TIDMSQZ
RNS Number : 8360M
Serica Energy PLC
19 September 2023
Serica Energy plc
("Serica" or the "Company")
Results for the six months ended 30 June 2023
London, 19 September 2023 - Serica Energy plc (AIM: SQZ), a
British independent upstream oil and gas company with operations in
the UK North Sea today announces its financial results for the six
months ended 30 June 2023. The results are included below and
copies are available at www.serica-energy.com and www.sedar.com
.
Commenting on the results, Mitch Flegg, Serica's CEO stated:
"The completion of the Tailwind acquisition in March represented
a step change in the scale and diversity of Serica, achieving a
longstanding strategic goal. We have stated consistently our
intention to continue investing in the enlarged portfolio, to add
to it in a disciplined fashion if the right opportunities arise and
to make further cash returns to shareholders. Accordingly, we look
forward to near continuous well and drilling activity across the
Bruce and Triton hubs during the next eighteen months and are
pleased to announce today an interim dividend of 9 pence per share.
This is up from 8 pence per share for the interim dividend in 2022,
following the full year dividend of 22 pence per share last
year.
Serica's current circumstances and optimism reflected in its
investment plans should not mask the fact that we share the
widespread concerns within the sector about the health of the UK's
offshore upstream industry given the current fiscal regime and
future uncertainties. We welcome the UK government's recent Call
for Evidence regarding long term fiscal policy. However, the
problems we see need to be addressed urgently in order to restore
confidence in the sector."
First Half 2023 Highlights
-- Completed acquisition of Tailwind Energy Investments Limited
on 23 March 2023 increasing 2P reserves to 130 million boe (pro
forma as at 31 December 2022).
-- Combined portfolio produced 49,350 boe per day on a pro forma
basis (1H 2022: 38,100 boe per day) balanced between gas (55%) and
oil (45%).
-- Carbon intensity (kg of CO(2) per boe) of production from
Bruce and Triton hubs lower in 1H 2023 than 1H 2022.
-- Profitability maintained with higher sales volumes largely offsetting lower gas prices.
-- Highly cash generative portfolio of assets. Cash flow from
operations of GBP266 million (1H 2022: GBP267 million) contributing
to gross cash of GBP444 million as at 30 June 2023 after tax
payments of GBP141 million, net cash outflow of GBP44 million
arising from the acquisition of Tailwind Energy and reduction of
GBP48 million in debt acquired with Tailwind.
-- Net cash of GBP234 million as at 30 June 2023.
-- Average realised gas price of 96 pence per therm (1H 2022:
136 pence per therm) and realised average oil price of US$64 per
barrel (1H 2022: US$108 per barrel).
-- Average operating cost per boe of US$17.5 (1H 2022: US$16.1 per boe).
-- Operating profit GBP159 million (1H 2022: GBP196 million).
-- Interim dividend of 9 pence per share (2022: 8 pence per
share) announced today following the full year dividend of 22 pence
per share for 2022. The interim dividend is payable on 23 November
to shareholders registered on 27 October 2023 with an ex-dividend
date of 26 October 2023.
Outlook
-- Work on multiple Bruce and Keith wells being undertaken
during remainder of 2023 and in 2024 to boost production
performance.
-- Four-well Triton hub drilling campaign sanctioned for
execution in 2024. Rig option exercised for 5(th) well in 2025.
-- Progress towards development of Belinda field with submission
of draft FDP to NSTA. Decision not to undertake further drilling on
North Eigg.
-- Production guidance for 2023 amended to 40-45,000 boe per day
due to slower than expected ramp up of production from Bruce and
Triton hubs following planned summer shutdowns. Group operating
costs expected to remain below US$20 per boe.
A meeting with sell-side analysts will be held today at 10:30am
BST. If you would like to participate, please email
serica@vigoconsulting.com .
Investor Presentation
Mitch Flegg will provide a live presentation relating to the
interim results via the Investor Meet Company platform today at
1.30pm BST.
The presentation is open to all existing and potential
shareholders.
Investors can sign up to Investor Meet Company for free and add
to meet Serica Energy plc via:
https://www.investormeetcompany.com/serica-energy-plc/register-investor
Investors who already follow Serica on the Investor Meet Company
platform will automatically be invited.
A copy of the accompanying presentation can be found on our
website: www.serica-energy.com .
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 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.
Serica completed the acquisition of the entire issued share
capital of Tailwind Energy Investments Ltd on 23 March 2023.
Following the addition of the Tailwind assets to its portfolio,
Serica has a balance of gas and oil production. The Company is
responsible for about 5% of the natural gas produced in the UK, a
key element in the UK's energy transition.
Serica's producing assets are focused around two main hubs: the
Bruce, Keith and Rhum fields in the UK Northern North Sea, which it
operates, and a mix of operated and non-operated fields tied back
to the Triton FPSO. Serica also has operated interests in the
producing Columbus (UK Central North Sea) and Orlando (UK Northern
North Sea) fields and a non-operated interest in the producing
Erskine field in the UK Central North Sea.
Serica's portfolio of assets includes several organic investment
opportunities which are currently being pursued or are under
consideration.
Futher 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.
INTERIM REPORT FOR THE SIX MONTH PERIODED 30 JUNE 2023
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 18
September 2023 and should be read in conjunction with the unaudited
interim consolidated financial statements for the period ended 30
June 2023, 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
The acquisition of Tailwind Energy Investments Ltd, which
completed in the first half of 2023 has provided operational
diversity and scale for Serica. This transaction is outlined in the
section following this review.
Serica's production levels in the first half of 2023 continue to
benefit from the ongoing capital investment campaign which has been
in progress for the last few years. We can also see the benefit of
the investment in the Tailwind portfolio over a similar period. As
a result of these investment projects, the net production from the
combined portfolio in the first half of 2023 was 49,350 boe/d, an
increase of 30% compared to the 38,100 boe/d from the same
portfolio in 1H 2022 and an increase of 85% compared to the Serica
net production of 26,600 boe/d in 1H 2022.
In the first half of 2023, 55% of the production from the
combined portfolio was gas compared to 91% of the Serica portfolio
on the first half of 2022.
Market gas prices, though still volatile, have averaged around
108p/therm in the first half of 2023 compared to over 175p per
therm in the first half of 2022. Market oil prices have averaged
around US$79/bbl in the first half of 2023 compared to around
US$107/bbl in the first half of 2022. These are before the impact
of Serica's commodity price hedging programmes.
With lower commodity prices but markedly higher production
levels, Serica's sales revenue for the six-month period to June
2023 was GBP340.6 million, broadly similar to the figure of
GBP353.5 million for the corresponding period in 2022. The profit
after taxation for the period was GBP175.5 million (1H 2022:
GBP116.7 million) but this is significantly influenced by a one-off
non-cash accounting entry related to the Tailwind acquisition.
These numbers incorporate contributions from the acquired Tailwind
assets from the completion date of 23 March 2023 rather than the
full six-month period.
The UK Energy Profits Levy (EPL) has a significant impact on
post-tax profitability for all UK oil and gas producers. However,
the substantial tax losses acquired with the Tailwind transaction
have had the effect of lowering Serica's effective rate of
taxation. The EPL is a wholly unwelcome burden that is already
leading to the delay and cancellation of longer-term investment
projects across the sector. However, allowances relating to
reinvestment in short-cycle projects offer Serica the opportunity
to mitigate its impact. Therefore, we will maintain our ongoing
short-cycle investment plans and where possible will expand and
accelerate elements of that programme.
The Company is therefore continuing with its growth strategy of
investment in projects designed to enhance and extend future
production profiles. Following the success of last year's Light
Well Intervention Vessel ("LWIV") programme on Bruce, a second
campaign has now commenced, and a third campaign is scheduled for
the first half of 2024. A significant four-well drilling campaign
in the Triton Area is expected to commence early in 2024. This will
comprise of wells on Bittern, Gannet E, Guillemot NW and
Evelyn.
The common theme amongst these capital projects is that they are
all designed to quickly add production from existing fields without
the requirement for substantial new infrastructure. These
short-cycle investments benefit from Investment Allowances under
the EPL and have the capability to add significant reserves and
production. Serica has a strong record of replacing reserves
through our ongoing investment commitment. At the end of 2022 the
Serica net 2P reserves stood at 74.9 mmboe which is a 9% increase
on the level at the time of the BKR acquisition more than four
years previously despite the production of over 30 mmboe in the
intervening period. The combined net 2P reserves for the Serica and
Tailwind portfolios at the end of 2022 were 130.4 mmboe.
We continue to focus on emissions reduction whilst maximising
production. In the first half of the year carbon intensity
(emissions divided by production) from the Bruce hub was 15.1kg
CO(2) /boe, a 9% reduction on the same period last year. On Triton,
the 1H 2023 carbon intensity was 17.7kg CO(2) /boe, a 33% reduction
on 1H 2022. As new production from Serica's forthcoming drilling
campaign will be tied back to existing offtake facilities, such
additions add reserves without adding significant carbon
emissions.
The Serica portfolio remains cash generative following the
Tailwind transaction. At the start of the year cash and deposits
totalled GBP433 million and during the first half of the year this
has risen to GBP444 million despite final 2022 tax payments of
GBP141 million, GBP62 million of cash consideration paid for the
Tailwind transaction and GBP48 million of debt repayment. The
mid-year debt level stood at GBP210 million leaving a net cash
balance of GBP234 million.
Against this background the Company is steadily increasing its
return to shareholders. Following combined dividend payments of 22
pence per share for full year 2022, the Company is today announcing
an interim dividend of 9 pence per share (2022: 8 pence per share)
which will be paid in November 2023.
Mitch Flegg
Chief Executive Officer
18 September 2023
ACQUISITION OF TAILWIND ENERGY INVESTMENTS LTD
On 23 March 2023 Serica Energy completed the acquisition of
Tailwind Energy Investments Ltd, a privately owned independent oil
and gas company with assets in the UK North Sea. As part of the
transaction, Mercuria - an investor in Tailwind - became a
strategic investor in Serica.
Tailwind was formed in 2016. Through a combination of
acquisitions, production enhancements and development of new
fields, executed by a small and expert team of oil and gas
professionals, it built a portfolio of upstream assets situated in
the UK North Sea. At the end of 2022 this portfolio had 2P reserves
of 55.5 million boe, with a rising production profile that reached
an average 23,300 boe/d in December 2022.
The assets acquired by Serica with the Tailwind transaction
comprise primarily a mix of operated and non-operated producing
fields tied-back to the Triton FPSO in the UK Central North Sea.
Tailwind's interests in producing fields also include 100% in the
Orlando field located in the UK Northern North Sea and a
non-operated 25% in the Columbus field in the UK Central North Sea
(operated by Serica).
The acquisition of Tailwind was aimed at achieving Serica's
longstanding objective to have a more diverse and broadly based
UKCS portfolio of producing fields, with material reserves and
value upside potential, coupled with a more balanced exposure to
commodity price risk. The transaction represents substantial
progress towards this objective with the number of producing fields
increased from five to eleven, mainly centred around two hubs
(Bruce and Triton), a substantial increase in 2P reserves (combined
130.4 million boe as at 31 December 2022) and a balance of gas and
oil production.
The acquisition has also added considerably to the organic
investment opportunities in Serica's portfolio. Rig slots have been
reserved in order to drill infill wells on the Bittern, Gannet E,
Guillemot North West and Evelyn fields in 2024; all of which are
existing tie-backs to the Triton FPSO. The potential developments
of the Belinda field as a tie-back to the Triton FPSO and the
Mansell field, situated in the UK Northern North Sea, are being
evaluated. All these activities will continue under the ownership
of Serica, whose team has been supplemented by the addition of
Tailwind staff.
These substantial enhancements to Serica's portfolio of upstream
assets have been achieved while maintaining the Company's financial
strength. Moreover, Serica retains a relatively low level of
decommissioning liabilities largely as a result of foundational
transactions by both Serica and Tailwind in the past involving the
sellers retaining such obligations. Serica's strong balance sheet,
allied with expected net cash inflows from the enlarged portfolio,
provides a basis for continued dividends to shareholders,
investment in the existing portfolio and further acquisitions. Very
few UKCS-focused independent oil and gas companies share this same
combination of attributes.
As described in the Annual Report and ESG Report, making a
positive contribution to the North Sea Transition Deal is a key
objective. Serica is using its operating experience to support the
infrastructure operators of the Tailwind assets to reduce
emissions. The longer-term outlook depends in part on investments
to reduce emissions from the Bruce and Triton hubs. As operator of
the Bruce hub and co-owner of the Triton FPSO, Serica is engaged in
the development and implementation of GHG Emissions Reduction
Action Plans for both facilities.
REVIEW OF OPERATIONS
UK Operations
Northern North Sea
Northern North Sea: Bruce Field - Blocks 9/8a, 9/9b and 9/9c,
Serica 98% and operator
Serica operates the Bruce field and facilities consisting of
three bridge-linked platforms, wells, pipelines and subsea
infrastructure. The platforms contain living quarters, reception,
compression, power generation, processing and export facilities and
a drilling derrick that is currently mothballed. 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.
In the first half of the year we completed the replacement and
upgrade of the control system for the Bruce platform, increasing
the amount of data that can be captured and processed, helping us
to unlock the ability to implement AI based improvements to our
control, monitoring and maintenance activities.
We also successfully carried out the replacement of the subsea
control modules on the WAD manifold to support the Light Well
Intervention (LWI) activity in Q3 23 and Q1 24.
On the platform topsides a series of surveillance and
intervention activities were undertaken on a number of the Bruce
wells, verifying well integrity, identifying future production
options and implementing a couple of simple interventions to boost
production.
Major works were undertaken during the summer outage to replace
the main platform flare tip, 140 metres above the sea surface
requiring a heli-lift, along with major overhauls of the glycol
system and a booster compressor. The extensive maintenance
campaigns were all integrity and reliability focussed helping to
underpin the plans to extend Bruce production to 2035+.
The 2023 LWI work, which covers three wells and is expected to
boost production volumes, commenced in September and is ongoing.
Work on the Bruce M3 and M6 wells includes scale removal, a
reperforation and new perforation, whist work on Bruce M4 is based
on information obtained during the original work in 2022.
Bruce field production in 1H 2023 averaged circa 7,200 boe/d (1H
2022: 6,800 boe/d) of oil and gas net to Serica.
The latest independent reserves report by RISC Advisory
estimated 2P reserves of 31.8 million boe net to Serica as of 1
January 2023 (2022: 15.8 million boe). This increase reflects the
benefits from future planned well interventions and from field life
extension beyond 2030.
Northern North Sea: Keith Field - Block 9/8a, Serica 100%
Keith is an oil field produced by one subsea well tied back to
the Bruce facilities and requires very little maintenance. In
normal operation Keith produces at a relatively low rate but
provides a low-cost contribution to the oil export from Bruce. The
well has been shut-in since 2022 due to a fault in the electrical
supply.
During 2023 the Keith subsea control module was changed out to
allow the planned LWI in Q1 2024 to restore production from the
field.
The latest independent reserves report by RISC Advisory
estimated 2P reserves of 2.4 million boe net to Serica as of 1
January 2023 (2022: 0.9 million boe). These reserves are recognised
based upon the planned 2023 and 2024 programmes.
Northern North Sea: Rhum Field - Blocks 3/29a, Serica 50% and
operator
The Rhum field 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.
A new power umbilical was installed on the R1 well in March 2023
and further works to remove power supply vulnerabilities to Rhum
were carried out in the summer. Topsides works in the first half of
the year increased the throughput limits of the Rhum separator
creating more capacity for any future production increases.
Average Rhum field production in 1H 2023 was circa 16,300 boe/d
(1H 2022: 15,900 boe/d) of gas net to Serica.
The latest independent reserves report by RISC Advisory
estimated 2P reserves of 36.4 million boe net to Serica as of 1
January 2023 (2022: 37.2 million boe). This represents an increase
in reserves after 2022 production is taken into account which
arises from the extension of field life into the 2030s.
Northern North Sea: Orlando Field - Block 3/3b, Serica 100%
(acquired from Tailwind)
Serica is operator of Orlando which is an oil field producing
from a single subsea well tied into the Ninian Central facilities
through an 11km pipeline. Orlando production is separated into gas
and oil, with oil exported to Sullom Voe Terminal and gas used by
the Ninian operator as fuel on the platform.
Orlando has been producing steadily in 2023, following a
workover in 2022 to replace the dual Electric Submersible Pumps.
During 1H 2023, there have been some minor outages for repairs to
some topsides electrical cables.
Average Orlando field production in 1H 2023 was circa 3,500
boe/d (1H 2022: nil boe/d) net to Serica including downtime.
Average net production for the post-acquisition period from 23
March to 30 June 2023 was 3,550 boe/d.
An independent reserves report by ERCE estimated 2P reserves of
3.4 million boe net to Serica as of 1 January 2023.
Northern North Sea: Mansell - Block 3/8g, Serica 100% (acquired
from Tailwind)
The Mansell discovery is located in licence P2448 in UKCS Block
3/8g south and east of the Ninian and Columba fields. Mansell was
discovered by well 3/8b-10, drilled by BP in 1985, and following
successful appraisal was developed as a subsea tieback to the
Ninian South Platform and produced between 1992 and 1995 (Field was
then named as Staffa). The field was shut in 1995 following
waxing-up of the flowline and decommissioned. The Mansell field has
contingent resources of up to 16 mmboe. Studies are ongoing to
determine the feasibility and timing of a redevelopment.
Central North Sea
Central North Sea: Triton Area - Bittern 64.63%, Evelyn 100%,
Gannet E 100%, Guillemot West & North West 10%, Belinda 100%
(Serica share in %, acquired from Tailwind)
The Triton Area consists of eight producing oil fields developed
via common subsea infrastructure in the UK Central North Sea,
located approximately 190km east of Aberdeen in water depths of
90m. The fields currently producing oil and gas via the Triton
Floating Production Storage & Offloading (FPSO) vessel are
Evelyn, Bittern, Guillemot West and Guillemot North West, Gannet E,
Clapham, Pict and Saxon. Dana Petroleum Limited ("Dana") and
Waldorf Production UK Limited ("Waldorf") are our partners in the
Triton cluster. Dana operate the Triton FPSO along with the
Bittern, Guillemot West / North West, Clapham, Saxon, and Pict
fields. Serica is operator of the Gannet E and Evelyn fields, with
Dana as pipeline operator and Petrofac as well operator. Serica
also operates the Belinda discovery.
In February, a fourth Gannet E well was brought online bringing
combined peak production rates in Gannet E to over 13,000 boe/d.
The Evelyn field has been producing steadily since coming online in
September 2022 at circa. 6,000 boe/d. Bittern field is steady with
peak rates of circa. 7,000 boe/d (Serica net) and Guillemot West /
North West at circa. 400 boe/d (Serica net). Triton gross peak
rates have exceeded 30,000 boe/d for the first time in 10
years.
Two Guillemot West well workovers were completed in July and are
due to be brought online in September after the Triton annual
shutdown which recently completed. There is a four well program
planned for execution in 2024 as follows: Bittern sidetrack,
Guillemot North West infill well, Gannet E fifth well and Evelyn
second well. Serica is progressing the Belinda development with
plan to submit the FDP in 2H 2023 and sanction planned for
2024.
Average net (Serica share) Triton Area production in 1H 2023 was
circa 18,300 boe/d (1H 2022: 10,000 boe/d) of oil and gas. Average
net production for the post-acquisition period from 23 March to 30
June 2023 was 18,550 boe/d.
An independent report of reserves by ERCE estimated 2P reserves
of 49.2 million boe net to Serica as of 1 January 2023.
Central North Sea: Columbus Field - Blocks 23/16f and 23/21a
(part), Serica 75%
Serica Energy (UK) Limited (50%) is Operator with partners
Tailwind Mistral Limited (25%) and Waldorf Production Limited
(25%). Following the acquisition of Tailwind Mistral Limited by the
Serica group on 23 March 2023, the Serica group's net interest in
Columbus increased to 75%.
The Columbus field is located in the UK Central North Sea and
produces from a gas-condensate reservoir in the Forties Sandstone
Formation. The development consists of a single horizontal well
which runs along the central axis of the reservoir, drilled in the
spring of 2021, and production commenced in November 2021.
The Columbus well is connected to the Arran export pipeline
through which Columbus production is exported along with Arran
Field production. When production reaches the Shearwater platform,
it is separated into gas and condensate. The gas is exported to St
Fergus via the SEGAL line and the condensate to Cruden Bay via the
Forties Pipeline System.
Columbus had good initial test rates and started production in
November 2021. Flow rates then declined during the first few months
of production and average Columbus production in 2022 was around
3,800 boe/d gross.
During the first half of 2023, Columbus production has been
steady despite some short-term Shearwater offtake facility
outages.
Average net Columbus production of gas and condensate in 1H 2023
for Serica's combined 75% interest was 2,300 boe/d (1H 2022: 1,970
boe/d for a 50% interest). Average net production for the Group's
combined 75% interest in the post-acquisition period from 23 March
to 30 June 2023 was 2,250 boe/d.
The latest independent report of reserves, compiled by RISC
Advisory, estimated 2P reserves of 1.1 million boe net to Serica's
50% equity interest as at 1 January 2023 (2022: 4.9 million boe)
after allowing for production of 0.6 million boe during 2022. An
additional 25% field equity interest was acquired as part of the
Tailwind transaction in March 2023.
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%.
The Erskine field has five production wells and produces oil and
gas over the Erskine normally unattended installation, which is
transported via a multiphase pipeline and processed on the Lomond
platform which is 100% owned and operated by Harbour . 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 first half of 2023 Erskine has produced steadily from the
four currently available wells.
Topsides surveillance of the W1 well is being undertaken in Q3
2023 with the intent of carrying out a MODU based intervention in
2024 to return the well to 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 2023 averaged 1,700 boe/d net
(1H 2022: 1,890 boe/d net).
A latest independent report of reserves by RISC Advisory
estimated 2P reserves at 3.3 million boe as of 1 January 2023
(2022: 3.4 million boe).
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 comprised Blocks 3/24c and
3/29c including the North Eigg and South Eigg prospects.
The 3/24c-6B North Eigg exploration well was drilled to a depth
of 16,728 feet in the Jurassic Heather formation, completing in
early 2023. Following detailed interpretation of the North Eigg
well results, Serica has decided that there is insufficient
accessible oil to justify re-entering the suspended well and
drilling a sidetrack. After consultation with the NSTA, we have
elected to go into the second term of the P2501 Licence for the
purpose of completing the decommissioning and restoration of the
North Eigg well. Only the area immediately around the well
necessary for the abandonment has been retained with the remainder
of the block being relinquished.
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 Licence was awarded in the 30(th) licence round in
2018. It is located in the Central North Sea, 60km south of the
Erskine field, and comprises blocks 30/12c, 30/13c, 30/17h and
30/18c. Current equity holders are Serica 20%, Parkmead 50%
(operator) and CalEnergy 30%. The licence is in phase C, which
expires on 30 September 2025. By the end of the current phase, we
are committed to drill a well to a depth of 3,500 metres or 200
metres into the Chalk Group, whichever is shallower. The Operator
has proposed a vertical well targeting the Mey reservoir (primary
target) and a deeper Tor chalk reservoir (secondary target). Well
planning has been awarded to Exceed. The well is expected to spud
in late 2024, with a site survey in early 2024.
In the region around Skerryvore, Harbour Energy have announced
that they are proceeding with the Talbot development, with drilling
scheduled later this year and first oil expected from Q3 2024. In a
success case, Talbot infrastructure could provide Skerryvore with
an export route via the Judy platform and the subsequent export of
produced hydrocarbons to Teeside, UK.
Licence Awards in the UK 32(nd) licensing round
The P2506 Licence was awarded to Serica 100% in the 32(nd)
Licence Round in 2020 and covers blocks in the greater Bruce / Rhum
area. Work commitments for the current phase of the licence have
now been met. A detailed prospectivity review was carried out,
which identified two prospects, the Elf Horst prospect (in the
north) and Davan discovery (in the south).
On the basis of this technical work, it has been concluded that
this opportunity does not meet Serica's investment criteria and the
decision has therefore been made not to continue the licence beyond
the end of the current phase, which ends on 30 November 2023.
Licence Awards in the UK 33(rd) licensing round
Two licences have been applied for in the 33rd Licence Round
which closed in December 2022. The applications include light
initial work commitments. Both applications are consistent with
Serica's infrastructure led exploration strategy.
F INANCIAL REVIEW
In addition to continuing strong production from its existing
assets, Serica's 1H 2023 results benefitted from inclusion of net
production and income from the Tailwind field interests from the
acquisition completion date of 23 March 2023 to the period end 30
June 2023. Net cashflows from the Tailwind assets for the period
prior to 23 March are reflected in the opening net debt position of
Tailwind. Fair value acquisition accounting, carried out under
relevant financial reporting standards as a business combination,
resulted in a one off 'gain on acquisition' of GBP139.6 million.
This was partially offset by expensed transaction costs totalling
GBP8.6 million. The group balance sheet at 30 June 2023 reflects
the full set of assets and liabilities arising from the business
combination, which include a reserve-based lending ("RBL")
facility. Further details of the accounting for the acquisition are
provided in note 11.
Although market sales prices for oil and gas were lower than for
the same period last year, this was partially offset by reduced
hedging volumes. The Tailwind acquisition has also brought a
balanced mix of oil and gas and greater production resilience
arising from a wider asset spread.
1H 2023 RESULTS
Serica generated a profit before taxation of GBP298.3 million
for 1H 2023 compared to GBP194.5 million for 1H 2022. After current
and deferred tax provisions of GBP122.8 million (1H 2022: GBP77.7
million), profit for the period was GBP175.5 million compared to
GBP116.7 million for 1H 2022 and GBP177.8 million for full year
2022.
Sales revenue
The total 1H 2023 sales revenue of GBP340.6 million (1H 2022:
GBP353.5 million) included revenues of GBP100.0 million from the
acquired Tailwind assets from the effective date of 23 March 2023
(1H 2022: GBPnil).
Total sales revenues comprised gas revenue of GBP216.6 million
(1H 2022: GBP293.6 million), oil revenue of GBP112.7 million (1H
2022: GBP41.2 million) and NGL revenue of GBP11.3 million (1H 2022:
GBP18.7 million). The fall in gas revenue was driven by lower
realised pricing compared to 1H 2022 and the increase in oil
revenue reflects new revenue streams from the largely oil based
Tailwind portfolio.
Total product sales volumes for the half year comprised
approximately 227 million therms of gas (1H 2022: 216 million
therms), 2.2 million lifted barrels of oil (1H 2022: 0.5 million
barrels) and 30,000 metric tonnes of NGLs (1H 2022: 36,800 metric
tonnes).
Average 1H 2023 sales prices net of system fees were: 96 pence
per therm (1H 2022: 136 pence per therm) for gas, US$64 per barrel
(1H 2022: US$107.7 per barrel) for oil and GBP377 per metric tonne
(1H 2022: GBP514 per metric tonne) for NGLs. Average oil and gas
sales prices reflect the mix of sales comprising volumes sold at
current spot prices and volumes sold at contracted fixed prices and
are before realised hedging costs on gas price swaps.
Gross profit
The gross profit for 1H 2023 was GBP180.1 million compared to
GBP267.1 million for 1H 2022. Overall cost of sales of GBP160.5
million compared to GBP86.3 million for 1H 2022. This comprised
GBP99.6 million of operating costs (1H 2022: GBP59.1 million) and
GBP74.7 million of non-cash depletion charges (1H 2022: GBP25.5
million).
The overall increases reflected higher production volumes for
the enlarged business. Operating costs per boe were US$17.5,
increased from US$16.1 for 1H 2022 mainly due to underlying cost
inflation and the introduction of new fields. In addition, an
increase in the overall rate of depletion charges per barrel arose
from the recognition of the Tailwind assets at fair value and an
increase in the Columbus field depletion charge per barrel from 1H
2022 due to a reduction in remaining reserves. These were partially
offset by a GBP13.8 million credit representing an increase during
the period of the liquids underlift position (1H 2022: charge of
GBP1.7 million).
Operating profit
The operating profit for 1H 2023 was GBP159.5 million compared
to GBP196.3 million for 1H 2022. This included hedging expense
related to 1H gas price swaps, of GBP13.0 million realised during
1H 2023 (1H 2022: GBP13.2 million) plus unrealised hedging gains of
GBP20.5 million (1H 2022: expense of GBP56.4 million), mainly
arising from the movement in valuation of Serica's 2022 year-end
gas swap position as it fully unwound in the period.
E&E asset write-offs of GBP5.7 million in 1H 2023 (1H 2022:
GBPnil) largely comprised a final charge from the North Eigg
exploration well. Administrative expenses for 1H 2023 of GBP7.9
million compared to GBP3.8 million for 1H 2022 and reflected the
growth in activities of the group arising from Tailwind completion
and subsequently.
Transaction costs of GBP8.6 million (1H 2022: GBPnil) comprise
fees and other costs associated with the acquisition of Tailwind
Energy Investments Ltd.
Profit before taxation and profit after taxation
Profit before taxation for 1H 2023 was GBP298.3 million (1H
2022: GBP194.5 million) after taking into account a gain on
acquisition of GBP139.6 million on the Tailwind transaction (1H
2022: GBPnil), a GBP1.5 million charge arising from an increase in
the fair value of the BKR financial liability (1H 2022: GBP1.9
million), GBP7.0 million of finance revenue (1H 2023: GBP0.3
million) and GBP6.3 million of finance costs (1H 2022: GBP0.3
million).
The gain on acquisition represents the difference between
provisional fair valuations of assets acquired and consideration
paid or potentially payable calculated in accordance with
applicable accounting standards. Such calculations are complex and
involve a range of projections and assumptions related to future
costs, production volumes, sales prices, discount rates and tax.
The accounting for the acquisition of the transaction assets has
been provisionally determined at this stage. The accounting
standards provide for potential further adjustments to fair value
assessments up to twelve months after completion of the
acquisition.
The 1H 2023 charge of GBP1.5 million relating to the remaining
BKR financial liabilities (1H 2022 - GBP1.9 million) 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.
Finance revenue of GBP7.0 million (1H 2022: GBP0.3 million)
primarily represents interest income earned on cash deposits and
has increased following the significant rises in interest rate
returns available from 1H 2023 compared to 1H 2022. Finance costs
of GBP6.3 million (1H 2022: GBP0.3 million) include interest
payable and other charges on the debt facility acquired in March
2023, the discount unwind on decommissioning provisions and other
minor finance costs.
The 1H 2023 taxation charge of GBP122.8 million (1H 2022:
GBP77.7 million) comprised current tax charges of GBP131.8 million
(1H 2022: GBP79.8 million) and a deferred tax credit of GBP9.0
million (1H 2022: credit of GBP2.1 million). The current tax charge
includes EPL charges of GBP61.1 million (1H 2022: GBPnil). The
impact upon the combined group of the increased level of taxation
applying to 1H 2023 on its current tax payable has been partially
offset through the utilisation of brought forward tax losses within
the acquired business. The gain on acquisition is a non-taxable
accounting entry.
Overall, this generated a profit after taxation of GBP175.5
million for 1H 2023 compared to a profit after taxation of GBP116.7
million for 1H 2022. This resulted in an earnings per share of
GBP0.53 (1H 2022: GBP0.43) after taking account of the weighted
average number of ordinary shares in issue.
GROUP BALANCE SHEET
Serica retains a strong balance sheet with growing cash
resources. This has allowed the Company to fund ongoing capital
investment programmes whilst delivering a progressive dividend
policy as well as seeking new acquisition and investment
opportunities. The balance sheet as at 30 June 2023 includes assets
and liabilities from the acquired Tailwind business.
Total property, plant and equipment increased from GBP265.9
million at year end 2022 to GBP888.9 million at 30 June 2023. The
main driver for the significant increase in the balance is the fair
value attributed to the Tailwind assets upon acquisition of
GBP704.0 million. The acquisition of Tailwind Energy Investments
Ltd is classified as a business combination and the calculation of
fair value is carried out in accordance with applicable accounting
standards. As described above, the valuation involves a series of
judgements and assumptions on all key components of the
calculations and are provisional until twelve months following
acquisition.
Net additions comprised capital expenditure during 1H 2023 of
GBP13.4 million across various field assets. These included
expenditure in the post-acquisition period on the GE04 and GE05
wells (Gannet E), well survey and planning work on Bittern, the
start-up of well work on the EV02 well (Evelyn), upgrades for the
Triton FPSO and other sundry asset work. These were offset by
depletion charges for 1H 2023 of GBP74.7 million (1H 2022: GBP25.5
million), other depreciation charges of GBP0.1 million (1H 2022:
GBP0.1 million) and currency translation adjustments of GBP20.1
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.
The inventories balance of GBP9.4 million at 30 June 2023
increased from GBP4.0 million at the end of 2022. The main factor
behind the increase is the inclusion of GBP5.3 million value for
oil inventory held in the pipeline and terminal for the acquired
Orlando field. A decrease in trade and other receivables from
GBP134.6 million at the end of 2022 to GBP122.1 million at 30 June
2023 largely reflected significantly lower prices for June gas
sales compared to last December.
Hedging security advances of GBP24.3 million at 31 December 2022
were recovered during 1H 2023 as all gas swaps and the majority of
fixed forward contracts crystalised in the period.
The increase in cash balances from GBP432.5 million at 31
December 2022 to GBP444.0 million at 30 June 2023 reflected cash
flow from operations of GBP265.8 million mainly offset by GBP140.8
million of 2022 UK tax payments, capital expenditures of GBP19.0
million, net cash outflows of GBP45.3 million on the Tailwind
acquisition, and GBP47.9 million (US$60 million) on debt repayments
in the post-acquisition period.
Current trade and other payables increased to GBP80.7 million at
30 June 2023 from GBP69.9 million at the end of 2022. UK
corporation tax payable of GBP140.9 million at 30 June 2023 (31
December 2022: GBP150.0 million) reflects liabilities for
corporation tax, supplementary charge and the EPL. A significant
corporation tax payment of GBP140.8 million was made in Q1 2023 and
a further GBP80.2 million instalment payment was made in July
2023.
Derivative financial liabilities of GBP4.7 million at 30 June
2023 represent primarily the valuation of UKA ETS swaps in place at
the period end following the Tailwind acquisition. The 31 December
2022 liability of GBP24.9 million reflected Serica's gas swaps in
place at that date which unwound during 1H 2023.
The dividend payable of GBP53.7 million at 30 June 2023 (31
December 2022: GBPnil) represents the final cash dividend for 2022
of 14.0 pence per share approved at the annual general meeting on
29 June 2023 and paid in July.
Non-current financial liabilities of GBP62.3 million (31
December 2022: GBP29.4 million) comprise remaining deferred
consideration of GBP30.8 million projected to be paid under the BKR
acquisition agreements and royalty provisions of GBP31.5 million
representing amounts payable to third parties under the terms of
historic Triton asset acquisitions by Tailwind.
Non-current provisions relate to future decommissioning
obligations. These showed an increase from GBP25.2 million at 31
December 2022 to GBP99.6 million at 30 June 2023 due to GBP75.5
million arising upon the Tailwind acquisition plus the unwinding of
the discount applied to the Group's year end 2022 estimates,
partially offset by currency translation adjustments and some minor
spend in the period. The balance of provisions is in respect of
Serica's Bruce and Keith interests acquired from Marubeni, the
Columbus field and the portfolio of interests acquired in
March.
The net deferred tax liability position of GBP52.0 million at 30
June 2023 decreased from GBP153.3 million at year end 2022, mainly
following the introduction of the significant net deferred tax
asset position of GBP95.0 million upon the Tailwind acquisition.
This comprised deferred tax assets recognised on tax losses and
future relief available on decommissioning partially offset by
deferred tax liabilities arising on property, plant and equipment
balances. Deferred tax liabilities arising upon the group's
PP&E balances will be released in future periods as those
balances are depleted.
Interest bearing loans of GBP210.1 million at 30 June 2023 (31
December 2022: GBPnil) comprise the RBL facility assumed upon the
Tailwind acquisition completion on 23 March 2023. Amounts drawn
under the facility at 30 June 2023 were US$270 million which are
disclosed net of unamortised fees. The facility was drawn by US$330
million at the date of acquisition with repayments of US$60 million
made in the post-acquisition period to 30 June 2023. The
redetermined total amount available for drawdown under the facility
at 30 June 2023 was US$377 million.
Overall, net assets have increased from GBP408.7 million at year
end 2022 to GBP754.8 million at 30 June 2023.
The increase in share capital from GBP183.2 million to GBP192.4
million arose from shares issued following the exercise of share
options, shares issued under employee share schemes and the nominal
value of shares issued for the Tailwind acquisition, whilst the
increase in other reserves from GBP25.6 million to GBP28.0 million
arose from share-based payments related to share option awards. The
merger reserve of GBP225.4 million in the consolidated group
accounts arose in connection with the shares issued for the
Tailwind acquisition.
CASH BALANCES AND FUTURE COMMITMENTS
Current net cash position and price hedging
At 30 June 2023 the Group held net cash of GBP230.8 million
which consisted of cash and cash equivalents of GBP444.0 million
(31 December 2022: GBP432.5 million) net of the RBL drawings of
GBP213.2 million (31 December 2022: GBPnil) adjusted for
unamortised fees of GBP3.1 million (31 December 2022: GBPnil).
Cash hedging security advances of GBP24.3 million that had been
lodged with hedge counterparties at 31 December 2022 as security
against settlement of future gas hedge instruments were fully
recovered during the 1H 2023 period. Of total cash and cash
equivalents, GBP18.1 million was held in restricted accounts
against letters of credit issued in respect of certain
decommissioning liabilities as at 30 June 2023 (31 December 2022:
GBP18.1 million).
As at 31 August 2023, the Company held cash and cash equivalents
of GBP333.2 million, after settlement of the 2022 final dividend
and an initial 2023 tax instalment in July 2023.
Hedging
Serica carries out hedging activity to manage commodity price
risk and to ensure there is sufficient funding for future
investments. At 30 June 2023 Serica held the following
instruments:
Gas - fixed pricing under gas sales agreements (equivalent to
gas price swaps) for the Q3 2023 period of 50,000 therms per day at
an average price of 41 pence per therm.
Oil - fixed pricing under oil sales agreements (equivalent to
oil price swaps): for the 2H 2023 period approximately 11,000
barrels per day at an average price of US$61 per barrel, for the 1H
2024 period approximately 5,000 barrels per day at an average price
of US$70 per barrel, and for the 2H 2024 period approximately 2,700
barrels per day at an average price of US$80 per barrel.
UKA ETS - fixed price swaps for UKA ETS products for 2023
consisting of 66,000 MT at GBP77.12/MT for 2023 and 231,000 MT at
GBP79.39/MT for 2024.
Field and other capital commitments
Serica's planned 2023/24 investment programme includes two Light
Well Intervention Vessel campaigns (Q3 2023 & 1H 2024) on the
Bruce and Keith fields and a four-well drilling campaign in the
Triton Area (Bittern B1z, Gannet GE-05, Evelyn Phase 2 (EV02) and a
Guillemot NW infill well). Potential further programmes to enhance
current production profiles and extend field life are under
consideration.
At 30 June 2023, the Group had commitments for future capital
expenditure relating to its oil and gas properties amounting to
GBP134.5 million which relate primarily to the GE05 well, EV02
well, Bruce LWIV and Triton FPSO/Bittern capex projects.
The Group's only significant exploration commitment is the
drilling of a commitment well on Licence P2400 (Skerryvore - Serica
20%) to be drilled before October 2025.
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 net cash
resources 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.
OTHER
Asset values and impairment
At 30 June 2023, Serica's market capitalisation stood at
GBP806.3 million, based upon a share price of 210.4 pence, which
exceeded the net asset value of GBP761.4 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
2023 and no impairment triggers were noted. By 15 September the
Company's market capitalisation has risen to GBP1,033.0
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
18 September 2023
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
Six Six
months months Year
ended ended ended
30 June 30 June 31 Dec
Notes 2023 2022 2022
Continuing operations GBP000 GBP000 GBP000
(Unaudited) (Unaudited) (Audited)
Sales revenue 4 340,620 353,472 812,423
Cost of sales 5 (160,486) (86,346) (218,155)
Gross profit 180,134 267,126 594,268
Unrealised hedging income/(expense) 6 20,460 (56,390) 20,877
Realised hedging expense 6 (12,961) (13,203) (45,384)
Exploration expense and new ventures (665) (185) (185)
E&E asset write-offs (5,732) - (82,749)
Administrative expenses (7,911) (3,839) (9,225)
Transaction costs 11 (8,550) - (1,785)
Foreign exchange (loss)/gain (2,856) 3,653 3,903
Share-based payments 13 (2,432) (823) (3,510)
Operating profit 159,487 196,339 476,210
Gain on acquisition 11 139,559 - -
Change in fair value of BKR financial liability (1,469) (1,899) 8,407
Finance revenue 7,028 345 4,499
Finance costs (6,342) (310) (938)
Profit before taxation 298,263 194,475 488,178
Taxation charge for the period 10 (122,791) (77,746) (310,382)
Profit after taxation and 175,472 116,729 177,796
profit for the period
Earnings per ordinary share (EPS)
Basic EPS on profit for the period (GBP) 0.53 0.43 0.65
Diluted EPS on profit for the period (GBP) 0.51 0.41 0.62
Serica Energy plc
Condensed Group Statement of Comprehensive Income
Six Six
months months Year
ended ended ended
30 June 30 June 31 Dec
2023 2022 2022
GBP000 GBP000 GBP000
(Unaudited) (Unaudited) (Audited)
Profit for the period 175,472 116,729 177,796
Other comprehensive loss
Exchange differences on translation (12,821) - -
------------ ------------ ----------
Other comprehensive loss for the period (12,821) - -
------------ ------------ ----------
Total comprehensive profit for the period 162,651 116,729 177,796
Total comprehensive profit attributable to:
Equity owners of the company 162,651 116,729 177,796
------------ ------------ ----------
Serica Energy plc
Group Balance Sheet
30 June 31 Dec 30 June
2023 2022 2022
GBP000 GBP000 GBP000
Notes (Unaudited) (Audited) (Unaudited)
Non-current assets
Exploration & evaluation assets 8 869 1,001 10,254
Property, plant and equipment 9 888,871 265,907 316,920
889,740 266,908 327,174
------------ ---------- ------------
Current assets
Inventories 9,417 3,998 4,528
Trade and other receivables 122,128 134,627 81,864
Hedging security advances - 24,320 160,380
Cash and cash equivalents 444,007 432,529 258,318
------------ ---------- ------------
575,552 595,474 505,090
------------ ---------- ------------
TOTAL ASSETS 1,465,292 862,382 832,264
------------ ---------- ------------
Current liabilities
Trade and other payables 80,739 69,887 45,924
Corporate tax payable 140,924 149,998 95,639
Derivative financial liability 4,664 24,914 102,181
Gas contract liabilities 162 987 10,807
Financial liabilities 6,273 - -
Dividend payable 7 53,652 - 24,467
Non-current liabilities
Gas contract liabilities - - 162
Financial liabilities 62,317 29,378 39,685
Provisions 99,576 25,199 28,371
Deferred tax liability 10 52,037 153,295 118,519
Interest bearing loans 11 210,143 - -
------------ ---------- ------------
TOTAL LIABILITIES 710,487 453,658 465,755
------------ ---------- ------------
NET ASSETS 754,805 408,724 366,509
============ ========== ============
Share capital 12 192,381 183,177 182,889
Merger reserve 12 225,446 - -
Other reserves 13 28,008 25,576 22,889
Currency translation reserve (12,821) - -
Accumulated funds 321,791 199,971 160,731
TOTAL EQUITY 754,805 408,724 366,509
============ ========== ============
Serica Energy plc
Group Statement of Changes in Equity
Group
Merger Currency
and Other translation Accumulated
Share capital reserves reserve funds Total
GBP000 GBP000 GBP'000 GBP000 GBP000
At 1 January 2022 (audited) 181,993 22,066 - 68,469 272,528
Profit for the year - - - 177,796 177,796
-------------- ----------- -------------- ------------ ---------
Total comprehensive income - - - 177,796 177,796
Issue of shares 1,184 - - - 1,184
Share-based payments - 3,510 - - 3,510
Dividend payable - - - (46,294) (46,294)
At 31 December 2022 (audited) 183,177 25,576 - 199,971 408,724
Profit for the period - - - 175,472 175,472
Other comprehensive income - - (12,821) - (12,821)
Total comprehensive income - - (12,821) 175,472 162,651
Issue of shares 9,204 225,446 - - 234,650
Share-based payments - 2,432 - - 2,432
Dividend payable - - - (53,652) (53,652)
At 30 June 2023 (unaudited) 192,381 253,454 (12,821) 321,791 754,805
============== =========== ============== ============ =========
Serica Energy plc
Group Cash Flow Statement
Six Six
months months Year
ended ended ended
30 June 30 June 31 Dec
2023 2022 2022
GBP000 GBP000 GBP000
(Unaudited) (Unaudited) (Audited)
Operating activities:
Profit for the period 175,472 116,729 177,796
Adjustments to reconcile profit for the period
to net cash flow from operating activities:
Taxation charge 122,791 77,746 310,382
Change in fair value of BKR financial liability 1,469 1,899 (8,407)
Gain on acquisition (139,559) - -
Net finance (income)/costs (686) (35) (3,870)
Depletion 74,697 25,529 76,887
Oil and NGL over/underlift movement (13,770) 1,700 20,270
E&E asset write-offs 5,732 - 82,749
Unrealised hedging (gains)/losses (20,460) 56,390 (20,877)
Contract revenue (825) (27,523) (37,505)
Share-based payments 2,432 823 3,510
Other non-cash movements 3,182 (2,042) (1,503)
Hedging security advances 24,320 (44,990) 91,070
Decrease/(increase) in receivables 65,646 48,787 (8,571)
(Increase)/decrease in inventories (134) (475) 55
(Decrease)/increase in payables (33,475) 12,423 22,872
Cash inflow from operations 265,832 266,961 704,858
Taxation paid (140,826) - (143,500)
Decommissioning spend (28) - (1,218)
Net cash inflow from operating activities 124,978 266,961 560,140
Investing activities:
Interest received 7,028 345 4,499
Purchase of E&E assets (5,604) (7,305) (80,801)
Purchase of property, plant & equipment (13,396) (13,614) (16,298)
Cash outflow from business combinations - (93,870) (93,871)
Acquisition of subsidiary, net of cash acquired (44,036) - -
Net cash outflow from investing activities (56,008) (114,444) (186,471)
------------ ------------ ------------
Financing activities:
Issue of ordinary shares 374 896 1,184
Transaction costs on issue of shares (1,249) - -
Repayment of borrowings (47,940) - -
Payments of lease liabilities (296) (87) (132)
Dividends paid - - (46,294)
Finance costs paid (5,520) (34) (385)
Net cash (out)/inflow from financing activities (54,631) 775 (45,627)
------------ ------------ ------------
Cash and cash equivalents
Net increase in period 14,339 153,292 328,042
Effect of exchange rates on cash and cash equivalents (2,861) 2,042 1,503
Amount at start of period 432,529 102,984 102,984
Amount at end of period 444,007 258,318 432,529
============ ============ ============
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 2023 were authorised for
issue in accordance with a resolution of the directors on 18
September 2023.
Serica Energy plc (the "Company") 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 2023 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 2022. 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 2022. A number of amendments to existing
standards and interpretations were effective from 1 January 2023,
as was IFRS 17 Insurance Contracts , but there was no impact on the
1H 2023 condensed consolidated financial statements. The Group has
not early adopted any standard, interpretation or amendment that
has been issued but is not yet effective.
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
2022, 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 2022 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 period ending 31
December 2024, the 'going concern period'. The financial position
of the Group, its cash flows and capital commitments are described
in the Financial Review above.
Following completion of Serica's acquisition of Tailwind Energy
Investments Ltd on 23 March 2023 the Serica Group's going concern
considerations now include a US$377 million assumed RBL facility.
See note 11 for further details of the RBL facility. The
acquisition of Tailwind gives the Group increased production and
operating cash flows, a balance in product mix between gas and oil,
and two main operating hubs which reduces the potential impact of
production interruptions. Serica currently has competitive
operating costs per boe and its capital commitments can be funded
from existing cash resources.
The Group regularly monitors its cash, funding and liquidity
position, including available facilities and compliance with
facility covenants. 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. In recent
years, management has given priority to building a strong cash
reserve which can respond to different types of risk.
As at 30 June 2023 the Group held cash and term deposits of
GBP444.0 million including GBP18.1 million of restricted funds,
with separate RBL liquidity headroom of US$107 million (US$270
million drawn versus US$377 million available).
For the purposes of the Group's going concern assessment we have
reviewed two cash projections for the going concern period. These
projections cover a base case forecast and an extreme stress test
scenario for the combined operations of the Group, including both
legacy Tailwind and Serica assets. RBL repayments have been assumed
based on the current redetermination and no covenant compliance
matters noted.
The base case assumptions include commodity pricing of
GBP1/therm for gas and US$70/bbl for oil throughout the going
concern period. Production, opex, capex and tax assumptions are
those currently included in standard management forecasting. The
forward looking price assumptions are considered as reasonable in
light of recent commodity forward pricing and a consensus of
published forecasts from the industry, brokers and other
analysts.
The stress test assumptions assume commodity pricing of
GBP1/therm for gas and US$70/bbl for oil for Q4 2023, a full
six-month shut-in of all production for 1H 2024, followed by a
return to base case production in 2H 2024 to the end of the going
concern period at 31 December 2024. Lower commodity pricing of 75
pence/therm and US$50/bbl oil are assumed for the 2H 2024 period in
this scenario which are significantly below the range of current
market expectations for the going concern period. Under this
scenario, which would result in lower cash inflows and repayments
of the RBL facility as redetermined, the Group was able to maintain
sufficient cash to meet its obligations and maintain covenant
compliance. A number of mitigating factors and mitigating actions
that are under management control are available to management in
the stress test event. These would mitigate the reduced operating
cash outflows experienced and are not included in the
projection.
After making enquiries and having taken into consideration the
above factors, the Directors considered it appropriate that the
Group has adequate resources to continue in operational existence
for the going concern period. 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 2023. 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 2023.
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 2022. 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 BV, Serica Energy Corporation, Asia
Petroleum Development Limited, Petroleum Development Associates
(Asia) Limited, Serica Energy (UK) Limited, PDA Lematang Limited,
Serica Glagah Kambuna BV, Tailwind Energy Investments Ltd, NSV
Energy Limited, Tailwind Energy Ltd, Tailwind Mistral Ltd, Tailwind
Energy Sirocco Ltd, Tailwind Energy Chinook Ltd and Tailwind Energy
Bora Ltd. Together, these comprise the "Group".
The results and financial position of all of the Group entities
that have a functional currency different from the presentation
currency are translated into the presentation currency as
follows:
-- Assets and liabilities for each balance sheet presented are
translated at the closing rate at the date of that balance
sheet;
-- Income and expenses for each income statement are translated
at average exchange rates (unless this average is not a reasonable
approximation of the rates prevailing on the transaction dates, in
which case income and expenses are translated at the rate on the
dates of each transaction);
-- The exchange differences arising on translation for
consolidation are recognised in other comprehensive income; and
-- Any fair value adjustments to the carrying amounts of assets
and liabilities arising on the acquisition are treated as assets
and liabilities of the acquired entity and are translated at the
spot rate of exchange at the reporting date.
All inter-company balances and transactions have been eliminated
upon consolidation.
3. Segmental Information
For the purposes of segmental reporting, the Group currently
operates a single class of business being oil and gas exploration,
development and production and related activities in a single
geographical area, being presently the UK North Sea.
4. Sales Revenue
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2023 2022 2022
GBP000 GBP000 GBP000
Gas sales 215,782 266,089 652,680
Gas supply contract revenue 825 27,523 37,505
Total gas sales 216,607 293,612 690,185
Oil sales 112,729 41,185 88,048
NGL sales 11,284 18,675 34,190
Total revenue 340,620 353,472 812,423
----------- ----------- -----------
Gas supply contract revenue in 2022 and 1H 2023 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.
5. Cost of sales
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2023 2022 2022
GBP000 GBP000 GBP000
Operating costs 99,559 59,117 120,998
Movement in liquids overlift/underlift (13,770) 1,700 20,270
Depletion (note 9) 74,697 25,529 76,887
160,486 86,346 218,155
----------- -----------
6. Group Operating Profit
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2023 2022 2022
GBP000 GBP000 GBP000
Realised hedging losses (12,961) (13,203) (45,384)
----------- ----------- ---------
Unrealised hedging gains/(losses) 20,460 (56,390) 20,877
----------- ----------- ---------
Derivative financial instruments
The Group enters into derivative financial instruments with
various counterparties. Other derivative financial instruments held
at 31 December 2022 comprised gas swaps which were valued by
counterparties, with the valuations reviewed internally and
corroborated with readily available market data of forward gas
pricing (level 2). No gas swap derivative financial instruments
were held at 30 June 2023.
Details of the Group's derivative financial instruments held as
at 30 June 2023 are provided in the financial review above.
Realised hedging losses comprise losses realised on 1H 2023 gas
price swaps.
Unrealised hedging gains comprise gains on gas swaps partially
offset by unrealised losses on the UKA ETS swap instruments held.
Unrealised hedging gains on gas and other swaps comprise unrealised
charges on the movement during 1H 2023 in the calculated fair value
liability of outstanding gas price or other derivative contracts
measured at the respective Balance Sheet dates.
7. Dividends payable
A final cash dividend for 2022 of 14.0 pence per share was
proposed in April 2023 and approved at the annual general meeting
on 29 June 2023. Following the approval in the 1H 2023 period, the
dividend payable of GBP53.7 million is recognised as a liability in
the Balance Sheet at 30 June 2023. The dividend was paid in July
2023.
Dividends on ordinary shares paid in 2022
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 was recognised as a liability
in the Balance Sheet at 30 June 2022. The dividend was paid in July
2022.
An interim cash dividend for 2022 of 8.0 pence per share was
announced in September 2022 and was paid in November 2022.
8 . Exploration and Evaluation Assets
Total
GBP000
Cost:
At 1 January 2022 2,949
Additions 80,801
Asset write-offs (82,749)
At 31 December 2022 1,001
Acquisitions -
Additions 5,604
Asset write-offs (5,732)
Currency translation adjustment (4)
At 30 June 2023 869
=================
Net Book Amount:
30 June 2023 869
=================
31 December 2022 1,001
=================
1 January 2022 2,949
=================
The E&E asset write-offs for 1H 2023 of GBP5.7 million
(2022: GBP82.7 million) primarily comprised drilling costs from the
North Eigg exploration well and minor costs associated with the
P2506 licence. The well encountered hydrocarbons but not of
commercial quantities as the reservoir sands were thinner than
prognosed.
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 2022 466,554 212 516 467,282
Additions 15,953 - 345 16,298
Decommissioning asset (2,231) - - (2,231)
At 31 December 2022 480,276 212 861 481,349
Acquisitions (note 11) 703,963 - - 703,963
Additions 13,396 - - 13,396
Currency translation adjustment (20,074) - - (20,074)
At 30 June 2023 1,177,561 212 861 1,178,634
---------------- --------------
Depreciation and depletion:
At 1 January 2022 137,698 167 473 138,338
Charge for the period
(note 5) 76,887 45 172 77,104
At 31 December 2022 214,585 212 645 215,442
Charge for the period
(note 5) 74,697 - 86 74,783
Currency translation adjustment (462) - - (462)
At 30 June 2023 288,820 212 731 289,763
---------------- -------------- --------------- ----------
Net book amount:
At 30 June 2023 888,741 - 130 888,871
================ ============== =============== ==========
At 31 December 2022 265,691 - 216 265,907
================ ============== =============== ==========
At 1 January 2022 328,856 45 43 328,944
================ ============== =============== ==========
Acquisition of Tailwind Energy Investments Limited
On 23 March 2023 the Group acquired Tailwind Energy Investments
Limited, which included oil and gas assets in the UK North Sea,
resulting in an acquisition of assets (see note 11) with a value of
GBP704.0 million allocated to property, plant and equipment.
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. 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
2023 2022 2022
GBP000 GBP000 GBP000
Current income tax charge 131,752 79,835 277,695
Deferred income tax (credit)/charge (8,961) (2,089) 32,687
Total taxation charge for the period 122,791 77,746 310,382
----------- ---------------
The deferred tax included in the Balance Sheet is as follows:
31 December 2022
30 June 2023
GBP000 GBP000
Deferred tax assets 405,773 12,924
Deferred tax liabilities (457,810) (166,219)
Total deferred tax (liability)/asset (52,037) (153,295)
--------------- -----------------
Reconciliation of net deferred tax liability GBP000
At 1 January 2023 (153,295)
Acquisitions (see note 11) 95,024
Tax credit for the period recognised in profit 8,961
Currency translation adjustment (2,727)
At 30 June 2023 (52,037)
-----------------
Recognised and unrecognised tax losses
The Group's Balance Sheet net deferred tax liability amount of
GBP153.3 million as at 31 December 2022 and GBP52.0 million as at
30 June 2023 arises from deferred tax liabilities primarily related
to temporary differences on fixed assets and are partially offset
by deferred tax assets recognised on ring-fence losses,
decommissioning liabilities and other temporary differences.
The Group's deferred tax assets at 31 December 2022 and 30 June
2023 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 30
June 2023 with respect to ring fence losses and allowances.
Changes to UK corporation tax legislation
The main rate of UK corporation tax for non-ring fence profits
increased from 19 per cent to 25 per cent from 1 April 2023. This
change has not had a material impact on the Group as the UK profits
are primarily subject to the UK ring fence tax rate. The Group does
not currently recognise any deferred tax assets in respect of UK
non-ring fence tax losses and therefore this rate change did not
impact the disclosed results.
The Energy Profits Levy ('EPL') on the profits earned from the
production of oil and gas in the UK was introduced in the previous
period. From 1 January 2023, the EPL is charged at the rate of 35
per cent on taxable profits in addition to ring fence corporation
tax of 30 per cent and the Supplementary Charge of 10 per cent. The
EPL is a temporary measure and will cease to apply on 31 March
2028.
On 9 June 2023, the UK government proposed the introduction of
the Energy Security Investment Mechanism (ESIM) which would end the
imposition of EPL earlier than 31 March 2028 where certain
conditions are met. Under the proposed ESIM, if both average oil
and gas prices fall to, or below, US$71.40 per barrel for oil and
54p per therm for gas, for two consecutive quarters, then the EPL
will be repealed and the headline tax rate on UK oil and gas
profits will return to 40 per cent. The government subsequently
confirmed that the measure would not be legislated for before the
triggers are met and prices are not expected to fall to, or below,
the quoted triggers before the existing EPL end date of 31 March
2028. The change as currently proposed is therefore not expected to
have a material impact for the Group.
The interim tax charge for the Group's 1H 2022 results did not
reflect an EPL charge as the legislation was not substantively
enacted at 30 June 2022.
11. Acquisition of Tailwind Energy Investments Limited
On 23 March 2023, the Company acquired 100% of the shares of
Tailwind Energy Investments Ltd for an initial purchase
consideration of GBP297.4 million. This comprised cash of GBP61.6
million and the fair value of 108,170,426 ordinary shares in Serica
Energy plc issued in exchange for all Tailwind shares. The fair
value of the shares issued was calculated using the market price of
the Company's shares of GBP2.18 on the AIM Market of the London
Stock Exchange at its opening of business on 23 March 2023.
A further 2,877,698 ordinary shares have not yet been issued to
the sellers but would form part of the maximum number of
111,048,124 ordinary shares that can be issued as part of the
purchase consideration. These will only be issued to the extent
there are no successful warranty claims and would be in addition to
the initial purchase consideration noted above.
Tailwind's activities comprise development and production oil
& gas assets in the UK North Sea. The acquisition of Tailwind
was aimed at achieving Serica's longstanding objective to have a
more diverse and broadly based UKCS portfolio of producing fields,
with material reserves and value upside potential. The transaction
represents substantial progress towards this objective with the
number of producing fields increased from five to eleven, mainly
centred around two hubs (Bruce and Triton), a substantial increase
in 2P and 2C reserves and a balance of gas and oil production.
The combination of transactions is an acquisition of interests
in a joint operation under IFRS 11 and, as the activity constitutes
a business as defined in IFRS 3 Business Combinations, the
acquisitions have been accounted for as a business combination. The
consolidated financial statements include the provisional fair
values of the identifiable assets and liabilities as at the date of
acquisition 23 March 2023, and the results of the combined
transaction assets for the three month period from the acquisition
date.
Assets acquired and liabilities assumed at date of acquisition Fair value
recognised on
acquisition
GBP000
Assets
Property, plant and equipment (note 9) 703,963
Exploration and evaluation assets -
Deferred tax asset/(liability) (note 10) 95,024
Debtors and other assets 55,559
Inventory 5,440
Cash and cash equivalents 17,600
877,586
--------------
Liabilities
Trade and other payables (58,146)
Financial liabilities (3,839)
Provisions (107,486)
Interest bearing loans (264,835)
--------------
(434,306)
--------------
Total identifiable net assets at fair value 443,280
Cash consideration 61,636
Initial consideration shares issued 235,812
Deferred consideration shares 6,273
Purchase consideration 303,721
==============
Gain arising on acquisition 139,559
==============
Fair value of consideration
The combined purchase consideration of the transaction was
GBP303.7 million, which comprised cash of GBP61.6 million, the fair
value of 108,170,426 ordinary shares in Serica Energy plc issued in
exchange for all Tailwind shares, and the fair value of a further
2,877,698 ordinary shares which have not yet been issued to the
sellers but would form part of the maximum number of 111,048,124
ordinary shares that can be issued as part of the purchase
consideration. The fair value of the shares issued was calculated
using the market price of the Company's shares of GBP2.18 on the
AIM Market of the London Stock Exchange at its opening of business
on 23 March 2023.
The gain arising on acquisition representing the excess of fair
value of the net assets acquired over the purchase consideration
largely arose due to a reduction in the value of consideration paid
based on the market price of shares issued at the completion date
of 23 March 2023 .
The excess of fair value of the net assets acquired over the
purchase consideration has been recognised as a gain on acquisition
in the income statement .
The initial accounting for the acquisition of the transaction
assets has only been provisionally determined at the end of the
reporting period. At the date of finalisation of these financial
statements, the necessary market valuations and other calculations
have not been finalised and they have therefore been provisionally
determined based on the Directors' best estimates. The fair value
of the net asset may be subsequently adjusted, with a corresponding
adjustment to the gain on acquisition prior to 23 March 2024 (one
year after the transaction).
From the date of acquisition, the Tailwind assets have
contributed GBP100.0 million of revenue and GBP24.9 million of
profit before tax in the period ended 30 June 2023. Had the
acquisition occurred on 1 January 2023, the Tailwind assets would
have contributed GBP195.7 million of revenue and GBP61.5 million of
profit before tax for the six months ended 30 June 2023.
Transaction costs of GBP1.8 million incurred in 2022 and GBP8.6
million in 1H 2023 have been expensed in the Income Statement.
Reserve Based Lending facility arrangements
Following completion of the acquisition on 23 March 2023, the
Serica Group now has reserve-based lending and junior facility
arrangements that are linked to the legacy Tailwind sub-group. This
has a reserve-based lending facility (RBL) of US$425 million from a
syndicate of banks, secured over the Tailwind sub-group's oil and
gas assets. Commitments were reduced to US$378 million effective 30
June 2023 in accordance with the facility amortisation schedule.
Interest accrues at LIBOR/SOFR plus a margin of between 2.5% to
3.1% depending on the maturity of the facility. The Tailwind
sub-group is primarily exposed to 1 month term SOFR after 30 June
2023. The facility has a maturity date of 30 June 2027 and at the
last RBL redetermination in June 2023, the facility available for
drawdown was amended to US$377 million. At the acquisition date of
23 March, the facility was drawn by US$330 million. During Q2 2023,
US$60 million of repayments were made and the facility was drawn by
US$270 million (GBP213.2 million) at 30 June 2023. The balance of
the loan in the 30 June 2023 Balance Sheet of GBP210.1 million
represents drawings of GBP213.2 million disclosed net of
unamortised facility fees of GBP3.1 million.
On 24 September 2019, the Tailwind sub-group also entered in a
Junior Facility agreement with Mercuria Energy Trading S.A. for a
facility of US$50.0 million available on demand and with a maturity
of 24 September 2026. This is a committed facility and funds can be
utilised at Serica's discretion. There were no drawdowns on this
facility as at the completion date of 23 March 2023 or to date
thereafter.
12. Equity Share Capital
As at 30 June 2023, the share capital of the Company comprised
one "A" share of GBP50,000 and 383,231,908 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 2022 268,891,044 21,186 160,807 181,993
Shares issued 4,062,328 328 856 1,184
At 31 December 2022 272,953,372 21,514 161,663 183,177
Shares issued 110,278,537 8,944 260 9,204
At 30 June 2023 383,231,909 30,458 161,923 192,381
Durin g 1H 2023, 2,108,111 ordinary shares were issued to
satisfy awards under the Company's share-based incentive schemes
and 108,170,426 ordinary shares were issued in connection with the
acquisition of Tailwind Energy Investments Ltd (see note 10).
Merger relief was applied by the group's parent entity Serica
Energy plc upon the issue of the 108,170,426 ordinary shares for
the acquisition of Tailwind Energy Investments Ltd. The valuation
of the shares issued was based on the fair value at the date of
issue, with the nominal value of the shares issued credited to
share capital and the excess value above nominal share capital
credited to a merger reserve in the consolidated Group
accounts.
3,675,175 ordinary shares have been issued in Q3 2023 to date
and as at 15 September 2023 the issued voting share capi tal of the
Company was 386,907,083 ordinary shares and one "A" share.
13. 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 Directors, officers, 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
Directors, officers, 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 2023, 3,750,000 options granted by the Company
under the Serica 2005 Option Plan were outstanding and all were
exercisable. All options awarded under the Serica 2005 Option Plan
since November 2009 have a three-year vesting period. No options
were granted in 2022 or 1H 2023 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 2022 3,900,000 0.14
Exercised during the period (150,000) 0.13
Outstanding at 30 June 2023 3,750,000 0.14
---------- -----
Long Term Incentive Plan
The following awards granted to certain Directors and employees
under the LTIP are outstanding as at 30 June 2023.
Deferred Bonus Share Awards
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. The 726,000 Deferred Bonus Share Awards outstanding
and fully vested at 31 December 2022 were all exercised in 1H 2023
prior to their expiry date in May 2023. There are no Deferred Bonus
Share Awards outstanding at 30 June 2023.
Performance Share Awards
Performance Share Awards have a three-year vesting period and
are subject to performance conditions. Performance Share Awards are
structured as nil-cost options and may be exercised up until the
tenth anniversary of the date of grant.
Performance and Retention Share Awards Number
Outstanding as at 1 January 2022 14,448,764
Granted during the year 665,632
Exercised during the year (1,787,829)
Outstanding as at 31 December 2022 13,326,567
------------
Granted during the period 1,075,668
Exercised during the period (1,970,138)
Lapsed during the period (267,826)
Outstanding as at 30 June 2023 12,164,271
------------
Exercisable as at 31 December 2022 7,264,623
Exercisable as at 30 June 2023 7,965,766
LTIP awards in 2023
In May 2023, the Company granted nil-cost Performance Share
Awards over 1,075,668 ordinary shares under the LTIP. The award was
made to members of the Group's executive team and senior
management.
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, the highest average share
price must be at least equal to 500p during the 180 day period
terminating on the end of the performance period together with a
significant decrease in carbon emissions per barrel of oil
equivalent produced. All of the total awards were outstanding and
are not exercisable at 30 June 2023.
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.
GBP2,432,000 has been charged to the income statement for the
six-month period ended 30 June 2022 (1H 2022 - GBP823,000) and a
similar amount credited to the share-based payments reserve,
classified as 'Other reserve' in the Balance Sheet.
14. 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 2022, 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 Bruce, Keith and Rhum fields
CPR Competent Persons Report
ESG Environmental, Social and Governance
FDP Field Development Plan
FPS Forties Pipeline System
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 NKFBNKBKBACD
(END) Dow Jones Newswires
September 19, 2023 02:00 ET (06:00 GMT)
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