3rd Quarter Results
Serica Energy plc
01 November 2006
FOR IMMEDIATE RELEASE: Wednesday 1 November 2006
SERICA ENERGY PLC ANNOUNCES 2006 THIRD QUARTER RESULTS
1 November 2006 - Serica Energy plc (TSX Venture & AIM: SQZ) today announces its
financial results for the three and nine months ended 30 September 2006. The
results and associated Management Discussion and Analysis are included below and
copies are available at www.serica-energy.com and www.sedar.com.
Highlights
Ongoing drilling programme
• Currently drilling two UK North Sea exploration wells
• 54/1b Oak prospect - well spudded on 15 October 2006
- farm out to Centrica
• 23/16f Columbus prospect - well spudded on 28 October 2006
2007 drilling programme
• Four wells planned offshore north Sumatra, Indonesia
• Two well exploration programme on the Biliton PSC
Kambuna Field development
• Planned to come on-stream in 2008 at an initial rate of 50 million cubic
feet of gas per day and 5,000 barrels of condensate per day
• Gas contracts under negotiation
• 3D seismic programme commenced in October 2006
Awarded New Licence Offshore Ireland
• Awarded a Licence covering three Blocks in the Slyne Basin off the west
coast of Ireland. Serica is the operator and will hold a 100% interest in
the Licence
Tony Craven Walker, Chairman, commented:
'Serica has continued to make significant progress in the third quarter, with
the recent start of its two-well exploration drilling programme in the UK North
Sea and with rigs secured for its Indonesian exploration and field development
programme commencing in the first quarter of 2007. The next twelve months have
the potential to generate material returns for shareholders.'
Enquiries:
Serica Energy plc
Paul Ellis, pellis@serica-energy.com +44 (0)20 7487 7300
Chief Executive Officer
Chris Hearne, Finance Director chearne@serica-energy.com +44 (0)20 7487 7300
Pelham Public Relations -UK
James Henderson james.henderson@pelhampr.com +44 (0)20 7743 6673
Alisdair Haythornthwaite alisdair.haythornthwaite@pelhampr.com +44 (0)20 7743 6676
CHF Investor Relations - Canada
Jan Moir jan@chfir.com +1 416 868 1079 x237
Heather Colpitts heather@chfir.com +1 416 868 1079 x223
MANAGEMENT OVERVIEW
Drilling Operations
Serica recently commenced drilling two exploration wells in the UK North Sea.
On 15 October 2006 Serica spudded an exploration well to test the Oak prospect
using the ENSCO 92 jack-up and on 28 October 2006 Serica spudded an exploration
well to test the Columbus prospect using the semi-submersible GlobalSantaFe Rig
140.
The Oak prospect is located in UK North Sea Block 54/1b in the Southern Gas
Basin. Well 54/1b-6 is targeting the Permian-age Leman Sandstone reservoir at a
depth of around 7,500 feet and drilling operations are scheduled to take about
30 days. Serica is the operator of the block and the well is being drilled
under a contract with Peak Well Management Limited. As part of its strategy to
spread exploration risk and manage costs, Serica reduced its interest in the
block from 100% to 50% through the farm out of a 50% interest to Centrica
Resources Limited ('Centrica'), a wholly-owned subsidiary of Centrica plc, in
consideration for Centrica bearing 100% of the costs of drilling the Oak well up
to the point where the total costs have reached £8.5 million or a decision to
test the well has been made, whichever occurs first.
The Columbus prospect is located in UK Central North Sea Block 23/16f. The
Columbus well 23/16f-11 is targeting the Paleocene-age Forties Sandstone
reservoir at a depth of around 9,700 feet and drilling operations are scheduled
to take about 30 days. Serica has a 50% interest and is operator of the block.
The well will be drilled by Applied Drilling Technology Inc. a division of
GlobalSantaFe Corporation, under a contract with Serica's partner in Block 23/
16f, Endeavour Energy UK Limited.
In Indonesia Serica has a drilling programme of at least six wells planned for
2007.
Serica has contracted the SeaDrill 5 jack-up drilling rig for 136 days during
2007. In the Glagah Kambuna Technical Assistance Contract (TAC) and adjacent
Asahan Offshore Production Sharing Contract (PSC) the Company is preparing to
drill four wells and to carry out one workover.
Serica is operator of both the Glagah Kambuna TAC and the Asahan Offshore PSC
with working interests of 65% and 55% respectively.
In the Biliton PSC, the Company has finalised plans for a two or three well
exploration programme using the GlobalSantaFe Rig 136. A rig sharing agreement
has been concluded with Total E & P Indonesie and Serica will drill these wells
in mid 2007. Serica has a 90% interest and is operator of Biliton.
Field Development
In the Glagah Kambuna TAC, Serica is preparing to develop the Kambuna Field on
behalf of its partners and the Indonesian state oil and gas company, PT
Pertamina Persero ('Pertamina'). The first production from the field remains
targeted for 2008 at initial rates of approximately 50 million cubic feet per
day of gas and 5,000 barrels per day of condensate.
Engineering design studies for the gas export pipeline are being carried out by
Wood Group and the project schedule is being finalized with a view to full
project sanction being given prior to year end. Natural Gas, Butane and Propane
will be sold into the Medan area in north Sumatra where there is a growing
shortage of gas for power and industry. Condensate (hydrocarbon liquids
separated from the gas and sold as oil) will be stored in a Floating Production,
Storage and Offtake vessel (FPSO) and loaded into shuttle tankers offshore for
sale to international markets.
In the adjacent Asahan Offshore PSC, the Indonesian oil industry regulatory
authority ('BPMigas') has requested further technical information with respect
to the marginal Tanjung Perling Field, which Serica has proposed to develop as
an incremental project to the Kambuna Field. There may be insufficient time to
satisfy the request of the regulatory authority prior to 16th December 2006,
when the exploration period of the PSC would otherwise expire. Serica and its
partners are holding constructive discussions with BPMigas to agree a mutually
satisfactory means to bring gas from the Asahan Offshore PSC to market and
ensure continuing operations on the block. These discussions include the
proposed drilling of wells planned for the Asahan PSC in 2007 as part of the
Company's drilling operations.
New Ventures
The Company continues to be successful in generating new venture opportunities
in areas in which Serica has existing technical knowledge.
Following the award of a PSC for Block 06/94 in the Nam Con Son Basin in Vietnam
in late July, in the 2006 Irish Offshore Licensing Round Serica was awarded a
Licence covering Blocks 27/4, 27/5 (part block) and 27/9 which covers an area of
approximately 611 square kilometres in the Slyne Basin off the west coast of
Ireland. Serica is the operator and will hold a 100% interest in the Licence.
Serica has also made applications for new offshore licences in the UK, Indonesia
and Norway and expects to hear the results of these applications by the end of
this year.
Outlook
Serica now has a substantial portfolio of existing and new exploration and
development drilling prospects and is in an excellent position to generate value
for shareholders.
The Company's drilling programme is now underway and, by the end of the year,
the results of both the Oak and Columbus exploration wells will be known.
Serica has a major operational programme for 2006-7 and has the financial and
management capability to carry out the programme successfully.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following management's discussion and analysis ('MD&A') of the financial and
operational results of Serica Energy plc and its subsidiaries (the 'Group')
contains information up to and including 23 October 2006 and should be read in
conjunction with the attached unaudited interim consolidated financial
statements for the period ended 30 September 2006. The interim financial
statements for the three and nine months ended 30 September 2006 have been
prepared by the Company and are the responsibility of the Company's management.
References to the 'Company' and the 'Group' include Serica and its subsidiaries
where relevant. All figures are reported in US dollars ('US$') unless otherwise
stated.
Overall Performance
Serica's activities are centred on Indonesia and the UK North Sea, with other
interests in Spain, Ireland and Vietnam. The Group has no current oil and gas
production, following the disposal of its Harimau Field interest, with the main
emphasis placed upon its future exploration drilling programmes and near term
developments. During 2006 to date, work has continued on managing its portfolio
of interests, advancing the Indonesian developments and preparing for the
2006-07 drilling programme, which commenced with the Oak prospect in October.
Further details are noted in the Management Overview.
The results of Serica's operations are detailed below. Serica has adopted
International Financial Reporting Standards ('IFRS') for its financial
statements for the year ended 31 December 2005 with a transition date of 1
January 2004. The first year reported under IFRS was the year ended 31 December
2005, and the results in this MD&A and the financial statements are presented in
accordance with IFRS. Accordingly, Q1, Q2 and Q3 2005 comparatives have been
restated from Canadian Generally Accepted Accounting Principles ('GAAP') to
comply with IFRS.
Results of Operations
Serica generated a loss of US$3.8 million for the three months ended 30
September 2006 ('Q3 2006') compared to a loss of US$0.8 million for the three
months ended 30 September 2005 ('Q3 2005').
2006 2005
Q3 Q2 Q1 Q3 Q2 Q1
US$000 US$000 US$000 US$000 US$000 US$000
Sales revenue (1) - 36 25 36 32 31
Expenses:
Administrative expenses (1,415) (1,343) (1,322) (1,335) (1,061) (1,113)
Foreign exchange gain/(loss) 486 890 (48) (240) (600) (24)
Pre-licence costs (3,430) (414) (160) (57) (350) (288)
Costs of expired licences (164) - - - - -
Share-based payments (515) (533) (436) (254) (383) (78)
Depletion, depreciation &
amortisation (33) (18) (10) (4) (4) (4)
Operating loss before finance
revenue and tax (5,071) (1,382) (1,951) (1,854) (2,366) (1,476)
Profit on disposal - 2,187 - - - -
Finance revenue 1,276 1,210 1,152 61 101 82
(Loss)/profit before taxation (3,795) 2,015 (799) (1,793) (2,265) (1,394)
Taxation credit/(charge) - 506 - 1,018 759 (41)
(Loss)/profit for the period (3,795) 2,521 (799) (775) (1,506) (1,435)
(1) From discontinued operations
Revenues from oil and gas production are recognised on the basis of the
Company's net working interest in its properties and throughout each period were
generated from Serica's 10% interest in the Harimau producing gas and gas
condensate field. These revenues are from discontinued operations following the
disposal of the Lematang PSC interest. Direct operating costs for the field
during these periods were carried by Medco Energi Limited.
Administrative expenses of US$1.4 million for Q3 2006 remained at a consistent
level with Q1 and Q2 2006 and for the same period last year. The general
increase from 2005 reflects the growing scale of the Company's activities over
the past twelve months.
A significant foreign exchange gain of US$0.5 million was earned in Q3 2006.
This chiefly arose from the increase in US$ equivalent value of pounds sterling
cash deposits held, as the pound continued to strengthen against the dollar
during the quarter.
Pre-licence costs include direct cost and allocated general administrative cost
incurred on oil and gas interests prior to the award of licences, concessions or
exploration rights. The significant increase in the charge from US$0.4 million
in Q2 2006 to US$3.4 million in Q3 2006 is caused by data acquisition costs as
part of the Norway licence applications (US$2.7 million), and a focus on new
ventures in Vietnam and Indonesia (US$0.5 million).
The Q3 2006 US$0.2 million charge against relinquished licences relates to the
non core UK North Sea licence P1180, Blocks 48/16a and 47/20b.
Share-based payment costs of US$0.5 million reflect share options granted and
compare with a cost of US$0.3 million for Q3 2005 and US$0.5 million for Q2
2006. The increase from last year is due to share options granted in the second
half of 2005 and early 2006 as the management team was built up.
Negligible depletion, depreciation and amortisation charges in all periods
represent office equipment, fixtures and fittings. The costs of petroleum and
natural gas properties are not currently subject to such charges pending further
evaluation and the commencement of production.
A profit on disposal of US$2.2 million in Q2 2006 was generated on the sale of
the 10% interest in the Lematang PSC to Lundin Petroleum AB for US$5 million.
Finance revenue, comprising interest income of US$1.3 million for Q3 2006,
compares with US$0.1 million for Q3 2005 and US$1.2 million for Q2 2006. The
increase from last year is due to the significant cash deposit balances held
following the AIM listing and associated fund raising in December 2005.
The taxation credit of US$0.5 million in Q2 2006 arose from the release of the
deferred tax liability attached to the Lematang PSC.
Summary of Quarterly Results
Quarter ended: 2006 2006 2006 2005 2005 2005 2005
30 Sep 30 Jun 31 Mar 31 Dec 30 Sep 30 Jun 31 Mar
US$000 US$000 US$000 US$000 US$000 US$000 US$000
Sales revenue - 36 25 25 36 32 31
(Loss)/profit for the
quarter (3,795) 2,521 (799) (403) (775) (1,506) (1,435)
Basic and diluted loss
per share US$ (0.03) - (0.01) (0.01) (0.01) (0.02) (0.02)
Basic earnings per
share US$ - 0.02 - - - - -
Diluted earnings per
share US$ - 0.02 - - - - -
Working Capital, Liquidity and Capital Resources
Current Assets and Liabilities
An extract of the balance sheet detailing current assets and liabilities is
provided below:
30 Sept 30 June 31 March 2006 31 December 2005
2006 2006
US$000 US$000 US$000 US$000
Current assets:
Inventories 3,907 681 878 878
Trade and other receivables 6,585 6,241 1,756 2,106
Cash and cash equivalents 101,750 102,430 105,101 109,750
Total Current assets 112,242 109,352 107,735 112,734
Less Current liabilities:
Trade and other payables (4,972) (3,875) (3,858) (7,136)
Net Current assets 107,270 105,477 103,877 105,598
At 30 September 2006, the Company had net current assets of US$ 107.3 million
which comprised current assets of US$112.2 million less current liabilities of
US$5.0 million, giving an overall increase in working capital of US$1.8 million
in the three month period.
Inventories increased significantly from US$0.7 million to US$3.9 million in Q3
2006 from the acquisition of steel casing for the forthcoming Indonesian
drilling program.
Trade and other receivables at 30 September 2006 included the US$5.0 million
proceeds due from the Lematang PSC disposal. Other smaller items included
prepayments and sundry UK and Indonesia working capital balances.
Net cash receipts in Q3 included US$6.2 million received during the period from
the exercise of warrants, and US$1.3 million of interest income. Net cash
outgoings in Q3 2006 covered a US$3.2 million payment for steel casing, plus
operational expenses and exploration work.
Trade and other payables include a further US$1.5 million payable in respect of
the Q2 2006 acquisition of an additional 10% interest in the Glagah Kambuna TAC,
and a US$1.9 million accrual for Norwegian Q3 data costs. Significant trade and
other payables balances in relation to the 2005 drilling programme and the AIM
listing were settled in Q1 2006.
Long-Term Assets and Liabilities
An extract of the balance sheet detailing long-term assets and liabilities is
provided below:
30 Sep 2006 30 June 2006 31 March 2006 31 December 2005
US$000 US$000 US$000 US$000
Intangible exploration assets 29,138 28,102 24,419 23,591
Goodwill 1,877 1,877 2,382 2,382
Property, plant and equipment 26
270 304 304
Long-term other receivables 2,092 2,003 2,129 1,758
Long-term other payables - - (151) (151)
Deferred income tax liabilities (1,631) (1,631) (2,137) (2,137)
During Q3 2006, total investments in petroleum and natural gas properties,
represented by intangible exploration assets, increased by US$1.0 million to
US$29.1 million. This increase was generated from US$1.2 million of new spend,
less US$0.2 million of exploration assets written off as non core licences were
relinquished. Of the Q3 2006 additions, US$0.5 million related to exploration
work and G&A on the Biliton, Asahan and Glagah Kambuna concessions in Indonesia,
and US$0.7 million on exploration work and G&A in the UK and Spain.
Goodwill, representing the difference between the price paid on acquisitions and
the fair value applied to individual assets, fell by US$0.5 million to US$1.9
million following the Lematang disposal in Q2 2006.
Long-term other receivables of US$2.1 million represent value added tax ('VAT')
on Indonesian capital spend which is expected to be recovered once the fields
commence production.
Long-term other payables at 31 March 2006 comprised VAT payable in Indonesia.
This liability was cleared following the Lematang PSC disposal.
Deferred income tax liabilities fell by US$0.5 million in Q2 2006 to US$1.6
million as the liability associated with the Lematang PSC was removed.
Shareholders' Equity
An extract of the balance sheet detailing shareholders' equity is provided
below:
30 September 2006 30 June 2006 31 March 2006 31 December 2005
US$000 US$000 US $000 US$000
Total share capital 157,283 151,119 148,864 148,745
Other reserves 2,753 2,238 1,705 1,269
Accumulated deficit (21,020) (17,225) (19,746) (18,947)
Total share capital includes the total net proceeds from share issues,
comprising both nominal value and any premium.
Issued share capital during Q1 2006 was increased by the exercise of 121,250
warrants and share options of the Company at prices ranging from Cdn$1.00 to
Cdn$1.20. Issued share capital during Q2 2006 was increased by the exercise of
2,128,701 warrants of the Company at a price of Cdn$1.20. In Q3 2006, 5,739,426
warrants were converted to ordinary shares at a price of Cdn$1.20.
The increase in other reserves from US$1.3 million to US$1.7 million in Q1 2006,
from US$1.7 million to US$2.2 million in Q2 2006, and from US$2.2 million to
US$2.7 million in Q3 2006 reflects the amortisation of share options.
Capital Resources
At 30 September 2006, Serica had US$107.3 million of net working capital and no
short or long-term debt. At that date the Company had commitments to future
minimum payments under operating leases in respect of rental office premises,
office equipment and motor vehicles for each of the following period/years as
follows:
US$000
Period ended 31 December 2006 36
Year ended 31 December 2007 198
Year ended 31 December 2008 183
Year ended 31 December 2009 177
Year ended 31 December 2010 36
The Company had no long-term debt or capital lease obligations. The Company has
a contract covering the provision of drilling-related services and equipment in
connection with the Indonesian drilling programme. As part of this, Serica
acquired US$3.2 million of steel casing in Q3 2006 and will acquire further
amounts up to US$3.8 million. The second tranche is expected to be acquired
during Q4 2006. This is contracted for but not provided in the Q3 2006 results.
Following the end of the period ended 30 September 2006, the Company has made
significant commitments for capital expenditure on the exploration wells
currently being drilled on the Oak and Columbus prospects, and also contracted
the SeaDrill 5 jack-up drilling rig for 136 days during 2007 for Indonesian
operations.
Until revenues are generated from its planned field developments, Serica will
utilise existing financial resources as required to fund its investment
programme and ongoing operations. The Company will continue to review other
financing alternatives, including debt facilities, in order to optimise its
financial structure.
Off-balance Sheet Arrangements
The Company has not entered into any off-balance sheet transactions or
arrangements.
Critical Accounting Estimates
The accounting policies are summarised in note 2 to the attached financial
statements and full details of the Company's accounting policies are included in
the Serica Energy plc annual report for the year ended 31 December 2005. There
have been no changes in accounting policies during the period, and following the
adoption of International Financial Reporting Standards ('IFRS') for the 2005
audited financial statements, the Q1, Q2 and Q3 2005 comparative results
reported have been restated from Canadian GAAP to IFRS. The cost of exploring
for and developing petroleum and natural gas reserves are capitalised. Unproved
properties are subject to periodic impairment tests whilst the costs of proved
properties are depleted over the life of such producing fields. In each case,
calculations are based upon management assumptions about future outcomes,
product prices and performance.
Financial Instruments
The Group's financial instruments comprise cash and cash equivalents, accounts
payable and accounts receivable. It is the management's opinion that the Group
is not exposed to significant currency, interest or credit risks arising from
its financial instruments other than as discussed below:
Cash and cash equivalents, which comprise short-term cash deposits, are
generally held in the currency of likely future expenditures to minimise the
impact of currency fluctuations. The majority of funds are currently held in US
dollars to match the Group's exploration and appraisal commitments. The holding
of £8.2 million at period-end reflected a proportion of UK licence commitments
and administrative expenditures expected in pounds sterling.
Following the Q4 2005 fundraising, Serica is holding significant net cash.
Whilst this does leave exposure to interest rate fluctuations, given the level
of expenditure plans over 2006-07 this is managed in the short-term through
selecting treasury deposit periods of one to six months.
There is currently no sales revenue and therefore no customer credit risk. 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.
It is the management's opinion that the fair value of its financial instruments
approximate to their carrying values, unless otherwise noted.
Share Options
As at 30 September 2006, the following options were outstanding:
Expiry Date Amount Cdn$
Share options Aug 2007 400,000 444,000
Jun 2008 400,000 720,000
Aug 2009 100,000 111,000
Feb 2009 877,500 1,895,000
May 2009 100,000 200,000
Dec 2009 325,000 365,000
Jan 2010 600,000 600,000
Jun 2010 1,300,000 2,340,000
£
Nov 2010 696,000 675,120
Jan 2011 1,395,000 1,443,825
May 2011 180,000 172,800
Jun 2011 270,000 259,200
Business Risk and Uncertainties
Serica, like all exploration companies in the oil and gas industry, operates in
an environment subject to inherent risks. Many of these risks are beyond the
ability of a company to control, particularly those associated with the
exploring for and developing of economic quantities of hydrocarbons: volatile
commodity prices, governmental regulations and environmental matters.
Nature and Continuance of Operations
The principal activity of the Company is to identify, acquire and subsequently
exploit oil and gas reserves in Asia and Europe.
The Company's financial statements have been prepared with the assumption that
the Company will be able to realise its assets and discharge its liabilities in
the normal course of business rather than through a process of forced
liquidation. The Company currently has no operating revenue and, during the
three month period ended 30 September 2006, the Company generated a loss of
US$3.8 million from continuing operations. At 30 September 2006, the Company
held cash and cash equivalents of US$101.8 million.
Outstanding Share Capital
As at 23 October 2006, the Company had 150,537,957 ordinary shares issued and
outstanding and 157,181,456 on a fully diluted basis.
Additional Information
Additional information relating to Serica can be found on the Company's website
at www.serica-energy.com and on SEDAR at www.sedar.com
Approved on Behalf of the Board
Paul Ellis Christopher Hearne
Chief Executive Officer Finance Director
1 November 2006
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 there from.
The TSX Venture Exchange has not reviewed and does not accept responsibility for
the adequacy or accuracy of this release.
To receive Company news releases via email, please contact heather@chfir.com and
specify 'Serica press releases' in the subject line.
Serica Energy plc
Group Income Statement
Unaudited Three Three Nine Nine
months months months months
ended ended ended ended
30 Sept 30 Sept 30 Sept 30 Sept
2006 2005 2006 2005
Notes US$000 US$000 US$000 US$000
Sales revenue - 36 61 99
Cost of sales - - - -
Gross profit - 36 61 99
Administrative expenses (1,415) (1,335) (4,080) (3,509)
Foreign exchange gain/(loss) 486 (240) 1,328 (864)
Pre-licence costs (3,430) (57) (4,004) (695)
Costs of expired/relinquished licences (164) - (164) -
Share-based payments (515) (254) (1,484) (715)
Depreciation, depletion & amortisation (33) (4) (61) (12)
Operating loss before finance (5,071) (1,854) (8,404) (5,696)
revenue and tax
Profit on disposal 6 - - 2,187 -
Finance revenue 1,276 61 3,638 244
Loss before taxation (3,795) (1,793) (2,579) (5,452)
Taxation credit for the period - 1,018 506 1,736
Loss for the period (3,795) (775) (2,073) (3,716)
Loss per ordinary share (US$):
Basic and diluted loss per share 0.03 0.01 0.01 0.04
Serica Energy plc
Consolidated Balance Sheet
30 September 30 June 31 March 31 December
2006 2006 2006 2005
US$000 US$000 US$000 US$000
(Unaudited) (Unaudited) (Unaudited) (Audited)
Intangible exploration assets 29,138 28,102 24,419 23,591
Goodwill 1,877 1,877 2,382 2,382
Property, plant and equipment 271 304 304 26
Other receivables 2,091 2,003 2,129 1,758
33,377 32,286 29,234 27,757
Inventories 3,907 681 878 878
Trade and other receivables 6,585 6,241 1,756 2,106
Cash and cash equivalents 101,750 102,430 105,101 109,750
112,242 109,352 107,735 112,734
Total assets 145,619 141,638 136,969 140,491
Current liabilities
Trade and other payables (4,972) (3,875) (3,858) (7,136)
Non-current liabilities
Other payables - - (151) (151)
Deferred income tax liabilities (1,631) (1,631) (2,137) (2,137)
Total liabilities (6,603) (5,506) (6,146) (9,424)
Net Assets 139,016 136,132 130,823 131,067
Share capital 157,283 151,119 148,864 148,745
Other reserves 2,753 2,238 1,705 1,269
Accumulated deficit (21,020) (17,225) (19,746) (18,947)
Total Equity 139,016 136,132 130,823 131,067
Serica Energy plc
Statement of Changes in Equity
For the period ended 30 September 2006
Group Share capital Other Deficit Total
reserves
US$000 US$000 US$000 US$000
At 1 January 2005 33,047 256 (14,828) 18,475
Conversion of warrants 10,190 - - 10,190
Issue of 'A' share 90 - - 90
Issue of shares (net) 105,418 - - 105,418
Share-based payments - 1,013 - 1,013
Loss for the year - - (4,119) (4,119)
At 1 January 2006 148,745 1,269 (18,947) 131,067
Conversion of warrants 119 - - 119
Share-based payments - 436 - 436
Loss for the period - - (799) (799)
At 31 March 2006 (unaudited) 148,864 1,705 (19,746) 130,823
Conversion of warrants 2,282 - - 2,282
Share issue costs (27) - - (27)
Share-based payments - 533 - 533
Profit for the period - - 2,521 2,521
At 30 June 2006 (unaudited) 151,119 2,238 (17,225) 136,132
Conversion of warrants 6,164 - - 6,164
Share-based payments - 515 - 515
Loss for the period - - (3,795) (3,795)
At 30 September 2006 (unaudited) 157,283 2,753 (21,020) 139,106
Serica Energy plc
Consolidated Cash Flow Statement
Unaudited Three Three Nine Nine month
months months months months
ended ended ended ended
30 Sept 30 Sept 30 Sept 30 Sept
2006 2005 2006 2005
US$000 US$000 US$000 US$000
Cash flows from operating activities:
Operating loss (5,071) (1,854) (8,404) (5,696)
Adjustments for:
Depreciation, depletion and amortisation 33 4 61 12
Relinquished/expired licence costs 164 - 164 -
Share-based payments 515 254 1,484 715
Changes in working capital (2,561) 4,946 (6,833) 7,939
Cash generated from operations (6,920) 3,350 (13,528) 2,970
Taxes received - - 34 -
Net cash flow from operations (6,920) 3,350 (13,494) 2,970
Cash flows from investing activities:
Disposals - Cash disposed - - (51) -
Interest received 1,276 61 3,638 244
Purchases of property, plant and equipment - - (368) (10)
Purchase of intangible exploration assets (1,200) (6,936) (6,263) (11,060)
Net cash used in investing 76 (6,875) (3,044) (10,826)
Cash proceeds from financing activities:
Proceeds on exercise of ENI loan note - 6,555 - 6,555
Proceeds on exercise of warrants/options 6,164 75 8,538 9,754
Net cash from financing activities 6,164 6,630 8,538 16,309
Cash and cash equivalents
Net (decrease)/increase (680) 3,105 (8,000) 8,453
Amount at start of period 102,430 7,077 109,750 1,729
Amount at end of period 101,750 10,182 101,750 10,182
Serica Energy plc
Notes to the Unaudited Consolidated Financial Statements
1. Nature and continuance of operations
Serica Energy plc is a public limited company incorporated and domiciled in
England and Wales. The Company's ordinary shares are traded on the Alternative
Investment Market of the London Stock Exchange ('AIM') and the Canadian TSX
Venture Exchange. The principal activity of the Company is to identify, acquire
and subsequently exploit oil and gas reserves primarily in Asia and Europe.
On 1 September 2005, the Company completed a reorganisation whereby the common
shares of Serica Energy Corporation were automatically exchanged on a
one-for-one basis for ordinary shares of Serica Energy plc, a newly formed
company incorporated under the laws of the United Kingdom. In addition, each
shareholder of the Corporation received beneficial ownership of part of the 'A'
share of Serica Energy plc issued to meet the requirements of public companies
under the United Kingdom jurisdiction. Under IFRS this reorganisation was
considered to be a reverse takeover by Serica Energy Corporation and as such the
financial statements of the Group represent a continuation of Serica Energy
Corporation.
2. Accounting Policies
Basis of Preparation
These unaudited interim consolidated financial statements of the Group have been
prepared in accordance with International Financial Reporting Standards
following the same accounting policies and methods of computation as the
consolidated financial statements for the year ended 31 December 2005. These
unaudited interim consolidated financial statements do not include all the
information and footnotes required by generally accepted accounting principles
for annual financial statements and therefore should be read in conjunction with
the consolidated financial statements and the notes thereto in the Serica Energy
plc Annual Report for the year ended 31 December 2005.
New accounting standards:
The accounting policies adopted in the preparation of the interim condensed
consolidated financial statements are consistent with those followed in the
preparation of the Group's annual financial statements for the year ended 31
December 2005, except for the adoption of the following mandatory standards for
annual periods beginning on or after 1 January 2006:
Amendment to IAS 19 'Employee Benefits - Actuarial Gains and Losses, Group Plans
and Disclosures';
Amendment to IAS 39 'Financial Instruments: Recognition and Measurement';
IFRIC 4 'Determining Whether an Arrangement Contains a Lease';
IFRIC 5 'Rights to Interests Arising from Decommissioning, Restoration and
Environmental Rehabilitation Funds'.
The adoption of these did not affect the Group's results of operations or
financial position.
The financial statements are unaudited.
The Group financial statements are presented in US dollars and all values are
rounded to the nearest thousand dollars (US$000) except when otherwise
indicated.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries Serica Energy Corporation, Asia Petroleum
Development Limited, Petroleum Development Associates (Asia) Limited, Serica
Energia Iberica S.L., Firstearl Limited, Serica Energy (UK) Limited, PDA
Lematang Limited, APD (Asahan) Limited, APD (Biliton) Limited, APD (Glagah
Kambuna) Limited and Serica Energy Pte Limited. Together these comprise the
'Group'.
All significant inter-company balances and transactions have been eliminated
upon consolidation.
3. Segmental Information
The primary segment reporting format is determined to be geographical segments
and they are based on the location of the Group's assets. The Group has only one
business segment, that of oil & gas exploration.
The following table presents revenue and profit information regarding the
Group's geographical segments for the nine months ended 30 September 2006. Costs
of the Singapore office are included in the Indonesian geographical segment and
pre-licence expenditure in Norway is included within UK.
Indonesia UK Spain Total
US$000 US$000 US$000 US$000
Revenue 61 - - 61
Net income/(loss) 2,062 (4,013) (122) (2,073)
4. Equity Share Capital
30 Sept 30 Sept 31 December 31 December
2006 2006 2005 2005
Number US$000 Number US$000
Authorised:
Common shares with no par (1) value - - - -
Ordinary shares of US$0.10 200,000,000 20,000 200,000,000 20,000
Ordinary 'A' share of £50,000 1 90 1 90
200,000,001 20,090 200,000,001 20,090
On incorporation, the authorised share capital of the Company was £50,000 and
US$20,000,000 divided into one 'A' share of £50,000 and 200,000,000 ordinary
shares of US$0.10 each, two of which were issued credited as fully paid to the
subscribers to the Company's memorandum of association.
The balance classified as total share capital includes the total net proceeds
(both nominal value and share premium) on issue of the Group and Company's
equity share capital, comprising US$0.10 ordinary shares.
Allotted, issued and fully paid: Share prem Share Total
capital premium Share capital
Group Number US$000 US$000 US$000
At 1 January 2006 142,548,580 14,345 134,400 148,745
Warrants/options exercised (2) 121,250 12 107 119
As at 31 March 2006 142,669,830 14,357 134,507 148,864
Warrants/options exercised (3) 2,128,701 213 2,042 2,255
As at 30 June 2006 144,798,531 14,570 136,549 151,119
Warrants exercised (4) 5,739,426 574 5,590 6,164
As at 30 September 2006 150,537,957 15,144 142,139 157,283
(1) Prior to the reorganisation on 1 September 2005, the Group's common shares
had no par value, accordingly all value was classified as share capital.
(2) From 1 January 2006 until 31 March 2006, 121,250 share purchase warrants and
options were converted to ordinary shares at prices ranging from Cdn$1.00 to
Cdn$1.20.
(3) From 1 April 2006 until 30 June 2006, 2,128,701 share purchase warrants were
converted to ordinary shares at a price of Cdn$1.20.
(4) From 1 July 2006 until 30 September 2006, 5,739,426 share purchase warrants
were converted to ordinary shares at a price of Cdn$1.20.
5. Share-Based Payments
Share Option Plans
Following a reorganisation in 2005, the Company established an option plan (the
'Serica 2005 Option Plan') to replace the Serica Energy Corporation Share Option
Plan (the 'SEC Share Option Plan'). Serica Energy Corporation was previously
the holding company of the Group, but is now a wholly owned subsidiary of the
Company. The Serica 2005 Option Plan will govern all future grants of options by
the Company and no further options will be granted under the SEC Share Option
Plan. Existing options under the SEC Share Option Plan entitle holders to
acquire ordinary shares of the Company.
The Directors intend that the maximum number of ordinary shares which may be
utilised pursuant to the Serica 2005 Option Plan will not exceed 10% of the
issued ordinary shares of the Company from time to time, in line with the
recommendations of the Association of British Insurers.
The Company calculated the value of share-based compensation using a
Black-Scholes option pricing model to estimate the fair value of share options
at the date of grant. The estimated fair value of an option is amortised to
expense over its vesting period. US$436,000, US$533,000 and US$515,000 has been
charged to the income statement in the periods ended 31 March 2006, 30 June 2006
and 30 September 2006 respectively. Similar amounts have been credited to other
reserves.
The assumptions made for the options granted during 2005 and 2006 include a
volatility factor of expected market price of 50%, a weighted average risk-free
interest rate of 6%, no dividend yield and a weighted average expected life of
options of three years.
The following table illustrates the number and weighted average exercise prices
(WAEP) of, and movements in, share options during the period:
Number WAEP Cdn$
SEC Share Option Plan
Outstanding at 31 December 2005 4,212,500 1.58
Cancelled during the period (110,000) 1.27
Outstanding at 31 March and
30 June and 30 September 2006 4,102,500 1.59
Serica 2005 Option Plan £
Outstanding at 31 December 2005 696,000 0.97
Granted during the period 1,395,000 1.03
Outstanding at 31 March 2006 2,091,000 1.01
Granted during the period 450,000 0.96
Outstanding at 30 June and 30 2,541,000 1.00
September 2006
6. Asset Acquisitions and Disposals
Acquisitions:
On 28 April 2006, the Group acquired an additional 10% interest in the Glagah
Kambuna TAC from PT Gunakarsa Glagah-Kambuna Energi for US$4.5 million.
Following receipt of the required regulatory approvals, Serica's working
interest in the block will increase to 65%.
The net effect of the acquisition on the Group's balance sheet and provisional
allocation of assets at acquisition were as follows:
Book value Fair value Preliminary fair
adjustment value
US$000 US$000 US$000
Intangible exploration assets - 4,500 4,500
Working capital - - -
- 4,500 4,500
The above numbers are preliminary. Adjustments may occur as a result of
obtaining more information regarding asset valuations, liabilities assumed and
revisions of preliminary estimates of fair values made at the date of purchase.
Disposals:
On 13 June 2006 the Group concluded an agreement for the sale of its 10%
interest in the Lematang Production Sharing Contract, onshore south Sumatra, to
Lundin Petroleum AB ('Lundin Petroleum') for US$5 million in cash subject to the
required partner and Indonesian government approvals. The block includes the
nearly depleted Harimau gas field and the Singa gas field development project.
The disposal resulted in a profit of US$2.2 million in Q2 2006.
7. Taxation
The major components of income tax in the consolidated income statement are:
For the nine months ended 30 September
2006 2005
US$000 US$000
Current income tax charge Nil Nil
Deferred income tax credit 506 1,736
The book gain on sale of the Lematang PSC is sheltered from tax by historic
costs not reflected in the book value, indexation, and current UK tax losses
elsewhere in the Group.
The 2006 deferred tax credit arises from the release of the deferred tax
liability attached to the Lematang PSC.
This information is provided by RNS
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