Serinus Energy’s P&L worsens on Ukraine issues, low oil prices

Oil and gas producer Serinus Energy’s (SEN PW) net revenue declined 30% yoy to USD 25.2 mln in 1Q15, the company reported on May 14. Its revenue in Ukraine declined about 27% yoy to USD 17.0 mln, mostly caused by a 19% yoy decrease in hydrocarbons production. Its revenue in Tunisia fell 35% yoy, caused by a plunge in achieved oil prices by 44% yoy to USD 57.2/boe. Its total hydrocarbons production decreased 9% to 4,406 boepd, while its output in Tunisian assets increased 10% yoy to 1,579 boepd.

Serinus’s operating profit fell 83% yoy to USD 1.6 mln, caused by a decrease in netback in both regions of its operation. In particular, the company’s netback in Ukraine fell 63% yoy to USD 11.5/boe, caused by 10% yoy decline in average gas price and 2.1x yoy increase in royalty tax, which was only slightly compensated by a 25% yoy decline in OpEx. The company’s netback in Tunisia fell 54% yoy to USD 30.5/boe as a halved effective royalty rate and 13% yoy decline in OpEx did not compensate for a radical decline in commodity prices.

The company’s bottom line turned negative at USD 4.1 mln in 1Q15, down from positive USD 2.7 mln in the same year-ago period. Its cash flow from operations decreased 73% yoy to USD 1.7 mln, while capital expenditures increased 10% to USD 11.2 mln, primarily into its Tunisian and Romanian assets. CapEx in Ukraine plunged fivefold to USD 1.5 mln. Its total 2015 CapEx is planned at USD 17 mln, net to Serinus.

Alexander Paraschiy: Due to the troubles that Serinus faced in Ukraine recently – including war near its production assets, the radical increase in royalty rates and market limitations that were effective last winter – its Ukrainian asset stopped being its key profit generator. In particular, its Tunisian assets contributed USD 4.3 mln to consolidated gross profit in 1Q15, while its Ukrainian assets generated just USD 4.2 mln (vs. USD 13.9 mln a year before). Naturally, the company has redirected its investment efforts to Tunisia, which will prompt a further decrease in gas production in Ukraine. At the same time, we expect the Ukrainian authorities will revise their gas production taxes this summer (as they have committed to do with the IMF), which will increase the netback and investment attractiveness of Serinus’s assets there. Meanwhile, we maintain our skepticism on Serinus’s short-term value growth potential.