Serica Energy plc
("Serica" or the
"Company")
Results for the year ended 31 December 2023
London, 24 April 2024 - Serica Energy
plc (AIM: SQZ), a British independent upstream
oil and gas company with operations in the UK North Sea today
announces its audited financial results for the year ended 31
December 2023. The results are included
below and copies are available at www.serica-energy.com
and www.sedar.com.
Commenting on the results, David Latin, Serica's Chairman and
incoming Interim CEO, stated:
"I am
very pleased that Serica has delivered a strong set of results for
2023 despite significantly lower sales prices compared to 2022 and
a full year of the UK marginal tax rate being at 75%. Any
'windfall' due to high commodity prices has long gone and the high
tax situation is ill-suited to a mature oil and gas basin such as
the UK North Sea. Its continuation will not benefit people in the
UK either financially or
environmentally.
The resilience of Serica's
financial position allows the Company to maintain the final
dividend at 14p per share meaning an increase in the total dividend
for 2023 to 23p per share compared to 22p per share in respect of
2022. Furthermore, the £15 million share buyback initiated today is
a demonstration of the Board's confidence in 2024 cash flows and
the longer-term value of the Company's assets.
By virtue of its financial
strength and in-house skills, Serica is able to combine cash
returns to shareholders with growth through investment in its
assets and an ambitious, while disciplined, M&A effort. This
situation is a testament to the achievements of everyone in
Serica.
Finally, I would like to take this
opportunity to reiterate the Board's appreciation for Mitch Flegg's
very significant contribution to the Company over many years, most
recently as CEO since 2018."
Mitch Flegg, Serica's outgoing CEO, stated:
"The
completion of the Tailwind acquisition in March 2023 represented a
step change in the scale and diversity of Serica's portfolio. The
merits of seeking diversity and organic growth opportunities
through the transaction have been borne out by the sharp decline in
gas prices relative to oil prices during 2023 and Serica
maintaining its track record of more than replacing production
through reserves additions in both the Bruce and Triton production
hubs. Moreover, there are further growth opportunities within the
Company's existing producing fields and other assets in Serica's
portfolio, such as the potential Buchan Horst project.
My term as CEO ends with these
results. More than the metrics of the last six years, it is the
quality of the team we have built at Serica that gives me the most
satisfaction and pride. Clearly, the BKR and Tailwind transactions
represented the most significant organisational changes. Creating
the culture and expertise of an organisation like Serica, however,
is an everyday process that involves everyone in the Company. I am
grateful to far too many people to mention here.
The result of the last several
years is that Serica combines distinctive financial and operational
strengths with a high-quality team, providing a platform for
further returns to shareholders through investment and
M&A."
2023 Summary
· Acquisition of Tailwind Energy Investment Ltd completed 23
March 2023.
· Proforma production from the combined Serica and Tailwind
portfolios averaged 40,121 boe per day during 2023 as a whole.
Equity production for the year as reported (excluding Tailwind
volumes between 1 January and 23 March 2023) averaged 35,167 boe
per day (Serica net production in 2022: 26,200 boe per
day).
·
Serica 2P reserves increased to 140.3 million boe
at 31 December 2023 (31 December 2022: 76.9 million boe) with net
upwards reserves revisions of 23.5 million boe and a
proforma reserves replacement ratio of 179% for
the combined Serica and Tailwind portfolio.
·
EBITDAX of £381.4 million (2022: £616.5 million)
reflecting an average realised sales price after hedging of $63 per
boe compared to $104 per boe in 2022.
· Final 2023 dividend of 14p per share recommended (2022: 14p
per share), bringing 2023 full year total to 23p per share compared
to 22p per share for 2022, an increase of 4.5%.
Financial
· Average 2023 realised sales price, after hedging, of
approximately US$63 per boe (2022: US$104 per boe) comprising
average realised prices for gas of 93 pence per therm, oil of US$71
per barrel and NGLs of £363 per tonne.
· Revenue of £632.6 million (2022: £812.4 million), largely
reflecting lower natural gas prices partially offset by nine months
of production contribution from the Tailwind assets.
· EBITDAX of £381.4 million (2022: £616.5 million) reflecting
the lower commodity prices whilst operating costs increased largely
in line with higher production, albeit with some inflationary
impact.
· Profit before tax of £305.6 million (2022: £488.2
million).
· Profit after tax of £103.0 million (2022: £177.8 million)
reflecting current tax charges of £183.3 million (2022: £277.7
million) deriving an effective tax rate of 48% (2022: 45%),
notwithstanding an increase in the marginal overall rate of tax on
UK oil and gas production to 75% during 2023 and with the benefit
for only nine rather than twelve months of Tailwind's brought
forward tax losses.
· Cash
flow from operations, after deduction of 2023 current tax, of £195
million[1] (2022:
£427 million). Serica considers this measure to be representative
of the cash generation of the business prior to discretionary
decisions regarding capital allocation.
· Capital expenditure (including exploration and abandonment)
of £79.2 million largely comprising Bruce well work and long lead
items for the Triton area drilling campaign commencing in 2024
(2022: £98.3 million).
· Cash
dividends paid of £88.8 million (2022: £46.3 million) for 2022
Final and 2023 Interim dividends.
· Gross cash and cash equivalents, including £28 million of
cash security temporarily lodged with a third party in respect of
decommissioning obligations, of £291.0 million at 31 December 2023
(2022: £432.5 million) after capital expenditure (£79.2 million),
dividends (£88.8 million) and tax paid (£279.5 million).
· Amount drawn at 31 December 2023 under the RBL facility
assumed with the Tailwind acquisition of US$271.2 million (£213.0
million).
· Net
cash of £78.0 million (2022: £432.5 million).
· Executed a refinancing into new six-year US$525 Reserve Base
Lending ("RBL") facility
with a syndicate of international banks (facility completed and
borrowings assumed with the Tailwind acquisition were repaid in
January 2024).
Operational
· Updated independent audit of field reserves reported Serica's
share of estimated remaining 2P reserves as 140.3 million boe at 31
December 2023 increased from 76.9 million boe at 31 December 2022.
Movements in the year include:
o Acquisitions of 52.2 million boe relating to the completion
of the acquisition of Tailwind Energy Investments Ltd on 23 March
2023.
o Net upward revisions of 23.5 million boe reflecting better
than expected production performance in the Rhum and Gannet E
fields, the movement of Belinda from contingent resources to 2P
reserves and the maturing of projects to enhance production from
the Bruce and Rhum fields.
· A
series of surveillance and interventions carried out on several
Bruce wells by means of platform based and Light Well Intervention
Vessel ("LWIV") activities.
These interventions delivered incremental near-term production and
identified additional intervention opportunities for future well
campaigns.
· The
GE-04 well on the Gannet E field came onstream in February 2023 and
achieved initial rates higher than pre-drill estimates. This
contributed to the Triton hub reaching gross production levels in
excess of 30,000 boe per day for the first time in ten
years.
· A
'walk to work' campaign was conducted on the Triton FPSO,
continuing the maintenance and upgrades that have been pivotal in
improving the performance of the facilities and hydrocarbon
throughput. A key item of work currently is the replacement of the
Triton control system, which is planned to be completed during a
further 'walk to work' campaign planned in 2024.
· Work
was carried out to remove power supply vulnerabilities to the Rhum
field including the installation of a new power umbilical on one of
the three Rhum production wells.
· Planned shutdowns in 2023 of both the Bruce and Triton hubs
to carry out essential maintenance and life extension work were
extended unexpectedly. On Bruce, it was decided to make permanent
rather than temporary repairs to issues identified on the flare
tower during an inspection, which, in combination with bad weather,
caused an approximate one-month overrun. The Triton shutdown was
extended due to a combination of equipment and control system
issues, which are now resolved.
· Serica elected to relinquish the P.2501 North Eigg licence
following the evaluation of the results of the exploration well on
the prospect in 2022. The relinquishment will be completed during
2024.
ESG
· Achieved lowest Scope 1 Carbon Intensity (16.36kg
CO2/boe) since taking operatorship of Bruce.
· Received Supply Chain Principles Gold Award for companies
demonstrating outstanding commitment to business
relationships.
· 33%
reduction in methane emissions compared to 2022.
· Awarded Gold Standard Pathway for methane reduction and
monitoring plans from the Oil and Gas Methane Partnership (OGMP)
2.0.
Outlook
· The
Triton area drilling campaign started earlier this month with the
first well in the programme being the B1z sidetrack on the Bittern
field. The programme using the COSLInnovator rig now comprises five
wells with the addition of the 100% owned Belinda development well.
Serica has taken a final investment decision on Belinda and is
waiting for NSTA approval of the field development plan.
· An
extensive programme of well interventions is being carried out on
the Bruce and Keith fields during 2024. It is hoped to bring the
Keith field back into regular production during this
year.
· Capital expenditure in 2024 (cash spent) is estimated at
around £170 million, based on sanctioned projects previously
disclosed, plus up to £25 million on the newly sanctioned Belinda
development.
· The
production guidance range for 2024 is updated to 41,000 - 46,000
boe/d. The narrowing of the range from 41,000 - 48,000 boe/d
factors in the unplanned shut-in of Erskine (production recently
restarted and expected to ramp up), production to date in 2024 from
the rest of the portfolio and the later than expected start of the
Triton area drilling programme. Notwithstanding the shut-in of
Erskine, production in 2024 year-to-date[2] has averaged about 45,400 boe per day.
Production in the second half of 2024 will be impacted by the
planned 40-day shutdown of the Triton area for maintenance
work.
· Targeting operating costs at around US$20 per boe produced
during 2024 despite significant inflationary pressures.
· Production for 2025 is anticipated to be in the same range
(41,000 - 46,000 boe/d) as 2024 reflecting the updated view coming
out of 2024 and slippage in some of the planned work in the Bruce
and Triton hubs.
· New
commodity price hedges being added to supplement the existing fixed
price hedges coming to an end during 1H 2024. Initially, these are
weighted towards oil in view of current market levels, run through
to Q1 2026 and are mainly 'collars' affording downside protection
while retaining upside exposure. Currently[3], hedges are approaching a quarter of
Serica's projected production volumes (c.10 kboe/d for 2024,
tapering to around 6 kboe/d by Q1 2026).
· A
draft FDP has been submitted for the Buchan Horst field. As with
all major capital projects, a final investment decision, which is
not expected before the latter part of 2024, depends in part on the
impact on project economics of expectations for the future tax
regime which will apply through the life of the project.
· Subject to shareholder approval at the AGM, a final 2023
dividend of 14p per share will be payable on 24 July 2024 to
shareholders registered on 28 June 2024 with an ex-dividend date of
27 June 2024.
· Additionally, a £15 million share buyback is being initiated
today under the authority granted at the AGM in 2023. This reflects
the confidence of the Board in the Company's current financial
position, the cash generating capacity of the portfolio during 2024
and the long-term value of the assets. Serica will look to provide
further detail on its future policy of cash returns to shareholders
in due course. This policy will be framed by reference to Serica's
post-tax operating cash flow, its organic and inorganic investment
opportunities, and the maintenance of a prudent balance
sheet.
· After six years on the Serica Board, Malcolm Webb has
informed the Board of his wish not to stand for re-election at the
forthcoming AGM. As chair of the Nominations Committee, Malcolm
will continue to lead the CEO recruitment process. It is
anticipated that an announcement on the conclusion of this process
will be made by the time of the AGM in June. The Board is very
grateful for Malcolm's considerable contribution to the
transformation of the Company over the last several
years.
A conference call for sell-side
analysts will be held today at 9:30 am (BST). If you would like to
participate, please email serica@vigoconsulting.com.
A copy of the accompanying presentation can be found on our
website: www.serica-energy.com.
Investor Presentation
David Latin (Chairman and Interim
CEO) and Martin Copeland (CFO) will
provide a live presentation relating to the full year results via
the Investor Meet Company platform today at 2.00pm BST.
The presentation is open to all
existing and potential shareholders. Questions can be submitted via
the Investor Meet Company dashboard at any time during the live
presentation.
Investors can sign up to Investor
Meet Company for free and add to meet Serica Energy plc
via:
https://www.investormeetcompany.com/serica-energy-plc/register-investor
Investors who already follow
Serica on the Investor Meet Company platform will automatically be
invited.
Regulatory
This announcement is inside
information for the purposes of Article 7 of Regulation 596/2014 as
retained in the UK pursuant to S3 of the European Union
(Withdrawal) Act 2018.
The technical information
contained in the announcement has been reviewed and approved by
Fergus Jenkins, VP Technical at Serica Energy plc. Mr. Jenkins
(MEng in Petroleum Engineering from Heriot-Watt University,
Edinburgh) is a Chartered Engineer with over 25 years of experience
in oil & gas exploration, development and production and is a
member of the Institute of Materials, Minerals and Mining (IOM3)
and the Society of Petroleum Engineers (SPE).
Serica Energy plc
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+44 (0)20 7390 0230
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David Latin (Chairman and Interim
CEO) / Martin Copeland (CFO) / Stephen Lambert (VP Legal and
External Relations)
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Peel Hunt (Nomad & Joint Broker)
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+44 (0)20 7418 8900
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Richard Crichton / David McKeown /
Georgia Langoulant
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Jefferies (Financial Advisor & Joint
Broker)
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+44 (0)20 7029 8000
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Sam Barnett / Will Soutar
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Vigo Communications
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+44 (0)20 7390 0230
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Patrick d'Ancona / Finlay
Thomson
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serica@vigoconsulting.com
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CHAIRMAN'S STATEMENT
Dear Shareholder
Without doubt times are currently
difficult for independent oil and gas companies working in the UK.
However, I am pleased to say that Serica is no ordinary company,
and it is strong and well equipped to withstand the current
headwinds. The purpose of the Company remains to
contribute responsibly towards meeting the
world's energy needs through the safe and efficient production of
hydrocarbons. Its Board is resolute that
it will stay focussed on responsible capital allocation to invest
prudently in our business whilst also delivering increasing returns
for shareholders over time. We do this by investing in our mid to
late life assets, optimising them and extending their lives, while
seeking opportunities to further add value through operationally
and financially accretive acquisitions. Given the significant
fiscal uncertainty driven by both major political parties in the
UK, we have stepped up efforts to identify attractive opportunities
to apply our approach in the broader North Sea region.
2023 in Overview
In operational terms, 2023 was
another year of sound progress at Serica. Notwithstanding an
unexpectedly long summer maintenance shut down, we again delivered
within the range of our production guidance, and more than replaced
production for the 6th year in succession.
The troubling developments in 2023
(and sadly again in 2024) came from Westminster. First, the
Government elected to keep its supposed 'Windfall' Profits Tax in
place long after any possible justification for it based on oil and
gas prices had disappeared and then most recently in the Spring
budget announced that they would extend it by a further year to
2029. Second, the Labour Party announced that, if elected to
Government, they would not only increase the rate of the tax to 78%
but also significantly reduce the amount of capital relief on
investment as compared to the current regime. Uncertainty caused by
political short termism risks killing off investment across the UK
sector of the North Sea and with it the associated high-quality
jobs this creates throughout the UK. It would seem that the
established policy of maximising the economic recovery of the UK's
remaining reserves of oil and gas in support of the energy
transition has been abandoned. Instead, our politicians appear to
have embarked on a race to the bottom with policy aimed at
maximising the near-term Government take, notwithstanding that this
will necessarily accelerate both production decline and the timing
of decommissioning, which in turn will inevitably reduce Government
overall receipts from UKCS and serve only to increase imports of
oil and gas to the UK. Imported production can easily be
interrupted, pays no UK taxes, sustains no UK jobs, and often
involves greater carbon emissions. This policy volte face is
a sad demonstration of the elevated level of UK political risk
which our industry now faces and has necessarily caused all
companies operating on the UKCS, including Serica, to reconsider
their UK investment plans.
Significant Developments in
2023
The acquisition of Tailwind Energy
was completed in March. Amongst other benefits flowing from this
acquisition, our portfolio of producing assets became more evenly
balanced between oil and gas, which had the consequence (consistent
with one of our objectives from the Tailwind transaction) of
reducing the impact of falling gas prices through the year - a
trend which has continued into 2024. Serica also signed an
innovative deal to add to our resource hopper by farming into
Jersey Oil and Gas's project to redevelop existing discovered
resources in the Buchan field. We will be continuing to work this
pre-sanction opportunity with our partners in the field during
2024. At the same time, our team supplemented by the expertise of
our new former Tailwind colleagues, continued to identify
opportunities to invest in our existing assets, providing
significant additions to our oil and gas reserves in both our hubs,
and so providing potential to defer decommissioning
activities.
The Company's Finances
Serica's finances remain strong
despite reduced commodity prices and the impact of unwelcome high
tax rates, with revenues of £633 million (£812 million in
2022). Group Profit before taxation for 2023 amounts to £306
million (£488 million in 2022). After providing for the impact
of materially increased taxes, profit after tax for 2023 was £103
million (£178 million in 2022). Furthermore, the Company retains
the confidence of major financial institutions and hence was able
to raise significant support in the form of a new US$525 million
reserve-based loan facility completed in January 2024. This loan
facility, together with our existing cash balances, provide us with
flexibility for capital allocation in line with our stated strategy
of investing in our assets, disciplined M&A and ensuring robust
shareholder distributions.
Outlook and Policy
Notwithstanding the current
political turbulence, Serica will continue to seek ways to invest
in our UK assets where we believe such investments will create
value for our shareholders. Given our operational skills and very
low exposure to decommissioning cost (our liabilities are among the
lowest in the UKCS), we are better placed to do this than most.
However, our ambitions for increased shareholder value are far
greater than simply maximising returns from our current portfolio
of assets. If good opportunities for increased value should arise
in the UK of course we will not ignore them, but in the current
circumstances we must consider other alternatives. Hence the Board
has now refocused and increased its search for projects outside the
UK where we believe we can deploy our skillsets to deliver
increased shareholder value. We are currently focussed on
identifying attractive opportunities in the broader North Sea
region beyond the UK. However, we will remain disciplined and will
only invest in projects or make acquisitions where we are confident
that they will deliver increased value and returns for
shareholders.
Shareholder Distributions
The Board of Serica is committed
to a shareholder distribution policy which reflects the underlying
performance and ambitions of the Company and so provides a good
return to shareholders whilst also leaving room for investment in
continuing asset growth. The total dividend for 2022 was 22
pence per share returning £76 million to shareholders. In November
2023 we paid an interim dividend of 9 pence per share.
Subject to approval of shareholders at the Annual General Meeting
in June 2024, we are proposing a final dividend of 14 pence per
share, bringing the total dividend for the year to 23 pence per
share. In addition, in response to the Board's view on the
intrinsic value of the Company, we are today announcing a Share
Buyback programme which will contribute to the shareholder
distributions in respect of 2024.
Board and Management
Changes
In February 2024, after many years
of exemplary service within the Company and having played a leading
role in the structuring and closing of the BKR acquisition, Andy
Bell retired. I was then delighted to welcome Martin Copeland to
the Board as the new Chief Financial Officer. Martin has a wealth
of highly relevant experience in the banking and M&A sectors
and is a fine addition to the team. We are extremely grateful that
Andy has stayed on to provide support to ensure a smooth transition
of the CFO role.
Also in January, we announced that
Mitch Flegg will step down from his role as CEO in April following
publication of the 2023 results. Mitch is leaving the Company later
this year after the AGM with our heartfelt thanks for all his
excellent work over his six years as CEO and before that as COO.
Amongst his many achievements, Mitch successfully managed the
integration of the BKR assets and led the acquisition and
integration of Tailwind in 2023. He will leave a Company in robust
health positioned for future growth.
As previously announced, upon
Mitch's departure I will move into the role of interim CEO during
the search to identify and appoint a permanent CEO to lead the next
phase of the Company's development.
After six years on the Serica
Board, Malcolm Webb our Senior Independent Director, has informed
the Board of his wish not to stand for re-election at the AGM. As
chair of the Nominations Committee, Malcolm will continue to lead
the CEO recruitment process which is now at an advanced stage. It
is anticipated that an announcement on the conclusion of this
process will be made by the time of the AGM in June. The Board is
very grateful for Malcolm's considerable contribution to the
transformation of the Company over the last several
years.
I wish to take this opportunity to
record a special tribute to Tony Craven Walker, who retired as
Chairman of the Board in June 2023. Tony is a legendary figure in
the industry and the effective founder and creator of Serica as we
know it today. It is not an overstatement to say that without Tony,
Serica would not have survived, let alone thrived as it has. His
was the inspiration behind the Erskine deal and the genius and
determination behind the company-making BKR acquisition. But above
and beyond all that, Tony inspired the commercial, operational and
corporate aspirations of our Company. We continue to aspire to the
high standards that he set. We are also so very pleased and
honoured that he remains a substantial shareholder in the
Company.
Finally, and on behalf of the
Board I extend thanks to the Serica team, especially to all
employees, whether based in Aberdeen, London or Offshore, for their
efforts throughout the last year and the enthusiasm and
professionalism which they bring to their work every day. Thanks
also to colleagues working alongside us in our supply chain, whose
partnership is a vital element of our continued success. And, last
but not least, a thank you to all shareholders for your investment
in and support for our Company, which I can assure you is greatly
appreciated and which I and all at Serica will do our very best to
justify.
David Latin
Chairman
23 April 2024
STRATEGIC REPORT
The following Strategic Report of
the operations and financial results of Serica Energy plc
("Serica") and its subsidiaries (the "Group") should be read in
conjunction with Serica's consolidated financial statements for the
year ended 31 December 2023.
References to the "Company"
include Serica and its subsidiaries where relevant. All figures are
reported in GB Sterling ("£") unless otherwise stated.
The Company is subject to the
regulatory requirements of AIM, a market of the London Stock
Exchange in the United Kingdom. Although the Company delisted from
the Toronto Stock Exchange ("TSX") in March 2015, the Company is a
"designated foreign issuer" as that term is defined under Canadian
National Instrument 71-102 - Continuous Disclosure and Other
Exemptions Relating to Foreign Issuers.
Serica is an independent oil and
gas company with production, development and exploration interests
in the UK Continental Shelf.
CEO's REVIEW
During 2023, Serica grew and
diversified its business through acquisition, maintained its record
of reserves replacement and prepared for significant new well
programmes linked to its existing fields and infrastructure. These
investments, to be carried out over the next twelve months, offer
the prospect of additional near term production with minimal
additions to total operating costs and carbon emissions.
In addition, the new financing
facility brings increased capacity with duration extended to end
2029, strengthening Serica's capability to pursue further
growth.
The acquisition of Tailwind Energy
Investments Ltd, was completed in March 2023 and has provided
operational diversity and scale for Serica. The net proforma
production from the combined portfolio for 2023 was 40,121 boe/d,
which was split 56% gas and 44% oil. This split between oil and gas
is far more balanced than in 2022 when Serica's production was 91%
gas.
Market benchmark gas prices were
significantly reduced at an average of 99p/therm in 2023 compared
with 198p/therm in 2022 (and have fallen to an average of only 69p
in the first quarter of 2024). Oil prices were more resilient
averaging US$83/bbl (US$101/bbl in 2022).
The Tailwind assets have therefore
provided Serica with substantial protection against the significant
fall in gas prices. 86% of Serica's production is operated and the
Bruce, Keith and Rhum contribution is now around 50% of net
production rather than 80% prior to the Tailwind
transaction.
Serica has maintained its record
of more than replacing reserves since 2018 with net Proved plus
Probable ("2P") reserves on 31 December 2023 of 140 million boe, up
10 million boe from 130 million boe at 31 December 2022 despite
producing 14.6 million boe in 2023 on a proforma combined Serica
and Tailwind basis. This addition of 24 million boe during 2023
represents a reserves replacement ratio of 179% with over 90% of
the 2P reserves in fields that are already in
production.
The Company is therefore
continuing with its growth strategy of investment in projects
designed to enhance and extend future production profiles. The
Tailwind portfolio came with several short-cycle, highly
value-adding opportunities which were matured in 2023 and will be
exploited by our ongoing four well drilling programme which is also
being undertaken with the benefit of the current capital allowances
and with the resultant production sheltered by the ring-fence tax
losses we acquired with Tailwind. This comprises wells on Bittern,
Gannet E, Guillemot NW and Evelyn. We are now anticipating a fifth
well, on the Belinda development, pending final NSTA approval of
the field development plan. Following the success of last year's
Light Well Intervention Vessel ("LWIV") programme on Bruce, a
second campaign was executed in 2023, and a third campaign is now
ongoing.
The common theme amongst these
capital projects is that they are all designed to add production
quickly from existing fields without the requirement for
substantial new infrastructure. We continue to focus on emissions
reduction whilst maximising production. Carbon intensity (emissions
divided by production) from the Bruce hub for 2023 was 16.4kg
CO2/boe, significantly lower than the average for
offshore UK Facilities of 19.8 kg
CO2/boe[4]. The absolute level of CO2
emissions is approximately 27% lower than the 2018 benchmark
levels. On Triton, the 2023 carbon intensity was 20.6kg
CO2/boe, which represents a reduction of roughly 20%
from 2022. As new production from Serica's forthcoming drilling
campaign will be tied back to existing offtake facilities, such
additions add reserves without adding significant carbon
emissions.
The UK remains heavily reliant on
energy imports; our energy production is only 60% of demand and oil
and gas comprise three quarters of our energy use. The growth of
offshore wind, hydrogen and CCS will underpin the UK's net zero
emissions future, but oil and gas will provide the bridge to that
future.
Energy prices have fallen back to
pre-crisis levels and are showing greater stability. This leads to
lower costs for homes and businesses and lower overall
inflation. The UK Energy Profits Levy
("EPL") has a significant
impact on post-tax profitability for all UK oil and gas producers.
The EPL is a wholly unwelcome burden that is already leading to the
delay and cancellation of longer-term investment projects across
the sector. Current oil and gas prices do not represent windfall
conditions for UK producers and the
increased tax burden on domestic oil and gas production is damaging
for UK jobs.
However, the substantial tax
losses acquired with the Tailwind transaction have had the effect
of lowering Serica's effective rate of taxation and so we are still
attempting to add investment opportunities to the portfolio. In
October we announced the award of Block 29/2a containing the
decommissioned Kyle oil field. This field ceased production in June
2020 and the host FPSO at the time was subsequently removed. During
an initial two-year licence period, Serica will carry out studies
to determine the feasibility of re-developing the Kyle field by
means of a subsea tie-back to the Triton FPSO vessel via the
Bittern field facilities.
In November we announced the
acquisition of a 30% non-operated interest in the Greater Buchan
Area from Jersey Oil & Gas ("JOG"). The partners in the project
are Serica Energy (UK) Limited (30%), NEO Energy (50% and operator)
and JOG (20%). This provides Serica with the option of
participating in the re-development of the Buchan field (formally
re-named 'Buchan Horst') and other potential projects in the GBA,
such as the development of the J2 and Verbier
discoveries.
Given the challenging UK fiscal
regime we continue to seek M&A opportunities elsewhere in the
North Sea. For example, Norway offers a wide range of sub-surface
opportunities and a relatively stable fiscal regime but less deal
flow than UKCS. We are adopting a disciplined and patient approach
exploiting Serica's technical skills, financial capacity and
relationships.
Finally, this is my last 'CEO
Review', and I would like to take the opportunity to thank everyone
who has helped build Serica into what it is today. The support of
shareholders, analysts, regulators, and contractors has been
outstanding, but it is the efforts and skills of the exceptional
workforce that has established a company with such strong
operational and financial foundations. Serica is extremely well
placed to continue its growth trajectory.
Mitch Flegg
Chief Executive Officer
23 April 2024
ACQUISITION OF TAILWIND ENERGY INVESTMENTS
LTD
On 23 March 2023 Serica Energy
completed the acquisition of Tailwind Energy Investments Ltd, a
privately owned independent oil and gas company with assets in the
UK North Sea. As part of the transaction, Mercuria - an investor in
Tailwind - became a strategic investor in Serica.
The assets acquired by Serica with
the Tailwind transaction comprise primarily a mix of operated and
non-operated producing fields tied-back to the Triton FPSO in the
UK Central North Sea. Tailwind's interests in producing fields also
include 100% in the Orlando field located in the UK Northern North
Sea and a non-operated 25% in the Columbus field in the UK Central
North Sea (operated by Serica).
The acquisition of Tailwind was
aimed at achieving Serica's longstanding objective to have a more
diverse and broadly based UKCS portfolio of producing fields, with
material reserves and value upside potential, coupled with a more
balanced exposure to commodity price risk. The transaction
represents substantial progress towards this objective with the
number of producing fields increased from five to eleven, mainly
centred around two hubs (Bruce and Triton), a substantial increase
in 2P reserves (combined 130.4 million boe as at 31 December 2022)
and a balance of gas and oil production.
REVIEW OF OPERATIONS
Production
Northern North Sea: Bruce Field -
Blocks 9/8a, 9/9b and 9/9c, Serica 98% and operator
Serica operates the Bruce field
and facilities consisting of three bridge-linked platforms, wells,
pipelines and subsea infrastructure. The platforms contain living
quarters, reception, compression, power generation, processing and
export facilities and a drilling derrick that is currently
mothballed. There is also the subsea Western Area Development
("WAD") that produces from the western part of the Bruce field and
is tied back to the existing facilities.
Bruce production is predominantly
gas which is rich in liquids. Gas is exported through the Frigg
pipeline to the St Fergus terminal, where it is separated into
sales gas and NGLs. Oil is exported through the Forties Pipeline
System to Grangemouth.
In the first half of 2023 Serica
completed the replacement and upgrade of the control system for the
Bruce platform, increasing the amount of data that can be captured
and processed, helping us to unlock the ability to implement AI
based improvements to our control, monitoring and maintenance
activities.
We also successfully carried out
the replacement of the subsea control modules on the WAD manifold
to support the LWIV activity which took place in Q3 2023 and which
will support ongoing LWIV activities in the future.
On the platform topsides a series
of surveillance and intervention activities were undertaken on a
number of the Bruce wells, verifying well integrity, identifying
future production options and implementing several simple
interventions to boost production.
Major works were undertaken during
the summer outage to replace the main platform flare tip, 140
metres above the sea surface requiring a heli-lift, along with
major overhauls of the glycol system and a booster compressor. The
extensive maintenance campaigns were all integrity and reliability
focussed helping to underpin the plans to extend Bruce production
to 2035+. The programme duration was
extended to approximately two months following inspection findings
on the flare tower during the planned work. The decision was taken
to carry out permanent rather than temporary repairs. These repairs
at height were hampered by bad weather, delaying the return of
Bruce and Rhum to production.
The 2023 LWIV campaign comprised
work on the Bruce M3, M6 and M4 wells including scale removal,
water shut-off, reperforation and the addition of new perforations.
The programme was successfully executed boosting overall Bruce
production capability. A further LWIV campaign, covering two Bruce
wells, commenced in April 2024.
Bruce field production in 2023,
which averaged circa 6,500 boe/d of oil and gas net to Serica
(2022: 6,900 boe/d) was impacted by the extended summer
shut-in.
An independent reserves report by
RISC estimated 2P reserves of 41.7 million boe net to Serica as of
1 January 2024 (2023: 31.8 million boe). This represents a
significant uplift in reserves compared to year end 2022 and not
withstanding 2023 production. This is predominantly attributed to
the maturation of the South Central East infill well from
contingent resources, the inclusion of an 8 well platform
intervention campaign for 2024 and also a performance uplift
observed in certain producing wells. This was partially offset by
deferral of the Bruce enhanced recovery project so as to prioritise
these other projects.
Northern North Sea: Keith Field -
Block 9/8a, Serica 100% and operator
Keith is an oil field produced by
one subsea well tied back to the Bruce facilities and requires very
little maintenance. In normal operation Keith produces at a
relatively low rate but provides a low-cost contribution to the oil
export from Bruce. The well has been shut-in since 2022 due to a
fault in the electrical supply.
During 2023 the Keith subsea
control module was changed out to allow the planned LWIV
intervention in Q2 2024 to restore production from the
field.
An independent reserves report by
RISC estimated 2P reserves of 3.2 million boe net to Serica as of 1
January 2024 (2023: 2.4 million boe). These reserves are based upon the 2023 activities and planned
LWIV programme in Q2 2024.
Northern North Sea: Rhum Field -
Blocks 3/29a, Serica 50% and operator
The Rhum field is a gas condensate
field producing from three subsea wells tied into the Bruce
facilities through a 44km pipeline. Rhum production is separated
into gas and oil and exported to St Fergus and Grangemouth along
with Bruce and Keith production. Rhum gas has a higher
CO2 content than Bruce gas and so is blended with Bruce
gas before leaving the offshore facilities.
A new power umbilical was
installed on the R1 well in March 2023 and further works to remove
power supply vulnerabilities to Rhum were carried out in the
summer. Topsides works in the first half of the year increased the
throughput limits of the Rhum separator creating more capacity for
any future production increases.
Average Rhum field production in
2023 was circa 12,500 boe/d net to Serica compared to 15,700 boe/d
for 2022, largely reflecting the impact of the extended summer
maintenance shut-in.
An independent reserves report by
RISC estimated 2P reserves of 39.2 million boe net to Serica as of
1 January 2024. The uplift in reserves compared to 36.4 million boe
at year end 2022, and notwithstanding 2023 production, is
predominantly attributed to the inclusion of a planned project
later in field life to convert compression on the Bruce platform to
low pressure operations.
Northern North Sea: Orlando Field
- Block 3/3b, Serica 100% and operator (acquired from
Tailwind)
Serica is operator of Orlando
which is an oil field producing from a single subsea well tied into
the Ninian Central facilities through an 11km pipeline. Orlando
production is separated into gas and oil, with oil exported to the
Sullom Voe Terminal and gas used by the Ninian operator as fuel on
the platform.
Orlando produced steadily in 2023,
following a workover in 2022 to replace the dual electric
submersible pumps. During 1H 2023, there were some minor
outages for repairs to some topsides electrical
cables.
Average Orlando field production
in 2023 was circa 3,500 boe/d including downtime. Average net
production for the post-Tailwind acquisition period from 23 March
to 31 December was 3,540 boe/d.
An independent reserves report by
RISC estimated 2P reserves of 2.4 million boe net to Serica as of 1
January 2024 compared to 3.4 million boe reported by ERCE in an
independent reserves report for Tailwind at end 2022.
Northern North Sea: Mansell -
Block 3/8g, Serica 100% and operator (acquired from
Tailwind)
The Mansell discovery is located
in licence P2448 in UKCS Block 3/8g south and east of the Ninian
field. Mansell was discovered by well 3/8b-10, drilled by BP in
1985, and following successful appraisal was developed as a subsea
tieback to the Ninian South Platform and produced between 1992 and
1995 (field was then named Staffa). The field was shut in 1995
following waxing-up of the flowline and decommissioned. The Mansell
field has 2C contingent resources of 8.3 million boe net to Serica. An
extension of 2 years was awarded by the NSTA in February 2023 to
allow sufficient time to evaluate the feasibility and timing of a
redevelopment.
Central North
Sea
Central North Sea: Triton Area -
Bittern 64.63%, Evelyn 100%, Gannet E 100%, Guillemot West &
North West 10%, Belinda 100% (Serica % shares all acquired from
Tailwind)
The Triton Area consists of eight
producing oil fields Bittern, Evelyn, Gannet E, Guillemot West and
Guillemot North West, Clapham, Pict and Saxon. Serica holds equity
in five as listed above, as well as the undeveloped Belinda field.
The Triton area fields were developed via common subsea
infrastructure, located approximately 190km east of Aberdeen in
water depths of approx. 90 metres. The fields produce oil and gas
via the Triton Floating Production Storage & Offloading
("FPSO") vessel. Dana Petroleum Limited ("Dana") and Waldorf
Production UK Limited (''Waldorf'') are our partners in the Triton
cluster. Dana operate the Triton FPSO along with the Bittern,
Guillemot West / North West, Clapham, Saxon, and Pict fields.
Serica is operator of the Gannet E, Evelyn and Belinda fields, with
Dana as pipeline operator and Petrofac as well operator.
Well GE04 on the Gannet E field
was drilled and completed in Q4 2022 with a subsea tie-in to the
Triton system completed during early 2023. First oil was achieved
on 14 February 2023, with initial rates around 9,000 boe/d. By the
end of 2023, the well had produced a total of approx. 1.34 million
boe with a year-end exit rate of 6,000 boe/d.
From early July to mid-September
2023, Dana carried out an extended shutdown on Triton, supported by
a six month walk-to-work campaign, which involved a vessel
stationed alongside Triton to provide additional personnel on site
during the fair-weather summer months so enabling additional work
scopes. Critical activities completed were fabric maintenance work
scopes integral to the life extension of Triton, completion of
structural repairs, an upgrade to the Guillemot West separator and
successful repair to the Bittern water injection pipeline. Further
work was completed on the distributed Triton control system, which
is planned to have been replaced fully by the end of 2024,
following replacement work which was phased across the 2022 and
2023 shutdowns. The length of the 2023 summer shut-down was
extended to carry out an essential repair on a piece of equipment identified during
a pre-production inspection, a seawater lift pump failure and
initial difficulties operating the upgraded FPSO control systems.
These issues were each successfully resolved.
Production from Gannet E and
Evelyn averaged 6,100 boe/d and 3,800 boe/d respectively (Serica
net) in 2023. Bittern field production was steady at rates
averaging circa. 4,000 boe/d (Serica net) and Guillemot West /
North West at circa. 250 boe/d (Serica net). Triton gross peak
rates exceeded 30,000 boe/d in March 2023 for the first time in 10
years. Two Guillemot West well workovers were completed in July
2023 and came on stream averaging 3,200 boe/d gross (320 boe/d
Serica net).
A four well programme is planned
for execution in 2024 and has already started with the Bittern B1z
sidetrack. This will be followed by the Gannet E fifth well, a
Guillemot North West infill well and an Evelyn second well. These
wells will be drilled using the COSL Innovator semi-submersible
rig.
In April 2024 Serica took a final
investment decision on the Belinda development. Consent to the
project has been received from OPRED and NSTA approval of the final
Field Development Plan ("FDP") is expected shortly. Serica proposes
to use the COSLInnovator to drill the Belinda development well
during 1H 2025 having exercised the option for an
additional 5th well in the current Triton area
drilling campaign in September 2023.
Serica's average net share of
Triton Area production in 2023 was circa 14,150 boe/d of oil and
gas. Average net production for the post-Tailwind acquisition
period from 23 March to 31 December 2023 was 13,120 boe/d.
An independent reserves report by
RISC estimated 2P reserves of 49.2 million boe net to Serica
as of 1 January 2024 compared to 49.4 million
reported by ERCE in an independent reserves report for Tailwind at
end 2022. The uplift in reserves compared to the prior year, after
taking account of 2023 production of approx. 5.2 million boe, is
predominantly attributed to the transfer of volumes associated with
the Belinda development from contingent resources to reserves and
better than expected performance from the fourth production well on
the Gannet E field which came into production during
2023.
Central North Sea: Erskine Field -
Blocks 23/26a (Area B) and 23/26b (Area B), Serica 18%
Serica holds a non-operated
interest in Erskine, a gas and condensate field located in the UK
Central North Sea. Serica's co-venturers are Ithaca Energy 50%
(operator) and Harbour Energy 32%.
The Erskine field has five
production wells and produces oil and gas over the Erskine normally
unattended installation. This is transported via a multiphase
pipeline and processed on the Lomond platform which is 100% owned and operated by
Harbour. Then condensate is exported down
the Forties Pipeline System via the CATS riser platform at Everest
and gas is exported via the CATS pipeline to the terminal at
Teesside.
In 2023 Erskine produced steadily
from the four currently available wells. Topsides surveillance of
the W1 well was undertaken in Q3 2023 in readiness for carrying out
a MODU (semi-submersible) rig-based intervention in 2024 to return
the well to production. The regular pigging programme on the
condensate export line has continued and no indications of wax
build-up have been seen.
Erskine production levels in 2023
averaged 1,325 boe/d net (2022: 1,680 boe/d).
An independent reserves report by
RISC estimated 2P reserves of 2.2 million boe net to Serica as of 1
January 2024 (2023: 3.3 million boe).
Central North Sea: Columbus Field
- Blocks 23/16f and 23/21a (part), Serica 75%
Serica Energy (UK) Limited is
Operator with its partner Waldorf Production Limited ("Waldorf")
(25%). Following the acquisition of Tailwind Mistral Limited by the
Serica group on 23 March 2023, the Serica group's net interest in
Columbus increased from 50% to 75%.
The Columbus field
development consists of a single horizontal well which
runs along the central axis of the reservoir and was drilled in the
spring of 2021 with production commencing in November 2021.
Columbus is a gas condensate field.
The well is connected to the Arran
export pipeline through which Columbus products are exported along
with Arran field production. When production reaches the
Shearwater platform, it is separated into gas and
condensate. The gas is exported to St
Fergus via the SEGAL line and the condensate to Cruden Bay via
the Forties Pipeline System.
Average net Columbus production of
gas and condensate in 2023 for Serica's combined 75% interest was
c. 2,180 boe/d (2022: 1,900 boe/d for 50% interest). Average net
production for the Group's combined 75% interest in the
post-acquisition period from 23 March to 31st December 2023 was c.
2,085 boe/d.
An independent reserves report by
RISC estimated 2P reserves of 2.4 million boe net to Serica's 75%
field interest as of 1 January 2024 (2023: 1.1 million boe for 50%
interest, equivalent to 1.7 million boe on a 75% basis). The uplift
in reserves compared to the prior year, and before 2023 production
is taken into account, is predominantly attributed to better than
expected performance from the Columbus well.
Outer Moray
Firth
Outer Moray Firth: Buchan Horst
Field - Blocks 20/5a, 205d, 21/1d & 21/1a. Serica
30%
In November 2023 Serica announced
the acquisition of a 30% working interest in the Greater Buchan
Area ("GBA") licences P.2498 and P.2170 with co-venture partners
Jersey Oil and Gas (20%) and NEO Energy (50% and operator). The GBA
encompasses several oil and gas accumulations some 150 km
north-east of Aberdeen. The largest of these accumulations is the
Buchan Horst field which produced for over thirty years, ceasing
production in 2017 owing to the end of the useable life of the
floating production facility.
An FDP submitted to the NSTA for
the re-development of the area assumes a new production hub located
at the Buchan Horst field utilising the FPSO vessel currently
operating on the UK Western Isles fields. This is planned to come
off-station in the second half of 2024.
A phased development is envisaged
involving the re-development of the Buchan Horst field in Phase 1
and the possible development of the J2 and Verbier discoveries in
Phase 2. Mid-case contingent resources from the Buchan Horst field
alone are estimated to be in region of 70 million boe gross, making it the
third largest pre-development field on the UKCS.
Owing to the completion of the acquisition of the
interest in GBA in February 2024, contingent resource estimates
have not been independently verified as part of the RISC competent
persons report for year-end 2023.
There are other discoveries and
prospects in close proximity which may provide additional tie-back
opportunities to the FPSO. Subject to project sanction and
regulatory approval, the target for first production from Buchan
Horst is Q4 2026.
UK Exploration
North Eigg and South Eigg - Blocks
3/24c and 3/29c, Serica Energy (UK) Limited 100% and
Operator
In December 2019, Serica was
awarded the P.2501 Licence as part of an out of round application
comprising Blocks 3/24c and 3/29c including the North Eigg and
South Eigg prospects.
The 3/24c-6B North Eigg
exploration well was drilled to a depth of 5,099 metres in the
Jurassic Heather formation, completing in early 2023. Following
detailed interpretation of the well results, Serica decided there
was insufficient accessible oil to justify re-entering the
suspended well and drilling a sidetrack. After consultation with
the NSTA, Serica elected to go into the second term of the P.2501
Licence for the purpose of completing the decommissioning of the
North Eigg well. Only the area immediately around the well
necessary for the abandonment was retained with the remainder of
the block being relinquished. In late 2023 a vessel-based
abandonment of the North Eigg exploration well was completed and
the licence will be relinquished in 2024.
Skerryvore and Ruvaal- Blocks
30/12c (part), 30/13c (split), 30/17h, 30/18c and 30/19c (part),
Serica Energy (UK) Limited: 20% working interest, operator
Parkmead
The P2400 Licence was awarded in
the 30th licence round in 2018. It is located in the
Central North Sea, 60km south of the Erskine field, and comprises
blocks 30/12c, 30/13c, 30/17h and 30/18c. Current equity holders
are Serica 20%, Parkmead 50% (operator) and CalEnergy 30%. The
licence is in phase C, which expires on 30 September 2025. The
licence terms include a commitment to drill a well to a depth of
3,500 metres or 200 metres into the Chalk Group, whichever is
shallower, by the end of the current phase. The Operator has
proposed a vertical well targeting the Mey reservoir (primary
target) and a deeper Tor chalk reservoir (secondary target).
Detailed planning is underway with a site survey scheduled for Q3
2024 and drilling in 2025.
In the region around
Skerryvore, Harbour is progressing with the Talbot development,
with drilling ongoing and first oil expected from Q3 2024. In a
Skerryvore success case, Talbot infrastructure could provide an
export route via the Judy platform and the subsequent export of
produced hydrocarbons to Teesside, UK.
Licence Awards in the UK
32nd licensing round
The P2506 Licence was awarded to
Serica 100% in the 32nd Licence Round in 2020 and
covered blocks in the greater Bruce/Rhum area. Following a detailed
subsurface evaluation in 2023, it was concluded that the
prospectivity did not meet Serica's investment criteria, and the
licence has now been fully relinquished with all work commitments
fulfilled.
Licence Awards in the UK
33rd licensing round
On 30 October 2023 the Kyle
licence in UK block 29/2c was provisionally awarded to Serica
(100%) and was formalised as licence P.2616 on 31 January
2024. Kyle is a previously producing oil field, 20km
southeast of Triton and represents a potential redevelopment
tie-back to existing Serica equity infrastructure. Studies are
underway in order to determine whether there is a viable project.
There are no other work commitments.
This is a 'Straight to Second
Term' licence and the work programme is already
underway.
Group Proved plus Probable Reserves ("2P")
|
Oil
|
Gas
|
Total oil and
gas1
|
|
mmbbl
|
bcf
|
mmboe
|
|
|
|
|
2P Reserves at 31 December 2022
|
18.7
|
337.4
|
76.9
|
|
|
|
|
Acquisitions2
|
44.5
|
44.7
|
52.2
|
2023
production2
|
(4.9)
|
(42.9)
|
(12.3)
|
Revisions
|
11.3
|
70.8
|
23.5
|
|
|
|
|
2P Reserves at 31 December 2023
|
69.6
|
410.0
|
140.3
|
|
|
|
|
1Group reserves at 31 December 2023 above show Serica net
sales values which have been converted to barrels of oil equivalent
using a factor of 5.8 bcf per mmboe for reporting and comparison
purposes. Group reserves at 31 December 2022 were previously
converted to barrels of oil equivalent using a factor of 6.0 bcf
per mmboe for reporting and comparative purposes. The opening
combined reserves figure for 31 December 2022 in the table above
has been restated using 5.8 bcf per mmboe. As the actual calorific
values of gas produced from individual fields varies, reported
production rates for each field and the total production and
revisions numbers reported above may not convert
precisely.
2 Production from the Tailwind fields from the acquisition date
of 23 March 2023 is included within '2023 production'.
Group Proved and Probable reserves
at 31 December 2023 shown here are extracted from an independent
report prepared by RISC Advisory ("RISC") in accordance with the
reserve definitions guidelines defined in SPE Petroleum Resources
Management System 2018 ("PRMS 2018").
Figures quoted relate to export
fluids, so Fuel in Operation has already been
subtracted.
LICENCE HOLDINGS
The following table summarises the
Group's licences as at 31 December 2023.
Licence
|
Block(s)
|
Description
|
Role
|
%
|
Location
|
UK
|
|
|
|
|
|
P.090
|
9/9a
Bruce
|
Bruce Field Production
|
Operator
|
99%
|
Northern North Sea
|
P.090
|
9/9a Rest of Block Excluding Bruce
(REST)
|
Development
|
Operator
|
98%
|
Northern North Sea
|
P.198
|
3/29a (ALL)
|
Rhum Field Production
|
Operator
|
50%
|
Northern North Sea
|
P.209
|
9/8a
Bruce
|
Bruce Field Production
|
Operator
|
98%
|
Northern North Sea
|
P.209
|
9/8a Keith
|
Keith Field Production
|
Operator
|
100%
|
Northern North Sea
|
P.209
|
9/8a Rest of Block Excluding Bruce
and Keith (REST)
|
Development
|
Operator
|
98%
|
Northern North Sea
|
P.276
|
9/9b BRUCE
|
Bruce Field Production
|
Operator
|
98%
|
Northern North Sea
|
P.276
|
9/9c (ALL)
|
Bruce Field Production
|
Operator
|
98%
|
Northern North Sea
|
P.276
|
9/9b Rest of Block Excluding Bruce
Unit (REST)
|
Development
|
Operator
|
98%
|
Northern North Sea
|
P.566
|
3/29b (ALL)
|
Rhum Field non-unitised
production
|
Operator
|
100%
|
Northern North Sea
|
P.975
|
3/24b (ALL)
|
Rhum non-unitised
production
|
Operator
|
100%
|
Northern North Sea
|
P.975
|
3/29d (ALL)
|
Rhum non-unitised
production
|
Operator
|
100%
|
Northern North Sea
|
P101
|
23/21a Columbus
|
Columbus Development
Area
|
Operator
|
75%
|
Central North Sea
|
P1314
|
23/16f
|
Columbus Development
Area
|
Operator
|
75%
|
Central North Sea
|
P57
|
23/26a Area B
|
Erskine Field -
Production
|
Non-operator
|
18%
|
Central North Sea
|
P264
|
23/26b Area B
|
Erskine Field -
Production
|
Non-operator
|
18%
|
Central North Sea
|
P264
|
23/26b Area C
|
Erskine Field -
Production
|
Non-operator
|
40%
|
Central North Sea
|
P2400
|
30/12c, 30/13c, 30/17h,
30/18c
|
Exploration
|
Non-operator
|
20%
|
Central North Sea
|
P2501
|
3/24c, 3/29c
|
Exploration
|
Operator
|
100%
|
Northern North Sea
|
P215
|
21/29b
|
Guillemot W
|
Non-Operator
|
50%
|
Central North Sea
|
P233
|
29/1a Bittern
|
Bittern
|
Operator
|
100%
|
Central North Sea
|
P361
|
29/1b
|
Bittern
|
Non-Operator
|
29.26%
|
Central North Sea
|
P13
|
21/30c A
|
Gannet E
|
Operator
|
100%
|
Central North Sea
|
P13
|
21/25a UPPER , 21/30a
UPPER
|
Gannet E
|
Non-operator
|
50%
|
Central North Sea
|
P1606
|
3/3b
|
Orlando
|
Operator
|
100%
|
Northern North Sea
|
P1792
|
21/30f
|
Evelyn/Belinda
|
Operator
|
100%
|
Central North Sea
|
P2170
|
20/5b, 21/1d
|
Greater Buchan Area
|
Non-operator
|
30%
|
Central North Sea
|
P2448
|
3/8g
|
Mansell/Staffa
|
Operator
|
100%
|
Central North Sea
|
P2498
|
20/5a, 20/5e, 21/1a
|
Greater Buchan Area
|
Non-operator
|
30%
|
Central North Sea
|
P2616
|
29/2c
|
Kyle
|
Operator
|
100%
|
Central North Sea
|
FINANCIAL REVIEW
SUMMARY OF 2023 FINANCIAL
RESULTS
In addition to continuing strong
performance from its existing assets, Serica's 2023 results
benefitted from inclusion of net production and income from the
Tailwind field interests from the acquisition completion date of 23
March 2023 to the year end. In order to provide a more
representative picture of the enlarged group, unaudited proforma
information ("PF 2023") in relation to volumes, revenues and costs
including contributions from the Tailwind assets for the full
calendar year, has been included in this Financial
Review.
Further analysis of the summary
metrics provided in the Summary Financial Information table below
is detailed in the following pages of this Financial
Review.
Incorporating the business assets
from the Tailwind acquisition, Serica today has a balanced mix of
oil and gas and greater production resilience arising from a wider
asset spread. The Group balance sheet at 31 December 2023 reflects
the full set of assets and liabilities arising from the business
combination, which include a reserve-based lending ("RBL") facility assumed through the
Tailwind acquisition, which has subsequently been refinanced as a
post Balance Sheet event.
Market sales prices for oil and,
to a greater extent, gas were lower than for the 2022 year with NBP
gas prices averaging 99p/th (2022: 198p/th) and Brent crude
averaging US$83/bbl (2022: US$101/bbl). Total operating costs
increased broadly in line with production volumes but with an
additional impact from inflation over the year. Importantly FY 2023
saw the full impact of the EPL with a marginal ring-fence aggregate
tax rate of 75% as compared to 40% for the initial months of 2022,
increasing to 65% for the period from 26 May 2022.
Serica generated EBITDAX of £381.0
million compared to £616.5 million for 2022 and a profit before
taxation of £305.6 million for 2023 compared to £488.2 million for
2022. After current and deferred tax provisions of £202.6 million
(2022: £310.4 million), profit for the year was £103.0 million
compared to £177.8 million for 2022.
Further detail is provided in the
following sections.
Sales
revenues
The total 2023 sales revenue of
£632.6 million (2022: £812.4 million) included a contribution of £242.6
million from the Tailwind assets from the acquisition date of 23
March 2023 (2022: £nil). Proforma 2023 sales revenue on the same
basis would have been £728.0 million.
Sales comprised gas revenue of
£346.7 million (2022: £690.2 million), oil revenue of £265.5
million (2022: £88.0 million) and NGL revenue of £20.4 million
(2022: £34.2 million). The fall in gas revenue was driven by lower
realised pricing compared to the unprecedented highs of 2022 whilst
the threefold increase in oil revenue reflected new revenue streams
from the oil-weighted Tailwind portfolio, offset partially by lower
oil prices.
Total product sales volumes for
the year comprised approximately 371 million therms of gas (2022:
432 million therms), 4.7 million lifted barrels of oil (2022: 1.1
million barrels) and 56,312 metric tonnes of NGLs (2022: 71,290
metric tonnes). This amounted to product sales as reported of 12.3
million boe or 14.2 million boe on a proforma basis (2022: 9.1
million boe).
Average 2023 sales prices were: 93
pence per therm (2022: 160 pence per therm including contract
revenue) for gas net of NTS system fees, US$70.5 per barrel (2022:
US$97.2 per barrel) for oil and £363 per metric tonne (2022: £480
per metric tonne) for NGLs. Average oil and gas sales prices
reflect a mix of sales volumes sold at current spot prices and
volumes sold at contracted fixed prices (reflecting an embedded
hedge for volumes sold under such contracts) and are before
realised hedging costs on gas price swaps.
Gross
profit
The gross profit for 2023 was
£306.6 million compared to £594.3 million for 2022. Overall cost of
sales of £326.1 million compared to £218.2 million for 2022. This
comprised £218.7 million of operating costs (2022: £121.0 million)
and £109.2 million of non-cash depletion charges (2022: £76.9
million).
The increase in overall operating
costs reflected higher production volumes for the enlarged
business. Operating costs as reported per boe were US$21 per boe,
increased from US$15.9 per boe for 2022 mainly due to the impact of
the extended summer field shut-ins which spread fixed costs over
reduced production volumes and some underlying cost inflation.
Proforma operating costs, including the Tailwind assets from 1
January, were lower at circa US$19 per boe. These increases were
partially offset by a £9.3 million credit representing an increase
during the year of the liquids underlift position (2022: charge of
£20.3 million). The increase in total DD&A reflected the larger
PP&E base following the Tailwind acquisition.
EBITDAX, operating profit
before net finance costs and tax
EBITDAX for 2023 was £381.0
million compared to £616.5 million for 2022 with the reduction very
much in line with lower commodity prices and revenues.
The operating profit for 2023 was
£321.2 million compared to £476.2 million for 2022 and includes a
gain on acquisition of £34.0 million on the Tailwind transaction
(2022: £nil).
Net hedging income of £4.8 million
(2022: £24.5 million expense) comprised realised hedging expense,
primarily related to gas swaps, of £15.6 million during 2023 (2022:
£45.4 million expense) as well as unrealised hedging gains of £20.4
million (2022: gains of £20.9 million), mainly arising from the
movement in valuation of Serica's 2022 year-end gas swap position
as it fully unwound during the year.
Contract revenue of £23.9 million
(2022: £nil) arose from the partial unwind of an underlying revenue
offtake contract that was fair valued in connection with the
Tailwind acquisition (see note 16). An original liability of £54.2
million was recognised which is released to the Income Statement
across 2023 and 2024 as the underlying contract unwinds.
Exploration expenses and asset
write-offs totalled £10.8 million in 2023 (2022: £82.9 million)
including final charges from the North Eigg exploration
well.
Administrative expenses for 2023
of £19.6 million compared to £9.2 million for 2022 and reflected
the growth in activities of the Group arising following the
Tailwind transaction completion and the extension of activities
that this entailed, but also some non-recurring charges. In
addition, transaction costs of £10.1 million (2022: £1.8 million)
comprised fees and other transaction costs associated with the
acquisition of Tailwind.
Currency losses of £3.6 million
(2022: gains of £3.9 million) largely arose on GBP-reported US$
holdings as sterling strengthened compared to the US$ during 2023.
Share-based payments were £4.0 million (2022: £3.5
million).
The gain on acquisition of £34.0
million (2022: £nil) represents the difference between the fair
value of assets acquired and consideration paid or potentially
payable, calculated in accordance with applicable accounting
standards. Such calculations are complex and involve a range of
projections and assumptions related to future costs, production
volumes, sales prices, discount rates and tax.
Profit before taxation and
profit for the period after taxation
Profit before taxation for 2023 of
£305.6 million (2022: £488.2 million) took into account a £7.6
million charge arising from an increase in the fair value of
financial liabilities (2022: £8.4 million credit), £13.5 million of
finance revenue (2022: £4.5 million) and £21.5 million of finance
costs (2022: £0.9 million).
The total £7.6 million charge for
financial liabilities included £5.9 million related to the
remaining BKR financial liabilities (2022 - £8.4 million credit)
and £1.7 million for royalty liabilities and other consideration
(2022: £nil). The fair value of the liabilities is re-assessed at
each financial period end. The increase for the BKR liability arose
from the unwinding of discount and other timing revisions on the
estimated amounts of those remaining liabilities. The prior year
credit reflected the impact of Serica's plan for field life
extension on the BKR assets.
Finance revenue of £13.5 million
(2022: £4.5 million) primarily represented interest income earned
on cash deposits and has increased following the recent rises in
interest rates during 2023 compared to 2022. Finance costs of £21.5
million (2022: £1.0 million) included interest payable and other
charges on the debt facility acquired with the Tailwind acquisition
in March 2023, the discount unwind on decommissioning provisions
and other minor finance costs.
The 2023 taxation charge of £202.6
million (2022: £310.4 million) comprised current tax charges,
including prior year adjustments, of £183.3 million (2022: £277.7
million) and a deferred tax charge of £19.3 million (2022: £32.7
million). The reduction in current tax charges mainly reflected
lower net income and higher capital spend in 2023 as well as the
utilisation of brought forward tax losses within the acquired
Tailwind business. The gain on acquisition is a non-taxable
accounting entry.
In addition to corporation tax and
supplementary charge, 2022 and 2023 full year
results also include charges for the EPL. The EPL applied an
additional 25% tax on profits earned from the production of UK oil
and gas from 26 May 2022, increasing to 35% effective 1 January
2023. The current tax charge includes EPL charges of £97.1 million
(2022: £64.3 million).
Overall, this generated a profit
after taxation of £103.0 million for 2023 compared to a profit
after taxation of £177.8 million for 2022. This resulted in an
earnings per share of £0.29 (2022: £0.65) after taking into account
the weighted average number of ordinary shares in issue.
GROUP BALANCE
SHEET
Serica retains a strong balance
sheet following completion of the Tailwind acquisition including
remaining in a net cash position. This gives the Group flexibility
in capital allocation including the ability to fund its ongoing
capital investment programmes whilst supporting distributions to
shareholders. Completion of a new financing facility to refinance
the RBL, assumed as part of the Tailwind acquisition following year
end has further boosted the Group's resources as it seeks new
acquisition and investment opportunities. The balance sheet as at
31 December 2023 includes assets and liabilities from the acquired
Tailwind business.
Total property, plant and
equipment increased from £265.9 million at year end 2022 to £711.5
million at 31 December 2023. The main driver for the significant
increase in the balance is the fair value of £486.3 million
attributed to the Tailwind assets upon acquisition. The acquisition
of Tailwind Energy Investments Ltd is classified as a business
combination and the calculation of fair value is carried out
involving a series of judgements and assumptions (see note 2
- Use of judgement and estimates and
sources of estimation uncertainty) in
accordance with applicable accounting standards.
Net PP&E additions comprised
capital expenditure during 2023 of £68.6 million across various
field assets. These included expenditure on the Bruce LWIV campaign
and preparations for the 2024 Triton area drilling programme. There
were also increases from decommissioning asset revisions of £16.0
million offset by depletion charges for 2023 of £109.2 million
(2022: £76.9 million), other depreciation charges of £0.2 million
(2022: £0.2 million) and currency translation adjustments of £16.0
million. Depletion charges represent the allocation of field
capital costs over the estimated producing life of each field and
comprise costs of asset acquisitions and subsequent investment
programmes.
The net deferred tax asset of
£84.1 million at 31 December 2023 compared to a deferred tax
liability of £153.3 million at year end 2022, mainly as a result of
the inclusion of significant net deferred tax assets of £264.9
million in relation to the Tailwind acquisition. This net deferred
tax asset comprised the recognition in relation to tax losses and
future relief available on decommissioning, partially offset by
deferred tax liabilities arising on PP&E balances. Deferred tax
liabilities arising upon the Group's PP&E balances will be
released in future periods as those balances are
depleted.
The inventories balance of £10.9
million at 31 December 2023 increased from £4.0 million at the end
of 2022 including £5.9 million for oil inventory held in the
pipeline and terminal for the acquired Orlando field. Trade and
other receivables increased from £134.6 million at the end of 2022
to £138.6 million at 31 December 2023.
Hedging security advances of £24.3
million at 31 December 2022 were recovered during 1H 2023 as all
gas swaps and the majority of fixed forward contracts
crystalised.
The decrease in cash balances from
£432.5 million at 31 December 2022 to £263.5 million at 31 December
2023 reflected cash flow from operations of £378.4 million mainly
offset by £279.5 million of UK tax payments, £88.8 million of
dividend payments, capital expenditures of £78.3 million, net cash
outflows of £44.0 million on the Tailwind acquisition (cash
consideration net of cash and cash equivalents acquired), and £46.9
million (US$58.8 million) on debt repayments in the
post-acquisition period. Overall cash was supplemented by
Decommissioning Security Agreement ("DSA") cash advances of £27.5 million at
31 December 2023 (31 December 2022: £nil) when cash security
temporarily lodged in respect of decommissioning obligations was
released to Serica in 2024 when replaced by security in the form of
letters of credit as provided under the new financing
facility.
Current trade and other payables
increased to £97.4 million at 31 December 2023 from £69.9 million
at the end of 2022. UK corporation tax payable of £53.7 million at
31 December 2023 (31 December 2022: £150.0 million) reflects
liabilities for corporation tax, supplementary charge and the EPL.
The decrease over the year reflected the higher level of taxable
income in late 2022 and also the timing of initial payments under
the EPL.
Derivative financial liabilities
of £4.4 million at 31 December 2023 largely represent the valuation
of UKA Emission Trading Scheme ("ETS") swaps in place at the period end
following the Tailwind acquisition. The 31 December 2022 liability
of £24.9 million reflected Serica's gas swaps in place at that date
which unwound during 2023.
Contract liabilities of £28.8
million reflect the outstanding portion of an underlying revenue
offtake contract that was fair valued in connection with the
Tailwind acquisition (see note 16). An original liability of £54.2
million was recognised which is released to the Income Statement
across 2023 and 2024 as the underlying contract unwinds.
Financial liabilities of £68.6
million (31 December 2022: £29.4 million) are split between current
liabilities of £3.6 million (31 December 2022: £nil) and
non-current liabilities of £65.0 million (31 December 2022: £29.4
million). Non-current financial liabilities comprise remaining
deferred consideration projected to be paid under the BKR
acquisition agreements of £35.3 million (31 December 2022: £29.4
million) and royalty liabilities of £29.7 million (31 December
2022: £nil) for amounts payable to third parties under the terms of
Triton asset acquisitions previously made by Tailwind. Current
liabilities reflect the final contingent consideration payment of
shares issued in March 2024 in respect of the Tailwind
acquisition.
Provisions of £116.9 million
(split current of £12.9 million and non-current of £103.9 million)
predominantly relate to future decommissioning obligations. The
significant increase from the prior year balance of £25.2 million
was largely due to £75.9 million of balances within the Tailwind
acquisition representing the net exposure retained by Tailwind
after reflecting the contractual undertakings in asset purchase
agreements under which the Tailwind field interests were acquired,
increases of £16.4 million from revisions to estimates in the year
and a charge of £2.9 million from the unwinding of the discounts
applied. Increases were partially offset by currency translation
adjustments and some minor spend in the period.
Interest bearing loans of £213.0
million at 31 December 2023 (31 December 2022: £nil) comprise the
RBL facility assumed with the Tailwind acquisition. Amounts drawn
in US dollars under the facility at 31 December 2023 were US$271.2
million which are disclosed as gross drawings as all remaining
unamortised fees were expensed at year end given the impending
refinancing. The facility was US$330 million drawn at the date of
acquisition with net repayments of US$58.8 million made in the
post-acquisition period to 31 December 2023. Although this facility
was repaid and replaced by a new financing facility in January 2024
it has been classified under non-current liabilities at year end
2023 as there were no contractual obligations existing at the year
end to make repayments within one year.
Overall, net assets have increased
from £408.7 million at year end 2022 to £655.3 million at 31
December 2023.
The increase in share capital from
£183.2 million to £192.9 million arose from shares issued following
the exercise of share options, shares issued under employee share
schemes and the nominal value of shares issued for the Tailwind
acquisition, whilst the increase in other reserves from £25.6
million to £29.6 million arose from share-based payments related to
share option awards. The merger reserve of £230.4 million in the
consolidated Group accounts arose in connection with the shares
issued for the Tailwind acquisition.
CASH BALANCES AND FUTURE
COMMITMENTS
Current cash position and
price hedging
At 31 December 2023 the Group held
adjusted net cash of £78 million. This consisted of cash and cash
equivalents of £263.5 million (31 December 2022: £432.5 million)
plus £27.5 million of DSA cash advances net of the RBL drawings of
£213 million (31 December 2022: £nil). The DSA cash advance of
£27.5 million was temporarily lodged in respect of decommissioning
obligations and then released to Serica in 2024 when replaced by
security in the form of letters of credit as provided under the new
financing facility.
Cash hedging security advances of
£24.3 million that had been lodged with hedge counterparties at 31
December 2022 as security against settlement of future gas hedge
instruments were fully recovered during the 1H 2023 period. Of
total cash and cash equivalents, £18.3 million was held in
restricted accounts against letters of credit issued in respect of
certain decommissioning liabilities as at 31 December 2023 (31
December 2022: £18.1 million).
As at 22 April 2024, the Company
held cash and cash equivalents of £264.7 million and debt drawings
of US$231 million (£186.7 million). This is after 2023 final tax
payments of £58.2 million, capital spend and drawings under the new
finance facility totalling £9.7 million to cover arrangement fees
and other costs of the refinancing. This excludes approx. £19
million of revenues from the March Triton oil lifting due for
receipt on 1 May 2024.
Hedging
Serica carries out hedging
activity to manage commodity price risk, to meet its contracted
arrangements under its RBL facility and to ensure there is
sufficient funding for future investments. At 31 December 2023
Serica held the following instruments:
Oil - fixed pricing under oil
offtake agreements: for 2024 approximately 2.5 million barrels at
an average price of US$67 per barrel. These are applied to
individual oil tanker liftings from the Triton area FPSO and are
expected to be fully utilised during 1H 2024.
UKA ETS - fixed price swaps for
UKA ETS products consisting of 132,000 MT at £79.24/MT for 2024.
These are spread over 2024.
Since year end Serica has added
further oil hedges plus some gas hedges. At 18 April 2024 Serica
held the following commodity price hedges:
Field and other capital
commitments
Serica's planned 2024 investment
programme includes a LWIV campaign on the Bruce and Keith fields
and a four-well drilling campaign in the Triton Area (Bittern B1z,
Gannet GE-05, Evelyn Phase 2 (EV02) and a Guillemot NW infill
well). Potential further programmes to
enhance current production profiles and extend field life are under
consideration but will be reviewed carefully in the light of the
uncertainty related to the UKCS fiscal regime. In April 2024 Serica took a final investment decision on the
Belinda development. Consent to the project has been received from
OPRED and NSTA approval of the final FDP is expected
shortly.
At 31 December 2023, the Group had
commitments for future capital expenditure relating to its oil and
gas properties amounting to £214 million which relate primarily to
the Triton Area four well programme, the Bruce and Keith LWIVs,
other capital works on Bruce, Erskine, Arthur decommissioning and
general exploration.
The Group's only significant
exploration commitment is a commitment well on Licence P2400
(Skerryvore - Serica 20%) to be drilled before October
2025.
Cash projections are run
periodically to examine the potential impact of extended low oil
and gas prices as well as possible production interruptions. Serica
currently has substantial net cash resources and relatively low
operating costs per boe which means that the Company is well placed
to withstand such risks and its capital commitments can be funded
from existing cash resources.
OTHER
Asset
values
At 31 December 2023, Serica's
market capitalisation stood at £898.5 million based upon a share
price of 229.6 pence which exceeded the net asset value of £655.3
million. By 22 April the Company's market capitalisation had
decreased to £764.1 million
BUSINESS RISK AND UNCERTAINTIES
Serica, like all companies in the
oil and gas industry, operates in an environment subject to
inherent risks and uncertainties. The Board regularly considers the
principal risks to which the Group is exposed and monitors any
agreed mitigating actions. The overall strategy for the protection
of shareholder value against these risks is to carry a broad
portfolio of assets with varied risk/reward profiles, to apply
prudent industry practice, to carry insurance where both available
and cost effective, and to retain adequate working
capital.
Serica has built a strong working
capital reserve which is available to respond to a range of risks
including production interruptions, severe commodity price falls
and unexpected costs. To supplement this the Company carries
business interruption insurance to mitigate the impact of ongoing
operating costs over sustained periods of production shut-in beyond
an initial 60 days, where caused by events covered under such
policies. The Company also uses price hedging instruments to help
manage field revenues where considered cost effective and to meet
minimum hedge requirements under its debt financing
facility.
The introduction of the Energy
Profits Levy in May 2022, increased and extended in November 2022
and then extended again in March 2024, has increased the perceived
risk of continuing fiscal instability directed at UK oil and gas
producers. Serica is monitoring this situation and making
representations to relevant authorities on the risks that this
presents to future UK investment in a critical national
resource.
The principal risks currently
recognised and the mitigating actions taken by management are as
follows:
Investment Returns: Management seeks to invest in a portfolio of oil and gas
assets and acreage capable of delivering returns to shareholders.
This is principally conducted through acquisitions of development
or producing assets to which it can add further value and through
efficient operations and the addition of further commercial
reserves. Delivery of this business model carries a number of key
risks.
|
Risk
|
Mitigation
|
Business conditions may
deteriorate and
stock market support may be
eroded, lowering investor appetite and hindering
fundraising
|
· Management regularly communicates its strategy to
shareholders
·
Focus is placed on building a diverse and
resilient asset portfolio capable of offering investment options
throughout the business cycle
· Serica has recently refinanced its debt facility with a
diverse group of international banks and extended the duration to
end 2029.
|
Each investment carries its own
risk profile and no outcome can be certain
|
· Management aims to avoid over-exposure to individual assets,
to identify the associated risks objectively and mitigate these
where practical
|
Operations: Operations may
not go according to plan leading to damage, pollution, cost
overruns or poor outcomes.
|
Risk
|
Mitigation
|
Production may be interrupted
generating significant revenue loss whilst costs continue to be
incurred
|
· The
Group seeks to diversify its revenue streams
· Management determines and retains an appropriate level of
working capital
· The
Group carries business interruption cover
|
Safety may be compromised or
control of wells may be lost
|
· Safe
operating procedures are applied and continually updated
· Emergency response planning is carried out and rehearsed
regularly
|
Asset integrity of the production
facilities may cause production or HSE disruptions
|
· Strict adherence is applied to Company 'Integrity Management
Framework' and Performance Standards
· The
Company runs a comprehensive maintenance programme and assurance
process
|
Third party offtake routes may
experience restrictions or interruptions and full availability may
depend upon sustained production from other fields in the
system
|
· The
Group aims to diversify its exposure to offtake routes where
possible
· The
Group carries business interruption cover
|
Capital programmes may be delayed
and costs may overrun
|
· Planned programmes incorporate the potential impact of normal
delays and overruns
· The
Group retains working capital reserves to cover these
|
The Company is reliant upon its IT
systems to maintain operations and communications
|
· The
Group employs specialist support
· Protection against external intrusion is incorporated within
the system and tested regularly
|
Excessive flaring causes increased
emissions and exceeds guidelines
|
· Close monitoring of flaring is conducted and targets
set
· Work
is ongoing to eliminate routine flaring from assets
|
Personnel: The Group relies
upon a pool of experienced and motivated personnel to conduct its
operations and execute successful investment strategies
|
Risks
|
Mitigation
|
Key personnel may be lost to other
companies
|
· The
Remuneration Committee regularly evaluates incentivisation schemes
to ensure they remain competitive
· The
Group seeks to build depth of experience in all key functions to
ensure continuity
|
Personal safety may be at risk in
demanding operating environments, typically offshore
|
· A
culture of safety is encouraged throughout the
organisation
· Responsible personnel are designated at all appropriate
levels
· The
Group maintains up-to-date emergency response resources and
procedures
|
Political and commercial environment:
World share and commodity markets and political
environments continue to be volatile
|
Risk
|
Mitigation
|
Tax rates and allowances may be
varied at short notice, significantly reducing retained income and
adding risk to future investment planning
|
· Management will utilise investment incentives where available
and consider geographical diversification
|
Volatile commodity prices mean
that the Group cannot be certain of the future sales value of its
products
|
· Planning and forecasting considers downside price
scenarios
· Oil
and gas floor price hedging is utilised where deemed cost
effective
· Price mitigation strategies are considered at the point of
major capital commitment
|
Sanctions imposed by the U.S.
government may threaten continuing production from the Rhum field
and licences are required to be renewed periodically, with the
current licence to be renewed in January 2025
|
· Serica operates comprehensive controls to ensure compliance
with license terms
· The
renewal process is initiated well in advance of renewal
dates
|
The UKCS licensing regime under
which Serica's operational rights and obligations are defined may
be subject to future change
|
· Management maintains regular communication with regulatory
authorities
· The
Company aligns its standards and objectives with government
policies as closely as possible
|
Serica's reputation may be damaged
impacting its ability to raise finance or sustain
operations
|
· The
Company adheres to good governance practices and compliance with
legislation and regulations.
|
Climate change brings a range of
risks to the Group's operations, its ability to continue investing
and its reputation
|
· These risks, mitigations and associated disclosure
requirements, are covered in detail in the following section on
'TCFD'.
|
Task Force for Climate-related Financial Disclosures
("TCFD")
Details of ESG strategies directed
towards reducing carbon emissions and contributing to government
Net Zero targets are described on pages 75 and 76 and also in a
separate ESG Report.
The TCFD framework aims to
formalise the implementation and reporting of financial disclosures
related to climate change. Serica has reviewed guidance issued by
the TCFD with regard to the identification, management and
reporting of climate-related financial risks and the Company has
continuously developed its capabilities to analyse and report
climate-related risks giving consideration to the TCFD
guidance.
This disclosure has been made on a
voluntary basis and is a summary of Serica's wider Climate-Related
Risk disclosure, which is available separately on Serica's website.
This summary of disclosures is not in full alignment with all 11
recommendations of the TCFD. The Company recognises the release and
implementation of the IFRS S1 and S2 standards and in 2024, will
work to enhance and align its disclosures to these
standards.
Governance
• The Board is ultimately
responsible for the governance of climate-related risks and
opportunities. It sets policies and then reviews these as
appropriate.
• The Board recognises climate
change as a material risk to Serica with potential financial
implications and understands that responding to the risks
associated with climate change and building resilience is integral
to the long-term success of the organisation.
• It reviews major risks
regularly, receives updates from its committees and also takes
direct reports from key personnel. It sets general policy related
to climate risks and opportunities, identifies where further
actions are required and delegates authorities accordingly. This
includes progress on emissions reduction, general environmental
performance, developments in climate-related regulation and cost
impacts.
• The Sustainability Committee,
which was formed in 2023, reports to the Board on the effectiveness
of the Company's ESG Programmes and the management of
climate-related risks and opportunities. The Committee also reviews
Serica's environmental performance for both operated and
non-operated assets and has input into metrics and targets used to
measure environmental performance. The Committee aids in steering
Serica's long-term emissions reduction strategy ensuring that
decarbonisation projects are progressing in a timely
manner.
• The Health, Safety and
Environment Committee reports to the Board on the effectiveness of
the Company's HSEQ programme and ensures that risks, including
environmental or carbon-related hazards are fully assessed and
appropriately mitigated. In addition, this committee ensures that
all personnel, including contractors employed by the Company, are
fully aware of their HSE responsibilities and have been properly
trained.
• The Audit Committee supervises
the financial analysis of climate-related risks and opportunities
and its incorporation into economic and investment
models.
• The Remuneration Committee
determines employee compensation packages and bonus structures
which incorporate incentives to deliver climate-related
objectives.
• The above committees all meet
regularly as required.
Strategy
The Company's focus is on
acquiring or developing oil and gas assets, extending the producing
lives of mid-to-late life assets and developing additional reserves
where this can be done with a low carbon footprint, typically by
utilising existing processing and export facilities.
Serica aligns with the UK
government's commitment to achieving Net Zero emissions by 2050.
Although our current assets are estimated to cease production well
before 2050, Serica takes into account the incremental emissions
reduction targets of the North Sea Transition Deal when making
strategic decisions. Serica uses the risk categories recommended by
the TCFD to identify and assess climate-related risk and
opportunities: namely transition risks, including policy, legal,
technology, market changes, and physical risks resulting from event
driven (acute) or longer-term (chronic) shifts in climate
patterns.
Serica also recognises the
opportunities presented to its organisation that are associated
with climate change and the transition to a low carbon economy.
These include divestments by larger companies of assets where
Serica can seek to improve environmental performance, investment in
energy efficient technology and collaboration between asset and
infrastructure owners. Domestically produced gas has a strategic
role to play in the UK's energy transition. This offers a lower
carbon alternative to more carbon intensive fuels and LNG imports,
and also assists in protecting the UK's security of energy supply
as global energy sourcing is restructured. Serica is well-placed to
apply its proven capabilities to extending the production lives of
such assets whilst driving carbon-reduction programmes.
Serica has developed operational
objectives which are aligned with climate-related risk reduction
and climate change resilience planning. These include:
• Creation of emissions-related
key performance indicators ("KPIs") and targets that directly
affect employee bonus payments, including those of the Senior
Management and Executive Teams;
• Formation of a Sustainability
Board Committee, to focus on specific ESG topics and issues,
including climate-related risk and opportunities;
• Continued development and
enhancement of a robust ESG policy and strategy with a
corresponding communication structure to internal and external
stakeholders;
• A dedicated VP ESG and Business
Innovation position to lead strategy development, drive change and
support continuous improvement in emissions performance and wider
ESG commitments;
• Creation of an Emissions
Reduction Group that looks at opportunities to reduce Serica's
carbon emissions in line with Industry targets. This group is led
by Serica's Energy Transition Engineering Advisor;
• Active membership of the Net
Zero Technology Centre, whose aim is to help accelerate the
development and implementation of technology to lower
emissions;
• Alignment to recognised
international ESG benchmarks and transparency initiatives such as
the Global Reporting Initiative ("GRI") and Sustainability
Accounting standards Board ("SASB") in addition to developing a
response to the TCFD recommendations;
• Continued development of an ESG
strategy ensuring associated commitments and disclosures are
aligned with investor and lender requirements;
• Empowering employees to identify
and own ESG initiatives within the Serica organisation and the
wider community; and
• Integration of internal
stakeholder communications to ensure that the requirements of
finance and ESG are aligned.
Scenario Analysis
The TCFD recommends that business
resilience to climate risks should be assessed through scenario
analysis. Scenarios begin with the end goal, i.e. limiting global
temperature rise to 1.5°C, and then model the steps that society,
industry, governments, etc. must take in order to achieve it. The
scenarios describe the impact on factors such as supply, demand,
regulations, taxes and commodity pricing. Serica has taken a
pragmatic approach to modelling and looks at the comparative
changes to commodity and carbon prices under different scenarios.
Serica has decided to base its analysis on three scenarios
developed by the International Energy Agency's (IEA) World
Outlook:
1. Net Zero - accelerated emissions
reduction to achieve Net Zero emissions in the energy industry by
2050
2. Stated Policies - slower progress
based upon existing governmental policies
3. Announced Pledges - all current
targets and announced pledges are met by countries with
temperature-limiting targets narrowly missed
In 2023, Serica ran quantitative
scenario analysis against its business economic models on the whole
Serica asset portfolio. Parameters for the economic models were
based on those of the International Energy Agency's ("IEA") 2022
Net Zero, Stated Policies, and Announced Pledges scenarios and
concentrated on carbon prices and commodity prices. The results of
the exercise confirmed that Serica's business models remain
resilient under these scenarios. Serica will continue to use
scenario analysis to test its resilience under different climate
scenarios.
Serica is currently partially
aligned with the Strategy C recommendation. Information on future
steps can be found in Serica's TCFD Summary Report.
Climate Risk Management
• The Senior Management Team is
structured and empowered to ensure that the Board has the necessary
climate-related information to assess and manage the associated
risks and opportunities. The team is responsible for compliance
with and reporting against the organisational climate-related
metrics and targets in their individual business areas. The team
evaluates climate-related risks and opportunities as an integral
part of its business activities developing risk management systems,
standards and procedures as required to achieve this.
• Serica's Risk Management Policy
underlines the identification, assessment and mitigation of
climate-related risks. As its existing assets are all
currently projected to cease production within the next ten to
fifteen years, this is the key period of focus for the
Company.
• Serica uses an Operating Risk
Management Framework and risk assessment matrix to capture, rank
and manage significant risks.
• Having assessed climate-related
risks the Company either identifies specific mitigating actions and
programmes or, where such specific responses are not considered
feasible, builds likely financial impacts into valuations and
planning.
• When investigating new
investment opportunities and acquisitions, reviews are conducted of
all climate-related risks and potential mitigations.
• As Serica's climate-related risk
identification and management programme progresses, regular updates
are provided to the Board and where appropriate added into the
Group's risk register which is then reviewed monthly. As Serica's
existing fields are all currently projected to cease production
within the next fifteen years, this is the key period of focus for
the Company. Therefore, Serica has primarily targeted its
considerations of climate-related risks and opportunities over the
short and medium terms. Serica have defined the time period for
short, medium and long terms risks as:
• Short term risks: 1 - 3
years
• Medium term risks: 4 - 9
years
• Long term risks: 10 +
years
A summary of Serica's transition and
physical risks is presented in the table below.
Risk
Description
|
Perceived
impact
timescale
|
Potential
Consequences
|
Mitigations/Actions
|
Transition
Risk
|
Sources of finance including
equity markets and debt providers may be harder to access or become
more expensive
|
Short
Term
|
·
All lenders reduce funding available to
exploration and production companies and this may impact debt terms
and/or debt capacity.
·
Demonstration of the impacts of climate change
and associated company action are likely for the basis of access to
finance.
·
Organisations with poor ESG commitments,
disclosures and performance can expect to see materially reduced
lending appetite over time.
·
Cost of debt and debt capacity significantly
impacted by anti-fossil fuel pressures in the lending
community.
·
Less debt capacity and increased cost of debt may
lead to reduced asset and company valuation.
|
• Serica has put in place a new
six-year financing facility with a group of international banks.
This facility includes provisions for the incorporation of ESG
performance indicators
• The Company also seeks to retain a range of alternative financing
options
• Potential funding cost increases and loan structures (i.e.
sustainability led loans) are considered when planning
investments
|
The transition away from fossil
fuel-based power generation may restrict the future demand for, or
production of, the Company's oil and gas reserves
|
Medium
to Long term
|
·
Reduced demand for goods and services due to
shift in consumer preferences
·
Increased production costs due to changing input
prices (e.g. energy, water) and output requirements (e.g. waste
treatment)
·
Abrupt and unexpected shifts in energy
costs
·
Change in revenue mix and sources, resulting in
decreased revenues
·
Re-pricing of assets (e.g. fossil fuel reserves,
land valuations, securities valuations)
·
R&D expenditures in new and alternative
technologies
·
Capital investments in technology
development
·
Costs to adopt/deploy new practices and
processes
|
• The impact of the value of
future reserves is lower for later periods of production due to
discounting
• Since the acquisition of Tailwind Energy, the Company's reserves
are more evenly split between oil and gas mitigating the risk of
demand for one commodity over another
• The Company closely follows industry related forecasts and trends
from numerous sources
• The Company reviews opportunities for investment in clean
technology and is currently involved in projects with the Net Zero
Technology Centre
|
Energy transition objectives may
bring additional costs, levies, or taxes
|
Short
term
|
·
Increases the risk associated with longer term
capital investments
·
Increased operating costs (e.g., higher
compliance costs, increased insurance premiums)
·
Write-offs, asset impairment, and early
retirement of existing assets due to policy changes
·
Increased costs and/or reduced demand for
products and services resulting from fines and judgments
|
• Estimates of climate-related
charges are included in cost estimates where reasonably
identifiable
• Management prioritises the delivery of ESG objectives aimed at
mitigating any additional carbon levies, i.e., by reducing its
asset emissions
• The impact of the Energy Profits Levy and potential changes are
taken into account when running corporate economic models,
resilience testing and assessing new acquisitions
|
The range of potential
acquisitions may be restricted by ESG considerations
|
Short
to Medium Term
|
·
Reduced revenues from lower
sales/output
·
Reduced capital availability
|
• Management considers the
emissions profiles of potential acquisition targets and the
mitigating actions that it can implement
• It prioritises opportunities to deliver low carbon intensity
production into the UK market compared to imports
• The Company reviews investments in countries outside the UK and
their climate-related policies and outlook
|
The industry or Company's
reputation could be damaged as the oil and gas industry is
perceived negatively by external stakeholders
|
Short
to Medium Term
|
·
Reduced revenue from decreased demand for
goods/services
·
Reduced revenue from decreased production
capacity (e.g., delayed planning approvals, supply chain
interruptions)
·
Reduced revenue from negative impacts on
workforce management/planning (e.g., employee
attraction/retention)
|
• Ensure the Company reports
transparently and follows internationally recognised ESG reporting
guidelines
• Regularly engage with stakeholders on its ESG activities and
performance
|
Physical
Risk
|
More extreme weather patterns may
threaten or disrupt operations or supply chain
|
Short
to Long Term
|
·
Reduced revenue in the short term due to
decreased production capacity (e.g. transport difficulties, supply
chain interruptions)
·
Reduced revenue and higher costs in the short
term due to negative impacts on workforce (e.g. health, safety,
absenteeism)
·
Write-offs and early retirement in the long term
of existing assets (e.g. damage to property and assets in
"high-risk" locations)
·
Increased operating costs in the long term (e.g.
inadequate water supply for hydroelectric plants or to cool nuclear
and fossil fuel plants)
·
Increased capital costs in the long term (e.g.
damage to facilities)
·
Reduced revenues from lower
sales/output
·
Increased insurance premiums and potential for
reduced availability of insurance on assets in "high-risk"
locations in the long term
|
• The Company seeks to maintain
robust transport and supply chains
• The impact of extreme climatic
conditions such as exceptional waves are incorporated into risk
management scenarios
• The Company operates under a
Severe Weather Action Plan
• Plan contingency into operations
such as drilling/diving/seismic to reflect poor weather
|
Serica is currently partially
aligned with the Risk Management B recommendation. Information of
future steps can be found in Serica's TCFD Summary
Report.
Metrics and Targets
Criteria used to assess
climate-related risks is aligned to the criteria used in Serica's
risk assessment matrix. This matrix looks at the potential
frequency of an event or risk occurring and the potential financial
impact this may have on the organisation. Once its likelihood and
potential financial impact has been determined it is given a risk
rating, which is then used by Serica to rank the risks in relation
to their severity and importance. Naturally, there is a focus to
concentrate efforts on mitigating the most significant risks
identified.
Carbon emissions data is collected
from Serica's assets, including operated and partnered facilities.
Serica assures this data for consistency and comparability
throughout its portfolio over time. This data is used to ensure
compliance with UKCS emissions regulation and to comply with all
operating permits and consents associated with Serica's assets. It
also provides benchmarks for delivering emissions reductions
through the adoption of meaningful and achievable carbon reduction
targets.
Serica is fully aligned to the
emission reduction targets as set out in the North Sea Transition
Deal, which commits the UK oil and gas industry to reduce absolute
basin emissions by 10% by 2025, by 25% by 2027, 50% by 2030, and
become Net Zero by 2050 from a 2018 baseline. Serica also supports
the World Bank's target of reaching zero routine flaring by
2030.
Serica sets annual emissions
targets as part of its annual bonus scheme. Performance against
these targets is directly linked to the remuneration of our staff
and executives. Serica has implemented ESG bonus linked targets
since 2021.
The environmental targets put in
place for the Bruce Hub in 2023 included:
• Limiting total
Scope 1 emissions to below 200,000 tonnes of
CO2
• Limiting total
volumes of flared gas to under 5,000 tonnes
In 2023, Serica achieved both
targets, with total Scope 1 emissions reaching 179,447 tonnes of
CO2 by the end of the year and total flaring volumes
limited to 4,708 tonnes. The main contributors to this were the
successful implementation of the temporary power generators
installed for the summer maintenance shutdown, which saved
approximately 5,500 tonnes of CO2 from being emitted.
Further details on Scope 1 and 2 emissions can be found on page 76
of the Annual Report and Accounts.
In 2024, Serica will continue to tie
emissions reduction initiatives to its remuneration and corporate
bonus scheme and has implemented the following emissions related
targets:
• Limiting total
Scope 1 carbon intensity to 15.5
kgCO2/boe
This target is intensity based and
performance is monitored on a regular basis and is reported across
the organisation, including the Board and all staff and
contractors. Details on executive remuneration can be found on page
** of the Annual Report and Accounts.
Serica also has a suite of other
environmental targets and KPIs used to monitor its performance,
these include the average daily flaring volumes, the percentage of
waste diverted from disposal, the volume of general waste generated
and quantity of oil in produced water that is discharged to sea.
Performance against these targets is also monitored on a regularly
and performance is reported across the organisation.
The Company's main business is the
acquisition, development and production of commercially attractive
oil and gas reserves in a safe and environmentally sensitive
manner. This is achieved both through pursuing the full cycle of
exploration, discovery, development and production and also through
acquiring existing reserves where management believe that further
value can be added.
Further information upon the
Company's HSEQ and ESG policies and delivery can be found within
the ESG Report which will be issued along with the 2023 Annual
Report.
Serica is currently partially
aligned with the Metrics and Targets A recommendation. Information
on future steps can be found in Serica's TCFD Summary
Report.
Key Performance Indicators ("KPIs")
The Company's main business is the
acquisition, development and production of commercially attractive
oil and gas reserves in a safe and environmentally sensitive
manner. This is achieved both through pursuing the full cycle of
exploration, discovery, development and production and also through
acquiring existing reserves where management believe that further
value can be added.
Operational and financial
performance is tracked through the following KPIs whose progress is
covered within the Review of Operations and Finance Review within
this strategic report:
· Daily production volumes
· Production costs per barrel of oil equivalent
· Realised sales income per barrel of oil equivalent
HSE performance is tracked through
the following KPIs whose progress is covered within an updated ESG
Report:
· Recordable incidents and injuries
· Workforce engagement in HSE
· Quality of discharges to water and air
· Ongoing maintenance programmes
ESG performance is tracked through
the following KPIs whose progress is covered within the ESG
Report:
· Annual carbon emissions
· Flare volumes
· Scope 1 carbon intensity
Elements falling within each of
the above categories are included within annual incentive schemes
for all Group employees.
The Company tracks its new
business development objectives through the building of a
risk-balanced portfolio of full cycle assets. Specific KPI's are
not applied due to the range of different potential acquisition
targets. However, successful delivery will add to future production
volumes and net realised income.
Further information upon the
Company's HSEQ and ESG policies and delivery can be found within
the ESG Report which will be issued along with the 2023 Annual
Report.
Section 172 statement
The Directors' statement under
Section 172 of the Companies Act 2006 is included on pages 72 to
74.
Additional Information
Additional information relating to
Serica, can be found on the Company's website at
www.serica-energy.com
and on SEDAR at www.sedar.com
The Strategic Report has been
approved by the Board of Directors.
On behalf of the Board
Mitch Flegg
Chief Executive Officer
23 April 2024
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
2023
|
|
|
|
|
|
|
|
|
|
2023
|
2022
|
|
Note
|
£000
|
£000
|
|
|
|
|
Continuing
operations
|
|
|
|
Sales revenue
|
4
|
632,638
|
812,423
|
|
|
|
|
Cost of sales
|
5
|
(326,064)
|
(218,155)
|
|
|
|
|
Gross profit
|
|
306,574
|
594,268
|
|
|
|
|
Hedging
income/(expense)
|
6
|
4,762
|
(24,507)
|
Contract revenue -
other
|
16
|
23,904
|
-
|
Exploration and pre-licence
costs
|
|
(2,103)
|
(185)
|
E&E asset
write-offs
|
12
|
(8,741)
|
(82,749)
|
Administrative expenses
|
|
(19,637)
|
(9,225)
|
Transaction costs
|
29
|
(10,085)
|
(1,785)
|
Foreign exchange
(loss)/gain
|
|
(3,591)
|
3,903
|
Share-based payments
|
25
|
(3,975)
|
(3,510)
|
Gain on acquisition
|
29
|
34,048
|
-
|
|
|
|
|
Operating profit before net finance revenue
|
|
321,156
|
476,210
|
and tax
|
|
|
|
Change in fair value of financial
liabilities
|
19
|
(7,584)
|
8,407
|
Finance revenue
|
8
|
13,532
|
4,499
|
Finance costs
|
8
|
(21,481)
|
(938)
|
|
|
|
|
Profit before taxation
|
|
305,623
|
488,178
|
|
|
|
|
Taxation charge for the
year
|
9
|
(202,639)
|
(310,382)
|
|
|
|
|
Profit for the year
|
|
102,984
|
177,796
|
|
|
|
|
|
|
|
|
Profit for the year attributable
to:
|
|
|
|
Equity owners of the
Company
|
|
102,984
|
177,796
|
|
|
|
|
Earnings per ordinary share - EPS
|
|
|
|
Basic EPS on profit for the year
(£)
|
10
|
0.29
|
0.65
|
Diluted EPS on profit for the year
(£)
|
10
|
0.27
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
|
Serica Energy plc
Group Statement of Comprehensive Income
For the year ended 31 December
2023
|
|
|
2023
|
2022
|
|
|
£000
|
£000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year
|
|
|
102,984
|
177,796
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
Items that may be subsequently
reclassified to income statement:
|
|
|
Exchange differences on
translation
|
|
|
(11,729)
|
-
|
Other comprehensive loss for the year
|
|
|
(11,729)
|
-
|
|
|
|
|
|
Total comprehensive profit for the year
|
|
|
91,255
|
177,796
|
|
|
|
|
|
Total comprehensive profit
attributable to:
|
|
|
|
|
Equity owners of the
Company
|
|
|
91,255
|
177,796
|
|
|
|
|
|
Serica Energy plc
Registered Number: 5450950
Group Balance Sheet
As at 31 December 2023
|
|
|
|
|
|
2023
|
2022
|
|
Note
|
£000
|
£000
|
Non-current assets
|
|
|
|
Exploration & evaluation
assets
|
12
|
1,930
|
1,001
|
Property, plant and
equipment
|
13
|
711,499
|
265,907
|
Deferred tax asset
|
9
|
84,107
|
-
|
|
|
797,536
|
266,908
|
Current assets
|
|
|
|
Inventories
|
14
|
10,888
|
3,998
|
Trade and other
receivables
|
15
|
138,610
|
134,627
|
Hedging security
advances
|
16
|
-
|
24,320
|
Decommissioning security
advances
|
17
|
27,537
|
-
|
Cash and cash
equivalents
|
17
|
263,492
|
432,529
|
|
|
440,527
|
595,474
|
|
|
|
|
TOTAL ASSETS
|
|
1,238,063
|
862,382
|
|
|
|
|
Current liabilities
|
|
|
|
Trade and other
payables
|
18
|
97,415
|
69,887
|
Corporate tax payable
|
|
53,660
|
149,998
|
Derivative financial
liabilities
|
16
|
4,371
|
24,914
|
Contract liabilities
|
16
|
28,829
|
987
|
Financial liabilities
|
19
|
3,635
|
-
|
Provisions
|
20
|
12,935
|
-
|
|
|
|
|
Non-current liabilities
|
|
|
|
Financial liabilities
|
19
|
65,003
|
29,378
|
Provisions
|
20
|
103,918
|
25,199
|
Deferred tax liability
|
9
|
-
|
153,295
|
Interest bearing loans
|
21
|
213,035
|
-
|
TOTAL LIABILITIES
|
|
582,801
|
453,658
|
|
|
|
|
|
|
|
|
NET ASSETS
|
|
655,262
|
408,724
|
|
|
|
|
Share capital
|
23
|
192,921
|
183,177
|
Merger reserve
|
23
|
230,350
|
-
|
Other reserve
|
25
|
29,551
|
25,576
|
Accumulated funds
|
|
214,169
|
199,971
|
Currency translation
reserve
|
|
(11,729)
|
-
|
TOTAL EQUITY
|
|
655,262
|
408,724
|
|
|
|
|
Approved by the Board on 23 April
2024
Mitch Flegg
Martin Copeland
Chief Executive
Officer
Chief Financial Officer
Serica Energy plc
Group Statement of Changes in Equity
For the year ended 31 December
2023
|
|
Share
capital
|
Merger
reserve
|
Other
reserve
|
Currency
translation reserve
|
Accumulated funds
|
Total
|
|
|
£000
|
£000
|
£000
|
£000
|
£000
|
£000
|
|
|
|
|
|
|
|
|
At 1 January 2022
|
|
181,993
|
-
|
22,066
|
-
|
68,469
|
272,528
|
|
|
|
|
|
|
|
|
Profit for the year
|
|
-
|
-
|
-
|
-
|
177,796
|
177,796
|
Total comprehensive
income
|
|
-
|
-
|
-
|
-
|
177,796
|
177,796
|
Issue of shares
|
|
1,184
|
-
|
-
|
-
|
-
|
1,184
|
Share-based payments
|
|
-
|
-
|
3,510
|
-
|
-
|
3,510
|
Dividend paid
|
|
-
|
-
|
-
|
-
|
(46,294)
|
(46,294)
|
|
|
|
|
|
|
|
|
At 31 December 2022
|
|
183,177
|
-
|
25,576
|
-
|
199,971
|
408,724
|
|
|
|
|
|
|
|
|
Profit for the year
|
|
-
|
-
|
-
|
-
|
102,984
|
102,984
|
Other comprehensive
income
|
|
-
|
-
|
-
|
(11,729)
|
-
|
(11,729)
|
Total comprehensive
income
|
|
-
|
-
|
-
|
(11,729)
|
102,984
|
91,255
|
Issue of shares
|
|
9,744
|
230,350
|
-
|
-
|
-
|
240,094
|
Share-based payments
|
|
-
|
-
|
3,975
|
-
|
-
|
3,975
|
Dividend paid
|
|
-
|
-
|
|
-
|
(88,786)
|
(88,786)
|
|
|
|
|
|
|
|
|
At 31 December 2023
(unaudited)
|
|
192,921
|
230,350
|
29,551
|
(11,729)
|
214,169
|
655,262
|
|
|
|
|
|
|
|
Serica Energy plc
|
|
|
Group Cash Flow Statement
|
|
|
For the year ended 31 December
2023
|
|
|
|
2023
|
2022
|
|
£000
|
£000
|
|
Note
|
|
|
Cash inflow from operations
|
24
|
378,369
|
704,858
|
Taxation paid
|
|
(279,463)
|
(143,500)
|
Decommissioning spend
|
|
(896)
|
(1,218)
|
Net cash inflow from operating activities
|
24
|
98,010
|
560,140
|
|
|
|
|
Investing activities:
|
|
|
|
Interest received
|
|
13,532
|
4,499
|
Purchase of E&E
assets
|
|
(9,673)
|
(80,801)
|
Purchase of property, plant and
equipment
|
|
(68,588)
|
(16,298)
|
Cash outflow from BKR business
combination
|
19
|
-
|
(93,871)
|
Acquisition of subsidiary, net of
cash acquired
|
29
|
(44,036)
|
-
|
Net cash flow from investing activities
|
|
(108,765)
|
(186,471)
|
Financing activities:
|
|
|
|
Payments of lease
liabilities
|
26
|
(628)
|
(132)
|
Proceeds from issue of
shares
|
23
|
801
|
1,184
|
Repayment of borrowings
|
21
|
(81,406)
|
-
|
Proceeds from
borrowings
|
21
|
34,478
|
-
|
Dividends paid
|
11
|
(88,786)
|
(46,294)
|
Finance costs paid
|
|
(18,832)
|
(385)
|
Net cash flow from financing activities
|
|
(154,373)
|
(45,627)
|
|
|
|
|
Net (decrease)/increase in cash and cash
equivalents
|
|
(165,128)
|
328,042
|
Effect of exchange rates on cash
and cash
|
|
|
|
equivalents
|
|
(3,909)
|
1,503
|
Cash and cash equivalents at 1
January
|
24
|
432,529
|
102,984
|
Cash and cash equivalents at 31
December
|
24
|
263,492
|
432,529
|
Serica Energy plc
Notes to the Financial Statements
1. Authorisation of the Financial Statements and
Statement of Compliance with UK adopted International Accounting
Standards
These are not the statutory
accounts of the Group and the Company prepared in accordance with
the Companies Act. The Group's financial statements for the year
ended 31 December 2023 were authorised for issue by the Board of
Directors on 23 April 2024 and the balance sheet was signed on the
Board's behalf by Mitch Flegg and Martin Copeland. Serica Energy
plc is a public limited company incorporated and domiciled in
England & Wales with its registered office at 48 George Street,
London, W1U 7DY. The principal activity of the Company and its
subsidiaries (together the 'Group') is to identify, acquire and
subsequently exploit oil and gas reserves. A listing of the Group's
companies is contained in note 30 to these Group financial
statements. Its current activities are located in the United
Kingdom. The Company's ordinary shares are traded on
AIM.
The Group's financial statements
have been prepared in accordance with UK adopted International
Accounting Standards as they apply to the financial statements of
the Group for the year ended 31 December 2023. The principal
accounting policies adopted by the Group are set out in note
2.
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
2023.
The Group financial statements
have been prepared on a historical cost basis and presented in £
sterling. All values are rounded to the nearest thousand pounds
(£000) except when otherwise indicated.
In preparing the Group financial
Statements management has considered the impact of climate change.
These considerations did not have a material impact on the
financial reporting judgements and estimates and consequently
climate change is not expected to have a significant impact on the
Group's going concern assessment to June 2025 nor the viability of
the Group over the next five years. However, governmental and
societal responses to climate change risks are still developing,
and are interdependent upon each other, and consequently financial
statements cannot capture all possible future outcomes as these are
not yet known. It is recognised that Net Zero targets and third
party expectations may drive government action that imposes further
requirements and costs on companies in the future. The Group
has additional planned expenditure related to flare gas recovery
and other emission reduction measures, however, as all of the
Group's currently producing assets are projected to cease
production by 2036, it is believed that any such future changes
would have a relatively limited impact compared to assets with
longer durations.
Going Concern
The Directors are required to
consider the availability of resources to meet the Group's
liabilities for the period ending 30 June 2025, the 'going concern
period'.
As at 22 April 2024 the Group held
cash and term deposits of £264.7 million including £18.3 million of
restricted funds. Following the re-financing completion in
January 2024, separate RBL liquidity headroom of US$232 million
existed at 31 March 2024 (US$231 million drawn versus US$463
million available). See note 21 for further details of the current
RBL facility.
The acquisition of Tailwind in
2023 gives the Group increased production and operating cash flows,
a balance in product mix between gas and oil, and two main
operating hubs which reduces the potential impact of production
interruptions.
The Group regularly monitors its
cash, funding and liquidity position, including available
facilities and compliance with facility covenants. Near term cash
projections are revised and underlying assumptions reviewed,
generally monthly, and longer-term projections are also updated
regularly. Downside price and other risking scenarios are
considered. In addition to commodity sales prices the Group is
exposed to potential production interruptions and these are also
considered under such scenarios. In recent years, management has
given priority to building a strong cash reserve which can respond
to different types of risk.
For the purposes of the Group's
going concern assessment we have reviewed two cash projections for
the going concern period. These projections cover a base case
forecast and an extreme stress test scenario for the operations of
the Group. RBL repayments have been assumed based on the current
redetermination and no covenant compliance matters
noted.
The base case assumptions for the
going concern period included commodity pricing of 70 pence/therm
for gas and US$80/bbl for oil for the remainder of 2024 and 75
pence/therm gas and US$75/bbl oil for 1H 2025. Production, opex,
capex and tax assumptions are those currently included in standard
management forecasting. The forward looking price assumptions are
considered as reasonable in light of recent commodity forward
pricing and a consensus of published forecasts from the industry,
brokers and other analysts.
The stress test assumptions assume
a full six-month shut-in of Triton hub production for 2H 2024 and a
full six-month shut-in of BKR hub production for 1H 2025.
Production remains at base case levels to the end of the going
concern period outside of these separate production hub shut-ins.
Base case commodity pricing is retained for 2024 but lower
commodity pricing of 50 pence/therm gas and US$60/bbl oil are
assumed for the 1H 2025 period in this scenario which are
significantly below the range of current market expectations for
the going concern period. Under this scenario, which would result
in lower cash inflows and any repayments of the RBL facility as
redetermined, the Group was able to maintain sufficient cash to
meet its obligations and maintain covenant compliance. A number of
mitigating factors and mitigating actions that are under management
control are available to management in the stress test event. These
would mitigate the reduced operating cash outflows experienced and
are not included in the projection.
After making enquiries and having
taken into consideration the above factors, the Directors
considered it appropriate that the Group has adequate resources to
continue in operational existence for the going concern period.
Accordingly, they continue to adopt the going concern basis in
preparing the financial statements.
Use of judgement and estimates and sources of estimation
uncertainty
The preparation of financial
statements in conformity with UK-adopted International Accounting
Standards requires management to make judgements and estimates 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 judgements 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 Group has identified the following
areas where significant judgement, estimates and assumptions are
required, which following the acquisition of Tailwind Energy
Investments Ltd in the year now include the acquisition of assets
via a business combination and the recognition of deferred tax
assets.
I) Uses of
judgement
Key sources of judgement that may
have a significant risk of causing material adjustment to the
amounts recognised in the financial statements are as follows:
assessing whether impairment triggers exist that might lead to the
impairment of the Group assets (including oil and gas producing
& development assets and Exploration and Evaluation "E&E"
assets): assessing factors involved in the fair value assessments
required upon a business combination; and taxation including
recognition of deferred tax assets.
Details on these sources of
judgements are given below.
Assessment of the impairment
indicators of intangible and tangible assets
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 licence performance obligations can be met
within the required regulatory timeframe, 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.
A review was performed for any
indication that the value of the Group's oil and gas assets may be
impaired at the balance sheet date of 31 December 2023 in
accordance with the stated policy and no impairment triggers were
noted.
Acquisition through business
combination
The Group made a significant
acquisition in the year - see note 29 for further details of the
final purchase price allocation, including the assets and
liabilities acquired, the gain on purchase arising on acquisition
and details of the consideration paid. The acquisition was
accounted for as a business combination under IFRS 3. The assets
and liabilities identified in the purchase price allocation include
oil & gas assets, decommissioning liabilities, deferred tax
assets and liabilities, contract liabilities, derivatives and
working capital.
In determining the fair value on
acquisition of a pre-existing oil revenue contract a judgement was
made to value the contract at the differential between the contract
pricing and market price and to unwind the liability through
'contract revenue - other' in the income statement upon
satisfaction of the performance obligations of the
contract.
Taxation including the recognition
of deferred tax assets
The Group's operations are subject
to a number of specific tax rules which apply to exploration,
development and production companies such as the Energy Profits
Levy, ring-fenced Corporation Tax at 30%, the Supplementary Charge
of 10% and the application of investment allowances. As a result of
these factors, the tax provision process necessarily involves the
use of a number of judgements around expenditure deductible under
different ring-fenced tax rules. Further recognition of deferred
tax assets on the acquisition date of Tailwind involves judgement
that it is appropriate to anticipate tax losses to be available in
relation to planned restructuring.
II) Sources of estimation
uncertainty
Key sources of estimation
uncertainty
The key sources of estimation
uncertainty that may have a significant risk of causing material
adjustment to the amounts recognised in the financial statements
are: the assessment of commercial reserves and production profiles;
and decommissioning provisions.
Details on these key sources of
estimation uncertainty are given below.
Assessment of commercial oil and
gas 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 depletion charge for the period, decommissioning
provisions, whether deferred tax assets are recoverable and
assessing whether any impairment charge is required. Estimates of
oil and gas reserves require critical judgement. The Group uses
proven and probable ("2P") reserves (see page 16)
as the basis for calculations of depletion and
expected future cash flows from underlying assets because this
represents the reserves management intends to develop.
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 data sets using its own internal expertise. A 10% reduction in
the assessed quantity of commercial reserves would lead to an
increase in the depletion charge for 2023 of £12.3 million (2022:
£8.5 million).
Decommissioning
provisions
Amounts used in recording a
provision for decommissioning are estimates based on current legal
and constructive requirements and current technology and price
levels for the removal of facilities and plugging and abandoning of
wells. Due to changes in relation to these items, the future actual
cash outflows in relation to decommissioning are likely to differ
in practice. To reflect the effects due to changes in legislation,
requirements and technology and price levels, the carrying amounts
of decommissioning provisions are reviewed on a regular basis. The
effects of changes in estimates do not give rise to prior year
adjustments and are dealt with prospectively. While the Group uses
estimates and assumptions, actual results could differ from these
estimates. Expected timing of expenditure can also change, for
example in response to changes in laws and regulations or their
interpretation, and/or due to changes in commodity prices. The
payment dates are uncertain and depend on the production lives of
the respective fields. For further details including sensitivities
of the calculation to changes in input variables (see note
20).
Non-key sources of
estimation uncertainty
Non-key sources of estimation
uncertainty include determining the fair value of contingent
consideration, royalty liabilities, recoverability of deferred tax
and fair value of assets and liabilities acquired through the
Tailwind acquisition.
Determining the fair value of
contingent consideration on BKR acquisitions
The Group determined the fair
value of initial contingent consideration payable based on
discounted cash flows at the time of the acquisition in 2018,
calculated for each separate component of the contingent
consideration. Any cash flows specific to the contingent
consideration also reflect applicable commercial terms and risks.
In calculating the fair value of the remaining contingent
consideration on the BKR acquisitions payable as at 31 December
2023, assumptions underlying the calculation were updated from
2022. These included updated commodity prices, production profiles,
future opex, capex and decommissioning cost estimates, discount
rates, proved and probable reserves estimates and risk assessments.
For further details including sensitivities of the calculation to
changes in input variables (see note 19).
Royalty liabilities
The Group determined the fair
value of a royalty liability assumed upon the Tailwind acquisition
in 2023 at the time of the acquisition and subsequently as at 31
December 2023. In calculating the fair value of the royalty
payable, assumptions included commodity prices, future production
and discount rates. For further details including sensitivities of
the calculation to changes in input variables (see note
19).
Recoverability of deferred tax
assets
Deferred tax assets, including
those arising from unutilised tax losses, require management to
assess the likelihood that the Group will generate sufficient
taxable profits in future periods, in order to utilise recognised
deferred tax assets. Assumptions about the generation of future
taxable profits depend on management's estimates of future cash
flows. These estimates are based on forecast cash flows from
operations (which are impacted by production and sales volumes, oil
and natural gas prices, reserves, operating costs, decommissioning
costs, capital expenditure, dividends and other capital management
transactions) and judgement about the application of existing tax
laws - see use of judgements: Taxation. There is no critical
estimation uncertainty at the end of the reporting
period.
Fair value of assets and
liabilities acquired through the Tailwind acquisition
Estimates are required to be made
regarding the calculation of the fair value of the oil and gas
assets acquired, including estimating the future cash flows
expected to arise from the CGUs in the acquired business using
discounted cash flow models. Key assumptions include: commodity
prices, discount rates and oil and gas reserves estimates. In
addition, the Group has considered the value that a market
participant would prescribe to prospective resources in determining
the fair value of the oil & gas assets acquired. In determining
the value of the deferred tax asset recognised on acquisition, the
Group has also made assumptions in respect of the amount of tax
losses brought forward which will be available to offset against
future taxable profits of the Group. There is no critical
estimation uncertainty related to this estimate at the end of the
reporting period.
Basis of Consolidation
The consolidated financial
statements include the accounts of Serica Energy plc (the
"Company") and entities controlled by the Company (its
subsidiaries) made up to 31 December each year. Together these
comprise the "Group".
Control is achieved when the
Company:
• has power over the
investee;
• is exposed, or has rights, to
variable returns from its involvement with the investee;
and
• has the ability to use its power
to affect its returns.
The Company reassesses whether or
not it controls an investee if facts and circumstances indicate
that there are changes to one or more of the three elements of
control listed above. Consolidation of a subsidiary begins when the
Company obtains control over the subsidiary and ceases when the
Company loses control of the subsidiary. Specifically, the results
of the subsidiaries acquired or disposed of during the year are
included in profit or loss from the date the Company gains control
until the date when the Company ceases to control the
subsidiary.
The results and financial position
of all of the Group entities that have a functional currency
different from the presentation currency are translated into the
presentation currency as follows:
· Assets and liabilities for each balance sheet presented are
translated at the closing rate at the date of that balance
sheet;
· Income and expenses for each income statement are translated
at average exchange rates (unless this average is not a reasonable
approximation of the rates prevailing on the transaction dates, in
which case income and expenses are translated at the rate on the
dates of each transaction);
· The
exchange differences arising on translation for consolidation are
recognised in other comprehensive income; and
· Any
fair value adjustments to the carrying amounts of assets and
liabilities arising on the acquisition are treated as assets and
liabilities of the acquired entity and are translated at the spot
rate of exchange at the reporting date.
Where necessary, adjustments are
made to the financial statements of subsidiaries to bring the
accounting policies used into line with the Group's accounting
policies. All inter-company balances and transactions have been
eliminated upon consolidation.
Foreign Currency Translation
Items included in the financial
statements of each of the Group's entities are measured using the
currency of the primary economic environment in which the entity
operates ('functional currency'). The Group's financial statements
are presented in £ sterling, the currency which the Group has
elected to use as its presentational currency.
In the financial statements of
Serica Energy plc and its individual subsidiaries, 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
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.
When the Group acquires a
business, it assesses the financial assets and liabilities assumed
for appropriate classification and designation in accordance with
the contractual terms, economic circumstances and pertinent
conditions as at the acquisition date. Any contingent consideration
to be transferred to the acquirer will be recognised at fair value
at the acquisition date. Contingent consideration classified as an
asset or liability that is a financial instrument and within the
scope of IFRS 9 Financial Instruments, is measured at fair value
with the changes in fair value recognised in the statement of
profit or loss in accordance with IFRS 9.
Goodwill/gain on
acquisition
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. If
the fair value of the net assets acquired is in excess of the
aggregate consideration transferred, the Group re-assesses whether
it has correctly identified all of the assets acquired and all of
the liabilities assumed and reviews the procedures used to measure
the amounts to be recognised at the acquisition date. If the
reassessment still results in an excess of fair value of net assets
acquired over the aggregate consideration transferred, then the
gain on acquisition is recognised in profit or loss.
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 Arrangements
Oil and gas operations are usually
conducted by the Group as co-licensees in unincorporated joint
operations with other companies. Most of the Group's activities are
conducted through joint operations, whereby the parties that have
joint control of the arrangement have the rights to the assets and
obligations for the liabilities, relating to the arrangement. The
Group recognises its share of assets, liabilities, income and
expenses of the joint operation in the consolidated financial
statements on a line-by-line basis.
Full details of Serica's working
interests in those petroleum and natural gas exploration and
production activities classified as joint operations 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.
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. Where
conditions giving rise to impairment subsequently reverse, the
effect of the impairment charge is reversed as a credit to 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, with any excess being taken to the
income statement as a gain on disposal.
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.
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, any
applicable 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 management's assessment of proved
and probable reserves, reflecting risks applicable to the specific
assets. Changes in reserve quantities and cost estimates are
recognised prospectively from the last annual reporting date.
Proved and probable reserves estimates obtained from an independent
reserves specialist have been used as the basis for 2022 and 2023
calculations.
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 carrying amount of the cash generating unit exceed the
recoverable amount of the related commercial oil and gas
reserves.
Acquisitions, Asset Purchases and
Disposals
Acquisitions of oil and gas
properties are accounted for under the acquisition method when the
assets acquired and liabilities assumed constitute a
business.
Transactions involving the
purchase of an individual field interest, or a group of field
interests, that do not constitute a business, are treated as asset
purchases. Accordingly, no goodwill and no deferred tax gross up
arises, and the consideration is allocated to the assets and
liabilities purchased on an appropriate basis. 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.
Any changes in the present value
of the estimated expenditure are added to or deducted from the cost
of the assets to which it relates. If a change in the
decommissioning liability exceeds the carrying amount of the asset,
the excess is recognised immediately in profit or loss. 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.
Underlift/Overlift
Lifting arrangements for oil and
gas produced in certain fields are such that each participant may
not receive its share of the overall production in each period. The
difference between cumulative entitlement and cumulative production
less stock is 'underlift' or 'overlift'. Underlift and overlift are
valued at market value and included within debtors ('underlift') or
creditors ('overlift').
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, and right-of-use assets over the
period of lease.
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.
Financial Instruments
Financial instruments comprise
financial assets, cash and cash equivalents, financial liabilities
and equity instruments. Financial assets and financial liabilities
are recognised when the Group becomes a party to the contractual
provisions of the financial instrument.
Financial assets
Financial assets are classified,
at initial recognition, as subsequently measured at amortised cost,
fair value through profit or loss, and fair value through other
comprehensive income (OCI).
The classification of financial
assets at initial recognition depends on the financial asset's
contractual cash flow characteristics and the Group's business
model for managing them.
With the exception of trade
receivables that do not contain a significant financing component
or for which the Group has applied the practical expedient, the
Group initially measures a financial asset at its fair value plus
transaction costs (in the case of a financial asset not at fair
value through profit or loss). Trade receivables that do not
contain a significant financing component or for which the Group
has applied the practical expedient are measured at the transaction
price determined under IFRS 15.
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.
In order for a financial asset to
be classified and measured at amortised cost it needs to give rise
to cash flows that are 'solely payments of principal and interest
(SPPI)' on the principal amount outstanding. This assessment is
referred to as the SPPI test and is performed at an instrument
level. Financial assets with cash flows that are not SPPI are
classified and measured at fair value through profit or loss,
irrespective of the business model.
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 of
deposit.
Financial liabilities
Financial liabilities are
classified, at initial recognition, as financial liabilities at
fair value through profit or loss, loans and borrowings, payables,
or as derivatives designated as hedging instruments in an effective
hedge, as appropriate. The Group's financial liabilities currently
include loans and borrowings, trade and other payables, BKR
consideration liabilities, royalty liabilities, deferred shares in
relation to the Tailwind acquisition and derivative liabilities.
All financial liabilities are recognised initially at fair value.
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.
Emissions liabilities
The Group operates in an energy
intensive industry and is therefore required to partake in emission
trading schemes ("ETS"). The Group recognises an emission liability
in line with the production of emissions that give rise to the
obligation. To the extent the liability is covered by allowances
held, the liability is recognised at the cost of these allowances
held and if insufficient allowances are held, the remaining
uncovered portion is measured at the spot market price of
allowances at the balance sheet date. The expense is presented
within 'production costs' under 'cost of sales' and the accrual is
presented in 'trade and other payables'.
Derivative financial
instruments
The Group uses derivative
financial instruments, such as forward commodity contracts, to
hedge its commodity price risks. The Group has elected not to apply
hedge accounting to these derivatives. Such derivative financial
instruments are initially recognised at fair value on the date on
which a derivative contract is entered into and are subsequently
remeasured at fair value. Derivatives are carried as financial
assets when the fair value is positive and as financial liabilities
when the fair value is negative. Any gains or losses arising from
changes in the fair value of derivatives are taken directly to the
statement of profit or loss and other comprehensive income and
presented within operating profit.
Further details of the fair values
of derivative financial instruments and how they are measured are
provided in Note 16.
Equity
Equity instruments issued by the
Company are recorded in equity at the proceeds received, net of
direct issue costs.
Trade and other receivables and contract
assets
Trade receivables and contract
assets
A receivable represents the Group's
right to an amount of consideration that is unconditional (i.e.,
only the passage of time is required before payment of the
consideration is due). A contract asset is the right to
consideration in exchange for goods or services transferred to the
customer.
Provision for expected credit
losses of trade receivables and contract assets
For trade receivables and contract
assets, the Group applies a simplified approach in calculating
expected credit losses 'ECLs'. Therefore, the Group does not track
changes in credit risk, but instead, recognises a loss allowance
based on lifetime ECLs at each reporting date. The Group has
established a provision matrix that is based on its historical
credit loss experience, adjusted for forward-looking factors
specific to the debtors and the economic environment.
A financial asset is written off when there is no
reasonable expectation of recovering the contractual cash
flows. The Group's receivables have a good
credit rating and there has been no noted change in the credit risk
of receivables in the year.
Provisions
Provisions are recognised when the
Group has a present legal or constructive obligation as a result of
past events, it is probable that an outflow of resources will be
required to settle the obligation, and a reliable estimate can be
made of the amount of the obligation.
Revenue from contracts with customers
Revenue from contracts with
customers is recognised when control of the goods or services are
transferred to the customer at an amount that reflects the
consideration to which the Group expects to be entitled to in
exchange for those goods or services. Revenue is measured at the
fair value of the consideration received or receivable and
represents amounts receivable for goods provided in the normal
course of business, net of discounts, customs duties and sales
taxes. The Group has concluded that it is the principal in its
revenue arrangements because it typically controls the goods or
services before transferring them to the customer.
The sale of crude oil, gas or
condensate represents a single performance obligation, being the
sale of barrels equivalent on collection of a cargo or on delivery
of commodity into an infrastructure. Revenue is accordingly
recognised for this performance obligation when control over the
corresponding commodity is transferred to the customer. The Group
principally satisfies its performance obligations at a point in
time and the amounts of revenue recognised relating to performance
obligations satisfied over time are not significant. The normal
credit term is 15 to 30 days upon collection or
delivery.
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.
Share-Based Payment Transactions
Employees (including Executive
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. For equity awards cancelled
by forfeiture when vesting conditions are not met, any expense
previously recognised is reversed and recognised as a credit in the
income statement. 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
Current tax, including UK
corporation tax and overseas corporation tax, is provided at
amounts expected to be paid using the tax rates and laws that have
been enacted or substantively enacted by the balance sheet
date.
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.
Leases
As a lessee, the Group recognises
a right-of-use asset and a lease liability at the lease
commencement date. The lease liability is initially measured at the
present value of the lease payments that are not paid at the
commencement date, discounted by using the rate implicit in the
lease, or, if that rate cannot be readily determined, the Group
uses its incremental borrowing rate.
The lease liability is
subsequently recorded at amortised cost, using the effective
interest rate method. The liability is remeasured when there is a
change in future lease payments arising from a change in an index
or rate or if the Group changes its assessment of whether it will
exercise a purchase, extension or termination option. When the
lease liability is remeasured in this way, a corresponding
adjustment is made to the carrying amount of the right-of-use asset
or is recorded in profit or loss if the carrying amount of the
right-of-use asset has been reduced to zero.
The right-of-use asset is measured
at cost, which comprises the initial amount of the lease liability
adjusted for any lease payments made at or before the commencement
date, plus any initial direct costs incurred and an estimate of
costs to dismantle and remove the underlying asset or to restore
the underlying asset or the site on which it is located, less any
lease incentives received. Right-of-use assets are depreciated over
the shorter period of lease term and useful life of the underlying
asset.
The Group does not currently act
as a lessor.
New and amended standards and
interpretations
The Group has adopted and applied
for the first time, certain new standards, amended standards or
interpretations, which are effective for annual periods beginning
on or after 1 January 2023. These include the following:
- Insurance
contracts (IFRS 17)
- Disclosure of
Accounting Policies (Amendments to IAS 1 and IFRS Practice
Statement 2)
- Definition of
Accounting Estimates (Amendments to IAS 8)
- Deferred tax
related to Assets and Liabilities arising from a Single Transaction
(amendments to IAS 12)
- International
Tax reform - Pillar Two Model Rules (Amendments to IAS
12)
The Group has not early adopted
any other standard, interpretation or amendment that has been
issued but is not yet effective. Other than the changes described
above, the accounting policies adopted are consistent with those of
the previous financial year.
There are no new or amended
standards or interpretations adopted from 1 January 2023 onwards,
that have a significant impact on the consolidated financial
statements of the Group.
Standards issued but not yet effective
Certain standards or
interpretations issued but not yet effective up to the date of
issuance of the Group's financial statements. These include the
following:
-
IFRS 10 and IAS 28 (amendments) - Sale or
Contribution of Assets between an investor and its Associate or
Joint Venture
-
Amendments to IAS 1 - Classification of
Liabilities as Current or Non-current
-
Amendments to IAS 1 - Non-current Liabilities
with Covenants
-
Amendments to IAS 7 and IFRS 7 - Supplier Finance
Arrangements
-
Amendments to IFRS 16 - Lease Liability in a Sale
and Leaseback
The Group intends to adopt them
when they become effective but these new
or amended standards not yet adopted are not expected to have a
material impact on the financial statements.
3. Segment
Information
For the purposes of segmental
reporting, the Group currently operates a single class of business
being oil and gas exploration, development and production and
related activities in a single geographical area, being presently
the UK North Sea.
4. Sales Revenue
|
2023
|
2022
|
|
£000
|
£000
|
|
|
|
|
Gas sales
|
345,704
|
652,680
|
Gas supply contract
revenue
|
987
|
37,505
|
|
|
|
Total gas sales
|
346,691
|
690,185
|
|
|
|
Oil sales
|
265,497
|
88,048
|
NGL sales
|
20,450
|
34,190
|
|
|
|
Total revenue
|
632,638
|
812,423
|
Gas sales revenue in 2023 arose
from three key customers (2022: one). Gas supply contract revenue
in 2022 arose from the unwind of gas contract liabilities initially
recognised upon the restructuring of
certain gas swaps to other fixed price instruments under a gas
sales contract in August 2021. Further information is provided note
16.
Oil sales revenue in 2023 was from
three key customers (2022: one), and NGL sales in 2023 were made to
six customers (2022: six).
The revenue from three customers
individually constitutes more than 10% of total revenue amounting
to £608.2 million.
5. Cost of Sales
|
2023
|
2022
|
|
£000
|
£000
|
|
|
|
|
Operating costs
|
218,688
|
120,998
|
Lifting costs
|
7,066
|
-
|
Change in decommissioning
estimates expensed (note 20)
|
368
|
-
|
Depletion (note 13)
|
109,198
|
76,887
|
Movement in liquids
overlift/underlift
|
(9,256)
|
20,270
|
|
|
|
|
326,064
|
218,155
|
|
|
|
6. Operating Profit
|
2023
|
2022
|
|
£000
|
£000
|
|
|
|
Net hedging
income/(expense)
|
|
|
|
Unrealised hedging gains (see note
16)
|
20,397
|
20,877
|
|
|
|
Realised hedging losses (see note
16)
|
(15,635)
|
(45,384)
|
|
|
|
|
4,762
|
(24,507)
|
Depreciation and depletion
expense
Depreciation of right of use
assets totalled £795,000 (2022: £172,000) of which £622,000 (2022:
£nil) was allocated to cost of sales and £173,000 (2022: £172,000)
allocated to administrative expenses.
Depletion charges on oil and gas
properties are classified within cost of sales.
Auditor's Remuneration
|
2023
£000
|
2022
|
|
£000
|
£000
|
|
|
|
Audit of the Group
accounts
|
724
|
338
|
Audit of the Company's
accounts
|
32
|
30
|
Audit of accounts of Company's
subsidiaries
|
129
|
36
|
Total audit fees
|
885
|
404
|
|
|
|
No fees were paid to Ernst &
Young LLP and its associates for non-audit services in 2022 or
2023.
7. Staff Costs and Directors'
Emoluments
a)
|
Staff Costs - Group
|
2023
|
2022
|
|
|
£000
|
£000
|
|
Wages and salaries
|
25,901
|
21,755
|
Social security costs
|
6,488
|
3,727
|
Other pension costs
|
2,669
|
2,199
|
Share-based long-term
incentives
|
3,975
|
3,510
|
|
|
|
|
|
|
39,033
|
31,191
|
|
|
|
|
The average number of persons
employed by the Group during the year was 202
|
(2022: 175), with 11 in management
functions (2022: 9), 172 in technical functions
|
(2022: 155) and 19 (2022: 11) in
finance and administrative functions.
|
|
|
|
|
Staff costs for key management
personnel:
|
|
|
Short-term employee
benefits
|
2,701
|
2,616
|
Post-employment
benefits
|
122
|
111
|
Share-based payments (note
25)
|
2,341
|
2,036
|
|
|
|
|
|
|
5,164
|
4,763
|
|
|
|
|
b)
|
Directors' Emoluments
|
|
|
The emoluments of the individual
Directors were as follows. All amounts are paid in £
sterling.
|
|
|
|
|
|
|
|
2023
|
2023
|
2023
|
2023
|
2023
|
2022
|
|
|
|
Salary
and
|
Bonus
|
Pension
|
Benefits
|
Total
|
Total
|
|
|
|
fees
|
|
|
in
kind
|
|
|
|
|
|
£000
|
£000
|
£000
|
£000
|
£000
|
£000
|
|
|
|
|
|
|
|
|
A Craven Walker (2)
|
245
|
-
|
-
|
-
|
245
|
490
|
M Flegg (1)
|
575
|
371
|
76
|
1
|
1,023
|
1,015
|
A Bell (1)
|
345
|
247
|
46
|
1
|
639
|
618
|
D Latin
|
163
|
-
|
-
|
-
|
163
|
57
|
I Vann (3)
|
-
|
-
|
-
|
-
|
-
|
20
|
T Garlick (4)
|
35
|
-
|
-
|
-
|
35
|
60
|
M Webb
|
68
|
-
|
-
|
-
|
68
|
60
|
K Coppinger
|
68
|
-
|
-
|
-
|
68
|
60
|
R Rose (5)
|
-
|
-
|
-
|
-
|
-
|
24
|
J Schmitt (6)
|
65
|
-
|
-
|
-
|
65
|
25
|
M Soeting (7)
|
61
|
-
|
-
|
-
|
61
|
-
|
R Lawson (8)
|
46
|
|
|
|
46
|
-
|
G Vermersch (9)
|
46
|
|
|
|
46
|
-
|
K Van Hecke (10)
|
32
|
-
|
-
|
-
|
32
|
-
|
S Lloyd Rees (11)
|
28
|
-
|
-
|
-
|
28
|
-
|
|
|
|
1,777
|
618
|
122
|
2
|
2,519
|
2,429
|
|
Note (1) Cash in lieu of
pension.
|
|
|
|
Note (2) Antony Craven Walker
retired on 30 June 2023
|
|
Note (3) Ian Vann retired on 30
April 2022
|
|
Note (4) Trevor Garlick retired on
17 July 2023
|
|
Note (5) Richard Rose resigned on
21 June 2022
|
|
Note (6) Jérôme Schmitt was
appointed on 1 July 2022
|
|
Note (7) Michiel Soeting was
appointed on 1 February 2023
|
|
Note (8) Robert Lawson was
appointed on 23 March 2023
|
|
Note (9) Guillaume Vermersch was
appointed on 23 March 2023
|
|
Note (10) Kaat Van Hecke was
appointed on 17 July 2023
|
|
Note (11) Sian Lloyd Rees was
appointed on 17 July 2023
|
|
|
|
|
|
|
2023
|
2022
|
|
Number of Directors securing
benefits under defined
|
|
|
|
contribution schemes during the
year
|
2
|
2
|
|
Number of Directors who exercised
share options
|
3
|
-
|
|
|
|
|
|
|
£000
|
£000
|
|
Aggregate gains made by Directors
on the exercise of options
|
1,544
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
The Group defines key management
personnel as the Directors of the Company. There are no
transactions with Directors other than their remuneration as
disclosed above and those described in Note 28.
8. Finance Revenue/Costs
|
|
|
|
2023
|
2022
|
|
£000
|
£000
|
|
|
|
Bank interest
receivable
|
13,532
|
4,499
|
|
|
|
Total finance revenue
|
13,532
|
4,499
|
|
|
|
|
2023
|
2022
|
|
£000
|
£000
|
|
|
|
Loan interest payable
|
13,757
|
-
|
Loan commitment fees
|
4,302
|
-
|
Other charges and interest
payable
|
509
|
385
|
Unwinding of discount on
provisions (note 20)
|
2,913
|
553
|
|
|
|
Total finance costs
|
21,481
|
938
|
9. Taxation
|
|
2023
|
2022
|
|
|
£000
|
£000
|
|
|
|
|
a)
|
Tax charged/(credited) in the
income statement
|
|
|
|
Charge for the year
|
181,442
|
276,674
|
|
Adjustment in respect of prior
years
|
1,889
|
1,021
|
|
|
|
|
|
Total current income tax
charge
|
183,331
|
277,695
|
|
|
|
|
|
Deferred tax
|
|
Origination and reversal of
temporary differences in the
|
|
|
|
current year
|
19,308
|
32,687
|
|
Adjustment in respect of prior
years
|
-
|
-
|
|
|
|
|
|
Total deferred tax
charge
|
19,308
|
32,687
|
|
|
|
|
|
|
|
|
|
Tax charge in the income
statement
|
202,639
|
310,382
|
|
|
|
|
|
|
|
|
b)
|
Reconciliation of the total tax
charge/(credit)
|
|
|
|
The tax in the income statement
for the year differs from the amount that would be
|
|
expected by applying the standard
UK corporation tax rate for the following reasons:
|
|
|
|
|
|
|
2023
|
2022
|
|
|
£000
|
£000
|
|
|
|
|
|
|
|
|
|
Accounting profit before
taxation
|
305,623
|
488,178
|
|
|
|
|
|
Statutory rate of corporation tax
in the UK of 40% (2022: 40%)
|
122,249
|
195,271
|
|
Permanent differences
|
3,175
|
(7,243)
|
|
Movement in unrecognised deferred
tax assets
|
2,634
|
(500)
|
|
Investment Allowance
|
(4,316)
|
(1,927)
|
|
EPL - Rate differential
|
(9,455)
|
59,045
|
|
EPL - Income taxed at different
rates
|
102,417
|
82,473
|
|
EPL - Investment
allowance
|
(5,321)
|
(18,136)
|
|
Income tax at different
rates
|
2,986
|
378
|
|
Adjustment in respect of prior
years
|
1,889
|
1,021
|
|
Non-taxable gain on
acquisition
|
(13,619)
|
-
|
|
Tax charge reported in the income
statement
|
202,639
|
310,382
|
|
|
|
|
|
| |
c)
|
Recognised and unrecognised tax
losses
|
|
|
|
The Group's Balance Sheet has a
deferred tax asset amount of £438.1 million as at the 31 December
2023 (2022: £12.9 million) arising from ring-fence losses,
decommissioning liabilities and other temporary differences. These
deferred tax assets are expected to be recovered through
utilisation against deferred tax liabilities, primarily related to
temporary differences on fixed assets (£354.0 million) and through
future taxable profits. The increase in net assets to £84.1
million as at 31 December 2023 (2022: £153.3 million net deferred
tax liability) in the year is primarily due to the Tailwind
acquisition (note 29).
The Group's deferred tax assets at
31 December 2023 are recognised to the extent that taxable profits
are expected to arise in the future against which tax losses and
allowances in the UK can be utilised. In accordance with IAS 12
Income Taxes, the Group assessed the recoverability of its deferred
tax assets at 31 December 2023 with respect to ring fence losses
and allowances.
The Group has recognised deferred
tax assets in full on its UK ring-fence losses but has unrecognised
UK mainstream corporation tax losses and temporary differences of
£118.7 million (2022: £60.2 million) for which no deferred tax
asset has been recognised at the Balance Sheet date. These tax
losses and temporary differences are unrecognised because they
streamed within entities for which no profits are expected. The
increase in balance in the year is primarily due to the Tailwind
acquisition.
|
|
Unrecognised deferred tax
assets
|
2023
|
2022
|
|
|
£000
|
£000
|
|
|
|
|
|
Tax losses
|
99,339
|
25,427
|
|
Other temporary
differences
|
19,349
|
34,776
|
|
|
|
|
|
Total
|
118,688
|
60,203
|
|
|
|
|
|
The above unrecognised amounts
have no expiry.
|
|
|
|
|
|
|
|
|
d)
|
Deferred tax
|
|
The deferred tax included in the
balance sheet is as follows:
|
|
|
2023
|
2022
|
|
|
£000
|
£000
|
|
|
|
|
|
Deferred tax liability:
|
|
Temporary differences on capital
expenditure
|
(353,994)
|
(166,219)
|
|
|
|
|
|
Deferred tax liability
|
(353,994)
|
(166,219)
|
|
|
|
|
|
Deferred tax asset:
|
|
Tax losses
|
331,277
|
-
|
|
Decommissioning
liability
|
46,611
|
10,080
|
|
Investment allowances
|
33,056
|
-
|
|
Contract liability
|
21,622
|
-
|
|
Other temporary
differences
|
5,535
|
2,844
|
|
|
|
|
|
Deferred tax asset
|
438,101
|
12,924
|
|
|
|
|
|
Net deferred tax
asset/(liability)
|
84,107
|
(153,295)
|
|
|
|
Reconciliation of net deferred tax
assets/(liabilities)
|
|
|
2023
|
2022
|
|
|
£000
|
£000
|
|
|
|
|
|
At 1 January
|
(153,295)
|
(120,608)
|
|
|
|
|
|
Acquisitions (note 29)
|
264,914
|
-
|
|
Tax charge during the year
recognised in profit
|
(19,308)
|
(32,687)
|
|
Currency translation
adjustment
|
(8,204)
|
-
|
|
|
|
|
|
At 31 December
|
84,107
|
(153,295)
|
|
|
|
The deferred tax in the Group
income statement is as follows:
|
|
|
2023
|
2022
|
|
|
£000
|
£000
|
|
|
|
|
|
Deferred tax in the income
statement:
|
|
|
|
Temporary differences on capital
expenditure
|
(18,493)
|
34,373
|
|
Tax losses
|
26,493
|
-
|
|
Other temporary
differences
|
11,308
|
(1,686)
|
|
|
|
|
|
Deferred income tax
charge
|
19,308
|
32,687
|
|
|
|
|
|
|
|
|
e)
|
Unrecognised deferred tax
liability
|
|
|
|
|
|
|
|
In 2023 and 2022 there are no
material temporary differences associated with investments
withbsidiaries forhich
|
|
investments in the Group's
subsidiaries for which a deferred tax liability has not
been
|
|
recognised.
|
|
|
|
|
|
|
| |
f) Changes to UK
corporation tax legislation
Changes to UK corporation tax legislation
The main rate of UK corporation
tax for non-ring fence profits increased from 19 per cent to 25 per
cent from 1 April 2023. This change has not had a material impact
on the Group as the UK profits are primarily subject to the UK ring
fence tax rate. The Group does not
currently recognise any deferred tax assets in respect of UK
non-ring fence tax losses and therefore this rate change did not
impact the disclosed results.
The Energy Profits Levy ('EPL') on
the profits earned from the production of oil and gas in the UK was
introduced in the previous period. From 1 January 2023, the EPL is
charged at the rate of 35 per cent on taxable profits in addition
to ring fence corporation tax of 30 per cent and the Supplementary
Charge of 10 per cent. The EPL is a temporary measure which at 31
December 2023 was to cease to apply on 31 March 2028.
In the 2023 financial statements, any temporary
differences subject to the EPL expected to reverse in the period to
31 March 2028 have been measured to the higher rate.
Following the 2024 Spring budget it was announced
that it will cease to apply on 31 March 2029, the impact on the
current year financial statements would be an increase in the
deferred tax charge and deferred tax for EPL by £20.2
million.
In the Autumn Statement on 22
November 2023, the UK government confirmed it will bring in
legislation for the Energy Security Investment Mechanism ('ESIM')
which would end the imposition of EPL earlier than 31 March 2028
(now 2029) where certain conditions are met. Under the proposed
ESIM, which will be formally implemented upon royal assent of the
Spring Budget 2024 finance bill, if both average oil and gas prices
fall to, or below, US$71.40 per barrel for oil and 54p per therm
for gas, for two consecutive quarters, then the EPL will be
repealed and the headline tax rate on UK oil and gas profits will
return to 40 per cent. The change as currently proposed is not
expected to have a material impact for the Group.
The UK has introduced legislation
implementing the Organisation for Economic Co-operation
and Development's ("OECD") proposals for global
minimum corporation tax rate (Pillar Two) which is effective for
periods beginning on or after 31 December 2023. The only
jurisdiction in which the Group operates is the UK and the Group
does not expect an exposure to Pillar Two income taxes.
10. Earnings Per Share
Basic earnings or loss per
ordinary share amounts are calculated by dividing net profit or
loss for the year attributable to ordinary equity holders of the
parent by the weighted average number of ordinary shares
outstanding during the year.
Diluted earnings per share amounts
are calculated by dividing the net profit attributable to ordinary
equity holders of the Company by the weighted average number of
ordinary shares outstanding during the year plus the weighted
average number of ordinary shares that would be issued on the
conversion of dilutive potential ordinary shares granted under
share-based payment plans (see note 25) and deferred consideration
for the Tailwind acquisition (see note 29) into ordinary
shares.
The following reflects the income
and share data used in the basic and diluted earnings per share
computations:
|
2023
|
2022
|
|
£000
|
£000
|
|
|
|
Net profit from continuing
operations
|
102,984
|
177,796
|
|
|
|
Net profit attributable to equity
holders of the parent
|
102,984
|
177,796
|
|
|
|
|
2023
|
2022
|
|
'000
|
'000
|
|
|
|
Basic weighted average number of
shares
|
360,643
|
271,678
|
|
|
|
Dilutive potential of ordinary
shares granted under
|
12,054
|
16,757
|
share-based payment
plans
|
|
|
Dilutive potential of ordinary
shares under deferred
|
1,849
|
-
|
consideration for
acquisition
|
|
|
|
|
|
Diluted weighted average number of
shares
|
374,546
|
288,435
|
|
|
|
|
2023
|
2022
|
|
£
|
£
|
|
|
|
|
|
|
Basic EPS on profit for the year
(£)
|
0.29
|
0.65
|
Diluted EPS on profit for the year
(£)
|
0.27
|
0.62
|
11. Dividends proposed
Proposed dividends on ordinary
shares
A final cash dividend for 2023 of
14.0 pence per share (2022: 14.0 pence per share) is proposed which
would generate a payment of approximately £55.1 million (2022:
£53.4 million). Proposed dividends on ordinary shares are subject
to approval at the annual general meeting and are not recognised as
a liability as at 31 December.
Dividends on ordinary shares paid
in 2023
A final cash dividend for 2022 of
14.0 pence per share was proposed in April 2023 and approved at the
annual general meeting on 29 June 2023 and £53.4 million was paid
in July 2023.
An interim cash dividend for 2023
of 9.0 pence per share was announced in September 2023 and £35.4
million was paid in November 2023.
As disclosed in the 2022 Annual
Report, following the prior year end, the Directors became aware
that certain dividends paid in 2022 had been made otherwise than in
accordance with the Companies Act 2006, section 838, because
interim accounts had not been filed at Companies House prior to
payment. It is important to note that the Company had sufficient
distributable profits at the time each relevant dividend was paid
and therefore did not pay out by way of dividends more income than
it had, and no payments were made out of capital. Relevant
dividends were the final dividend paid in July and the interim
dividend paid in November. To rectify these breaches, a resolution
was passed at the Annual General Meeting held on 29 June 2023 to
remove any right that the Company may have had to claim from
shareholders or Directors or former Directors for repayment of
these amounts by entering into deeds of release in relation to any
such claims. This constituted a related party transaction under IAS
24. The overall effect of the resolution was to return the parties
so far as possible to the position they would have been in had the
relevant dividends been made in full compliance with the Act. The
amounts for dividends included within the financial statements in
2022 have not been restated as the financial resources had left the
Company and the intention of the resolution was to remove any right
for the Company to pursue shareholders or directors for
repayments.
12. Exploration and Evaluation Assets
|
Total
|
|
£000
|
|
|
Cost:
|
1 January 2022
|
2,949
|
|
|
Additions
|
80,801
|
Write-offs
|
(82,749)
|
|
|
31 December 2022
|
1,001
|
|
|
Additions
|
9,673
|
Write-offs
|
(8,741)
|
Currency translation
adjustment
|
(3)
|
|
|
31 December 2023
|
1,930
|
|
|
|
Net book amount:
|
|
31 December 2023
|
1,930
|
|
|
31 December 2022
|
1,001
|
|
|
|
|
13. Property, Plant and Equipment
|
Oil and gas
properties
|
Equipment, fixtures and
fittings
|
Right-of-use
assets
|
Total
|
|
£000
|
£000
|
£000
|
£000
|
|
|
|
|
|
Cost:
|
1 January 2022
|
466,554
|
212
|
516
|
467,282
|
|
|
|
|
|
Additions
|
15,953
|
-
|
345
|
16,298
|
Decom asset revisions (note
20)
|
(2,231)
|
-
|
-
|
(2,231)
|
|
|
|
|
|
31 December 2022
|
480,276
|
212
|
861
|
481,349
|
|
|
|
|
|
Acquisitions (note 29)
|
482,881
|
-
|
3,450
|
486,331
|
Additions
|
68,588
|
-
|
-
|
68,588
|
Decom asset revisions (note
20)
|
16,012
|
-
|
-
|
16,012
|
Currency translation
adjustment
|
(16,777)
|
-
|
(115)
|
(16,892)
|
|
|
|
|
|
31 December 2023
|
1,030,980
|
212
|
4,196
|
1,035,388
|
|
|
|
|
|
Depreciation and
depletion:
|
1 January 2022
|
137,698
|
167
|
473
|
138,338
|
|
|
|
|
|
Charge for the year
(note 5)
|
76,887
|
45
|
172
|
77,104
|
|
|
|
|
|
31 December 2022
|
214,585
|
212
|
645
|
215,442
|
|
|
|
|
|
Charge for the year
(note 5)
|
108,576
|
-
|
622
|
109,198
|
Charge for the year -
other
|
-
|
-
|
173
|
173
|
Currency translation
adjustment
|
(915)
|
-
|
(9)
|
(924)
|
|
|
|
|
|
31 December 2023
|
322,246
|
212
|
1,431
|
323,889
|
|
|
|
|
|
Net book amount:
|
31 December 2023
|
708,734
|
-
|
2,765
|
711,499
|
|
|
|
|
|
31 December 2022
|
265,691
|
-
|
216
|
265,907
|
|
|
|
|
|
Depreciation and depletion
Depletion charges on oil and gas
properties are classified within 'cost of sales'. £622,000 and
£173,000 of right of use asset depreciation has been charged to
cost of sales and administrative expenses respectively.
14. Inventories
|
2023
|
2022
|
|
£000
|
£000
|
|
|
|
Materials and spare
parts
|
4,981
|
3,998
|
Hydrocarbons
|
5,907
|
-
|
|
|
|
|
10,888
|
3,998
|
|
|
|
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. Inventories are recorded net of an
obsolescence provision of £3.1 million (2022: £3.1
million).
15. Trade and Other receivables
|
2023
|
2022
|
|
£000
|
£000
|
|
|
|
Due within one year:
|
|
|
Trade receivables
|
83,409
|
100,445
|
Amounts recoverable from JV
partners
|
1,720
|
2,567
|
Other receivables
|
20,144
|
9,192
|
Prepayments
|
10,793
|
18,306
|
VAT recoverable
|
2,525
|
4,117
|
Liquids underlift
|
20,019
|
-
|
|
|
|
|
138,610
|
134,627
|
|
|
|
Trade receivables at 31 December
2023 arose from seven (2022: six) customers. They are non-interest
bearing and are generally on 15 to 30-day terms.
None of the Group's receivables
are considered impaired and there are no financial assets past due
but not impaired at the year end. The
Directors consider the carrying amount of trade and other
receivables approximates to their fair value. Management considers that there are no other significant
concentrations of credit risk within the Group.
16. Derivative financial liabilities
|
2023
|
2022
|
|
£000
|
£000
|
|
|
|
Financial liabilities
|
|
|
Derivative financial
instruments
|
4,371
|
24,914
|
|
|
|
|
4,371
|
24,914
|
|
|
|
Fair value hierarchy
All financial instruments for
which fair value is recognised or disclosed are categorised within
the fair value hierarchy, based on the lowest level input that is
significant to the fair value measurement as a whole, as follows:
Level 1: Quoted (unadjusted) market prices in active markets for
identical assets or liabilities; Level 2: Valuation techniques for
which the lowest level input that is significant to the fair value
measurement is directly (i.e. as prices) or indirectly (i.e.
derived from prices) observable; Level 3: Valuation techniques for
which the lowest level input that is significant to the fair value
measurement is unobservable. The valuation methodology for
derivative financial instruments is detailed below and for
contingent consideration is disclosed in note 19. A table
summarising the Group's liabilities measured at fair value is
included in note 22.
Derivative financial instruments
The Group enters into derivative
financial instruments with various counterparties. Commodity and
foreign currency derivative contracts are designated as at fair
value through profit and loss (FVTPL), and gains and losses on
these contracts are recognised in the income statement. Derivative
financial instruments held at 31 December 2023 solely comprised UKA
ETS swaps and at 31 December 2022 solely comprised gas swaps. These
were valued by counterparties, with the valuations reviewed
internally and corroborated with readily available market data of
forward pricing (level 2). Details of the Group's derivative
financial instruments held as at 31 December 2023 are provided in
note 22. The mark-to-market of the Group's open contracts as at 31
December 2023 was a liability of £4.4 million (2022: £24.9
million).
The following gains and losses
were recognised in the income statement:
Commodity contracts designated as
FVTPL
|
2023
|
2022
|
|
£000
|
£000
|
|
|
|
Mark-to-market unrealised gains on
gas swaps
|
24,592
|
20,877
|
Other unrealised losses
|
(4,195)
|
-
|
|
|
|
Unrealised hedging
income
|
20,397
|
20,877
|
|
|
|
Gas swaps matured during the
year
|
(12,118)
|
(45,384)
|
Other contracts matured during the
year
|
(3,517)
|
-
|
|
|
|
Realised hedging
expense
|
(15,635)
|
(45,384)
|
|
|
|
Unrealised hedging gains in 2023
comprise gains on gas swaps partially offset by unrealised losses
on the UKA ETS swap instruments held (2022: gains on gas swaps).
Unrealised hedging gains on gas and other swaps comprise unrealised
charges on the movement during the year in the calculated fair
value liability of outstanding gas price or other derivative
contracts measured at the respective Balance Sheet
dates.
Realised hedging losses measured
at fair value through profit or loss for 2023 comprise losses
realised on gas swaps and UKA ETS swaps. For 2022 losses were
solely realised on gas swaps.
Hedging security advances
Hedging security advances of £24.3
million at 31 December 2022 represented cash security lodged with
commodity hedging counterparties which reflected the gas prices at
the end of 2022. This was returned to Serica when forward gas
prices fell or when monthly contracts were settled.
Contract liabilities
|
2023
|
2022
|
|
£000
|
£000
|
|
|
|
Contract liabilities
|
28,829
|
-
|
Gas contract
liabilities
|
-
|
987
|
|
|
|
|
28,829
|
987
|
|
|
|
On acquisition of Tailwind Energy
Investments Ltd (see note 29) a pre-existing oil revenue contract
was fair valued, resulting in contract liabilities of £54.2 million
being recognised. The contract liabilities represent the
differential in contract pricing and market price and will be
realised as performance obligations are considered met in the
underlying revenue contract. To the extent the contract liability
represents the fair value differential between contract price and
market price, it will be unwound through 'contract revenue - other'
upon satisfaction of the performance obligation. £23.9 million has
been released to the Income Statement in 2023 and £1.5 million of
currency translation adjustment recognised through other
comprehensive income.
The Group's gas contract
liabilities which arose in 2021 upon the restructuring of certain
hedging arrangements were fully released to the income statement in
2023 when the relevant volumes were delivered at the fixed-price
forward sales prices.
17. Cash and cash equivalents
|
2023
|
2022
|
|
£000
|
£000
|
|
|
|
Cash at bank and in
hand
|
182,167
|
146,986
|
Short-term deposits
|
81,325
|
285,543
|
|
|
|
|
263,492
|
432,529
|
As at 31 December 2023, the cash
balance of £263.5 million (2022: £432.5 million) contained an
amount of £18.3 million held in a separate
bank account for the purpose of providing security against letters
of credit issued in respect of certain decommissioning liabilities
(2022: £18.1 million). The use of cash is restricted by virtue of
contractual restrictions with a 3rd party.
Decommissioning Security
Agreement ('DSA') cash advances
DSA cash advances of £27.5 million
at 31 December 2023 (31 December 2022: £nil) represented cash
security temporarily lodged in respect of decommissioning
obligations. These are not included in the cash and cash
equivalents balance of £263.5 million above but were released to
Serica in 2024 when security was provided under the new financing
facility.
Cash at bank earns interest at
floating rates based on daily bank deposit rates. Short-term
deposits are made for varying periods with original maturities of
between one day and three months at the date acquired. They are
considered to be readily convertible into cash and subject to an
insignificant risk of changes in value. The placing of deposits
depends on the immediate cash requirements of the Group and they
earn interest at the respective short to medium term deposit
rates.
The Group's exposure to credit
risk arises from potential default of a counterparty, with a
maximum exposure equal to the carrying amount. The Group seeks to
minimise counterparty credit risks by only depositing cash
surpluses with major banks of high quality credit standing
and spreading the placement of funds over
a range of institutions.
Financial institutions, and their
credit ratings, which held greater than 10% of the Group's cash and
short-term deposits at the balance sheet date were as
follows:
|
S&P/Moody's
|
2023
|
2022
|
|
credit
rating
|
£000
|
£000
|
|
|
|
|
Barclays Bank plc
|
A-1
|
29,125
|
104,586
|
Lloyds Bank plc
|
A-1
|
128,394
|
184,548
|
DNB Bank ASA
|
P-1
|
65,374
|
103,272
|
Investec Bank plc
|
P-1
|
40,544
|
40,071
|
18. Trade and Other Payables
|
2023
|
2022
|
|
£000
|
£000
|
|
|
|
Current:
|
|
|
Trade payables
|
17,049
|
15,832
|
Other payables
|
9,256
|
7,972
|
Accrued expenses
|
59,224
|
32,108
|
Liquids overlift
|
11,886
|
13,975
|
|
|
|
|
97,415
|
69,887
|
|
|
|
Trade payables are non-interest
bearing and are generally on 15 to 30 day terms.
Accrued expenses include accruals
for operating and capital expenditure in relation to the oil and
gas assets. The Directors consider the
carrying amount of trade and other payables approximates to their
fair value.
Lease liabilities in respect of
right of use assets are included within other payables.
19. Financial liabilities
|
BKR
|
Royalty
|
Other
|
|
|
consideration
|
liability
|
consideration
|
Total
|
|
£000
|
£000
|
£000
|
£000
|
|
|
|
|
|
At 31 December 2022
|
29,378
|
-
|
-
|
29,378
|
|
|
|
|
|
|
|
|
|
|
Acquisitions (note 29)
|
-
|
34,869
|
6,273
|
41,142
|
|
|
|
|
|
Change in fair value
liability
|
5,910
|
630
|
1,044
|
7,584
|
Payments and
settlements
|
|
-
|
(3,682)
|
(3,682)
|
Transfer to accruals
|
-
|
(4,649)
|
-
|
(4,649)
|
Currency translation
adjustment
|
-
|
(1,135)
|
-
|
(1,135)
|
|
|
|
|
|
At 31 December 2023
|
35,288
|
29,715
|
3,635
|
68,638
|
|
|
|
|
|
Classified as:
|
|
|
|
|
Current
|
-
|
-
|
3,635
|
3,635
|
Non-current
|
35,288
|
29,715
|
-
|
65,003
|
|
|
|
|
|
|
35,288
|
29,715
|
3,635
|
68,638
|
|
|
|
|
|
BKR
consideration
On 30 November 2018 Serica
completed the four BKR acquisitions. During 2022, the final
elements of contingent cash consideration arising from the net cash
flow sharing arrangements, and other contingent payments arising
from Rhum R3 well production and Rhum performance criteria, were
made. The following elements of consideration were outstanding at
31 December 2022 and 2023:
· BP,
Total E&P and BHP retain liability, in respect of the field
interests Serica acquired from each of them, for all the costs of
decommissioning those facilities that existed at the date of
completion. Serica will pay deferred consideration equal to 30% of
actual future decommissioning costs, reduced by the tax relief that
each of BP, Total E&P and BHP receives on such
costs.
· Serica will pay to each of BP, Total E&P and BHP,
deferred consideration equal to 90% of their respective shares of
the realised value of oil in the Bruce pipeline at the end of field
life.
Fair value measurement of
BKR contingent consideration
The fair value of the contingent
consideration is estimated as at applicable reporting dates from a
valuation technique using future expected discounted cash flows.
This methodology uses several significant unobservable inputs which
are categorised within Level 3 of the fair value
hierarchy.
The calculations are complex and
involve a range of projections and assumptions related to estimates
of future decommissioning expenditure, taxation, future operating
and development costs, production volumes, oil and gas sales prices
and discount rates. The underlying assumptions have been updated
from 2022. Estimated contingent consideration payments have been
calculated at a discount rate of 10% (2022: 10%).
Given the multiple input variables
and judgements used in the calculations, and the inter
relationships between changes in these variables, an estimate of a
reasonable range of possible outcomes of undiscounted value of the
contingent consideration has not been considered feasible. In
isolation, the calculations are most sensitive to assumed oil and
gas reserves, production profiles, estimated decommissioning costs
and future commodity prices.
A sensitivity analysis to the
discount rate used shows a decrease in the discount rate used from
10% to 9% would result in an increase in the fair value of the
contingent consideration by £3.9 million, and an increase from 10%
to 11% would result in a decrease in the fair value of the
contingent consideration by £3.4 million.
Royalty liability
Royalty represents amounts payable
under a pre-existing Tailwind sale and purchase agreement subject
to future production volumes and commodity prices over the life of
certain assets in the Triton Cluster.
The fair value of the royalty
liability is estimated as at applicable reporting dates from a
valuation technique using future expected discounted cash flows.
This methodology uses several significant unobservable inputs which
are categorised within Level 3 of the fair value hierarchy. The
calculations involve a range of assumptions related to oil prices,
production volumes and discount rates. Estimated payments have been
calculated at a discount rate of 8.5%.
Given the multiple input variables
and judgements used in the calculations, and the inter
relationships between changes in these variables, an estimate of a
reasonable range of possible outcomes of undiscounted value of the
contingent consideration has not been considered feasible. In
isolation, the calculations are most sensitive to assumed oil and
gas reserves, production profiles, estimated decommissioning costs
and future commodity prices.
A sensitivity analysis to the oil
price assumption used shows a decrease in the oil price assumed by
US$5/bbl would result in a decrease in the fair value of the
royalty liability by £5.9 million, and an increase by US$5/bbl
would result in an increase in the fair value of the royalty
liability by £5.9 million.
Other consideration
Other consideration reflects the
remaining deferred consideration payable under the Tailwind
acquisition. This was settled in March 2024 (see note
29).
20. Provisions
|
Decommissioning
|
Other
|
|
|
provision
|
provision
|
Total
|
|
£000
|
£000
|
£000
|
|
|
|
|
At 1 January 2022
|
28,095
|
-
|
28,095
|
|
|
|
|
Additions
|
-
|
-
|
-
|
Revisions during the year (note
13)
|
(2,231)
|
-
|
(2,231)
|
Unwinding of discount (note
8)
|
553
|
-
|
553
|
Payments
|
(1,218)
|
-
|
(1,218)
|
|
|
|
|
At 31 December 2022
|
25,199
|
-
|
25,199
|
|
|
|
|
Acquisitions (note 29)
|
75,499
|
400
|
75,899
|
Change in estimate (note
13)
|
16,012
|
-
|
16,012
|
Change in estimate expensed (note
5)
|
368
|
-
|
368
|
Unwinding of discount (note
8)
|
2,913
|
-
|
2,913
|
Payments
|
(896)
|
(65)
|
(961)
|
Currency translation
adjustment
|
(2,565)
|
(12)
|
(2,577)
|
|
|
|
|
At 31 December 2023
|
116,530
|
323
|
116,853
|
|
|
|
|
Classified as:
|
|
|
|
Current
|
12,871
|
64
|
12,935
|
Non-current
|
103,659
|
259
|
103,918
|
|
|
|
|
|
116,530
|
323
|
116,853
|
|
|
|
|
Decommissioning provision
The decommissioning provision
represents the present value of decommissioning costs relating to
oil and gas interests in the UK which are expected to be incurred
up to 2036.
Bruce, Keith and Rhum fields
The Group makes full provision for
the future costs of decommissioning its production facilities and
pipelines on a discounted basis. With respect to the Bruce, Keith
and Rhum fields, the decommissioning provision is based on the
Group's contractual obligations of 3.75%, 8.33334% and 0%
respectively of the decommissioning liabilities rather than the
Group's equity interests acquired. The Group's provision represents
the present value of decommissioning costs which are expected to be
incurred prior to 2040 and assumes no further development of the
Group's assets. The liability is discounted at a rate of 3.75%
(2022: 3.25%) and the unwinding of the discount is classified as a
finance cost (see note 8).
Triton area
The Triton area decommissioning
provision is based on Serica group's obligations which are in
excess of certain agreed decommissioning liability caps with the
previous owners of Tailwind's equity interests in Triton. The
Group's provision represents the present value of decommissioning
costs which are expected to be incurred up to 2036 and assumes no
further development of the Group's assets. These provisions have
been created based on the Group's internal estimates and, where
available, operator estimates and third-party reports. These
estimates are reviewed regularly to take into account any material
changes to the assumptions. The liability is discounted at a rate
of 3.75% and the unwinding of the discount is classified as a
finance cost (see note 8).
Orlando, Arthur and Columbus fields
The Group makes full provision for
the decommissioning liabilities for these fields on its respective
equity interests. The Group's provision
represents the present value of decommissioning costs which are
expected to be incurred between 2024 and up to 2030 and assumes no
further development of the Group's assets. The liability is
discounted at a rate of 3.75% (2022: 3.25%) and the unwinding of
the discount is classified as a finance cost (see note
8).
Erskine field
No provision for decommissioning
liabilities for the Erskine field is recorded as at 31 December
2022 or 2023 as the Group's current estimate for such costs is
under the agreed capped level to be funded by BP.
This has been fixed at a gross £174.0 million
(£31.32 million net to Serica) with this figure adjusted for
inflation.
Other
The estimation of costs, inflation
and discount rates are considered to be judgemental and actual
decommissioning costs will ultimately depend upon future market
prices for the necessary decommissioning works required, which will
reflect market conditions at the relevant time. Furthermore, the
timing of decommissioning is likely to depend on when the fields
cease to produce at economically viable rates. This in turn will
depend upon future oil and gas prices, which are inherently
uncertain.
If the
cost estimates were increased by 10% and the spread between
inflation and discount rate reduced to 0%, the value of the
provisions could increase by c.£31.5 million (2022: c. £4.2
million).
The Group considers the impact of
climate change and Net Zero targets, including action that may
impose further requirements and costs on companies in the future,
on decommissioning provisions, specifically the timing of future
cash flows, and has concluded that it does not currently represent
a key source of estimation uncertainty. As
all of the Group's currently producing assets are projected to
cease production by 2036 it is believed that any such future
changes would have limited impact compared to assets with longer
durations.
21. Interest bearing loans and borrowings
The Group's loan is carried at
amortised cost as follows:
|
|
|
|
|
2023
|
2022
|
|
|
£'000
|
£'000
|
|
|
|
|
Reserve based lending - at
beginning of year
|
|
-
|
-
|
|
|
|
|
Acquisitions (note 29)
|
|
264,835
|
-
|
Repayments of
borrowings
|
|
(81,406)
|
-
|
Proceeds from
borrowings
|
|
34,478
|
-
|
Expense of loan commitment
fees
|
|
3,331
|
-
|
Currency translation
adjustment
|
|
(8,203)
|
-
|
Reserve based lending - at end of
year
|
|
213,035
|
-
|
Loan commitment fees
|
|
-
|
-
|
Reserve based lending - at end of
year
|
|
213,035
|
-
|
|
|
|
|
Due within one year
|
|
-
|
-
|
Due after more than one
year
|
|
213,035
|
-
|
|
|
213,035
|
-
|
Reserve Based Lending facility
arrangements existing at 31 December 2023
Following completion of the
acquisition of Tailwind Energy Investments Ltd on 23 March 2023,
the Serica Group assumed the reserve-based lending and junior
facility arrangements linked to the legacy Tailwind sub-group.
This had a reserve-based lending facility
(RBL) of US$425 million from a syndicate of banks, secured over the
Tailwind sub-group's oil and gas assets. The facility had a
maturity date of 30 June 2027 and at the last RBL redetermination
in June 2023, the facility available for drawdown was amended to
US$377 million. Interest accrued at LIBOR/SOFR plus a margin of
between 2.5% to 3.1% depending on the maturity of the facility,
with the primary exposure after 30 June 2023 being 1 month term
SOFR.
At the acquisition date of 23
March, US$330 million under the facility was drawn. During 2023,
US$58.8 million of repayments were made and the facility was
US$271.2 million drawn (£213.0 million) at 31 December 2023. All
previously unamortised facility fee costs were expensed in 2023
following the announcement of the Group's new RBL facility noted
below and the balance of the loan in the 31 December 2023 Balance
Sheet therefore solely represents drawings of £213.0
million.
On 24 September 2019, the Tailwind
sub-group also entered in a Junior Facility agreement with Mercuria
Energy Trading S.A. for a facility of US$50.0 million available on
demand and with a maturity of 24 September 2026. This was a
committed facility but there were no drawdowns on this facility as
at the completion date of 23 March 2023 or any date thereafter
until its cessation in January 2024 upon the signing of the new
RBL.
New Reserve Based Lending facility
arrangements effective January 2024
In December 2023 Serica announced
the signing of a new US$525 million secured RBL facility. Following
the satisfaction of conditions precedent, this completed in January
2024 and refinanced the Group's previous financing
arrangements.
The new RBL facility is a
revolving credit facility available in multiple currencies, it
provides significantly increased liquidity to support future
acquisitions and investments and has established new relationships
with a syndicate of leading international banks. The new RBL has a
maturity date of 31 December 2029 with amortisation commencing on
31 December 2026. The interest rate for loan drawings is SOFR plus
a margin of 3.90% per annum and the Borrowing Base Assets comprise
all of Serica's interests in producing fields except Serica's
largest single producing field the Rhum field, and the available
amount under the facility is subject to semi-annual
redeterminations. The new facility also includes a separate US$100
million sub limit which can be utilised to issue Letters of Credit
without the need for cash security.
The facility agreement also has an
uncommitted accordion feature which provides an option for an
additional financing of up to US$525 million, amounting to
facilities of up to US$1,050 million. The accordion facility can be
exercised within thirty-six months of the facility signing date,
subject to certain conditions.
22. Financial Instruments
The Group's financial instruments
comprise cash and cash equivalents, bank loans and borrowings,
accounts payable and accounts receivable, derivative financial
instruments and contingent consideration. It is management's
opinion that the Group is not exposed to significant interest,
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 given the level of
expenditure plans over 2024/25 this is managed in the short-term
through selecting treasury deposit periods of one to three months.
Cash and treasury credit risks are mitigated through spreading the
placement of funds over a range of institutions each carrying
acceptable published credit ratings to minimise concentration and
counterparty risk.
Serica sells oil, gas and related
products only to recognised international oil and gas companies and
has no previous history of default or non-payment of trade
receivables. 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 non-£ cash
holdings and other financial instruments relating to its
operations. The £ 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 most of any
actual potential currency risk from financial
instruments.
It is management's opinion that
the fair value of its financial instruments approximate to their
carrying values, unless otherwise noted.
Interest Rate Risk Profile of
Financial Assets and Liabilities
|
The interest rate profile of the
financial assets and liabilities of the Group as at 31 December is
as follows:
|
Group
|
Year ended 31 December 2023
|
|
|
|
|
Within 1
year
|
1-2 years
|
2-5 years
|
Total
|
Fixed rate
|
£000
|
£000
|
£000
|
£000
|
Short-term deposits
|
81,325
|
-
|
-
|
81,325
|
|
|
|
|
81,325
|
|
|
|
|
|
|
Within 1
year
|
1-2 years
|
2-5 years
|
Total
|
Floating rate
|
£000
|
£000
|
£000
|
£000
|
Cash
|
182,167
|
-
|
-
|
182,167
|
Loans and borrowings
|
-
|
-
|
(213,035)
|
(213,035)
|
|
|
|
|
(30,868)
|
|
|
|
|
|
Year ended 31 December 2022
|
|
|
|
|
|
Within 1
year
|
1-2 years
|
2-5 years
|
Total
|
Fixed rate
|
£000
|
£000
|
£000
|
£000
|
Short-term deposits
|
285,543
|
-
|
-
|
285,543
|
|
|
|
|
285,543
|
|
|
|
|
|
|
|
|
|
|
|
Within 1
year
|
1-2 years
|
2-5 years
|
Total
|
Floating rate
|
£000
|
£000
|
£000
|
£000
|
Cash
|
146,986
|
-
|
-
|
146,986
|
|
|
|
|
146,986
|
The following table demonstrates
the sensitivity of finance revenue and finance costs to a
reasonably possible change in interest rates, with all other
variables held constant, of the Group's profit before tax (through
the impact on fixed rate short-term deposits and applicable bank
loans).
Increase/decrease in interest
rate
|
Effect on
profit
|
Effect
on profit
|
|
before tax
|
before
tax
|
|
2023
|
2022
|
|
£000
|
£000
|
|
|
|
+0.75%
|
1,008
|
1,618
|
-0.75%
|
(1,008)
|
(1,618)
|
The other financial instruments of
the Group that are not included in the above tables are
non-interest bearing and are therefore not subject to interest rate
risk.
Credit risk
The Group's exposure to credit
risk relating to financial assets arises from the default of a
counterparty with a maximum exposure equal to the carrying value as
at the balance sheet date. Cash and
treasury 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.
In addition, there are credit
risks of commercial counterparties including exposures in respect
of outstanding receivables. The Group's
oil and gas sales are all contracted with well-established oil and
gas or energy companies. Also, where
Serica operates joint ventures on behalf of partners it seeks to
recover the appropriate share of costs from the third-party
counterparties. 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. Receivable balances are monitored on an ongoing
basis with appropriate follow-up action taken where
necessary.
Foreign currency risk
The Group enters into transactions
denominated in currencies other than its GBP£ reporting currency.
Non-GBP denominated balances, subject to exchange rate
fluctuations, at year-end were as follows:
|
Group
|
|
|
2023
|
2022
|
|
£000
|
£000
|
|
|
|
US Dollar
|
115,427
|
44,535
|
Norwegian kroner
|
5
|
6
|
Euros
|
117
|
106
|
|
|
|
Accounts receivable:
|
|
US Dollar
|
56,252
|
8,410
|
|
|
|
Interest bearing loans:
|
|
|
US Dollar
|
213,035
|
-
|
|
|
|
Trade and other
payables:
|
|
|
US Dollar
|
9,492
|
6,829
|
The following table demonstrates
the Group's sensitivity to a 10% increase or decrease in the US
Dollar against the Pound sterling. The sensitivity analysis
includes only foreign currency denominated monetary items and
adjusts their translation at the year-end for a 10% change in the
foreign currency rate.
|
Effect on
profit
|
Effect
on profit
|
|
before tax
|
before
tax
|
Increase/decrease in foreign
exchange rate
|
2023
|
2022
|
|
£000
|
£000
|
|
|
|
10% strengthening of £ against
US$
|
5,085
|
(4,612)
|
10% weakening of £ against
US$
|
(5,085)
|
4,612
|
Liquidity risk
The table below summarises the
maturity profile of the Group and Company's financial liabilities
at 31 December 2023 based on contractual undiscounted payments. The
Group monitors its risk to a potential shortage of funds by
monitoring the maturity dates of existing debt.
Year ended 31 December 2023
|
Within 1
year
|
1 to 2
years
|
2 to 5
years
|
>5
years
|
Total
|
|
£000
|
£000
|
£000
|
£000
|
£000
|
|
|
|
|
|
|
Trade and other
payables
|
97,415
|
-
|
-
|
-
|
97,415
|
Loans and borrowings
|
-
|
-
|
213,035
|
-
|
213,035
|
Derivative financial
liabilities
|
4,371
|
-
|
-
|
-
|
4,371
|
Royalty liability
|
5,425
|
6,910
|
14,436
|
16,362
|
43,133
|
|
|
|
|
|
|
Year ended 31 December 2022
|
Within 1
year
|
1 to 2
years
|
2 to 5
years
|
>5
years
|
Total
|
|
£000
|
£000
|
£000
|
£000
|
£000
|
|
|
|
|
|
|
Trade and other
payables
|
69,887
|
-
|
-
|
-
|
69,887
|
Derivative financial
liabilities
|
24,914
|
-
|
-
|
-
|
24,914
|
|
|
|
|
|
|
Amounts payable as BKR contingent
consideration are explained in detail in note 19.
Commodity price risk
The Group is exposed to commodity
price risk. Where and when appropriate the Group will put in place
suitable hedging arrangements to mitigate the risk of a fall in
commodity prices. All gas production is currently sold at prices
linked to the spot market and the significant majority NGL
production is sold at prices linked to the spot market. Oil
production for 2024 will be sold at a mix of fixed and spot market
linked pricing.
At 31 December 2023 Serica held
fixed pricing under oil sales agreements (equivalent to oil price
swaps) for approximately 2.5 million barrels at an average price of
US$67.4 per barrel for the 2024 period.
Serica held no gas price swaps or
equivalent fixed gas price mechanisms at 31 December
2023.
Serica also held fixed price swaps
for UKA ETS products consisting of 132,000 MT at £79.24/MT for
2024.
Fair values of financial assets
and liabilities
Management assessed that the fair
values of cash and short-term deposits, trade receivables, trade
payables and other current liabilities approximate their carrying
amounts largely due to the short-term maturities of these
instruments. As such the fair value hierarchy is not
provided.
The table below details the
Group's fair value measurement hierarchy for liabilities as at 31
December:
|
|
Fair value measurement
using
|
|
|
Quoted
|
|
|
|
|
prices
in
|
Significant
|
Significant
|
|
|
active
|
observable
|
unobservable
|
|
|
markets
|
inputs
|
inputs
|
|
|
Level 1
|
Level 2
|
Level 3
|
Liabilities measured at fair value
|
Note
|
£'000
|
£'000
|
£'000
|
Year ended 31 December 2023
|
|
|
|
|
Derivative financial
liabilities
|
16
|
-
|
4,371
|
-
|
Contingent consideration
liability
|
19
|
-
|
-
|
35,288
|
Royalty liability
|
19
|
-
|
-
|
29,715
|
|
|
|
|
|
Year ended 31 December 2022
|
|
|
|
|
Derivative financial
liabilities
|
16
|
-
|
24,914
|
-
|
Contingent consideration
liability
|
19
|
-
|
-
|
29,378
|
|
|
|
|
|
There were no transfers between
Level 1 and Level 2 during 2022 or 2023.
Capital management
The primary objective of the
Group's capital management is to maintain appropriate levels of
funding to meet the commitments of its forward programme of
exploration, production and development expenditure, and to
safeguard the entity's ability to continue as a going concern and
create shareholder value. At 31 December 2023, capital employed of
the Group amounted to £867.2 million (comprised of £654.2 million
of equity shareholders' funds and £213.0 million of borrowings),
compared to £408.7 million at 31 December 2022 (comprised of £408.7
million of equity shareholders' funds and £nil of
borrowings).
The acquisition of Tailwind Energy
Investments Ltd on 23 March 2023 to further the Group's business
objectives, has brought some debt into the capital structure of the
Group. This consists of the borrowings disclosed in note 29. The
Board regularly reassesses the appropriate dividend payments
proposed within the capital structure of the Group. Any future
payment of dividends is expected to depend on the earnings and
financial condition of the Company and such other factors as the
Board considers appropriate.
23. Equity Share Capital
As at 31 December 2023, the share
capital of the Company comprised one "A" share of GB£50,000 and
391,321,053 ordinary shares of US$0.10 each. The "A" share has no
special rights.
The balance classified as total
share capital includes the total net proceeds (both nominal value
and share premium) on issue of the Group's
equity share capital, comprising US$0.10 ordinary shares and one
'A' share.
Allotted, issued and
|
|
Share
|
Share
|
Total
Share
|
Merger
|
fully paid:
|
Number
|
capital
|
premium
|
capital
|
reserve
|
Group
|
'000
|
£000
|
£000
|
£000
|
£000
|
|
|
|
|
|
£000
|
|
|
|
|
|
|
As at 1 January 2022
|
268,891
|
21,186
|
160,807
|
181,993
|
-
|
|
|
|
|
|
|
Shares issued
|
4,062
|
328
|
856
|
1,184
|
-
|
|
|
|
|
|
|
As at 1 January 2023
|
272,953
|
21,514
|
161,663
|
183,177
|
-
|
|
|
|
|
|
|
Shares issued
|
118,368
|
9,439
|
305
|
9,744
|
230,350
|
|
|
|
|
|
|
As at 31 December 2023
|
391,321
|
30,953
|
161,968
|
192,291
|
230,350
|
|
|
|
|
|
|
|
|
|
|
|
|
During
2023, 8,758,407 ordinary shares were
issued to satisfy awards under the Company's share-based incentive
schemes. In connection with the acquisition of Tailwind Energy
Investments Ltd in March 2023, 108,170,426 ordinary shares were
issued at completion of the transaction on 23 March and a further
1,438,849 ordinary shares were issued in September 2023 (see note
29).
2,147,354 ordinary shares have
been issued in 2024 to date and as at 19 April 2024 the issued
voting share capital of the Company was
393,468,407 ordinary shares and one "A"
share.
Group merger reserve
Merger relief was applied by the
group's parent entity Serica Energy plc upon the respective issues
of 108,170,426 ordinary shares in March 2023 and 1,438,849 ordinary
shares in September 2023, for the acquisition of Tailwind Energy
Investments Ltd. The valuation of the shares issued was based on
the fair value at the date of issue, with the nominal value of the
shares issued credited to share capital and the excess value of
£230.3 million above nominal share capital credited to a merger
reserve in the consolidated Group accounts.
24. Additional Cash Flow Information
Net cash flows from operating activities consist
of:
|
|
|
|
|
|
For the year ended 31 December
2023
|
|
|
|
2023
|
2022
|
|
£000
|
£000
|
Operating activities:
|
Note
|
|
|
Profit for the year
|
|
102,984
|
177,796
|
Adjustments to reconcile profit
for the year
|
|
|
|
to net cash flow from operating
activities:
|
|
|
|
Taxation charge
|
|
202,639
|
310,382
|
Change in fair value
liabilities
|
|
7,584
|
(8,407)
|
Change in provisions
|
|
368
|
-
|
Gain on acquisition
|
|
(34,048)
|
-
|
Net finance
costs/(income)
|
|
7,949
|
(3,870)
|
Depletion and
depreciation
|
|
109,371
|
76,887
|
Oil and NGL
over/underlift
|
|
(9,256)
|
20,270
|
E&E asset
write-offs
|
|
8,741
|
82,749
|
Unrealised hedging
gains
|
|
(20,397)
|
(20,877)
|
Movement in gas contract
revenue
|
|
(987)
|
(37,505)
|
Contract revenue -
other
|
|
(23,904)
|
-
|
Share-based payments
|
|
3,975
|
3,510
|
Other non-cash
movements
|
|
3,104
|
(1,503)
|
Decrease in hedging security
advances
|
|
24,320
|
91,070
|
Increase in DSA cash
advances
|
|
(27,537)
|
-
|
Decrease/(increase) in trade and
other
|
|
69,895
|
(8,571)
|
receivables
|
|
|
|
(Increase)/decrease in
inventories
|
|
(983)
|
55
|
(Decrease)/increase in trade and
other payables
|
|
(45,449)
|
22,872
|
Cash inflow from operations
|
|
378,369
|
704,858
|
|
|
|
|
Taxation paid
|
|
(279,463)
|
(143,500)
|
Decommissioning spend
|
|
(896)
|
(1,218)
|
|
|
|
|
Net cash inflow from operating activities
|
|
98,010
|
560,140
|
|
|
|
|
Reconciliation of movement in net cash flow to movement
in
|
|
|
net cash/(borrowings)
|
|
|
|
|
2023
|
2022
|
|
|
£000
|
£000
|
|
|
|
|
Loans assumed upon acquisition
(note 29)
|
|
(264,835)
|
-
|
Repayment of borrowings
|
|
81,406
|
-
|
Proceeds from
borrowings
|
|
(34,478)
|
|
Amortisation of fees
|
|
(3,331)
|
-
|
Currency translation
adjustments
|
|
8,203
|
-
|
|
|
|
|
Movement in total
borrowings
|
|
(213,035)
|
-
|
Movement in cash and cash
equivalents
|
|
(169,037)
|
329,545
|
(Decrease)/increase in net cash in the year
|
|
(382,072)
|
329,545
|
|
|
|
|
Opening net cash
|
|
432,529
|
102,984
|
|
|
|
|
Closing net cash
|
|
50,457
|
432,529
|
|
|
|
|
|
|
|
Analysis of Group net cash
|
|
|
|
2023
|
2022
|
|
£000
|
£000
|
|
|
|
|
Cash
|
|
182,167
|
146,986
|
Short-term deposits
|
|
81,325
|
285,543
|
Loans
|
|
(213,035)
|
-
|
|
|
|
|
Closing net cash
|
|
50,457
|
432,529
|
|
|
|
|
Changes in lease liabilities arising from financing
activities
|
2023
|
2022
|
|
£000
|
£000
|
|
|
|
Lease liability at beginning of
the year
|
213
|
343
|
|
|
|
Acquisition during the
year
|
2,180
|
-
|
Lease payments
|
(628)
|
(132)
|
Lease interest expense
|
151
|
-
|
Currency translation
adjustment
|
(62)
|
-
|
|
|
|
Lease liability at end of the
year
|
1,854
|
213
|
|
|
|
25. Share-Based Payments
Share Option Plans
The Company operates three
discretionary incentive share option plans: the Serica Energy Plc
Long Term Incentive Plan (the "LTIP"), which was adopted by the
Board on 20 November 2017 which permits the grant of share-based
awards, the 2017 Serica Energy plc Company Share Option Plan ("2017
CSOP"), which was adopted by the Board on 20 November 2017, and the
Serica 2005 Option Plan, which was adopted by the Board on 14
November 2005. Awards can no longer be
made under the Serica 2005 Option Plan. However, options remain
outstanding under the Serica 2005 Option Plan. The LTIP and the 2017 CSOP together are known as the
"Discretionary Plans".
The Discretionary Plans will
govern all future grants of options by the Company to Directors,
officers, key employees and certain consultants of the Group. The
Directors intend that the maximum number of ordinary shares which
may be utilised pursuant to the Discretionary Plans will not exceed
10% of the issued ordinary shares of the Company from time to time
in line with the recommendations of the Association of British
Insurers.
The objective of these plans is to
develop the interest of Directors, officers, key employees and
certain consultants of the Group in the growth and development of
the Group by providing them with the opportunity to acquire an
interest in the Company and to assist the Company in retaining and
attracting executives with experience and ability.
Serica 2005 Option Plan
As at 31 December 2023, 800,000
options granted by the Company under the Serica 2005 Option Plan
were outstanding. All options awarded under the Serica 2005 Option
Plan since November 2009 have a three-year vesting period.
No options were granted in 2022 or 2023 under the
Serica 2005 Option Plan.
The following table illustrates
the number and weighted average exercise prices (WAEP) of, and
movements in, share options during the year:
Serica 2005 option plan
|
2023
Number
|
2023
WAEP
|
2022
Number
|
2022
WAEP
|
|
|
£
|
|
£
|
Outstanding as at 1
January
|
3,900,000
|
0.14
|
4,100,000
|
0.14
|
Exercised during the
year
|
(3,100,000)
|
0.16
|
(200,000)
|
0.27
|
|
|
|
|
|
Outstanding as at 31
December
|
800,000
|
0.07
|
3,900,000
|
0.14
|
|
|
|
|
|
Exercisable as at 31
December
|
800,000
|
0.07
|
3,900,000
|
0.14
|
The weighted average remaining
contractual life of options outstanding as at 31 December 2023 is
1.5 years (2022: 2.4 years). The weighted average share price
during 2023 across the period that options were exercised in was
£2.36 (2022: £3.28).
For the Serica 2005 option plan,
the exercise price for all outstanding options at the 2023 year-end
is £0.07 (2022: £0.07 to £0.24).
Long Term Incentive Plan
The following awards granted to
certain Directors and employees under the LTIP are outstanding as
at 31 December 2023.
Deferred Bonus Share
Awards
Deferred Bonus Share Awards
involve the deferral of bonuses into awards over shares in the
Company. They are structured as nil-cost options and may be
exercised up until the fifth anniversary of the date of grant. The
726,000 Deferred Bonus Share Awards outstanding and fully vested at
31 December 2022 were all exercised prior to their expiry date in
May 2023. There are no Deferred Bonus Share Awards outstanding at
31 December 2023.
Performance Share
Awards
Performance Share Awards have a
three-year vesting period and are subject to performance conditions
based on average share price growth targets to be measured by
reference to dealing days in the period of 90 days ending
immediately prior to expiry of a three-year performance starting on
the date of grant of a Performance Share Award. Performance Share
Awards are structured as nil-cost options and may be exercised up
until the tenth anniversary of the date of grant.
Performance and Retention Share
Awards
|
|
2023
Number
|
2022
Number
|
|
|
|
|
Outstanding as at 1
January
|
|
13,326,567
|
14,448,764
|
Granted during the year
|
|
1,075,668
|
665,632
|
Expired or cancelled during the
year
|
|
(267,827)
|
-
|
Exercised during the
year
|
|
(4,217,078)
|
(1,787,829)
|
|
|
|
|
Outstanding as at 31
December
|
|
9,917,330
|
13,326,567
|
|
|
|
|
Exercisable as at 31
December
|
|
5,718,825
|
7,264,623
|
The weighted average remaining
contractual life of options outstanding as at 31 December 2023 is
5.6 years (2022: 7.0 years). The weighted average share price
during 2023 across the period that options were exercised in was
£2.36 (2022: £3.23).
LTIP awards in
2022
In May 2022, the Company granted
nil-cost Performance Share Awards over 665,632 ordinary shares
under the LTIP. All of the total awards were outstanding at 31
December 2022. The award was made to members of the Group's
executive team, senior management and employees.
The vesting criteria are based on
absolute share price performance over a three-year period and
specific performance targets related to carbon emissions from
operations over the same period. For the awards to vest in full, a
100% increase in average share price must be maintained for at
least a six-month period together with a significant decrease in
carbon emissions per barrel of oil equivalent produced. These
awards are not exercisable at 31 December 2023.
LTIP awards in
2023
In May 2023, the Company granted
nil-cost Performance Share Awards over 1,075,668 ordinary shares
under the LTIP. The award was made to members of the Group's
executive team and senior management.
The vesting criteria are based on
absolute share price performance over a three-year period and
specific performance targets related to carbon emissions from
operations over the same period. For the awards to vest in full,
the highest average share price must be at least equal to 500p
during the 180 day period terminating on the end of the performance
period together with a significant decrease in carbon emissions per
barrel of oil equivalent produced. All of the total awards were
outstanding and are not exercisable at 31 December 2023.
Share-based compensation
The Company calculates the value of
share-based compensation using a Black-Scholes option pricing model
(or other appropriate model for those options subject to certain
market conditions) to estimate the fair value of share options at
the date of grant. There are no cash settlement alternatives. The
options granted in 2022 and 2023 were consistently valued in line
with the Company's valuation policy. For the options subject to
market conditions, assumptions made included a weighted average
risk-free interest rate of 2%, a weighted average expected life of
5 years, and a volatility factor of expected market price of in a
range from 55-70%. The expected volatility reflects the assumption
that the historical volatility is indicative of future trends,
which may not necessarily be the actual outcome. The weighted fair
value of options granted during the year was £1.69 (2022: £1.95).
The estimated fair value of options is amortised to expense over
the options' vesting period.
£3,975,000 has been charged to the
income statement for the year ended 31 December 2023 (2022:
£3,510,000) and a similar amount credited to the share-based
payments reserve, classified as 'Other reserve' in the Balance
Sheet. The 'Other reserve' was comprised solely of the share-based
payment reserve which totaled £29,551,000 as at 31 December 2023
(2022: £25,576,000). A charge of £2,341,000 (2022:
2,036,000) of the total charge was in respect of
key management personnel (defined in note 7).
26. Leases
A right of use asset for oil and
gas operations (note 13) and its related finance lease were
acquired as part of the Tailwind acquisition (note 29). This lease
is secured by the assets leased and bears interest at a fixed rate
with repayments due over a 5-year period. The total lease liability
amounts to £1,768,000 of which £653,000 is due for settlement
within 12 months and £1,115,000 due after 12 months. These are
classified within trade and other payables. A depreciation charge
of £622,000 (2022: £nil) was expensed within cost of
sales.
In March 2019 the Group entered
into a three-year lease at its new registered office, 48 George
Street, following the expiry of its previous London office lease at
52 George Street. The Group confirmed a two-year option extension
in March 2022 and the office lease now expires in Q2 2024. A
depreciation charge of £173,000 (2022: £172,000) was expensed
within administrative expenses.
£628,000 (2022: £132,000) of cash
payments made against the lease liabilities during 2023 are
reflected in the 2023 Group cash flow statement as a cash outflow
in financing activities.
27. Capital Commitments and
Contingencies
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. The
Company is not obliged to meet other joint venture partner shares
of these programmes.
Serica's planned 2024 investment
programme includes a Light Well Intervention Vessel campaign on the
Bruce and Keith fields and a four-well drilling campaign in the
Triton Area (Bittern B1z, Gannet GE-05, Evelyn Phase 2 (EV02) and a
Guillemot NW infill well). Potential
further programmes to enhance current production profiles and
extend field life are under consideration but will be reviewed
carefully in the light of the uncertainty related to the UKCS
fiscal regime.
At 31 December 2023, the Group had
commitments for future capital expenditure relating to its oil and
gas properties amounting to £214 million which relate primarily to
the Triton Area four well programme, the Bruce and Keith LWIVs,
other capital works on Erskine, Arthur decommissioning and general
exploration.
The Group's only significant
exploration commitment is the drilling of a commitment well on
Licence P2400 (Skerryvore - Serica 20%) to be drilled before
October 2025.
Serica has posted cash collateral
of approximately £18.3 million under BKR decommissioning security
arrangements, related to the interests acquired from Marubeni in
support to the issue of letters of credit required. This secured
amount is within the Group's cash balances of £263.5 million as at
31 December 2023. The funds are freely transferable but alternative
collateral would need to be put in place to replace the cash
security.
Other
The Group occasionally has to
provide security for a proportion of its future obligations to
defined work programmes or other commitments.
28. Related Party Transactions and Transactions with
Directors
The Group financial statements
include the financial statements of Serica Energy plc and its
subsidiaries listed in note 30. Balances and transactions between
the Company and its subsidiary, which are related parties, have
been eliminated on consolidation and are not disclosed in this
note. The related party balances have no fixed repayment terms and
bore no interest.
The Group's main related parties
comprise the Directors and Mercuria Group entities, the latter
being related parties due to the significant shareholding of a
Mercuria Group subsidiary, Mercuria Holdings (UK) Limited, in
Serica Energy plc. Balances and transactions with Mercuria Energy
Trading S.A., a subsidiary of the Mercuria Group are disclosed
below.
Balances with related party at
year end
|
|
|
31 December
2023
|
|
|
|
£000
|
Mercuria Energy Trading
S.A.
|
|
|
|
Accrued receivables
|
|
|
20,526
|
Other financial
liabilities
|
|
|
(4,371)
|
Trade payables
|
|
|
(1,426)
|
Accruals
|
|
|
(988)
|
On 24 September 2019, the Tailwind
sub-group entered in a Junior Facility agreement with Mercuria
Energy Trading S.A. for a facility of US$50.0 million with a
maturity of 24 September 2026. There were no drawdowns on this
facility as at 31 December 2023. This facility was terminated in
January 2024 following the refinancing of the Group's reserve-based
lending facility (note 21).
Transactions in income statement
with Mercuria Energy Trading S.A.
|
|
|
Year ended 31 December
2023
|
|
|
|
£000
|
|
|
|
|
Revenue
|
|
|
162,574
|
Cost of sales
|
|
|
(7,576)
|
Loss on commodity derivative
contracts
|
|
|
(6,872)
|
Gain on currency derivative
contracts
|
|
|
741
|
Loan commitment fee
accrued
|
|
|
224
|
|
|
|
|
The above transactions were
conducted under contracts already in place when Serica acquired
Tailwind Energy Investments Ltd on 23 March 2023, principally the
Offtake and Marketing Agreement covering oil offtake from Serica's
share in the Triton area and part of Serica's share in Columbus.
These contracts were set on prevailing market terms.
There are no related party
transactions, or transactions with Directors that require
disclosure except for the remuneration items disclosed in the
Directors Report and note 7 above. These disclosures include the
compensation of key management personnel.
A resolution passed at the Annual
General Meeting held on 29 June 2023 to remove any right that the
Company may have had to claim from shareholders or Directors or
former Directors for repayment of certain dividend amounts by
entering into deeds of release in relation to any such claims
constituted a related party transaction under IAS 24 and further
detail is provided in note 11.
29. Acquisition of Tailwind Energy Investments
Ltd
On 23 March 2023, the Company
acquired 100% of the shares of Tailwind Energy Investments Ltd for
an initial purchase consideration of £297.4 million. This comprised
cash of £61.6 million and the fair value of 108,170,426 ordinary
shares in Serica Energy plc issued in exchange for all Tailwind
shares. The fair value of the shares issued was calculated using
the market price of the Company's shares of £2.18 on the AIM Market
of the London Stock Exchange at its opening of business on 23 March
2023.
A further 2,877,698 ordinary
shares were issued to the sellers in two equal tranches of
1,438,849 ordinary shares in September 2023 and March 2024
respectively. These form part of the aggregate 111,048,124 ordinary
shares issued as part of the purchase consideration and were issued
after periods of no successful warranty claims.
Tailwind's activities comprise
development and production oil & gas assets in the UK North Sea
held in interests in joint operations. The
acquisition of Tailwind was aimed at achieving Serica's
longstanding objective to have a more diverse and broadly based
UKCS portfolio of producing fields, with material reserves and
value upside potential. The transaction represents substantial
progress towards this objective with the number of producing fields
increased from five to eleven, mainly
centred around two hubs (Bruce and Triton), a substantial increase
in 2P and 2C reserves and a balance of gas and oil
production.
As the activity constitutes a
business as defined in IFRS 3 Business Combinations, the
acquisitions have been accounted for as a business combination. The
consolidated financial statements include the fair values of the
identifiable assets and liabilities as at the date of acquisition
23 March 2023, and the results of the combined transaction assets
for the nine-month period from the acquisition date. In accordance
with IFRS 3 Business Combinations, the fair values of the assets
and liabilities in the acquisition table below are now final. The
fair value of property, plant and equipment was determined using
modelled future cash flows on a post-tax basis. A deferred tax
liability was also then separately recognised and included in the
net deferred tax asset on acquisition as part of the identifiable
net assets.
Assets acquired and liabilities assumed at date of
acquisition
|
Fair
value
|
|
|
|
recognised on
|
|
|
|
acquisition
|
|
|
|
£000
|
Assets
|
|
|
|
Property, plant and equipment
(note 13)
|
|
|
486,331
|
Exploration and evaluation
assets
|
|
|
-
|
Net deferred tax asset (note
9)
|
|
|
264,914
|
Debtors and other
assets
|
|
|
68,226
|
Inventory
|
|
|
6,112
|
Cash and cash
equivalents
|
|
|
17,600
|
|
|
|
843,183
|
Liabilities
|
|
|
|
Trade and other
payables
|
|
|
(71,798)
|
Contract liabilities (note
16)
|
|
|
(54,174)
|
Financial liabilities
|
|
|
(3,839)
|
Royalty liabilities (note
19)
|
|
|
(34,869)
|
Provisions (note 20)
|
|
|
(75,899)
|
Interest bearing loans (note
21)
|
|
|
(264,835)
|
|
|
|
(505,414)
|
|
|
|
|
Total identifiable net assets at fair value
|
|
|
337,769
|
|
|
|
|
Cash consideration
|
|
|
61,636
|
Initial consideration shares
issued
|
|
|
235,812
|
Deferred consideration
shares
|
|
|
6,273
|
Purchase consideration
|
|
|
303,721
|
|
|
|
|
Gain arising on acquisition
|
|
|
34,048
|
|
|
|
|
Fair value of consideration
The combined purchase
consideration of the transaction was £303.7 million, which
comprised cash of £61.6 million, the fair value of 108,170,426
ordinary shares in Serica Energy plc issued in exchange for all
Tailwind shares, and the fair value of a further 2,877,698 ordinary shares which were issued to the
sellers subsequent to the acquisition after the conclusion of
periods with no successful warranty claims. The fair value of the initial consideration shares issued was
calculated using the market price of the Company's shares of £2.18
on the AIM Market of the London Stock Exchange at its opening of
business on 23 March 2023. The deferred consideration share
consideration was also valued using the share price on acquisition
and this value is approximate to the fair value.
The gain arising on acquisition
representing the excess of fair value of the net assets acquired
over the purchase consideration largely arose due to a reduction in
the value of consideration paid based on the market price of shares
issued at the completion date of 23 March 2023.
The excess of fair value of the
net assets acquired over the purchase consideration has been
recognised as a gain on acquisition in the income
statement.
From the date of acquisition, the
Tailwind assets have contributed £243 million of revenue and £86
million of profit before tax in the period ended 31 December 2023.
Had the acquisition occurred on 1 January 2023, the Tailwind assets
would have contributed £338 million of revenue and £154 million of
profit before tax for the year ended 31 December 2023.
Transaction costs of £1.8 million
incurred in 2022 and £10.1 million in 2023 have been expensed in
the Income Statement. Debtors and other assets included in the
total identifiable net assets at fair value were equivalent to
gross contractual amount receivables.
Reserve Based Lending facility
arrangements
Following completion of the
acquisition on 23 March 2023, the Serica Group assumed
reserve-based lending and junior facility arrangements linked to
the legacy Tailwind sub-group (see note 21).
30. Subsidiaries
Details of the investments in
which the Group and the Company (unless indicated) hold 20% or more
of the nominal value of any class of share capital are as
follows:
Name of company:
|
Holding
|
Nature of business
|
|
%
voting rights and shares held
|
|
|
|
|
2023
|
Serica Holdings UK Ltd
(ii)
|
Ordinary
|
Holding
|
|
100
|
Tailwind Energy Investments Ltd
(ii)*
|
Ordinary
|
Holding
|
|
100
|
Serica Energy Holdings BV (i &
iii)
|
Ordinary
|
Holding
|
|
100
|
Serica Energy (UK) Ltd (i &
ii)
|
Ordinary
|
E&P
|
|
100
|
NSV Energy Limited (i &
ii)
|
Ordinary
|
Holding
|
|
100
|
Tailwind Energy Ltd (i &
ii)*
|
Ordinary
|
E&P
|
|
100
|
Tailwind Energy Sirocco Ltd (i
& ii)*
|
Ordinary
|
Holding
|
|
100
|
Tailwind Energy Chinook Ltd (i
& ii)*
|
Ordinary
|
E&P
|
|
100
|
Tailwind Mistral Ltd (i &
ii)*
|
Ordinary
|
E&P
|
|
100
|
Tailwind Energy Bora Ltd (i &
ii)*
|
Ordinary
|
E&P
|
|
100
|
Serica Energy Corporation (i &
iv)
|
Ordinary
|
Dormant
|
|
100
|
APD Ltd (i & iv)
|
Ordinary
|
Dormant
|
|
100
|
PDA Asia Ltd (i &
iv)
|
Ordinary
|
Dormant
|
|
100
|
PDA (Lematang) Ltd (i &
ii)
|
Ordinary
|
Dormant
|
|
100
|
Serica UK Exploration Ltd (i &
ii)
|
Ordinary
|
Dormant
|
|
100
|
|
|
|
|
|
|
|
|
|
|
(i) Held by a subsidiary
undertaking
|
|
|
|
(ii) Incorporated in the
UK
|
|
|
|
(iii) Incorporated in the
Netherlands
|
|
|
|
(iv) Incorporated in the British
Virgin Islands
|
|
|
|
*On 10 April 2024 the following
companies changed their names as detailed in the table
below:
Previous name
|
New name
|
Tailwind Energy Investments
Ltd
|
Serica Energy Investments
Limited
|
Tailwind Energy Ltd
|
Serica Energy Meltemi
Limited
|
Tailwind Mistral Ltd
|
Serica Energy Mistral
Limited
|
Tailwind Energy Sirocco
Ltd
|
Serica Energy Sirocco
Limited
|
Tailwind Energy Chinook
Ltd
|
Serica Energy Chinook
Limited
|
Tailwind Energy Bora Ltd
|
Serica Energy Bora
Limited
|
The registered office of Serica
Holdings UK Limited, Serica Energy (UK) Limited, PDA (Lematang)
Limited and Serica UK Exploration Limited is 48 George Street,
London, W1U 7DY.
The registered office of Tailwind
Energy Investments Ltd, NSV Energy Limited, Tailwind Energy Sirocco
Ltd, Tailwind Mistral Ltd and Tailwind Energy Bora Ltd is 62
Buckingham Gate, London, SW1E 6AJ.
The registered office of Tailwind
Energy Chinook Ltd is H1 Building, Hill of Rubislaw, Anderson
Drive, Aberdeen, AB15 6BY.
The registered office of the
Company's subsidiaries incorporated in the Netherlands is
Hoogoorddreef 15, 1101 BA Amsterdam, The Netherlands.
The registered office of APD Ltd
and PDA Asia Ltd is P.O. Box 957, Offshore Incorporations Centre,
Road Town, Tortola, British Virgin Islands. The registered office
of Serica Energy Corporation is P.O. Box 71, Road Town, Tortola,
British Virgin Islands.
31. Events Since Balance Sheet Date
On 23 January 2024 Serica
announced the completion of a new US$525 million 6-year Borrowing
Facility which replaced its existing facility.
On 26 February 2024 Serica
announced the completion of the acquisition of 30% non-operated
interests in the P2498 and P2170 licences (together the Greater
Buchan Area) from Jersey Oil & Gas.
On 6 March 2024, the UK government
announced that EPL would be extended for a further 12 months to 31
March 2029 from the former end date of 31 March 2028.
Reconciliation of non-IFRS measures
Serica uses certain measures of
performance that are not specifically defined under IFRS or other
generally accepted accounting principles ("GAAP"). These non-IFRS measures, which
are presented within the financial review, are defined
below:
Capital Expenditure (Capex): Comprises the spend (prior to tax
allowances) on the acquisition of PP&E assets, the purchase of
exploration and appraisal assets and decommissioning spend. Depicts
how much the Group has spent on purchasing fixed assets in order to
further its business goals and objectives. It is a useful indicator
of the Group's organic expenditure on oil and gas assets, and
exploration and appraisal assets, incurred during a period on a
pre-tax basis.
CFFO less current tax:
comprises Cash inflow from Operations adjusted by
the tax charge for the year as reflected in Note 9 a). Serica
considers that this is a useful measure of the cash generation of
the business prior to the decisions made by the Group in relation
to capital allocation.
EBITDAX: Earnings before interest, tax, depreciation and amortisation,
impairments, transaction costs, unrealised hedging expenses, FX
translation effects, asset revaluation effects, other noncash gains
or expenses and exploration expenditure. This is a useful indicator
of underlying business performance and the definition adopted by
Serica is consistent with that stipulated in the Group's reserve
based lending ("RBL")
facility. A reconciliation from Operating Profit to EBITDAX is
provided below:
Adjusted Net cash / (debt): Total cash and cash equivalents plus
the balance of amounts of cash security temporarily lodged in
respect of DSAs prior to the finalisation of the RBL recognised on
the consolidated balance sheet less the drawn balance under RBL
(net of the carrying value of unamortised fees). This is an
indicator of the Group's indebtedness and contribution to capital
structure.
GLOSSARY
bbl
|
barrel of 42 US gallons
|
bcf
|
billion standard cubic
feet
|
boe
|
barrels of oil equivalent (barrels
of oil, condensate and LPG plus the heating equivalent of gas
converted into barrels at the appropriate rate)
|
BKR
BPEOC
|
Bruce, Keith and Rhum
fields
BP Exploration Operating
Company
|
CGU
|
Cash generating unit
|
CPR
DSA
ESG
|
Competent Persons
Report
Decommissioning Security
Agreement
Environmental, Social and
Governance
|
ETS
FDP
FPS
|
Emissions Trading
Scheme
Field Development Plan
Forties Pipeline System
|
GRI
|
Global Reporting Index (framework
for sustainability reporting)
|
HPHT
|
High pressure high
temperature
|
LWIV
|
Light Weight Intervention
Vessel
|
mscf
|
thousand standard cubic
feet
|
mmbbl
|
million barrels
|
mmboe
|
million barrels of oil
equivalent
|
mmscf
|
million standard cubic
feet
|
mmscfd
|
million standard cubic feet per
day
|
NBP
|
National Balancing
Point
|
NGLs
|
Natural gas liquids extracted from
gas streams
|
NTS
|
National Transmission
System
|
OGA
|
Oil and Gas Authority
|
Overlift
|
Volumes of oil or NGLs sold in
excess of volumes produced
|
Underlift
|
Volumes of oil or NGLs produced
but not yet sold
|
P10
|
A high estimate that there should
be at least a 10% probability that the quantities recovered will
actually equal or exceed the estimate
|
P50
|
A best estimate that there should
be at least a 50% probability that the quantities recovered will
actually equal or exceed the estimate
|
P90
|
A low estimate that there should
be at least a 90% probability that the quantities recovered will
actually equal or exceed the estimate
|
Pigging
|
A process of pipeline cleaning and
maintenance which involves the use of devices called
pigs
|
Proved Reserves
|
Proved reserves are those Reserves
that can be estimated with a high degree of certainty to be
recoverable. It is likely that the actual remaining quantities
recovered will exceed the estimated proved reserves
|
Probable Reserves
|
Probable reserves are those
additional Reserves that are less certain to be recovered than
proved reserves. It is equally likely that the actual remaining
quantities recovered will be greater or less than the sum of the
estimated proved + probable reserves
|
Possible Reserves
|
Possible reserves are those
additional Reserves that are less certain to be recovered than
probable reserves. It is unlikely that the actual remaining
quantities recovered will exceed the sum of the estimated proved +
probable + possible reserves
|
Reserves
|
Estimates of discovered
recoverable commercial hydrocarbon reserves calculated in
accordance with the revised June 2018 Petroleum Resources
Management System (PRMS) version 1.01
|
SASB
|
Sustainability accounting
standards board
|
Tcf
|
trillion standard cubic
feet
|
TCFD
|
Taskforce on Climate-related
Financial Disclosures
|
UKCS
|
United Kingdom Continental
Shelf
|
UNSDG
|
United Nations Sustainable
Development Goals
|
[1] Comprising Cash
flow from operations of £378.4 million less Current tax of £183.3
million (2022: £704.9 million less £277.7 million).
[4] 2022
NSTA Emissions Monitoring
Report (2023 numbers not yet published)