Mr. Jeffrey Auld, the end of 2016 and the beginning of 2017 brought important changes in Serinus Energy’s plans and strategy for Romania. What could you tell us about the main achievements registered so far as a result of these changes?
We did achieve some important milestones from the end of 2016 to where we are today in 2017. The first important milestone was receiving the three-year extension to the exploration phase of the Satu Mare Concession from the National Agency for Mineral Resources, as allowed in the concession agreement. It was very important to the Company to secure this addendum and have the certainty of three more years of exploration term in order to proceed with the Moftinu Experimental Production Project.
With having the addendum secured, the Company was then in a position to go out to capital markets to secure the necessary equity funding to pay for the gas project. The Company successfully raised CAD$25.2 million in February to allow the Company to proceed to project sanction.
It is important to also recognize the tremendous effort made by the Company’s very talented and dedicated Romanian team in moving all the project applications and permitting forward at this time as well. Their efforts meant that with the financing secure, the Company could quickly move to the contracting and construction stage of the project. It allowed the Company to put the project out for competitive bid. On May 9th, we signed an Engineering, Procurement, and Construction Contract with Confind SRL, a Romanian Company with extensive experience in these types of gas projects. Serinus is always looking to contract with Romanian Companies and hire locally whenever possible.
I am very grateful to all the Serinus team in helping the Company achieve these milestones and move the Moftinu Experimental Production Project forward. I am proud to say, particularly on Canada’s 150th birthday, that our Company is a model of Canadian and Romanian collaboration.
What are the latest results concerning the Satu Mare Concession? What prospects are there to expand the exploration coverage of this Concession?
The Moftinu Experimental Production Project is the first step for the Company to realize the commercial potential of the Satu Mare Concession. The Company in the past had conducted two 3-D seismic surveys over parts of the concession. With these, it has identified further exploration leads and targets for future drilling campaigns. The success of the Moftinu Experimental Production Project will tell us if the shallow gas potential of the concession is worth pursuing further, or if the Company should target deeper and riskier exploration leads in other parts of the concession. Obviously, oil and gas market price conditions will also have a significant impact on the strategic direction of the Company as it pursues its explorations strategy on the Satu Mare concession.
What is the Company’s total investment in the Romanian operations?
The Company has invested $32.4 million since the Company farmed-in on the Satu Mare concession in 2008 to the end of 2016. These funds were used on the acquisition of two 3-D seismic surveys and the drilling of three exploration wells. The Moftinu Experimental Production Project will require a further investment of about $15 million to reach first gas in Q1 2018. Once this important milestone has been reached, the Company would then be able to invest its profits from the project back into further exploration and development of the Satu Mare Concession to further grow production and provide further economic benefits to the county of Satu Mare and the country of Romania.
What are the Company’s expectations from the Moftinu Experimental production project?
The Moftinu Experimental Production Project will tell the Company much about the production potential of the shallow gas plays in the Satu Mare Concession that we have identified with our 3-D seismic survey. This project involves building a gas conditioning unit with a maximum capacity of 450,000 cubic metres per day. If we can prove the commercial productivity of these gas plays, then we will have significant more confidence to proceed to explore the shallow exploration areas in the concession.
What could you tell us about other new Concessions the Company may intend to acquire in Romania in the future? Such a decision to expand Serinus Energy’s portfolio in Romania would depend on what factors?
I suppose the first acquisition we are currently focused on is the recognition of NAMR and the government of Romania as to our rights to the remaining 40% of the Satu Mare Concession. Our partner, Rompetrol, is a defaulted party to our Joint Operating Agreement and thereby is contractually obliged to transfer their 40% interest to us. Back in April 2015, Rompetrol elected not to continue with their obligations on the concession and has since not provided their share of the capital investments done on the block since this time. However, they have failed to carry out their obligation transfer this interest to us, citing their ongoing legal difficulties. We do not feel that this should hinder them from meeting their obligation. As a defaulted party, they clearly have no rights to the concession nor any production or discoveries. The Company will continue to pursue its legitimate rights to the interest and to have NAMR and the government recognize these legitimate rights.
The Company is continually evaluating all potential opportunities to acquire new land positions in Romania. It is disappointing that there have not been any new concession rights issued in Romania since 2011. I feel that in order to build a robust investment environment in the oil and gas sphere, a country should strive to have regular land issuance. Without any land issuance process being imminent, the only other way to acquire a new position is to purchase or farm-in to the concession rights of a current titleholder. The Company continues to evaluate all of these opportunities.
The factors that would impact our decision to add to our portfolio would be if such an acquisition would be an efficient allocation of capital to help increase shareholder value. Obviously factors such as the cost of the acquisition, the technical potential and risk, expected market price conditions, costs, and fiscal terms all play a part in the determination if the investment or acquisition would be in the best interest of the Company. Once we do make an investment decision, it will also be important to ensure that economic benefits to the people and country of Romania are maximized through our decisions in regards to employment, contracting and procurement.