TIDMSQZ
RNS Number : 1362N
Serica Energy PLC
28 September 2021
Serica Energy plc
("Serica" or the "Company")
Results for the six months ended 30 June 2021
London, 28 September 2021 - Serica Energy plc (AIM: SQZ) today
announced its financial results for the six months ended 30 June
2021. The results are included below and copies are available at
www.serica-energy.com and www.sedar.com .
Mitch Flegg, Serica's CEO stated:
"In the current environment Serica's focus on gas production and
investment in new projects is expected to generate very significant
returns for shareholders and help support further investment.
In the first half of the year, we continued to pursue our
strategy of capital investment in our assets. This has allowed us
to recomplete the Rhum R3 well and bring it into production in
August and to drill the Columbus development well which is now
ready to produce. Serica's production is over 80% gas and we are
delighted that we are already seeing the benefits of our investment
strategy in the second half through increasing production levels at
a time of record high wholesale gas prices.
We expect first production from Columbus in Q4 this year and
then Serica's share of receipts under the BKR Net Cash Flow Sharing
mechanism increases from 60% to 100% on 1 January 2022. Later in
2022 we intend to drill the North Eigg well which, if successful,
will enhance gas reserves in the BKR area and potentially extend
the life of Bruce and related infrastructure.
Serica is currently responsible for around 5% of UK gas
production and our role in enhancing and extending the life of that
production and helping to maintain forward supply during a period
of energy transition, is essential to meet UK energy needs."
First Half Performance
-- Gross profit of GBP46.0 million (1H 2020: loss of GBP19.8
million) and cash flow from operations of GBP63.8 million (1H 2020:
GBP19.3 million).
-- Group 1H average production of 18,900 boe per day net to
Serica compared to 21,600 boe per day for 1H 2020 after extended
field maintenance shut-ins during H1 following last year's COVID-19
related deferrals.
-- Rhum R3 well workover completed and commenced production in
late August 2021 . Columbus production well drilled and tied into
the export system ready for first production in Q4.
-- Capital investment of GBP43.0 million (2020: GBP26.6 million)
all funded from internal cash resources.
Financial Highlights
-- Closing cash balance up at GBP92.0 million (31 December 2020:
GBP89.3 million) despite significant capex spend.
-- Average realised sales price of US$43.30 per boe (1H 2020:
US$15.20 per boe) before net hedging gains/losses.
-- Average operating cost of US$16.05 per boe for 1H 2021 (1H
2020: US$15.12 per boe) reflected lower production in the period -
underlying costs reduced by 10% during 1H 2021 (2020: 10%).
-- Operating profit of GBP5.5 million (1H 2020: loss of GBP12.7
million) after GBP30.3 million of unrealised hedging
provisions.
-- Profit before tax of GBP2.2 million (1H 2020: GBP20.4
million). Profit after tax of GBP1.3 million (1H 2020: GBP12.4
million) after non-cash deferred tax provision of GBP0.9 million
(1H 2020: GBP8.0 million).
Operational
-- 10% reduction in operating costs during 1H 2021 builds on
similar reduction already achieved during 2020. This translates
into a reduction in operating costs per boe as new production
volumes delivered from R3 and Columbus during 2H 2021.
-- The Rhum R3 well workover adds more than 4,000 boe/d to
Serica's share of Rhum gas production capacity.
-- Columbus well drilled to measured depth of 17,600ft and
flowed predominantly gas at over 8,000 boe/d gross (Serica
50%).
Environmental, Social and Governance
-- Additional Rhum R3 production utilises existing facilities
reducing BKR emissions intensity and operating cost per boe.
-- Single Columbus well also uses existing offtake
infrastructure, limiting additional emissions and cost per boe.
-- Such investment boosts domestic low emission gas supplies and
reduces need for higher emission imports thus supporting the UK's
energy transition.
-- We continue to seek further opportunities to reduce the
carbon intensity of our production and deliver our ESG
objectives.
-- Andy Bell has joined the Board as CFO on 3 September and
today we announce the appointment of Richard Rose as a
Non-Executive Director.
Outlook
-- New production from Rhum R3 and Columbus well timed to
benefit from the unprecedented rise in gas prices from 2020
lows.
-- In view of the extraordinary volatility in global gas markets
over the past 18 months we will maintain a prudent hedging
programme whilst retaining material upside - over 80% of projected
oil and gas volumes unhedged.
-- 2020 dividend of 3.5 pence per share (2019: 3 pence per
share) paid in July. The level of dividend for 2021 will be
reviewed in light of the strong gas price trends currently
unfolding in the second half of this year.
-- Serica's share of receipts retained under the BKR Net Cash
Flow Sharing mechanism increases from 60% to 100% on 1 January
2022.
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 20 years of experience in oil & gas exploration,
production and development and is a member of the Society of
Petroleum Engineers (SPE).
Enquiries:
Serica Energy plc +44 (0)20 7390 2030
Tony Craven Walker, Executive Chairman
Mitch Flegg, CEO
Andy Bell, CFO
Peel Hunt (Nomad & Joint Broker) +44 (0)20 7418 8900
Richard Crichton / David McKeown / Alexander
Allen
Jefferies (Joint Broker) +44 (0)20 7029 8000
Tony White / Will Soutar
Vigo Consulting
Patrick d'Ancona / Chris McMahon / Claudia +44 (0)20 7390
Cowan 0230 serica@vigoconsulting.com
NOTES TO EDITORS
Serica Energy is a British independent oil and gas exploration
and production company with exploration, development and production
assets in the UK.
Serica is the operator of the producing Bruce, Keith and Rhum
fields ("BKR") in the UK Northern North Sea, holding interests of
98%, 100% and 50% respectively. Serica also holds an 18%
non-operated interest in the producing Erskine field in the UK
Central North Sea and a 50% operated interest in the Columbus
Development.
Further information on the Company can be found at
www.serica-energy.com .
The Company's shares are traded on the AIM market of the London
Stock Exchange under the ticker SQZ and the Company is a designated
foreign issuer on the TSX. To receive Company news releases via
email, please subscribe via the Company website.
FORWARD LOOKING STATEMENTS
This disclosure contains certain forward looking statements that
involve substantial known and unknown risks and uncertainties, some
of which are beyond Serica Energy plc's control, including: the
impact of general economic conditions where Serica Energy plc
operates, industry conditions, changes in laws and regulations
including the adoption of new environmental laws and regulations
and changes in how they are interpreted and enforced, increased
competition, the lack of availability of qualified personnel or
management, fluctuations in foreign exchange or interest rates,
stock market volatility and market valuations of companies with
respect to announced transactions and the final valuations thereof,
and obtaining required approvals of regulatory authorities. Serica
Energy plc's actual results, performance or achievement could
differ materially from those expressed in, or implied by, these
forward-looking statements and, accordingly, no assurances can be
given that any of the events anticipated by the forward-looking
statements will transpire or occur, or if any of them do so, what
benefits, including the amount of proceeds, that Serica Energy plc
will derive therefrom.
INTERIM REPORT FOR THE SIX MONTH PERIODED 30 JUNE 2021
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 27
September 2021 and should be read in conjunction with the unaudited
interim consolidated financial statements for the period ended 30
June 2021, 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
Since the start of 2021 Serica has benefitted from a
much-improved economic environment, most notably oil and gas prices
which have recovered from the very low levels seen last year.
Serica's production is over 80% gas and so the recent exceptional
rise in wholesale gas prices has a particularly material impact.
Market gas prices averaged over 56p per therm in the first half of
2021 which is some three times higher than the corresponding period
in 2020 and are averaging close to 150p per therm for September
2021. Prices have strengthened even further in the second half,
coinciding with second half increases in Serica's gas production as
new projects (R3 and Columbus) come on-line.
As a result of increased oil and gas prices in the first half,
Serica's sales revenue for the six-month period was GBP100.8
million compared to GBP46.0 million for the corresponding period in
2020, notwithstanding reduced first half production levels to
accommodate planned maintenance programmes. Gross profit was
GBP46.0 million compared to a gross loss of GBP19.8 million in the
same period in 2020.
Production net to Serica for the period averaged 18,900 boe/d
(1H 2020: 21,600 boe/d) and was impacted by the planned maintenance
outage for the Forties Pipeline System and additional work designed
to catch up on work programmes deferred from last year by COVID-19
restrictions. Production for the second half of the year will be
much improved as the impact of R3 and Columbus is seen, and the
full year guidance is now set at between 23,000 and 25,000 boe/d.
The outlook for the second half of this year is particularly
encouraging as gas prices have strengthened to new record highs. We
are already seeing the benefits of these increases in July and
August sales revenues with September revenues boosted further still
by increasing gas production.
Significantly improved net cash inflow from 1H operations
(GBP63.8 million compared with GBP19.3 million in 1H 2020),
combined with strong cash balances, has allowed the Company to
successfully continue its growth strategy of investment in projects
designed to enhance and extend future production profiles. The work
on the R3 well intervention project overcame complex technical
issues and was successfully concluded. A well test was performed
which demonstrated that the well can deliver at gross production
rates in excess of 10,000 boe/d ([1]) . The well has subsequently
been put into production. The Columbus development well was also
drilled to a measured depth of 17,600ft with a horizontal section
of over a mile in length. The completion equipment has been
successfully installed into the well and a flow test was performed
and resulted in a stabilised gross flow rate of over 8,000 boe/d
([2]) . The well has now been hooked up and first production is
expected in Q4 2021.
Both of these capital projects optimise the use of existing
equipment thus minimising their environmental impact. Columbus is
tied into the Arran pipeline that runs into the Shearwater platform
and so the additional pipeline and processing equipment associated
with the well are minimal. R3 was drilled and tied into Bruce in
2006 and we carried out the essential work to bring it back into
service and do the job it was designed to do. Both projects will
increase our gas production into the UK, providing much needed
domestic gas during the energy transition. That both are being
brought into production at a time of severe gas shortages in the UK
and unprecedented gas prices will have a material impact on the
second half, providing strong support for our ongoing investment
programme aimed at maximising existing resources and extending
infrastructure life.
On our Bruce platform we continue to drive down our emissions
and are on track to achieve a 20% reduction in such emissions
compared to 2018 figures ([3]) . Our 2021 flare volumes remain low,
maintaining a 65% reduction since 2018, due to best practice and
improved operating procedures. We continue to look for improvements
and have installed Artificial Intelligence software to track
performance and identify further emissions savings. R3 production
puts us in a strong position to lower the carbon intensity of Bruce
going into 2022 as the platform runs more efficiently.
Our growth strategy will continue into 2022 as we drill the
North Eigg exploration well. This is an exciting opportunity
targeting a large gas prospect close to existing Serica
infrastructure and lying within the BKR area. In the case of
success at North Eigg we believe that it would be possible to
develop the resources in a carbon neutral manner.
Serica continues to benefit from having no debt, significant
cash reserves, limited decommissioning liabilities and from gas
being a material part of our portfolio. This enabled the payment of
an increased dividend of 3.5p per share in July this year and it is
our intention to remain a regular dividend payer.
Last year our gas price hedging programme played an important
part in sustaining our financial stability during a very
challenging period. This allowed us to initiate a dividend policy
in 2020 whilst also maintaining our capital investment programme
through 2020 and 2021. This year the unprecedented and continuing
surge in gas prices has required significant accounting provisions
based upon future-period hedge valuations. This is reflected in our
first half reported profit which is net of a GBP30.3 million
non-cash hedge provision against GBP3.3 million in the prior year
first half. It is important to recognise that this provision will
only be realised if gas prices continue to maintain their current
very high levels but in those circumstances the Company will be
benefitting enormously from the high prices as around 80% of the
Company's projected oil and gas production is unhedged. In view of
the extraordinary scale of gas price volatility seen over the past
eighteen months, with unprecedented lows quickly followed by
unprecedented highs, we believe it important to maintain a prudent
price hedging programme within sensible cost constraints whilst
retaining material upside exposure.
Our financial strength positions us well to take advantage of
the opportunities to expand our portfolio through M&A (Mergers
& Acquisition) activity. However, extreme price volatility
makes transactions aimed at utilising the Company's skills,
extending infrastructure life through new investment and building
on synergies difficult to execute. During the period we have made
proposals to acquire significant asset packages but to date we have
not secured a deal at a price that is attractive to us. We will not
overpay in order to secure a quick deal, but we continue to work on
a number of opportunities to grow the Company.
At the end of this year, the BKR net cash flow sharing
arrangements come to an end after four years during which the
Company has been able to enhance the performance of the assets
materially from all aspects and from which all of our partners have
benefitted. We are proud of this performance. Under these
arrangements we shared the net cash flow with the vendors of the
relevant assets with Serica receiving 40% of the relevant net cash
flow from the BKR assets in 2018, rising to 50% in 2019 and 60% in
2020 and 2021. At the end of this year we enter a new phase for the
Company when we will be retaining 100% of the net cash flow.
Finally, I would like to thank the staff and management of the
Company and our contractors and to congratulate them all on the
significant achievements this year. The constraints imposed by the
ongoing Covid-19 pandemic have added significant complexity to all
of our operations and logistics. The achievements of 2021 are a
demonstration of Serica's outstanding operating capability.
Mitch Flegg
Chief Executive Officer
27 September 2021
REVIEW OF OPERATIONS
UK Operations
UK Production
Northern North Sea: Bruce Field - Blocks 9/8a, 9/9b and 9/9c,
Serica 98% and operator
Serica is operator of the Bruce facilities which consist 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 platform that is currently mothballed. The offshore team
is supported onshore from the Serica technical headquarters in
Aberdeen.
The Bruce field is produced through a combination of platform
wells and subsea wells tied back to the platform, with a total of
over 20 wells producing from multiple reservoirs and compartments.
Bruce production is predominantly gas, which is rich in natural gas
liquids ("NGL's"), plus condensate. Gas is exported through the
Frigg pipeline to the St Fergus terminal, where it is separated
into sales gas and NGL's. Condensate is exported through the
Forties Pipeline System to Grangemouth where it is sold as Forties
blend oil.
As with the rest of the UK and the offshore industry, we have
continued to manage the impact of the COVID-19 outbreak. We
continue to enforce our travel policies, including PCR testing
prior to mobilization, social distancing, repeat testing and the
option of home working for all office-based staff. As of the date
of writing, Serica has experienced no interruption in production
due to the COVID-19 outbreak though the associated reduced
personnel levels on the platform caused some deferral of planned
programmes which we are working to catch up this year. We continue
to monitor the ongoing situation and are constantly working with
our medical advisors to minimise risk to our staff.
During May and June, we executed the planned platform outage
which was timed to align with maintenance on the Forties pipeline
system. This outage had been delayed since summer 2020 due to
COVID. The work was carried out safely within the COVID
restrictions and delivered the planned scopes on budget including
additional work delayed from 2020. It is intended to carry out
further well work during 2H to sustain field production levels.
The commute undertaken by our workers is one of the more unusual
ways to get to work and at the platform itself, the helideck is a
key to being able to perform this operation safely at all times and
in all weathers. This year we have accomplished the complete strip
down, recoat and return to service of the helideck using a
technology that saved time (operating within a restricted helideck
is logistically challenging) and reduced the waste generated from
the activity.
The ongoing work of efficiently running Bruce has confirmed our
latest projected field life to 2030. As before, further extensions
are possible depending on the operating environment and sustaining
robust late life field economics.
Bruce field production in 1H 2021 averaged in excess of 6,800
boe/d (1H 2020: 9,300 boe/d) of exported oil and gas net to
Serica.
The latest independent report of reserves, compiled by RISC
Advisory, estimated 2P reserves of 15.7 million boe net to Serica
as of 1 January 2021 (2020: 22.2 million boe).
Northern North Sea: Keith Field - Block 9/8a, Serica 100% and
operator
Keith is a small oil field produced via one subsea well tied
back to the Bruce facilities and requires very little maintenance.
Keith produces at a relatively low rate but contributes to oil
export from Bruce at minimal additional cost. In the first half of
the year we undertook two platform based well interventions which
have returned the field to service at limited rates. Further
interventions are planned during the remainder of 2021 to improve
these rates.
No 2P reserves were included in the most recent reserves report
pending successful reinstatement of full production.
Northern North Sea: Rhum Field - Block 3/29a, Serica 50% and
operator
The Rhum field is a gas condensate field which has been
producing from two subsea wells, R1 and R2, tied into the Bruce
facilities through a 44km pipeline. Rhum production is separated
into gas and oil and exported to St Fergus and Grangemouth
respectively along with Bruce and Keith production. Both wells are
capable of producing at high rates approaching 12,000 boe/d gross
of which some 95% is gas. Average Rhum production from the two
wells in 1H 2021 was approximately 10,400 boe/d net to Serica after
the extended summer maintenance shut-in (1H 2020: 9,900 boe/d).
During late 2020 and 1H 2021, intervention work has been
successfully undertaken on the third well, R3. The well originally
encountered technical issues while it was being completed in 2006
and had remained shut-in ever since. We removed the hydrate that
had formed whilst the well was being completed and also recovered
equipment which had been stuck downhole during the original
operations. However, the process of removing the original 5 1/2
inch completion equipment and replacing it with 7 inch completion
equipment proved to be far more complicated than had been
anticipated due to the poor condition of the existing equipment and
consequently these operations extended until June with the rig
being released in early July 2021. A diving support vessel ("DSV")
was then deployed to install the subsea control equipment and the
well was brought into production on 23 August.
The well has demonstrated a capability to add more than 4,000
boe per day net to Serica's share of Rhum production. This is
enabling us to accelerate field production, increase resilience by
reducing dependency on the other two wells and is expected to bring
additional reserves into the economic category. Further work will
continue in the coming weeks to optimise and stabilise
production.
The latest independent report of reserves, compiled by RISC
Advisory, estimated 2P reserves of 35.1 million boe net to Serica
as at 1 January 2021 (2020: 28.7 million boe).
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
condensate field located in the UK Central North Sea. Serica's
co-venturers are Ithaca Energy 50% (operator) and Harbour 32%.
The Erskine field is produced through five wells from the
Erskine normally unattended installation, with gas and liquids
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 terminal at Teesside.
Erskine was shut down in May as part of the Lomond platform
outage with the timing linked to the Forties pipeline shutdown.
During the outage a significant programme of maintenance and
upgrade was carried out including the change out of the engine
powering the export compressor and its associated control system.
The extent of work on Erskine and the Lomond platform followed
COVID-related restrictions during 2020 when only reduced
maintenance was possible. Erskine production restarted in
mid-August.
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 2021 prior to the outage
averaged 2,400 boe/d net and 1,600 boe/d for the period as a whole
(1H 2020: 2,360 boe/d net).
The latest independent report of reserves, compiled by RISC
Advisory, estimated 2P reserves of 3.1 million boe net to Serica as
of 1 January 2021 (2020: 4.1 million boe).
UK Development
Central North Sea: Columbus Development - Blocks 23/16f and
23/21a (part), Serica 50%
Serica is operator with partners Tailwind Mistral Limited (25%)
and Waldorf Production Limited (25%). Columbus is located in the
Eastern Central Graben, UK Central North Sea and the reservoir is
located within the Forties Sandstone. Columbus has been designated
as a development within the Lomond Field Area; it is however
independent of Lomond, having separate development consent, export
route and licence terms.
The development comprises a single subsea well drilled to a
total depth of 17,600ft with a 5,600ft horizontal section through
the reservoir, connected to the Arran-Shearwater
pipeline. Columbus production will be exported through the
pipeline along with Arran field production. The Arran export
pipeline was approved at a similar time to Columbus and has now
been constructed, installed and tied into the Shearwater platform.
When production from Arran and Columbus reaches the Shearwater
facilities, it will be separated into gas and liquids and exported
via the SEGAL line to St Fergus and Forties Pipeline System to
Cruden Bay respectively.
Planning for the development began as soon as FDP approval was
received in October 2018. Since that time, Serica has worked
closely with Shell, the operator of the Arran field, to ensure
effective construction and operation of the two developments. The
Columbus horizontal development well and all four Arran development
wells have been drilled, completed and tied into the export
system.
A flow test on the Columbus well achieved a stabilised flow rate
of 38.0 mmscf/day of gas and 1,560 bbls/d of condensate through a
56/64ths inch choke (over 8,000 boe/d). This rate was at the upper
end of the pre-drill range of expected outcomes and was constrained
by the surface well test equipment on board the Maersk Resilient
Heavy-Duty Jack-Up drilling rig.
Columbus will start-up immediately after the Arran Field wells
have been brought on-line, stabilised and tested; initial
production is now expected in Q4 2021 at anticipated gross rates of
around 7,000 boe/d of which 75% is expected to be gas.
The latest independent report of reserves, compiled by RISC
Advisory, estimated 2P reserves of 7.1 million boe net to Serica as
at 1 January 2021 (2020: 6.7 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 comprises Blocks 3/24c and
3/29c and contains the North Eigg and South Eigg prospects. The
official start date for the licence was 1 January 2020. The work
programme involves reprocessing seismic and drilling an exploration
well within three years of the start of the licence. The North Eigg
prospect has been high-graded for drilling, being clearly visible
on 3D seismic data and sharing many similarities with the nearby
Rhum field, operated by Serica.
Work has started on planning the exploration well, which is
expected to be high temperature and high pressure. A tendering
process has been held for long-lead items and negotiations are
under way to secure a drilling rig.
In the event of a commercial discovery, Serica would seek a
fast-track route to develop the field, potentially via a subsea
tie-back to the Serica operated and 98% owned Bruce facilities,
which are to the south of the prospect. As well as providing Serica
with potentially significant additional reserves, a tie-back to the
Bruce platform would reduce combined unit operating costs and
extend the economic life of this strategic North Sea
infrastructure. The use of existing offtake facilities would also
significantly restrict additional carbon emissions. The Company
takes its ESG responsibilities very seriously and is therefore
undertaking conceptual design studies aimed at identifying ways
that such a development could be undertaken while working within
the framework of the North Sea Transition Deal agreed between the
industry and government to expedite the energy transition.
Skerryvore and Ruvaal- Blocks 30/12c (part), 30/13c (split),
30/17h, 30/18c and 30/19c (part), Serica Energy (UK) Limited: 20%
working interest, operator Parkmead
The Skerryvore and Ruvaal prospects lie in the Central North
Sea, 60km south of the Erskine field. Potential for both sandstone
and chalk reservoirs has been identified.
Over 500km(2) of 3D seismic data was purchased over the licence
areas. However, the company contracted to reprocess the data,
enhancing it prior to interpretation, was unable to deliver the
dataset in the agreed timescale. That meant it was not possible to
undertake the necessary work programme in time to make a drill or
drop decision by the end of the initial three-year term, in
September 2021. An extension application was therefore submitted to
the Oil and Gas Authority and a drill or drop decision is now due
by September 2022.
Licence Awards in the UK 32(nd) licensing round
In December 2020 Serica was formally awarded four new blocks in
the UK 32(nd) licensing round. Blocks 3/25b, 3/30, 4/26 and 9/5a
are in the vicinity of the Bruce hub and include several leads
which, if successful, could be tied back to Serica's existing
infrastructure. The work programme does not include any commitment
wells but is designed to mature these leads to drill-ready
status.
F INANCIAL REVIEW
Field revenues and costs are booked for Serica's full equity
interests and included within gross profits. Under the BKR deals,
amounts are due to the asset vendors for net cash flow sharing (40%
in 2020 and 2021) and certain other deferred payments. Estimates of
these amounts were included within the fair value upon acquisition
and subsequent changes are included as 'Change in fair value of BKR
financial liability' within profit before tax for each reported
period. Such variations are driven principally by changes in
commodity sales prices, costs and production volumes.
1H 2021 RESULTS
During 1H 2021 Serica generated a gross profit of GBP46.0
million (1H 2020 - loss of GBP19.8 million) and cash flow from
operations of GBP63.8 million (1H 2020 - GBP19.3 million). At the
operating profit level this was reduced to GBP5.5 million (1H 2020
- loss of GBP12.7 million) after non-cash provisions for unrealised
hedging losses of GBP30.3 million (1H 2020 - GBP3.3 million).
Profit after tax for the period was GBP1.3 million compared to
GBP12.4 million for 1H 2020.
The strong recovery in gas prices during this period boosted
gross profit and cash flow from operations. However, even greater
increases in forward gas pricing, particularly through to the end
of next winter, have also caused significant non-cash accounting
provisions, resulting from the Group's hedging position, which have
reduced profits at the operating level. Such provisions are
calculated based upon forward market gas prices at the balance
sheet date and consequently reflect the impact of the recent
exceptionally high future gas pricing on the settlement of pricing
hedges in future periods. They do not, however, factor in the
benefits that would be realised from gas sales should actual prices
for those future periods match such futures market pricing.
The increase in market gas prices from the summer period last
year, already strong during H1 2021, has continued upwards since 30
June. Serica applies swaps and equivalent fixed pricing to a
maximum 25% of projected gas production volumes which represents
approximately 20% of total production once oil and other liquids
are taken into account. It therefore stands to benefit from 80% or
more of this exceptional price upside from gas and oil prices.
Serica has already been benefitting from the current high prices
during Q3 to-date and the Rhum R3 well, following first production
from on 23 August, is now making an increasing contribution to
overall BKR volumes. The Company expects to benefit further as
Columbus production starts in Q4 2021. It remains the Company's
strategy to protect commodity pricing for a proportion of its
future production and we will continue to build hedge protection,
typically spread over the forward twelve to eighteen month period,
where market pricing supports this.
Sales revenues
Total product sales volumes for the half year comprised
approximately 153 million therms of gas (1H 2020: 177 million
therms), 365,000 lifted barrels of oil (1H 2020: 534,000 barrels)
and 24,200 metric tonnes of NGLs (1H 2020: 32,100 metric tonnes).
These generated total 1H 2021 product sales revenue of GBP100.8
million (1H 2020: GBP46.0 million) consisting of BKR revenues of
GBP89.3 million (1H 2020: GBP37.7 million) and Erskine revenues of
GBP11.5 million (1H 2020: GBP8.3 million). This represented average
sales prices, net of system fees, of 50 pence per therm (1H 2020:
14 pence per therm), US$65.0 per barrel (1H 2020: US$41.4 per
barrel) and GBP284 per metric tonne (1H 2020: GBP144 per metric
tonne) respectively. This gave a combined realised sales price for
lifted volumes of US$43.30 per barrel of oil equivalent (1H 2020:
US$15.20 per boe). This excludes realised gas price hedging losses
of GBP5.7 million which are detailed below.
Gross profit
The gross profit for 1H 2021 of GBP46.0 million (1H 2021: gross
loss of GBP19.8 million) was after overall cost of sales of GBP54.9
million (1H 2021: GBP65.7 million). This comprised GBP40.1 million
of operating costs (1H 2020: GBP45.8 million) and GBP15.3 million
of non-cash depletion charges (1H 2020: GBP18.7 million) partially
offset by a GBP0.5 million credit representing a small increase
during the period of the opening liquids underlift position (1H
2020: charge of GBP1.2 million). Reductions in both operating costs
and depletion charges reflected lower production volumes plus
operating cost savings. Operating costs comprise costs of
production, processing, transportation and insurance and averaged
approximately US$16.05 per boe (1H 2020: US$15.12). An overall
reduction in operating costs of some 10% was achieved during the
period. The increase in operating costs per barrel reflected the
impact of lower production volumes and the strengthening of the US$
against the GBGBP and does not reflect an increase in the
underlying trend.
Operating profit before BKR fair value adjustment, net finance
revenue and tax
The operating profit for 1H 2021 was GBP5.5 million compared to
an operating loss of GBP12.7 million for 1H 2020. This included
GBP36.0 million of net commodity price hedging losses (1H 2020:
gain of GBP8.3 million) comprising realised hedging losses of
GBP5.7 million (1H 2020: gains of GBP11.7 million) and unrealised
hedging losses of GBP30.3 million (1H 2020: losses of GBP3.3
million). The unrealised losses reflected the surge in future gas
prices at the close of 1H 2021 and will only become fully realised
should actual prices for 2H 2021, 2022 and 1H 2023 reach those
levels.
Administrative expenses of GBP3.0 million compared to GBP2.8
million for 1H 2020 whilst share-based payments were GBP0.9 million
(1H 2020: GBP0.7 million) and currency losses were GBP0.6 million
(1H 2020: gains of GBP2.5 million) largely arising on US$
holdings.
Profit before taxation and profit for the period after
taxation
Profit before taxation was GBP2.2 million (1H 2020: GBP20.4
million) after an increase in fair value of the BKR financial
liability of GBP3.1 million (1H 2020: decrease of GBP33.0 million)
plus net finance costs of GBP0.2 million (1H 2020: net finance
revenue of GBP0.1 million). Net finance costs/revenue represent the
discount unwind on decommissioning provisions less interest earned
on cash deposits.
The fair value loss of GBP3.1 million arose following an upwards
revision of the fair value of the balance sheet financial liability
relating to remaining consideration projected to be paid under the
BKR agreements. The fair value of this liability is re-assessed at
each financial period end. The fair value loss in 1H 2021 reflected
higher sales prices largely offset by lower volumes and increased
costs. 2H 2021 is the last period to which net cash flow sharing
applies and Serica will retain 100% of net cash flow from the BKR
fields thereafter.
The 1H 2021 taxation charge of GBP0.9 million (1H 2020: GBP8.0
million) solely comprised a non-cash deferred tax element as the
Company continued to benefit from accumulated losses carried
forward from previous years. It is nonetheless required to make
provision for deferred taxes in recognition of future periods when
all losses have been utilised and cash payments commence. It is
anticipated that remaining tax losses carried forward will be
utilised during 2H 2021.
Overall, this generated a profit after taxation for the first
six months of 2021 of GBP1.3 million compared to a profit after
taxation of GBP12.4 million for 1H 2020.
GROUP BALANCE SHEET
The balance sheet at 30 June 2021 demonstrates Serica's
continuing resilience during a period of significant capital
expenditures. This has allowed the Company to fund Rhum R3 well
work and the Columbus development programme from its cash resources
without recourse to borrowing and also to declare a cash dividend,
subsequently paid in July, of GBP9.4 million, increased from the
prior year dividend of GBP8.0 million.
Exploration and evaluation assets of GBP1.6 million showed an
increase from GBP1.0 million at the end of 2020 reflecting
exploration activities on UK licences (primarily North Eigg) during
the period.
Total property, plant and equipment increased from GBP311.1
million at year end 2020 to GBP338.1 million at 30 June 2021 after
booked expenditure on Columbus and Rhum during 1H 2021 of GBP42.4
million, partly offset by depletion charges of GBP15.3 million (1H
2020: GBP18.7 million). Depletion charges represent the allocation
of field capital costs over the estimated producing life of each
field and principally comprise costs of asset acquisitions.
An inventories balance of GBP5.0 million at 30 June 2021 showed
a small increase from GBP4.6 million at the end of 2020. Trade and
other receivables increased from GBP41.3 million at the end of 2020
to GBP42.5 million at 30 June 2021.
Cash balances of GBP92.0 million at 30 June 2021 showed an
increase from GBP89.3 million held at 31 December 2020 and
reflected cash flow from operations partially offset by cash
capital expenditures of GBP43.0 million and BKR acquisition
outflows of GBP18.0 million during the period.
Current trade and other payables of GBP44.0 million at 30 June
2021 increased significantly from a closing 2020 balance of GBP31.1
million. This reflected significant payments on the R3 and Columbus
capital projects pending settlement in Q3. This will be followed by
proportionate recovery from partners and also, in the case of R3,
under the net cash flow sharing arrangements.
The derivative financial liability of GBP9.7 million at year end
2020 had increased significantly to GBP40.0 million at 30 June
2021. This represents the valuation of gas price hedges in place at
the respective period ends and the consequent amounts projected to
be payable based upon futures pricing prevailing at those points.
Period end June 2021 reflected very strong futures pricing which,
should this be realised, would deliver greatly increased gas sales
revenues during 2H 2021, 2022 and 1H 2023.
The dividend payable of GBP9.4 million at 30 June 2021 (31
December 2020: GBPnil) represents the final cash dividend for 2020
of 3.5 pence per share approved at the annual general meeting on 24
June 2021 and paid in July.
Financial liabilities of GBP47.6 million (31 December 2020:
GBP53.6 million) included within current liabilities and GBP39.9
million (31 December 2020: GBP48.8 million) included within
non-current liabilities comprise total remaining amounts projected
to be paid under the BKR acquisition agreements.
The current financial liability comprises amounts estimated to
fall due over the final six months of the net cash flow sharing
arrangements, a fixed payment of GBP16 million contingent upon a
successful outcome of the Rhum R3 well work and contingent
consideration in respect of Rhum field performance during 2021.
Amounts due under the net cash flow sharing arrangements are based
on forward projections of production volumes and sales prices.
Actual payments will be calculated on volumes and prices achieved
in 2H 2021. The non-current financial liability comprises deferred
consideration in respect of BKR decommissioning and oil linefill.
Under arrangements for those BKR field interests acquired from BP,
Total E&P and BHP, decommissioning liabilities were retained by
the vendors with Serica liable to pay deferred consideration
equivalent to 30% of the actual costs of decommissioning net of tax
recovered by them.
The overall reduction in financial liabilities of GBP14.9
million during 1H 2021 comprised cash amounts of GBP18.0 million
paid in the period partially offset by GBP3.1 million charged
through the income statement due to higher than previously forecast
net cash flow sharing payments in respect of 1H 2021 plus a
re-assessment of the estimated fair value of projected remaining
payments as at 30 June 2021.
Non-current provisions of GBP23.0 million have been made in
respect of decommissioning liabilities for the Bruce and Keith
interests acquired from Marubeni (31 December 2020: GBP22.8
million). These were not subject to the same deferred consideration
arrangements as applied for those field interests acquired from BP,
Total E&P and BHP described above. No provision is included for
decommissioning liabilities related to the Erskine facilities as
these liabilities are retained by BP up to a cap which is not
projected to be exceeded.
The deferred tax liability of GBP81.5 million at 30 June 2021
has increased from GBP80.6 million at year end 2020 and reflects
accounting provisions that will be released in future periods,
partially offsetting actual tax charges once the Group's tax losses
have been fully utilised and Serica commences cash tax
payments.
Overall net assets have decreased from GBP199.8 million at year
end 2020 to GBP192.8 million at 30 June 2021 after recognising a
liability for the dividend of GBP9.4 million paid in July 2021.
The increase in share capital from GBP181.6 million to GBP181.7
million arose from shares issued following the exercise of share
options and shares issued under an employee share scheme, whilst
the increase in other reserves from GBP19.7 million to GBP20.6
million arose from share-based payments related to share option
awards.
CASH BALANCES AND FUTURE COMMITMENTS
Current cash position and price hedging
At 30 June 2021 the Group held cash and cash equivalents of
GBP92.0 million (31 December 2020: GBP89.3 million). This is after
capital investments during the period of GBP43.0 million plus
monthly net cash flow sharing payments and other BKR consideration
totalling GBP17.0 million and GBP1.0 million respectively. Amounts
due under the net cash flow sharing arrangements are set at 40% of
BKR net operating cash flows for 2021 and then zero thereafter. Of
the total cash, GBP16.4 million was held in a restricted account
supporting letters of credit to secure decommissioning liabilities
(GBP6.4 million) and security (GBP10.0 million) related to gas
price swaps.
At 30 June 2021 Serica held gas price swaps covering 192,500
therms per day for H2 2021 at an average price of 39 pence per
therm. For 2022, it held gas price swaps covering 300,000 therms
per day for H1 and 225,000 therms per day for H2 at average prices
of 45 pence per therm and 42 pence per therm respectively. For H1
2023 it held gas price swaps covering 125,000 therms per day at an
average price of 48 pence per therm. At 30 June 2021 cash margin
calls of GBP10.7 million had been paid to hedge counterparties as
security against settlement of future hedge instruments (31
December 2020: GBP1.8 million) and is not included in 30 June 2021
cash totals.
In Q3 2021 to date, Serica has obtained additional gas price
swaps covering 12,500 therms per day for 2H 2021, 50,000 therms per
day for 2022 and 25,000 therms per day for 2023 at average prices
of 94, 66 and 51 pence per therm respectively.
Field and other capital commitments
There are no existing capital commitments on the Erskine
producing field and net production revenues are expected to cover
all ongoing field expenditures. Serica's share of decommissioning
costs relating to its 18% Erskine field interest will be met by BP
up to a level of GBP31.3 million, adjusted for inflation, and
Serica's current estimate of such costs is below this level.
There are no significant existing capital commitments on the BKR
producing fields other than an estimated GBP2.0 million net to
Serica outstanding as at 30 June 2021 on the Rhum R3 well work,
which was completed in August 2021. Potential further programmes to
enhance current production profiles and extend field life are under
consideration. Net revenues from Serica's share of income from the
BKR fields, after net cash flow sharing payments, is expected to
cover Serica's retained share of ongoing field expenditures as well
as other contingent or deferred consideration due under the
respective BKR acquisition agreements set out below.
The Columbus development well has been completed with first gas
expected in Q4 2021. Total development expenditure net to Serica's
share outstanding at 30 June 2021 is estimated at approximately
GBP4.5 million.
The Group's only significant exploration commitment is a well on
the North Eigg prospect to be drilled within three years of the 1
January 2020 licence award.
BKR asset acquisitions
On 30 November 2018 Serica completed the four BKR acquisitions.
The following elements of consideration were outstanding at 30 June
2021:
-- A contingent payment of GBP16.0 million is due to BP
Exploration Operating Company ("BPEOC") upon bringing the Rhum R3
well onto production and achieving a minimum cumulative 90 days of
gas production at a defined level. This is expected to be settled
in 2022.
-- A contingent payment of up to GBP7.7 million is due to BPEOC
based upon Rhum 2021 average field production and commodity sales
prices in the year. The payment made in respect of 2019 was GBP2.6
million whilst the payment calculated in respect of 2020 and made
in Q1 2021 was GBP1.0 million. There will be a final calculation of
the combined average performance covering years 2019 to 2021 and
applied to the total potential consideration for the three years of
up to GBP23.1 million. Any difference between this calculation and
cumulative payments to-date will then be settled.
-- In addition, Serica will pay contingent cash consideration to
BPEOC, Total E&P and BHP calculated as 40% of 2H 2021 net cash
flows resulting from the respective field interests acquired from
those companies. Such amounts will be paid by Serica pre-tax on a
monthly basis and then offset by Serica against its own tax
liabilities.
-- BPEOC, Total E&P and BHP will retain liability, in
respect of the field interests Serica acquired from each of them,
for all the costs of decommissioning those facilities that existed
at the date of completion. Serica will pay deferred consideration
equal to 30% of actual future decommissioning costs, reduced by the
tax relief that each of BPEOC, Total E&P and BHP receives on
such costs. Staged prepayments against such projected amounts will
commence in 2022 and be spread over the remaining years before
cessation of field production.
-- Serica will pay to each of BPEOC, Total E&P and BHP,
deferred consideration equal to 90% of their respective shares of
the realised value of oil in the Bruce pipeline at the end of field
life.
OTHER
Asset values and impairment
At 30 June 2021, Serica's market capitalisation stood at
GBP371.7 million based upon a share price of 138.6 pence which
exceeded the net asset value of GBP192.8 million. By 24 September
the Company's market capitalisation had risen to GBP559.1
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
27 September 2021
Forward Looking Statements
This disclosure contains certain forward looking statements that
involve substantial known and unknown risks and uncertainties, some
of which are beyond Serica Energy plc's control, including: the
impact of general economic conditions where Serica Energy plc
operates, industry conditions, changes in laws and regulations
including the adoption of new environmental laws and regulations
and changes in how they are interpreted and enforced, increased
competition, the lack of availability of qualified personnel or
management, fluctuations in foreign exchange or interest rates,
stock market volatility and market valuations of companies with
respect to announced transactions and the final valuations thereof,
and obtaining required approvals of regulatory authorities. Serica
Energy plc's actual results, performance or achievement could
differ materially from those expressed in, or implied by, these
forward looking statements and, accordingly, no assurances can be
given that any of the events anticipated by the forward looking
statements will transpire or occur, or if any of them do so, what
benefits, including the amount of proceeds, that Serica Energy plc
will derive therefrom.
Serica Energy plc
Group Income Statement
For the period ended 30 June
Six Six
months months Year
ended ended ended
30 June 30 June 31 Dec
Notes 2021 2020 2020
Continuing operations GBP000 GBP000 GBP000
(Unaudited) (Unaudited) (Audited)
Sales revenue 4 100,835 45,953 125,641
Cost of sales 5 (54,862) (65,720) (128,560)
Gross profit/(loss) 45,973 (19,767) (2,919)
Unrealised hedging expense 12 (30,320) (3,308) (16,571)
Realised hedging (expense)/income 12 (5,642) 11,655 12,295
Pre-licence costs - - -
Impairment and write-off of E&E assets 7 - (266) (3,725)
Administrative expenses (2,988) (2,844) (5,579)
Foreign exchange (loss)/gain (628) 2,514 (344)
Share-based payments (878) (652) (1,862)
Operating profit/(loss) from 5,517 (12,668) (18,705)
continuing operations
Change in fair value of BKR financial liability (3,074) 32,979 31,296
Finance revenue 58 376 465
Finance costs (253) (263) (508)
Profit before taxation 2,248 20,424 12,548
Taxation charge for the period 11 (899) (8,010) (4,769)
Profit after taxation and 1,349 12,414 7,779
profit for the period
Earnings per ordinary share (EPS)
Basic EPS on profit for the period (GBP) 0.01 0.05 0.03
Diluted EPS on profit for the period (GBP) 0.01 0.05 0.03
Serica Energy plc
Group Balance Sheet
30 June 31 Dec 30 June
2021 2020 2020
GBP000 GBP000 GBP000
Notes (Unaudited) (Audited) (Unaudited)
Non-current assets
Exploration & evaluation assets 7 1,632 1,043 4,009
Property, plant and equipment 8 338,113 311,125 313,171
339,745 312,168 317,180
------------ ---------- ------------
Current assets
Inventories 4,964 4,633 4,629
Trade and other receivables 42,508 41,329 24,268
Derivative financial asset - - 3,572
Cash and cash equivalents 92,004 89,333 101,114
------------ ---------- ------------
139,476 135,295 133,583
------------ ---------- ------------
TOTAL ASSETS 479,221 447,463 450,763
------------ ---------- ------------
Current liabilities
Trade and other payables (43,951) (31,121) (25,489)
Derivative financial liability (40,011) (9,691) -
Financial liabilities (47,595) (53,634) (39,551)
Provisions (1,002) (1,002) -
Dividend payable 6 (9,385) - (8,026)
Non-current liabilities
Financial liabilities (39,920) (48,770) (67,910)
Provisions (23,027) (22,799) (22,816)
Deferred tax liability (81,499) (80,600) (83,841)
------------ ---------- ------------
TOTAL LIABILITIES (286,390) (247,617) (247,633)
------------ ---------- ------------
NET ASSETS 192,831 199,846 203,130
============ ========== ============
Share capital 9 181,749 181,606 181,465
Other reserves 20,558 19,680 18,470
Accumulated (deficit)/funds (9,476) (1,440) 3,195
TOTAL EQUITY 192,831 199,846 203,130
============ ========== ============
Serica Energy plc
Group Statement of Changes in Equity
For the year ended 31 December 2020 and period ended 30 June
2021
Group Share capital Other reserves Deficit Total
GBP000 GBP000 GBP000 GBP000
At 1 January 2020 181,385 17,818 (1,193) 198,010
Profit for the year - - 7,779 7,779
-------------- --------------- -------- --------
Total comprehensive income - - 7,779 7,779
Issue of shares 221 - - 221
Share-based payments - 1,862 - 1,862
Dividend payable - - (8,026) (8,026)
At 31 December 2020 (audited) 181,606 19,680 (1,440) 199,846
Profit for the period - - 1,349 1,349
-------------- --------------- -------- --------
Total comprehensive income - - 1,349 1,349
Issue of shares 143 - - 143
Share-based payments - 878 - 878
Dividend payable - - (9,385) (9,385)
At 30 June 2021 (unaudited) 181,749 20,558 (9,476) 192,831
============== =============== ======== ========
Serica Energy plc
Group Cash Flow Statement
For the periods ended 30 June and 31 December
Six Six
months months Year
ended ended ended
30 June 30 June 31 Dec
2021 2020 2020
GBP000 GBP000 GBP000
(Unaudited) (Unaudited) (Audited)
Operating activities:
Profit for the period 1,349 12,414 7,779
Adjustments to reconcile profit for the period
to net cash flow from operating activities:
Taxation charge 899 8,010 4,769
Change in fair value of BKR financial liability 3,074 (32,979) (31,296)
Net finance costs/(income) 195 (113) 43
Depletion 15,292 18,718 38,495
Oil and NGL over/underlift movement (467) 1,199 342
E&E asset write-offs - 266 3,725
Unrealised hedging losses 30,320 3,308 16,571
Share-based payments 878 652 1,862
Other non-cash movements 328 (1,838) 629
(Increase)/decrease in receivables (1,179) 10,185 (5,423)
(Increase)/decrease in inventories (331) 42 38
Increase/(decrease) in payables 13,475 (527) 6,537
Net cash inflow from operations 63,833 19,337 44,071
Investing activities:
Interest received 58 376 465
Purchase of E&E assets (589) (623) (1,116)
Purchase of property, plant & equipment (42,392) (6,598) (25,530)
Cash outflow from business combinations (17,963) (15,019) (21,759)
Net cash outflow from investing activities (60,886) (21,864) (47,940)
------------ ------------ ----------
Financing activities:
Issue of ordinary shares 143 80 221
Payments of lease liabilities (66) (65) (133)
Dividends paid - - (8,026)
Finance costs paid (25) (37) (56)
Net cash in/(out)flow from financing activities 52 (22) (7,994)
------------ ------------ ----------
Cash and cash equivalents
Net increase/(decrease) in period 2,999 (2,549) (11,863)
Effect of exchange rates on cash and cash equivalents (328) 1,838 (629)
Amount at start of period 89,333 101,825 101,825
Amount at end of period 92,004 101,114 89,333
============ ============ ==========
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 2021 were authorised for
issue in accordance with a resolution of the directors on 27
September 2021.
Serica Energy plc is a public limited company incorporated and
domiciled in England & Wales. The Company's ordinary shares are
traded on AIM in London. The principal activity of the Company is
to identify, acquire and exploit oil and gas reserves.
2. Basis of preparation and accounting policies
Basis of Preparation
The interim condensed consolidated financial statements for the
six months ended 30 June 2021 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 2020. 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 2020.
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
2020, 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 2020 Annual Report was unqualified and
did not contain a statement under either Section 498(2) or Section
498(3) of the Companies Act 2006.
Going Concern
The Directors are required to consider the availability of
resources to meet the Group's liabilities for the foreseeable
future. The financial position of the Group, its cash flows and
capital commitments are described in the Financial Review
above.
At 30 June 2021 the Company held cash and cash equivalents of
GBP92.0 million of which GBP16.4 million was held in a restricted
account against letters of credit issued in respect of certain
decommissioning liabilities and hedging commitments. The bulk of
contingent and deferred consideration due under the BKR acquisition
agreements is related to successful future field performance and
consequently will be either reduced or deferred in the event of
production interruptions or lower net cash generation.
After making enquiries and having taken into consideration the
above factors, the Directors have reasonable expectation that the
Group has adequate resources to continue in operational existence
for the foreseeable future. Accordingly, they continue to adopt the
going concern basis in preparing the financial statements.
Significant accounting policies
A number of new standards, amendments to existing standards and
interpretations were applicable from 1 January 2021. 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 2021.
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 2020. The
impact of seasonality or cyclicality on operations is not
considered significant on the interim consolidated financial
statements.
The Group financial statements are presented in GBP and all
values are rounded to the nearest thousand pounds (GBP000) except
when otherwise indicated.
Basis of Consolidation
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries Serica Holdings UK
Limited, Serica Energy Holdings B.V., Serica Energy Corporation,
Asia Petroleum Development Limited, Petroleum Development
Associates (Asia) Limited, Serica Energy (UK) Limited, PDA Lematang
Limited, Serica Glagah Kambuna B.V., Serica Sidi Moussa B.V.,
Serica Energy Rockall B.V., Serica Energy Slyne B.V. and Serica
Energy Namibia B.V.. Together, these comprise the "Group".
All inter-company balances and transactions have been eliminated
upon consolidation.
3. Segmental Information
The Group's business is that of oil & gas exploration,
development and production. The Group's reportable segments are
based on the location of the Group's assets.
The following tables present revenue, profit and certain asset
and liability information regarding the Group's geographical
reportable segments for the periods ended 30 June 2021 and 2020 and
year ended 31 December 2020. Costs associated with the UK corporate
centre are included in the UK reportable segment.
Period ended 30 June 2021 Continuing
UK Total
GBP000 GBP000
Revenue 100,835 100,835
---------- -----------
Operating and segment profit 5,517 5,517
Change in BKR financial liability (3,074) (3,074)
Finance revenue 58 58
Finance costs (253) (253)
Profit before taxation 2,248 2,248
Taxation charge for the period (899) (899)
---------- -----------
Profit after taxation 1,349 1,349
UK Total
GBP000 GBP000
Other segment information:
Segmental assets 479,221 479,221
Total assets 479,221
-----------
Segment liabilities (286,390) (286,390)
Total liabilities (286,390)
-----------
Period ended 30 June 2020 Continuing
UK Africa Total
GBP000 GBP000 GBP000
Revenue 45,953 - 45,953
---------- ------- -----------
Operating and segment loss (12,668) - (12,668)
Change in BKR financial liability 32,979 - 32,979
Finance revenue 376 - 376
Finance costs (263) - (263)
Profit before taxation 20,424 - 20,424
Taxation charge for the period (8,010) - (8,010)
---------- ------- -----------
Profit after taxation 12,414 - 12,414
UK Africa Total
GBP000 GBP000 GBP000
Other segment information:
Segmental assets 447,312 3,451 450,763
Total assets 450,763
-----------
Segment liabilities (247,599) (34) (247,633)
Total liabilities (247,633)
-----------
Year ended 31 December 2020 Continuing
UK Africa Total
GBP000 GBP000 GBP000
Revenue 125,641 - 125,641
---------- -------- -----------
Operating and segment loss (15,247) (3,458) (18,705)
Change in BKR financial liability 31,296 - 31,296
Finance revenue 465 - 465
Finance costs (508) - (508)
Profit before taxation 16,006 (3,458) 12,548
Taxation charge for the year (4,769) - (4,769)
---------- -------- -----------
Profit after taxation 11,237 (3,458) 7,779
UK Africa Total
GBP000 GBP000 GBP000
Other segment information:
Segmental assets 447,463 - 447,463
Total assets 447,463
-----------
Segment liabilities (247,617) - (247,617)
Total liabilities (247,617)
-----------
4. Sales Revenue
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2021 2020 2020
GBP000 GBP000 GBP000
Gas sales 76,563 24,071 80,066
Oil sales 17,106 17,269 32,917
NGL sales 7,166 4,613 12,658
100,835 45,953 125,641
----------- ----------- --------
Revenues include product sales from Serica's full interests in
the BKR assets before calculation of amounts due under the net cash
flow sharing arrangements.
5. Cost of sales
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2021 2020 2020
GBP000 GBP000 GBP000
Operating costs 40,037 45,803 89,723
Movement in liquids overlift/underlift (467) 1,199 342
Depletion (note 8) 15,292 18,718 38,495
54,862 65,720 128,560
----------- -----------
Operating costs include costs from Serica's full interests in
the BKR assets before calculation of amounts due under the net cash
flow sharing arrangements.
6. Dividends payable
A final cash dividend for 2020 of 3.5 pence per share was
proposed in April 2021 and approved at the annual general meeting
on 24 June 2021. Following the approval in the 1H 2021 period, the
dividend payable of GBP9.4 million is recognised as a liability in
the Balance Sheet at 30 June 2021. The dividend was paid in July
2021.
7 . Exploration and Evaluation Assets
Total
GBP000
Cost:
At 1 January 2020 3,652
Additions 1,116
Asset write-offs (3,725)
At 31 December 2020 1,043
Additions 589
Asset write-offs -
At 30 June 2021 1,632
========
Provision for impairment:
At 1 January 2020 -
Impairment reversal for the period -
At 31 December 2020 -
Impairment (charge)/reversal for the period -
At 30 June 2021 -
========
Net Book Amount:
30 June 2021 1,632
========
31 December 2020 1,043
========
1 January 2020 3,652
========
The 2020 asset write-off figure comprised a GBP3.458 million
charge against the Group's Namibian licence following the region
exit in the year, and GBP0.267 million from the relinquishment of
UK Licence P2388 Block 23/21b.
8. Property, Plant and Equipment
Oil and Fixtures
gas properties and fittings Right-of-use
assets Total
GBP000 GBP000 GBP000 GBP000
Cost:
At 1 January 2020 387,021 212 516 387,749
Additions 25,530 - - 25,530
Revisions (1,089) - - (1,089)
At 31 December 2020 411,462 212 516 412,190
Additions 42,392 - - 42,392
At 30 June 2021 453,854 212 516 454,582
---------------- --------------
Depreciation and depletion:
At 1 January 2020 62,155 61 129 62,345
Charge for the period
(note 5) 38,495 53 172 38,720
At 31 December 2020 100,650 114 301 101,065
Charge for the period
(note 5) 15,292 26 86 15,404
At 30 June 2021 115,942 140 387 116,469
---------------- -------------- --------------- --------
Net book amount:
At 30 June 2021 337,912 72 129 338,113
================ ============== =============== ========
At 31 December 2020 310,812 98 215 311,125
================ ============== =============== ========
At 1 January 2020 324,866 151 387 325,404
================ ============== =============== ========
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.
9. Equity Share Capital
As at 30 June 2021, the share capital of the Company comprised
one "A" share of GBP50,000 and 268,153,997 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 2020 267,230,217 21,062 160,323 181,385
Shares issued 579,486 45 176 221
At 31 December 2020 267,809,703 21,107 160,499 181,606
Shares issued 344,295 25 118 143
At 30 June 2021 268,153,998 21,132 160,617 181,749
Durin g 1H 2021, 344,295 ordinary shares were issued to satisfy
awards under the Company's share-based incentive schemes.
105,151 ordinary shares have been issued in Q3 2021 to date and
as at 27 September 2021 the issued voting share capi tal of the
Company was 268,259,148 ordinary shares and one "A" share.
10. Share-Based Payments
Share Option Plans
The Company operates three discretionary incentive share option
plans: the Serica Energy Plc Long Term Incentive Plan (the "LTIP"),
which was adopted by the Board on 20 November 2017 which permits
the grant of share-based awards, the 2017 Serica Energy plc Company
Share Option Plan ("2017 CSOP"), which was adopted by the Board on
20 November 2017, and the Serica 2005 Option Plan, which was
adopted by the Board on 14 November 2005. Awards can no longer be
made under the Serica 2005 Option Plan, however, options remain
outstanding under the Serica 2005 Option Plan. The LTIP and the
2017 CSOP together are known as the "Discretionary Plans".
The Discretionary Plans will govern all future grants of options
by the Company to Executive Directors, key employees and certain
consultants of the Group. The Directors intend that the maximum
number of ordinary shares which may be utilised pursuant to the
Discretionary Plans will not exceed 10% of the issued ordinary
shares of the Company from time to time in line with the
recommendations of the Association of British Insurers.
The objective of these plans is to develop the interest of
Executive Directors, key employees and certain consultants of the
Group in the growth and development of the Group by providing them
with the opportunity to acquire an interest in the Company and to
assist the Company in retaining and attracting executives with
experience and ability.
Serica 2005 Option Plan
As at 30 June 2021, 4,528,050 options granted by the Company
under the Serica 2005 Option Plan were outstanding. All options
awarded under the Serica 2005 Option Plan since November 2009 have
a three-year vesting period. When awarding options to directors,
the Remuneration Committee are required to set Performance
Conditions in addition to the vesting provisions before vesting can
take place. Of the above options, 2,500,000 of these options were
granted to Mr Craven Walker in July 2015 at exercise prices higher
than the market price at the time of the grant to establish firm
performance targets.
No options were granted in 2020 or 1H 2021 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 2020 4,578,050 0.15
Exercised during the period (50,000) 0.31
Outstanding at 30 June 2021 4,528,050 0.15
---------- -----
As at 30 June 2021, the following director and employee share
options were outstanding:
Expiry Date Amount Exercise cost
GBP
January 2022 428,050 91,496
January 2023 200,000 54,500
January 2024 300,000 39,000
June 2025 1,100,000 72,600
July 2025 1,000,000 120,000
July 2025 1,000,000 180,000
July 2025 500,000 120,000
----------
Total 4,528,050
Long Term Incentive Plan
The following awards granted to certain Executive Directors and
employees under the LTIP are outstanding as at 30 June 2021.
LTIP awards (deemed to be granted in November 2017 under IFRS
2)
Director/Employees Total number of shares granted subject to Deferred Bonus Share
Awards
Antony Craven Walker 225,000
Mitch Flegg 225,000
Employees below Board level (in aggregate) 414,000
---------------------------------------------------------------
864,000
===============================================================
Deferred Bonus Share Awards involve the deferral of bonuses into
awards over shares in the Company. They are structured as nil-cost
options and may be exercised up until the fifth anniversary of the
date of grant. Vesting of the Deferred Bonus Share Awards was the
later of the date of completion of the BKR Acquisition and 31
January 2019 and all awards have therefore now vested. They were
not subject to performance conditions; however, they were
conditional on completion of the BKR Acquisition, subject to the
Board determining otherwise.
Director/Employees Total number of shares granted subject to Performance Share Awards
Antony Craven Walker 1,500,000
Mitch Flegg 1,500,000
Employees below Board level (in aggregate) 2,250,000
---------------------------------------------------------------
5,250,000
===============================================================
Performance Share Awards have a three-year vesting period and
are subject to performance conditions based on average share price
growth targets to be measured by reference to dealing days in the
period of 90 days ending immediately prior to expiry of a
three-year performance starting on the date of grant of a
Performance Share Award. Performance Share Awards are structured as
nil-cost options and may be exercised up until the tenth
anniversary of the date of grant. They are exercisable as at 30
June 2021.
LTIP awards in 2019
In Q1 2019, the Company granted nil-cost Performance Share
Awards over 3,735,640 ordinary shares and nil-cost Retention Share
Awards over 242,539 ordinary shares, a combined total of 3,978,179
ordinary shares under the LTIP. The award was made to members of
the Group's executive team, senior management and employees. The
awards included a total of 822,134 ordinary shares for the
executive directors and persons discharging managerial
responsibilities as follows:
Director/PDMR Total number of shares granted subject to Performance Share Awards
Antony Craven Walker 411,067
Mitch Flegg 411,067
822,134
===================================================================
These awards are subject to vesting criteria based on absolute
share price performance over a three-year period and are not
exercisable as at 30 June 2021.
LTIP awards in 2020
In May 2020, the Company granted nil-cost options over a total
of 2,669,280 ordinary shares under the LTIP. The award was made to
members of the Group's executive team, senior management and
employees. The awards included a total of 772,200 ordinary shares
for the executive directors and persons discharging managerial
responsibilities as follows:
Director/PDMR Total number of shares granted subject to Performance Share Awards
Antony Craven Walker 386,100
Mitch Flegg 386,100
772,200
===================================================================
These awards are subject to vesting criteria based on absolute
share price performance over a three-year period and are not
exercisable as at 30 June 2021.
LTIP awards in 2021
In May 2021, the Company granted nil-cost Performance Share
Awards over 2,725,032 ordinary shares under the LTIP. All of the
total awards were outstanding at 30 June 2021. The award was made
to members of the Group's executive team, senior management and
employees. The awards included a total of 1,174,698 ordinary shares
for the Executive Directors and persons discharging managerial
responsibilities as follows:
Director/PDMR Total number of shares granted subject to Performance Share Awards
Antony Craven Walker 587,349
Mitch Flegg 587,349
1,174,698
===================================================================
These awards are subject to vesting criteria based on absolute
share price performance over a three-year period (75%) and on
reductions in carbon intensity of production from the BKR assets
(25%) and are not exercisable at 30 June 2021.
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.
GBP878,000 has been charged to the income statement for the
six-month period ended 30 June 2021 (1H 2020 - GBP652,000) and a
similar amount credited to the share-based payments reserve,
classified as 'Other reserve' in the Balance Sheet.
11. 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
2021 2020 2020
GBP000 GBP000 GBP000
Current income tax charge - - -
Deferred income tax charge (899) (8,010) (4,769)
Total taxation charge for the period (899) (8,010) (4,769)
-------------- --------------
Recognised and unrecognised tax losses
The Group's Balance Sheet net deferred tax liability amounts of
GBP80.6 million as at 31 December 2020 and GBP81.5 million as at 30
June 2021 arise from deferred tax liabilities (primarily related to
temporary differences on fixed assets) being partially offset by
deferred tax assets on existing tax losses, deductibles under the
Net Cash Flow Sharing Deed and decommissioning liabilities.
The Group's deferred tax assets at 31 December 2020 and 30 June
2021 are recognised to the extent that taxable profits are expected
to arise in the future against which tax losses and allowances in
the UK can be utilised. In accordance with IAS 12 Income Taxes, the
Group assessed the recoverability of its deferred tax assets at 31
December 2020 and 30 June 2021 with respect to ring fence losses
and allowances.
The Group had UK ring fence tax losses of approximately GBP46.1
million available as at 31 December 2020 that are available
indefinitely for offset against future ring fence trading profits
of the company in which the losses arose.
Changes to UK corporation tax legislation
In the Budget statement on 3 March 2021 it was announced that
the corporation tax rate will increase from 19% to 25% with effect
from 2023.
The headline rate of tax for UK ring-fenced trading profits
remains at 40%.
12. Financial and derivative financial instruments
Financial instruments
The Group's financial instruments comprise cash and cash
equivalents, accounts payable and accounts receivable. It is
management's opinion that the fair values of its financial
instruments approximate to their carrying values.
Derivative financial instruments
The Group enters into derivative financial instruments with
various counterparties. No gas put options were held at 31 December
2020 or 30 June 2021. Other derivative financial instruments held
at 31 December 2020 and 30 June 2021 comprised gas swaps which were
valued by counterparties, with the valuations reviewed internally
and corroborated with readily available market data (level 2).
Details of the Group's derivative financial instruments held as
at 30 June 2021 and entered into during Q3 2021 to date are
provided in the financial review above.
Other (losses)/income
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2021 2020 2020
GBP000 GBP000 GBP000
Realised hedging (losses)/gains (5,642) 11,655 12,295
Unrealised hedging losses (30,320) (3,308) (16,571)
Other (expense)/income (35,962) 8,347 (4,276)
----------- ----------- ---------
13. Publication of Non-Statutory Accounts
The financial information contained in this interim statement
does not constitute statutory accounts as defined in the Companies
Act 2006. The financial information for the full preceding year is
based on the statutory accounts for the financial year ended 31
December 2019, which are available at the Company's registered
office at 48 George Street, London W1U 7DY and on its website at
www.serica-energy.com and on SEDAR at www.sedar.com.
This interim statement will be made available at the Company's
registered office at 48 George Street, London W1U 7DY and on its
website at www.serica-energy.com and on SEDAR at www.sedar.com.
GLOSSARY
bbl barrel of 42 US gallons
bcf billion standard cubic feet
boe barrels of oil equivalent (barrels of oil, condensate and NGLs plus the heating equivalent
of gas converted into barrels at the appropriate rate)
BKR Assets Bruce, Keith and Rhum fields
CPR Competent Persons Report
FDP Field Development Plan
HPHT High pressure high temperature
mscf thousand standard cubic feet
mmbbl million barrels
mmboe million barrels of oil equivalent
mmscf million standard cubic feet
mmscfd million standard cubic feet per day
NBP National Balancing Point for pricing and delivery of gas sales
NGLs Natural gas liquids extracted from gas streams
NTS National Transmission System
OGA Oil and Gas Authority
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 Reserves Probable reserves are those additional Reserves that 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 Reserves Possible reserves are those additional Reserves that 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
[1] Serica has a 50% working interest in Rhum
[2] Serica has a 50% working interest in Columbus
[3] Based on EUETS and UK ETS submissions
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END
IR DKOBNFBKDDCB
(END) Dow Jones Newswires
September 28, 2021 02:00 ET (06:00 GMT)
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