Serinus Energy selling its Ukraine assets for USD 30 mln

Serinus Energy (SEN PW), an international oil & gas holding, reported on Dec. 23 it reached an agreement to sell all of its 70% stake in KUB-Gaz, its Ukrainian asset. A private company is buying the stake “for cash consideration of $30 million, plus working capital and inter-company adjustments,” the holding reported. Serinus is going to reinvest the proceeds from the KUB-Gaz sale to its new projects in Romania. It also is going to repay a USD 11.28 bln debt to the EBRD, which was taken to finance Romanian projects.

KUB-Gaz is the biggest of two assets currently bringing money to Serinus Energy (the other is its Tunisian assets). KUB-Gaz contributed 57% of Serinus Energy’s 2P reserves, 52% of its 9M15 revenue and 59% of all its production assets’ 9M15 EBITDA.

Alexander Paraschiy: It’s a deep and unexpected disappointment that Serinus has decided to exit Ukraine, especially taking into account that the key value-diminishing factor for the Ukrainian market, its high gas production tax rate, will be eliminated as of January 2016, as determined by the Dec. 24 vote in parliament. In fact, KUB-Gaz was sold at the peak of uncertainty regarding Ukraine’s tax legislation, clearly not at the best time for the sale.

The implied EV-to-2P reserves ratio of the deal is USD 3.8/boe and implied EV/Output multiple is USD 29.7/boe. That’s not such a bad result, given that its closest peer, JKX Oil & Gas (JKX LN), trades at multiples of 0.8 and 25.2, respectively. Another peer, Regal Petroleum (RPT LN), trades currently at negative EV. However, the deal’s multiples are weak compared to Serinus’s own market multiples (4.4 and 57.3, respectively), which indicates the deal is value-destructive for the holding.

At the same time, we believe the deal, which will allow Serinus to concentrate on the more predictable and investor-friendly Tunisian and Romanian markets, will enable the holding to significantly increase valuation in the mid-term. For instance, the London- and Warsaw-listed peers of Serinus, with a focus outside Ukraine, are currently trading at EV/Output multiples of about USD 140/boe. Since the Tunisian and Romanian markets are beyond our scope, we are terminating our coverage of Serinus Energy.