TIDMSQZ
RNS Number : 7104A
Serica Energy PLC
27 September 2022
Serica Energy plc
("Serica" or the "Company")
Results for the six months ended 30 June 2022
London, 27 September 2022 - Serica Energy plc (AIM: SQZ) today
announces its financial results for the six months ended 30 June
2022. The results are included below and copies are available at
www.serica-energy.com and www.sedar.com .
Mitch Flegg, Serica's CEO stated:
"Serica's production levels in the first half of 2022 have
benefitted significantly from our ongoing capital investment
campaign which commenced in 2020. We are now seeing the full
contribution from the 2021 Columbus and R3 projects and
additionally we have recently completed a successful Light Well
Intervention Vessel (LWIV) campaign on Bruce. As a result of these
investment projects, Serica's net production in the first half of
2022 was 41% higher than the first half of 2021.
Furthermore, the BKR cash flow sharing arrangements have now
come to an end after four years during which the Company shared the
net cash flow with the vendors of the relevant assets. We now
retain 100% of the net cash flow from BKR.
Market gas prices, though highly volatile, have continued to
strengthen during 2022 and as a result of increased production at
higher commodity prices, Serica's operating cash flow for the
six-month period was GBP312.0 million and profits increased at all
levels.
Over 85% of Serica's production is gas, providing much needed
domestic energy during a time of heightened concern around the UK's
security of supply. This gas will continue to be an important
energy source during the Net Zero transition.
This operational and financial performance has enabled the
Company to steadily increase its return to shareholders. Following
the recent payment of a 9 pence per share final dividend for full
year 2021, we are today announcing our first interim dividend of 8
pence per share which will be paid in November 2022."
First Half 2022 Performance
-- Average production of 26,600 boe per day net to Serica
compared to 18,855 boe per day for 1H 2021, increasing Serica's
contribution to security of UK gas supply.
-- Gas price volatility continues with market prices ranging
from below 100 pence to over 300 pence per therm and averaging 175
pence per therm for the period (1H 2021: 50 pence per therm).
-- Capital investment programme maintained with initial Bruce
well intervention campaign commencing in May and preparations for
North Eigg exploration well which spudded in July .
Financial Highlights
-- Cash balances at 30 June 2022 increased to GBP258.3 million
(31 Dec 2021: GBP103.0 million) with a further GBP160.4 million
lodged as hedge security (31 Dec 2021: GBP115.4 million) giving a
combined total of GBP418.7 million (31 Dec 2021: 218.4
million).
-- Operating cash flow of GBP312.0 million (1H 2021: GBP72.8
million), after adjustment for hedge security, reflecting:
o increased production levels
o higher realised commodity prices
o partially offset by 1H hedge settlements.
-- Expiry of the BKR cash flow sharing and Rhum
performance-related payments at end 2021 with final cash
settlements of GBP93.9 million made in 1H 2022.
-- Average realised gas price of 136 pence per therm (1H 2021:
50 pence per therm) after system entry fees and including fixed
price volumes, with average overall realised sales price of
US$101.00 per boe (1H 2020: US$43.30 per boe).
-- Average operating cost of US$16.07 per boe for 1H 2022 (1H 2021: US$16.05 per boe).
-- Operating profit of GBP196.3 million (1H 2021: GBP5.5
million) after GBP56.4 million of unrealised hedging provisions (1H
2021: GBP30.3 million) and profit after tax of GBP116.7 million (1H
2021: GBP1.3 million).
Operational
-- Serica's first ever LWIV campaign concluded without any
safety incidents or environmental issues:
o initial well (Bruce M1) re-entered for first time since 1998
and production increased from around 400 boe/d before intervention
to over 1,800 boe/d in July 2022
o second well (Bruce M4) increased from around 450 boe/d to over
2,400 boe/d.
-- Plans to perform similar interventions on other Bruce and
Keith wells, both subsea and from the platform, are now being
accelerated.
-- Capital investment of GBP20.9 million (2021 full year:
GBP52.2 million) all funded from internal cash resources.
Environmental, Social and Governance
-- Carbon intensity on Bruce production facilities reduced by 15% compared to 1H 2021.
-- Early and continued supporter of the Energy Services
Agreement, helping to protect supply chain resilience.
-- We continue to implement projects to deliver North Sea
Transition Deal emissions reduction targets.
Outlook
-- Serica's North Sea investment programme continues with
results from its North Eigg exploration well due in December and
further BKR well campaigns planned for 2023.
-- Full year 2022 production guidance narrowed to 26,000-28,000 boepd.
-- Gas price outlook likely to stay volatile but unhedged
proportion of sales to increase as remaining hedges expire.
-- Combined cash of GBP482.4 million at 23 September 2022
o cash and deposits of GBP282.6 million after Q3 settlement of
GBP66.0 million tax instalment and GBP24.5 million dividend
payment
o plus GBP199.8 million lodged as hedge security having exceeded
GBP300 million in recent months
o though potentially volatile in the short term, hedge security
to reduce over the rest of 2022 as remaining gas price hedges
expire.
-- The Board is announcing its first interim dividend at a rate
of 8 pence per share payable on 25 November 2022 to shareholders
registered on 28 October 2022 with an ex-dividend date of 27
October 2022.
-- The potential for further distributions to shareholders,
including share buybacks, will be kept under review as the Company
continues to pursue M&A opportunities.
Regulatory
This announcement is inside information for the purposes of
Article 7 of Regulation 596/2014.
The technical information contained in the announcement has been
reviewed and approved by Fergus Jenkins, VP Technical at Serica
Energy plc. Mr Jenkins (MEng in Petroleum Engineering from
Heriot-Watt University, Edinburgh) is a Chartered Engineer with
over 25 years of experience in oil & gas exploration,
development and production and is a member of the Institute of
Materials, Minerals and Mining (IOM3) and the Society of Petroleum
Engineers (SPE).
Enquiries:
+44 (0)20 7390
Serica Energy plc 0230
Mitch Flegg (CEO) / Andy Bell (CFO)
+44 (0)20 7418
Peel Hunt (Nomad & Joint Broker) 8900
Richard Crichton / David McKeown
+44 (0)20 7029
Jefferies (Joint Broker) 8000
Tony White / Will Soutar
+44 (0)20 7390
Vigo Consulting (PR Advisor) 0230
Patrick d'Ancona / Finlay Thomson serica@vigoconsulting.com
NOTES TO EDITORS
Serica Energy is a British independent oil and gas exploration
and production company with a portfolio of UKCS assets. Over 85% of
Serica's production is natural gas, a key element in the UK's
energy transition, and the Company is responsible for 5% of the gas
produced in the UK. The Company is pursuing growth opportunities
that fit within the transition context and where it can add real
value by deploying its proven technical and commercial
expertise.
Serica operates the producing Bruce, Keith and Rhum fields in
the UK Northern North Sea, and the producing Columbus field in the
UK Central North Sea. Serica also holds a non-operated interest in
the producing Erskine field in the UK Central North Sea.
Further information on the Company can be found at
www.serica-energy.com . The Company's shares are traded on the AIM
market of the London Stock Exchange under the ticker SQZ and the
Company is a designated foreign issuer on the TSX. To receive
Company news releases via email, please subscribe via the Company
website.
FORWARD LOOKING STATEMENTS
This disclosure contains certain forward looking statements that
involve substantial known and unknown risks and uncertainties, some
of which are beyond Serica Energy plc's control, including: the
impact of general economic conditions where Serica Energy plc
operates, industry conditions, changes in laws and regulations
including the adoption of new environmental laws and regulations
and changes in how they are interpreted and enforced, increased
competition, the lack of availability of qualified personnel or
management, fluctuations in foreign exchange or interest rates,
stock market volatility and market valuations of companies with
respect to announced transactions and the final valuations thereof,
and obtaining required approvals of regulatory authorities. Serica
Energy plc's actual results, performance or achievement could
differ materially from those expressed in, or implied by, these
forward-looking statements and, accordingly, no assurances can be
given that any of the events anticipated by the forward-looking
statements will transpire or occur, or if any of them do so, what
benefits, including the amount of proceeds, that Serica Energy plc
will derive therefrom.
INTERIM REPORT FOR THE SIX MONTH PERIODED 30 JUNE 2022
The following Interim Report of the operations and financial
results of Serica Energy plc ("Serica") and its subsidiaries
(together the "Group") contains information up to and including 26
September 2022 and should be read in conjunction with the unaudited
interim consolidated financial statements for the period ended 30
June 2022, which have been prepared by and are the responsibility
of the Company's management.
References to the "Company" include Serica and its subsidiaries
where relevant.
The results of Serica's operations detailed in the interim
financial statements are presented in accordance with International
Financial Reporting Standards ("IFRS").
The Company's shares are listed on AIM in London. Although the
Company delisted from the TSX in March 2015, the Company is a
"designated foreign issuer" as that term is defined under National
Instrument 71-102 - Continuous Disclosure and Other Exemptions
Relating to Foreign Issuers. The Company is subject to the
regulatory requirements of the AIM market of the London Stock
Exchange in the United Kingdom.
Serica is an oil and gas company with production, development
and exploration activities based in the UK.
CHIEF EXECUTIVE OFFICER'S REVIEW
Serica's production levels in the first half of 2022 have
benefitted significantly from our ongoing capital investment
campaign which commenced in 2020. This is the first accounting
period when we have had a full contribution from the 2021 Columbus
and R3 projects and additionally we have recently completed a
successful Light Well Intervention Vessel (LWIV) campaign on Bruce.
As a result of these investment projects, Serica's net production
in the first half of 2022 (26,600 boe/d) was 41% higher than the
first half of 2021 (18,855 boe/d).
Furthermore, the BKR cash flow sharing arrangements have now
come to an end after four years during which the Company shared the
net cash flow with the vendors of the relevant assets with Serica
retaining 40% in 2018, rising to 50% in 2019 and 60% in 2020 and
2021. We now retain 100% of the net cash flow from BKR.
Market gas prices, though highly volatile, have continued to
strengthen during 2022, averaging over 175p per therm in the first
half of 2022 compared to around 56p per therm for the corresponding
period in 2021. This is before the impact of Serica's gas price
hedging.
Over 85% of Serica's production is gas, providing much needed
domestic energy during a time of heightened concern around the UK's
security of supply. This gas will continue to be an important
energy source during the Net Zero transition.
As a result of this increased production at higher commodity
prices, Serica's sales revenue for the six-month period to June
2022 was GBP353.5 million compared to GBP100.8 million for the
corresponding period in 2021 whilst operating cash flow was
GBP312.0 million compared to GBP72.8 million in 2021.
The Company continues its growth strategy of investment in
projects designed to enhance and extend future production profiles.
Planning for future well intervention campaigns is ongoing
following the success of this year's LWIV programme. The North Eigg
exploration well was spudded in July and is drilling towards the
reservoir. Progress has been slower than anticipated with delays in
the top hole section and the replacement of a failed piece of rig
equipment and it is now expected that results will be known in
December. This 100% Serica significant exploration prospect is
estimated to contain 60 million boe of unrisked P50 recoverable
resources in the success case.
On 26 May 2022 the UK government announced the introduction of
an Energy Profits Levy (EPL), a new 25% levy on profits arising on
or after 26 May. As the EPL was not enacted until July its impact
has not been incorporated into Serica's first half results but
could result in a significant impact in future periods. However,
incentives to reinvest in additional oil and gas reserves offer
Serica the opportunity to mitigate its impact. Therefore, we will
not only maintain our ongoing investment plan but will also look to
expand and accelerate elements of that programme.
We continue to focus on our HSE performance and on Bruce we have
now passed 1,000 days without a day-away-from-work-case. Our
attention to emissions reduction has also continued to yield
results. Our year-to-date carbon intensity (emissions divided by
production) on Bruce is 16.5kg CO(2) /boe, a 15% reduction on the
same period last year and 7% less than full year 2021 carbon
intensity. This reflects our efforts to run our Bruce facilities
efficiently and optimise production throughput. Flare volumes are
also lower by 23% compared to the same period last year, due to
closer daily tracking and operational improvements. We have
committed to meeting the North Sea Transition Deal emissions
reduction targets on the Bruce asset and have tangible engineering
solutions to help us achieve these goals, including zero routine
flaring by 2030.
Serica has seen a material increase in combined cash resources
over the past twelve months with cash and deposits plus amounts
lodged as hedge security rising from GBP107.2 million at 30 June
2021 to GBP418.7 million at 30 June 2022. The bulk of this increase
has occurred in 1H 2022 in line with production increases and the
rise in wholesale gas prices. Cash generation is expected to remain
strong during the second half of 2022 although partially offset by
the commencement of tax payments coupled with ongoing North Eigg
well expenditures.
Against this background the Company is steadily increasing its
return to shareholders. Following the recent payment of a 9 pence
per share final dividend for full year 2021 (2020: 3.5 pence per
share), the Company is today announcing its first interim dividend
of 8 pence per share which will be paid in November 2022.
The Board continues to review the potential for further cash
returns to shareholders including the scope for share buybacks. It
is also mindful of the need for strong capital allocation to
further grow the business and shareholder value. The Company is
evaluating a number of acquisition and new investment opportunities
and a successful outcome of the North Eigg exploration well would
have a significant impact upon the Company's cash requirements,
with strong pressure to follow up any success rapidly so as to
support the UK's security of gas supply.
In the short term, free cash availability remains volatile due
to the highly erratic gas futures market and its impact upon hedge
security requirements. Whilst currently below GBP200 million, these
have ranged from below GBP150 million to over GBP300 million in
recent months and can be expected to remain volatile in the near
term following the cut-off of the main Russian gas pipeline into
Europe. These security requirements can be expected to fall over
the rest of the year as Serica's remaining gas price hedges
continue to expire.
After taking account of the factors described above the Board
does not consider the timing is right to initiate an immediate
buyback programme. However, it will continue to monitor the scope
for buybacks as each of these matters evolves and balance this
against retaining funds for further investment and acquisition.
Although it proved not possible to reach agreement with Kistos
plc on the terms of the respective potential offers between the two
companies, Serica continues to actively seek opportunities at both
the asset and corporate level that would strengthen the Company,
diversify its asset base and deliver incremental value to
shareholders.
Finally, I would like to thank the staff and management of the
Company and our contractors and to congratulate them all on another
period of outstanding performance.
Mitch Flegg
Chief Executive Officer
26 September 2022
REVIEW OF OPERATIONS
UK Operations
UK Production
Northern North Sea
Northern North Sea: Bruce Field - Blocks 9/8a, 9/9b and 9/9c,
Serica 98%
Serica operates the Bruce field and facilities consisting of
three bridge-linked platforms, wells, pipelines and subsea
infrastructure. The platforms contain living quarters for up to 156
people, reception, compression, power generation, processing and
export facilities. There is also the subsea Western Area
Development ("WAD") that produces from the edges of the Bruce
area.
Bruce production is predominantly gas which is rich in liquids.
Gas is exported through the Frigg pipeline to the St Fergus
terminal, where it is separated into sales gas and NGL's. Oil is
exported through the Forties Pipeline System to Grangemouth.
Over the first half of 2022 we have continued to maintain safe
and efficient operations whilst managing the threat and impact of
COVID-19. We have recently phased out our specific COVID controls
in line with the relaxation in the wider community and have
experienced no production impacts related to COVID in the reporting
period.
We have gradually increased our offshore headcount back to our
pre-pandemic levels whilst retaining the synergies and improved
ways of working that we developed during the restrictions. This
increase will allow us to address the backlog of work incurred by
the reduced manning of the COVID period, whilst executing work
scopes to reduce our carbon emissions, maintain our reliability and
increase our production.
In the first half of the year we have successfully removed the
residual section of the redundant caisson that caused a production
outage in 2020, modified the platform compression system to support
further production boosts from the WAD area and completed a Light
Well Intervention (LWI) on two of the WAD wells.
The initial well (Bruce M1) was re-entered for the first time
since 1998. After a successful scale removal and water shutoff, a
significant reperforation and new perforation campaign was executed
and the well returned to production. Production rates from the well
have increased from around 400 boe/d before intervention to over
1,800 boe/d in July 2022.
A similar programme was followed on the second well (Bruce M4)
and production rates for the well have been increased from around
450 boe/d to over 2,400 boe/d.
Bruce field production in 1H 2022 averaged circa 6,800 boe/d (1H
2021: 6,800 boe/d) of oil and gas net to Serica.
An independent evaluation of reserves by RISC Advisory estimated
2P reserves of 15.8 million boe net to Serica as of 1 January
2022.
Northern North Sea: Keith Field - Block 9/8a, Serica 100%
Keith is an oil field produced via a single subsea well tied
back to the Bruce facilities. Keith produces at relatively limited
rates but provides a low-cost contribution to the oil export from
Bruce. The field has been shut in since early 2021. In early 2022 a
subsea inspection of the Keith well (K1) was carried out that
identified a need to replace the subsea control module (SCM), which
will be carried out in early 2023. We will then execute a LWI
campaign to restore production from K1 in late 2023/early 2024.
An independent estimate of reserves, compiled by RISC Advisory.
estimated 2P reserves of 0.9 million boe net to Serica as of 1
January 2022.
Northern North Sea: Rhum Field - Blocks 3/29a, Serica 50%
Serica is operator of Rhum which is a gas condensate field
producing from three subsea wells tied into the Bruce facilities
through a 44km pipeline. Rhum production is separated into gas and
oil and exported to St Fergus and Grangemouth along with Bruce and
Keith production. Rhum gas has a higher CO(2) content than Bruce
gas and so is blended with Bruce gas before leaving the offshore
facilities.
In February we had a failure of a power supply within a Subsea
Control Module (SCM) which shut down the Rhum field. We were able
to mobilise a diving vessel, carry out an investigation and replace
the failed SCM with a spare. The field restarted on the 17 March.
The recovered SCM is currently being refurbished to bolster our
supply of spares.
Average Rhum field production in 1H 2022 was circa 15,900 boe/d
(1H 2021: 10,400 boe/d) net to Serica after taking account of the
shut-in.
An independent estimate of reserves by RISC Advisory estimated
2P reserves of 37.2 million boe net to Serica as of 1 January
2022.
Central North Sea
Central North Sea: Columbus Development - Blocks 23/16f and
23/21a (part), Serica 50%
Serica is operator of Columbus with partners Tailwind Mistral
Limited (25%) and Waldorf Production Limited (25%). Columbus is
located in the Eastern Central Graben, UK Central North Sea and the
reservoir is located within the Forties Sandstone.
The development comprises a single subsea well drilled to a
total depth of 17,600ft with a 5,600ft horizontal section through
the reservoir, connected to the Arran-Shearwater
export pipeline. Columbus production is exported through the
pipeline along with Arran field production. The Arran field has
been developed in parallel with Columbus, and its export pipeline
to the Shearwater platform was re-routed a short distance to pass
close to the Columbus wellhead location. When co-mingled production
from Arran and Columbus reaches the Shearwater facilities, it is
separated into gas and liquids and exported via the SEGAL line to
St Fergus and Forties Pipeline System to Cruden Bay
respectively.
Planning for the development began as soon as FDP approval was
received in October 2018. Serica worked closely with Shell, the
operator of the Arran field and Shearwater platform, to ensure
effective construction and operation of the two developments in
parallel. The Columbus development well and Arran development wells
were drilled during 2021 and Columbus production commenced in
November of 2021. The start-up coincided with strong commodity
prices, providing rapid payback of the capital invested.
Columbus had good initial test rates. However, during the first
few months of production, flowrates declined, in part caused by the
ramp-up of the Arran Field and the corresponding backout that
caused in the export facilities. Production rates have now
stabilised.
Average net Columbus production in 1H 2022 was circa 1,970 boe/d
of gas and condensate.
An independent report of reserves by RISC Advisory estimated 2P
reserves of 4.9 million boe net to Serica as at 1 January 2022.
Central North Sea: Erskine Field - Blocks 23/26a (Area B) and
23/26b (Area B), Serica 18%
Serica holds a non-operated interest in Erskine, a gas and
condensate field located in the UK Central North Sea. Serica's
co-venturers are Ithaca Energy 50% (operator) and Harbour Energy
32%.
Erskine is produced through five production wells over the
Erskine normally unattended installation, transported to the Lomond
platform via a multiphase pipeline and processed on the platform.
Then condensate is exported down the Forties Pipeline System via
the CATS riser platform at Everest and gas is exported via the CATS
pipeline to the CATS terminal at Teesside.
In late 2021 the W1 well stopped producing due to a stuck safety
valve. An intervention was undertaken in the first half of the year
and the valve successfully replaced. We continue to support the
operator's intervention plans for 2022 to return the well to full
production.
The regular pigging program on the condensate export line has
continued and no indications of wax build-up have been seen.
Erskine production levels in 1H 2022 averaged 1,890 boe/d net
(1H 2021: 1,625 boe/d net).
An independent report of reserves by RISC Advisory estimated 2P
net reserves at 3.4 million boe as of 1 January 2022.
UK Exploration
North Eigg and South Eigg - Blocks 3/24c and 3/29c, Serica
Energy (UK) Limited 100% and Operator
In December 2019, Serica was awarded the P2501 Licence as part
of an out of round application; this comprises Blocks 3/24c and
3/29c and contains the North Eigg and South Eigg prospects. The
official start date for the Licence was 1 January 2020. The work
programme involves reprocessing seismic and drilling an exploration
well within three years of the start of the licence. The North Eigg
prospect was high-graded for drilling, being clearly visible on 3D
seismic data and sharing many similarities with the nearby Rhum
field, operated by Serica.
Planning for the exploration well, which is expected to include
a high temperature and high pressure reservoir section, including
securing all necessary regulatory approvals, was completed during
the first half of 2022 and the rig mobilisation began on 1 July.
Results are expected December.
In the event of a commercial discovery, Serica would seek a
fast-track route to develop the field; one option would be a subsea
tie-back to the Serica-operated and 98% owned Bruce facilities,
which are to the south of the prospect. This solution would provide
Serica with potentially significant additional reserves and reduce
combined unit operating costs, which could help to extend the
economic life of this strategic North Sea infrastructure. The use
of existing offtake facilities would also significantly restrict
additional carbon emissions. The Company is undertaking conceptual
design studies aimed at identifying ways that such a development
could be undertaken while working within the framework of the North
Sea Transition Deal agreed between the industry and government to
expedite the energy transition.
Skerryvore and Ruvaal- Blocks 30/12c (part), 30/13c (split),
30/17h, 30/18c and 30/19c (part), Serica Energy (UK) Limited: 20%
working interest, operator Parkmead
The (P2400) Skerryvore and (P2402) Ruvaal prospects lie in the
Central North Sea, 60km south of the Erskine field. Potential for
both sandstone and chalk reservoirs has been identified.
In excess of 500km(2) of 3D seismic data was purchased over the
licence areas, however, the company that was contracted to
reprocess the data and enhance it prior to interpretation was
unable to deliver the new dataset in the agreed timescale. That
meant it was not possible to undertake the necessary work programme
in time to make a drilling decision by the end of the initial
three-year term(s), by September 2021. An extension application was
therefore submitted to the Oil and Gas Authority which approved an
extension of the current phase of the licence to the end of
September 2022.
The reprocessed data was finally delivered at the end of 2021
and interpreted by the Operator. Upon evaluation of the results,
the partnership decided not to proceed to the next phase of the
P2402 Licence, which contains the Ruvaal prospect and that has
therefore been relinquished. Three of the four partners decided to
proceed into the next phase of the P2400 Licence, which includes a
commitment well into the Skerryvore prospect by September 2025.
Serica will continue with its 20% working interest.
Licence Awards in the UK 32(nd) licensing round
In December 2020 Serica was formally awarded four new blocks in
the UK 32(nd) licensing round. Blocks 3/25b, 3/30, 4/26 and 9/5a
are in the vicinity of the Bruce hub and include several leads
which, if successful, could be tied back to Serica's existing
infrastructure, or to other facilities in the region. The work
programme does not include any commitment wells but is designed to
mature these leads to drill-ready status.
A decision on whether to continue with the licences into their
next Phases is due before the end of 2023.
F INANCIAL REVIEW
1H 2022 RESULTS
Serica generated a profit before taxation of GBP194.5 million
for 1H 2022 compared to GBP2.2 million for 1H 2021. After current
and deferred tax provisions of GBP77.7 million (1H 2021: GBP0.9
million), profit for the period was GBP116.7 million compared to
GBP1.3 million for 1H 2021 and GBP79.3 million for full year
2021.
Profits were boosted during the first half of the year by a
combination of increased production arising from successful 2021
investment on the Rhum R3 and Columbus wells and from high gas
prices, partially offset by non-cash accounting provisions for
unrealised hedging losses related to future periods.
These unrealised losses will only become fully realised should
actual gas sales prices for 2H 2022 and 2023 reach the levels
assumed in such valuations. In addition, this does not factor in
the substantial benefits to be realised from the far larger volumes
of unhedged gas sales should actual prices for those future periods
match such forward pricing. The proportion of projected gas
production hedged is estimated to fall close to 20% for 2H 2022 and
to around 10% for 1H 2023.
In August 2021, some gas price swaps for 2022/3 were replaced by
equivalent pricing for the same volumes fixed directly under gas
sales contracts. These were valued at that date and are held as gas
contract liabilities in the balance sheet without further
revaluation. These liabilities are then extinguished when the
relevant gas volumes are delivered. Consequently, Serica's gas
price hedging comprises a mix of gas price swaps, fair valued at
the balance sheet date, and fixed pricing under gas sales contracts
which is held at initial value until extinguished. During 1H 2022,
GBP27.5 million of gas contract liabilities were extinguished and
recorded under sales revenue in the Income Statement.
Sales revenues
The total 1H 2022 sales revenue of GBP353.5 million (1H 2021:
GBP100.8 million) comprised GBP325.9 million of product sales
revenue (1H 2021: GBP100.8 million) and GBP27.5 million of contract
revenue as described above (1H 2021: GBPnil).
Total product sales volumes for the half year comprised
approximately 216 million therms of gas (1H 2021: 153 million
therms), 498,000 lifted barrels of oil (1H 2021: 365,000 barrels)
and 36,800 metric tonnes of NGLs (1H 2021: 24,200 metric tonnes).
The combined product sales revenue of GBP325.9 million (1H 2021:
GBP100.8 million) consisted of BKR revenues of GBP258.9 million (1H
2021: GBP89.3 million), Erskine revenues of GBP31.1 million (1H
2021: GBP11.5 million) and Columbus revenues of GBP35.9 million (1H
2021: GBPnil).
Average 1H 2022 sales prices net of system fees were: 136 pence
per therm including contract revenue (1H 2021: 50 pence per therm)
for gas, US$107.7 per barrel (1H 2021: US$65.0 per barrel) for oil
and GBP514 per metric tonne (1H 2021: GBP284 per metric tonne) for
NGLs. This gave a combined realised sales price for lifted volumes
of US$101 per barrel of oil equivalent (1H 2021: US$43.3 per boe).
The average gas sales price of 136 pence per therm reflects the mix
of gas sales comprising volumes sold at current spot prices and
volumes sold at contracted fixed prices and are before gas price
hedging costs on the retained gas price swaps detailed below. The
fixed price element, net of contract revenue, represented a
reduction from daily spot pricing averaging approximately 20 pence
per therm.
Gross profit
The gross profit for 1H 2022 was GBP267.1 million compared to
GBP46.0 million for 1H 2021. Overall cost of sales of GBP86.3
million compared to GBP54.9 million for 1H 2021. This comprised
GBP59.1 million of operating costs (1H 2021: GBP40.1 million) and
GBP25.5 million of non-cash depletion charges (1H 2021: GBP15.3
million), reflecting higher production volumes, plus a GBP1.7
million charge representing a reduction during the period of the
liquids underlift position (1H 2021: credit of GBP0.5 million).
Operating costs comprise production, processing, transportation
and insurance and also included some non-recurring charges.
Operating costs per boe were US$16.07, broadly consistent with
US$16.05 for 1H 2021. Costs per boe have benefitted from increased
production volumes for 1H 2022 covering the fixed elements of
production costs but have been partly offset by underlying cost
inflation and exceptional costs related to the Rhum production
interruption in Q1.
Operating profit before BKR fair value adjustment, net finance
revenue and tax
The operating profit for 1H 2022 was GBP196.3 million compared
to GBP5.5 million for 1H 2021. This included hedging expense,
related to 1H gas price swaps, of GBP13.2 million realised during
1H 2022 (1H 2021: GBP5.7 million) plus unrealised hedging expense
of a further GBP56.4 million (1H 2021: GBP30.3 million) related to
future period swaps.
There were no E&E asset write-offs for 1H 2022 or 1H 2021.
Administrative expenses for 1H 2022 of GBP3.8 million compared to
GBP3.0 million for 1H 2021 whilst share-based payments were GBP0.8
million (1H 2021: GBP0.9 million) and currency gains were GBP3.7
million (1H 2021: losses of GBP0.6 million) largely arising on
GBP-reported US$ holdings as sterling weakened compared to the US$
during 1H 2022.
Profit before taxation and profit for the period after
taxation
Profit before taxation for 1H 2022 was GBP194.5 million (1H
2021: GBP2.2 million) after a GBP1.9 million charge arising from an
increase in the fair value of the BKR financial liability (1H 2021:
GBP3.1 million) and GBP0.035 million of net finance revenue (1H
2021: costs of GBP0.2 million). Net finance revenue represents
interest income earned on cash deposits offset by the discount
unwind on decommissioning provisions and other minor finance
costs.
The 1H 2022 charge of GBP1.9 million relating to the remaining
BKR financial liability (1H 2021 - GBP3.1 million) largely arose
from the unwinding of discount on the estimated amounts of those
remaining liabilities. The fair value of the liabilities, which are
described under BKR asset acquisitions below, is re-assessed at
each financial period end.
The 1H 2022 taxation charge of GBP77.7 million (1H 2021: GBP0.9
million) comprised current tax charges of GBP79.8 million (1H 2021:
GBPnil) and a non-cash deferred tax credit of GBP2.1 million (1H
2021: charge GBP0.9 million). As the Group utilised its losses
carried forward from previous years during 2021, cash taxes are
payable on 2022 income. No provision has been included for the
Energy Profits Levy which was enacted after the end of the
reporting period and consequently is determined as a post balance
sheet event. 2022 full year results will include charges calculated
from the effective date of 26 May 2022.
Overall, this generated a profit after taxation of GBP116.7
million for 1H 2022 compared to a profit after taxation of GBP1.3
million for 1H 2021.
GROUP BALANCE SHEET
Serica retains a strong balance sheet with no borrowings,
limited decommissioning liabilities and growing cash resources.
This allows the Company to fund ongoing capital investment
programmes whilst delivering a progressive dividend policy as well
as seeking new acquisition and investment opportunities.
An increase in exploration and evaluation assets from GBP2.9
million at 31 December 2021 to GBP10.3 million at 30 June 2022
reflected new expenditure on UK licences, with the most significant
element on planning and preparations for drilling the North Eigg
prospect.
Total property, plant and equipment decreased from GBP328.9
million at year end 2021 to GBP316.9 million at 30 June 2022. Net
book amount additions comprised capital expenditure during 1H 2022
of GBP13.6 million mainly on the Bruce LWIV campaign. These were
offset by depletion charges for 1H 2022 of GBP25.5 million (1H
2021: GBP15.3 million) and other depreciation charges of GBP0.1
million (1H 2021: GBP0.1 million). Depletion charges represent the
allocation of field capital costs over the estimated producing life
of each field and comprise costs of asset acquisitions and
subsequent investment programmes.
An inventories balance of GBP4.5 million at 30 June 2022 showed
little change from GBP4.1 million at the end of 2021. A decrease in
trade and other receivables from GBP132.4 million at the end of
2021 to GBP81.9 million (excluding hedging security advances) at 30
June 2022 largely reflected lower prices and volumes for June gas
sales compared to last December.
Hedging advances of GBP160.4 million at 30 June 2022 (31
December 2021: GBP115.4 million) represented cash security lodged
with commodity hedging counterparties, covering both remaining
swaps and fixed forward prices, and reflected the very high forward
gas prices at the end of June 2022. This will be returned to Serica
should forward gas prices fall or when monthly contracts are
settled. Hedging advances have shown extreme fluctuations so far in
2022 reflecting the extraordinary volatility in the gas market this
year.
The increase in cash balances from GBP103.0 million at 31
December 2021 to GBP258.3 million at 30 June 2022 reflected cash
flow from operations of GBP267.0 million mainly offset by the
significant capital expenditures of GBP20.9 million and GBP93.9
million of net cash flow payments and other consideration paid to
BKR counterparties during the period.
Current trade and other payables increased to GBP141.6 million
at 30 June 2022 from GBP49.5 million at the end of 2021. The
balance at 30 June 2022 includes UK corporation tax payable of
GBP95.6 million (31 December 2021: GBP15.8 million). A significant
corporation tax payment of GBP66.0 million was made in Q3 2022.
Derivative financial liabilities of GBP102.2 million at 30 June
2022 (31 December 2021: GBP45.8 million) represent the valuation of
gas price swaps remaining in place at the period end and the
consequent amounts projected to be due based upon futures pricing
prevailing at that date. End June 2022 futures pricing was strong
and, if realised, would deliver greatly increased gas sales
revenues during 2H 2022 and 2023.
The dividend payable of GBP24.5 million at 30 June 2022 (31
December 2021: GBPnil) represents the final cash dividend for 2021
of 9.0 pence per share approved at the annual general meeting on 30
June 2022 and paid in July.
Gas contract liabilities arising from the replacement of some
gas price swaps by contracted fixed price elements as described
above, are split between current liabilities of GBP10.8 million (31
December 2021: GBP37.5 million) and non-current liabilities of
GBP0.2 million (31 December 2021: GBP1.0 million). Although gas
contract liabilities are not revalued at each period end, they are
still subject to cash security requirements in the same way as the
remaining gas price swaps.
Current financial liabilities of GBPnil (31 December 2021:
GBP93.9 million) and non-current financial liabilities of GBP39.7
million (31 December 2021: GBP37.8 million) comprise remaining
deferred consideration projected to be paid under the BKR
acquisition agreements.
The current financial liability of GBP93.9 million at 31
December 2021 comprised the final two net cash flow sharing
payments due, those for November and December 2021 totalling
GBP63.3 million, a fixed payment of GBP16.0 million arising from
the successful outcome of the Rhum R3 well operations and a further
GBP14.6 million of contingent consideration in respect of Rhum
field performance during 2021 and over the previous two years.
These amounts were all settled in 1H 2022.
The non-current liability comprised deferred consideration in
respect of BKR decommissioning and oil linefill. Under arrangements
for those BKR field interests acquired from BP, Total E&P and
BHP, decommissioning liabilities were retained by the vendors with
Serica liable to pay deferred consideration equivalent to 30% of
the actual costs of decommissioning net of tax recovered by
them.
Non-current provisions relate to future decommissioning
obligations. These showed an increase from GBP28.1 million at 31
December 2021 to GBP28.4 million at 30 June 2022, due to the
unwinding of the discount applied to the estimates. The balance of
provisions is in respect of Serica's Bruce and Keith interests
acquired from Marubeni and its share of Columbus
decommissioning.
The deferred tax liability of GBP118.5 million at 30 June 2022
decreased from GBP120.6 million at year end 2021 and reflects
accounting provisions expected to be released in future periods now
the Group's tax losses have been fully utilised.
Overall, net assets have increased from GBP272.5 million at year
end 2021 to GBP366.5 million at 30 June 2022 after recognising a
liability for the dividend of GBP24.5 million paid in July
2022.
The increase in share capital from GBP182.0 million to GBP182.9
million arose from shares issued following the exercise of share
options and shares issued under employee share schemes, whilst the
increase in other reserves from GBP22.1 million to GBP22.9 million
arose from share-based payments related to share option awards.
CASH BALANCES AND FUTURE COMMITMENTS
Current cash position and price hedging
At 30 June 2022 the Group held cash and cash equivalents of
GBP258.3 million (31 December 2021: GBP103.0 million) excluding
cash lodged as security with gas price hedge counterparties. This
is after capital investments during the period of GBP20.9 million
and monthly net cash flow sharing payments and other BKR
consideration totalling GBP93.9 million. Of total cash and cash
equivalents, GBP12.9 million was held in a restricted account
against letters of credit issued in respect of certain
decommissioning liabilities as at 30 June 2022 (31 December 2021:
GBP12.9 million). Having utilised all of its tax losses carried
forward by end 2021, Serica's first cash tax instalment, of GBP66.0
million, was paid in Q3 2022 after the end of this reporting
period. Further instalments for 2022 will fall due in October 2022
and January 2023. Its first instalment of the Energy Profits Levy
will fall due in December 2022.
No gas price hedges have been added since July 2021. At 30 June
2022 Serica held gas price swaps and equivalent fixed pricing under
gas sales agreements for periods up to Q3 2023. For H2 2022, it
held an average 275,000 therms per day at an average price of 44
pence per therm. For 2023, it held an average 150,000 therms per
day for H1 and 50,000 therms per day for Q3 at average prices of 49
pence per therm and 41 pence per therm respectively. At 30 June
2022, cash hedging security advances of GBP160.4 million had been
lodged with hedge counterparties as security against settlement of
future hedge instruments (31 December 2021: GBP115.4 million).
Cash security against swap and equivalent fixed pricing has
continued to fluctuate with the very volatile gas futures market.
At the same time the volume of remaining hedges is declining
steadily as each month's contracts are settled.
As of 23 September 2022, the Company held cash and cash
equivalents of GBP282.6 million plus a further GBP199.8 million
lodged as security with hedge counterparties. This is after
settlement of the initial tax instalment referred to above, the
2021 final dividend, initial North Eigg drilling costs and
additional hedging security advances.
The gas price outlook remains exceptionally volatile with day
ahead pricing, at which the Company's gas is sold, ranging from
below 100p/therm to over 500p/therm in recent months. Futures
pricing, which drives cash security requirements, has been even
more volatile, recently reaching over 800p/therm for this winter
before falling back. Although the Company's remaining gas price
hedges continue to expire month by month, the erratic futures
market requires significant cash resources to be held to meet short
term price surges. Cash security requirements over 2022 to date
have ranged from below GBP150 million to over GBP300 million.
Outstanding hedging is below 20% of projected gas production for
Q4 2022, falling to around 10% for 1H 2023 with negligible amounts
remaining thereafter. The combination of hedge expiry and
realisation of monthly sales revenues should boost cash resources
whilst reducing cash security requirements over the remainder of
the year. This does not rule out short term price surges, and
consequent increases in cash security, in the near term.
The Company's oil and liquids production remains unhedged.
Cash projections are run periodically to examine the potential
impact of extended low oil and gas prices as well as possible
production interruptions. Serica currently has substantial cash
resources, no borrowings and relatively low operating costs per boe
which means that the Company is well placed to withstand such risks
and its capital commitments can be funded from existing cash
resources.
Field and other capital commitments
There are no existing capital commitments on the Erskine
producing field and net production revenues are expected to cover
all ongoing field expenditures. Serica's 18% share of
decommissioning costs will be met by BP up to a level of GBP31.3
million, adjusted for inflation, and Serica's current estimate of
such costs is below this level.
There are no significant existing capital commitments on the BKR
producing fields other than an estimated GBP2.5 million net to
Serica outstanding as at 30 June 2022 on Bruce LWIV well work,
which was completed in July 2022. Potential further programmes to
enhance current production profiles and extend field life are under
consideration. Net revenues from Serica's share of income from the
BKR fields is expected to cover Serica's retained share of ongoing
field expenditures as well as deferred consideration due under the
respective BKR acquisition agreements set out below. Serica's share
of decommissioning costs relating to its interests in the existing
BKR field facilities will be met by the vendors apart from those
field shares acquired from Marubeni (Bruce 3.75%, Keith 8.33%) for
which Serica is directly responsible.
On the Columbus field, Serica's share of production revenue is
expected to cover Serica's share of ongoing field expenditures.
Decommissioning obligations are limited as the development
comprises a single well linked via a subsea completion to an
existing pipeline.
The Group's only significant exploration commitment is the
drilling of a well on the North Eigg prospect.
BKR asset acquisitions
On 30 November 2018 Serica completed the four BKR acquisitions.
During 1H 2022, the final elements of contingent cash consideration
arising from the net cash flow sharing arrangements, and other
contingent payments arising from Rhum R3 well production and Rhum
performance criteria, were made. The following elements of
consideration were outstanding at 30 June 2022:
-- BP, Total E&P and BHP retain liability, in respect of the
field interests Serica acquired from each of them, for all the
costs of decommissioning those facilities that existed at the date
of completion. Serica will pay deferred consideration equal to 30%
of actual future decommissioning costs, reduced by the tax relief
that each of BP, Total E&P and BHP receives on such costs.
These are held as non-current financial liabilities at 31 December
2021 and 30 June 2022. Staged prepayments against such projected
amounts commenced in 1H 2022 (GBP9.1 million is included within
trade and other receivables in the Balance Sheet at 30 June 2022)
and will be spread over the remaining years before cessation of
field production.
-- Serica will pay to each of BP, Total E&P and BHP,
deferred consideration equal to 90% of their respective shares of
the realised value of oil in the Bruce pipeline at the end of field
life. These are held as non-current financial liabilities at 31
December 2021 and 30 June 2022.
OTHER
Asset values and impairment
At 30 June 2022, Serica's market capitalisation stood at
GBP775.0 million, based upon a share price of 285.0 pence, which
exceeded the net asset value of GBP366.5 million. A review was
performed for any indication that the value of the Group's oil and
gas assets may be impaired at the balance sheet date of 30 June
2022 and no impairment triggers were noted. By 23 September the
Company's market capitalisation has risen to GBP965.7 million.
Additional Information
Additional information relating to Serica, can be found on the
Company's website at www.serica-energy.com and on SEDAR at
www.sedar.com
Approved on behalf of the Board
Mitch Flegg
Chief Executive Officer
26 September 2022
Forward Looking Statements
This disclosure contains certain forward looking statements that
involve substantial known and unknown risks and uncertainties, some
of which are beyond Serica Energy plc's control, including: the
impact of general economic conditions where Serica Energy plc
operates, industry conditions, changes in laws and regulations
including the adoption of new environmental laws and regulations
and changes in how they are interpreted and enforced, increased
competition, the lack of availability of qualified personnel or
management, fluctuations in foreign exchange or interest rates,
stock market volatility and market valuations of companies with
respect to announced transactions and the final valuations thereof,
and obtaining required approvals of regulatory authorities. Serica
Energy plc's actual results, performance or achievement could
differ materially from those expressed in, or implied by, these
forward looking statements and, accordingly, no assurances can be
given that any of the events anticipated by the forward looking
statements will transpire or occur, or if any of them do so, what
benefits, including the amount of proceeds, that Serica Energy plc
will derive therefrom.
Serica Energy plc
Group Income Statement
For the periods ended 30 June and 31 December
Six Six
months months Year
ended ended ended
30 June 30 June 31 Dec
Notes 2022 2021 2021
Continuing operations GBP000 GBP000 GBP000
(Unaudited) (Unaudited) (Audited)
Sales revenue 4 353,472 100,835 514,136
Cost of sales 5 (86,346) (54,862) (127,313)
Gross profit 267,126 45,973 386,823
Unrealised hedging expense 6 (56,390) (30,320) (74,592)
Realised hedging expense 6 (13,203) (5,642) (56,615)
Pre-licence costs (185) - (199)
Administrative expenses (3,839) (2,988) (6,097)
Foreign exchange gain/(loss) 3,653 (628) (854)
Share-based payments (823) (878) (2,386)
Operating profit from 196,339 5,517 246,080
continuing operations
Change in fair value of BKR financial liability (1,899) (3,074) (110,529)
Finance revenue 345 58 82
Finance costs (310) (253) (527)
Profit before taxation 194,475 2,248 135,106
Taxation charge for the period 12 (77,746) (899) (55,812)
Profit after taxation and 116,729 1,349 79,294
profit for the period
Earnings per ordinary share (EPS)
Basic EPS on profit for the period (GBP) 0.43 0.01 0.30
Diluted EPS on profit for the period (GBP) 0.41 0.01 0.28
Serica Energy plc
Group Balance Sheet
30 June 31 Dec 30 June
2022 2021 2021
GBP000 GBP000 GBP000
Notes (Unaudited) (Audited) (Unaudited)
Non-current assets
Exploration & evaluation assets 8 10,254 2,949 1,632
Property, plant and equipment 9 316,920 328,944 338,113
327,174 331,893 339,745
------------ ---------- ------------
Current assets
Inventories 4,528 4,053 4,964
Trade and other receivables 81,864 132,351 31,788
Hedging security advances 160,380 115,390 10,720
Cash and cash equivalents 258,318 102,984 92,004
------------ ---------- ------------
505,090 354,778 139,476
------------ ---------- ------------
TOTAL ASSETS 832,264 686,671 479,221
------------ ---------- ------------
Current liabilities
Trade and other payables (45,924) (33,697) (43,951)
Corporate tax payable (95,639) (15,804) -
Derivative financial liability (102,181) (45,791) (40,011)
Gas contract liabilities (10,807) (37,505) -
Financial liabilities - (93,861) (47,595)
Provisions - - (1,002)
Dividend payable 7 (24,467) - (9,385)
Non-current liabilities
Gas contract liabilities (162) (987) -
Financial liabilities (39,685) (37,795) (39,920)
Provisions (28,371) (28,095) (23,027)
Deferred tax liability (118,519) (120,608) (81,499)
------------ ---------- ------------
TOTAL LIABILITIES (465,755) (414,143) (286,390)
------------ ---------- ------------
NET ASSETS 366,509 272,528 192,831
============ ========== ============
Share capital 10 182,889 181,993 181,749
Other reserves 22,889 22,066 20,558
Accumulated funds/(deficit) 160,731 68,469 (9,476)
TOTAL EQUITY 366,509 272,528 192,831
============ ========== ============
Serica Energy plc
Group Statement of Changes in Equity
For the year ended 31 December 2021 and period ended 30 June
2022
Group Share capital Other reserves Deficit Total
GBP000 GBP000 GBP000 GBP000
At 1 January 2021 (audited) 181,606 19,680 (1,440) 199,846
Profit for the year - - 79,294 79,294
-------------- --------------- --------- ---------
Total comprehensive income - - 79,294 79,294
Issue of shares 387 - - 387
Share-based payments - 2,386 - 2,386
Dividend payable - - (9,385) (9,385)
At 31 December 2021 (audited) 181,993 22,066 68,469 272,528
Profit for the period - - 116,729 116,729
-------------- --------------- --------- ---------
Total comprehensive income - - 116,729 116,729
Issue of shares 896 - - 896
Share-based payments - 823 - 823
Dividend payable - - (24,467) (24,467)
At 30 June 2022 (unaudited) 182,889 22,889 160,731 366,509
============== =============== ========= =========
Serica Energy plc
Group Cash Flow Statement
For the periods ended 30 June and 31 December
Six Six
months months Year
ended ended ended
30 June 30 June 31 Dec
2022 2021 2021
GBP000 GBP000 GBP000
(Unaudited) (Unaudited) (Audited)
Operating activities:
Profit for the period 116,729 1,349 79,294
Adjustments to reconcile profit for the period
to net cash flow from operating activities:
Taxation charge 77,746 899 55,812
Change in fair value of BKR financial liability 1,899 3,074 110,529
Net finance (income)/costs (35) 195 445
Depletion 25,529 15,292 37,048
Oil and NGL over/underlift movement 1,700 (467) (6,859)
E&E asset write-offs - - -
Unrealised hedging losses 56,390 30,320 74,592
Contract revenue (27,523) - -
Share-based payments 823 878 2,386
Other non-cash movements (2,042) 328 349
Hedging security advances (44,990) (8,920) (113,590)
Decrease/(increase) in receivables 48,787 7,741 (86,527)
(Increase)/decrease in inventories (475) (331) 580
Increase/(decrease) in payables 12,423 13,475 3,544
Net cash inflow from operations 266,961 63,833 157,603
Investing activities:
Interest received 345 58 82
Purchase of E&E assets (7,305) (589) (1,906)
Purchase of property, plant & equipment (13,614) (42,392) (50,252)
Cash outflow from business combinations (93,870) (17,963) (81,277)
Cash outflow arising on asset acquisitions - - (1,002)
Net cash outflow from investing activities (114,444) (60,886) (134,355)
------------ ------------ ----------
Financing activities:
Issue of ordinary shares 896 143 387
Payments of lease liabilities (87) (66) (179)
Dividends paid - - (9,385)
Finance costs paid (34) (25) (71)
Net cash in/(out)flow from financing activities 775 52 (9,248)
------------ ------------ ----------
Cash and cash equivalents
Net increase in period 153,292 2,999 14,000
Effect of exchange rates on cash and cash equivalents 2,042 (328) (349)
Amount at start of period 102,984 89,333 89,333
Amount at end of period 258,318 92,004 102,984
============ ============ ==========
Serica Energy plc
Notes to the Unaudited Consolidated Financial Statements
1. Corporate information
The interim condensed consolidated financial statements of the
Group for the six months ended 30 June 2022 were authorised for
issue in accordance with a resolution of the directors on 26
September 2022.
Serica Energy plc is a public limited company incorporated and
domiciled in England & Wales. The Company's ordinary shares are
traded on AIM in London. The principal activity of the Company is
to identify, acquire and exploit oil and gas reserves.
2. Basis of preparation and accounting policies
Basis of Preparation
The interim condensed consolidated financial statements for the
six months ended 30 June 2022 have been prepared in accordance with
International Accounting Standard 34 "Interim Financial
Reporting".
These unaudited interim consolidated financial statements of the
Group have been prepared following the same accounting policies and
methods of computation as the consolidated financial statements for
the year ended 31 December 2021. These unaudited interim
consolidated financial statements do not include all the
information and footnotes required by generally accepted accounting
principles for annual financial statements and therefore should be
read in conjunction with the consolidated financial statements and
the notes thereto in the Serica Energy plc annual report for the
year ended 31 December 2021.
The financial information contained in this announcement does
not constitute statutory financial statements within the meaning of
section 435 of the Companies Act 2006.
Consolidated statutory accounts for the year ended 31 December
2021, on which the auditors gave an unqualified audit report, have
been filed with the registrar of Companies. The report of the
auditors included in that 2021 Annual Report was unqualified and
did not contain a statement under either Section 498(2) or Section
498(3) of the Companies Act 2006.
Going Concern
The Directors are required to consider the availability of
resources to meet the Group's liabilities for the foreseeable
future. The financial position of the Group, its cash flows and
capital commitments are described in the Financial Review
above.
At 30 June 2022 the Company held cash and cash equivalents of
GBP258.3 million with a further GBP160.4 million of security
advances lodged with hedge counterparties. The cash balance at 30
June 2022 included GBP12.9 million of restricted funds.
The Group regularly monitors its cash, funding and liquidity
position. Near term cash projections are revised and underlying
assumptions reviewed, generally monthly, and longer-term
projections are also updated regularly. Downside price and other
risking scenarios are considered. In addition to commodity sales
prices the Group is exposed to potential production interruptions
and these are also considered under such scenarios. Serica's
acquisitions to-date have been structured to reduce post-completion
risk and, following completion of the BKR transactions, management
has given priority to building a strong cash reserve which can
respond to different types of risk.
Serica currently has no borrowings, relatively low operating
costs per boe and its capital commitments can be funded from
existing cash resources.
After making enquiries and having taken into consideration the
above factors, the Directors have reasonable expectation that the
Group has adequate resources to continue in operational existence
for the foreseeable future. Accordingly, they continue to adopt the
going concern basis in preparing the financial statements.
Significant accounting policies
A number of new standards, amendments to existing standards and
interpretations were applicable from 1 January 2022. The adoption
of these amendments did not have a material impact on the Group's
interim condensed consolidated financial statements for the period
ended 30 June 2022.
The accounting policies adopted in the preparation of the
interim condensed consolidated financial statements are consistent
with those followed in the preparation of the Group's annual
financial statements for the year ended 31 December 2021. The
impact of seasonality or cyclicality on operations is not
considered significant on the interim consolidated financial
statements.
The Group financial statements are presented in GBP and all
values are rounded to the nearest thousand pounds (GBP000) except
when otherwise indicated.
Basis of Consolidation
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries Serica Holdings UK
Limited, Serica Energy Holdings B.V., Serica Energy Corporation,
Asia Petroleum Development Limited, Petroleum Development
Associates (Asia) Limited, Serica Energy (UK) Limited, PDA Lematang
Limited, Serica Glagah Kambuna B.V., Serica Sidi Moussa B.V.,
Serica Energy Rockall B.V., Serica Energy Slyne B.V. and Serica
Energy Namibia B.V.. Together, these comprise the "Group".
All inter-company balances and transactions have been eliminated
upon consolidation.
3. Segmental Information
The Group's business is that of oil & gas exploration,
development and production. The Group's reportable segments are
based on the location of the Group's assets.
The following tables present revenue, profit and certain asset
and liability information regarding the Group's geographical
reportable segments for the periods ended 30 June 2022 and 2021 and
year ended 31 December 2021. Costs associated with the UK corporate
centre are included in the UK reportable segment.
Period ended 30 June 2022 Continuing
UK Total
GBP000 GBP000
Revenue 353,472 353,472
---------- -----------
Operating and segment profit 196,339 196,339
Change in BKR financial liability (1,899) (1,899)
Finance revenue 345 345
Finance costs (310) (310)
Profit before taxation 194,475 194,475
Taxation charge for the period (77,746) (77,746)
---------- -----------
Profit after taxation 116,729 116,729
Other segment information:
Segmental assets 832,264 832,264
Total assets 832,264
-----------
Segment liabilities (465,755) (465,755)
Total liabilities (465,755)
-----------
Period ended 30 June 2021 Continuing
UK Total
GBP000 GBP000
Revenue 100,835 100,835
---------- -----------
Operating and segment profit 5,517 5,517
Change in BKR financial liability (3,074) (3,074)
Finance revenue 58 58
Finance costs (253) (253)
Profit before taxation 2,248 2,248
Taxation charge for the period (899) (899)
---------- -----------
Profit after taxation 1,349 1,349
UK Total
GBP000 GBP000
Other segment information:
Segmental assets 479,221 479,221
Total assets 479,221
-----------
Segment liabilities (286,390) (286,390)
Total liabilities (286,390)
-----------
Year ended 31 December 2021 Continuing
UK Total
GBP000 GBP000
Revenue 514,136 514,136
---------- -----------
Operating and segment profit 246,080 246,080
Change in BKR financial liability (110,529) (110,529)
Finance revenue 82 82
Finance costs (527) (527)
Profit before taxation 135,106 135,106
Taxation charge for the year (55,812) (55,812)
---------- -----------
Profit after taxation 79,294 79,294
Other segment information:
Segmental assets 686,671 686,671
Total assets 686,671
-----------
Segment liabilities (414,143) (414,143)
Total liabilities (414,143)
-----------
4. Sales Revenue
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2022 2021 2021
GBP000 GBP000 GBP000
Gas sales 266,089 76,563 455,969
Oil sales 41,185 17,106 40,215
NGL sales 18,675 7,166 17,952
Product sales 325,949 100,835 514,136
Contract revenue 27,523 - -
Total revenue 353,472 100,835 514,136
----------- ----------- --------
Revenues include product sales from Serica's full interests in
the BKR assets before calculation of amounts due under the net cash
flow sharing arrangements.
Contract revenue in 1H 2022 arose from the unwind of gas
contract liabilities initially recognised upon the restructuring of
certain gas swaps to other fixed price instruments under a gas
sales contract in August 2021. Further information is provided in
the Financial Review above.
5. Cost of sales
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2022 2021 2021
GBP000 GBP000 GBP000
Operating costs 59,117 40,037 97,124
Movement in liquids overlift/underlift 1,700 (467) (6,859)
Depletion (note 9) 25,529 15,292 37,048
86,346 54,862 127,313
----------- -----------
Operating costs include costs from Serica's full interests in
the BKR assets before calculation of amounts due under the net cash
flow sharing arrangements.
6. Group Operating Profit
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2022 2021 2021
GBP000 GBP000 GBP000
Realised hedging losses (13,203) (5,642) (56,615)
----------- ----------- ---------
Unrealised hedging losses on gas swaps (56,390) (30,320) (36,100)
Other hedging losses - - (38,492)
----------- ----------- ---------
Unrealised hedging losses (56,390) (30,320) (74,592)
----------- ----------- ---------
Derivative financial instruments
The Group enters into derivative financial instruments with
various counterparties. No gas put options were held at 31 December
2021 or 30 June 2022. Other derivative financial instruments held
at 31 December 2021 and 30 June 2022 comprised gas swaps which were
valued by counterparties, with the valuations reviewed internally
and corroborated with readily available market data (level 2).
Details of the Group's derivative financial instruments held as
at 30 June 2022 are provided in the financial review above.
Realised hedging losses comprise losses realised on 1H 2022 gas
price swaps.
Unrealised hedging losses on gas swaps comprise unrealised
charges on the movement during 1H 2022 in the calculated fair value
liability of outstanding gas price derivative contracts measured at
the respective Balance Sheet dates.
Other hedging losses comprise charges for the fair value of 2022
and 2023 hedging instruments crystalised as gas contract
liabilities upon a restructuring of certain gas swaps to other
fixed price instruments under a gas sales contract in August
2021.
7. Dividends payable
A final cash dividend for 2021 of 9.0 pence per share was
proposed in April 2022 and approved at the annual general meeting
on 30 June 2022. Following the approval in the 1H 2022 period, the
dividend payable of GBP24.5 million is recognised as a liability in
the Balance Sheet at 30 June 2022. The dividend was paid in July
2022.
A final cash dividend for 2020 of 3.5 pence per share was
proposed in April 2021 and approved at the annual general meeting
on 24 June 2021. Following the approval in the 1H 2021 period, the
dividend payable of GBP9.4 million is recognised as a liability in
the Balance Sheet at 30 June 2021. The dividend was paid in July
2021.
8 . Exploration and Evaluation Assets
Total
GBP000
Cost:
At 1 January 2021 1,043
Additions 1,906
Asset write-offs -
At 31 December 2021 2,949
Additions 7,305
Asset write-offs -
At 30 June 2022 10,254
=======
Provision for impairment:
At 1 January 2021 -
Impairment reversal for the period -
At 31 December 2021 -
Impairment (charge)/reversal for the period -
At 30 June 2022 -
=======
Net Book Amount:
30 June 2022 10,254
=======
31 December 2021 2,949
=======
1 January 2021 1,043
=======
9. Property, Plant and Equipment
Oil and Fixtures
gas properties and fittings Right-of-use
assets Total
GBP000 GBP000 GBP000 GBP000
Cost:
At 1 January 2021 411,462 212 516 412,190
Additions 50,252 - - 50,252
Decommissioning asset 4,840 - - 4,840
At 31 December 2021 466,554 212 516 467,282
Additions 13,269 - 345 13,614
At 30 June 2022 479,823 212 861 480,896
---------------- --------------
Depreciation and depletion:
At 1 January 2021 100,650 114 301 101,065
Charge for the period
(note 5) 37,048 53 172 37,273
At 31 December 2021 137,698 167 473 138,338
Charge for the period
(note 5) 25,529 23 86 25,638
At 30 June 2022 163,227 190 559 163,976
---------------- -------------- --------------- --------
Net book amount:
At 30 June 2022 316,596 22 302 316,920
================ ============== =============== ========
At 31 December 2021 328,856 45 43 328,944
================ ============== =============== ========
At 1 January 2021 310,812 98 215 311,125
================ ============== =============== ========
Depreciation and depletion
Depletion charges on oil and gas properties are classified
within 'cost of sales'. Depreciation on other elements of property,
plant and equipment is provided on a straight-line-basis and taken
through general and administration expenses.
10. Equity Share Capital
As at 30 June 2022, the share capital of the Company comprised
one "A" share of GBP50,000 and 271,921,900 ordinary shares of
US$0.10 each. The "A" share has no special rights.
The balance classified as total share capital includes the total
net proceeds (both nominal value and share premium) on issue of the
Group and Company's equity share capital, comprising US$0.10
ordinary shares and one 'A' share.
Allotted, issued and fully paid: Share Share Total
capital Premium Share capital
Group Number GBP000 GBP000 GBP000
At 1 January 2021 267,809,703 21,107 160,499 181,606
Shares issued 1,081,341 79 308 387
At 31 December 2021 268,891,044 21,186 160,807 181,993
Shares issued 3,030,857 233 663 896
At 30 June 2022 271,921,901 21,419 161,470 182,889
During 1H 2022, 3,030,857 ordinary shares were issued to satisfy
awards under the Company's share-based incentive schemes.
875,332 ordinary shares have been issued in Q3 2022 to date and
as at 23 September 2022 the issued voting share capital of the
Company was 272,797,232 ordinary shares and one "A" share.
11. Share-Based Payments
Share Option Plans
The Company operates three discretionary incentive share option
plans: the Serica Energy Plc Long Term Incentive Plan (the "LTIP"),
which was adopted by the Board on 20 November 2017 which permits
the grant of share-based awards, the 2017 Serica Energy plc Company
Share Option Plan ("2017 CSOP"), which was adopted by the Board on
20 November 2017, and the Serica 2005 Option Plan, which was
adopted by the Board on 14 November 2005. Awards can no longer be
made under the Serica 2005 Option Plan, however, options remain
outstanding under the Serica 2005 Option Plan. The LTIP and the
2017 CSOP together are known as the "Discretionary Plans".
The Discretionary Plans will govern all future grants of options
by the Company to Executive Directors, key employees and certain
consultants of the Group. The Directors intend that the maximum
number of ordinary shares which may be utilised pursuant to the
Discretionary Plans will not exceed 10% of the issued ordinary
shares of the Company from time to time in line with the
recommendations of the Association of British Insurers.
The objective of these plans is to develop the interest of
Executive Directors, key employees and certain consultants of the
Group in the growth and development of the Group by providing them
with the opportunity to acquire an interest in the Company and to
assist the Company in retaining and attracting executives with
experience and ability.
Serica 2005 Option Plan
As at 30 June 2022, 4,000,000 options granted by the Company
under the Serica 2005 Option Plan were outstanding. All options
awarded under the Serica 2005 Option Plan since November 2009 have
a three-year vesting period. When awarding options to directors,
the Remuneration Committee are required to set Performance
Conditions in addition to the vesting provisions before vesting can
take place. Of the above options, 2,500,000 of these options were
granted to Mr Craven Walker in July 2015 at exercise prices higher
than the market price at the time of the grant to establish firm
performance targets.
No options were granted in 2021 or 1H 2022 under the Serica 2005
Option Plan.
The following table illustrates the number and weighted average
exercise prices (WAEP) of, and movements in, share options during
the period:
WAEP
GBP
Outstanding at 31 December 2021 4,100,000 0.14
Exercised during the period (100,000) 0.27
Outstanding at 30 June 2022 4,000,000 0.14
---------- -----
As at 30 June 2022, the following director and employee share
options were outstanding:
Expiry Date Amount Exercise cost
GBP
January 2023 100,000 54,500
January 2024 300,000 39,000
June 2025 1,100,000 72,600
July 2025 1,000,000 120,000
July 2025 1,000,000 180,000
July 2025 500,000 120,000
----------
Total 4,000,000
Long Term Incentive Plan
The following awards granted to certain Executive Directors and
employees under the LTIP are outstanding as at 30 June 2022.
LTIP awards (deemed to be granted in November 2017 under IFRS
2)
Director/Employees Total number of shares granted subject to Deferred Bonus Share
Awards
Antony Craven Walker 225,000
Mitch Flegg 225,000
Andrew Bell 138,000
Employees below Board level (in aggregate) 138,000
---------------------------------------------------------------
726,000
===============================================================
Deferred Bonus Share Awards involve the deferral of bonuses into
awards over shares in the Company. They are structured as nil-cost
options and may be exercised up until the fifth anniversary of the
date of grant. Vesting of the Deferred Bonus Share Awards was the
later of the date of completion of the BKR Acquisition and 31
January 2019 and all awards have therefore now vested. They were
not subject to performance conditions; however, they were
conditional on completion of the BKR Acquisition, subject to the
Board determining otherwise.
Director/Employees Total number of shares granted subject to Performance Share Awards
Antony Craven Walker 1,500,000
Mitch Flegg 1,500,000
Andrew Bell 800,000
Employees below Board level (in aggregate) 1,308,498
---------------------------------------------------------------
5,108,498
===============================================================
Performance Share Awards have a three-year vesting period and
are subject to performance conditions based on average share price
growth targets to be measured by reference to dealing days in the
period of 90 days ending immediately prior to expiry of a
three-year performance starting on the date of grant of a
Performance Share Award. Performance Share Awards are structured as
nil-cost options and may be exercised up until the tenth
anniversary of the date of grant. They are exercisable as at 30
June 2022.
LTIP awards in 2019
In Q1 2019, the Company granted nil-cost Performance Share
Awards over 3,735,640 ordinary shares and nil-cost Retention Share
Awards over 309,415 ordinary shares, a combined total of 4,045,055
ordinary shares under the LTIP. 2,145,218 of the total awards were
outstanding at 30 June 2022. The award was made to members of the
Group's executive team, senior management and employees. The awards
included a total of 1,056,442 ordinary shares for the Executive
Directors and persons discharging managerial responsibilities as
follows:
Director/PDMR Total number of shares granted subject to Performance Share Awards
Antony Craven Walker 411,067
Mitch Flegg 411,067
Andrew Bell 234,308
1,056,442
===================================================================
These awards are subject to vesting criteria based on absolute
share price performance over a three-year period and are
exercisable as at 30 June 2022.
LTIP awards in 2020
In May 2020, the Company granted nil-cost Performance Share
Awards over 2,669,280 ordinary shares under the LTIP. All of the
total awards were outstanding at 30 June 2022. The award was made
to members of the Group's executive team, senior management and
employees. The awards included a total of 996,678 ordinary shares
for the Executive Directors and persons discharging managerial
responsibilities as follows:
Director/PDMR Total number of shares granted subject to Performance Share Awards
Antony Craven Walker 386,100
Mitch Flegg 386,100
Andrew Bell 224,478
996,678
===================================================================
These awards are subject to vesting criteria based on absolute
share price performance over a three-year period and are not
exercisable as at 30 June 2022.
LTIP awards in 2021
In May 2021, the Company granted nil-cost Performance Share
Awards over 2,725,032 ordinary shares under the LTIP. All of the
total awards were outstanding at 30 June 2022. The award was made
to members of the Group's executive team, senior management and
employees. The awards included a total of 1,480,908 ordinary shares
for the Executive Directors and persons discharging managerial
responsibilities as follows:
Director/PDMR Total number of shares granted subject to Performance Share Awards
Antony Craven Walker 587,349
Mitch Flegg 587,349
Andrew Bell 306,210
1,480,908
===================================================================
These awards are subject to vesting criteria based on absolute
share price performance over a three-year period (75%) and on
reductions in carbon intensity of production from the BKR assets
(25%) and are not exercisable at 30 June 2022.
LTIP awards in 2022
In May 2022, the Company granted nil-cost Performance Share
Awards over 665,632 ordinary shares under the LTIP. All of the
total awards were outstanding at 30 June 2022. The award was made
to members of the Group's executive team, senior management and
employees. The awards included a total of 378,491 ordinary shares
for the Executive Directors and persons discharging managerial
responsibilities as follows:
Director/PDMR Total number of shares granted subject to Performance Share Awards
Antony Craven Walker 138,300
Mitch Flegg 147,615
Andrew Bell 92,576
378,491
===================================================================
The vesting criteria are based on absolute share price
performance over a three-year period and specific performance
targets related to carbon emissions from operations over the same
period. For the awards to vest in full, a 100% increase in average
share price must be maintained for at least a six-month period
together with a significant decrease in carbon emissions per barrel
of oil equivalent produced. These awards are not exercisable at 30
June 2022.
Calculation of Share-based Compensation
The Company calculates the value of share-based compensation
using a Black-Scholes option pricing model (or other appropriate
model for those options subject to certain market conditions) to
estimate the fair value of share options at the date of grant.
There are no cash settlement alternatives. The estimated fair value
of options is amortised to expense over the options' vesting
period.
GBP823,000 has been charged to the income statement for the
six-month period ended 30 June 2022 (1H 2021 - GBP878,000) and a
similar amount credited to the share-based payments reserve,
classified as 'Other reserve' in the Balance Sheet.
12. Taxation
The major components of income tax charged in the consolidated income statement are:
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2022 2021 2021
GBP000 GBP000 GBP000
Current income tax charge 79,835 - 15,804
Deferred income tax (credit)/charge (2,089) (899) 40,008
Total taxation charge/(credit) for the period 77,746 (899) 55,812
------------- ------------
Recognised and unrecognised tax losses
The Group's Balance Sheet net deferred tax liability amount of
GBP120.6 million as at 31 December 2021 and GBP118.5 million as at
30 June 2022 arises from deferred tax liabilities (primarily
related to temporary differences on fixed assets) being partially
offset by deferred tax assets on decommissioning liabilities.
The Group's deferred tax assets at 31 December 2020 and 30 June
2021 are recognised to the extent that taxable profits are expected
to arise in the future against which tax losses and allowances in
the UK can be utilised. In accordance with IAS 12 Income Taxes, the
Group assessed the recoverability of its deferred tax assets at 31
December 2021 and 30 June 2022 with respect to ring fence losses
and allowances.
Changes to UK corporation tax legislation
On 26 May 2022, the UK Government announced the introduction of
an Energy Profits Levy ('EPL') on the UK ring fence profits of oil
and gas producers with effect from 26 May 2022. The legislation
introducing the EPL was substantively enacted on 11 July 2022. The
EPL is charged at the rate of 25% on taxable profits in addition to
ring fence corporation tax of 30% and Supplementary Charge of 10%,
making a total rate on ring fence profits of 65%. The Group's
profits from its UK oil and gas operations will be impacted by the
EPL and the results for the year will reflect the additional
tax.
The interim tax charge does not reflect an EPL charge as the
legislation was not substantively enacted at 30 June 2022. The
overall current and deferred tax impact will be updated in
conjunction with full-year results.
13. Publication of Non-Statutory Accounts
The financial information contained in this interim statement
does not constitute statutory accounts as defined in the Companies
Act 2006. The financial information for the full preceding year is
based on the statutory accounts for the financial year ended 31
December 2021, which are available at the Company's registered
office at 48 George Street, London W1U 7DY and on its website at
www.serica-energy.com and on SEDAR at www.sedar.com.
This interim statement will be made available at the Company's
registered office at 48 George Street, London W1U 7DY and on its
website at www.serica-energy.com and on SEDAR at www.sedar.com.
GLOSSARY
bbl barrel of 42 US gallons
bcf billion standard cubic feet
boe barrels of oil equivalent (barrels of oil, condensate
and NGLs plus the heating equivalent of gas converted
into barrels at the appropriate rate)
BKR Assets Bruce, Keith and Rhum fields
CPR Competent Persons Report
FDP Field Development Plan
HPHT High pressure high temperature
mscf thousand standard cubic feet
mmbbl million barrels
mmboe million barrels of oil equivalent
mmscf million standard cubic feet
mmscfd million standard cubic feet per day
NBP National Balancing Point for pricing and delivery of
gas sales
NGLs Natural gas liquids extracted from gas streams
NTS National Transmission System
Overlift Volumes of oil or NGLs sold in excess of volumes produced
Underlift Volumes of oil or NGLs produced but not yet sold
P10 A high estimate that there should be at least a 10%
probability that the quantities recovered will actually
equal or exceed the estimate
P50 A best estimate that there should be at least a 50%
probability that the quantities recovered will actually
equal or exceed the estimate
P90 A low estimate that there should be at least a 90%
probability that the quantities recovered will actually
equal or exceed the estimate
Pigging A process of pipeline cleaning and maintenance which
involves the use of devices called pigs
Proved Reserves Proved reserves are those Reserves that can be estimated
with a high degree of certainty to be recoverable.
It is likely that the actual remaining quantities recovered
will exceed the estimated proved reserves
Probable Probable reserves are those additional Reserves that
Reserves are less certain to be recovered than proved reserves.
It is equally likely that the actual remaining quantities
recovered will be greater or less than the sum of the
estimated proved + probable reserves
Possible Possible reserves are those additional Reserves that
Reserves are less certain to be recovered than probable reserves.
It is unlikely that the actual remaining quantities
recovered will exceed the sum of the estimated proved
+ probable + possible reserves
Reserves Estimates of discovered recoverable commercial hydrocarbon
reserves calculated in accordance with the revised
June 2018 Petroleum Resources Management System (PRMS)
version 1.01 (November 6th, 2018) prepared by the Oil
and Gas Reserves Committee of the Society of Petroleum
Engineers (SPE)
Tcf trillion standard cubic feet
UKCS United Kingdom Continental Shelf
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END
IR SESFAMEESEFU
(END) Dow Jones Newswires
September 27, 2022 02:01 ET (06:01 GMT)
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