TIDMSQZ
RNS Number : 3717N
Serica Energy plc
24 September 2019
Serica Energy plc
("Serica" or the "Company")
Results for the six months ended 30 June 2019
London, 24 September 2019 - Serica Energy plc (AIM: SQZ) today
announces its financial results for the six months ended 30 June
2019. The results are included below and copies are available at
www.serica-energy.com and www.sedar.com.
Strong first half 2019 performance
-- Successful consolidation of Bruce, Keith and Rhum ("BKR")
operations has created a new leading North Sea operator.
-- Combined production net to Serica of 31,000 barrels of oil
equivalent per day ("boe/d") compared to approximately 26,000 boe/d
for 2018 including BKR volumes for the full year.
-- Field operating costs per boe reduced by over 30% compared to
previous year - reflects both higher production volumes and a lower
cost base.
-- Operating profit of GBP52.5 million (1H 2018: loss of GBP7.9
million) after non-cash depletion charges of GBP37.3 million (1H
2018: GBP0.1 million).
-- Mid-year cash and term deposits at GBP88.2 million - a 105% increase on the year end.
-- Very healthy balance sheet with strong cash build, no bank
debt and limited decommissioning liabilities.
Financial highlights
-- Financial statements now presented in pounds sterling ("GBP")
following completion of BKR acquisitions in late 2018 which brought
substantial increases in sterling-based revenues and costs. 2018
comparative numbers restated from US$ to GBP.
-- Operating cash inflow of GBP89.8 million (1H 2018: outflow of GBP5.3 million).
-- Operating costs of US$12.30 per boe (GBP9.50 per boe)
compared to full year 2018 costs of over US$18 per boe including
BKR costs. Realised average sales price of US$34 per boe (GBP26.30
per boe) compared to US$45 per boe for full year 2018, including
BKR revenues, reflecting lower gas prices in 2019.
-- Group profit after tax of GBP30.0 million (1H 2018: loss of
GBP6.1 million) after a non-cash deferred taxation accounting
provision of GBP21.9 million (1H 2018: credit of GBP1.8
million).
-- Combined cash balances and term deposits rose to GBP88.2
million at 30 June (31 December 2018: GBP43.1 million) after
repayments of GBP41.5 million for net cash flow sharing and GBP2.0
million for the gas prepayment facility.
Outlook
-- Steady cash growth, no current bank debt and bulk of
liabilities directly relating to future asset cash flows provide
strong balance sheet enabling company to pursue further
value-accretive opportunities.
-- Full year net production expected to be towards upper end of
26,000-30,700 boe/d guidance range.
-- Focussed on further improving operational performance.
-- Serica's retained share of cash flows from its BKR interests
acquired from BP, Total E&P and BHP increases from 50% for 2019
to 60% for 2020 and 2021 and 100% thereafter.
-- The Board continues to assess the appropriate timing to
commence dividend payments for shareholders.
Mitch Flegg, Serica's CEO, commenting on the first half,
said
"The first half of 2019 has demonstrated the financial benefits
of the transactions that we completed at the end of last year, and
which have transformed Serica into a leading North Sea
operator.
As a major new operator, we have focused on instilling a strong
corporate culture committed to safe and environmentally conscious
operations whilst also driving increased operating efficiencies.
The combination brings benefits to all stakeholders, staff and
shareholders alike, and the effects are demonstrated in the strong
first half financial performance. Our operating team has been able
to significantly increase production levels and significantly
reduce operating costs resulting in operating margins of GBP16.80
per boe for 1H 2019 notwithstanding low first half gas prices. Our
balance sheet is now amongst the strongest in our peer group. We
anticipate this performance continuing into the second half and
beyond.
We continue to focus on further improving our asset performance.
Production operations at the Rhum field are subject to the renewal
of a license from the US Office of Foreign Assets Control to extend
the existing license which expires at the end of October. Serica
has met all the obligations required under the existing license and
has submitted an application for the renewal of the license. The
Bruce, Keith and Rhum fields are maintaining good performance,
providing 4.4% of UK's gas production, with all Bruce wells
producing for the first time for some years and Erskine continues
to outperform since installing a new section of the Lomond export
line."
A conference call for analysts will be held at 10.00 a.m. (UK
time) on Tuesday 24 September. If you would like to participate,
please email serica@instinctif.com or call +44 (0)20 7457 2020.
Regulatory
This announcement is inside information for the purposes of
Article 7 of Regulation 596/2014.
The technical information contained in the announcement has been
reviewed and approved by Clara Altobell, VP Technical 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).
Enquiries:
Serica Energy plc +44 (0)20 7457 2020
Tony Craven Walker, Executive Chairman
Mitch Flegg, CEO
Peel Hunt (Nomad & Joint Broker) +44 (0)20 7418 8900
Richard Crichton / Ross Allister / James
Bavister
Jefferies (Joint Broker) +44 (0)20 7029 8000
Tony White / Will Soutar
Instinctif Partners +44 (0)20 7457 2020
David Simonson / Sarah Hourahane / Dinara serica@instinctif.com
Shikhametova
NOTES TO EDITORS
Serica Energy is a British independent oil and gas exploration
and production company with exploration,
development and production assets in the UK and exploration interests in Namibia.
Towards the end of 2018, Serica completed transactions which
resulted in Serica holding a 98% interest in the Bruce field, a
100% interest in the Keith field and a 50% interest in the Rhum
field and being operator of all three fields and asset
infrastructure.
Serica holds an 18% non-operated interest in the producing
Erskine field in the UK Central North Sea and a 50% operated
interest in the Columbus Development which has been approved by the
OGA and commenced development in 2019.
Further information on the Company can be found at
www.serica-energy.com.
The Company's shares are traded on the AIM market of the London
Stock Exchange under the ticker SQZ and the Company is a designated
foreign issuer on the TSX. To receive Company news releases via
email, please subscribe via the Company website.
FORWARD LOOKING STATEMENTS
This disclosure contains certain forward looking statements that
involve substantial known and unknown risks and uncertainties, some
of which are beyond Serica Energy plc's control, including: the
impact of general economic conditions where Serica Energy plc
operates, industry conditions, changes in laws and regulations
including the adoption of new environmental laws and regulations
and changes in how they are interpreted and enforced, increased
competition, the lack of availability of qualified personnel or
management, fluctuations in foreign exchange or interest rates,
stock market volatility and market valuations of companies with
respect to announced transactions and the final valuations thereof,
and obtaining required approvals of regulatory authorities. Serica
Energy plc's actual results, performance or achievement could
differ materially from those expressed in, or implied by, these
forward-looking statements and, accordingly, no assurances can be
given that any of the events anticipated by the forward looking
statements will transpire or occur, or if any of them do so, what
benefits, including the amount of proceeds, that Serica Energy plc
will derive therefrom.
INTERIM REPORT FOR THE SIX MONTH PERIODED 30 JUNE 2019
The following Interim Report of the operations and financial
results of Serica Energy plc ("Serica") and its subsidiaries
(together the "Group") contains information up to and including 23
September 2019 and should be read in conjunction with the unaudited
interim consolidated financial statements for the period ended 30
June 2019, which have been prepared by and are the responsibility
of the Company's management.
References to the "Company" include Serica and its subsidiaries
where relevant. Following the change in functional and
presentational currency of the Group from US$ to Pounds Sterling
("GBP") all figures are reported in GBP unless otherwise
stated.
The results of Serica's operations detailed in the interim
financial statements are presented in accordance with International
Financial Reporting Standards ("IFRS").
The Company's shares are listed on AIM in London. Although the
Company delisted from the TSX in March 2015, the Company is a
"designated foreign issuer" as that term is defined under National
Instrument 71-102 - Continuous Disclosure and Other Exemptions
Relating to Foreign Issuers. The Company is subject to the foreign
regulatory requirements of the AIM market of the London Stock
Exchange in the United Kingdom.
Serica is an oil and gas company with production, development
and exploration activities based in the UK and Namibia.
REVIEW OF OPERATIONS
UK Operations
UK Production
Northern North Sea: Bruce Field - Blocks 9/8a, 9/9b and 9/9c,
Serica 98%
Serica completed the acquisition of the Bruce field on 30
November 2018 and took over as operator from BP. Serica now
operates the field and facilities consisting of three bridge-linked
platforms, wells, pipelines and subsea infrastructure. The
platforms contain living quarters for up to 168 people, reception,
compression, power generation, processing and export facilities and
a drilling platform that is currently mothballed. There is also the
subsea Western Area Development (WAD) that produces from the edges
of the Bruce area. Serica is now responsible for actively
maintaining, monitoring, repairing and optimising all equipment,
wells and pipelines.
The Bruce field is produced through a combination of platform
wells and subsea wells tied back to the platform, with over 20
producing wells in total producing from multiple reservoirs and
compartments. Bruce production is predominantly gas which is rich
in NGL's. Gas is exported through the Frigg pipeline to the St
Fergus terminal, where it is separated into sales gas and NGL's.
Oil is exported through the Forties Pipeline System to
Grangemouth.
Bruce field production in 1H 2019 averaged in excess of 13,300
boe/d of exported oil and gas net to Serica. Production reliability
was 91% with a planned outage scheduled around integrity testing of
the Forties Pipeline System completed in August. The latest
independent report of reserves by Ryder Scott estimated 2P reserves
of 21.9 million boe net to Serica as of 1 January 2019.
Following last year's successful campaigns to repair three
conductors (pipes connecting the wells from the seabed to the
platform), four more sets of conductor clamps were installed in the
August planned outage to protect against future well shut-ins. An
additional diving campaign successfully reinstated a second
umbilical to the WAD manifold increasing reliability from the
subsea wells.
During 1H 2019 three key activities in understanding the future
production potential of Bruce have been undertaken. A successful
trial of lower pressures at the well heads to facilitate increased
gas production, the recommissioning of the test separator on the
compression platform which increases the ability to undertake well
performance tests and a well by well evaluation building on the
first two activities. The well by well review was designed to
identify the production upsides achievable from the planned well
intervention campaigns.
Challenging the previous methodologies of undertaking fabric
maintenance on Bruce has increased the efficiency of work,
delivering as much maintenance by the end of 1H as had been
delivered in any previous 12-month period. By undertaking this
maintenance, the risk of expensive repairs later is minimised.
Minimising production outages on the Bruce platform to deliver
sustained production volumes through 1H 2019, combined with
effective cost control, has made a key contribution to reducing
Group average operating costs to US$12.30 per boe, down from an
average of US$18 per boe for 2018.
Northern North Sea: Keith Field - Block 9/8a, Serica 100%
Keith is an oil field produced by one subsea well tied back to
the Bruce facilities and requires very little maintenance. Keith
produces at a relatively low rate providing a low-cost contribution
to the oil export from Bruce. Average Keith production in 1H 2019
has been 700 boe/d. The latest independent estimate of reserves by
Ryder Scott estimated 2P reserves of 656,000 boe net to Serica as
of 1 January 2019.
Northern North Sea: Rhum Field - Blocks 3/29a, Serica 50%
The Rhum field is a gas condensate field producing from two
subsea wells tied into the Bruce facilities through a 44km
pipeline. Rhum production is separated into gas and oil and
exported to St Fergus and Grangemouth along with Bruce and Keith
production. Both wells are capable of producing at high gross
rates, up to 15,000 boe/d each of gas in 2019. Rhum gas has a
higher CO(2) content than Bruce gas and so is blended with Bruce
gas before leaving the offshore facilities. The field has produced
at a relatively constant rate and has not shown significant decline
during the period. Average Rhum production in 1H 2019 was around
14,200 boe/d net to Serica.
As previously stated in the 2018 annual report, the R3 well
requires intervention work before it can be brought on production.
In 1H 2019, investigative work on the well was successfully carried
out and the data incorporated into planning for the R3
intervention. Meanwhile, production from the R1 and R2 wells has
continued at higher than anticipated levels meaning that the
processing capacity currently available for additional production
volumes from R3 is lower than expected. Economic analysis indicates
that a deferral of R3 capital expenditures is beneficial and
consequently execution of the R3 well work is now expected in late
2020 or early 2021.
The latest independent report of reserves by Ryder Scott
estimated 2P reserves of 34.5 million boe net to Serica as of 1
January 2019.
Central North Sea: Erskine Field - Blocks 23/26a (Area B) and
23/26b (Area B), Serica 18%
Serica holds a non-operated interest in Erskine, a gas and
condensate field located in the UK Central North Sea. Serica's
co-venturers are Chevron 50% (operator) and Chrysaor Holdings
Limited 32%. Erskine fluids are processed and exported via the
Lomond platform, which is 100% owned and operated by Chrysaor.
The Erskine field is produced through five production wells over
the Erskine normally unmanned platform, transported to Lomond via a
multiphase pipeline and processed on the Lomond platform. Then
condensate is exported down the Forties Pipeline System via the
CATS riser platform at Everest and gas is exported via the CATS
pipeline to the CATS terminal at Teeside.
Since the recommissioning of the condensate export pipeline in
October 2018, Erskine production has been consistent and ahead of
expectations.
In 1H 2019 production has averaged 3,008 boe/d net to Serica,
ahead of the forecast production and in line with the strongest
periods of performance since Serica acquired its interest in
mid-2015.
Further works have been carried out on the Erskine production
module on the Lomond platform to rectify a long-standing compressor
seal issue which had been the second largest factor impacting on
production after pipeline issues. The regular pigging program on
the new line has continued and no indications of wax build-up have
been seen.
An independent report performed by Netherland Sewell and
Associates estimated Erskine 2P reserves of 5.7 million boe net to
Serica as at 31 December 2018.
UK Development
Central North Sea: Columbus Development - Blocks 23/16f and
23/21a (part), Serica 50%
Serica is Development Operator with partners Tailwind Mistral
Limited (25%) and Endeavour Energy UK Limited (25%). Columbus is
located in the Eastern Central Graben, UK Central North Sea and the
reservoir is located within the Forties Sandstone. Columbus has
been designated as a Development within the Lomond Field Area; it
is however independent of Lomond, having separate development
consent, export route and licence terms.
The development consists of a subsea well connected to a
pipeline being constructed between the nearby Arran field and the
Shearwater platform.
The Field Development Plan ("FDP") for the Columbus development
was approved by the relevant Authorities in October 2018. The FDP
provides for the supply of up to 40 million cubic feet of gas per
day (gross) at peak to the UK gas market and 1,150 barrels per day
(gross) of condensate and natural gas liquids ("NGLs").
The development plan includes a single subsea well connected to
the Arran-Shearwater pipeline, through which Columbus production
will be exported along with Arran field production. The Arran
export pipeline was approved at a similar time to Columbus and
development began immediately. When the production reaches the
Shearwater platform facilities, it will be separated into gas and
liquids and exported via the SEGAL line to St Fergus and Forties
Pipeline System to Cruden Bay respectively. Columbus development
timing will depend on the Arran-Shearwater pipeline being tied into
the Shearwater platform in Q3 2020. Columbus start-up is expected
during the first half of 2021.
Planning for the development began as soon as FDP approval was
received. Since that time, Serica has worked closely with Shell,
the Operator of the Arran field, to ensure effective construction
and operation of the two developments. Serica has also undertaken a
subsurface review so the best possible understanding of the
reservoir can be obtained with the available data to optimize well
placement and design. Well planning has begun and items with the
longest lead times have been ordered. The project is on time and on
budget.
A Competent Person's Report prepared by Netherland Sewell and
Associates ascribed volumes with a reserves classification,
following the FDP approval. 2P reserves net to Serica were assessed
to be 6.7 mmboe as at 31 December 2018.
UK Exploration
Central North Sea: Rowallan Prospect - Block 22/19c, Serica
15%
In April 2019, the ENI UK-operated Rowallan exploration well
22/19c-7 reached a total depth of 4,641 metres and was plugged and
abandoned. Serica was fully carried and paid no costs towards the
drilling of the well which encountered a 182 metre section of
sandstone and shale but was not found to be hydrocarbon bearing.
This is thought to be due to a lack of sealing rock to form a
hydrocarbon trap. The well was drilled on time and on budget.
The partnership reviewed the results of 22/19c-7 and determined
that the remaining prospects identified on the block had similar
seal risks and made the decision to relinquish the licence. The
blocks to the south of Rowallan, 22/24g and 22/25f will also be
relinquished.
Columbus West - Block 23/21b, Serica Energy (UK) Limited: 50%
working interest, operator Summit Exploration and Production.
Seismic reprocessing has been completed over the Columbus West
block and technical interpretation of the data is underway to
identify a potential drilling target. There is a drill or drop
decision to be made by the end of the initial term, October
2020.
Skerryvore and Ruvaal- Blocks 30/12c (part), 30/13c (split),
30/17h, 30/18c and 30/19c (part), Serica Energy (UK) Limited: 20%
working interest, operator Parkmead.
The Skerryvore and Ruvaal prospects lie in the Central North
Sea, 60km south of the Erskine field. Potential for both sandstone
and chalk reservoirs has been identified. Over 500km(2) of 3D
seismic data has been purchased over the licence areas. This will
then be reprocessed and interpreted and a drill or drop decision
made on the prospects by the end of the initial three-year term in
September 2021.
Ireland
Frontier Exploration Licences 1/09, 4/13, 1/06 Serica 100%
After exploring in Ireland for over twelve years, Serica has
made the decision to relinquish its three offshore licences.
Although Serica intends to continue covering the full life cycle of
exploration, development and production, Irish opportunities have
been and are likely to continue to be much longer-term and the
expense of maintaining the licences will be redirected to lower
risk, nearer term opportunities in its core areas elsewhere.
The Rockall basin is underexplored frontier acreage and has not
attracted the attention of major oil and gas companies. It is
likely that in the future there will be exploration drilling that
will lead to more discoveries but this is a number of years away
and Serica prefers to focus on nearer term opportunities.
The Slyne basin is closer to infrastructure and offers a lower
geological risk and lower development costs in the event of a
discovery. However, despite extensive efforts to farm-out the
opportunity, no partner has been identified and so Serica is
relinquishing the licence.
Namibia
Luderitz Basin: Blocks 2512A, 2513A, 2513B and 2612A (part),
Serica 85%
Serica is running an active farm-out process with an open
data-room and a number of oil and gas companies are reviewing the
opportunity to drill an exploration well on the licence. Recent
drilling results offshore Namibia have strengthened the case for
drilling the giant Prospect B, Serica's highest ranked prospect on
the blocks. Evidence points towards a regional seal rock that would
trap migrating hydrocarbons, thus benefitting deeper prospects.
Prospect B lies below the seal rock and in close proximity to
prognosed rich oil-generating source rocks, making it an ideally
placed prospect.
FINANCIAL REVIEW
With effect from 1 January 2019, following the change in
functional and presentational currency (see note 3), the Group's
results are reported in GBP with prior period comparative
information converted from US$ and restated in GBP. This change
follows completion of the major BKR acquisitions in late 2018 which
brought significant additional volumes of UK gas for which sales
are denominated in GBP and costs which are settled almost entirely
in GBP.
1H 2019 RESULTS
Serica generated a profit before taxation of GBP51.9 million for
the first six months of 2019 ("1H 2019") compared to a loss before
taxation of GBP7.9 million for the first six months of 2018 ("1H
2018") and a profit before taxation of GBP47.3 million for full
year 2018. Comparisons with 1H and full year 2018 are significantly
influenced by the shut-in of the Erskine field from mid-January
2018 to late-October 2018 and by completion of the BKR acquisitions
on 30 November 2018.
Revenues and costs arising from the BKR acquisitions are
included from 30 November 2018 onwards with no impact upon results
for the first six months of 2018 apart from GBP3.5 million of
transaction costs. Serica's share of net income from the BKR fields
from the effective date of the acquisitions, 1 January 2018, until
30 November was deducted from the consideration paid at completion
rather than included within the 2018 income statement. As total
projected net cash flow sharing amounts were included within
financial liabilities in the 31 December 2018 balance sheet, these
do not form part of the current period income statement and cash
payments are applied to reduce balance sheet liabilities. In
addition, full year 2018 results included a bargain purchase gain
of GBP41.5 million in respect of the BKR acquisition partially
offset by expensed transaction and transition costs totalling
GBP10.9 million.
Sales revenues
Total product sales volumes for 1H 2019 comprised approximately
255 million therms of gas, 892,000 lifted barrels of oil and 41,000
metric tonnes of NGLs equating to approximately 31,000 barrels of
oil equivalent per day ("boe/d"). These generated total sales
revenue of GBP146.4 million (1H 2018 - GBP3.3 million) with average
realised prices of 36p per therm of gas, US$62.7 per barrel of oil
and GBP277 per metric tonne of NGLs. This generated an average
sales price of approximately US$34 per boe for the period.
Gross profit
Gross profit for 1H 2019 was GBP52.4 million compared to a loss
of GBP1.9 million for 1H 2018. Overall cost of sales of GBP93.9
million compared to GBP5.2 million for 1H 2018. This comprised
GBP53.2 million of operating costs (1H 2018 - GBP2.8 million) and
GBP37.3 million of non-cash depletion charges (1H 2018 - GBP0.1
million) plus GBP3.4 million representing a reduction during the
period of the opening liquids underlift position (1H 2018 - GBP2.3
million). Operating costs include costs of production, processing,
transportation and insurance and averaged approximately US$12.30
per boe (GBP9.50) before non-cash depletion charges. This compares
to approximately US$18 per boe for full year 2018 adjusted for
comparative purposes to include the BKR assets from the effective
date of 1 January 2018.
Non-cash depletion charges mainly comprise the booked
acquisition values for the BKR and Erskine transactions allocated
on a unit of production basis for the relevant period. The 1H 2018
calculation was based upon Erskine costs and production alone.
Operating profit before net finance revenue, tax and transaction
costs
Operating profit for 1H 2019 was GBP52.5 million compared to a
loss of GBP7.9 million for 1H 2018. Administrative expenses of
GBP3.0 million increased from GBP1.0 million for 1H 2018 reflecting
the significant increase in personnel and activity following
completion of the BKR acquisitions in late 2018. These, plus
share-based payments of GBP0.7 million (1H 2018 - GBP0.1 million),
were offset by gains on US$ holdings of GBP0.6 million and net
other income of GBP3.2 million comprising realised and unrealised
commodity price hedging gains (1H 2018 - net hedging losses of
GBP1.3 million).
Profit before taxation and profit for the period after
taxation
Profit before taxation was GBP51.9 million (1H 2018 - loss of
GBP7.9 million) after net finance charges of GBP0.6 million (1H
2018 - GBPnil). Net finance charges represent the discount unwind
on decommissioning provisions and interest payable, mainly on the
gas prepayment facility drawings, less interest earned on cash
deposits.
Full year 2018 profit before taxation of GBP47.3 million
included a bargain purchase gain of GBP41.5 million representing
the difference between provisional fair valuations of assets
acquired and consideration paid or potentially payable, calculated
in accordance with applicable accounting standards.
The 1H 2019 taxation charge of GBP21.9 million (1H 2018 GBP1.8
million credit) solely comprises a non-cash deferred tax element.
As the Company continues to benefit from accumulated losses carried
forward from previous years it is not currently paying cash taxes.
It is nonetheless required to make provision for deferred taxes in
recognition of future periods when all losses have been utilised
and cash payments will be made.
Overall, this generated a profit after taxation for the first
six months of 2019 of GBP30.0 million compared to a loss after
taxation of GBP6.1 million for 1H 2018 and a profit after taxation
of GBP59.3 million for full year 2018.
BALANCE SHEET
Exploration and evaluation assets of GBP3.4 million showed a
slight increase from GBP3.2 million at the end of 2018. Costs of
the 1H 2019 Rowallan exploration well were fully carried by third
parties with no cost to Serica. Otherwise there were minimal
exploration activities during the period.
Property, plant and equipment principally comprises the fair
value of the BKR assets calculated in accordance with applicable
accounting standards. The initial calculation was carried out at
completion of the acquisitions and remains provisional for the
twelve months following the date of acquisition. Total property,
plant and equipment decreased from GBP373.7 million at year end
2018 to GBP337.8 million at 30 June 2019 after additions during 1H
2019 of GBP1.5 million and depletion charges for 1H 2019 of GBP37.3
million. Such charges represent the allocation of field capital
costs, primarily acquisition costs, over the estimated producing
life of each field.
An inventories balance of GBP5.8 million at 30 June 2019 showed
little change from GBP5.6 million at the end of 2018. A reduction
in trade and other receivables from GBP52.1 million at the end of
2018 to GBP39.1 million at 30 June 2019 reflected the recovery
during 1H 2019 of BKR transaction receivables, a reduction in
liquids underlift balances, and also the outstanding period end
balances from monthly gas sales reflecting lower summer pricing. An
increase in the derivative financial asset from GBP0.1 million at
year end 2018 to GBP2.6 million at 30 June 2019 arose from a
revaluation of outstanding commodity price hedges due to a fall in
future gas price projections.
The 30 June 2019 cash and cash equivalent balances plus term
deposits totalled GBP88.2 million (31 December 2018 - GBP43.1
million).
Current trade and other payables reduced to GBP27.8 million at
30 June 2019 from a balance of GBP38.6 million in 2018 which
included a higher level of amounts outstanding at year end
following the recent completion of the BKR Transactions. Current
provisions of GBP1.8 million (31 December 2018 - GBP1.8 million)
represent certain contingent liabilities related to savings in
field operating costs that may fall due under the Erskine
acquisition agreement.
Financial liabilities of GBP79.3 million (31 December 2018 -
GBP90.3 million) included within current liabilities and GBP132.4
million (31 December 2018 - GBP164.5 million) included within
non-current liabilities comprise total amounts projected to be paid
under the BKR agreements. The current element comprises amounts
outstanding under the gas prepayment facility which is expected to
be fully repaid by end Q1 2020, amounts estimated to fall due under
the net cash flow sharing arrangements over the next twelve months
and further fixed amounts also due over the next twelve months.
Amounts identified as currently due under both the gas prepayment
facility and the net cash flow sharing arrangements, are directly
related to production volumes and sales prices actually achieved
over the next twelve months. The non-current element comprises
further contingent and deferred amounts the bulk of which are also
directly related to future asset production volumes and sales price
performance. The overall reduction in financial liabilities of
GBP43.1 million during 1H 2019 represents payments of GBP41.5
million made out of net cash flow during 1H 2019 and repayments of
GBP2.0 million under the gas prepayment facility partially offset
by interest payable on drawn facility amounts.
Non-current provisions of GBP22.9 million (31 December 2018 -
GBP22.6 million) have been made in respect of decommissioning
liabilities for the Bruce and Keith interests acquired from
Marubeni. These were not subject to the same contingent and
deferred consideration arrangements as those field interests
acquired from BP, Total E&P and BHP respectively under which
decommissioning liabilities were retained by the vendors with
Serica liable to pay deferred consideration equivalent to 30% of
the actual costs of decommissioning net of tax recovered by them.
No provision is included for decommissioning liabilities related to
Erskine as these are retained by BP up to a cap which is not
projected to be exceeded.
The deferred tax liability of GBP42.2 million at 30 June 2019
has increased from GBP20.3 million at year end 2018 reflecting
provisions against future tax charges expected once the Group's tax
losses have been fully utilised.
Overall net assets have increased from GBP139.6 million at year
end 2018 to GBP170.3 million at 30 June 2019.
The increase in other reserves from GBP16.7 million at year end
2018 to GBP17.4 million at 30 June 2019 arose from share-based
payments.
CASH BALANCES AND FUTURE COMMITMENTS
Current cash position and price hedging
At 30 June 2019 the Group held cash and cash equivalents of
GBP84.2 million (31 December 2018 - GBP42.1 million) plus term
deposits of GBP3.9 million (31 December 2018 - GBP1.0 million), an
increase in combined cash and deposits in excess of 100% during 1H
2019. The main element of the increase was Serica's retained share
of the strong net operating cash flows from the Company's producing
interests. These amounts are net of monthly payments to BP, Total
E&P and BHP respectively, of one half of net operating cash
flows derived from the Bruce Keith and Rhum interests acquired from
those companies. Amounts due under the net cash flow sharing
arrangements fall to 40% for 2020 and 2021 and zero thereafter.
Other significant cash movements during the period included a
GBP2.0 million repayment of the gas prepayment facility and GBP1.5
million spent on property, plant and equipment including the
Columbus development project. Serica's share of BKR post-tax income
for the eleven months of 2018 prior to completion was included
within the cash inflow from business combinations in the cash flow
statement.
At 30 June 2019 Serica held gas price puts covering volumes of
240,000 therms per day for 2H 2019 and 160,000 therms per day for
1H 2020 all at a floor price of 35 p/therm with no upside price
restrictions.
Field and other capital commitments
Following completion of the condensate export line bypass there
are no further capital commitments on the Erskine producing field
and net production revenues are expected to cover all ongoing field
expenditures. Serica's share of decommissioning costs relating to
its 18% Erskine field interest will be met by BP up to a level of
GBP31.3 million, adjusted for inflation, and Serica's current
estimate of such costs is below this level.
There are no significant current capital commitments on the BKR
producing fields though planning is in progress for a Rhum R3 well
workover programme, expected to be carried out in late 2020 or
early 2021. Potential further programmes to enhance current
production profiles and extend field life are under consideration.
Net revenues from Serica's share of income from the BKR fields,
after net cash flow sharing payments, is expected to cover Serica's
retained share of ongoing field expenditures as well as other
contingent or deferred consideration due under the respective BKR
acquisition agreements set out below.
The Group has no significant exploration commitments.
BKR asset acquisitions
On 30 November 2018 Serica completed the four BKR acquisitions.
These comprised:
-- 36% in Bruce, 34.83333% in Keith and 50% in Rhum plus
operatorship of each field from BP Exploration Operating Company
Limited ("BP"). Initial consideration, paid at completion, was
GBP12.8 million with contingent payments of GBP16 million due in
relation to the outcome of future work on the Rhum R3 well and up
to a total GBP23.1 million, split equally over the years 2019, 2020
and 2021, due in relation to Rhum field performance and sales
prices in respect of the three years. In addition, Serica will pay
contingent consideration related to net cash flows from the assets
acquired from BP as set out below. As part of the gas sales
arrangements, BP Gas Marketing Limited provided a gas prepayment
facility of GBP16 million that was fully drawn to cover the cost of
gas price puts and the initial consideration. Amounts due to BP are
secured over the interests in the assets acquired from them.
-- 42.25% in Bruce and 25% in Keith from Total E&P UK
Limited ("Total E&P"). Initial consideration was US$5 million
with three further instalments of deferred consideration of US$5
million each, falling due on 31 July 2019 (now paid), 31 March 2020
and 30 November 2020. Serica will also pay contingent consideration
related to net cash flows from the assets acquired from Total
E&P as set out below.
-- 16% in Bruce and 31.83333% in Keith from BHP Billiton
Petroleum Great Britain Limited ("BHP"). Initial consideration was
GBP1 million. Serica will also pay contingent consideration related
to net cash flows from the assets acquired from BHP as set out
below.
-- 3.75% in Bruce and 8.33334% in Keith from Marubeni Oil and
Gas (UK) Limited ("Marubeni"). Initial consideration was US$1
million payable to Serica with no contingent or deferred
consideration.
In addition, Serica will pay contingent cash consideration to
BP, Total E&P and BHP calculated as a percentage (60% in 2018,
50% in 2019 and 40% in each of 2020 and 2021) of net cash flows
resulting from the respective field interests acquired. Amounts
arising from the effective date of 1 January 2018 up to completion
were adjusted for notional tax at prevailing rates and offset
against initial consideration. Amounts arising after completion are
paid by Serica pre-tax with such amounts to be offset by Serica
against its own tax liabilities.
Each of BP, Total E&P and BHP retain liability, in respect
of the field interests Serica acquired from each of them, for all
the costs of decommissioning those facilities that existed at the
date of completion. Serica will pay deferred contingent
consideration equal to 30% of actual future decommissioning costs,
reduced by the tax relief that each of BP, Total E&P and BHP
receives on such costs.
In the case of the Marubeni acquisition, Serica took on
responsibility for decommissioning liabilities for these interests
but without any contingent or deferred cash consideration.
Net cash flow sharing with BP, Total E&P and BHP is settled
monthly in arrears with no payments due unless positive net cash
flow is generated. Any negative amounts can be offset against
positive amounts previously paid during a calendar year and any
accumulated negative amounts carried forward from one year can be
offset against positive amounts generated in future years up to
2021. No other contingent or deferred consideration payments had
fallen due at 30 June 2019 although the second tranche of US$5
million was paid to Total E&P in August 2019 and the gas
prepayment facility with BP is being paid monthly out of BKR gas
revenues starting in June 2019.
Additional Information
Additional information relating to Serica, can be found on the
Company's website at www.serica-energy.com and on SEDAR at
www.sedar.com
Approved on behalf of the Board
Mitch Flegg
Chief Executive Officer
23 September 2019
Forward Looking Statements
This disclosure contains certain forward looking statements that
involve substantial known and unknown risks and uncertainties, some
of which are beyond Serica Energy plc's control, including: the
impact of general economic conditions where Serica Energy plc
operates, industry conditions, changes in laws and regulations
including the adoption of new environmental laws and regulations
and changes in how they are interpreted and enforced, increased
competition, the lack of availability of qualified personnel or
management, fluctuations in foreign exchange or interest rates,
stock market volatility and market valuations of companies with
respect to announced transactions and the final valuations thereof,
and obtaining required approvals of regulatory authorities. Serica
Energy plc's actual results, performance or achievement could
differ materially from those expressed in, or implied by, these
forward looking statements and, accordingly, no assurances can be
given that any of the events anticipated by the forward looking
statements will transpire or occur, or if any of them do so, what
benefits, including the amount of proceeds, that Serica Energy plc
will derive therefrom.
Serica Energy plc
Group Income Statement
For the period ended 30 June
Six Six
months months Year
ended ended ended
30 June 30 June 31 Dec
Notes 2019 2018 2018
Continuing operations GBP000 GBP000 GBP000
*restated *restated
Sales revenue 5 146,375 3,304 35,708
Cost of sales 6 (93,941) (5,247) (15,690)
Gross profit/(loss) 52,434 (1,943) 20,018
Other income/(expense) 3,230 (1,339) (1,554)
Pre-licence costs (98) (30) (217)
Impairment and write-off of E&E assets 7 (9) - 2,450
Administrative expenses (2,992) (1,021) (3,644)
Foreign exchange gain/(loss) 591 (32) 118
Share-based payments (650) (106) (367)
BKR transition costs - (3,478) (8,814)
Operating profit/(loss) from
continuing operations 52,506 (7,949) 7,990
Bargain purchase gain on BKR acquisitions - - 41,474
BKR transaction costs - - (2,102)
Finance revenue 122 129 201
Finance costs (698) (102) (282)
Profit/(loss) before taxation 51,930 (7,922) 47,281
Taxation (charge)/credit for the period 11 (21,883) 1,825 12,005
Profit/(loss) after taxation and
profit/(loss) for the period 30,047 (6,097) 59,286
Earnings per ordinary share (EPS)
Basic EPS on profit/(loss) for the period (GBP) 0.11 (0.02) 0.22
Diluted EPS on profit/(loss) for the period (GBP) 0.11 (0.02) 0.22
*restated from US$ to GBP following change of functional and
presentational currency - see note 3
Serica Energy plc
Group Balance Sheet
30 June 31 Dec 30 June
2019 2018 2018
GBP000 GBP000 GBP000
*restated *restated
Notes
Non-current assets
Exploration & evaluation assets 7 3,367 3,183 41,208
Property, plant and equipment 8 337,825 373,721 7,221
Deferred tax asset - - 14,178
----------
341,192 376,904 62,607
---------- ---------- ----------
Current assets
Inventories 5,763 5,553 315
Trade and other receivables 39,059 52,125 4,376
Derivative financial asset 2,616 138 387
Term deposits 3,940 1,000 2,000
Cash and cash equivalents 84,229 42,103 13,917
---------- ---------- ----------
135,607 100,919 20,995
---------- ---------- ----------
TOTAL ASSETS 476,799 477,823 83,602
---------- ---------- ----------
Current liabilities
Trade and other payables (27,843) (38,616) (7,198)
Financial liabilities (79,269) (90,307) -
Provisions (1,848) (1,848) (2,037)
Non-current liabilities
Financial liabilities (132,411) (164,488) (2,960)
Provisions (22,903) (22,647) -
Deferred tax liability (42,194) (20,311) -
---------- ---------- ----------
TOTAL LIABILITIES (306,468) (338,217) (12,195)
---------- ---------- ----------
NET ASSETS 170,331 139,606 71,407
========== ========== ==========
Share capital 9 180,322 180,294 173,860
Other reserves 17,374 16,724 15,875
Accumulated deficit (27,365) (57,412) (118,328)
TOTAL EQUITY 170,331 139,606 71,407
========== ========== ==========
*restated from US$ to GBP following change of functional and
presentational currency - see note 3
Serica Energy plc
Group Statement of Changes in Equity
For the year ended 31 December 2018 and period ended 30 June
2019
Group Share capital Other reserves Deficit Total
GBP000 GBP000 GBP000 GBP000
*restated *restated *restated *restated
At 1 January 2018 169,984 15,428 (109,581) 75,831
Translation effect * 10,102 929 (7,117) 3,914
Profit for the period - - 59,286 59,286
-------------- --------------- ---------- ----------
Total comprehensive income - - 59,286 59,286
Issue of shares 208 - - 208
Share-based payments - 367 - 367
At 31 December 2018 180,294 16,724 (57,412) 139,606
Profit for the period - - 30,047 30,047
-------------- --------------- ---------- ----------
Total comprehensive income - - 30,047 30,047
Issue of shares 28 - - 28
Share-based payments - 650 - 650
At 30 June 2019 180,322 17,374 (27,365) 170,331
============== =============== ========== ==========
* As described in Note 3, the presentation currency for the
Group has been changed to GBP from 1 January 2019, with
retrospective effect on comparative figures. Equity per 1 January
2018 has been translated to GBP using the GBP/US$ closing rate
applicable for the same date. As a result, a translation effect
occurs for each component of equity. The translation effect related
to share capital, other reserve and accumulated deficit is shown as
a separate item in the statement of change in equity for 2018.
Serica Energy plc
Group Cash Flow Statement
For the period ended 30 June
Six Six
months months Year
ended ended ended
30 June 30 June 31 Dec
2019 2018 2018
GBP000 GBP000 GBP000
*restated *restated
Operating activities:
Profit/(loss) for the period 30,047 (6,097) 59,286
Adjustments to reconcile profit/(loss) for the period
to net cash flow from operating activities
Taxation charge/(credit) 21,883 (1,825) (12,005)
BKR transaction costs - 3,478 10,916
Bargain purchase gain on BKR - - (41,474)
Net finance costs/(income) 576 (27) 81
Depletion and amortisation 37,333 63 6,153
Oil and NGL over/underlift movement 3,370 2,349 (3,609)
Impairment and write-offs of E&E assets 9 - (2,450)
Unrealised and realised hedging (gains)/losses (2,478) 1,569 1,827
Share-based payments 650 106 367
Other non-cash movements (591) 32 (118)
Cash outflow on BKR transaction - (2,639) (12,796)
Decrease/(increase) in receivables 9,731 (2,546) (36,564)
(Increase)/decrease in inventories (210) 27 25
(Decrease)/increase in payables (10,544) 223 20,448
Net cash in/(out)flow from operations 89,776 (5,287) (9,913)
Investing activities:
Interest received 122 129 201
Purchase of E&E assets (193) (722) (1,351)
Purchase of P,P&E (1,472) (1,440) (4,220)
Cash (out)/inflow from business combinations (41,481) - 22,238
Cash outflow arising on asset acquisition - (2,102) (2,102)
Changes in term deposits (2,940) 2,224 3,224
Net cash (out)/inflow from investing activities (45,964) (1,911) 17,990
--------- ---------- ----------
Financing activities:
Issue of ordinary shares 28 172 208
(Repayments)/proceeds (of)/from borrowings (2,040) - 12,800
Finance costs paid (27) (185) (193)
Net cash (out)/inflow from financing activities (2,039) (13) 12,815
--------- ---------- ----------
Cash and cash equivalents
Net increase/(decrease) in period 41,773 (7,211) 20,892
Effect of exchange rates on cash and cash equivalents 353 167 250
Amount at start of period 42,103 20,961 20,961
Amount at end of period 84,229 13,917 42,103
========= ========== ==========
*restated from US$ to GBP following change of functional and
presentational currency - see note 3
Serica Energy plc
Notes to the Unaudited Consolidated Financial Statements
1. Corporate information
The interim condensed consolidated financial statements of the
Group for the six months ended 30 June 2019 were authorised for
issue in accordance with a resolution of the directors on 23
September 2019.
Serica Energy plc is a public limited company incorporated and
domiciled in England & Wales. The Company's ordinary shares are
traded on AIM in London. The principal activity of the Company is
to identify, acquire and exploit oil and gas reserves.
2. Basis of preparation and accounting policies
Basis of Preparation
The interim condensed consolidated financial statements for the
six months ended 30 June 2019 have been prepared in accordance with
International Accounting Standard 34 "Interim Financial Reporting"
as adopted by the European Union.
Except as described below and the change in functional and
presentational currency from US$ to GBP (see note 3), these
unaudited interim consolidated financial statements of the Group
have been prepared following the same accounting policies and
methods of computation as the consolidated financial statements for
the year ended 31 December 2018. These unaudited interim
consolidated financial statements do not include all the
information and footnotes required by generally accepted accounting
principles for annual financial statements and therefore should be
read in conjunction with the consolidated financial statements and
the notes thereto in the Serica Energy plc annual report for the
year ended 31 December 2018.
The financial information contained in this announcement does
not constitute statutory financial statements within the meaning of
section 435 of the Companies Act 2006.
Consolidated statutory accounts for the year ended 31 December
2018, on which the auditors gave an unqualified audit report, have
been filed with the registrar of Companies. The report of the
auditors included in that 2018 Annual Report was unqualified and
did not contain a statement under either Section 498(2) or Section
498(3) of the Companies Act 2006.
Going Concern
The Directors are required to consider the availability of
resources to meet the Group's liabilities for the foreseeable
future. The financial position of the Group, its cash flows and
capital commitments are described in the Financial Review
above.
At 30 June 2019 the Company held cash and term deposits of
GBP88.2 million. The bulk of contingent and deferred consideration
due under the BKR acquisition agreements is related to successful
future field performance and consequently will be either reduced or
deferred in the event of production interruptions or lower net cash
generation.
After making enquiries and having taken into consideration the
above factors, the Directors have reasonable expectation that the
Group has adequate resources to continue in operational existence
for the foreseeable future. Accordingly they continue to adopt the
going concern basis in preparing the financial statements.
Significant accounting policies
A number of new standards (including IFRS 16 - Leases),
amendments to existing standards and interpretations were
applicable from 1 January 2019. The adoption of these amendments
did not have a material impact on the Group's interim condensed
consolidated financial statements for the period ended 30 June
2019.
Other than described above and the change in functional and
presentational currency from US$ to GBP (see note 3 below), the
accounting policies adopted in the preparation of the interim
condensed consolidated financial statements are consistent with
those followed in the preparation of the Group's annual financial
statements for the year ended 31 December 2018. The impact of
seasonality or cyclicality on operations is not considered
significant on the interim consolidated financial statements.
The Group financial statements are presented in GBP and all
values are rounded to the nearest thousand pounds (GBP000) except
when otherwise indicated.
Basis of Consolidation
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries Serica Holdings UK
Limited, Serica Energy Holdings B.V., Serica Energy Corporation,
Asia Petroleum Development Limited, Petroleum Development
Associates (Asia) Limited, Serica Energy (UK) Limited, PDA Lematang
Limited, Serica Glagah Kambuna B.V., Serica Sidi Moussa B.V.,
Serica Energy Rockall B.V., Serica Energy Slyne B.V. and Serica
Energy Namibia B.V.. Together, these comprise the "Group".
All inter-company balances and transactions have been eliminated
upon consolidation.
3. Change in functional and presentational currency
An entity's functional currency is the currency of the primary
economic environment in which the entity operates and in which all
transactions should be recorded. In light of the recent
developments within the Group's operations following completion of
the BKR acquisitions on 30 November 2018, the directors have
reassessed the functional currency of both the Company and the
Group's main operating subsidiary, Serica Energy (UK) Limited, and
concluded that the functional currency of these entities is now
pounds sterling ("GBP"). The directors further concluded that the
currency in which the Group's financial results are reported, the
presentational currency, should also be changed to GBP.
The BKR acquisitions have brought a significant increase in
scale to the business with a majority of revenues now earned from
gas sales which realise revenue in GBP, and most of the operator
expenditure running the BKR assets is also denominated in GBP. The
date of change in functional currency from US$ to GBP is 30
November 2018. However, given that the impact between a change on
30 November 2018 compared to 1 January 2019 is considered to be
immaterial the change has been made effective on 1 January 2019.
Consequently, the Group 2019 Interim Financial Statements are
presented in GBP and future Group and Company financial statements,
starting with those for 2019, will also be presented in GBP. The
change in presentational currency from US$ to GBP represents a
voluntary change in accounting policy and is applied
retrospectively with 2018 comparatives restated.
The presentation currency for the Group has been changed to GBP
from 1 January 2019, with retrospective effect on comparative
figures. Assets and liabilities have been translated into GBP at
closing rates of exchange on the relevant balance sheet date,
whilst income and expenditure items were translated at rates of
exchange prevailing at the relevant time of the transaction. Share
capital and other reserves have been translated at the closing
rates of exchange on the relevant balance sheet date. Equity per 1
January 2018 has been translated to GBP using the GBP/US$ closing
rate applicable for the same date. As a result, a translation
effect occurs for each component of equity. The translation effect
related to share capital, other reserve and accumulated deficit is
shown as a separate item in the statement of change in equity for
2018.
4. Segmental Information
The Group's business is that of oil & gas exploration,
development and production. The Group's reportable segments are
based on the location of the Group's assets.
The following tables present revenue, profit and certain asset
and liability information regarding the Group's geographical
reportable segments for the periods ended 30 June 2019 and 2018.
Costs associated with the UK corporate centre are included in the
UK & Ireland reportable segment.
Period ended 30 June 2019 UK & Continuing
Ireland Africa Total
GBP000 GBP000 GBP000
Revenue 146,375 - 146,375
---------- ------- -----------
Operating and segment profit 52,506 - 52,506
Finance revenue 122 - 122
Finance costs (698) - (698)
Profit before taxation 51,930 - 51,930
Taxation charge for the period (21,883) - (21,883)
---------- ------- -----------
Profit after taxation 30,047 - 30,047
UK &
Ireland Africa Total
GBP000 GBP000 GBP000
Other segment information:
Segmental assets 473,609 3,190 476,799
Total assets 476,799
-----------
Segment liabilities (306,327) (141) (306,468)
Total liabilities (306,468)
-----------
Period ended 30 June 2018 UK & Continuing
Ireland Africa Total
GBP000 GBP000 GBP000
*restated *restated *restated
---------- ---------- -----------
Revenue 3,304 - 3,304
---------- ---------- -----------
Operating and segment loss (7,949) - (7,949)
Finance revenue 129 - 129
Finance costs (102) - (102)
Loss before taxation (7,922) - (7,922)
Taxation credit for the period 1,825 - 1,825
---------- ---------- -----------
Loss after taxation (6,097) - (6,097)
UK &
Ireland Africa Total
GBP000 GBP000 GBP000
*restated *restated *restated
Other segment information:
Segmental assets 80,703 2,899 83,602
Total assets 83,602
-----------
Segment liabilities (12,112) (83) (12,195)
Total liabilities (12,195)
-----------
Year ended 31 December 2018 UK & Continuing
Ireland Africa Total
GBP000 GBP000 GBP000
*restated *restated *restated
---------- ---------- -----------
Revenue 35,708 - 35,708
---------- ---------- -----------
Operating and segment profit 7,990 - 7,990
Bargain purchase gain on
BKR 41,474 41,474
BKR transaction costs (2,102) - (2,102)
Finance revenue 201 - 201
Finance costs (282) - (282)
Profit before taxation 47,281 - 47,281
Taxation credit for the year 12,005 - 12,005
---------- ---------- -----------
Profit after taxation 59,286 - 59,286
UK &
Ireland Africa Total
GBP000 GBP000 GBP000
*restated *restated *restated
Other segment information:
Segmental assets 474,714 3,109 477,823
Total assets 477,823
-----------
Segment liabilities (338,106) (111) (338,217)
Total liabilities (338,217)
-----------
*restated from US$ to GBP following change of functional and
presentational currency - see note 3
5. Sales Revenue
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2019 2018 2018
GBP000 GBP000 GBP000
*restated *restated
----------- ----------- ----------
Gas sales 91,882 401 28,137
Oil sales 43,163 2,851 4,877
NGL sales 11,330 52 2,694
146,375 3,304 35,708
----------- -----------
*restated from US$ to GBP following change of functional and
presentational currency - see note 3
Revenues include product sales from Serica's full interests in
the BKR assets before calculation of amounts due under the net cash
flow sharing arrangements.
6. Cost of sales
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2019 2018 2018
GBP000 GBP000 GBP000
*restated *restated
----------- ----------- ----------
Operating costs 53,238 2,835 13,146
Movement in liquids overlift/underlift 3,370 2,349 (3,609)
Depletion (note 8) 37,333 63 6,153
93,941 5,247 15,690
----------- -----------
*restated from US$ to GBP following change of functional and
presentational currency - see note 3
Operating costs include costs from Serica's full interests in
the BKR assets before calculation of amounts due under the net cash
flow sharing arrangements.
7. Exploration and Evaluation Assets
Total
GBP000
Cost: *restated
At 1 January 2018 48,905
*Translation effect 2,971
Additions 1,351
Asset write-offs (7,416)
Transfer to property, plant and equipment (42,628)
At 31 December 2018 3,183
Additions 193
Asset write-offs (9)
At 30 June 2018 3,367
==========
Provision for impairment:
At 1 January 2018 (9,313)
*Translation effect (553)
Impairment reversal for the period 9,866
At 31 December 2018 -
Impairment (charge)/reversal for the period -
At 30 June 2019 -
==========
Net Book Amount:
30 June 2019 3,367
==========
31 December 2018 3,183
==========
1 January 2018 39,592
==========
*restated from US$ to GBP following change of functional and
presentational currency - see note 3
The impairment reversal net of write-off charges against E&E
assets in 2018 was a credit of GBP2.5 million.
This comprised an impairment reversal of GBP9.9 million in
respect of the Group's Columbus asset in the UK North Sea partially
offset by asset write-off charges against the Group's Irish assets
consisting of the Slyne 1/06 Licence (GBP2.7 million) and Rockall
1/09 and 4/13 Licences (GBP4.7 million).
The full impairment reversal recorded against the Columbus asset
book amount in 2018 arose from revised economic evaluations and
operational developments in the project. The recoverable post-tax
amount for the Columbus asset was determined on a fair value less
costs to sell basis ('FVLCS') using a discounted cash flow model
which exceeded the Columbus book cost of GBP42.7 million.
Serica submitted a Field Development Plan to the OGA in June
2018 and was granted development and production consent in October
2018. Now that the development is proceeding, Columbus resources
have been re-classified as reserves and the book costs previously
recorded as Exploration and Evaluation assets have been
reclassified as Oil and Gas assets within Property, Plant and
Equipment.
8. Property Plant and Equipment
Fixtures
Oil and and fittings
gas properties Total
GBP000 GBP000 GBP000
*restated *restated *restated
Cost:
At 1 January 2018 8,869 - 8,869
*Translation effect 1,442 - 1,442
Additions/revisions 3,752 212 3,964
Acquisitions 326,342 - 326,342
Transfers 42,628 - 42,628
At 31 December 2018 383,033 212 383,245
Additions 1,472 - 1,472
At 30 June 2019 384,505 212 384,717
----------------- --------------
Depreciation and depletion:
At 1 January 2018 3,206 - 3,206
*Translation effect 165 - 165
Charge for the period (note
6) 6,153 - 6,153
At 31 December 2018 9,524 - 9,524
Charge for the period (note
6) 37,333 35 37,368
At 30 June 2019 46,857 35 46,892
----------------- -------------- ----------
Net book amount:
At 30 June 2019 337,648 177 337,825
================= ============== ==========
At 31 December 2018 373,509 212 373,721
================= ============== ==========
At 1 January 2018 5,663 - 5,663
================= ============== ==========
*restated from US$ to GBP following change of functional and
presentational currency - see note 3
BKR asset acquisitions
On 30 November 2018 the Group acquired interests in the Bruce,
Keith and Rhum fields resulting in an acquisition of assets at a
value of GBP326.3 million allocated to property, plant and
equipment. Depletion charges in 2018 and 1H 2019 on the assessed
book amount for the BKR assets have been calculated on a unit of
production basis based on management's assessment of proven and
probable reserves reflecting risks applicable to the assets
acquired.
Columbus
Following the approval of the FDP for Columbus and decision for
the project to proceed the associated net book cost has been
transferred from E&E assets to property, plant and
equipment.
Other
Depletion charges on oil and gas properties are classified
within 'cost of sales'.
9. Equity Share Capital
As at 30 June 2019, the share capital of the Company comprised
one "A" share of GBP50,000 and 265,101,699 ordinary shares of
US$0.10 each. The "A" share has no special rights.
The balance classified as total share capital includes the total
net proceeds (both nominal value and share premium) on issue of the
Group and Company's equity share capital, comprising US$0.10
ordinary shares and one 'A' share.
Allotted, issued and fully paid: Share Share Total
capital Premium Share capital
Group
Number GBP000 GBP000 GBP000
*restated *restated *restated
At 1 January 2018 263,679,040 19,613 150,371 169,984
*Translation effect 1,168 8,934 10,102
Shares issued 1,078,780 81 127 208
At 31 December 2018 264,757,820 20,862 159,432 180,294
Shares issued 343,880 28 - 28
At 30 June 2019 265,101,700 20,890 159,432 180,322
*restated from US$ to GBP following change of functional and
presentational currency - see note 3
In August 2019 1,607,500 ordinary shares were issued following
the exercise of share options. As at 20 September 2019 the issued
voting share capital of the Company is 266,794,902 ordinary shares
and one "A" share.
10. Share-Based Payments
Share Option Plans
The Company operates three discretionary incentive share option
plans: the Serica Energy Plc Long Term Incentive Plan (the "LTIP"),
which was adopted by the Board on 20 November 2017 which permits
the grant of share-based awards, the 2017 Serica Energy plc Company
Share Option Plan ("2017 CSOP"), which was adopted by the Board on
20 November 2017, and the Serica 2005 Option Plan, which was
adopted by the Board on 14 November 2005. Awards can no longer be
made under the Serica 2005 Option Plan, however, options remain
outstanding under the Serica 2005 Option Plan. The LTIP and the
2017 CSOP together are known as the "Discretionary Plans".
The Discretionary Plans will govern all future grants of options
by the Company to Directors, officers, key employees and certain
consultants of the Group. The Directors intend that the maximum
number of ordinary shares which may be utilised pursuant to the
Discretionary Plans will not exceed 10% of the issued ordinary
shares of the Company from time to time in line with the
recommendations of the Association of British Insurers.
The objective of these plans is to develop the interest of
Directors, officers, key employees and certain consultants of the
Group in the growth and development of the Group by providing them
with the opportunity to acquire an interest in the Company and to
assist the Company in retaining and attracting executives with
experience and ability.
Serica 2005 Option Plan
As at 30 June 2019, 6,465,550 options granted by the Company
under the Serica 2005 Option Plan were outstanding. All options
awarded under the Serica 2005 Option Plan since November 2009 have
a three-year vesting period. When awarding options to directors,
the Remuneration Committee are required to set Performance
Conditions in addition to the vesting provisions before vesting can
take place. Of the above options, 2,500,000 of these options were
granted to Mr Craven Walker in July 2015 at exercise prices higher
than the market price at the time of the grant to establish firm
performance targets.
The following table illustrates the number and weighted average
exercise prices (WAEP) of, and movements in, share options during
the period:
Serica 2005 Option Plan WAEP
GBP
Outstanding at 1 January 2018 8,196,330 0.28
Exercised during the year (1,078,780) 0.24
Expired during the period (652,000) (1.036)
Outstanding at 31 December 2018 and 30 June 2019 6,465,550 0.25
------------ --------
As at 30 June 2019, the following director and employee share
options were outstanding:
Expiry Date Amount Exercise cost
GBP
January 2020 1,030,000 785,400
April 2021 50,000 15,685
January 2022 885,550 189,286
October 2022 400,000 116,000
January 2023 200,000 81,750
January 2024 300,000 58,500
June 2025 1,100,000 99,000
July 2025 1,000,000 120,000
July 2025 1,000,000 180,000
July 2025 500,000 120,000
----------
Total 6,465,550
In August 2019, 1,607,500 share options under the Serica 2005
Option Plan were exercised.
No options were granted in 2018 or 2019 under the Serica 2005
Option Plan.
Share-based compensation
The Company calculates the value of share-based compensation
using a Black-Scholes option pricing model (or other appropriate
model for those Directors' options subject to certain market
conditions) to estimate the fair value of share options at the date
of grant. There are no cash settlement alternatives. The estimated
fair value of options is amortised to expense over the options'
vesting period.
GBP650,000 has been charged to the income statement for the
six-month period ended 30 June 2019 (1H 2018 - GBP106,000) and a
similar amount credited to the share-based payments reserve,
classified as 'Other reserve' in the Balance Sheet.
Long Term Incentive Plan
The following awards have been granted to certain Directors and
employees under the LTIP, these were deemed to be granted in
November 2017 under IFRS 2.
Director/Employees Total number of shares granted subject to Deferred Bonus Share
Awards
Antony Craven Walker 225,000
Mitch Flegg 225,000
Employees below Board level (in aggregate) 575,000
---------------------------------------------------------------
1,025,000
===============================================================
Deferred Bonus Share Awards involve the deferral of bonuses into
awards over shares in the Company. They are structured as nil-cost
options and may be exercised up until the fifth anniversary of the
date of grant. Vesting of the Deferred Bonus Share Awards was the
later of the date of completion of the BKR Acquisition and 31
January 2019. They are not subject to performance conditions;
however, they were conditional on completion of the BKR
Acquisition, subject to the Board determining otherwise.
Director/Employees Total number of shares granted subject to Performance Share Awards
Antony Craven Walker 1,500,000
Mitch Flegg 1,500,000
Employees below Board level (in aggregate) 2,250,000
---------------------------------------------------------------
5,250,000
===============================================================
Performance Share Awards have a three-year vesting period and
are subject to performance conditions based on average share price
growth targets to be measured by reference to dealing days in the
period of 90 days ending immediately prior to expiry of a
three-year performance starting on the date of grant of a
Performance Share Award. Performance Share Awards are structured as
nil-cost options and may be exercised up until the tenth
anniversary of the date of grant. They were not subject to
completion of the BKR Acquisition.
LTIP awards in 2019
In March 2019, the Company granted nil-cost options over a total
of 3,784,765 ordinary shares under the LTIP. The award was made to
members of the Group's executive team, senior management and
employees. The awards included a total of 822,134 ordinary shares
for the executive directors and persons discharging managerial
responsibilities as follows:
Director/PDMR Total number of shares granted subject to Performance Share Awards
Antony Craven Walker 411,067
Mitch Flegg 411,067
822,134
===================================================================
These awards are subject to vesting criteria based on absolute
share price performance over a three-year period.
11. Taxation
The major components of income tax (charged)/credited in the consolidated income statement
are:
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2019 2018 2018
GBP000 GBP000 GBP000
*restated *restated
Current income tax charge - - -
Deferred income tax (charge)/credit (21,883) 1,825 12,005
Total taxation (charge)/credit for the period (21,883) 1,825 12,005
------------- -------------
*restated from US$ to GBP following change of functional and
presentational currency - see note 3
Recognised and unrecognised tax losses
The Group's Balance Sheet net deferred tax liability amounts of
GBP20.3 million as at 31 December 2018 and GBP42.2 million as at 30
June 2019 arise from deferred tax liabilities (primarily related to
temporary differences on fixed assets) being partially offset by
deferred tax assets on existing tax losses, deductibles under the
Net Cash Flow Sharing Deed and decommissioning liabilities.
The Group's deferred tax assets at 31 December 2018 and 30 June
2019 are recognised to the extent that taxable profits are expected
to arise in the future against which tax losses and allowances in
the UK can be utilised. In accordance with IAS 12 Income Taxes, the
Group assessed the recoverability of its deferred tax assets at 31
December 2018 and 30 June 2019 with respect to ring fence losses
and allowances.
The Group has UK ring fence tax losses of approximately US$139.3
million (GBP109.4 million) available as at 31 December 2018 that
are available indefinitely for offset against future ring fence
trading profits of the company in which the losses arose.
Changes to UK corporation tax legislation
In March 2016 it was announced that the rate of Supplementary
charge (SC) would be reduced from 20% to 10% with effect from 1
January 2016. This was substantively enacted on 6 September 2016
and reduced the headline rate of tax to 40% for UK ring-fenced
trading profits.
12. Financial and derivative financial instruments
Financial instruments
The Group's financial instruments comprise cash and cash
equivalents, bank loans and borrowings, accounts payable and
accounts receivable. It is management's opinion that the fair value
of its financial instruments approximate to their carrying
values.
Derivative financial instruments
The Group enters into derivative financial instruments with
various counterparties. The gas put option commodity contract with
BP (fair value hierarchy level 2) is measured based on a consensus
of mid-market values from third party providers based on the Black
Scholes model with inputs of observable spot commodities price,
interest rates and the volatility of the commodity.
13. Publication of Non-Statutory Accounts
The financial information contained in this interim statement
does not constitute statutory accounts as defined in the Companies
Act 2006. The financial information for the full preceding year is
based on the statutory accounts for the financial year ended 31
December 2018, which are available at the Company's registered
office at 48 George Street, London W1U 7DY and on its website at
www.serica-energy.com and on SEDAR at www.sedar.com.
This interim statement will be made available at the Company's
registered office at 48 George Street, London W1U 7DY and on its
website at www.serica-energy.com and on SEDAR at www.sedar.com.
GLOSSARY
bbl barrel of 42 US gallons
bcf billion standard cubic feet
boe barrels of oil equivalent (barrels of oil, condensate and LPG plus the heating equivalent
of gas converted into barrels at the appropriate rate)
BKR Assets Bruce, Keith and Rhum fields
CPR Competent Persons Report
FDP Field Development Plan
HPHT High pressure high temperature
mscf thousand standard cubic feet
mmbbl million barrels
mmboe million barrels of oil equivalent
mmscf million standard cubic feet
mmscfd million standard cubic feet per day
NGLs Natural gas liquids extracted from gas streams
NTS National Transmission System
OGA Oil and Gas Authority
Overlift Volumes of oil or NGLs sold in excess of volumes produced
Underlift Volumes of oil or NGLs produced but not yet sold
P10 A high estimate that there should be at least a 10% probability that the quantities recovered
will actually equal or exceed the estimate
P50 A best estimate that there should be at least a 50% probability that the quantities recovered
will actually equal or exceed the estimate
P90 A low estimate that there should be at least a 90% probability that the quantities recovered
will actually equal or exceed the estimate
Pigging A process of pipeline cleaning and maintenance which involves the use of devices called pigs
Proved Reserves Proved reserves are those Reserves that can be estimated with a high degree of certainty to
be recoverable. It is likely that the actual remaining quantities recovered will exceed the
estimated proved reserves
Probable Reserves Probable reserves are those additional Reserves that are less certain to be recovered than
proved reserves. It is equally likely that the actual remaining quantities recovered will
be greater or less than the sum of the estimated proved + probable reserves
Possible Reserves Possible reserves are those additional Reserves that are less certain to be recovered than
probable reserves. It is unlikely that the actual remaining quantities recovered will exceed
the sum of the estimated proved + probable + possible reserves
Reserves Estimates of discovered recoverable commercial hydrocarbon reserves calculated in accordance
with the 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
Tcf trillion standard cubic feet
UKCS United Kingdom Continental Shelf
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR CKNDNFBKDQCB
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September 24, 2019 02:00 ET (06:00 GMT)
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