Annual Financial Results for 2022
20/03/2023 07:00
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RNS Number : 4409T Serinus Energy PLC 20 March 2023
20 March 2023
Press Release
Annual Financial Results for 2022
Jersey, Channel Islands, 20 March 2023 -- Serinus Energy plc ("Serinus" or the
"Company" or the "Group") (AIM:SENX, WSE:SEN) is pleased to announce its
Annual Financial Results for 2022.
2022 Highlights
Financial
· Revenue for the year ended 31 December 2022 was $49.3 million
(31 December 2021 - $40.0 million)
· EBITDA for the year ended 31 December 2022 was $12.7 million
(31 December 2021 - $12.3 million)
· The Company generated net income of $1.6 million, which includes a
$1.9 million asset impairment (31 December 2021 - net income of $8.4 million)
· The Company realised a net price of $149.46/boe for the year
ended 31 December 2022, comprising:
o Realised oil price - $94.39/bbl
o Realised natural gas price - $34.53/Mcf
· The Group's operating netback remained strong for the year
ended 31 December 2022 and was $107.59/boe (31 December 2021 - $44.60/boe),
comprising:
o Romania operating netback - $181.57/boe (31 December 2021 - $52.44/boe)
o Tunisia operating netback - $54.34/boe (31 December 2021 - $29.77/boe)
· Capital expenditures of $12.9 million (31 December 2021 - $10.7
million), comprising:
o Romania - $8.4 million
o Tunisia - $4.5 million
· Third party reserves report attributes $85.4 million of Net Present
Value at a 10% discount rate to the audited Proved and Probable Reserves of
the Company as at 31 December 2022
· Cash balance as at 31 December 2022 was $4.9 million
Operational
· Completed the Romanian near-term exploration programme in 2022.
Drilled two exploration wells in Romania in 2022. Both the Moftinu Nord-1 well
and the Canar-1 well encountered gas in targeted reservoirs however quantities
did not justify commercial development
· The Canar-1 well has been completed for use as a solar powered water
injection well. Water from Moftinu field is being disposed of at Canar-1
resulting in a cost saving of approximately $800,000 per year
· The second compressor at the Moftinu field was commissioned in
February 2022. The compressors have stabilised production and will extend
overall field life
· The Company initiated a comprehensive block wide Geological Review
engaging RISC Consultancy to take the Company's existing database of 2D, 3D
and well data and using that database construct a consistent geological model.
This model, containing all of the extensive legacy and modern data covers
the entirety of the 3000 km(2) Satu Mare concession
· Knowledge from the Moftinu field development and recent exploration
drilling has been incorporated into the comprehensive geological model to
guide the Company in its further exploration of the highly prospective and
multi-play Satu Mare concession
· In Tunisia, the workover to install the first submersible pump for
the Artificial Lift programme has commenced at the Sabria field. Plans for
additional pumps in the Sabria field are being progressed
· Workovers in the Chouech Es Saida field continue the increased
production from wells CS-3 and CS-1
· Production for the year averaged 889 boe/d, comprising:
o Romania - 379 boe/d
o Tunisia - 510 boe/d
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 +44 204 541 7859
Jeffrey Auld, Chief Executive Officer
Andrew Fairclough, Chief Financial Officer
Calvin Brackman, Vice President, External Relations & Strategy
Shore Capital (Nominated Adviser & Broker) +44 207 408 4090
Toby Gibbs
John More
Camarco (Financial PR - London) +44 203 781 8334
Owen Roberts
Charlotte Hollinshead
TBT i Wspólnicy (Financial PR - Warsaw) +48 602 214 353
Katarzyna Terej
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.
Serinus Energy plc
2022 Annual Report and Accounts
(US dollars)
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 the 3,000km(2) Satu Mare Concession.
The Satu Mare Concession area includes the Moftinu Gas Project which was
brought on production in April 2019 and has produced approximately 9.2 Bcf and
$90.9 million of revenue to the end of 2022. In addition to the Moftinu Gas
Development Project the Satu Mare Concession holds several highly prospective
exploration plays. Serinus' recently completed block wide geological review
has highlighted the potential of several plays that have encountered oil and
gas on the block. Focus on proven hydrocarbon systems known productive
trends that need further data and studies over 40 legacy wells on the
concession area have encountered oil and gas. The Company has identified
numerous additional gas prospects identified by historic drilling and legacy
2D seismic. The concession is extensively covered by legacy 2D seismic,
augmented by the Company's own 3D and 2D acquisition programs that have
further refined the identified prospects. Putting this extensive evidence
based analysis together in a block wide review has allowed the Company to
identify a pathway towards future exploration growth.
Tunisia
The Company's Tunisian operations are comprised of two concession areas. The
largest asset in the Tunisian portfolio is the Sabria field, which is a large
oilfield play with an estimated original in-place volume of 445 million
barrels-of-oil-equivalent of which 1.1% has been produced to date. Serinus
considers this historically under-developed field to be an excellent asset for
development work to significantly increase production in the near-term. The
Company has embarked on an artificial lift programme whereby the first pumps
in the Sabria field will be installed. Independent third-party studies
suggest that the use of pumps in this field can have a material impact on
production volumes. The Chouech Es Saida concession in southern Tunisia
holds a producing oilfiled that produces from three wells. Underlying this
oil field are significant gas prospects. These prospects lie in a structure
that currently produces gas in an adjacent block. Exploration of these lower
gas zones became commercially possible with the recent construction of gas
transportation infrastructure in the region. Upon exploration success these
prospects can be developed in the medium term, with the ability to access the
near-by under-utilised gas transmission capacity.
Operational Summary and Outlook
Corporate
With the disruption of the COVID-19 pandemic and the associated global supply chain interruptions receding in 2022 the Company was able to advance its exploration and development projects. A critical foundation to the advancement of these projects is the cash flow generation inherent in our production assets. For the year to 31 December 2022, the Company generated cashflow from operating activities of $7.5 million and invested $10.7 million of capital expenditure. The Company has a working capital surplus and in 2022 allocated the majority of the cash flow generated by the businesses to near-term exploration and production opportunities.
The Company continues to focus on the active management of the Moftinu Gas field production levels. The Moftinu gas field is a shallow gas field that has initial high production rates followed by natural declines. Managing these declines to extract the most value from the gas in place has allowed the Company to extract $90.9 million of revenue from this field since production began in 2019.
The Company continues to advance the implementation of its artificial lift programme in the Sabria field in Tunisia, beginning with the Sabria-W1 well. In 2022 the Company was frustrated in accelerating the installation of the first pump in the Sabria field by the default of the national rig company in Tunisia, Compagnie Tunisienne de Forage ("CTF"). The initial rig contract committed CTF to provide their rig CTF-006 in mid-2022 but CTF was unable to provide the rig as per their contractual obligation. An alternative rig (CTF-004) was mobilised to the site in December 2022.
The Company's capital programme in 2022 was therefore concentrated on the two exploration wells, Canar-1 and Moftinu Nord-1, drilled in Romania and the acceleration of the design and permitting of a new 2D seismic programme. The new 2D seismic was designed to complement the existing 2D seismic and tie to existing 3D seismic data to refine the high-rank prospects adjacent to the Moftinu gas field.
The Company, under the authority granted by the shareholders at the 2022
Annual General Meeting, executed the purchase of its own shares. The Board
believes that the share price at the time of its purchases did not reflect the
intrinsic value of the business and will continue to evaluate the investment
return of share buybacks as part of its allocation of capital across the Group
(note 17).
ROMANIA
The Group's Romanian operating subsidiary holds the licence to the Satu Mare
concession area, covering approximately 3,000 km(2) in the north-west of
Romania. The Moftinu Gas Development project began production in 2019. The
development project includes the Moftinu gas plant, and currently has four gas
production wells - Moftinu -1003, Moftinu-1004, Moftinu-1007 and
Moftinu-1008. During 2022, the Company's Romanian operations produced a
total of 826 MMcf of gas and 527 barrels of condensate, equating to an average
daily production of 379 boe/day.
The Company has completed all of its commitments under the third exploration
phase of the Satu Mare Concession Agreement, and in October 2021, received an
additional two-year evaluation phase on the Satu Mare Concession until 27
October 2023. The Company is in routine conversations with the National
Agency for Mineral Resources ("NAMR") regarding the further extension of this
concession and will apply for a further appraisal period during 2023. The
greater Moftinu gas field area has been declared a commercial field and is
exempt from this routine licence extension procedure.
During the year the Company drilled two exploration wells; Canar-1 and Moftinu
Nord-1, adjacent to the Moftinu gas field. These near field prospects were
selected due to their proximity to the Moftinu Gas Plant. It was expected
that, upon success, these fields could be quickly tied into the existing
processing infrastructure to deliver near-term cash flow. Regrettably both
wells discovered gas in the expected zones however neither field contained
sufficient gas to justify commercial development. The Canar-1 well was
drilled on time and under budget and encountered gas in four prospective
zones. Post drilling analysis suggest that the seal of the reservoir was
compromised and did not sufficiently prevent the gas from migrating away from
the reservoir. The Moftinu Nord-1 well was drilled on time and under budget
but demonstrated a similar compromise of seal to the Canar-1 well. Whilst it
is disappointing to have discovered gas but to have that gas be in
insufficient quantities, these two wells give greater insights into those
risks that must be focused on while drilling exploration wells on various
prospects. Both Canar-1 and Moftinu Nord-1 demonstrated Type-3 AVO
responses. Typically, such a response is considered a Direct Hydrocarbon
Indicator. The two exploration wells demonstrated the effectiveness of the
AVO responses and the use of AVO to identify gas accumulations. The wells
also highlighted the requirement to focus on seal types to allow for future
success, especially for such shallow targets. In the third quarter of 2022
the Company initiated a third party independent geological review of the Satu
Mare Concession. This review was designed to be a block wide review of the
geological development of the many play types on the block. The review was
conducted by RISC, a geologic consulting firm, and was designed to combine the
myriad of technical information into a block wide exploration model. During
the study Serinus technical personal worked with RISC to analyse the many
historical wells and multitude of legacy 2D seismic. This is the first time
that a block wide review of all technical information has been prepared and
the results are a valuable tool for future exploration opportunities.
Additional interpretation work is also being conducted on the Santau 3D area
with a view to confirming drilling locations on prospects that will form the
basis for future multi-well drilling campaigns.
After the drilling of Canar-1, the Company has implemented the technical
program to convert this well into a water injection well. This will allow
the produced water volumes from the Moftinu wells to be injected in Canar-1.
The Company applied for and received all local and national permits, to get
Canar-1 approved as a water injection well. Produced water injection began
in the fourth quarter of 2022. The use of Canar-1 as a water injection well
has resulted in a significant savings in operating expense. Previous water
disposal required extensive trucking of produced water volumes, injection
using the Canar-1 well has resulted in cost savings in water transportation
and water injection of 91%, approximately $800,000 per year. At these
injection levels, Canar-1 will recover the cost of drilling and conversion to
water injection during 2023.
The Company incorporated a new gas trading subsidiary, Serinus Energy Romania
Trading S.r.l. in October 2021, which trades the Company's Romanian gas
production into the Romanian market. Serinus Energy Romania Trading S.r.l
was created to allow our licensed gas traders to directly access the Romanian
gas market and to capture the full value of gas prices in Romania through the
ability to access all available types of contracts of various durations and
respond accordingly to the price signals of these contracts. Gas pricing in
Romania has moved significantly in 2022 from a low of $31/Mcf to a high of
$67/Mcf. Much of this price volatility has occurred counter to typical
pricing seasonality. The ability of the Company to utilise its own gas
trading function has resulted in an average realised price of $39.96/Mcf for
2022, with an average realised gas price of $37.07/Mcf in the fourth quarter
of 2022. Whilst lower than the highs of 2022 current gas prices on the
Romanian Commodity Exchange ("BRM") remain strong over the first quarter of
2023.
Serinus has continued to operate safely and effectively in Romania throughout
the period. As at the year-end 2022, the Company had achieved 1,347
accident-free days of continuous operation which is a testament to the
professionalism and hard work of our team in Romania.
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 partner's 40% participating interest and
to compel transfer of that interest to the Company.
After the year-end the Company announced the successful conclusion of its
arbitration against its former partner.
Tunisia
The Company currently holds two concession areas within Tunisia. These concession areas both contain discovered oil and gas reserves and are currently producing. The largest asset is the Sabria field. Sabria is a large, conventional oilfield which the Company's independent reservoir engineers have estimated to have approximately 445 million barrels of oil equivalent originally in place. Of this oil in place only 1.1% has been produced to date due to a low rate of development on the field. Serinus has spent extensive time studying the best means of further developing this field and considers this to be an excellent asset for remedial work to increase production and, on completion of ongoing reservoir studies, to conduct further development operations.
A major project for the operations in Tunisia in 2022 is the introduction of the first Artificial Lift programme to be implemented on the W-1 well in the Sabria field. The W-1 is a currently suspended well that was identified as a candidate to benefit from the installation of a pump. The Company agreed a rig contract with the Compagnie Tunisienne de Forage ("CTF"), the national drilling company. The contract allowed for the provision of a drilling rig to conduct the W-1 workover. The rig was originally scheduled to have been delivered to the W-1 site in May 2022. The Company was made aware that for a variety of reasons CTF was unable to provide the rig that was named in the agreed rig contract, CTF-006. Additionally, CTF informed the company that it did not have another rig available and suitable for the work that the Company anticipated. Having defaulted on the contract, CTF worked with the Company to procure a replacement rig. However, the replacement rig, CTF-004 was only able to be provided late in 2022. This frustrating delay has meant that the W-1 work over and pump installation has not been completed in 2022. Following the successful completion of the W-1 workover and pump installation the Company anticipates commencing a programme to install artificial lift in the remaining candidate wells in Sabria.
The delays faced by the CTF default have also affected the workover of the N-2
well in Sabria. This well was drilled in 1980 but was damaged during
completion and, although in proximity to producing wells, was not able to flow
oil to surface due to damage during completion. The workover program will
re-complete the well and remove any wellbore restrictions. The Company
anticipates that the N-2 well will be on production in mid-2023.
During the year, the Company conducted further workover operations in the Chouech Es Saida area to replace and standardise pumps in order to increase production and efficiency. Better pump design and installation has increased the pump life from seven months in 2019 to 24 months in 2022. The Company has applied to extend the Ech Chouech licence but this expired in June 2022. The Company intends to continue its application to regain the licence once the licence process is formalised.
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 closed
or reduced the presence of staff in our Head Office, Administration Office and
our Business Unit Offices. Our field operations continue to remain ready to
modify daily tasks and routines to ensure safe practices for all staff, as
required. Existing operations have remained in production and our producing
assets have seen no significant operational 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. The Company's existing assets also include large exploration
prospects within close proximity of existing infrastructure. The Company
allocates capital to these exploration prospects which if successful can add
meaningful production and cash flow to the Group.
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 and Chouech Es
Saida 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 1.1% 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 field in southern Tunisia offers attractive
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
optimisation provides the path to production, revenue and cash flow growth
with no exploration risk. Underlying the Chouech field is the prospective
Acacus gas zone. Gas has been discovered and produced from this zone in
nearby concessions and recent gas infrastructure developments make this
exploration opportunity commercially attractive.
In addition to the strong asset base Serinus has a strong and experienced
management team. Within each jurisdiction, we have local professionals
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 multiple play types and prospects
· Two 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
· Abide by the highest thresholds of disclosure for an AIM-listed
company
· 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
of the existing asset base
· Seek acquisitions that will provide synergies at a cost that is
accretive to shareholders
Chairman's Letter
Dear shareholders,
It is my pleasure to write this letter to you as Chairman of Serinus Energy
plc.
2022 is another year that will be remembered by all of us, primarily due to
tragic war developments also heavily impacting oil and gas sector. Our
Board, however, is eager to report that notwithstanding the constraints, the
Company continues to generate strong cash flow and earnings. As shareholders
will recall 2021 was the first year since the Company's inception that
positive earnings were generated. I am happy to report that the trend is
being continued and that the Company generates positive earnings from
operations in 2022. Cost control remains essential to a cyclical commodities
based business and I can assure you that in our case it does remain stable in
the face of some very difficult inflation.
Inflation remains one of the challenges posed by the COVID-19 pandemic and our
team has remained focused on executing our business plan and delivering value
to our stakeholders. Our production has declined in Romania in line with the
parameters of a shallow gas field. It is now important that we use our
technical skills to find the next Moftinu Gas Development. It must be
remembered as we near the $100 million of revenue from the Moftinu gas field
that these low-cost high return shallow gas fields offer dramatic earnings.
Consequently the strategy in Romania remains the same as we transition to
finding the another Moftinu-like opportunity. The Satu Mare Concession is a
very large concession and we have so far identified more than thirty prospect
opportunities with expected 181 million barrels of oil equivalent to be
explored for. Upon success any one of these prospects can offer the so
rewarding returns we saw with Moftinu. There are clearly major opportunities
yet to be discovered there.
In Tunisia our strategy continues to focus on the improvement in recovery from
the Sabria field. Sabria is a large conventional oil field that has had
little more than one percent of the in-place oil volumes recovered. Social
and political turmoil in Tunisia has made our work difficult but we remain
confident in the technical capabilities of our teams and the large upside that
is available in Sabria. As we look beyond the artificial lift programme our
teams are preparing the technical work for new wells. As part of the
longer-term strategy the Company would be eager to have the conditions
allowing for new producing wells to be drilled in Sabria.
We have also made important investments in our operations, including drilling
new wells and upgrading existing facilities. As the nature of our business
sometimes unfortunately dictates the exploration wells drilled in Romania were
not commercially successful and I certainly share our shareholders
frustrations when we come so close by discovering gas but fail at a later
stage as there was simply not enough gas to ensure commercial sales. This was
highly disappointing however I know that this is what exploration is like and
I am comfortable that the low-risk, low-cost nature of our exploration
programme will come to success in the near future.
Looking ahead, we are confident in the future of the energy sector, countries
that we operate and the continued growth of our company. We remain focused on
executing our strategy, delivering value to our shareholders, and contributing
to the communities in which we operate.
Thank you for your continued support. I look forward to updating you on our
progress in the coming year.
Yours sincerely,
Lukasz Rędziniak, Chairman of the Board of Directors
17 March 2023
Letter from the CEO
Dear Fellow Shareholders,
2022 was an operationally challenging year for Serinus as inflation continued
to pressure the business. Sweeping inflation in costs across the business
required nimble solutions and a far greater degree of anticipation as we
worked to achieve our operational targets. The Company reacted by ordering
long lead items for our drilling plans well in advance of what we would
normally consider. These actions allowed us to avoid the steep inflation in
steel tubulars and other manufactured oilfield equipment. Delays to
fabrication eased in 2022 and we did not see some of the delays that were
globally experienced in 2021. We have pre-ordered the requisite pumps for
the Tunisian artificial lift programme and those pumps are in hand in
anticipation of our programme. As we look forward, we see inflation
beginning to moderate however our cost control focus will continue unabated.
Commodity prices once again took the headlines in 2022 as Russia invaded
Ukraine and caused disruption to global energy markets. Gas prices in Europe
spiked and the Company's Romania trading subsidiary was able to take advantage
of these heightened gas prices. Inevitably the higher commodity prices
globally have allowed governments to review fiscal terms and, in many
countries, increased windfall taxes were the result. In Romania we have been
exposed to windfall taxes since the inception of production in Moftinu and no
fiscal changes have affected us. Fiscal terms in Tunisia have remained
stable and there has been no indications that these terms will change.
Operationally 2022 saw our business pursue our strategy in Romania of
transitioning from a wholly production business to searching for the next leg
of growth. The strategy included two near field exploration wells that were
designed to add production to the existing gas plant infrastructure.
Frustratingly these two wells did not discover enough gas to assure
commercial production and were therefore suspended. The Canar-1 well has now
been converted to a water injection well and has provided savings of
approximately $60,000 per month in water disposal costs. Whilst these two
wells were not commercially successful they did provide the encouragement that
the Satu Mare concession is highly gas prone and significant exploration
opportunities remain to be explored by the Company. The results of the
Canar-1 and Moftinu Nord-1 wells showed that the seal on reservoirs is a risk
that needs to be better understood. To that end the Company engaged
independent geological and geophysical consultants to perform a block wide
technical review to refine our understanding of which exploration
opportunities to pursue next. The block remains highly prospective, and the
estimated size of the prospective resources offers a considerable economic
prize for the business.
In Tunisia our strategy of increasing the recovery factor from our fields has
continued. Global delays to fabrication have meant that pump procurement has
been delayed and in June we were informed by the Compagnie de Tunisienne de
Forage ("CTF"), Tunisia's state owned, monopoly, drilling company that the rig
that we had contracted would not be made available to us. Having defaulted
on this contract the CTF then attempted to provide a replacement rig. The
rig suggested was not certified to the degree required by Serinus and was
therefore delayed until mid-December. Given the state owned, monopolistic
nature of CTF the Company was deprived of normal contractual remedies and was
forced to wait until a suitable rig became available. This has meant the
initial workovers associated with our pump programme were not completed within
2022 as anticipated. Technically the merits of this programme remain valid
and the Company is doggedly pursuing the completion of the workovers in SAB
W-1 and N-2 as soon as possible.
As we move into 2023 we remain confident that the technical strategy of the
business is sound. Execution of the strategy has been slower than hoped but
the considerable upside, both through exploration in Satu Mare and enhanced
production in Tunisia remain excellent catalysts for growth in the business.
Yours sincerely,
Jeffery Auld, Chief Executive Officer
17 March 2023
Report from the CFO
Liquidity, Debt and Capital Resources
During the year the Company invested a total of $12.9 million (2021 - $10.7
million) on capital expenditures before working capital adjustments. In
Romania, the Group invested $8.4 million (2021 - $9.5 million) during the
year, mostly on the 2D seismic programme and drilling the Canar-1 and Moftinu
Nord-1 exploration wells. In Tunisia, the Company invested $4.5 million
(2021 - $1.2 million) completing workovers and purchasing long lead items for
the Sabria artificial lift programme.
The Company's funds from operations for the year ended 31 December 2022 were
$11.4 million (2021 - $10.2 million). Including changes in non-cash working
capital, the cash flow generated from operating activities in 2022 was $7.4
million (2021 - $14.1 million). The Company continues to be in a strong
position to expand and continue growing production within our existing
resource base. The Company is debt-free and has adequate resources available
to deploy capital into both operating segments to deliver growth and
shareholder returns.
Year ended 31 December
($000) 2022 2021
Current assets 16,654 17,625
Current liabilities 16,571 16,994
Working Capital 83 631
The working capital surplus at 31 December 2022 was $0.1 million (2021 - $0.6
million). The working capital is primarily a result of the capital
investment programme through the second half of the year which included
drilling two exploration wells and the preparations for the artificial lift
programme in Tunisia.
Current assets as at 31 December 2022 were $16.7 million (31 December 2021 -
$17.6 million), a decrease of $0.9 million. Current assets consist of:
· Cash and cash equivalents of $4.9 million (2021 - $8.4 million).
· Restricted cash of $1.1 million (2021 - $1.1 million).
· Trade and other receivables of $10.0 million (2021 - $7.4
million).
· Product inventory of $0.7 million (2021 - $0.7 million)
Current liabilities as at 31 December 2022 were $16.6 million (2021 - $17.0
million), a decrease of $0.4 million. Current liabilities consist of:
· Accounts payable and accrued liabilities of $9.3 million (2021 -
$9.7 million).
· Decommissioning provision of $5.1 million (2021 - $6.6 million).
o Brunei - $nil million (2021 - $1.6 million).
o Canada - $0.8 million (2021 - $1.0 million) which are offset by restricted
cash in the amount of $1.1 million (2021 - $1.1 million) in current assets.
o Romania - $0.5 million (2021 - $0.3 million).
o Tunisia - $3.8 million (2021 - $3.7 million).
· Income taxes payable of $1.9 million (2021- $0.5 million).
· Current portion of lease obligations of $0.3 million (2021 - $0.2
million).
Non-current assets
Property, plant and equipment ("PP&E") decreased to $62.3 million (2021 -
$71.7 million). The decrease is due to depletion expense of $6.7 million, a
change in the estimate of asset retirement assets of $5.4 million, disposal of
assets of $1.1 million and an impairment expense of $1.9 million in Moftinu.
The reductions in PP&E were partially offset by additions of $7.7 million,
net of foreign exchange adjustments of $2.0 million. Exploration and
evaluation assets ("E&E") increased to $10.5 million (2021 - $5.0
million), due to expenditures incurred on the Canar-1 and Moftinu Nord-1
exploration wells.
Financial Review - Year ended 31 December 2022
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) 2022 2021
Cash flow from operations 7,387 14,099
Changes in non-cash working capital 4,052 (3,866)
Funds from operations 11,439 10,233
Funds from operations per share 0.10 0.09
Romania generated funds from operations of $9.1 million (2021 - $10.9 million)
and Tunisia generated $8.0 million (2021 - $3.9 million). Funds used at the
Corporate level were $5.6 million (2021 - $4.6 million) resulting in net funds
from operations of $11.4 million (2021 - $10.2 million).
Production
Year ended 31 December 2022 Tunisia Romania Group %
Crude oil (bbl/d) 447 - 447 50%
Natural gas (Mcf/d) 384 2,263 2,647 50%
Condensate (bbl/d) - 1 1 -
Total (boe/d) 511 379 889 100%
Year ended 31 December 2021
Crude oil (bbl/d) 471 - 471 28%
Natural gas (Mcf/d) 597 6,419 7,016 71%
Condensate (bbl/d) - 9 9 1%
Total (boe/d) 571 1,078 1,649 100%
During the year, production volumes decreased 759 boe/d (46%) to 889 boe/d
(2021 - 1,649 boe/d) primarily due to a combination of natural production
declines and the shut-in of a well in Moftinu. Romania's production volumes
decreased by 700 boe/d (65%) to 379 boe/d (2021 - 1,078 boe/d) while
production in Tunisia declined slightly by 59 boe/d (10%) to 511 boe/d
following the expiry of the licence at Ech Chouech, offsetting stronger
production at the Sabria and Chouech Es Saida concessions.
Oil and Gas Revenue
($000)
Year ended 31 December 2022 Tunisia Romania Group %
Oil revenue 15,854 - 15,854 31%
Gas revenue 1,576 31,793 33,369 68%
Condensate revenue - 57 57 1%
Total revenue 17,430 31,850 49,280 100%
Year ended 31 December 2021
Oil revenue 10,984 - 10,984 27%
Gas revenue 1,993 26,809 28,802 72%
Condensate revenue - 198 198 1%
Total revenue 12,977 27,007 39,984 100%
Realised Price
Year ended 31 December 2022 Tunisia Romania Group
Oil ($/bbl) 94.39 - 94.39
Gas ($/Mcf) 11.24 38.48 34.52
Condensate ($/bbl) - 81.33 81.33
Average realised price ($/boe) 91.10 230.15 149.45
Year ended 31 December 2021
Oil ($/bbl) 65.19 - 65.19
Gas ($/Mcf) 9.18 11.45 11.25
Condensate ($/bbl) - 59.75 59.75
Average realised price ($/boe) 63.40 68.61 66.82
Revenue during the year increased to $49.3 million (2021 - $40.0 million) as
the Group saw the average realised price increase by $82.64/boe (124%) to
$149.45/boe (2021 - $66.82/boe).
The Group's average realised oil price increased by $29.20/bbl (45%) to
$94.39/bbl (2021 - $65.19/bbl), and average realised natural gas prices
increased by $23.28/Mcf (207%) to $34.53/Mcf (2021 - $11.25/Mcf).
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 periodic liftings. In 2022, the
Group completed three liftings (2021 - four liftings).
Royalties
Year ended 31 December
($000) 2022 2021
Tunisia 2,182 1,715
Romania 1,132 1,605
Total 3,314 3,320
Total ($/boe) 9.38 5.55
Tunisia oil royalty (% of oil revenue) 12.9% 13.2%
Romania gas royalty (% of gas revenue) 3.6% 6.0%
Total (% of revenue) 6.7% 8.3%
Royalties were flat for the full year at $3.3 million (2021 - $3.3 million)
while the Group's average royalty rate decreased to 6.7% (2021 - 8.3%). The
Romanian royalty rate was lower for the year primarily as a result of the
statutory royalty rate decreasing to 3.5% due to lower production. The
royalty is calculated using a reference price that is set by the Romanian
authorities and not the realised price to the Company. Romanian royalty
rates vary based on the level of production during a quarter. Natural gas
royalty rates range from 3.5% to 13.0% and condensate royalty rates from 3.5%
to 13.5%.
In 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 2022, the royalty rate remained unchanged in
Sabria at 10% for oil and 8% for gas. Chouech and Ech Chouech royalty rates
were flat at 15% for both oil and gas.
Production Expenses
Year ended 31 December
($000) 2022 2021
Tunisia 4,851 5,174
Romania 5,591 4,758
Canada 49 44
Group 10,491 9,976
Tunisia production expense ($/boe) 25.35 25.26
Romania production expense ($/boe) 40.40 12.09
Total production expense ($/boe) 31.82 16.67
During the year production expenses increased by $0.5 million (5%) to $10.5
million (2021 - $10.0 million). Per unit production expenses increased by
$15.15/boe (91%) to $31.82 (2021 - $16.67).
Tunisia's production expenses decreased from the prior year to $4.9 million
(2021 - $5.2 million) but increased on a per unit production basis to
$25.35/boe (2021 - $25.26/boe). Romania's overall operating costs increased
by $0.9 million (18%) to $5.6 million (2021 - $4.7 million), with per unit
production expenses increasing by $28.31/boe (235%) to $40.40/boe (2021 -
$12.09/boe) due to lower production and the overall increase in production
expenses primarily as a result of higher water disposal costs and the impact
of inflation in Romania.
Canada production expenses relate to the Sturgeon Lake assets, which are not
producing and are incurring minimal operating costs to maintain the property.
Operating Netback
Serinus uses operating netback as a key performance indicator to assist
management in understanding Serinus' profitability relative to current market
conditions and as an analytical tool to benchmark changes in operational
performance against prior periods. Operating netback consists of petroleum
and natural gas revenues less direct costs consisting of royalties and
production expenses. Netback is not a standard measure under IFRS and
therefore may not be comparable to similar measures reported by other
entities.
Year ended 31 December 2022
($/boe) Tunisia Romania Group
Sales volume (boe/d) 524 378 903
Realised price 91.10 230.15 149.46
Royalties (11.41) (8.18) (10.05)
Production expense (25.35) (40.40) (31.82)
Operating netback 54.34 181.57 107.59
Year ended 31 December 2021
($/boe) Tunisia Romania Group
Sales volume (boe/d) 561 1,078 1,639
Realised price 63.40 68.61 66.82
Royalties (8.37) (4.08) (5.55)
Production expense (25.26) (12.09) (16.67)
Operating netback 29.77 52.44 44.60
The Group operating netback increased by $62.99/boe (141%) to $107.59/boe
(2021 - $44.60/boe). The increase is due to higher realised prices through
the period, partially offset by higher production expenses.
The Company also generated a gross profit of $12.9 million (2021 -$7.2
million), largely due to a significant increase in the Company's netbacks as
well as a decrease to depletion as described below.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION and AMORTISATION ("EBITDA")
Serinus uses EBITDA as a key performance indicator to assist management in
understanding Serinus' cash profitability. EBITDA is computed as net
profit/loss and adding back interest, taxation, depletion and depreciation,
and amortisation expense and in 2022 includes an impairment expense of $1.9
million. EBITDA is not a standard measure under IFRS and therefore may not
be comparable to similar measures reported by other entities. During the 12
months ended 31 December 2022, the Group's EBITDA increased by $0.4 million to
$12.7 million (2021 - $12.3 million).
Windfall Tax
Year ended 31 December
($000) 2022 2021
Windfall tax 16,014 9,432
Windfall tax ($/Mcf - Romania gas) 19.38 3.99
Windfall tax ($/boe - Romania gas) 116.30 23.96
During 2022, the Group incurred windfall taxes in Romania of $16.0 million
(2021 - $9.4 million), an increase of $6.6 million (70%). This increase is
directly related to higher realised gas prices which increased from an average
realised price of $11.45/Mcf in 2021 to $38.48/Mcf in 2022.
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
below the 85.00 RON/Mwh threshold.
Depletion and Depreciation
Year ended 31 December
($000) 2022 2021
Tunisia 2,783 3,256
Romania 3,623 6,650
Corporate 158 149
Total 6,564 10,055
Tunisia ($/boe) 14.54 15.89
Romania ($/boe) 26.19 16.89
Total ($/boe) 19.91 16.80
Depletion and depreciation expense decreased by $3.4 million (35%) to $6.6
million (2021 - $10.1 million), being a per unit increase of $3.11/boe (19%)
to $19.91/boe (2021 - $16.80/boe). The decrease in expense is primarily due
to a lower depletable base on the Group's assets and lower production during
the year.
General and Administrative ("G&A") Expense
Year ended 31 December
($000) 2022 2021
G&A expense 5,300 4,479
G&A expense ($/boe) 16.07 7.47
G&A costs increased during the year by $0.8 million (18%) to $5.3 million
(2021 - $4.5 million), being an increase of $8.60/boe (115%) to $16.07/boe
(2021 - $7.47/boe) due to lower production, with the increase in costs
attributable to higher compliance expenses, inflation and the impact of
foreign exchange rates in the current year.
Share-Based Payment
Year ended 31 December
($000) 2022 2021
Share-based payment 70 213
Share-based payment ($/boe) 0.20 0.36
Share-based compensation decreased by $0.1 million (67%) to $0.1 million (2021
- $0.2 million). This decrease is due to 5,000 share options being granted
in the current year (2021 - 0.2 million).
Net Finance Expense
Year ended 31 December
($000) 2022 2021
Interest on leases 33 53
Accretion on decommissioning provision 1,143 377
Foreign exchange and other 461 14
1,637 444
Net finance expense for 2022 increased by $1.2 million (246%) to $1.6 million
(2021 - $0.4 million). Accretion on decommissioning provision increased by
$0.8 million due to increases in decommissioning obligations in the year.
Release of provision
Year ended 31 December 2022 2021
Release of provision 1,639 6,636
In 2022, the Company reversed a provision of $1.6 million related to historic
decommissioning liabilities which have expired due to the passage of statute
of limitations.
The release of provision in 2021 was the reversal of a provision of $6.6
million related to an exploration penalty due to the passage of statute of
limitations.
Impairment
At 31 December 2022, the Company completed an impairment assessment to
determine if there were any indicators of impairment or impairment reversals.
In Tunisia, there were no indicators of impairment or impairment reversals
identified at Sabria or South Tunisia. The Company had applied to extend the
Ech Chouech licence but this expired in June 2022. The Company intends to
continue its application to regain the licence once the licence application
process is formalised. No indication has been received that they will not be
successful once the process to re-apply becomes available and as such has made
the judgement that it will be able to regain the Ech Chouech licence and
therefore no impairment has been charged to this asset. In Moftinu, the
Company determined that there was an indicator of impairment and recorded an
impairment expense of $1.9 million.
At 31 December 2021, the Company completed an impairment assessment on its PP&E to determine if there were any indicators of impairment or impairment reversals. In South Tunisia and Sabria, no indicators of impairment or impairment reversals were identified. In Moftinu, the Company determined that there was an indicator of impairment and an impairment test was conducted on the Moftinu cash generating unit. No impairment was recorded following the completion of an impairment test.Taxation
During the year ended 31 December 2022 income tax expense was $3.1 million (31
December 2021 - $0.4 million). The change in income tax expense is due to
the recovery of tax basis in Tunisia during the year.
Solidarity tax
On 29 December 2022, the Government of Romania published Emergency Ordinance
no.186/2022 detailing measures to implement Council Regulation (EU) 2022/1854
regarding the emergency intervention to introduce a solidarity contribution
for companies that carry out activities in the oil, natural gas, coal and
refinery sectors. This additional tax in Romania is calculated at a rate of
60% applied to the company's annual profit, in excess of 20% of its average
profits for the financial years 2018-2021. The solidarity tax will apply for
the financial years 2022 and 2023.
The Company does not believe that the solidarity tax is applicable to it and
has received legal advice to support that position and will challenge the
legality of this additional tax. If the Company were to consider the tax
applicable the amount due is estimated to be approximately $741,000. However
the Company has made the judgement that the solidarity tax is not applicable
and therefore has made no provision in respect of this tax within the
financial statements. It should be noted that the amount due falls below
materiality.
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 5% from 0.229 to 0.217 USD:RON. The revaluation of the balance
sheet to the year-end rate resulted in a $2.0 million loss through other
comprehensive income.
Going Concern
The Directors have considered the going concern of the Group and are satisfied
that the Group has sufficient resources to operate and to meet its commitments
in the normal course of business for not less than 12 months from the date of
these consolidated financial statements. On that basis, the Directors
consider it appropriate to prepare the consolidated financial statements on a
going concern basis.
As at 28 February 2023, the Group had cash balances of $2.8 million.
Andrew Fairclough, Chief Financial Officer
17 March 2023
Review of Operations
Romania
· Satu Mare Block - 2,949 km(2) of onshore land.
· Located within the Pannonian 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% working interest which is owned and
operated through the wholly owned subsidiary Serinus Energy Romania S.A. The
Company has completed all of its commitments under the third exploration phase
of the Satu Mare Concession Agreement, and in October 2021, received an
additional two-year evaluation phase on the Satu Mare Concession until 27
October 2023. The Company is in routine conversations with the National
Agency for Mineral Resources ("NAMR") regarding the further extension of this
concession. The greater Moftinu gas field area has been declared a
commercial operation and is exempt from this routine licence extension
procedure.
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 100% working interest in the concession as its
partner has defaulted on its obligations under the Joint Operating Agreement.
The Company filed a Request for Arbitration with the Secretariat of the
International Court of Arbitration of the International Chamber of Commerce
("ICC") 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. Following the year end, Serinus
announced that it had received confirmation from the ICC that as a result of
its partners' default under the Joint Operating Agreement, the defaulted
partners' 40% participating interest in the Satu Mare concession will be
transferred to Serinus Romania, directing the defaulted partner to take all
necessary actions to formally transfer the 40% participating interest to
Serinus.
· 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 Exploration Phase
3.
· The Phase 3 work program included 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 Moftinu-1007 (a re-drill of Moftinu-1001) and
Moftinu-1003 (1,600m).
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 Moftinu-1008 well was drilled in February 2021 and will qualify as
the 1,000m commitment well and the Sancrai well was drilled in the second half
of 2021 which qualified as the 1,600m well.
· The Company has completed all of its commitments under the third
exploration phase of the Satu Mare Concession Agreement, and in October 2021,
received an additional two-year evaluation phase on the Satu Mare Concession
until 27 October 2023. The Company has agreed to the following work
commitments over the term of this evaluation phase:
o Phase 1: From 28 October 2021 to 27 October 2022, the Company is required
to reprocess 160.9 km 2D seismic in the Madaras area at an estimated cost of
$100,000; and
o Phase 2: From 28 October 2022 to 27 October 2023, the Company is required
to reprocess 30.1 km 2D seismic in the Santau-Nusfalau area at an estimated
cost of $50,000.
· The Phase 1 work commitment was completed in 2022 and Phase 2 is expected
to be completed early in 2023.
· The Company is in routine conversations with the National Agency for
Mineral Resources ("NAMR") regarding the further extension of this concession
and will apply for a further appraisal period during 2023. The greater
Moftinu gas field area has been declared a commercial field and is exempt from
this routine licence extension procedure.
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-kilometre 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 MMcf/d and can
accommodate up to six flowlines. During 2022, production was predominantly
comprised from three wells (Moftinu-1004, Moftinu-1007, and Moftinu-1008) and
averaged 2.3 MMcf/day (2021 - 6.4 MMcf/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 drilled two wells in 2022, the Canar-1 and Moftinu Nord-1 exploration
wells.
Subsequent to the year-end, the Company has concluded a block-wide review of
the regional geology with RISC consultants which will form the basis for
further exploration of the many plays that exist on the block.
Tunisia
The Group currently holds two Tunisia concessions, each of which currently
produces oil and gas (Sabria and Chouech Es Saida). 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.
License Serinus Working Interest Approximate Gross Expiry
Area (acres)
Sabria 45% (ETAP 55%) 26,196 November 2028
Chouech Es Saida 100% 42,526 December 2027
Ech Chouech 100% 35,139 Expired June 2022
Sanrhar 100% 36,879 Relinquished 2021
Zinnia 100% 17,471 Relinquished 2021
The Ech Chouech licence expired in June 2022 and the Company previously held
the non-producing Zinnia and Sanrhar concessions which were relinquished in
2021. The Company had applied to extend the Ech Chouech licence but this
expired in June 2022. The Company intends to continue its application to
regain the licence once the licence application process is formalised.
Sabria
· Produced over 7.0 million boe (gross) to date.
· 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 received delivery of the first artificial lift pump for
the W-1 well in the Sabria field. The Company initiated workover operations
in the W-1 well in December 2022 to complete the workover and pump
installation. Plans for additional pumps in the Sabria field are being
progressed.
Chouech Es Saida
· Produced over 3.9 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 Company conducted workover operations in the Chouech Es Saida wells
in 2022 to replace and standardise pumps in order to increase production and
efficiency.
Reserves
Company NET 1P & 2P Reserves - Using Forecast Prices
2022 2021
Oil & Liquids Gas Boe Oil & Liquids Gas Boe Change
(Mbbl) (MMcf) (Mboe) (Mbbl) (MMcf) (Mboe)
Tunisia
Proved (1P) 2,310 4,640 3,083 2,840 5,670 3,785 (19%)
Probable 2,630 6,290 3,678 2,810 7,030 3,982 (8%)
Proved & Probable (2P) 4,940 10,930 6,762 5,650 12,700 7,767 (13%)
Romania
Proved (1P) 0.4 1,640 274 4 3,110 522 (48%)
Probable 0.3 1,060 177 6 1,990 338 (48%)
Proved & Probable (2P) 0.7 2,700 451 10 5,100 860 (48%)
Group
Proved (1P) 2,310 6,280 3,357 2,844 8,780 4,307 (22%)
Probable 2,630 7,350 3,855 2,816 9,020 4,320 (11%)
Proved & Probable (2P) 4,941 13,630 7,212 5,660 17,800 8,627 (16%)
The downward revision in Group reserves was attributable to 2022 production,
the expiry of the Ech Chouech licence and a reduction in reserve volumes in
Romania. Given that the Ech Chouech licence had expired in June 2022, the
Group reserves for the year ended 31 December 2022 do not include reserves
attributed to Ech Chouech. The Company had applied to extend the Ech Chouech
licence but this expired and the Company intends to continue its application
to regain the licence once the licence application process is formalised. No
indication has been received that its application would not be successful once
the process to re-apply becomes available and as such has made the judgement
that it will be able to regain the Ech Chouech licence and therefore no
impairment has been charged to this asset. For the year ended 31 December
2021, the Gaffney Cline third party reserves report attributed 253Mboe of 2P
Reserves to Ech Chouech.
Net Present Value of Future Net Revenues - After Tax, Using Forecast Pricing
2022 2021
Discount rates PV 10%
(US$ millions) 0% 10% 15% 0% 10% 15% Change
Tunisia
Proved (1P) 52.6 30.3 23.5 44.2 29.0 23.9 4%
Probable 93.7 48.7 39.4 80.0 42.1 33.3 16%
Proved & Probable (2P) 146.3 79.0 62.9 124.2 71.1 57.2 11%
Romania
Proved (1P) 0.9 1.5 1.7 10.3 10.2 10.0 (85%)
Probable 5.5 4.9 4.6 9.0 7.9 7.5 (38%)
Proved & Probable (2P) 6.4 6.4 6.3 19.3 18.1 17.5 (65%)
Group
Proved (1P) 53.5 31.8 25.2 54.5 39.2 33.9 (19%)
Probable 99.2 53.6 43.9 89.0 50.0 40.8 7%
Proved & Probable (2P) 152.7 85.4 69.1 143.5 89.2 74.7 (4%)
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
2022 2021
Oil & Liquids Gas Boe Oil & Liquids Gas Boe Change
(Mbbl) (MMcf) (Mboe) (Mbbl) (MMcf) (Mboe)
Tunisia
1C Contingent Resources 400 1,000 567 400 1,000 567 0%
2C Contingent Resources 1,000 2,900 1,483 1,000 2,900 1,483 0%
3C Contingent Resources 1,900 5,300 2,783 1,900 5,300 2,783 0%
Romania
1C Contingent Resources - 2,500 417 - 2,500 417 0%
2C Contingent Resources - 4,300 717 - 4,300 717 0%
3C Contingent Resources - 7,000 1,167 - 7,000 1,167 0%
Group
1C Contingent Resources 400 3,500 984 400 3,500 984 0%
2C Contingent Resources 1,000 7,200 2,200 1,000 7,200 2,200 0%
3C Contingent Resources 1,900 12,300 3,950 1,900 12,300 3,950 0%
Price Forecasts
The commodity price forecast used in preparing the evaluation of the 2022
reserves and resources is as follows:
Brent Sabria Gas Chouech Gas Romania Gas
Year (US$/bbl) (US$/Mcf) (US$/Mcf) (US$/Mcf)
2023 83.83 10.48 9.22 24.28
2024 78.99 9.87 8.69 23.59
2025 80.00 10.00 8.80 19.03
2026 1 81.60 10.20 8.98 13.00
Environmental, Social and Governance
Serinus is an oil and gas exploration, development and production company
whose strategic purpose is to develop and produce hydrocarbon 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 influence in the
regions in which we operate 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
adhering to the highest operating standards and financial discipline. We
carry out our operations in full compliance with relevant regulations and
comply with all safety and environmental requirements and aim to conduct our
business in an environmentally responsible manner. The Group has 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 reviews the policies and metrics under which we operate and
measure ourselves and also evaluates the environmental framework being adopted
and recommended, such as that of the Taskforce on Climate-Related Financial
Disclosure ("TCFD"), in order to determine how we may best comply with these
evolving disclosures.
Whilst the TCFD is currently voluntary for smaller companies, we are applying
governance, risk management and strategy processes to manage climate-related
financial risks and develop this within our ESG strategy and integrate 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 the
Board level, through our ESG Committee, how this may be incorporated into our
ESG reporting in an appropriate and relevant manner in the future.
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 two
Tunisian concessions are located in the 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 has continued to present an excellent HSE track record
through 2022, with a zero-frequency rate (per one million man hours worked)
for Total Recordable Injuries across all sites (2021 - zero for Serinus
Romania employees) and in February 2023, the Moftinu Gas Plant reached 1,385
accident-free days of continuous operation. 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 completed its annual certification inspection and is
certified for ISO 14001:2015 (Environmental Management Systems), ISO 9001:2015
(Quality Management) and ISO 45001:2018 (Occupational Health and Safety).
Romanian operations currently produce gas through the Moftinu Gas Plant which
was brought onstream in April 2019 and is currently supplied by two producing
gas wells. In 2022, Serinus Energy Romania completed the acquisition of
100km of seismic in the area of Ghenci-Moftinu Nord-Domanesti and drilled two
exploration wells, Canar-1, to a depth of 1,570m and Moftinu Nord-1, to a
depth of 1,000m. Well logging and gas show readings for both wells indicted
gas in the zones of interest, but not in sufficient quantities to justify
proceeding with the testing and completion programme on either well, and were
suspended. The Canar-1 has subsequently completed testing and re-purposing
as a water injection well for produced water from the Moftinu gas field.
Pumps for water injection have been configured to use solar power further
reducing the environmental footprint of our operations. In addition to the
water injection being powered by renewable solar power the use of a near field
water injection facility has obviated the requirement to transport produced
water approximately 300km to the nearest water injection well, eliminating the
bulk of the transport footprint and generating significant cost savings. The
Moftinu Nord-1 well is currently suspended and it is intended to evaluate its
suitability for water injection in the future.
The process to plan and permit the 2D seismic programme and drilling of the
two exploration wells involved extensive engagement with a wide range of
stakeholders from local landowners, regional agencies and national regulators.
The 2D seismic acquisition programme necessitated the company to conclude
landowner agreements with over 500 local landowners and obtain over 15 local
and national permits in order to begin operations. In order to commence
drilling operations for Canar-1 and Moftinu Nord-1, the process included
gaining permission from each local landowner impacted by each 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 2022 (no
incidents in 2021).
During 2022, energy use from grid electricity at the Moftinu Gas Plant was 317
MWh, 0.12% of the annual production of 267,582 MWh, compared with 314 MWh in
2021, which was 0.04% of that year's annual production of 749,980 MWh. Nine
solar panels have been installed at the Moftinu gas plant which generated
27.44kWh of energy in 2022, offsetting the equivalent of 9,007kg of CO(2)
emissions. Serinus Energy Romania continues to assess opportunities to
expand its utilisation of solar power on its available sites.
In 2022, 24,069 MMcf of gas was flared from the three wells in production,
including gas utilisation by the two compressors, during the year, being 2.8%
of annual production, and equivalent to flared gas of 2,006 MMcf per month.
19,341 m(3) of produced water was generated from the three wells in 2022,
compared with 3,292 m(3) of produced water from four wells during 2021.
Flue gas emissions tests are performed annually, in accordance with the
requirements specified in the environmental permit. The most recent test was
undertaken in April 2022 which monitored an average CO(2) emission level of
2.08% of total flue gas, below the benchmark CO(2) threshold of 3.0%.
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 April 2022. 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 2,644 potential
emission sources, of which 26 were not accessible (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
2,618 were accessible.
Of the 2,618 accessible potential emission sources identified, there were only
13 registered leaks, being 0.5% of accessible sources and resulted in an
emission loss of 1,506 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 1,489 kg/year. The report concluded that a
successful repair of the leak above Repair Definition could reduce the
emission loss by 1,489 kg/year, equating to 92.25% of the total emission.
The leak has been repaired.
Tunisia
Serinus Tunisia maintained a strong HSE track record through 2022, with a
zero-frequency rate (per one million man hours worked) for Total Recordable
Injuries across all sites (2021 - zero for Serinus Tunisia employees). There
were no environmental incidents at Sabria and five minor incidents at Chouech
Es Saida 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 2022 was submitted to the Agence Nationale de Protection de
l'Environnement ("ANPE") in January 2023.
During 2022, the annual environmental monitoring was undertaken by Le Centre
Mediterraneen d'Analyses ("CMA") at the Sabria and Chouech Es Saida fields,
assessing: air emissions from stacks at both fields; air quality monitoring;
groundwater monitoring; produced water; fresh water; soil sampling and noise
pollution. The environmental monitoring programme for remote locations is
reviewed by local management and implemented at all sites.
Stack air emission analysis and air quality monitoring was conducted at Sabria
and Oum Chiah in October 2022. Analysis of the results demonstrated that the
Company was in compliance with approved thresholds of groundwater and soil
contaminants and required solid waste management. The Company's own review
of air emissions showed compliance in all areas, 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, except for carbon monoxide ("CO") emissions
from older fixed equipment. The Company has investigated mitigation measures
and a short and medium-term action plan with an enhanced preventative
maintenance programme has been implemented to address this, including the
refurbishment and overhaul of affected equipment. 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 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,
49,129m(3) of produced water was disposed of in 2022 (2021 - 45,598m(3)) and
at Chouech Es Saida 225,283m(3) of produced water was evaporated from lined
surface pits in 2022 (2021 - 193,400m(3)). The Company is investigating
alternative environmentally-responsible produced water disposal solutions.
A review of environmental management at the Sabria fields was conducted by
First North African Consultancy for the Environment ("FNAC"
www.fnac-environment.com), an engineering consultancy, in September 2020.
This was designed to review compliance at Sabria with Tunisian environmental
regulations and analyse underground water and soil pollution in proximity to
the water disposal project. The scope of this work included: the recovery,
analysis and assessment of environmental and technical documents and reports
related to the evaporation ponds; the analysis of all previous waste pit
treatment operations and related reports; analysis of existing red register
(hazardous waste) and blue register (domestic waste); coring and sampling
investigations of the potential impacted areas (soil and underground water)
within the Sabria field; water sampling and laboratory analysis from existing
piezometers and production water discharge; and the performance of 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. Subsequent
to this review, recommendations from the report have been, and continue to be,
implemented. The Company began air emissions monitoring at Sabria and
Chouech in August 2015 and continues to do so.
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, 822 kg of paper
and plastic bottles were recycled in the Tunis office in 2021, which increased
to 1,164 kg of paper and plastic bottles being recycled in 2022, as a result
of training and greater awareness of wastage. Electricity consumption at the
Tunis office in 2022 returned to more equivalent pre-COVID-19 levels of 93,920
kWh, as personnel returned to work in the office. At Sabria electricity
consumption decreased 5% to 679,902 kWh (2021 - 717,836 kWh). Chouech is not
connected to the electricity grid and power at Chouech is provided by on site
gas generators. Fresh water consumption in 2022 at Sabria was 16,290m(3)
(2021 - 14,949m(3)) and at Chouech, 41,440m(3) (2021 - 65,558 m(3)). Diesel
consumption across all operational locations was 153m(3) a 4% decrease over
2021 (160 m(3)) but remains a significant reduction from 2019 (305 m(3))
reinforced by 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 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
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 routinely 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. In Romania,
personnel at both the head office and on-site at the Moftinu gas plant receive
monthly HSSE training for both local regulatory requirements and corporate
policies.
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 2022, a total of 52 HSSE training
drills and asset protection drills took place in Tunisia and 336 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
2022 (2021 - 25) 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 no accidents since commencing
production in 2019. There had been 1,347 days without accidents as at 31
December 2022. In Tunisia, there were 2,583 days with no accidents as at 31
December 2022. In 2022, 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 2022 was dominated by measures
implemented to protect its workforce from COVID-19 which included amended
shift patterns and working from home schedules as required by local
regulations, 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. While much of the widespread impact of COVID-19 has abated, the
Company remains alert to any potential resurgence and maintains its ability to
re-introduce the measures previously, and successfully, adopted to protect its
workforce.
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 30% 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 UK
Modern Slavery Act 2015. We expect the same high standards from all 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 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 slavery in accordance with our Whistleblowing policy.
Serinus Tunisia developed its CSR program in conjunction 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 centre for women in Kébili.
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 "QCA Code") and set out a summary of how we comply with
it within 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 63 out of 180 countries in the
2022 CPI. Tunisia is ranked number 85 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, changes in the taxation environment 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, taxes 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.
· Follows strict tendering protocols, physical inspection of all
contractor fabrication facilities and extensive financial due diligence of
counterparties is designed to minimise 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.
· Maintain a public listing of its equity on the Alternative
Investment Market of the London Stock Exchange in order to access capital, if
required.
· The Company is currently debt-free, with a low operating cost base and
has continued to generate positive cashflows during 2022.
· 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:
· The Company's production in Romania is 100% 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.
Board of Directors and Management Team
Board of Directors
Lukasz Rędziniak
Chairman, Non-Independent Director, Chair of Remuneration Committee, Chair of
the Nomination Committee, Board Member
Appointed March 2016
Mr. Rędziniak 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, Płeszka,
Ćwiąkalski, 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 Dębica 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..
Jim Causgrove
Independent Director, Chair of the Reserves Committee, Member of the Audit
Committee, Member of the Remuneration Committee, Member of the Environmental,
Social, & Governance 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.
Natalie Fortescue
Independent Director, Chair of the Environmental, Social, & Governance
Committee, Member of the Audit Committee, Member of the Reserves Committee
Appointed March 2021
Ms. Fortescue has extensive capital markets and investor relations experience,
including in the international oil and gas sector. She has spent over 20
years working in and advising companies on corporate finance transactions,
fundraisings, strategy, debt refinancing and restructurings, investor
relations and the impact of corporate transactions on stakeholders. After
qualifying as a Chartered Accountant, Natalie had a long investment banking
career at both Investec Investment Bank and Oriel Securities Limited. On
leaving the City Natalie joined Genel Energy PLC to establish and lead an
Investor Relations function and in recent years has worked with Premier Oil
Plc on a number of capital markets transactions and debt refinancing,
including the recent merger with Chrysaor Energy Limited. Current
directorships/partnerships: FUTH Consulting Limited, Clean Power Hydrogen plc.
Ms. Fortescue has an undergraduate degree in Accounting and Finance from
Kingston University.
Jonathan Kempster
Independent Director, Chair of the Audit Committee, Member of the Remuneration
Committee
Appointed March 2021
Mr. Kempster has held CFO board positions at Delta plc, Fii Group plc, Frasers
Group plc, Linden plc, Low & Bonar plc, Utilitywise plc and Wincanton plc.
Mr. Kempster is a Non-Executive Director and Audit Committee Chair of DX
(Group) plc and Bonhill Group plc and a Non-Executive Director at FireAngel
Safety Technology plc and a Trustee of the Delta plc pension scheme.
Mr. Kempster qualified as a Chartered Accountant with Price Waterhouse in 1990
and has a BA (Hons) in Business Studies from the University of Liverpool.
Jeffrey Auld
Chief Executive Officer, 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 Merrill 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
Stuart Morrison
Chief Operating Officer, Serinus Energy plc
Mr. Morrison has over 35 years of oil and gas industry operational experience
in numerous senior management roles. Early in his career he worked as a
Petroleum and Reservoir Engineer with BP Research, British Gas, Sun Oil and
Oryx Energy UK prior to joining Premier Oil in 1997. At Premier, Mr.
Morrison assumed a variety of technical and management positions such as Chief
Petroleum Engineer, Business Development Manager and Exploration Manager in
corporate roles and business units such as the Middle East and Falkland
Islands.
Mr. Morrison has a Masters Degree in Petroleum Engineering and a Bachelor's
Degree in Chemical Engineering, both from Heriot-Watt University (Edinburgh).
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 Degree in Economics from the University of Waterloo
and a Bachelor's 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.
Corporate Governance 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/
(http://serinusenergy.com/shareholder-information/)
As an issuer listed on the Warsaw Stock Exchange, Poland ("WSE"), the Company
was subject to, 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/best-practice)
https://www.gpw.pl/pub/GPW/o-nas/DPSN2016_EN.pdf
(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 and 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:
· Presenting quarterly results presentations online
· Investor roadshows
· Participating in online interviews
· Attending investor conferences
· Hosting capital markets days
· Timely disclosure of material information
· Regular reporting
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, independent Chairman, two Executive
Directors and three non-executive independent Directors. 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 2022 was as
follows:
Director Board Audit Remuneration Committee Environmental Social & Governance Committee Reserves Committee
Committee
Total Meetings 4 4 6 2 1
Lukasz Redziniak 4 1 6 2 -
Jeffrey Auld 3 3 1 2 1
Andrew Fairclough 4 4 - 2 1
Jim Causgrove 4 4 6 2 1
Natalie Fortescue 4 4 1 2 1
Jon Kempster 4 4 6 1 -
Key Board activities this year included:
· 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 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 and 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 2022 was 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, Natalie
Fortescue, 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 fulfil 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 2022, the Board met
for its four scheduled meetings.
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
(http://serinusenergy.com/shareholder-information) .
The Board is supported by the audit, remuneration, ESG 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 ESG Committee ensures the Company maintains the highest
standards in environmental, social, and governance. The Committee is
responsible for the composition of the Board of Directors and that the Board
maintains proper levels of governance suitable to the size and activities 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 (http://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
· Jim Causgrove
· Jon Kempster
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 incentivise 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.
2022 Activity
The Committee met six times throughout the year (2021 - two times).
Executive Directors' Remuneration
Compensation for the executive Directors is shown in US dollars in the table
below.
Director Salaries Benefits 2022 Total 2021 Total
Jeffrey Auld 423,626 55,036 478,662 543,411
Andrew Fairclough 302,590 39,115 341,705 387,129
726,216 94,151 820,367 930,540
The 2022 compensation package above for the executive Directors included
salaries and benefits, and are short-term in nature.
Executive Directors' Share Capital
The following tables outline the share options outstanding and shares owned as
at 31 December 2022 for the executive Directors. There have been no changes
between 31 December 2022 and17 March 2023.
Director Share Options LTIP Awards Shares
Jeffrey Auld 2,580,000 1,656,355 488,875
Andrew Fairclough 175,000 903,631 108,053
2,755,000 2,559,986 596,928
Stock Options
Director Grant date Strike Price Share Options
Jeffrey Auld 22 Dec 2020 £0.20 1,880,000
Jeffrey Auld 27 May 2019 £0.20 100,000
Jeffrey Auld 03 Dec 2018 £0.20 250,000
Jeffrey Auld 22 Sep 2016 £0.20 350,000
Andrew Fairclough 02 Apr 2020 £0.20 175,000
2,755,000
LTIP Awards
Director Grant date LTIP Awards
Jeffrey Auld 29 Apr 2022 356,355
Jeffrey Auld 24 Dec 2020 1,300,000
Andrew Fairclough 29 Apr 2022 203,631
Andrew Fairclough 24 Dec 2020 700,000
2,559,986
Non-executive Directors' Remuneration
Non-executive Director's receive a £30,000 annual fee, with each Chair
receiving an additional £10,000 fee.
Director Fees Share Options 2022 Total 2021 Total
Lukasz Redziniak 60,518 - 60,518 68,833
Jim Causgrove 48,414 - 48,414 55,066
Natalie Fortescue 48,414 - 48,414 41,300
Jon Kempster 48,414 - 48,414 37,858
205,760 - 205,760 203,057
Non-executive Directors' Share Capital
The following tables outline the share options outstanding and shares owned as
at 31 December 2022 for the non- executive Directors. There have been no
changes between 31 December 2022 and17 March 2023.
Director Options held at Shares held at
31 December 2022 31 December 2022
Lukasz Redziniak - 72,000
Jim Causgrove - 40,000
Jon Kempster - 60,261
- 172,261
Lukasz Redziniak, Chairman of the Remuneration Committee
17 March 2023
Audit Committee Report
This report addresses the responsibilities, the membership and the activities
of the Audit Committee in 2022 up to the approval of the 2022 Annual Report
and 2022 year-end Financial Statements.
Membership
· Jon Kempster - Chairman
· Jim Causgrove
· Natalie Fortescue
Responsibilities
The main responsibilities of the Audit Committee are the following:
· Monitor the integrity of the annual and interim financial
statements.
· 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.
2022 Activity
The Committee met four times throughout the year (2021 - four times).
The Committee, together with the CFO, is responsible for the relationship with
the external auditor. PKF Littlejohn LLP is the Group's auditor.
For the 2022 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 Report from the CFO within this Annual Report or
Note 2 of the Financial Statements).
4. Cash flow forecasts.
Internal Controls and Risk Management, Whistleblowing and Fraud
The Committee is vigilant regarding internal financial controls and risk
management. During 2022, the Committee has undertaken anti-bribery and
anti-corruption exercises and has reviewed whistle blowing arrangements.
Jon Kempster, Chairman of the Audit Committee
17 March 2023
Report of the Directors
The Directors' present their report, together with the audited consolidated
financial statements of Group for the year ended 31 December 2022.
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 11.66%
Crux Asset Management 8.46%
Quercus TFI SA 7.30%
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
within this Annual Report.
The Directors do not recommend payment of a dividend in respect of these
financial statements (2021 - $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 United
Kingdom. The directors have elected to prepare accounts under IFRS as
adopted by the United Kingdom for all purposes except for the financial
statements for the purposes of the Warsaw Stock Exchange filing which are
prepared under European Union ("EU") endorsed IFRS.
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 United Kingdom, 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 (note 2).
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 they ought to have undertaken as a Director in order to make themselves
aware of any relevant audit information and to establish that the Group's
auditor is aware of that information.
Auditors
PKF Littlejohn LLP has indicated its willingness to continue in office, and a
resolution that they are appointed will be proposed at the next annual general
meeting.
On behalf of the Board
Jeffrey Auld, Chief Executive Officer
17 March 2023
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF SERINUS ENERGY PLC
Opinion
We have audited the financial statements of Serinus Energy plc (the 'Group')
for the year ended 31 December 2022 which comprise the Consolidated Statement
of Comprehensive Income, the Consolidated Statement of Financial Position, the
Consolidated Statement of Changes in Equity, the Consolidated Statement of
Cash Flows and notes to the financial statements, including significant
accounting policies. The financial reporting framework that has been applied
in their preparation is applicable law and International Financial Reporting
Standards (IFRSs).
In our opinion, the Group financial statements:
· give a true and fair view of the state of the Group's affairs as at
31 December 2022 and of its loss for the year then ended;
· have been properly prepared in accordance with IFRS (UK) and
· have been prepared in accordance with the requirements of The
Companies (Jersey) Law 1991.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor's responsibilities for the
audit of the financial statements section of our report. We are independent of
the Group in accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the FRC's Ethical
Standard as applied to listed entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements. We believe
that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors'
use of the going concern basis of accounting in the preparation of the
financial statements is appropriate. Our evaluation of the directors'
assessment of the Group's ability to continue to adopt the going concern basis
of accounting included:
· Assessing and key cost and income streams included in the Group cash
flow forecast which has been prepared by the directors for a period of no less
than twelve months from the date of approval of these financial statements. We
reviewed management's sensitised versions of the cash flow forecast to assess
whether a downturn could lead to future concerns.
· Challenging and critiquing the directors' assumptions included in the
cash flow forecast and agreeing the inputs to evidence obtained during the
course of the audit and the understanding of the business obtained during the
course of the audit.
· We assessed management's price forecasts for oil and gas respectively to
obtain an understanding of the appropriateness of these price inputs.
· Reviewing and considering the adequacy of the disclosure within the
financial statements relating to the directors' assessment of the going
concern basis of preparation.
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Group's ability to continue as
a going concern for a period of at least twelve months from when the financial
statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to
going concern are described in the relevant sections of this report.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit,
and in evaluating the effect of misstatements. At the planning stage,
materiality is used to determine the financial statement areas that are
included within the scope of our audit and the extent of sample sizes during
the audit. No significant changes have come to light through the audit
fieldwork which has required a revision of our materiality figure.
We calculated Group materiality at 1% of gross assets which gives a figure of
$900,000. Gross assets were determined as an appropriate basis for materiality
because the principal focus of the Group remains on the development of its oil
and gas assets in Tunisia and Romania. The basis of materiality, as well as
the amount used was consistent with prior year.
Materiality for the significant components of the Group ranged from $400,000
to $600,000, based on 1% of gross assets for each component, consistent with
prior year.
Group performance materiality was set at $540,000, consistent with prior year.
We agreed to report to those charged with governance all corrected and
uncorrected misstatements we identified through our audit with a value in
excess of $45,000, which is unchanged from prior year. We also agreed to
report any other audit misstatements below that threshold that we believe
warranted reporting on qualitative grounds.
Our approach to the audit
In designing our audit, we determined materiality and assessed the risks of
material misstatement in the financial statements. In particular we looked at
areas involving significant accounting estimates and judgements by the
directors and considered future events that are inherently uncertain. These
included, but were not limited to the carrying value of both the production
assets and exploration & evaluation assets, and the completeness and
accuracy of the decommissioning provision. We also addressed the risk of
management override of internal controls, including among other matters
consideration of whether there was evidence of bias that represented a risk of
material misstatement due to fraud.
Our Group audit scope focused on the principal areas of operation, being
Romania and Tunisia. Each component was assessed as to whether they were
significant or not significant to the Group by either their size or risk. The
parent Company and two operating subsidiaries were considered to be
significant due to identified risk and size. We have performed the audit of
the parent Company that is registered in Jersey. The two key components are
located in Romania and Tunisia and have been subject to full scope audits by
component auditors. As Group auditors we maintained oversight and regular
contact with the component auditor throughout all stages of the audit and we
were responsible for the scope and direction of their work.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were
of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) we identified, including those
which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Key Audit Matter How our scope addressed this matter
Carrying value of development and production assets (see note 11)
The Group's total development and production assets are highly material and The audit team obtained a detailed understanding of the business of Serinus
are key to the Group's operations. Energy plc, to ensure that appropriate audit procedures were performed. As
part of the audit work performed, the audit team specifically:
Management are required to assess at the end of the reporting period as to
whether there are any indications of impairment in line with IAS 36. If such · Held meetings with management in order to be able to assess the
indicators are identified, the entity is required to estimate the recoverable operating activity and development of the assets undertaken during the year;
amount.
· Ensuring ownership of licences and that a commitment and ability
to reapply for any expired licences existed;
The assessments undertaken by management in undertaking these impairment · Examined license concession agreements and supporting
reviews include significant judgements and estimates. documentation in order to assess that appropriate legal and beneficial
ownership percentages had been considered;
· Reviewing management's impairment indicators assessment for each
There is the risk that the Group's development and production assets are cash generating unit (CGU) against the criteria in the accounting standard in
impaired and that the judgements and estimates made in the calculations are order to determine whether their assessment was complete and in accordance
inappropriate. with the requirements of the accounting standard;
· Challenging managements' reserve stress testing analysis which
was performed to determine the point at which there would be working capital
issues. Our testing considered whether such scenarios, including significant
reductions in commodity prices and production levels, would have a material
impact on the carrying value of the development and production assets;
· Checking the arithmetical accuracy and integrity of the
impairment model;
· Reviewing the reasonableness of key inputs, including discount
rates, oil prices, production estimations, capex and opex; and
· Assessing the competence and independence of the Group's reserve
expert by reviewing the latest reserves report provided and comparing key
model inputs to data obtained elsewhere during the course of the audit, and to
third party publicly available data.
Based on the audit work performed and the challenge of management we do not
consider the carrying value of development and production assets to be
materially misstated. It is however important to draw users attention to the
fact that the recoverable value ($4,648,124) of the Ech Chouech licence area
is dependent on the successful renewal of this licence.
Failure to obtain the necessary licence renewals may result in an impairment
to the carrying value of the development and production assets held.
Other information
The other information comprises the information included in the annual report,
other than the financial statements and our auditor's report thereon. The
directors are responsible for the other information contained within the
annual report. Our opinion on the Group financial statements does not cover
the other information and, we do not express any form of assurance conclusion
thereon. Our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the
financial statements or our knowledge obtained in the course of the audit, or
otherwise appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to
determine whether this gives rise to a material misstatement in the financial
statements themselves. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are
required to report that fact.
We have nothing to report in this regard.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and their
environment obtained in the course of the audit, we have not identified
material misstatements in the strategic report or the directors' report.
We have nothing to report in respect of the following matters in relation to
which The Companies (Jersey) Law 1991 requires us to report to you if, in our
opinion:
· adequate accounting records have not been kept, or returns adequate
for our audit have not been received from branches not visited by us; or
· the financial statements are not in agreement with the accounting
records and returns; or
· we have not received all the information and explanations we
require for our audit.
Responsibilities of directors
As explained more fully in the Report of the Directors, the directors are
responsible for the preparation of the Group financial statements and for
being satisfied that they give a true and fair view, and for such internal
control as the directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the Group financial statements, the directors are responsible for
assessing the Group's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the Group or to
cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below:
· We obtained an understanding of the Group and the industry in which it
operates to identify laws and regulations that could reasonably be expected to
have a direct effect on the financial statements. We obtained our
understanding in this regard through discussions with management, application
of cumulative audit knowledge and experience of the industry sector.
· We determined the principal laws and regulations relevant to the Group
in this regard to be those arising from AIM Rules for Companies July 2016, The
Companies (Jersey) Law 1991, IFRSs, Health and Safety Regulations and License
requirements and local laws and regulations applicable in the jurisdictions
where the Group has operations. The team remained alert to instances of
non-compliance with laws and regulations throughout the audit.
· We designed our audit procedures to ensure the audit team considered
whether there were any indications of non-compliance by the Group with those
laws and regulations. These procedures included, but were not limited to:
enquiries of management; review of minutes of meetings; review of Regulatory
News Service announcements and correspondence.
· We have also discussed among the engagement how and where fraud might
occur and any potential indicators of fraud. We then challenged the key
assumptions made by management in respect of their significant accounting
estimates (see key audit matter).
· As in all of our audits, we addressed the risk of fraud arising from
management override of controls by performing audit procedures which included,
but were not limited to: the testing of journals; reviewing accounting
estimates for evidence of bias; and evaluating the business rationale of any
significant transactions that are unusual or outside the normal course of
business.
· The component auditors performed audit procedures for each of the
components, based on the instructions issued to them by us. This included
reviewing journal entries for evidence of material misstatement due to fraud;
reviewing accounting estimates, judgements and assumptions for evidence of
management bias; and performing a review of the bank transactions to ensure
appropriate authorisation.
· The audit team was in constant communication with the component
auditors during the component audits, including regular discussions on those
areas that were of concern to the component auditors.
Because of the inherent limitations of an audit, there is a risk that we will
not detect all irregularities, including those leading to a material
misstatement in the financial statements or non-compliance with regulation.
This risk increases the more that compliance with a law or regulation is
removed from the events and transactions reflected in the financial
statements, as we will be less likely to become aware of instances of
non-compliance. The risk is also greater regarding irregularities occurring
due to fraud rather than error, as fraud involves intentional concealment,
forgery, collusion, omission or misrepresentation.
A further description of our responsibilities for the audit of the financial
statements is located on the Financial Reporting Council's website at:
www.frc.org.uk/auditorsresponsibilities
(http://www.frc.org.uk/auditorsresponsibilities) . This description forms part
of our auditor's report.
Use of our report
This report is made solely to the Group's members, as a body, in accordance
with our engagement letter dated 16 December 2021. Our audit work has been
undertaken so that we might state to the Group's members those matters we are
required to state to them in an auditor's report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility
to anyone, other than the Group and the Group's members as a body, for our
audit work, for this report, or for the opinions we have formed.
Joseph Archer
15 Westferry Circus
For and on behalf of PKF Littlejohn LLP Canary Wharf
Chartered Accountants
London E14 4HD
17 March 2023
Serinus Energy plc
Consolidated Statement of Comprehensive Income (Loss) for the year ended 31
December 2022
(US$ 000s, except per share amounts)
Note 2022 2021
Revenue 6 49,280 39,984
Cost of sales
Royalties (3,314) (3,320)
Windfall tax (16,014) (9,432)
Production expenses (10,491) (9,976)
Depletion and depreciation 11, 13 (6,564) (10,055)
Total cost of sales (36,383) (32,783)
Gross profit 12,897 7,201
Administrative expenses (5,300) (4,479)
Share-based payment expense 7 (70) (213)
Total administrative expenses (5,370) (4,692)
Impairment expense 11,12 (1,871) -
Release of provision 23 1,639 6,636
Decommissioning provision recovery 18 209 142
Loss on disposal of assets (1,081) -
Operating income 6,423 9,287
Finance expense 8 (1,637) (444)
Net income before tax 4,786 8,843
Tax expense 9 (3,156) (419)
Income after taxation attributable to equity owners of the parent 1,630 8,424
Other comprehensive income
Other comprehensive income to be classified to profit and loss in subsequent
periods:
Foreign currency translation adjustment (1,998) (2,463)
Total comprehensive income for the year attributable to equity owners of the (368) 5,961
parent
Earnings per share:
Basic 10 0.01 0.07
Diluted 10 0.01 0.01
The accompanying notes form part of the consolidated financial statements
Serinus Energy plc
Consolidated Statement of Financial Position as at 31 December 2022
(US$ 000s, except per share amounts)
As at Note 31 December 31 December 2021
2022
Non-current assets
Property, plant and equipment 11 62,311 71,747
Exploration and evaluation assets 12 10,529 5,042
Right-of-use assets 13 688 370
Total non-current assets 73,528 77,159
Current assets
Restricted cash 14 1,088 1,144
Trade and other receivables 15 10,007 7,396
Product inventory 16 705 656
Cash and cash equivalents 14 4,854 8,429
Total current assets 16,654 17,625
Total assets 90,182 94,784
Equity
Share capital 17 401,426 401,426
Share-based payment reserve 7 25,557 25,487
Treasury shares 17 (455) (121)
Accumulated deficit (386,356) (387,986)
Cumulative translation reserve (3,372) (1,374)
Total equity 36,800 37,432
Liabilities
Non-current liabilities
Decommissioning provision 18 24,046 28,232
Deferred tax liability 19 10,942 10,516
Lease liabilities 20 465 252
Other provisions 21 1,358 1,358
Total non-current liabilities 36,811 40,358
Current liabilities
Current portion of decommissioning provision 18 5,085 6,636
Current portion of lease liabilities 20 280 193
Accounts payable and accrued liabilities 22 11,206 10,165
Total current liabilities 16,571 16,994
Total liabilities 53,382 57,352
Total liabilities and equity 90,182 94,784
The accompanying notes form part of the consolidated financial statements
These consolidated financial statements were approved by the Board of
Directors and authorised for issue on 17 March 2023 and were signed on its
behalf by:
JON KEMPSTER ANDREW FAIRCLOUGH
DIRECTOR, CHAIR OF THE AUDIT COMMITTEE DIRECTOR AND CFO
Serinus Energy plc
Consolidated Statement of Shareholder's Equity for the year ended 31 December
2022
(US$ 000s, except per share amounts)
Note Share capital Share-based payment reserve Treasury Accumulated deficit Accumulated other comprehensive loss Total
Shares
Balance at 31 December 2020 401,426 25,274 - (396,410) 1,089 31,379
Income for the year - - - 8,424 - 8,424
Other comprehensive income for the year - - - - (2,463) (2,463)
Total comprehensive income for the year - - - 8,424 (2,463) 5,961
Transactions with equity owners
Shares issued 7 - 213 - - - 213
Share issue costs 17 - - (121) - - (121)
Share-based payment expense - - - 8,424 (2,463) 5,961
Balance at 31 December 2021 401,426 25,487 (121) (387,986) (1,374) 37,432
Income for the year - - - 1,630 - 1,630
Other comprehensive loss for the year - - - - (1,998) (1,998)
Total comprehensive loss for the year - - - 1,630 (1,998) (368)
Transactions with equity owners
Share-based payment expense - 70 - - - 70
Shares purchased to be held in Treasury - - (334) - - (334)
Balance at 31 December 2022 401,426 25,557 (455) (368,356) (3,372) 36,800
The accompanying notes form part of the consolidated financial statements
Serinus Energy plc
Consolidated Statement of Cash Flows for the year ended 31 December 2022
(US$ 000s, except per share amounts)
Note 2022 2021
Operating activities
Income for the year 1,630 8,424
Items not involving cash:
Depletion and depreciation 11, 13 6,564 10,055
Impairment expense 11, 12 1,871 -
Share-based payment expense 7 70 213
Tax expense 9 3,156 419
Accretion expense on decommissioning provision 18 1,143 377
Change in other provisions 21 - (41)
Foreign exchange (gain) / loss 144 (15)
Decommissioning provision recovery (209) (142)
Other income (19) (4)
Loss on disposal of assets 1,081 -
Release of provision 23 (1,639) (6,636)
Income taxes paid (2,353) (2,085)
Expenditures on decommissioning liabilities - (332)
Funds from operations 11,439 10,233
Changes in non-cash working capital 26 (4,052) 3,866
Cashflows from operating activities 7,387 14,099
Financing activities
Lease payments 20 (211) (235)
Shares purchased to be held in treasury 17 (334) (121)
Cashflows used in from financing activities (545) (356)
Investing activities
Capital expenditures 26 (10,875) (11,248)
Proceeds on disposition of property, plant and equipment 42 8
Cashflows used in investing activities (10,833) (11,240)
Change in cash and cash equivalents (3,991) 2,427
Cash and cash equivalents, beginning of year 8,429 6,002
Impact of foreign currency translation on cash 416 (76)
Cash and cash equivalents, end of year 4,854 8,429
The accompanying notes form part of the consolidated financial statements
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 2022 and 2021.
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 2022 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 United
Kingdom applied in accordance with the provisions of the Companies (Jersey)
Law 1991. The directors have elected to prepare accounts under IFRS as
adopted by the United Kingdom for all purposes except for the financial
statements for the purposes of the Warsaw Stock Exchange filing which are
prepared under European Union ("EU") endorsed IFRS. No material differences
have been noted between EU IFRS and UK IFRS for the year ended 31 December
2022.
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
The Group's business activities, together with the factors likely to affect
its future development and performance are set out in the Operational Summary,
the Chairman's Letter and the Letter from the CEO. The financial position of
the Group is described in these consolidated financial statements and in the
Report from the CFO.
The Directors have given careful consideration to the appropriateness of the
going concern assumption, including cashflow forecasts through the going
concern period and beyond, planned capital expenditure and the principal risks
and uncertainties faced by the Group. This assessment also considered
various downside scenarios including oil and gas commodity prices and
production rates. Following this review, the Directors are satisfied that
the Group has sufficient resources to operate and meet its commitments as they
come due in the normal course of business for at least 12 months from the date
of these consolidated financial statements. Accordingly, the Directors
continue to adopt the going concern basis for the preparation of these
consolidated financial statements.
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 recognised gains or losses
arising from intercompany transactions are eliminated upon consolidation.
Serinus has three directly held subsidiaries, Serinus Energy Canada Inc.,
Serinus Holdings Limited and Serinus Petroleum Consultants Limited. Through
Serinus Holdings Limited, the Group has the following indirect wholly-owned
subsidiaries: Serinus Energy Romania Trading S.r.l, Serinus Energy Romania
S.A., SE Brunei Limited, AED South East Asia Ltd. and Serinus Tunisia B.V.
99.999996% of Serinus Energy Romania S.A. is held by Serinus Holdings
Limited, with Serinus Tunisia B.V. owning the remaining 0.000004% of Serinus
Romania S.A. On 21 December 2022, the Group completed a reorganisation
whereby by the interests in Serinus Tunisia B.V. and Serinus Energy Romania
S.A. were transferred from Serinus B.V. to Serinus Holdings Limited. On 9
August 2022 KOB Borneo Limited was struck off and on 17 August 2022, the
liquidation of Serinus B.V. was completed.
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 Income.
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 Income
(Loss).
(d) Revenue recognition
The Group earns revenue from the sale of crude oil, natural gas and natural
gas liquids. Royalties 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 behavioural 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 income, 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 utilised. 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
amortised 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. Amortised 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 amortised 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 amortised 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 amortised 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 recognised loss allowances for expected credit losses ("ECLs") on
its financial assets measured at amortised 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 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 measured at amortised cost or FVTPL. A
financial liability is classified and 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 amortised cost. Accounts payable and accrued
liabilities are initially measured at fair value and subsequently measured at
amortised 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 amortised 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 characterises 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 capitalised as E&E
assets. The costs are accumulated in cost centres 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.
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 categorised
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
capitalised 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 capitalised 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 recognised. 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 to
the Company for use. 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 recognised on the balance
sheet. Instead, these lease payments are recognised through profit and loss
as incurred.
(l) Product inventory
Product inventory consists of the Company's unsold Tunisia crude oil barrels,
valued at the lower of cost, using the first-in, first-out method, or net
realisable value. Cost includes royalties, operating expenses and depletion
associated with the barrels as determined on a country-by-country basis.
(m) 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 capitalised 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 Income (Loss).
(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) Treasury shares
The Group also from time to time acquires own shares to be held as treasury
shares. Treasury shares are held at cost and shown as a deduction from total
equity in the Consolidated Statement of Financial Position.
Consideration received for the sale of such shares is also recognised in
equity, with any difference between the proceeds from sale and the original
cost being taken to reserves. No gain or loss is recognised in the profit or
loss on the purchase, sale, issue or cancellation of treasury shares.
(p) 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.
(q) 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.
(r) Changes and amendments to accounting policies
During the year, there were no new standards or amendments to standards
adopted that had a material effect to the Group.
(s) Accounting standards issued but not yet adopted
The following standards have been published and are mandatory for accounting
periods beginning after 1 January 2023 but have not been early adopted by the
Group and could have an impact on the Group financial statements:
i. Amendments to IAS 1: Presentation of Financial Statements and
IFRS - Practice Statement 2: Disclosure of Accounting Policies - effective 1
January 2023
ii. Amendments to IAS 8: Accounting policies, Changes in Accounting
Estimates and Errors - Definition of Accounting Estimates - effective 1
January 2023
iii. Amendments to IFRS 17 Insurance contracts: Initial Application of
IFRS 17 and IFRS 9 - Comparative Information - effective 1 January 2023
iv. Amendments to IAS 12: Income Taxes - Deferred Tax related to Assets
and Liabilities arising from a Single Transaction - effective 1 January 2023
v. Amendments to IAS 1: Presentation of Financial Statements:
Classification of Liabilities as Current or Non-Current - effective 1 January
2023
vi. Amendments to IAS 1: Classification of Liabilities as Current or
Non-current - Deferral of Effective Date - effective 1 January 2023
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 its
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, analyses
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, the Company enters
into lifting agreements with trading counterparties based on the market price
of Brent crude oil. In Romania, the Company enters into contracts with
customers for a stated gas price 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 2022, a 10% change in the
price of crude oil per bbl would have impacted revenue, net of royalties by
$1.4 million (2021 - $1.0 million) and a 10% change in the price of gas per
mcf would have impacted revenue, net of royalties by $3.3 million (2021 - $2.7
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 2022 GBP CAD LEU TND
Cash and cash equivalents 296 179 1,825 4,715
Restricted cash - 1,476 22 -
Accounts receivable 49 33 14,747 15,785
Accounts payable (660) (58) (15,302) (13,484)
Lease liabilities (322) (165) - (392)
Net foreign exchange exposure (637) 1,465 1,292 6,624
Translation to USD 1.2103 0.7370 0.2165 0.3217
USD equivalent (771) 1,080 280 2,131
As at 31 December 2021 GBP CAD LEU TND
Cash and cash equivalents 57 212 3,320 1,469
Restricted cash - 1,449 30 -
Accounts receivable - 4 15,731 1,909
Accounts payable (369) (72) (19,526) (3,306)
Lease liabilities (70) (258) - (431)
Net foreign exchange exposure (382) 1,335 (445) (359)
Translation to USD 1.3477 0.7851 0.2288 0.3464
USD equivalent (515) 1,048 (102) (124)
For the year ended 31 December 2022, a 1% change in foreign exchange rates
would have impacted net income by $27,000 (2021 - $3,000).
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 prompted based on the
individual terms with the parties. For the year ended 31 December 2022,
Tunisia's revenue was generated from three customers (2021 - five), with a
80%, 10% and 10% weighting (2021 - 28%, 22%, 18%, 17% and 15%). Romania's
sales were made primarily to three customers (2021 - three), with a 49%, 37%
and 11% weighting (2021 - 58%, 38% and 4%). At 31 December 2022, the Group
had $nil (2021 - $nil million) of revenue receivables that were considered
past due (over 90 days outstanding).
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 2022 and 31 December 2021.
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 2022 1 year 1 - 3 years 3+ years Total
Accounts payable and accrued liabilities 11,205 - - 11,205
Lease liabilities 307 237 311 855
Total 11,512 237 311 12,060
As at 31 December 2021 1 year 1 - 3 years 3+ years Total
Accounts payable and accrued liabilities 10,165 - - 10,165
Lease liabilities 193 183 69 445
Total 10,358 183 69 10,610
The Directors have considered the circumstances, current status and practical
realisations of $5.3 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 prior year, the Company fully repaid its long-term debt, and no
longer has an interest rate risk.
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.
(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, licences being renewed as and when
required, 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) Deemed 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.
During 2021 the Group commenced international arbitration proceedings in the
International Chamber of Commerce ("ICC") against the partner to seek a ruling
to formalize Serinus' 100% interest in the Satu Mare concession.
On 15 February 2023, the Group announced that it had received confirmation
from the ICC that as a result of the partner's default under the JOA, the
partner's 40% participating interest in the Satu Mare concession will be
transferred to Serinus Romania, and directed the partner to take all necessary
actions to formally transfer the 40% participating interest to Serinus.
(d) Decommissioning provisions (Note 18)
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 (Notes 9 and 19)
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 Income as a tax expense.
(f) VAT receivable
The Company has outstanding VAT claims that have been disputed by Romanian
authorities dating back to 2017. 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 50). Management believes that these amounts
are fully recoverable and therefore the Company has recorded 100% of the VAT
balance in Trade and other receivables.
(g) Product inventory (Note 16)
Within Tunisia, crude oil inventory volumes are estimated based on historical
production less volumes sold and other adjustments for shrinkage, as well as
estimates based on facility capacity and volume assumptions.
(h) Exploration and evaluation assets (Note 12)
E&E assets are subject to ongoing technical, commercial and management
review to confirm the continued intent to establish the technical feasibility
and commercial viability of any prospect for which costs have been incurred.
E&E assets remain capitalised until a point at which management determines
whether a project is economically viable.
(i) Impairment of assets (Note 11)
The management and directors review the carrying value of the Group's assets
to determine whether there are any indicators of impairment such that the
carrying values of the assets may not be recoverable. The assessment of
whether an indicator of impairment or reversal thereof has arisen requires
considerable judgement, taking account of factors such as future operational
and financial plans, commodity prices and the competitive environment.
For exploration and evaluation assets held by the Group, namely exploration
works at the Satu Mare concession in Romania, before the technical feasibility
and commercial viability of extracting hydrocarbon resources is demonstrable,
indicators of impairment can include: (a) the right to explore in a specific
area has expired and is not expected to be renewed; (b) significant
expenditure for further exploration or evaluation activities is not being
planned; (c) exploration and evaluation of mineral resources have not led to
the discovery or confirmation of commercially viable resource; or (d) that
sufficient data exists to indicate that the carrying amount of the asset may
not be recovered in full from development or sale.
The Group's operating oil & gas assets, some of which have previously been
impaired, are assessed for impairment at a Cash Generating Unit (CGU) level,
in accordance with IAS 36, which align to the concession agreements held by
the Group, i.e. Moftinu and Santau in Romania and in Tunisia, Sabria and
Chouech Es Saida and Ech Chouech as the South Tunisia CGU. These assets are
sensitive to changes in operational assumptions and commodity pricing and
therefore the management and directors need to make judgements as to whether
certain events represent indicators of impairment or impairment reversal.
Where such indicators exist, the carrying value of the assets of a CGU or
exploration and evaluation asset is compared with the recoverable amount of
those assets, that is, the higher of its fair value less costs to sell and
value in use, which is typically determined on the basis of discounted future
cash flows.
For the year ended 31 December 2022, the management and directors performed
assessment of impairment indicators across the Group's CGUs. In Tunisia, there
were no indicators of impairment or impairment reversals identified at Sabria
or South Tunisia. The Company has applied to extend the Ech Chouech licence
but this expired in June 2022. The Company intends to continue its
application to regain the licence once the licence process is formalised. No
indication has been received that they will not be successful once the process
to re-apply becomes available and as such has made the judgement that they
will be able to regain the Ech Chouech licence and therefore no impairment has
been charged to this asset. At Moftinu, the management and directors
identified an indicator of impairment and recorded an impairment expense of
$1.9 million.
Note 11 and 12 disclose the carrying amounts of the Group's property, plant
and equipment and exploration and evaluation assets, respectively, as well as
assumptions made by the management and directors in the discounted cash flow
model which is used to determine estimated recoverable amounts.
(j) Solidarity Tax
On 29 December 2022, the Government of Romania published Emergency Ordinance
no.186/2022 detailing measures to implement Council Regulation (EU) 2022/1854
regarding the emergency intervention to introduce a solidarity contribution
for companies that carry out activities in the oil, natural gas, coal and
refinery sectors. This additional tax in Romania is calculated at a rate of
60% applied to the company's annual profit, in excess of 20% of its average
profits for the financial years 2018-2021. The solidarity tax will apply for
the financial years 2022 and 2023.
The Company does not believe that the solidarity tax is applicable to it and
has received legal advice to support that position and will challenge the
legality of this additional tax. If the Company were to consider the tax
applicable the amount due is estimated to be approximately $741,000. However
the Company has made the judgement that the solidarity tax is not applicable
and therefore has made no provision in respect of this tax within the
financial statements.
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 2022, the receivable balance related to contracts with
customers, included within accounts receivable is $3.8 million (31 December
2021 - $2.8 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. The 2017 options have expired. 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.
In 2020, the Group repriced all stock options with the exception of those of
the non-executive directors, to a strike price of £0.20, 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.
In 2020, the Company issued 2.2 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 (£0.265) on the
issuance date of the Awards. In 2021, the Company issued 175,000 stock
options with a strike price of £0.20.
In 2022, the Company issued 702,717 awards under the LTIP to members of the
management team on 29 April 2022. 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 (£0.169) on the issuance date of the
Awards. The total fair value of these awards was $0.1 million (£0.1
million). As at 31 December 2022, the total awards outstanding under the
LTIP was 2.9 million (2021 - 2.2 million), with a weighted average valuation
of £0.0265 (2021 £0.0265).
The weighted average fair value of options granted during the year ended 31
December 2022 was £0.13 per option (31 December 2021 - £0.01 per option)
using the following assumptions:
Inputs used in the Black-Scholes model 2022 2021
Risk-free interest rate 1.31% 0.29%
Expected dividend yield nil nil
Expected volatility (based on actual historical volatility) 70% 71%
Forfeiture rate 5% 5%
Expected option life (in years) 10 10
A summary of the changes to the option plans during the year ended 31 December
2022, are presented below:
(a) CAD denominated options
2022 2021
Options Exercise Price Options Exercise Price
Balance, beginning of year 10,000 3.70 20,000 3.70
Forfeited - - (10,000) -
Expired (10,000) (3.70) - -
Balance, end of year - - 10,000 3.70
As at 31 December 2022 there are nil (2021 - 10,000) options outstanding to
non-executive directors as the options expired in the year.
(b) GBP denominated options
2022 2021
Options Exercise Price Options Exercise Price
Balance, beginning of year 3,364,300 0.20 3,289,300 0.20
Granted 5,000 0.20 175,000 0.20
Forfeited (253,700) - (100,000) (0.20)
Balance, end of year 3,115,600 0.20 3,364,300 0.20
As at 31 December 2022 there are 3,115,600 (2021 - 3,364,300) options
outstanding to executive directors and employees with a weighted average
contractual life of 5.0 (2021 - 8.9) years and a weighted average exercise
price of £0.20 (2021 - £0.20).
GBP denominated option breakdown
Exercise price (GBP) Options outstanding Options exercisable Average life (years)
0.20 3,115,600 3,115,600 5.0
8. Finance expense
Year ended 31 December 2022 2021
Interest of leases (Note 20) 33 53
Accretion on decommissioning provision (Note 18) 1,143 377
Foreign exchange and other 461 14
1,637 444
9. Taxation
2022 2021
Current income tax expense 2,738 1,879
Deferred income tax
Origination and reversal of temporary differences (Note 19) 418 (1,460)
Tax expense 3,156 419
Reconciliation of the effective tax rate:
Year ended 31 December 2022 2021
Income before income taxes 4,786 8,843
Statutory tax rate 50.0% 50.0%
Expected income tax 2,393 4,422
Non-taxable (deductible) items (2,331) (57)
Losses utilised (459) (526)
Tax rate differences 1,667 (3,248)
Foreign exchange and other 3,470 35
Net change in tax attributes not recognised (1,584) (207)
Income tax expense 3,156 419
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 utilisation of loss pools,
and therefore the majority of the Company's tax expense relates to Sabria.
The advance taxes unrecoverable in the year ending 31 December 2022 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 utilise all advance taxes paid, losses carried forward
and other taxable pools available to the Company.
10. Earnings (Loss) per share
Year ended 31 December
($000's, except per share amounts) 2022 2021
Income for the year 1,630 8,424
Weighted average shares outstanding
Basic 114,686 116,293
Diluted 114,686 117,291
Income per share
Basic and diluted 0.01 0.01
In determining diluted net income 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 2022, the Group excluded 0.1 million (2021 - 0.1
million) stock options. All outstanding warrants expired in 2021.
11. Property, plant and equipment
Oil and gas interests Corporate assets Total
Cost or deemed cost:
Balance as at 31 December 2020 263,356 1,624 264,980
Capital additions 5,797 69 5,866
Change in decommissioning provision 793 - 793
Disposals - (50) (50)
Balance as at 31 December 2021 269,946 1,643 271,589
Capital additions 7,702 76 7,778
Change in decommissioning provision (5,380) - (5,380)
Disposals (2,218) - (2,218)
Balance as at 31 December 2022 270,050 1,719 271,769
Accumulated depletion and depreciation
Balance as at 31 December 2020 (186,884) (1,526) (188,410)
Depletion and depreciation (10,378) - (10,378)
Disposals - 42 42
Balance as at 31 December 2021 (197,262) (1,484) (198,746)
Depletion and depreciation (6,507) (158) (6,665)
Disposals 1,095 - 1,095
Impairments (1,871) - (1,871)
Balance as at 31 December 2022 (204,545) (1,642) (206,187)
Cumulative translation adjustment
Balance as at 31 December 2021 (1,109) 13 (1,096)
Currency translation adjustments (2,175) - (2,175)
Balance as at 31 December 2022 (3,284) (13) (3,271)
Net book value
Balance as at 31 December 2021 71,575 172 71,747
Balance as at 31 December 2022 62,221 90 62,311
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 $28.7 million (2021 - $30.1 million) and for Romania are
$3.6 million (2021 - $5.3 million).
Impairment
At 31 December 2022, the Company completed an impairment assessment to
determine if there were any indicators of impairment or impairment
reversals. In Tunisia, there were no indicators of impairment or impairment
reversals identified at Sabria or South Tunisia. The Company had applied to
extend the Ech Chouech licence but this expired in June 2022. The Company
intends to continue its application to regain the licence once the licence
application process is formalised. No indication has been received that they
will not be successful once the process to re-apply becomes available and as
such has made the judgement that they will be able to regain the Ech Chouech
licence and therefore no impairment has been charged to this asset. In
Moftinu, the Company determined that there was an indicator of impairment, and
recorded an impairment expense of $1.9 million.
The Company determined the estimated recoverable amount based on a discounted
cash flow model, using an after-tax discount rate equal to the weighted
average cost of capital of Romania (17%), computed internally using external
market data.
The following table shows the forecast commodity prices used in the GCA 31
December 2022 Reserve Report and used in the discounted cash flow model:
Brent Romania Gas
Year (US$/bbl) (US$/MMBtu)
2023 83.83 24.28
2024 78.99 23.59
2025 80.00 19.03
2026 81.60 13.00
2027+ +2% inflation +2% inflation
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.
Romania ($000s) 1% increase to discount rate 1% decrease to discount rate 10% increase to commodity prices 10% decrease to commodity prices
Additional impairment, net of tax 67 (67) (1,620) 1,620
At 31 December 2021, the Company completed an impairment assessment on its
PP&E to determine if there were any indicators of impairment or impairment
reversals. In South Tunisia and Sabria, no indicators of impairment or
impairment reversals were identified. In Moftinu the Company determined that
there was an indicator of impairment and an impairment test was conducted on
the Moftinu CGU. The Company determined the estimated recoverable amount
based on a discounted cash flow model, using an after-tax discount rate equal
to the weighted average cost of capital of Romania (10%), computed internally
using external market data. The following table shows the forecast commodity
prices used in the GCA 31 December 2021 Reserve Report and used in the
discounted cash flow model:
Brent Romania Gas
Year (US$/bbl) (US$/MMBtu)
2022 75.92 20.35
2023 71.00 11.60
2024 70.00 8.99
2025 71.40 8.28
2026+ +2% inflation +2% inflation
Although the discounted cash flow model indicated no further net impairment or
reversal of impairment for the year ended 31 December 2021, 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.
Romania ($000s) 1% increase to discount rate 1% decrease to discount rate 10% increase to commodity prices 10% decrease to commodity prices
Additional impairment, net of tax - - - -
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.
At 31 December 2022, the Group recorded $0.2 million of depletion in inventory
(2021 - $0.5 million).
12. Exploration and Evaluation assets
Carrying amount 2022 2021
Balance, beginning of the year 5,042 14
Additions 5,225 4,888
Change in decommissioning provision 739 494
Cumulative translation adjustment (477) (354)
Balance, end of the year 10,529 5,042
The Company currently holds land rights to a large amount of undeveloped land
within Romania.
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 2020 840 39 879
Additions 97 - 97
Disposals (66) - (66)
Balance as at 31 December 2021 871 39 910
Additions 584 - 584
Disposals (127) - (127)
Balance as at 31 December 2022 1,328 39 1,367
Accumulated depreciation
Balance as at 31 December 2020 (335) (27) (362)
Depreciation (212) (12) (224)
Disposals 66 - 66
Balance as at 31 December 2021 (481) (39) (520)
Depreciation (256) - (256)
Disposals 127 - 127
Balance as at 31 December 2022 (610) (39) (649)
Cumulative translation adjustment
Balance as at 31 December 2020 (5) - (5)
Currency translation adjustments (15) - (15)
Balance as at 31 December 2021 (20) - (20)
Currency translation adjustments (10) - (10)
Balance as at 31 December 2022 (30) - (30)
Carrying amounts
Balance as at 31 December 2021 370 - 370
Balance as at 31 December 2022 688 - 688
14. cash
As at 31 December 2022 2021
Cash and cash equivalents 4,854 8,429
Restricted cash 1,088 1,144
Total cash 5,942 9,573
The Group has cash on deposit with the Alberta Energy Regulator of $1.1
million (2021 - $1.1 million), as required to meet future abandonment
obligations existing on certain oil and gas properties in Canada (see Note
18). This deposit accrues nominal interest. The fair value of restricted
cash approximates the carrying value.
15. Trade and other receivables
As at 31 December 2022 2021
Trade receivables 6,772 4,269
VAT receivable 723 1,956
Corporate tax receivable 380 213
Prepaids and other 2,132 958
Total trade and other receivables 10,007 7,396
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 2022 and 2021 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 2022 and 2021.
The VAT receivable relates to operating and development costs in Romania and
are recovered through the Romanian government. Of the VAT receivable, $1.7
million relates to 2018 and prior which has been disputed by the Romanian
authorities. In 2021, the Company received $1.1 million of the prior year
balance from the Romanian authorities. Serinus strongly believes the Company
is entitled to the remaining $1.7 million and is pursuing strategies to
recover this.
16. Product Inventory
Product inventory consists of the Company's entitlement crude oil barrels in
Tunisia, which are valued at the lower of cost or net realisable value.
Costs include operating expenses and depletion associated with crude oil
entitlement barrels and are determined on a concession-by-concession basis.
These costs are initially capitalised and expensed when sold. As at December
31, 2022, the Company held 9.9 Mbbls of crude oil in inventory valued at
approximately $70.70/bbl.
17. 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 2022 2021
Number of shares Amount ($000s) Number of shares Amount ($000s)
Balance, beginning of the year 114,066,073 401,426 114,066,063 401,426
Issued for cash - - 100 -
Issuance costs, net of tax - - - -
Issued in lieu of salary - - - -
Issued to retire Convertible Loan - - - -
Warrants exercised - - - -
Balance, end of the year 114,066,073 401,426 114,066,073 401,426
Following shareholder approval at the Company's AGM on 12 May 2022, the
Company undertook a share consolidation on a one for ten basis whereby for
every 10 Ordinary Shares (each and Existing Share) as shown on the register of
members of the Company to be in issue at 6.00 p.m on 12 May 2022, be
consolidated into one Ordinary Share, having the same rights as the Existing
Ordinary Shares. Prior to the consolidation there were 1,140,660,729
Ordinary Shares of no par value in issue and following the consolidation there
were 114,066,073 Ordinary Shares.
Treasury Shares
Treasury shares represent the shares purchased and held by the Group. All
treasury shares held, as below, are excluded from earnings per share
calculations.
Year ended 31 December 2022 2021
Number of shares Amount ($000s) Number of shares Amount ($000s)
Balance, beginning of the year 592,500 121 - -
Shares purchased 2,119,749 334 592,500 121
Balance, end of the year 2,712,249 455 592,500 121
18. Decommissioning provision
As at 31 December 2022 2021
Balance, beginning of the year 34,868 34,074
Liabilities incurred 703 639
Liabilities settled (1,852) (332)
Accretion 1,143 377
Change in estimate (5,611) 527
Foreign currency translation (120) (417)
Balance, end of year 29,131 34,868
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, liabilities were incurred in
Romania relating to two new wells, reduced by the abandonment of one well.
In Tunisia, the Company incurred liabilities related to two new water pits.
The Group has estimated as at 31 December 2022 the decommissioning provisions
of the wells in Canada to be $0.8 million. During the year, the Company
completed the abandonment of three wells in Canada and it was determined that
the Company was no longer obligated to fulfil the decommissioning provisions
of $1.6 million relating to legacy properties. The remaining 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, the estimated date of abandonment and reclamation, and
the expected costs of abandonment.
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 2022, 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 2022 2021
Risk-free Inflation rate (%) Net present Risk-free Inflation rate (%) Net present value
rate (%)
rate (%)
value
Tunisia 3.6 - 1.9 2.0 24,211 0.3 - 1.9 2.0 28,454
Romania 6.8 - 8.6 2.5 - 11.8 4,102 3.5 - 5.1 3.6 3,743
Brunei - - - - - 1,643
Canada - - 818 - - 1,028
Total 29,131 34,868
Due within one year 5,085 6,636
Long-term liability 24,046 28,232
Total 29,131 34,868
19. 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:
Tax effect related to: 31 December 2021 Recovery 31 December 2022
PP&E and E&E assets (15,304) 561 (14,743)
Decommissioning provision 4,243 (937) 3,306
Other 537 (42) 495
Deferred income tax liability (10,524) (418) (10,942)
Tax effect related to: 31 December 2020 Recovery 31 December 2021
PP&E and E&E assets (16,112) 808 (15,304)
Decommissioning provision 3,928 315 4,243
Other 200 337 537
Deferred income tax liability (11,984) 1,460 (10,524)
Unrecognised deferred tax assets
Deferred tax assets have not been recognised in respect of the following
deductible temporary differences:
As at 31 December 2022 2021
PP&E and E&E assets (2,100) (3,063)
ROU assets and lease liabilities (10) -
Decommissioning provision 6,814 7,741
Non-capital losses carried forward and other 10,086 11,923
Unrecognised deferred tax asset 14,790 16,601
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 utilised due to the large amount of non-capital losses available
to the Company.
The Group has Canadian non-capital losses of $0.3 million (2021 - $0.3
million) that do not expire, Cyprus tax losses of $24.4 million (2021 - $14.6
million) that expire between 2025 and 2027, Tunisian losses of $0.9 million
that expire in four years and $10.5 million have no expiry date (2021 - $4.3
and $24.0 million respectively), and Romanian losses of $4.3 million (2021 -
$7.1 million) that expire after seven years between 2023 to 2029.
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.
20. Lease liabilities
The following table details the movement in the Group's lease obligations for
the year ended 31 December 2022:
As at 31 December 2022 2021
Opening balance 445 586
Additions 584 97
Principle payments (285) (235)
Cumulative translation adjustment 1 (3)
Balance, end of the year 745 445
Lease liabilities due within one year 280 193
Lease liabilities due beyond one year 465 252
During the year the Company made total payments toward lease liabilities in
the amount of $0.3 million (2021 - $0.2 million), of which $0.03 million (2021
- $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 2022 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.
21. Other provisions
JV audit Severance Other Total
Balance as at 31 December 2020 1,211 147 41 1,399
Change in provision - - (41) (41)
Balance as at 31 December 2021 1,211 147 - 1,358
Reclassification - - - -
Balance as at 31 December 2022 1,211 147 - 1,358
Current - - - -
Non-current 1,211 147 - 1,358
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 2014-2021. 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 2022.
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 2022 reflects the
potential costs to terminate the remaining employees.
22. Accounts payable and accrued liabilities
As at 31 December 2022 2021
Accounts payable and accrued liabilities 9,295 9,734
Taxes payable 1,911 431
Total accounts payable and accrued liabilities 11,206 10,165
23. Release of provision
Year ended 31 December 2022 2021
Release of provision 1,639 6,636
In 2022, the Company reversed decommissioning provisions of $1.6 million
related to Block L, due to the passage of statute of limitations.
In 2021, the Company reversed a provision of $6.0 million related to an
exploration penalty due to the passage of statute of limitations. Management
deemed that a previously uncollectable VAT receivable of $0.6 million, as
collectible due to changing circumstances during the year.
24. Aggregate payroll expense
The aggregate payroll expense of employees and executive management of Serinus
was as follows:
Year ended 31 December 2022 2021
Wages, salaries, and benefits 2 (#_ftn2) 5,447 5,049
Share-based payment expense 3 (#_ftn3) 70 213
Total aggregate payroll expense 5,517 5,262
Of the total aggregate payroll expense, $0.1 million (2021 - $0.1 million) has
been classified as E&E assets.
25. Related party transactions
During the years ended 31 December 2022 and 2021, related party transactions
include the compensation of key management personnel. Key management
personnel consist of Serinus' Board of Directors, both executive and
non-executive. Transactions with key management personnel are noted in the
table below:
Year ended 31 December 2022 2021
Wages and salaries 938 1,067
Benefits 94 105
Share-based payment expense 69 224
Total related party transactions 1,101 1,396
26. Supplemental cash flow disclosure
Year ended 31 December 2022 2021
Cash (used in) generated from:
Trade receivables and other (3,126) 2,280
Inventory 157 (656)
Accounts payable and accrued liabilities (1,088) 2,223
Restricted cash 5 19
Changes in non-cash working capital from operations (4,052) 3,866
The following table reconciles capital expenditures to the cash flow
statement:
Year ended 31 December 2022 2021
PP&E additions (Note 11) 7,778 5,880
E&E additions (Note 12) 5,225 4,888
Total capital additions 13,003 10,768
Changes in non-cash working capital (2,052) 480
Total capital expenditures 10,951 11,248
27. Capital management
Year ended 31 December 2022 2021
Shareholders' equity 36,800 37,432
Total capital resources 36,800 37,432
The Group manages its capital structure to maximise financial flexibility as
well as closely monitors cash forecasts. Management considers capital to
include debt and equity instruments. The Group has the ability to manage its
capital structure raising financing through debt or equity issuances,
repurchasing shares and settling debt obligations. 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 utilise any
quantitative measures to monitor its capital.
28. Commitments and contingencies
Commitments
During the year, the Company completed the Phase 1 work commitment associated
with its two year evaluation phase, to reprocess 160.9 km 2D seismic in the
Madaras area, and has the Phase 2 work commitment to reprocess 30.05 km of 2D
seismic in the Santau-Nusfalau area outstanding.
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 2022, cumulative liquid hydrocarbon
sales net of royalties and shrinkage was 5.4 million (2021 - 5.4 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. These reclassifications are immaterial.
30. Income (loss) from operations analysis
($000) 2022 2021
Administrative expenses (5,300) (4,479)
Share-based payment expense (Note 7) (70) (213)
Impairment recovery (expense) (Note 11, 12) (1,871) -
Release of provision (Note 23) 1,639 6,636
Included within administrative expenses of $5.3 million (2021 - $4.5 million)
are the following:
($000) 2022 2021
Salaries and wages (2,653) (2,249)
Corporate audit and review fees (450) (431)
Consulting fees (400) (237)
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 2022 Romania Tunisia Corporate Total
Total assets 32,881 54,587 2,715 90,183
For the year ended 31 December 2022
Crude oil revenue - 15,854 - 15,854
Natural gas revenue 31,793 1,576 - 33,369
Condensate revenue 57 - - 57
Total revenue 31,850 17,430 - 49,280
Cost of sales
Royalties (1,132) (2,182) - (3,314)
Production expenses (5,590) (4,851) (50) (10,491)
Depletion and depreciation (3,624) (2,782) (158) (6,564)
Windfall tax (16,014) - - (16,014)
Total cost of sales (26,360) (9,815) (208) (36,383)
Gross profit (loss) 5,490 7,615 (208) 12,897
Administrative expenses - - (5,300) (5,300)
Share-based payment expense - - (70) (70)
Release of provision - - 1,639 1,639
Impairment expense (1,871) - - (1,871)
Loss on asset disposal (63) (1,018) - (1,081)
Decommissioning recovery - 62 147 209
Operating income (loss) 3,556 6,659 (3,792) 1,658
Finance expense (848) (1,015) 226 (1,637)
Net income (loss) before income taxes 2,707 5,644 (3,566) 4,786
Tax expense (152) (3,017) 13 (3,156)
Net income (loss) for the year 2,556 2,628 (3,553) 1,630
Capital expenditures 8,388 4,452 76 12,916
As at 31 December 2021 Romania Tunisia Corporate Total
Total assets 33,637 55,688 5,459 94,784
For the year ended 31 December 2021
Crude oil revenue - 10,984 - 10,984
Natural gas revenue 26,809 1,993 - 28,802
Condensate revenue 198 - - 198
Total revenue 27,007 12,977 - 39,984
Cost of sales
Royalties (1,605) (1,715) - (3,320)
Production expenses (4,758) (5,174) (44) (9,976)
Depletion and depreciation (6,650) (3,256) (149) (10,055)
Windfall tax (9,432) - - (9,432)
Total cost of sales (22,445) (10,145) (193) (32,783)
Gross profit (loss) 4,562 2,832 (193) 7,201
Administrative expenses - - (4,479) (4,479)
Share-based payment expense - - (213) (213)
Release of provision 636 - 6,000 6,636
Decommissioning (provision) recovery - (17) 159 142
Operating income 5,198 2,815 1,274 9,287
Finance expense (99) (290) (55) (444)
Net income before income taxes 5,099 2,525 1,219 8,843
Tax expense - (406) (13) (419)
Net income for the year 5,099 2,119 1,206 8,424
Capital expenditures 9,513 1,268 10 10,768
32. POST BALANCE SHEET EVENTS
On 15 February 2023, the Group announced that it had received confirmation
from the International Chamber of Commerce that as a result of the partner's
default under the Joint Operating Agreement, the partner's 40% participating
interest in the Satu Mare concession will be transferred to Serinus Romania,
and directed the partner to take all necessary actions to formally transfer
the 40% participating interest to Serinus.
1 +2% inflation per year on commodity prices for 2027 and beyond
2 Includes amounts in general and administrative expenses, production
expenses and exploration and development expenditures.
3 Represents the amortization of share-based payment expense associated with
options granted.
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