Serica Focuses on Field Development in Q1 2008
Serica Energy plc announced its financial results for the three months ending 31 March 2008.
During the first quarter 2008 Serica Energy plc has focused its efforts on its programme of development wells in the Kambuna field, offshore Indonesia, and reported that excellent terms have been agreed for the sale of gas to be produced from the field.
In January the Company announced the completion of a placing of 24,770,354 new ordinary shares on both AIM in London and the TSX Venture Exchange in Toronto. The total amount raised for the Company was approximately US$49 million after expenses. The funding available from the US$100 million senior debt facility, in conjunction with the finance raised in the placing, provides resources to progress the Company's exploration, appraisal and development programmes.
In March Serica announced that Jonathan Cartwright had joined the Board as a non-executive director. Mr Cartwright is Finance Director of Caledonia Investments plc which owns 13% of the Company's ordinary shares.
Field Appraisal and Development
Kambuna Field, Offshore North Sumatra, Indonesia
As reported in the Company's Full Year Results, an independent reserves report prepared by RPS Energy estimated that, at a 10% discount factor, the post-tax net present value to Serica of the Proved plus Probable ("2P") Kambuna Field Reserves at constant prices and costs was US$145 million as at 31 December 2007. Total 2P reserves, on a 100% basis, were estimated to be 29.7 million barrels of oil equivalent, representing a 15% year-on-year increase. Since the reserves report was prepared, terms were agreed for a second tranche of gas and Serica ultimately expects to achieve an average gas price close to US$6.00 per thousand cubic feet, about 10% higher than that assumed in the reserves report.
Significant progress was made during the quarter on development activities in the Kambuna field, in which Serica holds a 65% interest and which it operates. The Kambuna No. 3 and No. 4 deviated development wells are being drilled from the Kambuna production platform, installed earlier this year at the location of the Kambuna No. 2 well, the first of the three planned development wells. Kambuna No. 3 was drilled to a total depth of 7,483 ft true vertical depth below mean sea level ("TVDSS"). The well entered the target Belumai reservoir at a depth of 7,166 ft TVDSS and encountered gas-bearing sands over an interval of 107 ft with a net pay of 77 ft (67 vertical ft).
Kambuna No. 4 was drilled to a total depth of 7,408 ft TVDSS. The well entered the Belumai reservoir at 7,140 ft TVDSS and encountered gas-bearing sands over an interval of 115 ft with a net pay of 107 ft (66 vertical ft). There was no indication of a gas-water contact in any of these wells and all three are now being completed for production.
Onshore and offshore facilities and a 14-inch offshore pipeline are planned to be installed later this year, with production targeted to commence in December 2008.
Columbus Field, UK Central North Sea
Rising UK gas prices encourage the early development of Serica's Columbus discovery and Serica expects to submit the Columbus Field Development Plan to the UK authorities later this year. Serica is the operator of the Columbus field in Block 23/16f and holds a 50% interest. Following the two appraisal wells drilled in 2007, that have confirmed the Columbus field development potential, Serica has acquired a new 3D seismic survey that is now being calibrated with the well results. This will lead to a better understanding of the extent of the field outside of the immediate vicinity of the wells and will be used to calculate new reserve estimates. The Columbus gas-condensate field lies in close proximity to existing production infrastructure, providing the potential to commence production as soon as arrangements for oil and gas transportation have been made and development wells have been drilled and tied-in. The main options being considered involve the completion of horizontal production wells with sub-sea tie-back to a host production platform.
Chablis Field, UK Southern North Sea
Serica operates Block 48/16b, which contains the Chablis gas discovery, and holds a 100% interest in the block. A site survey vessel has been contracted and the survey will shortly be carried out in preparation for drilling the first Chablis appraisal well. The field is in close proximity to existing production infrastructure and would be produced via a sub-sea tie-back to a host platform. On successful appraisal, Serica will work closely with infrastructure owners to achieve the earliest production from the field.
Bream Field, Offshore Norway
In the Egersund Basin Licence PL407, preparations are well in hand for the drilling of two Bream oil field appraisal wells that operator BG Norge indicates will be drilled starting in 3Q08. The aim of these wells is to obtain sufficient subsurface information to be able to put forward a Field Development Plan to the Norwegian authorities in 2009. Serica has a 20% interest in the Bream field.
In the Biliton PSC in the Java Sea, two exploration wells were drilled in December 2007 and January 2008. Neither well contained hydrocarbons and costs associated with the Biliton PSC have been expensed in the 2007 financial statements with a further small amount in Q1 2008.
In the Kutai PSC in East Kalimantan, Serica acquired an additional 25.5% working interest in February 2008. Serica is the operator of the Kutai Block and now holds a 78% interest. The Company is evaluating more than 2,000 square kilometres of 3D seismic data and has already contracted to acquire further 3D and 2D seismic data this year in order to select locations for its 2009 drilling programme.
Serica holds a 33.33% interest in the Block 06/94 PSC, which is operated by Pearl Energy and lies in the Nam Con Son Basin about 350 kilometres offshore South Vietnam. The Ocean General semi-submersible drilling rig has been contracted to drill the first exploration well in 2H08 in the south-western part of the block where oil and gas prospects have been identified. A further 1,000 square kilometre 3D seismic survey is expected to be acquired in May 2008 in order to evaluate further the prospectivity of the acreage.
Serica is the operator and holds a 100% interest in Blocks 27/4, 27/5 (west) and 27/9, which cover an area of 611 square kilometres in the Slyne Basin off the west coast of Ireland and lie 42 kilometres south of the Corrib gas field, which is currently being developed by Shell. Four significant prospects have been identified on the blocks and Serica has contracted a vessel for a site survey, which must be completed at least three months before drilling is due to take place. It had been hoped that this survey would be acquired in April but, due to continuing bad spring weather in the Atlantic, it has now been scheduled for this summer. Because of the short weather window for Atlantic drilling, Serica now plans to commence exploration drilling on the blocks in the summer of 2009.
In Licence PL406, immediately to the south of Serica's Bream field Block PL407, a 3D seismic survey is already underway in order to confirm the location of an exploration well to be drilled in 2009. Operator Premier Oil expects shortly to finalise a rig contract for the drilling programme. Serica holds a 20% interest in Blocks PL406 and PL407.
Serica holds a 75% interest and operatorship in its four exploration Permits onshore northern Spain. The 315 kilometre 2D seismic survey, which commenced in 2007, was completed in the first quarter and the data is currently being interpreted.
For the remainder of 2008 Serica's priority is the completion of the Kambuna field development programme, which includes completing three production wells, laying an offshore and onshore pipeline and building the required onshore gas and condensate reception facilities. In addition, exploration and appraisal wells will be drilled in Western Europe and South East Asia and a field development plan will be prepared for the Columbus field in the UK North Sea. Serica expects to participate in the drilling or completion of seven wells during 2008.
Serica's strategic objective is to bring forward its development programmes and to build its production revenue base as rapidly as possible, in order to make the business self-sufficient and to create shareholder value by demonstrating the potential of the Company's exploration, appraisal and development portfolio in South East Asia and Western Europe. The first stage in this process is to achieve revenue from the Kambuna field, which the Company expects to start production at the end of this year.
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 25 April 2008 and should be read in conjunction with the attached unaudited interim consolidated financial statements for the quarter ended 31 March 2008. The interim financial statements for the three months ended 31 March 2008 have been prepared by and are the responsibility of the Company's management, and the Company's 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.
Summary of Activities
Serica's activities are centred 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 near term developments and future exploration drilling programmes. In 2008 to date, work has continued on advancing the Indonesian development, moving the Columbus field development options forward and managing its portfolio of interests.
Serica's Chief Executive, Paul Ellis commented, "For the remainder of 2008 Serica's priority is the completion of the Kambuna field development programme with first production targeted for the end of the year. Serica also expects to participate in the drilling or completion of seven development, exploration or appraisal wells in Western Europe and South East Asia.
Serica's strategic objective is to bring forward its development programmes and to build its production revenue base as rapidly as possible, in order to make the business self-sufficient and to create shareholder value."
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