Serica Posts Q2 Loss
Serica Energy (TSX Venture & AIM: SQZ) reports its financial results for the three and six months ended 30 June 2007.
Serica's Chief Executive, Paul Ellis, commented:
"The first half of 2007 has been a relatively quiet period for Serica as we put into place the drilling and contractual arrangements for a significant increase in activities planned for the second half. Appraisal drilling on the Columbus field will commence in the next few weeks and we expect to take delivery of the well-head tower for the Kambuna field in the next quarter, enabling us to start drilling the field development wells immediately after installation.
"Serica also has significant exposure to exploration upside in the second half of 2007 with a 45 percent interest in two wildcat wells to be drilled by the Company in the Biliton Block in Indonesia. Serica's costs in these wells are carried as a result of the farm-out agreement with Nations Petroleum. We will continue this exploration drilling with further wells planned in the UK and Norway in early 2008.
"Serica remains very focused on creating shareholder value through its exploration drilling and field appraisal and development programs and I am very optimistic for the Company's prospects."
Serica has continued to build on its 2006 performance with an active second quarter of 2007.
Serica has recently 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.
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.
This facility provides Serica with funds to develop the Company's interests in the Kambuna and Columbus fields, both of which are operated by Serica, and contribute to Serica's share of drilling costs for the appraisal of the Bream oil discovery in Norway.
In June, Serica announced that Ian Vann would be joining the Board as a non-executive director with effect from 1 July 2007. Ian was employed by BP from 1976, and directed and led BP's global exploration efforts from 1996 until his recent retirement in January 2007. He was appointed to the executive leadership team of the Exploration & Production Division of BP in 2001, initially as Group Vice President, Technology and later as Group Vice President, Exploration and Business Development. Ian brings a wealth of valuable experience in the international oil and gas exploration business to the Board of Serica.
Since the period end, Serica announced that Steven Theede has joined the Board as a non-executive director with effect from 24 July 2007. Steve was employed by Conoco, later ConocoPhillips, from 1973 until 2003, where he held numerous management positions in Refining and Marketing, Exploration and Production as well as in corporate activities, located both in the US and Europe. In 2000 he was appointed President, Exploration and Production for Europe, Russia and the Caspian region. In 2003 he joined Yukos Oil Company located in Russia, as Chief Operating Officer and became Chief Executive Officer of the Company in July 2004, a position he held until August of 2006. His industry background complements the talents and experience that already exist on the Board of Serica.
Western Europe: United Kingdom, Ireland, Norway and Spain
Serica retained its 50% interest in Block 23/16f, in which it made the Columbus discovery in December 2006, having agreed with BG International Limited not to complete a previously announced acreage exchange. As operator of the block, Serica has contracted the semi-submersible drilling rig SEDCO 704 to drill the first Columbus appraisal well in September 2007, in a location about three kilometers north of the 23/16f-11 discovery well.
Discussions have already commenced with nearby infrastructure owners with a view to reaching a Columbus development decision by the end of the year in the event of a successful outcome to the appraisal drilling. Serica has secured a second rig slot on the SEDCO 704 in the summer of 2008, which will be available for a Columbus development well or for an exploration well in Serica's adjacent Block 23/16g.
In its East Irish Sea Blocks 113/26b and 113/27c to the north of the Morecambe gas field, Serica is carrying out a 3D seismic reprocessing project in order to confirm future exploration well locations. Serica has a 100% interest in the license.
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 1 tcf Corrib gas field, currently under development by Shell.
In Serica's Norwegian North Sea licenses, the operator of License 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 License 406, Premier Oil Norge AS, is planning a 3D seismic survey early in 2008. Serica has a 20% interest in these licenses.
In Spain, Serica has just completed a seismic test line in preparation for a 2D seismic survey on its four onshore licenses in Aragon Province, in the northeastern part of the country. Serica holds a 100% interest in the licenses.
Southeast Asia: Indonesia and Vietnam
In March, Serica 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. Under the terms of the agreement and subject to regulatory approval, Serica will assign a 45% interest in the Biliton PSC to Nations Petroleum Company Ltd., which will bear the majority of the costs of the two-well exploration drilling program, scheduled to commence in the fourth quarter of 2007. Serica will remain the operator and will retain a 45% interest in the Biliton PSC. The two prospects to be drilled are located offshore in a virtually unexplored basin in the central Java Sea.
In the Glagah-Kambuna PSC offshore North West Sumatra, development of the Kambuna gas/condensate field is now well underway. Negotiations for the sale of the gas and condensate are expected to conclude shortly, with the field destined to supply gas to Medan, Indonesia's third largest city. The field wellhead support tower is currently under construction in Balikpapan, Indonesia, and is scheduled for delivery in September and installation in the fourth quarter of this year. Two new development wells will be drilled from the tower and the Kambuna No. 2 well will be recompleted in order to develop the Kambuna field. Later this year the offshore and onshore pipeline route surveys will be carried out in preparation for issuing invitations to tender for pipeline supply and installation.
In the large Kutai PSC, East Kalimantan, an 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 is being prepared.
Serica holds a 33.3% interest in the Block 06/94 PSC in the Con Son Basin offshore Vietnam. 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. Several prospects have already been identified on the block and acquisition of a new 3D seismic survey is expected to begin in the third quarter of 2007.
Serica will commence an extensive period of drilling activity in the second half of the year with two exploration wells and four appraisal or development wells planned.
In the third quarter, Serica will commence its UK drilling program with a Columbus appraisal well to be drilled in September. Conceptual development studies for the Columbus field are underway, so that development can be advanced once the results of the appraisal program are known. In Indonesia, two exploration wells will be drilled in the fourth quarter and the Kambuna development-drilling program will commence.
Serica remains very focused on creating shareholder value through its exploration drilling and field development programs. As the Company continues to build on the exploration success that it has seen in the North Sea and Indonesia, our 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 3 August 2007 and should be read in conjunction with the attached unaudited interim consolidated financial statements for the period ended 30 June 2007. The interim financial statements for the three and six months ended 30 June 2007 have been prepared by and are the responsibility of the Company's management. The Company's independent auditors have reviewed the interim financial statements for the six months ended 30 June 2007 and 2006.
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 30 June 2007 ("Q2 2007") compared to a profit of US$1.8 million for the three months ended 30 June 2006 ("Q2 2006"). The Q2 2006 figures have been restated to take account of the revised accounting treatment for share purchase warrants outstanding at 30 June 2006.
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 and Q2 2006 revenues are from discontinued operations following the disposal of the Lematang PSC interest in 2006, which included the Harimau field. Medco Energi Limited carried direct operating costs for the field during the period of ownership by the Group.
Administrative expenses of US$1.7 million for Q2 2007 remained at a consistent level with Q1 2007 and increased from US$1.3 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 Q2 2007 results. A large foreign exchange gain of US$0.9 million was earned in Q2 2006. This chiefly arose from the increase in US$ equivalent value of pounds sterling cash deposits held, as the pound strengthened against the dollar during the quarter.
Pre-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 expense of US$0.1 million for Q2 2007 decreased from US$0.4 million for the same period last year due to an increased focus on license applications in Norway and Ireland in 2006.
Share-based payment charges of US$0.5 million reflect share option grants made and compare with US$0.5 million for both Q1 2007 and Q2 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 9 of the financial statements.
Negligible depletion, depreciation and amortization 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$0.8 million for Q2 2007 compares with US$0.9 million for Q1 2007 and US$1.2 million for Q2 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 Q2 2007 compares to an earnings per share of US$0.01 for Q2 2006.
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$2.3 million from the disposal of the 10% interest in the Lematang Block.
- 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)