Serinus Energy Inc.
TSX : SEN
WARSAW : SEN

Serinus Energy Inc.

November 13, 2013 17:48 ET

Serinus Energy Announces Q3 2013 Financial & Operating Results

CALGARY, ALBERTA--(Marketwired - Nov. 13, 2013) - Serinus Energy Inc. (TSX:SEN)(WARSAW:SEN) ("Serinus" or the "Company"), an international upstream oil and gas exploration and production company, is pleased to announce its financial and operating results for the third quarter ended 30 September 2013, the first full quarter after the acquisition by the Company of all of the issued and outstanding shares of Winstar Resources Ltd. ("Winstar").

Serinus produces natural gas and condensate in Ukraine and oil and natural gas in Tunisia. The majority of natural gas production is derived from four licences in Ukraine which are owned and operated by KUB-Gas LLC ("KUB-Gas"), a subsidiary in which Serinus has a 70% effective ownership interest through its indirect shareholding in KUBGAS Holdings Limited. The majority of crude oil production is from the Company's Tunisian assets, which were acquired in late June when Serinus acquired Winstar. All dollar amounts are expressed in United States currency.

HIGHLIGHTS

  • Closed Plan of Arrangement ("POA") with Winstar in late June giving Serinus oil production and significant development and exploration upside in Tunisia;
  • Changed name of Company coincident with closing of POA to Serinus Energy Inc.;
  • Listed shares on TSX in late June under trading symbol "SEN";
  • Third quarter production averaged 4,892 boe/d, compared to 3,179 boe/d in the second quarter and 2,738 boe/d in the third quarter of 2012;
  • Third quarter funds from operations were $21.6 million compared to $8.9 million in the prior quarter and $5.9 million in the third quarter of 2012;
  • Funds from operations for the first nine months of 2013 were $40.4 million, a material increase from $16.5 million reported for the comparable period in 2012;
  • Earnings before income taxes in the first nine months of 2013 were $28.1 million, a significant improvement when compared to the loss of $72.2 million, which included an impairment write-down of $85.3 million, for the same period in 2012.

Corporate

On June 24, 2013, the Company closed a POA transaction with Winstar pursuant to which the Company acquired all of the issued and outstanding shares of Winstar. Results of operations of Winstar have been included in the consolidated financial results of Serinus effective July 1, 2013. Concurrent with the Winstar acquisition, the Company's shareholders voted to approve a name change from Kulczyk Oil Ventures Inc. to Serinus Energy Inc. and to consolidate the number of issued and outstanding shares on the basis of one post-consolidation share for each ten pre-consolidation shares previously issued.

Serinus' common shares, which commenced trading on the Toronto Stock Exchange on June 27, 2013, continue to be listed for trading on the Warsaw Stock Exchange. The trading symbol on both exchanges is "SEN".

Financial

Financial and operating results for the first nine months of 2013 include the Winstar Tunisia results of operations for only the third quarter, given the effective date of the Winstar acquisition.

Funds from operations were $40.4 million for the first nine months of 2013, a material increase from $15.8 million reported for the comparable period in 2012, and which reflects the inclusion of Winstar's funds from operations for the months of July, August and September.

Average natural gas prices in Ukraine remained strong during third quarter 2013 at $11.32 per thousand cubic feet ("Mcf") as compared to $11.71 per Mcf for the third quarter 2012. Crude oil sales in Tunisia realized an average price of $113.39 per barrel during the third quarter.

The Company's earnings before income taxes in the first nine months of 2013 were $28.1 million, a significant improvement over the loss for the 2012 comparative period of $72.2 million, which included an impairment write-down of $85.3 million.

The netback (revenues, less royalties and production expenses) for the three months ended September 30, 2013 in Ukraine was $50.29 per barrel of oil equivalent ("boe"), compared to $48.33 per boe in the comparative period of 2012, driven by lower production costs, partially offset by lower natural gas prices realized and a higher royalty rate (25% in 2013 from 19% in 2012). In Tunisia, the netback was $77.27 per boe for the third quarter.

Production

During the third quarter, net production levels (being the Company's production from Tunisia and from its net 70% interest in Ukraine) averaged 4,892 barrels of oil equivalent per day ("boe/d"), a 79% increase over the 2,738 boe/d produced during the comparable period of 2012. The increase reflects both the 1,564 boe/d of net production from Winstar's Tunisian assets and a substantial increase in Ukraine production of 589 boe/d. Production for the quarter was weighted 74% natural gas with the remainder consisting of oil production.

Winstar produced an average of 1,152 boe/d during the six month period ended June 30, 2013. This production and the associated net revenues are not reflected in the Company's consolidated financial statements for 1H 2013, as they occurred prior to the date of the acquisition of Winstar by Serinus.

On a boe/d basis, 68% of production in the third quarter came from Ukraine which produced an average of 19.338 MMcf/d of natural gas and 104 barrels per day ("bopd") of condensate net to Serinus while 32% of production came from Tunisia which produced 1,165 bopd and 2.398 MMcf/d net to Serinus.

Ukraine

Gross KUB-Gas production averaged 27.6 million cubic feet (equivalents) per day ("MMcfe/d") (Serinus 70% net of 19.3 MMcfe/d) for the nine month period ended September 30, 2013. This represents an increase of 25% over the average production for the first nine months of 2012 of 22.0 MMcfe/d (70% net of 15.4 MMcfe/d).

Production for the third quarter averaged 28.52 MMcfe/d (19.96 MMcfe/d net to Serinus), up from 27.25 MMcfe/d (19.1 MMcfe/d net to Serinus) in the second quarter. The primary contributor to the production increases was the Makeevskoye-16 ("M-16") well which commenced production in late May 2013 and produced an average of 3.67 MMcfe/d (2.57 MMcfe/d net to Serinus) throughout the month of September.

An active drilling and development program in Ukraine continued during the first nine months of 2013:

  • Krutogorovskoye-7 gas discovery drilled and cased in January;
  • North Makeevskoye-2 well abandoned in February;
  • M-16 well tested 4.3 MMcf/d from the deep Serpukhovian zone in April;
  • The Olgovskoye-15 ("O-15") well was cased to total depth in May after encountering up to 4 potential gas zones in the Serpukhovian and Bashkirian;
  • O-15 well announced as a Serpukhovian discovery in July after testing gas at 1.5 MMcf/d;
  • North Makeeskoye-3, which was spud in early June, was announced as a potential Visean (below the Serpukhovian) oil discovery in late July;

In addition, the Krutogorovskoye Licence was converted to a Production Licence in September. Subsequent to the end of the third quarter the successful fracture stimulations of the Olgovskoye-4 and Olgovskoye-5 wells contributed to new corporate production highs in Ukraine and for Serinus corporately.

Work commenced on the expansion of the Makeevskoye and Olgovskoye production and processing facility with throughput capacity planned to increase to 68 MMcf/d from the existing capacity of approximately 30 MMcf/d. The upgrades are expected to be completed in the first quarter of 2014.

Tunisia

Production from Tunisia averaged 1,564 boe/d for the three months ended September 30, 2013 - the first quarter for which the Company has reported operating results from Tunisia. As was the case when Serinus first acquired its interest in Ukraine in 2010, a comprehensive and intensive technical review of the Tunisian asset portfolio is currently underway, the outcome of which will be a detailed, multi-year development plan for the five Tunisian concessions. The development plan is currently anticipated to be in place for the beginning of 2014, and will see continuous drilling of wells, together with a program of workovers and well stimulations. It is anticipated that the first well to be drilled by Serinus in Tunisia will commence late in Q1 or early in Q2 2014.

Brunei

The Lukut Updip-1 well in Brunei Block L was drilled to a total measure depth of 2,137 metres and suspended pending further evaluation after encountering very high formation pressures. Due to the significantly higher than expected formation pressures and equipment limitations, the Company determined that it could no longer safely continue to drill the well and casing was set to a depth of 2,120 metres after a cement plug had been placed in the well at 2,127 metres. The initial planned total measure depth of the well was 2,959 metres. Testing of the heavily damaged zones subsequent to the end of the third quarter produced gas at non-commercial rates. The drilling rig has now moved to the Luba-1 well location, where drilling has commenced.

Serinus filed its third quarter operating and financial results on 13 November 2013 by filing on SEDAR (www.sedar.com) in Canada and by filing on ESPI (www.gpwinfostefa.pl) in Poland and has posted them on its website at www.serinusenergy.com.

Cautionary Statement

Production information is commonly reported in units of barrel of oil equivalent ("boe" or "BOE") or in units of natural gas equivalent ("Mcfe"). However, BOEs or Mcfes may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf:1 barrel, or an Mcfe conversion ratio of 1 barrel:6 Mcf, is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

About Serinus Energy

Serinus is an international upstream oil and gas exploration and production company with a diversified portfolio of projects in Ukraine, Brunei, Tunisia, Romania and Syria and with a risk profile ranging from exploration in Brunei, Romania and Syria to production and development in Ukraine and Tunisia. The common shares of the Company trade under trading symbol "SEN" on both the WSE and the TSX.

In Ukraine, Serinus owns an effective 70% interest in KUB-Gas LLC through its 70% shareholding of KUBGas Holdings Limited. The assets of KUB-Gas LLC consist of 100% interests in five licences near to the City of Lugansk in the northeast part of Ukraine. Four of the licences are gas producing.

In Tunisia, Serinus owns a 100% working interest in the Chouech Es Saida, Ech Chouech, Sanrhar and Zinnia concessions, and a 45% working interest in the Sabria concession. Four of the concessions are currently producing oil or gas.

In Brunei, Serinus owns a 90% working interest in a production sharing agreement which gives the Company the right to explore for and produce oil and natural gas from Block L, a 1,123 square kilometre area covering onshore and offshore areas in northern Brunei.

In Romania, Serinus owns an undivided 60% working interest in the onshore Satu Mare concession, a 2,949 square kilometre exploration and development block, in north western Romania.

In Syria, Serinus holds a participating interest of 50% in the Syria Block 9 production sharing contract which provides the right to explore for and, upon the satisfaction of certain conditions, to produce oil and gas from Block 9, a 10,032 square kilometre area in northwest Syria. The Company has an agreement to assign a 5% ownership interest to a third party subject to the approval of Syrian authorities. Serinus declared force majeure, with respect to its operations in Syria, in July 2012.

The main shareholder of the Company is Kulczyk Investments S.A., an international investment house founded by Polish businessman Dr. Jan Kulczyk.

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

Forward-looking Statements This release contains forward-looking statements made as of the date of this announcement with respect to future activities of Serinus in Ukraine, Tunisia and Brunei that are not historical facts and to future activities of the Company in those countries. 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.

Canada
Suite 1170, 700-4th Avenue S.W., Calgary, Alberta, Canada
Telephone: +1-403-264-8877
Facsimile: +1-403-264-8861
Dubai
Al Shafar Investment Building, Suite 123, Shaikh Zayed Road,
Box 37174, Dubai, United Arab Emirates
Telephone: +971-4-339-5212
Facsimile: +971-4-339-5174
Poland
Nowogrodzka 18/29
00-511 Warsaw, Poland
Telephone: +48 (22) 414 21 00
Facsimile: +48 (22) 412 48 60

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