Serinus Energy strong cash generation, low cost base and the ability to entirely invest in the business (LON:SENX)

Serinus Energy

Serinus Energy plc (LON:SENX) Chief Executive Officer Jeffrey Auld and Chief Financial Officer Andrew Fairclough caught up with DirectorsTalk for an exclusive interview to discuss their annual financial results, how the business is positioned for growth and the plans for future growth.

Q1: Andrew, these are a really good set of results. Could you just summarise them for us?

A1: Yes, they are good results. We generated $40 million of revenue and produced nearly $8.5 million of net income, this is the first time the company has a delivered positive net income which is, I think, a very telling sign.

We’ve got extremely good and strong cash generation, nearly $12.5 million of EBITDA this year, and we close the year with a net cash position of nearly $8.5 million which reflects the position of the company at this point in time.

We’ve been helped by strong commodity prices in the last part of the year but we have stable production in Tunisia and we introduced two compressors in Romania late in the year and evaluating their impact. These are shallow onshore wells in Romania which decline, which we’ve highlighted in the past, and so we need to actively manage them until we drill new wells and bring on new production.

Current pricing as well remain strong, brent this morning was over $115 per barrel and gas prices in Romania have been in the $30-$40 per MCF range so again, strong pricing in our two key territories.

Q2: How is Serinus Energy now positioned to grow the business?

A2: The company has gone through a significant evolution over the last five/six years with the new management coming in, the cost base has been reduced significantly and so it is now appropriate for the business that we have.

We’re focused on two territories, in one of which, Romania, we’ve built a new gas plant, brought on production in Romania. We’ve cleaned up the balance sheet, we’ve eliminated all of the legacy debt that was in the business and now I think turned a corner. The EBRD recently sold out of their holding so we’ve completely moved on from that era and we’ve had a significant improvement in financial performance. Over the last couple of years, through the COVID period, we’ve actually emerged with a very strong stable platform with good strong cash generation, a low cost base and the ability now to entirely invest in our business.

We’ve got clearly defined opportunities that we want to pursue and do that with.

Q3: Jeffrey, what are your plans then for future growth?

A3: I think, Serinus Energy, as Andrew says, has gone through a fairly significant transition and there’s a couple of markers that are very, very important.

The first thing you need to do is allow the cashflow that’s being generated by the business, allow that to be accessed by the business so that the business can invest that cashflow. That was the whole process of reducing and ultimately eliminating the legacy debt and that’s been done.

Cleaning up the cost base so the company runs efficiently so that regardless of the oil price, regardless of the gas price, the company is in a position where it can allocate cash to make a return and that’s been done. So, we’re now in a position where we have a strong foundation to build upon and it’s taken a while to get there, these were considerable challenges for the business.

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Where we sit now, Andrew talked a little bit about the work programme that we have for this year where we’re going to drill three wells in Romania. We’re looking at installing pumps in Tunisia, artificial lift in Tunisia and so we now need to stretch our vision a little bit farther into the future and start generating growth for the future. These are the immediate term projects that we have on our plate. We have a good set of assets, there’s lots of work we can do with those assets but I think it’s time to stretch.

Andrew also said, this is the first time ever in the history of the company that we’ve generated positive earnings. That’s an important milestone because like allowing the cash to be invested in the business, freeing up the cash to be invested in the business, earnings that are retained in the business ultimately can used in the business or can be distributed so it’s a foundation to move ahead.

The next step is to take a harder look at our assets, to look at the less low hanging fruit so what we’re looking at now is the low hanging fruit that hasn’t been executed upon on because of capital constraints, we can now look a little bit farther. For example, in our Chouech Es Saida fields in the south of Tunisia, deep underneath these fields are the same gas play that OMV uses to provide gas for its Nawarwa pipeline system. So, we believe there’s deep gas potential underneath the current existing fields, we have the infrastructure in place and in the coming years, we’d look to execute upon that.

Sabria, we always talk about how big is and how it’s got a 1% recovery factor, certainly putting artificial lift in and pumps will allow the business to increase that recovery factor but there’s also an element of getting out and doing more work and that may well mean more wells. So, longer term into the future, this isn’t this year, it may be next year, but it’s probably two or three years out where we start looking at additional wells into the Sabria field to produce more of that oil that’s in place.

In Romania, we continue upon the path of looking to open up new fields, ideally, we would hope to have another gas plant, another couple of plants, gas security in Europe is a topical subject right now and we’d like to be part of that. We think we have an asset that can do that.

So, in the longer term, beyond this year’s work programme, that’s the sort of things we’d like to do to start really building growth into the business but to do that, we had to get the foundation fixed and I think these results, with the first ever set of earnings demonstrated by the business, show that the foundation is fixed and now we can move on to that next higher growth phase.

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