REG - Serica Energy PLC - Interim Results
27/09/2022 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20220927:nRSa7104Aa&default-theme=true
RNS Number : 7104A Serica Energy PLC 27 September 2022
Serica Energy plc
("Serica" or the "Company")
Results for the six months ended 30 June 2022
London, 27 September 2022 - Serica Energy plc (AIM: SQZ) today announces its
financial results for the six months ended 30 June 2022. The results are
included below and copies are available at www.serica-energy.com
(http://www.serica-energy.com) and www.sedar.com (http://www.sedar.com) .
Mitch Flegg, Serica's CEO stated:
"Serica's production levels in the first half of 2022 have benefitted
significantly from our ongoing capital investment campaign which commenced in
2020. We are now seeing the full contribution from the 2021 Columbus and R3
projects and additionally we have recently completed a successful Light Well
Intervention Vessel (LWIV) campaign on Bruce. As a result of these investment
projects, Serica's net production in the first half of 2022 was 41% higher
than the first half of 2021.
Furthermore, the BKR cash flow sharing arrangements have now come to an end
after four years during which the Company shared the net cash flow with the
vendors of the relevant assets. We now retain 100% of the net cash flow from
BKR.
Market gas prices, though highly volatile, have continued to strengthen during
2022 and as a result of increased production at higher commodity prices,
Serica's operating cash flow for the six-month period was £312.0 million and
profits increased at all levels.
Over 85% of Serica's production is gas, providing much needed domestic energy
during a time of heightened concern around the UK's security of supply. This
gas will continue to be an important energy source during the Net Zero
transition.
This operational and financial performance has enabled the Company to steadily
increase its return to shareholders. Following the recent payment of a 9 pence
per share final dividend for full year 2021, we are today announcing our first
interim dividend of 8 pence per share which will be paid in November 2022."
First Half 2022 Performance
· Average production of 26,600 boe per day net to Serica compared to
18,855 boe per day for 1H 2021, increasing Serica's contribution to security
of UK gas supply.
· Gas price volatility continues with market prices ranging from below
100 pence to over 300 pence per therm and averaging 175 pence per therm for
the period (1H 2021: 50 pence per therm).
· Capital investment programme maintained with initial Bruce well
intervention campaign commencing in May and preparations for North Eigg
exploration well which spudded in July.
Financial Highlights
· Cash balances at 30 June 2022 increased to £258.3 million (31 Dec
2021: £103.0 million) with a further £160.4 million lodged as hedge security
(31 Dec 2021: £115.4 million) giving a combined total of £418.7 million (31
Dec 2021: 218.4 million).
· Operating cash flow of £312.0 million (1H 2021: £72.8 million),
after adjustment for hedge security, reflecting:
o increased production levels
o higher realised commodity prices
o partially offset by 1H hedge settlements.
· Expiry of the BKR cash flow sharing and Rhum performance-related
payments at end 2021 with final cash settlements of £93.9 million made in 1H
2022.
· Average realised gas price of 136 pence per therm (1H 2021: 50 pence per
therm) after system entry fees and including fixed price volumes, with average
overall realised sales price of US$101.00 per boe (1H 2020: US$43.30 per boe).
· Average operating cost of US$16.07 per boe for 1H 2022 (1H 2021:
US$16.05 per boe).
· Operating profit of £196.3 million (1H 2021: £5.5 million) after
£56.4 million of unrealised hedging provisions (1H 2021: £30.3 million) and
profit after tax of £116.7 million (1H 2021: £1.3 million).
Operational
· Serica's first ever LWIV campaign concluded without any safety
incidents or environmental issues:
o initial well (Bruce M1) re-entered for first time since 1998 and
production increased from around 400 boe/d before intervention to over 1,800
boe/d in July 2022
o second well (Bruce M4) increased from around 450 boe/d to over 2,400
boe/d.
· Plans to perform similar interventions on other Bruce and Keith
wells, both subsea and from the platform, are now being accelerated.
· Capital investment of £20.9 million (2021 full year: £52.2
million) all funded from internal cash resources.
Environmental, Social and Governance
· Carbon intensity on Bruce production facilities reduced by 15%
compared to 1H 2021.
· Early and continued supporter of the Energy Services Agreement,
helping to protect supply chain resilience.
· We continue to implement projects to deliver North Sea Transition
Deal emissions reduction targets.
Outlook
· Serica's North Sea investment programme continues with results from
its North Eigg exploration well due in December and further BKR well campaigns
planned for 2023.
· Full year 2022 production guidance narrowed to 26,000-28,000
boepd.
· Gas price outlook likely to stay volatile but unhedged proportion of
sales to increase as remaining hedges expire.
· Combined cash of £482.4 million at 23 September 2022
o cash and deposits of £282.6 million after Q3 settlement of £66.0 million
tax instalment and £24.5 million dividend payment
o plus £199.8 million lodged as hedge security having exceeded £300
million in recent months
o though potentially volatile in the short term, hedge security to reduce
over the rest of 2022 as remaining gas price hedges expire.
· The Board is announcing its first interim dividend at a rate of 8
pence per share payable on 25 November 2022 to shareholders registered on 28
October 2022 with an ex-dividend date of 27 October 2022.
· The potential for further distributions to shareholders, including
share buybacks, will be kept under review as the Company continues to pursue
M&A opportunities.
Regulatory
This announcement is inside information for the purposes of Article 7 of
Regulation 596/2014.
The technical information contained in the announcement has been reviewed and
approved by Fergus Jenkins, VP Technical at Serica Energy plc. Mr Jenkins
(MEng in Petroleum Engineering from Heriot-Watt University, Edinburgh) is a
Chartered Engineer with over 25 years of experience in oil & gas
exploration, development and production and is a member of the Institute of
Materials, Minerals and Mining (IOM3) and the Society of Petroleum Engineers
(SPE).
Enquiries:
Serica Energy plc +44 (0)20 7390 0230
Mitch Flegg (CEO) / Andy Bell (CFO)
Peel Hunt (Nomad & Joint Broker) +44 (0)20 7418 8900
Richard Crichton / David McKeown
Jefferies (Joint Broker) +44 (0)20 7029 8000
Tony White / Will Soutar
Vigo Consulting (PR Advisor) +44 (0)20 7390 0230
Patrick d'Ancona / Finlay Thomson serica@vigoconsulting.com
NOTES TO EDITORS
Serica Energy is a British independent oil and gas exploration and production
company with a portfolio of UKCS assets. Over 85% of Serica's production is
natural gas, a key element in the UK's energy transition, and the Company is
responsible for 5% of the gas produced in the UK. The Company is pursuing
growth opportunities that fit within the transition context and where it can
add real value by deploying its proven technical and commercial expertise.
Serica operates the producing Bruce, Keith and Rhum fields in the UK Northern
North Sea, and the producing Columbus field in the UK Central North Sea.
Serica also holds a non-operated interest in the producing Erskine field in
the UK Central North Sea.
Further information on the Company can be found at www.serica-energy.com
(http://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 PERIOD ENDED 30 JUNE 2022
The following Interim Report of the operations and financial results of Serica
Energy plc ("Serica") and its subsidiaries (together the "Group") contains
information up to and including 26 September 2022 and should be read in
conjunction with the unaudited interim consolidated financial statements for
the period ended 30 June 2022, which have been prepared by and are the
responsibility of the Company's management.
References to the "Company" include Serica and its subsidiaries where
relevant.
The results of Serica's operations detailed in the interim financial
statements are presented in accordance with International Financial Reporting
Standards ("IFRS").
The Company's shares are listed on AIM in London. Although the Company
delisted from the TSX in March 2015, the Company is a "designated foreign
issuer" as that term is defined under National Instrument 71-102 - Continuous
Disclosure and Other Exemptions Relating to Foreign Issuers. The Company is
subject to the regulatory requirements of the AIM market of the London Stock
Exchange in the United Kingdom.
Serica is an oil and gas company with production, development and exploration
activities based in the UK.
CHIEF EXECUTIVE OFFICER'S REVIEW
Serica's production levels in the first half of 2022 have benefitted
significantly from our ongoing capital investment campaign which commenced in
2020. This is the first accounting period when we have had a full contribution
from the 2021 Columbus and R3 projects and additionally we have recently
completed a successful Light Well Intervention Vessel (LWIV) campaign on
Bruce. As a result of these investment projects, Serica's net production in
the first half of 2022 (26,600 boe/d) was 41% higher than the first half of
2021 (18,855 boe/d).
Furthermore, the BKR cash flow sharing arrangements have now come to an end
after four years during which the Company shared the net cash flow with the
vendors of the relevant assets with Serica retaining 40% in 2018, rising to
50% in 2019 and 60% in 2020 and 2021. We now retain 100% of the net cash flow
from BKR.
Market gas prices, though highly volatile, have continued to strengthen during
2022, averaging over 175p per therm in the first half of 2022 compared to
around 56p per therm for the corresponding period in 2021. This is before the
impact of Serica's gas price hedging.
Over 85% of Serica's production is gas, providing much needed domestic energy
during a time of heightened concern around the UK's security of supply. This
gas will continue to be an important energy source during the Net Zero
transition.
As a result of this increased production at higher commodity prices, Serica's
sales revenue for the six-month period to June 2022 was £353.5 million
compared to £100.8 million for the corresponding period in 2021 whilst
operating cash flow was £312.0 million compared to £72.8 million in 2021.
The Company continues its growth strategy of investment in projects designed
to enhance and extend future production profiles. Planning for future well
intervention campaigns is ongoing following the success of this year's LWIV
programme. The North Eigg exploration well was spudded in July and is drilling
towards the reservoir. Progress has been slower than anticipated with delays
in the top hole section and the replacement of a failed piece of rig equipment
and it is now expected that results will be known in December. This 100%
Serica significant exploration prospect is estimated to contain 60 million boe
of unrisked P50 recoverable resources in the success case.
On 26 May 2022 the UK government announced the introduction of an Energy
Profits Levy (EPL), a new 25% levy on profits arising on or after 26 May. As
the EPL was not enacted until July its impact has not been incorporated into
Serica's first half results but could result in a significant impact in future
periods. However, incentives to reinvest in additional oil and gas reserves
offer Serica the opportunity to mitigate its impact. Therefore, we will not
only maintain our ongoing investment plan but will also look to expand and
accelerate elements of that programme.
We continue to focus on our HSE performance and on Bruce we have now passed
1,000 days without a day-away-from-work-case. Our attention to emissions
reduction has also continued to yield results. Our year-to-date carbon
intensity (emissions divided by production) on Bruce is 16.5kg CO(2)/boe, a
15% reduction on the same period last year and 7% less than full year 2021
carbon intensity. This reflects our efforts to run our Bruce facilities
efficiently and optimise production throughput. Flare volumes are also lower
by 23% compared to the same period last year, due to closer daily tracking and
operational improvements. We have committed to meeting the North Sea
Transition Deal emissions reduction targets on the Bruce asset and have
tangible engineering solutions to help us achieve these goals, including zero
routine flaring by 2030.
Serica has seen a material increase in combined cash resources over the past
twelve months with cash and deposits plus amounts lodged as hedge security
rising from £107.2 million at 30 June 2021 to £418.7 million at 30 June
2022. The bulk of this increase has occurred in 1H 2022 in line with
production increases and the rise in wholesale gas prices. Cash generation is
expected to remain strong during the second half of 2022 although partially
offset by the commencement of tax payments coupled with ongoing North Eigg
well expenditures.
Against this background the Company is steadily increasing its return to
shareholders. Following the recent payment of a 9 pence per share final
dividend for full year 2021 (2020: 3.5 pence per share), the Company is today
announcing its first interim dividend of 8 pence per share which will be paid
in November 2022.
The Board continues to review the potential for further cash returns to
shareholders including the scope for share buybacks. It is also mindful of the
need for strong capital allocation to further grow the business and
shareholder value. The Company is evaluating a number of acquisition and new
investment opportunities and a successful outcome of the North Eigg
exploration well would have a significant impact upon the Company's cash
requirements, with strong pressure to follow up any success rapidly so as to
support the UK's security of gas supply.
In the short term, free cash availability remains volatile due to the highly
erratic gas futures market and its impact upon hedge security requirements.
Whilst currently below £200 million, these have ranged from below £150
million to over £300 million in recent months and can be expected to remain
volatile in the near term following the cut-off of the main Russian gas
pipeline into Europe. These security requirements can be expected to fall over
the rest of the year as Serica's remaining gas price hedges continue to
expire.
After taking account of the factors described above the Board does not
consider the timing is right to initiate an immediate buyback programme.
However, it will continue to monitor the scope for buybacks as each of these
matters evolves and balance this against retaining funds for further
investment and acquisition.
Although it proved not possible to reach agreement with Kistos plc on the
terms of the respective potential offers between the two companies, Serica
continues to actively seek opportunities at both the asset and corporate level
that would strengthen the Company, diversify its asset base and deliver
incremental value to shareholders.
Finally, I would like to thank the staff and management of the Company and our
contractors and to congratulate them all on another period of outstanding
performance.
Mitch Flegg
Chief Executive Officer
26 September 2022
REVIEW OF OPERATIONS
UK Operations
UK Production
Northern North Sea
Northern North Sea: Bruce Field - Blocks 9/8a, 9/9b and 9/9c, Serica 98%
Serica operates the Bruce field and facilities consisting of three
bridge-linked platforms, wells, pipelines and subsea infrastructure. The
platforms contain living quarters for up to 156 people, reception,
compression, power generation, processing and export facilities. There is also
the subsea Western Area Development ("WAD") that produces from the edges of
the Bruce area.
Bruce production is predominantly gas which is rich in liquids. Gas is
exported through the Frigg pipeline to the St Fergus terminal, where it is
separated into sales gas and NGL's. Oil is exported through the Forties
Pipeline System to Grangemouth.
Over the first half of 2022 we have continued to maintain safe and efficient
operations whilst managing the threat and impact of COVID-19. We have recently
phased out our specific COVID controls in line with the relaxation in the
wider community and have experienced no production impacts related to COVID in
the reporting period.
We have gradually increased our offshore headcount back to our pre-pandemic
levels whilst retaining the synergies and improved ways of working that we
developed during the restrictions. This increase will allow us to address the
backlog of work incurred by the reduced manning of the COVID period, whilst
executing work scopes to reduce our carbon emissions, maintain our reliability
and increase our production.
In the first half of the year we have successfully removed the residual
section of the redundant caisson that caused a production outage in 2020,
modified the platform compression system to support further production boosts
from the WAD area and completed a Light Well Intervention (LWI) on two of the
WAD wells.
The initial well (Bruce M1) was re-entered for the first time since 1998.
After a successful scale removal and water shutoff, a significant
reperforation and new perforation campaign was executed and the well returned
to production. Production rates from the well have increased from around 400
boe/d before intervention to over 1,800 boe/d in July 2022.
A similar programme was followed on the second well (Bruce M4) and production
rates for the well have been increased from around 450 boe/d to over 2,400
boe/d.
Bruce field production in 1H 2022 averaged circa 6,800 boe/d (1H 2021: 6,800
boe/d) of oil and gas net to Serica.
An independent evaluation of reserves by RISC Advisory estimated 2P reserves
of 15.8 million boe net to Serica as of 1 January 2022.
Northern North Sea: Keith Field - Block 9/8a, Serica 100%
Keith is an oil field produced via a single subsea well tied back to the Bruce
facilities. Keith produces at relatively limited rates but provides a low-cost
contribution to the oil export from Bruce. The field has been shut in since
early 2021. In early 2022 a subsea inspection of the Keith well (K1) was
carried out that identified a need to replace the subsea control module (SCM),
which will be carried out in early 2023. We will then execute a LWI campaign
to restore production from K1 in late 2023/early 2024.
An independent estimate of reserves, compiled by RISC Advisory. estimated 2P
reserves of 0.9 million boe net to Serica as of 1 January 2022.
Northern North Sea: Rhum Field - Blocks 3/29a, Serica 50%
Serica is operator of Rhum which is a gas condensate field producing from
three subsea wells tied into the Bruce facilities through a 44km pipeline.
Rhum production is separated into gas and oil and exported to St Fergus and
Grangemouth along with Bruce and Keith production. Rhum gas has a higher CO(2)
content than Bruce gas and so is blended with Bruce gas before leaving the
offshore facilities.
In February we had a failure of a power supply within a Subsea Control Module
(SCM) which shut down the Rhum field. We were able to mobilise a diving
vessel, carry out an investigation and replace the failed SCM with a spare.
The field restarted on the 17 March. The recovered SCM is currently being
refurbished to bolster our supply of spares.
Average Rhum field production in 1H 2022 was circa 15,900 boe/d (1H 2021:
10,400 boe/d) net to Serica after taking account of the shut-in.
An independent estimate of reserves by RISC Advisory estimated 2P reserves of
37.2 million boe net to Serica as of 1 January 2022.
Central North Sea
Central North Sea: Columbus Development - Blocks 23/16f and 23/21a (part),
Serica 50%
Serica is operator of Columbus with partners Tailwind Mistral Limited (25%)
and Waldorf Production Limited (25%). Columbus is located in the Eastern
Central Graben, UK Central North Sea and the reservoir is located within the
Forties Sandstone.
The development comprises a single subsea well drilled to a total depth of
17,600ft with a 5,600ft horizontal section through the reservoir, connected to
the
Arran-Shearwater
export pipeline. Columbus production is exported through the pipeline along
with Arran field production. The Arran field has been developed in parallel
with Columbus, and its export pipeline to the Shearwater platform was
re-routed a short distance to pass close to the Columbus wellhead location.
When co-mingled production from Arran and Columbus reaches the Shearwater
facilities, it is separated into gas and liquids and exported via the SEGAL
line to St Fergus and Forties Pipeline System to Cruden Bay respectively.
Planning for the development began as soon as FDP approval was received in
October 2018. Serica worked closely with Shell, the operator of the Arran
field and Shearwater platform, to ensure effective construction and operation
of the two developments in parallel. The Columbus development well and Arran
development wells were drilled during 2021 and Columbus production commenced
in November of 2021. The start-up coincided with strong commodity prices,
providing rapid payback of the capital invested.
Columbus had good initial test rates. However, during the first few months of
production, flowrates declined, in part caused by the ramp-up of the Arran
Field and the corresponding backout that caused in the export facilities.
Production rates have now stabilised.
Average net Columbus production in 1H 2022 was circa 1,970 boe/d of gas and
condensate.
An independent report of reserves by RISC Advisory estimated 2P reserves of
4.9 million boe net to Serica as at 1 January 2022.
Central North Sea: Erskine Field - Blocks 23/26a (Area B) and 23/26b (Area B),
Serica 18%
Serica holds a non-operated interest in Erskine, a gas and condensate field
located in the UK Central North Sea. Serica's co-venturers are Ithaca Energy
50% (operator) and Harbour Energy 32%.
Erskine is produced through five production wells over the Erskine normally
unattended installation, transported to the Lomond platform via a multiphase
pipeline and processed on the platform. Then condensate is exported down the
Forties Pipeline System via the CATS riser platform at Everest and gas is
exported via the CATS pipeline to the CATS terminal at Teesside.
In late 2021 the W1 well stopped producing due to a stuck safety valve. An
intervention was undertaken in the first half of the year and the valve
successfully replaced. We continue to support the operator's intervention
plans for 2022 to return the well to full production.
The regular pigging program on the condensate export line has continued and no
indications of wax build-up have been seen.
Erskine production levels in 1H 2022 averaged 1,890 boe/d net (1H 2021: 1,625
boe/d net).
An independent report of reserves by RISC Advisory estimated 2P net reserves
at 3.4 million boe as of 1 January 2022.
UK Exploration
North Eigg and South Eigg - Blocks 3/24c and 3/29c, Serica Energy (UK) Limited
100% and Operator
In December 2019, Serica was awarded the P2501 Licence as part of an out of
round application; this comprises Blocks 3/24c and 3/29c and contains the
North Eigg and South Eigg prospects. The official start date for the Licence
was 1 January 2020. The work programme involves reprocessing seismic and
drilling an exploration well within three years of the start of the
licence. The North Eigg prospect was high-graded for drilling, being clearly
visible on 3D seismic data and sharing many similarities with the nearby Rhum
field, operated by Serica.
Planning for the exploration well, which is expected to include a high
temperature and high pressure reservoir section, including securing all
necessary regulatory approvals, was completed during the first half of 2022
and the rig mobilisation began on 1 July. Results are expected December.
In the event of a commercial discovery, Serica would seek a fast-track route
to develop the field; one option would be a subsea tie-back to the
Serica-operated and 98% owned Bruce facilities, which are to the south of the
prospect. This solution would provide Serica with potentially significant
additional reserves and reduce combined unit operating costs, which could help
to extend the economic life of this strategic North Sea infrastructure. The
use of existing offtake facilities would also significantly restrict
additional carbon emissions. The Company is undertaking conceptual design
studies aimed at identifying ways that such a development could be undertaken
while working within the framework of the North Sea Transition Deal agreed
between the industry and government to expedite the energy transition.
Skerryvore and Ruvaal- Blocks 30/12c (part), 30/13c (split), 30/17h, 30/18c
and 30/19c (part), Serica Energy (UK) Limited: 20% working interest, operator
Parkmead
The (P2400) Skerryvore and (P2402) Ruvaal prospects lie in the Central North
Sea, 60km south of the Erskine field. Potential for both sandstone and chalk
reservoirs has been identified.
In excess of 500km(2) of 3D seismic data was purchased over the licence areas,
however, the company that was contracted to reprocess the data and enhance it
prior to interpretation was unable to deliver the new dataset in the agreed
timescale. That meant it was not possible to undertake the necessary work
programme in time to make a drilling decision by the end of the initial
three-year term(s), by September 2021. An extension application was therefore
submitted to the Oil and Gas Authority which approved an extension of the
current phase of the licence to the end of September 2022.
The reprocessed data was finally delivered at the end of 2021 and interpreted
by the Operator. Upon evaluation of the results, the partnership decided not
to proceed to the next phase of the P2402 Licence, which contains the Ruvaal
prospect and that has therefore been relinquished. Three of the four partners
decided to proceed into the next phase of the P2400 Licence, which includes a
commitment well into the Skerryvore prospect by September 2025. Serica will
continue with its 20% working interest.
Licence Awards in the UK 32(nd) licensing round
In December 2020 Serica was formally awarded four new blocks in the UK 32(nd)
licensing round. Blocks 3/25b, 3/30, 4/26 and 9/5a are in the vicinity of the
Bruce hub and include several leads which, if successful, could be tied back
to Serica's existing infrastructure, or to other facilities in the region. The
work programme does not include any commitment wells but is designed to mature
these leads to drill-ready status.
A decision on whether to continue with the licences into their next Phases is
due before the end of 2023.
FINANCIAL REVIEW
1H 2022 RESULTS
Serica generated a profit before taxation of £194.5 million for 1H 2022
compared to £2.2 million for 1H 2021. After current and deferred tax
provisions of £77.7 million (1H 2021: £0.9 million), profit for the period
was £116.7 million compared to £1.3 million for 1H 2021 and £79.3 million
for full year 2021.
Profits were boosted during the first half of the year by a combination of
increased production arising from successful 2021 investment on the Rhum R3
and Columbus wells and from high gas prices, partially offset by non-cash
accounting provisions for unrealised hedging losses related to future periods.
These unrealised losses will only become fully realised should actual gas
sales prices for 2H 2022 and 2023 reach the levels assumed in such valuations.
In addition, this does not factor in the substantial benefits to be realised
from the far larger volumes of unhedged gas sales should actual prices for
those future periods match such forward pricing. The proportion of projected
gas production hedged is estimated to fall close to 20% for 2H 2022 and to
around 10% for 1H 2023.
In August 2021, some gas price swaps for 2022/3 were replaced by equivalent
pricing for the same volumes fixed directly under gas sales contracts. These
were valued at that date and are held as gas contract liabilities in the
balance sheet without further revaluation. These liabilities are then
extinguished when the relevant gas volumes are delivered. Consequently,
Serica's gas price hedging comprises a mix of gas price swaps, fair valued at
the balance sheet date, and fixed pricing under gas sales contracts which is
held at initial value until extinguished. During 1H 2022, £27.5 million of
gas contract liabilities were extinguished and recorded under sales revenue in
the Income Statement.
Sales revenues
The total 1H 2022 sales revenue of £353.5 million (1H 2021: £100.8 million)
comprised £325.9 million of product sales revenue (1H 2021: £100.8 million)
and £27.5 million of contract revenue as described above (1H 2021: £nil).
Total product sales volumes for the half year comprised approximately 216
million therms of gas (1H 2021: 153 million therms), 498,000 lifted barrels of
oil (1H 2021: 365,000 barrels) and 36,800 metric tonnes of NGLs (1H 2021:
24,200 metric tonnes). The combined product sales revenue of £325.9 million
(1H 2021: £100.8 million) consisted of BKR revenues of £258.9 million (1H
2021: £89.3 million), Erskine revenues of £31.1 million (1H 2021: £11.5
million) and Columbus revenues of £35.9 million (1H 2021: £nil).
Average 1H 2022 sales prices net of system fees were: 136 pence per therm
including contract revenue (1H 2021: 50 pence per therm) for gas, US$107.7 per
barrel (1H 2021: US$65.0 per barrel) for oil and £514 per metric tonne (1H
2021: £284 per metric tonne) for NGLs. This gave a combined realised sales
price for lifted volumes of US$101 per barrel of oil equivalent (1H 2021:
US$43.3 per boe). The average gas sales price of 136 pence per therm reflects
the mix of gas sales comprising volumes sold at current spot prices and
volumes sold at contracted fixed prices and are before gas price hedging costs
on the retained gas price swaps detailed below. The fixed price element, net
of contract revenue, represented a reduction from daily spot pricing averaging
approximately 20 pence per therm.
Gross profit
The gross profit for 1H 2022 was £267.1 million compared to £46.0 million
for 1H 2021. Overall cost of sales of £86.3 million compared to £54.9
million for 1H 2021. This comprised £59.1 million of operating costs (1H
2021: £40.1 million) and £25.5 million of non-cash depletion charges (1H
2021: £15.3 million), reflecting higher production volumes, plus a £1.7
million charge representing a reduction during the period of the liquids
underlift position (1H 2021: credit of £0.5 million).
Operating costs comprise production, processing, transportation and insurance
and also included some non-recurring charges. Operating costs per boe were
US$16.07, broadly consistent with US$16.05 for 1H 2021. Costs per boe have
benefitted from increased production volumes for 1H 2022 covering the fixed
elements of production costs but have been partly offset by underlying cost
inflation and exceptional costs related to the Rhum production interruption in
Q1.
Operating profit before BKR fair value adjustment, net finance revenue and tax
The operating profit for 1H 2022 was £196.3 million compared to £5.5 million
for 1H 2021. This included hedging expense, related to 1H gas price swaps, of
£13.2 million realised during 1H 2022 (1H 2021: £5.7 million) plus
unrealised hedging expense of a further £56.4 million (1H 2021: £30.3
million) related to future period swaps.
There were no E&E asset write-offs for 1H 2022 or 1H 2021. Administrative
expenses for 1H 2022 of £3.8 million compared to £3.0 million for 1H 2021
whilst share-based payments were £0.8 million (1H 2021: £0.9 million) and
currency gains were £3.7 million (1H 2021: losses of £0.6 million) largely
arising on GBP-reported US$ holdings as sterling weakened compared to the US$
during 1H 2022.
Profit before taxation and profit for the period after taxation
Profit before taxation for 1H 2022 was £194.5 million (1H 2021: £2.2
million) after a £1.9 million charge arising from an increase in the fair
value of the BKR financial liability (1H 2021: £3.1 million) and £0.035
million of net finance revenue (1H 2021: costs of £0.2 million). Net finance
revenue represents interest income earned on cash deposits offset by the
discount unwind on decommissioning provisions and other minor finance costs.
The 1H 2022 charge of £1.9 million relating to the remaining BKR financial
liability (1H 2021 - £3.1 million) largely arose from the unwinding of
discount on the estimated amounts of those remaining liabilities. The fair
value of the liabilities, which are described under BKR asset acquisitions
below, is re-assessed at each financial period end.
The 1H 2022 taxation charge of £77.7 million (1H 2021: £0.9 million)
comprised current tax charges of £79.8 million (1H 2021: £nil) and a
non-cash deferred tax credit of £2.1 million (1H 2021: charge £0.9 million).
As the Group utilised its losses carried forward from previous years during
2021, cash taxes are payable on 2022 income. No provision has been included
for the Energy Profits Levy which was enacted after the end of the reporting
period and consequently is determined as a post balance sheet event. 2022 full
year results will include charges calculated from the effective date of 26 May
2022.
Overall, this generated a profit after taxation of £116.7 million for 1H 2022
compared to a profit after taxation of £1.3 million for 1H 2021.
GROUP BALANCE SHEET
Serica retains a strong balance sheet with no borrowings, limited
decommissioning liabilities and growing cash resources. This allows the
Company to fund ongoing capital investment programmes whilst delivering a
progressive dividend policy as well as seeking new acquisition and investment
opportunities.
An increase in exploration and evaluation assets from £2.9 million at 31
December 2021 to £10.3 million at 30 June 2022 reflected new expenditure on
UK licences, with the most significant element on planning and preparations
for drilling the North Eigg prospect.
Total property, plant and equipment decreased from £328.9 million at year end
2021 to £316.9 million at 30 June 2022. Net book amount additions comprised
capital expenditure during 1H 2022 of £13.6 million mainly on the Bruce LWIV
campaign. These were offset by depletion charges for 1H 2022 of £25.5 million
(1H 2021: £15.3 million) and other depreciation charges of £0.1 million (1H
2021: £0.1 million). Depletion charges represent the allocation of field
capital costs over the estimated producing life of each field and comprise
costs of asset acquisitions and subsequent investment programmes.
An inventories balance of £4.5 million at 30 June 2022 showed little change
from £4.1 million at the end of 2021. A decrease in trade and other
receivables from £132.4 million at the end of 2021 to £81.9 million
(excluding hedging security advances) at 30 June 2022 largely reflected lower
prices and volumes for June gas sales compared to last December.
Hedging advances of £160.4 million at 30 June 2022 (31 December 2021: £115.4
million) represented cash security lodged with commodity hedging
counterparties, covering both remaining swaps and fixed forward prices, and
reflected the very high forward gas prices at the end of June 2022. This will
be returned to Serica should forward gas prices fall or when monthly contracts
are settled. Hedging advances have shown extreme fluctuations so far in 2022
reflecting the extraordinary volatility in the gas market this year.
The increase in cash balances from £103.0 million at 31 December 2021 to
£258.3 million at 30 June 2022 reflected cash flow from operations of £267.0
million mainly offset by the significant capital expenditures of £20.9
million and £93.9 million of net cash flow payments and other consideration
paid to BKR counterparties during the period.
Current trade and other payables increased to £141.6 million at 30 June 2022
from £49.5 million at the end of 2021. The balance at 30 June 2022 includes
UK corporation tax payable of £95.6 million (31 December 2021: £15.8
million). A significant corporation tax payment of £66.0 million was made in
Q3 2022.
Derivative financial liabilities of £102.2 million at 30 June 2022 (31
December 2021: £45.8 million) represent the valuation of gas price swaps
remaining in place at the period end and the consequent amounts projected to
be due based upon futures pricing prevailing at that date. End June 2022
futures pricing was strong and, if realised, would deliver greatly increased
gas sales revenues during 2H 2022 and 2023.
The dividend payable of £24.5 million at 30 June 2022 (31 December 2021:
£nil) represents the final cash dividend for 2021 of 9.0 pence per share
approved at the annual general meeting on 30 June 2022 and paid in July.
Gas contract liabilities arising from the replacement of some gas price swaps
by contracted fixed price elements as described above, are split between
current liabilities of £10.8 million (31 December 2021: £37.5 million) and
non-current liabilities of £0.2 million (31 December 2021: £1.0 million).
Although gas contract liabilities are not revalued at each period end, they
are still subject to cash security requirements in the same way as the
remaining gas price swaps.
Current financial liabilities of £nil (31 December 2021: £93.9 million) and
non-current financial liabilities of £39.7 million (31 December 2021: £37.8
million) comprise remaining deferred consideration projected to be paid under
the BKR acquisition agreements.
The current financial liability of £93.9 million at 31 December 2021
comprised the final two net cash flow sharing payments due, those for November
and December 2021 totalling £63.3 million, a fixed payment of £16.0 million
arising from the successful outcome of the Rhum R3 well operations and a
further £14.6 million of contingent consideration in respect of Rhum field
performance during 2021 and over the previous two years. These amounts were
all settled in 1H 2022.
The non-current liability comprised deferred consideration in respect of BKR
decommissioning and oil linefill. Under arrangements for those BKR field
interests acquired from BP, Total E&P and BHP, decommissioning liabilities
were retained by the vendors with Serica liable to pay deferred consideration
equivalent to 30% of the actual costs of decommissioning net of tax recovered
by them.
Non-current provisions relate to future decommissioning obligations. These
showed an increase from £28.1 million at 31 December 2021 to £28.4 million
at 30 June 2022, due to the unwinding of the discount applied to the
estimates. The balance of provisions is in respect of Serica's Bruce and Keith
interests acquired from Marubeni and its share of Columbus decommissioning.
The deferred tax liability of £118.5 million at 30 June 2022 decreased from
£120.6 million at year end 2021 and reflects accounting provisions expected
to be released in future periods now the Group's tax losses have been fully
utilised.
Overall, net assets have increased from £272.5 million at year end 2021 to
£366.5 million at 30 June 2022 after recognising a liability for the dividend
of £24.5 million paid in July 2022.
The increase in share capital from £182.0 million to £182.9 million arose
from shares issued following the exercise of share options and shares issued
under employee share schemes, whilst the increase in other reserves from
£22.1 million to £22.9 million arose from share-based payments related to
share option awards.
CASH BALANCES AND FUTURE COMMITMENTS
Current cash position and price hedging
At 30 June 2022 the Group held cash and cash equivalents of £258.3 million
(31 December 2021: £103.0 million) excluding cash lodged as security with gas
price hedge counterparties. This is after capital investments during the
period of £20.9 million and monthly net cash flow sharing payments and other
BKR consideration totalling £93.9 million. Of total cash and cash
equivalents, £12.9 million was held in a restricted account against letters
of credit issued in respect of certain decommissioning liabilities as at 30
June 2022 (31 December 2021: £12.9 million). Having utilised all of its tax
losses carried forward by end 2021, Serica's first cash tax instalment, of
£66.0 million, was paid in Q3 2022 after the end of this reporting period.
Further instalments for 2022 will fall due in October 2022 and January 2023.
Its first instalment of the Energy Profits Levy will fall due in December
2022.
No gas price hedges have been added since July 2021. At 30 June 2022 Serica
held gas price swaps and equivalent fixed pricing under gas sales agreements
for periods up to Q3 2023. For H2 2022, it held an average 275,000 therms per
day at an average price of 44 pence per therm. For 2023, it held an average
150,000 therms per day for H1 and 50,000 therms per day for Q3 at average
prices of 49 pence per therm and 41 pence per therm respectively. At 30 June
2022, cash hedging security advances of £160.4 million had been lodged with
hedge counterparties as security against settlement of future hedge
instruments (31 December 2021: £115.4 million).
Cash security against swap and equivalent fixed pricing has continued to
fluctuate with the very volatile gas futures market. At the same time the
volume of remaining hedges is declining steadily as each month's contracts are
settled.
As of 23 September 2022, the Company held cash and cash equivalents of £282.6
million plus a further £199.8 million lodged as security with hedge
counterparties. This is after settlement of the initial tax instalment
referred to above, the 2021 final dividend, initial North Eigg drilling costs
and additional hedging security advances.
The gas price outlook remains exceptionally volatile with day ahead pricing,
at which the Company's gas is sold, ranging from below 100p/therm to over
500p/therm in recent months. Futures pricing, which drives cash security
requirements, has been even more volatile, recently reaching over 800p/therm
for this winter before falling back. Although the Company's remaining gas
price hedges continue to expire month by month, the erratic futures market
requires significant cash resources to be held to meet short term price
surges. Cash security requirements over 2022 to date have ranged from below
£150 million to over £300 million.
Outstanding hedging is below 20% of projected gas production for Q4 2022,
falling to around 10% for 1H 2023 with negligible amounts remaining
thereafter. The combination of hedge expiry and realisation of monthly sales
revenues should boost cash resources whilst reducing cash security
requirements over the remainder of the year. This does not rule out short term
price surges, and consequent increases in cash security, in the near term.
The Company's oil and liquids production remains unhedged.
Cash projections are run periodically to examine the potential impact of
extended low oil and gas prices as well as possible production interruptions.
Serica currently has substantial cash resources, no borrowings and relatively
low operating costs per boe which means that the Company is well placed to
withstand such risks and its capital commitments can be funded from existing
cash resources.
Field and other capital commitments
There are no existing capital commitments on the Erskine producing field and
net production revenues are expected to cover all ongoing field expenditures.
Serica's 18% share of decommissioning costs will be met by BP up to a level of
£31.3 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 £2.5 million net to Serica outstanding as at
30 June 2022 on Bruce LWIV well work, which was completed in July 2022.
Potential further programmes to enhance current production profiles and extend
field life are under consideration. Net revenues from Serica's share of income
from the BKR fields is expected to cover Serica's retained share of ongoing
field expenditures as well as deferred consideration due under the respective
BKR acquisition agreements set out below. Serica's share of decommissioning
costs relating to its interests in the existing BKR field facilities will be
met by the vendors apart from those field shares acquired from Marubeni (Bruce
3.75%, Keith 8.33%) for which Serica is directly responsible.
On the Columbus field, Serica's share of production revenue is expected to
cover Serica's share of ongoing field expenditures. Decommissioning
obligations are limited as the development comprises a single well linked via
a subsea completion to an existing pipeline.
The Group's only significant exploration commitment is the drilling of a well
on the North Eigg prospect.
BKR asset acquisitions
On 30 November 2018 Serica completed the four BKR acquisitions. During 1H
2022, the final elements of contingent cash consideration arising from the net
cash flow sharing arrangements, and other contingent payments arising from
Rhum R3 well production and Rhum performance criteria, were made. The
following elements of consideration were outstanding at 30 June 2022:
· BP, Total E&P and BHP retain liability, in respect of the field
interests Serica acquired from each of them, for all the costs of
decommissioning those facilities that existed at the date of completion.
Serica will pay deferred consideration equal to 30% of actual future
decommissioning costs, reduced by the tax relief that each of BP, Total
E&P and BHP receives on such costs. These are held as non-current
financial liabilities at 31 December 2021 and 30 June 2022. Staged prepayments
against such projected amounts commenced in 1H 2022 (£9.1 million is included
within trade and other receivables in the Balance Sheet at 30 June 2022) and
will be spread over the remaining years before cessation of field production.
· Serica will pay to each of BP, Total E&P and BHP, deferred
consideration equal to 90% of their respective shares of the realised value of
oil in the Bruce pipeline at the end of field life. These are held as
non-current financial liabilities at 31 December 2021 and 30 June 2022.
OTHER
Asset values and impairment
At 30 June 2022, Serica's market capitalisation stood at £775.0 million,
based upon a share price of 285.0 pence, which exceeded the net asset value of
£366.5 million. A review was performed for any indication that the value of
the Group's oil and gas assets may be impaired at the balance sheet date of 30
June 2022 and no impairment triggers were noted. By 23 September the Company's
market capitalisation has risen to £965.7 million.
Additional Information
Additional information relating to Serica, can be found on the Company's
website at www.serica-energy.com and on SEDAR at www.sedar.com
(http://www.sedar.com)
Approved on behalf of the Board
Mitch Flegg
Chief Executive Officer
26 September 2022
Forward Looking Statements
This disclosure contains certain forward looking statements that involve
substantial known and unknown risks and uncertainties, some of which are
beyond Serica Energy plc's control, including: the impact of general economic
conditions where Serica Energy plc operates, industry conditions, changes in
laws and regulations including the adoption of new environmental laws and
regulations and changes in how they are interpreted and enforced, increased
competition, the lack of availability of qualified personnel or management,
fluctuations in foreign exchange or interest rates, stock market volatility
and market valuations of companies with respect to announced transactions and
the final valuations thereof, and obtaining required approvals of regulatory
authorities. Serica Energy plc's actual results, performance or achievement
could differ materially from those expressed in, or implied by, these forward
looking statements and, accordingly, no assurances can be given that any of
the events anticipated by the forward looking statements will transpire or
occur, or if any of them do so, what benefits, including the amount of
proceeds, that Serica Energy plc will derive therefrom.
Serica Energy plc
Group Income Statement
For the periods ended 30 June and 31 December
Six Six
months months Year
ended ended ended
30 June 30 June 31 Dec
Notes 2022 2021 2021
Continuing operations £000 £000 £000
(Unaudited) (Unaudited) (Audited)
Sales revenue 4 353,472 100,835 514,136
Cost of sales 5 (86,346) (54,862) (127,313)
Gross profit 267,126 45,973 386,823
Unrealised hedging expense 6 (56,390) (30,320) (74,592)
Realised hedging expense 6 (13,203) (5,642) (56,615)
Pre-licence costs (185) - (199)
Administrative expenses (3,839) (2,988) (6,097)
Foreign exchange gain/(loss) 3,653 (628) (854)
Share-based payments (823) (878) (2,386)
Operating profit from 196,339 5,517 246,080
continuing operations
Change in fair value of BKR financial liability (1,899) (3,074) (110,529)
Finance revenue 345 58 82
Finance costs (310) (253) (527)
Profit before taxation 194,475 2,248 135,106
Taxation charge for the period 12 (77,746) (899) (55,812)
Profit after taxation and 116,729 1,349 79,294
profit for the period
Earnings per ordinary share (EPS)
Basic EPS on profit for the period (£) 0.43 0.01 0.30
Diluted EPS on profit for the period (£) 0.41 0.01 0.28
Serica Energy plc
Group Balance Sheet
30 June 31 Dec 30 June
2022 2021 2021
£000 £000 £000
Notes (Unaudited) (Audited) (Unaudited)
Non-current assets
Exploration & evaluation assets 8 10,254 2,949 1,632
Property, plant and equipment 9 316,920 328,944 338,113
327,174 331,893 339,745
Current assets
Inventories 4,528 4,053 4,964
Trade and other receivables 81,864 132,351 31,788
Hedging security advances 160,380 115,390 10,720
Cash and cash equivalents 258,318 102,984 92,004
505,090 354,778 139,476
TOTAL ASSETS 832,264 686,671 479,221
Current liabilities
Trade and other payables (45,924) (33,697) (43,951)
Corporate tax payable (95,639) (15,804) -
Derivative financial liability (102,181) (45,791) (40,011)
Gas contract liabilities (10,807) (37,505) -
Financial liabilities - (93,861) (47,595)
Provisions - - (1,002)
Dividend payable 7 (24,467) - (9,385)
Non-current liabilities
Gas contract liabilities (162) (987) -
Financial liabilities (39,685) (37,795) (39,920)
Provisions (28,371) (28,095) (23,027)
Deferred tax liability (118,519) (120,608) (81,499)
TOTAL LIABILITIES (465,755) (414,143) (286,390)
NET ASSETS 366,509 272,528 192,831
Share capital 10 182,889 181,993 181,749
Other reserves 22,889 22,066 20,558
Accumulated funds/(deficit) 160,731 68,469 (9,476)
TOTAL EQUITY 366,509 272,528 192,831
Serica Energy plc
Group Statement of Changes in Equity
For the year ended 31 December 2021 and period ended 30 June 2022
Group Share capital Other reserves Deficit Total
£000 £000 £000 £000
At 1 January 2021 (audited) 181,606 19,680 (1,440) 199,846
Profit for the year - - 79,294 79,294
Total comprehensive income - - 79,294 79,294
Issue of shares 387 - - 387
Share-based payments - 2,386 - 2,386
Dividend payable - - (9,385) (9,385)
At 31 December 2021 (audited) 181,993 22,066 68,469 272,528
Profit for the period - - 116,729 116,729
Total comprehensive income - - 116,729 116,729
Issue of shares 896 - - 896
Share-based payments - 823 - 823
Dividend payable - - (24,467) (24,467)
At 30 June 2022 (unaudited) 182,889 22,889 160,731 366,509
Serica Energy plc
Group Cash Flow Statement
For the periods ended 30 June and 31 December
Six Six
months months Year
ended ended ended
30 June 30 June 31 Dec
2022 2021 2021
£000 £000 £000
(Unaudited) (Unaudited) (Audited)
Operating activities:
Profit for the period 116,729 1,349 79,294
Adjustments to reconcile profit for the period
to net cash flow from operating activities:
Taxation charge 77,746 899 55,812
Change in fair value of BKR financial liability 1,899 3,074 110,529
Net finance (income)/costs (35) 195 445
Depletion 25,529 15,292 37,048
Oil and NGL over/underlift movement 1,700 (467) (6,859)
E&E asset write-offs - - -
Unrealised hedging losses 56,390 30,320 74,592
Contract revenue (27,523) - -
Share-based payments 823 878 2,386
Other non-cash movements (2,042) 328 349
Hedging security advances (44,990) (8,920) (113,590)
Decrease/(increase) in receivables 48,787 7,741 (86,527)
(Increase)/decrease in inventories (475) (331) 580
Increase/(decrease) in payables 12,423 13,475 3,544
Net cash inflow from operations 266,961 63,833 157,603
Investing activities:
Interest received 345 58 82
Purchase of E&E assets (7,305) (589) (1,906)
Purchase of property, plant & equipment (13,614) (42,392) (50,252)
Cash outflow from business combinations (93,870) (17,963) (81,277)
Cash outflow arising on asset acquisitions - - (1,002)
Net cash outflow from investing activities (114,444) (60,886) (134,355)
Financing activities:
Issue of ordinary shares 896 143 387
Payments of lease liabilities (87) (66) (179)
Dividends paid - - (9,385)
Finance costs paid (34) (25) (71)
Net cash in/(out)flow from financing activities 775 52 (9,248)
Cash and cash equivalents
Net increase in period 153,292 2,999 14,000
Effect of exchange rates on cash and cash equivalents 2,042 (328) (349)
Amount at start of period 102,984 89,333 89,333
Amount at end of period 258,318 92,004 102,984
Serica Energy
plc
Notes to the Unaudited Consolidated Financial Statements
1. Corporate information
The interim condensed consolidated financial statements of the Group for the
six months ended 30 June 2022 were authorised for issue in accordance with a
resolution of the directors on 26 September 2022.
Serica Energy plc is a public limited company incorporated and domiciled in
England & Wales. The Company's ordinary shares are traded on AIM in
London. The principal activity of the Company is to identify, acquire and
exploit oil and gas reserves.
2. Basis of preparation and accounting policies
Basis of Preparation
The interim condensed consolidated financial statements for the six months
ended 30 June 2022 have been prepared in accordance with International
Accounting Standard 34 "Interim Financial Reporting".
These unaudited interim consolidated financial statements of the Group have
been prepared following the same accounting policies and methods of
computation as the consolidated financial statements for the year ended 31
December 2021. These unaudited interim consolidated financial statements do
not include all the information and footnotes required by generally accepted
accounting principles for annual financial statements and therefore should be
read in conjunction with the consolidated financial statements and the notes
thereto in the Serica Energy plc annual report for the year ended 31 December
2021.
The financial information contained in this announcement does not constitute
statutory financial statements within the meaning of section 435 of the
Companies Act 2006.
Consolidated statutory accounts for the year ended 31 December 2021, on which
the auditors gave an unqualified audit report, have been filed with the
registrar of Companies. The report of the auditors included in that 2021
Annual Report was unqualified and did not contain a statement under either
Section 498(2) or Section 498(3) of the Companies Act 2006.
Going Concern
The Directors are required to consider the availability of resources to meet
the Group's liabilities for the foreseeable future. The financial position of
the Group, its cash flows and capital commitments are described in the
Financial Review above.
At 30 June 2022 the Company held cash and cash equivalents of £258.3 million
with a further £160.4 million of security advances lodged with hedge
counterparties. The cash balance at 30 June 2022 included £12.9 million of
restricted funds.
The Group regularly monitors its cash, funding and liquidity position. Near
term cash projections are revised and underlying assumptions reviewed,
generally monthly, and longer-term projections are also updated regularly.
Downside price and other risking scenarios are considered. In addition to
commodity sales prices the Group is exposed to potential production
interruptions and these are also considered under such scenarios. Serica's
acquisitions to-date have been structured to reduce post-completion risk and,
following completion of the BKR transactions, management has given priority to
building a strong cash reserve which can respond to different types of risk.
Serica currently has no borrowings, relatively low operating costs per boe and
its capital commitments can be funded from existing cash resources.
After making enquiries and having taken into consideration the above factors,
the Directors have reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable future.
Accordingly, they continue to adopt the going concern basis in preparing the
financial statements.
Significant accounting policies
A number of new standards, amendments to existing standards and
interpretations were applicable from 1 January 2022. The adoption of these
amendments did not have a material impact on the Group's interim condensed
consolidated financial statements for the period ended 30 June 2022.
The accounting policies adopted in the preparation of the interim condensed
consolidated financial statements are consistent with those followed in the
preparation of the Group's annual financial statements for the year ended 31
December 2021. The impact of seasonality or cyclicality on operations is not
considered significant on the interim consolidated financial statements.
The Group financial statements are presented in £ and all values are rounded
to the nearest thousand pounds (£000) except when otherwise indicated.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries Serica Holdings UK Limited, Serica Energy
Holdings B.V., Serica Energy Corporation, Asia Petroleum Development Limited,
Petroleum Development Associates (Asia) Limited, Serica Energy (UK) Limited,
PDA Lematang Limited, Serica Glagah Kambuna B.V., Serica Sidi Moussa B.V.,
Serica Energy Rockall B.V., Serica Energy Slyne B.V. and Serica Energy Namibia
B.V.. Together, these comprise the "Group".
All inter-company balances and transactions have been eliminated upon
consolidation.
3. Segmental Information
The Group's business is that of oil & gas exploration, development and
production. The Group's reportable segments are based on the location of the
Group's assets.
The following tables present revenue, profit and certain asset and liability
information regarding the Group's geographical reportable segments for the
periods ended 30 June 2022 and 2021 and year ended 31 December 2021. Costs
associated with the UK corporate centre are included in the UK reportable
segment.
Period ended 30 June 2022 Continuing
UK Total
£000 £000
Revenue 353,472 353,472
Operating and segment profit 196,339 196,339
Change in BKR financial liability (1,899) (1,899)
Finance revenue 345 345
Finance costs (310) (310)
Profit before taxation 194,475 194,475
Taxation charge for the period (77,746) (77,746)
Profit after taxation 116,729 116,729
Other segment information:
Segmental assets 832,264 832,264
Total assets 832,264
Segment liabilities (465,755) (465,755)
Total liabilities (465,755)
Period ended 30 June 2021 Continuing
UK Total
£000 £000
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
£000 £000
Other segment information:
Segmental assets 479,221 479,221
Total assets 479,221
Segment liabilities (286,390) (286,390)
Total liabilities (286,390)
Year ended 31 December 2021 Continuing
UK Total
£000 £000
Revenue 514,136 514,136
Operating and segment profit 246,080 246,080
Change in BKR financial liability (110,529) (110,529)
Finance revenue 82 82
Finance costs (527) (527)
Profit before taxation 135,106 135,106
Taxation charge for the year (55,812) (55,812)
Profit after taxation 79,294 79,294
Other segment information:
Segmental assets 686,671 686,671
Total assets 686,671
Segment liabilities (414,143) (414,143)
Total liabilities (414,143)
4. Sales Revenue
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2022 2021 2021
£000 £000 £000
Gas sales 266,089 76,563 455,969
Oil sales 41,185 17,106 40,215
NGL sales 18,675 7,166 17,952
Product sales 325,949 100,835 514,136
Contract revenue 27,523 - -
Total revenue 353,472 100,835 514,136
Revenues include product sales from Serica's full interests in the BKR assets
before calculation of amounts due under the net cash flow sharing
arrangements.
Contract revenue in 1H 2022 arose from the unwind of gas contract liabilities
initially recognised upon the restructuring of certain gas swaps to other
fixed price instruments under a gas sales contract in August 2021. Further
information is provided in the Financial Review above.
5. Cost of sales
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2022 2021 2021
£000 £000 £000
Operating costs 59,117 40,037 97,124
Movement in liquids overlift/underlift 1,700 (467) (6,859)
Depletion (note 9) 25,529 15,292 37,048
86,346 54,862 127,313
Operating costs include costs from Serica's full interests in the BKR assets
before calculation of amounts due under the net cash flow sharing
arrangements.
6. Group Operating Profit
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2022 2021 2021
£000 £000 £000
Realised hedging losses (13,203) (5,642) (56,615)
Unrealised hedging losses on gas swaps (56,390) (30,320) (36,100)
Other hedging losses - - (38,492)
Unrealised hedging losses (56,390) (30,320) (74,592)
Derivative financial instruments
The Group enters into derivative financial instruments with various
counterparties. No gas put options were held at 31 December 2021 or 30 June
2022. Other derivative financial instruments held at 31 December 2021 and 30
June 2022 comprised gas swaps which were valued by counterparties, with the
valuations reviewed internally and corroborated with readily available market
data (level 2).
Details of the Group's derivative financial instruments held as at 30 June
2022 are provided in the financial review above.
Realised hedging losses comprise losses realised on 1H 2022 gas price swaps.
Unrealised hedging losses on gas swaps comprise unrealised charges on the
movement during 1H 2022 in the calculated fair value liability of outstanding
gas price derivative contracts measured at the respective Balance Sheet dates.
Other hedging losses comprise charges for the fair value of 2022 and 2023
hedging instruments crystalised as gas contract liabilities upon a
restructuring of certain gas swaps to other fixed price instruments under a
gas sales contract in August 2021.
7. Dividends payable
A final cash dividend for 2021 of 9.0 pence per share was proposed in April
2022 and approved at the annual general meeting on 30 June 2022. Following the
approval in the 1H 2022 period, the dividend payable of £24.5 million is
recognised as a liability in the Balance Sheet at 30 June 2022. The dividend
was paid in July 2022.
A final cash dividend for 2020 of 3.5 pence per share was proposed in April
2021 and approved at the annual general meeting on 24 June 2021. Following the
approval in the 1H 2021 period, the dividend payable of £9.4 million is
recognised as a liability in the Balance Sheet at 30 June 2021. The dividend
was paid in July 2021.
8. Exploration and Evaluation Assets
Total
£000
Cost:
At 1 January 2021 1,043
Additions 1,906
Asset write-offs -
At 31 December 2021 2,949
Additions 7,305
Asset write-offs -
At 30 June 2022 10,254
Provision for impairment:
At 1 January 2021 -
Impairment reversal for the period -
At 31 December 2021 -
Impairment (charge)/reversal for the period -
At 30 June 2022 -
Net Book Amount:
30 June 2022 10,254
31 December 2021 2,949
1 January 2021 1,043
9. Property, Plant and Equipment
Oil and gas properties Fixtures and fittings
Right-of-use assets
Total
£000 £000 £000 £000
Cost:
At 1 January 2021 411,462 212 516 412,190
Additions 50,252 - - 50,252
Decommissioning asset 4,840 - - 4,840
At 31 December 2021 466,554 212 516 467,282
Additions 13,269 - 345 13,614
At 30 June 2022 479,823 212 861 480,896
Depreciation and depletion:
At 1 January 2021 100,650 114 301 101,065
Charge for the period (note 5) 37,048 53 172 37,273
At 31 December 2021 137,698 167 473 138,338
Charge for the period (note 5) 25,529 23 86 25,638
At 30 June 2022 163,227 190 559 163,976
Net book amount:
At 30 June 2022 316,596 22 302 316,920
At 31 December 2021 328,856 45 43 328,944
At 1 January 2021 310,812 98 215 311,125
Depreciation and depletion
Depletion charges on oil and gas properties are classified within 'cost of
sales'. Depreciation on other elements of property, plant and equipment is
provided on a straight-line-basis and taken through general and administration
expenses.
10. Equity Share Capital
As at 30 June 2022, the share capital of the Company comprised one "A" share
of £50,000 and 271,921,900 ordinary shares of US$0.10 each. The "A" share has
no special rights.
The balance classified as total share capital includes the total net proceeds
(both nominal value and share premium) on issue of the Group and Company's
equity share capital, comprising US$0.10 ordinary shares and one 'A' share.
Allotted, issued and fully paid: Share Share Total
capital Premium Share capital
Group Number £000 £000 £000
At 1 January 2021 267,809,703 21,107 160,499 181,606
Shares issued 1,081,341 79 308 387
At 31 December 2021 268,891,044 21,186 160,807 181,993
Shares issued 3,030,857 233 663 896
At 30 June 2022 271,921,901 21,419 161,470 182,889
During 1H 2022, 3,030,857 ordinary shares were issued to satisfy awards under
the Company's share-based incentive schemes.
875,332 ordinary shares have been issued in Q3 2022 to date and as at 23
September 2022 the issued voting share capital of the Company was 272,797,232
ordinary shares and one "A" share.
11. Share-Based Payments
Share Option Plans
The Company operates three discretionary incentive share option plans: the
Serica Energy Plc Long Term Incentive Plan (the "LTIP"), which was adopted by
the Board on 20 November 2017 which permits the grant of share-based awards,
the 2017 Serica Energy plc Company Share Option Plan ("2017 CSOP"), which was
adopted by the Board on 20 November 2017, and the Serica 2005 Option Plan,
which was adopted by the Board on 14 November 2005. Awards can no longer be
made under the Serica 2005 Option Plan, however, options remain outstanding
under the Serica 2005 Option Plan. The LTIP and the 2017 CSOP together are
known as the "Discretionary Plans".
The Discretionary Plans will govern all future grants of options by the
Company to Executive Directors, key employees and certain consultants of the
Group. The Directors intend that the maximum number of ordinary shares which
may be utilised pursuant to the Discretionary Plans will not exceed 10% of the
issued ordinary shares of the Company from time to time in line with the
recommendations of the Association of British Insurers.
The objective of these plans is to develop the interest of Executive
Directors, key employees and certain consultants of the Group in the growth
and development of the Group by providing them with the opportunity to acquire
an interest in the Company and to assist the Company in retaining and
attracting executives with experience and ability.
Serica 2005 Option Plan
As at 30 June 2022, 4,000,000 options granted by the Company under the Serica
2005 Option Plan were outstanding. All options awarded under the Serica 2005
Option Plan since November 2009 have a three-year vesting period. When
awarding options to directors, the Remuneration Committee are required to set
Performance Conditions in addition to the vesting provisions before vesting
can take place. Of the above options, 2,500,000 of these options were granted
to Mr Craven Walker in July 2015 at exercise prices higher than the market
price at the time of the grant to establish firm performance targets.
No options were granted in 2021 or 1H 2022 under the Serica 2005 Option Plan.
The following table illustrates the number and weighted average exercise
prices (WAEP) of, and movements in, share options during the period:
WAEP
£
Outstanding at 31 December 2021 4,100,000 0.14
Exercised during the period (100,000) 0.27
Outstanding at 30 June 2022 4,000,000 0.14
As at 30 June 2022, the following director and employee share options were
outstanding:
Expiry Date Amount Exercise cost
£
January 2023 100,000 54,500
January 2024 300,000 39,000
June 2025 1,100,000 72,600
July 2025 1,000,000 120,000
July 2025 1,000,000 180,000
July 2025 500,000 120,000
Total 4,000,000
Long Term Incentive Plan
The following awards granted to certain Executive Directors and employees
under the LTIP are outstanding as at 30 June 2022.
LTIP awards (deemed to be granted in November 2017 under IFRS 2)
Director/Employees Total number of shares granted subject to Deferred Bonus Share Awards
Antony Craven Walker 225,000
Mitch Flegg 225,000
Andrew Bell 138,000
Employees below Board level (in aggregate) 138,000
726,000
Deferred Bonus Share Awards involve the deferral of bonuses into awards over
shares in the Company. They are structured as nil-cost options and may be
exercised up until the fifth anniversary of the date of grant. Vesting of the
Deferred Bonus Share Awards was the later of the date of completion of the BKR
Acquisition and 31 January 2019 and all awards have therefore now vested. They
were not subject to performance conditions; however, they were conditional on
completion of the BKR Acquisition, subject to the Board determining otherwise.
Director/Employees Total number of shares granted subject to Performance Share Awards
Antony Craven Walker 1,500,000
Mitch Flegg 1,500,000
Andrew Bell 800,000
Employees below Board level (in aggregate) 1,308,498
5,108,498
Performance Share Awards have a three-year vesting period and are subject to
performance conditions based on average share price growth targets to be
measured by reference to dealing days in the period of 90 days ending
immediately prior to expiry of a three-year performance starting on the date
of grant of a Performance Share Award. Performance Share Awards are structured
as nil-cost options and may be exercised up until the tenth anniversary of the
date of grant. They are exercisable as at 30 June 2022.
LTIP awards in 2019
In Q1 2019, the Company granted nil-cost Performance Share Awards over
3,735,640 ordinary shares and nil-cost Retention Share Awards over 309,415
ordinary shares, a combined total of 4,045,055 ordinary shares under the LTIP.
2,145,218 of the total awards were outstanding at 30 June 2022. The award was
made to members of the Group's executive team, senior management and
employees. The awards included a total of 1,056,442 ordinary shares for the
Executive Directors and persons discharging managerial responsibilities as
follows:
Director/PDMR Total number of shares granted subject to Performance Share Awards
Antony Craven Walker 411,067
Mitch Flegg 411,067
Andrew Bell 234,308
1,056,442
These awards are subject to vesting criteria based on absolute share price
performance over a three-year period and are exercisable as at 30 June 2022.
LTIP awards in 2020
In May 2020, the Company granted nil-cost Performance Share Awards over
2,669,280 ordinary shares under the LTIP. All of the total awards were
outstanding at 30 June 2022. The award was made to members of the Group's
executive team, senior management and employees. The awards included a total
of 996,678 ordinary shares for the Executive Directors and persons discharging
managerial responsibilities as follows:
Director/PDMR Total number of shares granted subject to Performance Share Awards
Antony Craven Walker 386,100
Mitch Flegg 386,100
Andrew Bell 224,478
996,678
These awards are subject to vesting criteria based on absolute share price
performance over a three-year period and are not exercisable as at 30 June
2022.
LTIP awards in 2021
In May 2021, the Company granted nil-cost Performance Share Awards over
2,725,032 ordinary shares under the LTIP. All of the total awards were
outstanding at 30 June 2022. The award was made to members of the Group's
executive team, senior management and employees. The awards included a total
of 1,480,908 ordinary shares for the Executive Directors and persons
discharging managerial responsibilities as follows:
Director/PDMR Total number of shares granted subject to Performance Share Awards
Antony Craven Walker 587,349
Mitch Flegg 587,349
Andrew Bell 306,210
1,480,908
These awards are subject to vesting criteria based on absolute share price
performance over a three-year period (75%) and on reductions in carbon
intensity of production from the BKR assets (25%) and are not exercisable at
30 June 2022.
LTIP awards in 2022
In May 2022, the Company granted nil-cost Performance Share Awards over
665,632 ordinary shares under the LTIP. All of the total awards were
outstanding at 30 June 2022. The award was made to members of the Group's
executive team, senior management and employees. The awards included a total
of 378,491 ordinary shares for the Executive Directors and persons discharging
managerial responsibilities as follows:
Director/PDMR Total number of shares granted subject to Performance Share Awards
Antony Craven Walker 138,300
Mitch Flegg 147,615
Andrew Bell 92,576
378,491
The vesting criteria are based on absolute share price performance over a
three-year period and specific performance targets related to carbon emissions
from operations over the same period. For the awards to vest in full, a 100%
increase in average share price must be maintained for at least a six-month
period together with a significant decrease in carbon emissions per barrel of
oil equivalent produced. These awards are not exercisable at 30 June 2022.
Calculation of Share-based Compensation
The Company calculates the value of share-based compensation using a
Black-Scholes option pricing model (or other appropriate model for those
options subject to certain market conditions) to estimate the fair value of
share options at the date of grant. There are no cash settlement alternatives.
The estimated fair value of options is amortised to expense over the options'
vesting period.
£823,000 has been charged to the income statement for the six-month period
ended 30 June 2022 (1H 2021 - £878,000) and a similar amount credited to the
share-based payments reserve, classified as 'Other reserve' in the Balance
Sheet.
12. Taxation
The major components of income tax charged in the consolidated income
statement are:
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2022 2021 2021
£000 £000 £000
Current income tax charge 79,835 - 15,804
Deferred income tax (credit)/charge (2,089) (899) 40,008
Total taxation charge/(credit) for the period 77,746 (899) 55,812
Recognised and unrecognised tax losses
The Group's Balance Sheet net deferred tax liability amount of £120.6 million
as at 31 December 2021 and £118.5 million as at 30 June 2022 arises from
deferred tax liabilities (primarily related to temporary differences on fixed
assets) being partially offset by deferred tax assets on decommissioning
liabilities.
The Group's deferred tax assets at 31 December 2020 and 30 June 2021 are
recognised to the extent that taxable profits are expected to arise in the
future against which tax losses and allowances in the UK can be utilised. In
accordance with IAS 12 Income Taxes, the Group assessed the recoverability of
its deferred tax assets at 31 December 2021 and 30 June 2022 with respect to
ring fence losses and allowances.
Changes to UK corporation tax legislation
On 26 May 2022, the UK Government announced the introduction of an Energy
Profits Levy ('EPL') on the UK ring fence profits of oil and gas producers
with effect from 26 May 2022. The legislation introducing the EPL was
substantively enacted on 11 July 2022. The EPL is charged at the rate of 25%
on taxable profits in addition to ring fence corporation tax of 30% and
Supplementary Charge of 10%, making a total rate on ring fence profits of 65%.
The Group's profits from its UK oil and gas operations will be impacted by the
EPL and the results for the year will reflect the additional tax.
The interim tax charge does not reflect an EPL charge as the legislation was
not substantively enacted at 30 June 2022. The overall current and deferred
tax impact will be updated in conjunction with full-year results.
13. Publication of Non-Statutory Accounts
The financial information contained in this interim statement does not
constitute statutory accounts as defined in the Companies Act 2006. The
financial information for the full preceding year is based on the statutory
accounts for the financial year ended 31 December 2021, which are available at
the Company's registered office at 48 George Street, London W1U 7DY and on its
website at www.serica-energy.com (http://www.serica-energy.com) and on SEDAR
at www.sedar.com (http://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 (http://www.serica-energy.com) and on SEDAR at
www.sedar.com (http://www.sedar.com) .
GLOSSARY
bbl barrel of 42 US gallons
bcf billion standard cubic feet
boe barrels of oil equivalent (barrels of oil, condensate and NGLs plus the
heating equivalent of gas converted into barrels at the appropriate rate)
BKR Assets Bruce, Keith and Rhum fields
CPR Competent Persons Report
FDP Field Development Plan
HPHT High pressure high temperature
mscf thousand standard cubic feet
mmbbl million barrels
mmboe million barrels of oil equivalent
mmscf million standard cubic feet
mmscfd million standard cubic feet per day
NBP National Balancing Point for pricing and delivery of gas sales
NGLs Natural gas liquids extracted from gas streams
NTS National Transmission System
Overlift Volumes of oil or NGLs sold in excess of volumes produced
Underlift Volumes of oil or NGLs produced but not yet sold
P10 A high estimate that there should be at least a 10% probability that the
quantities recovered will actually equal or exceed the estimate
P50 A best estimate that there should be at least a 50% probability that the
quantities recovered will actually equal or exceed the estimate
P90 A low estimate that there should be at least a 90% probability that the
quantities recovered will actually equal or exceed the estimate
Pigging A process of pipeline cleaning and maintenance which involves the use of
devices called pigs
Proved Reserves Proved reserves are those Reserves that can be estimated with a high degree of
certainty to be recoverable. It is likely that the actual remaining quantities
recovered will exceed the estimated proved reserves
Probable 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
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END IR SESFAMEESEFURecent news on Serica Energy
See all newsREG - Serica Energy PLC - PDMR Dealings
AnnouncementREG - Serica Energy PLC - Transaction in Own Shares
AnnouncementREG - Serica Energy PLC - Appointment of Chief Executive Officer
AnnouncementREG - Serica Energy PLC - Transaction in Own Shares
AnnouncementREG - Serica Energy PLC - Transaction in Own Shares
Announcement