Serica Energy plc (TSX:SQZ)(AIM:SQZ) ("Serica" or the "Company"), the oil and
gas exploration and production company, today announces its financial results
for the three months ended 31 March 2012. The results and associated Management
Discussion and Analysis are included below and copies are available at
www.serica-energy.com and www.sedar.com.
Operational Highlights:
-- Company now focused on two business units
-- North Sea and East Irish Sea
-- International exploration across four Atlantic Margin basins
-- Substantial value enhancement across asset portfolio occurred during
first quarter
-- Columbus development agreed for production to commence late 2014 or
early 2015
-- Farm-out of Luderitz Basin blocks to BP
-- Extensive 3D seismic survey of up to 4,150 sq. kms. offshore Namibia
underway
UK Assets and Norwegian North Sea
-- Columbus field achieves landmark to allow development to proceed:
-- Agreement reached with all partners and infrastructure owners to
allow export via Lomond Field end 2014
-- Serica to drill two development wells and install sub-sea manifolds
and pipeline to nearby Lomond platform
-- BG to build Bridge Linked Platform to Lomond platform and associated
infrastructure
-- All cost sharing and tariffing terms agreed
-- Terms result in greatly improved CAPEX profile for Serica with bulk
of expenditure not until 2014
-- Increased Small Field Allowances expected to apply to Columbus
-- Debt funding alternatives under review for Columbus development
-- Field interests agreed
-- NSAI estimate 16.7 mmboe gross 2P reserves in Columbus - Serica
share 5.6 mmboe
-- Spaniards discovery appraisal well scheduled for 3Q 2012 (Serica 21%)
-- Progress made to drill Doyle and South Otter prospects later this year
or 2013
-- Bream Field partners in Norway announce field progressing to development
-- Serica's economic interest, based on currently forecasted prices at
indicated Bream production start, projected at over US$20 million
Non UK Assets
-- Namibia:
-- Completed farm-out with BP for central Luderitz Basin blocks.
Substantial value demonstrated
-- Serica fully carried on cost of extensive 3D seismic survey and to
receive U$5 million in respect of past costs
-- Serica interest in Luderitz Basin blocks after farm-out 55%
-- 3D seismic survey commenced early May - target of 4,150 sq km
-- Serica remains Operator for the venture during the seismic
acquisition phase
-- BP has option to earn a further 37.5% by meeting the costs of
drilling and testing a well
-- Morocco:
-- Farm-out process underway in Foum Draa and Sidi Moussa licences
prior to drilling the first well offshore
-- Ireland:
-- Farm-out process commencing in Rockall basin licences covering 3
prospects and 12 blocks
-- Indonesia:
-- Average daily Kambuna field production of 16 mmscfd (gross) of gas
and 1,000 bbl/day (gross) of condensate during first quarter
-- Average prices realised for gas and condensate during the period
were US$6.4 per mcf and US$125.0 respectively
-- Compression facilities installed in February to arrest natural
forecast production decline
Financial Highlights:
-- First quarter revenues of US$4.0 million
-- Loss before tax from continuing operations of US$1.1 million
-- Current cash and restricted cash position of US$18.7 million (10 May)
-- US$5 million due from BP following Namibia farm-out
-- No debt drawn on existing US$50 million facility
-- Current cash resources and Kambuna production revenue more than
sufficient to meet current exploration commitments
-- Bulk of Columbus capital expenditures lies in 2014. Discussions in hand
with debt providers.
Outlook:
-- Columbus project sanction anticipated mid 2012. Production target end
2014
-- Kambuna field expected to produce at 20 mmscfd (gross) of gas with
associated condensate until 4Q 2012
-- Spaniards appraisal well scheduled to drill in 3Q2012
-- Morocco farm-out process to close 2Q2012. Second licence phase commences
3Q2012
-- 3D seismic survey results offshore Namibia expected end 3Q2012
-- Plans for drilling Muckish to be brought forward
-- Doyle to be drilled after 27th Licensing Round. Otter awaits farm-in.
-- Continuing strategy of de-risking portfolio through on-going farm-outs
Tony Craven Walker, Chairman and Interim CEO of Serica commented:
"Serica has taken major steps forward to demonstrate the value of its assets in
the first quarter. We have an exciting and growing portfolio, concentrating on
emerging regions which we believe hold great promise.
In the UK we are pleased to have completed negotiations on Columbus, which
enable project sanction to be gained. Whilst in Namibia we have seen the
potential, that we believe is inherent across our acreage, being substantiated
by the value that BP has attributed to our Luderitz basin blocks.
We have an exceptional farm-out track record and currently have processes
running across our Atlantic Margin acreage; an area of increasing interest to
the oil industry due to the very large structures and highly competitive fiscal
terms in these largely unexplored areas. We believe that these farm-out
processes will allow us, not only to accelerate the work programmes in these
high-impact areas, but also demonstrate the considerable value of the assets.
The remainder of 2012 promises to be an exciting time for the Company with much
opportunity as we continue to progress the programmes across our portfolio
seeking the most efficient ways of crystallising value."
11 May 2012
The technical information contained in the announcement has been reviewed and
approved by Peter Sadler, Business Development Director of Serica Energy plc.
Peter Sadler is a qualified Petroleum Engineer (MSc Imperial College, London,
1982) and has been a member of the Society of Petroleum Engineers since 1981.
Notes to Editors
Serica Energy plc is an oil and gas exploration and production company based in
London, England, and holds exploration and production licences offshore in the
UK, Ireland, Africa and in Indonesia. The Company's producing and development
assets are a 25% interest in the producing Kambuna field offshore Indonesia and
a 50% stake in that part of the Columbus field lying in UK Central North Sea
block 23/16f.
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.
To receive Company news releases via email, please contact
nick.elwes@collegehill.com and specify "Serica press releases" in the subject
line.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following management discussion and analysis ("MD&A") of the financial and
operational results of Serica Energy plc ("Serica") and its subsidiaries
(together the "Group") contains information up to and including 10 May 2012 and
should be read in conjunction with the attached unaudited interim consolidated
financial statements for the period ended 31 March 2012. The interim financial
statements for the three months ended 31 March 2012 have been prepared by and
are the responsibility of the Company's management. The interim financial
statements for the three months ended 31 March 2012 and 2011 have not been
reviewed by the Company's independent auditors.
References to the "Company" include Serica and its subsidiaries where relevant.
All figures are reported in US dollars ("US$") unless otherwise stated.
The results of Serica's operations detailed below in this MD&A, and in the
financial statements, are presented in accordance with International Financial
Reporting Standards ("IFRS").
MANAGEMENT OVERVIEW - QUARTER ENDED 31 MARCH 2012
OPERATIONS OVERVIEW
Serica is an oil and gas company with exploration and development activities
based in the UK, Ireland, Namibia and Morocco, together with a production
interest in the Kambuna Field in Indonesia.
The Company operates a large proportion of its licences. In the UK it is the
Development Operator of the Columbus field. It operates all of its East Irish
Sea licences and Northern North Sea Blocks 210/19a and 210/20a. In Namibia it is
Operator for its Luderitz Basin Blocks where it is now conducting one of the
largest 3D offshore seismic surveys in Namibia to-date. In Morocco it is
Technical Operator for the Foum Draa and Sidi Moussa Blocks. In Ireland it
operates twelve blocks in the Rockall Basin and three in the Slyne Basin. This
places Serica in a very strong position to unlock the value in its properties.
During the first quarter of 2012 the Company made major steps to demonstrate the
value of its oil and gas and exploration licences. Its business activities are
now focussed in two separate hubs - the UK Offshore area, including an economic
interest in the Bream field in Norway, and a substantial portfolio of properties
in four distinct Atlantic margin basins. The Company retains an interest in the
producing Kambuna field in Indonesia.
The most significant events to take place in the first quarter were:
-- In the UK, the completion of negotiations with all partners in the
Columbus field and associated infrastructure to enable the Columbus
field to be developed,
-- In Namibia, the farm-out to BP of part of Serica's interest in the
Luderitz Basin in Namibia and the placing of a contract to commence a
large 3D acquisition survey over Serica's licence blocks,
-- In Morocco, the commencement of a campaign to farm-out part of the Foum
Draa and Sidi Moussa Licences.
Serica is positioned as a Company with no debt, a development project and near
term drilling in the UK, an expanding position in new Atlantic Margin plays
offshore Europe and Africa which hold great potential and ongoing production in
Indonesia.
The following discussion summarises the significant announcements and the main
operational developments in the quarter ended 31 March 2012 and subsequent
period to date.
The Columbus Field Development, UK Central North Sea
During the first quarter, negotiations were concluded which now enable the
development of the Columbus gas-condensate field to go ahead without further
delay. This marks a major step forward for the Company and is a positive step to
bring new fields in the area on to production. The agreements, which are subject
to formal approval processes, were reached after extensive negotiations with BG
as Operator of the nearby Lomond facilities, with partners in the Columbus field
and with the partners in the nearby Arran field, which will also be sharing
Lomond production facilities.
Serica is the Operator of the Columbus field on behalf of its partners,
Endeavour Energy UK Limited, EOG Resources United Kingdom Limited, BG
International Limited and SSE UK E&P Limited and, as Operator, will be
responsible for the drilling of two production wells and the installation of
sub-sea manifolds and pipeline to take the two-phase gas and gas-condensate
stream to a Bridge Linked Platform to be constructed by BG adjacent to the
Lomond Platform. On the basis of the agreements reached, the Company's interest
in the Columbus field will be 33.2%.
With negotiations now concluded between the various companies involved in the
project, Serica is engaged in putting in place the financing required for its
share of development costs and to secure Department of Energy and Climate Change
("DECC") approval of the Columbus Field Development Plan, which was submitted to
DECC in 2011. Discussions have already commenced with debt providers to meet the
development costs and it is hoped that formal approvals can be achieved to
enable full project sanction to take place in the second quarter or early third
quarter of 2012. On this basis, first production from the Columbus field can be
achieved by end 2014.
The reaching of agreement on the arrangements between the various companies
involved in the project represents a landmark for the Company. Taken together
with the UK Chancellor's announcement in the March 2012 Budget, which doubled
the small field allowances which are expected to be available to Columbus, and
the Company's carried forward tax position, the conclusion of negotiations
relating to cost sharing and transportation results in improved economics to
Serica and a project which is robust and commercially attractive for the
Company.
Farm-out of Namibian interests and commencement of seismic survey
In late December 2011, Serica was awarded an 85% interest in a Petroleum
Agreement covering Blocks 2512A, 2513A, 2513B and 2612A (part) in the Luderitz
Basin, offshore Namibia.
In March 2012, the Company announced that it had agreed to farm-out an interest
in the Luderitz Basin Blocks to BP. Under the transaction, BP will pay US$5
million to Serica, a sum covering the Company's past costs, and earn a 30%
interest in the licence by meeting the full cost of an extensive 3D seismic
survey. As a result of the farm-out, Serica's interest in the licence following
completion of the seismic survey will be 55%. Contemporaneously, the Company
announced that it had signed a contract with Polarcus Seismic Limited to acquire
up to 4,150 square kilometres of 3D seismic across the licence. The survey will
considerably exceed Serica's obligations for seismic acquisition under the
licence terms.
Serica has also granted an option for BP to increase its interest in the licence
by meeting the full cost of drilling and testing a deep-water exploration well
to the Barremian level before the end of the first four year exploration period.
In the event that this option is exercised by BP, the Company's interest in the
licence will be 17.5% carried through drilling and testing the first well. This
interest will have very considerable value if the exploration drilling is
successful. Serica will continue to be the Operator of the licence during the
initial seismic period with BP taking over as Operator if it exercises its
option to drill and test a well.
On 1 May Serica announced that the vessel Polarcus Nadia had arrived on station
to commence the 3D seismic survey which will take place over a 4,150 square
kilometre area in the south eastern portion of the Company's Luderitz Basin
Blocks. The blocks contain a number of very large structures which are evident
from existing 2D seismic data. The 3D survey is planned to take three months to
complete and is aimed at achieving three objectives:
-- fully delineate a large four-way dip closed structure which underlies
the survey area (one of three which have been identified in the blocks),
-- map potential pinch out prospects which are expected to been have formed
in conjunction with a large channel sand feature crossing the survey
area, and
-- demonstrate hydrocarbon potential through the presence of hydrocarbon
indicators.
Initial results of the survey are expected to be available towards the end of
the third quarter of 2012 and will enable early decisions to be taken on a
forward drilling plan.
Morocco, Ireland and UK exploration
During the first quarter the Company initiated a major farm-out campaign for the
Foum Draa and Sidi Moussa Blocks in the Atlantic Margin offshore Morocco on
behalf of the partners in the blocks. Serica is Technical Operator of the Foum
Draa and Sidi Moussa Blocks with a 25% interest. Following extensive
reprocessing of over 5,200 square kilometres of 3D seismic and 7,000 line
kilometres of 2D seismic, the Company has mapped 33 prospects and leads on the
blocks which demonstrate all the characteristics of a significant oil and gas
province. The farm-out opportunity, which is ongoing, has attracted considerable
interest.
Towards the end of the quarter, and following the award of a further six blocks
and part blocks in the Irish Rockall Basin in the fourth quarter of 2011, the
Company released information relating to its Rockall Basin Licences where it is
the Operator with 100% of twelve blocks and part blocks. Using an extensive 3D
seismic data set the Company has mapped a large tilted fault block structure
(Muckish) with over 30 square kilometre closure lying in Blocks 5/22 and 5/23
and has identified two further prospects (Midleton and West Midleton) in the
recently awarded blocks. Given the proximity of the nearby Dooish discovery, the
blocks have high potential and Serica is commencing a farm-out campaign to
attract partners.
Both of these farm-in opportunities lie in Atlantic Margin areas which are
seeing increasing interest in the oil industry due to the existence of very
large structures in largely unexplored areas and the availability of technology
to explore these areas. With licences in the offshore basins of Namibia, Morocco
and Ireland, each of which were awarded on terms designed to attract investment,
Serica has acreage which is attracting a great deal of industry interest.
In the UK, plans are in hand to drill the Spaniards appraisal well in Block
15/21a with the well scheduled for the third quarter. The amalgamation agreement
to combine Block 15/21g and neighbouring Block 15/21a, containing the Spaniards
discovery well, was finalised in January 2012. Serica has a 21% interest in the
amalgamated area and will be required to contribute a 30% share of the cost of
drilling the appraisal well and a 17.14% share of the cost of drilling a
follow-up well.
The Company is also the Operator of two UK blocks in which drilling is scheduled
later this year or in 2013. Drilling on one of these, Block 113/27c containing
the Doyle prospect, has been held pending the outcome of the UK 27th Licensing
Round expected later this year. The other, Block 210/20a, contains the South
Otter prospects in which Serica has 100%. The commitment to drilling Block
210/20a is subject to securing a partner.
Bream field, Norway
Serica has an indirect economic interest in the Bream field in Norway resulting
from the sale of its 20% interest in the field in 2008 for a contingent payment
due to be received upon the start of production from the field. The Company does
not have a direct interest in the field and therefore does not have first hand
knowledge of field development plans but it was announced in the first quarter
by one of the field participants that a development concept has been selected
comprising an FPSO and subsea wells with artificial lift. The announcement
stated that "a specific FPSO has been identified and front end engineering
studies are being conducted for both this vessel and the associated subsea
systems and wells". It further advised that a project sanction decision will be
taken after the engineering studies and FPSO contract negotiations are completed
in the second quarter of 2012 and indicated, on that basis, a first oil date for
the field of late 2015.
The consideration receivable by Serica on the start of Bream production is
linked to oil prices prevailing at the time. On the basis of current forward oil
prices and an indicated first oil date of late 2015, the consideration to which
the Company would be entitled, assuming the field is developed as indicated,
would be over US$20 million. There is no certainty however of actual future
prices, which may be higher or lower than projected by the forward oil price
curve, or of the project proceeding as indicated, and the consideration due to
the Company would be adjusted accordingly.
Kambuna field, Sumatra, Indonesia
Serica has a 25% interest in the producing Kambuna gas field offshore North
Sumatra, Indonesia. The field currently provides the Company with its operating
cash flow. During the quarter the field produced at an average rate of 16 mmscfd
with approximately 1,000 barrels per day of condensate at average prices of
US$6.4 per mcf and US$125.0 per barrel respectively.
The Kambuna field has commenced its natural decline and production rates are
expected to fall in line with reservoir pressure depletion. Compression
facilities to arrest this production decline were successfully installed in
February 2012. As a result of de-bottlenecking and the installation of
compression facilities the field is expected to produce at a rate of 20 mmscfd,
with commensurate levels of condensate production, until the fourth quarter
2012.
FINANCIAL OVERVIEW
As a result of prudent cash management and Serica's successful farm-out policy,
the Company's net cash balances have remained broadly unchanged at approximately
US$20 million throughout 2011 notwithstanding an increase in activities during
that period. Current cash and restricted cash balances at 10 May 2012 amount to
US$18.7 million and this amount will be further boosted by the receipt of US$5.0
million in respect of back costs from the BP farm-out.
As a result, Serica has sufficient existing cash resources to fund its current
exploration commitments and on-going operations, including the cost of the
Spaniards well to be drilled in the third quarter. Overhead costs throughout the
year are expected to be more than covered by cash generated from the Kambuna
field which also contributes to on-going activities. The Company currently is
undrawn on its existing US$50 million facility and, in addition, is evaluating
further funding alternatives with debt providers.
SUMMARY OF LICENCE HOLDINGS
The following summary gives further detailed information on Serica's licence
interests in which activities took place during the first quarter and subsequent
to the end of the first quarter to date.
United Kingdom
Central North Sea: Block 23/16f - Columbus Field Development
Block 23/16f covers an area of approximately 52 square kilometres in the UK
Central North Sea and contains the majority of the Columbus field. The gas in
Columbus is rich in condensate and therefore requires processing before it can
enter a gas transportation system. Serica has a 50% interest in Block 23/16f and
is Operator for the block.
The Columbus field extends from Block 23/16f to the south into Block 23/21 which
contains the Lomond field and is operated by BG International Limited ("BG"). As
a consequence of the field extending over two blocks, the participants in the
field (Serica, Endeavour Energy UK Limited, EOG Resources United Kingdom
Limited, BG and SSE E&P UK Limited) have been in discussions to determine the
proportion of the field to lie in each block and the cost sharing arrangements
to apply between the participants.
Parallel discussions have been held between Serica, as Operator of Block 23/16f,
and BG as Operator of the Lomond platform, to agree on the terms under which
Columbus field production could be exported through the Lomond field facilities.
Due to restrictions on the Lomond platform, such an export route requires the
construction of a new platform linked by a bridge to the Lomond platform. The
Bridge Linked Platform ("BLP") is planned to be installed adjacent to the Lomond
platform and carry production from Columbus and other nearby fields for
processing on the Lomond platform, and onward transmission to the CATS and
Forties pipeline systems, and requires the participation of other fields to
support its construction. To this end, BG has reached separate arrangements with
the participants in the nearby Arran field under which production from the Arran
field will also be transported via the BLP and the Lomond facilities.
These negotiations have been complex but reached a conclusion during the first
quarter of 2012 with all participants agreeing the cost sharing and production
sharing arrangements and the detailed terms to provide access for the Columbus
field production through the BLP, Lomond facilities and the CATS and Forties
pipeline systems. Under the cost sharing arrangements the participants in the
Columbus field (other than BG) will be responsible for the drilling of two
production wells, the installation of sub-sea manifolds and the laying of a
pipeline to take the two-phase gas and gas-condensate stream to the BLP ("the
Columbus field facilities") whilst BG will be responsible for the construction
of the BLP and provide access to the BLP for the Columbus field production. The
tariff and cost sharing terms for the BLP and Lomond facilities reflect these
cost sharing arrangements. Serica will be the Operator for the Columbus field
facilities with an interest of 33.2%.
These agreements now enable the Columbus project to proceed to project sanction.
The field development plan, based on the above two-well scheme with export
through the Lomond facilities via the BLP, was submitted by Serica to DECC in
2011 on behalf of all the field participants and remains the basis for the field
development. At the end of the first quarter, following agreement on the cost
sharing and reserves apportionment, the Company commenced discussions with debt
providers and has received a proposal for project funding which it is
evaluating. Serica will be proceeding with these financing discussions with a
view to receiving final DECC approval and sanctioning the project, together with
the other participants, towards the end of the second quarter of 2012 or early
in the third quarter. This will enable the target production date of end 2014 to
be achieved.
Independent consultant Netherland, Sewell & Associates ("NSAI") carried out a
reserves report on the Columbus field for the end of 2011. This report estimates
that the gross Proved plus Probable Reserves of the field are 70.6 bcf of gas
and 4.9 mm bbl of liquids, a total of 16.7 mmboe. Serica holds a 50% interest in
those Columbus reserves lying in Block 23/16f. After providing for reserves
lying in the adjacent Block, NSAI estimates the Company's share of proved and
probable reserves in the field to be 23.6 bcf of sales gas and 1.6 mmbbl of
liquids, a net 5.6 mmboe to Serica.
Central North Sea: Block 15/21g and 15/21a (part) - Spaniards Appraisal
Block 15/21g, in which Serica was initially awarded a 30% interest, lies
immediately west of the Scott oil field and is believed to contain a potentially
significant extension to the oil discovery in Block 15/21a made by well
15/21-38z, which flowed 2,660 bpd of 25 degrees API oil from a good quality
Jurassic-aged Upper Claymore sand. Interpretation of pressure data, supported by
the presence of oil saturations in down-dip well 15/21-2, indicates that the
discovery tested by well 15/21-38z, the Spaniards discovery, may extend across
both 15/21a and 15/21g.
In June 2011, the Block 15/21g partners, announced they had agreed terms to
acquire a 70 per cent interest in part of Block 15/21a including the Spaniards
discovery. In consideration, the Block 15/21g group agreed to assign to the
Block 15/21a group a 30 per cent interest in Block 15/21g, and agreed to fund
the cost of a well to appraise the Spaniards discovery. It was also agreed that
a subsequent appraisal well, if deemed necessary and approved by the
partnership, would be funded on promoted terms by the current Block 15/21a
partners, after which funding for any further wells would be by equity share.
The agreement to combine Blocks 15/21g and 15/21a was finalised in January 2012.
Serica now has a 21% interest in the amalgamated area covering the Spaniards
discovery and will be required to contribute a 30% share of the cost of drilling
the first well to appraise the discovery and a 17.14% share of the cost of
drilling a follow-up well if a second well is drilled.
Site survey data has been acquired and plans are in place to secure a rig to
drill the Spaniards appraisal well in the third quarter of 2012.
Northern North Sea: Blocks 210/19a and 210/20a
These blocks, in which Serica has a 100% interest, are a contiguous block and
part block lying immediately adjacent to the producing Otter oilfield. A number
of oil prospects have been provisionally identified on the blocks at Jurassic
Brent Group and Home Sand levels. Two of the Brent Group prospects are
down-faulted traps and the other is a conventional Brent fault block. The fourth
prospect is in a Jurassic reservoir known as the Home Sand. Serica is planning
to drill the first well to test one of the prospects, known as the South Otter
prospects, in 2012. Before drilling, the Company is seeking a partner.
East Irish Sea: Blocks 113/26b and 113/27c - Doyle Prospect
Serica has a 65% interest in these blocks. A gas prospect lying in the north of
Block 113/27c, the Doyle prospect, has been fully matured as the result of work
done in 2011 and is ready to drill. Plans are in hand for the well to be drilled
in 2012 but are held until the outcome of the UK 27th Licensing Round, expected
later this year, is known.
East Irish Sea: Block 110/8b
In December 2011, Serica was awarded a 100% interest and the operatorship of
Block 110/8b in the East Irish Sea. The work commitment comprises a 3D seismic
reprocessing programme, planned to delineate the Darwen North gas prospect which
has been identified in the block. The block also contains a small undeveloped
oil discovery which will be re-evaluated.
Southern North Sea: Blocks 47/2b (Split), 47/3g (Split), 47/7 (Split) & 47/8d (Part)
In December 2011, Blocks 47/2b (Split), 47/3g (Split), 47/7 (Split) & 47/8d
(Part) in the Southern North Sea were offered under a single licence to a group
in which Serica has a 37.5% interest. Centrica is the Operator for the group.
These blocks are contiguous part blocks immediately adjacent to the York field,
also operated by Centrica
A number of gas prospects, including a possible extension to North York, have
been identified on the blocks at both the Leman (Permian) and Namurian
(Carboniferous) levels. The work obligation comprises a 3D seismic acquisition
survey and reprocessing of existing seismic data. Funds have been budgeted for
the 3D seismic survey to be undertaken by the partnership during the second half
of 2012.
Ireland
Rockall Basin: Blocks 5/17, 5/18, 5/22, 5/23, 5/27, and 5/28 - Muckish Prospects
and Blocks 11/5, 11/10, 11/15, 12/1, 12/6 and 12/11(part) - Midleton and West
Midleton Prospects
Serica holds a 100% working interest in two licences covering twelve blocks and
part blocks over an area totalling 2,220 square kilometres in the north-eastern
part of the Rockall Basin in the Atlantic margin off the west coast of Ireland.
The Rockall Basin extends over 100,000 square kilometres in which only three
exploration wells have been drilled to date. The basin is therefore regarded as
very underexplored. Of these exploration wells, the 12/2-1 Dooish gas-condensate
discovery, lying south and east of the licences, encountered a 214 metre
hydrocarbon column. This gas-condensate discovery proves the presence of
potentially commercial hydrocarbons in the north-eastern Rockall Basin.
A large exploration prospect, Muckish, has been mapped in Blocks 5/22 and 5/23.
Further evaluation of 3D seismic data coverage and the close vicinity of Dooish
gives confidence in the potential of the prospect, which covers an area of
approximately 30 square kilometres with over 600 metres of vertical closure in a
water depth of 1,450 metres. Serica is reviewing alternatives to fund a well on
this large, high potential prospect, including the potential of a farm-out to
attract drilling partners, and is bringing forward plans in preparation for
drilling.
Blocks 11/5, 11/10, 11/15, 12/1, 12/6 and 12/11(part) were awarded to Serica
under the Irish 2011 Atlantic Margin Licensing Round in October 2011. These
complement and provide additional diversity to the Muckish prospect just to the
north east and the award of the licence significantly expands the options open
to the Company to deliver an active drilling campaign.
The area covered by the licence award contains two pre-Cretaceous fault block
prospects, Midleton and West Midleton, identified from existing 3D seismic data.
Like Muckish these are analogous to the nearby proven gas-condensate bearing
Dooish discovery. Serica will undertake 2D and 3D seismic reprocessing work and
other geological studies to firm up these two additional prospects.
On the basis of the commercial terms which apply to the Company's Rockall
Licences, a discovery on any of Muckish, Midleton or West Midleton, which are
large, well defined prospects lying in a proven hydrocarbon province, would be
very material to Serica and would be of great economic benefit to the Irish
economy.
Slyne Basin: Blocks 27/4, 27/5 (west) and 27/9 - Liffey & Boyne Prospects
These blocks cover an area of 611 square kilometres in the Slyne Basin off the
west coast of Ireland. The Company holds a 50% interest in the blocks and
operates the Licence.
Serica proved the presence of oil in the Slyne Basin when it drilled the Bandon
exploration well 27/4-1 in 2009 and made a shallow Jurassic oil discovery.
Although the discovery was not commercial, deeper Jurassic oil prospects of
potentially commercial size, where the oil would be of much higher quality, are
clearly evident at the Liffey and Boyne locations. These oil prospects overlay
separate, deeper gas prospects and thereby provide multiple drilling targets.
The Company has acquired site survey data in preparation for a drilling
programme to test these prospects and has commenced a review of financing
alternatives including the potential for a farm-in partner.
Namibia
Luderitz Basin: Blocks 2512A, 2513A, 2513B and 2612A (part)
In late December 2011, the Company was awarded an 85% interest in a Petroleum
Agreement covering four large blocks and part blocks over approximately 17,400
square kilometres in the prospective Luderitz Basin, offshore Namibia. Serica
Energy Namibia B.V., a wholly owned subsidiary of Serica, is in partnership with
The National Petroleum Corporation of Namibia (Pty) Limited ("NAMCOR") and
Indigenous Energy (Pty) Limited, and is the Operator of the group.
The Company agreed to make the following signature payments to NAMCOR in respect
of the award:
-- US$1 million cash payment to NAMCOR
-- US$2 million through an allotment to NAMCOR of 6 million ordinary shares
of Serica (which represents approximately 3.28% of the enlarged issued
share capital of Serica); the actual terms being subject to variation as
described below
The issue of the shares to NAMCOR is intended to provide NAMCOR and the
Government of the Republic of Namibia with an additional return in the event of
success with the project. To the extent that the value of 6 million ordinary
shares is more than US$2 million on the day of allotment, then the Company may
reduce the number of shares allotted; alternatively, if the value is less than
US$2 million, the Company may either increase the number of shares allotted or
pay the cash equivalent of the difference to NAMCOR. The US$1 million cash
payment was made to NAMCOR in January 2012 and the Company expects to allot the
shares in the second quarter of 2012.
The Luderitz Basin is one of three under-explored sedimentary basins lying south
of the Walvis Ridge offshore Namibia. The licence award comprises Blocks 2512A,
2513A, 2513B and 2612A (part) in the centre of the basin and covers an area of
approximately 17,400 square kilometres. Existing 2D seismic data demonstrates
the existence of three large four-way dip closed structures lying wholly within
the undrilled deep water parts of the licence area together with the potential
for sizable traps in stratigraphic pinch outs towards the shelf margin. During
the initial four-year exploration period of the licence, Serica is required to
conduct an extensive 3D seismic survey and undertake reprocessing of existing 2D
seismic data.
In March 2012 the Company announced that it had agreed to farm-out an interest
in the licence to BP. Under the transaction, BP will pay US$5 million to Serica,
a sum covering Serica's past costs, and earn a 30% interest in the licence by
meeting the full cost of an extensive 3D seismic survey. As a result of the
farm-out, the Company's interest in the licence following completion of the
seismic survey will be 55%. Contemporaneously, the Company announced that it had
signed a contract with Polarcus Seismic Limited to acquire up to 4,150 square
kilometres of 3D seismic across the licence. The survey considerably exceeds
Serica's obligations for seismic acquisition under the licence terms.
On 1 May 2012, the Company announced that this survey had commenced with the
arrival on station of the vessel Polarcus Nadia. The survey is planned to take
three months to complete and is aimed at achieving three objectives:
-- fully delineate a large four-way dip closed structure which underlies
the survey area,
-- map potential pinch out prospects which are expected to been have formed
in conjunction with a large channel sand feature crossing the survey
area, and
-- demonstrate hydrocarbon potential through the presence of hydrocarbon
indicators.
The deep water geological basins offshore Namibia, including the Luderitz Basin,
are at the early frontier stage of exploration. Although the presence of very
large structures has been shown to exist from seismic surveys, very few wells
have been drilled in the deeper water Namibian basins to date and the full
hydrocarbon potential of the area has not yet been fully tested. Water depths in
Serica's Luderitz Basin Blocks range from 300 to 3,000 metres. Drilling in these
depths of water, whilst becoming more commonplace in the industry, requires
sophisticated drilling techniques and equipment and is very costly.
The Company has therefore granted an option for BP to increase its interest in
the Licence by meeting the full cost of drilling and testing an exploration well
to the Barremian level before the end of the first four year exploration period.
In the event that this option is exercised, Serica's interest in the licence
will be 17.5% carried through the first well. This will have very considerable
value if the exploration drilling is successful. Serica will continue to be
Operator of the licence during the initial seismic period, with BP taking over
as Operator if it exercises its option to drill and test a well.
Morocco
Sidi Moussa and Foum Draa Petroleum Agreements
Serica holds a 25% interest in the Sidi Moussa and adjacent Foum Draa Petroleum
Agreements offshore Morocco. The blocks together cover a total area of
approximately 12,700 square kilometres in the sparsely explored Tarfaya-Ifni
Basin and extend from the Moroccan coastline into water depths reaching a
maximum of 2,000 metres.
The Tarfaya-Ifni Basin is geologically analogous to the oil producing salt
basins of West Africa and exhibits significant potential. Sidi Moussa and Foum
Draa are covered by over 5,200 square kilometres of modern 3D seismic data and
over 7,000 kilometres of 2D seismic data. Serica has completed the evaluation of
this data which demonstrates the presence of a large number of salt diapir
related prospects, stratigraphic traps and tilted fault block plays.
Consideration is now being given to extending the licence into the next phase
which will include the drilling of a well. As part of this consideration, the
analysis of the blocks undertaken by the Company is being made available to
potential farm-in partners on behalf of Serica and its partners.
Indonesia
In 2012, Serica's sole remaining interest in Indonesia is its 25% interest in
the Glagah Kambuna Technical Assistance Contract ("TAC") which contains the
producing Kambuna gas field. Whilst the Company continues to benefit from the
cash flow it receives from this field, it does not consider the asset to be core
to its forward strategy.
Glagah Kambuna TAC - Kambuna Field, Offshore North Sumatra, Indonesia
The Glagah Kambuna TAC covers an area of approximately 380 square kilometres and
lies offshore North Sumatra. Serica holds an interest of 25% in the TAC. The gas
from the Kambuna field is used for power generation to supply electricity to the
city of Medan in North Sumatra and for industrial uses.
The Kambuna field has commenced its natural decline and production rates are
expected to fall in line with reservoir pressure depletion. Compression
facilities to arrest this production decline were successfully installed in
February 2012 and will enhance the production capacity of the field after the
first quarter of 2012. Production rates in the first quarter of 2012 were
reduced during the compression facility work in January and February but,
although the compression facilities are expected to be fully functional in May
following a commissioning period, production increased to an average rate of 20
mmscfd in March as a result of de-bottlenecking which took place during the
compressor installation. This production rate is expected to be maintained until
the fourth quarter of 2012.
During the first quarter the field produced at an average rate of 16 mmscfd (Q1
2011: 40 mmscfd, Q4 2011: 23 mmscfd) with approximately 1,000 barrels per day of
condensate (Q1 2011: 2,940 bpd, Q4 2011 1,489 bpd). Average prices realised
during the quarter for gas and condensate sales respectively were US$6.4 per mcf
(Q1 2011: US$6.1 per mcf, Q4 2011: US$6.2 per mcf) and US$125.0 per barrel (Q1
2011: US$116.9 per barrel, Q4 2011: US$114.1 per barrel). The highest price
achieved during 2012 is US$130 per barrel, achieved in March.
Serica commissioned an independent reserves audit on the Kambuna field for its
2011 annual reserves filings. This reserves report, carried out by RPS Energy,
the same consultants as used by the Operator, estimates that at 31 December 2011
the gross Proved plus Probable Reserves of the field are 17.5 bcf of sales gas
and 1.1 mm bbl of condensate, a total of 4.7 mmboe. These new estimates include
slight revisions in reserves from the figures previously reported by Serica in
2010. In view of the anticipated near term depletion of the field, which is
expected to occur in 2013, the Company bases its financial planning and
reporting for the Kambuna field on Proved reserves only, which RPS Energy
estimated to be, at 31 December 2011, 11.2 bcf of sales gas and 0.6 mm bbl of
liquids, a total of 2.9 mmboe.
FORWARD PROSPECTS
In the first quarter of 2012 the Company achieved all of the targets that it set
for the quarter. These were to complete negotiations on the Columbus field to
enable project sanction to proceed, secure a farm-out agreement for the Luderitz
Basin Blocks in Namibia and start the seismic acquisition survey in Namibia. We
were very pleased that we were able to achieve those targets in the very tight
time frame that we set ourselves as they increase the underlying value of the
Company's assets substantially. The transaction with BP puts a high value on our
Luderitz Basin Blocks and the agreements on Columbus both increase and
accelerate the value of that asset.
We now look to the second quarter and the challenges for the rest of the year.
The Company has a valuable business in the UK with reserves to be brought
on-line and well defined prospects to be drilled. We are in discussions with
debt providers to finance Columbus and it is our target to have brought these
discussions to a sufficiently advanced point to enable full Columbus development
sanction to be given this quarter. We will be participating in the Spaniards
well planned for the third quarter and will be seeking to drill the Doyle and
South Otter Blocks later in the year if we can.
Outside the UK we shall be following proposals for the development of Bream with
interest as it is a material asset for the Company. On the exploration front,
the Company's portfolio of Atlantic margin acreage, in four distinct basins,
exhibits the potential for significant discoveries of oil or gas and we are
optimistic about the opportunities which these prospects bring to the Company.
It is the Company's intention, for the balance of this year, to continue to
accelerate the work programmes on these licences and thereby demonstrate their
considerable value. This is happening in Namibia and we are confident that we
can achieve similar results in our Morocco and Irish blocks which are also known
to contain many prospects with very substantial potential.
Serica has carefully managed its financial resources and has built an enviable
portfolio of properties. We intend to continue to manage our finances prudently
and to seek the most efficient ways of crystallising the value of our assets. We
continue to evaluate opportunities to unlock additional value in our UK
portfolio and bringing Columbus to the point of development helps this
objective. Overseas, we shall be seeking to attract finance to drill the very
clear and very high impact prospects that the Company has now matured, in order
to maximise returns for all shareholders.
The balance of 2012 promises to be an exciting time with much opportunity.
FINANCIAL REVIEW
A detailed review of the Q1 2012 results of operations and other financial
information is set out below.
Results of Operations
The results of Serica's operations detailed below in this MD&A, and in the
financial statements, are presented in accordance with International Financial
Reporting Standards ("IFRS").
The financial results of the Indonesian exploration business disposal group that
was sold in October 2011 are disclosed as discontinued operations and separate
from the results of the retained business segments. The Q1 2011 financial
results detailed below have therefore been restated to disclose this business
disposal group as 'discontinued'. The financial results of the Kambuna field
interest had been disclosed in the Q2 2011 and Q3 2011 reports to shareholders
as part of discontinued operations but are now disclosed within continuing
operations together with the results of the retained core business segments.
Restated (i)
Q1 2012 Q1 2011
US$000 US$000
Continuing operations
Sales revenue 4,038 8,577
Cost of sales (4,261) (7,013)
---------- -------------
Gross (loss)/profit (223) 1,564
Expenses:
Pre-licence costs (111) (228)
E&E asset and other write offs - -
Administrative expenses (1,415) (1,451)
Foreign exchange gain 47 67
Share-based payments (175) (272)
Depreciation (84) (89)
---------- -------------
Operating loss before net finance revenue and tax (1,961) (409)
Gain on disposal 1,023 -
Finance revenue 3 8
Finance costs (172) (822)
---------- -------------
Loss before taxation (1,107) (1,223)
Taxation charge for the period (284) (666)
---------- -------------
Loss for the period from continuing operations (1,391) (1,889)
---------- -------------
Discontinued operations
Loss for the period from discontinued operations - (576)
---------- -------------
Loss for the period (1,391) (2,465)
---------- -------------
---------- -------------
Loss per ordinary share - EPS
Basic and diluted EPS on loss for the period from
continuing operations (US$) (0.01) (0.01)
Basic and diluted EPS on loss for the period (US$) (0.01) (0.01)
(i) Restated for discontinued operations
Continuing operations
Serica generated a gross loss of US$0.2 million for the three months ended 31
March 2012 ("Q1 2012") from its retained 25% interest in the Kambuna Field (Q1
2011: gross profit of US$1.6 million).
Sales revenues
The Company currently generates all its sales revenue from the Kambuna field in
Indonesia. Revenue is recognised on an entitlement basis for the Company's net
working field interest. Entitlement revenues are higher in those periods where
the full capped amount of cost recovery entitlement is eligible to be claimed
out of gross revenue. In the 2011 periods, the cycle of eligible cost recovery
was such that the full capped amount of cost recovery could not be claimed by
the contractors, therefore giving lower contractor entitlement revenues and an
increased government share of gross revenue. Unclaimed cost recovery amounts are
carried forward to future periods.
The field has now commenced its anticipated natural decline and production rates
began to fall during 2011 in line with reservoir pressure depletion. In
addition, production rates in January and February 2012 were reduced during
compression facility work, designed to enhance the production capacity of the
field after the first quarter of 2012. In Q1 2012, gross Kambuna field gas
production averaged 16.2 mmscf per day (Q1 2011 39.6 mmscf per day) together
with average condensate production of 998 barrels per day (Q1 2011 2,940 barrels
per day). The Q1 2012 gas production was sold at prices averaging US$6.4 per
mscf (Q1 2011 US$6.1 per mscf) and generated US$2.1 million (Q1 2011 US$5.0
million) of revenue net to Serica. Condensate production is stored and sold when
lifted at a price referenced to the Indonesia Attaka official monthly crude oil
price. Liftings in the period earned US$1.9 million (Q1 2011 US$3.6 million) of
revenue net to Serica at an average price of US$125.0 per barrel (Q1 2011
US$110.7 per barrel).
Cost of sales and depletion charges
Cost of sales were driven by production from the Kambuna field and totalled
US$4.3 million in Q1 2012 (Q1 2011: US$7.0 million). The charge comprised direct
operating costs of US$1.7 million (Q1 2011 US$1.8 million), non cash depletion
of US$2.7 million (Q1 2011 US$5.3 million) and an increase in condensate
inventory of US$0.1 million (Q1 2011 US$0.1 million increase).
Operating costs per boe increased significantly in the Q1 2012 period as the
reduced production levels in January and February noted above were not offset by
corresponding reductions in production costs. Depletion charges per boe have
also increased for the Q1 2012 period against Q1 2011 as the Company revised its
accounting estimate of entitlement reserves for depletion purposes from 'proved
and probable' to 'proved', with effect from 1 July 2011. This reduction in
entitlement reserve base generated further increases in the depletion charge per
boe for the second half of 2011.
Other expenses and income
The Company generated a loss before tax from continuing operations of US$1.1
million for Q1 2011 compared to a loss before tax of US$1.2 million for Q1 2011.
Pre-licence costs include direct cost and allocated general administrative cost
incurred on oil and gas interests prior to the award of licences, concessions or
exploration rights. The expense of US$0.1 million and US$0.2 million for the
respective Q1 2012 and Q1 2011 periods is not significant. More material
pre-licence work was performed in later 2011 quarters, culminating in the
following awards; Block 110/8b in the East Irish Sea, four blocks in the
Southern North Sea, a further six blocks in the Rockall Basin in Ireland, and
four large blocks and part blocks in the Luderitz Basin in Namibia.
There were no asset write offs in continuing operations in Q1 2011 or Q1 2012.
Administrative expenses of US$1.4 million for Q1 2012 decreased from US$1.5
million for the same period last year. The Company continues to reduce overheads
and expects savings to give further benefit in 2012.
The impact of foreign exchange was not significant in Q1 2012 or Q1 2011.
Share-based payment costs of US$0.2 million in Q1 2012 reflected share options
granted and compare with US$0.3 million for Q1 2011.
Negligible depreciation charges in all periods represent office equipment and
fixtures and fittings. The depletion and amortisation charge for Kambuna field
development costs is recorded within 'Cost of Sales'.
In March 2012 the Company announced that it had agreed to farm-out an interest
in its Namibian licence to BP. Under the transaction, BP will pay to Serica a
sum of US$5.0 million covering Serica's past costs and earn a 30% interest in
the licence by meeting the full cost of an extensive 3D seismic survey. As a
result of the farm-out, Serica's interest in the licence following completion of
the seismic survey will be 55%. The accounting gain of US$1.0 million on
disposal recorded in the Q1 2012 income statement relates to the recognition of
recovery for those past costs incurred that had been expensed as pre-licence
costs in previous periods. The re-imbursement of those past costs capitalised as
E&E assets on the award of the licence in December 2011 or capitalised as
incurred in Q1 2012, are treated as a reduction from the book cost of the asset.
Completion of the farm-out transaction is subject to the consent of the Ministry
of Mines and Energy in Namibia.
Finance revenue comprising bank deposit interest income has been negligible in
both periods.
Finance costs consist of interest payable, arrangement costs spread over the
term of the bank loan facility and other fees. The significant reduction in
expense from US$0.8 million in Q1 2011 to US$0.2 million in Q1 2012 arose
following the full repayment of outstanding liabilities in February 2011. All
facility arrangement costs have been amortised and no interest is currently
payable. The only ongoing cost related to other minor fees.
The Q1 2012 taxation charge of US$0.3 million (Q1 2011: US$0.7 million) arose
from Indonesian operations, and comprised a current tax charge of US$0.3 million
(Q1 2011: US$0.6 million) and a deferred tax charge of US$nil (Q1 2011: US$0.1
million). Current tax is charged on the profit oil or gas element of sales
revenue rather than the cost recovery component.
The net loss per share of US$0.01 for Q1 2012 compares to a net loss per share
of US$0.01 for Q1 2011.
Summary of Quarterly Results
2012 2011 2011 2011 2011
Quarter ended: 31 Mar 31 Dec 30 Sep 30 Jun 31 Mar
US$000 US$000 US$000 US$000 US$000
-----------------------------------------
Sales revenue 4,038 5,342 6,579 6,613 8,577
(Loss)/profit for the quarter (1,391) (4,101) (2,462) (11,342) (2,465)
Basic and diluted loss per share
US$ (0.01) (0.02) (0.01) (0.06) (0.01)
Basic and diluted earnings per
share US$ - - - - -
-----------------------------------------
Summary of Quarterly Results
2010 2010 2010
Quarter ended: 31 Dec 30 Sep 30 Jun
US$000 US$000 US$000
------------------------
Sales revenue 9,413 10,018 6,537
(Loss)/profit for the quarter (40,112) 281 (1,646)
Basic and diluted loss per share
US$ (0.22) - (0.01)
Basic and diluted earnings per
share US$ - 0.002 -
------------------------
The fourth quarter 2011 loss includes an impairment charge of US$2.3 million
against the Kambuna production asset.
The second quarter 2011 loss includes a charge of US$8.7 million recognised on
the re-measurement to fair value of the Indonesian disposal group as at 30 June
2011.
The fourth quarter 2010 loss includes asset write offs of US$29.5 million
attributed to the Kutai and Oates E&E assets and an impairment charge of US$11.8
million against the Kambuna production asset.
Discontinued operations
The results of discontinued operations below are those generated from Serica's
South East Asia exploration business which was disposed of in October 2011.
At 30 June 2011, as a result of the Board's strategic decision to exit
Indonesia, the Group's interests in the region were classified as a disposal
group held for sale and therefore included as discontinued operations. In
October 2011, the Group completed the disposal of its operated exploration
portfolio; however the Group's 25% non-operated interest in Kambuna has not yet
been sold. The directors concluded that as at 31 December 2011 and 31 March
2012, whilst still available for sale, Serica's interest in Kambuna no longer
meets the IFRS 5 criteria to be classified as an asset held for sale, because an
active marketing program is no longer in place, and therefore the results of
this part of the disposal group are disclosed within continuing operations
together with the results of the retained core business segments.
(i)Restated
Discontinued operations Q1 2012 Q1 2011
US$000 US$000
Expenses:
Pre-licence costs - (10)
E&E asset and other write-offs - (339)
Administrative expenses - (198)
Foreign exchange gain - 1
Share-based payments - (30)
------------------------
Operating loss before net finance revenue and tax - (576)
Loss recognised on remeasurement to fair value - -
Profit on disposal - -
Finance revenue - -
------------------------
Loss before taxation - (576)
Taxation charge for the period - -
------------------------
Loss for the period - (576)
------------------------
Asset write-offs in Q1 2011 were in respect of E&E and other expenses from the
Kutai PSC in Indonesia, which was sold in October 2011. 2011 expenditure on the
asset was expensed as incurred.
In October 2011 the Company completed the disposal of its portfolio of operated
exploration interests in South East Asia to Kris Energy Limited for base
consideration of US$3.4 million and a further contingent payment of US$1.0
million received in December 2011. The transaction generated a loss of US$3.6
million (chiefly comprising a loss recognised on re-measurement to fair value of
US$3.7 million as at 30 September 2011) after deducting booked asset costs and
other transaction costs and fees.
Working Capital, Liquidity and Capital Resources
Current Assets and Liabilities
An extract of the balance sheet detailing current assets and liabilities is
provided below:
31 March 31 December 31 March
2012 2011 2011
US$000 US$000 US$000
------------------------------------------------
Current assets:
Inventories 1,672 1,572 2,803
Trade and other
receivables 15,521 9,338 11,517
Financial assets 669 647 -
Cash and cash equivalents 16,640 19,946 22,041
------------------------------------------------
Total Current assets 34,502 31,503 36,361
Less Current liabilities:
Trade and other payables (9,274) (10,267) (12,709)
Income tax payable (284) (302) (2,101)
------------------------------------------------
Total Current liabilities (9,558) (10,569) (14,810)
------------------------------------------------
Net Current assets 24,944 20,934 21,551
------------------------------------------------
At 31 March 2012, the Company had net current assets of US$24.9 million which
comprised current assets of US$34.5 million less current liabilities of US$9.6
million, giving an overall increase in working capital of US$4.0 million in the
three month period.
Inventories increased from US$1.6 million to US$1.7 million over the Q1 2012
period.
Trade and other receivables at 31 March 2012 totalled US$15.5 million. The
increase in amounts receivable from the 2011 year-end balance of US$9.3 million
is largely caused by the Namibian asset back cost contributions of US$5.0
million due following the farm-out to BP announced in March. These amounts will
be received once the formal approvals from the relevant authorities are
obtained. The balance also includes; US$3.7 million of trade debtors from gas
and condensate sales from the Kambuna field, advance payments on ongoing
operations, short-term Indonesian VAT receivables, recoverable amounts from
partners in joint venture operations in the UK, Africa and Indonesia, sundry UK
and Kambuna asset working capital balances, and prepayments.
Financial assets at 31 December 2011 represented US$0.7 million of restricted
cash deposits.
Cash and cash equivalents decreased from US$19.9 million to US$16.6 million in
the quarter. During Q1 2012 the Company generated US$4.0 million of revenues
from the Kambuna field. Cash outflows were incurred on Kambuna field operating
costs and current tax, the first Namibia asset signature payment of US$1.0
million, and other ongoing work in Namibia and Morocco. Other costs included
exploration work across the portfolio in the UK and Ireland together with new
venture costs, ongoing administrative costs and corporate activity.
Trade and other payables of US$9.3 million at 31 March 2012 include US$2.0
million of signature payment liabilities arising on the award of the Namibian
licences in December, and trade creditors and accruals from UK & Kambuna
operations. Other items include sundry creditors and accruals from the ongoing
exploration programmes, payables for administrative expenses and other corporate
costs.
The current tax creditor of US$0.3 million arises in respect of the Kambuna
field in Indonesia. First cash tax payments from Kambuna field revenues were
made in April 2011.
Long-Term Assets and Liabilities
An extract of the balance sheet detailing long-term assets and liabilities is
provided below:
31 March 31 December 31 March
2012 2011 2011
US$000 US$000 US$000
------------------------------------------
Exploration & evaluation assets 66,442 69,083 70,748
Property, plant and equipment 16,496 18,719 32,394
Financial assets 274 394 1,682
Long-term other receivables 3,377 3,613 4,585
Provisions (2,035) (2,029) (1,716)
Deferred income tax liabilities - - (1,370)
During Q1 2012, total investments in petroleum and natural gas properties
represented by exploration and evaluation assets ("E&E assets") decreased from
US$69.1 million to US$66.4 million. These amounts exclude the Kambuna
development costs which are classified as property, plant and equipment.
The net US$2.7 million decrease consists of US$1.3 million of additions less
US$4.0 million of back cost contributions recognised from the Company's Q1 2012
farm-out of Namibia licence interests to BP. The US$1.3 million of additions on
continuing operations were incurred on the Luderitz basin licence interests in
Namibia, on ongoing work in Morocco, and in the UK & Ireland, on the Columbus
FDP, other exploration work and G&A.
Property, plant and equipment chiefly comprise the net book amount of the
capital expenditure on the Company's interest in the Kambuna development. During
Q1 2012, the Company's investment decreased from US$18.2 million to US$16.1
million. This US$2.1 million decrease comprised depletion charges of US$2.6
million arising from the production of gas and condensate, partially offset by
US$0.5 million of capex additions in the period. The property, plant and
equipment also included balances of US$0.4 million (31 December 2011: US$0.5
million) for office fixtures and fittings and computer equipment.
Financial assets at 31 March 2012 represented US$0.3 million of restricted cash
deposits.
Long-term other receivables of US$3.4 million are represented by value added tax
("VAT") on Indonesian capital spend which is expected to be recovered from the
Indonesian authorities.
Provisions of US$2.0 million at 31 March 2012 (31 December 2011: US$2.0 million)
are in respect of Kambuna field decommissioning payments in Indonesia.
The deferred income tax liability as at 31 March 2011 arose in respect of the
Company's retained Kambuna asset interest in Indonesia.
Shareholders' Equity
An extract of the balance sheet detailing shareholders' equity is provided below:
31 March 31 December 31 March
2012 2011 2011
US$000 US$000 US$000
---------------------------------------------
Total share capital 207,702 207,702 207,702
Other reserves 19,650 19,475 18,730
Accumulated deficit (117,854) (116,463) (98,558)
Total share capital includes the total net proceeds, both nominal value and any
premium, on the issue of equity capital.
Other reserves mainly include amounts in respect of cumulative share-based
payment charges. The increase from US$19.5 million to US$19.7 million in Q1 2012
reflects proportional charges in the period for options issued in 2012 and prior
years.
Asset values and Impairment
At 31 March 2012 Serica's market capitalisation stood at US$101.0 million (GBP
63.2 million), based upon a share price of GBP 0.3575, which was exceeded by the
net asset value at that date of US$109.5 million. By 10 May 2012 the Company's
market capitalisation had decreased to US$79.7 million. Management conducted a
thorough review of the carrying value of its assets and determined that no
further write-downs were required beyond those already disclosed above.
Capital Resources
Available financing resources and debt facility
Serica's prime focus has been to deliver value through exploration success.
To-date this has given rise to the Kambuna gas field development in Indonesia
and the Columbus gas field in the UK North Sea, for which development plans are
being formulated.
Typically exploration activities are equity financed whilst field development
costs are principally debt financed. In the current business environment, access
to new equity and debt remains uncertain. Consequently, the Company has given
priority to the careful management of existing financial resources.
In November 2009 the Company replaced its US$100 million debt facility with a
new three-year facility for an equal amount. The new facility, which was
arranged with J.P.Morgan plc, Bank of Scotland plc and Natixis as Mandated Lead
Arrangers, was principally to refinance the Company's outstanding borrowings on
the Kambuna field. It was also put in place to finance the appraisal and
development of the Columbus field and for general corporate purposes.
Following the debt repayments in 2010, management reduced its debt facility to
US$50 million total capacity so as to restrict ongoing facility costs. The
ability to draw under the facility for development is determined both by the
achievement of milestones on the relevant project and also by the availability
calculated under a projection model. The outstanding amount under the Company's
debt facility was fully repaid in February 2011.
At 31 March 2012, the Company held cash and cash equivalents of US$16.6 million
and US$0.9 million of short and long-term restricted cash in continuing
operations. Overall, the current cash balances held, the crystallisation of
value from Indonesia either through the revenues from a retained 25% Kambuna
interest or a disposal, and the control that the Company can exert over the
timing and cost of its exploration programmes both through operatorship and
through farm-outs leave it well placed to manage its commitments.
Summary of contractual obligations
The following table summarises the Company's contractual obligations as at 31
March 2012;
less than 1 1-3 greater than
Total year years 3 years
Contractual Obligations US$000 US$000 US$000 US$000
-----------------------------------------
Long-term debt - - - -
Operating leases 544 538 6 -
Other long term obligations 1,805 500 870 435
-----------------------------------------
Total contractual obligations 2,349 1,038 876 435
Other long-term obligations relate to decommissioning payments in Indonesia.
Lease commitments
At 31 March 2012, Serica had no capital lease obligations. At that date, the
Company had commitments to future minimum payments under operating leases in
respect of rental office premises and office equipment for each of the following
period/years as follows:
US$000
31 December 2012 404
31 December 2013 140
Capital expenditure commitments, obligations and plans
As at 31 March 2012, the Company's share of expected outstanding capital costs
on the Kambuna project were approximately a net US$0.5 million, and are in
respect of a condensate pipeline and the installation of a permanent compressor.
In addition to the above, the Company also typically has obligations to carry
out defined work programmes on its oil and gas properties, under the terms of
the award of rights to these properties. The Company is not obliged to meet
other joint venture partner shares of these programmes.
The most significant obligations are in respect of the Company's recently
awarded Namibian licence. Under the terms of the licence the Company has a
minimum obligation expenditure on exploration work of US$15.0 million covering
the entire initial four year period of the licence, ending in December 2015.
Following the farm-out transaction with BP noted in the operations review, the
Company's work programme obligation will be carried by a third party.
Other less material minimum obligations include G&G, seismic work and ongoing
licence fees in the UK and Ireland.
Following the finalisation of the amalgamation agreement to combine the Central
North Sea Blocks 15/21g and 15/21a in January 2012, the venture partners are now
committed to drill an appraisal well which is expected to take place in 2H 2012.
Serica's estimated 30% share of costs is approximately US$7.8 million.
Off-Balance Sheet Arrangements
The Company has not entered into any off-balance sheet transactions or arrangements.
Critical Accounting Estimates
The Company's significant accounting policies are detailed in note 2 to the
attached interim financial statements. International Financial Reporting
Standards have been adopted. The costs of exploring for and developing petroleum
and natural gas reserves are capitalised. The capitalisation and any write off
of E&E assets, or depletion of producing assets, necessarily involve certain
judgments with regard to whether the asset will ultimately prove to be
recoverable. Key sources of estimation uncertainty that impact the Company
relate to assessment of commercial reserves and the impairment of the Company's
assets. Oil and gas properties are subject to periodic review for impairment,
whilst goodwill is reviewed at least annually. Impairment considerations
necessarily involve certain judgements as to whether E&E assets will lead to
commercial discoveries and whether future field revenues will be sufficient to
cover capitalised costs. Recoverable amounts can be determined based upon risked
potential, or where relevant, discovered oil and gas reserves. In each case,
recoverable amount calculations are based upon estimations and management
assumptions about future outcomes, product prices and performance. 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.
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 Group is not exposed to significant interest or credit or
currency risks arising from its financial instruments other than as discussed
below:
Serica has exposure to interest rate fluctuations on its cash deposits and its
bank loans; given the level of expenditure plans over 2012/13 this is managed in
the short-term through selecting treasury deposit periods of one to three
months. Treasury counterparty credit risks are mitigated through spreading the
placement of funds over a range of institutions each carrying acceptable
published credit ratings to minimise counterparty risk.
Where Serica operates joint ventures on behalf of partners it seeks to recover
the appropriate share of costs from these third parties. The majority of
partners in these ventures are well established oil and gas companies. In the
event of non payment, operating agreements typically provide recourse through
increased venture shares.
Serica retains certain cash holdings and other financial instruments relating to
its operations, limited to the levels necessary to support those operations. The
US$ reporting currency 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 with the expected expenditures in
those currencies. Management believes that this mitigates much of any actual
potential currency risk from financial instruments. Loan funding is available in
US Dollars and Pounds Sterling.
It is management's opinion that the fair value of its financial instruments
approximate to their carrying values, unless otherwise noted.
Share Options
As at 31 March 2012, the following director and employee share options were
outstanding:
Expiry Date Amount Exercise cost
Cdn$
December 2014 200,000 200,000
January 2015 600,000 600,000
June 2015 1,100,000 1,980,000
Exercise cost
GBP
August 2012 1,200,000 1,182,000
October 2013 750,000 300,000
January 2014 371,000 118,720
November 2015 298,000 289,060
January 2016 765,000 791,775
June 2016 270,000 259,200
November 2016 120,000 134,400
January 2017 393,000 400,860
May 2017 210,000 218,400
March 2018 1,020,000 765,000
March 2018 850,000 697,000
January 2020 3,486,000 2,370,480
April 2021 450,000 141,188
January 2012 2,144,960 458,485
In January 2012, 859,690 share options were granted to two executive directors
and 1,285,270 share options were granted to certain employees other than
directors with an exercise cost of GBP 0.21375 and an expiry date of 10 January
2022.
In April 2012, 110,000 share options were exercised by employees other than
directors at a price of GBP 0.32.
In April 2012, 1,902,500 share options were cancelled.
Outstanding Share Capital
As at 10 May 2012, the Company had 176,770,311 ordinary shares issued and
outstanding.
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 company 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 acreage
leading to the drilling of wells and discovery of commercial reserves.
Delivery of this business model carries a number of key risks.
----------------------------------------------------------------------------
Risk Mitigation
----------------------------------------------------------------------------
Market support may be eroded - Management regularly communicates
obstructing fundraising and lowering its strategy to shareholders
the share price - Focus is placed on building an
asset portfolio capable of delivering
regular news flow and offering
continuing prospectivity
----------------------------------------------------------------------------
General market conditions may - Management aims to retain adequate
fluctuate hindering delivery of the working capital to ride out downturns
company's business plan should they arise
----------------------------------------------------------------------------
Management's decisions on capital - Rigorous analysis is conducted of
allocation may not deliver the all investment proposals
expected successful outcomes - Operations are spread over a range
of areas and risk profiles
----------------------------------------------------------------------------
Each asset carries its own risk - Management aims to avoid over-
profile and no outcome can be certain exposure to individual assets and to
identify the associated risks
objectively
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operations: Operations may not go according to plan leading to damage,
pollution, cost overruns and poor outcomes.
----------------------------------------------------------------------------
Risk Mitigation
----------------------------------------------------------------------------
Individual wells may not deliver - Thorough pre-drill evaluations are
recoverable oil and gas reserves conducted to identify the risk/reward
balance
- Exposure is selectively mitigated
through farm-out
----------------------------------------------------------------------------
Wells may blow out or equipment may - The Group retains fully trained and
fail causing environmental damage and experienced personnel
delays - The planning process involves risk
identification and establishment of
mitigation measures
- Emphasis is placed on engaging
experienced contractors
- Appropriate insurances are retained
----------------------------------------------------------------------------
Production may be interrupted - Serica's only producing field,
generating significant revenue loss Kambuna, is in the later stages of
production and insurance is not
considered cost-effective
----------------------------------------------------------------------------
Operations may take far longer or - Management applies rigorous budget
cost more than expected control
- Adequate working capital is retained
to cover reasonable eventualities
----------------------------------------------------------------------------
Resource estimates may be misleading - The Group deploys qualified
curtailing actual production and personnel
reducing reserves estimates - Ongoing performance is monitored
- Regular third-party reports are
commissioned
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Personnel: The company 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 - The Remuneration Committee regularly
companies evaluates incentivisation schemes to
ensure they remain competitive
----------------------------------------------------------------------------
Personal safety may be at risk in - A culture of safety is encouraged
demanding operating environments, throughout the organisation
typically offshore - 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 - Company policies and procedures are
themselves exposed to bribery and communicated to personnel regularly
corrupt practices - Management reviews all significant
contracts and relationships with
agents and governments
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Commercial environment: World and regional markets continue to be volatile
with fluctuations and access issues that might hinder the company's
business success
----------------------------------------------------------------------------
Risk Mitigation
----------------------------------------------------------------------------
Volatile commodity prices mean that - Kambuna gas is sold under long-term
the company cannot be certain of the contracts and similar arrangements
future sales value of its products will be considered for Columbus
production
- Such contracts can be supplemented
by price hedging although none is
currently in place for Kambuna
condensate
- Budget planning considers a range of
commodity pricing
----------------------------------------------------------------------------
The company may not be able to get - A range of different off-take
access, at reasonable cost, to options have been considered for
infrastructure and product markets Columbus and field partners are
when required currently in advanced negotiation
----------------------------------------------------------------------------
Credit to support field development - Serica's existing facility was
programmes may not be available at designed to fund part of Columbus
reasonable cost capital costs
- Funding requirements for Kambuna
were significantly mitigated through
part disposal
----------------------------------------------------------------------------
Fiscal regimes may vary, increasing - Operations are currently spread over
effective tax rates and reducing the a range of different fiscal regimes in
expected value of reserves Indonesia, 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
Company 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.
Nature and Continuance of Operations
The principal activity of the Company is to identify, acquire and subsequently
exploit oil and gas reserves. Its activities are located in the UK, Ireland,
Namibia and Morocco, together with a currently retained interest in the Kambuna
Field in Indonesia.
The Company's financial statements have been prepared with the assumption that
the Company will be able to realise its assets and discharge its liabilities in
the normal course of business rather than through a process of forced
liquidation. During the three month period ended 31 March 2012 the Company
generated a loss of US$1.4 million from continuing operations. At 31 March 2012
the Company had US$16.6 million of net cash. Cash and restricted cash balances
as at 10 May 2012 were US$18.7 million.
The Company intends to utilise its existing cash balances and future operating
cash inflows to fund the immediate needs of its investment programme and ongoing
operations. Further details of the Company's financial resources and debt
facility are given above in the Financial Review in this MD&A.
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.
Additional Information
Additional information relating to Serica, including the Company's annual
information form, 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
Antony Craven Walker Christopher Hearne
Chief Executive Officer Finance Director
11 May 2012
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.
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 4,800 standard cubic feet
per barrel for Kambuna, which has a relatively high
calorific value, and 6,000 standard cubic feet per
barrel for Columbus)
boepd barrels of oil equivalent per day
bopd or bpd barrels of oil or condensate per day
FPSO Floating Production, Storage and Offtake vessel (often
a converted oil tanker)
LNG Liquefied Natural Gas (mainly methane and ethane)
LPG Liquefied Petroleum Gas (mainly butane and propane)
mcf thousand cubic feet
mmbbl million barrels
mmboe million barrels of oil equivalent
mmBtu million British Thermal Units
mmscfd million standard cubic feet per day
PSC Production Sharing Contract
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
Serica Energy plc
Group Income Statement
For the period ended 31 March
(i)Restated
Unaudited Three Three
months months
ended ended
31 March 31 March
2012 2011
Continuing operations Notes US$000 US$000
Sales revenue 4 4,038 8,577
Cost of sales 5 (4,261) (7,013)
-------------------------
Gross (loss)/profit (223) 1,564
Pre-licence costs (111) (228)
E&E and other asset write offs - -
Administrative expenses (1,415) (1,451)
Foreign exchange gain 47 67
Share-based payments (175) (272)
Depreciation (84) (89)
-------------------------
Operating loss before net finance revenue
and tax (1,961) (409)
Gain on disposal 7 1,023 -
Finance revenue 3 8
Finance costs (172) (822)
-------------------------
Loss before taxation (1,107) (1,223)
Taxation charge for the period 11 (284) (666)
-------------------------
Loss for the period (1,391) (1,889)
Discontinued operations
Loss for the period 6 - (576)
-------------------------
Loss for the period (1,391) (2,465)
-------------------------
-------------------------
Loss per ordinary share (EPS)
Basic and diluted EPS on continuing operations
(US$) (0.01) (0.01)
Basic and diluted EPS on loss for the period (US$) (0.01) (0.01)
(i) Restated for discontinued operations - see note 6
Total Statement of Comprehensive Income
There are no other comprehensive income items other than those passing through
the income statement.
Serica Energy plc
Consolidated Balance Sheet
31 March 31 Dec 31 March
2012 2011 2011
US$000 US$000 US$000
Notes (Unaudited) (Audited) (Unaudited)
Non-current assets
Exploration & evaluation assets 7 66,442 69,083 70,748
Property, plant and equipment 8 16,496 18,719 32,394
Financial assets 274 394 1,682
Other receivables 3,377 3,613 4,585
--------------------------------------
86,589 91,809 109,409
--------------------------------------
Current assets
Inventories 1,672 1,572 2,803
Trade and other receivables 15,521 9,338 11,517
Financial assets 669 647 -
Cash and cash equivalents 16,640 19,946 22,041
--------------------------------------
34,502 31,503 36,361
--------------------------------------
TOTAL ASSETS 121,091 123,312 145,770
--------------------------------------
Current liabilities
Trade and other payables (9,274) (10,267) (12,709)
Income taxation payable (284) (302) (2,101)
Non-current liabilities
Provisions (2,035) (2,029) (1,716)
Deferred income tax liabilities - - (1,370)
--------------------------------------
TOTAL LIABILITIES (11,593) (12,598) (17,896)
--------------------------------------
NET ASSETS 109,498 110,714 127,874
--------------------------------------
--------------------------------------
Share capital 9 207,702 207,702 207,702
Other reserves 19,650 19,475 18,730
Accumulated deficit (117,854) (116,463) (98,558)
--------------------------------------
TOTAL EQUITY 109,498 110,714 127,874
--------------------------------------
--------------------------------------
Serica Energy plc
Statement of Changes in Equity
For the year ended 31 December 2011 and period ended 31 March 2012
Group Share Other
capital reserves Deficit Total
US$000 US$000 US$000 US$000
At 1 January 2011 (audited) 207,657 18,428 (96,093) 129,992
Loss for the year - - (20,370) (20,370)
-----------------------------------------------
Total comprehensive income - - (20,370) (20,370)
Share-based payments - 1,047 - 1,047
Proceeds on exercise of
options 45 - - 45
-----------------------------------------------
At 31 December 2011
(audited) 207,702 19,475 (116,463) 110,714
Loss for the period - - (1,391) (1,391)
-----------------------------------------------
Total comprehensive income - - (1,391) (1,391)
Share-based payments - 175 - 175
-----------------------------------------------
At 31 March 2012 (unaudited) 207,702 19,650 (117,854) 109,498
-----------------------------------------------
-----------------------------------------------
Serica Energy plc
Consolidated Cash Flow Statement
For the period ended 31 March
(Unaudited) (Unaudited)
Unaudited Three Three
months months
ended ended
31 March 31 March
2012 2011
US$000 US$000
Cash flows from operating activities:
Loss for the period (1,391) (2,465)
Adjustments to reconcile loss for the period to
net cash flow from operating activities
Taxation 284 666
Net finance costs 171 814
Gain on disposal 1,023 -
Depreciation 84 89
Depletion and amortisation 2,653 5,286
Asset write offs - 339
Share-based payments 175 302
(Increase)/decrease in receivables (2,930) 1,677
(Increase) in inventories (100) (55)
(Decrease) in payables (992) (230)
-------------------------
Cash generated from operations (1,023) 6,423
Taxation paid (302) -
-------------------------
Net cash (out)/inflow from operations (1,325) 6,423
-------------------------
Cash flows from investing activities:
Purchase of property, plant & equipment (514) (223)
Purchase of E&E assets (1,336) (2,144)
Proceeds from disposals - -
Interest received 3 8
-------------------------
Net cash outflow from investing (1,847) (2,359)
-------------------------
Cash flows from financing activities:
Repayments of loans and borrowings - (11,800)
Finance costs paid (166) (263)
-------------------------
Net cash outflow from financing activities (166) (12,063)
-------------------------
Cash and cash equivalents
Net decrease in period (3,338) (7,999)
Effect of exchange rates on cash and cash
equivalents 32 38
Amount at start of period 19,946 30,002
-------------------------
Amount at end of period 16,640 22,041
-------------------------
-------------------------
Serica Energy plc
Notes to the Unaudited Consolidated Financial Statements
1. Corporate information
The interim condensed consolidated financial statements of the Group for the
three months ended 31 March 2012 were authorised for issue in accordance with a
resolution of the directors on 10 May 2012.
Serica Energy plc is a public limited company incorporated and domiciled in
England & Wales. The Company's ordinary shares are traded on AIM and the TSX
Exchange. 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 three months
ended 31 March 2012 have been prepared in accordance with IAS 34 Interim
Financial Reporting.
These unaudited interim consolidated financial statements of the Group have been
prepared in accordance with International Financial Reporting Standards
following the same accounting policies and methods of computation as the
consolidated financial statements for the year ended 31 December 2011. 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 2011.
Going Concern
The financial position of the Group, its cash flows and available debt
facilities are described in the Financial Review in the Q1 2012 Management's
Discussion and Analysis. As at 31 March 2012, the Group had US$16.6 million of
net cash. Cash and restricted cash balances as at 10 May 2012 were US$18.7
million.
The Directors are required to consider the availability of resources to meet the
Group and Company's liabilities for the forseeable future.
After making enquiries, the Directors have a 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 interim condensed financial statements.
Significant accounting policies
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 2011.
The Group financial statements are presented in US dollars and all values are
rounded to the nearest thousand dollars (US$000) except when otherwise
indicated.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries Serica Energy Corporation, Serica Energy Holdings
B.V., Asia Petroleum Development Limited, Petroleum Development Associates
(Asia) Limited, Serica Energia Iberica S.L., Serica Holdings UK Limited, Serica
Energy (UK) Limited, PDA Lematang Limited, APD (Asahan) Limited, APD (Biliton)
Limited, Serica Glagah Kambuna B.V., Serica Foum Draa B.V., Serica Sidi Moussa
B.V., Serica Energy Rockall B.V., Serica Energy Slyne B.V. and Serica Energy
Namibia B.V.. Together, these comprise the "Group".
All inter-company balances and transactions have been eliminated upon consolidation.
3. Segmental Information
The Group's business is that of oil & gas exploration, development and
production. The Group's reportable and geographical segments are based on the
locations of the Group's assets.
The following tables present profit information on the Group's geographical
segments for the three months ended 31 March 2012 and 2011 and certain asset and
liability information as at 31 March 2012 and 2011. Costs associated with the UK
corporate centre are included in the UK & Ireland reportable segment. Reportable
information in respect of the Group's interest in the producing Kambuna field in
Indonesia is disclosed as a separate segment.
Three months ended 31 March 2012 (unaudited)
UK & Africa Kambuna Total
Ireland
US$000 US$000 US$000 US$000
Continuing
----------
Revenue - - 4,038 4,038
----------
----------
(Loss)/profit for the period (1,845) 1,011 (557) (1,391)
----------
Other segmental information
Segmental assets 76,386 6,497 27,458 110,341
Unallocated assets 10,750
----------
Total assets 121,091
----------
Segmental liabilities (3,708) (2,075) (5,810) (11,593)
Unallocated liabilities -
----------
Total liabilities (11,593)
----------
Three months ended 31 March 2011 (unaudited)
(i)Restated
UK & Africa Kambuna Total Discontinued
Ireland
US$000 US$000 US$000 US$000 US$000
Continuing
----------------------
Revenue - - 8,577 8,577 -
----------------------
----------------------
(Loss)/profit for
the period (2,573) (174) 858 (1,889) (576)
----------------------
UK & W Spain Indonesia Total
Europe
US$000 US$000 US$000 US$000
Other information
Segmental assets 76,581 57 56,232 132,870
Unallocated assets 12,900
--------
Total assets 145,770
--------
Segmental
liabilities (7,329) - (10,567) (17,896)
Unallocated
liabilities -
--------
Total liabilities (17,896)
--------
(i)Restated for discontinued operations - see note 6
4. Sales Revenue
Three months ended 31 March: 2012 2011
US$000 US$000
---------------------
Gas sales 2,111 4,936
Condensate sales 1,927 3,641
---------------------
4,038 8,577
---------------------
5. Cost of sales
Three months ended 31 March: 2012 2011
US$000 US$000
---------------------
Operating costs 1,725 1,781
Depletion 2,653 5,286
Movement in inventories of oil (117) (54)
---------------------
4,261 7,013
---------------------
6. Discontinued operations
The results of discontinued operations below are those generated from Serica's
South East Asia operations which were disposed of in October 2011.
At 30 June 2011, as a result of the Board's strategic decision to exit
Indonesia, the Group's interests in the region were classified as a disposal
group held for sale and therefore included as discontinued operations. In
October 2011, the Group completed the disposal of its operated exploration
portfolio; however the Group's 25% non-operated interest in Kambuna has not yet
been sold. The directors concluded that as at 31 December 2011 and 31 March
2012, whilst still available for sale, Serica's interest in Kambuna no longer
meets the IFRS 5 criteria to be classified as an asset held for sale, because an
active marketing program is no longer in place, and therefore the results of
this part of the disposal group are disclosed within continuing operations
together with the results of the retained core business segments.
Discontinued operations Q1 2012 Q1 2011
US$000 US$000
Expenses:
Pre-licence costs - (10)
E&E asset and other write-offs - (339)
Administrative expenses - (198)
Foreign exchange gain - 1
Share-based payments - (30)
---------------------
Operating loss before net finance revenue and tax - (576)
Loss recognised on re-measurement to fair value - -
Profit on disposal - -
Finance revenue - -
---------------------
Loss before taxation - (576)
Taxation charge for the year - -
---------------------
Loss for the period - (576)
---------------------
Asset write offs in Q1 2011 were in respect of E&E and other expenses from the
Kutai PSC in Indonesia, which was sold in October 2011. 2011 expenditure on the
asset was expensed as incurred.
In October 2011 the Company completed the disposal of its portfolio of operated
exploration interests in South East Asia to Kris Energy Limited for base
consideration of US$3.4 million and a further contingent payment of US$1.0
million received in December 2011. The transaction generated a loss of US$3.6
million (chiefly comprising a loss recognised on re-measurement to fair value of
US$3.7 million as at 30 September 2011) after deducting booked asset costs and
other transaction costs and fees.
7. Exploration and Evaluation Assets
Total
US$000
Net book amount:
At 1 January 2012 (audited) 69,083
Additions 1,336
Disposals (3,977)
------------
At 31 March 2012 (unaudited) 66,442
------------
Disposals in E&E assets in the quarter arose from the farm-out of an interest in
the Company's Namibian licence to BP announced in March 2012. Receipt of the
aggregate US$5.0 million in respect of back cost contributions will occur on
completion of the farm-out transaction which is subject to the consent of the
Ministry of Mines and Energy in Namibia.
The re-imbursement due for the past Namibia costs capitalised as E&E assets is
treated as a reduction from the book cost of the asset and noted above.
The accounting gain of US$1.0 million on disposal recorded in the Q1 2012 income
statement relates to the recognition of recovery for those past costs incurred
that had been expensed as pre-licence costs in previous periods.
8. Property Plant and Equipment
Fixtures,
Oil and Computer / fittings
gas IT and
properties equipment equipment Total
US$000 US$000 US$000 US$000
Cost:
At 1 January 2012 (audited) 62,598 189 901 63,688
Additions 514 - - 514
-------------------------------------------
At 31 March 2012 (unaudited) 63,112 189 901 64,202
-------------------------------------------
Depreciation and depletion:
At 1 January 2012 (audited) 44,329 149 491 44,969
Charge for the period 2,653 8 76 2,737
-------------------------------------------
At 31 March 2012 (unaudited) 46,982 157 567 47,706
-------------------------------------------
Net book amount
At 31 March 2012 16,130 32 334 16,496
-------------------------------------------
-------------------------------------------
At 1 January 2012 (audited) 18,269 40 410 18,719
-------------------------------------------
-------------------------------------------
9. Equity Share Capital
The concept of authorised share capital was abolished under the Companies Act
2006 and shareholders approved the adoption of new Articles of Association at
the 2010 Annual General Meeting which do not contain any reference to authorised
share capital.
The share capital of the Company comprises one "A" share of GBP 50,000 and
176,660,310 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 Total
paid: Share Share Share
capital premium capital
Group Number US$000 US$000 US$000
---------------------------------------------
At 1 January 2011 176,570,311 17,747 189,910 207,657
Options exercised (i) 90,000 9 36 45
---------------------------------------------
At 31 December 2012 and 31
March 2012 176,660,311 17,756 189,946 207,702
---------------------------------------------
---------------------------------------------
i) In January 2011, 90,000 share options were converted to ordinary shares at a
price of GBP 0.32.
In April 2012, 110,000 share options were converted to ordinary shares at a
price of GBP 0.32, and as at 10 May 2012 the issued voting share capital of the
Company is 176,770,311 ordinary shares.
10. Share-Based Payments
Share Option Plans
Following a reorganisation (the "Reorganisation") in 2005, the Company
established an option plan (the "Serica 2005 Option Plan") to replace the Serica
Energy Corporation Share Option Plan (the "Serica BVI Option Plan").
Serica Energy Corporation ("Serica BVI") was previously the holding company of
the Group but, following the Reorganisation, is now a wholly owned subsidiary of
the Company. Prior to the Reorganisation, Serica BVI issued options under the
Serica BVI Option Plan and, following the Reorganisation, the Company has agreed
to issue ordinary shares to holders of Serica BVI Options already awarded upon
exercise of such options in place of the shares in Serica BVI to which they
would be entitled. There are currently options outstanding under the Serica BVI
Option Plan entitling holders to acquire up to an aggregate of 1,900,000
ordinary shares of the Company. No further options will be granted under the
Serica BVI Option Plan.
The Serica 2005 Option Plan is comprised of two parts, the basic share option
plan and a part which constitutes an Enterprise Management Incentive Plan ("EMI
Plan") under rules set out by the H.M. Revenue & Customs in the United Kingdom.
Options granted under the Serica 2005 Option Plan can be granted, at the
discretion of the Board, under one or other of the two parts but, apart from
certain tax benefits which can accrue to the Company and its UK employees if
options are granted under the part relating to the EMI Plan meeting the
conditions of that part of the Serica 2005 Option Plan, all other terms under
which options can be awarded under either part are substantially identical. The
Serica 2005 Option Plan 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 Serica 2005 Option Plan will not exceed 10 per cent. of
the issued ordinary shares of the Company from time to time, in line with the
recommendations of the Association of British Insurers.
As at 31 March 2012, the Company has granted 16,532,460 options under the Serica
2005 Option Plan, 12,327,960 of which were outstanding. 6,351,690 of the
12,327,960 options outstanding at 31 March 2012 under the Serica 2005 Option
Plan are exercisable only if certain performance targets being met. 1,902,500
options under the Serica 2005 Option Plan were cancelled in April 2012.
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. The estimated fair value of options
is amortised to expense over the options' vesting period. US$175,000 has been
charged to the income statement in continuing operations in the three month
period ended 31 March 2012 (three month period ended 31 March 2011: US$272,000)
and a similar amount credited to other reserves. US$30,000 has been charged to
the income statement in discontinued operations for the three month period ended
31 March 2011.
The options granted in 2011 and 2012 were consistently valued in line with the
Company's valuation policy, assumptions made included a weighted average
risk-free interest rate of 3%, no dividend yield, and a volatility factor of
50%.
The following table illustrates the number and weighted average exercise prices
(WAEP) of, and movements in, share options during the period:
WAEP
Serica BVI Option Plan Number Cdn$
Outstanding at 31 December 2010 1,900,000 1.46
Expired during the year - -
------------------------
Outstanding at 31 December 2011 1,900,000 1.46
Expired during the period - -
------------------------
Outstanding as at 31 March 2012 1,900,000 1.46
------------------------
Serica 2005 Option Plan GBP
Outstanding at 31 December 2010 12,864,500 0.78
Granted during the year 450,000 0.31
Exercised during the year (90,000) 0.32
Cancelled during the year (3,041,500) 0.81
------------------------
Outstanding at 31 December 2011 10,183,000 0.75
Granted during the period 2,144,960 0.21
------------------------
Outstanding at 31 March 2012 12,327,960 0.66
------------------------
In January 2012, 859,690 share options were granted to two executive directors
and 1,285,270 share options were granted to certain employees other than
directors with an exercise cost of GBP 0.21375 and an expiry date of 10 January
2022.
In April 2012, 110,000 share options were exercised by employees other than
directors at a price of GBP 0.32.
In April 2012, 1,902,500 share options under the Serica 2005 Option Plan were
cancelled.
11. Taxation
The major components of income tax in the consolidated income statement are:
Three months ended 31 March: 2012 2011
US$000 US$000
-------------
Current income tax charge 284 635
Deferred income tax charge - 31
-------------
Total tax charge 284 666
-------------
12. 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 2011. Those accounts, upon
which the auditors issued and unqualified opinion, are available at the
Company's registered office at 52 George Street, London W1U 7EA 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 52 George Street, London W1U 7EA and on its website at www.serica-energy.com
and on SEDAR at www.sedar.com.
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