TIDMSQZ
RNS Number : 7337B
Serica Energy plc
06 April 2017
Serica Energy plc
("Serica" or the "Company")
Results for the year ended 31 December 2016
London, 6 April 2017 - Serica Energy plc (AIM: SQZ) today
announces its financial results for the year ended 31 December
2016. The results are included below and copies are available at
www.serica-energy.com and www.sedar.com.
Results Highlights
Financial
-- Gross profit for 2016 of US$6.6 million (2015: US$16.1
million) notwithstanding a six-month production shut-in earlier in
the year.
-- Strong Erskine well performance, improved off-take facility
uptime, allied to rising commodity prices and lower opex per barrel
costs, delivered a particularly strong Q4 2016.
-- Group profit after tax of US$10.8 million (2015: US$6.5
million) boosted by deferred tax credits arising from tax losses
brought forward.
-- Cash balances of US$16.6 million at 31 December 2016,
increasing to US$25.7 million by end March 2017 before receipt of
estimated March net sales income of US$3.5 million.
-- No borrowings or material commitments at year-end, minimal
corporate overheads and with cash balances growing significantly
through Q1 2017.
Operational
Erskine Field (Serica 18%)
The Erskine field has performed well since production was
restarted on 29 August 2016 and is benefitting from more favourable
commodity prices. Since restart:
-- Production averaged over 3,150 boe per day net to Serica to end March 2017.
-- Production efficiencies averaging as much as 90% in recent months.
-- Serica's operating and transportation costs averaging below US$14 per boe.
-- Cash generation from production continues to benefit from significant tax efficiencies.
-- An updated independent audit by Netherland, Sewell &
Associates ("NSAI") of the Erskine field confirmed Serica's share
of estimated proven plus probable reserves at 3.8 million boe as of
1 January 2017.
Columbus Field (Serica 50%)
Serica, as field operator, is pushing forward to realising
Columbus development potential:
-- Two potential development options are under review in collaboration with nearby operators:
o An extended reach development well drilled from the Lomond
platform delivering capital cost efficiencies and easier
maintenance access; or,
o A subsea well completion tied into a proposed third-party
pipeline to the Shearwater platform.
-- Serica is working towards selection of the best alternative
and a full Field Development Plan by the end of 2017 with a view to
commencing development work in 2018. First gas is targeted for late
2019.
-- Columbus contingent resources net to Serica estimated by NSAI at 6.2 mmboe.
Exploration
Serica's exploration portfolio offers material upside for
minimal near-term expenditure:
-- North Sea: Well planning for the Rowallan prospect advanced.
Site survey and long-lead items approved by partners for 2017 with
drilling planned for 2018. Serica fully carried on costs to
completion of first well. Serica estimates potential net P(50)
resources at 20 mmboe.
-- Ireland, Rockall Basin: Two-year extension on licence 4/13
secured in order to bring in a partner to join in drilling an
exploration well.
-- Ireland, Slyne Basin: Equity position increased from 50% to
100% on licence 01/06. Two-year extension granted to enable further
evaluation of the potential for commercial oil first identified by
the 2009 Bandon oil discovery.
-- Namibia: Luderitz licence 47 renewed and extended to enable
review work to continue and partners to be secured.
Outlook for 2017
Serica's strong financial position leaves it well placed to add
further value for shareholders:
-- Strong start to the year with Serica's net production
averaging over 3,200 boe in Q1 at average prices of $54 per barrel
for oil and 48 pence per therm for gas.
-- Production guidance for the year reiterated at 2,500-3,000 boe per day net to Serica.
-- Oil hedges at US$50/bbl (Q2 2017) and gas hedges at 40p per
therm (Q2 2017)/38p per therm (Q3 2017) covering approximately 50%
of forecast production over those periods.
-- Working with partners to extract full value from producing and development assets.
-- Further growth opportunities are available and under consideration.
Tony Craven Walker, Serica's Chairman commented:
"Serica has continued to strengthen its financial position after
a particularly strong fourth quarter. Following an especially good
performance in terms of production rates and efficiencies, lower
opex and improved sales prices since the restart of Erskine field
production in late August, we enter 2017 with a strong balance
sheet, no borrowings, growing cash resources and increasing
opportunities to add value from our existing oil and gas
resources.
We are looking to build on this strong financial base. Our
immediate focus is to broaden and expand our producing asset base
through progressing the Columbus field to development and by
acquiring additional production where we believe Serica can add
value. The UK North Sea, where there are strategic benefits, tax
efficiencies and opportunities on offer and where we feel we have
an edge, remains a prime area of focus.
On the exploration front, we are delighted that operations have
now commenced in preparation for drilling a well on the Rowallan
prospect on which we have a 15% carried interest. A successful
outcome of this well would have a material impact on Serica. In
Ireland and Namibia we have received licence extensions from the
authorities and continue to progress our holdings where we see real
future potential."
Technical Information
The technical information contained in the announcement has been
reviewed and approved by Clara Altobell, Head of Operations at
Serica Energy plc. Clara Altobell (MSc in Petroleum Engineering
from Imperial College, London) has over 20 years of experience in
oil & gas exploration, production and development and is a
member of the Society of Petroleum Engineers (SPE) and the
Petroleum Exploration Society of Great Britain (PESGB).
Regulatory
This announcement is inside information for the purposes of
Article 7 of Regulation 596/2014.
Enquiries:
Serica Energy plc
+44 (0) 20 7487
Tony Craven Walker tony.cravenwalker@serica-energy.com 7300
Peel Hunt
+44 (0) 20 7418
Richard Crichton richard.crichton@peelhunt.com 8900
+44 (0) 20 7418
Ross Allister ross.allister@peelhunt.com 8900
Instinctif Partners
+44 (0) 20 7457
2020
+44 (0) 7831 347
David Simonson david.simonson@instinctif.com 222
+44 (0) 20 7457
2020
+44 (0) 7493 867
George Yeomans george.yeomans@instinctif.com 436
NOTES TO EDITORS
Serica Energy is an oil and gas exploration and production
Company with exploration, development and production assets in the
UK offshore and exploration interests in the Atlantic margins
offshore Ireland, Morocco and Namibia. Further information on the
Company can be found at www.serica-energy.com.
The Company is listed on the AIM market of the London Stock
Exchange under the ticker SQZ and is a designated foreign issuer on
the TSX. To receive Company news releases via email, please contact
serica@instinctif.com and specify "Serica press releases" in the
subject line.
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:
geological, geophysical and technical risk, 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.
EXECUTIVE CHAIRMAN'S STATEMENT
Dear Shareholder
I am pleased to report strong underlying performance from
Serica's assets. Gross profit for 2016 of US$6.6 million was
achieved in spite of a six-month production shut-in earlier in the
year to resolve pipeline issues and during a difficult period for
oil and gas prices. This robust performance puts Serica in a very
strong position within the sector. We ended the year with no
borrowings or material commitments and with cash balances growing
significantly. This performance has continued post the
year-end.
This strong financial position enables us to look for new
opportunities to add further value for shareholders and we are
reviewing a number of such opportunities. These will be aimed at
increasing and diversifying our production streams as well as
balancing risk. We are also looking at utilising our tax loss
position to the full and acquiring assets where we have some degree
of control and believe we can add value through applying our
expertise.
The Erskine field has performed well since production was
restarted on 29 August 2016, averaging over 3,150 boe per day net
to Serica to end March 2017. This was despite a ten-day shut-in in
late February 2017 for maintenance and installation of a back-up
export pump, and we have achieved production efficiencies averaging
as much as 90% in recent months. Serica's operating and
transportation costs have also been maintained at low levels below
US$14 per boe at current production rates. The combined effect of
this performance has been a significant increase in cash balances,
from US$16.6 million at the year end, to US$25.7 million by end
March 2017, an increase of US$9.1 million during the three month
period. With administration costs for the year standing at US$2.1
million, we continue to contain corporate overhead at minimal
levels.
Production resumption has also taken place against a backdrop of
improved commodity prices. Oil sales prices rose to an average
US$49 per barrel during the second half of 2016 whilst gas sales
prices showed an even stronger rise, averaging over 40 pence per
therm during the same period. A gas sales contract, under which
Serica supplied approximately one quarter of its Erskine gas
production at relatively low contract prices (approximately 30
pence per therm in the 2015/6 contract year), was terminated by
Serica on 30 September 2016 coinciding with the upsurge in gas
prices and allowing Serica the full benefit since then. Since the
turn of the year oil prices have averaged US$54 per barrel with UK
gas prices averaging 48 pence per therm.
Serica's current operating and transportation cost of below
US$14 per boe reflects overall cost reductions, sustained
production rates and also the impact of the lower sterling to
dollar exchange rate. In addition to maintaining focus on cost
control and improved production uptime, future costs per barrel can
also be reduced through the introduction of new third party
throughput to Lomond including production from the Columbus field
whose progress is described in more detail in the Operations
Review. With the sale by Shell of the Lomond platform to Chrysaor
as part of a bigger package and Chrysaor committed to extending
production life and maximising economic recovery, we believe that
the incentives are now in place for all parties to find a solution
to Columbus's export needs.
We are looking at various solutions for the development of
Columbus, including the option of drilling into the field directly
from the Lomond platform as well as the possibility of connecting a
subsea well to an Arran-to-Shearwater pipeline, planned by the
operator of the Arran field located to the north. The potential
advantages of an extended-reach well from Lomond include no
pipeline or associated subsea equipment, faster hook up time,
easier well maintenance access and lower-cost abandonment. It would
also reduce unit operating costs for the hub users overall,
including Erskine, and help to attract further third party business
and defer Lomond platform abandonment, thus increasing overall
reserves recovery in the area. It is our objective to compare the
costs and risks of the different solutions, as well as potential
benefits such as these, in order to reach a decision on Columbus
development with our partners and infrastructure owners and
finalise a field development plan during 2017.
We continue to seek ways to unlock the value in our exploration
assets. We hold significant interests in acreage offering a balance
of lower risk, mature basins and high risk, high reward frontier
areas. We have mitigated drilling expenditure during the industry
downturn through farm-outs and have constrained costs in our more
frontier acreage but will be looking to expand this programme as
our financial position strengthens.
Offshore Namibia and Ireland we have been granted two-year
extensions with low cost exploration commitments and we are
receiving expressions of interest from third parties for possible
joint ventures as the exploration market slowly recovers buoyancy.
In the UK we have a fully carried 15% interest in the Rowallan
prospect in Central North Sea block 22/19c and, in East Irish Sea
block 113/27c, we have a 20% carried interest in the Doyle
prospect. Rowallan has a P50 potential resource estimate of 20
million boe net to Serica. It is one of three large, high pressure,
high temperature prospects located on block 22/19c which lies close
to our Columbus and Erskine interests. Plans to drill a well were
delayed last year pending greater clarity on the outlook for oil
and gas prices but partners have now agreed to place advance orders
for long-lead items and proceed with site surveying this year in
preparation for drilling of the Rowallan exploration well in 2018.
A successful well would be material to Serica and highlight further
potential on the block.
In the Doyle block we await the outcome of decisions from our
operator Zennor Petroleum who have an 80% interest in the block
following the withdrawal of Centrica, our previous operator, in
2016. Zennor have been seeking a partner to share in their 80%
interest. In the absence of securing such a partner they may elect
to relinquish the block. The licence authority, OGA, have granted
an extension until 30 April 2017.
Outlook
With our strong balance sheet, growing cash resources and
opportunities to add value from our existing oil and gas resources,
Serica is extremely well positioned to execute its growth strategy.
We recognise our dependence upon Erskine as our only current source
of income. Whilst this is generating material cash flows for the
Company and we are expecting this to continue, we are looking to
see how we can use our financial strength to diversify and enhance
our cash generative capacity through the acquisition of additional
production where we believe we can also add value. We see this as
an essential part of our risk management strategy but a successful
outcome would also increase the scale and spread of the Company's
operations and create greater visibility, financial capacity and
liquidity for the Company to the benefit of shareholders.
In view of the strategic benefits, synergies and tax
efficiencies our immediate focus remains on the UK North Sea where
there are opportunities on offer as the oil majors restructure
their asset portfolios and make way for smaller, more cost
efficient operators. The market is, as ever, competitive,
particularly from new sources of private equity, and the vibrancy
of the market has been demonstrated by a number of recently
announced transactions. We are cautious in our approach and remain
fully cognisant of the need to high grade the number of
opportunities available but believe that such a strategy will also
help us in bringing forward the clear potential of our existing
portfolio.
In summary, we are extremely positive on the opportunities open
to Serica and on our ability to execute them. We are looking
forward to an interesting and potentially exciting year ahead.
Antony Craven Walker
Executive Chairman
5 April 2017
STRATEGIC REPORT
The following Strategic Report of the operations and financial
results of Serica Energy plc ("Serica") and its subsidiaries (the
"Group") should be read in conjunction with Serica's consolidated
financial statements for the year ended 31 December 2016.
References to the "Company" include Serica and its subsidiaries
where relevant. All figures are reported in US dollars ("US$")
unless otherwise stated. The Company is subject to the regulatory
requirements of the AIM market ("AIM") of the London Stock Exchange
in the United Kingdom. Although the Company delisted from the
Toronto Stock Exchange ("TSX") in March 2015, the Company is a
"designated foreign issuer" as that term is defined under Canadian
National Instrument 71-102 - Continuous Disclosure and Other
Exemptions Relating to Foreign Issuers.
Serica is an independent oil and gas company with production,
development and exploration licence interests in the UK Continental
Shelf and exploration interests in Ireland, Morocco and
Namibia.
REVIEW OF OPERATIONS
Production
Central North Sea: Erskine Field - Blocks 23/26a (Area B) and
23/26b (Area B), Serica 18%
All of Serica's production comes from its 18% interest in
Erskine, a gas and condensate producing field located in the UK
Central North Sea and acquired from BP in June 2015. Serica's
co-venturers are Chevron 50% (operator) and Shell 32%. Erskine
fluids are processed and exported via the Lomond platform, which is
100% owned and operated by Shell, who acquired Lomond and a share
in Erskine through the acquisition of BG in February 2016. Serica's
condensate allocation is delivered and sold as Forties crude oil at
the Cruden Bay terminal and gas is sold at the CATS terminal on
Teeside. Shell has recently announced a sale of its interests in
Erskine and Lomond, subject to certain consents, to Chrysaor
Holdings Limited, a private equity-backed oil and gas company.
An updated independent audit of the Erskine field confirmed
Serica's share of estimated proven plus probable reserves at 3.8
million boe as of 1 January 2017, in line with previous
estimates.
Following a strong January and February 2016 when production
averaged over 3,200 boe per day net to Serica, the field was
subject to an extended shut-in. On 27 February 2016 a cleaning
device known as a pig became stuck in the condensate export
pipeline that runs between Lomond and the Everest platform, causing
a blockage. The blockage was caused by the pig encountering a
build-up of wax in the line that had been deposited over time by
the export fluids. The operation to clear the line took ten weeks
due to the engineering requirements to gain access to the blockage
with wax solvent and then to allow for optimal time to soak and
dissolve the wax. Rather than restarting in mid-May, the planned
June shut-in for maintenance work on the Lomond platform was
brought forward with the eventual full restart of Erskine occurring
on 29 August 2016.
Erskine field production since the 29 August restart has
delivered strong and consistent volumes, averaging approximately
3,150 boe per day net to Serica to year-end despite a series of
capacity restrictions on the Forties Pipeline, through which
Erskine liquids are exported, and some minor system trips on the
Lomond offtake facilities. This performance has continued into
2017, averaging over 3,200 boe per day net to Serica over the first
three months despite a ten-day shut-in for further treatment of wax
build-up in the condensate export line and installation of a
back-up pump. The strong performance of the Erskine wells over the
last 21 months, when unconstrained by offtake restrictions, fully
supports current estimates of ultimate reserves recovery and may
leave scope for further upside.
Improved planning and communication between the Erskine and
Lomond facility operators, supported by Serica, has resulted in
reducing production interruptions. This has been achieved by
identifying system vulnerabilities and planning more efficient
maintenance programmes. Production efficiency exceeded 80% from the
end of August 2016 to the end of the year and has averaged around
90% in recent months, demonstrating continued performance
improvement.
Having assessed the lessons from the blockage of the Lomond to
Everest condensate export pipeline last year, the Lomond facilities
operator is implementing a number of changes to reduce the chance
of a reoccurrence. These include improved pipeline monitoring, more
regular pigging programmes and intermittent shut-ins for the
injection of wax solvents when required.
Ongoing reductions to the Erskine/Lomond cost-base have combined
with increased throughput volumes to lower Erskine operating costs
per boe. Though Serica's average operating cost for 2016 was US$23
per boe including transportation costs, this falls below US$14 per
boe after excluding the effects of the export line blockage,
illustrating that maintaining production volumes is as important as
cutting costs in the drive to minimise costs per barrel.
This also drives the strategy to bring other fields, such as
Columbus, through the Lomond hub as soon as practicable to the
benefit of all hub owners. Recent analysis by Oil & Gas UK
suggests that average operating costs of US$15 per barrel are now
being achieved through the UK North Sea as a whole, setting a
benchmark for all operators which should sustain profitable North
Sea operations even during future periods of low commodity
prices.
No significant capital investment is planned for Erskine in
2017.
Development
Central North Sea: Columbus Field - Blocks 23/16f and 23/21a,
Serica 50%
The Columbus gas condensate field is located in close proximity
to the Lomond platform, which is the offtake route for production
from Serica's Erskine producing interest. Serica as Columbus field
operator is working towards a full Field Development Plan by the
end of 2017 with a view to commencing development work in 2018.
First gas is targeted for late 2019 or 2020.
The Columbus field has been fully appraised with four wells and
will be developed with a single production well. Serica is
progressing two potential development options for Columbus. The
first option is an extended-reach development well drilled into
Columbus from the Lomond platform, located 5 kilometres away. This
technology has been extensively used in the North Sea, especially
in Norway. Alternatively a well could be drilled as a subsea
completion and tied into a proposed third-party pipeline to the
Shearwater platform, with either option delivering similar levels
of reserves recovery.
The Lomond platform has spare well slots and a jack-up rig can
be utilised to drill a well into Columbus from the platform. The
advantage of this route is that there is no pipeline or associated
subsea equipment required and consequently time to hook up the well
and bring it on production should be much shorter than would be
required for a subsea well. A platform well also has the advantages
of easy access for future well maintenance interventions and
lower-cost abandonment. Columbus production into the Lomond
platform is likely to benefit the Erskine and Lomond fields by
reducing unit operating costs whilst improving the product mix and
could result in deferring the date of platform abandonment thus
increasing reserves recovery. Deferment of Lomond platform
abandonment would also increase its attraction for other potential
third party business to mutual benefit.
In parallel, Serica is working with the Arran field operator to
appraise the option of tying Columbus into a proposed new pipeline
into the Shearwater platform. This would be a longer offtake route
and the Columbus development well would be drilled as a subsea
completion. The advantages of this option are shorter drilling time
and the potential for lower unit operating costs. However, there
would be an overall increase in development costs and there would
be greater complexity involved in coordinating with a separate
field development, which is expected to result in a longer
development timeline.
Whichever option is selected, Serica plans to take full
advantage of current market conditions and latest drilling and
subsea technology to ensure a low cost, efficient and reliable plan
for development. Serica is undertaking studies on both options in
order to make an informed decision, based on risks and economics,
during the course of 2017, following which a field development plan
will be submitted to the Oil and Gas Authority.
Exploration
Central North Sea: Rowallan Prospect - Block 22/19c, Serica
15%
Detailed well planning for the Rowallan prospect is underway,
with spending on a site survey and long-lead items approved by
partners for 2017. A vessel will be deployed in the summer to
perform a site survey and drill geotechnical boreholes in
preparation for drilling in 2018. The prospect is located within
Serica's core Central North Sea area, close to Erskine and
Columbus. Serica is fully carried on all costs for a well on this
high pressure high temperature prospect. There are similarities to
the nearby Culzean field, with the well targeting the same age
Jurassic/Triassic reservoir sands and a fault-and-dip closed
trap.
A discovery could deliver 20 million boe net to Serica (P50
resource estimate), with further upside in the form of two similar
prospects, Dundonald and Sundrum, also identified on the block.
East Irish Sea: Doyle Prospect - Blocks 113/22a, 113/26b and
113/27c, Serica 20%
The Doyle gas prospect lies in close proximity, and is
analogous, to the producing Rhyl field. Serica is carried for costs
on an exploration well on the prospect up to a gross cap of GBP11
million. The operator has been seeking a partner to share in its
drilling costs following the withdrawal of Centrica, our previous
operator, in 2016. In the absence of securing such a partner the
block may be relinquished. The licence authority, OGA, have granted
an extension until 30 April 2017.
Ireland
Offshore Ireland is currently experiencing renewed interest
including the entry of a number of oil and gas majors. This is
demonstrated through significantly increased licence applications,
farm-ins and seismic data acquisition programmes expected to lead
to renewed drilling in the region.
Rockall Basin: Frontier Exploration Licences 1/09 and 4/13,
Serica 100%
Serica has secured a two-year extension on licence 4/13 in order
to bring in a partner to join in drilling an exploration well. The
well is designed to test two prospects, the shallower prospect
being a Cretaceous fan defined by seismic anomaly and analogous to
prospects identified in the Porcupine basin. This overlies a deeper
target, a structural fault block of Permian/Triassic age, analogous
to the nearby Dooish discovery. Serica estimates P50 resources for
these stacked prospects to be in the order of 4tcf of gas and 250
million barrels of condensate, which would result in a major
development.
Licence 1/09 contains a large structural prospect, also a Dooish
analogue, and Serica is seeking a partner to drill a well to prove
the concept, ideally as part of the same drilling programme as
4/13.
In 2017, further work is planned on the licences to investigate
the potential for productive fractured basement. The recent well
test on the Lancaster discovery by Hurricane in the West of
Shetlands area has proved the production capability of fractured
basement.
Slyne Basin: Frontier Exploration Licence 01/06, Serica 100%
Serica has increased its equity from 50% to 100% following the
withdrawal of DEA from the licence and has secured a two-year
extension to further explore the potential first identified through
the Bandon oil discovery drilled in 2009. In that time, Serica
plans to further de-risk the Boyne prospect, down-dip of the Bandon
discovery, by detailed analysis to better predict the oil type
likely to be found in the deeper Jurassic and Triassic sandstone
formations.
Serica is seeking to identify a farm-in partner to take
advantage of low drilling and development costs and, in the event
of a commercial discovery, to follow with a swift development to
get to first oil/gas. The P50 resource estimate of 115 million
barrels of oil is expected to result in an attractive economic
development at current oil prices.
Namibia
Luderitz Basin: Blocks 2512A, 2513A, 2513B and 2612A (part),
Serica 85%
Serica has progressed to the first renewal period of the
licence, running until the end of 2018. This licence period does
not include a commitment to drill a well. However, the
prospectivity, identified by a major seismic programme operated by
Serica, is such that Serica would wish to drill a well within this
time-frame, subject to the introduction of a new partner. The
excellent 3D seismic data has identified giant carbonate prospects
as well as large, more conventional Cretaceous fan prospects
supported by seismic anomalies. Serica plans to work on identifying
more prospects supported by the latest seismic visualisation
techniques as well as seeking a partner to drill the main carbonate
prospect (gross P90 to P10 range of 138 million to 2.8 billion
barrels of oil).
Morocco
Sidi Moussa Licence: Serica 5%
The Sidi Moussa licence has been extended until August 2017 to
allow the operator, Genel, time to consider further exploration
activity. Serica has elected not to participate in any further
drilling but has an option to buy back in should a well be
drilled.
Norway
The operator of the Vette field, in which Serica held an
economic interest dependent upon the level of oil prices prevailing
at first production, determined that the potential development was
uncommercial at current oil and gas prices and the licence has been
relinquished.
LICENCE HOLDINGS
The following table summarises the Group's licences as at 31
December 2016.
Block(s) Description Role % at Location
31/12/16
--------------------- ------------- --------- -------------
UK
--------------------- ------------- --------- -------------
Central
22/19c Exploration Non-operator 15% North Sea
--------------------- ------------- --------- -------------
23/16f, 23/21a Columbus Field Operator 50% Central
(part) - North Sea
Development planned
--------------------- ------------- --------- -------------
Erskine Field Central
23/26a, 23/26b - Production Non-operator 18% North Sea
--------------------- ------------- --------- -------------
East Irish
113/26b Exploration Non-operator 20% Sea
--------------------- ------------- --------- -------------
East Irish
113/27c Exploration Non-operator 20% Sea
--------------------- ------------- --------- -------------
East Irish
113/22a Exploration Non-operator 20% Sea
--------------------- ------------- --------- -------------
Ireland
--------------------- ------------- --------- -------------
27/4 (part) Exploration Operator (1) 100% Slyne Basin
--------------------- ------------- --------- -------------
27/5 (part) Exploration Operator (1) 100% Slyne Basin
--------------------- ------------- --------- -------------
27/9 (part) Exploration Operator (1) 100% Slyne Basin
--------------------- ------------- --------- -------------
Rockall
5/17 Exploration Operator 100% Basin
--------------------- ------------- --------- -------------
Rockall
5/18 Exploration Operator 100% Basin
--------------------- ------------- --------- -------------
Rockall
5/22 Exploration Operator 100% Basin
--------------------- ------------- --------- -------------
Rockall
5/23 Exploration Operator 100% Basin
--------------------- ------------- --------- -------------
Rockall
5/27 Exploration Operator 100% Basin
--------------------- ------------- --------- -------------
Rockall
5/28 Exploration Operator 100% Basin
--------------------- ------------- --------- -------------
Rockall
11/10 Exploration Operator 100% Basin
--------------------- ------------- --------- -------------
Rockall
11/15 Exploration Operator 100% Basin
--------------------- ------------- --------- -------------
12/1 (part) Exploration Operator 100% Rockall
Basin
--------------------- ------------- --------- -------------
Rockall
12/6 Exploration Operator 100% Basin
--------------------- ------------- --------- -------------
12/11 (part) Exploration Operator 100% Rockall
Basin
--------------------- ------------- --------- -------------
Namibia
--------------------- ------------- --------- -------------
Luderitz
2512A Exploration Operator 85% Basin
--------------------- ------------- --------- -------------
Luderitz
2513A Exploration Operator 85% Basin
--------------------- ------------- --------- -------------
Luderitz
2513B Exploration Operator 85% Basin
--------------------- ------------- --------- -------------
2612A (part) Exploration Operator 85% Luderitz
Basin
--------------------- ------------- --------- -------------
Morocco
--------------------- ------------- --------- -------------
Sidi Moussa Exploration Non-operator 5% Tarfaya-Ifni
Basin
--------------------- ------------- --------- -------------
(1) Interest increased from 50% to 100% effective 1 December
2016 following confirmation of licence extension in March 2017.
GLOSSARY
bbl barrel of 42 US gallons
bcf billion standard cubic feet
boe barrels of oil equivalent (barrels of oil, condensate and LPG plus the heating equivalent
of gas converted into barrels at a rate of 6,000 standard cubic feet per barrel)
CPR Competent Persons Report
FEED Front End Engineering Design
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
NGLs Natural gas liquids extracted from gas streams
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
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 Canadian National Instrument 51--101
Contingent Resources Estimates of discovered recoverable hydrocarbon resources for which commercial production
is not yet assured, calculated in accordance with the Canadian National Instrument 51--101
Prospective Resources Estimates of the potential recoverable hydrocarbon resources attributable to undrilled
prospects,
calculated in accordance with the Canadian National Instrument 51--101
TAC Technical Assistance Contract
tcf trillion standard cubic feet
FINANCIAL REVIEW
The completion of the Erskine acquisition on 4 June 2015 brought
significant oil and gas revenue streams, accelerating the
utilisation of Serica's past UK tax losses. The Company accounts
for its share of field revenues and costs post acquisition, hence
the comparative figures for 2015 include Erskine revenues and costs
only for the period from 4 June to 31 December 2015.
Group profit after tax of US$10.8 million for 2016 compares to a
profit after tax of US$6.5 million for 2015 with the six-month
Erskine field shut-in, running to late August 2016, significantly
restricting 2016 sales revenues whilst operating costs continued to
be incurred. Following the restart, rising commodity prices, allied
to strong well performance, improved off-take facility uptime and
lower opex per barrel costs, delivered a particularly strong Q4
2016.
Erskine asset overview
Although the impact of the extended Erskine field shut-in on
2016 results was substantial, field production performance during
January and February and then from the 29 August restart to
year-end demonstrated the true capability of the field with
production net to Serica averaging over 3,150 boepd in the latter
period, generating good cash flow throughout Q4 2016 as both oil
and gas prices rose. All of the oil is sold at monthly average spot
prices and from 1 October 2016 all of the gas is sold in the market
at monthly average spot prices. NGL's derived from gas production
are also sold at monthly average spot prices for the respective
products.
Field production has continued at similar levels in 2017 to
date, averaging over 3,200 boe per day net to Serica in Q1 2017.
The Brent oil benchmark has averaged over US$54 per barrel in Q1
2017 (2016 average of US$45 per barrel) whilst UK gas prices rose
to over 60 pence per therm in January and have averaged over 48
pence across the Q1 2017 period (2016 average of 35 pence per
therm).
Serica's operating costs including transportation and processing
were US$23 per boe during 2016 reflecting the six-month shut-in,
but are now averaging well below these levels and, assuming steady
ongoing production, we expect operating costs to be below US$14 per
boe in 2017.
Strong net income from Erskine since the re-start of production
in late August has allowed Serica to continue to rebuild cash
resources. As at 31 March 2017, cash balances had increased from
the year-end balance of US$16.6 million to US$25.7 million, before
receipt of March sales which are expected to add approximately
US$3.5 million net of operating costs.
Serica's significant tax losses brought forward from prior
periods have been applied to fully shelter Erskine 2016 net income
from tax payments and are expected to be sufficient to cover future
income from the field leaving a surplus available to cover new
United Kingdom Continental Shelf sources of income.
Results from operations
Income statement - continuing operations
Serica generated a gross profit of US$6.6 million in 2016 from
its Erskine field operations after the effect of the six-month
field shut-in. The reported 2015 comparative gross profit of
US$16.1 million reflected performance from the date of completion,
4 June 2015, to the year end, 31 December 2015. Serica's 18% field
interest generated net combined oil and gas production of 597,000
boe in 2016 compared to 606,000 boe for the reported 2015
period.
Sales revenues
The Company currently generates all its sales revenue from the
Erskine field in the UK North Sea. Revenue is earned from oil, gas
and NGL product streams. Serica's condensate allocation is sold as
Forties crude oil.
Net Erskine field gas production averaged 5.0 mmscf per day
during 2016, whilst condensate production averaged 800 barrels per
day reflecting the six-month shut-in. In the 2015 seven month
comparative period, net Erskine field gas production averaged 8.6
mmscf per day together with average condensate production of 1,462
barrels per day.
Sales revenues in 2016 from lifted barrels of oil were US$11.1
million (2015: US$10.4 million) at an average realised price of
US$42.10/bbl (2015: US$44.50/bbl). Associated NGL products earned
additional revenue of US$0.3 million (2015: US$0.3 million).
Sales revenues in 2016 also include US$0.5 million (2015: US$3.4
million) reflecting the movement from a combined liquids overlift
position at 31 December 2015 to an underlift position at 31
December 2016.
The 2016 gas production was sold at prices averaging US$4.6 per
mscf (2015: US$5.1 per mscf) and generated US$8.4 million (2015:
US$9.1 million) of revenue net to Serica. A gas sales contract,
under which Serica supplied approximately one quarter of its
Erskine gas production at relatively low contract prices
(approximately 30 pence per therm in the 2015/6 contract year),
terminated on 30 September 2016.
Three NGL products (Propane, Butane and Naphtha) are derived
from associated gas production and contributed revenue of US$1.2
million (2015: US$0.8 million) net to Serica.
Cost of sales and depletion charges
Cost of sales is driven by production from the Erskine field and
comprises field operating costs and a depletion charge against the
asset's net book amount.
The overall 2016 charge of US$14.9 million (2015: US$7.9
million) comprised direct field operating costs of US$13.6 million
(2015: US$6.6 million) and non-cash depletion of US$1.3 million
(2015: US$1.3 million). The most significant elements of the field
operating costs are as follows: Erskine's contribution to the
running costs of the Lomond facilities, standalone Erskine field
operating costs, other transportation costs for use of the FPS and
CATS pipelines, and charges for any necessary surface or
sub-surface maintenance work. Significant operational expenditure
continues during periods of field shut-in when no revenue is
earned.
The US$7.0 million increase in field operating costs from 2015
to 2016 is largely due to the full year 2016 reporting period
compared to seven months of post-acquisition Erskine operations in
2015. The 2016 expense also includes an agreed level of
contribution from the Erskine partners to the exceptional costs
incurred by the Lomond operator to resolve the Lomond/Everest
pipeline blockage. Operating costs are billed in GBGBP and,
following the decline in the strength of GBGBP against the US$ in
June 2016, the reported US$ equivalent figures have reduced during
2H 2016 compared to US$ oil revenue streams.
Depletion charges principally represent the costs of Erskine
acquisition spread over the estimated remaining commercial life of
the field on a unit of production basis.
Other expenses and income
The Company generated a profit before tax from continuing
operations of US$3.3 million for 2016 compared to a profit before
tax of US$4.3 million for 2015.
Other expenditure of US$0.1 million in 2016 represented hedging
premium net of gains.
Pre-licence expenditure of US$0.2 million for 2016 has increased
from the 2015 charge of US$0.1 million due to an increased level of
activity on new business in the second half of the year as the
Company has increased its focus on adding to its existing UK North
Sea asset portfolio. Pre-licence costs included direct costs and
allocated general administrative costs incurred on oil and gas
activities prior to the award of licences, concessions or
exploration rights.
The Exploration and Evaluation ('E&E') asset impairment
charge of US$0.1 million in 2016 comprised minor asset write-offs
from licences in Morocco and the UK. The aggregate 2015 impairment
charge of US$8.2 million comprised US$13.1 million of asset
write-offs from relinquished licences and historic wells not
considered to hold remaining economic potential, offset by a US$4.9
million pre-tax impairment reversal recorded against the Columbus
field asset.
Administrative expenses of US$2.1 million for 2016 decreased
from US$2.7 million in 2015 as the Company's cost-cutting efforts
continued and the largely GBGBP-based overheads benefitted from the
weaker average GBGBP exchange rate compared to US$.
Foreign exchange
Serica retains certain non-US$ cash holdings and other financial
instruments relating to its operations. The US$ value of these may
fluctuate from time to time causing reported foreign exchange gains
and losses. Serica maintains a broad strategy of matching the
currency of funds held on deposit to the expected expenditures in
those currencies. Management believes that this mitigates most of
any actual potential currency risk from financial instruments.
Foreign exchange charges of US$0.6 million for 2016 (2015:
US$0.4 million) largely reflect a reduction in the reported US$
equivalent of GBGBP cash balances caused by the weakening of GBGBP
against the US$ after the EU referendum result. Unrealised losses
on the revaluation of GBGBP cash balances have been partially
offset by realised gains on settlement of significant GBGBP
creditors.
Finance costs of US$0.2 million were incurred in 2016 (2015:
US$0.2 million) largely comprising the interest accruing on the
liability payable to BP relating to the Erskine acquisition.
The deferred taxation credit of US$7.5 million (2015: US$2.4
million) arose from the recognition of a corresponding deferred tax
asset on the Erskine field interest.
Income statement - discontinued operations
Following the cessation of production and the decommissioning of
the Kambuna field facilities in Indonesia in the second half of
2013, the financial results of the Kambuna field business segment
are disclosed within 'discontinued operations' in the financial
statements and separate from the results of the retained core
business segments.
This discontinued operation loss of US$0.3 million in 2015
comprised a final assessment for asset write-offs and minor
operator expense as residual matters were closed out with one final
charge of US$8,000 recorded in 2016.
Balance Sheet
During 2016, the total carrying value of investments in E&E
assets increased by US$1.4 million from US$51.8 million to US$53.2
million. This increase consisted of additions in the year on the
following assets. In Africa, US$0.4 million was incurred in respect
of the Luderitz basin licence interests in Namibia. In the UK,
US$0.4 million was incurred on the Columbus development and other
exploration licences. In Ireland, US$0.4 million was incurred on
exploration work on the Rockall licences and US$0.2 million on the
Slyne interest.
The property, plant and equipment balance of US$9.1 million as
at 31 December 2016 comprises the net book amount of the Erskine
asset acquisition costs capitalised on completion of the
transaction net of depletion charges to-date.
Trade and other receivables at 31 December 2016 totalled US$6.8
million, an increase of US$2.6 million from the 2015 balance of
US$4.2 million. The 2016 balance includes US$4.3 million (2015:
US$3.2 million) from December oil, gas and NGL sales earned from
the Erskine field, and a US$0.4 million non-cash underlift asset
reflecting the combined year end liquids underlift position (2015:
US$0.2 million overlift classified as a liability within trade and
other payables.
Cash and cash equivalents decreased from US$21.6 million to
US$16.6 million during the year. Operating cash inflows from net
Erskine field sales were adversely impacted by the six-month field
shut-in during which operating expenditure continued to be
incurred. The Company also paid the second US$2.8 million tranche
of Erskine consideration to BP and has significantly reduced other
Erskine field liabilities in the year. Other cash outflows were
incurred on E&E assets across the portfolio in the UK, Ireland
and Namibia, ongoing administrative costs and corporate
activity.
Short-term trade and other payables totalled US$5.9 million at
31 December 2016 (2015: US$9.6 million). This balance comprises
capital and operational liabilities for the Erskine interest, which
have been significantly reduced, the US$2.9 million (including
accrued interest) third tranche of Erskine consideration payable to
BP on 1 July 2017, and other creditors and accruals for E&E
asset, corporate and administrative expenditure.
Provisions of US$2.2 million relate to an estimate for certain
contingent payments related to savings in field operating costs
that may be made to BP under the terms of the Erskine
acquisition.
Long-term liabilities of US$2.9 million as at 31 December 2016
comprise the final tranche of Erskine consideration payable to BP
on 1 July 2018.
Serica's share of estimated decommissioning costs relating to
its 18% Erskine field interest will be met by BP up to a level of
GBGBP31.3 million, adjusted for inflation, with Serica being
responsible for any costs beyond that. No provision for
decommissioning liabilities for the Erskine field is recorded at 31
December 2016 as the Company's current estimate for such costs is
under the level to be funded by BP.
Cash balances and future commitments
Current cash position, capital expenditure commitments and other
obligations
At 31 December 2016, the Group held cash and cash equivalents of
US$16.6 million growing to US$25.7 million by 31 March 2017.
At 31 December 2016, the Group held put options covering Q1 2017
daily volumes of 750 barrels of oil and 40,000 therms per day
(4,000 mscf/day) of gas at average floor prices of US$35 per barrel
and 38 pence per therm.
In January 2017, the Group acquired gas put options covering Q2
and Q3 2017, and oil put options covering Q2 2017. Gas is covered
for 40,000 therms a day at a 40p per therm floor throughout Q2
2017, and 38p per therm for an average of 31,000 therms a day for
Q3. Q2 2017 oil cover is in place for 750 barrels a day at a US$50
per barrel floor.
Erskine field commitments
Net revenues from the Erskine field are expected to cover
ongoing field expenditures as well as the two remaining tranches of
US$2.8 million (before interest) cash consideration payable to BP
on 1 July 2017 and 2018 respectively.
Management believe there are sufficient resources to meet the
current committed programme for 2017 but remains conscious that a
single field income stream exposes it to operational and
infrastructure risks and the consequent need for adequate working
capital to cover associated fluctuations in revenue. The field has
a history of intermittent production performance prior to the
remedial work undertaken and operational expenditure continues
during periods of field shut-down when no revenue is earned.
Non-Erskine commitments
The Group has no significant exploration commitments.
Progress towards the Columbus development continues with a
target to compile a Field Development Plan before the end of the
year. Financing plans for the project will be worked in conjunction
with the FDP submission.
Other
Asset values and Impairment
At 31 December 2016, Serica's market capitalisation stood at
US$47.2 million (GBP38.2 million), based upon a share price of
GBP0.145, which was exceeded by the net asset value at that date of
US$85.1 million. By 4 April 2017 the Company's market
capitalisation had increased to US$87.8 million (GBP70.5 million).
Management has conducted a thorough review of the carrying value of
the Group's assets and determined that no significant write-downs
were required.
Business Risk and Uncertainties
Serica, like all companies in the oil and gas industry, operates
in an environment subject to inherent risks and uncertainties. The
Board regularly considers the principal risks to which the Group is
exposed and monitors any agreed mitigating actions. The overall
strategy for the protection of shareholder value against these
risks is to retain a broad portfolio of assets with varied
risk/reward profiles, to apply prudent industry practice in all
operations, to carry insurance where available and cost effective,
and to retain adequate working capital.
The principal risks currently recognised and the mitigating
actions taken by the management are as follows:
Investment Returns: Management seeks to raise funds and then
to generate shareholder returns though investment in a portfolio
of exploration, development and producing acreage leading to
the discovery and exploitation of commercial reserves. Delivery
of this business model carries a number of key risks.
Risk Mitigation
-----------------------------------------------------------------
Market support may be eroded
obstructing fundraising and lowering * Management regularly communicates its strategy to
the share price shareholders
* Focus is placed on building an asset portfolio
capable of delivering regular news flow and offering
continuing prospectivity
-----------------------------------------------------------------
Management's decisions on capital
allocation may not deliver the * Rigorous analysis is conducted of all investment
expected successful outcomes proposals
* Operations are spread over a range of areas and risk
profiles
-----------------------------------------------------------------
Each asset carries its own risk
profile and no outcome can be * Management aims to avoid over-exposure to individual
certain assets and to identify the associated risks
objectively
-----------------------------------------------------------------
Operations: Operations may not go according to plan leading
to damage, pollution, cost overruns or poor outcomes.
Risk Mitigation
------------------------------------------------------------------
The Group's income is currently
derived from a single producing * Efforts are underway to add to producing assets
field
* Management places a priority on building and
retaining sufficient working capital
------------------------------------------------------------------
Individual wells may not deliver
recoverable oil and gas reserves * Thorough pre-drill evaluations are conducted to
identify the risk/reward balance
* Exposure is selectively mitigated through farm-out
------------------------------------------------------------------
Wells may blow out or equipment
may fail causing environmental * The Group retains fully trained and experienced
damage and delays personnel
* The planning process involves risk identification and
establishment of mitigation measures
* Emphasis is placed on engaging experienced
contractors
* Appropriate insurances are retained
------------------------------------------------------------------
Operations may take far longer
or cost more than expected * Management applies rigorous budget control
* Adequate working capital is retained to cover
reasonable eventualities
------------------------------------------------------------------
Production may be interrupted
generating significant revenue * Business interruption cover will be considered when
loss appropriate
------------------------------------------------------------------
Offtake routes may depend upon
a series of facilities and pipelines * The Group aims to diversify its sources of income
requiring a balance of throughput when suitable opportunities can be identified
from a number of different fields
------------------------------------------------------------------
Resource estimates may be misleading
and exceed actual reserves recovered * The Group deploys qualified personnel
* Regular third-party reports are commissioned
* A prudent range of possible outcomes are considered
within the planning process
------------------------------------------------------------------
Personnel: The Group relies upon a pool of experienced and
motivated personnel to identify and execute successful investment
strategies
Risks Mitigation
----------------------------------------------------------------
Key personnel may be lost to
other companies * The Remuneration Committee regularly evaluates
incentivisation schemes to ensure they remain
competitive
* The Group seeks to build depth of experience in all
key functions to ensure continuity
----------------------------------------------------------------
Personal safety may be at risk
in demanding operating environments, * A culture of safety is encouraged throughout the
typically offshore organisation
* Responsible personnel are designated at all
appropriate levels
* The Group maintains up-to-date emergency response
resources and procedures
* Insurance cover is carried in accordance with
industry best practice
----------------------------------------------------------------
Staff and representatives may
find themselves exposed to bribery * Group policies and procedures are communicated to
and corrupt practices personnel regularly
* Management reviews all significant contracts and
relationships with agents and governments
----------------------------------------------------------------
Commercial environment: World and regional markets continue
to be volatile with fluctuations and infrastructure access
issues that might hinder the Group's business success
Risk Mitigation
------------------------------------------------------------------
Volatile commodity prices mean
that the Group cannot be certain * Budget planning considers a range of commodity prices
of the future sales value of
its products
* Price mitigation strategies may be employed at the
point of major capital commitment
* Gas may be sold under long-term contracts reducing
exposure to short term fluctuations
* Oil and gas price hedging contracts may be utilised
where viable
------------------------------------------------------------------
The Group may not be able to
get access, at reasonable cost, * A range of different off-take options are pursued
to infrastructure and product wherever possible
markets when required
------------------------------------------------------------------
Credit to support field development
programmes may not be available * Serica seeks to build and maintain strong banking
at reasonable cost relationships and initiates funding discussions at as
early a stage as practicable
------------------------------------------------------------------
Fiscal regimes may vary, increasing
effective tax rates and reducing * Operations are currently spread over a range of
the expected value of reserves different fiscal regimes in Western Europe and Africa
* Before committing to a significant investment the
likelihood of fiscal term changes is considered when
evaluating the risk/reward balance
------------------------------------------------------------------
In addition to the principal risks and uncertainties described
herein, the Group is subject to a number of other risk factors
generally, a description of which is set out in our latest annual
information form available on www.sedar.com.
Key Performance Indicators ("KPIs")
The Company's main business is the acquisition of interests in
prospective exploration acreage, the discovery of hydrocarbons in
commercial quantities and the crystallisation of value whether
through production or disposal of reserves. The Company tracks its
non-financial performance through the accumulation of licence
interests in proven and prospective hydrocarbon producing regions,
the level of success in encountering hydrocarbons and the
development of production facilities. In parallel, the Company
tracks its financial performance through management of expenditures
within resources available, the cost-effective exploitation of
reserves and the crystallisation of value at the optimum point. A
review of the Company's progress against these KPIs is covered in
the operations and financial review within this Strategic
Report.
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
The Strategic Report has been approved by the Board of
Directors.
On behalf of the Board
Antony Craven Walker
Executive Chairman
5 April 2017
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 year ended 31 December
2016 2015
Note US$000 US$000
Continuing operations
Sales revenue 4 21,432 24,017
Cost of sales 5 (14,860) (7,934)
Gross profit 6,572 16,083
Other expense (113) -
Pre-licence costs (240) (117)
Impairment and write-offs of E&E assets 15 (62) (8,186)
Other asset write-offs 15 - (170)
Administrative expenses (2,062) (2,705)
Foreign exchange loss (556) (430)
Share-based payments 27 (90) 9
Operating profit before net finance revenue and tax 3,449 4,484
Finance revenue 11 61 38
Finance costs 12 (185) (202)
Profit before taxation 3,325 4,320
Taxation credit for the year 13a) 7,521 2,433
Profit for the year from continuing operations 10,846 6,753
--------- --------
Discontinued operations
Loss for the year from discontinued operations 7 (8) (264)
Profit for the year 10,838 6,489
========= ========
Earnings per ordinary share - EPS
Basic and diluted EPS on continuing operations (US$) 14 0.04 0.03
Basic and diluted EPS on profit for the year (US$) 14 0.04 0.03
Group Statement of Comprehensive Income
There are no other comprehensive income items other than those
passing through the income statement.
Serica Energy plc
Registered Number: 5450950
Balance Sheet
As at 31 December
Group Company
2016 2015 2016 2015
Note US$000 US$000 US$000 US$000
Non-current assets
Exploration & evaluation assets 15 53,170 51,814 - -
Property, plant and equipment 16 9,078 8,894 - -
Investments in subsidiaries 17 - - 1,350 1,350
Deferred tax asset 13d) 9,954 2,433 - -
72,202 63,141 1,350 1,350
---------- ---------- ---------- ----------
Current assets
Inventories 18 401 453 - -
Trade and other receivables 19 6,849 4,165 70,141 59,635
Cash and cash equivalents 20 16,593 21,602 14,066 13,730
---------- ---------- ---------- ----------
23,843 26,220 84,207 73,365
---------- ---------- ---------- ----------
TOTAL ASSETS 96,045 89,361 85,557 74,715
---------- ---------- ---------- ----------
Current liabilities
Trade and other payables 21 (5,877) (9,573) (462) (548)
Non-current liabilities
Trade and other payables 22 (2,883) (5,621) - -
Provisions 23 (2,190) - - -
TOTAL LIABILITIES (10,950) (15,194) (462) (548)
---------- ---------- ---------- ----------
NET ASSETS 85,095 74,167 85,095 74,167
========== ========== ========== ==========
Share capital 25 229,308 229,308 194,036 194,036
Merger reserve 17 - - - -
Other reserve 20,715 20,625 20,715 20,625
Accumulated deficit (164,928) (175,766) (129,656) (140,494)
TOTAL EQUITY 85,095 74,167 85,095 74,167
========== ========== ========== ==========
The profit for the Company is US$10,838,000 for the year ended
31 December 2016 (2015: profit of US$6,489,000). In accordance with
the exemption granted under section 408 of the Companies Act 2006 a
separate income statement for the Company has not been
presented.
Approved by the Board on 5 April 2017
Antony Craven Walker Neil Pike
Executive Chairman Non-Executive Director
________________________________ _____________________________________
Serica Energy plc
Statement of Changes in Equity
For the year ended 31 December
Group Other Accum'd
Note Share capital reserve deficit Total
US$000 US$000 US$000 US$000
At 1 January 2015 227,958 20,634 (182,255) 66,337
Profit for the year - - 6,489 6,489
-------------- --------- ---------- -------
Total comprehensive income - - 6,489 6,489
Share-based payments 27 - (9) - (9)
Issue of ordinary shares 25 1,350 - - 1,350
At 31 December 2015 229,308 20,625 (175,766) 74,167
Profit for the year - - 10,838 10,838
-------
Total comprehensive income - - 10,838 10,838
Share-based payments 27 - 90 - 90
At 31 December 2016 229,308 20,715 (164,928) 85,095
============== ========= ========== =======
Other Accum'd
Company Share capital reserve deficit Total
US$000 US$000 US$000 US$000
At 1 January 2015 192,686 20,634 (146,983) 66,337
Profit for the year - - 6,489 6,489
-------------- --------- ---------- -------
Total comprehensive income - - 6,489 6,489
Share-based payments 27 - (9) - (9)
Issue of ordinary shares 25 1,350 - - 1,350
At 31 December 2015 194,036 20,625 (140,494) 74,167
Profit for the year - - 10,838 10,838
-------------- --------- ---------- -------
Total comprehensive income - - 10,838 10,838
Share-based payments 27 - 90 - 90
At 31 December 2016 194,036 20,715 (129,656) 85,095
============== ========= ========== =======
Serica Energy plc
Cash Flow Statement
For the year ended 31 December
Group Company
2016 2015 2016 2015
Note US$000 US$000 US$000 US$000
Operating activities:
Profit for the year 10,838 6,489 10,838 6,489
Adjustments to reconcile profit
for the year
to net cash flow from operating
activities:
Taxation credit (7,521) (2,433) - -
Net finance costs/(income) 124 164 (56) 53
Depreciation and depletion 1,274 1,341 - -
Oil and NGL overlift reduction (516) (3,407) - -
Other asset write-offs - 170 - -
Impairment and write-offs of E&E
assets 62 8,186 - -
Impairment of loans and investments - - (12,954) (8,043)
Share-based payments 90 (9) 90 (9)
Other non-cash movements 866 431 1,100 443
(Increase)/decrease in trade and
other (1,862) (2,137) (197) 273
receivables
Decrease/(increase) in inventories 52 (369) - -
Decrease in trade and other payables (3,270) (865) (109) (586)
Net cash in/(out)flow from operations 137 7,561 (1,288) (1,380)
-------- -------- --------- --------
Investing activities:
Interest received 61 11 61 10
Purchase of E&E assets (1,418) (3,957) - -
Cash (out)/inflow arising on asset
acquisition 16 (2,775) 8,874 - -
Funding provided from/(to) Group
subsidiaries - - 2,336 6,345
Net cash flow from investing activities (4,132) 4,928 2,397 6,355
-------- -------- --------- --------
Financing activities:
Gross proceeds from issue of shares 25 - - - -
Finance costs paid (77) (254) (5) (249)
Net cash flow from financing activities (77) (254) (5) (249)
-------- -------- --------- ----------
Net (decrease)/increase in cash
and cash equivalents 26 (4,072) 12,235 1,104 4,726
Effect of exchange rates on cash
and cash
equivalents 26 (937) (526) (768) (443)
Cash and cash equivalents at 1
January 26 21,602 9,893 13,730 9,447
Cash and cash equivalents at 31
December 26 16,593 21,602 14,066 13,730
======== ======== ========= ==========
Serica Energy plc
Notes to the Financial Statements
1. Authorisation of the Financial Statements and Statement of Compliance with IFRS
These are not the statutory accounts of the Company prepared in
accordance with the Companies Act. The Group's and Company's
financial statements for the year ended 31 December 2016 were
authorised for issue by the Board of Directors on 5 April 2017 and
the balance sheets were signed on the Board's behalf by Antony
Craven Walker and Neil Pike. Serica Energy plc is a public limited
company incorporated and domiciled in England & Wales with its
registered office at 52 George Street, London, W1U 7EA. The
principal activity of the Company and the Group is to identify,
acquire and subsequently exploit oil and gas reserves. Its current
activities are located in the United Kingdom, Ireland, Namibia and
Morocco. The Company's ordinary shares are traded on AIM.
The Group's financial statements have been prepared in
accordance with International Financial Reporting Standards
("IFRS") as adopted by the EU as they apply to the financial
statements of the Group for the year ended 31 December 2016. The
Company's financial statements have been prepared in accordance
with IFRS as adopted by the EU as they apply to the financial
statements of the Company for the year ended 31 December 2016 and
as applied in accordance with the provisions of the Companies Act
2006. The Group's financial statements are also prepared in
accordance with IFRS as issued by the IASB. The principal
accounting policies adopted by the Group and by the Company are set
out in note 2.
The Company has taken advantage of the exemption provided under
section 408 of the Companies Act 2006 not to publish its individual
income statement and related notes. The profit dealt with in the
financial statements of the parent Company was US$10,838,000 (2015:
profit US$6,489,000).
2. Accounting Policies
Basis of Preparation
The accounting policies which follow set out those policies
which apply in preparing the financial statements for the year
ended 31 December 2016.
The Group and Company financial statements have been prepared on
a historical cost basis and are presented in US dollars. All values
are rounded to the nearest thousand dollars (US$000) except when
otherwise indicated.
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 31 December 2016 the Company held net current assets of
US$18.0 million including cash resources of US$16.6 million with no
borrowings outstanding. The Erskine asset acquisition, completed in
early June 2015 brought to Serica a producing interest capable of
generating robust continuing cash flow at current oil and gas
prices. Existing resources plus Erskine revenues are expected to be
sufficient to cover ongoing Erskine costs and the outstanding
instalments of the acquisition price plus other operational,
technical and administrative costs in the short-to-medium term.
Mindful of the risks of reliance on revenues from a single
field, which are underlined by the shutdown in 2016 caused by wax
build-up, management will seek to continue building Group cash
reserves so as to improve its financial resilience. The strategy is
to restrict near-term spend on administrative costs and exploration
licences, only committing to exploration drilling where the costs
are substantially carried by third parties.
Management continues to seek new business opportunities to add
shareholder value and, where these can offer attractive returns,
appropriate financing structures will be investigated. When the
final decision to proceed with the Columbus development is made,
the Group would consider a range of alternative means of finance to
fund its share of development costs.
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.
Use of judgement and estimates and key sources of estimation
uncertainty
The preparation of financial statements in conformity with IFRS
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities as well as the
disclosure of contingent assets and liabilities at the balance
sheet date and the reported amounts of revenues and expenses during
the reporting period. Estimates and judgements are continuously
evaluated and are based on management's experience and other
factors, including expectations of future events that are believed
to be reasonable under the circumstances. Actual outcomes could
differ from these estimates.
The key sources of estimation uncertainty that have a
significant risk of causing material adjustment to the amounts
recognised in the financial statements are: the assessment of
commercial reserves, the impairment of the Group and Company's
assets (including oil & gas development assets and Exploration
and Evaluation "E&E" assets), and the recoverability of
deferred tax assets.
Assessment of commercial reserves
Management is required to assess the level of the Group's
commercial reserves together with the future expenditures to access
those reserves, which are utilised in determining the amortisation
and depletion charge for the period and assessing whether any
impairment charge is required. The Group employs independent
reserves specialists who periodically assess the Group's level of
commercial reserves by reference to data sets including geological,
geophysical and engineering data together with reports,
presentation and financial information pertaining to the
contractual and fiscal terms applicable to the Group's assets. In
addition the Group undertakes its own assessment of commercial
reserves and related future capital expenditure by reference to the
same data sets using its own internal expertise. There has been no
significant change to the management estimates and assumptions
during the year that may impact the assessment of commercial
reserves.
Assessment of the recoverable amount of intangible and tangible
assets
The Group monitors internal and external indicators of
impairment relating to its intangible and tangible assets, which
may indicate that the carrying value of the assets may not be
recoverable. The assessment of the existence of indicators of
impairment in E&E assets involves judgement, which includes
whether management expects to fund significant further expenditure
in respect of a licence and whether the recoverable amount may not
cover the carrying value of the assets. For development and
production assets judgement is involved when determining whether
there have been any significant changes in the Group's oil and gas
reserves.
The Group determines whether E&E assets are impaired at an
asset level and in regional cash generating units ('CGUs') when
facts and circumstances suggest that the carrying amount of a
regional CGU may exceed its recoverable amount. As recoverable
amounts are determined based upon risked potential, or where
relevant, discovered oil and gas reserves, this involves
estimations and the selection of a suitable pre-tax discount rate
relevant to the asset in question. The calculation of the
recoverable amount of oil and gas development and production
properties involves estimating the net present value of cash flows
expected to be generated from the asset in question. Future cash
flows are based on assumptions on matters such as estimated oil and
gas reserve quantities and commodity prices. The discount rate
applied is a pre-tax rate which reflects the specific risks of the
country in which the asset is located.
Management is required to assess the carrying value of
investments in subsidiaries in the parent company balance sheet for
impairment by reference to the recoverable amount. This requires an
estimate of amounts recoverable from oil and gas assets within the
underlying subsidiaries (see note 17).
Deferred tax assets
Deferred tax assets, including those arising from unutilised tax
losses, require management to assess the likelihood that the Group
will generate sufficient taxable profits in future periods, in
order to utilise recognised deferred tax assets. Assumptions about
the generation of future taxable profits depend on management's
estimates of future cash flows. These estimates are based on
forecast cash flows from operations (which are impacted by
production and sales volumes, oil and natural gas prices, reserves,
operating costs, decommissioning costs, capital expenditure,
dividends and other capital management transactions) and judgement
about the application of existing tax laws. The most significant
variables behind the increased deferred tax asset recognised in
2016 from 2015 are the increase in management's estimate of
short-term forward commodity prices and production volumes from
prior year. To the extent that future cash flows and taxable income
differ significantly from estimates, the ability of the Group to
realise deferred tax assets could be impacted.
Basis of Consolidation
The consolidated financial statements include the accounts of
Serica Energy plc (the "Company") and its wholly owned subsidiaries
Serica Holdings UK Limited, Serica Energy Holdings B.V., Serica
Energy (UK) Limited, Serica Glagah Kambuna B.V., Serica Sidi Moussa
B.V., Serica Foum Draa B.V., Serica Energy Slyne B.V., Serica
Energy Rockall B.V., Serica Energy Namibia B.V., Serica Energy
Corporation, Asia Petroleum Development Limited, Petroleum
Development Associates (Asia) Limited and Petroleum Development
Associates (Lematang) Limited. Together these comprise the
"Group".
All inter-company balances and transactions have been eliminated
upon consolidation.
Foreign Currency Translation
The functional and presentational currency of Serica Energy plc
and all its subsidiaries is US dollars.
Transactions in foreign currencies are initially recorded at the
functional currency rate ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies
are retranslated at the foreign currency rate of exchange ruling at
the balance sheet date and differences are taken to the income
statement. Non-monetary items that are measured in terms of
historical cost in a foreign currency are translated using the
exchange rate as at the date of initial transaction. Non-monetary
items measured at fair value in a foreign currency are translated
using the exchange rate at the date when the fair value was
determined. Exchange gains and losses arising from translation are
charged to the income statement as an operating item.
Business Combinations and Goodwill
Business combinations from 1 January 2010
Business combinations are accounted for using the acquisition
method. The cost of an acquisition is measured as the aggregate of
consideration transferred, measured at acquisition date fair value
and the amount of any non-controlling interest in the acquiree.
Acquisition costs incurred are expensed and included in
administrative expenses.
Goodwill on acquisition is initially measured at cost being the
excess of purchase price over the fair market value of identifiable
assets, liabilities and contingent liabilities acquired. Following
initial acquisition it is measured at cost less any accumulated
impairment losses. Goodwill is not amortised but is subject to an
impairment test at least annually and more frequently if events or
changes in circumstances indicate that the carrying value may be
impaired.
At the acquisition date, any goodwill acquired is allocated to
each of the cash-generating units, or groups of cash generating
units expected to benefit from the combination's synergies.
Impairment is determined by assessing the recoverable amount of the
cash-generating unit, or groups of cash generating units to which
the goodwill relates. Where the recoverable amount of the
cash-generating unit is less than the carrying amount, an
impairment loss is recognised.
Joint Arrangements
A joint operation is a type of joint arrangement whereby the
parties that have joint control of the arrangement have the rights
to the assets and obligations for the liabilities, relating to the
arrangement.
The Group conducts petroleum and natural gas exploration and
production activities jointly with other venturers who each have
direct ownership in and jointly control the operations of the
ventures. These are classified as jointly controlled operations and
the financial statements reflect the Group's share of assets and
liabilities in such activities. Income from the sale or use of the
Group's share of the output of jointly controlled operations, and
its share of joint venture expenses, are recognised when it is
probable that the economic benefits associated with the transaction
will flow to/from the Group and their amount can be measured
reliably.
Full details of Serica's working interests in those petroleum
and natural gas exploration and production activities classified as
joint operations are included in the Review of Operations.
Exploration and Evaluation Assets
As allowed under IFRS 6 and in accordance with clarification
issued by the International Financial Reporting Interpretations
Committee, the Group has continued to apply its existing accounting
policy to exploration and evaluation activity, subject to the
specific requirements of IFRS 6. The Group will continue to monitor
the application of these policies in light of expected future
guidance on accounting for oil and gas activities.
Pre-licence Award Costs
Costs incurred prior to the award of oil and gas licences,
concessions and other exploration rights are expensed in the income
statement.
Exploration and Evaluation (E&E)
The costs of exploring for and evaluating oil and gas
properties, including the costs of acquiring rights to explore,
geological and geophysical studies, exploratory drilling and
directly related overheads, are capitalised and classified as
intangible E&E assets. These costs are directly attributed to
regional CGUs for the purposes of impairment testing; UK &
Ireland and Africa.
E&E assets are not amortised prior to the conclusion of
appraisal activities but are assessed for impairment at an asset
level and in regional CGUs when facts and circumstances suggest
that the carrying amount of a regional cost centre may exceed its
recoverable amount. Recoverable amounts are determined based upon
risked potential, and where relevant, discovered oil and gas
reserves. When an impairment test indicates an excess of carrying
value compared to the recoverable amount, the carrying value of the
regional CGU is written down to the recoverable amount in
accordance with IAS 36. Such excess is expensed in the income
statement. Where conditions giving rise to impairment subsequently
reverse, the effect of the impairment charge is reversed as a
credit to the income statement.
Costs of licences and associated E&E expenditure are
expensed in the income statement if licences are relinquished, or
if management do not expect to fund significant future expenditure
in relation to the licence.
The E&E phase is completed when either the technical
feasibility and commercial viability of extracting a mineral
resource are demonstrable or no further prospectivity is
recognised. At that point, if commercial reserves have been
discovered, the carrying value of the relevant assets, net of any
impairment write-down, is classified as an oil and gas property
within property, plant and equipment, and tested for impairment. If
commercial reserves have not been discovered then the costs of such
assets will be written off.
Asset Purchases and Disposals
When a commercial transaction involves the exchange of E&E
assets of similar size and characteristics, no fair value
calculation is performed. The capitalised costs of the asset being
sold are transferred to the asset being acquired. Proceeds from a
part disposal of an E&E asset, including back-cost
contributions are credited against the capitalised cost of the
asset, with any excess being taken to the income statement as a
gain on disposal.
Farm-ins
In accordance with industry practice, the Group does not record
its share of costs that are 'carried' by third parties in relation
to its farm-in agreements in the E&E phase. Similarly, while
the Group has agreed to carry the costs of another party to a Joint
Operating Agreement ("JOA") in order to earn additional equity, it
records its paying interest that incorporates the additional
contribution over its equity share.
Property, Plant and Equipment - Oil and gas properties
Capitalisation
Oil and gas properties are stated at cost, less any accumulated
depreciation and accumulated impairment losses. Oil and gas
properties are accumulated into single field cost centres and
represent the cost of developing the commercial reserves and
bringing them into production together with the E&E
expenditures incurred in finding commercial reserves previously
transferred from E&E assets as outlined in the policy above.
The cost will include, for qualifying assets, borrowing costs.
Depletion
Oil and gas properties are not depleted until production
commences. Costs relating to each single field cost centre are
depleted on a unit of production method based on the commercial
proved and probable reserves for that cost centre. The depletion
calculation takes account of the estimated future costs of
development of recognised proved and probable reserves. Changes in
reserve quantities and cost estimates are recognised prospectively
from the last reporting date.
Impairment
A review is performed for any indication that the value of the
Group's development and production assets may be impaired.
For oil and gas properties when there are such indications, an
impairment test is carried out on the cash generating unit. Each
cash generating unit is identified in accordance with IAS 36.
Serica's cash generating units are those assets which generate
largely independent cash flows and are normally, but not always,
single development or production areas. If necessary, impairment is
charged through the income statement if the capitalised costs of
the cash generating unit exceed the recoverable amount of the
related commercial oil and gas reserves.
Acquisitions, Asset Purchases and Disposals
Acquisitions of oil and gas properties are accounted for under
the acquisition method when the assets acquired and liabilities
assumed constitute a business.
Transactions involving the purchase of an individual field
interest, or a group of field interests, that do not constitute a
business, are treated as asset purchases. Accordingly, no goodwill
and no deferred tax gross up arises, and the consideration is
allocated to the assets and liabilities purchased on an appropriate
basis. Proceeds from the entire disposal of a development and
production asset, or any part thereof, are taken to the income
statement together with the requisite proportional net book value
of the asset, or part thereof, being sold.
Decommissioning
Liabilities for decommissioning costs are recognised when the
Group has an obligation to dismantle and remove a production,
transportation or processing facility and to restore the site on
which it is located. Liabilities may arise upon construction of
such facilities, upon acquisition or through a subsequent change in
legislation or regulations. The amount recognised is the estimated
present value of future expenditure determined in accordance with
local conditions and requirements. A corresponding tangible item of
property, plant and equipment equivalent to the provision is also
created.
Any changes in the present value of the estimated expenditure is
added to or deducted from the cost of the assets to which it
relates. The adjusted depreciable amount of the asset is then
depreciated prospectively over its remaining useful life. The
unwinding of the discount on the decommissioning provision is
included as a finance cost.
Underlift/Overlift
Lifting arrangements for oil and gas produced in certain fields
are such that each participant may not receive its share of the
overall production in each period. The difference between
cumulative entitlement and cumulative production less stock is
'underlift' or 'overlift'. Underlift and overlift are valued at
market value and included within debtors ('underlift') or creditors
('overlift'). Movements during an accounting period are adjusted
through revenue, such that gross profit is recognised on an
entitlement basis.
Property, Plant and Equipment - Other
Computer equipment and fixtures, fittings and equipment are
recorded at cost as tangible assets. The straight-line method of
depreciation is used to depreciate the cost of these assets over
their estimated useful lives. Computer equipment is depreciated
over three years and fixtures, fittings and equipment over four
years.
Inventories
Inventories are valued at the lower of cost and net realisable
value. Cost is determined by the first-in first-out method and
comprises direct purchase costs and transportation expenses.
Investments
In its separate financial statements the Company recognises its
investments in subsidiaries at cost less any provision for
impairment.
Financial Instruments
Financial instruments comprise financial assets, cash and cash
equivalents, financial liabilities and equity instruments.
Financial assets
Financial assets within the scope of IAS 39 are classified as
either financial assets at fair value through profit or loss, or
loans and receivables, as appropriate. When financial assets are
recognised initially, they are measured at fair value. Transaction
costs that are directly attributable to the acquisition or issue of
the financial asset are capitalised unless they relate to a
financial asset classified at fair value through profit and loss in
which case transaction costs are expensed in the income
statement.
The Group determines the classification of its financial assets
at initial recognition and, where allowed and appropriate,
re-evaluates this designation at each financial year end.
Financial assets at fair value through profit or loss include
financial assets held for trading and derivatives. Financial assets
are classified as held for trading if they are acquired for the
purpose of selling in the near term.
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. After initial measurement loans and receivables are
subsequently carried at amortised cost, using the effective
interest rate method, less any allowance for impairment. Amortised
cost is calculated by taking into account any discount or premium
on acquisition over the period to maturity. Gains and losses are
recognised in the income statement when the loans and receivables
are de-recognised or impaired, as well as through the amortisation
process.
Cash and cash equivalents
Cash and cash equivalents include balances with banks and
short-term investments with original maturities of three months or
less at the date acquired.
Financial liabilities
Financial liabilities include interest bearing loans and
borrowings, and trade and other payables.
Obligations for loans and borrowings are recognised when the
Group becomes party to the related contracts and are measured
initially at the fair value of consideration received less directly
attributable transaction costs.
After initial recognition, interest-bearing loans and borrowings
are subsequently measured at amortised cost using the effective
interest method.
Gains and losses are recognised in the income statement when the
liabilities are derecognised as well as through the amortisation
process.
Equity
Equity instruments issued by the Company are recorded in equity
at the proceeds received, net of direct issue costs.
Provisions
Provisions are recognised when the Group has a present legal or
constructive obligation as a result of past events, it is probable
that an outflow of resources will be required to settle the
obligation and a reliable estimate can be made of the amount of the
obligation.
The Group's fair value estimate in respect of contingent
consideration that may be payable following the acquisition of its
interest in the Erskine Field is capitalised as an asset
acquisition cost. In determining fair value it is necessary to make
a series of assumptions to estimate future operating costs and
other variables. Accordingly, the fair value is categorised as
Level 3 in the fair value hierarchy.
Leases
Operating lease payments are recognised as an operating expense
in the income statement on a straight line basis over the lease
term.
Revenue Recognition
Revenue is recognised to the extent that it is probable that the
economic benefits will flow to the Group and the revenue can be
reliably measured. Revenue is measured at the fair value of the
consideration received or receivable and represents amounts
receivable for goods provided in the normal course of business, net
of discounts, customs duties and sales taxes. Revenue from oil and
natural gas production is recognised on an entitlement basis for
the Group's net working interest.
Finance Revenue
Finance revenue chiefly comprises interest income from cash
deposits on the basis of the effective interest rate method and is
disclosed separately on the face of the income statement.
Finance Costs
Finance costs of debt are allocated to periods over the term of
the related debt using the effective interest method. Arrangement
fees and issue costs are amortised and charged to the income
statement as finance costs over the term of the debt.
Share-Based Payment Transactions
Employees (including directors) of the Group receive
remuneration in the form of share-based payment transactions,
whereby employees render services in exchange for shares or rights
over shares ('equity-settled transactions').
Equity-settled transactions
The cost of equity-settled transactions with employees is
measured by reference to the fair value at the date on which they
are granted. In valuing equity-settled transactions, no account is
taken of any service or performance conditions, other than
conditions linked to the price of the shares of Serica Energy plc
('market conditions'), if applicable.
The cost of equity-settled transactions is recognised, together
with a corresponding increase in equity, over the period in which
the relevant employees become fully entitled to the award (the
'vesting period'). The cumulative expense recognised for
equity-settled transactions at each reporting date until the
vesting date reflects the extent to which the vesting period has
expired and the Group's best estimate of the number of equity
instruments that will ultimately vest. The income statement charge
or credit for a period represents the movement in cumulative
expense recognised as at the beginning and end of that period.
No expense is recognised for awards that do not ultimately vest,
except for awards where vesting is conditional upon a market or
non-vesting condition, which are treated as vesting irrespective of
whether or not the market or non-vesting condition is satisfied,
provided that all other performance conditions are satisfied. For
equity awards cancelled by forfeiture when vesting conditions are
not met, any expense previously recognised is reversed and
recognised as a credit in the income statement. Equity awards
cancelled are treated as vesting immediately on the date of
cancellation, and any expense not recognised for the award at that
date is recognised in the income statement. Estimated associated
national insurance charges are expensed in the income statement on
an accruals basis.
Where the terms of an equity-settled award are modified or a new
award is designated as replacing a cancelled or settled award, the
cost based on the original award terms continues to be recognised
over the original vesting period. In addition, an expense is
recognised over the remainder of the new vesting period for the
incremental fair value of any modification, based on the difference
between the fair value of the original award and the fair value of
the modified award, both as measured on the date of the
modification. No reduction is recognised if this difference is
negative.
Income Taxes
Current tax, including UK corporation tax and overseas
corporation tax, is provided at amounts expected to be paid using
the tax rates and laws that have been enacted or substantively
enacted by the balance sheet date.
Deferred tax is provided using the liability method and tax
rates and laws that have been enacted or substantively enacted at
the balance sheet date. Provision is made for temporary differences
at the balance sheet date between the tax bases of the assets and
liabilities and their carrying amounts for financial reporting
purposes. Deferred tax is provided on all temporary differences
except for:
-- temporary differences associated with investments in
subsidiaries, where the timing of the reversal of the temporary
differences can be controlled by the Group and it is probable that
the temporary differences will not reverse in the foreseeable
future; and
-- temporary differences arising from the initial recognition of
an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither
the income statement nor taxable profit or loss.
Deferred tax assets are recognised for all deductible temporary
differences, to the extent that it is probable that taxable profits
will be available against which the deductible temporary
differences can be utilised. Deferred tax assets and liabilities
are presented net only if there is a legally enforceable right to
set off current tax assets against current tax liabilities and if
the deferred tax assets and liabilities relate to income taxes
levied by the same taxation authority.
Earnings Per Share
Earnings per share is calculated using the weighted average
number of ordinary shares outstanding during the period. Diluted
earnings per share is calculated based on the weighted average
number of ordinary shares outstanding during the period plus the
weighted average number of shares that would be issued on the
conversion of all relevant potentially dilutive shares to ordinary
shares. It is assumed that any proceeds obtained on the exercise of
any options and warrants would be used to purchase ordinary shares
at the average price during the period. Where the impact of
converted shares would be anti-dilutive, these are excluded from
the calculation of diluted earnings.
New and amended standards and interpretations
The accounting policies adopted are consistent with those of the
previous financial year, there are no new or amended standards or
interpretations adopted during the year that have a significant
impact on the financial statements.
Standards issued but not yet effective
Certain standards or interpretations issued but not yet
effective up to the date of issuance of the Group's financial
statements are listed below. This listing of standards and
interpretations issued are those that the Group reasonably expects
to have an impact on disclosures, financial position or performance
when applied at a future date. The Group is currently assessing the
impact of these standards and intends to adopt them when they
become effective.
Standard Effective year commencing
on or after
IFRS 9 - Financial Instruments 1 January 2018
--------------------------
IFRS 15 - Revenue from Contracts with Customers 1 January 2018
--------------------------
IFRS 16 - Leases 1 January 2019 *
--------------------------
*Not yet endorsed by the EU
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR IAMMTMBIMTIR
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April 06, 2017 02:00 ET (06:00 GMT)
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