Serica Energy Sees Loss in 1Q07
Serica reports that it has continued to build on its 2006 performance with an active first quarter of 2007.
UK North Sea and Norway
Since the year end, Serica has formally been awarded the new licenses in both the UK and Norway that it reported with its full year results. In the UK, Serica was awarded Block 23/16g in the Central North Sea, Block 48/17d in the Southern North Sea and Blocks 113/26b and 113/27b (part) in the East Irish Sea. Serica is the operator of all four blocks and has a 100% interest in each block except 23/16g, where it has a 50% interest.
In Norway, Serica was awarded a 20% interest in two large licenses in the 2006 Awards in Predefined Areas ('APA') License Round. The licenses are contiguous and cover a total area of approximately 1,625 square kilometers in the Egersund Basin, about 120 kilometers southwest of Stavanger. One of the licenses contains the undeveloped Bream oil discovery.
Preparations for the 2007 drilling campaign continue. In the UK, Serica has secured the SEDCO 704 semi-submersible drilling rig for Columbus field appraisal wells in Central North Sea Block 23/16f. The rig has been contracted through AGR Peak Group and Serica will have two slots in the program, with drilling due to commence in Q3 2007. Serica is the operator of the license and will initially drill a vertical appraisal well. Depending upon the outcome of the vertical well, Serica plans to sidetrack the well to drill and test a horizontal appraisal well. The Columbus appraisal program follows the success of the Columbus discovery well, announced in December 2006, which tested at a rate of 17.5 million scfd and 1,000 bopd of condensate.
Serica recently announced the farm-out of a percentage of the Company's interest in the Biliton PSC. In line with its strategy to spread exploration risk and manage costs, Serica has signed an agreement with a subsidiary of the privately owned oil exploration and production company, Nations Petroleum Company Ltd., to farm-out a 45% interest in the Biliton PSC subject to required regulatory approval. Nations Petroleum will bear the majority of the costs of the two well drilling program, scheduled to commence in Q3 2007. Serica will remain the operator and will retain a 45% interest in the Biliton PSC. A number of potentially significant prospects have been identified within the PSC, which is located offshore in a virtually unexplored basin in the central Java Sea, and the Seadrill-5 drilling rig is contracted to drill the two exploration wells back-to-back.
Development of the Kambuna field offshore north west Sumatra is proceeding and the Seadrill-5 drilling rig will return to drill the development wells in Q4 2007 following the installation of the well head support structure. First production is expected in late 2008. As reported with the full year results, slippage in the 3D seismic program together with delays in the receipt of approvals from Pertamina have resulted in this later start-up and an application is being lodged with Pertamina for a revision to the field plan of development.
In the neighboring Asahan Offshore PSC, Serica has been in discussions with the Indonesian authorities regarding the continuation of exploration activity in the area following the expiry of the initial 10 year exploration period of the PSC in December 2006. To date, in view of the lack of agreement on the commerciality of the PSC, it has not proved feasible to extend the contract and, accordingly, it is likely that the PSC will be formally terminated. The Company has therefore deferred its plans to drill two exploration wells in the PSC this year but has submitted alternative proposals to enable it and its partners to continue exploration work in the area under revised terms.
Geological and geophysical work has commenced on the large Kutai Block awarded to Serica late in 2006 and which lies both offshore and onshore East Kalimantan, adjacent to major fields.
Serica has started 2007 in a strong financial position and continues to make good operational progress in its core areas.
In Q3, Serica will commence its UK and Indonesian drilling programs with a Columbus appraisal well and a Biliton exploration well and expects to have drilled six wells by the year-end. In its new licenses and PSCs the Company will be acquiring and interpreting seismic data and preparing for the 2008 exploration and appraisal drilling campaign. Conceptual development studies for the Columbus field are underway, so that development can be advanced once the results of the appraisal wells are available.
Serica remains very focused on creating shareholder value through its exploration drilling and field development programs. 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").
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") should be read in conjunction with the attached unaudited interim consolidated financial statements for the period ended 31 March 2007. The interim financial statements for the three months ended 31 March 2007 have been prepared by and are the responsibility of the Company's management and the independent auditors have not performed a review of these financial statements.
References to the "Company" include Serica and its subsidiaries where relevant. All figures are reported in US dollars ("US$") unless otherwise stated.
Serica's activities are centered 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 programs. In 2007 to date, work has continued on managing its portfolio of interests, accelerating the appraisal of Columbus in the North Sea, advancing the Indonesian development and preparing for the 2007 drilling program. 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 loss of US$1.6 million for the three months ended March 31, 2007 ("Q1 2007") compared to a profit of US$1.0 million for the three months ended 31 March 2006 ("Q1 2006"). The Q1 2006 figures have been restated to take account of the revised accounting treatment for share purchase warrants outstanding at March 31, 2006.
Q1 Q1 (1) 2007 2006 US$000 US$000 Sales revenue - 25 --------- --------- Expenses: Administrative expenses (1,831) (1,370) Pre-license costs (101) (160) Share-based payments (499) (436) Change in fair value of share warrants - 1,836 Depletion, depreciation & amortisation (26) (10) --------- --------- Operating loss before finance revenue and taxation (2,457) (115) Finance revenue 862 1,152 --------- --------- (Loss)/profit before taxation (1,595) 1,037 Taxation charge - - --------- --------- (Loss)/profit for the period (1,595) 1,037 Basic and diluted loss per share (0.01) - Basic and diluted earnings per share - 0.01 (1) As restated - see note 5 of the financial statements
Revenues from oil and gas production are recognized 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 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$1.8 million for Q1 2007 increased from US$1.4 million for Q1 2006. The increase reflects the growing scale of the Company's activities over the past twelve months.
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.
Share-based payment charges of US$0.5 million reflect share option grants made and compare with US$0.4 million for Q1 2006. The increase is due to share options granted to employees in early 2007.
The change in fair value of share warrants in Q1 2006 is a restatement to reflect evolving interpretation of the treatment of such instruments under the recently adopted International Financial Reporting Standards. This has arisen due to the difference in the denominated currency of the warrants compared to Serica's functional currency. The gain in Q1 2006 was created as the fair value liability of warrants not exercised decreased due to the fall in share price over the quarter. This has no cash impact on reported results. More detail is provided in note 5 of the financial statements.
Negligible depletion, depreciation and amortization charges in both 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$0.9 million for Q1 2007 compares with US$1.2 million for Q1 2006. The decrease from last year is due to the reduction in cash deposit balances held during 2006 as expenditure was incurred on the drilling programs.
The net loss per share of US$0.01 for Q1 2007 compares to an earnings per share of US$0.01 for Q1 2006.
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