Serica Energy Announces 2006 Third Quarter Results

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 program in the UK North Sea and with rigs secured for its Indonesian exploration and field development program commencing in the first quarter of 2007. The next twelve months have the potential to generate material returns for shareholders."

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 (pnds stlg)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 program 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 finalized plans for a two or three well exploration program 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 License covering Blocks 27/4, 27/5 (part block) and 27/9 which covers an area of approximately 611 square kilometers in the Slyne Basin off the west coast of Ireland. Serica is the operator and will hold a 100% interest in the License.

Serica has also made applications for new offshore licenses in the UK, Indonesia and Norway and expects to hear the results of these applications by the end of this year.


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 program 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 program for 2006-7 and has the financial and management capability to carry out the program successfully.


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 centered 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 programs 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 program, 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
	     revenue(1)          -        36        25        36        32        31


	     expenses       (1,415)   (1,343)   (1,322)   (1,335)   (1,061)   (1,113)
	    Foreign exchange
	     gain/(loss)       486       890       (48)     (240)     (600)      (24)
	     costs          (3,430)     (414)     (160)      (57)     (350)     (288)
	    Costs of expired
	     licenses         (164)        -         -         -         -         -
	     payments         (515)     (533)     (436)     (254)     (383)      (78)
	     depreciation &
	     amortisation      (33)      (18)      (10)       (4)       (4)       (4)
	    Operating loss
	     before finance
	     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

	     taxation       (3,795)    2,015      (799)   (1,793)   (2,265)   (1,394)

	     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 recognized 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-license costs include direct cost and allocated general administrative cost incurred on oil and gas interests prior to the award of licenses, 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 license 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 licenses relates to the non core UK North Sea license 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 amortization 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

	    ended:                                        2006      2006      2006

	                                                  30 Sep    30 Jun    31 Mar
	                                                  US$000    US$000    US$000

	    Sales revenue                                      -        36        25
	    (Loss)/profit for the quarter                 (3,795)    2,521      (799)
	    Basic and diluted loss
	     per share US$                                 (0.03)        -     (0.01)
	    Basic earnings per share US$                       -      0.02         -
	    Diluted earnings per share US$                     -      0.02         -

	                                       2005      2005      2005      2005

	                                       31 Dec    30 Sep    30 Jun    31 Mar
	                                       US$000    US$000    US$000    US$000

	    Sales revenue                           25        36        32        31
	    (Loss)/profit for the quarter         (403)     (775)   (1,506)   (1,435)
	    Basic and diluted loss
	     per share US$                       (0.01)    (0.01)    (0.02)    (0.02)
	    Basic earnings per share US$             -         -         -         -
	    Diluted earnings per share US$           -         -         -         -

	    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  December
	                                       2006      2006      2006      2005
	                                       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 program 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    30 June   31 March  December
	                                       2006      2006      2006      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          270       304       304        26
	    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 licenses 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 US1.6 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                            31
	                                       September 30 June   31 March  December
	                                       2006      2006      2006      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 amortization 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:

	    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 program. 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 utilize existing financial resources as required to fund its investment program and ongoing operations. The Company will continue to review other financing alternatives, including debt facilities, in order to optimize its financial structure.


Our Privacy Pledge

Most Popular Articles

From the Career Center
Jobs that may interest you
Manager, Probabilistic Risk Analysis Job
Expertise: Business Development|Research & Development|Technical Manager
Location: Minneapolis, MN
Project Controls Specialist
Expertise: Project Management
Location: Minneapolis
Business Development Manager
Expertise: Business Development|Construction Manager|Sales
Location: West Sacramento, CA
search for more jobs

Brent Crude Oil : $50.79/BBL 1.30%
Light Crude Oil : $49.96/BBL 1.10%
Natural Gas : $2.77/MMBtu 2.12%
Updated in last 24 hours