3rd Quarter Results
Serica Energy plc
14 November 2007
Serica Energy plc
('Serica' or the 'Company')
THIRD QUARTER 2007 REPORT TO SHAREHOLDERS
London, 14 November 2007 - Serica Energy plc (TSX Venture & AIM: SQZ) today
announces its financial results for the three months ending 30 September 2007.
The results and associated Management Discussion and Analysis are included below
and copies are available at www.serica-energy.com and www.sedar.com.
Q3 Highlights
Operational
• Appraisal of the UK North Sea Columbus discovery commenced with the
spudding of the first appraisal well in September 2007, at a step out
location three kilometres north of initial discovery well
• On 6 November 2007, the Company announced that it had drilled two
successful appraisal wells, supporting the commercial development of the
field
• Completed 3D seismic survey in Block 06/94, offshore Vietnam
• Farm out of 25% of four onshore licences in Spain agreed with Beach
Petroleum Limited and seismic survey in progress
Financial & Corporate
• Commitment obtained for US$100 million debt facility to fund appraisal and
development activities in Indonesia, UK and Norway from JPMorgan Chase Bank
and Bank of Scotland in July 2007
• Ian Vann and Steven Theede joined the board as non-executive directors in
July 2007
Forward Drilling Programmes
• Global Santa Fe GSF 136 drilling rig contracted for the drilling of two
wildcat high impact exploration wells in the Biliton PSC, Indonesia, in Q4
2007
• Following a farmout to Nations Energy, Serica will retain a 45%
interest and Nations Energy will bear the majority of the drilling costs
• Kambuna development fully underway
• Production platform arrives on location in Q4 2007
• Three development wells to be completed during Q1 2008
• Appraisal well in the Bream field, Norway, due to be drilled in Q2 2008
Serica's Chief Executive, Paul Ellis commented:
'The third quarter of 2007 has seen the start of a period of greatly increased
activity for Serica. The success of the two Columbus appraisal wells underlines
the potential of the field and supports its commercial development.
'In Indonesia this month we shall start drilling the first of two exploration
wells in the Biliton PSC. These are located in virtually unexplored territory
and have significant upside potential with limited downside financial risk to
Serica due to the farm-out arrangements. The rig will then move to the Kambuna
gas field, as the Company targets first production by the end of 2008.
'Serica continues to focus on creating shareholder value through the drillbit
and has demonstrated this with its success at Columbus.'
Enquiries:
Serica Energy plc
Paul Ellis, paul.ellis@serica-energy.com +44 (0)20 7487 7300
Chief Executive Officer
Chris Hearne, chris.hearne@serica-energy.com +44 (0)20 7487 7300
Finance Director
JPMorgan Cazenove
Steve Baldwin steve.baldwin@jpmorgancazenove.com +44 (0)20 7588 2828
Tristone Capital Limited
Majid Shafiq mshafiq@tristonecapital.com +44 (0)20 7355 5872
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 - Canada
Kelly Cody kelly@chfir.com +1 416 868 1079
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 kelly@chfir.com and
specify 'Serica press releases' in the subject line.
MANAGEMENT OVERVIEW
During the third quarter 2007, Serica completed preparations for its drilling
campaign in the UK North Sea and in Indonesia. The Company has commenced an
extensive programme including appraisal of the Company's Columbus discovery in
the UK North Sea, two exploration wells in the Biliton PSC offshore Java, and
development wells in the Kambuna field, offshore Sumatra.
In July, Serica obtained a commitment from JPMorgan Chase Bank, N.A. and The
Governor and Company of the Bank of Scotland to enter into a US$100 million
senior secured debt facility. The facility is subject to legal documentation and
fulfillment of standard terms and conditions for a debt financing of this
nature, including the approval of gas sales arrangements.
The facility, which will have a term of twelve months, with the Company having
an option to extend for a further six months, will be used to fund appraisal and
development expenditures for the Kambuna field in Indonesia and the Columbus
field in the UK North Sea as well as for Norwegian appraisal expenditure and
general corporate purposes.
Serica announced that Ian Vann and Steven Theede had joined the Board as
non-executive directors with effect from 1 July and 24 July 2007 respectively.
Mr Vann was employed by BP from 1976, and directed and led BP's global
exploration efforts from 1996 until his recent retirement in January 2007. Mr
Theede held senior management positions with Conoco, later ConocoPhillips, and
in 2000 was appointed President, Exploration and Production for Europe, Russia
and the Caspian region. In 2003 he joined Yukos Oil Company and became its Chief
Executive Officer in July 2004, a position he held until August 2006. In
October, Serica confirmed the retirement of James Steel as a non-executive
director of the Company.
Western Europe: United Kingdom, Spain, Ireland and Norway
UK North Sea
Following Serica's 2006 Columbus discovery well 23/16f-11, in the UK Central
North Sea, appraisal drilling commenced in the third quarter 2007.
As announced by Serica on 6 November 2007, two Columbus appraisal wells, 23/
16f-12 and 23/16f-12z, were drilled and both were successful. The net
hydrocarbon pay was approximately 40 feet in well 12, 70 feet in well 12z and 56
feet in the discovery well. The results of these wells support the commercial
development of the Columbus field and Serica is studying various options for the
export of gas and condensate via nearby facilities.
Serica operates Block 23/16f and holds a 50% interest in the licence.
Spain
Serica is currently carrying out a 330 kilometre 2D seismic survey on its four
onshore licences in Aragon Province, in the north-eastern part of the country.
Serica has entered into a contract with Beach Petroleum Limited under which
Serica will farm out a 25% interest in the licences and will retain a 75%
interest and operatorship.
Ireland
Serica holds a 100% interest in Blocks 27/4, 27/5 west and 27/9 in the Slyne
Basin off the west coast of Ireland and is carrying out a 3D seismic
reprocessing project in order to confirm exploration well locations on several
large gas prospects that it has already identified. The blocks lie about 40 km
south of the Corrib gas field, currently under development by Shell.
Norway
In Serica's Norwegian North Sea licences, the operator of Licence 407, BG Norge
AS, is planning for an appraisal well to be drilled in the Bream field in the
second quarter of 2008 and the operator of Licence 406, Premier Oil Norge AS, is
planning a 3D seismic survey early in 2008. Serica has a 20% interest in these
licences.
South East Asia: Indonesia and Vietnam
Indonesia
The Global Santa Fe GSF 136 drilling rig has been contracted for the drilling of
two wildcat exploration wells in the Biliton PSC, located offshore in a
virtually unexplored basin in the central Java Sea, commencing in Q4 2007. If
successful, these wells could demonstrate that the block contains significant
oil reserves and have a major impact on the Company. Serica will operate the
wells and retains a 45% interest following a farmout to Nations Petroleum
(Biliton) B.V., which will bear the majority of the costs of the drilling
programme.
In the Glagah-Kambuna PSC offshore Sumatra, the development programme for the
Kambuna gas/condensate field is underway with first production planned for the
end of 2008. The field production platform has been built and will arrive on
location in Q4 2007, following which two development wells will be drilled and
the Kambuna No. 2 well will be recompleted. In addition, offshore and onshore
pipeline route surveys are in progress in preparation for the tender for
pipeline supply and installation, whilst negotiations for the sale of the gas
and condensate are expected to conclude in Q4 2007. Serica operates the field
and has a 65% interest.
In the large Kutai PSC, East Kalimantan, an airborne elevation survey has been
completed in preparation for a 2D seismic survey to be carried out in the
onshore part of the PSC early next year. The existing offshore 3D seismic
survey data is to be reprocessed and plans for an additional 3D seismic survey
are being prepared. Serica operates the PSC and has a 52.5% interest.
Vietnam
The acquisition of a 780 square kilometre 3D seismic survey has been completed
in Block 06/94, in the Con Son Basin offshore Vietnam, in which Serica has a
33.3% interest. The block lies immediately south of the producing Lan Tay and
Lan Do gas fields and immediately east of the Dua and Blackbird oil discoveries.
Forward Programme
Serica is set for an extremely active period of exploration, appraisal and
development drilling with operations on six wells in the UK North Sea and
Indonesia over the next six months. In addition, seismic surveys are being
conducted in Spain and Vietnam, whilst preparations for 2008 drilling in Norway
and the UK are also underway.
Following the results of the two Columbus appraisal wells, conceptual
development studies for the Columbus field are underway, as is engineering
design for the potential production off-take options. The development can now be
advanced, given the results of the appraisal programme.
Serica remains very focused on creating shareholder value through its
exploration drilling and field development programmes. As the Company continues
to build on the exploration success that it has seen in the North Sea and
Indonesia, its objectives are to bring the benefits of that success back to
shareholders and to lay the foundations for future growth.
The results of Serica's operations detailed below in the MD&A, and in the
financial statements, are presented in accordance with International Financial
Reporting Standards ('IFRS').
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 12 November 2007 and should be read in
conjunction with the attached unaudited interim consolidated financial
statements for the period ended 30 September 2007. The interim financial
statements for the three and nine months ended 30 September 2007 have been
prepared by and are the responsibility of the Company's management, and have
been reviewed by the Company's independent auditors. Comparative information for
the three and nine months ended 30 September 2006 has not been reviewed by the
auditors.
References to the 'Company' 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 the UK and Indonesia, with other interests in
Norway, Spain, Ireland and Vietnam. The Group has no current oil and gas
production, with the main emphasis placed upon its future exploration drilling
programmes. In 2007 to date, work has continued on managing its portfolio of
interests, commencing the appraisal of Columbus in the North Sea, advancing the
Indonesian development and preparing for the 2007 Indonesian drilling programme.
Further details are noted in the Management Overview.
The results of Serica's operations detailed below in this MD&A, and in the
financial statements, are presented in accordance with International Financial
Reporting Standards ('IFRS').
Results of Operations
Serica generated a profit of US$1.2 million for the three months ended 30
September 2007 ('Q3 2007') compared to a loss of US$3.8 million for the three
months ended 30 September 2006 ('Q3 2006').
2007 2007 2007 2006 2006 2006
Q3 Q2 Q1 Q3 Q2 Q1
US$000 US$000 US$000 US$000 US$000 US$000
Sales revenue - - - - 36 25
Expenses:
Administrative expenses (1,658) (1,728) (1,846) (1,415) (1,343) (1,322)
Foreign exchange gain/(loss) 31 (36) 15 486 890 (48)
Pre-licence costs (76) (124) (101) (3,430) (414) (160)
Relinquished licence costs - - - (164) - -
Share-based payments (485) (464) (499) (515) (533) (436)
Change in fair value of share warrants - - - - (682) 1,836
(1)
Depletion, depreciation & amortisation (34) (26) (26) (33) (18) (10)
Operating loss before finance revenue
and taxation (2,222) (2,378) (2,457) (5,071) (2,064) (115)
Profit on disposal - - - - 2,187 -
Finance revenue 663 791 862 1,276 1,210 1,152
(Loss)/profit before taxation (1,559) (1,587) (1,595) (3,795) 1,333 1,037
Taxation credit/(charge) 2,796 - - - 506 -
Profit/(loss) for the period 1,237 (1,587) (1,595) (3,795) 1,839 1,037
Basic and diluted loss per share N/A (0.01) (0.01) (0.03) N/A N/A
Basic and diluted earnings per share 0.01 N/A N/A N/A 0.01 0.01
(1) As restated - see note 7 of the financial statements.
Revenues from oil and gas production are recognised on the basis of the
Company's net working interest in its properties and, in 2006, were generated
from Serica's 10% interest in the Harimau producing gas and gas condensate
field. The Q1 and Q2 2006 revenues are from discontinued operations following
the disposal of the Lematang PSC interest in 2006 which included the Harimau
field. Direct operating costs for the field during the period of ownership by
the Group were carried by Medco Energi Limited.
Administrative expenses of US$1.7 million for Q3 2007 remained at a consistent
level with Q2 2007 and increased from US$1.4 million for the same period last
year. The increase reflects the growing scale of the Company's activities over
the past twelve months.
No significant foreign exchange movements impacted Q3 2007 results. A large
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 strengthened 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 expense of US$0.1 million for Q3 2007 decreased from
US$3.4 million for the same period last year when significant cost was incurred
on licence applications in Norway, Ireland and Vietnam.
Share-based payment charges of US$0.5 million reflect share option grants made
and compare with US$0.5 million for both Q2 2007 and Q3 2006. Whilst further
share options have been granted in 2007, the incremental charge generated from
those options has been offset by the decline in charge of the options granted in
2005 and 2006.
The change in fair value of share warrants in Q1 and Q2 2006 is a restatement to
reflect evolving interpretation of the treatment of such instruments under the
recently adopted IFRS. This has arisen due to the difference in the denominated
currency of the share warrants compared to Serica's functional currency. The
loss in Q2 2006 was created as the fair value liability of share warrants not
exercised increased due to the rise in share price over the quarter. All
warrants were exercised in 2006 and there is no income statement impact in 2007.
This has no cash impact on reported results. More detail is provided in note 7
of the financial statements.
Negligible depletion, depreciation and amortisation charges in all periods
represent office equipment and fixtures and fittings. The costs of petroleum
and natural gas properties are not currently subject to such charges pending
further evaluation.
Finance revenue, comprising interest income of US$0.7 million for Q3 2007
compares with US$0.8 million for Q2 2007 and US$1.3 million for Q3 2006. The
decrease from last year is due to the reduction in cash deposit balances held
since Q3 2006 as expenditure was incurred on the drilling programmes.
The taxation credit in Q3 2007 represents expected tax recoveries on Norwegian
expenditure to date, partially offset by a deferred income tax charge from the
timing differences arising from capitalised exploration expenditure.
The net earnings per share of US$0.01 for Q3 2007 compares to a net loss per
share of US$0.03 for Q3 2006.
Summary of Quarterly Results
2007 2007 2007 2006 2006 2006 2006
Quarter ended: 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$000
Sales revenue - - - - - 36 25
Profit/(loss) for the quarter 1,237 (1,587) (1,595) (13,456) (3,795) 1,839 1,037
(1)
Basic and diluted loss per
share US$ - (0.01) (0.01) (0.09) (0.03) - -
Basic and diluted earnings
per share (1) 0.01 - - - - 0.01 0.01
(1) As restated for Q1 and Q2 2006 - See note 7 of the financial statements.
The fourth quarter 2006 loss includes asset write offs of US$12.7 million in
regard to the Asahan Offshore PSC. The Q2 2006 profit includes a gain of US$2.2
million from the disposal of the 10% interest in the Lematang Block.
Working Capital, Liquidity and Capital Resources
Current Assets and Liabilities
An extract of the balance sheet detailing current assets and liabilities is
provided below:
30 September 2007 30 June 2007 31 March 2007 31 December 2006
US$000 US$000 US$000 US$000
Current assets:
Inventories 5,411 6,438 6,785 6,785
Trade and other receivables 14,165 7,147 11,369 30,903
Cash and cash equivalents 45,564 56,622 72,175 77,306
Total Current assets 65,140 70,207 90,329 114,994
Less Current liabilities:
Trade and other payables (6,051) (4,413) (11,864) (30,619)
Net Current assets 59,089 65,794 78,465 84,375
At 30 September 2007, the Company had net current assets of US$59.1 million
which comprised current assets of US$65.1 million less current liabilities of
US$6.1 million, giving an overall reduction in working capital of US$6.7 million
in the three month period.
Inventories principally consist of steel casing for the forthcoming Indonesian
drilling programme. The reduction in balance of US$1.0 million during Q3 2007
from US$6.4 million at 30 June 2007 to US$5.4 million arose as a share of
amounts now directly assigned to specific Indonesian projects was recharged to
partners.
Trade and other receivables at 30 September 2007 totalled US$14.2 million, which
includes a prepayment of US$5.8 million in respect of the ongoing Columbus
drilling programme, recoverable amounts from partners in Joint Venture
operations in the UK and Indonesia, and a tax recovery of exploration
expenditure from the Norwegian fiscal regime. Other smaller items included
prepayments and sundry UK and Indonesian working capital balances. The increase
in Q3 2007 of US$7.0 million to US$14.2 million was largely caused by the
ongoing Columbus operations and the recognition of the tax recovery.
Net cash outgoings in Q3 2007 covered a US$7.7 million payment to cover UK rig
commitments, operational expenses and other exploration work. These were
partially offset by US$0.7 million of interest income received in the quarter.
Trade and other payables of US$6.1 million at 30 September 2007 include amounts
due to those sub-contractors operating the UK drilling programme, and creditors
and accruals from Indonesia. Payables arising from the 2006 drilling campaign
were substantially settled in Q1 2007.
Long-Term Assets and Liabilities
An extract of the balance sheet detailing long-term assets and liabilities is
provided below:
30 September 2007 30 June 2007 31 March 2007 31 December 2006
US$000 US$000 US$000 US$000
Intangible exploration assets 66,639 58,470 45,738 40,681
Property, plant and equipment 411 327 316 342
Goodwill 1,200 1,200 1,200 1,200
Long-term other receivables 3,121 527 668 351
Deferred income tax liabilities (3,375) (955) (955) (955)
During Q3 2007, total investments in petroleum and natural gas properties,
represented by intangible exploration assets, increased by US$8.2 million to
US$66.6 million. The most significant expenditure was incurred on the ongoing
Columbus drilling (US$4.1 million), and of the remaining Q3 2007 investment in
the UK & NW Europe; US$0.8 million related to Spain (US$0.5 million on a
specific 2D seismic survey), US$0.6 million related to Norway, US$0.6 million in
the UK on exploration work and G&A. US$1.5 million was spent in Indonesia
principally on drilling activity preparation, exploration work and G&A on the
Glagah Kambuna and Kutai concessions, and US$0.6 million in Vietnam. In Q1 2007,
US$1.0 million of back costs, received as part of the Biliton farm out, have
been credited against the capitalised pool of costs.
Property, plant and equipment includes office fixtures and fittings and computer
equipment.
Goodwill, representing the difference between the price paid on acquisitions and
the fair value applied to individual assets, remained unchanged at US$1.2
million.
Long-term other receivables of US$3.1 million are represented by a tax recovery
of exploration from the Norwegian fiscal regime, and value added tax ('VAT') on
Indonesian capital spend, which would be recovered from future production.
The deferred income tax liability increase of US$2.4 million from US$1.0 million
to US$3.4 million, occurred from timing differences arising following the
recognition of the long term Norwegian tax recovery asset.
Shareholders' Equity
An extract of the balance sheet detailing shareholders' equity is provided
below:
30 September 2007 30 June 2007 31 March 2007 31 December 2006
US$000 US$000 US$000 US$000
Total share capital 158,871 158,871 157,817 157,283
Other reserves 13,215 12,730 12,226 11,767
Accumulated deficit (45,001) (46,238) (44,651) (43,056)
Total share capital includes the total net proceeds (both nominal value and any
premium on the issue of equity capital).
Issued share capital during 2007 was increased by the exercise of 1,110,001
share options of the Company at prices ranging from Cdn$1.00 to Cdn$2.00.
Other reserves include amounts credited in respect of cumulative share-based
payment charges, and the amount of the fair value liability of share warrants
eliminated upon exercise of those share warrants. The increase in other reserves
from US$12.7 million to US$13.2 million reflects the amortisation of share-based
payment charges in Q3 2007.
Capital Resources
At 30 September 2007, Serica had US$59.1 million of net working capital and no
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 periods/years as follows:
US$000
31 December 2007 86
31 December 2008 287
31 December 2009 266
31 December 2010 42
At 30 September 2007, the Company had no long-term debt or capital lease
obligations. In Q3 2007 the Company contracted the GSF 136 jack-up drilling rig
for a minimum of 120 days during 2007 and early 2008 for Indonesian operations
at a gross cost of US$22.2 million. Serica's net share of these costs will
depend on the exact split of the proposed drilling programmes but following the
farm-out of a 45% interest in Biliton and current paying interests in the Glagah
Kambuna TAC, this is expected to be approximately US$10.1 million.
In Q1 2007 the Company contracted the Sedco 704 semi-submersible drilling rig
for UK operations, specifically the Columbus appraisal wells. The gross
obligation under the contract is for 94 days which equates to a value of US$32.2
million, of which Serica's share is expected to be 50%, depending upon the work
programme finally agreed with the Company's co-venturers.
In the absence of revenues generated from oil and gas production Serica will
utilise its existing cash balances, together with the recently arranged US$100
million senior secured debt facility, to fund the immediate needs of its
investment programme and ongoing operations and will supplement these existing
financial resources as needed.
Off-balance Sheet Arrangements
The Company has not entered into any off-balance sheet transactions or
arrangements.
Critical Accounting Estimates
The Company's principal accounting policies are detailed in note 2 to the
attached financial statements. International Financial Reporting Standards have
been adopted. 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:
Serica has exposure to interest rate fluctuations; given the level of
expenditure plans over 2007/8 this is managed in the short-term through
selecting treasury deposit periods of one to six 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
counterparty risk.
Where Serica operates joint ventures on behalf of partners it seeks to recover
the appropriate share of costs from these third parties. The majority of
partners in these ventures are well established oil and gas companies. In the
event of non payment, operating agreements typically provide recourse through
increased venture shares.
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 2007, the following director and employee share options were
outstanding: -
Expiry Date Amount Exercise cost
Cdn$
Share options Jun 2008 400,000 720,000
Feb 2009 247,499 494,998
May 2009 100,000 200,000
Dec 2009 275,000 275,000
Jan 2010 600,000 600,000
Jun 2010 1,100,000 1,980,000
Exercise cost
£
Nov 2010 561,000 544,170
Jan 2011 1,275,000 1,319,625
May 2011 180,000 172,800
June 2011 270,000 259,200
Nov 2011 120,000 134,400
Jan 2012 1,056,000 1,077,120
May 2012 405,000 421,200
August 2012 1,200,000 1,182,000
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.
Disclosure Controls and Procedures and Internal Controls over Financial
Reporting
Serica's management, including the Chief Executive Officer and Chief Financial
Officer, has reviewed and evaluated the effectiveness of the Company's
disclosure controls and procedures in accordance with Multilateral Instrument
52-109 and Canadian securities regulations as of 30 September 2007. Management
has concluded that, as of 30 September 2007, the disclosure controls and
procedures were effective to provide reasonable assurance that material
information relating to the Company and its consolidated subsidiaries would be
made known to them by others within those entities, particularly during the
period in which this report was being prepared.
Management has designed internal controls over financial reporting to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
IFRS. There have been no changes in the Company's internal controls over
financial reporting during the period that have materially affected, or are
reasonably likely to materially affect, the Company's internal controls over
financial reporting.
Nature and Continuance of Operations
The principal activity of the Company is to identify, acquire and subsequently
exploit oil and gas reserves primarily in Asia and Europe.
The Company's financial statements have been prepared with the assumption that
the Company will be able to realise its assets and discharge its liabilities in
the normal course of business rather than through a process of forced
liquidation. The Company currently has no operating revenues and, during the
three month period ended 30 September 2007, the Company earned a profit of
US$1.2 million from continuing operations. At 30 September 2007, the Company
held cash and cash equivalents of US$45.6 million.
Outstanding Share Capital
As at 12 November 2007, the Company had 151,647,957 ordinary shares issued and
outstanding.
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
14 November 2007
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 kelly@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 Sep 30 Sep 30 Sep 30 Sep
2007 2006 2007 2006 (1)
Notes US$000 US$000 US$000 US$000
Sales revenue - - - 61
Cost of sales - - - -
Gross profit - - - 61
Administrative expenses (1,658) (1,415) (5,232) (4,080)
Foreign exchange (loss)/gain 31 486 10 1,328
Pre-licence costs (76) (3,430) (301) (4,004)
Relinquished licence costs - (164) - (164)
Share-based payments (485) (515) (1,448) (1,484)
Change in fair value of share warrants - - - 1,154
Depreciation, depletion & amortisation (34) (33) (86) (61)
Operating loss before finance
revenue and tax (2,222) (5,071) (7,057) (7,250)
Profit on disposal 6 - - - 2,187
Finance revenue 663 1,276 2,316 3,638
Loss before taxation (1,559) (3,795) (4,741) (1,425)
Taxation credit for the period 6 2,796 - 2,796 506
Profit/(loss) for the period 1,237 (3,795) (1,945) (919)
Loss per ordinary share (US$):
Basic and diluted earnings per share 0.01 N/A N/A N/A
Basic and diluted loss per share N/A (0.03) (0.01) (0.01)
(1) As restated - See note 7
Serica Energy plc
Consolidated Balance Sheet
30 Sept 30 June 31 March 31 Dec
2007 2007 2007 2006
US$000 US$000 US$000 US$000
Notes (Unaudited) (Unaudited) (Unaudited) (Audited)
Non-current assets
Intangible exploration assets 66,639 58,470 45,738 40,681
Property, plant and equipment 411 327 316 342
Goodwill 1,200 1,200 1,200 1,200
Other receivables 3,121 527 668 351
71,371 60,524 47,922 42,574
Current assets
Inventories 5,411 6,438 6,785 6,785
Trade and other receivables 14,165 7,147 11,369 30,903
Cash and cash equivalents 45,564 56,622 72,175 77,306
65,140 70,207 90,329 114,994
TOTAL ASSETS 136,511 130,731 138,251 157,568
Current liabilities
Trade and other payables (6,051) (4,413) (11,864) (30,619)
Non-current liabilities
Deferred income tax liabilities (3,375) (955) (955) (955)
TOTAL LIABILITIES (9,426) (5,368) (12,819) (31,574)
NET ASSETS 127,085 125,363 125,432 125,994
Share capital 4 158,871 158,871 157,817 157,283
Other reserves 13,215 12,730 12,266 11,767
Accumulated deficit (45,001) (46,238) (44,651) (43,056)
TOTAL EQUITY 127,085 125,363 125,432 125,994
Serica Energy plc
Statement of Changes in Equity
For the period ended 30 September 2007
Group Other
Share capital reserves Deficit Total
US$000 US$000 US$000 US$000
At 1 January 2007 (audited) 157,283 11,767 (43,056) 125,994
Conversion of options 534 - - 534
Share-based payments - 499 - 499
Loss for the period - - (1,595) (1,595)
At 31 March 2007 (unaudited) 157,817 12,266 (44,651) 125,432
Conversion of options 1,054 - - 1,054
Share-based payments - 464 - 464
Loss for the period - - (1,587) (1,587)
At 30 June 2007 (unaudited) 158,871 12,730 (46,238) 125,363
Share-based payments - 485 - 485
Loss for the period - - 1,237 1,237
At 30 September 2007 (unaudited) 158,871 13,215 (45,001) 127,085
Group Other
Share capital reserves Deficit Total
US$000 US$000 US$000 US$000
At 1 January 2006 (audited) 148,745 4,153 (28,681) 124,217
Conversion of warrants 119 - - 119
Share-based payments - 436 - 436
Profit for the period - - 1,037 1,037
Fair value of warrants converted - 70 - 70
At 31 March 2006 (unaudited) 148,864 4,659 (27,644) 125,879
Conversion of warrants 2,282 - - 2,282
Share issue costs (27) - - (27)
Share-based payments - 533 - 533
Profit for the period - - 1,839 1,839
Fair value of warrants converted - 1,337 - 1,337
At 30 June 2006 (unaudited) 151,119 6,529 (25,805) 131,843
Conversion of warrants 6,164 6,164
Share-based payments - 515 - 515
Loss for the period - (3,795) (3,795)
Fair value of warrants converted - 4,289 - 4,289
At 30 September 2006 (unaudited) 157,283 11,333 (29,600) 139,016
Serica Energy plc
Consolidated Cash Flow Statement
Unaudited Three Three Nine Nine
months months months months
ended ended ended ended
30 Sept 30 Sept 30 Sept 30 Sept
2007 2006 2007 2006
US$000 US$000 US$000 US$000
Cash flows from operating activities:
Operating loss (2,222) (5,071) (7,057) (7,250)
Adjustments for:
Depreciation, depletion and amortisation 34 33 86 61
Relinquished licence costs - 164 - 164
Fair value of share warrants - - - (1,154)
Share-based payments 485 515 1,448 1,484
Changes in working capital (3,785) (2,561) (8,815) (6,833)
Cash generated from operations (5,488) (6,920) (14,338) (13,528)
Taxes received - - - 34
Net cash flow from operations (5,488) (6,920) (14,338) (13,494)
Cash flows from investing activities:
Disposals - Cash disposed - - - (51)
Interest received 663 1,276 2,336 3,638
Proceeds from disposals - - 5,000 -
Purchases of property, plant & equipment (118) - (155) (368)
Purchase of intangible exploration assets (7,169) (1,200) (26,173) (6,263)
Net cash used in investing (6,624) 76 (18,992) (3,044)
Cash proceeds from financing activities:
Proceeds on exercise of warrants/options 1,054 6,164 1,588 8,538
Net cash from financing activities 1,054 6,164 1,588 8,538
Cash and cash equivalents
Net decrease in period (11,058) (680) (31,742) (8,000)
Amount at start of period 56,622 102,430 77,306 109,750
Amount at end of period 45,564 101,750 45,564 101,750
Serica Energy plc
Notes to the Unaudited Consolidated Financial Statements
1. Corporate information
The interim condensed consolidated financial statements of the Group for the
nine months ended 30 September 2007 were authorised for issue in accordance with
a resolution of the directors on 14 November 2007.
Serica Energy plc is a public limited company incorporated and domiciled in
England & Wales. The Company's ordinary shares are traded on AIM and the TSX
Venture Exchange. The principal activity of the Company is to identify, acquire
and exploit oil and gas reserves.
2. Basis of preparation and accounting policies
Basis of Preparation
The interim condensed consolidated financial statements for the nine months
ended 30 September 2007 have been prepared in accordance with IAS 34 Interim
Financial Reporting.
These unaudited interim consolidated financial statements of the Group have been
prepared in accordance with International Financial Reporting Standards
following the same accounting policies and methods of computation as the
consolidated financial statements for the year ended 31 December 2006. 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 2006.
Significant accounting policies
The accounting policies adopted in the preparation of the interim condensed
consolidated financial statements are consistent with those followed in the
preparation of the Group's annual financial statements for the year ended 31
December 2006, except for the adoption of the following new standards and
interpretations, noted below,
IFRIC 9 'Reassessment of Embedded Derivatives';
IFRIC 10 'Interim Financial reporting and Impairment'.
The adoption of these did not affect the Group's results of operations or
financial position.
The Group financial statements are presented in US dollars and all values are
rounded to the nearest thousand dollars (US$000) except when otherwise
indicated.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries Serica Energy Corporation, Serica Energy Holdings
B.V., 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, Serica Kutei B.V.,
Serica Nam Con Son B.V. and Serica Norge AS. Together, these comprise the
'Group'.
All 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 tables present revenue and profit information regarding the
Group's geographical segments for the nine months ended 30 September 2007 and
2006.
Nine months ended 30 September 2007 Indonesia UK & NW Europe Spain Total
US$000 US$000 US$000 US$000
Revenue - - - -
Loss for the period (953) (808) (184) (1,945)
Nine months ended 30 September 2006 Indonesia UK & NW Europe Spain Total
US$000 US$000 US$000 US$000
Revenue 61 - - 61
Income/(loss) for the period 1,581 (2,374) (126) (919)
4. Equity Share Capital
30 Sept 30 Sept 31 December 31 December
2007 2007 2006 2006
Number US$000 Number US$000
Authorised:
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 Share Total
capital premium Share capital
Group Number US$000 US$000 US$000
At 1 January 2007 150,537,956 15,144 142,139 157,283
Options exercised (1) 493,334 49 485 534
As at 31 March 2007 151,031,290 15,193 142,624 157,817
Options exercised (2) 616,667 62 992 1,054
As at 30 June and 30 Sep 2007 151,647,957 15,255 143,616 158,871
(1) From 1 January 2007 until 31 March 2007, 493,334 share options were
converted to ordinary shares at prices ranging from Cdn$1.11 to Cdn$2.00.
(2) From 1 April 2007 until 30 June 2007, 616,667 share options were converted
to ordinary shares at prices ranging from Cdn$1.00 to Cdn$2.00.
5. Share-Based Payments
Share Option Plans
Following a reorganisation (the 'Reorganisation') in 2005, the Company
established an option plan (the 'Serica 2005 Option Plan') to replace the Serica
Energy Corporation Share Option Plan (the 'SEC Share Option Plan').
Serica Energy Corporation ('Serica BVI') was previously the holding company of
the Group but, following the Reorganisation, is now a wholly owned subsidiary of
the Company. Prior to the Reorganisation, Serica BVI issued options under its
option plan (the 'Serica BVI Option Plan') and, following the Reorganisation,
the Company has agreed to issue ordinary shares to holders of Serica BVI options
already awarded upon exercise of such options in place of the shares in Serica
BVI to which they would be entitled. There are currently options outstanding
under the Serica BVI Option Plan entitling holders to acquire up to an aggregate
of 2,722,499 ordinary shares of the Company. No further options will be granted
under the Serica BVI Option Plan.
The Company has granted 5,322,000 options under the Serica 2005 Option Plan,
5,067,000 of which are currently outstanding. The Serica 2005 Option Plan will
govern all future grants of options by the Company to Directors, officers, key
employees and certain consultants of the Group.
The Serica 2005 Option Plan is comprised of two parts, the basic share option
plan and a part which constitutes an Enterprise Management Incentive Plan ('EMI
Plan') under rules set out by the H.M. Revenue & Customs in the United Kingdom.
Options granted under the Serica 2005 Option Plan can be granted, at the
discretion of the Board, under one or other of the two parts but, apart from
certain tax benefits which can accrue to the Company and its UK employees if
options are granted under the part relating to the EMI Plan meeting the
conditions of that part of the Serica 2005 Option Plan, all other terms under
which options can be awarded under either part are substantially identical.
The Directors intend that the maximum number of ordinary shares which may be
utilised pursuant to the Serica 2005 Option Plan will not exceed 10 per cent. of
the issued ordinary shares of the Company from time to time, in line with the
recommendations of the Association of British Insurers.
In December 2005, 330,000 options were awarded to executive directors
exercisable only if certain performance targets are met. 110,000 of these were
cancelled during Q2 2007. In August 2007, 1,200,000 options were awarded to
non-executive directors exercisable only if certain performance targets are met.
The Company calculates the value of share-based compensation using a
Black-Scholes option pricing model (or other appropriate model for those
Directors' options subject to certain market conditions) to estimate the fair
value of share options at the date of grant. The estimated fair value of options
is amortised to expense over the options' vesting period. US$485,000 has been
charged to the income statement in the period ended 30 September 2007 and a
similar amount credited to other reserves.
The assumptions made for the options granted during 2005, 2006 and 2007 include
a weighted average risk-free interest rate of 6%, no dividend yield and a
weighted average expected life of options of three years. The volatility factor
of expected market price of 50% used for options granted during 2005 and 2006
was reduced to 40% for options granted in 2007.
The following table illustrates the number and weighted average exercise prices
(WAEP) of, and movements in, share options during the period:
Number WAEP Cdn$
Serica BVI Option Plan
Outstanding at 31 December 2006 3,975,833 1.57
Exercised during the period (493,334) 1.26
Cancelled during the period (60,000) 2.00
Outstanding at 31 March 2007 3,422,499 1.61
Exercised during the period (616,667) 1.83
Cancelled during the period (83,333) 1.36
Outstanding at 30 June and 30 September 2007 2,722,499 1.57
Serica 2005 Option Plan £
Outstanding at 31 December 2006 2,516,000 1.01
Granted during the period 1,056,000 1.02
Outstanding at 31 March 2007 3,572,000 1.01
Granted during the period 405,000 1.04
Cancelled during the period (110,000) (0.97)
Outstanding at 30 June 2007 3,867,000 1.01
Granted during the period 1,200,000 0.99
Outstanding at 30 September 2007 5,067,000 1.00
6. Taxation
The major components of income tax in the consolidated income statement are:
Nine months ended 30 September: 2007 2006
US$000 US$000
Current income tax credit 5,216 -
Deferred income tax (charge)/credit (2,420) 506
Total tax credit 2,796 506
In 2006, the book gain on sale of the Lematang PSC is sheltered from tax by
historic costs not reflected in the book value, indexation, and current UK tax
losses elsewhere in the group. The 2006 deferred tax credit arises from the
release of the deferred tax liability attached to the Lematang PSC.
In 2007, expected tax recoveries from Norwegian expenditure to date have been
recorded as a current income tax credit. These are partially offset by a
deferred income tax charge from the timing differences arising from capitalised
exploration expenditure.
7. Retrospective Restatement
In the 2006 Annual Report, the prior year income statement and balance sheet
have been adjusted to reflect differences in accounting for share warrants that
were outstanding at 31 December 2005 as a liability, carried at fair value.
Previously the warrants were considered to qualify for treatment as equity under
IAS 32 Financial Instruments: Presentation. However, precedents now available
indicate that, because the conversion proceeds were denominated in Can$, and the
company's functional currency is US$, these instruments should have been treated
more appropriately as a liability for the period the warrants remained
outstanding, with an income statement charge/credit made to reflect the movement
in the fair value of the warrants in each relevant period. All warrants were
exercised during 2006. The effect of this non cash adjustment on the Group
Income statement, Loss per Ordinary Share, Group and Company Balance Sheets, and
Group and Company Statements of Changes in Equity is detailed in Note 30 of the
2006 Annual Report.
The impact of this retrospective restatement on the Q1 and Q2 2006 comparatives
in this Q3 2007 Report is set out below:
Effect on Group Income Statement and Summary of Quarterly Results in Managements Discussion and Analysis
(Loss)/profit for the quarter
Quarter ended: 31 Mar 30 Jun
2006
(Loss)/profit for the quarter previously reported (US$000) (799) 2,521
Change in fair value of warrants (US$000) 1,836 (682)
Profit for the quarter restated (US$000) 1,037 1,839
(Loss)/earnings per share
2006
Basic and diluted loss per share previously reported (US$) (0.01) -
Basic and diluted earnings per share previously reported (US$) - 0.02
Change in fair value of warrants (US$) 0.02 (0.01)
Basic and diluted earnings per share as restated (US$) 0.01 0.01
INDEPENDENT REVIEW REPORT TO SERICA ENERGY PLC
Introduction
We have been instructed by the company to review the condensed set of financial
statements in the report to shareholders for the nine months ended 30 September
2007 which comprises the Consolidated Income Statement, Consolidated Balance
Sheet, Consolidated Statement of Changes in Equity, Consolidated Cash Flow
Statement, and the related notes 1 to 7. We have read the other information
contained in the report to shareholders and considered whether it contains any
apparent misstatements or material inconsistencies with the condensed set of
financial statements.
This report is made solely to the company in accordance with guidance contained
in ISRE 2410 (UK and Ireland) 'Review of Interim Financial Information Performed
by the Independent Auditor of the Entity' issued by the Auditing Practices
Board. To the fullest extent permitted by the law, we do not accept or assume
responsibility to anyone other than the company, for our work, for this report,
or for the conclusions we have formed.
Directors' responsibilities
The report to shareholders is the responsibility of, and has been approved by,
the directors.
As disclosed in note 2, the annual financial statements of the Company are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed set of financial statements included in this report to shareholders
has been prepared in accordance with International Accounting Standards 34, '
Interim Financial Reporting,' as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the report to shareholders based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the United Kingdom. A review consists of making
enquiries, primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance with
International Standards on Auditing (UK and Ireland) and consequently does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express an
audit opinion.
Review conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the condensed set of financial statements in the report to shareholders for
the nine months ended 30 September 2007 is not prepared, in all material
respects, in accordance with International Accounting Standard 34 as adopted by
the European Union.
Ernst & Young LLP
London
14 November 2007
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