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|---|---|---|---|
| Bluepoint Data, Inc. | TSXV:BLP | TSX Venture | Common Stock |
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Hot Features
Premium
Serica Energy plc (TSX VENTURE:SQZ)(AIM:SQZ) today announces its financial
results for the three and six months ending 30 June 2010. The results and
associated Management Discussion and Analysis are included below and copies are
available at www.serica-energy.com and www.sedar.com.
Highlights:
Operational:
-- Production rates at Kambuna increased during first half of the year -
average gas sales of 35 mmscfd in June and 39 mmscfd in July
-- Kambuna field operator has reduced its current reserve projections but
confirmed that production levels will remain on plateau for several
years
-- Significant progress made with development of the Columbus field - FEED
studies being conducted
-- Completed drilling the Conan exploration well in the East Irish sea
-- 2010 exploration programme continues in North Sea and Indonesia with the
Oates well spudded on 30 July
Financial results for first six months:
-- Sales revenues of US$ 11.9 million (1H2009 - nil)
-- Gross profit of US$ 5.7 million (1H2009 - nil)
-- Cash and equivalents at 30 June of US$ 40.0 million (30 June 2009 - US$
29.0 million)
Outlook for 2H 2010:
-- Full Kambuna revenues anticipated with production now at contracted
levels
-- Results of the Oates exploration well in the UK Central North Sea
expected in August - Serica has a 50% interest carried through the well
-- Rig being mobilized in August to drill the Dambus and Maridan prospects
in the Kutai PSC in Indonesia
-- Well site survey to be acquired in August in Slyne Basin, offshore
Ireland, in preparation for a drilling programme in 2011
-- Exploration well in East Seruway, Indonesia, planned for 2011
-- Columbus project sanction expected before the end of the year with first
production targeted for early 2013
Paul Ellis, Chief Executive of Serica commented:
"The Kambuna Field is now achieving its targeted field plateau rates and we are
expecting these rates to be maintained over the next few years with resultant
cash flow benefit to the Company. The reduced projection of ultimate field
recovery announced today by the field operator is not expected to affect near
term production rates. This projection is based on preliminary down-hole
pressure data and will be reviewed again by Serica at the end of the year when
more production information is available. In the UK we are pleased with the
significant progress that has been achieved with the Columbus development and
look forward to gaining project sanction before the end of the year.
On the exploration front we are currently drilling the Oates well in the North
Sea and will be following this with two wells in Indonesia. Each of these wells
has the potential to add material value to the Company if successful. In the
case of the Oates well we have continued our policy of mitigating risk by
farming out and our costs relating to the well are being met by a third party."
4 August 2010
The technical information contained in the announcement has been reviewed and
approved by Peter Sadler, Chief Operating Officer 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.
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's discussion and analysis ("MD&A") of the financial and
operational results of Serica Energy plc and its subsidiaries (the "Group")
contains information up to and including 3 August 2010 and should be read in
conjunction with the attached unaudited interim consolidated financial
statements for the period ended 30 June 2010. The interim financial statements
for the three and six months ended 30 June 2010 have been prepared by and are
the responsibility of the Company's management. The interim financial statements
for the six months ended 30 June 2010 and 2009 have been reviewed by the
Company's independent auditors. Serica's activities are centred on the UK and
Indonesia, with other interests in Ireland, Morocco and Spain.
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
During the second quarter 2010 the Company completed drilling the Conan
exploration well in the East Irish Sea and continued its preparations for the
remaining 2010 exploration drilling programme in the UK and Indonesia.
Significant progress has also been made in the development of the Columbus field
and in increasing production from the Kambuna field.
Production rates from the Kambuna field have increased steadily during the first
half of the year. Gas sales from the field averaged 35 million standard cubic
feet per day ("mmscfd") in June and 39 mmscfd in July. From every million cubic
feet of gas over 90 barrels of condensate are extracted for sale. Serica
generated a gross profit of US$3.1 million in Q2 2010 from its retained 25%
interest in the Kambuna field, the Company's largest quarterly gross profit to
date.
The Kambuna field operator Salamander Energy plc ("Salamander") announced today
that following an independent reserves audit of its operated fields, including
Kambuna, it has re-stated its proved and probable ("2P") reserves in the field.
The operator also notes that production from Kambuna is expected to remain at
current levels until 2013 and that production could then be maintained at or
near to plateau beyond 2013 if contingent resources are converted to reserves.
Based on this announcement, the gross 2P reserves of the Kambuna field as at 1
January 2010 are estimated to be 18.2 million barrels of oil equivalent
("mmboe") on a 100% working interest basis. This estimate is lower than that
previously reported by both Salamander and Serica and is based on the limited
production data available to date. Serica will commission an independent review
of reserves at the end of 2010, taking into account field performance through
the second half of this year. Further details of this revision are given in this
MD&A.
For the Columbus field, agreements were reached under which Front End
Engineering and Design ("FEED") studies are being conducted for a Lomond field
Bridge Linked Platform ("BLP") that will connect with the main Lomond field
platform and provide gas and condensate reception facilities for Columbus
production. This work is designed to result in the commencement of production
from Columbus early in 2013.
In May, the Conan prospect was drilled in Blocks 113/26b and 113/27c in the East
Irish Sea and reached a total depth of 1,827 metres without encountering
hydrocarbons.
On 30 July Serica commenced drilling its next exploration well, the Oates
prospect in Block 22/19c in the UK Central North Sea. The results of the well
should be available in late August. Preparations are being made to drill the
Dambus and Marindan prospects in the Kutai PSC, Indonesia, with the drilling rig
expected on site in August.
Field Appraisal, Development and Production
Indonesia
Glagah Kambuna TAC - Kambuna Field, Offshore North Sumatra, Indonesia
The Glagah Kambuna Technical Assistance Contract ("TAC") covers an area of
approximately 380 square kilometres and lies offshore North Sumatra. Serica
holds an interest of 25% in the TAC.
The Kambuna gas is used for power generation to supply electricity to the city
of Medan in North Sumatra and for industrial uses. The gas sales prices per
thousand standard cubic feet under the contracts with PLN and Pertiwi Nusantara
Resources ("Pertiwi") are approximately US$5.40 and US$7.00 respectively,
escalated at 3% per annum. A third contract for the supply of gas for LPG
attracts the same price as the PLN contract and has the potential to add about
10% to contracted gas sales.
Kambuna gas yields about 90-95 barrels of condensate (light oil) per million
standard cubic feet. This condensate is sold to the state oil company Pertamina
at the official Attaka Indonesian Crude Price less 11 cents per barrel. The
Kambuna condensate lifted in June fetched a price of US$75.64 compared to an
average Brent crude price that month of US$76.50.
The Kambuna field wells are very productive and only two wells are usually
produced, with the third well held in reserve. If any one of the three wells is
required to be shut down for maintenance or survey, gas sales are not affected.
With the sole exception of April 2010, when a problem at the PLN power station
restricted gas sales, production of gas and condensate has increased steadily
month on month from November 2009, with average gross gas sales in excess of 40
mmscfd in the second half of July and all three gas buyers purchasing gas.
In Q2 2010 gross Kambuna field sales were 2,659 million standard cubic feet of
gas (Q1 2010: 2,016 mmscf) and 187,000 barrels of condensate (Q1 2010: 165,000
bbl), equivalent to average daily sales for the quarter of 29.2 mmscfd and 2,051
bbl/day. In June 2010, average gas sales of 35 mmscfd were achieved and in July
average gas sales were 39 mmscfd, the highest monthly figure to date.
Under the Take or Pay provisions of the gas sales contracts, at the end of each
12 month sales period the buyers are required to pay for at least 90% of any gas
contracted but not taken, subject to exceptions for certain circumstances that
may be outside of their control. In subsequent periods, buyers may nominate
quantities in excess of the contract rates ("make up gas") in order to recover
the gas for which they have already paid.
The Kambuna field operator recently commissioned an independent reserves audit
of its operated fields, including the Kambuna field. This audit is based on
early stage reservoir pressure and production data from the field from first
production in August 2009 through June 2010, during which period gross daily gas
sales averaged only 19 mmscfd because of significant operational difficulties
experienced by the gas purchasers. Pending further production information, the
operator's reserve auditors have reclassified the Upper Belumai reservoir
interval as contingent resources rather than reserves. The Upper Belumai
interval represented approximately 20% of the best estimate of gas initially in
place made by the reserve auditors for Serica's 2009 annual report.
The operator's new estimates of reserves rely primarily on flowing down-hole
pressure data recorded in only one of the Kambuna wells during a period of
interrupted production and Serica believes that these estimates may be revised
upwards as further production data becomes available. However, if the estimates
were to be confirmed by future field observations it would result in a reduction
in Serica's remaining net entitlement 2P reserves as at 1 January 2010, from 6.0
mmboe to 3.4 mmboe.
An adjustment of reserves to this level would not be anticipated to affect
production rates for several years, during which Kambuna field gross average
sales of 40 mmscfd should continue to be achievable. In addition, the offshore
facilities are designed to accommodate an additional well should future
reservoir performance indicate this to be required to support production levels
in 2012 onwards.
The performance of the field will continue to be monitored throughout 2010 as
further production information becomes available and an independent reserves
audit will be carried out at the end of the year for Serica's annual reserves
filings.
United Kingdom
Columbus Field - Blocks 23/16f - Central North Sea
Block 23/16f covers an area of approximately 52 square kilometres in the Central
North Sea and contains the Columbus field, discovered by Serica in 2006. Serica
operates the block and holds a 50% interest.
Serica has drilled three successful wells in the Columbus field Palaeocene
Forties Formation sands in Block 23/16f and in 2009, in the adjacent Block
23/21, Lomond field operator BG International Limited ("BG") completed drilling
two wells which encountered Forties sands with similar reservoir pressures to
that at Columbus. It is planned that the area will be developed jointly.
In June 2010 Serica announced that agreement has been reached with BG and with
Arran field operator Dana Petroleum Limited whereby BG will carry out Front End
Engineering and Design work ("FEED") for a Bridge Linked Platform ("BLP") that
will connect with the Lomond platform and provide gas and condensate reception
facilities for Columbus and Arran production.
The licence holders of Blocks 23/16f and 23/21 will share the costs of the
Columbus portion of FEED for the BLP and, under a separate agreement, have
agreed to share the costs of the Columbus subsea facilities and to submit a new
Columbus Field Development Plan ("FDP") to the UK Department of Energy and
Climate Change.
Serica has been appointed to manage the Columbus development process to the
point of project sanction on behalf of the field owners. FEED is already
underway and it is expected that all FEED work will be completed in the third
quarter of 2010 concurrent with FDP preparation and submission. Terms for the
use of Lomond as processing host and export point for the Columbus produced
fluids have reached an advanced stage of negotiation and the project is expected
to be sanctioned by the end of 2010. Production from the Columbus field is
expected to commence early in 2013.
Exploration
United Kingdom
Central North Sea - Block 22/19c
In June 2009 Serica was awarded sole rights to a Production Licence over UK
Central North Sea Block 22/19c in the UK 25th Round of Offshore Licensing.
Block 22/19c is located approximately 20 kilometres to the west of Serica's
Columbus field and contains two Palaeocene Forties Formation prospects known as
Oates and Bowers. The Oates prospect is a stratigraphic trap that exhibits a
number of similarities to the Columbus discovery.
In January 2010 Serica reached agreement with Premier Oil plc ("Premier") for
the farm-out of Block 22/19c. An exploration well on the Oates prospect, funded
by Premier, is planned to be drilled to a depth of approximately 3,100 metres.
In return for this funding, Premier will earn a 50% interest in Block 22/19c and
has assumed the role of operator. Serica retains a 50% interest.
The Oates well was spudded on 30 July by the Ensco 100 jack-up drilling rig and
results of the well should be available in late August.
East Irish Sea - Blocks 113/26b and 113/27c
Serica was awarded sole rights to Blocks 113/26b and 113/27c in the UK 24th
Offshore Licensing Round in 2007. The blocks cover an area of approximately 145
square kilometres in the East Irish Sea and lie immediately to the north of the
Millom field and within ten kilometres of the Morecambe field.
In January 2010 Serica reached agreement with Agora Oil & Gas (UK) AS ("Agora")
for the farm-out of the blocks. Under the term of the farm-out agreement, Agora
funded 70% of the Conan exploration well and has earned a 35% interest in the
blocks. Serica retains a 65% interest and operatorship of the blocks.
The Conan exploration well 113/26b-3 was spudded on 10 May and reached a total
depth of 1,827 metres. The main reservoir target, the Triassic age Sherwood
Sandstone, was encountered at 1,776 metres but no hydrocarbons were encountered
and the well was plugged and abandoned. It appears that the seismic anomaly that
defined the Conan prospect and that was thought to indicate the presence of
hydrocarbons was related to a lithological feature not previously seen in other
wells in the area.
Indonesia
Kutai PSC
Serica is the operator of the Kutai Production Sharing Contract ("PSC") and
holds a 30% interest. The PSC is divided into five blocks located in the
prolific Mahakam River delta both onshore and offshore East Kalimantan, adjacent
to several giant fields.
The interpretation of the offshore 3D seismic data has revealed several
exploration targets, of which the Dambus and Marindan prospects are the most
significant. Serica has secured the Trident IX jack-up drilling rig to drill
both prospects and expects the rig to be mobilised to the Dambus location in
August. On completion of the Dambus well, the rig will move directly to the
Marindan location.
The Dambus prospect is located in the northern offshore part of the Kutai PSC
and its target is a sequence of Miocene age stacked sands in a dip and
fault-closed structure on the up-thrown side of a major fault. The Marindan
prospect is in the southern offshore part of the PSC and will be drilled as a
deviated well in order to test a number of Miocene clastic and carbonate targets
in the optimum locations. Both oil and gas discoveries have been made in the
offshore Mahakam Delta and the Kutai PSC is immediately adjacent to several
major producing fields.
East Seruway PSC
Serica holds a 100% interest in the East Seruway PSC offshore North Sumatra,
Indonesia, adjacent to the Glagah Kambuna TAC. The PSC covers an area of
approximately 5,864 sq km (2,264 sq miles) which is largely unexplored.
Serica is currently interpreting the new seismic data acquired earlier this year
and plans to drill an exploration well in the block in 2011.
Ireland
Slyne Basin - Licence FEL 01/06 - Blocks 27/4, 27/5 (west) and 27/9
Serica is the operator and holds a 50% interest in Licence FEL 01/06 (Blocks
27/4, 27/5 (west) and 27/9), which covers an area of 611 square kilometres in
the Slyne Basin off the west coast of Ireland and lies about 40 kilometres south
of the Corrib gas field.
The oil discovery made by Serica in the Bandon exploration well 27/4-1, drilled
in April 2009 provides clear evidence of the presence of oil in this part of the
Slyne Basin, although the discovery itself was not commercial. Having now
identified oil prospects of potentially commercial size, Serica will acquire
well-site survey data this August in preparation for a drilling programme in
2011, when it plans to drill one or both of the Boyne and Liffey exploration
prospects.
Rockall Basin
Serica holds a 100% working interest in Licence FEL 1/09 covering Blocks 5/17,
5/18, 5/22, 5/23, 5/27 and 5/28 in the northeastern part of the Rockall Basin
off the west coast of Ireland. The six blocks cover a total area of 993 square
kilometres.
The Rockall Basin has an areal extent of over 100,000 square kilometers in which
only three exploration wells have been drilled to date and the basin is
therefore regarded as very underexplored. Of these exploration wells the 12/2-1
Dooish gas-condensate discovery, approximately nine kilometres to the south of
the Licence, encountered a 214 metre hydrocarbon column.
Serica recently shot several new 2D long-offset seismic lines across the Muckish
structure, a large exploration prospect already identified from existing 3D
seismic data, and evaluation of the data has increased confidence in the
potential of the prospect, which covers an area of approximately 30 square
kilometers in a water depth of 1,450 metres.
Morocco
The Company has a 25% interest in two Petroleum Agreements for the contiguous
areas of Sidi Moussa and Foum Draa, offshore Morocco. The blocks together cover
a total area of approximately 12,700 square kilometres in the sparsely explored
Agadir Basin, about 100 kilometres south west of the city of Agadir.
Sidi Moussa and Foum Draa are covered by over 5,200 square kilometres of modern
3D seismic data and over 2,000 kilometres of 2D seismic data. Technical studies
to reprocess the extensive 3D seismic database are underway.
Spain
The Company holds a 75% interest and operatorship in four exploration Permits
onshore northern Spain, where several gas prospects have been identified by
Serica and the Company is currently seeking a farm-in partner.
Forward Programme
Serica has a continuing exploration programme of wells that could be of great
significance to the Company, including the Oates prospect in UK Block 22/19c,
the Dambus and Marindan prospects in the Kutai PSC in Indonesia and the Boyne
and Liffey oil prospects offshore Ireland, all of which hold considerable
potential.
With the Kambuna field now producing at contract rates and the permanent
facilities due to be completed in the second half of this year, average field
production rates of 40 mmscfd are expected at least through 2011. Further field
evaluation during that period will determine whether additional facilities will
be required to extend plateau production at this level.
For the Columbus field, design work and submission of a revised FDP to the UK
government this year is aimed at achieving a project sanction decision in 4Q
2010, enabling first gas in early 2013.
Serica continues to manage its financial position and risk profile against a
challenging market backdrop. We will add further exploration acreage in areas
where our knowledge and expertise can add value, either through licence
application or through acquisition.
FINANCIAL REVIEW
A detailed review of the Q2 2010 results of operations and other financial
information is set out below.
Results of Operations
2010 2010 2009 2009 2009 2009
------------------------------------------------
Q2 Q1 Q4 Q3 Q2 Q1
US$000 US$000 US$000 US$000 US$000 US$000
Continuing operations
Sales revenue 6,537 5,334 3,476 4,167 - -
Cost of sales (3,450) (2,682) (4,204) (2,172) - -
------------------------------------------------
Gross profit/(loss) 3,087 2,652 (728) 1,995 - -
Expenses:
Administrative expenses (1,758) (1,847) (2,013) (1,387) (1,615) (1,624)
Foreign exchange gain/(loss) 18 80 21 (64) 250 21
Pre-licence costs (665) (761) (387) (88) (243) (183)
Asset write offs (77) - (1,156) (66) (221) (7,147)
Share-based payments (230) (501) (966) (206) (217) (298)
Depreciation (12) (24) (30) (30) (29) (29)
------------------------------------------------
Operating profit/(loss)
before net finance revenue
and tax 363 (401) (5,259) 154 (2,075) (9,260)
Profit on disposal - - 26,864 - - -
Finance revenue 20 130 596 7 11 27
Finance costs (1,001) (1,267) (1,724) (884) (439) (707)
------------------------------------------------
(Loss)/profit before
taxation (618) (1,538) 20,477 (723) (2,503) (9,940)
Taxation charge (1,028) (1,202) (1,329) (202) - -
------------------------------------------------
(Loss)/profit for the period (1,646) (2,740) 19,148 (925) (2,503) (9,940)
------------------------------------------------
Basic and diluted loss per
share (0.01) (0.02) N/A (0.01) (0.01) (0.06)
Basic earnings per share N/A N/A 0.11 N/A N/A N/A
Diluted earnings per share N/A N/A 0.11 N/A N/A N/A
Serica generated a gross profit of US$3.1 million for the three months ended 30
June 2010 ("Q2 2010") from its retained 25% interest in the Kambuna Field.
Revenue is recognised on an entitlement basis for the Company's net working
field interest. Revenues for Q3 and Q4 2009 were generated from a 50% field
interest until mid December when a 25% interest in the asset was disposed of,
together with a 24.6% interest in the Kutai PSC and the Company's entire 33.3%
interest in Block 06/94, Vietnam to KrisEnergy Limited for consideration of
US$104.2 million (including interim period and working capital adjustments).
In Q2 2010, gross Kambuna field gas production averaged 29.2 mmscf per day (Q1
2010: 22.4 mmscf) together with average condensate production of 2,666 barrels
per day (Q1 2010: 1,982 bpd). Field commissioning work continued through the
period.
The Q2 2010 gas production was sold at prices averaging US$5.48 per mscf and
generated revenue of US$3.5 million (Q1 2010: US$2.6 million) 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 Q2 2010
earned US$3.0 million (Q1 2010: US$2.7 million) of revenue net to Serica.
Cost of sales were driven by production from the Kambuna field and totalled
US$3.4 million in Q2 2010 (Q1 2010: US$2.7 million). The charge comprised
operating costs of US$1.8 million and non cash depletion and amortisation of
US$1.8 million, partially offset by a condensate stock adjustments credit of
US$0.2 million. The operating costs of US$1.8 million include temporary Early
Production Facility charges of US$0.7 million which are currently being incurred
until the completion of the permanent Onshore Receiving Facility in the second
half of 2010.
The Company generated a loss before tax of US$0.6 million for Q2 2010 compared
to a loss before tax of US$2.5 million for the three months ended 30 June 2009
("Q2 2009").
Administrative expenses of US$1.8 million for Q2 2010 remained at a similar
level to Q1 2010, but showed a small increase from US$1.6 million for the same
period last year. The Company continues to manage carefully its financial
resources and the increase reflects greater corporate activity in the period
compared to Q2 2009.
The impact of foreign exchange was not significant in Q2 2010 or 2009.
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$0.7 million for Q2 2010 increased from the
Q2 2009 charge of US$0.2 million due to the significant work undertaken during
the recent quarter on the 26th Licencing Round in the UK.
There were no significant asset write offs in Q2 2010 or Q2 2009.
Share-based payment costs of US$0.2 million in Q2 2010 reflected share options
granted and compared with US$0.2 million for Q2 2009 and US$0.5 million for Q1
2010. The Q4 2009 and Q1 2010 charges included expenses of US$0.8 million and
US$0.2 million respectively arising from the extension of certain existing share
options in December 2009.
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'.
The Q4 2009 profit on disposal of US$26.9 million was generated in December 2009
when the Company disposed of a package of assets in South East Asia (comprising
a 25% interest in the Kambuna TAC, a 24.6% interest in the Kutai PSC and the
Company's entire 33.3% interest in the Block 06/94 PSC, Vietnam) to KrisEnergy
Limited.
Finance revenue comprising interest income of US$0.02 million for Q2 2010
compares with US$0.01 million for Q2 2009 and US$0.1 million for Q1 2010. The
significant majority of finance revenue earned in Q1 2010 and Q4 2009 arose from
interest earned on the consideration from the South East Asia asset disposal
noted above. Bank deposit interest income was negligible in 2009 due to the
significant reduction in average interest rate yields available since 2H 2008
and a reduction in average cash deposit balances held by the Company in the
year.
Finance costs consist of interest payable, issue costs spread over the term of
the bank loan facility, and other fees. Finance costs directly related to the
Kambuna development were capitalised until the field was ready for commercial
production during Q3 2009.
The Q2 2010 taxation charge of US$1.0 million reflects current tax liabilities
of US$0.2 million arising from income in Indonesia and a deferred tax charge of
US$0.8 million arising from Indonesian operations. Expenditures in prior and
current periods have reduced any potential current income tax expense arising
for Q2 2009 to nil.
The net loss per share of US$0.01 for Q2 2010 compares to a net loss per share
of US$0.01 for Q2 2009.
Summary of Quarterly Results
2010 2010 2009 2009 2009 2009 2008 2008
Quarter ended: 30 Jun 31 Mar 31 Dec 30 Sep 30 Jun 31 Mar 31 Dec 30 Sep
US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000
--------------------------------------------------------------
Sales revenue 6,537 5,334 3,476 4,167 - - - -
(Loss)/profit
for the
quarter (1,646) (2,740) 19,148 (925) (2,503) (9,940) (26,886) 33,516
Basic and
diluted loss
per share US$ (0.01) (0.02) - (0.01) (0.01) (0.06) (0.16) -
Basic and
diluted
earnings per
share US$ - - 0.11 - - - 0.19
--------------------------------------------------------------
The fourth quarter 2009 profit includes a profit of US$26.9 million generated on
the disposal of a 25% interest in the Kambuna field, Indonesia and certain E&E
asset interests in South East Asia.
The third quarter 2009 result includes first revenue streams from the Kambuna field.
The first quarter 2009 loss includes asset write offs of US$7.1 million on the
Chablis asset.
The fourth quarter 2008 loss includes asset write offs of US$23.6 million on the
Chablis, Oak and Spain assets.
The third quarter 2008 profit includes a profit of US$36.6 million generated on
the disposal of a 15% interest in the Kambuna field.
Working Capital, Liquidity and Capital Resources
Current Assets and Liabilities
An extract of the balance sheet detailing current assets and liabilities is
provided below:
30 June 31 March 31 December 30 June
2010 2010 2009 2009
US$000 US$000 US$000 US$000
------------------------------------------
Current assets:
Inventories 3,187 2,930 2,855 4,610
Trade and other receivables 14,927 9,387 106,381 7,452
Financial assets - - 1,500 1,500
Cash and cash equivalents 39,974 62,429 18,412 28,997
------------------------------------------
Total Current assets 58,088 74,746 129,148 42,559
Less Current liabilities:
Trade and other payables (9,276) (7,558) (9,622) (15,724)
Financial liabilities - - (46,447) (59,395)
------------------------------------------
Total Current liabilities (9,276) (7,558) (56,069) (75,119)
------------------------------------------
Net Current assets/(liabilities) 48,812 67,188 73,079 (32,560)
At 30 June 2010, the Company had net current assets of US$48.8 million which
comprised current assets of US$58.1 million less current liabilities of US$9.3
million, giving an overall decrease in working capital of US$18.4 million in the
three month period.
Inventories increased from US$2.9 million to US$3.1 million over the Q2 2010
period due to an increase in the quantity of condensate stocks held.
Trade and other receivables at 30 June 2010 totalled US$14.9 million, which
included US$5.8 million trade debtors from gas and condensate sales in May and
June. Other significant items included advance payments on ongoing operations,
recoverable amounts from partners in joint venture operations in the UK and
Indonesia, sundry UK and Indonesian working capital balances, and prepayments.
The significant decrease from the 2009 year end debtor balance of US$106.4
million was largely caused by the receipt of cash proceeds in January 2010 from
the disposal of assets to KrisEnergy Limited in December 2009.
Financial assets at 31 December 2009 represented US$1.5 million of restricted
cash deposits which were utilised during Q1 2010.
Cash and cash equivalents decreased from US$62.4 million to US$40.0 million in
the quarter. In Q2 2010 the Company repaid US$12.5 million of drawings on its
loan facility. Other cost was incurred on drilling the Conan well and other work
across the portfolio in South East Asia and the UK and Ireland, together with
ongoing administrative costs, operational expenses and corporate activity.
Trade and other payables of US$9.3 million at 30 June 2010 chiefly include
significant trade creditors and accruals from the completion of the permanent
production facilities of the Kambuna field, and from the ongoing Indonesian and
UK exploration programmes. Other smaller items comprised sundry creditors and
accruals for administrative expenses and other corporate costs. The decrease
from June 2009 is largely due to a reduction in Kambuna development expenditure
as the project approaches completion and the reduced working interest share of
project costs of 25%.
Financial liabilities comprise drawings under the senior debt facility and are
disclosed net of the unamortised portion of allocated issue costs. The balance
classified as short term as at 31 December 2009 was repaid in January 2010.
Financial liabilities as at 30 June 2010 are classified as long term.
Long-Term Assets and Liabilities
An extract of the balance sheet detailing long-term assets and liabilities is
provided below:
30 June 31 March 31 December 30 June
2010 2010 2009 2009
US$000 US$000 US$000 US$000
------------------------------------------
Exploration & evaluation assets 75,480 69,564 66,030 75,843
Property, plant and equipment 53,130 53,690 53,864 103,174
Goodwill 148 148 148 295
Financial assets 1,394 - - -
Long-term other receivables 5,858 5,650 5,639 7,102
Financial liabilities (12,268) (23,119) (24,371) -
Deferred income tax liabilities (3,231) (2,406) (1,435) (295)
During Q2 2010, total investments in exploration and evaluation assets ("E&E
assets") increased from US$69.6 million to US$75.5 million. These amounts
exclude the Kambuna development and production costs which are classified as
property, plant and equipment.
The net US$5.9 million increase consists of additions incurred on the following
assets:
In the UK & Western Europe, US$3.6 million was incurred on the Company's share
of drilling costs on the Conan prospect in Blocks 113/26b and 113/27c. US$0.5
million of expenditure was incurred on the Columbus FDP and US$0.7 million on
other Ireland and UK exploration work and G&A. The Company's share of drilling
costs on the Oates prospect in Block 22/19c will be borne by a third party
following the farm-out announced in Q1 2010.
In Indonesia, US$0.8 million was incurred on preparations for exploration
drilling in the Kutai PSC and US$0.3 million was spent on exploration work and
G&A on the East Seruway concession.
Property, plant and equipment comprises the net book amount of the capital
expenditure on the Company's 25% interest in the Kambuna development. During Q2
2010, the Company's net book amount for its Kambuna interest decreased from
US$53.6 million to US$53.0 million. This US$0.6 million decrease comprises
depletion charges of US$1.8 million arising from the production of gas and
condensate in the quarter less US$1.2 million of capex additions. The property,
plant and equipment also includes immaterial balances of US$0.1 million for
office fixtures and fittings and computer equipment.
Goodwill, representing the difference between the price paid on acquisitions and
the fair value applied to individual assets, decreased by US$0.1 million in Q4
2009 following the partial disposal of the Kambuna interest.
Financial assets at 30 June 2010 represent US$1.4 million of restricted cash
deposits.
Long-term other receivables of US$5.9 million are represented by value added tax
("VAT") on Indonesian capital spend which will be recovered from future
production.
Financial liabilities represented by drawings under the senior secured debt
facility are disclosed net of the unamortised portion of allocated issue costs.
The deferred income tax liability of US$3.2 million arises 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:
30 June 31 March 31 December 30 June
2010 2010 2009 2009
US$000 US$000 US$000 US$000
------------------------------------------
Total share capital 207,657 207,633 207,633 207,633
Other reserves 17,928 17,698 17,197 16,025
Accumulated deficit (56,262) (54,616) (51,876) (70,099)
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 credited in respect of cumulative
share-based payment charges. The increase in other reserves from US$17.7 million
to US$17.9 million reflects a credit to equity in respect of share-based payment
charges in Q2 2010.
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,
with first production achieved in August 2009, and the Columbus gas field in the
UK North Sea, for which development plans have been submitted.
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. The receipt
of Kambuna revenues complements the Company's exploration activities with
producing interests and reweights the balance from investment to income
generation.
In November 2009 the Company replaced its US$100 million debt facility with a
new three-year facility for a similar amount. The new facility, which has been
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 will also be available to finance the appraisal and
development of the Columbus field and for general corporate purposes. 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.
In January 2010 the Company received the proceeds from the disposal of assets to
Kris Energy and repaid US$47.6 million of its debt, and at 30 June 2010, the
Company held cash and cash equivalents of US$40.0 million and US$1.4 million of
restricted cash. As of 02 August 2010, the Company's debt facility was US$12.5
million drawn out of a total facility of US$100 million, leaving a net cash
position of approximately US$27.1 million.
Overall, the receipt of cash from the 2009 disposal of assets in South East
Asia, the revenues from the retained 25% Kambuna interest 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. Serica intends to continue taking a prudent approach to
financial management so as to retain the strength that it has built to-date.
Lease commitments
At 30 June 2010, 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, office equipment and motor vehicles for each
of the following period/years as follows:
US$000
31 December 2010 297
31 December 2011 525
Capital expenditure commitments, obligations and plans
The Company's most significant planned capital expenditure commitments for 2010
are those required to fund the completion of the permanent production facilities
for the Kambuna field. As at 30 June 2010, the Company's share of expected
outstanding capital costs in respect of its 25% retained interest on the project
totalled approximately US$3.8 million. These expected costs include amounts
contracted for but not provided as at 30 June 2010.
In addition, the Company also 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, over the next two period/years as follows:
Period ending 31 December 2010 US$9,099,000
Year ending 31 December 2011 US$10,885,000
These obligations reflect the Company's share of the defined work programmes and
were not formally contracted at 30 June 2010. The Company is not obliged to meet
other joint venture partner shares of these programmes. The most significant
obligations are in respect of the Kutai PSC in South East Asia and drilling is
expected to commence in 2010. Other less material minimum obligations include
G&G, seismic work and ongoing licence fees in the UK and South East Asia.
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 and 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 2010/11
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 and is drawn in the currency
required.
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 30 June 2010, the following director and employee share options were
outstanding: -
Expiry Date (i) 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
November 2010 (ii) 334,000 323,980
August 2012 1,200,000 1,182,000
October 2013 750,000 300,000
January 2014 656,000 209,920
November 2015 117,000 113,490
January 2016 1,275,000 1,319,625
May 2016 180,000 172,800
June 2016 270,000 259,200
November 2016 120,000 134,400
January 2017 723,000 737,460
May 2017 405,000 421,200
March 2018 1,581,000 1,185,750
March 2018 850,000 697,000
January 2020 4,153,500 2,824,380
June 2020 250,000 162,500
(i) At an Extraordinary General Meeting held on 8 December 2009,
shareholders approved the extension of the exercise period of share
options held under the Company's share option plans with an exercise
price greater than 49 pence or CDN$0.76 for a further five years other
than the share options held by non-executive directors awarded in 2007
for which shareholder approval was not requested. The extension of
exercise periods has been implemented for all relevant options with the
exception of those options held under the Serica Energy PLC Enterprise
Management Incentive Plan (the EMI Plan) which options shall only be
extended in the event that there is no material disadvantage to the
option holders in so doing.
(ii) Options held under the EMI Plan.
Exercise of certain of the options granted in January 2010 to executive
directors and employees is conditional on shares purchased in the Company being
retained for a period of one year from the date of purchase in January 2010. The
options granted in January 2010 cannot be exercised until three years from the
date of grant.
In April 2010, 52,000 share options were exercised by employees other than
directors at a price of GBP 0.32.
Outstanding Share Capital
As at 4 August 2010, the Company had 176,570,311 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. Many of these risks are beyond the
ability of a company to control, particularly those associated with the
exploring for and developing of economic quantities of hydrocarbons. Principal
risks can be classified into four main categories: operational, commercial,
regulatory and financial.
Operational risks include production interruptions, well or reservoir
performance, spillage and pollution, drilling complications, delays and cost
over-run on major projects, well blow-outs, failure to encounter hydrocarbons,
construction risks, equipment failure and accidents. Commercial risks include
access to markets, access to infrastructure, volatile commodity prices and
counterparty risks. Regulatory risks include governmental regulations, licence
compliance and environmental risks. Financial risks include access to equity
funding and credit.
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 primarily in Asia and Europe.
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 30 June 2010 the Company
generated a loss before tax of US$0.6 million but expects to earn increased
revenues from the Kambuna Field once full field production is achieved. At 30
June 2010 the Company had US$27.7 million of net cash.
The Company intends to utilise its existing cash balances and future operating
cash inflows, together with the currently available portion of the US$100
million senior secured debt facility, 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 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
Paul Ellis Christopher Hearne
Chief Executive Officer Finance Director
4 August 2010
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
mm bbl million barrels
mmBtu million British Thermal Units
mmscfd million standard cubic feet per day
PSC Production Sharing Contract
Proved Proved reserves are those Reserves that can be estimated with a
Reserves high degree of certainty to be recoverable. It is likely that
the actual remaining quantities recovered will exceed the
estimated proved reserves.
Probable Probable reserves are those additional Reserves that are less
Reserves 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 Possible reserves are those additional Reserves that are less
Reserves 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 Estimates of discovered recoverable hydrocarbon resources for
Resources which commercial production is not yet assured, calculated in
accordance with the Canadian National Instrument 51-101
Prospective Estimates of the potential recoverable hydrocarbon resources
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
Consolidated Group Income Statement
Unaudited Three Three Six Six
months months months months
ended ended ended ended
30 June 30 June 30 June 30 June
2010 2009 2010 2009
Notes US$000 US$000 US$000 US$000
Sales revenue 6,537 - 11,871 -
Cost of sales (3,450) - (6,132) -
--------------------------------------------
Gross profit 3,087 - 5,739 -
Administrative expenses (1,758) (1,615) (3,605) (3,239)
Foreign exchange gains 18 250 98 271
Pre-licence costs (665) (243) (1,426) (426)
Asset write offs 4 (77) (221) (77) (7,368)
Share-based payments (230) (217) (731) (515)
Depreciation and depletion (12) (29) (36) (58)
--------------------------------------------
Operating loss before
finance revenue and tax 363 (2,075) (38) (11,335)
Finance revenue 20 11 150 38
Finance costs (1,001) (439) (2,268) (1,146)
--------------------------------------------
Loss before taxation (618) (2,503) (2,156) (12,443)
Taxation charge for the
period 9 (1,028) - (2,230) -
--------------------------------------------
Loss for the period (1,646) (2,503) (4,386) (12,443)
--------------------------------------------
--------------------------------------------
Loss per ordinary share
(EPS)
Basic and diluted EPS on
loss for period (US$) (0.01) (0.01) (0.02) (0.06)
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
30 June 31 March 31 Dec 30 June
2010 2010 2009 2009
Notes US$000 US$000 US$000 US$000
(Unaudited) (Unaudited) (Audited) (Unaudited)
Non-current assets
Exploration and
evaluation assets 4 75,480 69,564 66,030 75,843
Property, plant and
equipment 5 53,130 53,690 53,864 103,174
Goodwill 148 148 148 295
Financial assets 1,394 - - -
Other receivables 5,858 5,650 5,639 7,102
------------------------------------------------
136,010 129,052 125,681 186,414
------------------------------------------------
Current assets
Inventories 3,187 2,930 2,855 4,610
Trade and other
receivables 14,927 9,387 106,381 7,452
Financial assets - - 1,500 1,500
Cash and cash
equivalents 39,974 62,429 18,412 28,997
------------------------------------------------
58,088 74,746 129,148 42,559
------------------------------------------------
------------------------------------------------
TOTAL ASSETS 194,098 203,798 254,829 228,973
------------------------------------------------
Current liabilities
Trade and other
payables (9,276) (7,558) (9,622) (15,724)
Financial liabilities 6 - - (46,447) (59,395)
Non-current
liabilities
Financial liabilities 6 (12,268) (23,119) (24,371) -
Deferred income tax
liabilities (3,231) (2,406) (1,435) (295)
------------------------------------------------
TOTAL LIABILITIES (24,775) (33,083) (81,875) (75,414)
------------------------------------------------
NET ASSETS 169,323 170,715 172,954 153,559
------------------------------------------------
------------------------------------------------
Share capital 7 207,657 207,633 207,633 207,633
Other reserves 17,928 17,698 17,197 16,025
Accumulated deficit (56,262) (54,616) (51,876) (70,099)
------------------------------------------------
TOTAL EQUITY 169,323 170,715 172,954 153,559
------------------------------------------------
------------------------------------------------
Serica Energy plc
Statement of Changes in Equity
For the period ended 30 June 2010
Group Share capital Other reserves Deficit Total
US$000 US$000 US$000 US$000
At 1 January 2010 (audited) 207,633 17,197 (51,876) 172,954
Share-based payments - 501 - 501
Loss for the period - - (2,740) (2,740)
------------------------------------------------
At 31 March 2010 (unaudited) 207,633 17,698 (54,616) 170,715
Conversion of options 24 - - 24
Share-based payments - 230 - 230
Loss for the period - - (1,646) (1,646)
------------------------------------------------
At 30 June 2010 (unaudited) 207,657 17,928 (56,262) 169,323
------------------------------------------------
------------------------------------------------
For the year ended 31 December 2009
Group Share capital Other reserves Deficit Total
US$000 US$000 US$000 US$000
At 1 January 2009 (audited) 207,633 15,510 (57,656) 165,487
Share-based payments - 298 - 298
Loss for the period - - (9,940) (9,940)
------------------------------------------------
At 31 March 2009 (unaudited) 207,633 15,808 (67,596) 155,845
Share-based payments - 217 - 217
Loss for the period - - (2,503) (2,503)
------------------------------------------------
At 30 June 2009 (unaudited) 207,633 16,025 (70,099) 153,559
Share-based payments - 206 - 206
Loss for the period - - (925) (925)
------------------------------------------------
At 30 September 2009
(unaudited) 207,633 16,231 (71,024) 152,840
Share-based payments - 966 - 966
Profit for the period - - 19,148 19,148
------------------------------------------------
At 31 December 2009
(audited) 207,633 17,197 (51,876) 172,954
------------------------------------------------
------------------------------------------------
Serica Energy plc
Consolidated Cash Flow Statement
For the period ended 30 June
Unaudited Three Three Six Six
months months months months
ended ended ended ended
30 June 30 June 30 June 30 June
2010 2009 2010 2009
US$000 US$000 US$000 US$000
Cash flows from operating
activities:
Operating profit /(loss) 363 (2,075) (38) (11,335)
Adjustments for:
Depreciation 12 29 36 58
Depletion 1,793 - 3,185 -
Asset write-offs 77 221 77 7,368
Share-based payments 230 217 731 515
Increase in receivables and
other assets (6,164) (417) (8,350) (3,540)
(Increase)/decrease in
inventories (257) 2 (332) 8
Increase/(decrease) in payables 1,718 (6,844) (346) (190)
--------------------------------------------
--------------------------------------------
Net cash outflow from operations (2,228) (8,867) (5,037) (7,116)
--------------------------------------------
Cash flows from investing
activities:
Purchases of property, plant &
equipment (1,245) (14,326) (2,487) (34,706)
Purchases of E&E assets (5,916) (4,192) (9,450) (13,500)
Proceeds from disposals - - 99,150 -
Interest received 20 11 714 38
--------------------------------------------
Net cash (out)/inflow from
investing (7,141) (18,507) 87,927 (48,168)
--------------------------------------------
Cash proceeds from financing
activities:
Proceeds from loans and
borrowings - 15,000 - 27,821
Repayments of loans and
borrowings (12,500) - (60,050) -
Proceeds on exercise of options 24 - 24 -
Finance costs paid (610) (184) (1,302) (362)
--------------------------------------------
Net cash (out)/inflow from
financing (13,086) 14,816 (61,328) 27,459
--------------------------------------------
Cash and cash equivalents
Net (decrease)/increase in
period (22,455) (12,558) 21,562 (27,825)
Amount at start of period 62,429 41,555 18,412 56,822
--------------------------------------------
Amount at end of period 39,974 28,997 39,974 28,997
--------------------------------------------
--------------------------------------------
Serica Energy plc
Notes to the Unaudited Consolidated Financial Statements
1. Corporate information
The interim condensed consolidated financial statements of the Group for the six
months ended 30 June 2010 were authorised for issue in accordance with a
resolution of the directors on 4 August 2010.
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
Venture 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 six months ended
30 June 2010 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 2009. 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 2009.
Going Concern
The financial position of the Group, its cash flows and available debt
facilities are described in the Financial Review in the Q2 2010 Management's
Discussion and Analysis. As at 30 June 2010 the Group had US$27.7 million of net
cash.
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 2009, except for the adoption of the following new standards and
interpretations, noted below.
International Accounting Standards (IAS / IFRSs) Effective date
IFRS 2 Amendments to IFRS 2 - Group Cash-settled Share- 1 January 2010
based Payment Transactions
IFRS 3 Business Combinations (Revised) 1 July 2009
IAS 27 Consolidated and Separate Financial Statements 1 July 2009
(revised January 2008)
IAS 39 Eligible Hedged Items 1 July 2009
IFRIC 17 Distributions of Non-cash assets to owners 1 July 2009
IFRIC 18 Transfer of Assets from Customers 1 July 2009
The adoption of these did not affect the Group's results of operations or
financial position.
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 Holdings B.V., Serica Holdings UK
Limited, Serica Energy (UK) Limited, Serica Kutei B.V., Serica Glagah Kambuna
B.V., Serica East Seruway B.V., Serica Sidi Moussa B.V., Serica Foum Draa B.V.,
Serica Energy Corporation, Asia Petroleum Development Limited, PDA Lematang
Limited, APD (Asahan) Limited, APD (Biliton) Limited, Petroleum Development
Associates (Asia) Limited, Serica Energia Iberica S.L., and Serica Energy Pte
Limited. Together, these comprise the "Group".
All inter-company balances and transactions have been eliminated upon consolidation.
3. Segmental Information
The Group records its primary operating segment information on the basis of
geographical segments which are based on the location of the Group's assets. The
Group has only one business segment, that of oil & gas exploration, development
and production.
The following tables present profit information on the Group's geographical
segments for the six months ended 30 June 2010 and 2009 and certain asset and
liability information as at 30 June 2010 and 2009. Costs of the Singapore office
are included in the Indonesian geographical segment. Costs associated with the
Morocco licences are included in the UK & NW Europe geographical segment.
UK & NW
Six months ended 30 June 2010 Indonesia Vietnam Europe Spain Total
(unaudited) US$000 US$000 US$000 US$000 US$000
Continuing
----------
Revenue 11,781 - - - 11,871
----------
----------
Profit/(loss) for the period 3,041 - (7,272) (155) (4,386)
----------
Other segmental information
Segmental assets 89,423 - 69,734 45 159,202
Unallocated assets 34,896
----------
Total assets 194,098
----------
Segmental liabilities (9,648) - (2,855) (4) (12,507)
Unallocated liabilities (12,268)
----------
Total liabilities (24,775)
----------
UK & NW
Six months ended 30 June 2009 Indonesia Vietnam Europe Spain Total
(unaudited) US$000 US$000 US$000 US$000 US$000
Continuing
----------
Revenue - - - - -
----------
----------
Loss for the period (769) (9) (11,565) (100) (12,443)
----------
Other segment information
Segment assets 131,044 13,698 58,372 59 203,173
Unallocated assets 25,800
----------
Total assets 228,973
----------
Segment liabilities (14,101) (3) (1,613) (7) (15,724)
Unallocated liabilities (59,690)
----------
Total liabilities (75,414)
----------
4. Exploration and Evaluation Assets
Total
US$000
Net book amount:
At 1 January 2010 (audited) 66,030
Additions 9,527
Write offs (77)
------
At 30 June 2010 (unaudited) 75,480
------
5. Property Plant and Equipment
Fixtures,
Computer / fittings
Oil and gas IT and
properties equipment equipment Total
US$000 US$000 US$000 US$000
Cost:
At 1 January 2010 (audited) 54,935 204 431 55,570
Additions 2,403 60 24 2,487
--------------------------------------------
At 30 June 2010 (unaudited) 57,338 264 455 58,057
--------------------------------------------
Depreciation and depletion:
At 1 January 2010 (audited) 1,171 174 361 1,706
Charge for the period 3,185 12 24 3,221
--------------------------------------------
At 30 June 2010 (unaudited) 4,356 186 385 4,927
--------------------------------------------
Net book amount
At 30 June 2010 52,982 78 70 53,130
--------------------------------------------
--------------------------------------------
At 1 January 2010 53,764 30 70 53,864
--------------------------------------------
--------------------------------------------
6. Financial Liabilities
31 December
30 June 2010 2009
US$000 US$000
Non-current bank loans:
Variable rate multi-option facility (12,268) (24,371)
Current bank loans:
Variable rate multi-option facility - (46,447)
Bank loans
The total gross liability as at 30 June 2010 was US$12.5 million which is
disclosed net of the unamortised portion of allocated issue costs.
On 16 November 2009 the Company entered into a new US$100 million senior secured
revolving credit facility to replace its previous facility of a similar amount.
The new facility, which has been arranged with J.P.Morgan, Bank of Scotland plc
and Natixis as Mandated Lead Arrangers, is for a term of three years. The
facility is principally to refinance the Company's outstanding borrowings on the
Kambuna field and will also be available to finance the appraisal and
development of the Columbus field and for general corporate purposes. The
facility is secured by first charges over the Group's interest in the Kambuna
field in Indonesia and the Columbus field in the UK North Sea and the shares of
certain subsidiary companies.
Further details of the Company's financial resources and debt facilities are
given in the Q2 2010 Management's Discussion and Analysis.
7. 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
176,570,310 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 paid: Share Share Total
capital premium Share capital
Group Number US$000 US$000 US$000
At 1 January 2010 176,518,311 17,742 189,891 207,633
Options exercised (1) 52,000 5 19 24
------------------------------------------
As at 30 June 2010 176,570,311 17,747 189,910 207,657
------------------------------------------
------------------------------------------
(1) In April 2010, 52,000 share options were converted to ordinary shares at
a price of GBP 0.32.
8. 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 will govern all future grants of options by the
Company to Directors, officers, key employees and certain consultants of the
Group. 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 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 30 June 2010, the Company has granted 13,937,500 options under the Serica
2005 Option Plan, 12,864,500 of which are currently outstanding. 5,195,000 of
the 12,864,500 options currently outstanding under the Serica 2005 Option Plan
are exercisable only if certain performance targets being met. These include
2,175,000 options awarded to executive directors in January 2010.
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$230,000 has been
charged to the income statement in the three month period ended 30 June 2010
(three month period ended 30 June 2009: US$217,000) and a similar amount
credited to other reserves. The total Q1 2010 charge of US$501,000 includes an
amount of US$201,000 in respect of the modification in December 2009 of certain
options whose exercise period was extended by five years.
The assumptions made for the options granted in January 2009 include a weighted
average risk-free interest rate of 4%, no dividend yield, a weighted average
expected life of options of three years and a volatility factor of expected
market price of 50%. The modification of options in December 2009 and options
granted in January 2010 were consistently valued in line with the Company's
valuation policy, assumptions made included a weighted average risk-free
interest rate of 4%, no dividend yield, and a volatility factor of 50%.
The following table illustrates the number and weighted average exercise prices
(WAEP) of, and movements in, share options during the period:
WAEP
Serica BVI Option Plan Number Cdn$
Outstanding at 31 December 2008 2,322,500 1.53
Expired during the year (347,500) 2.00
------------------------------
Outstanding at 31 December 2009 1,975,000 1.45
Expired during the period (75,000) 1.00
------------------------------
Outstanding as at 30 June 2010 1,900,000 1.47
------------------------------
Serica 2005 Option Plan GBP
Outstanding at 31 December 2008 8,479,000 0.87
Granted during the year 750,000 0.32
Cancelled during the year (557,000) 0.87
------------------------------
Outstanding at 31 December 2009 8,672,000 0.82
Granted during the period 4,203,500 0.68
------------------------------
Outstanding at 31 March 2010 12,875,500 0.77
------------------------------
Exercised during the period (52,000) 0.32
Granted during the period 250,000 0.65
Cancelled during the period (209,000) 0.88
------------------------------
Outstanding at 30 June 2010 12,864,500 0.77
------------------------------
In April 2010, 52,000 share options were exercised by employees other than
directors at a price of GBP 0.32.
9. Taxation
The major components of income tax in the consolidated income statement are:
Six months ended 30 June: 2010 2009
US$000 US$000
(unaudited) (unaudited)
------------------------------
Current income tax charge 433 -
Deferred income tax charge 1,797 -
------------------------------
Total tax charge 2,230 -
------------------------------
10. Publication of Non-Statutory Accounts
The financial information contained in this interim statement does not
constitute statutory accounts as defined in section 240 of the Companies Act
1985. The financial information for the full preceding year is based on the
statutory accounts for the financial year ended 31 December 2009. Those
accounts, upon which the auditors issued an unqualified opinion, have been
delivered to the Registrar of Companies.
This interim statement will be made available at the Company's registered office
at 87-89 Baker Street, London W1U 6RJ and on its website at
www.serica-energy.com and on SEDAR at www.sedar.com
INDEPENDENT REVIEW REPORT TO SERICA ENERGY PLC
Introduction
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30 June
2010 which comprises consolidated Income Statement, the consolidated Balance
Sheet, consolidated statement of Total Comprehensive Income, consolidated
Statement of Changes in Equity, consolidated Cash Flow Statement, and related
notes 1 to 10 We have read the other information contained in the half yearly
financial report and considered whether it contains any apparent misstatements
or material inconsistencies with the information in the condensed set of
financial statements.
This report is made solely to the company in accordance with guidance contained
in International Standard on Review Engagements 2410 (UK and Ireland) "Review of
Interim Financial Information Performed by the Independent Auditor of the
Entity" issued by the Auditing Practices Board. To the fullest extent permitted
by law, we do not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has been approved
by, the directors. The directors are responsible for preparing the half-yearly
financial report in accordance with International Accounting Standards 34,
"Interim Financial Reporting," as adopted by the European Union.
As disclosed in note 2, the annual financial statements of the company are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with International Accounting Standards
34, "Interim Financial Reporting," as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly, we
do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the condensed set of financial statements in the half-yearly financial
report for the six months ended 30 June 2010 is not prepared, in all material
respects, in accordance with International Accounting Standard 34 as adopted by
the European Union.
Ernst & Young LLP
London
4 August 2010
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