2019
ANNUAL REPORT
1
SERINUS ENERGY Annual Report 2019
SERINUS ENERGY Annual Report 2019
1
SERINUS ENERGY
2019 ANNUAL REPORT
STRATEGIC REPORT
FINANCIAL STATEMENT
03 2019 Hightlights
04 2020 Outlook
05 Serinus at a Glance
05 COVID-19
06 Serinus Attributes
07 Serinus' Strategy
08 Chairman's Report
09 Report from CEO
10 Report from CFO
14 Decommissioning Provision
15 Review of Operations
15 Romania
16 Tunisia
17 Reserves
21 Risk Management Statement
GOVERNANCE
22 Board of Directors
and Management Team
25 Corporate Governance Statement
28 Remuneration Committee Report
30 Audit Committee Report
31 Report of the Directors
33 Serinus Energy plc
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SERINUS ENERGY Annual Report 2019
34
Independent Auditor’s Report to the Members of
Serinus Energy
38 Consolidated Statement of
Comprehensive Income
39 Consolidated Statement of
Financial Position
40 Consolidated Statement of Shareholder's Equity
41 Consolidated of Cash Flows
42 Consolidated Financial Statements
67 Advisors
Visit our website for more information
www.serinusenergy.com
2019 HIGHLIGHTS
Operational
Financial
• During the first quarter of 2019, Serinus Energy plc and
its subsidiaries (“Serinus”, the “Company”, or the “Group”)
finalised the construction of the Moftinu gas plant in Romania
and brought the Moftinu gas field on production in April
2019.
•
•
•
•
Serinus reopened the Chouech Es Saida (“Chouech”) and
Ech Chouech fields in Tunisia in the second half of the year,
bringing four wells onto production at Chouech, and one
well onto production at the Ech Chouech field.
Production for the year averaged 1,389 boe/d (2018 – 352
boe/d), comprised of 961 boe/d (2018 - nil) from Romania
and 428 boe/d (2018 – 352 boe/d) from Tunisia.
Serinus exited December 2019 with a production rate of
2,089 boe/d, with a December average of 2,175 boe/d
(Romania 1,491 boe/d and Tunisia 684 boe/d).
The Group was granted a twelve-month extension on the
third exploration phase of the Satu Mare Concession in
Romania until 28 October 2020 with the sole commitment
to complete a 3D seismic acquisition program. Prior to the
year-end, the Group completed the permitting required
to perform the 148km2 3D seismic acquisition program,
which was expected to be completed in Q2 2020. Due to
the unprecedented disruptions caused by the COVID-19
outbreak the Group is unable to estimate a completion date
at this time.
• During 2019 the Company started well site preparations for
the M-1004 well in Romania. In February 2020, this well was
successfully drilled, completed, and tested at a rate of 6.0
MMscf/d (approximately 1,000 boe/d) from three perforated
zones and then brought onto production.
• During 2019, Serinus generated gross revenues of $24.4
million (2018 - $8.7 million), comprised of $15.2 million
(2018 - $nil) from Romania and $9.2 million (2018 - $8.7
million) from Tunisia.
•
•
•
•
•
•
Capital expenditures of $4.9 million (2018 - $10.8 million)
were incurred for the year and predominantly consisted of
costs incurred in the Moftinu gas facility, and preliminary
work related to the M-1004 well that was subsequently
drilled in 2020.
Funds from operations increased by 602% for the year to
$8.1 million (2018 - $1.2 million), largely due to the Romanian
field coming online during the year.
Serinus fully repaid the European Bank of Reconstruction
and Development (“EBRD”) Senior loan during the year.
The Senior Loan consisted of $5.4 million plus accumulated
interest.
Realized oil price ($/bbl) averaged $61.67 (2018 - $66.96), a
decrease of 8%.
Realized gas price ($/Mcf) averaged $7.27 (2018 - $11.69,
inclusive of a one-time gain), a decrease of 30%.
Production costs ($/boe) were reduced by 42% to $13.78 in
2019 from $23.57 in 2018.
SERINUS ENERGY Annual Report 2019
3
2020 OUTLOOK
Corporate
Serinus had a transformational year in 2019 which saw significant
operational achievements.
Serinus repaid the $5.4 million Senior loan outstanding with two
payments occurring in March and September 2019.
Overall, the outlook for the Group is positive, as both operating
units grew production and generated positive cashflows from
operations.
Romania
With the completion of the Moftinu gas plant, Serinus was able to
begin production from three wells (M-1000, M-1003 and M-1007)
at the Moftinu field on 25 April 2019. This was the Company’s
first production from the Satu Mare Concession, and it generated
significant cashflows for the Company. With Romania’s significant
contribution to the positive results the Group achieved in 2019,
Serinus remains very optimistic about the future growth prospect
of its Romanian assets.
Subsequent to the year-end, the Company drilled, completed and
tested an additional gas development well (M-1004) in the Moftinu
field to continue to maximize the recently completed Moftinu gas
facility. This well demonstrated excellent test results and flowed
at 6.0 MMscf/d during the well test. M-1004 was brought onto
production in February 2020 which will significantly increase the
Company’s cashflows.
Serinus will be conducting a 148 km2 3D seismic acquisition
program to further delineate, define and de-risk the historical
2D seismic identified shallow gas prospects located to the north
of the Moftinu field. This seismic acquisition program is the final
commitment on the third exploration phase of the Satu Mare
concession and will allow the Group to advance the concession to
the next exploration phase starting in Q4 2020. The program was
expected to be completed in Q2 2020. Due to the unprecedented
disruptions caused by the COVID-19 outbreak the Group is
unable to estimate a completion date at this time. The Group is
excited about the possibility that the seismic acquisition program
will identify additional Moftinu-like fields for development. Such
fields are very robust economically given low drilling costs, high
productivity, low operating costs, and being located near to
transportation infrastructure and markets.
Tunisia
Operations in Tunisia are ramping up after an extended period
of stagnation due to the difficult social conditions in the country.
Our local team commenced the reopening of the Chouech field in
southern Tunisia in March 2019. During the third quarter, four wells
in Chouech recommenced production. During the fourth quarter
one well in the Ech Chouech field was put onto production. The
Company continues to see increasing production from these wells
as the water cuts drop off.
Sabria continues to produce with no interruptions and minimal
capital outlays. The Group will look at implementing low cost
capital programs in 2020 such as the re-entry and workover of the
N-2 well and installing artificial lift in the wells currently producing.
4
SERINUS ENERGY Annual Report 2019
SERINUS AT A GLANCE
Serinus is an oil and gas exploration, appraisal and development
company. The Group operates all of its assets and has operations
in two business units: Romania and Tunisia.
The Romanian business unit is comprised of one concession, Satu
Mare, approximately 3,000km2, located in a highly sought-after
hydrocarbon province. The Moftinu Gas Development Project
is what the Group hopes to be the first of many shallow gas
developments. The concession is extensively covered by legacy
2D seismic and the Group considers the concession to have a
multitude of significant prospects available for further exploration.
The Tunisian business unit is comprised of five concessions,
located throughout the country and predominantly produces
oil. The corner stone of the Tunisian business unit is the Sabria
field, which is a large oilfield play that has been historically under-
developed. Serinus considers this to be an excellent asset for
remedial work to increase production and in time, with proper
reservoir studies, an excellent asset upon which to conduct further
development operations.
COVID-19
In this unprecedented situation, the Company’s priority
is to ensure the safety and wellbeing of all our staff
during this difficult time. Our contingency planning
is in place and is currently working well to ensure
business continuity across our operations. While the
full implications of COVID-19 on the performance
for the current year are difficult to determine at this
stage, the Board remains confident in the long-
term prospects of the Company.
The outbreak of COVID-19 has had a significant
effect on demand for oil and gas globally.
This, along with an increase in production
from OPEC and non-OPEC producers, has
created abnormal disruptions in the prices
of oil and gas in the world markets. These
price dislocations will no doubt affect the
Company but we believe that by being a low
cost, onshore producer with approximately
70% of our production from Romanian
gas, and managing our capital spending
until the situation becomes more clear,
will put us in a position to deal with
these price dislocations.
SERINUS ENERGY Annual Report 2019
5
SERINUS ATTRIBUTES
6
SERINUS ENERGY Annual Report 2019
Serinus offers investors access to international oil and gas
upstream operations with significant near-term production
growth potential and significant organic growth within its
existing asset base.
Romania is a large contiguous asset base with significant
shallow gas development opportunities in a country that is
demonstrating a rapidly expanding domestic demand for
natural gas, and growing integration with the European gas
market. Serinus has demonstrated the shallow gas potential
of the northern portion of the Satu Mare concession with
the development of the Moftinu gas project. The Company
believes that multiple additional analogous projects exist in
the concession area. The southern portion of our Romanian
asset offers excellent exploration opportunities for large oil
prospects. Just 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.
Tunisia offers significant field development opportunities
on existing and under-developed oil fields. The Tunisian
fields consist of existing wells with potential low-cost capital
optimization work programs to increase production over the
next year, along with large acreage with the potential to drill
future development wells.
In addition to the strong asset base Serinus has a strong and
experienced management team. Our local assets are managed
by local teams who have worked in, and become experts in,
the operating and fiscal regimes of their respective countries.
We have significant technical and commercial experience and
are able to apply that experience across our business units.
In summary, Serinus offers a combination of near-term
production growth, significant exploration opportunity and
low-risk oil and shallow gas development opportunities.
READ MORE
For more information on our Corporate High-
lights throughout this year see the following
pages:
Report from Chief Executive Officers
page 9
Report from Chief Financial Officer’s
page 10
Review of Operations
page 15
SERINUS' STRATEGY
Vision
2. Commitment to Shareholders
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 production concession in Romania with one work
in the current exploration
commitment remaining
phase, a 148 km2 3D seismic acquisition program that
has been initiated and will be completed in Q2 2020.
•
•
•
Five exploration and production concessions in Tunisia
with all work commitments completed and with low cost
capital optimization programs to be undertaken in 2020
to grow production.
Extensive oil and natural gas exploration and
development potential within multiple play horizons
provides diversity of both commodity and technical
risks.
A significant future opportunity set that provides growth
beyond existing production and development projects.
•
•
Cohesive management team with a commitment to
enhancing shareholder value.
Extensive experience and a proven track record of
prudent oversight in the allocation of shareholder
capital.
3. Manage Risks
• Managing surface and subsurface risks through constant
evaluation and the application of new technologies.
•
Projects that demonstrate attractive returns at relatively
low risk profiles will be strategically allocated capital.
• Operate all concessions to maintain cost control with
the flexibility to bring in partners in the future once
potential is de-risked.
4. Focus on Growth
•
•
Leveraging cash flow to grow through expanded
exploration and development on
the significant
opportunities available within the existing asset base.
Seeking acquisitions that will provide synergies at a cost
that is accretive to shareholders.
SERINUS ENERGY Annual Report 2019
7
CHAIRMAN'S REPORT
Dear Shareholders,
Serinus had a very successful 2019 as the Company was able to
achieve several transformational milestones providing significant
optimism for the future.
The most notable achievements were:
1.
the commissioning and start-up of the Moftinu Gas Plant in
Romania, allowing for production to commence on 25 April
2019, and
On behalf of the Board of Directors, I would like to express my
highest gratitude to all Serinus employees and partners for their
hard work, continuous support and close cooperation, and our
thoughts are with them in this difficult time. I would like to thank the
members of the Executive Board who, despite many challenges
throughout the years, have continued to work diligently to ensure
the Group’s success in creating a sustainable international oil and
gas company. It is through combined efforts of our employees,
associates and advisors in Romania and Tunisia that we move
closer every day towards this goal. Their hard work, strong values
and personal sacrifice are the key pillars of the future success of
our Group, and our standing as an ethical member of the society
and communities in which we operate.
2. production restart at the Chouech Es Saida and Ech Chouech
fields in Tunisia following a shut-in of over two years.
Yours sincerely,
These events have significantly increased the Group’s production
and materially contributed to the Company’s free cash flows
providing the Group with levels required to deleverage its balance
sheet and to continue to grow the value of the business.
Lukasz Rędziniak, Chairman of the Board of Directors
24 March 2020
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SERINUS ENERGY Annual Report 2019
REPORT FROM CEO
Dear Shareholders,
22019 was a transformational year for our Company. The
completion of the Moftinu Gas Plant and the flow of first sales
gas in April heralded the first new source of production and
revenue in six years. Soon after the commercial gas flow from the
Moftinu Gas Plant was onstream our Tunisian team was able to
restart production from the Chouech Es Saida field in the South
of Tunisia. By the end of 2019 the Company had dramatically
increased its production, revenue and after-tax cash flow and is
positioned for further growth in 2020.
It is hard to overestimate how important the Moftinu Gas project
is for the Company. Aside from the obvious benefits of increased
cash flow and production, Moftinu offers a glimpse of the future.
The Company believes that there are more shallow gas fields that
are similar to Moftinu and that over the course of the next few
years we are in an excellent position to unlock that future value.
In April 2019 Serinus celebrated the start of commercial
production in Romania from the M-1000, M-1003 and M-1007
wells. With the production from Romania the Group’s revenue has
nearly tripled from the prior year, ultimately leading to significant
free cash flows for the year. The free cash flow Serinus was able
to generate during the year allowed the Group to make the final
payment of the Senior loan, $2.7 million plus accrued interest in
September 2019. In 2020 the Company is excited to complete the
final commitment of the third exploration phase of the Satu Mare
concession, shooting a 148 km2 3D seismic program. In early
2020 the Company also drilled the M-1004 well, which was highly
successful. Both the recent drilling and the 3D seismic program
will be completed out of the operating cash flow provided by the
Moftinu Gas Development.
Given the success in Romania it is easy to overlook the progress
the Company has made in Tunisia. Tunisia remains a very
attractive asset base and one that offers very different commercial
opportunities than in Romania. After several years of inactivity in
Tunisia forced on the Company by the social disruptions that had
interrupted business in the country, we were able to re-open the
Chouech Es Saida field. As an added bonus our team was able
to re-open the Ech Chouech field. Ech Chouech is an adjacent
field to Chouech Es Saida and our technical teams were pleasantly
surprised to find that after a long period of forced shut-in, the Ech
Chouech field was able to produce volumes of oil. Both fields are
now producing and the volume of oil versus water is gradually
increasing. This production of water is a natural result of the wells
having been shut-in during the disruptions and over time the
Company remains confident that these wells can return to pre
shut-in levels. The Group is also examining alternatives that would
allow these fields to show a continued increase in production.
Sabria is our largest asset in Tunisia and remains a core asset for
the Group. The Sabria field is a large discovered oil field that our
Independent Reserve Engineers believe has 358 million barrels
of oil originally in place. The field has only six producing wells
and over the life of the field only 1.2% of the oil in place has
been recovered. The Company believes that this is an excellent
commercialization opportunity. We have looked at a variety of
opportunities available to the Company to enhance the recovery
factor. In 2019 we had our Tunisian technical teams focus on low
capital but high return enhancements to the Sabria field. We
believe that our work in 2019 has positioned us for further growth
in 2020.
2019 has been an excellent year for the Company but it must
be remembered that the operational successes of 2019 had
their roots in the hard work that has been done by our teams in
2017 and 2018. In the same way that 2019 reflects the successes
of earlier years, we are positioning Serinus for success in the
future. Our seismic acquisition program will give our geological
and geophysical teams the data they require to unlock more
opportunities. Our work on production enhancements in Tunisia
will provide the detailed knowledge of our reservoirs that will
ultimately allow future drilling to unlock greater potential.
Underlying all these achievements are our people. Our people are
the foundation of this business and their desire to excel and prevail
is what will make our successes even more profound. Without the
financial governance, technical excellence and strategic insights
of all of our staff in all of our offices, Serinus would not be able to
look upon the future with such optimism.
We start a new decade in a much different position than we
finished the last decade. The Company is strengthening itself
and now has the capacity to look forward to new and exciting
opportunities. On behalf of all of the employees of the Company
I would offer thanks to our shareholders for their support as we
strove to bring the Moftinu Gas Plant onstream and continue to
enhance our production in Tunisia. We look forward to building
on the successes of 2019 and increase the value inherent in the
Company.
The COVID-19 outbreak is a dynamic and ongoing issue. As this
outbreak evolves it will no doubt have a further effect on the
global economy. Our products, oil and gas, are products whose
demand is sensitive to overall economic conditions. Whilst we are
a business that is always conscious of the demand and pricing
for our products, our first consideration during this crisis is the
safety and health of our employees. The company has put in place
protocols that are relevant in each of our areas of operation such
as restrictions on travel, meetings, adoption of flexible working
arrangements and access to medical support as required. Given
the regional disparities in the development of this outbreak the
company has deferred to the advice of local authorities to manage
our reactions. A key trigger to escalate the implementation of our
plans has been any government decision in local jurisdictions
to close schools, which has now happened in Romania, Tunisia,
Canada and Poland, as a result of which we have closed our
corporate offices in those countries.
The Company is experienced in working remotely and we believe
that we have sufficient infrastructure in place that will allow the
Company to continue to operate with minimal disruptions. There
can be no certainty as to the development of this outbreak and
the Company is carefully monitoring our operations in the field.
Our operations in Tunisia are very remote and as per the internal
procedures in place, we already have medical staff at our fields
to monitor the health and welfare of our employees. In Romania
we have arranged for a doctor to visit the Moftinu Gas Plant every
other day to monitor our staff. At the time of writing we have not
suffered operational interruptions, but should the situation change
we have plans in place to minimize disruption. The company has
also sought means to delay capital expenditures during this time
of uncertainty. We will continue to monitor the situation closely
while proactively assessing risk and considering options to allow
our business to continue to operate, while ensuring the safety of
our people.
Yours sincerely,
Jeffery Auld, Chief Executive Officer
24 March 2020
SERINUS ENERGY Annual Report 2019
9
REPORT FROM CFO
During 2019 Serinus faced many challenges and made significant
progress, which have translated into the financial performance for
the year and position of the Group as at 31 December 2019.
Liquidity, Debt and Capital Resources
In Romania, the Group invested $3.9 million to complete the
gas plant in the Moftinu field, as well as preliminary costs to drill
M-1004, which was drilled in February 2020. Production from
Moftinu commenced on 25 April 2019 and has been producing
consistently from M-1003 and M-1007.
In Tunisia, the Group reopened the Chouech field in Q3 2019,
which contributed 38,415 boe or 105 boe/d for 2019. Production
from the Sabria field remained consistent during the year. Tunisia
was a positive cash flow generating business unit for the year.
With the reopening of Chouech and some planned workovers
in Chouech and Sabria in 2020, we expect cash flow generation
from Tunisia to improve in 2020.
During 2019, funds from operations improved year over year by
$6.9 million to $8.1 million in 2019 (2018 - $1.2 million). Taking
into consideration the movement in working capital, the cash
flows generated from operating activities in 2019 were $8.8
million (2018 – used in operations: $5.9 million).
In March 2019 the Group undertook a placing to raise gross
proceeds of $3.0 million, by issuing 21,553,583 shares at a price
of £0.105 per share. Attached to each share issued is 0.105
warrants, with each full warrant entitling the holder to purchase
one ordinary share at an exercise price of £0.105 per share,
exercisable for a period of 24 months after closing.
The proceeds of the equity issuance were used to fund a Senior
debt repayment to the EBRD due 31 March 2019 of $2.7 million
plus accrued interest. The final repayment of $2.7 million plus
accrued interest was paid on 13 September 2019, leaving just
the convertible debt outstanding with the EBRD. The Convertible
debt is due to be repaid in four instalments commencing 30 June
2020, when 25% of the principal and accrued interest at that date
will be repayable. The three remaining repayments will be made
annually on 30 June. As at 31 December 2019, $7.7 million of
the Convertible debt is reported as current. The Company will
continue to manage its cash flow from operations to manage it
obligations including all payments on the convertible debt.
Delays with achieving first production in Romania have resulted
in a tightening cash position and breach of the financial covenant
of the debt held with the EBRD throughout the year, as well as
contributing to the delay of capital programs in Tunisia, the
implications of which are further discussed below.
($000)
Current assets
Current liabilities
Year ended 31 December
2019
2018
15,243
32,194
13,480
28,918
Working Capital deficit
(16,951)
(15,438)
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SERINUS ENERGY Annual Report 2019
PRODUCTION
Tunisia (boe/d)
Crude oil (bbl/d)
Natural gas (Mcf/d)
Tunisia (boe/d)
Romania
Natural gas (Mcf/d)
Condensate (bbl/d)
Romania (boe/d)
Group
Crude oil (bbl/d)
Natural gas (Mcf/d)
Condensate (bbl/d)
Total group production (boe/d)
% liquids weighting
% gas weighting
Year ended 31 December
2019
2018
339
534
254
586
428
352
5,673
15
961
339
6,206
15
1,389
26%
74%
-
-
-
254
586
-
352
72%
28%
100%
100%
Production saw a significant increase during 2019 as Serinus
brought the Romanian Moftinu gas field on production and was
able to reopen the previously shut-in Chouech production during
the year. Production volumes (boe/d) increased by 1,037 to 1,389
for the year (2018 - 352).
Romania started production at the end of April 2019 and did not
experience any interruptions to the production during the year. The
Company completed a planned two-week turn around in October
for regular maintenance on the gas plant. The maintenance
turnaround was performed on time and under budget. During the
year, the Romanian production was predominantly from two wells:
M-1003 and M-1007.
Tunisia saw a significant improvement in the social situation and
protests were reduced, as such the Company was able to restart
production from the Chouech field in July 2019, bringing five
wells back onto production. Production rates have not returned
to pre-shut in levels due to higher than anticipated water levels.
The Company also reopened one well in Ech Chouech during the
year. Ech Chouech is an adjacent field to the Chouech field and
was able to tie Ech Chouech into the Chouech field to sell the
associated gas in November 2019.
The working capital deficit of the Group at 31 December 2019
was $16.9 million (2018 – $15.4 million). Included in current
liabilities at 31 December 2019 was $7.7 million of EBRD debt,
accounts payable of $16.2 million, income taxes payable of
$1.4 million, current portion of lease obligations of $0.5 million
and a decommissioning provision of $6.3 million. Included in
accounts payable was $8.2 million relating to Brunei. Of this
amount, $2.2 million relates to a dispute with a drilling company
dating back to 2013 on Block L and the remaining $6.0 million
relates to work commitments on the Brunei Block M production
sharing agreement which expired August 2012. Included in the
asset retirement obligations is $1.8 million relating to Brunei, $1.0
million relating to Canada, and $3.5 million relating to Tunisia.
The obligations in Canada are offset by cash held on deposit as
restricted cash of $1.1 million in current assets.
The Group renegotiated its EBRD debt in late 2017, which
provided a holiday from making principal repayments on the
Senior Loan until 2019 and a holiday from covenants until
September 2018, allowing the Group to develop Romania and
achieve first production. The Company was successful in repaying
the Senior Loan on schedule making one payment in March 2019
and the final payment in September 2019.
On 30 December 2019 the Group received a waiver from the
EBRD formally waiving compliance with the financial covenants
for the period ended 31 December 2019. Under the base case
cashflow, the forecast indicates that the Group will be marginally
in breach of the EBRD debt service covenant at 31 March 2020
but based on analysis performed, assuming business continuity
plans in place are effective, it will be able to repay the 30 June
2020 instalment under the facility, and will subsequently be
compliant with the EBRD covenants thereafter. In order to mitigate
the potential covenant breach in March 2020, the Group has
sought a further covenant waiver from the EBRD and has begun
discussions with the EBRD to assess the impact of the current
situation and examine options available to manage through this
period of uncertainty.
Refer to Note 2 of the Consolidated Financial Statements for
further discussion on going concern.
FINANCIAL REVIEW – YEAR ENDED 31 DECEMBER 2019
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)
Cash flow from (used in) operations
Changes in non-cash working capital
Funds from operations
2019
2018
8,778
(670)
(5,913)
7,069
8,108
1,156
Funds from operations per share
0.03
0.01
The additional funds from operations in 2019 were primarily
attributable to the Romanian Moftinu field coming online in April
2019, along with the reopening of the Chouech field in the second
half of the year. Funds from operations generated in Romania
were $8.9 million (2018 – $4.3 million), Tunisia $3.4 million (2018 -
$2.1 million) and funds used Corporately were $4.2 million (2018
- $5.2 million).
SERINUS ENERGY Annual Report 2019
11
REPORT FROM CFO continued
OIL AND GAS REVENUE
mainly oil in the prior year as seen above.
Oil revenue
Gas revenue
Tunisia revenue
Gas revenue
Condensate revenue
Romania revenue
Oil revenue
Gas revenue
Condensate revenue
Total group revenue
Liquids revenue (%)
Gas revenue (%)
Realized Price
Tunisia
Oil ($/bbl)
Gas ($/Mcf)
Year ended 31 December
2019
2018
7,617
1,604
9,221
14,855
289
15,144
7,617
16,459
289
6,216
2,500
8,716
-
-
-
6,216
2,500
-
24,365
8,716
32%
68%
71%
29%
100%
100%
61.67
8.24
66.96
11.69
Tunisia average realized price ($/boe)
59.12
67.85
Under the terms of the Sabria Concession Agreement the Group
is required to sell 20% of its annual crude oil production from
the Sabria concession into the local market, which is sold at an
approximate 10% discount to the price obtained on its other
crude sales. The remaining crude oil production is sold to the
international market, through a marketing agreement with Shell
International Trading and Shipping Company Limited. In 2019, the
Group completed one (2018 – one) lifting, which occurred during
the fourth quarter.
The Group is required to sell 50% of its annual gas production
from the Satu Mare concession into the local commodity market,
which to date has received comparable prices compared to the
prices received from the sales agreement with Vitol Gas and
Power B.V.
The Group saw a decrease in realized oil prices ($/bbl) of $5.29
to $61.67 (2018 – $66.96), and a decrease in realized natural gas
prices ($/Mcf) of $4.42 to $7.27 (2018 - $11.69 or $9.80 – net of a
$0.4 million one-time gain due to a change in the reference price).
ROYALTIES
($000)
Tunisia
Romania
Total
($/boe)
Tunisia (% of revenue)
Romania (% of revenue)
Year ended 31 December
2019
2018
1,057
803
1,860
3.67
11.5%
5.3%
867
-
867
6.75
9.9%
0.0%
Romania
Gas ($/Mcf)
Condensate ($/bbl)
Romania average realized price ($/boe)
Total (% of revenue)
7.6%
9.9%
7.17
54.79
43.22
-
-
-
Royalties saw a significant increase for the year, up $1.0 million
to $1.9 million (2018 - $0.9 million). This increase is directly
attributable to the Romanian production starting in April 2019.
The effective royalty rate saw a sharp decline compared to 2018
due to lower royalty rates in Romania, which accounted for 62% of
the total revenue.
Group
Oil ($/bbl)
Gas ($/Mcf)
Condensate ($/bbl)
61.67
7.27
54.79
66.96
11.69
-
Group average realized price ($/boe)
48.12
67.85
Revenue during the year nearly tripled to $24.4 million (2018 –
$8.7 million), mainly due to the Romanian production coming
online in April 2019. The Group saw the realized price ($/boe)
decrease by $19.73 to $48.12 (2018 - $67.85) due to the Group’s
product weighting changing to majority gas sales compared to
Romanian royalties are a flat 7.5% for gas revenues and 3.5% for
condensate for the entire field.
Tunisian royalties are 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
2019, the royalty rate in the Sabria concession was 10% for oil and
8% for gas. Chouech and Ech Chouech royalty rates are flat at 15%
for both oil and gas.
12
SERINUS ENERGY Annual Report 2019
PRODUCTION EXPENSES
($000)
Tunisia
Romania
Canada
Group
Year ended 31 December
2019
2018
4,606
2,332
47
2,990
-
54
6,985
3,044
The Group operating netback ($/boe) decreased by $6.86 to
$30.67 (2018 - $37.53). The main contributing factor to this
decrease is lower realized prices, partially offset by lower royalties
and production expenses as described above.
GENERAL AND ADMINISTRATIVE (“G&A”) EXPENSE
($000)
G&A expense
G&A expense ($/boe)
Year ended 31 December
2019
2018
3,801
7.50
3,422
26.64
Tunisia production expense ($/boe)
Romania production expense ($/boe)
29.46
6.65
23.27
-
Total production expense ($/boe)
13.78
23.57
G&A costs had a minor increase during the year of $0.4 million
to $3.8 million (2018 - $3.4 million). On a per boe basis, G&A has
decreased due to the incremental production added from the
Moftinu and Chouech fields during the year.
G&A costs incurred by the Group are expensed, with certain costs
directly related to exploration and development assets being
capitalized or reported as production costs. The G&A expense
reported is on a net basis, representing gross G&A costs incurred
less recoveries of those costs presented as capital or production
costs.
WINDFALL TAX
($000)
Windfall tax
Windfall tax ($/Mcf - Romania gas)
Windfall tax ($/boe - Romania gas)
Year ended 31December
2019
2018
3,155
1.52
9.14
-
-
-
In Romania, the Group is subject to a windfall tax on its natural gas
production which is applied to supplemental income once natural
gas prices exceed 47.53 RON/Mwh (approximately $3.40 per
mcf). This supplemental income is taxed at a rate of 60% between
47.53 RON/Mwh and 85.00 RON/Mwh and at a rate of 80% above
85.00 RON/Mwh. Expenses deductible in the calculation of the
windfall tax include royalties and capital expenditures limited to
30% of the supplemental income.
During 2019, the Group has incurred windfall taxes of $3.2 million
which equates to $1.52 per mcf of Romanian gas
SHARE-BASED COMPENSATION
Year ended 31 December
($000)
Stock-based compensation
Stock-based compensation ($/boe)
2019
2018
528
1.04
820
6.38
Share-based compensation decreased by $0.3 million to $0.5
million (2018 – $0.8 million) due to a large number of options
being cancelled during the year due to staff turnover.
The Group realized a large decrease in production expenses
($/boe) of $9.79 to $13.78 (2018 - $23.57). The primary reason for
the decrease is due to the production from the Romanian Moftinu
field where production expenses per boe is lower than Tunisia.
The Tunisian operating costs saw a minor increase due to work
required to bring the Chouech field online as well as other minor
workovers to help stimulate the wells.
Canadian production expenses relate to the Sturgeon Lake assets,
which are not producing and are incurring minimal operating
costs to maintain the property.
OPERATING NETBACK
Serinus uses operating netback as a key performance indicator
to assist management in understanding Serinus’ profitability
relative to current market conditions and as an analytical tool to
benchmark changes in operational performance against prior
periods. Operating netback consists of petroleum and natural gas
revenues less direct costs consisting of royalties and production
expenses. Netback is not a standard measure under IFRS and
therefore may not be comparable to similar measures reported
by other entities.
($/boe)
Tunisia
Production volume (boe/d)
Realized price
Royalties
Production expense
Year ended 31 December
2019
2018
428
59.12
(6.76)
(29.46)
352
67.85
(6.75)
(23.27)
Operating netback - Tunisia
22.90
37.83
Romania
Production volume (boe/d)
Realized price
Royalties
Production expense
Operating netback - Romania
Group
Production volume (boe/d)
Realized price
Royalties
Production expense
961
43.22
(2.29)
(6.65)
34.28
-
-
-
-
-
1,389
48.12
(3.67)
(13.78)
352
67.85
(6.75)
(23.57)
Operating netback - Group
30.67
37.53
SERINUS ENERGY Annual Report 2019
13
Net finance expense for 2019 increased by $0.2 million to $4.8
million (2018 – $4.6 million). Serinus repaid the Senior loan over
the course of the year in two installments, but the compounding
component of the Convertible debt more than offset these
interest savings. Interest from the adoption of IFRS 16 accounted
for $0.1 million (2018 - $nil).
DECOMMISSIONING PROVISION
During the year, the Group conducted a thorough analysis of
the decommissioning requirements for the Tunisian business
unit and determined that there were significant cost savings,
based on revised abandonment procedures and cost estimates,
that could be applied to the decommissioning of the fields. This
resulted in a change in estimate to the decommissioning liability
and to the offsetting decommissioning asset. In the case where
the decommissioning asset has been fully impaired, the Group
recognized this change in estimate through the Statement of
Comprehensive Loss. For 2019, this amounted to $14.8 million
(2018 - $0.3 million), of which $6.9 million (2018 - $0.3 million) was
booked as a recovery through the Statement of Comprehensive
Loss, with the remainder booked against the decommissioning
asset.
Andrew Fairclough, Chief Financial Officer
24 March 2020
REPORT FROM CFO continued
DEPLETION, DEPRECIATION AND AMORTIZATION (“DD&A”)
Year ended 31 December
($000)
Tunisia
Romania
Corporate
Total
Tunisia ($/boe)
Romania ($/boe)
Total ($/boe)
2019
2018
2,576
7,216
685
1,586
14
201
10,477
1,801
16.48
20.59
12.35
-
20.67
14.02
Depletion and depreciation expense increased for the year by $8.7
million to $10.5 million (2018 - $1.8 million). The increase is due
to Depletion and depreciation incurred on the Romanian assets as
the Moftinu field was brought online in April 2019. The Group also
realized additional Depletion and depreciation expense related
to the adoption of the new lease accounting standard (IFRS 16).
On a per boe basis, the Depletion and depreciation expense also
increased year over year.
NET FINANCE EXPENSE
($000)
Year ended 31 December
2019
2018
Interest expense on long-term debt
Amortization of debt costs
Amortization of debt modification
Interest of leases
Accretion on decommissioning provision
Other interest and foreign exchange
3,319
144
97
145
1,224
(126)
3,212
255
44
-
1,030
26
4,803
4,567
14
SERINUS ENERGY Annual Report 2019
REVIEW OF OPERATIONS
ROMANIA
•
•
Satu Mare Block – 2,949 km2 (729 thousand gross acres) of onshore
Romanian land.
Located within the Pannonian Basin (Hajdusag sub-Basin) on trend with
discovered and producing oil and gas fields and close to infrastructure.
• Multiple play types that have produced or are producing along the same
trend, including shallow amplitude-supported gas reservoirs; conventional
siliciclastic oil reservoirs; and fractured-basement oil and gas reservoirs.
•
Serinus operates with 100% deemed working interest which is owned and
operated through the wholly owned subsidiary Serinus Energy Romania
S.A. The phase 1 & 2 exploration obligations were completed in April 2015,
and the third exploration phase is currently ongoing. Phase 3 received a
twelve-month extension to 28 October 2020, extending the Company’s
timing to carry out the remaining 3D seismic acquisition commitment.
Satu Mare Concession – History
•
•
•
•
•
Serinus farmed-in to the Satu Mare Concession in 2008 and earned 60% WI by funding 100% of work commitments for Exploration
Phases 1 and 2.
The Company has a deemed 100% working interest in the concession as its partner has defaulted. The Company is working with
the local authorities to have the partner’s working interest officially transferred.
Serinus has completed all the phase 1 and 2 work commitments, as follows:
•
Acquired two 3D seismic surveys covering a total of 260 km2 (80 km2 Moftinu & 180 km2 Santau Surveys).
• Drilled four wells resulting in Moftinu gas discovery (Madaras-109, Moftinu 1000, 1001 & 1002bis wells).
•
Serinus has spent approximately $52 million on the concession to date.
Completion of Phase 2 entitled Serinus to enter a Phase 3 Exploration.
The Phase 3 work program includes the following commitments:
•
•
To drill two wells: one well to 1,000m depth and one well to 1,600m depth. Serinus has drilled M-1007 (a re-drill of
Moftinu-1001) and M-1003 (1600m).
To acquire 120 km2 of 3D Seismic.
•
Phase 3 was extended to 28 October 2020.
Serinus completed the Moftinu Gas Plant with first gas production
in April 2019. The Moftinu Gas Project is the development of the
Moftinu gas field, a shallow (800-1,000m), multi-zone gas field. The
field has relatively low drilling and completion costs, with strong
initial well production rates. Serinus also built a 3km sales line that
ties-in the major Transgaz pipeline, Abramut to Satu Mare. The
infrastructure created by Serinus in the Satu Mare area represents
a very important addition and investment which established the
Group as one of the most significant investors in the area.
the year-end, the Company drilled, completed, and tested the
M-1004 well in the Moftinu field. The well tested at 6.0 MMscf/d
and was connected to the gas plant and brought onto production
in February 2020.
The Group has future capital plans to continue to develop the Satu
Mare concession, which includes the completion of the 148 km2
seismic acquisition program and tentative plans to drill M-1008 in
Q4 2020, dependent on available capacity of the gas plant.
The Moftinu gas plant was designed at a capacity of 15 MMscf/d
and can accommodate up to six flowlines. During 2019,
production was predominantly comprised from two wells (M-
1003 and M-1007) and averaged 5.7 MMscf/d. Subsequent to
SERINUS ENERGY Annual Report 2019
15
REVIEW OF OPERATIONS
TUNISIA
The Group currently holds five Tunisia concessions that comprise a diverse portfolio of development
and exploration assets. The Group currently produces oil and gas in three of the concessions
(Sabria, Chouech, and Ech Chouech). This production can and has been sustained with low-risk
development drilling but also has significant growth opportunities over the medium to long-term.
The Group has no outstanding work commitments with any of their concessions.
License
Serinus Working Interest
Approximate Gross Area (acres)
Expiry
45% (ETAP 55%)
100%
100%
100%
100%
26,196
42,526
35,139
36,879
17,471
November 2028
December 2027
June 2022
December 2021
December 2020
Sabria
Chouech Es Saida
Ech Chouech
Sanghar
Zinnia
Sabria
•
•
•
Contains a large Ordovician light oil field that provides
Serinus with a stable production base from its large reserve
base and long reserves life index
The Ordovician reservoir at Sabria contains 358 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
In early 2020, the Group performed a coil-tubing on Win-12
bis. For the remainder of 2020, the Group will be performing
artificial lift studies and surface upgrades. Beyond 2020,
the Group plans to continue to implement artificial lift into
existing wells and could consider drilling new wells under the
right economic conditions
•
•
•
The Company successfully brought the EC-1 well back on
production in Q4-2019
The Group has no work plans in 2020
This asset was previously fully impaired in the accounts;
carrying value will be reviewed dependent on the future
performance of the field
Zinnia
•
•
•
•
Currently non-producing block with two formerly producing
oil and gas wells discovered in 1991
Prospectively lies within an undrilled fault block that requires
3D seismic to be confidently defined
The Group has no work plans in 2020
This asset was previously fully impaired in the accounts
Chouech Es Saida
Sanghar
•
•
•
Produced over 9.8 million boe to date from the TAGI
Formation in the Triassic reservoir
The deeper Silurian Acacus Sands and the Tannezuft fan,
which have been penetrated and successfully tested and
produced hydrocarbons in 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-well success rates
of nearly 100%
For 2020, the Group is assessing different alternatives to
enhance the production in the field in an effort to return to
historical levels of approximately 600 boe/d
Ech Chouech
•
•
Produced oil intermittently from the TAGI formation, dating
back to the discovery of the field in 1970
Adjacent to the Chouech block, the concession similarly
carries significant upside potential in Silurian exploration
targets that are not yet drilled but are defined on 3D seismic
(acquired in 2008)
•
•
•
•
•
•
Located 60 kms northeast of the Elborma oil field in the
Sahara Desert of Southern Tunisia
Three wells have been drilled on the Sanghar domal structure
of the Triassic TAGI Sandstone formation
SNN-1 the sole historical oil producer in the field, began
production in 1991 and was suspended in February 2016
because of economic conditions
In the summer of 2014, Geofizika Torun on behalf of Serinus
acquired 256 km2 of modern full fold vibriosis 3D over the
Sanghar structure. The principal objective was to image
the TAGS structure and to better evaluate the hydrocarbon
potential with the Silurian, Ordovician and Cambrian
reservoirs for future well locations
The Group has no work plans in 2020
This asset was previously fully impaired in the accounts
16
SERINUS ENERGY Annual Report 2019
RESERVES1
Company Gross Reserves – Using Forecast Prices
2019
Gas
(MMcf)
Oil/
Liquids
(Mbbl)
Boe
(Mboe)
TUNSIA
Oil
/Liquids
(Mbbl)
2018
Gas
(MMcf)
Boe
(Mboe)
Change
Proved
Producing
Non-producing
Undeveloped
Proved (1P)
Probable
734
90
644
1,157
231
1,520
927
129
897
292
570
750
687
1,358
1,765
1,468
4,747
2,908
10,472
1,953
6,492
1,612
4,421
3,810
10,542
406
796
1,044
2,246
6,179
Proved & Probable (2P)
6,215
13,380
8,445
6,033
14,352
8,425
ROMANIA
Proved
Producing
Non-producing
Undeveloped
Proved (1P)
Probable
12
-
4
4,220
-
1,404
715
-
238
-
-
18
-
-
8,961
16
21
5,624
6,967
953
1,182
18
19
8,961
5,260
Proved & Probable (2P)
37
12,591
2,135
37
14,221
GROUP
Proved
Producing
Non-producing
Undeveloped
Proved (1P)
Probable
746
90
648
5,377
231
2,924
1,642
129
1,135
292
570
768
687
1,358
10,726
1,484
4,768
8,532
17,439
2,906
7,674
1,630
4,440
12,771
15,802
-
-
1,512
1,512
896
2,408
406
796
2,556
3,758
7,075
Proved & Probable (2P)
6,252
25,971
10,580
6,070
28,573
10,833
128%
-84%
-14%
-13%
5%
0%
-
-
-84%
-37%
32%
-11%
304%
-84%
-56%
-23%
8%
-2%
Serinus entered 2019 under significant operational and financial
challenges, although the petroleum industry in general benefit-
ed from an increasing Brent oil price from around US$60.00/bbl
in January to over US$70.00/bbl in April, from which it declined
before settling in a range between US$60.00- $65.00/bbl for the
remainder of 2019.
Total corporate 1P and 2P reserves in 2019 versus 2018 decreased
by 23% and 2%, respectively. There were positive and negative
revisions as follows:
Tunisia
In Tunisia, 1P reserves decreased by 13% and 2P reserves re-
mained flat. The change in reserves volumes are due to the fol-
lowing revisions:
Sabria:
•
•
Positive revisions to producing wells based on 2019
performance
Positive revisions to SAB NW1 Estimated Ultimate Recovery
based on artificial lift plans
• Negative Revisions due
to
later drilling of Proven
Underdeveloped wells vs. 2018 forecast
Chouech:
• Negative revisions to CS1, CS3, CS7, and CS9 due to
lower than expected performance when brought back on
production (although these wells have shown during past
shut-ins that they can take upwards of a year to fully return to
past production levels)
Ech Chouech
•
EC-1 was brought back on production in 2019 and was
reclassified as Proven Developed Producing from contingent
resources
1 Source: RPS Energy Canada Ltd. Reserves audit at December
31, 2019.
SERINUS ENERGY Annual Report 2019
17
RESERVES continued
Romania
In Romania, 1P and 2P reserves decreased by 37% and 11%,
respectively. The changes in reserves volumes are due to the
following revisions:
• Geological re-interpretation requiring volumes adjustments.
Changes in the P50 and P10 cases reduced Gas Initially In
Place (GIIP) values while the P90 case adjustment increased
GIIP
•
•
Estimated Ultimate recovery (EUR) volumes are lower in the
P50 and P10 cases due to lower GIIP
Increase in the P90 EUR due to improved recovery with
additional development well
NET PRESENT VALUE OF FUTURE NET REVENUES– AFTER TAX, USING FORECAST PRICES
(US$ millions)
0%
10%
15%
0%
10%
15%
PV 10%
Change
2019
2018
TUNISIA
Proved
Producing
Non-producing
Undeveloped
Proved (1P)
Probable
(18.6)
(0.5)
10.1
(7.3)
0.1
5.1
(4.1)
0.1
3.4
(10.0)
(9.2)
8.5
(5.1)
(1.3)
4.4
(3.6)
0.8
2.8
(9.0)
113.7
(2.1)
62.9
(0.6)
46. 7
(10.7)
99.6
(2.0)
58.9
-
44.1
Proved & Probable (2P)
104.7
60.8
46.1
88.9
56.9
44.1
ROMANIA
Proved
Producing
Non-producing
Undeveloped
Proved (1P)
Probable
14.3
-
3.6
13.8
-
3.3
13.5
-
3.1
-
-
25.0
-
-
23.1
-
-
22.2
17.9
24.3
17.1
20.7
16.6
19.3
25.0
23.4
23.1
18.8
22.2
17.0
Proved & Probable (2P)
42.2
37.8
35.9
48.4
41.9
39.2
GROUP
Proved
Producing
Non-producing
Undeveloped
Proved (1P)
Probable
(4.3)
(0.5)
13.7
6.5
0.1
8.4
9.4
0.1
6.5
(10.0)
(9.2)
33.5
(5.1)
(1.3)
27.5
(3.6)
0.8
25.0
8.9
138.0
5.6
81.4
15.0
83.6
14.3
123.0
21.1
77.7
22.2
61.1
-43%
108%
16%
-5%
7%
7%
-
-
-86%
-26%
10%
-10%
227%
108%
-69%
-29%
8%
Proved & Probable (2P)
146.9
98.6
82.0
137.3
98.8
83.3
0%
Net present values at 10% for Serinus’ reserves decreased by 29% for 1P reserves whilst the 2P reserves remained flat.
CONTINGENT RESOURCES
In addition to the 1P and 2P reserves assigned to the Group’s
properties in Tunisia and Romania, contingent resources are also
assigned to the Group’s properties.
The Tunisian contingent resources are in the Developed Non-
Producing sub-class and consist of the commercially recoverable
resources in the Sanghar field, which have been on production in
the past using conventional primary recovery technology but are
currently shut in due to economic and political uncertainties. The
specific contingency which prevents these resources from being
classified as reserves is the Group decision to not return the fields
to production status at this time (with the exception of EC-1), given
the marginal economics further exacerbated by the risk of social
unrest in these areas. The Group has a 100% working interest in all
properties attributed with contingent resources.
The Romanian contingent resources are in the Undeveloped
sub-class and consist of the resources behind pipe in three
specific reservoir sand layers and which are recoverable using
conventional primary gas recovery technology. 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. The development costs to bring
these contingent resources on to production are estimated at
$6.0 million, $10.1 million and $10.1 million for the 1C, 2C, and
3C cases respectively.
18
SERINUS ENERGY Annual Report 2019
All contingent resource volumes are presented as risked for a 90% chance of development.
COMPANY GROSS RISKED CONTINGENT – USING FORECAST PRICES
TUNISIA
Resource Volumes (Risked)
NPV (risked)
Oil/Liquids
(Mbbl)
Gas
(MMcf)
Boe
(Mboe)
0%
10%
15%
Likelihood
(US$ millions)
1C Contingent Resources
2C Contingent Resources
3C Contingent Resources
26
84
122
-
-
-
26
84
122
(0.7)
(0.6)
(0.2)
(0.6)
(0.3)
0.1
(0.5)
(0.2)
0.2
90%
90%
90%
ROMANIA
Resource Volumes (Risked)
NPV (risked)
Oil/Liquids
(Mbbl)
Gas
(MMcf)
Boe
(Mboe)
0%
10%
15%
Likelihood
(US$ millions)
1C Contingent Resources
2C Contingent Resources
3C Contingent Resources
6
16
29
2,217
5,218
8,600
376
886
1,462
3.1
14.3
29.9
2.7
10.4
18.7
2.5
8.9
14.9
90%
90%
90%
GROUP
Resource Volumes (Risked)
NPV (risked)
Oil/Liquids
(Mbbl)
Gas
(MMcf)
Boe
(Mboe)
0%
10%
15%
Likelihood
(US$ millions)
1C Contingent Resources
2C Contingent Resources
3C Contingent Resources
32
100
151
2,217
5,218
8,600
402
970
1,584
2.4
13.7
29.7
2.1
10.1
18.8
2.0
8.7
15.1
90%
90%
90%
Notes to Contingent Resources Table:
1. Contingent Resources are those quantities of petroleum estimated, as of 31 December 2019 to be potentially recoverable from
known accumulations using established technology or technology under development, but which are not currently considered to
be commercially recoverable due to one or more contingencies
2. There is uncertainty that any portion of the contingent resources will be commercially viable to produce
Competent Person’s Price Forecasts
The commodity price forecast used by RPS (Competent Person) in preparing is evaluation of the 2020 reserves and resources is as
follows:
Year
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
Remainder
Brent
(US$/bbl)
63.00
65.00
68.00
71.00
75.50
76.50
78.83
80.41
82.02
83.66
+2.0% per year
Sabria Gas
(US$/mcf)
7.90
8.15
8.52
8.90
9.46
9.59
9.88
10.08
10.28
10.49
+2.0% per year
Chouech Gas
(US$/mcf)
7.05
7.27
7.61
7.94
8.45
8.56
8.82
9.00
9.18
9.36
+2.0% per year
Romania Gas
(US$/mmbtu)
6.54
6.75
7.06
7.37
7.83
7.94
8.18
8.34
8.51
8.68
+2.0% per year
SERINUS ENERGY Annual Report 2019
19
RISK MANAGEMENT STATEMEMT
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.
Risk
Description
Mitigation
Political and Regulatory Risk
Operating in multiple jurisdictions poses
a variety of political, regulatory and social
environments, and risks such as social
unrest, political violence, corruption,
expropriation and non-compliance with
laws and regulations
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. The unprecedented global
pandemic COVID-19 may
impact
operational performance
• Actively
monitors
and
political
maintains
developments
relationships
government,
with
authorities and industry bodies, as well
as with other stakeholders
• Manages compliance with laws and
regulations and contractual obligations
by employing the requisite skills or
engaging consultants to supplement
internal knowledge
•
Internal policies and procedures, as
well as monitoring of performance,
help mitigate risks of non-compliance.
• Has enhanced its operating standards,
reflecting the well incident in late 2017
• Has extensive monitoring and review
of HSE and crisis management policies
and procedures
• Carries enough levels of
insurance
coverage
• Rigorous
tender processes when
selecting vendors and contractors
• Tightly monitors costs, monitoring
monthly actual to budget trends and
adjusting forecasts
• Employs geological and
technical
to review data and work
experts
programs
• Has adopted additional protocols and
procedures for the protection of staff
and stakeholders, which follow the
advice of local government and health
authorities, as well as increased health
monitoring of operations staff and
implementing staff hygiene protocols
Capital Structure and availability of
Financing
There can be no assurances that the Group
can raise additional financing if required
for debt repayment
• Monitors cash position, producing
monthly cash projections to determine
future cash flow needs
• Listed on the AIM equity market to
access capital, with a successful raise in
March 2019
• The Board considers different possible
sources of funds and the timing of
accessing the markets
Financial Risk
to commodity
is subject
The Group
price volatility,
foreign
rates,
interest
exchange rate volatility and credit risk of
counterparties
20
SERINUS ENERGY Annual Report 2019
• Actively monitoring
the business,
preparing monthly forecasts with the
interest,
various sensitivities
foreign exchange)
(price,
• The Group’s financial risk policies
are set out in Note 4 to the financial
statements
BOARD OF DIRECTORS AND MANAGEMENT TEAM
BOARD OF DIRECTORS
Łukasz Rędziniak
Interim Chairman, Non-Independent Director,
Chair of Remuneration Committee, Chair of the
Nomination Committee Board Member and
General Counsel of Kulczyk Investments SA,
the largest shareholder of Serinus, Appointed
March 2016
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, Góra sp. k. In
2013, he became a Member of the Board at Kulczyk Investments
S.A. The same year 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 Polenergia S.A. (Vice-Chairman of the
Supervisor).
Mr. Rędziniak is a graduate of the Faculty of Law and Administration
of Jagiellonian University.
Jeffrey Auld
CEO, Executive Director,
Appointed September 2016
involved with
the
Mr. Auld has been
international oil and gas business for over 25
years. He has managed companies and acted
as an advisor to companies operating in the
emerging oil and gas market. Mr. Auld has
an abundance 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.
Eleanor Barker
Independent Director, Chair of the Audit
Committee, Member of the Remuneration
the Nomination
Committee, Member of
Committee, Member
the Reserves
Committee, Appointed May 2017
of
Eleanor Barker
is President of Barker Oil
Strategies and from 2014 to 2017 was a
Director of Sterling Resources Ltd. Since 1995, Ms. Barker has
focused on international oil research. From 2012 to 2014 she was
an international oil analyst with Toll Cross Securities Inc. From 2007
to 2012 she was President of Barker Oil Strategies Inc. Ms. Barker
is a past Director of the US National Association of Petroleum
Investment Analysts and a former President of the Canadian
Association of Investment Analysts. From 1993 to 1995 Ms. Barker
was a director of Gordon Capital. Prior to work in financial markets,
she held various positions with Esso and Gulf Canada.
Ms. Barker graduated from Queen’s University in Kingston, Ontario
with an Honours Bachelor of Science degree, and earned her MBA
from the University of Western Ontario.
Jim Causgrove
Independent Director, Chair of the Reserves
Committee, Member of the Audit Committee,
Appointed September 2017
Mr. Causgrove is an experienced Oil and Gas
executive with over 35 years of experience.
On 14 November 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 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
working 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.
SERINUS ENERGY Annual Report 2019
21
Andrew Fairclough
Chief Financial Officer, Executive Director,
Appointed February 2020
Mr. Fairclough served in the Armed Forces,
prior to moving into a career in investment
banking, where he worked for a number of
banks in London and New York, including
Flemings, Rothschild, Merrill Lynch and Espirito
Santo Investment Bank, providing corporate finance and capital
markets advice and execution. He subsequently moved into the oil
and gas industry becoming the Chief Financial Officer of Whalsay
Energy Limited, prior to joining Serinus Energy.
Mr. Fairclough has nearly 30 years of financial and management
experience from which he brings a wide range of experience
to the Group including corporate strategy and planning, debt
and equity capital markets, mergers and acquisitions, capital
management and restructuring.
Mr. Fairclough has a degree in Law from University College
London and was commissioned into the Scots Guards.
Dawid Jakubowicz
Non-Independent Director
for
is a member of
the supervision of
Mr. Jakubowicz
the
management board at Kulczyk Investments
S.A., where since 2010, he has been
responsible
the
investment portfolio. He is an esteemed expert
with international operating experience in the
building of goodwill of companies from the chemical, mining,
power, automotive and new technologies sector. In the past, he
worked for KPMG, where he was responsible for audit of financial
statements from many sectors. Since 2014, he has been entered
in the list of Chartered Accountants kept by the Polish Chamber of
Chartered Accountants.
Mr. Dawid Jakubowicz graduated from the University of Economics
in Poznań. He also holds an MBA from the University of Economics
in Poznań and Georgia State University in the United States and
he has completed a Program for Leadership Development at the
Harvard School in Boston.
22
SERINUS ENERGY Annual Report 2019
BOARD OF DIRECTORS AND MANAGEMENT TEAM
SENIOR MANAGEMENT
Calvin Brackman
Vice President, External Relations & Strategy
Haithem Ben Hassen
President, Serinus Energy Tunisia B.V.
Mr. Brackman has more than 25 years’ experience in the oil &
gas industry, both in the public and private sector. He started his
career working for the Department of Natural Resources of the
Government of Canada, before moving to a senior position in the
Minerals, Oil & Gas Division of the Government of the Northwest
Territories. In 2003, Mr. Brackman moved to London, UK, to join
PetroKazakhstan Inc. as Director of Government Relations. In this
position he developed and implemented strategies to reduce the
company’s surface risk. Following the sale of PetroKazakhstan to
CNPC in 2005, Mr. Brackman moved back to Canada and started a
successful consulting practice, providing expert advice to various
international companies and governments. In December 2016,
he joined Serinus in his current role, working with the company’s
management team and business units to develop and implement
the Group’s exploration and development strategies and oversee
government and stakeholder relations.
Mr. Brackman has a Masters in Economics from the University
of Waterloo and a degree in Economics from the University of
Calgary.
Alexandra Damascan
President, Serinus Energy Romania S.A.
Ms. Damascan has been with Serinus Energy Romania since 2008
and as a senior executive with expertise in all areas of the global
oil and gas industry. Ms. Damascan has been an integral piece
to bringing the Romanian assets from the exploration phase to
production in 2019. Prior to joining Serinus, Ms. Damascan was
a partner in a medium size Romanian company which handled
technical and legal translations and language interpretation for
different journals and professional magazines.
Ms. Damascan graduated from the Oil and Gas Institute as a
Petroleum Engineer. Ms. Damascan also has a degree in Political
Economics, an MBA in Business Transactions from the Academy
of Economic Studies, a Law Degree and LLM in International
Arbitration from the Romanian-American University and an MBA
in Oil & Gas from the Oil and Gas Institute in Ploiesti, Romania.
Mr. Ben Hassen joined Serinus Energy Tunisia B.V. in November
2014 as a Senior Project Engineer and was then promoted to
Project Manager in May 2015. In January 2018, he was promoted
to President of Serinus Energy Tunisia B.V. He has been responsible
for the completion of numerous capital projects undertaken by
Serinus Energy Tunisia B.V. He was also appointed to handle the
technical aspect of the Moftinu Development Project in Romania.
Mr. Ben Hassen has over 15 years of experience in the oil and
gas industry, as well as power plants and renewable energies. He
has a very well-rounded breadth of knowledge including; project
management, engineering, construction, completions, handover
and closeout and operating, contract review, business plan
development and budgeting and forecasting.
Mr. Ben Hassen has a degree in Mechanical Engineering from the
École Polytechnique of Montréal in Canada.
Arafet Mansali
Chief Operating Officer, Serinus Energy Tunisia B.V.
Mr. Mansali joined Serinus Energy Tunisia B.V. in February 2014 as
a Senior Production Engineer before being appointed Production
Manager in May 2017. He was appointed as Chief Operating
Officer of Serinus Energy Tunisia B.V in January 2018. Prior to
joining Serinus, Mr. Mansali worked in petroleum engineering, the
field and operations management in Maretap Tunisia and Ecumed
Petroleum Tunisia. Mr. Mansali is responsible for the daily field
operations for the Company’s Tunisian assets.
Mr. Mansali has a degree in Mechanical Engineering from the
National Institute of Applied Science and Technology in Tunisia.
SERINUS ENERGY Annual Report 2019
23
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.
To these ends and in line with the recent changes to the AIM Rules
to require all companies to adopt and comply with a recognised
corporate governance code, the Board has adopted the Quoted
Companies Alliance Corporate Governance Code (the “Code”). It
was decided that the Code was more appropriate for the Group’s
size and stage of development than the more prescriptive
Financial Reporting Council’s UK Corporate Governance Code.
The report that follows sets out in summary terms how we comply
with the Code to be read in conjunction with the Statement of
Compliance with QCA Corporate Governance Code available on
our website at http://serinusenergy.com/shareholder-information/
As an issuer listed on the Warsaw Stock Exchange, Poland (“WSE”),
the Company was subject and followed the recommendations
and rules contained within the “Code of Best Practice for WSE
Listed Companies 2016”. These rules were adopted by the WSE
Supervisory Board on 13 October 2015 (Annex to the Resolution
No. 27/1414/2015) and are accessible at:
https://www.gpw.pl/best-practice
https://www.gpw.pl/pub/GPW/o-nas/DPSN2016_EN.pdf
Principle 1: Establish a strategy and business model which
promotes the long-term value for shareholders
•
•
•
•
The Group’s strategy is defined in the Strategic Section of this
Annual Report.
The objective is to grow the hydrocarbon production of the
Group through efficient allocation of shareholder capital to
produce long-term return on investments for shareholders.
In order to capitalise on the available opportunities and to
mitigate the key challenges facing the Group, the Group
has assembled a high-quality Board of Directors, and set of
advisers with relative experience in the upstream oil & gas
environment. The Group has been structured to give the
Board the necessary oversight of all investment decisions of
the Group.
The long-term commercial success of the Group, meaning the
capability to generate positive net revenues on a sustainable
basis, will depend on its ability to find, acquire, develop and
commercially produce oil and natural gas reserves.
Principle 2: Seek to understand and meet shareholder needs and
expectations
The Group is committed to listening and communicating openly
with its shareholders to ensure that its strategy, business model
and performance are clearly understood. Providing an open
environment with investors and analysts allows us to build
our relationships with these audiences, while providing the
opportunity to further share our business model and allows us to
drive our business forward. The initiatives taken by the Company
to keep investors and analysts informed are as follows:
•
•
•
•
•
Investor roadshows
Attending investor conferences
Hosting capital markets days
Timely disclosure of material information
Regular reporting
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 CEO, and
other management members 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
The EBRD
Employees
Communities in which we operate – landowners, local
authorities, 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
24
SERINUS ENERGY Annual Report 2019
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
two Executive Directors,
The Board comprises of a non-executive, non-independent
Chairman,
two non-executive
independent Directors, and one non-executive non-independent
Director. The Board is satisfied that it has a well-diversified and
balanced team with varying levels of expertise in different facets of
the business. This allows the Board to act effectively and efficiently
in the best interests of the Company.
Directors’ attendance at Board and Committee meetings during 2019 was as follows:
Director
Total Meetings
Jeffrey Auld
Lukasz Redziniak
Jim Causgrove
Eleanor Barker
Dawid Jakubowicz
Tracy Heck 1
Evgenij Iorich 2
Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
Reserves
Committee
6
7
3
1
1
6
5
1
-
1
6
2
3
1
-
6
7
-
-
1
6
7
3
1
1
6
3
1
-
-
4
4
-
-
1
2
2
-
-
-
1Tracy resigned on 31 October 2019
2Evgenij Iorich resigned 16 May 2019
Key Board activities this year included:
•
Continued an open dialogue with the investment community
• Discussed strategic priorities
• Discussed the Company’s capital structure and financial
strategy, including capital investments and shareholder
returns
• Discussed internal governance processes
•
•
Reviewed the Group’s risk profile
Reviewed feedback from shareholders post quarterly and full
year results
The Company has effective procedures in place to monitor and
deal with conflicts of interest. Since the non-executive Directors
perform their duties on a part-time basis, the Board is aware of the
other commitments and interests of its Directors, and changes to
these commitments and interests must be reported to and, where
appropriate, agreed with the rest of the Board. The two executive
directors are full time with the Company.
The Company’s Board has a broad range of relevant experience
suitable for issues pertaining to the oversight of a publicly
listed Oil & Gas Company. These include financial, legal, capital
markets, and technical. The Board of Directors and Management
Team section of this annual report contains the biographies
and experience of each of the Directors and key management
personnel.
Principle 6: Ensure that between them the directors have the
necessary up-to-date experience, skills and capabilities
Members of the Board are listed in the Board of Directors section
of this Annual Report which also details their experience, skills
and personal qualities. The Corporate Secretary of the Company
is JTC Group. 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.
The Board also has one female Director as the Company believes
in diversity.
All Directors receive regular and timely information on the
Group’s operational and financial performance. Board members
are provided with agendas and related materials in advance of
all meetings. The Group’s management provides the Board with a
Monthly Directors’ Report that contains share price performance,
key financial and operating indices, cash flow forecast, capital
expenditures, budget variance reports, and commentary on the
opportunities and risks facing the Group.
New directors have access to the entire management team, and
other Directors to further develop their understanding of the
business operations and risks. The Directors are encouraged to
seek independent advice to ensure they are able to fulfill their
duties at the expense of the Company.
Principle 7: Evaluate board performance based on clear and
relevant objectives, seeking continuous improvement
The Company is constantly assessing the individual contributions
of all Board members to ensure each member:
•
•
•
Is actively contributing to the success of the Company
Is fully committed
Is maintaining their independence
the non-Executive Directors discuss
Periodically
relevant
succession planning with the CEO. These discussions focus on key
individual risk as well as broader succession issues.
SERINUS ENERGY Annual Report 2019
25
CORPORATE GOVERNANCE STATEMENT continued
•
•
•
•
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 an appropriate
relationship with the Group’s auditors.
for
is responsible
The Remuneration Committee
the
consideration, development and implementation of policy
on executive remuneration and fixing remuneration packages
of individual directors, so that no director shall be involved
in deciding his or her own remuneration. The committee
ensures remuneration is aligned to the implementation of the
Group strategy and effective risk management, considering
the views of shareholders and is also assisted by executive
pay consultants as and when required.
The Nomination Committee is responsible for establishing
formal, rigorous and
the
appointment of new directors to the Board.
transparent procedures
for
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 of
meeting with representatives of the Engineering Firm and
management to discuss the Report’s preparation and the
conclusions contained in the Report.
Principle 10: Communicate how the company is governed and
is performing by maintaining a dialogue with shareholders and
other relevant stakeholders
through
The Company communicates with shareholders
the Annual Report and Accounts,
full-year and quarterly
announcements, and the AGM. Corporate announcements,
results and presentations is available on the Company’s corporate
website, www.serinusenergy.com. The Board receives regular
updates on the views of shareholders through briefings and
reports from the CEO and the Company’s brokers. The Company
communicates with institutional investors frequently through
briefings with management. In addition, analysts’ notes and
brokers’ briefings are reviewed to achieve a wide understanding
of investors’ views.
For the Company’s shareholder meetings, any resolutions voted
by shareholders that have a significant number of dissenting votes
the Company will provide, on a timely basis, an explanation of
what actions it intends to take to understand the reasons behind
that vote result, and, where appropriate, any different action it has
taken, or will take, as a result of the vote.
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 each year 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 2019, the Board met for its
four scheduled meetings plus an additional two times.
The Board and the Committees are provided with the agenda and
other appropriate material on a timely basis in order to prepare
for each meeting. Any Director may challenge Group proposals
and after all relevant discussions, are voted on. Any Director who
feels that any concern remains unresolved after discussion may
ask for that concern to be noted in the minutes of the meeting,
which are then circulated to all Directors. Any specific actions
arising from such meetings are agreed by the Board or relevant
committee and then followed up by the Company’s management.
The Board is responsible for the long-term success of the
Group. There is a formal schedule of matters reserved for the
Board. It is responsible for overall group strategy, approval of
major investments, approval of the annual and interim results,
annual budgets, and Board structure. It monitors the exposure
to key business risks and reviews the annual budgets and their
performance in relation to those budgets. There is a clear division
of responsibility at the head of the Company.
The Chairman is responsible for running the business of the
Board and for ensuring appropriate strategic focus and direction.
The CEO is responsible for proposing the strategic focus to the
Board and implementing and overseeing the projects as they are
approved by the Board. The terms of reference for the Chairman
and CEO are on the Group’s website at http://serinusenergy.com/
shareholder-information.
The Board is supported by the audit, remuneration, nomination
and reserves committees:
26
SERINUS ENERGY Annual Report 2019
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.
Remuneration Committee
The Remuneration Committee is comprised of Lukasz Redziniak
(Chairman), a non-independent non-executive Director, and
Eleanor Barker, an independent non-executive Director. Other
Directors are invited to attend as appropriate and only if they do
not have a conflict of interest. The Committee met three times
throughout the year.
The aim of the Remuneration Committee is to:
•
•
Attract, retain and motivate the executive management of the
Company
To offer the opportunity for employees to participate in
share option schemes to incentivize employees to enhance
shareholder value, and to retain employees
To achieve the above, the Committee considers the following
categories of remuneration:
i.
Annual salary and associated benefits
ii.
Share option plan and long-term share-based incentive plan
iii. 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
Directors Remuneration
Compensation for Directors, who held office during the year, in United States dollars is as follows:
Director
Executive Directors
Jeffrey Auld
Tracy Heck 3
Non-Executive Directors
Lukasz Redziniak
Jim Causgrove
Eleanor Barker
Salaries
and fees 1
Benefits
Shares 2
2019 Total
2018 Total
334,250
9,369
267,850
611,469
648,430
241,701
15,113
-
256,814
526,922
575,951
24,482
267,850
868,283
1,175,352
25,609
-
-
25,609
23,247
27,870
-
8,456
36,326
31,899
31,074
-
5,117
36,191
37,970
Dawid Jakubowicz
21,657
-
-
21,657
13,948
Evgenij Iorich 4
6,784
-
-
6,784
28,671
112,994
-
13,573
126,567
135,735
688,945
24,482
281,423
994,850
1,311,087
1 Director’s compensation was paid in CAD for the first three quarters of the year when it was amended as per below and paid in GBP. Mr.
Auld was paid in GBP for the entirety of the year. The compensation is translated using the average exchange rate for the year CAD:USD
1.3266 and GBP:USD 0.7816 (2018 – CAD:USD 0.7749 GBP:USD 1.332)
2 Share based compensation reflects the grant date fair value of the options amortized over the vesting period, calculated using the
Black Scholes method, calculated in accordance with IFRS 2 share-based payments.
3 Tracy Heck resigned 31 October 2019
4 Evgenij Iorich resigned 16 May 2019
SERINUS ENERGY Annual Report 2019
27
REMUNERATION COMMITTEE REPORT continued
During the year the fee structure for the non-executive Directors
was amended effective Q4 2019. The plan prior to the amendment
was as follows:
• Non-executive Directors received C$1,000 for each meeting
attended as well as a C$1,000 monthly retainer. The Audit
Committee Chair received an additional retainer of C$250
per month
The amended fee structure is as follows:
• Non-executive Directors receive a £30,000 annual fee, with
each Chair receiving an additional £10,000 fee. These fees
are prorated over the year
Directors Interests In Share Capital
The Group operates a share option plan such that Directors and
employees may be granted options to acquire ordinary shares
in the Company. Further details on the share option plan can be
found in note 7 to the financial statements.
Subsequent to listing on AIM in May 2018, the Company converted
its options from a TSX plan to an AIM plan and converted the
exercise price on outstanding options to Pounds Sterling based
on the exchange rate at the date of continuance. The AIM plan and
conversion of exercise prices for non-executive directors remains
to be finalized.
The following are the options outstanding and shares owned as at
31 December 2019 and changes since 31 December 2019, up to
the date of this report, for all Directors:
Options held at
31 December 2019 and
24 March 2020
Shares held at
31 December 2018
Change in
ownership
Shares held at
31 December 2019
and 24 March 2020
Executive directors:
Jeffrey Auld
8,000,000
22,197
-
22,197
Non-Executive directors
Jim Causgrove
Eleanor Barker
100,000
100,000
-
-
100,000
-
-
100,000
8,200,000
122,197
-
122,197
The Directors who held options as at 31 December 2019 and the terms of those options are as follows:
Options held at
31 December 2019
Options held at
31 December 2018
Exercise price
Date of grant
Executive Directors
Jeffrey Auld
Jeffrey Auld
Jeffrey Auld
Jeffrey Auld
Tracy Heck 1
Tracy Heck 1
Non-Executive Directors
Jim Causgrove
Elanor Barker
Evgenij Iorich 2
1,000,000
-
2,500,000
2,500,000
1,000,000
1,000,000
3,500,000
3,500,000
733,333
2,200,000
1,833,334
2,750,000
100,000
100,000
100,000
100,000
-
100,000
10,766,667
12,250,000
1 Tracy resigned 31 October 2019
2 Evgenij Iorich resigned 16 May 2019
Lukasz Redziniak, Chairman of the Remuneration Committee
24 March 2020
28
SERINUS ENERGY Annual Report 2019
£0.13
£0.18
£0.21
£0.18
£0.15
£0.21
C$0.37
C$0.37
C$0.37
03 Dec 2018
03 Dec 2018
31 May 2017
22 Sep 2016
03 Dec 2018
31 May 2017
31 May 2017
31 May 2017
31 May 2017
AUDIT COMMITTEE REPORT
This report addresses the responsibilities, the membership and
the activities of the Audit Committee in 2019 up to the approval of
the 2019 Annual Report and 2019 year-end Financial Statements.
Financial Reporting
For the 2019 fiscal year-end, the Committee has reviewed the
following key audit matters:
Responsibilities
The main responsibilities of the Audit Committee are the following:
1. Carrying value of E&E and PP&E Assets
2. Decommissioning provisions
1. Monitor the integrity of the annual and interim financial
statements
3. Going concern and covenant compliance
2. Oversight of the appointment of the CFO
3. Review the effectiveness of financial and related internal
controls and associated risk management
4. Manage the relationship with our external auditors including
plans and findings, independence and assessment regarding
reappointment.
Membership
The Audit Committee is comprised of Eleanor Barker (Chairman)
and Jim Causgrove, both independent non-executive Directors.
Other Directors are invited to attend as appropriate and only if
they do not have a conflict of interest. The Committee met seven
times throughout the year.
Activities in 2019
External Auditor
The Committee is responsible for the relationship with the
external auditor. In the prior year, congruent with the Company’s
listing moving to the AIM, the Company transitioned to BDO
as the external auditor. The Committee recommended the
reappointment of BDO as the auditor for the 2019 fiscal year-end,
which was approved.
In addition, as part of its remit the Audit Committee also reviewed
Management’s papers on the adoption of the new lease standard
(IFRS 16).
The Directors consider the continuing availability of the existing
facilities, future covenant breaches, and cash flow forecasts
in respect of the going concern assessment to be a material
uncertainty that may cast significant doubt with respect to
the ability of the Group to continue as a going concern. The
financial statements do not reflect the adjustments which would
be required if the going concern basis of preparation was not
considered appropriate.
Internal Controls and Risk Management, Whistleblowing and
Fraud
The Committee is vigilant regarding internal financial controls and
risk management. During 2019, the Committee has undertaken
anti-bribery and anti-corruption exercises and has reviewed
whistle blowing arrangements.proper controls in order to mitigate
the evolving financial risk environment.
Eleanor Barker, Chairman of the Audit Committee
24 March 2020
SERINUS ENERGY Annual Report 2019
29
REPORT OF THE DIRECTORS
The Directors’ present their report, together with the audited
consolidated financial statements of Group for the year ended 31
December 2019.
of 2,175 boe/d (Romania – 1,491 boe/d and Tunisia 684 boe/d).
The combination of the additional production from Romania and
Chouech has significantly increased the Group’s cash flows.
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 common
shares of the Company, as reported by the shareholders to the
Company:
Kulczyk Investments S.A.
Canaccord Genuity Wealth Management
JCAM Investments Ltd.
38.09%
10.64%
7.89%
Results and Dividends
The results for the year are set out in the Consolidated Statement
of Comprehensive Income. The results are further discussed in the
CFO Report.
The Directors do not recommend payment of a dividend in
respect of these financial statements (2018: $nil)
Going Concern
These consolidated financial statements have been prepared on a
going concern basis, which assumes that Serinus will continue its
operations for the foreseeable future and will be able to realize its
assets and discharge its liabilities and commitments in the normal
course of operations. In assessing the Group’s ability to continue as
a going concern, the Directors have prepared base and sensitized
cash flow forecasts for a period in excess of 12 months from the
date of authorization of these financial statements.
The Group meets its day-to-day working capital requirements
from net operating cash flows, cash balances, equity, and a fully
drawn Convertible loan from the EBRD of $31.1 million (see note
21). As at 29 February 2020 the group had cash balances of $4.9
million.
The Group achieved a number of significant milestones during
2019 which have begun to make a positive impact on the financial
position of the Group, bringing average production for the year
to 1,389 boe/d (2018 – 352 boe/d) and gross revenues to $24.4
million (2018 – $8.7 million). During the second quarter of 2019
the construction of the gas plant in Romania was completed, and
production commenced on 25 April 2019. Romanian production
for the year averaged 961 boe/d, resulting in $15.2 million in gross
revenues. In Tunisia, the Group reopened the Chouech field during
the third quarter of 2019, resulting in additional production for the
year of 105 boe/d, and bringing net production up to an average
of 428 boe/d and resulting in $9.2 million in revenue attributable
to the Group. The Group exited December 2019 with a production
rate of 2,089 boe/d, with average production in December 2019
During 2019, the Group met its obligations under the Senior loan
($5.4 plus accrued interest), and fully repaid the facility. The Group
raised $3 million through an equity placing in March 2019 to
fund an initial payment instalment, with the final payment funded
through free cashflow generated from operations, as a result of
establishing production in Romania and increasing production in
Tunisia.
The Group’s Convertible loan accumulates interest to 30 June
2020 at which point the outstanding amount is repayable in
four equal instalments on 30 June 2020, 2021, 2022 and 2023
with interest after 30 June 2020 to be paid annually on the loan
repayment dates. As at 31 December 2019, the Group was not
in compliance with the debt service coverage ratio, however
the Group sought, and received, a waiver from the EBRD on 30
December 2019, formally waiving compliance with this covenant
for the period ended 31 December 2019.
Under the base case cashflow, the forecast indicates that the
Group will be marginally in breach of the EBRD debt service
covenant at 31 March 2020 but based on analysis performed,
assuming business continuity plans in place are effective, it will
be able to repay the 30 June 2020 instalment under the facility,
and will subsequently be compliant with the EBRD covenants
thereafter. In order to mitigate the potential covenant breach in
March 2020, the Group has sought a further covenant waiver from
the EBRD and has begun discussions with the EBRD to assess the
impact of the current situation and examine options available to
manage through this period of uncertainty. The key assumptions
in the base case forecasts are the operational performance at the
operating fields and commodity prices.
However, should the base case forecasts be negatively impacted
by a downward revision in key assumptions, there is the possibility
that the Group will not be able to meet its obligations as they
come due, including the future repayments of the Convertible
loan, and breach future bank covenants, which represents a
material uncertainty that may cast significant doubt on the
ability of the Group to continue as a going concern. The full
implications of COVID-19 on the performance of the business
for the current year are difficult to determine at this stage. These
consolidated financial statements do not reflect the adjustments
and classifications of assets, liabilities, revenues and expenses
which would be necessary if the Group were unable to continue
as a going concern.
Statement of Directors Responsibilities in Respect of the Financial
Statements
The Directors are responsible for preparing the Directors’ Report
and the financial statements in accordance with applicable law
and regulations.
Jersey Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have elected to prepare the financial statements in accordance
with International Financial Reporting Standards as adopted by
the European Union (IFRS) and applicable law. Under Company
law the Directors must prepare financial statements that give a
true and fair view of the state of affairs of the Group and of the
profit or loss of the Group for that period. In preparing these
financial statements, the Directors are required to:
30
SERINUS ENERGY Annual Report 2019
•
Select suitable accounting policies and apply
consistently
them
• Make
judgements and accounting estimates that are
reasonable and prudent
•
•
State whether the financial statements have been prepared
in accordance with IFRS as adopted by the European Union
Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group will
continue in business
The Directors are responsible for keeping proper accounting
records that are sufficient to show and explain the Group’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Group and enable them to endure that the
financial statements comply with Companies (Jersey) Law 1991.
Legislation in Jersey governing the preparation and dissemination
of financial information may differ from legislation in other
jurisdictions.
The Directors confirm that they have complied with all the above
requirements in preparing these financial statements.
Statement of Disclosure to Auditors
As far as the Directors are aware, there is no relevant audit
information of which the Group’s auditor is unaware and each
Director has taken all the steps that he ought to have undertaken
as a director order to make himself aware of any relevant audit
information and to establish that the Group’s auditor is aware of
that information.
Auditors
The Directors 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.
BDO LLP has indicated its willingness to continue in office, and a
resolution that they are reappointed will be proposed at the next
annual general meeting.
The Directors are responsible for the maintenance and integrity of
the corporate and financial information included on the Group’s
website. The Group’s website is maintained in accordance with
AIM Rule 26.
On behalf of the Board
Jeffrey Auld
Chief Executive Officer
24 March 2020
SERINUS ENERGY Annual Report 2019
31
SERINUS ENERGY PLC
Serinus is a Jersey incorporated company that holds investments
in wholly owned subsidiaries, which hold the rights to oil and
gas assets in Romania and Tunisia. The Company also holds
investments in two directly held management companies in
Canada and the UK that provide management service to the
Group and has a branch in Warsaw Poland that provides investor
services.
The Company’s shares were admitted to trading on the AIM
market on 18 May 2018 and are listed on the WSE.
The following notes in the consolidated financial statements are of
particular relevance to the Company:
• Note 3(l) and 17 - Share capital of the Company.
• Note 2 - Going concern
• Note 4 – Risk management
The Company does not have any significant operating transactions
and as such the previous sections of this annual report, in particular
the Outlook, Operations, Serinus’ strategy sections and the CFO
report, which details liquidity, capital resources, going concern
and a financial review for 2019, all relate to the Company.
32
SERINUS ENERGY Annual Report 2019
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF SERINUS ENERGY PLC
Opinion
We have audited the consolidated financial statements of Serinus
Energy plc (the ‘Company’) and its subsidiaries (the ‘Group’) for the
year ended 31 December 2019 which comprise the consolidated
statement of comprehensive income, the consolidated statement
of financial position, the consolidated statement of cash flows
and the consolidated statement of changes in equity and notes
to the financial statements, including a summary of significant
accounting policies.
The financial reporting framework that has been applied in the
preparation of the consolidated financial statements is applicable
law and International Financial Reporting Standards (IFRSs) as
adopted by the European Union.
In our opinion:
•
•
•
The financial statements give a true and fair view of the
state of the Group’s affairs as at 31 December 2019 and the
Group’s loss for the year then ended;
The Group’s financial statements have been properly
prepared in accordance with IFRSs as adopted by the
European Union;
The financial statements have been prepared in accordance
with the requirements of the Companies (Jersey) Law 1991.
Basis for opinion
in accordance with
International
We conducted our audit
Standards on Auditing UK (ISA (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 Company and
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.
Material uncertainty related to going concern
We draw attention to Note 2 of the financial statements concerning
the Group’s ability to continue as a going concern. The matters
explained in Note 2 relating to the potential non-compliance with
loan covenants, the sensitivity of cashflows required to continue to
provide the Group with the ability to meet its obligations as they
fall due and the potential impact of
COVID-19 on the Company and the international markets indicate
the existence of a material uncertainty which may cast significant
doubt over the Group’s ability to continue as a going concern.
These financial statements do not include the adjustments that
would result if the Group was unable to continue as a going
concern. Our opinion is not modified in respect of this matter.
We have highlighted going concern as a key audit matter based
on our assessment of the significance of the risk and the effect on
our audit strategy.
Our audit procedures in response to this key audit matter included:
•
•
Assessing and sensitising key costs and income streams
included in the Group cash flow forecast which have been
prepared by Management for a period of no less than
twelve months from the date of approval of these financial
statements
Challenging and critiquing Managements’ assumptions
included in the cash flow forecast to evidence obtained
during the course of our audit work and to publically available
third party information in order to benchmark Management’s
assessment
• Discussing with Management and the Board the Group’s
strategy to continue to ensure funds are available to the Group
to fund its operations and fulfil the repayments under its
debt obligations. Confirming statements made to publically
available information and third party documentation where
available
•
•
Assessing,
reviewing
re-performing calculations and
correspondence in respect of the terms and covenants
relating to the Group’s debt facilities including historical
compliance and expected future compliance with covenants,
and
Reviewing and considered the adequacy of the disclosure
within the financial statements relating to the Directors’
assessment of the going concern basis of preparation.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, which 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.
In addition to the matter described in the material uncertainty
related to going concern section, we identified the following key
audit matters:
•
•
Carrying value of Development and Production assets, and
Accounting for Decommissioning Provisions.
Carrying value of Development and Production assets
(see note 12)
Accounting standards require Management and the Directors
to undertake an annual impairment review of the carrying value
of development and production assets for any indicators of
impairment. If indicators of impairment are identified Management
and the Directors’ must undertake a full impairment review to
ensure the potential recoverable value of the assets is higher
than the carrying value of the assets recorded on the balance
sheet. Management have determined that there are indicators of
potential impairment present in the current year, and as a result
have performed a full impairment review. Given the materiality of
the assets in the context of the Group’s balance sheet, and the
judgements involved we consider this to be a key audit matter.
SERINUS ENERGY Annual Report 2019
33
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF SERINUS ENERGY PLC continued
Our response
Accounting for Decommissioning Provisions
Our specific audit testing in this regard included:
•
•
•
•
•
Holding meetings with operational management in order to
be able to assess the operating activity and development of
the assets undertaken in the year
Considering Management’s and the Board’s conclusion on
the appropriate identification of the Group’s cash generating
units (‘CGUs’) against the requirements of the accounting
standard
Examining licence concession agreements and supporting
documentation in order to assess that appropriate legal and
beneficial ownership percentages had been considered by
Management in their CGU assessment
Reviewing Management’s impairment indicators assessment
for each CGU against the criteria in the accounting standard
in order to determine whether their assessment was complete
and in accordance with the requirements of the accounting
standard, and
Performing an independent assessment of financial and non-
financial data for potential impairment indicators.
As Management and the Board had identified impairment triggers
present for all CGUs we;
•
•
Compared the actual operating performance for each CGU
for the year back to Management’s historic forecasts in order
to assess whether the CGUs were operating in line with
forecasts and in order to assess the Group’s ability to forecast
reliably
Assessed the competence of Management’s reserves report
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 publically
available information in order to benchmark the assumptions
applied by the expert
in
• Obtained, reviewed and sensitised the key
Management’s Discounted Cash Flow
(DCF) models,
checking that the key inputs included in the models such as
oil prices, reserves, capex, interest rates and discount rates
were reasonable and within an acceptable range. Our work
was undertaken using third party publically available and
benchmark data to which we subscribe
inputs
•
•
Tested the mathematical integrity of Management’s model
and ensured that the basis of preparation of the model was
in line with our expectations and an accepted valuation
methodology for a discounted cashflow, and
Reviewed and assessed the adequacy of the disclosures in
the financial statements to ensure that they were prepared
in accordance with the requirements of the accounting
standard.
Our findings
We found Management’s conclusion that no impairment charge
was required in respect of the CGU’s as at 31 December 2019 to
be supported by the underlying models. We found the judgments
and estimates applied by Management in preparing the forecasts
to be supportable.
34
SERINUS ENERGY Annual Report 2019
required
identify a provision
Management are
for
to
decommissioning for all oil and gas assets under the provisions
of the relevant accounting standard. The provision is determined
based on the present values of the expected cashflow that
are expected to be required to satisfy the decommissioning
obligations. During the year Management performed a detailed
review of the engineering applied in the Group’s models which
support the decommissioning provision and as a result of the
review the level of decommissioning provision provided changed
materially. Given the level of judgement and number of estimates
which are required to be applied in estimating the Group’s
decommissioning liabilities we consider this to be a key audit
matter.
Our response
Our specific audit testing in this regard included:
• Discussing the future plans for decommissioning with
operational management in order to assess whether the
required works were appropriately reflected in the Group’s
decommissioning models
•
•
•
•
the available,
Reviewing
the
decommissioning of the Group’s assets in order to benchmark
available data for the key inputs applied in determining the
historic assessment made
third party, reports on
Assessing whether Management’s
internal expert had
the expertise to perform the underlying calculations for
the decommissioning provision included in the financial
statements
Reviewed the oil services market trends over a number
of years in order to assess the reasonableness of the cost
assumptions applied in the model
jurisdictional
Reviewed correspondence with
authorities with
the
decommissioning provisions to assess whether Group
actions were in line with informed requirements
for oversight of
responsibility
relevant
We also performed the following work:
•
Confirmed that the basis of the planned decommissioning
work was in line with our understanding of the assets gained
from our previous on-site visits
• Discussed with the internal expert the methodologies applied
in the calculation and re-performed testing of calculations
included within the model
•
•
•
•
Read the licences for each asset and considered whether the
Group’s decommissioning plans adhered to the Tunisian and
Romanian regulation, laws and licence requirements
Verified unit costs included in the decommissioning provision
calculation to supporting documentation where available
and sensitised such
Verified and sensitised other key estimates such as inflation
and discount rates back to empirical market data
Verified the underlying mechanics of the decommissioning
provision to ensure that movements related to works
performed, unwinding of the discount rate and that changes
in underlying estimates have been accounted for in the
appropriate financial statement area.
•
Reviewed and assessed the adequacy of the disclosures in
the financial statements to ensure that they were prepared
in accordance with the requirements of the accounting
standard.
Our findings
We found the key assumptions made by Management in respect
of their assessment of the Group’s decommissioning provision to
be acceptable and appropriately disclosed.
Our application of materiality
Materiality ($)
Basis for materiality
FY 2019
Group: 1.4m
1.3% of Total Assets
FY 2018
Group: 1.6m
1.3% of Total Assets
Total Assets was determined as an appropriate basis as the
principal focus of the Group remains fundamentally focused on
the development of its oil and gas assets within Romania and
Tunisia.
We apply the concept of materiality both in planning and
performing our audit and in evaluating the effect of misstatements.
We consider materiality
the magnitude by which
to be
misstatements, including omissions, could influence the economic
decisions of reasonable users that are taken on the basis of the
financial statements. Importantly, misstatements below these
levels will not necessarily be evaluated as immaterial as we also
take account of the nature of identified misstatements, and the
particular circumstances of their occurrence, when evaluating
their effect on the financial statements as a whole.
Performance materiality is the application of materiality at the
individual account or balance level set at an amount to reduce to
an appropriately low level the probability that the aggregate of
uncorrected and undetected misstatements exceeds materiality
for the financial statements as a whole. Performance materiality
was set at 65% (2018 65%) of the above materiality levels.
We agreed with the Audit Committee that we would report to the
Committee all individual audit differences identified during the
course of our audit in excess of $30,000 (2018 $32,000).
Whilst materiality for the financial statements as a whole was $1.4
million, each significant component of the Group was audited to a
lower level of materiality ranging from $0.6 million to $0.9 million
which was used to determine the financial statement areas that
were included within the scope of the Component audits and the
extent of sample sizes used during the audit.
There were no misstatements identified during the course of our
audit that were individually, or in aggregate, considered to be
material in terms of their absolute monetary value or on qualitative
grounds.
An overview of the scope of our audit
Our Group audit scope focused on the Group’s principal operating
locations being the projects based in Tunisian and Romanian. As a
result we determined that there were two significant components
and both of these were subject to a full scope audit. Together with
the Group consolidation, which was also subject to a full scope
audit, these represent the significant components of the Group.
The charts below highlight the coverage obtained from the full
scope audits performed across the Group, based on Revenue and
Total Assets.
The charts below highlight the coverage obtained from the full
scope audits performed across the Group, based on Revenue and
Total Assets.
Revenue
n Full scope n Desktop review
Total Assets
n Full scope n Specific scope and desktop review
The remaining components of the Group were considered non-
significant and these components were principally subject to
analytical review procedures, together with additional substantive
testing over the risk areas detailed above where applicable to that
component.
The audits of each of the significant components were principally
performed in the geographical location of the project (Tunisia and
Romania) by BDO member firms, the location of the Group head
office (Canada) where Group work was performed as well as in the
United Kingdom. All of the audits were conducted by BDO LLP
and BDO member firms.
As part of our audit strategy, the Responsible Individual and senior
members of the audit team visited each of the principal operating
locations and reviewed the detailed underlying work papers of
the BDO Member Firms in Tunisia and Romania.
Other information
The Directors are responsible for the other information. The other
information comprises the information included in the annual
report, other than the financial statements and our auditor’s report
thereon. Our opinion on the financial statements does not cover
the other information and, except to the extent otherwise explicitly
stated in our report, we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements, 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 audit or otherwise appears to be materially misstated. If
we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. 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.
SERINUS ENERGY Annual Report 2019
35
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF SERINUS ENERGY PLC continued
Opinions on other matters prescribed by the regulations of the
Warsaw Stock Exchange
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.
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. This
description forms part of our auditor’s report.
Use of our report
This report is made solely to the Company’s members, as a body,
in accordance Article 113A of the Companies (Jersey) Law 1991.
Our audit work has been undertaken so that we might state to
the Company’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 Company and the Company’s members
as a body, for our audit work, for this report, or for the opinions we
have formed.
Anne Sayers
For and on behalf of BDO LLP, Chartered Accountants
London, UK
24 March 2020
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
In our opinion, the information contained in the Directors’
Report on the Group’s activities complies with the requirements
of the regulations of the Warsaw Stock Exchange issuers and is
consistent with the information presented in the accompanying
consolidated financial statements.
Based on our knowledge obtained during the audit, about
the Group and its environment, we have identified no material
misstatements in the Directors’ Report on the Group’s activities.
The Company’s Management and members of
its Audit
Committee are responsible for the preparation of a declaration
on the application of corporate governance in accordance with
regulations of the Warsaw Stock Exchange.
In connection with our audit of the consolidated financial
statements it was our responsibility to read the declaration on
the application of corporate governance, constituting a separate
section of the Annual Report.
In our opinion, the declaration on the application of corporate
governance contains all information specified in paragraph 70
section 6 point 5 of the Ministers of Finance Decree of 29 March
2018 on the current and periodic information provided by the
issuers of securities and on the conditions for recognising as
equally valid the information required by the regulations of a state
that is not a member state (2018 Journal of Laws, item 757).
Information provided in paragraph 70 section 6 point 5 letters
c-f, h and i of the regulations contained in the statement on the
application of corporate governance are in accordance with the
applicable regulations and information contained in the annual
consolidated financial statements.
Matters on which we are required to report by exception
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 Group’s 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 Directors’ responsibilities statement,
the Directors are responsible for the preparation of the 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 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 the parent company or to
36
SERINUS ENERGY Annual Report 2019
Consolidated Statement of Comprehensive Loss
for the year ended 31 December 2019
(US 000s, except per share amounts)
Revenue, net of royalties
Cost of sales
Production expenses
Depletion and depreciation
Windfall tax
Total cost of sales
Gross profit
Administrative expenses
Share-based payment expense
Listing costs
Total administrative expenses
Well incident recovery
Decommissioning provision recovery
Gain on sale of assets
Operating income
Finance expense
Net loss before tax
Taxation
Loss after taxation attributable to equity owners of the parent
Other comprehensive loss
Other comprehensive loss to be classified to profit and loss in subsequent periods:
Foreign currency translation adjustment
Total comprehensive loss for the year attributable to equity owners of the parent
Loss per share:
Basic and diluted
Note
6
12,14
7
8
8
18
9
10
11
2019
22,505
(6,985)
(10,477)
(3,155)
(20,617)
2018
7,849
(3,044)
(1,801)
-
(4,845)
1,888
3,004
(3,801)
(528)
(7)
(4,336)
52
6,891
20
4,515
(4,803)
(288)
(1,652)
(1,940)
-
-
(243)
(2,183)
-
(0.01)
(3,422)
(820)
(1,377)
(5,619)
3,602
316
117
1,420
(4,567)
(3,147)
(1,743)
(4,890)
(4,890)
(0.03)
The accompanying notes on pages 41 to 65 form part of the consolidated financial statements
SERINUS ENERGY Annual Report 2019
37
Consolidated Statement of Financial Position
as at 31 December 2019
(US 000s, except per share amounts)
As at
Non-current assets
Property, plant and equipment
Exploration and evaluation assets
Right-of-use assets
Total non-current assets
Current assets
Restricted cash
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Equity
Share capital
Warrants
Share-based payment reserve
Cumulative translation reserve
Accumulated deficit
Total Equity
Liabilities
Non-current liabilities
Decommissioning provision
Deferred tax liability
Lease liabilities
Long-term debt
Other provisions
Total non-current liabilities
Current liabilities
Current portion of decommissioning provision
Current portion of lease liabilities
Current portion of long-term debt
Accounts payable and accrued liabilities
Total current liabilities
Total liabilities
Total liabilities and equity
Note
31 December
2019
31 December
2018
12
13
14
15
16
17
17
18
19
20
21
22
18
20
21
23
93,396
1,004
817
95,217
1,122
11,341
2,780
15,243
107,541
-
-
107,541
1,054
10,143
2,283
13,480
110,460
121,021
377,942
97
23,835
(243)
(387,113)
14,518
25,304
13,392
342
23,387
1,323
63,748
6,334
534
7,709
17,617
32,194
95,942
110,460
375,208
-
23,307
-
(385,173)
13,342
36,573
13,154
-
27,667
1,367
78,761
8,696
-
5,624
14,598
28,918
107,679
121,021
The accompanying notes on pages 41 to 65 form part of the consolidated financial statements
These consolidated financial statements were approved by the Board of Directors and authorized for issue on 24 March 2020 and were
signed on its behalf by:
_______________________________________________
_____________________________________________________
ELEANOR BARKER
DIRECTOR, CHAIR OF THE AUDIT COMMITTEE
JEFFREY AULD
DIRECTOR AND CEO
38
SERINUS ENERGY Annual Report 2019
Consolidated Statement of Shareholder’s Equity
for the year ended 31 December 2019
(US 000s, except per share amounts)
Note
Share
capital
Share-based
payment
reserve Warrants
Accumulated
deficit
Accumulated
other
comprehensive
loss
Balance at 31 December 2017
Initial application of IFRS 9
Balance at 1 January 2018
Comprehensive loss for the year
Transactions with equity owners
Share issue, net of issue costs
Share-based payment expense
362,534
22,487
362,534
-
22,487
-
12,674
-
-
820
3
17
7
Balance at 31 December 2018
375,208
23,307
Comprehensive loss for the year
Other comprehensive loss for the year
Transactions with equity owners
Shares issued
Share issue costs
Warrant issue
Warrants exercised
Share-based payment expense
17
17
17
17
-
-
2,903
(170)
-
1
-
-
-
-
-
-
-
528
Balance at 31 December 2019
377,942
23,835
-
-
-
-
-
-
-
-
-
-
97
-
-
97
(381,317)
1,034
(380,283)
(4,890)
-
-
(385,173)
(1,940)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(243)
-
-
-
-
-
Total
3,704
1,034
4,738
(4,890)
12,674
820
13,342
(1,940)
(243)
-
2,903
(170)
97
1
528
(387,113)
(243)
14,518
The accompanying notes on pages 41 to 65 form part of the consolidated financial statements
SERINUS ENERGY Annual Report 2019
39
Consolidated Statement of Cash Flows
for the year ended 31 December 2019
(US 000s, except per share amounts)
Note
2019
2018
Operating activities
Loss for the period
Items not involving cash:
Depletion and depreciation
Accretion expense
Decommissioning provision recovery
Gain on disposition
Share-based payment expense
Foreign exchange unrealized (gain) loss
Change in other provisions
Current tax expense
Deferred tax recovery
Interest and amortization expense
Income taxes paid
Expenditures on decommissioning liabilities
Funds from operations
Changes in non-cash working capital
Cashflows from (used in) operating activities
Financing activities
Proceeds from equity issuance
Share issue costs
Warrants exercised
Repayment of long-term debt
Interest paid on long-term debt
Payments on lease obligations
Cashflows (used in) from financing activities
Investing activities
Property, plant and equipment expenditures
Interest earned on restricted cash
Proceeds on disposition of property, plant and equipment
Cashflows used in investing activities
Impact of foreign currency translation on cash
Change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
12,14
9
18
7
22
10
19
9
18
26
17
17
17
21
9
20
12
15
(1,940)
10,477
1,224
(6,891)
(20)
528
(123)
(44)
1,414
238
3,560
(315)
-
8,108
670
8,778
3,000
(170)
1
(5,400)
(355)
(466)
(3,390)
(4,888)
(22)
20
(4,890)
(1)
497
2,283
2,780
(4,890)
1,801
1,030
(316)
(117)
820
211
(49)
2,089
(346)
3,493
(2,540)
(30)
1,156
(7,069)
(5,913)
13,475
(801)
-
-
(436)
-
12,238
(11,396)
(44)
117
(11,323)
29
(4,969)
7,252
2,283
The accompanying notes on pages 41 to 65 form part of the consolidated financial statements
40
SERINUS ENERGY Annual Report 2019
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
(US 000s, except per share amounts, unless otherwise noted)
1. General information
Serinus Energy plc and its subsidiaries (“Serinus”, the “Company”, or the “Group”) 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 28 Esplanade, St. Helier, Jersey, JE1 8SB.
Serinus is a publicly listed company whose ordinary shares are traded under the symbol “SENX” on AIM and “SEN” on the WSE.
Kulczyk Investments S.A. holds a 38.09% investment in Serinus as of 31 December 2019.
The consolidated financial statements for Serinus include the accounts of the Group and its subsidiaries for the years ended 31
December 2019 and 2018.
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 2019 have been prepared in accordance
with International Financial Reporting Standards (“IFRS”) and their interpretations issued by the International Accounting Standards
Board (“IASB”) as adopted by the European Union applied in accordance with the provisions of the Companies (Jersey) Law 1991.
These consolidated financial statements are expressed in U.S. dollars unless otherwise indicated. All references to US$ are to U.S.
dollars. All financial information is rounded to the nearest thousands, except per share amounts and when otherwise indicated.
Going concern
These consolidated financial statements have been prepared on a going concern basis, which assumes that Serinus will continue
its operations for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the
normal course of operations. In assessing the Group’s ability to continue as a going concern, the Directors have prepared base
and sensitized cash flow forecasts for a period in excess of 12 months from the date of authorization of these financial statements.
The Group meets its day-to-day working capital requirements from net operating cash flows, cash balances, equity, and a fully
drawn Convertible loan from the EBRD of $31.1 million (see note 21). As at 29 February 2020 the group had cash balances of $4.9
million.
The Group achieved a number of significant milestones during 2019 which have begun to make a positive impact on the financial
position of the Group, bringing average production for the year to 1,389 boe/d (2018 – 352 boe/d) and gross revenues to $24.4
million (2018 – $8.7 million). During the second quarter of 2019 the construction of the gas plant in Romania was completed, and
production commenced on 25 April 2019. Romanian production for the year averaged 961 boe/d, resulting in $15.2 million in gross
revenues. In Tunisia, the Group reopened the Chouech field during the third quarter of 2019, resulting in additional production
for the year of 105 boe/d, and bringing net production up to an average of 428 boe/d and resulting in $9.2 million in revenue
attributable to the Group. The Group exited December 2019 with a production rate of 2,089 boe/d, with average production in
December 2019 of 2,175 boe/d (Romania – 1,491 boe/d and Tunisia 684 boe/d). The combination of the additional production
from Romania and Chouech has significantly increased the Group’s cash flows.
During 2019, the Group met its obligations under the Senior loan ($5.4 plus accrued interest), and fully repaid the facility. The Group
raised $3 million through an equity placing in March 2019 to fund an initial payment instalment, with the final payment funded
through free cashflow generated from operations, as a result of establishing production in Romania and increasing production in
Tunisia.
The Group’s Convertible loan accumulates interest to 30 June 2020 at which point the outstanding amount is repayable in four
equal instalments on 30 June 2020, 2021, 2022 and 2023 with interest after 30 June 2020 to be paid annually on the loan repayment
dates. As at 31 December 2019, the Group was not in compliance with the debt service coverage ratio, however the Group sought,
and received, a waiver from the EBRD on 30 December 2019, formally waiving compliance with this covenant for the period ended
31 December 2019.
Under the base case cashflow, the forecast indicates that the Group will be marginally in breach of the EBRD debt service covenant
at 31 March 2020 but based on analysis performed, assuming business continuity plans in place are effective, it will be able to repay
the 30 June 2020 instalment under the facility, and will subsequently be compliant with the EBRD covenants thereafter. In order
to mitigate the potential covenant breach in March 2020, the Group has sought a further covenant waiver from the EBRD and has
begun discussions with the EBRD to assess the impact of the current situation and examine options available to manage through
this period of uncertainty. The key assumptions in the base case forecasts are the operational performance at the operating fields
and commodity prices.
SERINUS ENERGY Annual Report 2019
41
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
(US 000s, except per share amounts, unless otherwise noted)
However, should the base case forecasts be negatively impacted by a downward revision in key assumptions, there is the possibility
that the Group will not be able to meet its obligations as they come due, including the future repayments of the Convertible loan,
and breach future bank covenants, which represents a material uncertainty that may cast significant doubt on the ability of the
Group to continue as a going concern. The full implications of COVID-19 on the performance of the business for the current year
are difficult to determine at this stage. These consolidated financial statements do not reflect the adjustments and classifications
of assets, liabilities, revenues and expenses which would be necessary if the Group were unable to continue as a going concern.
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 unrealized gains or losses arising from intercompany
transactions are eliminated upon consolidation. Serinus has four directly held subsidiaries, Serinus Energy Canada Inc., Serinus
Holdings Limited, Serinus Petroleum Consultants Limited and Serinus B.V. Through Serinus Holdings Limited, the Group has the
following indirect wholly-owned subsidiaries, SE Brunei Limited and AED South East Asia Ltd., which held the Group’s interests in
Brunei Block L, and KOV Borneo Limited, which held the Group’s interest in Brunei Block M. Through Serinus B.V., Serinus has one
wholly-owned subsidiary Serinus Tunisia B.V. and 99.9995% of Serinus Energy Romania S.A. Serinus Tunisia B.V. owns the remaining
0.0005% of Serinus Romania S.A.
Some of the Group’s activities are conducted through jointly controlled assets. The consolidated financial statements therefore
include the Group’s share of these assets, associated liabilities and cashflows in accordance with the term of the arrangement. The
Group’s associated share of revenue, cost of sales and operating costs are recorded within the Statement of Comprehensive Loss.
Basis of consolidation
Where the Group has control over an investee, it is classified as a subsidiary. The Group controls an investee if all three of the
following elements are present: power over the investee, exposure to variable returns from the investee and the ability of the
investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there
may be a change in any of these elements of control.
De-facto control exists in situations where the Group has the practical ability to direct the relevant activities of the investee without
holding the majority of the voting rights. In determining whether de-facto control exists the Group considers all relevant facts and
circumstances, including:
•
•
The size of the Group’s voting rights relative to both the size and dispersion of other parties who hold voting rights
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 therefore 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 recognized at their
fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive
income 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 recognized in profit or loss.
42
SERINUS ENERGY Annual Report 2019
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 recognized in Other Comprehensive Loss. During the
year the functional currencies for the Romanian and Canadian subsidiaries were amended to the Leu and Canadian Dollar,
respectively. These changes were required due to the nature of each business unit, the currency that the business conducts
its operations in, and the currency of the country it is situated in.
d. Revenue recognition
The Group earns revenue from the sale of crude oil, natural gas and natural gas liquids, with a portion of crude oil sales required
to be sold to local markets in Tunisia. Royalties are recorded at the time of production.
i. Crude oil, natural gas and natural gas liquids recognition
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 to the customer. Performance obligations
associated with the sale of natural gas and natural gas liquids are satisfied upon delivery at the respective concession
delivery points, which is where the purchasers obtain control.
Crude oil sales prices are determined by benchmarking to the Brent crude oil price index less a fixed discount per barrel
(“bbl”) when the performance obligation is satisfied. Revenue is stated net of royalties.
ii. Local crude oil recognition
The Tunisian government has the right to purchase up to a maximum 20% of the crude oil production from the Sabria
concession, to be sold into the local market at an approximate 10% discount to the price obtained on other crude oil sales.
This arrangement is considered to be outside the scope of IFRS 15 due to failing the commercial substance criteria test
in the standard. The risks and rewards associated with this revenue are transferred when the product is delivered to the
customer. There are no minimum or maximum volume requirements, only that 20% of the volume delivered for lifting is
required to be sold to the local market.
e. Windfall tax
Within the Romanian CGU, the Group recognizes windfall tax 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 recognized
in the Consolidated Statement of Comprehensive Income over the vesting period of the award. Fair value is measured by use
of a Black-Scholes model which takes into account conditions attached to the vesting and exercise of the equity instruments.
The expected life used in the model is adjusted, based on management’s best estimate, for the effects of non-transferability,
exercise restrictions and behavioral considerations.
g. Taxes
Current and deferred income taxes are recognized in profit (loss), except when they relate to items that are recognized directly
in equity or other comprehensive loss, in which case the current and deferred taxes are also recognized 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 realized, 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
recognized in the period that the rate change occurs.
Deferred income tax liabilities are generally recognized for all taxable temporary differences. Deferred income tax assets are
recognized to the extent that it is probable future taxable profits will be available against which the temporary differences can
be utilized. The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and reduced
to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the asset to be
recovered. Deferred income tax assets and liabilities are only offset where they arise within the same entity and tax jurisdiction.
Deferred income tax assets and liabilities are presented as non-current.
SERINUS ENERGY Annual Report 2019
43
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
(US 000s, except per share amounts, unless otherwise noted)
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 recognized when the Group becomes a party to the contractual provisions of the instrument and are
subsequently measured at amortized cost.
Classification and measurement of financial assets
The initial classification of a financial asset depends upon the Group’s business model for managing its financial assets and the
contractual terms of the cash flows. There are three measurement categories into which the Group classified its financial assets:
i. Amortized costs: includes assets that are held within a business model whose objective is to hold assets to collect
contractual cash flows and its contractual terms give rise on specified dates to cashflows that represent solely payments of
principal and interest;
ii. Fair value through other comprehensive income (“FVOCI”): includes assets that are held within a business model whose
objective is achieved by both collecting contractual cash flows and selling the financial assets, where its contractual terms
give rise on specified dates to cash flows that represent solely payments of principal and interest; or
iii. Fair value through profit or loss (“FVTPL”): includes assets that do not meet the criteria for amortized cost or FVOCI and are
measured at fair value through profit or loss.
The Group’s cash and cash equivalents, restricted cash, and trade receivables and other receivables are measured at amortized
cost.
Trade receivables and other receivables are initially measured at fair value. The Group holds trade receivables and other
receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortized
cost. Trade receivables and other receivables are presented as current assets as collection is expected within 12 months after
the reporting period.
The Group has no financial assets measured at FVOCI or FVTPL.
Impairment of financial assets
The Group recognizes loss allowances for expected credit losses (“ECLs”) on its financial assets measured at amortized cost.
Due to the nature of its financial assets, the Group measures loss allowances at an amount equal to the lifetime ECLs. Lifetime
ECLs are the anticipated ECLs that result from all possible default events over the expected life of a financial asset. ECLs are a
probability-weighted estimate of credit losses.
Classification and measurement of financial liabilities
A financial liability is initially classified as measured at amortized cost or FVTPL. A financial liability is classified as measured at
FVTPL if it is held-for-trading, a derivative or designated as FVTPL on initial recognition.
The Group’s accounts payable and accrued liabilities, lease liabilities, and long-term debt are measured at amortized cost.
Accounts payable and accrued liabilities are initially measured at fair value and subsequently measured at amortized cost.
Accounts payable and accrued liabilities are presented as current liabilities unless payment is not due within 12 months after
the reporting period.
Long-term debt is initially measured at fair value, net of transaction costs incurred. The contractual cash flows of the long-term
debt are subsequently measured at amortized cost. Long-term debt is classified as current when payment is due within 12
months after the reporting period.
The Group has no financial liabilities measured at FVTPL.
The Group characterizes its fair value measurements into a three-level hierarchy depending on the degree to which the inputs
are observable, as follows:
Level 1: inputs are quoted prices in active markets for identical assets and liabilities;
44
SERINUS ENERGY Annual Report 2019
Level 2: inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability
either directly or indirectly; and
Level 3: inputs are unobservable inputs for the asset or liability.
j. Exploration and evaluation (“E&E”) and Property, plant and equipment (“PP&E”)
i. Exploration and evaluation expenditures
Pre-license costs are costs incurred before the legal rights to explore a specific area have been obtained. These costs are
expensed in the period in which they are incurred.
E&E costs, including the costs of acquiring licenses and directly attributable general and administrative costs, are capitalized
as E&E assets. The costs are accumulated in cost centers by well, field or exploration area pending determination of
technical feasibility and commercial viability.
E&E assets are assessed for impairment when (i) facts and circumstances suggest that the carrying amount exceeds the
recoverable amount, or (ii) sufficient data exists to determine technical feasibility and commercial viability, and the assets
are to be reclassified. For purposes of impairment testing, E&E assets are grouped by concession or license area.
The technical feasibility and commercial viability of extracting a resource is considered to be determinable based on several
factors including the assignment of proved or probable reserves. A review of each exploration license or field is carried out,
at least annually, to ascertain whether the project is technically feasible and commercially viable. Upon determination of
technical feasibility and commercial viability, exploration and evaluation assets attributable to those reserves are first tested
for impairment and then reclassified from E&E assets to a separate category within PP&E referred to as oil and natural gas
interests.
ii. Development and production costs
Items of PP&E, which include oil and gas development and production assets, are measured at cost less accumulated
depletion and depreciation and accumulated impairment losses. Development and production assets are grouped into
cash generating units (“CGU”) for impairment testing and categorized within property and equipment as oil and natural
gas interests. PP&E is comprised of drilling and well servicing assets, office equipment and other corporate assets. When
significant parts of an item of PP&E, including oil and natural gas interests, have different useful lives, they are accounted
for as separate items (major components).
Gains and losses on disposal of an item of PP&E, including oil and natural gas interests, are determined by comparing the
proceeds from disposal with the carrying amount of PP&E and are recognized within profit or loss.
iii. Subsequent costs
Costs incurred subsequent to the determination of technical feasibility and commercial viability and the costs of replacing
parts of PP&E are capitalized only when they increase the future economic benefits embodied in the specific asset to which
they relate. All other expenditures are recognized in profit or loss as incurred. Such capitalized costs generally represent
costs incurred in developing proved and/or probable reserves and bringing in or enhancing production from such reserves
and are accumulated on a field or geotechnical area basis. The carrying amount of any replaced or sold component is
derecognized. The costs of the day-to-day servicing of PP&E are recognized 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 Group’s CGUs generally align
with each concession or production sharing contract. 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.
SERINUS ENERGY Annual Report 2019
45
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
(US 000s, except per share amounts, unless otherwise noted)
An impairment loss is recognized if the carrying amount of an asset or a CGU exceeds its estimated recoverable amount.
Impairment losses are recognized in profit or loss. Impairment losses recognized 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 recognized 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 recognized.
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. Provisions
i. General
A provision is recognized 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 recognized for future operating losses.
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 recognized is the present value of estimated future
expenditures required to settle the obligation using the risk-free interest rate associated with the type of expenditure and
respective jurisdiction. A corresponding asset equal to the initial estimate of the liability is capitalized as part of the related
asset and depleted to expense over its useful life. The obligation is accreted until the date of expected settlement of the
retirement obligation and is recognized 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 recognized as changes in the decommissioning provision and related asset. Actual expenditures
incurred are charged against the provision to the extent the provision was established. Downward revisions to the liability
in cases when the full decommissioning asset has been impaired, the resulting change in estimate will flow through the
Statement of Comprehensive Loss.
l. Long-term debt
Long-term debt is classified as a financial liability or equity instrument in accordance with the substance of the contractual
arrangement. In determining whether a financial instrument is a financial liability rather than an equity instrument, the following
conditions must both be met:
i. The instrument includes a contractual obligation to deliver cash or another financial asset, or to exchange financial assets
and financial liabilities under conditions that are potentially unfavourable.
ii.
If the instrument will or may be settled in equity instruments it is a non-derivative that includes a contractual obligation to
deliver a variable number of equity instruments, or a derivative that will be settled by exchanging a fixed amount of cash or
another financial asset for a fixed number of equity instruments.
Long-term debt that contains a conversion feature is assessed using the criteria above. If the conversion feature fails to meet the
definition of an equity instrument it is classified as a derivative liability. Derivative liabilities are recorded at their fair value each
reporting period with changes recognized in profit or loss.
m. Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of ordinary shares and share
options are recognized as a deduction from equity, net of any tax effects.
n. Warrants
Warrants are classified as equity. Incremental costs directly attributable to the issuance of warrants are recognized as a deduction
46
SERINUS ENERGY Annual Report 2019
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.
o. 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.
p. Changes to accounting policies
IFRS 16 Leases
In January 2016, the IASB issued IFRS 16 “Leases” (“IFRS 16”), which requires entities to recognize right-of-use (“ROU”) assets
and lease obligations on the statement of financial position. Serinus adopted IFRS 16 on 1 January 2019 using the modified
retrospective approach. The modified retrospective approach does not require restatement of prior period financial information,
instead recognizing the cumulative effect as an adjustment to the opening retained earnings and the Group applied the
standard prospectively. Serinus does not participate in any lease agreements where it acts as a lessor or intermediate lessor.
Serinus has applied the standard while using the following optional expedients permitted under the standard:
•
•
Short-term leases – those with terms of 12 months or less at date of adoption
Low-value leases – those with a value less than US $5,000
On 1 January 2019, the Group recognized a cumulative increase to ROU assets of $1.2 million for leases previously classified as
operating leases, directly offset to the lease obligations. The weighted average incremental borrowing rate used to determine
the lease obligation at adoption was approximately 17.1%. The assets and lease obligations related to the adoption of IFRS 16,
relate to office leases and vehicles.
The Company depreciates the ROU assets on a straight-line basis over the length of the lease unless management determines
this is not representative of the useful life, in which case, management will estimate the useful life of the asset to be used.
The following table reconciles the minimum lease commitments disclosed in the Group’s 31 December 2018 annual financial
statements to the amount of lease liabilities recognised on 1 January 2019:
($000)
1 January 2019
Minimum operating lease commitment at 31 December 2018
Less: short-term leases not recognised under IFRS 16
Less: low value leases not recognised under IFRS 16
Plus: effect of extension options reasonably certain to be exercised
Undiscounted lease payments
Less: effect of discounting using the incremental borrowing rate as at the date of initial application
Lease liabilities for leases classified as operating type under IAS 17
Plus: leases previously classified as finance type under IAS 17
Lease liability as at 1 January 2019
1,097
(4)
-
270
1,363
(204)
1,159
-
1,159
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). Serinus does not have any derivative financial instruments
at 31 December 2019 (31 December 2018 – nil).
Risk management
The Directors have overall responsibility for identifying the principal risks of the Group and ensuring the policies and procedures
are in place to appropriately manage these risks. Serinus’ management identifies, analyzes and monitors risks and considers the
implication of the market condition in relation to the Group’s activities.
Market risk is the risk that the fair value of future cash flows of financial assets or financial liabilities will fluctuate due to movements
in market prices. Market risk is comprised of commodity price risk, foreign currency risk and interest rate risk, as well as credit and
liquidity risks.
Commodity price risk
The Group is exposed to commodity price risk in fluctuations in the price of oil, natural gas and natural gas liquids.
In Tunisia, oil prices are based on the terms of the Shell contract which reflects the market price of Brent crude oil. Brent averaged
$64.36 per bbl in 2019 compared to $71.06 per bbl in 2018, a decrease of 9%.
SERINUS ENERGY Annual Report 2019
47
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
(US 000s, except per share amounts, unless otherwise noted)
In Romania, there is no stated gas benchmark to track the market price. The Company enters into monthly contracts with customers
for a stated gas price for each month based on the Romanian gas trading activity for the month.
The Group has no commodity hedge program in place which could limit exposure to price risk. For the year ended 31 December
2019, a 5% change in the price of crude oil per bbl would have impacted revenue, net of royalties by $0.3 million (2018 - $0.3
million) and a 5% change in the price of gas per mcf would have impacted revenue, net of royalties by $0.8 million (2018 - $0.1
million).
Foreign currency exchange risk
The Group is exposed to risks arising from fluctuations in currency exchange rates between Pound Sterling (“GBP”), Canadian
dollar (“CAD”), Polish zloty, Romanian LEU (“LEU”), Tunisian dinar (“TND”), Euro and United States dollar (“USD”). At 31 December
2019, the Group’s primary currency exposure related to the GBP, CAD, LEU, and TND balances. The following table summarizes the
Group’s foreign currency exchange risk for each of the currencies indicated:
As at 31 December 2019
Cash and cash equivalents
Accounts receivable
Restricted cash
Accounts payable and accrued liabilities
Lease liabilities
Net foreign exchange exposure
Translation to USD
USD equivalent
As at 31 December 2018
Cash and cash equivalents
Accounts receivable
Restricted cash
Accounts payable and accrued liabilities
Net foreign exchange exposure
Translation to USD
USD equivalent
GBP
54
-
-
(331)
132
(145)
1.3210
(192)
GBP
9
-
-
(33)
(24)
1.2769
(31)
CAD
17
16
1,428
(228)
471
1,704
0.7679
1,309
CAD
515
69
1,400
(88)
1,896
0.7342
1,392
LEU
1,856
18,740
110
(12,247)
-
8,459
0.2347
1,985
LEU
3
12,324
109
(10,985)
1,451
0.2455
356
TND
408
1,751
-
(1,148)
655
1,666
0.3573
595
TND
549
5,330
-
(8,379)
(2,500)
0.3340
(835)
Based on the net foreign exchange exposure at the end of the year, if these currencies had strengthened or weakened by 10%
compared to the USD and all other variables were held constant, the after-tax earnings would have decreased or increased by
approximately the following amounts:
Year ended 31 December
2019
2018
GBP
CAD
LEU
TND
Impact on profit
Interest rate risk
(19)
131
199
60
371
(3)
139
36
(84)
88
The Group’s interest rate risk arises from the floating rate on the Convertible Loan. The Convertible loan’s interest rate is based on
LIBOR and has a portion based on incremental revenue with a floor of 8% and ceiling of 17%.
The Group’s net earnings are impacted by changes in LIBOR interest rates, if interest rates applicable to the long-term debt
increased by 1%, assuming the amount of debt remains unchanged, the impact to net loss before income taxes for the year ended
31 December 2019 would be $0.3 million (2018 - $0.3 million).
48
SERINUS ENERGY Annual Report 2019
Credit risk
The Group’s cash and cash equivalents and restricted cash are held with major financial institutions. The Group monitors credit risk
by reviewing the credit quality of the financial institutions that hold the cash and cash equivalents and restricted cash.
The Group’s trade receivables consist of receivables for revenue in Tunisia and Romania, along with receivables from joint venture
partners in Tunisia.
Management believes that the Group’s exposure to credit risk is manageable, as commodities sold are under contract or payment
within 30 days. Commodities are sold with reputable parties and collection is prompt based on the individual terms with the parties.
For the year ended 31 December 2019, Tunisia’s revenue was generated from three customers (2018 – three), with a 62%, 21%, and
17% weighting (2018 – 46%, 29% and 25%). Romania’s sales were made to two customers (2018 – nil), with a 98% and 2% weighting
(2018 – nil%). At 31 December 2019, the Group had $0.3 million (31 December 2018 - $0.6M) of revenue receivables that were
considered past due (over 90 days outstanding). The average expected credit loss on the Group’s revenue receivable was $nil (31
December 2018 – $nil). Subsequent to the year end, all revenue receivable has been collected in full. Substantially all receivables
from joint venture partners are with government agencies which minimizes credit risk.
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.
Timing of cash outflows related to debt follow the schedule provided in note 21. All outflows are anticipated to follow the schedule
for payment. The risk that payment could occur significantly earlier may arise if a loan covenant is violated and an acceptable
arrangement could not be made, in which case the bank could act on its security for that particular loan. The maximum exposure to
liquidity risk in this case is represented by the loan principal plus accrued interest.
5. Use of estimates and judgments
The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and
assumptions based on currently available information that affect the application of accounting policies and the reported amounts
of assets, liabilities, income and expenses. Estimates and judgements are evaluated and are based on managements’ experience
and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However
actual results could differ from these estimates. 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. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any
future periods affected.
Significant estimates and judgments made by management in the consolidated financial statements are described below:
a. Oil and gas reserves
Measurements of depletion, depreciation, impairment, decommissioning provisions and business acquisitions are determined
in part based on the Group’s estimate of oil and gas reserves and resources. The process of determining reserves is complex
and involves the exercise of professional judgement. All reserves have been evaluated at 31 December 2019 by independent
qualified reserves evaluators. All significant judgments are based on available geological, geophysical, engineering, and
economic data. These judgments are based on estimates and assumptions that may change substantially as additional data
from ongoing development activities and production performance becomes available and as economic conditions impacting
oil and gas prices and costs change. The reserve estimates are based on current production forecasts, prices and economic
conditions. As circumstances change and additional data becomes available, reserve estimates also change. Estimates made
are reviewed and revised, either upward or downward, as warranted by the new information. Revisions are often required due
to changes in well performance, prices and economic conditions. Although every reasonable effort is made to ensure that
reserve estimates are accurate, reserve estimation is an inferential science. As a result, subjective decisions, new geological or
production information and a changing environment may impact these estimates. Revisions to reserve estimates can arise from
changes in year-end oil and gas prices and reservoir performance. Such revisions could be material and result in either positive
or negative amounts.
The cash flow model used to value oil and gas properties incorporates estimates of future commodity prices. Generally, the
pricing assumptions used are those of the external reserve engineer adjusted for differentials specific to the Group. Commodity
prices can fluctuate for a variety of external reasons including supply and demand fundamentals, inventory levels, exchange
rates, weather, and economic and geopolitical factors as well as internal reasons including quality differentials.
SERINUS ENERGY Annual Report 2019
49
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
(US 000s, except per share amounts, unless otherwise noted)
b. Assumed 100% interest in the Satu Mare concession
The Group currently holds a deemed 100% interest in the Satu Mare concession.
The defaulted partner, who held a 40% interest in the Satu Mare concession, declined to participate in future exploration or
development phases under the concession and as such has not contributed their share of expenditures to the joint venture. 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. In August 2017, the Group
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 going forward and that the partner must without delay, do
any act required to render the transfer of the participating interest legally valid, including obtaining all governmental consents
and approvals, and shall execute any document and take such other actions as may be necessary in order to affect a prompt and
valid transfer of the interest in the Satu Mare Concession. As at 31 December 2019 the Company is continuing discussions with
the government to have the partners working interest transferred to Serinus, and the Company remains optimistic the working
interest will be transferred and approved by the Romanian Fiscal Authorities.
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. The Group has also communicated
the position to the fiscal authorities in Romania. The Group continues to pursue the Partner’s adherence to its obligation to
transfer the interest, and should this not be forthcoming, pursue any and all legal remedies that would formally see the rightful
transfer of the defaulting 40% working interest to the Group. The Group maintains its right to 100% of the obligations and
benefits of commercial activities conducted within the Satu Mare concession.
c. Oil and gas activities
The Group is required to apply judgment whether it is likely that future economic benefit exists when activities have not reached
a stage where technical feasibility and commercial viability can be reasonably determined (exploration and evaluation) and
when technical feasibility and commercial viability have been reached (development and production). The Group is required
to make judgments about future events and circumstances and applies estimates to assess the economic viability of extracting
the underlying resources.
d. Cash generating units
The determination of CGUs requires judgment in defining a group of assets that generate cash inflows that are largely
independent of the cash inflows from other assets or groups of assets. CGUs are determined by similar geological structure,
shared infrastructure, geographical proximity, commodity type, similar exposure to market risks and materiality.
e. Impairment and reversals
Judgment in assessing the existence of impairment and impairment reversal indicators is based on various internal and external
factors. The recoverable amount of CGUs and individual assets is determined on the greater of fair value less cost of disposal or
value in use. Key estimates in determining the recoverable amount normally include proved and probable reserves, forecasted
commodity prices, expected production, future operating and development costs, discount rates and tax rates. In determining
the recoverable amount, management may also need to make assumptions regarding the likelihood of an event. Changes to
these estimates and judgements will impact the recoverable amounts of CGUs and individual assets and may require a material
adjustment to their carrying value.
f. Decommissioning provisions
The Group recognizes liabilities for the future decommissioning and restoration of exploration and evaluation assets and
property, plant and equipment. Management applies judgment in assessing the existence and extent as well as the expected
method of reclamation of the Group’s decommissioning and restoration obligations at the end of each reporting period.
Management also uses judgment to determine whether the nature of the activities performed is related to decommissioning
and restoration activities or normal operating activities. In addition, these provisions are based on estimated costs, which take
into account the anticipated method and extent of restoration and the possible future use of the site. Actual costs are uncertain,
and estimates can vary as a result of changes to relevant laws and regulations, the emergence of new technology, operating
experience, prices and closure plans. The estimated timing of future decommissioning and restoration may change due to
certain factors, including reserve life. Changes to estimates related to future expected costs, discount rates and timing could
result in a significant adjustment to the provisions established which would affect future financial results.
g. Deferred income taxes
Estimates and assumptions are used in the calculation of deferred income taxes. Judgments include assessing whether tax
assets can be recognized is based on expectations of future cash flows from operations and the application of existing tax laws
and terms of concession agreements. To the extent that future cash flows and taxable income differ significantly from estimates,
the ability of the Group to realize the deferred tax assets and liabilities recorded at the balance sheet date could be impacted
by a material amount. Additionally, changes in tax laws could limit the ability of the Group to obtain tax deductions in the future.
50
SERINUS ENERGY Annual Report 2019
The determination of the Group's taxable income and other tax liabilities requires interpretation of complex laws and regulations
often involving multiple jurisdictions. Estimates that require significant judgments are also made with respect to the timing of
temporary difference reversals, the realizability of tax assets and in circumstances where the transaction and calculations for
which the ultimate tax determination are uncertain. All tax filings are subject to audit and potential reassessment after the lapse
of considerable time. Accordingly, the actual income tax liability may differ significantly from that estimated and recorded by
management.
h. Uncertain tax positions
The Group makes interpretations and judgements on the application of tax laws for which the eventual tax determination
may be uncertain. To the extent that interpretations change, there may be a significant impact on the consolidated financial
statements.
i. Share-based compensation
Stock options issued by the Group are recorded at fair value using the Black-Scholes option pricing model. The calculation
of share-based payment expense requires estimates which involve assumptions about the share price volatility, forfeiture
rates, option life, dividend yield and risk-free rate at the initial grant date. Changes to these estimates impact the share-based
compensation expense and contributed surplus and may have a material impact on the amounts presented.
j. Right-of-use assets and lease obligations
The measurement of ROU assets and the corresponding obligations are subject to managements judgement of the applicable
incremental borrowing rate and the expected lease term. The net book value of the ROU assets, lease obligations, and interest
and depreciation expense may differ due to changes in the expected lease terms. In applying the discount rate, management
has applied internally calculated weighted average cost of capital on an entity by entity basis. The lease term is determined to
be the length of the lease contract, but when management does not believe these terms represent the useful life of the asset,
an internally estimated useful life is applied.
6. Revenue, net of royalties
Year ended 31 December
Petroleum and natural gas revenues
Royalties
Revenue, net of royalties
2019
24,365
(1,860)
22,505
2018
8,716
(867)
7,849
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 29).
As at 31 December 2019, the receivable balance related to contracts with customers, included within accounts receivable is $4.2
million (31 December 2018 - $1.9 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. For options issued
prior to 2016, each tranche of the share purchase options had a five-year term and vested one-third immediately with the remaining
two-thirds at one-third per year each anniversary of the grant date. In 2016, options were granted with a seven-year term and vested
one-third per year on the anniversary of the grant date for the three subsequent years. In 2017, options were granted with a five-
year term, which vested one-third per year on the anniversary date for the three subsequent years. In 2018, options were granted
with a ten-year term, which vested one-third immediately with the remaining two-thirds at one-third per year each anniversary of
the grant date for the two subsequent years.
During the fourth quarter of 2018, the Group converted all executive directors and employee options from a TSX plan to an AIM
plan and converted the exercise price on all outstanding options to GBP based on the exchange rate at the date of continuance.
The options granted to non-executive directors have not yet been repriced or converted to an AIM plan.
The conversion of the exercise price to GBP represents a modification to the share-based payment arrangement. The Group
assessed the fair value of the converted options and determined that there was no change in fair value based on the modification.
The weighted average fair value of options granted during the year ended 31 December 2019 was £0.13 per option (31 December
2018 - £0.12 per option) using the following assumptions:
Inputs used in the Black-Scholes model
Risk-free interest rate
Expected dividend yield
Expected volatility
Forfeiture rate
Expected option life (in years)
2019
0.91%
nil
76%
5%
10.0
2018
1.33%
nil
77%
5%
10.0
SERINUS ENERGY Annual Report 2019
51
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
(US 000s, except per share amounts, unless otherwise noted)
A summary of the changes to the option plans during the year ended 31 December 2019, are presented below:
a. USD denominated options
Balance, beginning of year
Expired
Balance, end of year
b. CAD denominated options
Balance, beginning of year
Forfeited
Converted to GBP
Balance, end of year
2019
2018
Weighted
average
exercise price
(USD)
Number of
options
-
-
-
-
-
-
Weighted
average
exercise price
(USD)
3.68
3.68
-
Number of
options
67,000
(67,000)
-
2019
Number of
options
Weighted
average
exercise price
(CAD)
2018
Number of
options
300,000
(100,000)
-
200,000
0.37
(0.37)
-
0.37
9,933,000
(1,043,000)
(8,590,000)
300,000
Weighted
average
exercise price
(CAD)
0.36
0.37
0.36
0.37
As at 31 December 2019 there are 200,000 (2018 – 300,000) options outstanding to non-executive directors with a weighted
average contractual life of 2.7 (2018 – 3.6) years and a weighted average exercise price of CA$0.37 (2018 – CA$0.37).
c. GBP denominated options
Balance, beginning of year
Granted
Converted from CAD
Expired
Forfeited
Balance, end of year
2019
2018
Number of
options
14,793,000
2,280,000
-
(616,668)
(3,376,665)
13,079,667
Weighted
average
exercise price
(GBP)
0.18
0.12
-
(0.22)
(0.16)
Number of
options
-
6,203,000
8,590,000
-
-
0.17
14,793,000
Weighted
average
exercise price
(GBP)
-
0.15
0.20
-
-
0.18
As at 31 December 2019 there are 13,079,667 (2018 – 14,793,000) options outstanding to executive directors and employees with
a weighted average contractual life of 4.5 (2018 - 6.5) years and a weighted average exercise price of £0.17 (2018 - £0.18).
GDP denominated option breakdown
Exercise price
(GBP)
Options
outstanding
0.00 - 0.10
0.10 - 0.20
0.20 - 0.30
50,000
9,046,333
3,983,334
Options
exercisable
16,667
7,031,999
3,266,668
13,079,667
10,315,334
Weighted
average
contractual
life (years)
9.7
5.4
2.4
4.5
52
SERINUS ENERGY Annual Report 2019
8. Other expenses and income
a. Well incident recovery
Year ended 31 December
Well incident recovery
Well incident expense
2019
52
-
52
2018
3,926
(324)
3,602
In December 2017, an unexpected gas release occurred at the M-1001 well and ignited. The costs associated with bringing the well
under control were recorded in 2017. The Group submitted insurance claims during 2018 relating to the emergency costs and has
received payment for the full amount of costs incurred, less an insurance deductible, of $4.0 million.
The Group also submitted insurance claims for the cost of re-drilling a replacement well, M-1007. An interim claim of $2.9 million
was recognized as a receivable at 31 December 2018. The insurance claim has been finalized and all cash has been collected
during 2019.
b. Listing costs
Listing costs include costs associated with the continuance of the Group from Alberta, Canada, to Jersey, Channel Islands, and
includes the legal, accounting and due diligence costs associated with listing its shares for trading on the AIM.
9. Finance expense
Year ended 31 December
Interest expense on long-term debt
Amortization of debt costs
Amortization of debt modification
Interest of leases
Accretion on decommissioning provision
Other interest and foreign exchange
10. Taxation
Current income tax expense
Deferred income tax expense (recovery)
Reconciliation of the effective tax rate:
Year ended 31 December
Loss before income taxes
Statutory tax rate
Expected income tax reduction
Non-deductible expenditures
Losses utilized
Tax rate differences
Other
Net change in tax attributes not recognized
Income tax expense
Note
21
21
21
20
18
Note
19
2019
3,319
144
97
145
1,224
(126)
4,803
2019
1,414
238
1,652
2018
3,212
255
44
-
1,030
26
4,567
2018
2,089
(346)
1,743
2019
(288)
0.0%
-
489
(33)
2,774
967
(2,545)
1,652
2018
(3,147)
0.0%
-
4,802
-
(3,814)
2,521
(1,766)
1,743
As a result of the Company’s continuance from being a Canadian incorporated entity to a Jersey incorporated entity, the statutory
tax rate was reduced from 27% to 0%. A significant portion of the non-deductible expenditure total in the 2018 reconciliation
relates to a tax loss arising on the merger of Winstar Resources and the Group which occurred prior to the continuance. Net change
in tax attributes not recognized relates to tax losses that expired during the year.
SERINUS ENERGY Annual Report 2019
53
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
(US 000s, except per share amounts, unless otherwise noted)
11. Loss per share
Year ended 31 December
(000's, except per share amounts)
Loss for the year
Weighted average shares outstanding
Basic and dilutive 1
Loss per share - basic and diluted
2019
(1,940)
2018
(4,890)
234,211
192,113
(0.01)
(0.03)
1 For the year ended 31 December 2019, there were 10.3 million weighted average stock options exercisable that were excluded
from the calculation as the impact was anti-dilutive (31 December 2018 – 6.1 million).
In determining diluted net loss per share, the Group assumes that the proceeds received from the exercise of “in-the-money” stock
options are used to repurchase common shares at the average market price. In calculating the weighted-average number of diluted
common shares outstanding for the year ended 31 December 2019, the Group excluded all stock options as their exercise price
was greater than the average common share market price during the year. The total stock options excluded were 13.3 million stock
options (31 December 2018 – 15.1 million).
12. Property, plant and equipment
Oil and gas
interests
Corporate
assets
Total
Cost or deemed cost:
Balance as at 31 December 2017
Capital expenditures
Change in decommissioning provision
Disposals
Balance as at 31 December 2018
Capital expenditures
Change in decommissioning provision
Disposals
Balance as at 31 December 2019
Accumulated depletion and depreciation
Balance as at 31 December 2017
Depletion and depreciation
Disposals
Balance as at 31 December 2018
Depletion and depreciation
Disposals
Balance as at 31 December 2019
Cumulative translation adjustment
Balance as at 31 December 2018
Currency translation adjustments
Balance as at 31 December 2019
Net book value
Balance as at 31 December 2018
Balance as at 31 December 2019
54
SERINUS ENERGY Annual Report 2019
254,090
10,668
(994)
(3,500)
260,264
3,856
(7,886)
-
256,234
(155,305)
(1,560)
3,500
(153,365)
(9,683)
-
(163,048)
-
(212)
(212)
106,899
92,974
2,489
90
-
-
2,579
35
-
(62)
2,552
(1,696)
(241)
-
(1,937)
(277)
62
(2,152)
-
22
22
642
422
256,579
10,758
(994)
(3,500)
262,843
3,891
(7,886)
(62)
258,786
(157,001)
(1,801)
3,500
(155,302)
(9,960)
62
(165,200)
-
(190)
(190)
107,541
93,396
The following table reconciles capital expenditures to the property, plant and equipment expenditures in the cash flow statement:
Year ended 31 December
Development expenditures
Changes in non-cash working capital
Development cash payments
2019
4,888
-
4,888
2018
10,758
638
11,396
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 $42.2 million (31 December 2018 - $55.6 million) and for Romania are
$12.4 million (2018 - $nil).
As at 31 December 2019 all insurance proceeds had been collected relating to the well blow-out and the drilling of M-1007. The
insurance proceeds have been offset against the capital costs to drill M-1007 as this well was drilled to replace the M-1001.
The Company has realized a change in estimate related to the decommissioning liability (note 18). This resulted in a decrease to
the decommissioning asset related to this liability of $7.9 million (2018 - $1.0 million).
Impairment
At 31 December 2019, the Company completed an evaluation on its PP&E for indicators of any possible impairment or impairment
reversals. Due to the decrease in the commodity price the Company deemed there were indicators of impairment. An impairment
test was conducted on all CGUs, but no impairment was recognized as the estimated recoverable amount of each CGU exceeded
the carrying value. The Company determined the estimated recoverable amount based on a discounted cash flow, using an after-
tax discount rate equal to the weighted average cost of capital of each subsidiary (Romania - 12%, Tunisia – 22%).
The following commodity prices obtained from RPS Group were used in the discounted cash flow model:
Year
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
Brent
Sabria Gas
Chouech Gas
Romania Gas
(US$/bbl)
63.00
65.00
68.00
71.00
75.50
76.50
78.83
80.41
82.02
83.66
(US$/mcf)
7.90
8.15
8.52
8.90
9.46
9.59
9.88
10.08
10.28
10.49
(US$/mcf)
7.05
7.27
7.61
7.94
8.45
8.56
8.82
9.00
9.18
9.36
(US$/mmbtu)
6.54
6.75
7.06
7.37
7.83
7.94
8.18
8.34
8.51
8.68
Remainder
+2.0% per year
+2.0% per year
+2.0% per year
+2.0% per year
Although the discounted cash flow indicated no impairment or reversal of impairment for the year ended 31 December 2019, the
following table provides a sensitivity of the estimated recoverable amount with any changes to the key assumptions used in the
model.
1% increase to
discount rate
1% decrease
to discount
rate
5% increase
to commodity
prices
5% decrease
to commodity
prices
Additional impairment, net of tax
(0.1)
-
-
(1.0)
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, expected royalties, future development costs, change in reserves, or the expected 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.
13. Exploration and Evaluation assets
Carrying amount
Balance, beginning of the year
Additions
Cumulative translation adjustment
Balance, end of the year
-
997
7
1,004
SERINUS ENERGY Annual Report 2019
55
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
(US 000s, except per share amounts, unless otherwise noted)
The Company currently has land rights to a large amount of undeveloped land in Romania. In conjunction with the final commitment
for the Romania concession, the Company is currently undertaking a 3D seismic acquisition program to the north of the operating
Moftinu field. During the year, the initial preparations were initiated, while the project is anticipated to be finalized in the first half
of 2020.
14. Right-of-use assets
The following table details the cost and accumulated depreciation of the ROU assets:
Cost
Balance as at 31 December 2018
Additions
Balance as at 31 December 2019
Accumulated depreciation
Balance as at 31 December 2018
Depreciation
Balance as at 31 December 2019
Cumulative translation adjustment
Balance as at 31 December 2018
Currency translation adjustments
Balance as at 31 December 2019
Carrying amounts
Balance as at 31 December 2018
Balance as at 31 December 2019
Buildings
Vehicles
Total
-
1,293
1,293
-
(504)
(504)
-
2
2
-
-
39
39
-
(13)
(13)
-
-
-
-
-
1,332
1,332
-
(517)
(517)
-
2
2
-
791
26
817
15. Restricted cash
The Group has cash on deposit with the Alberta Energy Regulator of $1.1 million (2018 - $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.
16. Trade and other receivables
As at 31 December
Trade receivables
VAT receivable
Insurance receivable
Corporate tax receivable
Prepaids and other
2019
5,793
2,780
-
1,452
1,316
2018
2,930
2,701
2,881
1,357
274
11,341
10,143
The trade receivables consist of commodity sales in both Romania and Tunisia. The Group has not taken any ECLs as the Company
has received in full all revenue receivables subsequent to the year end. The VAT receivable relates to operating and development
costs in Romania and are recovered through the Romanian government. The Company is currently awaiting an audit for the VAT
returns predominantly related to the periods prior to production commencing. This portion of the VAT receivable amounts to $2.5
million, which the Company believes is fully recoverable.
56
SERINUS ENERGY Annual Report 2019
17. Shareholder’s capital
Authorized
The Group is authorized 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
2019
2018
Balance, beginning of the year
Issued for cash
Issuance costs, net of tax
Warrants exercised
Number of
shares
217,318,805
21,553,583
-
8,897
Amount
($000s)
375,208
2,903
(170)
1
Number of
shares
150,652,138
66,666,667
-
-
Balance, end of the year
238,881,285
377,942
217,318,805
Warrants
Year ended 31 December 2019
Balance, beginning of the year
Issued with shares
Warrants exercised
Balance, end of the year
Number of
Warrants
-
2,263,126
(8,897)
2,254,229
Amount
($000s)
362,534
13,475
(801)
-
375,208
Amount
($000s)
-
97
-
97
Along with the share issuance in March 2019, the company issued 0.105 share purchase warrants for each unit, totaling 2,263,126
warrants. The warrants were valued using the Black-Scholes pricing model using the following assumptions:
Inputs used in the Black-Scholes model
Risk-free interest rate
Expected dividend yield
Expected volatility
Expected warrant life (in years)
18. Decommissioning provision
As at 31 December
Balance, beginning of the year
Liabilities incurred
Liabilities settled
Accretion
Change in estimate 1
Foreign currency translation
Balance, end of year
3.91%
nil
54%
2.0
2019
45,269
-
-
1,224
(14,777)
(78)
31,638
2018
45,681
1,101
(30)
1,030
(2,411)
(102)
45,269
1 Changes in the discount rate, inflation rate and cost estimates are significant factors contributing to a change in estimate
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.
The Group has estimated as at 31 December 2019 the decommissioning provisions of Brunei’s Block L, Block M and the wells in
Canada to be $2.8 million (2018 - $2.8 million). These obligations are reported as current liabilities as they relate to non-producing
properties or expired production sharing contracts.
The Group has been in contact with the Alberta Energy Regulator with regards to the abandonment and reclamation of the
Canadian assets.
SERINUS ENERGY Annual Report 2019
57
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
(US 000s, except per share amounts, unless otherwise noted)
As at 31 December
Tunisia
Romania
Brunei
Canada
Due within one year
Long-term liability
The significant assumptions used in the calculation of the decommissioning provision are as follows:
As at 31 December
2019
Tunisia
Romania
Brunei
Canada
Net present
value
26,137
2,687
1,801
1,013
31,638
Risk-free
rate (%)
2.7 - 3.1
3.4 - 4.8
-
-
Inflation
rate (%)
Net present
value
2.3
2.5
-
-
39,929
2,560
1,801
979
45,269
2019
26,137
2,687
1,801
1,013
2018
39,929
2,560
1,801
979
31,638
45,269
6,334
25,304
31,638
8,696
36,573
45,269
2018
Risk-free
rate (%)
2.7 - 3.1
4.3
-
-
Inflation
rate (%)
1.9
2.5
-
-
During the year, the Group conducted a thorough analysis of the decommissioning requirements for the Tunisian business unit
and determined that there were significant cost savings, based on revised abandonment procedures and cost estimates, that could
be applied to the decommissioning of the fields. This resulted in a change in estimate to the decommissioning liability and to the
offsetting decommissioning asset. In the case where the decommissioning asset has been fully impaired, the Group recognized
this change in estimate through the Statement of Comprehensive Loss. For 2019, this amounted to $14.8 million (2018 - $0.3
million), of which $6.9 million (2018 - $0.3 million) was booked as a recovery through the Statement of Comprehensive Loss, with
the remainder booked against the decommissioning asset.
19. Deferred income tax
The deferred taxes are recognized 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:
PP&E and E&E assets
Decommissioning provision
Other
Deferred income tax liability
Tax effect related to:
PP&E and E&E assets
Decommissioning provision
Other
Deferred income tax liability
58
SERINUS ENERGY Annual Report 2019
31 December
2018
Recovery/
(expense)
31 December
2019
(18,288)
4,102
1,032
(13,154)
1,326
(441)
(1,123)
(238)
(16,962)
3,661
(91)
(13,392)
31 December
2017
Recovery/
(expense)
31 December
2018
(19,370)
4,570
1,300
(13,500)
1,082
(468)
(268)
346
(18,288)
4,102
1,032
(13,154)
Unrecognized deferred tax assets
Deferred tax assets have not been recognized in respect of the following deductible temporary differences:
As at 31 December
PP&E and E&E assets
ROU assets
Lease liabilities
Decommissioning provision
Non-capital losses carried forward and other
Unrecognized deferred tax asset
2019
(5,447)
(376)
349
6,886
11,006
12,418
2018
5,588
-
-
10,198
36,057
51,843
Deferred tax assets have not been recognized in respect of these items because it is uncertain that future taxable profits will be
available against which they can be utilized.
The Group has Canadian non-capital losses of $0.6 million (2018 - $0.1 million), Cyprus tax losses of $7.7 million (2018 - $8.0
million) that expire between 2020 and 2025, Tunisian losses of $8.2 million that expire in four years and $6.7 million have no expiry
date (2018 - $13.7 and $6.7 million respectively), and Romanian losses of $5.4 million (2018 - $7.6 million) that expire after seven
years between 2020 to 2026.
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 period ended 31 December 2019:
Balance, 1 January 2019
Additions
Payments
Cumulative translation adjustment
Balance, end of the year
Lease liabilities due within one year
Lease liabilities due beyond one year
1,159
173
(466)
10
876
534
342
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 2019 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 of leases
primarily of office equipment.
The following table details the future cash settlement for the outstanding lease liabilities at 31 December 2019:
As at 31 December 2019
1 Year
1-3 Years
Beyond 3 Years
Total
Carrying Value
Lease liabilities
622
172
231
1,025
876
SERINUS ENERGY Annual Report 2019
59
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
(US 000s, except per share amounts, unless otherwise noted)
21. Long term debt
As at 31 December
Senior loan 1
Convertible loan 2
Debt-principal balance
Unamortized discounts and debt costs
Modification gain
Current portion
Long-term portion
2019
-
32,196
32,196
(207)
(893)
31,096
7,709
23,387
2018
5,521
29,111
34,632
(351)
(990)
33,291
5,624
27,667
1 Includes loan principal of $nil (2018 – $5.4 million) plus accrued interest
2 Includes loan principal of $30.6 (2018 – $27.6 million) plus accrued interest
The following table represents the scheduled principal repayments of the Convertible Loan plus accrued interest up to 31 December
2019. The Convertible Loan bears interest at a variable rate equal to LIBOR plus a margin between 8% and 17%, therefore an
estimated interest rate has been used in calculating the repayments.
Required debt cash payments
8,049
16,098
8,049
Within 1 year
2-5 years
Thereafter
Total
32,196
As at 31 December 2019, the Group had $31.1 million (2018 - $33.3 million) in total debt with the EBRD consisting of a $30.6
million Convertible Loan plus accrued interest, net of unamortized discounts and costs, and a debt modification gain. The current
portion of the long-term debt is $7.7 million (2018 - $5.6 million). The three-year period available to draw on these loans expired
in November 2016. The Convertible loan is secured by the Tunisian assets, pledges of certain bank accounts, shares of the Group’s
subsidiaries through which both Tunisian and Romanian concessions are owned, plus the benefits arising from the Group’s interests
in insurance policies and on-lending arrangements within the Group.
Senior Loan
The Senior Loan was repaid in full during the year with two installments of $2.7 million principal plus accrued interest in March and
September 2019. The Senior Loan had a variable interest rate equal to LIBOR plus 6%.
Convertible Loan
The Convertible Loan is repayable in four equal instalments on 30 June 2020, 2021, 2022 and 2023. Interest is accrued up to 30
June 2020 and will form part of the principal to be amortized over these repayment periods. Interest accruing subsequent to June
2020 will be paid annually with the principle repayments. The Convertible Loan bears interest at a variable rate equal to LIBOR
plus a margin between 8% and 17%. The margin level is determined based on consolidated Tunisian and Romanian net revenues
earned.
The conversion terms in the Convertible Loan agreement have not yet been updated with the EBRD to reflect the Group’s listing on
AIM and delisting from the TSX, and are as follows:
The Group can elect, subject to certain conditions, to convert all or any portion of the Convertible Loan principal and accrued
interest outstanding for newly issued shares of the Group at the then current market price of the shares on the TSX or any other
recognized exchange (including the WSE) nominated by the Group and which is acceptable to the EBRD and on which its shares
are and will be listed or quoted, as required by the exchange rules. The EBRD can also at any time, and on multiple occasions elect
to convert all or any portion of the Convertible Loan principal and accrued interest outstanding for newly issued shares of the
Group at the then current market price of the shares on the TSX or any other recognized exchange (including the WSE) nominated
by the Group and which is acceptable to the EBRD and on which its shares are and will be listed or quoted. The conversion amount
is restricted such that the number of shares issued would result in EBRD holding a maximum of 5% of the issued share capital of the
Group. Conditions to conversion include a requirement for substantially all of the Group’s assets and operations to be located and
carried out in the EBRD countries of operations.
The conversion feature of the loan is based on market price, which would result in the issuance of a variable number of shares of
the Group, and as a result, no value was allocated to the conversion option. The Convertible Loan is recorded as debt and classified
as financial liabilities at amortized costs.
60
SERINUS ENERGY Annual Report 2019
The Group can also repay the Convertible Loan at maturity in cash or in-kind, subject to certain conditions, by issuing new ordinary
shares valued at the then current market price of the shares on the TSX or any other recognized exchange (including the WSE).
The repayment amount is subject to a discount of approximately 10% in the event that the requirement for substantially all of the
Group’s assets and operations to be located and carried out in the EBRD countries of operations is not met at the date of repayment.
Covenants
The Convertible Loan agreement contains affirmative covenants, including maintaining the specified security, environmental and
social compliance, and maintenance of specified financial ratios. The consolidated debt to EBITDA covenant came into effect 30
September 2018, with a required maximum ratio of 2.5 times to be calculated at the consolidated financial level.
As at 31 December 2019, the Group was not in compliance with the debt service coverage ratio. On 30 December 2019, the Group
received a waiver from the EBRD formally waiving compliance with this covenant for the period ended 31 December 2019. The
implication of this waiver is that the debt repayments will follow their original scheduled repayment terms and the bank will not be
acting on its security as a result of the breach.
Under the terms of the loan agreements EBRD has the right on change of control of the Group to demand repayment of the debt.
Given the AIM listing and equity raise, EBRD waived its right to require prepayment, provided that, as a result of the equity raise,
Kulczyk Investments S.A. shareholding did not drop below 30% and there was no single investor who would hold more than 24.99%
of the Group’s share capital.
Debt costs
Long-term debt transaction costs are recorded within long-term debt and are amortized over the remaining term of the committed
credit facility. No transaction costs have been incurred during the periods being reported.
22. Other provisions
Balance as at 31 December 2017
Amount paid
Change in provision
Balance as at 31 December 2018
Amount paid
Change in provision
Balance as at 31 December 2019
Current
Non-current
JV audit
Severance
Other
1,148
-
-
1,148
-
(13)
1,135
-
1,135
599
(331)
(49)
219
(10)
(61)
148
-
148
-
-
-
-
-
40
40
-
40
Total
1,747
(331)
(49)
1,367
(10)
(34)
1,323
-
1,323
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 2014-2017. Management has reviewed the audit claims and has determined a reasonable amount that the Company
may be liable for. Management expects settlement of the joint venture audit provision to occur later than twelve months from 31
December 2019.
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. During 2018, agreement was reached with all stakeholders as to the rehiring of certain employees with the
planned reopening of the Chouech field and the severance cost associated with the other employees. Severance payments were
made in 2018 to certain employees not to be rehired. During 2019 one additional settlement was reached and paid. The remaining
provision at 31 December 2019 reflects the potential costs to terminate the remaining employees.
23. Accounts payable and accrued liabilities
As at 31 December
Accounts payable and accrued liabilities
Taxes payable
2019
16,231
1,386
17,617
2018
14,313
285
14,598
SERINUS ENERGY Annual Report 2019
61
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
(US 000s, except per share amounts, unless otherwise noted)
24. Aggregate payroll expense
The aggregate payroll expense of employees and executive management of Serinus was as follows:
Year ended 31 December
Wages, salaries and benefits 1
Share-based payment expense 2
2019
3,523
528
4,051
2018
3,987
820
4,807
1 Includes amounts in general and administrative expenses, production expenses and exploration and development expenditures
2 Represents the amortization of share-based payment expense associated with options granted
25. Related party transactions
During the years ended 31 December 2019 and 2018, related party transactions include the compensation of key management
personnel. Key management personnel include Serinus’ Board of Directors and key members of the executive leadership team.
Transactions with key management personnel (including directors) are noted in the table below:
2019
690
24
365
1,079
2018
742
32
835
1,609
2019
2018
(1,198)
1,920
(52)
670
(2,530)
(4,539)
-
(7,069)
670
(7,069)
Year ended 31 December
Wages and salaries
Benefits
Share-based payment expense
26. Supplemental cash flow disclosure
Year ended 31 December
Cash provided by (used in):
Trade receivables and other
Accounts payable and accrued liabilities 1
Foreign exchange
Changes in non-cash working capital relating to:
Operating
1 Inclusive of tax expense and taxes paid
62
SERINUS ENERGY Annual Report 2019
The following table reconciles long-term debt to cash flows arising from financing activities:
As at 31 December
Balance, beginning of the year
Cash Changes:
Principal payment on senior loan
Interest payments on senior loan
Non-cash Changes:
Modification gain upon adoption of IFRS 9
Amortization of discounts and debt costs
Amortization of modification gain
Interest on senior loan
Interest on convertible loan
Balance, end of the year
27. Capital management
Year ended 31 December
Long-term debt
Shareholder's equity
Total capital resources
2019
33,291
(5,400)
(355)
-
144
97
233
3,086
31,096
2019
31,096
14,518
45,614
2018
31,261
-
(436)
(1,034)
255
44
452
2,749
33,291
2018
33,291
13,342
46,633
Consistent with prior years, the Group manages its capital structure to maximize financial flexibility. Due to the tight cash balance,
the Group is closely monitoring forecasts and makes amendments as required from changes to commodity prices, economic
conditions and other risk characteristics. Further, each potential acquisition and investment opportunity is assessed to determine
the nature and total amount of capital required together with the relative proportions of debt and equity to be deployed. The
Group does not presently utilize any quantitative measures to monitor its capital.
During 2018 the Group finalized the move from the TSX to the AIM market, which has allowed for two equity raises as steps towards
strengthening its capital structure. In May 2018, the Group raised $12.7 million, net of issuance costs, in equity through the issuance
of 66.7 million ordinary shares. In March 2019, the Group raised $2.7 million, net of issuance costs, in equity through the issuance
of 21.6 million ordinary shares.
The Company was able to fully repay the Senior loan during 2019, consisting of two payments totalling $5.4 million principal plus
accrued interest.
28. Commitments and contingencies
Commitments
The work obligations pursuant to the Phase 3 extension, approved on 28 October 2016, include the drilling of two wells, and, at the
Group’s option, either the acquisition of 120 km2 of new 3D seismic data or drill a third well. The two firm wells must be drilled to
minimum depths of 1,000 and 1,600 meters respectively, and if so elected, the third well to a depth of 2,000 meters. The term of
the Phase 3 extension was originally for three years. During the fourth quarter of 2019, Serinus received an extension delaying the
expiration until 28 October 2020.
On 5 May 2017, the Group signed a letter of guarantee with the National Agency for Mineral Resources in Romania for up to $12
million to cover the necessary expenses for the fulfillment of the minimal commitments for the Phase 3 extension. This guarantee
was made net of any amounts already spent by the Group since the time of the extension’s approval. The Group has completed the
work obligations for drilling the first two wells, the M-1003 and M-1007 wells. The Group was granted a twelve-month extension on
the third exploration phase of the Satu Mare Concession in Romania until 28 October 2020 with the sole commitment to complete
a 3D seismic acquisition program. Prior to the year-end, the Group completed the permitting required to perform the 148km2 3D
seismic acquisition program, which was expected to be completed in Q2 2020. Due to the unprecedented disruptions caused by
the COVID-19 outbreak the Group is unable to estimate a completion date at this time.
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 2019, cumulative liquid hydrocarbon sales net of royalties and shrinkage was 5.3 million barrels. The Company does not
expect to meet this threshold in the next 12 months.
SERINUS ENERGY Annual Report 2019
63
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
(US 000s, except per share amounts, unless otherwise noted)
29. Segment information
The Group’s reportable segments are organized 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 2019
Romania
Tunisia
Corporate
Total
Total assets
44,175
63,508
2,777
110,460
For the year ended 31 December 2019
Petroleum and natural gas revenues
Crude oil
Natural gas
Condensate
Total
Royalties
Revenue, net of royalties
Cost of sales
Production expenses
Depletion and depreciation
Windfall tax
Total cost of sales
Gross profit (loss)
Administrative expenses
Share-based payment expense
Well incident recovery
Decommissioning provision recovery
Listing costs
Gain on sale of assets
Operating profit (loss)
Finance expense (income)
Net income (loss) before income taxes
Current income tax expense
Deferred income tax expense
Net income (loss) for the year
Capital expenditures
-
14,855
289
15,144
(803)
14,341
(2,332)
(7,216)
(3,155)
(12,703)
1,638
-
-
52
-
-
3
1,693
387
2,080
-
-
2,080
3,858
7,617
1,604
-
9,221
(1,057)
8,164
(4,606)
(2,576)
-
(7,182)
982
-
-
-
6,891
-
17
7,890
(809)
7,081
(1,411)
(238)
5,432
1,019
-
-
-
-
-
-
(47)
(685)
-
(732)
(732)
(3,801)
(528)
-
-
(7)
-
(5,068)
(4,381)
(9,449)
(3)
-
(9,452)
11
7,617
16,459
289
24,365
(1,860)
22,505
(6,985)
(10,477)
(3,155)
(20,617)
1,888
(3,801)
(528)
52
6,891
(7)
20
4,515
(4,803)
(288)
(1,414)
(238)
(1,940)
4,888
64
SERINUS ENERGY Annual Report 2019
As at 31 December 2018
Romania
Tunisia
Corporate
Total
Total assets
44,095
71,473
5,453
121,021
For the year ended 31 December 2018
Petroleum and natural gas revenues
Crude oil
Natural gas
Total
Royalties
Revenue, net of royalties
Cost of sales
Production expenses
Depletion and depreciation
Total cost of sales
Gross loss
Administrative expenses
Share-based payment expense
Well incident recovery
Decommissioning provision recovery
Listing costs
Gain on sale of assets
Operating profit (loss)
Finance expense (income)
Profit (loss) before income taxes
Current income tax expense
Deferred income tax recovery
Profit (loss) for the year
Capital expenditures
-
-
-
-
-
-
(14)
(14)
(14)
-
-
3,602
-
-
-
3,588
668
4,256
-
-
4,256
10,905
6,216
2,500
8,716
(867)
7,849
(2,990)
(1,586)
(4,576)
3,273
-
-
-
316
-
117
3,706
(1,413)
2,293
(2,086)
346
553
(233)
-
-
-
-
-
(54)
(201)
(255)
(255)
(3,422)
(820)
-
-
(1,377)
-
(5,874)
(3,822)
(9,696)
(3)
-
(9,699)
86
6,216
2,500
8,716
(867)
7,849
(3,044)
(1,801)
(4,845)
3,004
(3,422)
(820)
3,602
316
(1,377)
117
1,420
(4,567)
(3,147)
(2,089)
346
(4,890)
10,758
SERINUS ENERGY Annual Report 2019
65
Legal Advisors
English Solicitors to the Company
McCarthy Tétrault, Registered Foreign Lawyers & Solicitors
26th Floor
125 Old Broad Street
London EC2N 1AR
United Kingdom
Jersey Solicitors to the Company
Mourant Ozannes
22 Grenville Street
St Helier
Jersey JE4 8PX
Polish Solicitors to the Company
T. Studnicki, K. Płeszka, Z. Ćwiąkalski, J. Górski sp.k.
Oddział w Warszawie
ul. Złota 59,
00-120 Warsaw
Poland
Advisors
Camarco
107 Cheapside
London EC2V 6DN
United Kingdom
TBT i Wspólnicy
ul. A. Branickiego 10, lok. 2
02-972 Warsaw
Poland
ADVISORS
Registered Office
JTC Group
28 Esplanade
St Helier
Jersey JE1 8SB
Correspondence Address
1500, 700 – 4th Avenue S.W.
Calgary, AB, T2P 3J4
Canada
+1 (403) 264-8877
Registration Number
126344
Nominated Advisor & Joint Broker
WH Ireland Limited
24 Martin Lane
London EC4R 0DR
United Kingdom
Joint Broker
Arden Partners plc
125 Old Broad Street
London EC2N 1AR
United Kingdom
Auditors
BDO LLP
55 Baker St
London W1U 7EU
United Kingdom
Registrar
Computershare Investor Services (Jersey) Limited
Queensway House, Hilgrove Street
St Helier
Jersey JE1 1ES
Competent Person
RPS Energy Canada Ltd
600, 555-4th Avenue S.W.
Calgary, Alberta, T2P 3E7
Canada
Company Secretary
JTC Group
28 Esplanade
St Helier
Jersey JE1 8SB
66
SERINUS ENERGY Annual Report 2019
Registered Office
28 Esplanade
St Helier
Jersey JE1 8SB
Correspondence Address
1500, 700 – 4th Avenue S.W.
Calgary, AB, T2P 3J4
Canada
+1 (403) 264-8877
www.serinusenergy.com