Current Report No. 26/2015Date: 2015-07-28Issuer's
trading name: SERINUS ENERGY INC.
Title: Q2 2015 Operations Update
Legal basis: other regulations
Content:Pursuant to Article 62.8 of the Act of 29 July 2005
on Public Offering [...] the Management of SERINUS ENERGY INC. ("Serinus",
"SEN" or the "Company") informs that in
Canada via the SEDAR system it has published an update for Company's
operations for the second quarter of 2015.
Resumption of Production at Sabria
As reported in the Company's press release of July 27, 2015, production
has recommenced at the Sabria Field in central Tunisia after being
shut-in since the end of May 2015 due to local protests. Management
expects that it will take several days for production rates to
stabilize, but anticipates that the field will return to its pre-shut-in
levels of approximately 700 boe/d (SEN WI), or 1,550 boe/d (gross).
Serinus, through its wholly owned subsidiary Winstar Tunisia B.V., holds
a 45% working interest in Sabria and is the operator, with the remaining
55% held by ETAP.
Corporate Second Quarter Production and Realized Prices Summary
Average corporate production for the second quarter was approximately
3,994 boe/d (SEN WI), representing a 9% decrease from 4,406 boe/d in the
first quarter. The major cause for the decline was the shut-in of the
Production for the first half of July (prior to the restart of the
Sabria Field) averaged 3,533 boe/d. Overall production continues to be
significantly below capacity due to the lingering effects of Ukrainian
government legislation that attempted to reserve a large share of the
natural gas market for the state owned National Joint Stock Company
Production specifically from Tunisia for Q2 was 1,210 boe/d, 23% lower
than the 1,579 boe/d in Q1. Oil averaged 955 bbl/d, and gas was 1.53
Mcf/d. The drop in production was due substantially to the shut-in of
the Sabria Field, and operational issues with STEG (the national gas
utility and transmission system) related to high ambiet temperatures in
late June which limited gas sales from Chouech Es Saida.
Estimated realized prices in Tunisia during the quarter were $64.76/bbl
and $9.33/Mcf. There were three tanker lifts of oil during Q2.
Tunisia production for the first half of July (again, prior to the
restart of Sabria) averaged 831 boe/d, comprised of 699 bbl/d of oil and
796 Mcf/d (132 boe/d) of natural gas.
In Ukraine, gas and condensate production during the second quarter were
approximately 16.3 MMcf/d and 64 bbl/d respectively (both volumes are
SEN's 70% WI). These volumes are marginally lower than Q1, due to normal
seasonal demand weakness. Production for the first half of July averaged
15.9 MMcf/d and 52 bbl/d (SEN WI).
The estimated prices received in Ukraine during the quarter were
$7.08/Mcf and $46.89/bbl for natural gas and liquids respectively. The
comparable prices realized in Q1 were $7.84/Mcf and $39.83/bbl. KUB-Gas
LLC ("KUB-Gas"), Serinus' indirectly 70% owned subsidiary
which owns and operates the Ukraine assets, is paid in UAH, making its
realized price in USD also subject to exchange rate risk.
Note: the volumes and prices referred to above are subject to minor
revisions once final allocations and invoices are received.
As previously reported on June 3, 2015, Winstar Satu Mare S.A. ("Winstar"),
a wholly owned subsidiary of Serinus, received a 3 year extension to the
exploration period for the Satu Mare Concession ("Satu Mare") in
northwest Romania. Work obligations pursuant to the extension include
the drilling of two wells, and, at the Company's option, either the
acquisition of 120 km2 of new 3D seismic data or to drill a third well.
The two firm wells must be drilled to minimum depths of 1,500 and 2,000
metres respectively, and if so elected, the third well to a depth of
2,500 metres. The extension was approved by the National Agency for
Mineral Resources ("NAMR") and is subject to ratification
by several government ministries.
Winstar currently holds a 60% interest in Satu Mare. The holder of the
remaining 40% has given notice pursuant to the operating agreement that
it intends to withdraw from Satu Mare, and assign its interest in the
concession agreement to the Company. Pending such assignment, and in
accordance with the provisions of the operating agreement, the other
interest holder has agreed to hold its 40% interest in trust for
Winstar, giving the Company an effective 100% working interest.
On June 8, 2015, the Company announced that the West Olgovskoye block in
eastern Ukraine had been awarded to KUB-Gas Borova LLC ("KUB-Gas
Borova") by way of a Special Permit. KUB-Gas Borova is a newly
incorporated wholly owned subsidiary of KUB-Gas LLC. West Olgovskoye is
located in the Kharkiv Oblast, immediately offsetting the Olgovskoye and
North Makeevskoye licences currently owned and operated by KUB-Gas. It
covers an area of 449 km2, and surrounds (but does not include) the
existing Druzhelyubovskoe gas/condensate field, and very old vintage 2D
seismic data suggests the existence of additional undrilled structures.
The term of this new Special Permit is for 20 years with the right to a
20 year extension, during which KUB-Gas Borova will be allowed to
conduct both exploration and production activities. There are work
commitments of 202.3 million hryvnia or approximately $9.6 million at
the current exchange rate of 21 UAH/USD. Almost 90% of the total
required spending is scheduled for between 2018 and 2020.
Drilling & Workover Update
As disclosed in the Company's press release of April 2, 2015, the
Moftinu-1001 well in Romania achieved a maximum test rate of 7.4 MMcf/d
and 19 bbl/d of condensate with only trace amounts of water from three
Pliocene/Miocene aged sands with aggregate net pay of 26 metres.
Subsequent analysis of seismic, log and test data has indicated that the
P50 volumes of recoverable gas may be between 17 - 30 Bcf (Company
estimate). That wide range reflects various calculation methods and
having only a single well with limited production and pressure history.
Test results from the Moftinu-1002bis well indicated a tight formation
with formation damage, consistent with apparent porosities observed on
logs and the use of heavy fluids to control washout and hole collapse
during drilling. The well produced an average of 2.8 MMcf/d for 30
minutes, then declined to 245 Mcf/d over the following two hours. Data
quality was poor, but Moftinu-1002bis does prove the existence of
movable hydrocarbons in the four Miocene sands tested. The Company
estimates that the tested zones contain 27 Bcf (P50) of original gas in
place, although eventual recovery factors will be contingent upon
identifying suitable drilling and completion techniques to allow
commercial production rates.
In Tunisia, production from the Winstar-13 ("WIN-13") well
commenced on April 28. Rates varied between 170 - 235 boe/d until the
Sabria Field was shut-in in late May. The Company plans to collect
additional production and pressure data on WIN-13 now that is has
resumed production and, if the results so indicate, initiate a remedial
The M-22 well in Ukraine has been suspended and added to the list of
wells being considered for fracture stimulation (see Outlook - Ukraine
below). The S13, S13a and S13b zones were all non-commercial despite
initially appearing promising on logs. The S6 zone did build up pressure
after perforating and produced gas at rates too small to measure. The
well has been suspended with a wellhead and tubulars appropriate for
frac'ing. If successful, M-22 will qualify for the reduced royalty rate
of 30.25% for its first two years of production under the current
royalty regime (see also Ukraine Legislative Developments below).
Ukraine Legislative Developments
As disclosed in the Company's press release of January 23, 2015, during
November 2014, the Ukraine government issued three decrees (No.'s 596,
599, and 647) which cumulatively required 170 of the largest gas
consumers in Ukraine to purchase their gas solely from Naftogaz until
the end of February 2015. A Ukraine court subsequently overturned these
regulations, and this decision was subsequently upheld on appeal. The
government appealed again, but on March 31, 2015, the High
Administrative Court of Ukraine dismissed the government's claims in
On June 4, 2015, the National Bank of Ukraine announced that the
restrictions on foreign currency transactions first imposed in September
2014. (and later expanded) have been extended until September 3, 2015.
These strictures continue to prevent the Company from repatriating cash
flow from Ukraine or redeploying it in its Tunisian or Romanian
On July 13, 2015, the Cabinet of Ministers approved for submission to
the Rada (the Ukrainian parliament) a bill which would reduce the
royalties on natural gas from their current level of 55% (28% on wells
deeper than 5,000 metres). If passed, those respective royalty rates
would drop to 29% and 14% effective October 1, 2015. Those rates would
drop further to 20% and 10% on January 1, 2016, but a 30% surtax would
be imposed with that second reduction. Full details of how these rates
would be applied and the calculation and administration of the surtax
are not yet available. The relief period under the current regime where
gas royalties are reduced by 45% for the first two years of a new well's
life would no longer apply. Royalties on oil and liquids would remain
unchanged at 43%.
Serinus anticipates $17 million of total capital expenditures for 2015
(SEN WI), unchanged from the guidance given in the January 23, 2015
press release. The major items in that program include:
• Ukraine - Completion, testing and tie in of the M-22 well (completed)•
Ukraine - field compression for Olgovskoye Field (commissioning underway)•
Tunisia - Drilling, completion and testing of WIN-13 (completed)•
Tunisia - installation of coiled tubing in ECS-1 (completed)•
Romania - Completion and testing of Moftinu-1001 and 1002bis (both
In addition to the projects listed above, the budget includes ongoing
exploration and development activities such as seismic processing and
interpretation, plant de-bottlenecking and maintenance.
The official gas price (the "Limit Price") for the month of July is
6,600 UAH per Mcm (excluding 20%VAT), or $8.86/Mcf using an exchange
rate of 21 UAH/USD. The Limit Price is the maximum price at which gas
can be sold to industrial consumers. It is set each month by the
National Commission for Energy Regulation and is generally based on the
import price of Russian gas. The actual price received by KUB-Gas is
also influenced by:
• The previously mentioned legislation reserving large parts of the
Ukrainian gas market for Naftogaz. The market has been slow to readjust
and to the extent that it does not return to its pre-legislative levels,
increased competition for the remaining creditworthy customers may lead
to lower realized gas prices.
• Approximately 10% for the profit margin of the intermediaries through
whom the gas is sold.
Royalties are payable on the Limit Price set each month. To the extent
that realized prices are lower due to sales expenses or weak markets,
the effective rates will be higher.
A workover rig is also moving on to the NM-3 well drilled in 2013 which
found small amounts of oil in the Visean formation. Operations will
include perforating a higher interval and obtaining additional
production and pressure data. Management believes that the Visean zone
is tight, and will likely require fracture stimulation to achieve
commercial rates. This operation will also fulfill work obligations
required to retain the North Makeevskoye Licence.
The Company may consider additional capital expenditures on development
projects during the balance of 2015, subject to keeping such
expenditures within operating cash flow and no further material adverse
changes in either the fiscal terms or the security situation in and
around the Ukraine licences. A three well frac' program for O-11, O-15
and M-22 is being considered for later this year, pending the approval
of the new royalty regime and cash availability.
Once economic conditions improve, KUB-Gas has a significant inventory of
drilling locations and other projects in the Ukraine licences including:
• Ten firm drilling locations in the Olgovskoye, Makeevskoye and North
Makeevskoye Licences, plus up to seven more locations contingent upon
success. Management expects this inventory to grow substantially once
the technical team examines the data on the newly acquired West
• Several fracture stimulations candidates in addition to the three
The Sabria Field could be capable of a multi-well development program,
but due to current low commodity prices, no additional drilling is
expected for 2015.
With the extension for Satu Mare, Serinus is concentrating on
development of the Moftinu-1001 discovery. Management is currently
refining the development drilling program and has commenced preliminary
design of the required surface facilities. Pending the various permits
and approvals required, drilling and construction could commence in
Given the success in Moftinu, the Company is also proceeding to refine
and expand the exploration inventory within the concession. Based on
older vintage 2D seismic data and existing wells, management has
identified over 25 leads and prospects with mean unrisked potential
resources of 191.5 MMboe (Company estimate). The exploration program
will include shooting 3D seismic over the Berveni and Madaras areas,
both of which are identified in Serinus' latest corporate presentation,
available at www.serinusenergy.com.
Cautionary Statement:BOEs may be misleading, particularly if
used in isolation. A BOE conversion ratio of 6 Mcf:1 bbl is based on an
energy equivalency conversion method primarily applicable at the burner
tip and does not represent a value equivalency at the wellhead.
Test results are not necessarily indicative of long-term performance or
of ultimate recovery. The test data contained herein is considered
preliminary until full pressure transient analysis is complete.
This text contains selected excerpts from the original news release in
English, which has been filed by Company in Canada (country of its
registered office ) by way of the SEDAR system and is available at the
websitewww.sedar.com by entering the Company name at
The Polish translation of the entire text of the news release is
available at the website: www.serinusenergy.com