REG - Serica Energy PLC - Operations Update

Serica EnergyAnnouncement

05/12/2022 07:00

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RNS Number : 5220I  Serica Energy PLC  05 December 2022

Serica Energy plc

("Serica" or the "Company")

Operations Update

London, 5 December 2022 - Serica Energy plc (AIM: SQZ), a British independent
upstream oil and gas company with operations centred on the UK North Sea and
over 85% gas production, provides the following operations update.

 

North Eigg

 

The North Eigg exploration well 3/24c-6B has been drilled to a total depth of
16,728 feet in the Jurassic Heather formation and initial analysis indicates
that, whilst the well has encountered hydrocarbons, commercial quantities have
not yet been established. At the well location, the objective sands were
thinner than had been prognosed but a total of 16 feet of hydrocarbon-bearing
sands were encountered, and these have confirmed the presence of hydrocarbons
at a deeper depth than in the adjacent producing Rhum field.

 

A full suite of wireline logging data has been acquired and our analysis is
ongoing. We aim to determine if a future sidetrack location can be designed to
better evaluate the volumes of hydrocarbon in this new discovery. It is our
intention that the well will be suspended pending the results of this further
work prior to future potential re-entry and sidetrack.

 

Final well costs will not be known until after the rig is off hire, but it is
likely that the net after tax cost of the well to Serica will be around £13
million.

 

Production

 

Serica production performance in the second half of 2022 continues to benefit
from the investment programmes that the company has continually undertaken
since the acquisition of interests in Bruce, Keith and Rhum in 2018. Serica's
net production is as follows:

 

                         Jul 22  Aug 22  Sep 22  Oct 22  Nov 22
 Bruce / Keith  (boe/d)  5,6611  8,644   8,111   7,829   7,070
 Rhum           (boe/d)  13,046  11,269  14,784  17,115  18,641
 Erskine        (boe/d)  807     1,225   1,321   2,113   1,794
 Columbus       (boe/d)  1,712   6062    1,591   1,274   1,472
 Total          (boe/d)  21,226  21,744  25,807  28,331  28,977

 

Serica's net production YTD has averaged 25,955 boe/d and full year 2022
production is expected to be within the existing guidance range of 26,000 to
28,000 boe/d. Serica's production continues to be more than 85% gas.

 

Commodity Prices and Hedging

 

Commodity prices, particularly gas, have remained strong during the second
half of 2022 although somewhat lower in October and November. Monthly average
market prices have been as follows:

 

                       Jul 22  Aug 22  Sep 22  Oct 22  Nov 22
 Gas - NBP    (p/th)   222.5   362.5   240.0   103.9   119.9
 Oil - Brent  ($/bbl)  111.9   100.4   89.8    93.3    92.1

 

1 Bruce and Rhum production figures were impacted by the planned 14-day
preventative maintenance

shutdown in late July and early August

2 Columbus and Erskine field production was also impacted by planned
maintenance shutdowns

 

 

Due to Serica's increasing financial strength, the company has not entered
into any new gas price hedging since July 2021 and has no immediate plans to
do so. Serica continues to hold a modest remaining hedging programme with less
than 20% of gas production covered in the second half of 2022, thereby
allowing the company to benefit from full market prices on over 80% of its
production. The existing gas hedges will reduce to zero during the next twelve
months.

 

At the start of this year Serica held hedges covering a total of 146 million
therms3. This number will have dropped to below 32 million therms by the end
of 2022. Margin call requirements on these hedges had stood at over £300
million earlier in the year but have now reduced to significantly below £100
million.

 

Forward Programme

 

Serica continues to provide responsibly sourced gas to the UK domestic market,
protecting security of supply, and reducing reliance on higher carbon
intensity imports as part of the transition to a lower carbon future. We will
continue to invest in our assets to maintain production levels and provide
jobs.

 

The recent action by the UK Government to increase the marginal rate of tax on
the UK Upstream Oil & Gas sector to 75% with no floor to prices, will make
it challenging for the industry to invest in new longer-term UKCS projects.
Nevertheless, we remain committed to expanding our portfolio through M&A.

 

 

Mitch Flegg, Chief Executive of Serica Energy, commented:

 

"Although the North Eigg exploration well has not delivered the result we had
hoped for, it has demonstrated the presence of hydrocarbons and provided a
huge amount of high-quality data. In particular, the presence of hydrocarbons
at deeper than expected depths will lead to a re-evaluation of both North Eigg
and South Eigg.

 

Elsewhere, our production performance has been strong, and we will continue to
invest in our existing portfolio in order to maintain this performance. In
parallel, as a significant North Sea operator, Serica will continue to
selectively review new potential projects to maintain our North Sea presence
whilst also seeking greater clarity and stability on the taxation regime to
enable these projects to proceed.

 

While we believe in the importance of the UK Oil & Gas sector, we are now
considering opportunities in other countries alongside those in the UK as we
continue to seek to expand our portfolio and create value for all of our
stakeholders."

 

3 Structured as part swaps and part fixed pricing under GSA's

 

Regulatory

 

This announcement contains inside information for the purposes of Article 7 of
EU Regulation 596/2014, as retained in the UK pursuant to S3 of the European
Union (Withdrawal) Act 2018.

 

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 promote UK energy security, fit within the
parameters of the UK North Sea Transition Deal and where it can add 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.

 

 

 

 

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