Serica Energy Reports Full Year 2005 Results
Serica Energy plc (TSX Venture, AIM: SQZ) announces its 2005 full year results.
In the North Sea, the GSF Rig 140 has been secured for the Company's first exploration well on Block 23/16f in partnership with Endeavour Energy UK Limited. Drilling in Block 23/16f is expected to take place in the fourth quarter of 2006 following completion of site preparations. In Indonesia, the Company is currently concluding arrangements for a rig to commence its 2006/7 drilling program in the Biliton Block.
Drilling on the Glagah Kambuna and Asahan Offshore Blocks in Indonesia awaits the outcome of a large 3D seismic program scheduled to commence in the third quarter of 2006. The Company continues to explore avenues to identify rig slots in the currently tight rig market in order to bring forward drilling on Serica's other exploration prospects.
-Two operated wells completed in Indonesia were gas discoveries:
-Kambuna-2 well tested at good flow rates, demonstrating commercial potential and highlighting further upside of the block
-Togar-1A well encountered high quality gas-bearing sands
-Awarded two new North Sea exploration blocks, Block 14/15a and Block 23/16f, in the UK 23rd Licensing Round
-Appointment of Paul Ellis as Chief Executive Officer
- Completed listing on AIM in December 2005 and raised pnds stlg 64 million before costs, through JPMorgan Cazenove
- Serica has adopted International Financial Reporting Standards for its 2005 results (previously Canadian GAAP)
- Kambuna Field Plan of Development submitted to the Indonesian authorities, targeting first production in 2008. Discussions ongoing with third parties regarding gas sales agreements
- Plan of Development for Tanjung Perling Field to be submitted during first half 2006
- Drilling rigs identified for wells to be drilled in the UK and Indonesia:
- First well on North Sea Block 23/16f to be spudded in Q4 2006
- Concluding arrangements for a rig to commence the Indonesian drilling program
- A large 3D seismic program covering parts of both the Glagah Kambuna and Asahan blocks contracted to commence in Q3 2006
Tony Craven Walker, Chairman, commented:
"As a result of the drilling success and the completion of fund raising, 2005 was an excellent year for the Company. With the appointment of Paul Ellis as Chief Executive Officer to complete our management team, Serica is well placed to build upon this success through the ambitious exploration and field development program that is planned for this year and next."
Serica is an international oil and gas exploration company with operations in Indonesia, the UK North Sea and Spain. The Company's ordinary shares are listed in London on AIM and on the Canadian TSX Venture Exchange under the symbol "SQZ".
I am delighted to report that Serica has started 2006 in a strong operational and financial position. With the successful raising of pounds sterling 64 million of new capital before expenses and the listing of the Company's shares in London on AIM, to complement our existing quotation on the TSX Venture Exchange market in Canada, the Company is now well placed to create shareholder value through its ambitious exploration drilling and field development programs. I should like to thank shareholders for their support during the recent funding and to welcome new shareholders who joined us at the time of the AIM listing.
During the year we strengthened the management team with the appointment of Paul Ellis as Chief Executive Officer who will work closely with Chris Atkinson, the Chief Operating Officer and Chris Hearne, the Finance Director. Paul has over 35 years' experience in the areas of exploration, production, development and management of international oil and gas ventures. He has held senior appointments with major upstream oil and gas companies and with independent exploration companies.
We made good progress in Indonesia, where we achieved exploration success, and in the UK. In Indonesia, the successful outcome of our 2005 drilling program has demonstrated both the commercial potential of the Kambuna Field and the significant gas prospectivity of the adjacent Asahan Block. The Company has already submitted plans for the development of Kambuna to the Indonesian authorities, with production scheduled for 2008, and is in discussions with third parties interested in purchasing the gas. In addition, new seismic information has indicated that the Tanjung Perling Field, in the south of the Asahan Block, may be commercial and a development plan is also being prepared for this field.
We start these new developments, and our exploration drilling and seismic programs, at a time of high oil and gas prices but also at a time of high rig activity. This increased rig demand worldwide has led to a very tight drilling market.
Nevertheless, in this competitive market the Company has secured a rig for its first well in North Sea Block 23/16f, to be spudded in the fourth quarter this year. In Indonesia the Company is concluding arrangements for a rig for its 2006/7 drilling program in the Biliton Block. We continue to review options to bring forward exploration drilling on our other blocks but we are cautious to avoid incurring excessive drilling costs in the current overly tight market.
In summary, 2005 was an eventful year for the Company with a positive outcome. We have seen successes in Indonesia with our first two wells drilled as operator and have secured the funding required to build on these early successes. I am immensely pleased with these achievements and optimistic for the future.
CHIEF EXECUTIVE OFFICER'S REPORT
I am pleased to present this as my first report since joining the Company last September.
It is two years now since Serica was formed and listed on the TSX Venture Exchange and, in that time, the Company has made significant progress. From Serica's small starting position at the end of 2003, the Company's portfolio has grown to include a broad spread of interests in the North Sea and Indonesia, its two main areas of focus. Both these areas provide the basis for future growth. An independent study commissioned by the Company at the time of its introduction to AIM identified 22 exploration prospects in the Company's portfolio which could be potentially commercial.
This is a considerable portfolio for a company of Serica's size to have accumulated in such a short period of time. Its interests in the North Sea and Indonesia cover the technical risk spectrum, giving exposure both to lower risk appraisal projects and to higher risk, high impact projects whilst also providing a balance of geological and political risk. It is an enviable portfolio for a small company to have.
The first two wells drilled by the Company on its Asahan and Glagah Kambuna blocks in Indonesia at the end of 2005 reflect the quality of the Company's acreage. Serica is operator with a 55% interest in both of these blocks. The first well, Kambuna-2, tested gas at good flow rates and has demonstrated the commercial potential of the Kambuna Field as well as indicating further considerable upside to that field. The second well, Togar-1A, a wildcat exploration well drilled to test a direct hydrocarbon indicator on the adjacent Asahan Block, encountered high quality gas bearing sands in line with our expectations and proves the Company's technology, increasing significantly our optimism for commercial discoveries to be made on the block.
Following these positive results and the successful funding, the Company submitted a Plan of Development for the Kambuna Field to the Indonesian authorities at the turn of the year with a targeted production date of 2008. Discussions have already commenced with third parties who have expressed interest in acquiring the gas. A 3D seismic survey over the Kambuna Field and adjacent Company acreage will be acquired later this year. More recently, the analysis of new seismic data acquired by the Company has shown that the Tanjung Perling gas accumulation, which lies to the south of Kambuna in our adjacent Asahan Block, has commercial potential. We are therefore preparing a Plan of Development for the Tanjung Perling Field to be submitted to the Indonesian authorities this year.
During 2005, further prospects were added to the Company's inventory with the award of two North Sea licenses in the UK 23rd Licensing Round, Block 14/15a and Block 23/16f, both operated by Serica which has an interest of 50% in each block. Serica now has an interest in eight blocks and part blocks in the North Sea, all of which it operates. Notwithstanding a tight rig market, the Company has put arrangements in place to drill an exploration well in Block 23/16f in the fourth quarter of 2006, less than a year from the award of the license.
The sharp increase in exploration drilling activity worldwide caused by high oil and gas prices has resulted in offshore drilling rigs becoming harder to obtain and rig owners are seeking long term contracts at very high day rates. Serica is adapting to these changed circumstances and will be entering into rig-sharing agreements with other operators and favouring farm-in partners who have rigs under contract.
In addition to the semi-submersible rig secured for the drilling of the first exploration well in UK Block 23/16f, the Company is finalizing arrangements for a rig for its 2006/7 Indonesia drilling program in the Biliton Block. We continue to explore avenues to identify rig slots to bring forward drilling on other prospects. A large 3D seismic program covering parts of both the Glagah Kambuna and Asahan blocks is planned to take place in mid year before selecting the drilling locations in those blocks.
One of the factors that differentiates Serica from other small exploration companies is that Serica operates all but one of its license blocks and has working interests of between 50% and 100% in all but one block. This gives Serica financial and operational flexibility and allows it, in the event of farming-out, to retain a significant interest and exposure to the potential upside.
Serica's strategy is the creation of significant shareholder value through high impact exploration and near term development. To achieve this goal, the Company aims to maintain a portfolio of prospects that will provide opportunities each year for drilling low risk appraisal wells together with higher risk, high impact wells. To this end the Company will make applications for exploration licenses in existing and new areas of interest and will seek to undertake new ventures such as farm-ins, acreage trades and corporate transactions, focusing on those opportunities which have the potential to add significant value. Our focus for this year is to progress our current exploration and development programs whilst being open to new opportunities to create value for shareholders.
REVIEW OF OPERATIONS – Overview
Serica has operations in three different areas of the world. Two of these areas, Indonesia and the UK North Sea, are major oil and gas producing regions and the third, onshore northern Spain, is an area that has yet to be fully explored using modern exploration techniques.
The Company achieved success in 2005 with new acreage awarded in the North Sea and two gas discovery wells in Indonesia: Kambuna-2 and Togar-1A. The Company is currently studying the development of two offshore gas fields, the Kambuna Field in the Glagah Kambuna TAC and the Tanjung Perling Field in the adjacent Asahan PSC, and has commenced gas sales negotiations for both fields, in which it holds interests of 55% and is the operator.
During 2005, the Company mobilized a drilling rig to drill two wells offshore Sumatra. Kambuna-2 was drilled in September in the Glagah Kambuna Technical Assistance Contract ("TAC") and Togar-1A was drilled in the Asahan Offshore Production Sharing Contract ("PSC") in October. Kambuna-2 demonstrated the commercial potential of the Kambuna Field and a Plan of Development to supply gas to onshore Sumatra starting in 2008 was submitted to Pertamina in December. Gas sales negotiations have now been initiated for gas from the Kambuna Field.
The Togar-1A well discovered gas but not in sufficient quantities to justify a stand-alone development. However, it may be possible to produce the Togar Field as a satellite to other potential field developments. A new 2D seismic survey was completed in the Asahan Offshore PSC and locations for future exploration wells are being established.
In the Biliton PSC further 2D seismic data was acquired and a basin modelling study was completed to examine the likely flow of hydrocarbons from the source rocks to the mapped prospects on the block. Drilling locations are being determined and a three-well exploration program is now being planned.
Serica has been actively involved in the North Sea for five years and continued to improve its portfolio of interests with the award of two Central North Sea licenses in the UK 23rd Licensing Round: Block 23/16f and Block 14/15a. The Company is already preparing to drill a well in Block 23/16f to test "Magellan", a prospect on which drilling is expected to commence in the fourth quarter of 2006.
During the year considerable efforts were made in the technical evaluation of our blocks in the Southern Gas Basin and we are now making preparations for the drilling of the "Oak" gas prospect in Block 54/1b and the "Chablis" appraisal well in Block 48/16b, both operated by Serica.
The Company holds a 100% interest in four exploration permits covering approximately 1,116 square kilometers onshore northern Spain. The permits are located within the Autonomous Community of Aragon and lie approximately 60 kilometers southeast of the existing Serrablo Gas Field.
Geological evaluation of the permits has confirmed a functioning petroleum system and a series of exploration leads have been mapped. It has further been determined that additional 2D seismic data will need to be acquired in 2007 to convert these leads into prospects for drilling.
Serica has been active in Indonesia for four years and has interests in three PSCs and one TAC. The portfolio has been assembled through acquisition and direct negotiation and the Company continues to seek further exploration opportunities in this highly prospective country.
During 2005, Serica contracted the semi-submersible drilling rig "Galaxy Driller" to drill two wells: the Kambuna-2 appraisal well in the Glagah Kambuna TAC and the Togar-1A exploration well in the Asahan Offshore PSC. Both wells successfully encountered gas-bearing reservoirs.
The Company also acquired 2D seismic data in the Asahan Offshore and Biliton PSCs and is now finalizing the interpretation of both areas and selecting drilling locations.
The following table summarizes the Company's interests in Indonesia.
Working Contract Interest Role Location Glagah Kambuna TAC 55% Operator Offshore North Sumatra Asahan Offshore PSC 55% Operator Offshore North Sumatra Biliton PSC 90% Operator Offshore Java Sea Lematang PSC 10% Partner Onshore South Sumatra
Glagah Kambuna TAC
The Glagah Kambuna TAC comprises an area of approximately 380 square kilometers and lies offshore North Sumatra immediately adjacent to the Asahan Offshore PSC. Serica has a 55% working interest and is the operator of the block.
Prior to 2005, the Glagah Kambuna TAC contained two discovery wells: the Glagah-1 well drilled by Caltex in 1985 and the Kambuna-1 well drilled by Bow Valley in 1986. In September 2005, Serica drilled its first operated well, the Kambuna-2 appraisal well. The well was drilled to a depth of 7,963 ft and tested gas at 17.5 mmscfd and over 1,500 bpd of 55 degrees API gravity condensate. This well demonstrated the commercial potential of the Kambuna Field and the Company has submitted a Plan of Development to Pertamina, the Indonesian State Petroleum Company.
As part of this development plan the Company has contracted Veritas DGC to acquire a 3D seismic survey of up to 470 square kilometers commencing in mid-2006. The survey will cover not only the Kambuna Field but also a large area covering additional prospects lying both in the Glagah Kambuna TAC and in the Asahan Offshore PSC. Following the interpretation of the new data and selection of well locations, drilling will take place in 2007.
Field development, in 50 meters of water, will be straightforward and potential markets for Kambuna gas include the PLN power plant at Belawan and the city of Medan, one of Indonesia's largest cities. Serica is in negotiations with Pertamina and PT Perusahaan Gas Negara ("PGN"), the Indonesian state-owned gas company with respect to a gas sales agreement for the Kambuna Field, with production expected to commence in 2008.
Asahan Offshore PSC
The Asahan Offshore PSC comprises an area of approximately 2,185 square kilometers offshore North Sumatra and lies immediately adjacent to the Glagah Kambuna TAC. Serica has a 55% working interest and is the operator of the PSC.
The Asahan Offshore PSC contains the Tanjung Perling and Togar discovery wells. The Tanjung Perling Field, approximately 20 kilometers offshore, was discovered by Pertamina and Japex in 1974 but was uncommercial at that time.
New seismic data was acquired by Serica in 2004 and 2005 that confirmed the extent of the accumulation and Serica plans in 2006 to submit a Plan of Development for the Tanjung Perling Field to BPMIGAS, the Indonesian government agency for upstream oil and gas business. The Company recently executed a Memorandum of Understanding with PGN, relating to the delivery of gas from the Tanjung Perling Field starting in 2008.
The Togar-1A well, drilled in October 2005, was the Company's second operated well and was a small gas discovery. The well successfully confirmed the use of seismic direct hydrocarbon indicators as an effective exploration tool in the Asahan Block, which contains a number of other prospects that are currently being evaluated for exploratory drilling. Togar itself may be exploited via a future larger development on the block.
The Asahan Offshore PSC is in relatively shallow water, around 50 meters, and the ultimate development of its gas fields will take advantage of readily available conventional technology.
The Biliton PSC covers an area of approximately 6,575 square kilometers in the Java Sea between the Indonesian islands of Java and Kalimantan. The Company has a 90% working interest in Biliton and is the operator of the PSC.
The Biliton PSC lies in a virtually unexplored Indonesian basin which has many of the characteristics of analogous basins nearby which have to date produced substantial volumes of oil and gas. Only one exploration well has been drilled in the area, the Parang-G1 well drilled by Ashland Petroleum in 1974. Although this well did not find reserves of oil or gas it did encounter oil shows. In 1990, British Petroleum carried out a seabed survey that showed the presence of nine potential oil seeps within the current block boundary.
Both the shows in the well and seep information demonstrate that hydrocarbons have been generated within the area.
During 2004 and 2005, Serica acquired approximately 4,500 line kilometers of 2D seismic data which is currently being interpreted. It is expected that up to three prospects will be selected for an exploration drilling program in 2006/7. These wells will test independent features, with relatively shallow target drilling depths and are expected to be drilled in a three well back-to-back campaign.
The Lematang PSC, onshore South Sumatra, covers an area of approximately 407 square kilometers, divided into two separate blocks. It lies within the prolific South Palembang Basin where oil and gas were first discovered in the late 19th century. Serica has a 10% working interest in the Lematang PSC, which is operated by PT Medco Energi E&P ("Medco").
Several exploration wells were drilled between 1987 and 1997, resulting in the discovery of two gas fields, Harimau and Singa. The Harimau Field has been producing since 1991 and is now approaching the end of its life.
In 2004, Medco submitted a Plan of Development for the Singa Field to BPMIGAS. The plan of development includes a 40 kilometer pipeline to Pagar Dewa, the starting point for the South Sumatra to West Java gas pipeline project being undertaken by PGN.
Serica's share of operating and development costs under the Lematang PSC is currently being carried by other partners and it is expected that the Company's cost carry will be sufficient to cover all costs of the development of the Singa Field in 2006 but that an additional US$6.5 million will be required by the Company to fund its share of development costs in 2007.
Serica has been active in the North Sea for over five years and has assembled, through its participation in the UK 22nd and 23rd Licensing Rounds as well as through acquisitions, a portfolio of eight blocks in the North Sea's Southern Gas Basin and Central Graben. All of the North Sea properties held by the Company, whether in the Southern or Central North Sea, are within 15 kilometers of existing infrastructure that could potentially transport any discovered hydrocarbons to shore and to the European market.
The following table summarizes the Company's interests in the North Sea.
Working Block(s) Interest Role Location Block 48/16b 100% Operator Southern Gas Basin Blocks 48/16a, 47/20b 100% Operator Southern Gas Basin Block 54/1b 100% Operator Southern Gas Basin Block 14/15a 50% Operator Central North Sea Blocks 23/16e, 23/17b 50% Operator Central North Sea Block 23/16f 50% Operator Central North Sea
Block 48/16b and Blocks 48/16a, 47/20b
Block 48/16b and Blocks 48/16a, 47/20b are contiguous and cover a total of 377 square kilometers in the Southern Gas Basin. Serica has a 100% interest in these blocks, which contain one undeveloped discovery named Chablis and several undrilled prospects. The Chablis Field was discovered by the 48/16b-2 well, drilled by ConocoPhillips in 2001 but not production tested.
Serica has undertaken detailed geophysical and petrophysical studies of Chablis in order to define an appraisal plan. The field is close to existing infrastructure with two alternative transportation options for gas production.
Whilst well 48/16b-2 demonstrated the presence of hydrocarbons, there remains uncertainty as to the quantity of hydrocarbons recoverable and an appraisal well will improve Serica's understanding of the gas accumulation. Serica is planning to drill an appraisal well up-dip from the existing discovery.
In addition to Chablis in Block 48/16b, Serica is also evaluating a number of features in Blocks 48/16a and 47/20b, in particular the Sancerre prospect, with the aim of identifying possible satellites to Chablis.
Block 54/1b covers 106 square kilometers in the Southern Gas Basin. Serica is operator and has a 100% interest in the block which it was awarded in 2004 in the UK 22nd Licensing Round. The Company has already fulfilled the work obligation on the block by acquiring 3D seismic data.
The key reservoir target in this block is the Rotliegend Leman Sandstone in which gas has been found in several locations close to Block 54/1b including the Davy Field, approximately five kilometers to the west. Reservoir quality in the block is expected to be good, with sand thickness anticipated to be from 400 to 750 ft.
Serica has completed a detailed analysis of the block using 3D seismic and regional well data, from which it has identified the Oak prospect, a Rotliegend Sandstone feature with a direct hydrocarbon indicator that appears to delineate a potential gas accumulation immediately up-dip from well 54/1b-2. Serica intends to drill the Oak prospect in late 2006, depending on the availability of a suitable drilling unit.
Block 14/15a covers 108 square kilometers in the Central North Sea. Serica is operator and has a 50% interest in the block. Serica and its partner, Paladin Expro Limited (now part of Talisman Energy Inc), were awarded the block in 2005 in the UK 23rd Licensing Round.
Block 14/15a lies in the Outer Moray Firth area of the Central North Sea, immediately north of the established Piper, Claymore, Tartan, Highlander and Lowlander oil fields. The current 3D seismic data has been used to identify several leads on the block and, in order to refine the interpretation, Serica will undertake a seismic reprocessing project involving pre-stack depth migration of the existing 3D data.
Leads have been defined at upper Jurassic, lower Cretaceous and Paleocene levels and the reprocessing project aims to mature some of the leads into drillable prospects.
Blocks 23/16e, 23/17b and Block 23/16f
Blocks 23/16e, 23/17b and Block 23/16f are contiguous and cover 76 square kilometers in the Central Graben area of the North Sea. Serica is operator and has 50% interests in Blocks 23/16e and 23/17b, which Serica and its partners, Endeavour Energy and Wham Energy, were awarded in the UK 22nd Licensing Round. Serica is also operator and has a 50% interest in Block 23/16f, which it and its partner, Endeavour Energy, were awarded in the UK 23rd Licensing Round.
An exploration well, 23/16a-2, drilled by Britoil in 1988 and lying in the area now covered by Block 23/16f, produced light crude oil on test at a rate of 96 bpd from Tertiary sands of the Forties and Andrew formations. This discovery is now called "Henry" and the most likely reason for poor flow in the Henry discovery well is believed to be formation damage and the reservoir quality in the vicinity of the well.
In areas of the block outside the 23/16a-2 well location, there are character changes on the seismic data that can be inferred to indicate the presence of thicker channel sands with improved reservoir characteristics.
Serica has mapped the Henry discovery and the Columbus prospect in the Forties Sandstone and a prospect called Magellan in the underlying Andrew Sandstone. A deeper lead, Shackleton, has also been identified in the Lower Cretaceous.
Serica has secured a drilling rig to drill a well in Block 23/16f in the
fourth quarter of 2006 to test the Magellan prospect.
- Erskine Field Production Start-Up Delayed (Aug 23)
- Serica Completes Acquisition of 18% Stake in North Sea Erskine Field (Jun 05)
- Sidi Moussa Well Offshore Morocco Finds Oil (Oct 20)