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| Share Name | Share Symbol | Market | Type |
|---|---|---|---|
| Bluepoint Data, Inc. | TSXV:BLP | TSX Venture | Common Stock |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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Serica Energy plc ("Serica" or the "Company") (TSX:SQZ)(AIM:SQZ), the oil and
gas exploration and production company, announces its results for the year ended
31 December 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
Financial:
-- 2010 sales revenue US$31.3 million
-- Gross profit before expenses US$12.5 million
-- Loss before tax US$43.2 million after charges of:
-- US$29.5 million exploration costs
-- US$11.8 million relating to reappraisal of Kambuna field reserves
-- Carry forward UK ring fence tax allowances available US$126 million
-- Since the year end:
-- All outstanding debt repaid
-- Current unrestricted cash balances US$21 million
Operations:
-- Kambuna field:
-- Consistently delivered at rate demanded throughout the year
-- 2010 gross average daily sales 31 mmscfd gas and 2,685 bpd
condensate
-- 2011 YTD gross average daily sales c.40 mmscfd gas and c.3,000 bpd
condensate
-- Condensate price strong - US$106 per barrel realised in February
2011
-- RPS estimate 8.2 mmboe remaining gross reserves at 1/1/11
-- Columbus field:
-- Front end engineering studies largely completed
-- Negotiations continue for export via Lomond field but alternative
routes under review
-- NSAI estimate 12.6 mmboe gross reserves in Block 23/16f
-- Uncertainty introduced by UK Budget tax increase
-- Outcome of 2010 exploration drilling:
-- Conan and Oates encountered water-bearing sands - costs largely met
by partners
-- Dambus and Marindan encountered gas but sub-commercial
Corporate:
-- Paul Ellis, CEO retires but will remain involved in a consultancy
capacity
-- Tony Craven Walker, Chairman will act as Chairman and interim CEO
-- Peter Sadler, COO becomes Business Development Director, to focus on
acquisition strategy
-- Mitch Flegg, currently responsible for Serica's Drilling & Developments,
becomes COO
Outlook:
-- Prospects identified for 2011/12 drilling:
-- UK/Ireland - Spaniards, Doyle, Boyne, Liffey
-- Indonesia - Kambuna North, Kutai, East Seruway
-- Final award of three UK offshore blocks under UK 26th Licensing Round
anticipated
-- Indonesian assets under discussion with interested parties which may
lead to a sale
-- New acreage under negotiation
-- Financial resources to support acquisitions
Paul Ellis, Chief Executive of Serica commented:
"Despite a very active year it was disappointing that we did not experience
success with the drill bit. However, we have a number of very interesting
prospects yet to drill and, although the recent Budget tax changes are likely to
have an impact, we continue to evaluate options to develop the Columbus field.
Following a strategic overview, we are considering proposals which may result in
us selling our properties in Indonesia, including our remaining interest in the
Kambuna field. Such a sale, in addition to adding to our cash position, will
enable us to release resources to develop new opportunities through acquisition
or licence awards.
I am retiring as CEO in April but I shall be continuing to work with the Company
in relation to some of the new areas currently under negotiation. I am extremely
confident in the Company's future and its management and strongly believe in its
success."
Tony Craven Walker, Chairman of Serica commented:
"Paul Ellis, our CEO, is retiring having reached normal retirement age but I am
delighted that he will be continuing to provide his invaluable services as
representative on some of our ongoing projects. Paul has been key to building
both the technical and operating skills of the Company and I and the Board would
like to express our thanks for the contribution he has made whilst he has been
with us.
Until we have identified a successor I shall be acting as both Chairman and
interim CEO. In this capacity I will have a very strong executive team. Peter
Sadler, who has been our COO, is taking on the new responsibility of Business
Development Director to identify acquisition opportunities which complement our
existing business and provide new growth potential. In this role he will be
working closely with Chris Hearne, our Finance Director. Peter's position as COO
will be taken by Mitch Flegg who has been responsible for the successful
drilling operations of Serica's wells over the past 5 years and for the field
developments at Kambuna and Columbus. This is a strong team and I am looking
forward to working with them.
Serica is underpinned by its core assets and a healthy balance sheet. With
unrestricted cash resources, no debt, experienced management, exploration
prospects and the opportunity to expand into new areas the future holds great
potential."
31 March 2011
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.
Notes to Editors
Serica Energy plc is an oil and gas exploration and production company based in
London, England, and holds exploration and production licences in the UK
offshore, onshore Spain, the Atlantic Margins of Ireland and Morocco and in
Indonesia. The Company's producing and development assets are a 25% interest in
the producing Kambuna field offshore Indonesia and a 50% stake in the UK Central
North Sea Columbus field.
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.
CHAIRMAN'S REPORT
Dear Shareholder
I write at a time when unprecedented events are taking place in North Africa and
the Middle East and the political landscape is changing in many of the important
oil producing nations. Oil prices are again rising strongly and business
horizons are changing quickly.
How long it will be before the situation stabilises is uncertain but, with the
scale of the disaster in Japan also likely to slow the development of nuclear
energy, it is clear that the need for new sources of oil and gas is stronger
than ever. The role of smaller players in developing new ideas in previously
overlooked or under explored regions has been fully demonstrated in recent years
and that role will continue. It is our firm belief that the Company has the
skills and potential to pursue such opportunities.
In 2010, Serica carried out its most active exploration programme, drilling a
total of four wells in the East Irish Sea, the UK North Sea and Indonesia. The
results were, however, disappointing. The two wells drilled in Indonesia
encountered hydrocarbons but not in commercial quantities. Of the four wells,
three were drilled by Serica as operator. I am pleased to report that all were
drilled to a very high technical standard, fully demonstrating the Company's
operating skills. A significant proportion of the Company's share of UK drilling
costs was borne by partners as the result of farm-outs. However, we are writing
off US$29.5 million to account for seismic, drilling and other costs borne by
the Company in 2010 and earlier years. The bulk of this relates to wells drilled
in Indonesia.
In Indonesia, the Kambuna field consistently delivered at the rate demanded
throughout the year and continues to do so. However the greater than expected
reservoir pressure decline noted in our second and third quarter results has not
significantly improved and has resulted in a downward revision to reserves. We
have accordingly taken an impairment charge of US$11.8 million to the carrying
cost of the asset.
In the light of these results, the Board has been reviewing its strategy and the
areas in which it operates. In Indonesia, the Board has felt that the cost and
difficulty of doing business is too high compared to the potential rewards and
we have already been gradually disposing of our interests. This has enabled us
to realise material profits from two sales over the past two years and we are
currently in discussions with interested parties with a view to the possible
disposal of the balance of our Indonesian properties. In the UK, the infrequency
of licensing round awards and the challenges in gaining access to existing
infrastructure, where we have yet to reach agreement on commercial terms that
would enable us to bring our Columbus field onto production, provide additional
constraints. The change to North Sea taxation recently announced by the
Chancellor of the Exchequer is likely to add further uncertainty to delay the
development of new North Sea fields.
Whilst continuing to seek ways in which we can expand and accelerate our
business in the UK the Company is now setting its sights on new areas where we
feel there are opportunities for greater growth. We have a strong position in
the waters west of Ireland, where we have already shown the presence of oil in
the Slyne Basin, and have emerging positions in the Irish Rockall basin and in
the waters off Morocco. We intend to build on these as well as looking for new
underexplored areas. We expect to be successful in the award of three out of the
four UK offshore blocks for which we applied in the 26th Licensing Round and are
in negotiations for new prospective acreage overseas.
As we seek to expand these activities we are announcing a number of executive
changes. Paul Ellis, our Chief Executive, reaches normal retirement age on 10th
April 2011 and, in accordance with his contract, will be retiring from the
Company on that date. Whilst he is retiring at a time when the Company has yet
to see the full benefits of his hard work I personally, and the Board, would
like to thank him for all he has done to build the technical and operating
skills of the Company and to lay the foundations for the future. Until the
process of identifying a successor to the CEO has been completed I shall be
acting as Chairman and interim CEO and I am pleased that Paul will continue to
provide his full support to the Company in a consultancy capacity during this
period including representing the Company for new licence awards currently under
negotiation.
It is a major plank of the Company's forward strategy to identify acquisition
possibilities, both in the UK and overseas, to complement our exploration
activities and to provide Serica with additional growth potential. To further
this objective, Peter Sadler will be taking up the role of Business Development
Director. I am pleased that this will enable the Company to benefit from Peter's
skills and his wide experience to the full. Mitch Flegg, who has been
responsible for the successful drilling operations of all of Serica's wells over
the past five years and for the field development studies for Columbus, will be
taking over from Peter as Chief Operating Officer. Mitch has the undoubted
experience for the role and I am delighted that he has accepted the position.
Since the start of 2011 the Company has paid off all outstanding debt and
retains undrawn facilities amounting to US$50 million. With technical expertise,
proven operating capability, no debt and cash resources currently standing at
some US$21 million the Company is in a good position to seek new exploration and
partnership opportunities whilst building on its existing acreage. We recognise
that the risks and the time frames involved in exploration are significant
limiting factors and the disappointing outcome of our 2010 exploration programme
has been a setback. It is to increase opportunity, spread risk, accelerate
return and improve the chance of success that, as we expand our portfolio and
focus on new areas, we shall be reviewing the potential for acquisition.
The Company's share price has performed poorly over the year, reflecting the
lack of drilling success in 2010 and the downward revision to Kambuna reserves.
However, the Company's core assets and healthy balance sheet provide a strong
underpinning and I hope that 2011 will see a substantial improvement for all
shareholders.
Tony Craven Walker
Chairman
30 March 2011
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following management's discussion and analysis ("MD&A") of the financial and
operational results of Serica Energy plc and its subsidiaries (the "Group")
should be read in conjunction with Serica's consolidated financial statements
for the year ended 31 December 2010.
Serica's activities are based in the UK, Ireland, Spain, Morocco and Indonesia.
References to the "Company" include Serica and its subsidiaries where relevant.
All figures are reported in US dollars ("US$") unless otherwise stated.
CHIEF EXECUTIVE OFFICER'S REPORT - 2010
By the end of 2009, having achieved farm-outs in preparation for the Conan and
Oates exploration wells, commenced production from the Kambuna field and reduced
our exposure in South East Asia through the transaction with Kris Energy, Serica
anticipated an exciting year in 2010. However, all the hard work carried out to
establish an excellent starting point for the year did not ultimately bring the
rewards for which we had hoped.
In Indonesia, the difficulties encountered with the Kambuna field gas buyer in
2009 continued to affect gas sales well into 2010 and the buyer did not finally
resolve its problems until July, when contract rates were then achieved through
the end of the year. In mid-year we noted that Salamander Energy, the Kambuna
field operator, had reported a reduction in forecast Kambuna ultimate
recoverable reserves based on early indications of a greater than expected
reservoir pressure decline observed in one of the Kambuna wells. Given the
significant extrapolation required to make this forecast, and based on previous
experience with other similar reservoirs, we took the view that, in time, the
rate of pressure decline might reduce, leading to a less severe reserves
forecast.
However, by the end of 2010 there was little sign of any change in the decline
rate and our independent reserves evaluators, RPS, have therefore reduced
Serica's remaining reserves as shown in the table in our results. Serica's
original interest in the Kambuna field was 65% and through transactions in 2008
and 2009 we reduced our stake to 25%. As a result the reduction in reserves is
not as significant to the Company as it could have been. Kambuna gas sales in
2011 are continuing to meet expectations and average around 40 mmscfd gross,
with gross condensate sales around 3,400 bpd. The condensate sales price in
February 2011 was $105.88/bbl.
Our drilling programme in the Kutai PSC Indonesia encountered gas in both the
Dambus and Marindan offshore exploration wells, but unfortunately not in
commercial quantities. In November we announced that we were undertaking a
strategic review of our Indonesian assets and we are currently in discussion
with interested parties which may lead to a sale of the properties.
In 2009 we discovered non-commercial oil in a shallow Jurassic reservoir in the
Bandon well in our Slyne Basin licence FEL 1/06 off the west coast of Ireland
and, in 2010, we carried out the site surveys and environmental studies required
for further drilling. We now have all the data required to drill two deeper
Jurassic oil prospects at the Boyne and Liffey locations and are seeking a new
partner in the blocks prior to contracting a drilling rig. Due to the extreme
sea conditions experienced in the winter months it is only possible to drill a
well in the Irish Atlantic in the short summer drilling season. Whilst it is
possible to drill in 2011 it is more likely that drilling will take place in
2012.
We have also been continuing our studies in the Irish Rockall Basin Licence FEL
1/09, to refine our interpretation of the Muckish prospect. The Rockall Basin is
a highly underexplored area of the Atlantic Margin off the north west coast of
Ireland and we are making plans to be ready to drill the Muckish prospect in
2012.
In the UK we continued our efforts to secure commercial terms for the processing
and transportation agreements for Columbus field production via the adjacent
Lomond field, operated by BG Group ("BG").
Serica (on behalf of the Columbus partners) has been actively cooperating with
BG in the design and FEED studies for a Bridge Linked Platform ("BLP") to be
installed adjacent to the Lomond field platform that would receive production
from Columbus, Arran and other fields (including future BG developments) for
transportation via the Lomond field to the CATS and Forties pipeline systems. As
part of these studies, the Columbus partners carried out a pipeline route survey
from Columbus to the proposed BLP location.
However negotiations to date with BG have not secured acceptable terms and it is
currently uncertain that Columbus will be developed via Lomond. In parallel with
its negotiations with BG, Serica has therefore been evaluating alternative
export routes in conjunction with its partners in Block 23/16f and other field
operators in the area.
Netherland Sewell Associates Incorporated ("NSAI") has reviewed the sub-surface
data on Columbus and also Serica's detailed report prepared to complement the
Field Development Plan submission. The NSAI review incorporates wells drilled in
Block 23/21 to the south by BG and NSAI interprets the data to indicate that
some of the Columbus reserves may lie in Block 23/21. On this basis NSAI
interpret gross 2P reserves lying in Block 23/16f to be 12.6 mmboe, a net 6.3
mmboe to Serica. Further studies are required to determine the reserve
allocation between the blocks but the NSAI review results in a 2P reserves
reduction net to Serica of 2.5 mmboe.
We drilled two exploration wells in UK waters during the year, for each of which
we had high expectations.
In the East Irish Sea we drilled the Conan prospect in Block 113/26b, a Triassic
Sherwood Sandstone gas prospect lying about 10 kilometres from the North
Morecambe gas field. Although the well encountered the Sherwood reservoir, the
sands were water-bearing and the well was plugged and abandoned as a dry hole.
It is now believed that an anomalously thick anhydrite layer found above the
reservoir level was responsible for creating a seismic response that appeared to
indicate the presence of hydrocarbons and that this layer is thin or absent
above the examples of valid hydrocarbon responses seen over many of the gas
fields discovered in the East Irish Sea. The result has not changed the merits
of the Doyle prospect in the adjacent Block 113/27c. Serica has a 65% interest
in the Block and expects to see further drilling in this licence.
In the Central North Sea we drilled the Oates prospect in Block 22/19c, a
Palaeocene Forties Sandstone prospect that exhibits a very similar seismic
response to that seen at the Columbus field 20 kilometres to the east. The
Forties reservoir was encountered as prognosed but, as at Conan, the sands were
water-bearing. It has taken some time to understand why the exploration
technique that was 100% successful in the Columbus area (seven gas-condensate
discoveries in seven exploration wells) did not result in a hydrocarbon
discovery at Oates. The most likely reason for the false hydrocarbon indicator
is the anomalous nature of the overlying shale that can produce a very similar
response to that of hydrocarbons.
As is our normal practice we worked hard to minimise Serica's downside cost and
both of the UK wells were farmed out in order to achieve significant cost
reduction. The cost of the two wells to Serica was around US$3 million out of a
total of about US$24 million.
As we realise the value of our interests in Indonesia we can focus more
attention on areas of greater prospectivity and better commercial terms than
those currently available in South East Asia and we intend to reshape our
exploration portfolio on that basis. We shall also seek acquisitions that will
enable us to build the exploration portfolio more rapidly than is possible
through licence round awards.
With no debt and with the proven abilities to manage the downside of the
exploration business, Serica is well positioned to move forward with new and
exciting projects. Peter Sadler is taking responsibility as Business Development
Director to pursue acquisition opportunities for the Company and Mitch Flegg,
who has been with Serica since 2006, is to take over the position of Chief
Operating Officer. Both Peter and Mitch have a huge amount of experience to
bring to these roles and I look forward to seeing the results of their new
responsibilities.
Finally, while it has been a great pleasure to work with the Serica team since
2005 all good things must eventually come to an end. After nearly 43 years in
the E&P business the time has come for me to take a back seat and I shall be
retiring on 10th April. I expect to be involved in a consultancy role in the
future, helping the Company on its new course, and I still have a large personal
shareholding - so I will certainly be maintaining my interest in Serica's
future.
I should like to thank the Serica staff and the Board for supporting me over the
last 51/2 years and I remain very confident of the Company's ultimate success.
Paul Ellis, Chief Executive Officer
REVIEW OF LICENCE HOLDINGS AND OPERATIONS
Serica holds offshore licence interests in the UK North Sea, the UK East Irish
Sea, Ireland and Morocco, onshore licence interests in Spain and licence
interests both onshore and offshore in Indonesia.
The following table summarises the Company's Licences as at 31 December 2010.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Block(s) Description Role % at Location
----------------------------------------------------------------------------
31/12/10
----------------------------------------------------------------------------
UK
----------------------------------------------------------------------------
15/21g Exploration Non-operator 30% Central North Sea
----------------------------------------------------------------------------
22/19c Exploration Non-operator 50% Central North Sea
----------------------------------------------------------------------------
23/16f Columbus field
Development
planned Operator 50% Central North Sea
----------------------------------------------------------------------------
23/16g Exploration Operator 50% (1) Central North Sea
----------------------------------------------------------------------------
48/17d Exploration Operator 65% (2) Southern Gas basin
----------------------------------------------------------------------------
110/2d Exploration Operator 100% East Irish Sea
----------------------------------------------------------------------------
113/26b Exploration Operator 65% East Irish Sea
----------------------------------------------------------------------------
113/27c Exploration Operator 65% East Irish Sea
----------------------------------------------------------------------------
210/19a Exploration Operator 100% Northern North Sea
----------------------------------------------------------------------------
210/20a Exploration Operator 100% Northern North Sea
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Ireland
----------------------------------------------------------------------------
27/4 Exploration Operator 50% Slyne Basin
----------------------------------------------------------------------------
27/5 (part) Exploration Operator 50% Slyne Basin
----------------------------------------------------------------------------
27/9 Exploration Operator 50% Slyne Basin
----------------------------------------------------------------------------
5/17 Exploration Operator 100% Rockall Basin
----------------------------------------------------------------------------
5/18 Exploration Operator 100% Rockall Basin
----------------------------------------------------------------------------
5/22 Exploration Operator 100% Rockall Basin
----------------------------------------------------------------------------
5/23 Exploration Operator 100% Rockall Basin
----------------------------------------------------------------------------
5/27 Exploration Operator 100% Rockall Basin
----------------------------------------------------------------------------
5/28 Exploration Operator 100% Rockall Basin
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Spain
----------------------------------------------------------------------------
Abiego Exploration Operator 75% Pyrenees/Ebro Basin
----------------------------------------------------------------------------
Barbastro Exploration Operator 75% Pyrenees/Ebro Basin
----------------------------------------------------------------------------
Binefar Exploration Operator 75% Pyrenees/Ebro Basin
----------------------------------------------------------------------------
Peraltilla Exploration Operator 75% Pyrenees/Ebro Basin
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Morocco
----------------------------------------------------------------------------
Foum Draa Exploration Non-operator 25% Tarfaya Basin
----------------------------------------------------------------------------
Sidi Moussa Exploration Non-operator 25% Tarfaya Basin
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Indonesia
----------------------------------------------------------------------------
Glagah Kambuna Kambuna Field Offshore
TAC Production Non-Operator 25% North Sumatra
----------------------------------------------------------------------------
East Seruway Offshore
PSC Exploration Operator 100% North Sumatra
----------------------------------------------------------------------------
Kutai PSC Exploration Operator 30% Kutai basin
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Notes:
(1) Interest relinquished in February 2011.
(2) Interest now 0% following transfer of 65% interest and operatorship to
Hansa Hydrocarbons in January 2011.
The following is a summary of the status of operations on these licences.
United Kingdom
Columbus Field Area - 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 majority of 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.
In 2010 BG carried out FEED studies for a Bridge Linked Platform ("BLP")
adjacent to the Lomond platform that would provide gas and condensate reception
facilities for Columbus and other fields. However, the commercial proposal that
has recently emerged from BG for processing and transportation via the BLP and
the Lomond field are such that Serica and its partners in Block 23/16f are
continuing to evaluate alternative export routes.
Independent consultant Netherland, Sewell & Associates ("NSAI") carried out a
reserves report on the Columbus field for the end of 2010. This report estimates
that the gross Proved plus Probable Reserves of the field are 79.5 bcf of gas
and 4.9 mm bbl of liquids, a total of 18.2 mmboe. Serica holds a 50% interest in
those Columbus reserves lying in Block 23/16f and NSAI estimates that Serica's
net reserves are 26.8 bcf of sales gas and 1.8 mm bbl of liquids.
Central North Sea - Block 23/16g
Following further technical review, the Block was relinquished by Serica and its
joint venture partner in February 2011.
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 2,904 metres 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 was undertaken to determine the reason for the apparent
hydrocarbon indicators on the 3D seismic data and it appears that the specific
nature of the overlying shale can produce an apparent hydrocarbon response in
the Forties Sandstone reservoir. This new insight will help to reduce
exploration risk in future exploration wells drilled in this play.
Central North Sea - Block 15/21g
Block 15/21g was awarded in the 25th Round of UK Offshore Licensing in 2008.
Serica has a 30% interest with its partners Encore (40% interest and operator)
and Nautical Petroleum (30%). It occupies an area of 33 square kilometres in the
Central North Sea, immediately west of the Scott field and contains a
potentially significant extension to the existing Jurassic oil discovery well
15/21-38 in Block 15/21a, which flowed 2660 bpd of 25 degrees API oil from a
good quality Jurassic aged Upper Claymore sand. The "Spaniards" prospect is a
stratigraphic trap and pressure interpretation suggests that the oil column in
the discovery well may extend down-dip into Block 15/21g.
The Spaniards Prospect is shared between Block 15/21g and Block 15/21a, operated
by DEO Petroleum. The 15/21a and 15/21g groups are currently discussing plans to
drill a joint well to test the prospect.
East Irish Sea - Blocks 113/26b and 113/27c
Serica was awarded a 100% interest in Blocks 113/26b and 113/27c in the UK 24th
Offshore Licensing Round in 2007 and is the operator. 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 - one of the UK's largest gas fields.
In January 2010 Serica reached agreement with Agora Oil & Gas (UK) AS ("Agora")
for the farm-out of the blocks. Under the terms 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.
Recently Agora assigned part of its interest to MPX Energy Ltd and plans for
further exploration of the blocks are being discussed, with particular attention
being paid to the Doyle prospect which has not been affected by the results of
the Conan well.
Northern North Sea - Blocks 210/19a and 210/20a
In October 2010, in the 26th Round of UK Offshore Licensing, the Company was
awarded a Licence over Blocks 210/19a and 210/20a in the Northern North Sea
("NNS"). Serica is the operator of the new licence and has a 100% interest.
Blocks 210/19a and 210/20a are contiguous part blocks immediately adjacent to
the Otter field. A number of oil prospects have been provisionally identified on
the blocks at Jurassic Brent Group and Home Sand levels. Two of the Brent Group
prospects are down-faulted traps, an emerging and successful play in the NNS,
and the other is a conventional Brent fault block. The fourth prospect is in a
Jurassic reservoir known as the Home Sand.
The work programme includes the licensing and interpretation of 3D seismic data
and Serica will make a drill or drop decision within two years of the award.
Southern North Sea - Block 48/17d
In January 2011, Serica relinquished its 65% operated interest in Block 48/17d
to Hansa Hydrocarbons, the operator of the adjacent Block 48/16a which contains
the Chablis discovery.
Pending UK Licences
Awards of further licences applied for by Serica in the 26th Round of UK are
expected to be made when the results of environmental assessments currently
being undertaken by the Department of Energy and Climate Change have been
assessed.
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.
The shallow Jurassic oil discovery made by Serica in 2009 in the Bandon
exploration well 27/4-1 provides clear evidence of the presence of oil in this
part of the Slyne Basin although the discovery itself was not commercial. Having
subsequently identified deeper Jurassic oil prospects of potentially commercial
size at the Liffey and Boyne locations, Serica acquired well-site survey data in
preparation for a drilling programme in 2011/12.
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 shot several new 2D long-offset seismic lines across the Muckish
structure, a large exploration prospect already identified on 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.
Spain
The Company holds a 75% interest and operatorship in the Abiego, Barbastro,
Binefar and Peraltilla Exploration Permits onshore northern Spain. The Permits
cover an area of approximately 1,100 square kilometres between the Ebro Basin
and the Pyrenees.
Several gas prospects have been identified by Serica and the Company is
currently seeking a farm-in partner.
Morocco
In August 2009 the Company was awarded 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 Tarfaya 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. A drill or drop
decision is required to be made at the end of the initial phases of the
Agreements. The initial phase of the Sidi Moussa area was due to end February
2011 and that of Foum Draa is due to end February 2012. Discussions are at an
advanced stage with the Government concerning an extension of the initial phase
for Sidi Moussa which is expected to be confirmed soon.
The Tarfaya Basin is geologically analogous to the oil producing salt basins of
West Africa. Based on the extensive grid of existing seismic data, Serica has
identified a large number of prospects and leads in the Blocks. The areas extend
from the Moroccan coastline into water depths reaching a maximum of 2,000
metres.
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 which contains the producing Kambuna gas
field.
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$5.40 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 can add up to 10% to
contracted gas sales.
Kambuna gas yields significant volumes of condensate (light oil) and currently
approximately 75 barrels of condensate per million standard cubic feet of sales
gas are extracted. 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 December fetched a price of US$93.01/barrel with sales in
February 2011 realising US$105.88/barrel.
The operational difficulties experienced by PLN soon after first gas in 2009
persisted into 2010, with contract rates not being achieved consistently until
the second half. Gross Kambuna field sales were 11,278 million standard cubic
feet of gas and 980,193 barrels of condensate, equivalent to gross average daily
sales for the year of 31 mmscfd and 2,685 bbl/day.
By the third quarter of 2010 average gross gas sales were in excess of 40 mmscfd
with all three gas buyers purchasing gas. In September 2010, average gas sales
of 42 mmscfd were achieved, the highest monthly figure to date. The field was
shut down for two weeks in November 2010 to complete the commissioning of the
permanent production facilities, and average gas sales in December 2010 of 39
mmscfd were achieved.
In August 2010 Serica reported that the Kambuna field operator, Salamander
Energy, had commissioned an independent reserves audit of its operated fields,
including the Kambuna field. The operator's new estimates of reserves relied
primarily on shut-in and flowing down-hole pressure data recorded in only one of
the Kambuna wells during a period of interrupted production. It was noted that,
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.
Serica commissioned an independent reserves audit on the Kambuna field for its
2010 annual reserves filings. This new reserves report, carried out by RPS
Energy, the same consultants as used by the operator, estimates that at 31
December 2010 the gross Proved plus Probable Reserves of the field are 28.1 bcf
of sales gas and 2.3 mm bbl of condensate, a total of 8.2 mmboe. These new
estimates reflect significant reductions in reserves from the figures previously
reported by Serica in 2009, and occur as a result of observing a faster than
anticipated pressure decline in the Kambuna 3 well. However, part of the
reduction in reserves is due to the reclassification of 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 RPS as at 31 December 2009 for
Serica's 2009 annual report.
The Kambuna offshore facilities are designed to accommodate a further well which
the Joint Venture has approved for drilling in 2011 to exploit the gas bearing
potential of a northern extension of the field. This activity plus the planned
installation of gas compression which is being brought forward, is expected to
maintain the productive capacity of the field at current levels until late 2011
or early 2012.
The performance of the field will continue to be monitored throughout 2011 as
further production information becomes available.
East Seruway PSC
Serica is operator and 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 has a detailed regional understanding of the offshore North Sumatra Basin
having been a PSC operator there since 2003. In 2010, the Company completed the
acquisition of 2,100 line kilometres of 2D seismic data in the PSC to define
further the exploration potential prior to drilling an exploration well in the
block.
Serica is currently interpreting the new seismic data before drilling an
exploration well in the block.
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 Mahakam
River delta both onshore and offshore East Kalimantan.
The interpretation of offshore 3D seismic data revealed several exploration
targets. Serica secured the Trident IX jack-up drilling rig to drill the Dambus
and Marindan prospects.
The Dambus-1 offshore exploration well was spudded 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 hydrocarbon
bearing sands, 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 discovered 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 then moved to the Marindan prospect in the southern
offshore part of the PSC and the Marindan-1 well was spudded on 27 October 2010.
The objective of the well was to investigate the potential for hydrocarbon
accumulations in a sequence of Miocene sands and carbonates. Marindan-1 was
drilled as a deviated well and on 2 December 2010 reached total depth of 3,469
metres measured depth ("MD") (3,225 metres TVDSS). High gas readings and oil
shows were recorded in the interval 2,670-3,260 metres MD and downhole logs
indicate thin hydrocarbon bearing sand and carbonate reservoirs, but the
indicated volume of hydrocarbons present is not expected to be sufficient to
justify commercial development and the well was plugged and abandoned.
Hydrocarbons have been discovered both at Marindan and Dambus, but the
accumulations found in the wells are not sufficient to support standalone
development. A review of options for the development of these discoveries
together with other undrilled prospects in the Kutai PSC is currently underway.
Forward Programme
Serica has an active exploration and field development programme for 2011.
In the UK, efforts continue to bring the Columbus field to project sanction.
Negotiations are ongoing with BG with a view to securing acceptable terms for
offtake via the Lomond platform but, in the event that agreement is not reached,
the 23/16f partners are developing alternative offtake solutions. In Block
15/21g a well is planned on the Spaniards prospect, subject to agreement with
the partners on the neighbouring Block 15/21a. The Spaniards prospect straddles
both blocks. In the East Irish Sea, the possibility of drilling the Doyle
prospect in Block 113/27c is under review.
In Ireland, plans are in hand to drill two wells on the Boyne and Liffey
prospects which have been identified following the discovery of oil in the 2009
Bandon well drilled by Serica. Due to the costs involved in drilling Boyne and
Liffey the Company is seeking a partner before the wells are drilled and, with
the short drilling season in the Irish Atlantic, the wells are therefore more
likely to be drilled in 2012 than in 2011.
In Spain our Permit areas are under review by a potential farminee and, if terms
can be agreed, a commitment to drill an exploration well will be given to the
Spanish authorities.
In Morocco we have identified a large number of prospects in our offshore
acreage and we anticipate that at least one of the licences will be extended
into the second exploration period in which a well will be drilled.
In Indonesia, a well is planned to exploit the gas bearing potential of a
northern extension of the Kambuna field. If this well is successful, it will
increase field reserves and, together with the installation of compression
facilities, will extend Kambuna field plateau production rates. This well is
scheduled to be drilled in the second half of 2011. In the adjacent East Seruway
Block, an exploration well is scheduled for the end of 2011 or early 2012. In
the Kutai PSC area, an onshore well commitment is outstanding but we have so far
been unable to secure a drilling permit from the Forestry authorities. Serica is
continuing to analyse the results of the 2010 offshore drilling campaign in
order to determine the future offshore programme.
Serica has identified new areas which it believes hold greater prospects for
growth and it will continue to pursue these opportunities throughout 2011. In
November 2010 the Company announced a strategic review of its Indonesian assets.
As a result of this review the Company is evaluating proposals from interested
parties which may lead to a disposal of these properties. Any funds raised would
be invested in new ventures where the Company sees greater potential.
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
mmboe million barrels of oil equivalent
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
FINANCIAL REVIEW
Results of Operations
The results of Serica's operations detailed below in this MD&A, and in the
financial statements, are presented in accordance with International Financial
Reporting Standards ("IFRS").
Serica generated a loss of US$44.2 million for 2010 compared to a profit of
US$5.8 million for 2009.
Continuing operations 2010 2009
US$000 US$000
Sales revenue 31,302 7,643
Cost of sales (18,758) (6,376)
---------- ----------
Gross profit 12,544 1,267
Expenses:
Impairment of fixed assets and goodwill (11,797) -
Pre-licence costs (1,924) (901)
E&E asset and other write offs (29,486) (8,590)
Administrative expenses (7,353) (6,639)
Foreign exchange gain 55 228
Share-based payments (1,231) (1,687)
Depreciation (137) (118)
---------- ----------
Operating loss before net finance revenue and tax (39,329) (16,440)
Profit on disposal - 26,864
Finance revenue 174 641
Finance costs (4,083) (3,754)
---------- ----------
(Loss)/profit before taxation (43,238) 7,311
Taxation charge for the year (979) (1,531)
---------- ----------
(Loss)/profit for the year (44,217) 5,780
---------- ----------
Earnings/(loss) per ordinary share - EPS
Basic and diluted EPS on (loss)/profit for the year
(US$) (0.25) 0.03
Serica generated a gross profit of US$12.5 million for the year ended 31
December 2010 from its retained 25% interest in the Kambuna Field.
The Company generated its first sales revenue from the Kambuna field in
Indonesia during Q3 2009. Revenue is recognised on an entitlement basis for the
Company's net working field interest. All revenue in 2010 was generated from a
25% field interest, revenues for Q3 and Q4 2009 were generated from a 50% field
interest until mid December 2009 when a 25% interest in the asset was disposed
of to KrisEnergy Limited.
In 2010, gross Kambuna field gas production averaged 31 mmscf per day together
with average condensate production of 2,685 barrels per day. Field commissioning
work was completed in Q4 2010. The 2010 gas production was sold at prices
averaging US$5.88 per Mscf (2009 US$5.48 per Mscf) and generated US$15.3 million
(2009 US$4.0 million) of revenue net to Serica. Condensate production is stored
and sold when lifted at a price referenced to the Indonesia Attaka official
monthly crude oil price. Liftings in the year earned US$16.0 million (2009
US$3.6 million) of revenue net to Serica at an average price of US$80.8 per
barrel (2009 US$72.1 per barrel).
Cost of sales for 2010 were driven by production from the Kambuna field and
totalled US$18.8 million (2009 US$6.4 million). The charge comprised direct
operating costs of US$7.6 million (2009 US$4.5 million) and non cash depletion
of US$11.5 million (2009 US$2.2 million), partially offset by an increase in
condensate inventory of US$0.3 million (2009 US$0.3 million). The direct
operating costs included temporary Early Production Facility charges of US$2.3
million which were incurred until the completion of the permanent Onshore
Receiving Facility in the fourth quarter 2010. The direct operating costs and
depletion rose as a result of increased production from the Kambuna field.
Depletion charges per boe increased significantly in Q4 2010 following the
Kambuna field reserves downgrade announced in the operating review.
The Company generated a loss before tax of US$43.2 million for 2010 compared to
a profit before tax of US$7.3 million for 2009.
The overall 2010 loss before tax included a US$11.8 million pre-tax impairment
of the Kambuna asset and US$29.5 million of Exploration and Evaluation (E&E) and
other asset write offs which are discussed below. The 2009 profit before tax
included a profit on disposal of US$26.9 million.
The US$11.8 million pre-tax impairment related to the Kambuna field and resulted
from the reserves downgrade. The impairment is recorded against oil and gas
property, plant and equipment (US$11.7 million) and goodwill (US$0.1 million).
Pre-licence costs included direct costs and allocated general administrative
costs incurred on oil and gas activities prior to the award of licences,
concessions or exploration rights. The expense of US$1.9 million for 2010 was
significantly higher than the 2009 charge of US$0.9 million. The increase
largely arose from the work undertaken during Q2 2010 on the 26th Licensing
Round in the UK and during Q4 2010 on other new ventures in the Western
Hemisphere. During 2010 the Company was awarded interests in Blocks 210/19a and
210/20a in the UK Northern North Sea and is awaiting the outcome of other
applications.
Asset write offs in 2010 of US$29.5 million (2009 of US$8.6 million) included
E&E asset expenses from the Kutai PSC in Indonesia (US$24.3 million) and Oates
in the UK North Sea (US$3.5 million). The Management's decision to write off
Kutai costs follows the impairment of the Kambuna field, whose reserves had
previously covered the carrying cost of the Company's SE Asia assets. The
Management's decision to write off the costs of the Oates prospect follows the
unsuccessful well and the absence of any further drilling plans for the block.
Other write offs included costs from relinquished licences and sundry items. The
asset write off of US$8.6 million during 2009 was primarily allocated to the
Chablis block (US$7.1 million).
Administrative expenses of US$7.4 million for 2010 increased from US$6.6 million
for 2009. The Company continues to manage carefully its financial resources and
the increase reflects greater corporate activity in the year compared to 2009.
The impact of foreign exchange was not significant in 2010 or 2009.
Share-based payment costs of US$1.2 million reflected share options granted and
compare with US$1.7 million for 2009. Whilst further share options were granted
in January 2010, the incremental charge generated from those options has been
offset by the decline in charges for options granted in prior years. Included
within the respective annual charges are expenses of US$0.8 million (Q4 2009)
and US$0.2 million (Q1 2010) arising from the extension of certain existing
share options in December 2009. The extension of certain existing share options
in November 2010 created a charge of US$0.1 million that was fully expensed in
Q4 2010 and included within the 2010 annual charge.
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 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 for 2010, comprising interest income of US$0.2 million, compares
with US$0.6 million for 2009. The majority of finance revenue was earned in Q1
2010 and Q4 2009 and 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.
Finance costs consist of interest payable, arrangement 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 commenced commercial
production during Q3 2009.
The taxation charge of US$1.0 million (2009 US$1.5 million) arose from
Indonesian operations, and comprised a deferred tax credit of US$0.1 and a
current tax charge of US$1.1 million.
The net loss per share of US$0.25 for 2010 compares to net earnings per share of
US$0.03 for 2009.
Summary of Quarterly Results
Quarter ended: 31 Mar 30 Jun 30 Sep 31 Dec
US$000 US$000 US$000 US$000
--------------------------------------------
2010
Sales revenue 5,334 6,537 10,018 9,413
(Loss)/profit for the quarter (2,740) (1,646) 281 (40,112)
Basic earnings per share US$ (0.02) (0.01) 0.002 (0.22)
Diluted earnings per share US$ (0.02) (0.01) 0.002 (0.22)
--------------------------------------------
2009
Sales revenue - - 4,167 3,476
(Loss)/profit for the quarter (9,938) (2,504) (926) 19,148
Basic earnings per share US$ (0.06) (0.01) (0.01) 0.11
Diluted earnings per share US$ (0.06) (0.01) (0.01) 0.11
--------------------------------------------
The fourth quarter 2010 loss includes asset write offs of US$29.5 million
attributed to the Kutai and Oates E&E assets and an impairment charge of US$11.8
against the Kambuna development and production asset.
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.
Working Capital, Liquidity and Capital Resources
Current Assets and Liabilities
An extract of the balance sheet detailing current assets and liabilities is
provided below:
31 December 31 December
2010 2009
US$000 US$000
------------- -------------
Current assets:
Inventories 2,748 2,855
Trade and other receivables 14,669 106,381
Financial assets - 1,500
Cash and cash equivalents 30,002 18,412
------------- -------------
Total Current assets 47,419 129,148
Less Current liabilities:
Trade and other payables (13,574) (9,231)
Income tax payable (1,466) (391)
Financial liabilities (11,671) (46,447)
------------- -------------
Total Current liabilities (26,711) (56,069)
------------- -------------
Net Current assets 20,708 73,079
------------- -------------
At 31 December 2010, the Company had net current assets of US$20.7 million which
comprised current assets of US$47.4 million less current liabilities of US$26.7
million, giving a significant overall decrease in working capital of US$52.4
million in the year.
Inventories decreased from US$2.9 million to US$2.7 million over the year.
Trade and other receivables at 31 December 2010 totalled US$14.7 million, which
included US$5.5 million of trade debtors from gas and condensate sales in
November and December. Other significant items included US$1.6 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. All trade debtors outstanding at Q4 2010 were received in Q1
2011.
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$18.4 million to US$30.0 million in
the year. In January 2010, the Company received US$99.2 million in outstanding
consideration from KrisEnergy and it repaid US$60.7 million in gross drawings on
its loan facility in the year. During 2010 the Company generated US$31.3 million
of revenues from the Kambuna field but also incurred ongoing field operating
costs and exploration drilling expense on two wells in Indonesia and the Conan
well in the UK. Other costs included seismic work across the portfolio in
Indonesia and Ireland, Columbus Field Development Plan expense together with
ongoing administrative costs and corporate activity.
Trade and other payables of US$13.6 million at 31 December 2010 chiefly include
significant trade creditors and accruals from the 2010 Kutai offshore drilling
progamme and the completion of the permanent production facilities of the
Kambuna field. Other items include sundry creditors and accruals from the
ongoing Indonesian and UK exploration programmes, payables for administrative
expenses and other corporate costs.
The current tax creditor of US$1.5 million arises in respect of Indonesian
operations.
Financial liabilities comprise drawings under the senior debt facility and are
disclosed net of the unamortised portion of allocated issue costs. The balance
was classified as short-term as at 31 December 2010 and was fully repaid in
February 2011.
Long-Term Assets and Liabilities
An extract of the balance sheet detailing long-term assets and liabilities is
provided below:
31 December 31 December
2010 2009
US$000 US$000
------------- -------------
Exploration and evaluation assets 68,604 66,030
Property, plant and equipment 37,546 53,864
Goodwill - 148
Financial assets 1,431 -
Long-term other receivables 4,748 5,639
Financial liabilities - (24,371)
Provisions (1,706) -
Deferred income tax liabilities (1,339) (1,435)
During 2010, total investments in petroleum and natural gas properties
represented by exploration and evaluation assets ("E&E assets") increased from
US$66.0 million to US$68.6 million. These amounts exclude the Kambuna
development and production costs which are classified as property, plant and
equipment.
The net US$2.6 million increase consists of US$30.6 million of additions, less
US$27.8 million of asset write-offs and US$0.2 million of relinquished licence
costs. 2010 write-offs were charged against the Kutai (US$24.3 million) and
Oates (US$3.5 million) assets.
The US$30.6 million of additions were incurred on the following assets:
In Indonesia, US$16.3 million was incurred on the Kutai PSC, chiefly on the
Dambus and Marindan exploration wells, and US$4.1 million was spent on
exploration work and G&A on the East Seruway concession.
In the UK & Western Europe, US$3.6 million was incurred on the Company's share
of drilling the Conan well in the East Irish Sea, US$3.9 million on the Columbus
FDP (including FEED work on the BLP), US$0.5 million on a site survey in Ireland
and US$2.0 million on other UK and Ireland 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$0.3
million was incurred on the Morocco interests.
Property, plant and equipment chiefly comprise the net book amount of the
capital expenditure on the Company's interest in the Kambuna development. During
2010, the Company's investment decreased from US$53.8 million to US$36.7
million. This US$17.1 million decrease comprised depletion charges of US$11.5
million arising from the production of gas and condensate, and the Q4 2010
impairment of US$11.6 million, partially offset by US$4.3 million of capex
additions in the year and the decommissioning asset of US$1.7 million set up in
Q4 2010 to correspond with the booked decommissioning liability. The property,
plant and equipment also included balances of US$0.8 million (2009: 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, was impaired following the
downgrade in Kambuna reserves and reduced from US$0.1 million to US$nil.
Financial assets at 31 December 2010 represented US$1.4 million of restricted
cash deposits.
Long-term other receivables of US$4.7 million are represented by value added tax
("VAT") on Indonesian capital spend which will be recovered from future
production.
Financial liabilities as at 31 December 2009 represented by drawings under the
senior secured debt facility are disclosed net of the unamortised portion of
allocated issue costs.
Provisions of US$1.7 million at 31 December 2010 are in respect of Kambuna field
decommissioning payments in Indonesia.
The deferred income tax liability of US$1.3 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:
31 December 31 December
2010 2009
US$000 US$000
------------- -------------
Total share capital 207,657 207,633
Other reserves 18,428 17,197
Accumulated deficit (96,093) (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$17.2 million
to US$18.4 million reflects a credit to equity in respect of share-based payment
charges in 2010.
Asset values and Impairment
At 31 December 2010 Serica's market capitalisation stood at US$122 million (GBP
79 million), based upon a share price of GBP 0.445, which was exceeded by the
net asset value at that date of US$130 million. By 29 March 2010 the Company's
market capitalisation had decreased to US$110 million. Management conducted a
thorough review of the carrying value of its assets and determined that no
further write-downs were required beyond those already disclosed above.
Capital Resources
Available financing resources and debt facility
Serica's prime focus has been to deliver value through exploration success.
To-date this has given rise to the Kambuna gas field development in Indonesia,
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 an equal amount. The new facility, which was
arranged with J.P.Morgan plc, Bank of Scotland plc and Natixis as Mandated Lead
Arrangers, was principally to refinance the Company's outstanding borrowings on
the Kambuna field. It was also put in place to finance the appraisal and
development of the Columbus field and for general corporate purposes.
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 31 December 2010, the
Company held cash and cash equivalents of US$30.0 million and US$1.4 million of
restricted cash. Following the debt repayments in the year, 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 29 March 2011, the Company's debt facility was fully repaid, leaving a net
cash position of approximately US$21.0 million.
Overall, the current cash balances held, 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.
Summary of contractual obligations
The following table summarises the Company's contractual obligations as at 31
December 2010;
greater
less than 1 than 3
Total year 1-3 years years
Contractual Obligations US$000 US$000 US$000 US$000
--------------------------------------------
Long term debt 11,800 11,800 - -
Operating leases 1,330 609 721 -
Other long term obligations 1,826 260 696 870
--------------------------------------------
Total contractual obligations 14,956 12,669 1,417 870
Lease commitments
At 31 December 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 and office equipment for each of the following
years as follows:
US$000
31 December 2011 609
31 December 2012 539
Capital expenditure commitments, obligations and plans
As at 31 December 2010, the Company's share of expected outstanding capital
costs in respect of its 25% interest on the Kambuna project totalled
approximately US$2.0 million. These expected costs include amounts contracted
for but not provided as at 31 December 2010.
In addition, the Company also has obligations to carry out defined work
programmes on its oil and gas properties, under the terms of the award of rights
to these properties, over the next two years as follows:
Year ending 31 December 2011 US$ 11,250,000
Year ending 31 December 2012 US$ nil
These obligations reflect the Company's share of the defined work programmes and
were not formally contracted at 31 December 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 Indonesia. Other less material minimum obligations include G&G, seismic
work and ongoing licence fees in the UK and Indonesia.
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 audited 2010 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 2011/12 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 31 December 2010, the following director and employee share options were
outstanding:
Expiry Date Amount Exercise cost
Cdn$
December 2014 200,000 200,000
January 2015 600,000 600,000
June 2015 1,100,000 1,980,000
Exercise cost
GBP
August 2012 1,200,000 1,182,000
October 2013 750,000 300,000
January 2014 656,000 209,920
November 2015 (i) 334,000 323,980
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) In November 2010 options held under the Serica Energy PLC Enterprise
Management Incentive Plan (the EMI Plan) were extended for a further
five years to November 2015.
In January 2010, 2,175,000 share options were granted to executive directors
with an exercise cost of GBP 0.68 and an expiry date of 10 January 2020. The
exercise of the options is subject to certain performance criteria as set out in
the Directors' Report. Also in January 2010, 2,028,500 share options were
granted to certain employees other than directors with an exercise cost of GBP
0.68 and an expiry date of 10 January 2020. Exercise of certain of the options
granted 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.
In January 2011, 90,000 share options were exercised by employees other than
directors at a price of GBP 0.32.
Outstanding Share Capital
As at 29 March 2011, the Company had 176,660,311 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.
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.
Nature and Continuance of Operations
The principal activity of the Company is to identify, acquire and subsequently
exploit oil and gas reserves. Its current activities are located primarily in
Western Europe, North Africa and Indonesia.
The Company's financial statements have been prepared with the assumption that
the Company will be able to realise its assets and discharge its liabilities in
the normal course of business rather than through a process of forced
liquidation. During the year ended 31 December 2010 the Company generated a loss
of US$44.2 million from continuing operations. At 31 December 2010 the Company
had US$18 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.
Additional Information
Additional information relating to Serica, including the Company's annual
information form, can be found on the Company's website at www.serica-energy.com
and on SEDAR at www.sedar.com.
Approved on Behalf of the Board
Paul Ellis Christopher Hearne
Chief Executive Officer Finance Director
30 March 2011
Forward Looking Statements
This disclosure contains certain forward looking statements that involve
substantial known and unknown risks and uncertainties, some of which are beyond
Serica Energy plc's control, including: the impact of general economic
conditions where Serica Energy plc operates, industry conditions, changes in
laws and regulations including the adoption of new environmental laws and
regulations and changes in how they are interpreted and enforced, increased
competition, the lack of availability of qualified personnel or management,
fluctuations in foreign exchange or interest rates, stock market volatility and
market valuations of companies with respect to announced transactions and the
final valuations thereof, and obtaining required approvals of regulatory
authorities. Serica Energy plc's actual results, performance or achievement
could differ materially from those expressed in, or implied by, these forward
looking statements and, accordingly, no assurances can be given that any of the
events anticipated by the forward looking statements will transpire or occur, or
if any of them do so, what benefits, including the amount of proceeds, that
Serica Energy plc will derive therefrom.
Serica Energy plc
Group Income Statement
for the year ended 31 December
2010 2009
Notes US$000 US$000
Sales revenue 4 31,302 7,643
Cost of sales 5 (18,758) (6,376)
----------------------
Gross profit 12,544 1,267
Impairment of fixed assets and goodwill 16,17 (11,797) -
Pre-licence costs (1,924) (901)
E&E and other asset write offs 15 (29,486) (8,590)
Administrative expenses (7,353) (6,639)
Foreign exchange gain 55 228
Share-based payments 29 (1,231) (1,687)
Depreciation 7 (137) (118)
----------------------
Operating loss before net finance revenue
and tax (39,329) (16,440)
Profit on disposal 10 - 26,864
Finance revenue 11 174 641
Finance costs 12 (4,083) (3,754)
----------------------
(Loss)/profit before taxation (43,238) 7,311
Taxation charge for the year 13 a) (979) (1,531)
----------------------
(Loss)/profit for the year (44,217) 5,780
----------------------
----------------------
(Loss)/profit per ordinary share - EPS
Basic and diluted EPS on (loss)/profit for
the year (US$) 14 (0.25) 0.03
Basic and diluted EPS - continuing
operations (US$) 14 (0.25) 0.03
Group Statement of Comprehensive Income
There are no other comprehensive income items other than those passing through
the income statement.
Serica Energy plc
Balance Sheet
As at 31 December
Group Company
2010 2009 2010 2009
Notes US$000 US$000 US$000 US$000
Non-current assets
Exploration & evaluation
assets 15 68,604 66,030 - -
Property, plant and
equipment 16 37,546 53,864 - -
Goodwill 17 - 148 - -
Investments in subsidiaries 18 - - 11,830 130,684
Financial assets 19 1,431 - 1,431 -
Other receivables 19 4,748 5,639 - -
--------------------------------------------
112,329 125,681 13,261 130,684
--------------------------------------------
Current assets
Inventories 20 2,748 2,855 - -
Trade and other receivables 21 14,669 106,381 123,302 211,664
Financial assets 21 - 1,500 - 1,500
Cash and cash equivalents 22 30,002 18,412 26,696 16,922
--------------------------------------------
47,419 129,148 149,998 230,086
--------------------------------------------
TOTAL ASSETS 159,748 254,829 163,259 360,770
--------------------------------------------
Current liabilities
Trade and other payables 23 (13,574) (9,231) (939) (6,569)
Income taxation payable 13 (1,466) (391) - -
Financial liabilities 24 (11,671) (46,447) (11,671) (46,447)
Non-current liabilities
Financial liabilities 24 - (24,371) - (24,371)
Provisions 25 (1,706) - - -
Deferred income tax
liabilities 13d) (1,339) (1,435) - -
--------------------------------------------
TOTAL LIABILITIES (29,756) (81,875) (12,610) (77,387)
--------------------------------------------
NET ASSETS 129,992 172,954 150,649 283,383
--------------------------------------------
--------------------------------------------
Share capital 27 207,657 207,633 172,385 172,361
Merger reserve 18 - - 4,322 112,174
Other reserves 18,428 17,197 18,428 17,197
Accumulated deficit (96,093) (51,876) (44,486) (18,349)
--------------------------------------------
TOTAL EQUITY 129,992 172,954 150,649 283,383
--------------------------------------------
--------------------------------------------
Approved by the Board on 30 March 2011
Paul Ellis Christopher Hearne
Chief Executive Officer Finance Director
Serica Energy plc
Statement of Changes in Equity
For the year ended 31 December 2010
Share Other Accum'd
Group capital reserves deficit Total
US$000 US$000 US$000 US$000
At 1 January 2009 207,633 15,510 (57,656) 165,487
Profit for the year - - 5,780 5,780
----------------------------------------------
Total comprehensive income - - 5,780 5,780
Share-based payments - 1,687 - 1,687
----------------------------------------------
At 31 December 2009 207,633 17,197 (51,876) 172,954
Loss for the year - - (44,217) (44,217)
----------------------------------------------
Total comprehensive income - - (44,217) (44,217)
Share-based payments - 1,231 - 1,231
Proceeds on exercise of
options 24 - - 24
----------------------------------------------
At 31 December 2010 207,657 18,428 (96,093) 129,992
----------------------------------------------
----------------------------------------------
Share Merger Other Accum'd
Company capital reserve reserve deficit Total
US$000 US$000 US$000 US$000 US$000
At 1 January 2009 172,361 112,174 15,510 (12,718) 287,327
Loss for the year - - - (5,631) (5,631)
-----------------------------------------------------
Total comprehensive
income - - - (5,631) (5,631)
Share-based payments - - 1,687 - 1,687
-----------------------------------------------------
At 31 December 2009 172,361 112,174 17,197 (18,349) 283,383
Loss for the year - - - (133,989) (133,989)
-----------------------------------------------------
Total comprehensive
income - - - (133,989) (133,989)
Proceeds on exercise of
options 24 - - - 24
Share-based payments - - 1,231 - 1,231
Transfers - (107,852) - 107,852 -
-----------------------------------------------------
At 31 December 2010 172,385 4,322 18,428 (44,486) 150,649
-----------------------------------------------------
-----------------------------------------------------
Serica Energy plc
Cash Flow Statement
For the year ended 31 December
Group Company
2010 2009 2010 2009
US$000 US$000 US$000 US$000
Operating activities:
(Loss)/profit for the year (44,217) 5,780 (133,989) (5,631)
Adjustments to reconcile (loss)/profit
for the year to net cash flow from
operating activities
Taxation 979 1,531 - -
Net finance costs 3,909 3,113 3,488 1,350
Profit on disposal - (26,864) - -
Depreciation 137 118 - -
Depletion and amortisation 11,479 2,227 - -
Asset write offs 29,486 8,590 - -
Impairment 11,797 - 126,193 -
Share-based payments 1,231 1,687 1,231 1,687
(Increase)/decrease in trade and other
receivables (9,152) (7,810) 104 209
Decrease in inventories 177 40 - -
Increase/(decrease) in trade and other
payables 4,343 (2,232) (546) (1,573)
------------------------------------
Net cash flow from operations 10,169 (13,820) (3,519) (3,958)
------------------------------------
Investing activities:
Interest received 765 50 58 43
Purchase of property, plant and
equipment (5,241) (41,609) - -
Purchase of E&E assets (30,569) (22,976) - -
Proceeds from disposals 99,532 5,000 - -
Funding provided to Group subsidiaries - - (23,263) (53,662)
Funds from Group subsidiaries - - 99,532 -
------------------------------------
Net cash flow from investing activities 64,487 (59,535) 76,327 (53,619)
------------------------------------
Financing activities:
Finance costs paid (2,313) (5,360) (2,313) (3,526)
Proceeds on exercise of options 24 - 24 -
Proceeds from loans and borrowings - 40,144 - 40,144
Repayments of loans and borrowings (60,700) - (60,700) -
------------------------------------
Net cash from financing activities (62,989) 34,784 (62,989) 36,618
------------------------------------
Net increase/(decrease) in cash and cash
equivalents 11,667 (38,571) 9,819 (20,959)
Effect of exchange rates on cash and
cash equivalents (77) 161 (45) 123
Cash and cash equivalents at 1 January 18,412 56,822 16,922 37,758
------------------------------------
Cash and cash equivalents at 31 December 30,002 18,412 26,696 16,922
------------------------------------
------------------------------------
Serica Energy plc
Notes to the Financial Statements
1. Authorisation of the Financial Statements and Statement of Compliance with IFRS
These are not the statutory accounts of the Company prepared in accordance with
the Companies Act. The Group's and Company's financial statements for the year
ended 31 December 2010 were authorised for issue by the Board of Directors on 30
March 2011 and the balance sheets were signed on the Board's behalf by Paul
Ellis and Chris Hearne and will be delivered to the registrar in due course.
Serica Energy plc is a public limited company incorporated and domiciled in
England & Wales. The principal activity of the Company and the Group is to
identify, acquire and subsequently exploit oil and gas reserves. Its current
activities are located primarily in Western Europe, North Africa and Indonesia.
The Company's ordinary shares are traded on AIM and the TSX.
The Group's financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") as adopted by the EU as
they apply to the financial statements of the Group for the year ended 31
December 2010. The Company's financial statements have been prepared in
accordance with IFRS as adopted by the EU as they apply to the financial
statements of the Company for the year ended 31 December 2010 and as applied in
accordance with the provisions of the Companies Act 2006. The Group's financial
statements are also prepared in accordance with IFRS as issued by the IASB. The
principal accounting policies adopted by the Group and by the Company are set
out in note 2.
The Company has taken advantage of the exemption provided under section 408 of
the Companies Act 2006 not to publish its individual income statement and
related notes. The deficit dealt with in the financial statements of the parent
Company was US$133,989,000 (2009: US$5,631,000).
On 1 September 2005, the Company completed a reorganisation (the
"Reorganisation"). whereby the common shares of Serica Energy Corporation were
automatically exchanged on a one-for-one basis for ordinary shares of Serica
Energy plc, a newly formed company incorporated under the laws of the United
Kingdom. In addition, each shareholder of the Corporation received beneficial
ownership of part of the 'A' share of Serica Energy plc issued to meet the
requirements of public companies under the United Kingdom jurisdiction. Under
IFRS this reorganisation was considered to be a reverse takeover by Serica
Energy Corporation and as such the financial statements of the Group represent a
continuation of Serica Energy Corporation.
2. Accounting Policies
Basis of Preparation
The accounting policies which follow set out those policies which apply in
preparing the financial statements for the year ended 31 December 2010.
The Group and Company financial statements are presented in US dollars and all
values are rounded to the nearest thousand dollars (US$000) except when
otherwise indicated.
Going Concern
The financial position of the Group, its cash flows and available debt
facilities are described in the Financial Review above. As at 31 December 2010
the Group had US$18 million of net cash and, by 29 March 2011, the Company had
US$21 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. As described in the
MD&A, the current business environment is challenging and access to new equity
and debt remains uncertain. However, the management considers that it will not
require recourse to either to cover its existing commitments.
This is based upon the following factors: operating cash inflows are being
generated from the Kambuna field; gas sales contracts for Kambuna are in place
at fixed prices and any fluctuations in condensate prices will be largely offset
by variations in cost recovery entitlement; the Company has a record of prudent
financial management, including the raising of capital through farm down and the
sale of part of its Kambuna field interest; and, the Company has an established
relationship with its existing banking syndicate. The option of further asset
sales is also open to the Company.
After making enquiries and having taken into consideration the above factors,
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
annual financial statements.
Use of judgement and estimates and key sources of estimation uncertainty
The preparation of financial statements in conformity with IFRS requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities as well as the disclosure of contingent assets and
liabilities at the balance sheet date and the reported amounts of revenues and
expenses during the reporting period. Estimates and judgments are continuously
evaluated and are based on management's experience and other factors, including
expectations of future events that are believed to be reasonable under the
circumstances. Actual outcomes could differ from these estimates.
The key sources of estimation uncertainty that have a significant risk of
causing material adjustment to the amounts recognised in the financial
statements are: the assessment of commercial reserves, the impairment of the
Group and Company's assets (including goodwill, oil & gas development assets and
E&E assets), decommissioning provisions, share-based payment costs and the
assessment of the status of the Group's Indonesian operations review.
Assessment of commercial reserves
Management is required to assess the level of the Group's commercial reserves
together with the future expenditures to access those reserves, which are
utilised in determining the amortisation and depletion charge for the period and
assessing whether any impairment charge is required. The Group employs
independent reserves specialists who periodically assess the Group's level of
commercial reserves by reference to data sets including geological, geophysical
and engineering data together with reports, presentation and financial
information pertaining to the contractual and fiscal terms applicable to the
Group's assets. In addition the Group undertakes its own assessment of
commercial reserves and related future capital expenditure by reference to the
same datasets using its own internal expertise.
Impairment
The Group monitors internal and external indicators of impairment relating to
its intangible and tangible assets, which may indicate that the carrying value
of the assets may not be recoverable. The assessment of the existence of
indicators of impairment in E&E assets involves judgement, which includes
whether management expects to fund significant further expenditure in respect of
a licence and whether the recoverable amount may not cover the carrying value of
the assets. For development and production assets judgement is involved when
determining whether there have been any significant changes in the Group's oil
and gas reserves.
The Group determines whether E&E assets are impaired at an asset level and in
regional cash generating units ('CGUs') when facts and circumstances suggest
that the carrying amount of a regional CGU may exceed its recoverable amount. As
recoverable amounts are determined based upon risked potential, or where
relevant, discovered oil and gas reserves, this involves estimations and the
selection of a suitable pre-tax discount rate relevant to the asset in question.
The calculation of the recoverable amount of oil and gas development properties
involves estimating the net present value of cash flows expected to be generated
from the asset in question. Future cash flows are based on assumptions on
matters such as estimated oil and gas reserve quantities and commodity prices.
The discount rate applied is a pre-tax rate which reflects the specific risks of
the country in which the asset is located.
Management is required to assess the carrying value of investments in
subsidiaries in the parent company balance sheet for impairment by reference to
the recoverable amount. This requires an estimate of amounts recoverable from
oil and gas assets within the underlying subsidiaries.
Decommissioning provisions
Management has determined that, based on their understanding of the contractual
agreements they are party to in Indonesia, the Company has a constructive
obligation to incur future decommissioning costs as at 31 December 2010. However
these assumptions involve judgement, which may be subject to change, and
therefore the position will be reviewed on an ongoing basis. A change in
circumstances may result in a change to the liability being recorded in future
periods.
Share-based payment costs
The estimation of share-based payment costs requires the selection of an
appropriate valuation model, consideration as to the inputs necessary for the
valuation model chosen and the estimation of the number of awards that will
ultimately vest, inputs for which arise from judgments relating to the
continuing participation of employees (see note 29).
Indonesian Assets
In late 2010 the Company initiated a strategic review of its Indonesian assets
and is currently in discussion with interested parties which may result in the
disposal of these assets. However, as such a disposal could not be categorised
as 'highly probable' at 31 December 2010, these assets did not meet the relevant
criteria to be classified as 'assets held for re-sale under IFRS 5. The disposal
was not considered highly probable at that point as the management was not
committed to a particular course of action and a disposal would not be concluded
if any offers were not to prove sufficiently attractive to the Company.
Basis of Consolidation
The consolidated financial statements include the accounts of Serica Energy plc
(the "Company") and its wholly owned subsidiaries Serica Energy Corporation,
Serica Energy Holdings B.V., Asia Petroleum Development Limited, Petroleum
Development Associates (Asia) Limited, Serica Energia Iberica S.L., Serica
Holdings UK Limited, Serica Energy (UK) Limited, PDA Lematang Limited, APD
(Asahan) Limited, APD (Biliton) Limited, Serica Energy Pte Limited, Serica Kutei
B.V., Serica Glagah Kambuna B.V., Serica East Seruway B.V., Serica Indonesia
Holdings B.V., Serica Sidi Moussa B.V. and Serica Foum Draa B.V.. Together these
comprise the "Group".
All inter-company balances and transactions have been eliminated upon consolidation.
Foreign Currency Translation
The functional and presentational currency of Serica Energy plc and all its
subsidiaries is US dollars.
Transactions in foreign currencies are initially recorded at the functional
currency rate ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are retranslated at the foreign
currency rate of exchange ruling at the balance sheet date and differences are
taken to the income statement. Non-monetary items that are measured in terms of
historical cost in a foreign currency are translated using the exchange rate as
at the date of initial transaction. Non-monetary items measured at fair value in
a foreign currency are translated using the exchange rate at the date when the
fair value was determined. Exchange gains and losses arising from translation
are charged to the income statement as an operating item.
Business Combinations and Goodwill
Business combinations from 1 January 2010
Business combinations are accounted for using the acquisition method. The cost
of an acquisition is measured as the aggregate of consideration transferred,
measured at acquisition date fair value and the amount of any non-controlling
interest in the acquiree. Acquisition costs incurred are expensed and included
in administrative expenses.
Business combinations prior to 1 January 2010
Business combinations are accounted for using the purchase method of accounting.
The purchase price of an acquisition is measured as the cash paid plus the fair
value of other assets given, equity instruments issued and liabilities incurred
or assumed at the date of exchange.
Goodwill on acquisition is initially measured at cost being the excess of
purchase price over the fair market value of identifiable assets, liabilities
and contingent liabilities acquired. Following initial acquisition it is
measured at cost less any accumulated impairment losses. Goodwill is not
amortised but is subject to an impairment test at least annually and more
frequently if events or changes in circumstances indicate that the carrying
value may be impaired.
At the acquisition date, any goodwill acquired is allocated to each of the
cash-generating units, or groups of cash generating units expected to benefit
from the combination's synergies. Impairment is determined by assessing the
recoverable amount of the cash-generating unit, or groups of cash generating
units to which the goodwill relates. Where the recoverable amount of the
cash-generating unit is less than the carrying amount, an impairment loss is
recognised.
Joint Venture Activities
The Group conducts petroleum and natural gas exploration and production
activities jointly with other venturers who each have direct ownership in and
jointly control the assets of the ventures. These are classified as jointly
controlled assets and consequently, these financial statements reflect only the
Group's proportionate interest in such activities.
Full details of Serica's working interests in those petroleum and natural gas
exploration and production activities classified as jointly controlled assets
are included in the Review of Operations.
Exploration and Evaluation Assets
As allowed under IFRS 6 and in accordance with clarification issued by the
International Financial Reporting Interpretations Committee, the Group has
continued to apply its existing accounting policy to exploration and evaluation
activity, subject to the specific requirements of IFRS 6. The Group will
continue to monitor the application of these policies in light of expected
future guidance on accounting for oil and gas activities.
Pre-licence Award Costs
Costs incurred prior to the award of oil and gas licences, concessions and other
exploration rights are expensed in the income statement.
Exploration and Evaluation (E&E)
The costs of exploring for and evaluating oil and gas properties, including the
costs of acquiring rights to explore, geological and geophysical studies,
exploratory drilling and directly related overheads, are capitalised and
classified as intangible E&E assets. These costs are directly attributed to
regional CGUs for the purposes of impairment testing; Indonesia, UK & North West
Europe and Spain.
E&E assets are not amortised prior to the conclusion of appraisal activities but
are assessed for impairment at an asset level and in regional CGUs when facts
and circumstances suggest that the carrying amount of a regional cost centre may
exceed its recoverable amount. Recoverable amounts are determined based upon
risked potential, and where relevant, discovered oil and gas reserves. When an
impairment test indicates an excess of carrying value compared to the
recoverable amount, the carrying value of the regional CGU is written down to
the recoverable amount in accordance with IAS 36. Such excess is expensed in the
income statement.
Costs of licences and associated E&E expenditure are expensed in the income
statement if licences are relinquished, or if management do not expect to fund
significant future expenditure in relation to the licence.
The E&E phase is completed when either the technical feasibility and commercial
viability of extracting a mineral resource are demonstrable or no further
prospectivity is recognised. At that point, if commercial reserves have been
discovered, the carrying value of the relevant assets, net of any impairment
write-down, is classified as an oil and gas property within property, plant and
equipment, and tested for impairment. If commercial reserves have not been
discovered then the costs of such assets will be written off.
Asset Purchases and Disposals
When a commercial transaction involves the exchange of E&E assets of similar
size and characteristics, no fair value calculation is performed. The
capitalised costs of the asset being sold are transferred to the asset being
acquired. Proceeds from a part disposal of an E&E asset, including back-cost
contributions are credited against the capitalised cost of the asset.
Farm-ins
In accordance with industry practice, the Group does not record its share of
costs that are 'carried' by third parties in relation to its farm-in agreements
in the E&E phase. Similarly, while the Group has agreed to carry the costs of
another party to a Joint Operating Agreement ("JOA") in order to earn additional
equity, it records its paying interest that incorporates the additional
contribution over its equity share. Upon the successful development of an oil or
gas field in a contract area, the cumulative excess of paying interest over
working interest in that contract is generally repaid out of the field
production revenue attributable to the carried interest holder.
Property, Plant and Equipment - Oil and gas properties
Capitalisation
Oil and gas properties are stated at cost, less any accumulated depreciation and
accumulated impairment losses. Oil and gas properties are accumulated into
single field cost centres and represent the cost of developing the commercial
reserves and bringing them into production together with the E&E expenditures
incurred in finding commercial reserves previously transferred from E&E assets
as outlined in the policy above. The cost will include, for qualifying assets,
borrowing costs.
Depletion
Oil and gas properties are not depleted until production commences. Costs
relating to each single field cost centre are depleted on a unit of production
method based on the commercial proved and probable reserves for that cost
centre. The depletion calculation takes account of the estimated future costs of
development of recognised proved and probable reserves. Changes in reserve
quantities and cost estimates are recognised prospectively from the last
reporting date.
Impairment
A review is performed for any indication that the value of the Group's
development and production assets may be impaired.
For oil and gas properties when there are such indications, an impairment test
is carried out on the cash generating unit. Each cash generating unit is
identified in accordance with IAS 36. Serica's cash generating units are those
assets which generate largely independent cash flows and are normally, but not
always, single development or production areas. If necessary, impairment is
charged through the income statement if the capitalised costs of the cash
generating unit exceed the recoverable amount of the related commercial oil and
gas reserves.
Asset Disposals
Proceeds from the entire disposal of a development and production asset, or any
part thereof, are taken to the income statement together with the requisite
proportional net book value of the asset, or part thereof, being sold.
Decommissioning
Liabilities for decommissioning costs are recognised when the Group has an
obligation to dismantle and remove a production, transportation or processing
facility and to restore the site on which it is located. Liabilities may arise
upon construction of such facilities, upon acquisition or through a subsequent
change in legislation or regulations. The amount recognised is the estimated
present value of future expenditure determined in accordance with local
conditions and requirements. A corresponding tangible item of property, plant
and equipment equivalent to the provision is also created. The Group did not
carry any provision for decommissioning costs during 2009.
Any changes in the present value of the estimated expenditure is added to or
deducted from the cost of the assets to which it relates. The adjusted
depreciable amount of the asset is then depreciated prospectively over its
remaining useful life. The unwinding of the discount on the decommissioning
provision is included as a finance cost.
Property, Plant and Equipment - Other
Computer equipment and fixtures, fittings and equipment are recorded at cost as
tangible assets. The straight-line method of depreciation is used to depreciate
the cost of these assets over their estimated useful lives. Computer equipment
is depreciated over three years and fixtures, fittings and equipment over four
years.
Inventories
Inventories are valued at the lower of cost and net realisable value. Cost is
determined by the first-in first-out method and comprises direct purchase costs
and transportation expenses.
Investments
In its separate financial statements the Company recognises its investments in
subsidiaries at cost less any provision for impairment.
Financial Instruments
Financial instruments comprise financial assets, cash and cash equivalents,
financial liabilities and equity instruments.
Financial assets
Financial assets within the scope of IAS 39 are classified as either financial
assets at fair value through profit or loss, or loans and receivables, as
appropriate. When financial assets are recognised initially, they are measured
at fair value. Transaction costs that are directly attributable to the
acquisition or issue of the financial asset are capitalised unless they relate
to a financial asset classified at fair value through profit and loss in which
case transaction costs are expensed in the income statement.
The Group determines the classification of its financial assets at initial
recognition and, where allowed and appropriate, re-evaluates this designation at
each financial year end.
Financial assets at fair value through profit or loss include financial assets
held for trading and derivatives. Financial assets are classified as held for
trading if they are acquired for the purpose of selling in the near term.
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. After initial
measurement loans and receivables are subsequently carried at amortised cost,
using the effective interest rate method, less any allowance for impairment.
Amortised cost is calculated by taking into account any discount or premium on
acquisition over the period to maturity. Gains and losses are recognised in the
income statement when the loans and receivables are de-recognised or impaired,
as well as through the amortisation process.
Cash and cash equivalents
Cash and cash equivalents include balances with banks and short-term investments
with original maturities of three months or less at the date acquired.
Financial liabilities
Financial liabilities include interest bearing loans and borrowings, and trade
and other payables.
Obligations for loans and borrowings are recognised when the Group becomes party
to the related contracts and are measured initially at the fair value of
consideration received less directly attributable transaction costs.
After initial recognition, interest-bearing loans and borrowings are
subsequently measured at amortised cost using the effective interest method.
Gains and losses are recognised in the income statement when the liabilities are
derecognised as well as through the amortisation process.
Equity
Equity instruments issued by the Company are recorded in equity at the proceeds
received, net of direct issue costs.
Revenue Recognition
Revenue is recognised to the extent that it is probable that the economic
benefits will flow to the Group and the revenue can be reliably measured.
Revenue from oil and natural gas production is recognised on an entitlement
basis for the Group's net working interest.
Finance Revenue
Finance revenue chiefly comprises interest income from cash deposits on the
basis of the effective interest rate method and is disclosed separately on the
face of the income statement.
Finance Costs
Finance costs of debt are allocated to periods over the term of the related debt
using the effective interest method. Arrangement fees and issue costs are
amortised and charged to the income statement as finance costs over the term of
the debt.
Borrowing costs
Borrowing costs directly relating to the acquisition, construction or production
of a qualifying capital project under construction are capitalised and added to
the project cost during construction until such time the assets are
substantially ready for their intended use i.e when they are capable of
commercial production. Where funds are borrowed specifically to finance a
project, the amounts capitalised represent the actual borrowing costs incurred.
All other borrowing costs are recognised in the income statement in the period
in which they are incurred.
Share-Based Payment Transactions
Employees (including directors) of the Group receive remuneration in the form of
share-based payment transactions, whereby employees render services in exchange
for shares or rights over shares ('equity-settled transactions').
Equity-settled transactions
The cost of equity-settled transactions with employees is measured by reference
to the fair value at the date on which they are granted. In valuing
equity-settled transactions, no account is taken of any service or performance
conditions, other than conditions linked to the price of the shares of Serica
Energy plc ('market conditions'), if applicable.
The cost of equity-settled transactions is recognised, together with a
corresponding increase in equity, over the period in which the relevant
employees become fully entitled to the award (the 'vesting period'). The
cumulative expense recognised for equity-settled transactions at each reporting
date until the vesting date reflects the extent to which the vesting period has
expired and the Group's best estimate of the number of equity instruments that
will ultimately vest. The income statement charge or credit for a period
represents the movement in cumulative expense recognised as at the beginning and
end of that period.
No expense is recognised for awards that do not ultimately vest, except for
awards where vesting is conditional upon a market or non-vesting condition,
which are treated as vesting irrespective of whether or not the market or
non-vesting condition is satisfied, provided that all other performance
conditions are satisfied. Equity awards cancelled are treated as vesting
immediately on the date of cancellation, and any expense not recognised for the
award at that date is recognised in the income statement. Estimated associated
national insurance charges are expensed in the income statement on an accruals
basis.
Where the terms of an equity-settled award are modified or a new award is
designated as replacing a cancelled or settled award, the cost based on the
original award terms continues to be recognised over the original vesting
period. In addition, an expense is recognised over the remainder of the new
vesting period for the incremental fair value of any modification, based on the
difference between the fair value of the original award and the fair value of
the modified award, both as measured on the date of the modification. No
reduction is recognised if this difference is negative.
Income Taxes
Deferred tax is provided using the liability method and tax rates and laws that
have been enacted or substantively enacted at the balance sheet date. Provision
is made for temporary differences at the balance sheet date between the tax
bases of the assets and liabilities and their carrying amounts for financial
reporting purposes. Deferred tax is provided on all temporary differences except
for:
-- temporary differences associated with investments in subsidiaries, where
the timing of the reversal of the temporary differences can be
controlled by the Group and it is probable that the temporary
differences will not reverse in the foreseeable future; and
-- temporary differences arising from the initial recognition of an asset
or liability in a transaction that is not a business combination and, at
the time of the transaction, affects neither the income statement nor
taxable profit or loss.
Deferred tax assets are recognised for all deductible temporary differences, to
the extent that it is probable that taxable profits will be available against
which the deductible temporary differences can be utilised. Deferred tax assets
and liabilities are presented net only if there is a legally enforceable right
to set off current tax assets against current tax liabilities and if the
deferred tax assets and liabilities relate to income taxes levied by the same
taxation authority.
Earnings Per Share
Earnings per share is calculated using the weighted average number of ordinary
shares outstanding during the period. Diluted earnings per share is calculated
based on the weighted average number of ordinary shares outstanding during the
period plus the weighted average number of shares that would be issued on the
conversion of all relevant potentially dilutive shares to ordinary shares. It is
assumed that any proceeds obtained on the exercise of any options and warrants
would be used to purchase ordinary shares at the average price during the
period. Where the impact of converted shares would be anti-dilutive, these are
excluded from the calculation of diluted earnings.
New standards and interpretations not applied
The following new and amended IFRS and IFRIC interpretations are mandatory as of
1 January 2010 unless otherwise stated. The impact of those applicable to the
Group is described below.
i) Amendment to IFRS2 Group cash-settled Share-based Payment Arrangements
The amendment clarifies the accounting for group cash-settled share-based
payment transactions, where a subsidiary receives goods or services from
employees or suppliers but the parent or another entity in the group pays for
those goods or services. This amendment did not have any impact on the financial
position or performance of the group.
ii) IFRS 3 (revised) Business Combinations
The revised standard increases the number of transactions to which it must be
applied including business combinations of mutual entities and combinations
without consideration. IFRS 3 (revised) introduces significant changes in the
accounting for business combinations. These changes will have a significant
impact on profit or loss reported in the period of an acquisition, the amount of
goodwill recognised in a business combination and profit or loss reported in
future periods.
iii) IAS 27 (amended) Consolidated and Separate Financial Statements
The amended standard requires that a change in the ownership interest of a
subsidiary (without loss of control) is accounted for as a transaction with
owners in their capacity as owners and these transactions will no longer give
rise to goodwill or gains and losses. The standard also specifies the accounting
when control is lost and any retained interest is remeasured to fair value with
gains or losses recognised in profit or loss. The Group has concluded that the
amendment did not have any impact on the financial position or performance of
the Group.
iv) Amendment to IAS 39 Financial Instruments: Recognition and Measurement -
Eligible hedged items
The amendment clarifies that an entity is permitted to designate a portion of
the fair value changes or cash flow variability of a financial instrument as a
hedged item. The Group has concluded that the amendment did not have any impact
on the financial position or performance of the Group, as the Group has not
entered into any such hedges.
v) IFRIC 17 Distribution of Non-cash Assets to Owners
The interpretation provides guidance on accounting for arrangements whereby an
entity distributes non-cash assets to shareholders either as a distribution of
reserves or dividends. The adoption of the interpretation did not have an impact
on the Group.
Certain new standards, amendments to and interpretations of existing standards
have been issued and are effective for the Group's accounting periods beginning
on or after 1 January 2011 or later periods which the Group has not early
adopted. Those that are applicable to the Group are as follows:
i) IAS 24 Related Party disclosures - effective 1 January 2011
The amended standard clarified the definition of a related party to simplify the
identification of such relationships and to eliminate inconsistencies in its
application. The Group does not expect any impact on its financial position or
performance.
ii) IFRS 9 Financial Instruments: Classification and Measurement - effective 1
January 2013
IFRS 9 as issued reflects the first phase of the IASBs work on the replacement
of IAS 39 and applies to classification and measurement of financial assets as
defined in IAS 39. The adoption of the first phase of IFRS 9 will have an effect
on the classification and measurement of the Group's financial assets. The Group
will quantify the effect in conjunction with the other phases, when issued, to
present a comprehensive picture.
iii) IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments -
effective 1 July 2010
IFRIC 19 clarifies that equity instruments issued to a creditor to extinguish a
financial liability qualify as consideration paid. The adoption of this
interpretation will have no effect on the financial statements of the Group.
iv) Improvements to IFRS (issued in May 2010)
The Group expects no impact from the adoption of the amendments on its financial
position or performance.
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