Key points:
- Serinus Energy shares are own 22% this morning
- The gas well they were drilling has turned out to be empty, dry
- The real damage might be to future hopes rather than current finances
Serinus Energy (LON: SENX) shares have dropped 22% this morning in London on the back of their announcement on the gas well they were drilling. Turns out there's no gas there so it's not, in fact, a gas well at all. Which means a certain amount of money spent to find nothing and also no gas to extract and sell in the future. One of those things which is unlikely to benefit the share price of a gas producer like SENX really.
That doesn't mean there's nothing here at Serinus, just that there's been some money spent to gain nothing very much. Unlike many oil and gas explorers Serinus does in fact have current production and that means that we're not facing a total wipeout here. The company has value for that current production, even as that well is empty. The big question is, of course, how much value there is in Serinus shares without that additional well – minus the cost spent to find out that it was empty?
The actual announcement is:”The Canar-1 well was drilled to a total depth of 1,570 metres, targeting three prospective hydrocarbon zones. Well logging and gas show readings determined that these zones had indications of residual gas, but they do not contain sufficient gas resources to justify proceeding with the testing and completion program for the well.” That is, it's not even worth doing the further testing, this is a dud. Ah well, such things happen.
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We have looked at Serinus Energy shares before here and they had an 800% price rise back in May. Which sounds interesting, except that it wasn't, not really. That was a share consolidation and it was a 10 for 1 one. Which means that the price should have risen 1,000% but it only in fact rose 800%. That's actually, in real terms, therefore a 20% price fall. Not what we're looking for if we're to be long Serinus shares at all. There's also been a problem with having to find a new NOMAD but that wasn't the company's fault, it was to do with the takeover of the last one.
However, as we also pointed out while Serinus makes a profit in the latest accounting period that is a result of the current very high prices in the oil and gas markets. Back a bit when those prices were a little less stratosphere Serinus was making a loss – about the same size as the current profits in fact. So, the wells that Serinus is currently running, exploiting, are at this size of overhead, decidedly marginal operations. And it's that which could be leading to the significant share price movement today.
To gain a long term and profitable future Serinus does rather need to find new wells. Those older ones look as if they're not be profitable as and when oil and gas prices revert to trend. Not finding gas in the new well is a blow to those hopes.
