TIDMSQZ
RNS Number : 5448Y
Serica Energy plc
10 September 2020
Serica Energy plc
("Serica" or the "Company")
Results for the six months ended 30 June 2020
London, 10 September 2020 - Serica Energy plc (AIM: SQZ) today
announced its financial results for the six-months ended 30 June
2020. The results are included below and copies are available at
www.serica-energy.com and www.sedar.com .
Resilient Performance with a strong balance sheet and an eye on
growth
-- Group profit before tax of GBP20.4 million (1H 2019: GBP51.9
million) and cash flow from operations of GBP19.3 million
(1H 2019: GBP89.8 million).
-- During the first half of 2020 Serica has faced challenges
from COVID-19 disruption, steep falls in both oil and
gas prices and a 45 day shut-in of its BKR production
to secure a damaged caisson on the Bruce platform.
-- The Company's efforts in reducing operating costs, building
healthy cash reserves with no borrowings and maintaining
a gas price hedging programme have assisted Serica in
managing these combined challenges and have allowed it
to continue to pursue its operational objectives.
-- This has been supplemented by the flexible structure of
the BKR net cash flow sharing arrangements whereby both
current period payments and projected remaining liabilities
have been reduced.
-- Serica swiftly put contingency measures in place and has
experienced no interruption in production due to the COVID-19
outbreak.
-- The R3 workover is planned to commence shortly and the
Columbus development is progressing with drilling planned
for Q2 2021 and first gas in late 2021.
-- Group 1H average production of 21,600 boe per day net
to Serica compared to 30,000 boe per day for full year
2019 reflecting the impact of the Bruce caisson repairs
and other maintenance work.
-- Despite significantly reduced sales revenues arising from
the combination of lower production volumes and very low
commodity prices, Serica still covered its cash operating
costs before taking in the benefit of its gas price hedging
programme.
-- This enabled the Company to retain its balance sheet strength
with closing cash at 30 June 2020 of GBP101.1 million
(31 Dec 2019: GBP101.8 million).
-- In light of the strong financial position of the Company
and its resilient performance, a dividend of 3 pence per
share was paid in July.
Financial Highlights
-- Average realised sales price of US$15.20 per boe (80%
gas) (1H 2019: US$34.0 per boe) before net hedging gains
of GBP8.3 million (1H 2019: GBP3.2 million). Average operating
cost of US$15.12 per boe for 1H 2020 (1H 2019: US$12.30
per boe) was impacted by the 45 day BKR shut-in.
-- Gross loss of GBP19.8 million (1H 2019: profit of GBP52.4
million) and operating loss of GBP12.7 million (1H 2019:
GBP52.5 million profit) included GBP18.7 million of non-cash
depletion charges (1H 2019: GBP37.3 million).
-- Profit before tax of GBP20.4 million (1H 2019: GBP51.9
million) after GBP33.0 million reduction in fair value
of BKR liabilities (1H 2019: nil). Profit after tax of
GBP12.4 million (1H 2019: GBP30.0 million) after non-cash
deferred tax provision of GBP8.0 million (1H 2019 - GBP21.9
million).
-- Cash flow from operations of GBP19.3 million (1H 2019:
GBP89.8 million) left closing cash substantially unchanged
at GBP101.1 million (31 December 2019: GBP101.8 million)
after payment of GBP15.0 million of BKR liabilities (1H
2019: GBP41.5 million) and capex of GBP7.2 million (1H
2019: GBP1.7 million).
Operational
-- Significantly lower Group average production of 21,600
boe per day net to Serica (FY 2019: 30,000 boe per day)
reflected the impact of the Bruce caisson shut-in on the
BKR fields and maintenance work carried on Erskine.
-- Underlying operating costs on BKR have been reduced by
approx. 10% in 2020 although an increase in costs per
barrel to US$15.12 per boe from US$12.30 reflected fixed
cost elements spread over lower production volumes and
additional expenditures on Bruce caisson repairs.
-- Preparations for the Rhum R3 well intervention are in
progress with operations expected to start shortly.
-- Columbus development well rescheduled to Q2 2021 to match
the deferred commissioning of the Arran to Shearwater
pipeline with first gas now expected in late 2021.
Outlook
-- Commodity prices remain volatile but both oil and gas
have shown strong rebounds from their respective historical
lows and appear to be moving closer to supply and demand
balancing after initial severe COVID-19 disruption. Nonetheless
the Company will continue to build on its price hedging
programme where it identifies value in doing so.
-- We will continue to maximise production and reduce costs
in order to generate increased value from our existing
assets whilst simultaneously using our strong position
to identify growth opportunities for the Company.
-- In parallel with pursuing these objectives we will continue
to increase our focus on ESG issues, in particular in
efforts to reduce the carbon intensity of our production.
-- Following the payment of a maiden dividend for 2019, the
position will be reviewed in conjunction with the 2020
full year results. It is the intention that a regular
dividend will be paid subject to maintaining a favourable
financial position and an appropriate balance between
growth, risk management and total shareholder return.
Commenting on the 1H 2020 results, Mitch Flegg, Serica's CEO
stated:
" I am pleased that we are able to report a mid-year profit
before and after tax despite the challenging economic conditions
encountered during the first half of 2020.
Serica benefits from an extremely low cost base and we have
managed to further reduce our absolute costs in 2020. We have also
profited from significant gas price hedges covering approximately
50% of H1 retained gas sales after adjustment for net cash flow
sharing and we expect to continue to benefit from the strategy that
has seen us increase and extend these hedges this year. As a
result, we have not had to furlough or lay off any staff nor have
we had to take advantage of any of the various government schemes
that were made available to support industry.
The health and safety of employees remains Serica's top priority
and the Company continues to monitor the potential impact of the
COVID pandemic. I would like to thank all of our colleagues for
their resilience and outstanding performance in this challenging
period.
We are now seeing a recovery in commodity prices and with our
strong cash balances, no debt, full-lifecycle operational
capability and capacity to grow, Serica is well-positioned to play
a leading role in the industry recovery."
A conference call for analysts will be held later today at 11.00
a.m. (UK time), Thursday 10 September. If you would like to
participate, please email serica@instinctif.com. A copy of the
accompanying presentation can be found on our website:
www.serica-energy.com
Regulatory
This announcement is inside information for the purposes of
Article 7 of Regulation 596/2014.
The technical information contained in the announcement has been
reviewed and approved by Fergus Jenkins, VP Technical at Serica
Energy plc. Mr Jenkins (MEng in Petroleum Engineering from
Heriot-Watt University, Edinburgh) is a Chartered Engineer with
over 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 7457 2020
Tony Craven Walker, Executive Chairman
Mitch Flegg, CEO
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
Instinctif Partners +44 (0)20 7457 2020
Mark Garraway / Sarah Hourahane / Dinara +44 (0)7493 867
Shikhametova 435
+44 (0)7580 817
276
serica@instinctif.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 and exploration interests offshore Namibia.
Serica is the operator of the producing Bruce, Keith and Rhum
fields 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 2020
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 9
September 2020 and should be read in conjunction with the unaudited
interim consolidated financial statements for the period ended 30
June 2020, 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. Following the change in functional and
presentational currency of the Group from US$ to Pounds Sterling
("GBP") in 2019 all figures are reported in GBP unless otherwise
stated.
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 and exploration
activities based in Namibia.
CHIEF EXECUTIVE OFFICER'S REVIEW
Despite the severe economic backdrop and the impact on commodity
pricing which has affected all companies in the first half of 2020,
I am pleased to report that Serica Energy's strong balance sheet
and robust hedging position combined with the structure of the
transactions under which we acquired our interests in the BKR
fields has resulted in the Company reporting a mid-year profit
before tax of GBP20.4 million (1H 2019: GBP51.9 million).
The first half weakness in commodity prices and a 45 day
suspension of BKR production early in the half due to an issue with
an unused caisson on the Bruce platform resulted in a first half
loss at the operating level of GBP12.7 million (1H 2019: GBP52.5
million profit). However, this has had little effect on the
Company's operating capacity. Cash balances at mid-year remain
virtually unchanged at GBP101 million with no impairment to the
Company's balance sheet which remains strong. This financial
strength enables us to maintain our forward investment programme
broadly as planned and we are seeing second half evidence of
improving commodity prices.
The first half of 2020 has been challenging on a number of
fronts.
-- Firstly, COVID-19 has created a working environment that few
could have foreseen at the start of the year. I ' m really pleased
to say that due to swift and decisive action that we took in the
early days of the pandemic, we've had no outbreaks of the virus
offshore and no interruption to production. All of our staff (both
onshore and offshore) have responded magnificently, their
performance has been outstanding and we continue to work with
government and industry bodies to keep their working environment
safe. We have not had to furlough or lay off any staff nor have we
had to take advantage of any of the various government schemes that
were made available to support industry.
-- Secondly, we have had to deal with the severe and rapid fall
in commodity prices caused by the global oversupply of oil and gas
coupled with the simultaneous reduction in demand. Serica had made
significant cost reductions during 2019 and this has enabled us to
remain operating cashflow positive in 2020 even at the depressed
commodity prices encountered.
-- Finally, in January, an unused seawater return caisson on the
Bruce platform was observed to have deteriorated, which led to a
shutdown of Bruce, Keith and Rhum production for 45 days. Our teams
designed and executed a programme of repairs to secure the caisson
safely, with no environmental impact. This work had no negative
impact on future production rates or on the ultimate hydrocarbon
recovery from the BKR fields and was completed ahead of
schedule.
We are fortunate that Serica is extremely well-placed to deal
with these issues. In 2019 our prime focus was on reducing our cost
base and we have managed to further reduce our absolute costs in
2020. We have benefitted from the significant gas price hedges that
we have in place and expect to continue to benefit from the
strategy that has seen us increase and extend these hedges this
year.
Due to the 45 day shutdown of Bruce facilities, net production
for the first six months of this year has been lower than
anticipated at 21,600 boe/d. This was coupled with significant
falls in commodity prices, average oil prices have been
approximately $41/bbl and average NBP gas prices have been
approximately 18p/therm. As a result of these factors our net
income has been significantly lower than the corresponding period
in 2019.
Despite the resulting reduction in sales revenues, the Group ' s
consolidated balance sheet at mid-year remains robust. We have no
borrowings and limited decommissioning liabilities. Cash and cash
equivalents plus term deposits at mid-year stood at GBP101 million
which is virtually unchanged from the position at the start of the
year. This is despite the fact that to the mid-year we have already
invested GBP7.2 million mainly on the equipment required for the
forthcoming R3 intervention project and the Columbus development
programme.
Serica remains in growth mode as it looks for new investment
opportunities but this still leaves room for a measured
distribution policy to reward shareholders for their continuing
support. Our maiden dividend of 3 pence per share was announced in
April this year and was paid in July. If Serica's financial
position remains favourable then it is the intention that a
dividend will be paid annually.
We are looking forward to a very active second half of the year.
The Awilco WilPhoenix drilling rig has been contracted to conduct
the well intervention work on the Rhum R3 well in the fourth
quarter of this year. We look forward to being able to commission
the R3 well for production in early 2021. Planning for the Columbus
development continues and a contract has also been signed for a
Maersk rig which will drill the development well in 2021. First
production from Columbus is planned for late 2021.
Although we are prepared for further market volatility, we
expect oil and gas demand to recover as economies emerge from
lock-down. With our strong cash balances, no debt, full-lifecycle
operational capability and capacity to grow, Serica is positioned
to play a leading role in the recovery. We will continue to
increase our focus on ESG issues, in particular our efforts to
reduce the carbon intensity of production. We see material benefits
for shareholders and other stakeholders as we continue to maximise
production and reduce costs in order to generate increased value
from our existing assets whilst simultaneously using our strong
position to identify growth opportunities for the company.
Mitch Flegg
Chief Executive Officer
9 September 2020
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 for up to 168
people, 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 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.
In late January 2020, during a Bruce platform inspection, the
condition of an unused seawater return caisson on the platform was
observed to have deteriorated. This caisson had been taken out of
service in 2009. Production through the Bruce facility was halted
while the problem was fully investigated.
A subsequent underwater inspection determined that the unused
caisson had parted below the water line. Both the upper and lower
sections of the caisson were intact and engineering work to ensure
that the caisson was properly secured was successfully undertaken
during the following weeks. With the caisson sections secured
production was restarted on 5 March 2020, considerably ahead of
schedule despite some of the worst weather conditions seen in the
North Sea for years.
In March, in line with all UK businesses we implemented strict
travel policies, reduced manning levels on the Bruce platform to
allow social distancing and commenced home working for all
onshore-based staff. As the Bruce platform is still responsible for
around 5% of the UK's gas production, most of our offshore team are
designated as 'key workers' and we continue to work with the
government and industry bodies to protect our staff and ensure that
all precautions are in place to make their working environment
safe.
Serica has experienced no interruption in production due to the
COVID-19 outbreak. We continue to monitor the evolving situation
and are constantly working with our medical advisors to minimise
risk to our staff.
Despite the reduced number of personnel offshore we continue to
execute our critical planned activities and in 1H 2020 we have
successfully completed major overhauls of the export compressors
and power generation units. This enables us to export gas for sale
whilst at the same time providing gas injection into wells to
increase production stability. This is the first time it has been
possible to do both in combination since 2015.
The continued focus on operating reliability, lowering emissions
and increasing execution efficiency has contributed to our revised
opinion of field life extending now to 2028 with further extensions
possible depending on the operating environment.
Notwithstanding the 45 day shutdown Bruce field production in 1H
2020 averaged in excess of 9,300 boe/d (1H 2019: 13,300 boe/d) of
exported oil and gas net to Serica. Due to the caisson failure,
production reliability was 68% whilst excluding the caisson outage
it was 92% (1H 2019: 91%).
The latest independent report by Lloyd's Register estimated 2P
reserves of 22.2 million boe net to Serica as of 1 January
2020.
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. The Keith well was in
production in early January but then shutdown as part of the
platform response to the damaged caisson. Consequently, Keith made
minimal contribution to 1H production (1H 2019 - 700 boe/d). It is
expected to return to production in 2(nd) half 2020. We will
continue to try low cost options to maximise production over its
remaining life.
The latest independent report by Lloyd's Register estimated 2P
reserves of 453,000 boe net to Serica as of 1 January 2020.
Northern North Sea: Rhum Field - Block 3/29a, Serica 50% and
operator
The Rhum field is a gas condensate field 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 15,000 boe/d of which some 95% is gas. Rhum
production was curtailed during the period due to the 45 day
shut-in of the Bruce platform described above thus affecting
average production over the period. Average Rhum production from
the two wells in 1H 2020 was approximately 9,900 boe/d net to
Serica (1H 2019: 14,200 boe/d).
A third well, R3, requires intervention work before it can be
brought on production. The well originally encountered technical
issues while it was being completed and has remained shut-in ever
since. It is now planned to carry out a workover to bring it in to
production. This is expected to accelerate field production, reduce
dependency on the other two wells and to bring additional reserves
into the economic category.
Work started in 1H 2020, when a diving campaign was carried out
to confirm that the installed subsea controls for R3 are in good
condition, ahead of rig deployment. The initial dive campaign also
reinstated a second power channel to the field, increasing
reliability.
Awilco's WilPhoenix semi-submersible drilling rig has been
contracted to carry out the intervention work. The rig will
undertake some pre-mobilisation operations in Invergordon ahead of
its expected mobilisation to the Rhum field. The work is expected
to take around 70 days to complete. A further diving intervention
will then be required to bring the well on production once the rig
departs.
The latest independent report by Lloyd's Register estimated Rhum
2P reserves of 28.7 million boe net to Serica as of 1 January
2020.
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 Chrysaor 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 Chrysaor. 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.
The flash and export coolers that are part of the Erskine
production module located on the Lomond platform were replaced in
April. They had been due to be changed during the 2020 Forties
Pipeline System turnaround which was planned for June 2020 but
deferred due to COVID-19 until May 2021. 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 2020 averaged 2,360 boe/d (1H
2019: over 3,000 boe/d). After shut-ins to replace the coolers and
to effect other maintenance this represented reduced production
efficiency for 1H 2020 at 72.4%.
The latest independent report by Lloyd's Register estimated
Erskine 2P reserves of 4.1 million boe net to Serica as of 1
January 2020.
UK Development
Central North Sea: Columbus Development - Blocks 23/16f and
23/21a (part), Serica 50% and operator
Serica is Development Operator with partners Tailwind Mistral
Limited (25%) and Waldorf Production Limited (Formerly Endeavour
Energy UK 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 horizontal subsea well
connected to the Arran-Shearwater pipeline, through which Columbus
production will be exported along with Arran field production. The
Arran export pipeline was approved at a similar time to Columbus
and has now been constructed and laid on the seabed, though it has
not yet been 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.
Columbus development timing is dependent on the export pipeline
being tied into the Shearwater platform; that was originally
expected in Q3 2020 but has been delayed by COVID-19 restrictions
affecting the timing of work required on the platform. Columbus
start-up is now expected to follow the Arran field coming on-line,
in late 2021.
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. Well
planning has progressed to the detailed design stage and items with
long lead times have been ordered and are being delivered on
schedule. Drilling was planned to take place in Q4 2020, but the
delay of the pipeline tie-in and concerns about possible COVID-19
impacts have meant a decision was taken to push back the rig
contract to a window between March and July 2021; this will
optimize the time between drilling and production start-up,
minimise coronavirus risk and mean drilling takes place during a
likely better weather window.
The latest independent report by Lloyds Register estimated
Columbus 2P reserves net to Serica of 6.7 mmboe as at 1 January
2020.
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. 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.
Columbus West - Block 23/21b, Serica Energy (UK) Limited 50%,
operator Summit Exploration and Production.
An extensive work programme was undertaken to mature the
prospectivity on the licence. Despite this work, stratigraphic
trapping and sealing mechanisms for the prospects remained elusive
and could not be satisfactorily confirmed.
The seismic data response was also suggestive of oil rather than
gas accumulations and the economics were determined not to be
favourable for an oil development, as there was no nearby tieback
host.
Taking current market outlook into consideration, and the
commitment required to move to the next phase of the licence, which
would have required relinquishing 50% of the initial licensed area
and committing to drill a well, the risk-reward ratio related to
proceeding with West Columbus was not deemed sufficient to proceed
with exploration drilling.
Serica therefore supported the operator's recommendation to
relinquish the licence.
Skerryvore and Ruvaal- Blocks 30/12c (part), 30/13c (split),
30/17h, 30/18c and 30/19c (part), Serica Energy (UK) Limited 20%,
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 has been purchased over the licence areas. This will
be reprocessed and interpreted and a drill or drop decision made on
the prospects by the end of the initial three-year term in
September 2021.
International Exploration
Namibia
Luderitz Basin: Blocks 2512A, 2513A, 2513B and 2612A (part),
Serica Energy Namibia B.V 85% and operator
A farm-out campaign is in progress to seek a partner to join
Serica in drilling one of the prospects on the blocks. Discussions
with the Namibia Ministry of Mines and Energy to extend Serica's
interest in the Luderitz Basin blocks have been put on hold due to
COVID-19 restrictions and market uncertainties.
F INANCIAL REVIEW
With effect from 1 January 2019, following the change in
functional and presentational currency (see note 3), the Group's
results are reported in GBP. This change followed completion of the
major BKR acquisitions in late 2018 which brought significant
additional volumes of UK gas for which sales are denominated in GBP
and costs which are settled almost entirely in GBP. 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 (50% in 2019 falling
to 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. Such
variations are driven principally by changes in commodity sales
prices and production volumes.
1H 2020 RESULTS
Results for the first six months of 2020 were impacted by a 45
day shut in of the BKR fields to secure a damaged caisson on the
Bruce platform and by the COVID-19 crisis which caused
unprecedented falls in both oil and gas prices. However, these
impacts upon Serica were mitigated by two key factors. Firstly, net
cash flow sharing payments under the BKR deals were significantly
reduced in line with lower net cash income generated during the
period and with further reductions projected in remaining payments.
Secondly, Serica had in place gas price hedging for the period
covering approximately 50% of retained gas sales after adjustment
for net cash flow sharing. The overall impact was that although
after non-cash depletion charges this generated gross and operating
losses, these were more than offset by a release of BKR liabilities
delivering an overall profit before tax. The combination of these
risk mitigation measures with a strong debt-free balance sheet has
been of particular importance during a period of unprecedented
challenge.
Overall, Serica generated a profit before taxation for 1H 2020
of GBP20.4 million compared to GBP51.9 million for 1H 2019. After
non-cash deferred tax provisions of GBP8.0 million (1H 2019:
GBP21.9 million), profit for the period was GBP12.4 million
compared to GBP30.0 million for 1H 2019.
Sales revenues
Total sales volumes of 21,000 boe/d were reduced from 31,000
boe/d for 1H 2019 primarily reflecting the impact of the Bruce
caisson shut-in. Total product sales volumes for the half year
comprised approximately 177 million therms of gas (1H 2019: 255
million therms), 534,000 lifted barrels of oil (1H 2019: 892,000
barrels) and 32,100 metric tonnes of NGLs (1H 2019: 41,000 metric
tonnes). These generated total 1H 2020 product sales revenue of
GBP46.0 million (1H 2019: GBP146.4 million) consisting of BKR
revenues of GBP37.7 million (1H 2019: GBP126.6 million) and Erskine
revenues of GBP8.3 million (1H 2019: GBP19.8 million). This
represented average sales prices net of system fees of 14 pence per
therm (1H 2019: 36 pence per therm), US$41.4 per barrel (1H 2019:
US$62.7 per barrel) and GBP144 per metric tonne (1H 2019: GBP277
per metric tonne) respectively giving a combined realised sales
price for lifted volumes of US$15.20 per barrel of oil equivalent
(1H 2019: US$34 per boe). This is before gas price hedging gains
detailed below.
Gross loss
The gross loss for 1H 2020 was GBP19.8 million compared to a
gross profit of GBP52.4 million for 1H 2019. Overall cost of sales
of GBP65.7 million compared to GBP93.9 million for 1H 2019. This
comprised GBP45.8 million of operating costs (1H 2019: GBP53.2
million) and GBP18.7 million of non-cash depletion charges (1H
2019: GBP37.3 million) plus GBP1.2 million representing a reduction
during the period of the opening liquids underlift position (1H
2019: GBP3.4 million). The reductions in both operating costs and
depletion charges largely reflected lower production volumes.
Operating costs comprise costs of production, processing,
transportation and insurance and averaged approximately US$15.12
per boe (1H 2019: US$12.30). An overall reduction in operating
costs was achieved despite exceptional expenditures of GBP2.8
million net to Serica on Bruce caisson repairs and reflected a
reduction in underlying costs of some 10%. The increase in
operating costs per barrel for the period reflected lower
production volumes arising from the caisson shut-in whilst the
fixed element of operating costs continued to be incurred and does
not reflect an increase in the underlying trend.
Overall, despite the unprecedented fall in oil and gas sales
prices and the loss of 45 days of BKR production, sales revenues
(excluding hedging gains) covered operating costs for the period.
This is before movements in oil stocks and non-cash depletion
charges which mainly comprise the booked acquisition values for the
BKR transactions allocated on a unit of production basis for the
relevant period.
Operating loss before BKR fair value adjustment, net finance
revenue, and tax
The operating loss for 1H 2020 was GBP12.7 million compared to a
profit of GBP52.5 million for 1H 2019. This included GBP8.3 million
of other income from commodity price hedging gains (1H 2019: GBP3.2
million) representing the increase in fair value of hedging
instruments in place at 31 December 2019 plus the fair value of
further hedging instruments added during 1H 2020 less the fair
value of hedging gains already booked in 2019. Administrative
expenses of GBP2.8 million compared to GBP3.0 million for 1H 2019.
These, plus share-based payments of GBP0.7 million (1H 2019: GBP0.7
million), were offset by currency gains of GBP2.5 million (1H 2019:
GBP0.6 million) largely arising on US$ holdings.
Profit before taxation and profit for the period after
taxation
Profit before taxation was GBP20.4 million (1H 2019: GBP51.9
million) after a change in fair value of the BKR financial
liability of GBP33.0 million plus net finance revenue of GBP0.1
million (1H 2019: net costs of GBP0.6 million). Net finance
revenue/costs represent the discount unwind on decommissioning
provisions less interest earned on cash deposits.
The gain of GBP33.0 million (1H 2019: GBPnil) arises following a
downwards revision of the fair value of the balance sheet financial
liability relating to consideration projected to be paid under the
BKR agreements. The fair value of this liability is re-assessed at
each financial period end. The most significant factors behind the
downward revision released to the income statement are lower
production volumes and realised gas pricing on net cash flow
payments in respect of 1H 2020 plus lower gas prices used in the
forecast of remaining 2020 and 2021 net cash flow payments.
The 1H 2020 taxation charge of GBP8.0 million (1H 2019: GBP21.9
million) solely comprised a non-cash deferred tax element. As the
Company continues to benefit from accumulated losses carried
forward from previous years it is not currently paying cash taxes.
It is nonetheless required to make provision for deferred taxes in
recognition of future periods when all losses have been utilised
and cash payments will commence.
Overall, this generated a profit after taxation for the first
six months of 2020 of GBP12.4 million compared to a profit after
taxation of GBP30.0 million for 1H 2019 and a profit after taxation
of GBP64.0 million for full year 2019.
BALANCE SHEET
The balance sheet at 30 June 2020 demonstrates Serica's
resilience during this turbulent period with cash steady after
significant expenditures on Columbus development and R3
preparations and with no borrowings.
Exploration and evaluation assets of GBP4.0 million showed a
small increase from GBP3.7 million at the end of 2019 reflecting
limited exploration activities during the period.
Property, plant and equipment principally comprises the net book
amount of oil and gas assets calculated in accordance with
applicable accounting standards. Total property, plant and
equipment decreased from GBP325.4 million at year end 2019 to
GBP313.2 million at 30 June 2020 after capital expenditure on
Columbus and Rhum during 1H 2020 of GBP6.5 million (1H 2019: GBP1.5
million) and depletion charges for 1H 2019 of GBP18.7 million (1H
2019: GBP37.3 million). Depletion charges represent the allocation
of field capital costs over the estimated producing life of each
field.
An inventories balance of GBP4.6 million at 30 June 2020 showed
little change from GBP4.7 million at the end of 2019. A reduction
in trade and other receivables from GBP35.9 million at the end of
2019 to GBP24.3 million at 30 June 2020 reflected lower pricing for
oil and gas sales invoices outstanding at 30 June 2020. A reduction
in the derivative financial asset from GBP6.9 million at year end
2019 to GBP3.6 million at 30 June 2020 reflected reduced commodity
price hedges outstanding at mid-year and does not include further
hedge instruments put in place since 30 June 2020.
Cash balances of GBP101.1 million at 30 June 2020 showed little
change from GBP101.8 million 31 December 2019 despite capital
expenditures and BKR acquisition payments during the period.
Current trade and other payables of GBP25.5 million at 30 June
2020 showed little change from a 2019 balance of GBP24.6
million.
The dividend payable of GBP8.0 million at 30 June 2020 (31
December 2019: GBPnil) represents the final cash dividend for 2019
of 3 pence per share proposed in April 2020 and approved at the
annual general meeting on 25 June 2020. The dividend was paid in
July 2020.
Financial liabilities of GBP39.6 million (31 December 2019:
GBP45.4 million) included within current liabilities and GBP67.9
million (31 December 2019: GBP110.1 million) included within
non-current liabilities comprise total remaining amounts projected
to be paid under the BKR agreements.
The current liability comprises amounts estimated to fall due
under the net cash flow sharing arrangements over the next twelve
months, an element of contingent consideration in respect of Rhum
field performance estimated to fall due, and further fixed amounts
also due over the next twelve months. The non-current element
comprises estimated amounts payable under the net cash flow sharing
arrangements for the final six-month period of July to December
2021 and further contingent and deferred payments, including
deferred consideration in respect of BKR decommissioning. Amounts
due under the net cash flow sharing arrangements are based on
forward projections of production volumes and sales prices with
final liabilities ultimately calculated on production volumes and
sales prices actually achieved in the respective periods.
The overall reduction in financial liabilities of GBP48.0
million during 1H 2020 comprises cash amounts of GBP15.0 million
paid in the period and GBP33.0 million released through the income
statement due to lower than previously forecast net cash flow
sharing payments in respect of 1H 2020 plus a re-assessment of the
estimated fair value of projected remaining payments as at 30 June
2020.
Non-current provisions of GBP22.8 million have been made in
respect of decommissioning liabilities for the Bruce and Keith
interests acquired from Marubeni (31 December 2019: GBP22.6
million). These were not subject to the same deferred consideration
arrangements as those field interests acquired from BP, Total
E&P and BHP respectively under which 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. No provision is
included for decommissioning liabilities related to the Erskine
facilities as these are retained by BP up to a cap which is not
projected to be exceeded.
The deferred tax liability of GBP83.8 million at 30 June 2020
has increased from GBP75.8 million at year end 2019 and reflects
provisions against future tax charges expected once the Group's tax
losses have been fully utilised.
Overall net assets have increased from GBP198.0 million at year
end 2019 to GBP203.1 million at 30 June 2020.
The increase in share capital from GBP181.4 million to GBP181.5
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 GBP17.8 million to GBP18.5
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 2020 the Group held cash and cash equivalents of
GBP101.1 million (31 December 2019: GBP101.8 million). This is
after monthly net cash flow sharing payments and other BKR deferred
consideration totalling GBP15.0 million and GBP6.6 million of
capital expenditures primarily on Columbus development and Rhum R3
preparations. Amounts due under the net cash flow sharing
arrangements have fallen from 50% of BKR net operating cash flows
for 2019 to 40% for 2020 and 2021 and will be zero thereafter.
GBP12.1 million of total cash and cash equivalents was held in a
restricted account against letters of credit issued in respect of
certain decommissioning liabilities.
At 30 June 2020 Serica held gas price swaps set at 37.6 pence
per therm covering 80,000 therms per day for Q3 2020, set at an
average 40.3 pence per therm covering an average 140,000 therms per
day for Q4 2020 and set at an average 42.5 pence per therm covering
an average 185,000 therms per day for Q1 2021.
In Q3 2020 to date, Serica has obtained additional gas price
swaps covering 50,000 therms per day for Q4 2020 at an average of
26.7 pence per therm, 100,000 therms per day for Q2 2021 at an
average of 30.0 pence per therm, 100,000 therms per day for Q3 2021
at an average of 29.0 pence per therm, 100,000 therms per day for
Q4 2020 at an average of 37.8 pence per therm, 100,000 therms per
day for Q1 2022 at an average of 43.1 pence per therm, and 50,000
therms per day for Q2 2022 at 34.8 pence per therm.
Following onset of the COVID-19 crisis, cash projections were
run to examine the potential impact of extended low oil and gas
prices as well as possible production interruptions. Some 80% of
Serica's production is gas with low prices partially mitigated by
price hedging up to Q2 2022. The BKR net cash flow sharing
arrangements and structuring of elements of Rhum deferred
consideration further mitigate the impact of low sales prices and
any production interruptions to end 2021 upon net income. This
allied to the fact that Serica currently has substantial cash
resources, no borrowings and relatively low operating costs per boe
means that the Company is well placed to withstand such risks and
its limited 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 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 GBP11 million net to
Serica for a Rhum R3 well workover, expected to be carried out in
in Q4 2020. 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 is underway with first gas expected in
late 2021. Total development expenditure net to Serica's share
outstanding at 30 June 2020 is estimated at approximately GBP22
million.
The Group has no significant exploration commitments apart from
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
2020:
-- A contingent payment of GBP16.0 million is due to BP
Exploration Operating Company ("BPEOC") upon a successful outcome
of work to bring the Rhum R3 well onto production and demonstration
of a minimum cumulative 90 days of gas production at a defined
level.
-- Contingent payments of up to GBP7.7 million are due to BPEOC
for each of 2020 and 2021 based upon Rhum field performance and
commodity sales prices in the respective years. There will then be
a final calculation of the combined performances covering these
years plus 2019 applied to total potential consideration for the
three years of GBP23.1 million and any necessary adjustment made.
The payment calculated in respect of 2019 and made in 1H 2020 was
GBP2.6 million and payments for the remaining periods are expected
to be significantly reduced from the total potential amount based
upon current actual and projected production volumes and market
prices.
-- One further instalment of deferred consideration of US$5
million is due to Total E&P in December 2020.
-- In addition, Serica will pay contingent cash consideration to
BPEOC, Total E&P and BHP calculated as 40% of net cash flows
resulting from the respective field interests acquired from those
companies in each of 2020 and 2021. Such amounts will be paid by
Serica pre-tax on a monthly basis and then offset by Serica against
its own tax liabilities.
-- BP, 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 BP, 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 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.
OTHER
Asset values and impairment
At 30 June 2020, Serica's market capitalisation stood at
GBP291.6 million based upon a share price of 109.0 pence which
exceeded the net asset value of GBP203.1 million. By 8 September
the Company's market capitalisation had risen to GBP296.9
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
9 September 2020
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 2020 2019 2019
Continuing operations GBP000 GBP000 GBP000
(Unaudited) (Unaudited) (Audited)
Sales revenue 5 45,953 146,375 250,533
Cost of sales 6 (65,720) (93,941) (164,748)
Gross (loss)/profit (19,767) 52,434 85,785
Other income 13 8,347 3,230 10,618
Pre-licence costs - (98) (566)
Impairment and write-off of E&E assets 8 (266) (9) (80)
Administrative expenses (2,844) (2,992) (5,963)
Foreign exchange gain/(loss) 2,514 591 (1,020)
Share-based payments (652) (650) (1,094)
Operating (loss)/profit from
continuing operations (12,668) 52,506 87,680
Change in fair value of BKR financial liability 32,979 - 21,771
Finance revenue 376 122 571
Finance costs (263) (698) (1,252)
Profit before taxation 20,424 51,930 108,770
Taxation charge for the period 12 (8,010) (21,883) (44,750)
Profit after taxation and
profit for the period 12,414 30,047 64,020
Earnings per ordinary share (EPS)
Basic EPS on profit for the period (GBP) 0.05 0.11 0.24
Diluted EPS on profit for the period (GBP) 0.05 0.11 0.23
Serica Energy plc
Group Balance Sheet
30 June 31 Dec 30 June
2020 2019 2019
GBP000 GBP000 GBP000
Notes (Unaudited) (Audited) (Unaudited)
Non-current assets
Exploration & evaluation assets 8 4,009 3,652 3,367
Property, plant and equipment 9 313,171 325,404 337,825
317,180 329,056 341,192
------------ ---------- ------------
Current assets
Inventories 4,629 4,671 5,763
Trade and other receivables 24,268 35,906 39,059
Derivative financial asset 3,572 6,880 2,616
Term deposits - - 3,940
Cash and cash equivalents 101,114 101,825 84,229
------------ ---------- ------------
133,583 149,282 135,607
------------ ---------- ------------
TOTAL ASSETS 450,763 478,338 476,799
------------ ---------- ------------
Current liabilities
Trade and other payables (25,489) (24,600) (27,843)
Financial liabilities (39,551) (45,351) (79,269)
Provisions - (1,848) (1,848)
Dividend payable 7 (8,026) - -
Non-current liabilities
Financial liabilities (67,910) (110,108) (132,411)
Provisions (22,816) (22,590) (22,903)
Deferred tax liability (83,841) (75,831) (42,194)
------------ ---------- ------------
TOTAL LIABILITIES (247,633) (280,328) (306,468)
------------ ---------- ------------
NET ASSETS 203,130 198,010 170,331
============ ========== ============
Share capital 10 181,465 181,385 180,322
Other reserves 18,470 17,818 17,374
Accumulated funds/(deficit) 3,195 (1,193) (27,365)
TOTAL EQUITY 203,130 198,010 170,331
============ ========== ============
Serica Energy plc
Group Statement of Changes in Equity
For the year ended 31 December 2019 and period ended 30 June
2020
Group Share capital Other reserves Deficit Total
GBP000 GBP000 GBP000 GBP000
At 1 January 2019 *restated 180,294 16,724 (65,213) 131,805
Profit for the year - - 64,020 64,020
-------------- --------------- --------- --------
Total comprehensive income - - 64,020 64,020
Issue of shares 1,091 - - 1,091
Share-based payments - 1,094 - 1,094
At 31 December 2019 (audited) 181,385 17,818 (1,193) 198,010
Profit for the period - - 12,414 12,414
-------------- --------------- --------- --------
Total comprehensive income - - 12,414 12,414
Issue of shares 80 - - 80
Share-based payments - 652 - 652
Dividend payable - - (8,026) (8,026)
At 30 June 2020 (unaudited) 181,465 18,470 3,195 203,130
============== =============== ========= ========
* As described in Note 3, the presentation currency for the
Group has been changed to GBP from 1 January 2019, with
retrospective effect on comparative figures.
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
2020 2019 2019
GBP000 GBP000 GBP000
(Unaudited) (Unaudited) (Audited)
Operating activities:
Profit for the period 12,414 30,047 64,020
Adjustments to reconcile profit for the period
to net cash flow from operating activities:
Taxation charge 8,010 21,883 44,750
Change in fair value of BKR financial liability (32,979) - (21,771)
Net finance (income)/costs (113) 576 681
Depletion 18,718 37,333 52,631
Oil and NGL over/underlift movement 1,199 3,370 6,969
Impairment and write-off of E&E assets 266 9 80
Unrealised hedging losses/(gains) 3,308 (2,478) (6,742)
Share-based payments 652 650 1,094
Other non-cash movements (1,838) (591) 638
Decrease in receivables 10,185 9,731 6,147
Decrease/(increase) in inventories 42 (210) (386)
Decrease in payables (592) (10,544) (11,234)
Net cash inflow from operations 19,272 89,776 136,877
Investing activities:
Interest received 376 122 571
Purchase of E&E assets (623) (193) (549)
Purchase of property, plant & equipment (6,598) (1,472) (4,736)
Cash outflow from business combinations (15,019) (41,481) (57,259)
Changes in term deposits - (2,940) 1,000
Net cash outflow from investing activities (21,864) (45,964) (60,973)
------------ ------------ --------------
Financing activities:
Issue of ordinary shares 80 28 1,091
Repayments of borrowings - (2,040) (15,673)
Finance costs paid (37) (27) (962)
Net cash in/(out)flow from financing activities 43 (2,039) (15,544) 544)
------------ ------------ --------------
Cash and cash equivalents
Net (decrease)/increase in period (2,549) 41,773 60,360
Effect of exchange rates on cash and cash equivalents 1,838 353 (638)
Amount at start of period 101,825 42,103 42,103
Amount at end of period 101,114 84,229 101,825
============ ============ ==============
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 2020 were authorised for
issue in accordance with a resolution of the directors on 9
September 2020.
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 2020 have been prepared in accordance with
International Accounting Standard 34 "Interim Financial Reporting"
as adopted by the European Union.
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 2019. 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 2019.
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
2019, 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 2019 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 2020 the Company held cash and cash equivalents of
GBP101.1 million of which GBP12.1 million was held in a restricted
account against letters of credit issued in respect of certain
decommissioning liabilities. 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 2020. 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 2020.
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 2019. 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. Change in functional and presentational currency
An entity's functional currency is the currency of the primary
economic environment in which the entity operates and in which all
transactions should be recorded. In light of the developments
within the Group's operations following completion of the BKR
acquisitions on 30 November 2018, the directors reassessed the
functional currency of both the Company and the Group's main
operating subsidiary, Serica Energy (UK) Limited, and concluded
that the functional currency of these entities is now pounds
sterling ("GBP"). The directors further concluded that the currency
in which the Group's financial results are reported, the
presentational currency, should also be changed to GBP.
The BKR acquisitions have brought a significant increase in
scale to the business with a majority of revenues now earned from
gas sales which realise revenue in GBP, and most of the operator
expenditure running the BKR assets is also denominated in GBP. The
date of change in functional currency from US$ to GBP is 30
November 2018. However, given that the impact between a change on
30 November 2018 compared to 1 January 2019 is considered to be
immaterial the change has been made effective on 1 January 2019.
Consequently, the Group 2019 Interim and Annual Financial
Statements were presented in GBP and future Group and Company
financial statements, including the Group 2020 Interim Financial
Statements, are/will also be presented in GBP.
The presentation currency for the Group has also been changed to
GBP from 1 January 2019 and represents a voluntary change in
accounting policy with retrospective effect on restated comparative
figures. Assets and liabilities have been translated into GBP at
closing rates of exchange on the relevant balance sheet date,
whilst income and expenditure items were translated at rates of
exchange prevailing at the relevant time of the transaction. Share
capital and other reserves have been translated at the closing
rates of exchange on the relevant balance sheet date. Equity per 1
January 2018 was translated to GBP using the GBP/US$ closing rate
applicable for the same date.
4. 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 2020 and 2019 and
year ended 31 December 2019. Costs associated with the UK corporate
centre are included in the UK reportable segment (2019: UK &
Ireland).
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)
-----------
Period ended 30 June 2019 UK & Continuing
Ireland Africa Total
GBP000 GBP000 GBP000
Revenue 146,375 - 146,375
---------- ------- -----------
Operating and segment profit 52,506 - 52,506
Finance revenue 122 - 122
Finance costs (698) - (698)
Profit before taxation 51,930 - 51,930
Taxation charge for the period (21,883) - (21,883)
---------- ------- -----------
Profit after taxation 30,047 - 30,047
UK &
Ireland Africa Total
GBP000 GBP000 GBP000
Other segment information:
Segmental assets 473,609 3,190 476,799
Total assets 476,799
-----------
Segment liabilities (306,327) (141) (306,468)
Total liabilities (306,468)
-----------
Year ended 31 December 2019 UK & Continuing
Ireland Africa Total
GBP000 GBP000 GBP000
Revenue 250,533 - 250,533
---------- ------- -----------
Operating and segment profit 87,680 - 87,680
Change in BKR financial liability 21,771 - 21,771
Finance revenue 571 - 571
Finance costs (1,252) - (1,252)
Profit before taxation 108,770 - 108,770
Taxation charge for the year (44,750) - (44,750)
---------- ------- -----------
Profit after taxation 64,020 - 64,020
UK &
Ireland Africa Total
GBP000 GBP000 GBP000
Other segment information:
Segmental assets 474,990 3,348 478,338
Total assets 478,338
-----------
Segment liabilities (280,324) (4) (280,328)
Total liabilities (280,328)
-----------
5. Sales Revenue
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2020 2019 2019
GBP000 GBP000 GBP000
Gas sales 24,071 91,882 152,586
Oil sales 17,269 43,163 75,237
NGL sales 4,613 11,330 22,710
45,953 146,375 250,533
----------- ----------- ---------
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.
6. Cost of sales
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2020 2019 2019
GBP000 GBP000 GBP000
Operating costs 45,803 53,238 105,148
Movement in liquids overlift/underlift 1,199 3,370 6,969
Depletion (note 9) 18,718 37,333 52,631
65,720 93,941 164,748
----------- -----------
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.
7. Dividends payable
A final cash dividend for 2019 of 3 pence per share was proposed
in April 2020 and approved at the annual general meeting on 25 June
2020. Following the approval in the 1H 2020 period, the dividend
payable of GBP8.0 million is recognised as a liability as at 30
June 2020. The dividend was paid in July 2020.
8 . Exploration and Evaluation Assets
Total
GBP000
Cost:
At 1 January 2019 3,183
Additions 549
Asset write-offs (80)
At 31 December 2019 3,652
Additions 623
Asset write-offs (266)
At 30 June 2020 4,009
=======
Provision for impairment:
At 1 January 2019 -
Impairment reversal for the period -
At 31 December 2019 -
Impairment (charge)/reversal for the period -
At 30 June 2020 -
=======
Net Book Amount:
30 June 2020 4,009
=======
31 December 2019 3,652
=======
1 January 2019 3,183
=======
The 1H 2020 asset write-off of GBP0.3 million comprised minor
charges following the relinquishment of UK Licence P2388 Block
23/21b. The 2019 asset write-off comprised minor charges following
the relinquishment of UK Licence P1620 Block 22/19c and final costs
incurred on the Group's Irish licences.
9. Property, Plant and Equipment
Oil and Fixtures
gas properties and fittings Right-of-use
assets Total
GBP000 GBP000 GBP000 GBP000
Cost:
At 1 January 2019 383,033 212 - 383,245
Additions 4,558 - 516 5,074
Revisions (570) - - (570)
At 31 December 2019 387,021 212 516 387,749
Additions 6,598 - - 6,598
At 30 June 2020 393,619 212 516 394,347
---------------- --------------
Depreciation and depletion:
At 1 January 2019 9,524 - - 9,524
Charge for the period
(note 6) 52,631 61 129 52,821
At 31 December 2019 62,155 61 129 62,345
Charge for the period
(note 6) 18,718 27 86 18,831
At 30 June 2020 80,873 88 215 81,176
---------------- -------------- --------------- --------
Net book amount:
At 30 June 2020 312,746 124 301 313,171
================ ============== =============== ========
At 31 December 2019 324,866 151 387 325,404
================ ============== =============== ========
At 1 January 2019 373,509 212 - 373,721
================ ============== =============== ========
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 2020, the share capital of the Company comprised
one "A" share of GBP50,000 and 267,521,738 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 2019 264,757,820 20,862 159,432 180,294
Shares issued 2,472,397 200 891 1,091
At 31 December 2019 267,230,217 21,062 160,323 181,385
Shares issued 291,522 23 57 80
At 30 June 2020 267,521,739 21,085 160,380 181,465
Durin g 1H 2020 291,522 ordinary shares were issued to satisfy
awards under the Company's Share Incentive Plan.
87,848 ordinary shares have been issued in Q3 2020 to date and
as at 9 September 2020 the issued voting share capi tal of the
Company was 267,609,586 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 2020, 4,578,050 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.
The following table illustrates the number and weighted average
exercise prices (WAEP) of, and movements in, share options during
the period:
No options were granted in 2019 or 1H 2020 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 year:
WAEP
GBP
Outstanding at 1 January 2019 6,465,550 0.25
Exercised during the year (1,887,500) 0.48
Expired during the period - -
Outstanding at 31 December 2019 and 30 June 2020 4,578,050 0.11
------------ -----
As at 30 June 2020, the following director and employee share
options were outstanding:
Expiry Date Amount Exercise cost
GBP
April 2021 50,000 15,685
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 4,578,050
Long Term Incentive Plan
The following awards granted to certain Executive Directors and
employees under the LTIP are outstanding as at 30 June 2020.
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 were not subject to
completion of the BKR Acquisition and are not exercisable as at 30
June 2020.
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 2020.
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 2020.
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.
GBP652,000 has been charged to the income statement for the
six-month period ended 30 June 2020 (1H 2019 - GBP650,000) 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
2020 2019 2019
GBP000 GBP000 GBP000
Current income tax charge - - -
Deferred income tax charge (8,010) (21,883) (44,750)
Total taxation charge for the period (8,010) (21,883) (44,750)
-------------- -------------
Recognised and unrecognised tax losses
The Group's Balance Sheet net deferred tax liability amounts of
GBP75.8 million as at 31 December 2019 and GBP83.8 million as at 30
June 2020 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 2019 and 30 June
2020 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 2019 and 30 June 2020 with respect to ring fence losses
and allowances.
The Group had UK ring fence tax losses of approximately GBP40.2
million available as at 31 December 2019 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
Finance Act 2016 enacted a change in the mainstream corporation
tax rate to 17% with effect from 1 April 2020. In the Budget
statement on 11 March 2020 it was announced that the corporation
tax rate will remain at 19% from 1 April 2020.
The headline rate of tax for UK ring-fenced trading profits
remains at 40%.
13. Financial and derivative financial instruments
Financial instruments
The Group's financial instruments comprise cash and cash
equivalents, bank loans and borrowings, 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. The gas put option commodity contract with
BP (fair value hierarchy level 2) which expired on 30 June 2020 was
previously measured based on a consensus of mid-market values from
third party providers based on the Black Scholes model with inputs
of observable spot commodities price, interest rates and the
volatility of the commodity. Other derivative financial instruments
are valued by counterparties, with the valuations reviewed
internally and corroborated with readily available market data
(level 2).
Other income/(losses)
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2020 2019 2019
GBP000 GBP000 GBP000
Realised hedging gains 11,655 752 3,876
Unrealised hedging (losses)/gains (3,308) 2,478 6,742
Other income 8,347 3,230 10,618
----------- ----------- -------
14. Publication of Non-Statutory Accounts
The financial information contained in this interim statement
does not constitute statutory accounts as defined in the Companies
Act 2006. The financial information for the full preceding year is
based on the statutory accounts for the financial year ended 31
December 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
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END
IR KKCBDKBKBNCK
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