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| Share Name | Share Symbol | Market | Type |
|---|---|---|---|
| Bluepoint Data, Inc. | TSXV:BLP | TSX Venture | Common Stock |
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Hot Features
Premium
Serica Energy plc (TSX:SQZ)(AIM:SQZ) ("Serica" or the "Company") announces its
financial and operational results for the three and nine months ending 30
September 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:
Results for the third quarter 2010:
-- Highest quarterly Kambuna field gas and condensate sales to date
-- Sales Revenue up by 53% to US $10 million (2Q2010 - US$6.5 million)
-- Gross Profit up by 75% to US $5.4 million (2Q2010 - US$3.1 million)
-- Cash and equivalents at 30 September of US $40.5 million (30 June 2010 -
US$40.0 million)
Operations:
-- Serica working interest sales up by 45% to 2,948 boed (2Q2010 - 2,036
boed)
-- Oates exploration well in UK Central North Sea drilled at no cost to
Serica but unsuccessful
-- Dambus exploration well in Indonesia is a non-commercial gas discovery
-- Marindan exploration well in Indonesia was spudded on 27 October
-- Awarded UK 26th Round Licence in the Northern North Sea
Outlook:
-- Kambuna field expected to average 40 mmscfd through 2011 and beyond
-- Kambuna permanent facilities to be completed in the fourth quarter
-- Results of the Marindan-1 well expected in November
-- Columbus project sanction decision expected in Q2 2011 - first gas
targeted for mid 2013
-- 2011 drilling programme of at least four wells planned in UK, Ireland
and Indonesia
-- Continued emphasis on risk management across the portfolio
Paul Ellis, Chief Executive of Serica commented:
"We are delighted at the significant increase in revenue and profit delivered
this quarter by the Kambuna field. Production and sales from the field have
continued to increase steadily each quarter this year and with the imminent
completion of the permanent processing facilities we will be able to deliver
greater gas volumes if required. Our 2010 exploration programme continues with
Marindan-1 in the Kutai PSC and we look forward to the results from this well.
Next year again promises to be an exciting year as we are currently planning to
drill wells in the UK, Ireland and Indonesia as well as reaching development
sanction for the Columbus field in the UK.
Serica is in a sound financial position with $40m in cash and very little debt
and we will continue to add attractive prospects to the exploration portfolio
that can be drilled at low cost to the Company."
4 November 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 November 2010 and should be read in
conjunction with the attached unaudited interim consolidated financial
statements for the period ended 30 September 2010. The interim financial
statements for the three and nine months ended 30 September 2010 have been
prepared by and are the responsibility of the Company's management and the
Company's independent auditors have not performed a review of these financial
statements. 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 third quarter 2010 the Company completed the drilling of the Oates
exploration well in the UK North Sea and commenced the remaining two-well 2010
exploration drilling programme in Indonesia. Significant progress has also been
made in increasing production from the Kambuna field.
Production rates from the Kambuna field have increased steadily during the year.
Gas sales from the field averaged 40 million standard cubic feet per day
("mmscfd") in Q3 2010 and 42 mmscfd in September. From every million cubic feet
of gas over 80 barrels of condensate were extracted for sale. Serica generated a
gross profit of US$5.4 million in Q3 2010 from its 25% interest in the Kambuna
field, the Company's largest quarterly gross profit to date.
As previously reported in August, the Kambuna field operator Salamander Energy
plc ("Salamander") announced that following an independent reserves audit of its
operated fields at 30 June 2010, it has re-stated its proved and probable ("2P")
reserves in the Kambuna field. The operator also noted 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. 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.
In August, the Oates prospect was drilled in Block 22/19c in the UK Central
North Sea and reached total depth without encountering hydrocarbons.
The Dambus prospect, the first of the two-well 2010 exploration programme in the
Kutai PSC in Indonesia, was spudded in September and drilling completed in
October. Whilst hydrocarbons were encountered these are not expected to be
commercially exploitable at current gas prices unless additional resources are
found in nearby prospects and leads. The rig has now moved to the Marindan
prospect. This well was spudded on 27 October and drilling operations are
continuing.
The Columbus Front End Engineering and Design ("FEED") project is continuing,
along with commercial negotiations amongst the interested parties, with the goal
of reaching a sanction decision in Q2 2011.
In October 2010 Serica announced that, in the 26th Round of UK Offshore
Licensing, the Company had been awarded a Production Licence over Blocks 210/19a
and 210/20a in the Northern North Sea and that possible grants of further
licences applied for by Serica remain subject to the results of environmental
assessments by the Department of Energy and Climate Change. Serica will be the
operator of the new licence and has a 100% interest.
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 currently approximately US$5.60 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 significant volumes of condensate (light oil) and currently
approximately 80 barrels per million standard cubic feet of gas are extracted
for sale. The 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 September fetched a price of US$78.65.
The three Kambuna field development wells are very productive and, although the
three wells are usually on production, if any one well is required to be shut
down for maintenance or survey, there is sufficient productive capacity in the
two remaining wells to meet contractual gas sales requirements.
In Q3 2010 gross Kambuna field sales were 3,725 million standard cubic feet of
gas (Q2 2010: 2,659 mmscf, Q1 2010: 2,016 mmscf) and 309,000 barrels of
condensate (Q2 2010: 187,000 bbl, Q1 2010: 165,000 bbl), equivalent to average
daily sales for the quarter of 40.5 mmscfd and 3,354 bbl/day. In September 2010,
average gas sales of 42 mmscfd were achieved, the highest monthly figure to
date.
Under the Take or Pay provisions of the gas sales contracts, at the end of each
12 month contract 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. Negotiations with PLN regarding Take
or Pay for the year to August 2010 are in progress.
As already reported, the Kambuna field operator Salamander Energy, commissioned
an independent reserves audit of its operated fields, including the Kambuna
field. This audit was 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 in the Kambuna field made by same
auditors as at 31 December 2009 for Serica's 2009 annual report.
The operator's new estimates of reserves rely primarily on shut-in and 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 a further well, should future reservoir
performance indicate this to be required to support production levels in 2012
onwards, and the planned installation of gas compression could be brought
forward.
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 after the year-end for Serica's annual reserves
filings.
United Kingdom
Columbus Field - Block 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
those at Columbus. It is planned that the area will be developed jointly.
In June 2010 Serica announced that agreement had been reached with BG and with
Arran field operator Dana Petroleum Limited whereby BG will carry out FEED
studies 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
revised Columbus Field Development Plan ("FDP") to the UK Department of Energy
and Climate Change.
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 in Q2 2011. Production from the Columbus field is
expected to commence 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.
In January 2010 Serica reached agreement with Premier Oil plc ("Premier") for
the farm-out of Block 22/19c. Under the terms of the farm-out agreement, Premier
funded the Oates exploration well and assumed the role of operator. Serica was
carried through the well and retains a 50% interest.
The Oates well 22/19c-6 was spudded on 30 July. The target of the well was the
Palaeocene age Forties Sandstone, which is a significant oil and gas producing
reservoir in the Central North Sea. The data acquired on the Oates well confirms
that the Forties Sandstone was entered at 9,531 feet measured depth ("MD") BRT
but logging indicates that no hydrocarbons are present in the sands at this
location and the well was plugged and abandoned as a dry hole. Detailed analysis
of the well results will be used to evaluate the remaining potential of Block
22/19c, in which deeper horizons may also be prospective.
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.
Serica entered into a farm-out agreement with Agora Oil & Gas (UK) AS ("Agora")
under which Agora funded 70% of the Conan exploration well and 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 drilled in May 2010 but was
unsuccessful. Further prospectivity on the blocks is under review.
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. Serica secured the Trident IX jack-up drilling rig to drill
the Dambus and Marindan prospects and the rig was mobilised to the Dambus
location in August.
Serica and its partners spudded the Dambus-1 offshore exploration well on 4
September 2010. The objective of the well was to investigate the potential for
gas and oil accumulations in a stacked sequence of Miocene sands. Dambus-1 was
drilled as a deviated well to a total depth of 3,225 metres MD (2,713 metres
true vertical depth subsea ("TVDSS"). Based on the indicative data obtained
while drilling, hydrocarbons were encountered in clean sands in the gross
interval 2,070-2,102 metres MD (1,787-1,812 metres TVDSS) and there were
indications of further hydrocarbon-bearing sands in an interval below 2,760
metres MD (2,340 metres TVDSS). In order to obtain definitive data on the extent
of the discoveries, the well was plugged back and sidetracked and wireline logs,
pressure data and fluid samples were acquired. Sidetrack Dambus-1ST was drilled
to a total depth of 2,800 metres MD (2,568 metres TVDSS). Excellent quality
gas-bearing Miocene reservoir sands were encountered in the interval 2,025-2,047
metres MD (1,795-1,816 metres TVDSS) of which the net gas-bearing sands amounted
to approximately 18 metres.
Following an extensive logging and sampling programme in Dambus-1ST, the deeper
sands were found to be water bearing. The upper gas-bearing sands alone are not
currently expected to be commercially exploitable by themselves and the well was
plugged and abandoned. Other prospects and leads exist in the area around Dambus
and they will be reviewed in light of the Dambus result. The gas discovery at
Dambus will reduce the threshold volume required for the development of any
further resources that may be discovered in the immediate area.
The Trident IX drilling rig has now moved to the Marindan prospect in the
southern offshore part of the PSC which is being drilled as a deviated well in
order to test a number of Miocene clastic and carbonate targets in the optimum
locations. The Marindan-1 well was spudded on 27 October and will take
approximately 30 days to drill.
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 square kilometres 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, 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 has acquired
well-site survey data 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 - Licence FEL 1/09 - Blocks 5/17, 5/18, 5/22, 5/23, 5/27 and 5/28
Serica holds a 100% working interest in Licence FEL 1/09 covering six blocks 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 kilometres 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. In Indonesia in the Kutai PSC the Company is
drilling the offshore Marindan prospect and also plans to drill an onshore
prospect in the Kutai PSC and a well in the East Seruway PSC. In Ireland plans
are being made to drill the Boyne and Liffey oil prospects and one or more wells
are expected to be drilled offshore UK. In October, Serica was awarded new
offshore exploration acreage in the Northern North Sea in the UK 26th Licence
Round. Further possible UK licence awards are pending.
With the Kambuna field now producing at contract rates and the permanent
facilities due to be completed this year, average field production rates of 40
mmscfd are expected from the current wells at least through 2011. Further field
evaluation during that period will determine whether additional facilities
and/or development wells 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 is aimed at achieving a project sanction decision in Q2 2011,
enabling first gas in mid 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 Q3 2010 results of operations and other financial
information is set out below.
Results of Operations
2010 2010 2010 2009 2009 2009 2009
--------------------------------------------------------
Q3 Q2 Q1 Q4 Q3 Q2 Q1
US$000 US$000 US$000 US$000 US$000 US$000 US$000
Continuing
operations
Sales revenue 10,018 6,537 5,334 3,476 4,167 - -
Cost of sales (4,612) (3,450) (2,682) (4,204) (2,172) - -
--------------------------------------------------------
Gross profit/(loss) 5,406 3,087 2,652 (728) 1,995 - -
Expenses:
Administrative
expenses (1,714) (1,758) (1,847) (2,013) (1,387) (1,615) (1,624)
Foreign exchange
gain/(loss) 105 18 80 21 (64) 250 21
Pre-licence costs (134) (665) (761) (387) (88) (243) (183)
Asset write offs (29) (77) - (1,159) (66) (221) (7,147)
Share-based
payments (233) (230) (501) (966) (206) (217) (298)
Depreciation (29) (12) (24) (30) (30) (29) (29)
--------------------------------------------------------
Operating
profit/(loss)
before net finance
revenue and tax 3,372 363 (401) (5,259) 154 (2,075) (9,260)
Profit on disposal - - - 26,864 - - -
Finance revenue 13 20 130 596 7 11 279
Finance costs (921) (1,001) (1,267) (1,724) (884) (439) (707)
--------------------------------------------------------
Profit/(loss) before
taxation 2,464 (618) (1,538) 20,477 (723) (2,503) (9,940)
Taxation charge (2,183) (1,028) (1,202) (1,329) (202) - -
--------------------------------------------------------
Profit/(loss) for
the period 281 (1,646) (2,740) 19,148 (925) (2,503) (9,940)
--------------------------------------------------------
Basic and diluted
loss per share
(US$) N/A (0.01) (0.02) N/A (0.01) (0.01) (0.06)
Basic earnings per
share (US$) 0.002 N/A N/A 0.11 N/A N/A N/A
Diluted earnings per
share (US$) 0.002 N/A N/A 0.11 N/A N/A N/A
Serica generated a gross profit of US$5.4 million for the three months ended 30
September 2010 ("Q3 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 Q3 2010, gross Kambuna field gas production averaged 40.5 mmscf per day (Q2
2010: 29.2 mmscf) together with average condensate production of 3,390 barrels
per day (Q2 2010: 2,666 bpd). Field commissioning work continued through the
period.
The Q3 2010 gas production was sold at prices averaging US$5.48 per mscf and
generated revenue of US$5.1 million (Q2 2010: US$3.5 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 Q3 2010
earned US$4.9 million (Q2 2010: US$3.0 million) of revenue net to Serica.
Cost of sales were driven by production from the Kambuna field and totalled
US$4.6 million in Q3 2010 (Q3 2009: US$2.2 million, Q2 2010: US$3.4 million).
The charge comprised operating costs of US$2.2 million and non cash depletion
and amortisation of US$2.4 million. The operating costs of US$2.2 million
include temporary Early Production Facility charges of US$0.8 million which are
currently being incurred until the completion of the permanent Onshore Receiving
Facility in the fourth quarter 2010.
The Company generated a profit before tax of US$2.5 million for Q3 2010 compared
to a loss before tax of US$0.7 million for the three months ended 30 September
2009 ("Q3 2009").
Administrative expenses of US$1.7 million for Q3 2010 remained at a similar
level to Q2 2010, but showed an increase from US$1.4 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 Q3
2009.
The impact of foreign exchange was not significant in Q3 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$0.1 million for Q3 2010 was consistent
with the Q3 2009 charge of US$0.1 million. The higher charge of US$0.7 million
in Q2 2010 was due to the significant work undertaken during that quarter on the
26th Licencing Round in the UK.
There were no significant asset write offs in Q3 2010 or Q3 2009.
Share-based payment costs of US$0.2 million in Q3 2010 reflected share options
granted and compared with US$0.2 million for Q3 2009 and US$0.2 million for Q2
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$0.01 million for Q3 2010
compares with US$0.01 million for Q3 2009 and US$0.02 million for Q2 2010. The
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 has been negligible in 2010 and 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.
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 Q3 2010 taxation charge of US$2.2 million reflects current tax liabilities
of US$0.4 million arising from income in Indonesia and a deferred tax charge of
US$1.8 million arising from Indonesian operations.
The net earnings per share of US$0.002 for Q3 2010 compare to a net loss per
share of US$0.01 for Q3 2009.
Summary of Quarterly
Results
2010 2010 2010 2009 2009 2009 2009 2008
Quarter
ended: 30 Sep 30 Jun 31 Mar 31 Dec 30 Sep 30 Jun 31 Mar 31 Dec
US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000
---------------------------------------------------------------
Sales revenue 10,018 6,537 5,334 3,476 4,167 - - -
Profit/(loss)
for the
quarter 281 (1,646) (2,740) 19,148 (925) (2,503) (9,940) (26,886)
Basic and
diluted loss
per share
US$ - (0.01) (0.02) - (0.01) (0.01) (0.06) (0.16)
Basic and
diluted
earnings per
share US$ 0.002 - - 0.11 - - -
---------------------------------------------------------------
The Q4 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 Q3 2009 result includes first revenue streams from the Kambuna field.
The Q1 2009 loss includes asset write offs of US$7.1 million on the Chablis asset.
The Q4 2008 loss includes asset write offs of US$23.6 million on the Chablis,
Oak and Spain assets.
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 September 30 June 31 March 31 December
2010 2010 2010 2009
US$000 US$000 US$000 US$000
---------------------------------------------------
Current assets:
Inventories 3,696 3,187 2,930 2,855
Trade and other
receivables 13,459 14,927 9,387 106,381
Financial assets - - - 1,500
Cash and cash
equivalents 40,513 39,974 62,429 18,412
---------------------------------------------------
Total Current assets 57,668 58,088 74,746 129,148
Less Current liabilities:
Trade and other
payables (15,676) (9,276) (7,558) (9,622)
Financial liabilities - - - (46,447)
---------------------------------------------------
Total Current liabilities (15,676) (9,276) (7,558) (56,069)
---------------------------------------------------
Net Current assets 41,992 48,812 67,188 73,079
At 30 September 2010, the Company had net current assets of US$42.0 million
which comprised current assets of US$57.7 million less current liabilities of
US$15.7 million, giving an overall decrease in working capital of US$6.8 million
in the three month period.
Inventories increased from US$3.2 million to US$3.7 million over the Q3 2010
period due to an increase in materials held for the ongoing drilling in
Indonesia.
Trade and other receivables at 30 September 2010 totalled US$13.5 million, which
included US$5.4 million of trade debtors from gas and condensate sales in August
and September. Other significant items included US$2.4 million for the Company's
share of a rig deposit for the Kutai drilling programme, other 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 increased from US$40.0 million to US$40.5 million in
the quarter. In Q3 2010 the Company generated revenues from the Kambuna field
but incurred costs on drilling 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$15.7 million at 30 September 2010 chiefly include
significant trade creditors and accruals from the ongoing Kutai drilling and the
completion of the permanent production facilities of the Kambuna field. Other
smaller items include current tax payable in Indonesia, sundry creditors and
accruals from the ongoing Indonesian and UK exploration programmes, and payables
for administrative expenses and other corporate costs.
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 September 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 September 30 June 31 March 31 December
2010 2010 2010 2009
US$000 US$000 US$000 US$000
---------------------------------------------------
Exploration & evaluation
assets 85,080 75,480 69,564 66,030
Property, plant and
equipment 52,257 53,130 53,690 53,864
Goodwill 148 148 148 148
Financial assets 1,458 1,394 - -
Long-term other
receivables 6,187 5,858 5,650 5,639
Financial liabilities (12,313) (12,268) (23,119) (24,371)
Deferred income tax
liabilities (4,972) (3,231) (2,406) (1,435)
During Q2 2010, total investments in exploration and evaluation assets ("E&E
assets") increased from US$75.5 million to US$85.1 million. These amounts
exclude the Kambuna development and production costs which are classified as
property, plant and equipment.
The net US$9.6 million increase consists of additions incurred on the following
assets:
In Indonesia, US$6.8 million was incurred on exploration drilling in the Kutai
PSC and US$0.4 million was spent on exploration work and G&A on the East Seruway
concession.
In the UK & Western Europe, US$1.4 million of expenditure was incurred on the
Columbus FDP (including FEED work on the BLP), US$0.5 million on a site survey
in Ireland and US$0.4 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 was
borne by a third party following the farm-out announced in Q1 2010. US$0.1
million was incurred on the Morocco interests.
Property, plant and equipment comprises the net book amount of the capital
expenditure on the Company's 25% interest in the Kambuna development. During Q3
2010, the Company's net book amount for its Kambuna interest decreased from
US$53.0 million to US$51.5 million. This US$1.5 million decrease comprises
depletion charges of US$2.4 million arising from the production of gas and
condensate in the quarter less US$0.9 million of capex additions. The property,
plant and equipment also includes balances of US$0.7 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 September 2010 represent US$1.5 million of restricted
cash deposits.
Long-term other receivables of US$6.2 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$5.0 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 September 30 June 31 March 31 December
2010 2010 2010 2009
US$000 US$000 US$000 US$000
---------------------------------------------------
Total share capital 207,657 207,657 207,633 207,633
Other reserves 18,161 17,928 17,698 17,197
Accumulated deficit (55,981) (56,262) (54,616) (51,876)
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$17.9 million
to US$18.2 million reflects a credit to equity in respect of share-based payment
charges in Q3 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 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. The
production from Kambuna complements the Company's exploration activities with
sales revenues 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 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.
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 September 2010,
the Company held cash and cash equivalents of US$40.5 million and US$1.5 million
of restricted cash. Following the repayment, management decided to reduce the
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.
As of 3 November 2010, the Company's debt facility was US$11.8 million drawn out
of a total facility of US$50 million, leaving a net cash position of
approximately US$27.5 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 September 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 132
31 December 2011 525
Capital expenditure commitments, obligations and plans
The Company's most significant planned capital expenditure commitments for Q4
2010 are those required to fund the completion of both the Kutai drilling
operations for the Dambus and Marindan prospects and the permanent production
facilities for the Kambuna field. As at 30 September 2010, the Company's share
of outstanding 2010 drilling costs is US$7.4 million and its share of expected
outstanding capital costs in respect of its 25% interest on the Kambuna project
totalled approximately US$2.7 million. These expected costs include amounts
contracted for but not provided as at 30 September 2010.
In addition, the Company also has obligations to carry out defined work
programmes on its oil and gas properties, under the terms of the award of rights
to these properties, over the next two period/years as follows:
Period ending 31 December 2010 US$ nil
Year ending 31 December 2011 US$11,250,000
These obligations reflect the Company's share of the defined work programmes and
were not formally contracted at 30 September 2010. The Company is not obliged to
meet other joint venture partner shares of these programmes. The most
significant 2011 obligations are in respect of the East Seruway PSC and Kutai
PSC in South East Asia. 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 September 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 3 November 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 September 2010 the Company
generated a profit before tax of US$2.5 million. At 30 September 2010 the
Company had US$28.2 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$50 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 November 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 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
Consolidated Group Income Statement
Unaudited Three Three Nine Nine
months months months Months
ended ended Ended Ended
30 Sep 30 Sep 30 Sep 30 Sep
2010 2009 2010 2009
Notes US$000 US$000 US$000 US$000
Sales revenue 10,018 4,167 21,889 4,167
Cost of sales (4,612) (2,172) (10,744) (2,172)
----------------------------------------------------
Gross profit 5,406 1,995 11,145 1,995
Administrative
expenses (1,714) (1,387) (5,319) (4,626)
Foreign exchange
gains/(loss) 105 (64) 203 207
Pre-licence costs (134) (88) (1,560) (514)
Asset write offs 4 (29) (66) (106) (7,434)
Share-based
payments (233) (206) (964) (721)
Depreciation (29) (30) (65) (88)
----------------------------------------------------
Operating
profit/(loss)
before finance
revenue and tax 3,372 154 3,334 (11,181)
Finance revenue 13 7 163 45
Finance costs (921) (884) (3,189) (2,030)
----------------------------------------------------
Profit/(loss)
before taxation 2,464 (723) 308 (13,166)
Taxation charge
for the period 9 (2,183) (202) (4,413) (202)
----------------------------------------------------
Profit/(loss) for
the period 281 (925) (4,105) (13,368)
----------------------------------------------------
----------------------------------------------------
Profit/(loss) per
ordinary share
(EPS)
Basic and diluted
EPS for period
(US$) 0.002 (0.01) (0.02) (0.08)
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 Sep 30 June 31 Dec 30 Sep
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 85,080 75,480 66,030 82,755
Property, plant
and equipment 5 52,257 53,130 53,864 106,715
Goodwill 148 148 148 295
Financial assets 1,458 1,394 - -
Other receivables 6,187 5,858 5,639 8,337
----------------------------------------------------
145,130 136,010 125,681 198,102
----------------------------------------------------
Current assets
Inventories 3,696 3,187 2,855 4,752
Trade and other
receivables 13,459 14,927 106,381 10,468
Financial assets - - 1,500 1,500
Cash and cash
equivalents 40,513 39,974 18,412 19,514
----------------------------------------------------
57,668 58,088 129,148 36,234
----------------------------------------------------
----------------------------------------------------
TOTAL ASSETS 202,798 194,098 254,829 234,336
----------------------------------------------------
Current
liabilities
Trade and other
payables (15,676) (9,276) (9,622) (16,419)
Financial
liabilities 6 - - (46,447) (64,782)
Non-current
liabilities
Financial
liabilities 6 (12,313) (12,268) (24,371) -
Deferred income
tax liabilities (4,972) (3,231) (1,435) (295)
----------------------------------------------------
TOTAL LIABILITIES (32,961) (24,775) (81,875) (81,496)
----------------------------------------------------
NET ASSETS 169,837 169,323 172,954 152,840
----------------------------------------------------
----------------------------------------------------
Share capital 7 207,657 207,657 207,633 207,633
Other reserves 18,161 17,928 17,197 16,231
Accumulated
deficit (55,981) (56,262) (51,876) (71,024)
----------------------------------------------------
TOTAL EQUITY 169,837 169,323 172,954 152,840
----------------------------------------------------
----------------------------------------------------
Serica Energy plc
Statement of Changes in Equity
For the period ended 30 September 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
Share-based payments - 233 - 233
Profit for the period - - 281 281
------------------------------------------------------
At 30 September 2010
(unaudited) 207,657 18,161 (55,981) 169,837
------------------------------------------------------
------------------------------------------------------
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 September
Unaudited Three Three Nine Nine
months months Months Months
ended ended Ended Ended
30 Sep 30 Sep 30 Sep 30 Sep
2010 2009 2010 2009
US$000 US$000 US$000 US$000
Cash flows from operating
activities:
Operating profit /(loss) 3,372 154 3,334 (11,181)
Adjustments for:
Depreciation 29 30 65 88
Depletion 2,421 1,438 5,606 1,438
Asset write-offs 29 66 106 7,434
Share-based payments 233 206 964 721
Increase in receivables and
other assets (124) (4,251) (8,474) (7,791)
(Increase)/decrease in
inventories (509) (142) (841) (134)
Increase/(decrease) in payables 6,400 347 6,054 157
--------------------------------------------
--------------------------------------------
Net cash in/(outflow)from
operations 11,851 (2,152) 6,814 (9,268)
--------------------------------------------
Cash flows from investing
activities:
Purchases of property, plant &
equipment (1,577) (5,009) (4,064) (39,715)
Purchases of E&E assets (9,600) (6,978) (19,050) (20,478)
Proceeds from disposals 382 - 99,532 -
Interest received 13 7 727 45
--------------------------------------------
Net cash (out)/inflow from
investing (10,782) (11,980) 77,145 (60,148)
--------------------------------------------
Cash proceeds from financing
activities:
Proceeds from loans and
borrowings - 5,000 - 32,821
Repayments of loans and
borrowings - - (60,050) -
Proceeds on exercise of options - - 24 -
Finance costs paid (530) (351) (1,832) (713)
--------------------------------------------
Net cash (out)/inflow from
financing (530) 4,649 (61,858) 32,108
--------------------------------------------
Cash and cash equivalents
Net increase/(decrease) in
period 539 (9,483) 22,101 (37,308)
Amount at start of period 39,974 28,997 18,412 56,822
--------------------------------------------
Amount at end of period 40,513 19,514 40,513 19,514
--------------------------------------------
--------------------------------------------
Serica Energy plc
Notes to the Unaudited Consolidated Financial Statements
1. Corporate information
The interim condensed consolidated financial statements of the Group for the
nine months ended 30 September 2010 were authorised for issue in accordance with
a resolution of the directors on 3 November 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 nine months
ended 30 September 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 Q3 2010 Management's
Discussion and Analysis. As at 30 September 2010 the Group had US$28.2 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 nine months ended 30 September 2010 and 2009 and certain asset
and liability information as at 30 September 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.
Nine months ended 30 Indonesia Vietnam UK & NW Spain Total
September 2010 Europe
(unaudited) US$000 US$000 US$000 US$000 US$000
Continuing
-----------
Revenue 21,889 - - - 21,889
-----------
-----------
Profit/(loss) for the
period 6,529 - (10,413) (221) (4,105)
-----------
Other segmental
information
Segmental assets 97,262 - 71,730 45 169,037
Unallocated assets 33,761
-----------
Total assets 202,798
-----------
Segmental liabilities (16,591) - (4,057) - (20,648)
Unallocated
liabilities (12,313)
-----------
Total liabilities (32,961)
-----------
Nine months ended 30 Indonesia Vietnam UK & NW Spain Total
September 2009 Europe
(unaudited) US$000 US$000 US$000 US$000 US$000
Continuing
-----------
Revenue 4,167 - - - 4,167
-----------
-----------
Loss for the period (24) (11) (13,169) (164) (13,368)
-----------
Other segment
information
Segment assets 140,679 14,838 63,223 66 218,806
Unallocated assets 15,530
-----------
Total assets 234,336
-----------
Segment liabilities (9,114) (1,032) (6,264) (9) (16,419)
Unallocated
liabilities (65,077)
-----------
Total liabilities (81,496)
-----------
4. Exploration and Evaluation Assets
Total
US$000
Net book amount:
At 1 January 2010 (audited) 66,030
Additions 19,156
Write offs (106)
---------
At 30 September 2010 (unaudited) 85,080
---------
5. Property Plant and Equipment
Fixtures,
Oil and gas Computer / IT fittings 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 3,375 76 613 4,064
--------------------------------------------------------
At 30 September 2010
(unaudited) 58,310 280 1,044 59,634
--------------------------------------------------------
Depreciation and
depletion:
At 1 January 2010
(audited) 1,171 174 361 1,706
Charge for the
period 5,606 19 46 5,671
--------------------------------------------------------
At 30 September 2010
(unaudited) 6,777 193 407 7,377
--------------------------------------------------------
Net book amount
At 30 September 2010 51,533 87 637 52,257
--------------------------------------------------------
--------------------------------------------------------
At 1 January 2010 53,764 30 70 53,864
--------------------------------------------------------
--------------------------------------------------------
6. Financial Liabilities
30 September 2010 31 December 2009
US$000 US$000
Non-current bank loans:
Variable rate multi-option facility (12,313) (24,371)
Current bank loans:
Variable rate multi-option facility - (46,447)
Bank loans
The total gross liability as at 30 September 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.
Following the receipt of proceeds from the disposal of assets to Kris Energy and
the significant repayments of borrowings in the year to date, management decided
to reduce the facility to US$50 million total capacity so as to restrict ongoing
facility costs.
Further details of the Company's financial resources and debt facilities are
given in the Q3 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 Share Share Total Share
paid: capital premium 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 September 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 September 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$233,000 has been
charged to the income statement in the three month period ended 30 September
2010 (three month period ended 30 September 2009: US$206,000) 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 September 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 and September 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:
Nine months ended 30 September: 2010 2009
US$000 US$000
(unaudited) (unaudited)
--------------------------------
Current income tax charge (876) (202)
Deferred income tax charge (3,537) -
--------------------------------
Total tax charge (4,413) (202)
--------------------------------
10. Publication of Non-Statutory Accounts
The financial information contained in this interim statement does not
constitute statutory accounts as defined in the Companies Act. 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 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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