Serica Energy : Results for the year ended 31 December 2020
04/15/2021 | 02:07am EDT
Serica Energy plc
("Serica" or the "Company")
Results for the year ended 31 December 2020
London, 15 April 2021 - 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 2020. The results are included below and copies are available at www.serica-energy.comand www.sedar.com.
Commenting on the results, Mitch Flegg, Serica's CEO stated:
"We are reporting solid results after a challenging year and a severe industry downturn. Despite the many obstacles 2020 presented, Serica has continued to strengthen its financial and operational foundations and also to deliver returns to its shareholders. COVID-19 caused disruption to global markets and threatened operations during 2020 but Serica responded rapidly to protect its personnel and ensure continuing supplies of oil and gas into the British market. The impact of a substantial fall in commodity prices during the year plus a 45-dayshut-in of BKR production in 1H to repair a damaged caisson on the Bruce platform was mitigated by the flexible structure of the BKR net cash flow sharing arrangements and the Group's gas price hedging programme. This financial and operational resilience enables the recommendation of an increased dividend of 3.5 pence per share.
The R3 workover is now nearing completion despite a series of technical challenges and periodic severe weather throughout the campaign and the Columbus development well was spudded in mid-March 2021. These projects are expected to boost production during 2H and Q4 respectively and we continue to actively pursue M&A opportunities that can broaden our asset base and add further value for our stakeholders. I look forward to updating shareholders on our progress during the rest of the year."
Group profit before tax of £12.5 million (2019: £108.8 million) impacted by low commodity prices and Bruce caisson shut-in.
Average net production of 23,800 boe per day (2019: 30,000 boe per day) - reduction reflects 1H caisson repairs and other field maintenance work.
Cash flow from operations of £44.1 million (2019: £137.1 million).
Capital expenditure of £26.6 million (2019: £5.3 million).
Maiden 3 pence per share dividend paid in July totalling £8.0 million (2019: nil).
Closing cash and cash equivalents of £89.3 million (2019: £101.8 million) after capital expenditure and dividend payment with no debt.
Resource base reinforced as Group production of approx. 8.1 million boe for the year largely offset by a 12% increase oil and gas reserves, leaving year end reserves of 61.0 million boe (2019: 62.3 million boe).
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Average 2020 sales price of approx. US$20 per boe (2019: US$30 per boe) and
average operating cost of US$14.12 per boe (2019: US$12.60 per boe).
Gross loss of £2.9 million (2019: profit of £85.8 million) and operating loss of £18.7
million (2019: profit of £87.7 million) included £38.5 million (2019: £52.6 million) of non-cash depletion charges.
Realised gains of £12.3 million (2019: £3.9 million) on 2020 gas price hedging offset
by unrealised losses of £16.6 million (2019: unrealised gains of £6.7 million) on 2021/2022 hedging: o based on market futures curve at balance sheet date and reflects rapidly strengthening forward gas prices at the year end.
Cash flow from operations of £44.1 million (2019: £137.1 million) after payment of: o £21.8 million of BKR cash flow sharing and other liabilities (2019: £57.3 million) o £26.6 million of capital expenditure (2019: £5.3 million) and o £8.0 million of dividends (2019: nil).
Profit after tax was £7.8 million (2019: £64.0 million) after a non-cash deferred tax
provision of £4.8 million (2019: £44.8 million).
Updated independent audit of field reserves reported Serica's share of estimated remaining 2P reserves as 61.0 million boe as at 1 January 2021: o approximate 12% increase over the 62.3 million boe reported as at 1 January 2020, after adjustment for 2020 production o largely the result of improved production efficiencies and lower operating costs achieved on the BKR assets since acquisition by Serica o projected BKR field life now extended by a further two years.
Bruce, Keith and Rhum fields produced 21,500 boe per day net to Serica for 2020 compared to 27,300 boe per day for 2019 - reduction largely due to the 45-day shutdown in 1H to effect caisson repairs on the Bruce platform and to planned maintenance.
Erskine field continued its strong performance averaging over 2,300 boe per day net to Serica during 2020 (2019: 2,700 boe per day) after five-week planned maintenance shut-in.
Serica continued its cost reduction programme on BKR, lowering underlying operating costs by a further 10% in 2020. However, overall Group costs per barrel increased to US$14.12 per boe from US$12.30 in 2019 as fixed cost elements were spread over lower production volumes.
Successful completion of the Rhum R3 workover is expected to accelerate field production, with the potential to bring additional reserves into the commercial lifespan of the field and to provide operational back-up to the existing two wells. Total costs now projected at £21 million, after adjustment for net cash flow sharing, of which £11.5 million to be spent in 2021 - represents total cost overrun of £9.7 million net to Serica.
The Maersk Resilient heavy-dutyjack-up rig spudded the Columbus development well on 17 March 2021 and drilling is progressing to plan. The Arran-Shearwater export pipeline has been laid and first gas from Columbus is expected for Q4 2021.
Active management on flaring resulted in a 45% reduction in flare volumes compared to 2019.
CO2 emissions on Bruce of approx. 214,500 tonnes were over 10% lower compared to 2019 (241,500 tonnes).
ESG performance metrics added to annual incentive scheme for all Group employees covering flaring, carbon intensity, diversity and waste.
As a demonstration of its commitment to reporting transparency, Serica intends to publish its second Environmental, Social and Governance ("ESG") Report in conjunction with the publication of the full Annual Report and this will be available on Serica's websitewww.serica-energy.com.
The resurgence in commodity prices which commenced in Q4 2020 has continued into 2021 with average market prices for Q1 of approximately 50 pence per therm for NBP gas and US$61 per barrel for Brent oil, significantly higher than the respective average prices of 25 pence per therm and US$42 per barrel seen in 2020.
Gas in particular, currently some 80% of Serica's production mix, has seen prices since the year end reach sustained levels not seen since 2018. Apart from the significant benefit this brings to realised revenues, Serica also continues to build its price hedge position to cushion against commodity price falls such as seen in 2020 whilst maintaining high exposure to higher prices such as seen in the period following the year end.
Significant increases in Serica's retained share of production volumes in prospect with R3 expected to be contributing in Q3, Columbus from Q4 and Serica's retained share of net cash flow from the BKR assets increasing from 60% to 100% effective 1 January 2022.
As a core part of pursuing our objectives we will continue to increase our focus on ESG issues, in particular in efforts to reduce the carbon intensity of our production.
Having initiated a dividend policy last April it is the Board's intention to maintain dividend payments for future years and to grow the level when financial performance supports this.
Subject to shareholder approval at the AGM, a dividend of 3.5 pence per share will be payable on 23 July 2021 to shareholders registered on 25 June 2021 with an ex- dividend date of 24 June 2021.
With strong operating, ESG and financial credentials Serica is well-placed to grow through developing the potential of its existing assets as well as building on new opportunities to diversify risk, provide new growth prospects and achieve economies of scale.
A conference call for sell-side analysts will be held later today at 10.00 a.m. (UK time), today. If you would like to participate, please email firstname.lastname@example.org. A copy of the accompanying presentation can be found on our website: www.serica-energy.com.
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This announcement is inside information for the purposes of Article 7 of Regulation 596/2014.
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
+44 (0)20 7390 0230
Tony Craven Walker, Executive Chairman
Mitch Flegg, CEO
Peel Hunt (Nomad & Joint Broker)
+44 (0)20 7418 8900
Richard Crichton / David McKeown / Alexander Allen
Jefferies (Joint Broker)
+44 (0)20 7029 8000
Tony White / Will Soutar
+44 (0)20 7390 0230
Patrick d'Ancona / Chris McMahon / Simon Woods
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The past twelve months have seen a perfect storm of events caused by the worldwide pandemic which erupted at the start of 2020. The resultant lockdown, requiring companies to restrict travel, abandon office working, implement social distancing and introduce new digital technologies to facilitate communication, has put considerable strain on established business models and work practices.
In the oil and gas world, we also had to contend with one of the biggest commodity price collapses in recent years, with US oil prices moving into negative territory for a short time early in 2020 and European gas prices dropping to levels which have not been seen for decades. In short, 2020 has been an extraordinarily difficult year to navigate for all industries but particularly for the oil and gas industry.
I am pleased to report that Serica has not only been able to weather these storms, but we have also been able to move forward with all of the projects we set for the year, in particular the Columbus gas field development and the R3 intervention projects. A successful conclusion of these projects should see a significant increase in production levels in the second half of this year to add to the benefits we are already seeing from strengthening commodity prices. We are also entering the last year of the net cash flow sharing arrangements with BP, Total and BHP which formed the basis of our acquisition of the BKR assets in 2018. As a result, we will be retaining 100% of cash flows from these assets from the beginning of next year, up from 60% this year and further strengthening our cash generation.
We have been able to achieve our 2020 operational targets to build for the future with minimal impact on our financial resources. Cash balances remained strong at year end, standing at just under £90 million compared with £101 million at the start of the year despite the low oil and gas prices and after making significant capital investments in the Columbus and R3 projects. In addition, we are reporting a profit for the year of just under £8 million after providing for deferred tax. Albeit significantly less than the £64 million reported for the prior year this demonstrates remarkable resilience during a severe industry downturn.
Prices for both oil and gas have strengthened since the start of this year, particularly gas prices which affect some 80% of our production and which have risen some four-fold from their 2020 low, supporting ongoing spend on our Columbus and Rhum R3 projects. This strong financial position, with no debt and considerable unutilised debt capacity allows us to prepare for drilling the North Eigg gas prospect next year as well as completing our existing projects this year, continuing investment in the BKR assets and pursuing further growth opportunities.
Last year we paid our maiden dividend, amounting to 3p per share, and did so at a time of considerable upheaval in the oil and gas sector. This year, in view of the Company's continuing strong cash position, we are recommending an increased dividend of 3.5p per share reflecting the Board's confidence in the future prospects for the Company. Subject to approval at the Annual General Meeting in June, this will be paid as a single final dividend to all shareholders on the register at 25 June 2021.
The Company puts considerable emphasis on setting the highest standards that it can to meet environmental, social and good governance expectations of our shareholders, other stakeholders and of society at large. These include diversity where this can be achieved and equal opportunity. As a young company we are able to implement good modern practices and involve all of our employees in seeking to achieve and improve on our targets and we endeavour to bring new thinking and business innovation to these efforts as a focal part of our leadership team. Mitch Flegg, in his CEO's report, will be highlighting some of the steps we are taking and significant improvements we have been able to make to the
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