.1 million
or 4% to $3.9 million (2019 - $3.8 million), while on a per boe
basis, G&A has decreased by $2.84 or 39% to $4.61 (2019 -
$7.45), due to the increased production during the year. During the
second and third quarter of 2020, as a direct response to the
COVID-19 pandemic, the executive Directors took a 20% reduction in
salary and opted to receive shares in lieu of salary, while the
non-executive Directors took a 25% reduction in their fees.
G&A costs incurred by the Group are expensed, with certain
costs directly related to exploration and development assets being
capitalized or reported as production expenses. The G&A expense
reported is on a net basis, representing gross G&A costs
incurred less recoveries of those costs presented as capital or
production expenses.
Share-Based Payment
Year ended 31 December
($000) 2020 2019
----------------------------- ------------- ----------
Share-based payment 1,418 528
Share-based payment ($/boe) 1.66 1.04
Share-based compensation increased by $0.9 million or 168% to
$1.4 million (2019 - $0.5 million). This increase is largely linked
to the management incentivisation program, which awarded ordinary
shares to the management team under the Company's Long Term
Incentive Plan ("LTIP") for the completion of the debt
restructuring in December 2020 as well as shares issued in lieu of
salary during the second and third quarters. Both executive
Director's elected to receive ordinary shares in lieu of a 20%
reduction in salary as part of Group cost saving initiatives in
response to the uncertainties created by the COVID-19 pandemic and
collapse in commodity prices during that period.
Net Finance Expense
Year ended 31 December
($000) 2020 2019
---------------------------------------- ------------ -----------
Interest expense on long-term debt 2,890 3,319
Amortization of debt costs 83 144
Amortization of debt modification 249 97
Interest on leases 88 145
Accretion on decommissioning provision 460 1,224
Foreign exchange and other 37 (126)
---------------------------------------- ------------ -----------
3,807 4,803
---------------------------------------- ------------ -----------
Net finance expense for 2020 decreased by $1.0 million or 21% to
$3.8 million (2019 - $4.8 million). This decrease is connected to a
decrease in the interest rate on the EBRD convertible debt to 8.57%
from 10.18%, which was a direct result in the decrease in LIBOR
during the year. Accretion expense also decreased by $0.8 million
due to a decrease in discount rates and the lower estimated
decommissioning liability (see Note 17 ).
Gain on Extinguishment of Debt
During the year, the Company negotiated with the EBRD to fully
retire the Convertible Loan and accrued interest of $33.0 million.
The Company agreed to make a final payment of $16.5 million and
issue the EBRD 112,925,402 ordinary shares. The shares issued to
the EBRD were valued at the closing price on the repayment date,
GBP 0.024, for a total value of $3.7 million. Management deemed the
closing price on the repayment date to be the fair value of the
shares, as this provided ample time for the market to price in the
transaction. The Company incurred $0.2 million of legal fees to
complete the transaction. These fees have been offset against the
gain on extinguishment of the loan. At the time of repayment, the
net debt included unamortised debt modification/refinancing fees,
amounting to $0.8 million. In total, the gain on extinguishment
realised by the Company was $12.0 million.
Release of Provision
Year ended 31 December
($000) 2020 2019
--------------------- ------------- ----------
Release of provision 1,905 -
The release of provision was the elimination of a long-standing
disputed payable for $1.9 million related to drilling costs on
Block L in Brunei, which has passed the relevant statute of
limitation period.
Impairment
Due to the COVID-19 pandemic, the Company was faced with a
commodity price collapse that resulted in the Company testing for
impairment. At H1 2020, the Company recorded an impairment expense
on both operating assets totaling $9.6 million (Romania $6.2
million and Tunisia $3.4 million). In the second half of 2020,
commodity prices have begun to recover to pre COVID-19 levels.
At 31 December 2020, the Company completed an impairment
assessment on its PP&E to determine if there were any
indicators of impairment or impairment reversals. Due to the
continued lower commodity prices the Company deemed that there were
indicators of impairment and an impairment test was conducted on
all CGUs. During the assessment, the Company combined two CGUs
(Chouech and Ech Chouech) into one new CGU, "South Tunisia". The
Company determined that the Ech Chouech concession is reliant on
the Chouech facilities to operate. Therefore, the Company assessed
that the two concessions are a single CGU. It was determined that
on a stand-alone basis the Ech Chouech concession required a
reversal of impairment of $5.4 million, while the Chouech
concession would incur an additional $5.4 million of impairment,
netting to $nil. On a standalone CGU basis, it was determined that
South Tunisia had no impairment. The remaining CGUs in Tunisia
resulted in no additional impairment expense or any reversals of
impairment. In Romania, the Company determined that the 3D seismic
acquired in 2014 in the Santau area of the Satu Mare Concession
identified future prospects that are in a distinct geographic area
from the Moftinu area and concluded that each of Santau and Moftinu
should be identified as separate CGUs. There was no impairment
expense identified in the Santau and Moftinu CGUs at 31 December
2020.
At 31 December 2020, the Company determined that as the Company
does not currently have a development plan for the area, the
preliminary costs spent on the seismic program in Romania, which
was cancelled due to the COVID-19 pandemic, should be impaired and
$0.7 million was recorded as an additional impairment at 31
December 2020.
Foreign Currency Translation
Foreign currency translation occurs from the revaluation from
fluctuations in the foreign exchange rates in entities with a
different functional currency than the reporting currency (USD).
The Romanian business unit has a functional currency in Romanian
Leu which has realised a fluctuation of approximately 7% from 0.235
to 0.252 USD:RON. The revaluation of the balance sheet to the
year-end rate resulted in a $1.3 million gain through other
comprehensive income.
Going Concern
These consolidated financial statements have been prepared on a
going concern basis.
In December 2020 the Group retired $33.0 million of outstanding
debt, leaving it debt-free and therefore able to direct its
cashflow into operational activities. The Group meets its
day-to-day working capital requirements from net operating cash
flows, cash balances and equity and as at 28 February 2021 the
group had cash balances of $5.7 million.
These consolidated financial statements have been prepared on a
going concern basis, which assumes that Serinus will continue its
operations for the foreseeable future and will be able to realise
its assets and discharge its liabilities and commitments in the
normal course of operations. In assessing the Group's ability to
continue as a going concern, the Directors have prepared a base
case cash flow forecast under which the Group will have sufficient
liquidity for not less than 12 months from the date of approval of
these consolidated Financial Statements.
Key inputs in the cashflow forecast include commodity price
assumptions, capital expenditures, operating costs and operational
performance for each business unit based on the Group's budget as
approved by the board of directors. In approving the Group's
budget, the Directors have considered the impact of the COVID-19
pandemic on global economic activity, demand for hydrocarbons and
the Group's ability to maintain its operations. The Directors have
challenged the underlying assumptions incorporated into the budget
to satisfy themselves that these represent a robust basis for the
base case cash flow forecast and believe the most significant
factor that may impact the cashflows in the going concern period
under review is the commodity price. The cashflow model has been
stressed with a downside scenario incorporating a 25% reduction in
commodity prices throughout the forecast period. In doing so the
Directors have considered the Group's flexibility as to the timing
of its commitment capital, the ability to manage the timing of its
discretionary capital expenditure and its operating costs, and, in
any reasonable scenario, continue to believe that the Group would
have sufficient liquidity for at least the next 12 months.
At 31 December 2020, the Group had a working capital deficit of
$6.3 million, however the Directors have considered the
circumstances, current status and practical realisations of $11.3
million of current liabilities that relate to long-term historic
liabilities and based on this assessment do not believe that these
will become due in the going concern period under review.
Therefore, the Directors continue to believe that the Group will
have sufficient liquidity to discharge its liabilities in the
normal course of business for not less than 12 months from the date
of approval of these consolidated Financial Statements. On that
basis, the Directors consider it appropriate to prepare the
consolidated financial statements on a going concern basis.
Andrew Fairclough, Chief Financial Officer
25 March 2021
Review of Operations
Romania
-- Satu Mare Block - 2,949 km(2) of onshore land.
-- Located within the Pannonian Basin (Hajdusag sub-Basin) on
trend with discovered and producing oil and gas fields and close to
infrastructure.
-- Multiple play types that have produced or are producing along
the same trend, including shallow amplitude-supported gas
reservoirs; conventional siliciclastic oil reservoirs; and
fractured-basement oil and gas reservoirs.
-- Serinus operates with a 100% deemed working interest which is
owned and operated through the wholly owned subsidiary Serinus
Energy Romania S.A. The phase 1 & 2 exploration obligations
were completed in April 2015, and the third exploration phase is
currently ongoing. Phase 3 received a twelve-month extension to 27
October 2021 with a further extension to be granted for an
equivalent period to the duration of the "Romanian State of
Emergency/Alert", which began on 9 March 2020 and currently remains
in force. The work commitments were also modified to drill two
wells, replacing the previous commitment to undertake a 3D seismic
program.
Satu Mare Concession - History
-- Serinus farmed-in to the Satu Mare Concession in 2008 and
earned 60% working interest by funding 100% of work commitments for
Exploration Phases 1 and 2.
-- The Company has a deemed 100% working interest in the
concession as its partner has defaulted on its obligations under
the Joint Operating Agreement. The Company has 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
its defaulted partners' 40% participating interest and to compel
transfer of that interest to the Company.
-- Serinus has completed all the phase 1 and 2 work commitments, as follows:
o Acquired two 3D seismic surveys covering a total of 260 km(2)
(80 km(2) Moftinu & 180 km(2) Santau Surveys).
o Drilled four wells resulting in Moftinu gas discovery
(Madaras-109, Moftinu 1000, 1001 & 1002bis wells).
-- Completion of Phase 2 entitled Serinus to enter a Phase 3 Exploration.
-- The Phase 3 work program includes the following commitments:
o To drill two wells: one well to a depth of 1,000m and one well
to a depth of 1,600m.
-- Serinus drilled M-1007 (a re-drill of Moftinu-1001) and
M-1003 (1600m).
o Renegotiated commitment - to drill two exploration wells: one
well to a depth of 1,000m and one well to a depth of 1,600m. These
wells replaced the previous commitment of 120 km(2) of 3D
seismic.
-- The M-1008 well was drilled in February 2021 and will qualify
as the 1,000m commitment well.
-- Phase 3 was extended to 27 October 2021 with a further
extension to be granted corresponding to the total duration of the
"Romanian State of Emergency/Alert".
Serinus generated the first gas production in the region in
April 2019, after the successful completion of the Moftinu Gas
Plant. The Moftinu Gas Project is the development of the shallow
(800-1,000m), multi-zone Moftinu gas field. The field has
relatively low drilling and completion costs, with strong initial
well production rates. Serinus also built a three kilometer sales
line that ties-in the Moftinu Gas Plant into the Transgaz pipeline,
Abramut. The infrastructure created by Serinus in the Satu Mare
area represents a very important addition and investment which has
established the Group as one of the most significant investors in
the area.
The Moftinu gas plant was designed at a capacity of 15 MMscf/d
and can accommodate up to six flowlines. During 2020, production
was predominantly comprised from three wells (M-1003, M-1004 and
M-1007) and averaged 10.6 MMscf/d (2019 - 5.7 MMscf/d). The Company
continues to explore future drilling locations both within the
existing field of Moftinu, and throughout the rest of the Satu Mare
concession. The Company believes there are similar shallow gas
fields to the Moftinu gas field, providing Serinus with additional
low-cost shallow gas reserves to tie into the gas plant. The Group
has budgeted to drill two wells in 2021, M-1008 in Q1 2021 within
the Moftinu gas field, and a prospect well in Sancrai in the second
half of 2021.
Subsequent to the year-end, the Company drilled, completed and
tested the M-1008 well in the Moftinu field. The well tested at 4.0
MMscf/d from two perforated zones and was connected to the gas
plant and brought onto production in March 2021.
Tunisia
The Group currently holds five Tunisia concessions that comprise
a diverse portfolio of development and exploration assets. The
Group currently produces oil and gas in three of the concessions
(Sabria, Chouech and Ech Chouech). This production has been
sustained with a low-cost, low-risk development program, but has
significant growth opportunities over the medium to long-term. The
Group has no outstanding work commitments.
Approximate Gross
License Serinus Working Interest Area (acres) Expiry
----------------- ------------------------ ----------------- -------------
Sabria 45% (ETAP 55%) 26,196 November 2028
----------------- ------------------------ ----------------- -------------
Chouech Es Saida 100% 42,526 December 2027
----------------- ------------------------ ----------------- -------------
Ech Chouech 100% 35,139 June 2022
----------------- ------------------------ ----------------- -------------
Sanrhar 100% 36,879 December 2021
----------------- ------------------------ ----------------- -------------
Zinnia[1] 100% 17,471 December 2020
----------------- ------------------------ ----------------- -------------
The Company has begun discussions with the Tunisian government
in regard to renewing the Zinnia, Sanrhar and Ech Chouech
concessions. The Company believes that these concessions will be
granted extensions and Management's development plans are based on
this assumption.
Sabria
-- Large Ordovician light oil field with stable production from
its large reserve base and long reserves life index.
-- The Ordovician reservoir at Sabria contains 445 million bbl
OIIP (P50), into which only eight wells (12 including re-entries)
have been drilled. The reservoir comprises a large stratigraphic
trap with a continuous oil column that spans the Upper Hamra, Lower
Hamra and the El Atchane formations.
-- The Group has analyzed implementing artificial lift and
completing surface upgrades and intends to begin these projects in
2021.
Chouech Es Saida
-- Produced over 9.8 million boe to date from the TAGI Formation in the Triassic reservoir.
-- The deeper Silurian Acacus Sands and the Tannezuft fan, which
have been penetrated successfully and produced hydrocarbons from
two wells in the concession, hold enormous growth potential for
Serinus. The Silurian Acacus sands, which are hydrocarbon-charged
in the Chouech block, are emerging in Southern Tunisia as a major
new oil, condensate and gas play with exploration success rates of
nearly 100%.
-- The Group has analyzed implementing artificial lift and
completing surface upgrades and intends to begin these projects in
2021.
Ech Chouech
-- Produced oil intermittently from the TAGI formation, dating
back to the discovery of the field in 1970.
-- Adjacent to the Chouech block, the concession similarly
carries significant upside potential in Silurian exploration
targets that are not yet drilled but are defined on 3D seismic
(acquired in 2008).
-- The Group has no work plans in 2021.
Zinnia 1
-- Currently non-producing block with two formerly producing oil
and gas wells discovered in 1991.
-- Prospectively lies within an undrilled fault block that
requires 3D seismic to be confidently defined.
-- The Group has no work plans in 2021.
Sanrhar
-- Located 60 km northeast of the Elborma oil field in the Sahara Desert of Southern Tunisia.
-- Three wells have been drilled on the Sanrhar domal structure
of the Triassic TAGI Sandstone formation.
-- SNN-1 the sole historical oil producer in the field, began
production in 1991 and was suspended in February 2016 because of
economic conditions.
-- In the summer of 2014, Geofizika Torun on behalf of Serinus
acquired 256 km(2) of modern full fold fibrosis 3D over the Sanrhar
structure. The principal objective was to image the TAGS structure
and to better evaluate the hydrocarbon potential with the Silurian,
Ordovician and Cambrian reservoirs for future well locations.
-- The Group has no work plans in 2021.
Reserves[2]
Company Gross 1P & 2P Reserves - Using Forecast Prices
2020 2019
--------- ------- ------- --------- ------- ------- -------
Oil & Oil &
Liquids Gas Boe Liquids Gas Boe Change
(Mbbl) (MMcf) (Mboe) (Mbbl) (MMcf) (Mboe)
Tunisia
------------------- --------- ------- ------- --------- ------- ------- -------
Proved (1P) 3,510 6,220 4,547 1,468 2,908 1,953 133%
Probable 2,150 7,390 3,381 4,747 10,472 6,492 -48%
------------------- --------- ------- ------- --------- ------- ------- -------
Proved & Probable
(2P) 5,660 13,610 7,928 6,215 13,380 8,445 -6%
Romania
------------------- --------- ------- ------- --------- ------- ------- -------
Proved (1P) 16 7,650 1,291 16 5,624 953 35%
Probable 5 2,460 415 21 6,967 1,182 -65%
------------------- --------- ------- ------- --------- ------- ------- -------
Proved & Probable
(2P) 21 10,110 1,706 37 12,591 2,135 -20%
Group
------------------- --------- ------- ------- --------- ------- ------- -------
Proved (1P) 3,526 13,870 5,838 1,484 8,532 2,906 101%
Probable 2,155 9,850 3,796 4,768 17,439 7,674 -51%
------------------- --------- ------- ------- --------- ------- ------- -------
Proved & Probable
(2P) 5,681 23,720 9,634 6,252 25,971 10,580 -9%
Serinus entered 2020 in anticipation of seeing the benefits of
significant production growth and the expectation to fully meet its
commitments. However, the impact of COVID-19 on global economic
growth and the collapse of commodity prices early in the year had a
fundamental impact on the financial performance of the Company,
despite the ongoing operational success throughout the year. Prices
began to recover in the latter part of 2020 and are beginning to
reflect prices realised in Q1 2020, providing a more beneficial
environment going forward.
Total Group 1P reserves saw a significant increase of 101%
compared to the prior year as the Group's development plan was
confirmed. The 2P reserves decreased by 9%, which is largely due to
2020 production and a small positive net reserve revision.
Net Present Value of Future Net Revenues - After Tax, Using
Forecast Pricing
2020 2019
------------------- -------------------- ----------------------
Discount rates PV 10%
(US$ millions) 0% 10% 15% 0% 10% 15% Change
Tunisia
Proved (1P) 62.2 26.7 18.3 (9.0) (2.1) (0.6) 1375%
Probable 57.2 29.5 23.7 113.7 62.9 46.7 -54%
Proved & Probable
(2P) 119.4 56.2 42.0 104.7 60.8 46.1 -8%
Romania
Proved (1P) 13.4 12.0 11.4 17.9 17.1 16.6 -30%
Probable 6.5 5.4 5.0 24.3 20.7 19.3 -74%
------------------- ------ ----- ----- ------ ------ ------ -------
Proved & Probable
(2P) 19.9 17.4 16.4 42.2 37.8 35.9 -54%
Group
Proved (1P) 75.6 38.7 29.7 8.9 15.0 16.0 159%
Probable 63.7 34.9 28.7 138.0 83.6 66.0 -59%
------------------- ------ ----- ----- ------ ------ ------ -------
Proved & Probable
(2P) 139.3 73.6 58.4 146.9 98.6 82.0 -26%
The Group's net present values at 10% increased by 159% for 1P
reserves, whilst the 2P reserves decreased by 26%.
Contingent Resources
The Tunisian contingent resources are related to two further
potential development wells. Currently the specific contingency
which would convert these contingent resources to reserves is the
Company committing to the development program and setting out a
development plan.
The Romanian contingent resources consist of the resources in
two specific reservoir sand layers which are expected to be
recovered from existing wells but which will require additional
completion work or future recompletion prior to the start of
production. The specific contingency which would convert these
resources to reserves is the Group's decision to recomplete the
producing wells to access recovery of the gas resources from these
sands, which is forecast to occur once production from the current
producing sands have become depleted.
Company Gross Unrisked Contingent Resources - Using Forecast
Prices
2020 2019
--------- ------- ------- --------- ------- ------- -------
Oil & Oil &
Liquids Gas Boe Liquids Gas Boe Change
(Mbbl) (MMcf) (Mboe) (Mbbl) (MMcf) (Mboe)
Tunisia
--------------- --------- ------- ------- --------- ------- ------- -------
1C Contingent
Resources 400 1,000 567 29 - 29 1,855%
2C Contingent
Resources 1,000 2,900 1,483 93 - 93 1,495%
3C Contingent
Resources 1,900 5,300 2,783 136 - 136 1,946%
Romania
--------------- --------- ------- ------- --------- ------- ------- -------
1C Contingent
Resources - 2,500 417 7 2,463 417 0%
2C Contingent
Resources - 4,300 717 17 5,797 984 -27%
3C Contingent
Resources - 7,000 1,167 32 9,555 1,625 -28%
Group
--------------- --------- ------- ------- --------- ------- ------- -------
1C Contingent
Resources 400 3,500 984 36 2,463 446 121%
2C Contingent
Resources 1,000 7,200 2,200 110 5,797 1,077 104%
3C Contingent
Resources 1,900 12,300 3,950 168 9,555 1,761 124%
Price Forecasts
The commodity price forecast used in preparing the evaluation of
the 2020 reserves and resources is as follows:
South Tunisia
Brent Sabria Gas Gas Romania Gas
Year (US$/bbl) (US$/Mcf) (US$/Mcf) (US$/Mcf)
--------------- ---------- ----------- -------------- ------------
2021 45.00 5.63 4.95 5.25
2022 60.00 7.50 6.60 6.50
2023 67.50 8.44 7.43 6.38
2024 70.00 8.75 7.70 6.38
2025 70.00 8.75 7.70 6.38
2026 70.00 8.75 7.70 6.38
2027 70.00 8.75 7.70 6.38
2028 & Beyond 70.00 8.75 7.70 7.00
Environmental, Social and Governance
Serinus is an oil and gas exploration, development and
production company whose strategic purpose is to develop and
produce natural resources. These business activities provide the
energy essential to many of the processes and materials that
support our daily lives but ultimately contribute to many of the
environmental issues which are of concern to us today and in the
future.
Climate change is an increasingly prominent issue, both globally
and for our industry. The majority of our production is natural gas
which we view as a transition fuel towards a low-carbon economy.
Our gas production is primarily utilised in the generation of
electricity and as such displaces coal in that energy mix. In all
net-zero carbon scenarios oil and gas will remain essential
elements of energy supplies for decades to come, our role in this
process is to deliver our operations as cleanly and efficiently as
possible.
Whilst extractive industries are essential to our modern way of
life we are strongly aware of the wider range of responsibilities
that industries such as ours have. In addition to the management
and protection of the environment in those countries in which we
operate we also have a clear responsibility to the welfare and the
safety of our employees, our investors and stakeholders, local
communities that may be impacted by our business, host governments
and all of our business partners.
The COVID-19 pandemic reminds us that risk management needs to
be dynamic and able to adapt to new threats and the Group quickly
implemented stringent and effective protocols to protect our
workforce from the risk of infection across all of its offices and
operations, which included, amongst other measures, testing,
on-site care and support, amended shift patterns and alternate
working days. Safety of our staff and contractors remains a key
concern.
Therefore, a long term goal of the Group is to be a positive
presence in the regions in which it operates through good corporate
stewardship of our assets, our people and their communities. It is
a key component of the ethos of Serinus that we maintain
responsible and sustainable development while maintaining the
highest operating standards and financial discipline. While Serinus
carries out its operations in full compliance with relevant
regulations, and complies with all safety and environmental
requirements and aims to conduct itself in as environmentally
friendly way as possible, the Group has subject to Board approval
on 25 March 2021 formally established an Environmental, Social and
Governance ("ESG") Committee, led by the Chief Executive Officer,
supported by other key personnel, and overseen by the Board, which
will undertake a review of the policies and metrics under which we
operate and measure ourselves and also evaluate the recommendations
of the Taskforce on Climate-Related Financial Disclosure ("TCFD")
in order to determine how we may best address these new recommended
disclosures.
Whilst the TCFD is currently voluntary for smaller companies, it
is our intention to apply governance, risk management and strategy
processes to manage climate-related financial risks and develop
this further into an ESG strategy that is ultimately integrated
into the corporate strategy, growth plans, capital allocation,
operations and executive management key performance indicators.
The Sustainable Development Goals ("SDGs") as set out by the
United Nations, particularly SDG 13 (Climate Action), are often
referenced as reporting criteria for many energy companies. Serinus
will continually evaluate at a Board level how this may be
incorporated into our ESG reporting in an appropriate and relevant
manner in the future.
Based on the work undertaken to date, it is expected that the
evaluation and assessment of the ESG strategy and remit for the ESG
Committee will be based around the following criteria and we intend
to provide a more comprehensive update by next year's annual
report:
Environmental Performance Social Performance Governance Standards
-------------------------- -------------------------------- ----------------------------------
* Greenhouse Gases * Safety Management * Structure & Oversight
* Waste * Workforce & Diversity * Code & Values
* Water * Training & Development * Transparency & Reporting
* Land Use * Communities * Cyber Risks & Systems
Environment
Serinus has existing concession and licence holdings in Romania
and Tunisia. Both asset portfolios cover extensive acreage but in
vastly different topographic settings with the Satu Mare licence
covering 2,949 km(2) in the north-west of Romania, across primarily
agricultural farmland, while the five Tunisian concessions are
located in the north, central and southern regions of the country
in both remote desert and populated, agricultural environments.
Serinus' goal is to manage the distinct local environmental
requirements of its operations in full compliance with the relevant
regulations and to reduce our carbon footprint by minimising
emissions and waste and mitigate the potential impact of our
operations on the environment.
Romania
Serinus Energy Romania S.A. has continued to present an
excellent HSE track record through 2020, with a zero-frequency rate
(per one million man hours worked) for Total Recordable Injuries
across all sites (2019 - zero for Serinus Romania employees). There
have been no spills or environmental incidents at the Moftinu Gas
Plant since its commissioning in 2019. Serinus Romania has
maintained full compliance with all of its regulatory and
environmental obligations.
Serinus Energy Romania S.A. has been certified for ISO
14001:2015 (Environmental Management Systems) and ISO 9001:2015
(Quality Management).
Romanian operations currently produce gas through the Moftinu
Gas Plant which was brought onstream in April 2019 and is currently
supplied by four producing gas wells. The M-1004 well was drilled
and brought into production in February 2020, and the most recent
well, M-1008, was completed in February 2021. The process to plan
and permit the drilling of these wells involved extensive
engagement with a wide range of stakeholders from local landowners,
regional agencies and national regulators. This process included
gaining permission from each local landowner impacted by the
drilling location; receiving local environmental permits which
required environmental impact studies and a Natura 2000 study to
assess the impact on local environmental protection zones (Natura
2000 is a network of protected habitats across the European Union);
an archaeological assessment and studies to ensure the preservation
of the local area; agricultural approvals, which required soil
sampling before and after operations to demonstrate the absence of
soil contamination; the development and approval of a flaring
strategy; and regulatory permits from local and national
authorities. There were no incidents of spillage or pollution at
the Moftinu Gas Plant in 2020.
During 2020, energy use from grid electricity at the Moftinu Gas
Plant was 254 MWh, 0.021% of annual production of 1,223,200 MWh,
compared with 169 MWh in 2019, which was 0.025% of that year's
annual production of 653,234 MWh.
In 2020, 8.4 MMscf of gas was flared from the three wells in
production, being less than 0.2% of annual production of 4,802
MMscf, and equivalent to flared gas of 0.23 MMscf per month per
well, which was 19.7% lower on a month per well basis than in 2019
when 0.4 MMscf of gas was flared from annual production of 2,577
MMscf with the two wells in production flaring 0.29 MMscf) per
month per well. There was 736 m(3) of produced water from the wells
during 2020.
A Fugitive Emissions Monitoring Report was undertaken by a
European accredited emission monitoring and pipeline integrity
organisation, The Sniffers (www.the-sniffers.com) for the Moftinu
Gas Plant in February 2021. The company collected data and
presented its report in accordance with the Environmental
Protection Agency of the United States ("US EPA") "Method 21"
EPA-453/R-95-017. The Sniffers has been accredited ISO 17025 by
BELAC (the Belgian accreditation body) on 17 December 2017 for the
Method: "EPA 21 Protocol for equipment leak emission estimates,
1995, EPA-453/R-95-017". All data and calculations were generated
by proprietary software designed by The Sniffers called Sniffers
Full Emission Management Platform "SFEMP". Measured parts per
million values are converted to emission loss (kg/year). These
calculations are based on US EPA "Correlation factors for Petroleum
Industry". This method uses conversion factors depending on the
source type and the measured value. The monitoring exercise
completed a Leak Detection and Repair programme through which it
identified a total of 2,468 emission sources, of which 26 were not
accessible sources (a source of emission that cannot be measured as
it cannot be reached physically or safely without additional tools
and is recalculated to be representative of all sources) and 2,442
were accessible sources.
The report identified total emissions of 377 kg/year, with eight
registered leaks out of the 2,442 accessible sources, being 0.33%
of accessible sources and results in emissions of 275 kg/year. One
leak was detected above the Repair Definition threshold (the
threshold concentration indicating obligatory repair of leaking
sources which under the US EPA definition is 10,000 parts per
million volume), amounting to 264 kg/year. The report concluded
that a successful repair of the leak above Repair Definition could
reduce the emission loss by 264 kg/year, equating to 69.96% of the
total emission.
During 2021, a project to install solar panels to provide
electricity to power water pumps for the firefighting system and
provide fresh water for the accommodation units was initiated.
Preliminary analysis indicates that this could save up to 70% of
the electricity costs of the gas plant as well as reducing
operating costs. Following implementation of this initial project,
we will be able to evaluate further opportunities to generate
renewable electricity for the Moftinu Gas Plant and other
subsequent gas plants.
Tunisia
Serinus Tunisia B.V. maintained a strong HSE track record
through 2020, with a zero frequency rate (per one million man hours
worked) for Total Recordable Injuries across all sites (2019 - zero
for Serinus Tunisia employees). There was one environmental
incident at Sabria as a result of an overflow of approximately 100
litres of crude oil during a crude oil loading operation, and four
minor incidents at Chouech which were addressed and repaired.
Serinus Tunisia has maintained full compliance with all of its
regulatory and environmental obligations.
Environmental monitoring has been undertaken across all of our
Tunisian fields since 2014 in compliance with legal requirements
and the Company's responsibilities to the local environment. The
annual environmental report for 2019 was submitted to the Agence
Nationale de Protection de l'Environnement ("ANPE") in June 2020
and the report for 2020 will be filed during 2021, as required.
During 2020, annual environmental monitoring was undertaken by
Le Centre Mediterraneen d'Analyses ("CMA") at the Sabria and
Chouech fields, assessing: air emissions from stacks at both
fields; air quality monitoring; groundwater monitoring; produced
water; fresh water; soil sampling and noise pollution.
Stack air emission analysis and air quality monitoring was
conducted at Sabria and Oum Chiah in July 2020. Analysis of the
results demonstrated that most pollutants are compliant with
limits, except for some excess carbon monoxide levels from a number
of older compressors, heaters and generators. Mitigation measures
have been investigated, a short and medium term action plan with an
enhanced preventative maintenance programme is being implemented to
begin to address this. Ground water monitoring is conducted on a
yearly basis from existing water wells drilled at Sabria. No
evidence of pollution has been reported. Five piezometer wells were
drilled at Sabria to monitor the ground water table in 2014 which
continue to be monitored.
The water disposal project manages produced water production at
Sabria. This formation water has high salinity (360 grams/litre)
with traces of heavy metals. Until 2015, disposal at Sabria was
conducted by discharge into lined surface pits for natural
evaporation of fluids. The low efficiency of natural evaporation
together with the ongoing need to construct additional lined pits
led to the introduction of of automated fracturing evaporator
technology in 2015 and which has enabled the acceleration of
evaporation of produced water through an automated and a more
efficient process. At Sabria, 38,322 m(3) of produced water was
disposed of in 2020 (2019 - 47,384 m(3) ) and at Chouech 193,929
m(3) of produced water was evaporated from lined surface pits (in
2019 this was recorded over a six month period since production
restarted: 140,825 m(3) ).
Further environmental analysis was conducted by First North
African Consultancy for the Environment ("FNAC"
www.fnac-environment.com), an engineering consultancy, in September
2020 to review the environmental management of the Sabria fields,
compliance with Tunisian environmental regulations and analyse
underground water and soil pollution in proximity to the water
disposal project. The scope of work included: recovering, analysing
and assessing environmental and technical documents and reports
related to the evaporation ponds; analysing all previous waste pit
treatment operations and related reports; analysing existing red
register (hazardous waste) and blue register (domestic waste);
carry out coring and sampling investigations of the potential
impacted areas (soil and underground water) within the Sabria
field; undertake water sampling and laboratory analysis from
existing piezometers and production water discharge; and perform an
environmental monitoring program of the potential impacted areas
within Sabria field. The program was conducted in conjunction with
representatives of ANPE and the environmental reports were
submitted to ANPE. Results from the assessment showed below
threshold levels of potential pollutants set under Tunisian
regulations and equivalency with both groundwater and soil control
samples. These demonstrated the efficacy of the water disposal
project and the process of produced water storage in evaporation
pits, with no evidence of leakage or overflow from the pits into
the soil or groundwater.
The environmental monitoring programme for remote locations has
been reviewed by management and has been implemented at all sites.
The Company purchased a portable stack gas analyser in 2014 and it
is used at Sabria and Chouech for ongoing air emissions monitoring
(started in August 2015). In addition the Company has engaged the
services of FNAC and CMA to conduct an annual environmental
monitoring programme at Sabria and Chouech. In July 2020 an annual
review was conducted at Sabria and at the pumping facility at Om
Chiah. The National Enviromental Agency was present at this review
which determined that the Company was in compliance with approved
thresholds of groundwater and soil contaminents and required solid
waste management. The Company's own review of air emmisions showed
compliance in all areas except for carbon monoxide ("CO") emissions
from older fixed equipment. The Company has enhanced its
maintainece of the older machinery to address the higher emissions.
In September 2020, the most recent annual review conducted at
Chouech found that in accordance with the air quality limits set by
Decree No. 2018-447 of 18 May 2018 and Decree No.2010-2519 of 28
September 2010 the Company complied with all measurements except
for those relating to CO and CO vapour. The report made
recommendations for remedial actions and the Company has
endeavoured to address these. The annual review also determined
that the Company's operations were within the limits for soil
quality for industrial use and that groundwater was free of any
contamination as a result of the activities of the central
processing facility.Greenhouse Gas ("GHG") emissions were
calculated for the years 2012, 2013, 2014, 2015 and 2016 for the
Sabria, Chouech and Sanrhar fields. During the years 2017, 2018 and
2019 GHG emissions were calculated for Sabria only, as a result of
the shut down of the Chouech and Sanrhar fields:
1. Field gas consumption: CO(2) - N(2) O - CH(4)
2. Flaring: CO(2) - N(2) O - CH(4)
3. Venting: CH(4)
4. Diesel consumption: CO(2) - N(2) O - CH(4)
5. Vehicle transport: CO(2) - N(2) O
Guidelines followed for the calculation of GHG emissions were
the Decree No. 2010-2519 dated 28 September 2010, fixing the limit
of air pollution caused by fixed sources, and Decree No. 2018-447
dated 18 May 2018, fixing the limit and alert level of ambient air
quality.
Waste management procedures have been implemented in all
locations in Tunisia and monitor a comprehensive range of waste
products including industrial waste (dry cell batteries, lead acid
batteries, empty gas cylinders, oil filters, used oil, contaminated
waste, used fluorescent lighting), resource waste (diesel
consumption), hazardous waste (sewage, medical waste), domestic
waste (food waste, plastic bottles, cooking oil, paper) and office
waste (plastic bottles, paper, printer cartridges, batteries). For
example, 385 kg of paper and plastic bottles were recycled in the
Tunis office in 2019, and despite the impact of COVID-19 on
consumption and utilisation as a result of work from home protocols
during 2020, 125 kg of paper and plastic bottles were recycled that
year, as a result of training and greater awareness of wastage.
Similarly, while electricity consumption at the Tunis office was
greatly reduced by 95% to 4,585 kWh during 2020, in 2019 it was
reduced by 58% to 87,564 kWh (2018 - 207,724 kWh). At Sabria
electricity consumption declined by 61% to 281,863 kWh in 2020
(2019 - 728,195 kWh), also as a result of training and increased
focus on energy management, optimisation and wastage. Chouech is
not connected to the electricity grid and power at Chouech is
provided by on site gas generators. Fresh water consumption in 2020
at Sabria was 12,255 m(3) (2019 - 19,264 m(3) ) and at Chouech,
54,925 m(3) ( in 2019 this was recorded over a six month period
since production restarted : 26,591 m(3) ). Diesel consumption
across all operational locations reduced significantly by 67% to
102 m(3) (2019 - 305 m(3) ) through a combination of greater
awareness of wastage, training, optimisation and more efficient
transport management.
Social
Serinus seeks to ensure the health, safety, security and welfare
of our employees and those with whom we work and to ensure that we
have a workforce that is performing at its best and to contribute
to the economic and social development of the countries in which we
operate. Serinus Energy Romania S.A. has been certified for ISO
45001:2018 (Occupational Health and Safety).
The safety, security and welfare of all of our colleagues is a
key priority for the Group and governs the manner in which we aim
to conduct our business. Serinus has emergency response plans in
place for all projects and assets. These plans are reviewed for
relevance and updated by senior management annually. The plans are
communicated to the workforce and response personnel receive
training to ensure they are competent to carry out their emergency
roles. This is supplemented by periodic refresher training. Drills
and training exercises are carried out. Where relevant, the Group
monitors the security situation at a local level and ensures that
personnel are aware and appropriate measures are taken and updated
as required. In Tunisia the HSSE team ensures the effective
implementation of the Emergency Preparedness and Response
Procedures and maintains and updates the Security Emergency
Response Plan on a regular basis.
We undertake a range of activities to continuously improve our
HSE Management Plan to ensure that the Company's policy commitments
are applied. Routine monitoring is undertaken to assess and improve
performance and periodic audits are conducted. Our procedures are
set out as corporate standards that define the company expected
practices within the whole organisation. The standards have been
shared across the organisation and employees and contractors are
trained as required at country level. In 2020, a total of 62 HSSE
training drills and asset protection drills took place in Tunisia
and 168 HSSE training sessions took place in Romania. Regular HSSE
audits are undertaken to review policies and procedures with 25
internal HSSE audits completed in Tunisia in 2020 (2019 - 21) and
an annual audit was undertaken by Lloyds Register for ISO
certifications in Romania.
Serinus has an Emergency Response Plan in place for all projects
and assets. This plan is reviewed annually with consultation from
the Business Units. The plans are communicated to the workforce and
response personnel receive training to ensure they are competent to
carry out their emergency roles. The plan is recirculated to the
Serinus team involved, prior to the launch of any major works
campaign. These circulations are further supplemented by periodic
refresher training, with drills and training exercises regularly
carried out. In Romania, there have been 667 days without accidents
and 1,853 days in Tunisia. In 2020, there were no Lost Time
Injuries recorded across both Tunisia and Romania operations and we
maintain a continuous focus on providing a safe working environment
for our workforce. Our goal is to maintain this high level of
safety and efficiency.
A key health and safety issue for the Group in 2020 has been
dominated by measures implemented to protect its workforce from
COVID-19 which included amended shift patterns and working from
home schedules, additional operational protocols to minimise the
risk of infection, the provision of protective equipment, regular
disinfection of facilities and testing of personnel, as well as
on-site access to medical staff, and in Romania the energy sector
has been identified as a priority industry that qualifies staff for
vaccination.
Our Code and Policies commit us to providing a workplace free of
discrimination where all employees can fulfil their potential based
on merit and ability. We value a diverse workforce and are
committed to providing a fully inclusive workplace, which ensures
we recruit and retain the highest calibre candidates while
providing the right development opportunities to ensure existing
staff have rewarding careers. Both the Romanian and Tunisian
business units are led and managed by Romanian and Tunisian
nationals respectively, and we currently have no expatriates in
either of the business units. Our Romanian business is led by Ms.
Alexandra Damascan and 50% of the staff in Romania are women, while
in Tunisia 32% of the local head office are female. We value a
diverse and equal opportunities workforce and we aim to recruit
locally in all jurisdictions as we believe in the quality of our
staff and the available pool of talent in each local market.
Serinus ' Anti-Slavery and Human Trafficking Policy commits the
Group to act ethically and with integrity in all our business
dealings and relationships and to implement and enforce effective
systems and controls to ensure modern slavery is not taking place
anywhere in our own business or in any of our supply chains. The
Group is also committed to ensuring there is transparency in our
own business and in our approach to tackling modern slavery
throughout our supply chains, consistent with our disclosure
obligations under the Modern Slavery Act 2015. We expect the same
high standards from all of our contractors, suppliers and other
business partners, and as part of our contracting processes, we
include specific prohibitions against the use of forced, compulsory
or trafficked labour, or anyone held in slavery or servitude,
whether adults or children, and we expect that our suppliers will
hold their own suppliers to the same high standards. The
prevention, detection and reporting of modern slavery in any part
of our business or supply chains is the responsibility of all those
working for the Group or under our control and they are encouraged
to raise concerns about any issue or suspicion of modern slavery in
accordance with our Whistleblowing policy.
Serinus Tunisia developed its CSR program in conjuntion with
local communities and stakeholders to identify those areas which
would make a significant impact to those groups, focussing on
support for healthcare, education and culture in the local areas
within which it operates. It has managed a program since 2013 to
undertake this, with support and contributions for providing
medical equipment to hospitals, repairing classrooms and school
facilities, providing books for school libraries, improving
nurseries and sponsoring local cultural events. Serinus Tunisia
also participated in projects with local and regional authorities
and other oil and gas companies operating in its areas, such as the
Kébili CSR Consortium with which it has been involved with since
2015 and which promotes the regional development of the Governorate
of Kebili, in collaboration with the regional authorities, the
Ministry of Industry, Energy and Mines, ETAP and the oil and gas
companies operating in the region (the "Kebili CSR Consortium").
Since 2015 the Kebili CSR Consortium has supported education
programs, restoring schools and providing facilities and
infrastructure, health initiatives, purchasing medical equipment
and renovations, and other social projects. The CSR program for
Kébili also includes a cultural component with a specific focus on
encouraging women to preserve the local handicraft traditions
amongst others by setting up and equipping a handicraft center for
women in K ébili . This project has a training and development
component and will ensure the economic empowerment of women.
Social tensions and political instability in Tunisia,
particularly in the southern regions, over the past few years has
impacted the ability to execute many of these initiatives and CSR
programs, but these initiatives have been an important part of
maintaining the company's relationships with local stakeholders
throughout this period and it is expected that with renewed
stability it will become possible to resume such support in the
coming years.
Governance
The Group recognises the importance of good corporate governance
and is managed under the direction and supervision of the Board of
Directors. As required under the AIM Rules, we have adopted and
comply with a recognised corporate governance code, being the
Quoted Companies Alliance Corporate Governance Code (the "Code")
and set out a summary of how we comply with it on pages 33 to 36 of
the Annual Report.
Serinus currently operates in Romania and Tunisia. Romania is
allocated a mid-score on Transparency International's most recently
published Corruption Perception Index ("CPI") and is ranked number
69 out of 180 countries in the 2020 CPI. Tunisia is also ranked
number 69 on the same CPI. Neither country is designated as high
risk, Romania is within the European Union and both have
well-evolved legal systems in place, however the Group's policies,
procedures and working practices need to remain fit for purpose and
be regularly reviewed and updated as required. The Group maintains
internal control systems to guide and ensures that our ethical
business standards for relationships with others are achieved.
Bribery is prohibited throughout the organisation, both by our
employees and by those performing work on our behalf. Our
Anti-Bribery and Corruption ("ABC") programme is designed to
prevent corruption and ensure systems are in place to detect,
remediate and learn from any potential violations. This includes
due diligence on new vendors, annual training for all personnel,
requisite compliance declarations from all associated persons,
Gifts and Hospitality declaration and comprehensive
'whistleblowing' arrangements.
Risk Management Statement
The Group is subject to several potential risks and
uncertainties, which could have a material impact on the long-term
performance of the Group and could cause actual results to differ
materially from expectation. The management of risk is the
responsibility of the Board of Directors and the Group has
developed a range of internal controls and procedures in order to
manage the risks. The following list outlines the Group's key risks
and uncertainties and provides details as to how these are
managed.
Political and Regulatory Risk
Operating in multiple jurisdictions poses a variety of
political, regulatory and social environments, and risks, such as
social unrest, political violence, corruption, expropriation and
non-compliance with laws and regulations. Currently the Company is
doing the following in order to mitigate this risk:
-- Actively monitors political developments and maintains
relationships with government, authorities and industry bodies, as
well as with other stakeholders.
-- Weekly reports assessing security, social unrest and
political developments are provided to the Executive management
team to allow for real time reaction to dynamic situations.
-- Manages compliance with laws, regulations, and contractual
obligations by employing the requisite skills or engaging
consultants to supplement internal knowledge.
-- Internal policies and procedures, as well as monitoring of
performance, help mitigate risks of non-compliance.
-- Actively involved with the regulatory bodies of both
operating units to ensure commitments are agreed upon and
concessions may be extended as required.
Operational and Development Risk
The nature of oil and gas operations brings risks such as
equipment failure, well blow-outs, fire, pollution, performance of
partners/contractors, delays in installing property, plant or
equipment, unknown geological conditions and failure to achieve
capital costs, operating costs, production or reserves. Staff
recruitment, development and retention is also key to managing
operational risk. Currently the Company is doing the following in
order to mitigate this risk:
-- Has extensive monitoring and review of HSE and crisis management policies and procedures.
-- Strict tendering protocols, physical inspection of all
contractor fabrication facilities and extensive financial due
diligence of counterparties is designed to minimize contractor
performance and counterparty credit risk.
-- Carries adequate levels of insurance.
-- Rigorous review processes when selecting vendors and
contractors. Once engaged as a contractor the Company monitors
contractor performance to ensure contractor compliance with Company
policies.
-- Rigorously monitors costs, actual to budget trends and
adjusting forecasts on a frequent basis.
-- Employs geological and technical experts to review data and
work programs. and undertakes an annual reserves audit with
external technical expert.
-- Training and development opportunities are considered for all staff.
-- Executive directors and senior staff have notice periods of
between six and twelve months to ensure sufficient time to transfer
responsibilities in the event of departure.
-- Succession planning is considered regularly at board level.
-- The Remuneration Committee meets quarterly and as
additionally required to evaluate compensation and incentivisation
plans to ensure they remain competitive.
Availability of financing
The risk that the Company will not be able to raise funds
through debt or equity if required. Currently the Company is doing
the following in order to mitigate this risk:
-- Monitor the cash position by producing monthly cash
projections to determine future cash flow requirements.
-- Publicly listed on the AIM equity market to access capital,
if required, with its most recent fundraise in December 2020.
-- The Company is currently debt-free, with a low operating cost
base and has continued to generate positive cashflows during 2020,
a period of volatility and low commodity prices.
-- The Board considers the structure and differing capital costs
of a variety of possible sources of funds as well as the timing and
access to the various capital markets.
Financial Risk
The Group is subject to commodity price volatility, interest
rates, foreign exchange rate volatility and credit risk of
counterparties. Currently the Company is doing the following in
order to mitigate this risk:
-- Actively monitoring the business, preparing monthly forecasts
with various sensitivities (commodity prices, interest rates,
foreign exchange rates) to ensure the Company can sustain all
macroeconomic changes.
-- Careful cost management to preserve financial flexibility in
the event of economic or commodity price downturns.
-- The Company has restructured its balance sheet and is now
debt-free to create greater financial flexibility.
-- Exposure to both oil and gas pricing diversifies commodity price risk.
-- The Group's financial risk policies are set out in Note 4 to the financial statements.
Environmental
Investor and lender sentiment may become adverse towards the oil
and gas sector. Longer term reduction in demand for oil and gas may
result in lower oil and gas prices. Currently the Company is doing
the following in order to mitigate this risk:
-- 80% of the Company's production is gas, providing exposure to a cleaner, transition fuel.
-- The company's main source of production is a modern energy,
emission efficient and highly automated gas plant limiting the
environmental impact of the Company's production.
-- The company has in place strict emissions and environmental
monitoring. Routine monitoring and third-party inspections for
emissions, ground water contamination, solid waste management and
soil protection are routinely performed in excess of all local
government guidance.
-- The Company's strategy is to maintain a low operating cost
base in order to maintain operational flexibility in the event of
lower commodity prices.
COVID-19
The Global pandemic may impact timing of operational
performance, with delays in receiving equipment and delays in
bringing international contractors out to the field to complete
workovers. Currently the Company is doing the following in order to
mitigate this risk:
-- All office locations have adapted to work from home
conditions, which include moving all IT services, data storage and
software to cloud based solutions. This has allowed enhanced access
for staff when working remotely, increased the security from
cyberattacks and reduced physical maintenance requirements.
-- The Company has increased the cleaning and sanitization of all office locations.
-- Operating fields in both Romania and Tunisia have adapted to
ensure all staff are wearing face coverings and maintain social
distance. Both fields have also implemented a sanitization process
to ensure that the field is sanitized on a frequent basis. Third
party access to field locations has been restricted and enhanced
access monitoring has been implemented.
Board of Directors and Management Team
Board of Directors
Lukasz R dziniak
Chairman, Non-Independent Director, Chair of Remuneration
Committee, Chair of the Nomination Committee, Board Member and
General Counsel of Kulczyk Investments SA, the 4(th) largest
shareholder of Serinus
Appointed March 2016
Mr. R dziniak is a graduate of the Faculty of Law and
Administration of the Jagiellonian University.
Mr. Redziniak is an Attorney and member of the District Bar
Association in Warsaw. Between 1990 and 1991 he worked as an
Assistant at the Faculty of Law and Administration of the
Jagiellonian University. During the years 1991-1992 he was an
in-house Lawyer at Consoft Consulting sp. z o.o. From 1997 to 2000
he worked as an Attorney - individual practice closely co-operating
with Dewey Ballantine sp. z o.o. In the years 1993-2007 he worked
in the law firm Dewey and LeBoeuf LLP and in 2001 he was appointed
as a partner. Then, in the years 2007-2009 he was Undersecretary of
State in the Ministry of Justice of the Republic of Poland. Since
2009 he was a Partner and Managing Partner at the Warsaw office at
Studnicki, P eszka, wi kalski, Górski sp. k. In 2013, he became a
Member of the Board at Kulczyk Investments S.A. He was also
appointed as a member of the Supervisory Board at Firma Oponiarska
D bica S.A. and a member of the Supervisory Board at Ciech S.A. He
is also a member of the Supervisory Board of Autostrada
Wielkopolska SA and A2 Route Sp. z o.o..
Eleanor Barker
Independent Director, Chair of the Audit Committee, Member of
the Remuneration Committee, Member of the Nomination Committee,
Member of the Reserves Committee
Appointed May 2017
Eleanor Barker is President of Barker Oil Strategies and since
2014 has been a Director of Sterling Resources Ltd. Since 1995, Ms.
Barker has focused on international oil research. From 2012 to 2014
she was an international oil analyst with Toll Cross Securities
Inc. From 2007 to 2012 she was President of Barker Oil Strategies
Inc. Ms. Barker is a past Director of the US National Association
of Petroleum Investment Analysts and a former President of the
Canadian Association of Investment Analysts. From 1993 to 1995 Ms.
Barker was a director of Gordon Capital. Prior to work in financial
markets, she held various positions with Esso and Gulf Canada.
Ms. Barker graduated from Queen's University in Kingston,
Ontario with an Honours Bachelor of Science degree, and earned her
MBA from the University of Western Ontario.
Jim Causgrove
Independent Director, Chair of the Reserves Committee, Member of
the Audit Committee, Member of the Remuneration Committee, Member
of the Nomination Committee
Appointed September 2017
Mr. Causgrove is an experienced Oil and Gas executive with over
35 years experience. On November 14, 2017, Mr. Causgrove was
appointed Chief Operating Officer of Harvest Operation Corporation.
He offers both excellent technical engineering and business
experience along with a strong track record in management and
leadership. Since 1979, working for first Chevron Corporation and
then Pengrowth Energy Corporation, Jim has gained experience and
skills in virtually all facets of the oil and gas business; with a
particular technical focus on drilling, production, operations and
midstream. Jim gained excellent field and technical experience with
Chevron working in both the Canadian head office as well as many
field offices and field sites. As well as his technical roles Jim
spent time working in Joint Ventures, Human Resources, Strategic
and Business Planning and in the Midstream business. Jim gained
valuable business insights as first a technical leader, then as a
middle manager, and finally as an executive for Chevron and
Pengrowth. In his role as Vice President at Pengrowth, Jim worked
as part of the senior leadership team and also worked closely with
the Board of Directors.
Mr. Causgrove graduated with a Chemical Engineering degree from
the University of Alberta and has earned his P. Eng designation in
Alberta.
Dawid Jakubowicz
Non-Independent Director, Member of the Audit Committee
Appointed March 2018
Mr. Jakubowicz is a member of the management board of Kulczyk
Investments S.A. where, since 2010, he has been responsible for the
supervision of the investment portfolio. On 10 September 2018, Mr.
Jakubowicz was appointed by the Supervisory Board as the President
of the Management Board of the CIECH S.A. He is an esteemed expert
with international operating experience in the building of value in
companies from the chemical, mining, power, automotive and new
technologies sector. In the past, he worked for international
company KPMG, where he was responsible for audit of unit and
consolidated financial statements of entities from many sectors.
Since 2014, he has been entered in the list of Chartered
Accountants kept by the Polish Chamber of Chartered
Accountants.
Mr. Jakubowicz is a graduate of the Faculty of Economy at the
University of Economy in Poznań, he has the MBA title from the
Georgia State University and the University of Economy in Poznań,
and he has completed a Program for Leadership Development (PLD) at
the Harvard Business School in Boston.
Jeffrey Auld
CEO, Executive Director
Appointed September 2016
Mr. Auld has been involved with the international oil and gas
business for over 30 years. In that time he has managed companies
and acted as an advisor to companies operating in the emerging
markets oil and gas business. Mr. Auld has a depth of experience in
corporate finance, mergers and acquisitions and strategic
management.
Mr. Auld began his career in Canada and moved to the United
Kingdom in 1995. He was the Commercial Manager for New Ventures for
Premier Oil plc. Mr. Auld left Premier Oil and joined the Energy
and Power team within the Mergers and Strategic Advisory group of
Goldman, Sachs and Co. When Mr. Auld left Goldman Sachs he joined
PetroKazakhstan, a NYSE listed company with assets in Kazakhstan,
as a Senior Vice-President. After his time at PetroKazakhstan Mr.
Auld became the Head of European Energy for Canaccord Genuity in
London. Prior to joining Serinus Mr. Auld was the Head of EMEA Oil
and Gas at Macquarie Capital in London.
Mr. Auld has an undergraduate degree in Economics and Political
Sciences from the University of Calgary and a Masters of Business
Administration with Distinction from Imperial College, London.
Andrew Fairclough
Chief Financial Officer, Executive Director
Appointed February 2020
Mr. Fairclough has held corporate finance, capital markets and
management roles for nearly 30 years, through which he has gained a
wide range of experience, including corporate strategy, debt and
equity structuring and capital raising, M&A, capital
management, financial planning, budgeting and financial reporting.
Mr. Fairclough has over 17 years of investment banking experience
after leaving the Army, at a number of financial institutions
including Flemings, Rothschild and Merril Lynch. Mr. Fairclough
transitioned into the oil and gas sector in 2012, joining Xcite
Energy Limited and subsequently was Chief Financial Officer of
Whalsay Energy Limited prior to joining the Company
Mr. Fairclough has an undergraduate degree in Law from
University College London.
Senior Management
Calvin Brackman
Vice President, External Relations & Strategy
Mr. Brackman has more than 25 years' experience in the oil &
gas industry, both in the public and private sector. He started his
career working for the Department of Natural Resources of the
Government of Canada, before moving to a senior position in the
Minerals, Oil & Gas Division of the Government of the Northwest
Territories. In 2003, Mr. Brackman moved to London, UK, to join
PetroKazakhstan Inc. as Director of Government Relations. In this
position he developed and implemented strategies to reduce the
company's surface risk. Following the sale of PetroKazakhstan to
CNPC in 2005, Mr. Brackman moved back to Canada and started a
successful consulting practice, providing expert advice to various
international companies and governments. In December 2016, he
joined Serinus in his current role, working with the company's
management team and business units to develop and implement the
Group's exploration and development strategies and oversee
government and stakeholder relations.
Mr. Brackman has a Masters in Economics from the University of
Waterloo and a degree in Economics from the University of
Calgary.
Alexandra Damascan
President, Serinus Energy Romania S.A.
Ms. Damascan has been with Serinus Energy Romania since 2008 and
as a senior executive with expertise in all areas of the global oil
and gas industry. Ms. Damascan has been an integral piece to
bringing the Romanian assets from the exploration phase to
production in 2019. Prior to joining Serinus, Ms. Damascan was a
partner in a medium size Romanian company which handled technical
and legal translations and language interpretation for different
journals and professional magazines.
Ms. Damascan graduated from the Oil and Gas Institute as a
Petroleum Engineer. Ms. Damascan also has a degree in Political
Economics, an MBA in Business Transactions from the Academy of
Economic Studies, a Law Degree and LLM in International Arbitration
from the Romanian-American University and an MBA in Oil & Gas
from the Oil and Gas Institute in Ploiesti, Romania.
Haithem Ben Hassen
President, Serinus Energy Tunisia B.V.
Mr. Ben Hassen joined Serinus Energy Tunisia B.V. in November
2014 as a Senior Project Engineer and was then promoted to Project
Manager in May 2015. In January 2018, he was promoted to President
of Serinus Energy Tunisia B.V. He has been responsible for the
completion of numerous capital projects undertaken by Serinus
Energy Tunisia B.V. He was also appointed to handle the technical
aspect of the Moftinu Development Project in Romania.
Mr. Ben Hassen has over 15 years of experience in the oil and
gas industry, as well as power plants and renewable energies. He
has a very well-rounded breadth of knowledge including; project
management, engineering, construction, completions, handover and
closeout and operating, contract review, business plan development
and budgeting and forecasting.
Mr. Ben Hassen has a degree in Mechanical Engineering from the
École Polytechnique of Montréal in Canada.
Arafet Mansali
Chief Operating Officer, Serinus Energy Tunisia B.V.
Mr. Mansali joined Serinus Energy Tunisia B.V. in February 2014
as a Senior Production Engineer before being appointed Production
Manager in May 2017. He was appointed as Chief Operating Officer of
Serinus Energy Tunisia B.V in January 2018. Prior to joining
Serinus, Mr. Mansali worked in petroleum engineering, the field and
operations management in Maretap Tunisia and Ecumed Petroleum
Tunisia. Mr. Mansali is responsible for the daily field operations
for the Company's Tunisian assets.
Mr. Mansali has a degree in Mechanical Engineering from the
National Institute of Applied Science and Technology in
Tunisia.
Corporate Govergnance Statement
Chairman's Introduction
The Group is managed under the direction and supervision of the
Board of Directors. Among other things, the Board sets the vision
and strategy for the Group in order to effectively implement the
business model which is the exploration and production of
hydrocarbon resources from its current concessions in Romania and
Tunisia.
Good corporate governance creates shareholder value by improving
performance while reducing or mitigating risks that the Group faces
as we seek to create sustainable growth over the medium to
long-term. It is the role as Chairman to lead the Board effectively
and to oversee the adoption, delivery and communication of the
Group's corporate governance model. The Board has adopted the
Quoted Companies Alliance Corporate Governance Code (the
"Code").
The report that follows sets out in summary terms how we comply
with the Code to be read in conjunction with the Statement of
Compliance with QCA Corporate Governance Code available on our
website at
http://serinusenergy.com/shareholder-information/
As an issuer listed on the Warsaw Stock Exchange, Poland
("WSE"), the Company was subject and followed the recommendations
and rules contained within the "Code of Best Practice for WSE
Listed Companies 2016". These rules were adopted by the WSE
Supervisory Board on 13 October 2015 (Annex to the Resolution No.
27/1414/2015) and are accessible at:
https://www.gpw.pl/best-practice
https://www.gpw.pl/pub/GPW/o-nas/DPSN2016_EN.pdf
Principle 1: Establish a strategy and business model which
promotes the long-term value for shareholders
-- The Group's strategy is defined in the "Serinus Strategy" section of this Annual Report.
-- The objective is to grow the hydrocarbon production of the
Group through efficient allocation of shareholder capital to
produce long-term return on investments for shareholders.
-- In order to capitalise on the available opportunities and to
mitigate the key challenges facing the Group, the Group has
assembled a high-quality Board of Directors, and set of advisers
with relative experience in the upstream oil & gas environment.
The Group has been structured to give the Board the necessary
oversight of all investment decisions of the Group.
-- The long-term commercial success of the Group, meaning the
capability to generate positive net revenues on a sustainable
basis, will depend on its ability to find, acquire, develop, and
commercially produce oil and natural gas reserves.
Principle 2: Seek to understand and meet shareholder needs and
expectations
The Group is committed to listening and communicating openly
with its shareholders to ensure that its strategy, business model,
and performance are clearly understood. Providing an open
environment with investors and analysts allows us to build our
relationships with these audiences, while providing the opportunity
to further share our business model and allows us to drive our
business forward. The initiatives taken by the Company to keep
investors and analysts informed are as follows:
-- Investor roadshows
-- Attending investor conferences
-- Hosting capital markets days
-- Timely disclosure of material information
-- Regular reporting
Due to the COVID-19 pandemic, the Company was unable to make
physical appearances at shareholder meetings, roadshows, investor
conferences, or other Company informational events. The Company
explored alternatives in order to stay connected with current
shareholders, and potential investors. The Company held virtual
conferences, participated in online interviews, and continued
updating shareholder presentations.
The Directors understand the importance of building
relationships with institutional shareholders and will make
presentations when appropriate. The Directors welcome all feedback
and concerns from shareholders and will implement the appropriate
action as required. The Board is in active communication with the
management team to ensure they are up to date on all recent
corporate activities.
The Annual General Meeting ("AGM") is one forum for dialogue
with shareholders and the Board. The results of the AGM are
subsequently published on the Company's website.
Principle 3: Take into account wider stakeholder and social
responsibilities and their implications for long term success
Key stakeholders are as follows:
-- Shareholders.
-- Employees.
-- Communities in which we operate (landowners, local authorities and local citizens).
Engaging with all stakeholders strengthens our relationships and
allows for better business decisions to ensure the Company delivers
on our commitments to all parties.
The Company also actively engages stakeholders near our
operations as follows:
-- Regular meetings with local authorities and governments
providing progress updates as required.
-- Town hall meetings are held with local citizens as required to discuss development plans.
-- We seek the input of the communities in identifying the
funding needs of different community initiatives.
Principle 4: Embed effective risk management, considering both
opportunities and threats, throughout the organisation
-- The Company has a risk register that outlines the key
financial and operational risks which has been circulated to all
management and Board members. A summary of these risks is included
in the Risk Management Statement of this annual report.
-- The Audit Committee monitors the integrity of the financial statements.
-- The Audit Committee focuses particularly on compliance with
legal requirements, accounting standards and the relevant rules for
the listings the Company resides (AIM and Warsaw).
-- The Board acknowledges that the Group's international
operations may give rise to possible claims of bribery and
corruption. The Board has adopted a zero-tolerance policy toward
bribery and has reiterated its commitment to carry out business
fairly, honestly, and openly.
-- The Group has also adopted a share dealing code, in
conformity with the requirements of Rule 21 of the AIM Rules for
Companies.
-- All material contracts are required to be reviewed and signed
by a Director and reviewed by our external counsel.
Principle 5: Maintain the board as a well-functioning, balanced
team led by the chair
The Board comprises of a non-executive, non-independent
Chairman, two Executive Directors, two non-executive independent
Directors, and one non-executive non-independent Director. The
Board is satisfied that it has a well-diversified and balanced team
with varying levels of expertise in different facets of the
business. This allows the Board to act effectively and efficiently
in the best interests of the Company.
Directors' attendance at Board and Committee meetings during
2020 was as follows:
Audit Remuneration Nomination Reserves
Director Board Committee Committee Committee Committee
------------------- ------ ----------- ------------- ----------- -----------
Total Meetings 10 4 8 2 1
Lukasz Redziniak 10 - 8 2 -
Jeffrey Auld 10 4 2 - 1
Andrew Fairclough 10 4 - - 1
Jim Causgrove 10 4 7 - 1
Eleanor Barker 10 4 8 2 1
Dawid Jakubowicz 9 4 - - 1
Key Board activities this year included:
-- Evaluated and approved the recapitalization of the Company.
-- Continued an open dialogue with the investment community.
-- Discussed and evaluated strategic priorities and shareholder growth opportunities.
-- Discussed internal governance processes.
-- Reviewed the performance of the Company's advisers.
-- Reviewed the recommendations of the Remuneration Committee
regarding the Company's LTIP program.
-- Reviewed the Group's risk profile.
-- Reviewed feedback from shareholders post quarterly and full year results.
The Company has effective procedures in place to monitor and
deal with conflicts of interest. Since the non-executive Directors
perform their duties on a part-time basis, the Board is aware of
the other commitments and interests of its Directors, and changes
to these commitments and interests must be reported to and, where
appropriate, agreed with the rest of the Board. The two executive
directors are full time with the Company.
The Company's Board has a broad range of relevant experience
suitable for issues pertaining to the oversight of a publicly
listed Oil & Gas Company. These include financial, legal,
capital markets and technical. The Board of Directors and
Management team section of this annual report contains the
biographies and experience of each of the Directors and key
management personnel.
Principle 6: Ensure that between them the directors have the
necessary up-to-date experience, skills and capabilities
Members of the Board are listed in the Board of Directors
section of this Annual Report which also details their experience,
skills and personal qualities. The Corporate Secretary of the
Company during 2020 was JTC Group. As announced 15 March 2021, the
Company's Corporate Secretary is now Fairway Trust Limited. The
Board is satisfied that, between the Directors, it has an effective
and appropriate balance of skills and experience, including
financial, legal, capital markets and technical skill sets. As the
Board is a strong believer in diversity, the Board has one female
director, Eleanor Barker, and the President of the Romanian
operations is Alexandra Damascan.
All Directors receive regular and timely information on the
Group's operational and financial performance. Board members are
provided with agendas and related materials in advance of all
meetings. The Group's management provides the Board with a Monthly
Directors' Report that contains share price performance, key
financial and operating indices, cash flow forecast, capital
expenditures, budget variance reports and commentary on the
opportunities and risks facing the Group.
New directors have access to the entire management team and
other Directors to further develop their understanding of the
business operations and risks. The Directors are encouraged to seek
independent advice to ensure they are able to fulfill their duties
at the expense of the Company.
Principle 7: Evaluate board performance based on clear and
relevant objectives, seeking continuous improvement
The Company is constantly assessing the individual contributions
of all Board members to ensure each member:
-- Is actively contributing to the success of the Company.
-- Is fully committed.
-- Is maintaining their independence.
Periodically the non-Executive Directors discuss relevant
succession planning with the CEO. These discussions focus on key
individual risk as well as broader succession issues.
Principle 8: Promote a corporate culture that is based on
ethical values and behaviours
The Board believes that the promotion of a corporate culture
based on sound ethical values and behaviours is essential to
maximise shareholder value. The Group maintains and annually
reviews a handbook that includes clear guidance on what is expected
of every employee. Adherence to these standards is a key factor in
the evaluation of performance within the Group.
Principle 9: Maintain governance structures and processes that
are fit for purpose and support good decision-making by the
board
The Board meets at least four times annually in accordance with
its scheduled quarterly meeting calendar. This may be supplemented
by additional meetings if, and when required. During the year ended
31 December 2020, the Board met for its four scheduled meetings
plus an additional six times.
The Board and the Committees are provided with the agenda and
other appropriate material on a timely basis in order to prepare
for each meeting. Any Director may challenge Group proposals and
after all relevant discussions, proposals are voted on. Any
Director who feels that any concern remains unresolved after
discussion may ask for that concern to be noted in the minutes of
the meeting, which are then circulated to all Directors. Any
specific actions arising from such meetings are agreed by the Board
or relevant committee and then followed up by the Company's
management.
The Board is responsible for the long-term success of the Group.
There is a formal schedule of matters reserved for the Board. It is
responsible for overall group strategy, approval of major
investments, approval of the annual and interim results, annual
budgets, and Board structure. It monitors the exposure to key
business risks and reviews the annual budgets and their performance
in relation to those budgets. There is a clear division of
responsibility at the head of the Company.
The Chairman is responsible for running the business of the
Board and for ensuring appropriate strategic focus and direction.
The CEO is responsible for proposing the strategic focus to the
Board and implementing and overseeing the projects as they are
approved by the Board. The terms of reference for the Chairman and
CEO are on the Group's website at
http://serinusenergy.com/shareholder-information.
The Board is supported by the audit, remuneration, nomination
and reserves committees:
-- The Audit Committee is responsible for the financial
reporting and internal control principals of the Group, oversight
of the CFO and the finance team and maintaining a relationship with
the Group's auditors.
-- The Remuneration Committee is responsible for the
consideration, development and implementation of policy on
executive remuneration and fixing remuneration packages of
individual directors, so that no director shall be involved in
deciding his or her own remuneration. The committee ensures
remuneration is aligned to the implementation of the Group strategy
and effective risk management, considering the views of
shareholders, and is also assisted by executive pay consultants as
and when required.
-- The Nomination Committee is responsible for establishing
formal, rigorous and transparent procedures for the appointment of
new directors to the Board. During 2020, the Nomination Committee
appointed Andrew Fairclough as CFO and a Director of the
Company.
-- The Reserves Committee is responsible for overseeing the
evaluation of the Group's petroleum and natural gas reserves,
including retaining an "independent" engineering firm which is a
"Competent Person" (as such term is defined in "Note for Mining and
Oil & Gas Companies" issued by AIM) to prepare a report (the
"Report") of an evaluation of the Group's petroleum and natural gas
reserves, and meeting with representatives of the Engineering Firm
and management to discuss the Report's preparation results.
Principle 10: Communicate how the company is governed and is
performing by maintaining a dialogue with shareholders and other
relevant stakeholders
The Company communicates with shareholders through the Annual
Report and Accounts, full-year and quarterly announcements and the
AGM. Corporate announcements, results and presentations are
available on the Company's corporate website,
www.serinusenergy.com. The Board receives regular updates on the
views of shareholders through briefings and reports from the CEO
and the Company's brokers. The Company communicates with
institutional investors frequently through briefings with
management. In addition, analysts' notes, and brokers' briefings
are reviewed to achieve a wide understanding of investors'
views.
For the Company's shareholder meetings, any resolutions voted by
shareholders that have a significant number of dissenting votes the
Company will provide, on a timely basis, an explanation of what
actions it intends to take to understand the reasons behind that
vote result, and, where appropriate, any different action it has
taken, or will take, as a result of the vote.
Remuneration Committee Report
This remuneration report has been prepared by the Remuneration
Committee and approved by the Board. This report sets out the
details of the remuneration policy for the Directors and discloses
the amounts paid during the year.
Membership
-- Lukasz Redziniak - Chairman
-- Eleanor Barker
-- Jim Causgrove
Responsibilities
The aim of the Remuneration Committee is to:
-- Attract, retain and motivate the executive management of the Company.
-- To offer the opportunity for employees to participate in
share option schemes to incentivize employees to enhance
shareholder value and to retain employees.
To achieve the above, the Committee considers the following
categories of remuneration:
-- Annual salary and associated benefits.
-- Share option plan and long-term share-based incentive plan.
-- Performance based annual bonuses.
The terms of reference of the Remuneration Committee are set out
below:
-- To determine and agree with the Board the overall
remuneration policy of the Chairman of the Board, the executive
directors and other members of the executive management as
designated by the Board to consider.
-- Review the ongoing appropriateness and relevance of the remuneration policy.
-- Approve the design and targets for, any performance related
pay schemes and approve the total annual payments made under such
schemes.
-- Review the design of all share incentive plans for approval
by the Board and determine whether awards will be made under the
share incentive plans, including the number of awards to each
individual and the performance targets to be used.
-- To review and approve any, and all, termination payments.
-- To review and monitor the remuneration trends across the
Group and if required undertake a benchmarking exercise to compare
against a peer group, obtaining reliable, up to date third party
remuneration.
2020 Activity
The Committee met eight (2019 - three) times throughout the
year. The Board reviewed and approved the following:
-- In response to COVID-19, non-executive directors cut 25% of
their fees for two quarters, while executive directors took a 20%
reduction of their salaries and received shares in lieu of the
sacrificed salary.
-- Repricing of current outstanding GBP share options to a strike price of GBP0.02.
-- Issued 22.5 million LTIP awards to members of the management
team including both executive Directors. These awards were granted
under the Company's LTIP and were accounted for using the closing
price on the date of issuance.
-- Issued 18.8 million share options to Jeffrey Auld at a strike
price of GBP0.02 as part of the management incentivisation
scheme.
Management was awarded shares under the Company's LTIP for
completing the restructuring of the Company's debt. This deal
significantly changes the future of the Company and allows the
Company the financial resources required to continue to grow the
business and shareholder value.
Executive Directors' Remuneration
The 2020 compensation package for the executive Directors
included salaries, benefits, shares issued under the Company's
LTIP, shares issued in lieu of a 20% salary reduction and a
re-pricing of share options to GBP 0.02. During 2020 the salaries
were both denominated in GBP whereas in 2019 Tracy Heck (former
CFO) received Canadian dollars. Compensation for the executive
Directors is shown in US dollars[3] in the table below.
Shares
Director Salaries Benefits & Options[4] 2020 Total 2019 Total
------------------- --------- --------- -------------- ----------- -----------
Jeffrey Auld 404,570 57,094 796,729 1,258,393 611,469
Andrew Fairclough 258,531 37,017 377,400 672,948 -
Tracy Heck[5] - - - - 256,814
663,101 94,111 1,174,129 1,931,341 868,283
------------------- --------- --------- -------------- ----------- -----------
Executive Directors' Share Capital
The following tables outline the share options outstanding and
shares owned as at 31 December 2020 for the executive Directors.
There have been no changes between 31 December 2020 and 25 March
2021.
Director Share Options LTIP Awards[6] Shares
------------------- -------------- --------------- ----------
Jeffrey Auld 26,800,000 13,000,000 2,557,166
Andrew Fairclough 1,750,000 7,000,000 882,121
28,550,000 20,000,000 3,439,287
------------------- -------------- --------------- ----------
Stock Options
Director Grant date Strike Price Share Options
------------------- ------------- -------------- --------------
Jeffrey Auld 22 Dec 2020 GBP0.02 18,800,000
Jeffrey Auld 27 May 2019 GBP0.02 1,000,000
Jeffrey Auld 03 Dec 2018 GBP0.02 2,500,000
Jeffrey Auld 31 May 2017 GBP0.02 1,000,000
Jeffrey Auld 22 Sep 2016 GBP0.02 3,500,000
Andrew Fairclough 02 Apr 2020 GBP0.02 1,750,000
28,550,000
------------------------------------------------ --------------
LTIP Awards
Director Grant date LTIP Awards
------------------- ------------- ------------
Jeffrey Auld 24 Dec 2020 13,000,000
Andrew Fairclough 24 Dec 2020 7,000,000
20,000,000
--------------------------------- ------------
Non-executive Directors' Remuneration
Non-executive Director's receive a GBP30,000 annual fee, with
each Chair receiving an additional GBP10,000 fee. Prior to an
amendment in Q4 2019, all non-executive Directors received C$1,000
as a monthly retained, plus C$1,000 for each meeting attended. The
Audit Committee Chair received an additional retainer of C$250 per
month.
During the second and third quarter of 2020 as an effort to
preserve capital, all non-executive directors agreed to a 25%
reduction of their fees.
Director Fees[7] Share Options[8] 2020 Total 2019 Total
------------------- -------- ----------------- ----------- -----------
Jim Causgrove 44,952 1,761 46,713 36,326
Eleanor Barker 44,952 639 45,591 36,191
Lukasz Redziniak 44,952 - 44,952 25,609
Dawid Jakubowicz 33,714 - 33,714 21,657
Evgenij Iorich[9] - - - 6,784
------------------- -------- ----------------- ----------- -----------
168,570 2,400 170,970 126,567
------------------- -------- ----------------- ----------- -----------
Non-executive Directors' Share Capital
The following tables outline the share options outstanding and
shares owned as at 31 December 2020 for the non- executive
Directors. There have been no changes between 31 December 2020 and
25 March 2021.
Options held
at Shares held at
Director 31 December 2020 31 December 2020
---------------- ------------------ ------------------
Jim Causgrove 100,000 -
Eleanor Barker 100,000 500,000
---------------- ------------------ ------------------
200,000 500,000
---------------- ------------------ ------------------
Director Grant date Strike Price Share Options
---------------- ------------- -------------- --------------
Jim Causgrove 20 Nov 2017 C$0.36 100,000
Eleanor Barker 31 May 2017 C$0.37 100,000
200,000
--------------------------------------------- --------------
Conclusion
The committee is pleased with the Company's response to COVID-19
and the salary and director fees that were reduced as a way to
preserve cash and demonstrate to the market that the executives are
committed to the future success of the Company.
Lukasz Redziniak, Chairman of the Remuneration Committee
25 March 2021
Audit Committee Report
This report addresses the responsibilities, the membership and
the activities of the Audit Committee in 2020 up to the approval of
the 2020 Annual Report and 2020 year-end Financial Statements.
Membership
-- Eleanor Barker - Chairman
-- Jim Causgrove
-- Dawid Jakubowicz
Responsibilities
The main responsibilities of the Audit Committee are the
following:
-- Monitor the integrity of the annual and interim financial statements.
-- Oversight of the appointment of the CFO.
-- Review the effectiveness of financial and related internal
controls and associated risk management.
-- Manage the relationship with our external auditors including
plans and findings, independence and assessment regarding
reappointment.
2020 Activity
The Committee met four (2019 - seven) times throughout the
year.
The Committee was involved in the hiring process of the CFO,
Andrew Fairclough, who was appointed CFO effective 5 February 2020.
The Committee is responsible for the relationship with the external
auditor. The Committee recommended the reappointment of BDO as the
auditor for the 2020 fiscal year-end, which was approved.
For the 2020 fiscal year-end, the Committee has reviewed the
following significant financial reporting issues:
1. Carrying value of E&E and PP&E Assets.
2. Decommissioning provisions.
3. Going concern (see page 17 of the Report from the CFO or Note
2 of the Financial Statements).
4. Retirement of the Convertible Loan.
5. Cash flow forecasts.
Internal Controls and Risk Management, Whistleblowing and
Fraud
The Committee is vigilant regarding internal financial controls
and risk management. During 2020, the Committee has undertaken
anti-bribery and anti-corruption exercises and has reviewed whistle
blowing arrangements.
Conclusion
In 2021 and beyond, the Committee will continue to adapt to new
reporting and regulatory requirements, while maintaining proper
controls in order to mitigate the evolving financial risk
environment.
Eleanor Barker, Chairman of the Audit Committee
25 March 2021
Report of the Directors
The Directors' present their report, together with the audited
consolidated financial statements of Group for the year ended 31
December 2020. During 2020 and 2019 the following changes have been
made to the Group's directors:
-- In February 2020 Andrew Fairclough was appointed CFO and was appointed a Director.
-- In October 2019 Tracy Heck resigned as CFO and as a Director.
-- In May 2019 Evgeni Iorich resigned.
Principal Activities
The principal activity of the Group is oil and gas exploration
and development.
Directors and Directors Interests
Directors who held office during the year, their remuneration
and interests held in the Company are detailed in the Remuneration
Report. Directors biographies for those holding office at the end
of the year are detailed in the Board and Management Team section
of this annual report.
Substantial Shareholders
As of the date of issuing this report, management is aware of
the following shareholders holding more than 5% of the ordinary
shares of the Company, as reported by the shareholders to the
Company:
Richard Sneller 11.27%
EBRD 9.90%
Canaccord Genuity Wealth Management 9.38%
Kulczyk Investments S.A. 7.98%
Quercus TFI SA 5.82%
Results and Dividends
The results for the year are set out in the Consolidated
Statement of Comprehensive Loss. The results are further discussed
in the CFO Report on pages 10 to 17 .
The Directors do not recommend payment of a dividend in respect
of these financial statements (2019 - $nil).
Statement of Directors Responsibilities in Respect of the
Financial Statements
The directors are responsible for preparing the annual report
and the financial statements in accordance with applicable law and
regulations.
Companies (Jersey) Law 1991 requires the directors to prepare
financial statements for each financial year. Under that law the
directors have elected to prepare the group financial statements in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union. Under company law the directors
must not approve the financial statements unless they are satisfied
that they give a true and fair view of the state of affairs of the
group and company and of the profit or loss of the group for that
period. The directors are also required to prepare financial
statements in accordance with the rules of the London Stock
Exchange for companies trading securities on AIM.
In preparing these financial statements, the directors are
required to:
-- select suitable accounting policies and then apply them consistently.
-- make judgements and accounting estimates that are reasonable and prudent.
-- state whether they have been prepared in accordance with
IFRSs as adopted by the European Union, subject to any material
departures disclosed and explained in the financial statements.
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the company will
continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the company's
transactions and disclose with reasonable accuracy at any time the
financial position of the company and enable them to ensure that
the financial statements comply with the requirements of Companies
(Jersey) Law 1991. They are also responsible for safeguarding the
assets of the company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
Website publication
The Directors are responsible for ensuring the annual report and
the financial statements are made available on a website. Financial
statements are published on the company's website in accordance
with legislation in the United Kingdom governing the preparation
and dissemination of financial statements, which may vary from
legislation in other jurisdictions. The maintenance and integrity
of the company's website is the responsibility of the directors.
The directors' responsibility also extends to the ongoing integrity
of the financial statements contained therein.
Statement of Disclosure to Auditors
As far as the Directors are aware, there is no relevant audit
information of which the Group's auditor is unaware and each
Director has taken all the steps that he ought to have undertaken
as a director order to make himself aware of any relevant audit
information and to establish that the Group's auditor is aware of
that information.
Auditors
BDO LLP has indicated its willingness to continue in office, and
a resolution that they are reappointed will be proposed at the next
annual general meeting.
On behalf of the Board
Jeffrey Auld, Chief Executive Officer
25 March 2021
Serinus Energy PLC
Serinus is a Jersey incorporated company that holds investments
in wholly owned subsidiaries, which hold the rights to oil and gas
assets in Romania and Tunisia. The Company also holds investments
in two directly held management companies in Canada and the UK that
provide management service to the Group and has a branch in Warsaw
Poland that provides investor services.
The Company's shares were admitted to trading on the AIM market
on 18 May 2018 and are also listed on the WSE.
The following notes in the consolidated financial statements are
of particular relevance to the Company:
-- Note 3(i) and 16 - Share capital of the Company.
-- Note 2 - Going concern.
-- Note 4 - Financial instruments and risk management.
The Company does not have any significant operating transactions
and as such the previous sections of this annual report, in
particular the Outlook, Operations, Serinus' strategy sections and
the CFO report, which details liquidity, capital resources, going
concern and a financial review for 2020, all relate to the
Company.
Serinus Energy plc
Consolidated Statement of Comprehensive Loss for the year ended
31 December 2020
(US 000s, except per share amounts)
Note 2020 2019
---------------------------------------------------- ------ --------- ---------
Revenue 6 24,030 24,365
---------------------------------------------------- ------ --------- ---------
Cost of sales
Royalties (1,804) (1,860)
Windfall tax (1,486) (3,155)
Production expenses (8,280) (6,985)
11
Depletion and depreciation , 13 (15,295) (10,477)
Total cost of sales (26,865) (22,477)
---------------------------------------------------- ------ --------- ---------
Gross (loss) profit (2,835) 1,888
Administrative expenses (3,944) (3,788)
Share-based payment expense 7 (1,418) (528)
Total administrative expenses (5,362) (4,316)
11
Impairment expense , 12 (10,348) -
Release of provision 23 1,905 -
Decommissioning provision recovery 17 - 6,891
Well incident recovery - 52
Operating (loss) income (16,640) 4,515
Gain on extinguishment of debt 20 11,985 -
Finance expense 8 (3,807) (4,803)
---------------------------------------------------- ------ --------- ---------
Net loss before tax (8,462) (288)
Tax expense 9 (835) (1,652)
---------------------------------------------------- ------ --------- ---------
Loss after taxation attributable to equity
owners of the parent (9,297) (1,940)
Other comprehensive loss
Other comprehensive loss to be classified to
profit and loss in subsequent periods:
Foreign currency translation adjustment 1,332 (243)
---------------------------------------------------- ------ --------- ---------
Total comprehensive loss for the year attributable
to equity owners of the parent (7,965) (2,183)
---------------------------------------------------- ------ --------- ---------
Loss per share:
Basic and diluted 10 (0.03) (0.01)
---------------------------------------------------- ------ --------- ---------
The accompanying notes on pages 48 to 72 form part of the
consolidated financial statements
Serinus Energy plc
Consolidated Statement of Financial Position as at 31 December
2020
(US 000s, except per share amounts)
31 December 31 December
As at Note 2020 2019
---------------------------------------------- ----- ------------- -------------
Non-current assets
Property, plant and equipment 11 77,799 93,396
Exploration and evaluation assets 12 14 1,004
Right-of-use assets 13 512 817
---------------------------------------------- ----- ------------- -------------
Total non-current assets 78,325 95,217
---------------------------------------------- ----- ------------- -------------
Current assets
Restricted cash 14 1,159 1,122
Trade and other receivables 15 8,876 11,341
Cash and cash equivalents 6,002 2,780
---------------------------------------------- ----- ------------- -------------
Total current assets 16,037 15,243
---------------------------------------------- ----- ------------- -------------
Total assets 94,362 110,460
---------------------------------------------- ----- ------------- -------------
Equity
Share capital 16 401,426 377,942
Share-based payment reserve 25,177 23,835
Warrants 16 97 97
Accumulated deficit (396,410) (387,113)
Cumulative translation reserve 1,089 (243)
Total Equity 31,379 14,518
---------------------------------------------- ----- ------------- -------------
Liabilities
Non-current liabilities
Decommissioning provision 17 26,950 25,304
Deferred tax liability 18 11,976 13,392
Lease liabilities 19 422 342
Long-term debt 20 - 23,387
Other provisions 21 1,399 1,323
---------------------------------------------- ----- ------------- -------------
Total non-current liabilities 40,747 63,748
---------------------------------------------- ----- ------------- -------------
Current liabilities
Current portion of decommissioning provision 17 7,124 6,334
Current portion of lease liabilities 19 164 534
Current portion of long-term debt 20 - 7,709
Accounts payable and accrued liabilities 22 14,948 17,617
---------------------------------------------- ----- ------------- -------------
Total current liabilities 22,236 32,194
---------------------------------------------- ----- ------------- -------------
Total liabilities 62,983 95,942
---------------------------------------------- ----- ------------- -------------
Total liabilities and equity 94,362 110,460
---------------------------------------------- ----- ------------- -------------
The accompanying notes on pages 48 to 72 form part of the
consolidated financial statements
These consolidated financial statements were approved by the
Board of Directors and authorised for issue on 25 March 2021 and
were signed on its behalf by:
ELEANOR BARKER JEFFREY AULD
DIRECTOR, CHAIR OF THE AUDIT COMMITTEE DIRECTOR AND CEO
Serinus Energy plc
Consolidated Statement of Shareholder's Equity for the year
ended 31 December 2020
(US 000s, except per share amounts)
Share-based Accumulated
Share payment Accumulated other comprehensive
Note capital reserve Warrants deficit loss Total
-------------------------- ----- --------- ------------ --------- ------------ --------------------- ----------
Balance at 31 December
2018 375,208 23,307 - (385,173) - 13,342
-------------------------- ----- --------- ------------ --------- ------------ --------------------- ----------
Comprehensive loss for
the year - - - (1,940) - (1,940)
Other comprehensive loss
for the year - - - - (243) (243)
Transactions with equity
owners
Shares issued 16 2,903 - - - - 2,903
Share issue costs 16 (170) - - - - (170)
Warrant issue 16 - - 97 - - 97
Warrants exercised 16 1 - - - - 1
Share-based payment
expense - 528 - - - 528
-------------------------- ----- --------- ------------ --------- ------------ --------------------- ----------
Balance at 31 December
2019 377,942 23,835 97 (387,113) (243) 14,518
-------------------------- ----- --------- ------------ --------- ------------ --------------------- ----------
Comprehensive loss for
the year - - - (9,297) - (9,297)
Other comprehensive loss
for the year - - - - 1,332 1,332
Transactions with equity
owners
Shares issued 16 21,315 - - - - 21,315
Share issue costs 16 (1,573) - - - - (1,573)
Share-based payment
expense 76 1,342 - - - 1,418
Shares issued to retire
Convertible Loan 16 3,666 - - - - 3,666
-------------------------- ----- --------- ------------ --------- ------------ --------------------- --------
Balance at 31 December
2020 401,426 25,177 97 (396,410) 1,089 31,379
-------------------------- ----- --------- ------------ --------- ------------ --------------------- ----------
The accompanying notes on pages 48 to 72 form part of the
consolidated financial statements
Serinus Energy plc
Consolidated Statement of Cash Flows for the year ended 31
December 2020
(US 000s, except per share amounts)
Note 2020 2019
---------------------------------------------------- ------ --------- --------
Operating activities
Loss for the period (9,297) (1,940)
Items not involving cash:
11
Depletion and depreciation , 13 15,295 10,477
11
Impairment expense , 12 10,348 -
Interest expense 8 3,222 3,560
Share-based payment expense 7 1,418 528
Tax expense 9 835 1,652
Accretion expense on decommissioning provision 8 460 1,224
Change in other provisions 21 76 (44)
Foreign exchange loss (gain) 20 (123)
Decommissioning provision recovery - (6,891)
Other income (4) (42)
Release of provision 23 (1,905) -
Gain on extinguishment of debt 20 (11,985) -
Income taxes paid (1,166) (315)
Funds from operations 7,317 8,086
Changes in non-cash working capital 26 (536) 670
---------------------------------------------------- ------ --------- --------
Cashflows from operating activities 6,781 8,756
---------------------------------------------------- ------ --------- --------
Financing activities
Proceeds from equity issuance 16 21,315 3,000
Share issue costs 16 (1,573) (170)
Repayment of long-term debt 20 (18,500) (5,400)
Lease payments 19 (537) (466)
Warrants exercised 16 - 1
Interest paid on long-term debt 8 - (355)
Cashflows from (used in) financing activities 705 (3,390)
---------------------------------------------------- ------ --------- --------
Investing activities
Capital expenditures 26 (4,360) (4,888)
Proceeds on disposition of property, plant
and equipment 49 20
---------------------------------------------------- ------ --------- --------
Cashflows used in investing activities (4,311) (4,868)
---------------------------------------------------- ------ --------- --------
Impact of foreign currency translation on cash 47 (1)
---------------------------------------------------- ------ --------- --------
Change in cash and cash equivalents 3,222 497
Cash and cash equivalents, beginning of year 2,780 2,283
---------------------------------------------------- ------ --------- --------
Cash and cash equivalents, end of year 6,002 2,780
---------------------------------------------------- ------ --------- --------
The accompanying notes on pages 48 to 72 form part of the
consolidated financial statements
Serinus Energy plc
Notes to the Consolidated Financial Statements
For the year ended 31 December 2020
(US 000s, except per share amounts, unless otherwise noted)
1. General information
Serinus Energy plc and its subsidiaries are principally engaged
in the exploration and development of oil and gas properties in
Tunisia and Romania. Serinus is incorporated under the Companies
(Jersey) Law 1991. The Group's head office and registered office is
located at 2(nd) Floor, The Le Gallais Building, 54 Bath Street,
St. Helier, Jersey, JE1 1FW.
Serinus is a publicly listed company whose ordinary shares are
traded under the symbol "SENX" on AIM and "SEN" on the WSE.
The consolidated financial statements for Serinus include the
accounts of the Group and its subsidiaries for the years ended 31
December 2020 and 2019.
The financial information set out above does not constitute the
Group's statutory accounts for the years ended 31 December 2020 or
31 December 2019 but is derived from those accounts. Statutory
accounts for 2019 have been delivered to the registrar of
companies, and those for 2020 will be delivered in due course. The
auditor has reported on these financial statements; their report
for the year ended 31 December 2020 was (i) unqualified; and the
report for the year ended 31 December 2019 was (i) unqualified; and
(ii) included a reference to matters to which the auditor drew
attention by way of emphasis without qualifying their report.
Whilst the financial information included in this preliminary
announcement has been prepared in accordance with International
Financial Reporting Standards (IFRSs) and IFRIC interpretations
adopted for use in the European Union, this announcement does not
itself contain sufficient information to comply with IFRSs. The
Group expects to distribute full accounts that comply with IFRSs
and IFRIC interpretations as adopted by the European Union and in
accordance with the Companies (Jersey) Law 1991.
2. Basis of presentation
The principal accounting policies adopted in the preparation of
the consolidated financial statements are set out below. The
policies have been consistently applied to all years presented,
unless otherwise stated. The consolidated financial statements have
been prepared on a historical cost basis except as noted in the
accompanying accounting policies.
The consolidated financial statements of the Group for the 12
months ended 31 December 2020 have been prepared in accordance with
International Financial Reporting Standards ("IFRS") and their
interpretations issued by the International Accounting Standards
Board ("IASB") as adopted by the European Union applied in
accordance with the provisions of the Companies (Jersey) Law
1991.
These consolidated financial statements are expressed in U.S.
dollars unless otherwise indicated. All references to US$ are to
U.S. dollars. All financial information is rounded to the nearest
thousands, except per share amounts and when otherwise
indicated.
Going concern
These consolidated financial statements have been prepared on a
going concern basis.
In December 2020 the Group retired $33.0 million of outstanding
debt, leaving it debt-free and therefore able to direct its
cashflow into operational activities. The Group meets its
day-to-day working capital requirements from net operating cash
flows, cash balances and equity and as at 28 February 2021 the
group had cash balances of $5.7 million.
These consolidated financial statements have been prepared on a
going concern basis, which assumes that Serinus will continue its
operations for the foreseeable future and will be able to realise
its assets and discharge its liabilities and commitments in the
normal course of operations. In assessing the Group's ability to
continue as a going concern, the Directors have prepared a base
case cash flow forecast under which the Group will have sufficient
liquidity for not less than 12 months from the date of approval of
these consolidated Financial Statements.
Key inputs in the cashflow forecast include commodity price
assumptions, capital expenditures, operating costs and operational
performance for each business unit based on the Group's budget as
approved by the board of directors. In approving the Group's
budget, the Directors have considered the impact of the COVID-19
pandemic on global economic activity, demand for hydrocarbons and
the Group's ability to maintain its operations. The Directors have
challenged the underlying assumptions incorporated into the budget
to satisfy themselves that these represent a robust basis for the
base case cash flow forecast and believe the most significant
factor that may impact the cashflows in the going concern period
under review is the commodity price. The cashflow model has been
stressed with a downside scenario incorporating a 25% reduction in
commodity prices throughout the forecast period. In doing so the
Directors have considered the Group's flexibility as to the timing
of its commitment capital, the ability to manage the timing of its
discretionary capital expenditure and its operating costs, and, in
any reasonable scenario, continue to believe that the Group would
have sufficient liquidity for at least the next 12 months.
At 31 December 2020, the Group had a working capital deficit of
$6.3 million, however the Directors have considered the
circumstances, current status and practical realisations of $11.3
million of current liabilities that relate to long-term historic
liabilities and based on this assessment do not believe that these
will become due in the going concern period under review.
Therefore, the Directors continue to believe that the Group will
have sufficient liquidity to discharge its liabilities in the
normal course of business for not less than 12 months from the date
of approval of these consolidated Financial Statements. On that
basis, the Directors consider it appropriate to prepare the
consolidated financial statements on a going concern basis.
3. Significant accounting policies
(a) Principles of consolidation
The consolidated financial statements include the results of the
Group and all subsidiaries. Subsidiaries are entities over which
the Group has control. All intercompany balances and transactions,
and any authorised gains or losses arising from intercompany
transactions are eliminated upon consolidation. Serinus has four
directly held subsidiaries, Serinus Energy Canada Inc., Serinus
Holdings Limited, Serinus Petroleum Consultants Limited and Serinus
B.V. Through Serinus Holdings Limited, the Group has the following
indirect wholly-owned subsidiaries, SE Brunei Limited and AED South
East Asia Ltd., which held the Group's interests in Brunei Block L
and KOV Borneo Limited, which held the Group's interest in Brunei
Block M. Through Serinus B.V., Serinus has one wholly-owned
subsidiary Serinus Tunisia B.V. and 99.9995% of Serinus Energy
Romania S.A. Serinus Tunisia B.V. owns the remaining 0.0005% of
Serinus Romania S.A.
Some of the Group's activities are conducted through jointly
controlled assets. The consolidated financial statements therefore
include the Group's share of these assets, associated liabilities
and cashflows in accordance with the term of the arrangement. The
Group's associated share of revenue, cost of sales and operating
costs are recorded within the Statement of Comprehensive Loss.
Basis of consolidation
Where the Group has control over an investee, it is classified
as a subsidiary. The Group controls an investee if all three of the
following elements are present: power over the investee, exposure
to variable returns from the investee and the ability of the
investor to use its power to affect those variable returns. Control
is reassessed whenever facts and circumstances indicate that there
may be a change in any of these elements of control.
De-facto control exists in situations where the Group has the
practical ability to direct the relevant activities of the investee
without holding the majority of the voting rights. In determining
whether de-facto control exists the Group considers all relevant
facts and circumstances, including:
-- The size of the Group's voting rights relative to both the
size and dispersion of other parties.
-- Substantive potential voting rights held by the Group and by other parties.
-- Other contractual arrangements.
-- Historic patterns in voting attendance.
The consolidated financial statements present the results of the
Group as if they formed a single entity. Intercompany transactions
and balances between group companies are eliminated in full.
The consolidated financial statements incorporate the results of
business combinations using the acquisition method. In the
statement of financial position, the acquiree's identifiable
assets, liabilities and contingent liabilities are initially
recognised at their fair values at the acquisition date. The
results of acquired operations are included in the consolidated
statement of comprehensive loss from the date on which control is
obtained. They are deconsolidated from the date on which control
ceases.
(b) Segment information
Operating segments have been determined based on the nature of
the Group's activities and the geographic locations in which the
Group operates and are consistent with the level of information
regularly provided to and reviewed by the Group's chief operating
decision makers.
(c) Foreign currency
i. Foreign currency transactions
Transactions in foreign currencies are translated to the Group's
functional currency at exchange rates at the dates of the
transactions. Monetary assets and liabilities denominated in
foreign currencies are translated to the functional currency at the
year-end exchange rate. Non-monetary assets and liabilities
denominated in foreign currencies that are measured at fair value
are translated to the functional currency at the exchange rate at
the date that the fair value was determined. Foreign currency
differences arising on translation are recognised in profit or
loss.
ii. Foreign currency translation
In preparing the Group's consolidated financial statements, the
financial statements of each entity are translated into U.S.
dollars, the presentational currency of the Group. The assets and
liabilities of foreign operations that do not have a functional
currency of US dollars are translated into US dollars using
exchange rates at the reporting date. Revenues and expenses of
foreign operations are translated into US dollars using foreign
exchange rates that approximate those on the date of the underlying
transaction. Significant foreign exchange differences are
recognised in Other Comprehensive Loss.
(d) Revenue recognition
The Group earns revenue from the sale of crude oil, natural gas
and natural gas liquids. Royalties and the associated revenue are
recorded at the time of production.
Revenue from the sale of crude oil, natural gas and natural gas
liquids is recorded when performance obligations are satisfied.
Performance obligations associated with the sale of crude oil are
satisfied at the point in time when the products are delivered to
the loading terminal and the volumes and prices have been agreed
upon with the customer, which is considered to be the point at
which the Group transfers control of the product. Performance
obligations associated with the sale of natural gas and natural gas
liquids are satisfied upon delivery to the respective concession
delivery points, which is where the Group transfers control.
(e) Windfall tax
Within the Romanian operating segment, the Company incurs a
windfall tax if the realised price of gas exceeds a price set by
the Romanian authorities. The windfall tax is recognised on a
production basis and is shown as a cost of sale.
(f) Share-based compensation
The Group reflects the economic cost of awarding share options
to employees and Directors by recording an expense in the
Consolidated Statement of Comprehensive Income equal to the fair
value of the benefit awarded. The expense is recognised in the
Consolidated Statement of Comprehensive Income or Loss over the
vesting period of the award. Fair value is measured by use of a
Black-Scholes model which takes into account conditions attached to
the vesting and exercise of the equity instruments. The expected
life used in the model is adjusted, based on management's best
estimate, for the effects of non-transferability, exercise
restrictions and behavioral considerations.
Share awards issued under the Company's LTIP comprise of a right
to acquire a share of the Company at no cost and are valued at the
closing price on the date of issuance. There are no vesting
conditions for these awards, therefore the full value of the awards
are expensed upon issuance and carried within the Company's
share-based payment reserve.
Shares issued in lieu of salary are issued to the equivalent
amount of salary forfeited. In determining the number of shares
awarded, the Company uses the volume weighted average share price
for the equivalent period of the salary forfeited. As there are no
vesting conditions for these shares, they are fully expensed during
the period the salary was forfeited and are recorded within Share
Capital.
When a share option modification is completed, the Company
compares the original fair-value of the share option on the
modification date, to the modified fair-value on the modification
date. If the fair-value of the modified share option is lower than
the original fair-value, no adjustment is required as the original
fair-value is the minimum the Company is required to expense. The
increase in incremental fair-value is expensed over the remaining
vesting period. If the share option is fully vested, the
incremental fair-value is expensed immediately through profit and
loss and carried under the share-based payment reserve.
(g) Taxes
Current and deferred income taxes are recognised in profit or
loss, except when they relate to items that are recognised directly
in equity or other comprehensive loss, in which case the current
and deferred taxes are also recognised directly in equity or other
comprehensive loss, respectively. When current income tax or
deferred income tax arises from the initial accounting for a
business combination, the tax effect is included in the accounting
for the business combination.
Current income taxes are measured at the amount expected to be
paid to or recoverable from the taxation authorities based on the
income tax rates and laws that have been enacted at the end of the
reporting period.
The Group follows the balance sheet method of accounting for
deferred income taxes, where deferred income taxes are recorded for
the effect of any temporary difference between the accounting and
income tax basis of an asset or liability, using the substantively
enacted income tax rates expected to apply when the assets are
realised, or the liabilities are settled. Deferred income tax
balances are adjusted for any changes in the enacted or
substantively enacted tax rates and the adjustment is recognised in
the period that the rate change occurs.
Deferred income tax liabilities are generally recognised for all
taxable temporary differences. Deferred income tax assets are
recognised to the extent that it is probable future taxable profits
will be available against which the temporary differences can be
utilized. The carrying amount of deferred income tax assets is
reviewed at the end of each reporting period and reduced to the
extent that it is no longer probable that sufficient taxable income
will be available to allow all or part of the asset to be
recovered. Deferred income tax assets and liabilities are only
offset where they arise within the same entity and tax
jurisdiction. Deferred income tax assets and liabilities are
presented as non-current.
Taxes in Tunisia are prepaid based on the prior year tax
balance, and are used to reduce future taxes payable, and may not
be refunded. The Company classifies these as prepaid taxes when
they are paid. The Company reassesses the likelihood that these
prepaid taxes will result in a benefit to the Company, and to the
extent that these are deemed to have no value, the Company includes
this through profit and loss as a tax expense.
(h) Cash and cash equivalents and Restricted cash
Cash and cash equivalents include short-term investments such as
term deposits held with banks or similar type instruments with a
maturity of three months or less. Restricted cash is comprised of
cash held in trust by a financial institution for the benefit of a
third party as a guarantee that certain work commitments will be
met. Once the work commitments are met, the restricted cash is
released from the trust and returned to cash.
(i) Financial instruments
Financial instruments are recognised when the Group becomes a
party to the contractual provisions of the instrument and are
subsequently measured at amortized cost.
Classification and measurement of financial assets
The initial classification of a financial asset depends upon the
Group's business model for managing its financial assets and the
contractual terms of the cash flows. There are three measurement
categories into which the Group classified its financial
assets:
I. Amortized costs: includes assets that are held within a
business model whose objective is to hold assets to collect
contractual cash flows and its contractual terms give rise on
specified dates to cashflows that represent solely payments of
principal and interest;
II. Fair value through other comprehensive income ("FVOCI"):
includes assets that are held within a business model whose
objective is achieved by both collecting contractual cash flows and
selling the financial assets, where its contractual terms give rise
on specified dates to cash flows that represent solely payments of
principal and interest; or
III. Fair value through profit or loss ("FVTPL"): includes
assets that do not meet the criteria for amortized cost or FVOCI
and are measured at fair value through profit or loss.
The Group's cash and cash equivalents, restricted cash and trade
receivables and other receivables are measured at amortized
cost.
Trade receivables and other receivables are initially measured
at fair value. The Group holds trade receivables and other
receivables with the objective to collect the contractual cash
flows and therefore measures them subsequently at amortized cost.
Trade receivables and other receivables are presented as current
assets as collection is expected within 12 months after the
reporting period.
The Group has no financial assets measured at FVOCI or
FVTPL.
Impairment of financial assets
The Group recognises loss allowances for expected credit losses
("ECLs") on its financial assets measured at amortized cost. Due to
the nature of its financial assets, the Group measures loss
allowances at an amount equal to the lifetime ECLs. Lifetime ECLs
are the anticipated ECLs that result from all possible default
events over the expected life of a financial asset. ECLs are a
probability-weighted estimate of credit losses.
Classification and measurement of financial liabilities
A financial liability is initially classified as measured at
amortized cost or FVTPL. A financial liability is classified as
measured at FVTPL if it is held-for-trading, a derivative or
designated as FVTPL on initial recognition.
The Group's accounts payable and accrued liabilities, lease
liabilities and long-term debt are measured at amortized cost.
Accounts payable and accrued liabilities are initially measured at
fair value and subsequently measured at amortized cost. Accounts
payable and accrued liabilities are presented as current
liabilities unless payment is not due within 12 months after the
reporting period.
Long-term debt is initially measured at fair value, net of
transaction costs incurred. The contractual cash flows of the
long-term debt are subsequently measured at amortized cost.
Long-term debt is classified as current when payment is due within
12 months after the reporting period.
The Group has no financial liabilities measured at FVTPL.
The Group characterizes its fair value measurements into a
three-level hierarchy depending on the degree to which the inputs
are observable, as follows:
Level 1: inputs are quoted prices in active markets for
identical assets and liabilities;
Level 2: inputs are inputs, other than quoted prices included
within Level 1, that are observable for the asset or liability
either directly or indirectly; and
Level 3: inputs are unobservable inputs for the asset or
liability.
(j) Exploration and evaluation ("E&E") and Property, plant and equipment ("PP&E")
i. Exploration and evaluation expenditures
Pre-license costs are costs incurred before the legal rights to
explore a specific area have been obtained. These costs are
expensed in the period in which they are incurred.
E&E costs, including the costs of acquiring licenses and
directly attributable general and administrative costs, are
capitalized as E&E assets. The costs are accumulated in cost
centers by well, field or exploration area pending determination of
technical feasibility and commercial viability.
E&E assets are assessed for impairment when (i) facts and
circumstances suggest that the carrying amount exceeds the
recoverable amount, or (ii) sufficient data exists to determine
technical feasibility and commercial viability, and the assets are
to be reclassified. For purposes of impairment testing, E&E
assets are grouped by concession or license area.
The technical feasibility and commercial viability of extracting
a resource is considered to be determinable based on several
factors including the assignment of proved or probable reserves. A
review of each exploration license or field is carried out, at
least annually, to ascertain whether the project is technically
feasible and commercially viable. Upon determination of technical
feasibility and commercial viability, exploration and evaluation
assets attributable to those reserves are first tested for
impairment and then reclassified from E&E assets to a separate
category within PP&E referred to as oil and natural gas
interests.
ii. Development and production costs
Items of PP&E, which include oil and gas development and
production assets, are measured at cost less accumulated depletion
and depreciation and accumulated impairment losses. Development and
production assets are grouped into cash generating units ("CGU")
for impairment testing and categorized within property and
equipment as oil and natural gas interests. PP&E is comprised
of drilling and well servicing assets, office equipment and other
corporate assets. When significant parts of an item of PP&E,
including oil and natural gas interests, have different useful
lives, they are accounted for as separate items (major
components).
Gains and losses on disposal of an item of PP&E, including
oil and natural gas interests, are determined by comparing the
proceeds from disposal with the carrying amount of PP&E and are
recognised within profit or loss.
iii. Subsequent costs
Costs incurred subsequent to the determination of technical
feasibility and commercial viability and the costs of replacing
parts of PP&E are capitalized only when they increase the
future economic benefits embodied in the specific asset to which
they relate. All other expenditures are recognised in profit or
loss as incurred. Such capitalized costs generally represent costs
incurred in developing proved and/or probable reserves and bringing
in or enhancing production from such reserves and are accumulated
on a field or geotechnical area basis. The carrying amount of any
replaced or sold component is authorised. The costs of the
day-to-day servicing of PP&E are recognised in profit or loss
as incurred.
iv. Depletion and depreciation
The net carrying value of development or production assets is
depleted using the unit-of-production method based on estimated
proved and probable reserves, taking into account future
development costs, which are estimated costs to bring those
reserves into production. For purposes of the depletion assessment,
petroleum and natural gas reserves are converted to a common unit
of measurement on the basis of their relative energy content where
six thousand cubic feet ("Mcf") of natural gas equates to one
barrel of oil.
Certain of the Group's assets are not depleted based on the unit
of production method as they relate to infrastructure, corporate
and other assets. Such plant and equipment items are recorded at
cost and are depreciated over the estimated useful lives of the
asset using the declining balance basis at rates ranging from 20%
to 45%. The expected lives of other PP&E are reviewed on an
annual basis and, if necessary, changes in expected useful lives
are accounting for prospectively.
v. Impairment
The carrying amounts of the Group's PP&E are reviewed
whenever events or changes in circumstances indicate that that the
carrying value of an asset may not be recoverable and at a minimum
at each reporting date. For the purpose of impairment testing,
assets are grouped together into the smallest group of assets that
generates cash inflows from continuing use that are largely
independent of the cash inflows of other assets or groups of assets
(CGUs). The recoverable amount is then estimated. The recoverable
amount of an asset or a CGU is the greater of its value in use and
its fair value less costs to sell.
Value-in-use is generally computed as the present value of the
future cash flows, discounted to present value using a pre-tax
discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset, expected to be
derived from production of proved and probable reserves.
An impairment loss is recognised if the carrying amount of an
asset or a CGU exceeds its estimated recoverable amount. Impairment
losses are recognised in profit or loss. Impairment losses
recognised in respect of CGUs are allocated first to reduce the
carrying amount of any goodwill allocated to the unit and then to
reduce the carrying amounts of the other assets in the unit on a
pro rata basis.
An impairment loss in respect of goodwill is not reversed. In
respect of other assets, impairment losses recognised in prior
years are assessed at each reporting date for any indications that
the loss has decreased or no longer exists. An impairment loss is
reversed if there has been a change in the estimates used to
determine the recoverable amount. An impairment loss is reversed
only to the extent that the asset's carrying amount does not exceed
the carrying amount that would have been determined, net of
depletion and depreciation if no impairment loss had been
recognised.
vi. Corporate assets
Corporate assets consist primarily of office equipment and
computer hardware. Depreciation of office equipment and computer
hardware is provided over the useful life of the assets on the
declining balance basis between 20% and 45% per year.
(k) ROU asset and lease liabilities
Serinus does not act as a lessor, and therefore this policy
solely reflects Serinus acting in the manor of a lessee. Serinus
recognises a right-of-use asset and an offsetting lease obligation
on the date the asset is available for us. The asset and lease
obligation are initially measured at the present value of the
future lease payments, using the implicit interest rate stated in
the agreement, if available. If no interest rate is defined in the
contract, the Company uses the weighted average cost of capital of
the business unit the lease is incurred within. Over the life of
the lease, the Company incurs interest expense which is added to
the lease obligation, which is reduced by each future lease
payment.
Modifications to lease contracts results in remeasuring the
lease asset and obligation as of the effective date, with the
resulting change reflected through an addition to the underlying
right-of-use asset and corresponding lease obligation.
Short-term leases and leases of low-value are not recognized on
the balance sheet. Instead these lease payments are recognized
through profit and loss as incurred.
(l) Provisions
i. General
A provision is recognised if, as a result of a past event, the
Group has a present legal or constructive obligation that can be
estimated reliably, and it is probable that an outflow of economic
benefits will be required to settle the obligation. Provisions are
determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessments of the time
value of money and the risks specific to the liability. Provisions
are not recognised for future operating losses. Management uses its
best judgement in determining the likelihood that the provision
will be settled within one year; provisions that are settled within
one year are classified as a current provision.
ii. Decommissioning provisions
Decommissioning provisions include legal or constructive
obligations where the Group will be required to retire tangible
long-lived assets such as well sites and processing facilities. The
amount recognised is the present value of estimated future
expenditures required to settle the obligation using the risk-free
interest rate associated with the type of expenditure and
respective jurisdiction. A corresponding asset equal to the initial
estimate of the liability is capitalized as part of the related
asset and depleted to expense over its useful life. The obligation
is accreted until the date of expected settlement of the retirement
obligation and is recognised within financial costs in the
statement of comprehensive loss.
Changes in the estimated liability resulting from revisions to
the estimated timing or amount of undiscounted cash flows or the
discount rates are recognised as changes in the decommissioning
provision and related asset. Actual expenditures incurred are
charged against the provision to the extent the provision was
established. Downward revisions to the liability in cases when the
full decommissioning asset has been impaired, the resulting change
in estimate will flow through the Statement of Comprehensive
Loss.
(m) Long-term debt
Long-term debt is classified as a financial liability or equity
instrument in accordance with the substance of the contractual
arrangement. In determining whether a financial instrument is a
financial liability rather than an equity instrument, the following
conditions must both be met:
I. The instrument includes a contractual obligation to deliver
cash or another financial asset, or to exchange financial assets
and financial liabilities under conditions that are potentially
unfavourable.
II. If the instrument will or may be settled in equity
instruments it is a non-derivative that includes a contractual
obligation to deliver a variable number of equity instruments, or a
derivative that will be settled by exchanging a fixed amount of
cash or another financial asset for a fixed number of equity
instruments.
Long-term debt that contains a conversion feature is assessed
using the criteria above. If the conversion feature fails to meet
the definition of an equity instrument it is classified as a
derivative liability. Derivative liabilities are recorded at their
fair value each reporting period with changes recognised in profit
or loss.
During the retirement of any debt obligation, differences
between the carrying value and the amount settled (cash and equity)
will be recognised through profit and loss. If equity is issued
during the extinguishment of debt, the shares will be valued at the
fair value on the date of issuance.
(n) Share Capital
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issuance of ordinary shares and share
options are recognised as a deduction from equity, net of any tax
effects.
(o) Warrants
Warrants are classified as equity. Incremental costs directly
attributable to the issuance of warrants are recognised as a
deduction from equity, net of any tax effects. Fair value is
measured by use of a Black-Scholes model which takes into account
conditions attached to the vesting and exercise of the equity
instruments.
(p) Dividends
To date the Group has not paid a dividend and does not
anticipate paying dividends in the foreseeable future. Should the
Group decide to pay dividends in the future, it would need to
satisfy certain liquidity tests as established in the Companies
(Jersey) Law 1991.
4. Financial instruments and risk management
The fair values of cash and cash equivalents, restricted cash,
trade receivables and other receivables and accounts payable and
accrued liabilities approximate their carrying amounts due to their
short-term maturities.
The fair value of the lease liabilities and long-term debt
approximates it's carrying value as it is at a market rate of
interest and accordingly the fair market value approximates the
carrying value (level 2).
Risk management
The Directors have overall responsibility for identifying the
principal risks of the Group and ensuring the policies and
procedures are in place to appropriately manage these risks.
Serinus' management identifies, analyzes and monitors risks and
considers the implication of the market condition in relation to
the Group's activities.
Market risk is the risk that the fair value of future cash flows
of financial assets or financial liabilities will fluctuate due to
movements in market prices. Market risk is comprised of commodity
price risk, foreign currency risk and interest rate risk, as well
as credit and liquidity risks.
Commodity price risk
The Group is exposed to commodity price risk in fluctuations in
the price of oil, natural gas and natural gas liquids. In Tunisia,
oil prices are based on the terms of the Shell contract which
reflects the market price of Brent crude oil. In Romania, there is
no stated gas benchmark to track the market price, therefore the
Company enters into monthly contracts with customers for a stated
gas price for each month based on the Romanian gas trading
activity.
The Group has no commodity hedge program in place which could
limit exposure to price risk. For the year ended 31 December 2020,
a 5% change in the price of crude oil per bbl would have impacted
revenue, net of royalties by $0.3 million (2019 - $0.3 million) and
a 5% change in the price of gas per mcf would have impacted
revenue, net of royalties by $0.9 million (2019 - $0.8
million).
Foreign currency exchange risk
The Group is exposed to risks arising from fluctuations in
various currency exchange rates. Gas prices are based in Romanian
LEU ("LEU") or Tunisian dinar ("TND"), while condensate and oil
prices are based in USD. The Company has payables that originate in
GBP, CAD, LEU and TND. As such the Company is affected by changes
in the USD exchange rate compared to the following currencies; GBP,
CAD, LEU and TND.
The Company's day to day operations will often generate invoices
in other currencies, but these are not sensitive to the foreign
exchange practice of the business.
As at 31 December 2020 GBP CAD LEU TND
--------------------------- ------- ------- -------- --------
Cash and cash equivalents 388 24 1,454 218
Restricted cash - 1,441 109 -
Accounts receivable - 6 16,456 2,334
Accounts payable (474) (79) (5,559) (1,405)
Lease liabilities (93) (242) - (537)
--------------------------- ------- ------- -------- --------
Net foreign exchange
exposure (179) 1,150 12,460 610
Translation to USD 1.3649 0.7854 0.2521 0.3697
--------------------------- ------- ------- -------- --------
USD equivalent (244) 903 3,142 226
--------------------------- ------- ------- -------- --------
As at 31 December 2019 GBP CAD LEU TND
--------------------------- ------- ------- --------- --------
Cash and cash equivalents 54 17 1,856 408
Restricted cash - 1,428 110 -
Accounts receivable - 16 18,740 1,751
Accounts payable (331) (228) (12,247) (1,148)
Lease liabilities (132) (471) - (655)
--------------------------- ------- ------- --------- --------
Net foreign exchange
exposure (409) 762 12,460 610
Translation to USD 1.3210 0.7679 0.2347 .3573
--------------------------- ------- ------- --------- --------
USD equivalent (540) 585 2,924 218
--------------------------- ------- ------- --------- --------
Credit risk
The Group's cash and cash equivalents and restricted cash are
held with major financial institutions. The Group monitors credit
risk by reviewing the credit quality of the financial institutions
that hold the cash and cash equivalents and restricted cash. The
Group's trade receivables consist of receivables for revenue in
Tunisia and Romania, along with receivables from joint venture
partners in Tunisia.
Management believes that the Group's exposure to credit risk is
manageable, as commodities sold are under contract or payment
within 30 days. Commodities are sold with reputable parties and
collection is prompt based on the individual terms with the
parties. For the year ended 31 December 2020, Tunisia's revenue was
generated from three customers (2019 - three), with a 62%, 19% and
19% weighting (2019 - 62%, 21% and 17%). Romania's sales were made
primarily to three customers (2019 - two), with a 70%, 15% and 4%
weighting (2019 - 98% and 2%). At 31 December 2020, the Group had
$0.8 million (2019 - $0.3 million) of revenue receivables that were
considered past due (over 90 days outstanding). The Company is
confident these receivables will be collected, as there is no
history of default from these customers and subsequent to the
period collections have ensued.
The Company applied the simplified model for assessing the ECLs
under IFRS 9. This approach uses a lifetime expected loss allowance
based on the days past due criteria. Upon reviewing the historical
transactions with the Company's vendors, it was determined that the
ECL was insignificant as there is no history of default or unpaid
invoices. As a result the Company has determined the ECL percentage
to be nominal and has not recorded any allowance for doubtful
accounts as at 31 December 2020 and 31 December 2019.
The Company manages its current VAT receivables by submitting
VAT returns on a monthly basis. This allows the Company to receive
the VAT in a timely matter while any amounts that may come under
scrutiny, only delays one month's refund. Management has no formal
credit policy in place for customers and the exposure to credit
risk is approved and monitored on an ongoing basis individually for
all significant customers. The maximum exposure to credit risk is
represented by the carrying amount of each financial asset in the
statement of financial position. The Group does not require
collateral in respect of financial assets.
Liquidity risk
Liquidity risk is the risk that Serinus will not be able to pay
financial obligations when due. There are inherent liquidity risks,
including the possibility that additional financing may not be
available to the Group, or that actual capital expenditures may
exceed those planned. The Group mitigates this risk through
monitoring its liquidity position regularly to assess whether it
has the resources necessary to fund working capital, development
costs and planned exploration commitments on its petroleum and
natural gas properties or that viable options are available to fund
such commitments. Alternatives available to the Group to manage its
liquidity risk include deferring planned capital expenditures that
exceed amounts required to retain concession licenses, farm-out
arrangements and securing new equity or debt capital.
As at 31 December 2020 1 year 1 - 3 years 3+ years Total
------------------------ ------- ------------ --------- -------
Accounts payable and
accrued liabilities 14,319 - - 14,319
Lease liabilities 236 224 218 678
------------------------ ------- ------------ --------- -------
Total 14,555 224 218 14,997
------------------------ ------- ------------ --------- -------
As at 31 December 2019 1 year 1 - 3 years 3+ years Total
------------------------ ------- ------------ --------- -------
Accounts payable and
accrued liabilities 16,231 - - 16,231
Lease liabilities 622 172 231 1,025
Convertible Loan 7,709 15,489 7,898 31,096
------------------------ ------- ------------ --------- -------
Total 24,562 15,661 8,129 48,352
------------------------ ------- ------------ --------- -------
The Directors have considered the circumstances, current status
and practical realisations of $11.3 million of current liabilities
that relate to long-term historic liabilities and based on this
assessment do not believe that these will become due in the next 12
months.
Interest rate risk
During the year the Company fully repaid its long-term debt, and
no longer has an interest rate risk. In the prior year the Group's
interest rate risk arose from the floating rate on the Convertible
Loan. The Convertible Loan's interest rate was based on LIBOR and
incremental revenue with a floor of 8% and ceiling of 17%. In the
prior year, if interest rates applicable to the long-term debt
increased by 1%, assuming the debt remain unchanged, the impact to
net loss before income taxes would be $0.3 million.
5. Use of estimates and judgments
The preparation of financial statements in conformity with IFRS
requires management to make significant estimates and judgements
based on currently available information. Management uses their
professional judgement along with the most up to date information
in making these estimates and judgements, however actual results
could differ. By their very nature, these estimates are subject to
measurement uncertainty and the effect on the financial statements
of future periods could be material. Estimates and underlying
assumptions are reviewed on an ongoing basis and any changes are
recognised in the period that the estimates and judgements have
changed. The significant estimates and judgements made by
management in the statements are described below:
(a) Cash generating units
The determination of CGUs requires judgment in defining a group
of assets that generate independent cash inflows from other assets.
CGUs are determined by similar geological structure, shared
infrastructure, geographical proximity, commodity type, similar
exposure to market risks and materiality. The Company's CGUs are
generally aligned with the concession agreements. During the year,
management reassessed the CGUs and has determined that the Chouech
and Ech Chouech concessions in Tunisia were in fact a single CGU
based on Ech Chouech's reliance on the Chouech facility to continue
producing. In Romania, the Company determined that the 3D seismic
acquired in 2014 in the Santau area of the Satu Mare Concession
identified future prospects that are in a distinct geographic area
from the Moftinu area and concluded that each of Santau and Moftinu
should be identified as separate CGUs. For further information see
Note 11.
(b) Oil and gas reserves
The process of determining oil and gas reserves is complex and
involves many different assumptions. The Company conducts a reserve
audit at the end of each fiscal year, which is completed by
independent qualified reserves engineers. The Company's reserve
estimates are based on current production forecasts, commodity
price forecasts and other economic conditions. Estimates are
amended for all available information such as historical well
performance and updated commodity prices.
The Company's reserves drive the calculation of depletion of the
oil and gas assets, calculating the future cash flows of the assets
and the recoverable amount for each CGU. The Company compares the
recoverable amount to the carrying amount to determine any
potential impairment. In determining the recoverable amount, the
Company makes other key estimates and judgements which involve the
proved and probable reserves, forecasted commodity prices, expected
production, future development costs and discount rates. Any
changes to these estimates may materially impact the expected
reserves of the Company. An impairment sensitivity analysis is
detailed in Note 11 .
(c) Assumed 100% interest in the Satu Mare concession
The Group currently holds a deemed 100% interest in the Satu
Mare concession due to the working interest partner, who held a 40%
interest in the Satu Mare concession, declining to participate in
future exploration or development phases and not contributing their
share of costs. The Group therefore issued a notice of default to
the partner in December 2016 under the terms of the joint operating
agreement ("JOA"). The partner did not have the necessary means or
intention to remedy the situation and as such the partner is not
entitled to participate in joint venture operations and has no
right to transfer their interest to a third party.
The Group has provided the partner with a Notice of Deemed
Transfer pursuant to the JOA. This Notice of Deemed Transfer states
that the Group has claimed this interest without any obligation to
the partner. Under the terms of the JOA and pursuant to the notice
of default and notice of deemed transfer, the Group has
commercially assumed 100% of the joint operation. The Group has
notified the National Agency for Mineral Resources ("NAMR") of the
default of the partner and has provided the requisite guarantees to
NAMR for 100% of the project.
(d) Decommissioning provisions
The Group recognises liabilities for the future decommissioning
and restoration of oil and gas assets. Management is required to
apply estimates and judgements related to the estimated abandonment
techniques, costs and abandonment dates. Technological advancements
in the industry could lead to changes to reserve life delaying the
abandonment dates, as well as possible cheaper abandonment
techniques. Any changes to these estimates, along with the
inflation and discount rates, could result in material differences
and affect future financial results.
(e) Income taxes
Deferred income taxes require estimates and judgements from
management in determining the future cash flows and taxable income
of each business unit to determine the likelihood that any assets
may be recognised by the Company.
Within Tunisia, taxes are at times paid in advance based on
gross sales in certain circumstances. Management uses their best
estimates and future cash flow projections to determine if these
advances will be utilised against income taxes in the future
periods. When it is deemed that these advances will not be utilised
in the future, they are recorded through the Statement of
Comprehensive Loss as a tax expense.
(f) VAT receivable
The Company has outstanding VAT claims that have been disputed
by Romanian authorities dating back to 2018. The VAT in question
relates to operational and developmental costs in Romania for costs
paid in full by the Company at 100% working interest (see Note 5
(c) ). The Company has recorded 100% of the VAT balance.
6. Revenue
The Group sells its production pursuant to variable-price
contracts with customers. The transaction price for these
variable-priced contracts is based on underlying commodity prices,
adjusted for quality, location and other factors depending on the
contract terms. Under the contracts, the Group is required to
deliver a variable volume of crude oil and natural gas to the
contract counterparty. The disaggregation of revenue by major
products and geographical market is included in the segment note
(see Note 31 ).
As at 31 December 2020, the receivable balance related to
contracts with customers, included within accounts receivable is
$2.9 million (31 December 2019 - $4.2 million).
7. Share-based payment expense
The Group has granted ordinary share purchase options to
directors and employees with exercise prices equal to or greater
than the fair value of the ordinary shares on the grant date. Upon
exercise, the options are settled in ordinary shares on the AIM
market. For options issued prior to 2016, each tranche of the share
purchase options had a five-year term and vested one-third
immediately with the remaining two-thirds at one-third per year
each anniversary of the grant date. In 2016, options were granted
with a seven-year term and vested one-third per year on the
anniversary of the grant date for the three subsequent years. In
2017, options were granted with a five-year term, which vested
one-third per year on the anniversary date for the three subsequent
years. In 2018, options were granted with a ten-year term, which
vested one-third immediately with the remaining two-thirds at
one-third per year each anniversary of the grant date for the two
subsequent years.
During the fourth quarter of 2020, the Group repriced all stock
options with the exception of those of the non-executive directors,
to a strike price of GBP0.02, which constitutes a modification to
the share-based payment plan. The Group expensed the incremental
fair-value increase related to all vested stock options and will
expense the fair-value increase related to unvested stock options
over the remaining term of the options. The options granted to
non-executive directors have not been repriced or converted to the
Company's LTIP. The increase in the fair value was calculated using
the Black-Scholes model as of the day of modification, with and
without the amended strike price. The incremental fair value
increase was determined to be insignificant.
The Company issued 22.5 million awards under the LTIP ("Awards")
to members of the management team on 21 December 2020. These Awards
were issued to management and provide the right to acquire one
share of the Company at $nil cost. These Awards were valued at the
closing price (GBP0.0265) on the issuance date of the Awards. The
total fair value of these awards was $0.8 million (GBP0.6 million).
As at 31 December 2020, the total awards outstanding under this
LTIP was 22.5 million (2019 - nil), with a weighted average
valuation of GBP0.0265 (2019 GBPnil).
The Company also issued shares to the executive Directors during
the year in lieu of a 20% salary cut during the second and third
quarters. These shares were awarded at the weighted average closing
share price over the respective periods.
The weighted average fair value of options granted during the
year ended 31 December 2020 was GBP0.03 per option (31 December
2019 - GBP0.13 per option) using the following assumptions:
Inputs used in the Black-Scholes model 2020 2019
------------------------------------------------- ------ ------
Risk-free interest rate 0.02% 0.91%
Expected dividend yield nil nil
Expected volatility (based on actual historical
volatility) 146% 76%
Forfeiture rate 5% 5%
Expected option life (in years) 7.3 10.0
------------------------------------------------- ------ ------
A summary of the changes to the option plans during the year
ended 31 December 2020, are presented below:
(a) CAD denominated options
2020 2019
Exercise Exercise
Options Price Options Price
----------------------- -------- --------- ---------- ---------
Balance, beginning of
year 200,000 0.37 300,000 0.37
Forfeited - - (100,000) (0.37)
Balance, end of year 200,000 0.37 200,000 0.37
----------------------- -------- --------- ---------- ---------
As at 31 December 2020 there are 200,000 (2019 - 200,000)
options outstanding to non-executive directors with a weighted
average contractual life of 1.7 (2019 - 2.7) years and a weighted
average exercise price of CA$0.37 (2019 - CA$0.37).
(b) GBP denominated options
2020 2019
Exercise Exercise
Options Price Options Price
----------------------- ------------ --------- ------------ ---------
Balance, beginning of
year 13,079,667 0.17 14,793,000 0.18
Granted 22,380,000 0.02 2,280,000 0.12
Expired - - (616,668) (0.22)
Forfeited (2,566,667) (0.19) (3,376,665) (0.16)
----------------------- ------------ --------- ------------ ---------
Balance, end of year 32,893,000 0.02 13,079,667 0.17
----------------------- ------------ --------- ------------ ---------
As at 31 December 2020 there are 32,893,000 (2019 - 13,079,667)
options outstanding to executive directors and employees with a
weighted average contractual life of 5.7 (2019 - 4.5) years and a
weighted average exercise price of GBP0.02 (2019 - GBP0.17).
GDP denominated option Exercise Options Options Average
breakdown price (GBP) outstanding exercisable life (years)
------------------------ ------------- ------------- ------------- --------------
0.02 32,893,000 17,546,333 5.7
8. Finance expense
Year ended 31 December 2020 2019
------------------------------------------ ------ ------
Interest expense on long-term debt (Note
26 ) 2,890 3,319
Amortisation of debt costs 83 144
Amortisation of debt modification 249 97
Interest of leases (Note 19 ) 88 145
Accretion on decommissioning provision
(Note 8 ) 460 1,224
Foreign exchange and other 37 (126)
------------------------------------------ ------ ------
3,807 4,803
------------------------------------------ ------ ------
9. Taxation
2020 2019
----------------------------------------------------- -------- ------
Current income tax expense 2,251 1,414
Deferred income tax
Origination and reversal of temporary differences
(Note 18 ) (1,416) 238
----------------------------------------------------- -------- ------
Tax expense 835 1,652
----------------------------------------------------- -------- ------
Reconciliation of the effective tax rate:
Year ended 31 December 2020 2019[10]
--------------------------------------------- -------- ---------
Loss before income taxes (8,462) (288)
Statutory tax rate 50.0% 50.0%
--------------------------------------------- -------- ---------
Expected income tax (4,231) (144)
Non-taxable (deductible) items (699) 489
Losses utilized/expired 207 (33)
Tax rate differences (190) 2,918
Advance taxes unrecoverable 1,777 -
Foreign exchange and other 656 967
Net change in tax attributes not recognised 3,315 (2,545)
--------------------------------------------- -------- ---------
Income tax expense 835 1,652
--------------------------------------------- -------- ---------
The Company has elected to use the Sabria concession tax rate as
the statutory rate instead of using 0% tax rate applicable to the
Company in Jersey. Sabria is currently the only producing
concession that does not have the ability to eliminate all tax
liability through the utilization of loss pools, and therefore the
majority of the Company's tax expense relates to Sabria.
The advance taxes unrecoverable is related to taxes that are
prepaid within the various operating concessions in Tunisia.
Tunisia requires taxes to be paid in advance based on the prior
year tax balance. The amounts paid may only be deducted from future
taxes and are unrecoverable. The Company has determined that based
on the future development plans within Tunisia that the Company
will not generate enough taxable income to fully utilize all
advance taxes paid, losses carried forward and other taxable pools
available to the Company.
10. Loss per share
Year ended 31 December
(000's, except per share amounts) 2020 2019
------------------------------------- -------- --------
Loss for the year (9,297) (1,940)
Weighted average shares outstanding
Basic and dilutive 272,411 234,211
Loss per share - basic and diluted (0.03) (0.01)
------------------------------------- -------- --------
In determining diluted net loss per share, the Group assumes
that the proceeds received from the exercise of "in-the-money"
stock options are used to repurchase ordinary shares at the average
market price. In calculating the weighted-average number of diluted
ordinary shares outstanding for the year ended 31 December 2020,
the Group excluded all 33.1 million (2019 - 13.3 million) stock
options and 2.3 million (2019 - 2.3 million) warrants as they were
anti-dilutive due to the Company being in a loss position.
11. Property, plant and equipment
Oil and Corporate
gas interests assets Total
---------------------------------------- --------------- ---------- ----------
Cost or deemed cost:
Balance as at 31 December 2018 260,264 2,579 262,843
Capital additions 3,856 35 3,891
Change in decommissioning provision (7,886) - (7,886)
Disposals - (62) (62)
---------------------------------------- --------------- ---------- ----------
Balance as at 31 December 2019 256,234 2,552 258,786
Capital additions 5,567 141 5,708
Change in decommissioning provision 1,646 - 1,646
Disposals (91) (1,069) (1,160)
---------------------------------------- --------------- ---------- ----------
Balance as at 31 December 2020 263,356 1,624 264,980
---------------------------------------- --------------- ---------- ----------
Accumulated depletion and depreciation
Balance as at 31 December 2018 (153,365) (1,937) (155,302)
Depletion and depreciation (9,683) (277) (9,960)
Disposals - 62 62
---------------------------------------- --------------- ---------- ----------
Balance as at 31 December 2019 (163,048) (2,152) (165,200)
Depletion and depreciation (14,307) (443) (14,750)
Impairment (9,600) - (9,600)
Disposals 71 1,069 1,140
---------------------------------------- --------------- ---------- ----------
Balance as at 31 December 2020 (186,884) (1,526) (188,410)
---------------------------------------- --------------- ---------- ----------
Cumulative translation adjustment
Balance as at 31 December 2019 (212) 22 (190)
Currency translation adjustments 1,423 (4) 1,419
---------------------------------------- --------------- ---------- ----------
Balance as at 31 December 2020 1,211 18 1,229
---------------------------------------- --------------- ---------- ----------
Net book value
---------------------------------------- --------------- ---------- ----------
Balance as at 31 December 2019 92,974 422 93,396
Balance as at 31 December 2020 77,683 116 77,799
---------------------------------------- --------------- ---------- ----------
Future development costs associated with the proved plus
probable reserves are included in the calculation of the Group's
depletion. The future development costs for Tunisia are $29.8
million (2019 - $42.2 million) and for Romania are $4.7 million
(2019 - $12.4 million).
Impairment
An impairment assessment was completed at 30 June 2020, which
resulted in the Company recording $9.6 million of impairment within
both operating units (Romania, $6.2 million and Tunisia, $3.4
million). An impairment test was conducted on the Group's Property,
plant and equipment to assess the impact of the weakness and
volatility of commodity prices, largely as a result of the economic
impact of the global COVID-19 pandemic. Management performed
impairment assessments on all CGUs and identified that impairment
tests were required for the following CGUs: Sabria, Chouech and
Moftinu.
The Group determined the estimated recoverable amount based on a
discounted cash flow. The following table shows the forecast
consensus prices used at 30 June 2020:
South Tunisia Romania
Brent Sabria Gas Gas Gas
Year (US$/bbl) (US$/Mcf) (US$/Mcf) (US$/Mcf)
------------------ ---------- ----------- -------------- ----------
2020 (remaining) 42.45 5.91 4.64 3.60
2021 52.24 7.28 5.72 5.25
2022 57.26 7.98 6.27 5.75
2023 59.49 8.29 6.52 5.75
2024 62.97 8.78 6.90 5.75
2025 64.23 8.96 7.04 5.75
2026 65.51 9.14 7.18 5.75
2027 66.82 9.32 7.32 5.75
2028 68.16 9.51 7.47 5.75
2029 69.52 9.70 7.62 5.75
2030 70.91 9.89 7.77 5.75
Remainder 75.28 10.50 8.17 5.75
At 31 December 2020, the Company completed an impairment
assessment on its PP&E to determine if there were any
indicators of impairment or impairment reversals. Due to the
continued lower commodity prices the Company deemed that there were
indicators of impairment and an impairment test was conducted on
all CGUs. During the assessment, the Company combined two CGUs
(Chouech and Ech Chouech) into one new CGU, "South Tunisia". The
Company determined that the Ech Chouech concession is reliant on
the Chouech facilities to operate. Therefore, the Company assessed
that the two concessions are a single CGU.
The CGUs that remain unchanged resulted in no further impairment
as the estimated recoverable amount exceeded the carrying value.
The Company determined the estimated recoverable amount based on a
discounted cash flow, using an after-tax discount rate equal to the
weighted average cost of capital of each subsidiary (Romania - 8%,
Tunisia - 18%), computed internally using external market data. The
Company determined that no reversals of impairment were appropriate
at this time due to the highly volatile commodity prices.
With regards to the South Tunisia CGU, the Company first tested
for impairment on an individual CGU basis prior to combination to
determine the potential impairment or reversal of impairment, and
then compared the carrying value of the new South Tunisia CGU
against the discounted cash flow model.
Prior to the combination, the Ech Chouech concession had a $nil
carrying value, yet management's calculations using a discounted
cash flow model resulted in positive value attributable to the CGU.
Due to the current status of the field management determined that
an impairment reversal in the amount of $5.4 million was
appropriate as this aligned with the expected discounted future
cash flows. The Chouech field had a carrying value in excess of the
discounted cash flow model of $5.4 million therefore, management
determined that on a stand-alone basis, that an impairment charge
of $5.4 million is required. In completing the impairment analysis
for the combined South Tunisia CGU, management determined there to
be no impairment charge. The net impairment charge/reversal nets to
$nil at 31 December 2020. In Romania, the Company determined that
the 3D seismic acquired in 2014 in the Santau area of the Satu Mare
Concession identified future prospects that are in a distinct
geographic area from the Moftinu area and concluded that each of
Santau and Moftinu should be identified as separate CGUs. There was
no impairment expense identified in the Santau and Moftinu CGUs at
31 December 2020.
The following table shows the forecast commodity prices used in
the GCA 31 December 2020 reserve report and used in the discounted
cash flow model:
South Tunisia Romania
Brent Sabria Gas Gas Gas
Year (US$/bbl) (US$/Mcf) (US$/Mcf) (US$/Mcf)
------- -------------- -------------- -------------- --------------
2021 53.95 6.26 5.51 6.32
2022 56.70 6.59 5.80 5.96
2023 59.85 6.96 6.13 5.72
2024 63.00 7.34 6.46 6.00
2025+ +2% inflation +2% inflation +2% inflation +2% inflation
Although the discounted cash flow indicated no further net
impairment or reversal of impairment for the year ended 31 December
2020, the following table provides a sensitivity of the impairment
expense that would arise with the following changes to the key
assumptions used in the model.
1% increase 1% decrease 5% increase 5% decrease
to discount to discount to commodity to commodity
rate rate prices prices
------------------------ -------------- ------------- -------------- --------------
Additional impairment,
net of tax - 0.1 - 0.6
The results of the impairment tests completed by management are
sensitive to changes with regards to any of the key assumptions
such as, commodity prices, future development costs, change in
reserves and production, or the future operating costs. Any changes
to the assumptions could increase or decrease the expected
recoverable amounts from the assets and may result in impairment or
potential reversal of impairment.
12. Exploration and Evaluation assets
Carrying amount 2020 2019
------------------------------------ ------ ------
Balance, beginning of the year 1,004 -
Additions - 997
Recoveries (235) -
Impairment of exploration expense (748) -
Cumulative translation adjustment (7) 7
------------------------------------ ------ ------
Balance, end of the year 14 1,004
------------------------------------ ------ ------
The Company currently holds land rights to a large amount of
undeveloped land within Romania. During the year, the initial
preparations for a 3D seismic program were initiated prior to the
COVID-19 pandemic. Due to the pandemic, the work was halted, and
ultimately cancelled. The recovery of costs relates to cost
estimates at 31 December 2019 that ultimately did not get spent as
the program was cancelled and have been recovered through a change
in working capital.
Impairment of exploration asset
Within the Satu Mare concession, the Company is focusing on the
development of the Sancrai field which has historical 2D seismic.
As the Company does not currently have any development plans for
the Capleni-Domanesti area, of which permitting and pre-seismic
work was completed, the Company has determined that the costs
related to the preliminary seismic work is fully impaired.
The Company has recorded an impairment expense of $0.7 million
(2019 - $nil) as at 31 December 2020. All remaining E&E costs
relate to preliminary work on the exploratory well in Sancrai.
13. Right-of-use assets
The following table details the cost and accumulated
depreciation of the ROU assets:
Buildings Vehicles Total
----------------------------------- ---------- --------- ------
Cost
Balance as at 31 December 2019 1,293 39 1,332
Additions 247 - 247
Disposals (700) - (700)
----------------------------------- ---------- --------- ------
Balance as at 31 December 2020 840 39 879
----------------------------------- ---------- --------- ------
Accumulated depreciation
Balance as at 31 December 2019 (504) (13) (517)
Depreciation (531) (14) (545)
Disposals 700 - 700
----------------------------------- ---------- --------- ------
Balance as at 31 December 2020 (335) (27) (362)
----------------------------------- ---------- --------- ------
Cumulative translation adjustment
Balance as at 31 December 2019 2 - 2
Currency translation adjustments (7) - (7)
----------------------------------- ---------- --------- ------
Balance as at 31 December 2020 (5) - (5)
----------------------------------- ---------- --------- ------
Carrying amounts
Balance as at 31 December 2019 791 26 817
----------------------------------- ---------- --------- ------
Balance as at 31 December 2020 500 12 512
----------------------------------- ---------- --------- ------
14. Restricted cash
The Group has cash on deposit with the Alberta Energy Regulator
of $1.2 million (2019 - $1.1 million), as required to meet future
abandonment obligations existing on certain oil and gas properties
in Canada (see Note 17 ). This deposit accrues nominal interest.
The fair value of restricted cash approximates the carrying
value.
15. Trade and other receivables
As at 31 December 2020 2019
----------------------------------- ------ -------
Trade receivables 5,317 5,793
VAT receivable 2,605 2,780
Corporate tax receivable 228 1,452
Prepaids and other 726 1,316
----------------------------------- ------ -------
Total trade and other receivables 8,876 11,341
----------------------------------- ------ -------
The trade receivables consist of commodity sales in both Romania
and Tunisia. The Group has determined that the ECL is nominal for
the years ended 31 December 2020 and 2019 while using the days past
due criteria to measure the ECL. The Company has reviewed the
historical transactions with the vendors and has no history of
default or unpaid invoices and has used a nominal percentage in
calculating the ECL. The Company has not taken an allowance for
doubtful accounts as at 31 December 2020 and 2019.
The VAT receivable relates to operating and development costs in
Romania and are recovered through the Romanian government. Of the
VAT receivable, $2.5 million relates to 2018 and prior which has
been disputed by the Romanian authorities. Subsequent to the year
end, the Company received confirmation from the Romanian
authorities that $1.1 million of the balance was being released to
the Company. Serinus strongly believes the Company is entitled to
the remaining $1.5 million and is exploring strategies to recover
this.
16. Shareholder's capital
Authorised
The Group is authorised to issue an unlimited number of ordinary
shares without nominal or par value. Changes in issued ordinary
shares are as follows:
Year ended 31 December 2020 2019
------------------------------ -------------- --------- ------------ ---------
Number of Amount Number of Amount
shares ($000s) shares ($000s)
------------------------------ -------------- --------- ------------ ---------
Balance, beginning of the
year 238,881,285 377,942 217,318,805 375,208
Issued for cash 787,936,852 21,315 21,553,583 2,903
Issuance costs, net of tax - (1,573) - (170)
Issued in lieu of salary 917,090 76 - -
Issued to retire Convertible
Loan (Note 20 ) 112,925,402 3,666 - -
Warrants exercised - - 8,897 1
------------------------------ -------------- --------- ------------ ---------
Balance, end of the year 1,140,660,629 401,426 238,881,285 377,942
------------------------------ -------------- --------- ------------ ---------
Warrants
Year ended 31 December 2020 2019
------------------------ ---------- --------------- ---------- ---------------
Number of Number of
Warrants Amount ($000s) Warrants Amount ($000s)
------------------------ ---------- --------------- ---------- ---------------
Balance, beginning of
the year 2,254,229 97 2,254,229 97
No movement throughout
the year - - - -
------------------------ ---------- --------------- ---------- ---------------
Balance, end of the
year 2,254,229 97 2,254,229 97
------------------------ ---------- --------------- ---------- ---------------
These warrants were issued alongside the share issuance in March
2019. The warrants were valued using the Black-Scholes pricing
model using the following assumptions:
Inputs used in the Black-Scholes model
---------------------------------------- ------
Risk-free interest rate 3.91%
Expected dividend yield nil
Expected volatility 54%
---------------------------------------- ------
Expected warrant life (in years) 2.0
---------------------------------------- ------
17. Decommissioning provision
As at 31 December 2020 2019
-------------------------------- ------- ---------
Balance, beginning of the year 31,638 45,269
Liabilities incurred 843 -
Liabilities settled - -
Accretion 460 1,224
Change in estimate 838 (14,777)
Foreign currency translation 295 (78)
-------------------------------- ------- ---------
Balance, end of year 34,074 31,638
-------------------------------- ------- ---------
The Group's decommissioning provisions are based on its net
ownership in wells and facilities in Tunisia, Romania, Brunei and
Canada. Management estimates the costs to abandon and reclaim the
wells and facilities using existing technology and the estimated
time period during which these costs will be incurred in the
future. During the year, Romania incurred liabilities relating to a
new well and surface work. In Tunisia, the Company incurred
liabilities related to four new water pits.
The Group has estimated as at 31 December 2020 the
decommissioning provisions of Brunei's Block L, Block M and the
wells in Canada to be $2.8 million (2019 - $2.8 million). These
obligations are reported as current liabilities as they relate to
non-producing properties or expired production sharing
contracts.
The change in estimate in the current year is based on changes
to interest rates, discount rates and the estimated date of
abandonment and reclamation. During the year there were no changes
to expected costs of abandonment. In the prior year, the Group
conducted an analysis of the decommissioning requirements for the
Tunisian business unit and determined that there were significant
cost savings, based on revised abandonment procedures and cost
estimates, that could be applied to the decommissioning of the
fields. This resulted in a change in estimate to the
decommissioning liability and to the offsetting decommissioning
asset. In the case where the decommissioning asset has been fully
impaired, the Group recognized this change in estimate through the
Statement of Comprehensive Loss. For 2019, this amounted to $14.8
million, of which $6.9 million was booked a recovery through the
Statement of Comprehensive Loss, with the remainder booked against
the decommissioning asset.
The Company anticipates the concession licenses will continue to
be extended until they are no longer economical for the Company to
continue operating. As at 31 December 2020, the Company has aligned
the abandonment dates with the expected economic life of the
asset.
The significant assumptions used in the calculation of the
decommissioning provision are as follows:
As at 31 December 2020 2019
--------------------- ----------- ---------- ------------ ---------- ---------- ------------
Risk-free Risk-free
rate Inflation Net present rate Inflation Net present
(%) rate (%) value (%) rate (%) value
--------------------- ----------- ---------- ------------ ---------- ---------- ------------
0.1 - 2.7 -
Tunisia 1.7 1.4 27,426 3.1 2.3 26,137
2.3 - 3.4 -
Romania 3.0 2.5 3,800 4.8 2.5 2,687
Brunei - - 1,801 - - 1,801
Canada - - 1,047 - - 1,013
--------------------- ----------- ---------- ------------ ---------- ---------- ------------
Total 34,074 31,638
Due within one
year 7,124 6,334
Long-term liability 26,950 25,304
---------------------------------- ---------- ------------ ---------- ---------- ------------
Total 34,074 31,638
---------------------------------- ---------- ------------ ---------- ---------- ------------
18. Deferred income tax
The deferred taxes are recognised on a taxable body basis,
specifically on an entity-by-entity basis with the exception of
Tunisia. Tunisia taxes each concession on a standalone basis, and
therefore the deferred taxes are determined on each concession.
Movement in deferred income tax balances:
31 December 31 December
Tax effect related to: 2019 Recovery 2020
------------------------------- ------------ ----------- ------------
PP&E and E&E assets (16,962) 858 (16,104)
Decommissioning provision 3,661 267 3,928
Other (91) 291 200
------------------------------- ------------ ----------- ------------
Deferred income tax liability (13,392) 1,416 (11,976)
------------------------------- ------------ ----------- ------------
31 December Recovery/ 31 December
Tax effect related to: 2018 (expense) 2019
------------------------------- ------------ ----------- ------------
PP&E and E&E assets (18,288) 1,326 (16,962)
Decommissioning provision 4,102 (441) 3,661
Other 1,032 (1,123) (91)
------------------------------- ------------ ----------- ------------
Deferred income tax liability (13,154) (238) (13,392)
------------------------------- ------------ ----------- ------------
Unrecognised deferred tax assets
Deferred tax assets have not been recognised in respect of the
following deductible temporary differences:
As at 31 December 2020 2019
---------------------------------------- -------- --------
PP&E and E&E assets (3,718) (5,447)
ROU assets and lease liabilities 157 (27)
Decommissioning provision 7,578 6,886
Non-capital losses carried forward and
other 13,325 11,006
---------------------------------------- -------- --------
Unrecognised deferred tax asset 17,342 12,418
---------------------------------------- -------- --------
Deferred tax assets have not been recognised in respect of these
items because it is uncertain that future taxable profits will be
available against which they can be utilized.
The Group has Canadian non-capital losses of $0.3 million (2019
- $0.6 million) that do not expire, Cyprus tax losses of $12.5
million (2019 - $7.7 million) that expire between 2021 and 2025,
Tunisian losses of $15.4 million that expire in five years and
$41.6 million have no expiry date (2019 - $8.2 and $6.7 million
respectively), and Romanian losses of $5.6 million (2019 - $5.4
million) that expire after seven years between 2021 to 2027.
The Group has temporary differences associated with its
investments in its foreign subsidiaries. The Group has not recorded
any deferred tax liabilities in respect to these temporary
differences as they are not expected to reverse in the foreseeable
future.
The Group operates in multiple jurisdictions with complex tax
laws and regulations, which are evolving over time. The Group has
taken certain tax positions in its tax filings and these filings
are subject to audit and potential reassessment after the lapse of
considerable time. Accordingly, the actual income tax impact may
differ significantly from that estimated and recorded by
management.
19. Lease liabilities
The following table details the movement in the Group's lease
obligations for the year ended 31 December 2020:
As at 31 December 2020 2019
--------------------------------------- ------ -------
Opening balance 876 1,159
Additions 247 173
Principle payments (537) (466)
Cumulative translation adjustment - 10
--------------------------------------- ------ -------
Balance, end of the year 586 876
--------------------------------------- ------ -------
Lease liabilities due within one year 164 534
Lease liabilities due beyond one year 422 342
--------------------------------------- ------ -------
During the year the Company made total payments toward lease
liabilities in the amount of $0.6 million (2019 - $0.6 million), of
which $0.1 million (2019 - $0.1 million) was interest.
The Group has elected to exclude short-term leases and low-value
leases from the Group's lease liabilities. Payments towards
short-term leases, and leases of low-value assets for the year
ended 31 December 2020 were nominal and have been included in
G&A expense in the Statement of Comprehensive Loss. The Group's
short-term leases and leases of low-value consist primarily of
office equipment leases.
20. Long term debt
As at 31 December 2020 2019
-------------------------------------- ------ -------
Convertible Loan[11] - 32,196
Unamortized discounts and debt costs - (207)
Modification gain - (893)
-------------------------------------- ------ -------
Total long-term debt - 31,096
-------------------------------------- ------ -------
Current portion - 7,709
Long-term portion - 23,387
-------------------------------------- ------ -------
As a result of the COVID-19 pandemic and the collapse in the
commodity prices, the Company was unable to make the scheduled
repayment at 30 June 2020, and negotiated with the EBRD to repay
$2.0 million and defer the remaining $6.4 million balance for 12
months, with a condition to restructure the terms and conditions of
the Convertible Loan no later than 18 December 2020, which was
subsequently extended to 26 February 2021.
As at 31 December 2020, the Group fully repaid the Convertible
Loan. The Company repaid $2.0 million on 22 June 2020, and on 21
December 2020 ("repayment date") paid $16.5 million and issued
112.9 million shares. As of 21 December 2020, the total debt plus
accrued interest totaled to $33.0 million and the total unamortized
financing and modification fees totaled $0.8 million. In
determining the fair value of the shares issued to the EBRD, the
Company used the closing price on the date of issuance. The total
gain realised on the retirement of the Convertible Loan was $12.2
million less professional fees incurred during negotiations of $0.2
million.
Covenants
The Convertible Loan agreement contained affirmative covenants,
including, maintaining the specified security, environmental and
social compliance, and maintenance of specified financial ratios.
The consolidated debt to EBITDA covenant came into effect 30
September 2018, with a required maximum ratio of 2.5 times to be
calculated at the consolidated financial level.
Throughout the year, the Company received covenant waivers from
the EBRD waiving the right to demand full payment of the
Convertible Loan as the Company was not in compliance with the debt
service coverage ratio.
21. Other provisions
JV audit Severance Other Total
--------------------------- --------- ---------- ------ ------
Balance as at 31 December
2018 1,148 219 - 1,367
Amount paid - (10) - (10)
Change in provision (13) (61) 40 (34)
--------------------------- --------- ---------- ------ ------
Balance as at 31 December
2019 1,135 148 40 1,323
Change in provision 76 - - 76
Balance as at 31 December
2020 1,211 148 40 1,399
--------------------------- --------- ---------- ------ ------
Current - - - -
Non-current 1,211 148 40 1,399
--------------------------- --------- ---------- ------ ------
The Group is subject to audits arising in the normal course of
business, with its joint venture partner in the Sabria concession
in Tunisia. A provision is made to reflect management's best
estimate of eventual settlement of these audits. The years
currently under audit are 2014-2019. Management has reviewed the
audit claims and has made a provision for what it expects to
settle. Management expects settlement of the joint venture audit
provision to occur later than twelve months from 31 December
2020.
As at 31 December 2017, a provision was made for potential
severance costs relating to the termination of employees in the
Chouech field in Tunisia. Since shutting in the field, agreements
have been reached with the majority of the employees. The remaining
provision at 31 December 2020 reflects the potential costs to
terminate the remaining employees.
22. Accounts payable and accrued liabilities
As at 31 December 2020 2019
------------------------------------------------ ------- -------
Accounts payable and accrued liabilities 14,319 16,231
Taxes payable 629 1,386
------------------------------------------------ ------- -------
Total accounts payable and accrued liabilities 14,948 17,617
------------------------------------------------ ------- -------
23. Release of provision
The release of provision was the elimination of a long-standing
disputed payable for $1.9 million related to drilling costs on
Block L in Brunei, which has passed the relevant statute of
limitation period.
24. Aggregate payroll expense
The aggregate payroll expense of employees and executive
management of Serinus was as follows:
Year ended 31 December 2020 2019
----------------------------------- ------ ------
Wages, salaries, and benefits[12] 4,450 3,872
Share-based payment expense[13] 1,418 528
----------------------------------- ------ ------
Total aggregate payroll expense 5,868 4,400
----------------------------------- ------ ------
25. Related party transactions
During the years ended 31 December 2020 and 2019, related party
transactions include the compensation of key management personnel.
Key management personnel include Serinus' Board of Directors, both
executive and non-executive. Transactions with key management
personnel are noted in the table below:
Year ended 31 December 2020 2019
---------------------------------- ------ ------
Wages and salaries 832 690
Benefits 94 24
Share-based payment expense 1,177 365
---------------------------------- ------ ------
Total related party transactions 2,103 1,079
---------------------------------- ------ ------
26. Supplemental cash flow disclosure
Year ended 31 December 2020 2019
------------------------------------------ -------- --------
Cash provided by (used in):
Trade receivables and other 932 (1,198)
Accounts payable and accrued liabilities (1,468) 1,920
Foreign exchange - (52)
------------------------------------------ -------- --------
Changes in non-cash working capital from
operations (536) 670
------------------------------------------ -------- --------
The following table reconciles capital expenditures to the cash
flow statement:
Year ended 31 December 2020 2019
------------------------------------- -------- ------
PP&E additions (Note 11 ) 5,708 3,891
E&E recoveries (Note 12 ) (235) 997
------------------------------------- -------- ------
Total capital additions 5,473 4,888
Changes in non-cash working capital (1,113) -
------------------------------------- -------- ------
Total capital expenditures 4,360 4,888
------------------------------------- -------- ------
The following table reconciles the long-term debt movements:
As at 31 December 2020 2019
------------------------------------------- --------- --------
Balance, beginning of the year 31,096 33,291
Cash Changes:
Principal payment on Convertible Loan (18,500) -
Principal payment on Senior loan - (5,400)
Interest payments on Senior loan - (355)
Non-cash Changes:
Gain on extinguishment of debt (11,985) -
Shares issued to extinguish debt (Note
20 ) (3,666) -
Fees incurred to retire Convertible Loan (167) -
Interest on Convertible Loan 2,890 3,086
Amortization of modification gain 249 97
Amortization of discounts and debt costs 83 144
Interest on senior loan - 233
Balance, end of the year - 31,096
------------------------------------------- --------- --------
27. Capital management
Year ended 31 December 2020 2019
------------------------- ------- -------
Long-term debt - 31,096
Shareholder's equity 31,379 14,518
------------------------- ------- -------
Total capital resources 31,379 45,614
------------------------- ------- -------
The Group manages its capital structure to maximize financial
flexibility as well as closely monitoring cash forecasts. Further,
each potential acquisition and investment opportunity is assessed
to determine the nature and total amount of capital required
together with the relative proportions of debt and equity to be
deployed. The Group does not presently utilize any quantitative
measures to monitor its capital.
In December 2020 the Company raised $19.7 million, net of
issuance costs, in equity from the issuance of 787.9 million
ordinary shares. The funds were used to facilitate the repayment of
the Convertible Loan. For further information on the Convertible
Loan, see Note 20 . Throughout the year, the Company received
waivers from the EBRD waiving the right to call the Convertible
Loan as the Company breached the covenant at each reporting
period.
In the prior year, the Company repaid the Senior loan,
consisting of two payments totalling $5.4 million principal plus
accrued interest.
28. Commitments and contingencies
Commitments
During the year, the Company agreed with the National Agency for
Mineral Resources ("NAMR") to amend the last outstanding work
commitment for the third exploration phase of the Satu Mare
Concession. In addition, NAMR has granted a 12-month extension to
the work commitment due to the COVID-19 related disruptions, with
the new exploration phase now expiring on 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. NAMR accepted the Company's proposal to modify the
final work commitment to drill two exploration wells, one to a
total depth of 1,000 meters and a second to a total depth of 1,600
meters.
Contingencies
The Tunisian state oil and gas company, ETAP, has the right to
back into up to a 50% working interest in the Chouech concession
if, and when, the cumulative crude oil sales, net of royalties and
shrinkage, from the concession exceeds 6.5 million barrels. As at
31 December 2020, cumulative liquid hydrocarbon sales net of
royalties and shrinkage was 5.3 million (2019 - 5.3 million)
barrels. The Company currently does not expect to meet this
threshold by the expiry of the concession.
29. Prior year comparatives
The prior year comparatives have been reclassified to align with
the current year disclosure. Management believes these changes are
nominal to the financial statement users.
30. Loss (income) from operations analysis
($000) 2020 2019
------------------------------------------ --------- --------
Administrative expenses (3,944) (3,788)
Share-based payment expense (Note 7 ) (1,418) (528)
Impairment expense (Note 11 , 12 ) (10,348) -
Release of provision (Note 23 ) 1,905 -
Decommissioning provision recovery (Note
17 ) - 6,891
Well incident recovery - 52
Included within administrative expenses of $3.9 million (2019 -
$3.8 million) are the following:
($000) 2020 2019
----------------------- -------- --------
Salaries and wages (1,704) (1,495)
Audit and review fees (497) (572)
Consulting fees (350) (301)
31. Segment information
The Group's reportable segments are organised by geographical
areas and consist of the exploration, development and production of
oil and natural gas in Romania and Tunisia. The Corporate segment
includes all corporate activities and items not allocated to
reportable operating segments and therefore includes Brunei.
As at 31 December 2020 Romania Tunisia Corporate Total
----------------------------- --------- --------- ----------- ---------
Total assets 31,077 57,212 6,073 94,362
----------------------------- --------- --------- -----------
For the year ended 31 December
2020
Crude oil revenue - 5,762 - 5,762
Natural gas revenue 16,740 1,361 - 18,101
Condensate revenue 167 - - 167
----------------------------- --------- --------- ----------- ---------
Total revenue 16,907 7,123 - 24,030
Cost of sales
Royalties (960) (844) - (1,804)
Production expenses (3,706) (4,520) (54) (8,280)
Depletion and depreciation (11,739) (2,912) (644) (15,295)
Windfall tax (1,486) - - (1,486)
----------------------------- --------- --------- ----------- ---------
Total cost of sales (17,891) (8,276) (698) (26,865)
----------------------------- --------- --------- ----------- ---------
Gross loss (984) (1,153) (698) (2,835)
Administrative expenses - - (3,944) (3,944)
Share-based payment
expense - - (1,418) (1,418)
Impairment expense (6,948) (3,400) - (10,348)
Release of provision - - 1,905 1,905
Operating loss (7,932) (4,553) (4,155) (16,640)
Extinguishment of debt - - 11,985 11,985
Finance expense (5) (415) (3,387) (3,807)
----------------------------- --------- --------- ----------- ---------
Net (loss) income before
income taxes (7,937) (4,968) 4,443 (8,462)
Tax expense - (824) (11) (835)
Net (loss) income for
the year (7,937) (5,792) 4,432 (9,297)
----------------------------- --------- --------- ----------- ---------
Capital expenditures 4,210 1,251 12 5,473
----------------------------- --------- --------- ----------- ---------
As at 31 December 2019 Romania Tunisia Corporate Total
----------------------------- --------- --------- ----------- ---------
Total assets 44,175 63,508 2,777 110,460
----------------------------- --------- --------- -----------
For the year ended 31 December
2019
Crude oil revenue - 7,617 - 7,617
Natural gas revenue 14,855 1,604 - 16,459
Condensate revenue 289 - - 289
----------------------------- --------- --------- ----------- ---------
Total revenue 15,144 9,221 - 24,365
Cost of sales
Royalties (803) (1,057) - (1,860)
Production expenses (2,332) (4,606) (47) (6,985)
Depletion and depreciation (7,216) (2,576) (685) (10,477)
Windfall tax (3,155) - - (3,155)
----------------------------- --------- --------- ----------- ---------
Total cost of sales (13,506) (8,239) (732) (22,477)
----------------------------- --------- --------- ----------- ---------
Gross profit (loss) 1,638 982 (732) 1,888
Administrative expenses - - (3,788) (3,788)
Share-based payment
expense - - (528) (528)
Well incident recovery 52 - - 52
Decommissioning provision
recovery - 6,891 - 6,891
Operating profit (loss) 1,693 7,890 (5,048) 4,515
Finance expense (income) 390 (792) (4,401) (4,803)
----------------------------- --------- --------- ----------- ---------
Net income (loss) before
income taxes 2,080 7,081 (9,449) (288)
Tax expense - (1,649) (3) (1,652)
Net income (loss) for
the year 2,080 5,432 (9,452) (1,940)
----------------------------- --------- --------- ----------- ---------
Capital expenditures 3,858 1,019 11 4,888
----------------------------- --------- --------- ----------- ---------
[1] The Company is currently in negotiations with DGH to extend
the license.
[2] Source: 2020 results from Gaffney Cline & Associates
Limited Reserves audit at 31 December 2020. 2019 results from RPS
Energy Canada Ltd. reserves audit at 31 December 2019.
[3] The average GBP:USD rate for the year was 0.7786 (2019 -
0.7816). The 2019 CAD:USD average rate was 1.3266.
[4] Consists of share options, shares issued in lieu of salary,
and LTIP awards. Share options are priced at the fair value on the
grant date, calculated using Black Scholes, and amortized over the
vesting period. Shares issued in lieu of salary, were issued at the
average share price over the period related to the salary forgone.
The LTIP awards were priced using the closing share price on the
issuance date and have no vesting conditions. Both the shares
issued in lieu and LTIP awards are fully expensed at date of
issuance.
[5] Tracy Heck resigned 31 October 2019.
[6] Each LTIP award represents a right to acquire a share of the
Company at $nil consideration.
[7] Translated using the average exchange rate for the year
CAD:USD 1.3266 and GBP:USD 0.7786 (2019 - CAD:USD 1.3266 &
GBP:USD 0.7816).
[8] Share options are priced at the fair value on the grant
date, calculated using Black Scholes, and amortized over the
vesting period.
[9] Evgenij Iorich resigned 16 May 2019.
[10] Comparatives have been restated to use the Sabria tax rate
(50%) , consistent with the current year.
[11] Includes loan principal of $nil (2019 - $30.6 million) plus
accrued interest.
[12] Includes amounts in general and administrative expenses,
production expenses and exploration and development
expenditures.
[13] Represents the amortization of share-based payment expense associated with options granted.
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