Serinus Energy Inc.
TSX : SEN
WARSAW : SEN

Serinus Energy Inc.

March 18, 2015 19:20 ET

Serinus Announces 2014 Year End Reserves

CALGARY, ALBERTA--(Marketwired - March 18, 2015) - Serinus Energy Inc. ("Serinus", "SEN" or the "Company") (TSX:SEN)(WARSAW:SEN) is pleased to report the results of the year-end evaluation of its oil and gas reserves. The evaluation was prepared by RPS Energy Canada Ltd. ("RPS") in accordance with Canadian National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities, and includes the reserves in Serinus' Ukraine licences, and in its Tunisian properties.

All of the reserves volumes as well as the net present values attributed to the Ukraine Reserves disclosed herein, refer to Serinus' 70% effective ownership interest in the assets though its 70% indirect ownership in KUB-Gas LLC ("KUB-Gas"), which owns and operates the five licence areas in northeast Ukraine. For Total Company figures, those aggregate values are also based on 70% interest in the Ukraine assets.

Company Reserves - Using Forecast Prices

2014 2013
Oil/
Liquids
Gas BOE Oil/
Liquids
Gas BOE YoY Change
(Mbbl) (MMcf) (Mboe) (Mbbl) (MMcf) (Mboe) (%)
Ukraine (70% SEN Working Interest)
Proved
Producing 63 12,452 2,139 75 17,094 2,924 -27%
Non-Producing 22 4,296 738 26 3,538 616 20%
Undeveloped 21 2,800 488 33 7,154 1,225 -60%
Total Proved (1P) 106 19,548 3,364 134 27,787 4,765 -29%
Probable 215 25,599 4,482 234 24,411 4,302 4%
Total Proved & Probable (2P) 321 45,147 7,846 368 52,198 9,067 -13%
Possible 359 28,662 5,136 487 38,090 6,835 -25%
Total Proved, Probable & Possible (3P) 680 73,809 12,981 854 90,288 15,902 -18%
Tunisia
Proved
Producing 1,602 3,059 2,112 1,606 3,993 2,271 -7%
Non-Producing 402 1,740 692 32 234 71 875%
Undeveloped 1,066 2,478 1,478 1,064 2,009 1,399 6%
Total Proved (1P) 3,070 7,277 4,283 2,702 6,236 3,742 14%
Probable 5,266 12,704 7,383 5,580 12,939 7,736 -5%
Total Proved & Probable (2P) 8,336 19,981 11,666 8,282 19,175 11,478 2%
Possible 9,606 22,323 13,327 9,275 18,822 12,412 7%
Total Proved, Probable & Possible (3P) 17,942 42,304 24,993 17,557 37,996 23,890 5%
TOTAL COMPANY
Proved
Producing 1,665 15,512 4,250 1,681 21,087 5,195 -18%
Non-Producing 424 6,036 1,430 58 3,772 687 108%
Undeveloped 1,086 5,278 1,966 1,097 9,163 2,624 -25%
Total Proved (1P) 3,176 26,825 7,647 2,836 34,023 8,507 -10%
Probable 5,481 38,303 11,865 5,814 37,350 12,038 -1%
Total Proved & Probable (2P) 8,657 65,128 19,511 8,650 71,373 20,545 -5%
Possible 9,965 50,985 18,463 9,762 56,912 19,247 -4%
Total Proved, Probable & Possible (3P) 18,622 116,114 37,974 18,411 128,284 39,792 -5%

Note: Serinus reports in US dollars. All dollar amounts referred to herein are in USD, unless specifically noted otherwise.

2014 was a challenging year for Serinus and the petroleum industry in general. For the industry, the big issue was the collapse in oil prices. The price of Brent Crude fell from $115/bbl in June 2014, to $55.76/bbl on December 31. During January 2015, it fell further to almost $45/bbl before finding some strength and has been recently trading in a range around $60/bbl. This has reduced profitability for the entire industry, and caused significant changes in the economic value, and in some cases, the economic viability of reserves and resources.

Serinus was also subject to the difficulties stemming from the unrest in eastern Ukraine during 2014 and continuing today. The conflict prevented the Company from performing all of its planned capital programs, and the increase in the royalty rate from 28% to 55% significantly affected the value for all producers in the country as well as the amounts of economically recoverable reserves.

Total corporate reserves fell in all three categories (1P, 2P and 3P) compared to their corresponding values at year end 2013. There were however, markedly different results between Ukraine and Tunisia, the two countries in which the Company's reserves are located.

Tunisia

In Tunisia, 1P, 2P and 3P reserves increased 14%, 2% and 5% respectively. The Company achieved increases from its 2014 drilling and workover programs, which were partially offset by negative economic and technical revisions. The major increases resulted from:

  • The success of the Winstar-12bis well. Winstar-12bis targeted nearly 2 MMbbl of gross probable reserves, plus associated gas. The well has exceeded expectations: it was put on production on December 10, 2014 at an initial rate of 635 boe/d, and through subsequent clean up and opening of the choke, has average over 1,000 boe/d for 2015 to date.

  • Better than expected performance from the CS-1 and CS-3 wells.

The negative technical revisions occurred principally in the Zinnia concession where much of the reserves were reclassified to Contingent Resources due to the lack of planned activity. The economic revisions were due substantially to the lower oil price forecast causing production to reach its economic limit sooner.

Ukraine

Reserves in Ukraine declined by 29% (1P), 13% (2P) and 18% (3P) compared to year end 2013. As mentioned above, the unrest in eastern Ukraine prevented the Company from performing much of its planned drilling, workover and stimulation programs. The major revisions to reserves include among other things:

  • Upward net technical revisions in the Olgovskoye and Makeevskoye fields due to better performance than had previously been expected.

  • All reserves in the Krutogorovskoye and Vergunskoye fields were reclassified to Contingent Resources as both are located in rebel controlled areas and in Force Majeure

  • Undeveloped reserves in the S6 zone in the O-11 well were revised downward after it was found to be wet. The well still has proved non-producing reserves in the R30c formation.

The capital program not done or completed included:

  • Three wells were not drilled including the M-15 appraisal well, and the NM-4 and M-22 exploration wells. (M-22 was spud in the fourth quarter, but results were not available in time for it to be included in the 2014 year end reserves)

  • Four stimulations on O-11, O-15, NM-3 and M-17 (S7) were not performed.

  • Several workovers and dual completions were also not performed.

Net Present Value - After Tax, Using Forecast Prices

2014 2013
0% 10% 15% 0% 10% 15% YoY Change
(US$ millions) (US$ millions)
Ukraine (70% SEN Working Interest)
Proved
Producing 35.6 30.8 28.6 107.8 86.5 78.9 -64%
Non-Producing 7.4 4.8 3.9 17.0 13.9 12.6 -65%
Undeveloped 1.1 (0.5 ) (0.8 ) 20.7 10.8 7.7 -105%
Total Proved (1P) 44.1 35.1 31.7 145.5 111.2 99.2 -68%
Probable 78.7 42.3 33.4 168.0 87.1 68.5 -51%
Total Proved & Probable (2P) 122.8 77.4 65.1 313.5 198.3 167.7 -61%
Possible 111.0 46.0 33.3 296.4 122.1 88.9 -62%
Total Proved, Probable & Possible (3P) 233.8 123.4 98.3 609.9 320.4 256.6 -61%
Tunisia
Proved
Producing 27.2 27.2 26.5 63.1 55.9 52.6 -51%
Non-Producing 19.0 15.4 13.7 (0.9 ) (0.4 ) (0.3 ) nm
Undeveloped 36.3 18.4 13.4 39.7 22.2 17.1 -17%
Total Proved (1P) 82.5 60.9 53.6 101.9 77.7 69.4 -22%
Probable 216.3 97.0 73.4 271.9 129.7 100.0 -25%
Total Proved & Probable (2P) 298.8 157.9 127.0 373.8 207.5 169.4 -24%
Possible 432.7 140.2 98.6 459.1 137.8 94.9 2%
Total Proved, Probable & Possible (3P) 731.5 298.1 225.6 832.9 345.3 264.3 -14%
TOTAL COMPANY
Proved
Producing 62.7 58.0 55.1 170.9 142.4 131.5 -59%
Non-Producing 26.4 20.2 17.6 16.1 13.5 12.3 50%
Undeveloped 60.5 17.9 12.6 60.4 33.0 24.8 -46%
Total Proved (1P) 126.6 96.0 85.3 247.4 188.9 168.6 -49%
Probable 295.0 139.3 106.8 439.9 216.8 168.5 -36%
Total Proved & Probable (2P) 421.6 235.3 192.1 687.3 405.8 337.1 -42%
Possible 543.7 186.2 131.8 755.5 259.9 183.8 -28%
Total Proved, Probable & Possible (3P) 965.3 421.5 323.9 1,442.8 665.7 520.9 -37%

Net present values for Serinus' reserves declined by 49%, 42% and 37% for 1P, 2P and 3P reserves respectively. The major contributing factors to those declines were:

  • The reserve volume declines as discussed above

  • The drop in oil prices

  • The increase in royalty rates imposed on oil and gas production by the Ukraine government

  • The devaluation of the Ukraine hryvnia

As for the reserve volumes, there were significant differences in how these factors affected the values in each of Tunisia and Ukraine.

Tunisia

The decline in oil prices significantly outweighed the reserves volume increases that Serinus was able to achieve in 2014. In comparison to the forecast for Brent crude used in last year's reserves evaluation, prices are 30% and 22% lower for 2015 and 2016 respectively. In the medium to longer term, the new forecast only recovers to 93% of that used for the 2013 evaluation.

The drop in oil prices has an effect on Tunisian gas prices as well. In general, gas in Tunisia is priced as an equivalent to low sulphur heating oil, which in turn, will fluctuate with oil prices.

Ukraine

The drop in oil prices did not have as direct an effect on the Company's Ukraine assets as in Tunisia. Serinus' production in Ukraine is 98% natural gas, and gas prices in the country are set based on the price of imported gas from Russia. Russia has not reduced its price significantly, and has recently indicated a reluctance to sell gas to Ukraine at all.

The larger effect on realized prices was the devaluation of the hryvnia from 8.2 UAH/USD in January 2014 to 15.7 UAH/USD in December. It has since fallen to 31 UAH/UD before recovering to a range of 23-24 UAH/USD after the announcement of funding from the IMF.

Between the lower world prices and the currency devaluation, the new gas price forecast for Ukraine is 25% below last year's in 2015, and recovers only to 82% of the previous forecast in the longer term.

The more significant impact on the value of the Company's Ukraine reserves came from the increase in royalties to 55% and 45% for natural gas and oil/liquids respectively (previously 28% and 42%) effective August 1, 2014. This was first passed as a temporary measure, due to expire in January 2015. Those rates were made permanent on January 1, 2015.

Finding and Development Costs
Finding and Development Costs, excluding Acquisitions
Total Proved Reserves Total Proved & Probable Reserves
3 Year 3 Year
2014 2013 2012 Total 2014 2013 2012 Total
Exploration and Development Costs (M$) 67,453 75,560 57,361 200,374 67,453 75,560 57,361 200,374
Net Change in Future Development Costs (M$) (22,647 ) (21,003 ) 24,540 (19,110 ) (22,597 ) (21,003 ) 24,540 (19,060 )
Total Finding & Development Costs (M$) 44,806 54,557 81,901 181,264 44,856 54,557 81,901 181,314
Reserve Additions (excluding acquisition) (Mboe) 1,075 914 1,786 3,775 978 1,399 3,867 6,245
Finding & Development Costs ($/Boe) $41.68 $59.68 $45.86 $48.02 $45.85 $38.99 $21.18 $29.04
Finding, Development and Acquisition Costs
Total Proved Reserves Total Proved & Probable Reserves
3 Year 3 Year
2014 2013 2012 Total 2014 2013 2012 Total
Exploration and Development Costs (M$) 67,453 75,560 57,361 200,374 67,453 75,560 57,361 200,374
Acquisition/Disposition Costs (M$) - 99,518 - 99,518 - 99,518 - 99,518
Net Change in Future Development Costs (M$) (22,647 ) 8,897 24,540 10,790 (22,597 ) 36,637 24,540 38,580
Total Finding & Development Costs (M$) 44,806 183,975 81,901 310,682 44,856 211,715 81,901 338,472
Reserve Additions (Mboe) 1,075 4,656 1,786 7,517 978 12,783 3,867 17,629
Finding & Development Costs ($/Boe) $41.68 $39.51 $45.86 $41.33 $45.85 $16.56 $21.18 $19.20

Reserve Evaluator Price Forecasts

RPS used the following commodity price forecasts in preparing its evaluation of Serinus' oil and gas properties.

Ukraine Tunisia Gas
Brent Condensate Gas Sabria Chouech
(US$/Bbl) (US$/Bbl) ($/Mcf) ($/Mcf) ($/Mcf)
2015 70.03 56.87 8.43 9.74 10.32
2016 74.64 60.61 8.34 10.38 11.00
2017 79.50 64.55 8.58 11.06 11.72
2018 84.50 68.61 8.82 11.76 12.45
2019 89.50 72.67 9.07 12.45 13.19
2020 93.85 76.20 9.26 13.06 13.83
2021 95.72 77.73 9.44 13.32 14.11
2022 97.64 79.29 9.63 13.58 14.39
2023 99.59 80.87 9.82 13.86 14.68
2024 101.58 82.49 10.02 14.13 14.97
2025 103.61 84.14 10.22 14.42 15.27
2026 105.69 85.82 10.43 14.70 15.58
2027 107.80 87.53 10.63 15.00 15.89
2028 109.96 89.29 10.85 15.30 16.21
2029 112.16 91.07 11.06 15.60 16.53
2030 114.40 92.89 11.29 15.92 16.86
2031 116.69 94.75 11.51 16.24 17.20
2032 119.02 96.65 11.74 16.56 17.54
2033 121.40 98.58 11.98 16.89 17.89

Abbreviations

bbl Barrel(s) bbl/d Barrels per day
boe Barrels of Oil Equivalent boe/d Barrels of Oil Equivalent per day
Mcf Thousand Cubic Feet Mcf/d Thousand Cubic Feet per day
MMcf Million Cubic Feet MMcf/d Million Cubic Feet per day
Mcfe Thousand Cubic Feet Equivalent Mcfe/d Thousand Cubic Feet Equivalent per day
MMcfe Million Cubic Feet Equivalent MMcfe/d Million Cubic Feet Equivalent per day
Mboe Thousand boe Bcf Billion Cubic Feet
MMboe Million boe Mcm Thousand Cubic Metres
UAH Ukrainian Hryvnia USD U.S. Dollar
CAD Canadian Dollar

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.

About Serinus

Serinus is an international upstream oil and gas exploration and production company that owns and operates projects in Ukraine, Tunisia, and Romania.

Translation: This news release has been translated into Polish from the English original.

Forward-looking Statements: This release may contain forward-looking statements made as of the date of this announcement with respect to future activities that either are not or may not be historical facts. Although the Company believes that its expectations reflected in the forward-looking statements are reasonable as of the date hereof, any potential results suggested by such statements involve risk and uncertainties and no assurance can be given that actual results will be consistent with these forward-looking statements. Various factors that could impair or prevent the Company from completing the expected activities on its projects include that the Company's projects experience technical and mechanical problems, there are changes in product prices, failure to obtain regulatory approvals, the state of the national or international monetary, oil and gas, financial, political and economic markets in the jurisdictions where the Company operates and other risks not anticipated by the Company or disclosed in the Company's published material. Since forward-looking statements address future events and conditions, by their very nature, they involve inherent risks and uncertainties and actual results may vary materially from those expressed in the forward-looking statement. The Company undertakes no obligation to revise or update any forward-looking statements in this announcement to reflect events or circumstances after the date of this announcement, unless required by law.

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