SQZ Serica Energy Plc

CHAIRMAN'S STATEMENT

 

Dear Shareholder

 

Without doubt times are currently difficult for independent oil and gas companies working in the UK. However, I am pleased to say that Serica is no ordinary company, and it is strong and well equipped to withstand the current headwinds. The purpose of the Company remains to contribute responsibly towards meeting the world's energy needs through the safe and efficient production of hydrocarbons. Its Board is resolute that it will stay focussed on responsible capital allocation to invest prudently in our business whilst also delivering increasing returns for shareholders over time. We do this by investing in our mid to late life assets, optimising them and extending their lives, while seeking opportunities to further add value through operationally and financially accretive acquisitions. Given the significant fiscal uncertainty driven by both major political parties in the UK, we have stepped up efforts to identify attractive opportunities to apply our approach in the broader North Sea region.

 

2023 in Overview

 

In operational terms, 2023 was another year of sound progress at Serica. Notwithstanding an unexpectedly long summer maintenance shut down, we again delivered within the range of our production guidance, and more than replaced production for the 6th year in succession.

 

The troubling developments in 2023 (and sadly again in 2024) came from Westminster. First, the Government elected to keep its supposed 'Windfall' Profits Tax in place long after any possible justification for it based on oil and gas prices had disappeared and then most recently in the Spring budget announced that they would extend it by a further year to 2029. Second, the Labour Party announced that, if elected to Government, they would not only increase the rate of the tax to 78% but also significantly reduce the amount of capital relief on investment as compared to the current regime. Uncertainty caused by political short termism risks killing off investment across the UK sector of the North Sea and with it the associated high-quality jobs this creates throughout the UK. It would seem that the established policy of maximising the economic recovery of the UK's remaining reserves of oil and gas in support of the energy transition has been abandoned. Instead, our politicians appear to have embarked on a race to the bottom with policy aimed at maximising the near-term Government take, notwithstanding that this will necessarily accelerate both production decline and the timing of decommissioning, which in turn will inevitably reduce Government overall receipts from UKCS and serve only to increase imports of oil and gas to the UK.  Imported production can easily be interrupted, pays no UK taxes, sustains no UK jobs, and often involves greater carbon emissions.  This policy volte face is a sad demonstration of the elevated level of UK political risk which our industry now faces and has necessarily caused all companies operating on the UKCS, including Serica, to reconsider their UK investment plans.

 

Significant Developments in 2023

 

The acquisition of Tailwind Energy was completed in March. Amongst other benefits flowing from this acquisition, our portfolio of producing assets became more evenly balanced between oil and gas, which had the consequence (consistent with one of our objectives from the Tailwind transaction) of reducing the impact of falling gas prices through the year - a trend which has continued into 2024. Serica also signed an innovative deal to add to our resource hopper by farming into Jersey Oil and Gas's project to redevelop existing discovered resources in the Buchan field. We will be continuing to work this pre-sanction opportunity with our partners in the field during 2024. At the same time, our team supplemented by the expertise of our new former Tailwind colleagues, continued to identify opportunities to invest in our existing assets, providing significant additions to our oil and gas reserves in both our hubs, and so providing potential to defer decommissioning activities.

 

The Company's Finances

 

Serica's finances remain strong despite reduced commodity prices and the impact of unwelcome high tax rates, with revenues of £633 million (£812 million in 2022).  Group Profit before taxation for 2023 amounts to £306 million (£488 million in 2022). After providing for the impact of materially increased taxes, profit after tax for 2023 was £103 million (£178 million in 2022). Furthermore, the Company retains the confidence of major financial institutions and hence was able to raise significant support in the form of a new US$525 million reserve-based loan facility completed in January 2024. This loan facility, together with our existing cash balances, provide us with flexibility for capital allocation in line with our stated strategy of investing in our assets, disciplined M&A and ensuring robust shareholder distributions.

 

Outlook and Policy

 

Notwithstanding the current political turbulence, Serica will continue to seek ways to invest in our UK assets where we believe such investments will create value for our shareholders. Given our operational skills and very low exposure to decommissioning cost (our liabilities are among the lowest in the UKCS), we are better placed to do this than most. However, our ambitions for increased shareholder value are far greater than simply maximising returns from our current portfolio of assets. If good opportunities for increased value should arise in the UK of course we will not ignore them, but in the current circumstances we must consider other alternatives. Hence the Board has now refocused and increased its search for projects outside the UK where we believe we can deploy our skillsets to deliver increased shareholder value. We are currently focussed on identifying attractive opportunities in the broader North Sea region beyond the UK. However, we will remain disciplined and will only invest in projects or make acquisitions where we are confident that they will deliver increased value and returns for shareholders.

 

Shareholder Distributions   

 

The Board of Serica is committed to a shareholder distribution policy which reflects the underlying performance and ambitions of the Company and so provides a good return to shareholders whilst also leaving room for investment in continuing asset growth. The total dividend for 2022 was 22 pence per share returning £76 million to shareholders. In November 2023 we paid an interim dividend of 9 pence per share.  Subject to approval of shareholders at the Annual General Meeting in June 2024, we are proposing a final dividend of 14 pence per share, bringing the total dividend for the year to 23 pence per share. In addition, in response to the Board's view on the intrinsic value of the Company, we are today announcing a Share Buyback programme which will contribute to the shareholder distributions in respect of 2024.

 

 

Board and Management Changes

 

In February 2024, after many years of exemplary service within the Company and having played a leading role in the structuring and closing of the BKR acquisition, Andy Bell retired. I was then delighted to welcome Martin Copeland to the Board as the new Chief Financial Officer. Martin has a wealth of highly relevant experience in the banking and M&A sectors and is a fine addition to the team. We are extremely grateful that Andy has stayed on to provide support to ensure a smooth transition of the CFO role.

 

Also in January, we announced that Mitch Flegg will step down from his role as CEO in April following publication of the 2023 results. Mitch is leaving the Company later this year after the AGM with our heartfelt thanks for all his excellent work over his six years as CEO and before that as COO. Amongst his many achievements, Mitch successfully managed the integration of the BKR assets and led the acquisition and integration of Tailwind in 2023. He will leave a Company in robust health positioned for future growth.

 

As previously announced, upon Mitch's departure I will move into the role of interim CEO during the search to identify and appoint a permanent CEO to lead the next phase of the Company's development.

 

After six years on the Serica Board, Malcolm Webb our Senior Independent Director, has informed the Board of his wish not to stand for re-election at the AGM. As chair of the Nominations Committee, Malcolm will continue to lead the CEO recruitment process which is now at an advanced stage. It is anticipated that an announcement on the conclusion of this process will be made by the time of the AGM in June. The Board is very grateful for Malcolm's considerable contribution to the transformation of the Company over the last several years.     

 

I wish to take this opportunity to record a special tribute to Tony Craven Walker, who retired as Chairman of the Board in June 2023. Tony is a legendary figure in the industry and the effective founder and creator of Serica as we know it today. It is not an overstatement to say that without Tony, Serica would not have survived, let alone thrived as it has. His was the inspiration behind the Erskine deal and the genius and determination behind the company-making BKR acquisition. But above and beyond all that, Tony inspired the commercial, operational and corporate aspirations of our Company. We continue to aspire to the high standards that he set. We are also so very pleased and honoured that he remains a substantial shareholder in the Company.

 

Finally, and on behalf of the Board I extend thanks to the Serica team, especially to all employees, whether based in Aberdeen, London or Offshore, for their efforts throughout the last year and the enthusiasm and professionalism which they bring to their work every day. Thanks also to colleagues working alongside us in our supply chain, whose partnership is a vital element of our continued success. And, last but not least, a thank you to all shareholders for your investment in and support for our Company, which I can assure you is greatly appreciated and which I and all at Serica will do our very best to justify.

 

 

David Latin

Chairman

 

23 April 2024

 

STRATEGIC REPORT 

 

The following Strategic Report of the operations and financial results of Serica Energy plc ("Serica") and its subsidiaries (the "Group") should be read in conjunction with Serica's consolidated financial statements for the year ended 31 December 2023. 

 

References to the "Company" include Serica and its subsidiaries where relevant. All figures are reported in GB Sterling ("£") unless otherwise stated.

 

The Company is subject to the regulatory requirements of AIM, a market of the London Stock Exchange in the United Kingdom. Although the Company delisted from the Toronto Stock Exchange ("TSX") in March 2015, the Company is a "designated foreign issuer" as that term is defined under Canadian National Instrument 71-102 - Continuous Disclosure and Other Exemptions Relating to Foreign Issuers.

 

Serica is an independent oil and gas company with production, development and exploration interests in the UK Continental Shelf.

 

CEO's REVIEW

 

During 2023, Serica grew and diversified its business through acquisition, maintained its record of reserves replacement and prepared for significant new well programmes linked to its existing fields and infrastructure. These investments, to be carried out over the next twelve months, offer the prospect of additional near term production with minimal additions to total operating costs and carbon emissions.

In addition, the new financing facility brings increased capacity with duration extended to end 2029, strengthening Serica's capability to pursue further growth.

The acquisition of Tailwind Energy Investments Ltd, was completed in March 2023 and has provided operational diversity and scale for Serica. The net proforma production from the combined portfolio for 2023 was 40,121 boe/d, which was split 56% gas and 44% oil. This split between oil and gas is far more balanced than in 2022 when Serica's production was 91% gas.

Market benchmark gas prices were significantly reduced at an average of 99p/therm in 2023 compared with 198p/therm in 2022 (and have fallen to an average of only 69p in the first quarter of 2024). Oil prices were more resilient averaging US$83/bbl (US$101/bbl in 2022).

The Tailwind assets have therefore provided Serica with substantial protection against the significant fall in gas prices. 86% of Serica's production is operated and the Bruce, Keith and Rhum contribution is now around 50% of net production rather than 80% prior to the Tailwind transaction.

Serica has maintained its record of more than replacing reserves since 2018 with net Proved plus Probable ("2P") reserves on 31 December 2023 of 140 million boe, up 10 million boe from 130 million boe at 31 December 2022 despite producing 14.6 million boe in 2023 on a proforma combined Serica and Tailwind basis. This addition of 24 million boe during 2023 represents a reserves replacement ratio of 179% with over 90% of the 2P reserves in fields that are already in production.

The Company is therefore continuing with its growth strategy of investment in projects designed to enhance and extend future production profiles. The Tailwind portfolio came with several short-cycle, highly value-adding opportunities which were matured in 2023 and will be exploited by our ongoing four well drilling programme which is also being undertaken with the benefit of the current capital allowances and with the resultant production sheltered by the ring-fence tax losses we acquired with Tailwind. This comprises wells on Bittern, Gannet E, Guillemot NW and Evelyn. We are now anticipating a fifth well, on the Belinda development, pending final NSTA approval of the field development plan. Following the success of last year's Light Well Intervention Vessel ("LWIV") programme on Bruce, a second campaign was executed in 2023, and a third campaign is now ongoing.

The common theme amongst these capital projects is that they are all designed to add production quickly from existing fields without the requirement for substantial new infrastructure. We continue to focus on emissions reduction whilst maximising production. Carbon intensity (emissions divided by production) from the Bruce hub for 2023 was 16.4kg CO₂/boe, significantly lower than the average for offshore UK Facilities of 19.8 kg CO₂/boe^[4]. The absolute level of CO₂ emissions is approximately 27% lower than the 2018 benchmark levels. On Triton, the 2023 carbon intensity was 20.6kg CO₂/boe, which represents a reduction of roughly 20% from 2022. As new production from Serica's forthcoming drilling campaign will be tied back to existing offtake facilities, such additions add reserves without adding significant carbon emissions.

The UK remains heavily reliant on energy imports; our energy production is only 60% of demand and oil and gas comprise three quarters of our energy use. The growth of offshore wind, hydrogen and CCS will underpin the UK's net zero emissions future, but oil and gas will provide the bridge to that future.

Energy prices have fallen back to pre-crisis levels and are showing greater stability. This leads to lower costs for homes and businesses and lower overall inflation. The UK Energy Profits Levy ("EPL") has a significant impact on post-tax profitability for all UK oil and gas producers. The EPL is a wholly unwelcome burden that is already leading to the delay and cancellation of longer-term investment projects across the sector. Current oil and gas prices do not represent windfall conditions for UK producers and the increased tax burden on domestic oil and gas production is damaging for UK jobs.

However, the substantial tax losses acquired with the Tailwind transaction have had the effect of lowering Serica's effective rate of taxation and so we are still attempting to add investment opportunities to the portfolio. In October we announced the award of Block 29/2a containing the decommissioned Kyle oil field. This field ceased production in June 2020 and the host FPSO at the time was subsequently removed. During an initial two-year licence period, Serica will carry out studies to determine the feasibility of re-developing the Kyle field by means of a subsea tie-back to the Triton FPSO vessel via the Bittern field facilities.

In November we announced the acquisition of a 30% non-operated interest in the Greater Buchan Area from Jersey Oil & Gas ("JOG"). The partners in the project are Serica Energy (UK) Limited (30%), NEO Energy (50% and operator) and JOG (20%). This provides Serica with the option of participating in the re-development of the Buchan field (formally re-named 'Buchan Horst') and other potential projects in the GBA, such as the development of the J2 and Verbier discoveries.

Given the challenging UK fiscal regime we continue to seek M&A opportunities elsewhere in the North Sea. For example, Norway offers a wide range of sub-surface opportunities and a relatively stable fiscal regime but less deal flow than UKCS. We are adopting a disciplined and patient approach exploiting Serica's technical skills, financial capacity and relationships.

Finally, this is my last 'CEO Review', and I would like to take the opportunity to thank everyone who has helped build Serica into what it is today. The support of shareholders, analysts, regulators, and contractors has been outstanding, but it is the efforts and skills of the exceptional workforce that has established a company with such strong operational and financial foundations. Serica is extremely well placed to continue its growth trajectory.

 

Mitch Flegg

Chief Executive Officer

23 April 2024

 

 

ACQUISITION OF TAILWIND ENERGY INVESTMENTS LTD

 

On 23 March 2023 Serica Energy completed the acquisition of Tailwind Energy Investments Ltd, a privately owned independent oil and gas company with assets in the UK North Sea. As part of the transaction, Mercuria - an investor in Tailwind - became a strategic investor in Serica.

The assets acquired by Serica with the Tailwind transaction comprise primarily a mix of operated and non-operated producing fields tied-back to the Triton FPSO in the UK Central North Sea. Tailwind's interests in producing fields also include 100% in the Orlando field located in the UK Northern North Sea and a non-operated 25% in the Columbus field in the UK Central North Sea (operated by Serica).

The acquisition of Tailwind was aimed at achieving Serica's longstanding objective to have a more diverse and broadly based UKCS portfolio of producing fields, with material reserves and value upside potential, coupled with a more balanced exposure to commodity price risk. The transaction represents substantial progress towards this objective with the number of producing fields increased from five to eleven, mainly centred around two hubs (Bruce and Triton), a substantial increase in 2P reserves (combined 130.4 million boe as at 31 December 2022) and a balance of gas and oil production. 

 

 

 

REVIEW OF OPERATIONS

 

Production

Northern North Sea: Bruce Field - Blocks 9/8a, 9/9b and 9/9c, Serica 98% and operator

Serica operates the Bruce field and facilities consisting of three bridge-linked platforms, wells, pipelines and subsea infrastructure. The platforms contain living quarters, reception, compression, power generation, processing and export facilities and a drilling derrick that is currently mothballed. There is also the subsea Western Area Development ("WAD") that produces from the western part of the Bruce field and is tied back to the existing facilities.

 

Bruce production is predominantly gas which is rich in liquids. Gas is exported through the Frigg pipeline to the St Fergus terminal, where it is separated into sales gas and NGLs. Oil is exported through the Forties Pipeline System to Grangemouth.

 

In the first half of 2023 Serica completed the replacement and upgrade of the control system for the Bruce platform, increasing the amount of data that can be captured and processed, helping us to unlock the ability to implement AI based improvements to our control, monitoring and maintenance activities.

 

We also successfully carried out the replacement of the subsea control modules on the WAD manifold to support the LWIV activity which took place in Q3 2023 and which will support ongoing LWIV activities in the future.

 

On the platform topsides a series of surveillance and intervention activities were undertaken on a number of the Bruce wells, verifying well integrity, identifying future production options and implementing several simple interventions to boost production.

 

Major works were undertaken during the summer outage to replace the main platform flare tip, 140 metres above the sea surface requiring a heli-lift, along with major overhauls of the glycol system and a booster compressor. The extensive maintenance campaigns were all integrity and reliability focussed helping to underpin the plans to extend Bruce production to 2035+. The programme duration was extended to approximately two months following inspection findings on the flare tower during the planned work. The decision was taken to carry out permanent rather than temporary repairs. These repairs at height were hampered by bad weather, delaying the return of Bruce and Rhum to production.   

 

The 2023 LWIV campaign comprised work on the Bruce M3, M6 and M4 wells including scale removal, water shut-off, reperforation and the addition of new perforations. The programme was successfully executed boosting overall Bruce production capability. A further LWIV campaign, covering two Bruce wells, commenced in April 2024.

 

Bruce field production in 2023, which averaged circa 6,500 boe/d of oil and gas net to Serica (2022: 6,900 boe/d) was impacted by the extended summer shut-in.

 

An independent reserves report by RISC estimated 2P reserves of 41.7 million boe net to Serica as of 1 January 2024 (2023: 31.8 million boe). This represents a significant uplift in reserves compared to year end 2022 and not withstanding 2023 production. This is predominantly attributed to the maturation of the South Central East infill well from contingent resources, the inclusion of an 8 well platform intervention campaign for 2024 and also a performance uplift observed in certain producing wells. This was partially offset by deferral of the Bruce enhanced recovery project so as to prioritise these other projects.

 

 

 

 

 

Northern North Sea: Keith Field - Block 9/8a, Serica 100% and operator

 

Keith is an oil field produced by one subsea well tied back to the Bruce facilities and requires very little maintenance. In normal operation Keith produces at a relatively low rate but provides a low-cost contribution to the oil export from Bruce. The well has been shut-in since 2022 due to a fault in the electrical supply.

 

During 2023 the Keith subsea control module was changed out to allow the planned LWIV intervention in Q2 2024 to restore production from the field.

 

An independent reserves report by RISC estimated 2P reserves of 3.2 million boe net to Serica as of 1 January 2024 (2023: 2.4 million boe). These reserves are based upon the 2023 activities and planned LWIV programme in Q2 2024.

 

 

Northern North Sea: Rhum Field - Blocks 3/29a, Serica 50% and operator

 

The Rhum field is a gas condensate field producing from three subsea wells tied into the Bruce facilities through a 44km pipeline. Rhum production is separated into gas and oil and exported to St Fergus and Grangemouth along with Bruce and Keith production. Rhum gas has a higher CO₂ content than Bruce gas and so is blended with Bruce gas before leaving the offshore facilities.

 

A new power umbilical was installed on the R1 well in March 2023 and further works to remove power supply vulnerabilities to Rhum were carried out in the summer. Topsides works in the first half of the year increased the throughput limits of the Rhum separator creating more capacity for any future production increases.

Average Rhum field production in 2023 was circa 12,500 boe/d net to Serica compared to 15,700 boe/d for 2022, largely reflecting the impact of the extended summer maintenance shut-in.

 

An independent reserves report by RISC estimated 2P reserves of 39.2 million boe net to Serica as of 1 January 2024. The uplift in reserves compared to 36.4 million boe at year end 2022, and notwithstanding 2023 production, is predominantly attributed to the inclusion of a planned project later in field life to convert compression on the Bruce platform to low pressure operations. 

 

 

Northern North Sea: Orlando Field - Block 3/3b, Serica 100% and operator (acquired from Tailwind)

 

Serica is operator of Orlando which is an oil field producing from a single subsea well tied into the Ninian Central facilities through an 11km pipeline. Orlando production is separated into gas and oil, with oil exported to the Sullom Voe Terminal and gas used by the Ninian operator as fuel on the platform.

 

Orlando produced steadily in 2023, following a workover in 2022 to replace the dual electric submersible pumps. During 1H 2023, there were some minor outages for repairs to some topsides electrical cables. 

 

Average Orlando field production in 2023 was circa 3,500 boe/d including downtime. Average net production for the post-Tailwind acquisition period from 23 March to 31 December was 3,540 boe/d.

 

An independent reserves report by RISC estimated 2P reserves of 2.4 million boe net to Serica as of 1 January 2024 compared to 3.4 million boe reported by ERCE in an independent reserves report for Tailwind at end 2022.

 

 

Northern North Sea: Mansell - Block 3/8g, Serica 100% and operator (acquired from Tailwind)

 

The Mansell discovery is located in licence P2448 in UKCS Block 3/8g south and east of the Ninian field. Mansell was discovered by well 3/8b-10, drilled by BP in 1985, and following successful appraisal was developed as a subsea tieback to the Ninian South Platform and produced between 1992 and 1995 (field was then named Staffa). The field was shut in 1995 following waxing-up of the flowline and decommissioned. The Mansell field has 2C contingent resources of 8.3 million boe net to Serica. An extension of 2 years was awarded by the NSTA in February 2023 to allow sufficient time to evaluate the feasibility and timing of a redevelopment.

Central North Sea

 

Central North Sea: Triton Area - Bittern 64.63%, Evelyn 100%, Gannet E 100%, Guillemot West & North West 10%, Belinda 100% (Serica % shares all acquired from Tailwind)

 

The Triton Area consists of eight producing oil fields Bittern, Evelyn, Gannet E, Guillemot West and Guillemot North West, Clapham, Pict and Saxon. Serica holds equity in five as listed above, as well as the undeveloped Belinda field. The Triton area fields were developed via common subsea infrastructure, located approximately 190km east of Aberdeen in water depths of approx. 90 metres. The fields produce oil and gas via the Triton Floating Production Storage & Offloading ("FPSO") vessel. Dana Petroleum Limited ("Dana") and Waldorf Production UK Limited (''Waldorf'') are our partners in the Triton cluster. Dana operate the Triton FPSO along with the Bittern, Guillemot West / North West, Clapham, Saxon, and Pict fields. Serica is operator of the Gannet E, Evelyn and Belinda fields, with Dana as pipeline operator and Petrofac as well operator.

 

Well GE04 on the Gannet E field was drilled and completed in Q4 2022 with a subsea tie-in to the Triton system completed during early 2023. First oil was achieved on 14 February 2023, with initial rates around 9,000 boe/d. By the end of 2023, the well had produced a total of approx. 1.34 million boe with a year-end exit rate of 6,000 boe/d.

 

From early July to mid-September 2023, Dana carried out an extended shutdown on Triton, supported by a six month walk-to-work campaign, which involved a vessel stationed alongside Triton to provide additional personnel on site during the fair-weather summer months so enabling additional work scopes. Critical activities completed were fabric maintenance work scopes integral to the life extension of Triton, completion of structural repairs, an upgrade to the Guillemot West separator and successful repair to the Bittern water injection pipeline. Further work was completed on the distributed Triton control system, which is planned to have been replaced fully by the end of 2024, following replacement work which was phased across the 2022 and 2023 shutdowns. The length of the 2023 summer shut-down was extended to carry out an essential repair on a piece of equipment identified during a pre-production inspection, a seawater lift pump failure and initial difficulties operating the upgraded FPSO control systems. These issues were each successfully resolved.

 

Production from Gannet E and Evelyn averaged 6,100 boe/d and 3,800 boe/d respectively (Serica net) in 2023. Bittern field production was steady at rates averaging circa. 4,000 boe/d (Serica net) and Guillemot West / North West at circa. 250 boe/d (Serica net). Triton gross peak rates exceeded 30,000 boe/d in March 2023 for the first time in 10 years. Two Guillemot West well workovers were completed in July 2023 and came on stream averaging 3,200 boe/d gross (320 boe/d Serica net).

 

A four well programme is planned for execution in 2024 and has already started with the Bittern B1z sidetrack. This will be followed by the Gannet E fifth well, a Guillemot North West infill well and an Evelyn second well. These wells will be drilled using the COSL Innovator semi-submersible rig.

 

In April 2024 Serica took a final investment decision on the Belinda development. Consent to the project has been received from OPRED and NSTA approval of the final Field Development Plan ("FDP") is expected shortly. Serica proposes to use the COSLInnovator to drill the Belinda development well during 1H 2025 having exercised the option for an additional 5th well in the current Triton area drilling campaign in September 2023.

 

Serica's average net share of Triton Area production in 2023 was circa 14,150 boe/d of oil and gas. Average net production for the post-Tailwind acquisition period from 23 March to 31 December 2023 was 13,120 boe/d.  

 

An independent reserves report by RISC estimated 2P reserves of 49.2 million boe net to Serica as of 1 January 2024 compared to 49.4 million reported by ERCE in an independent reserves report for Tailwind at end 2022. The uplift in reserves compared to the prior year, after taking account of 2023 production of approx. 5.2 million boe, is predominantly attributed to the transfer of volumes associated with the Belinda development from contingent resources to reserves and better than expected performance from the fourth production well on the Gannet E field which came into production during 2023.

 

Central North Sea: Erskine Field - Blocks 23/26a (Area B) and 23/26b (Area B), Serica 18%

 

Serica holds a non-operated interest in Erskine, a gas and condensate field located in the UK Central North Sea. Serica's co-venturers are Ithaca Energy 50% (operator) and Harbour Energy 32%.

 

The Erskine field has five production wells and produces oil and gas over the Erskine normally unattended installation. This is transported via a multiphase pipeline and processed on the Lomond platform which is 100% owned and operated by Harbour. Then condensate is exported down the Forties Pipeline System via the CATS riser platform at Everest and gas is exported via the CATS pipeline to the terminal at Teesside.

 

In 2023 Erskine produced steadily from the four currently available wells. Topsides surveillance of the W1 well was undertaken in Q3 2023 in readiness for carrying out a MODU (semi-submersible) rig-based intervention in 2024 to return the well to production. The regular pigging programme on the condensate export line has continued and no indications of wax build-up have been seen.

 

Erskine production levels in 2023 averaged 1,325 boe/d net (2022: 1,680 boe/d).

 

An independent reserves report by RISC estimated 2P reserves of 2.2 million boe net to Serica as of 1 January 2024 (2023: 3.3 million boe).

 

Central North Sea: Columbus Field - Blocks 23/16f and 23/21a (part), Serica 75%

 

Serica Energy (UK) Limited is Operator with its partner Waldorf Production Limited ("Waldorf") (25%). Following the acquisition of Tailwind Mistral Limited by the Serica group on 23 March 2023, the Serica group's net interest in Columbus increased from 50% to 75%.

 

The Columbus field development consists of a single horizontal well which runs along the central axis of the reservoir and was drilled in the spring of 2021 with production commencing in November 2021. Columbus is a gas condensate field.

The well is connected to the Arran export pipeline through which Columbus products are exported along with Arran field production. When production reaches the Shearwater platform, it is separated into gas and condensate. The gas is exported to St Fergus via the SEGAL line and the condensate to Cruden Bay via the Forties Pipeline System.

Average net Columbus production of gas and condensate in 2023 for Serica's combined 75% interest was c. 2,180 boe/d (2022: 1,900 boe/d for 50% interest). Average net production for the Group's combined 75% interest in the post-acquisition period from 23 March to 31st December 2023 was c. 2,085 boe/d.

 

An independent reserves report by RISC estimated 2P reserves of 2.4 million boe net to Serica's 75% field interest as of 1 January 2024 (2023: 1.1 million boe for 50% interest, equivalent to 1.7 million boe on a 75% basis). The uplift in reserves compared to the prior year, and before 2023 production is taken into account, is predominantly attributed to better than expected performance from the Columbus well. 

 

Outer Moray Firth

 

Outer Moray Firth: Buchan Horst Field - Blocks 20/5a, 205d, 21/1d & 21/1a. Serica 30%

 

In November 2023 Serica announced the acquisition of a 30% working interest in the Greater Buchan Area ("GBA") licences P.2498 and P.2170 with co-venture partners Jersey Oil and Gas (20%) and NEO Energy (50% and operator). The GBA encompasses several oil and gas accumulations some 150 km north-east of Aberdeen. The largest of these accumulations is the Buchan Horst field which produced for over thirty years, ceasing production in 2017 owing to the end of the useable life of the floating production facility.

 

An FDP submitted to the NSTA for the re-development of the area assumes a new production hub located at the Buchan Horst field utilising the FPSO vessel currently operating on the UK Western Isles fields. This is planned to come off-station in the second half of 2024.

 

A phased development is envisaged involving the re-development of the Buchan Horst field in Phase 1 and the possible development of the J2 and Verbier discoveries in Phase 2. Mid-case contingent resources from the Buchan Horst field alone are estimated to be in region of 70 million boe gross, making it the third largest pre-development field on the UKCS. Owing to the completion of the acquisition of the interest in GBA in February 2024, contingent resource estimates have not been independently verified as part of the RISC competent persons report for year-end 2023.

 

There are other discoveries and prospects in close proximity which may provide additional tie-back opportunities to the FPSO. Subject to project sanction and regulatory approval, the target for first production from Buchan Horst is Q4 2026.

 

 

UK Exploration

 

North Eigg and South Eigg - Blocks 3/24c and 3/29c, Serica Energy (UK) Limited 100% and Operator

In December 2019, Serica was awarded the P.2501 Licence as part of an out of round application comprising Blocks 3/24c and 3/29c including the North Eigg and South Eigg prospects. 

The 3/24c-6B North Eigg exploration well was drilled to a depth of 5,099 metres in the Jurassic Heather formation, completing in early 2023. Following detailed interpretation of the well results, Serica decided there was insufficient accessible oil to justify re-entering the suspended well and drilling a sidetrack. After consultation with the NSTA, Serica elected to go into the second term of the P.2501 Licence for the purpose of completing the decommissioning of the North Eigg well. Only the area immediately around the well necessary for the abandonment was retained with the remainder of the block being relinquished. In late 2023 a vessel-based abandonment of the North Eigg exploration well was completed and the licence will be relinquished in 2024.

 

Skerryvore and Ruvaal- Blocks 30/12c (part), 30/13c (split), 30/17h, 30/18c and 30/19c (part), Serica Energy (UK) Limited: 20% working interest, operator Parkmead

 

The P2400 Licence was awarded in the 30^th licence round in 2018. It is located in the Central North Sea, 60km south of the Erskine field, and comprises blocks 30/12c, 30/13c, 30/17h and 30/18c. Current equity holders are Serica 20%, Parkmead 50% (operator) and CalEnergy 30%. The licence is in phase C, which expires on 30 September 2025. The licence terms include a commitment to drill a well to a depth of 3,500 metres or 200 metres into the Chalk Group, whichever is shallower, by the end of the current phase. The Operator has proposed a vertical well targeting the Mey reservoir (primary target) and a deeper Tor chalk reservoir (secondary target). Detailed planning is underway with a site survey scheduled for Q3 2024 and drilling in 2025.

 
In the region around Skerryvore, Harbour is progressing with the Talbot development, with drilling ongoing and first oil expected from Q3 2024. In a Skerryvore success case, Talbot infrastructure could provide an export route via the Judy platform and the subsequent export of produced hydrocarbons to Teesside, UK.

 

Licence Awards in the UK 32^nd licensing round

The P2506 Licence was awarded to Serica 100% in the 32^nd Licence Round in 2020 and covered blocks in the greater Bruce/Rhum area. Following a detailed subsurface evaluation in 2023, it was concluded that the prospectivity did not meet Serica's investment criteria, and the licence has now been fully relinquished with all work commitments fulfilled.

Licence Awards in the UK 33^rd licensing round

On 30 October 2023 the Kyle licence in UK block 29/2c was provisionally awarded to Serica (100%) and was formalised as licence P.2616 on 31 January 2024.  Kyle is a previously producing oil field, 20km southeast of Triton and represents a potential redevelopment tie-back to existing Serica equity infrastructure. Studies are underway in order to determine whether there is a viable project. There are no other work commitments.

 

This is a 'Straight to Second Term' licence and the work programme is already underway.

 

 

Group Proved plus Probable Reserves ("2P")

 

	Oil	Gas	Total oil and gas1
	mmbbl	bcf	mmboe
2P Reserves at 31 December 2022	18.7	337.4	76.9
Acquisitions2	44.5	44.7	52.2
2023 production2	(4.9)	(42.9)	(12.3)
Revisions	11.3	70.8	23.5
2P Reserves at 31 December 2023	69.6	410.0	140.3

 

¹Group reserves at 31 December 2023 above show Serica net sales values which have been converted to barrels of oil equivalent using a factor of 5.8 bcf per mmboe for reporting and comparison purposes. Group reserves at 31 December 2022 were previously converted to barrels of oil equivalent using a factor of 6.0 bcf per mmboe for reporting and comparative purposes. The opening combined reserves figure for 31 December 2022 in the table above has been restated using 5.8 bcf per mmboe. As the actual calorific values of gas produced from individual fields varies, reported production rates for each field and the total production and revisions numbers reported above may not convert precisely.

 

² Production from the Tailwind fields from the acquisition date of 23 March 2023 is included within '2023 production'.

 

Group Proved and Probable reserves at 31 December 2023 shown here are extracted from an independent report prepared by RISC Advisory ("RISC") in accordance with the reserve definitions guidelines defined in SPE Petroleum Resources Management System 2018 ("PRMS 2018").

 

Figures quoted relate to export fluids, so Fuel in Operation has already been subtracted.

 

 

LICENCE HOLDINGS

 

The following table summarises the Group's licences as at 31 December 2023.

Licence	Block(s)	Description	Role	%	Location
UK
P.090	9/9a Bruce	Bruce Field Production	Operator	99%	Northern North Sea
P.090	9/9a Rest of Block Excluding Bruce (REST)	Development	Operator	98%	Northern North Sea
P.198	3/29a (ALL)	Rhum Field Production	Operator	50%	Northern North Sea
P.209	9/8a Bruce	Bruce Field Production	Operator	98%	Northern North Sea
P.209	9/8a Keith	Keith Field Production	Operator	100%	Northern North Sea
P.209	9/8a Rest of Block Excluding Bruce and Keith (REST)	Development	Operator	98%	Northern North Sea
P.276	9/9b BRUCE	Bruce Field Production	Operator	98%	Northern North Sea
P.276	9/9c (ALL)	Bruce Field Production	Operator	98%	Northern North Sea
P.276	9/9b Rest of Block Excluding Bruce Unit (REST)	Development	Operator	98%	Northern North Sea
P.566	3/29b (ALL)	Rhum Field non-unitised production	Operator	100%	Northern North Sea
P.975	3/24b (ALL)	Rhum non-unitised production	Operator	100%	Northern North Sea
P.975	3/29d (ALL)	Rhum non-unitised production	Operator	100%	Northern North Sea
P101	23/21a Columbus	Columbus Development Area	Operator	75%	Central North Sea
P1314	23/16f	Columbus Development Area	Operator	75%	Central North Sea
P57	23/26a Area B	Erskine Field - Production	Non-operator	18%	Central North Sea
P264	23/26b  Area B	Erskine Field - Production	Non-operator	18%	Central North Sea
P264	23/26b Area C	Erskine Field - Production	Non-operator	40%	Central North Sea
P2400	30/12c, 30/13c, 30/17h, 30/18c	Exploration	Non-operator	20%	Central North Sea
P2501	3/24c, 3/29c	Exploration	Operator	100%	Northern North Sea
P215	21/29b	Guillemot W	Non-Operator	50%	Central North Sea
P233	29/1a Bittern	Bittern	Operator	100%	Central North Sea
P361	29/1b	Bittern	Non-Operator	29.26%	Central North Sea
P13	21/30c A	Gannet E	Operator	100%	Central North Sea
P13	21/25a UPPER , 21/30a UPPER	Gannet E	Non-operator	50%	Central North Sea
P1606	3/3b	Orlando	Operator	100%	Northern North Sea
P1792	21/30f	Evelyn/Belinda	Operator	100%	Central North Sea
P2170	20/5b, 21/1d	Greater Buchan Area	Non-operator	30%	Central North Sea
P2448	3/8g	Mansell/Staffa	Operator	100%	Central North Sea
P2498	20/5a, 20/5e, 21/1a	Greater Buchan Area	Non-operator	30%	Central North Sea
P2616	29/2c	Kyle	Operator	100%	Central North Sea

 

FINANCIAL REVIEW

SUMMARY OF 2023 FINANCIAL RESULTS

In addition to continuing strong performance from its existing assets, Serica's 2023 results benefitted from inclusion of net production and income from the Tailwind field interests from the acquisition completion date of 23 March 2023 to the year end. In order to provide a more representative picture of the enlarged group, unaudited proforma information ("PF 2023") in relation to volumes, revenues and costs including contributions from the Tailwind assets for the full calendar year, has been included in this Financial Review.

 

Further analysis of the summary metrics provided in the Summary Financial Information table below is detailed in the following pages of this Financial Review.

 

 

 

 

Incorporating the business assets from the Tailwind acquisition, Serica today has a balanced mix of oil and gas and greater production resilience arising from a wider asset spread. The Group balance sheet at 31 December 2023 reflects the full set of assets and liabilities arising from the business combination, which include a reserve-based lending ("RBL") facility assumed through the Tailwind acquisition, which has subsequently been refinanced as a post Balance Sheet event.

 

Market sales prices for oil and, to a greater extent, gas were lower than for the 2022 year with NBP gas prices averaging 99p/th (2022: 198p/th) and Brent crude averaging US$83/bbl (2022: US$101/bbl). Total operating costs increased broadly in line with production volumes but with an additional impact from inflation over the year. Importantly FY 2023 saw the full impact of the EPL with a marginal ring-fence aggregate tax rate of 75% as compared to 40% for the initial months of 2022, increasing to 65% for the period from 26 May 2022.

 

Serica generated EBITDAX of £381.0 million compared to £616.5 million for 2022 and a profit before taxation of £305.6 million for 2023 compared to £488.2 million for 2022. After current and deferred tax provisions of £202.6 million (2022: £310.4 million), profit for the year was £103.0 million compared to £177.8 million for 2022.

 

Further detail is provided in the following sections.

 

Sales revenues

 

 

 

The total 2023 sales revenue of £632.6 million (2022: £812.4 million) included a contribution of £242.6 million from the Tailwind assets from the acquisition date of 23 March 2023 (2022: £nil). Proforma 2023 sales revenue on the same basis would have been £728.0 million.

 

Sales comprised gas revenue of £346.7 million (2022: £690.2 million), oil revenue of £265.5 million (2022: £88.0 million) and NGL revenue of £20.4 million (2022: £34.2 million). The fall in gas revenue was driven by lower realised pricing compared to the unprecedented highs of 2022 whilst the threefold increase in oil revenue reflected new revenue streams from the oil-weighted Tailwind portfolio, offset partially by lower oil prices.

 

Total product sales volumes for the year comprised approximately 371 million therms of gas (2022: 432 million therms), 4.7 million lifted barrels of oil (2022: 1.1 million barrels) and 56,312 metric tonnes of NGLs (2022: 71,290 metric tonnes). This amounted to product sales as reported of 12.3 million boe or 14.2 million boe on a proforma basis (2022: 9.1 million boe).

 

Average 2023 sales prices were: 93 pence per therm (2022: 160 pence per therm including contract revenue) for gas net of NTS system fees, US$70.5 per barrel (2022: US$97.2 per barrel) for oil and £363 per metric tonne (2022: £480 per metric tonne) for NGLs. Average oil and gas sales prices reflect a mix of sales volumes sold at current spot prices and volumes sold at contracted fixed prices (reflecting an embedded hedge for volumes sold under such contracts) and are before realised hedging costs on gas price swaps.

 

Gross profit

 

The gross profit for 2023 was £306.6 million compared to £594.3 million for 2022. Overall cost of sales of £326.1 million compared to £218.2 million for 2022. This comprised £218.7 million of operating costs (2022: £121.0 million) and £109.2 million of non-cash depletion charges (2022: £76.9 million).

 

 

 

The increase in overall operating costs reflected higher production volumes for the enlarged business. Operating costs as reported per boe were US$21 per boe, increased from US$15.9 per boe for 2022 mainly due to the impact of the extended summer field shut-ins which spread fixed costs over reduced production volumes and some underlying cost inflation. Proforma operating costs, including the Tailwind assets from 1 January, were lower at circa US$19 per boe. These increases were partially offset by a £9.3 million credit representing an increase during the year of the liquids underlift position (2022: charge of £20.3 million). The increase in total DD&A reflected the larger PP&E base following the Tailwind acquisition.

 

 

EBITDAX, operating profit before net finance costs and tax

 

EBITDAX for 2023 was £381.0 million compared to £616.5 million for 2022 with the reduction very much in line with lower commodity prices and revenues.

 

 

The operating profit for 2023 was £321.2 million compared to £476.2 million for 2022 and includes a gain on acquisition of £34.0 million on the Tailwind transaction (2022: £nil).

 

Net hedging income of £4.8 million (2022: £24.5 million expense) comprised realised hedging expense, primarily related to gas swaps, of £15.6 million during 2023 (2022: £45.4 million expense) as well as unrealised hedging gains of £20.4 million (2022: gains of £20.9 million), mainly arising from the movement in valuation of Serica's 2022 year-end gas swap position as it fully unwound during the year.

 

Contract revenue of £23.9 million (2022: £nil) arose from the partial unwind of an underlying revenue offtake contract that was fair valued in connection with the Tailwind acquisition (see note 16). An original liability of £54.2 million was recognised which is released to the Income Statement across 2023 and 2024 as the underlying contract unwinds.

 

Exploration expenses and asset write-offs totalled £10.8 million in 2023 (2022: £82.9 million) including final charges from the North Eigg exploration well.

 

Administrative expenses for 2023 of £19.6 million compared to £9.2 million for 2022 and reflected the growth in activities of the Group arising following the Tailwind transaction completion and the extension of activities that this entailed, but also some non-recurring charges. In addition, transaction costs of £10.1 million (2022: £1.8 million) comprised fees and other transaction costs associated with the acquisition of Tailwind.

 

Currency losses of £3.6 million (2022: gains of £3.9 million) largely arose on GBP-reported US$ holdings as sterling strengthened compared to the US$ during 2023. Share-based payments were £4.0 million (2022: £3.5 million).

 

The gain on acquisition of £34.0 million (2022: £nil) represents the difference between the fair value of assets acquired and consideration paid or potentially payable, calculated in accordance with applicable accounting standards. Such calculations are complex and involve a range of projections and assumptions related to future costs, production volumes, sales prices, discount rates and tax.

 

 

Profit before taxation and profit for the period after taxation

 

Profit before taxation for 2023 of £305.6 million (2022: £488.2 million) took into account a £7.6 million charge arising from an increase in the fair value of financial liabilities (2022: £8.4 million credit), £13.5 million of finance revenue (2022: £4.5 million) and £21.5 million of finance costs (2022: £0.9 million).

 

The total £7.6 million charge for financial liabilities included £5.9 million related to the remaining BKR financial liabilities (2022 - £8.4 million credit) and £1.7 million for royalty liabilities and other consideration (2022: £nil). The fair value of the liabilities is re-assessed at each financial period end. The increase for the BKR liability arose from the unwinding of discount and other timing revisions on the estimated amounts of those remaining liabilities. The prior year credit reflected the impact of Serica's plan for field life extension on the BKR assets.

 

Finance revenue of £13.5 million (2022: £4.5 million) primarily represented interest income earned on cash deposits and has increased following the recent rises in interest rates during 2023 compared to 2022. Finance costs of £21.5 million (2022: £1.0 million) included interest payable and other charges on the debt facility acquired with the Tailwind acquisition in March 2023, the discount unwind on decommissioning provisions and other minor finance costs.

 

The 2023 taxation charge of £202.6 million (2022: £310.4 million) comprised current tax charges, including prior year adjustments, of £183.3 million (2022: £277.7 million) and a deferred tax charge of £19.3 million (2022: £32.7 million). The reduction in current tax charges mainly reflected lower net income and higher capital spend in 2023 as well as the utilisation of brought forward tax losses within the acquired Tailwind business. The gain on acquisition is a non-taxable accounting entry.

 

 

 

In addition to corporation tax and supplementary charge, 2022 and 2023 full year results also include charges for the EPL. The EPL applied an additional 25% tax on profits earned from the production of UK oil and gas from 26 May 2022, increasing to 35% effective 1 January 2023. The current tax charge includes EPL charges of £97.1 million (2022: £64.3 million).

 

 

Overall, this generated a profit after taxation of £103.0 million for 2023 compared to a profit after taxation of £177.8 million for 2022. This resulted in an earnings per share of £0.29 (2022: £0.65) after taking into account the weighted average number of ordinary shares in issue.

 

GROUP BALANCE SHEET

 

Serica retains a strong balance sheet following completion of the Tailwind acquisition including remaining in a net cash position. This gives the Group flexibility in capital allocation including the ability to fund its ongoing capital investment programmes whilst supporting distributions to shareholders. Completion of a new financing facility to refinance the RBL, assumed as part of the Tailwind acquisition following year end has further boosted the Group's resources as it seeks new acquisition and investment opportunities. The balance sheet as at 31 December 2023 includes assets and liabilities from the acquired Tailwind business.

 

 

 

Total property, plant and equipment increased from £265.9 million at year end 2022 to £711.5 million at 31 December 2023. The main driver for the significant increase in the balance is the fair value of £486.3 million attributed to the Tailwind assets upon acquisition. The acquisition of Tailwind Energy Investments Ltd is classified as a business combination and the calculation of fair value is carried out involving a series of judgements and assumptions (see note 2 - Use of judgement and estimates and sources of estimation uncertainty) in accordance with applicable accounting standards.

 

Net PP&E additions comprised capital expenditure during 2023 of £68.6 million across various field assets. These included expenditure on the Bruce LWIV campaign and preparations for the 2024 Triton area drilling programme. There were also increases from decommissioning asset revisions of £16.0 million offset by depletion charges for 2023 of £109.2 million (2022: £76.9 million), other depreciation charges of £0.2 million (2022: £0.2 million) and currency translation adjustments of £16.0 million. Depletion charges represent the allocation of field capital costs over the estimated producing life of each field and comprise costs of asset acquisitions and subsequent investment programmes.

 

The net deferred tax asset of £84.1 million at 31 December 2023 compared to a deferred tax liability of £153.3 million at year end 2022, mainly as a result of the inclusion of significant net deferred tax assets of £264.9 million in relation to the Tailwind acquisition. This net deferred tax asset comprised the recognition in relation to tax losses and future relief available on decommissioning, partially offset by deferred tax liabilities arising on PP&E balances. Deferred tax liabilities arising upon the Group's PP&E balances will be released in future periods as those balances are depleted.

 

The inventories balance of £10.9 million at 31 December 2023 increased from £4.0 million at the end of 2022 including £5.9 million for oil inventory held in the pipeline and terminal for the acquired Orlando field. Trade and other receivables increased from £134.6 million at the end of 2022 to £138.6 million at 31 December 2023.

 

Hedging security advances of £24.3 million at 31 December 2022 were recovered during 1H 2023 as all gas swaps and the majority of fixed forward contracts crystalised.

 

The decrease in cash balances from £432.5 million at 31 December 2022 to £263.5 million at 31 December 2023 reflected cash flow from operations of £378.4 million mainly offset by £279.5 million of UK tax payments, £88.8 million of dividend payments, capital expenditures of £78.3 million, net cash outflows of £44.0 million on the Tailwind acquisition (cash consideration net of cash and cash equivalents acquired), and £46.9 million (US$58.8 million) on debt repayments in the post-acquisition period. Overall cash was supplemented by Decommissioning Security Agreement ("DSA") cash advances of £27.5 million at 31 December 2023 (31 December 2022: £nil) when cash security temporarily lodged in respect of decommissioning obligations was released to Serica in 2024 when replaced by security in the form of letters of credit as provided under the new financing facility.

 

Current trade and other payables increased to £97.4 million at 31 December 2023 from £69.9 million at the end of 2022. UK corporation tax payable of £53.7 million at 31 December 2023 (31 December 2022: £150.0 million) reflects liabilities for corporation tax, supplementary charge and the EPL. The decrease over the year reflected the higher level of taxable income in late 2022 and also the timing of initial payments under the EPL.

 

Derivative financial liabilities of £4.4 million at 31 December 2023 largely represent the valuation of UKA Emission Trading Scheme ("ETS") swaps in place at the period end following the Tailwind acquisition. The 31 December 2022 liability of £24.9 million reflected Serica's gas swaps in place at that date which unwound during 2023.

 

Contract liabilities of £28.8 million reflect the outstanding portion of an underlying revenue offtake contract that was fair valued in connection with the Tailwind acquisition (see note 16). An original liability of £54.2 million was recognised which is released to the Income Statement across 2023 and 2024 as the underlying contract unwinds.

 

Financial liabilities of £68.6 million (31 December 2022: £29.4 million) are split between current liabilities of £3.6 million (31 December 2022: £nil) and non-current liabilities of £65.0 million (31 December 2022: £29.4 million). Non-current financial liabilities comprise remaining deferred consideration projected to be paid under the BKR acquisition agreements of £35.3 million (31 December 2022: £29.4 million) and royalty liabilities of £29.7 million (31 December 2022: £nil) for amounts payable to third parties under the terms of Triton asset acquisitions previously made by Tailwind. Current liabilities reflect the final contingent consideration payment of shares issued in March 2024 in respect of the Tailwind acquisition.

 

Provisions of £116.9 million (split current of £12.9 million and non-current of £103.9 million) predominantly relate to future decommissioning obligations. The significant increase from the prior year balance of £25.2 million was largely due to £75.9 million of balances within the Tailwind acquisition representing the net exposure retained by Tailwind after reflecting the contractual undertakings in asset purchase agreements under which the Tailwind field interests were acquired, increases of £16.4 million from revisions to estimates in the year and a charge of £2.9 million from the unwinding of the discounts applied. Increases were partially offset by currency translation adjustments and some minor spend in the period.

 

Interest bearing loans of £213.0 million at 31 December 2023 (31 December 2022: £nil) comprise the RBL facility assumed with the Tailwind acquisition. Amounts drawn in US dollars under the facility at 31 December 2023 were US$271.2 million which are disclosed as gross drawings as all remaining unamortised fees were expensed at year end given the impending refinancing. The facility was US$330 million drawn at the date of acquisition with net repayments of US$58.8 million made in the post-acquisition period to 31 December 2023. Although this facility was repaid and replaced by a new financing facility in January 2024 it has been classified under non-current liabilities at year end 2023 as there were no contractual obligations existing at the year end to make repayments within one year.

 

Overall, net assets have increased from £408.7 million at year end 2022 to £655.3 million at 31 December 2023.

 

The increase in share capital from £183.2 million to £192.9 million arose from shares issued following the exercise of share options, shares issued under employee share schemes and the nominal value of shares issued for the Tailwind acquisition, whilst the increase in other reserves from £25.6 million to £29.6 million arose from share-based payments related to share option awards. The merger reserve of £230.4 million in the consolidated Group accounts arose in connection with the shares issued for the Tailwind acquisition. 

 

CASH BALANCES AND FUTURE COMMITMENTS

 

Current cash position and price hedging

 

At 31 December 2023 the Group held adjusted net cash of £78 million. This consisted of cash and cash equivalents of £263.5 million (31 December 2022: £432.5 million) plus £27.5 million of DSA cash advances net of the RBL drawings of £213 million (31 December 2022: £nil). The DSA cash advance of £27.5 million was temporarily lodged in respect of decommissioning obligations and then released to Serica in 2024 when replaced by security in the form of letters of credit as provided under the new financing facility.

 

 

 

Cash hedging security advances of £24.3 million that had been lodged with hedge counterparties at 31 December 2022 as security against settlement of future gas hedge instruments were fully recovered during the 1H 2023 period. Of total cash and cash equivalents, £18.3 million was held in restricted accounts against letters of credit issued in respect of certain decommissioning liabilities as at 31 December 2023 (31 December 2022: £18.1 million).

 

As at 22 April 2024, the Company held cash and cash equivalents of £264.7 million and debt drawings of US$231 million (£186.7 million). This is after 2023 final tax payments of £58.2 million, capital spend and drawings under the new finance facility totalling £9.7 million to cover arrangement fees and other costs of the refinancing. This excludes approx. £19 million of revenues from the March Triton oil lifting due for receipt on 1 May 2024.

 

Hedging

 

Serica carries out hedging activity to manage commodity price risk, to meet its contracted arrangements under its RBL facility and to ensure there is sufficient funding for future investments. At 31 December 2023 Serica held the following instruments:

 

Oil - fixed pricing under oil offtake agreements: for 2024 approximately 2.5 million barrels at an average price of US$67 per barrel. These are applied to individual oil tanker liftings from the Triton area FPSO and are expected to be fully utilised during 1H 2024.

 

UKA ETS - fixed price swaps for UKA ETS products consisting of 132,000 MT at £79.24/MT for 2024. These are spread over 2024.

 

Since year end Serica has added further oil hedges plus some gas hedges. At 18 April 2024 Serica held the following commodity price hedges:

 

 

 

Field and other capital commitments

Serica's planned 2024 investment programme includes a LWIV campaign on the Bruce and Keith fields and a four-well drilling campaign in the Triton Area (Bittern B1z, Gannet GE-05, Evelyn Phase 2 (EV02) and a Guillemot NW infill well). Potential further programmes to enhance current production profiles and extend field life are under consideration but will be reviewed carefully in the light of the uncertainty related to the UKCS fiscal regime. In April 2024 Serica took a final investment decision on the Belinda development. Consent to the project has been received from OPRED and NSTA approval of the final FDP is expected shortly.

 

At 31 December 2023, the Group had commitments for future capital expenditure relating to its oil and gas properties amounting to £214 million which relate primarily to the Triton Area four well programme, the Bruce and Keith LWIVs, other capital works on Bruce, Erskine, Arthur decommissioning and general exploration.

 

The Group's only significant exploration commitment is a commitment well on Licence P2400 (Skerryvore - Serica 20%) to be drilled before October 2025.

 

Cash projections are run periodically to examine the potential impact of extended low oil and gas prices as well as possible production interruptions. Serica currently has substantial net cash resources and relatively low operating costs per boe which means that the Company is well placed to withstand such risks and its capital commitments can be funded from existing cash resources.

 

OTHER

 

Asset values

At 31 December 2023, Serica's market capitalisation stood at £898.5 million based upon a share price of 229.6 pence which exceeded the net asset value of £655.3 million. By 22 April the Company's market capitalisation had decreased to £764.1 million

 

BUSINESS RISK AND UNCERTAINTIES

Serica, like all companies in the oil and gas industry, operates in an environment subject to inherent risks and uncertainties. The Board regularly considers the principal risks to which the Group is exposed and monitors any agreed mitigating actions. The overall strategy for the protection of shareholder value against these risks is to carry a broad portfolio of assets with varied risk/reward profiles, to apply prudent industry practice, to carry insurance where both available and cost effective, and to retain adequate working capital.

 

Serica has built a strong working capital reserve which is available to respond to a range of risks including production interruptions, severe commodity price falls and unexpected costs. To supplement this the Company carries business interruption insurance to mitigate the impact of ongoing operating costs over sustained periods of production shut-in beyond an initial 60 days, where caused by events covered under such policies. The Company also uses price hedging instruments to help manage field revenues where considered cost effective and to meet minimum hedge requirements under its debt financing facility.

 

The introduction of the Energy Profits Levy in May 2022, increased and extended in November 2022 and then extended again in March 2024, has increased the perceived risk of continuing fiscal instability directed at UK oil and gas producers. Serica is monitoring this situation and making representations to relevant authorities on the risks that this presents to future UK investment in a critical national resource.

 

The principal risks currently recognised and the mitigating actions taken by management are as follows:

 

 

Investment Returns: Management seeks to invest in a portfolio of oil and gas assets and acreage capable of delivering returns to shareholders. This is principally conducted through acquisitions of development or producing assets to which it can add further value and through efficient operations and the addition of further commercial reserves. Delivery of this business model carries a number of key risks.
Risk	Mitigation
Business conditions may deteriorate and stock market support may be eroded, lowering investor appetite and hindering fundraising	·      Management regularly communicates its strategy to shareholders ·    Focus is placed on building a diverse and resilient asset portfolio capable of offering investment options throughout the business cycle ·      Serica has recently refinanced its debt facility with a diverse group of international banks and extended the duration to end 2029.
Each investment carries its own risk profile and no outcome can be certain	·      Management aims to avoid over-exposure to individual assets, to identify the associated risks objectively and mitigate these where practical

 

 

 

 

 

 

Operations: Operations may not go according to plan leading to damage, pollution, cost overruns or poor outcomes.
Risk	Mitigation
Production may be interrupted generating significant revenue loss whilst costs continue to be incurred	·      The Group seeks to diversify its revenue streams ·      Management determines and retains an appropriate level of working capital ·      The Group carries business interruption cover
Safety may be compromised or control of wells may be lost	·      Safe operating procedures are applied and continually updated ·      Emergency response planning is carried out and rehearsed regularly
Asset integrity of the production facilities may cause production or HSE disruptions	·      Strict adherence is applied to Company 'Integrity Management Framework' and Performance Standards ·      The Company runs a comprehensive maintenance programme and assurance process
Third party offtake routes may experience restrictions or interruptions and full availability may depend upon sustained production from other fields in the system	·      The Group aims to diversify its exposure to offtake routes where possible    ·      The Group carries business interruption cover
Capital programmes may be delayed and costs may overrun	·      Planned programmes incorporate the potential impact of normal delays and overruns ·      The Group retains working capital reserves to cover these
The Company is reliant upon its IT systems to maintain operations and communications	·      The Group employs specialist support ·      Protection against external intrusion is incorporated within the system and tested regularly
Excessive flaring causes increased emissions and exceeds guidelines	·      Close monitoring of flaring is conducted and targets set ·      Work is ongoing to eliminate routine flaring from assets

 

Personnel: The Group relies upon a pool of experienced and motivated personnel to conduct its operations and execute successful investment strategies
Risks	Mitigation
Key personnel may be lost to other companies	·      The Remuneration Committee regularly evaluates incentivisation schemes to ensure they remain competitive ·      The Group seeks to build depth of experience in all key functions to ensure continuity
Personal safety may be at risk in demanding operating environments, typically offshore	·      A culture of safety is encouraged throughout the organisation ·      Responsible personnel are designated at all appropriate levels ·      The Group maintains up-to-date emergency response resources and procedures

 

Political and commercial environment: World share and commodity markets and political environments continue to be volatile
Risk	Mitigation
Tax rates and allowances may be varied at short notice, significantly reducing retained income and adding risk to future investment planning	·      Management will utilise investment incentives where available and consider geographical diversification
Volatile commodity prices mean that the Group cannot be certain of the future sales value of its products	·      Planning and forecasting considers downside price scenarios ·      Oil and gas floor price hedging is utilised where deemed cost effective ·      Price mitigation strategies are considered at the point of major capital commitment
Sanctions imposed by the U.S. government may threaten continuing production from the Rhum field and licences are required to be renewed periodically, with the current licence to be renewed in January 2025	·      Serica operates comprehensive controls to ensure compliance with license terms   ·      The renewal process is initiated well in advance of renewal dates
The UKCS licensing regime under which Serica's operational rights and obligations are defined may be subject to future change	·      Management maintains regular communication with regulatory authorities ·      The Company aligns its standards and objectives with government policies as closely as possible
Serica's reputation may be damaged impacting its ability to raise finance or sustain operations	·      The Company adheres to good governance practices and compliance with legislation and regulations.
Climate change brings a range of risks to the Group's operations, its ability to continue investing and its reputation	·      These risks, mitigations and associated disclosure requirements, are covered in detail in the following section on 'TCFD'.

 

 

 

Task Force for Climate-related Financial Disclosures ("TCFD")

Details of ESG strategies directed towards reducing carbon emissions and contributing to government Net Zero targets are described on pages 75 and 76 and also in a separate ESG Report.

The TCFD framework aims to formalise the implementation and reporting of financial disclosures related to climate change. Serica has reviewed guidance issued by the TCFD with regard to the identification, management and reporting of climate-related financial risks and the Company has continuously developed its capabilities to analyse and report climate-related risks giving consideration to the TCFD guidance.

This disclosure has been made on a voluntary basis and is a summary of Serica's wider Climate-Related Risk disclosure, which is available separately on Serica's website. This summary of disclosures is not in full alignment with all 11 recommendations of the TCFD. The Company recognises the release and implementation of the IFRS S1 and S2 standards and in 2024, will work to enhance and align its disclosures to these standards.

Governance

 • The Board is ultimately responsible for the governance of climate-related risks and opportunities. It sets policies and then reviews these as appropriate.

• The Board recognises climate change as a material risk to Serica with potential financial implications and understands that responding to the risks associated with climate change and building resilience is integral to the long-term success of the organisation.

• It reviews major risks regularly, receives updates from its committees and also takes direct reports from key personnel. It sets general policy related to climate risks and opportunities, identifies where further actions are required and delegates authorities accordingly. This includes progress on emissions reduction, general environmental performance, developments in climate-related regulation and cost impacts.

• The Sustainability Committee, which was formed in 2023, reports to the Board on the effectiveness of the Company's ESG Programmes and the management of climate-related risks and opportunities. The Committee also reviews Serica's environmental performance for both operated and non-operated assets and has input into metrics and targets used to measure environmental performance. The Committee aids in steering Serica's long-term emissions reduction strategy ensuring that decarbonisation projects are progressing in a timely manner.

• The Health, Safety and Environment Committee reports to the Board on the effectiveness of the Company's HSEQ programme and ensures that risks, including environmental or carbon-related hazards are fully assessed and appropriately mitigated. In addition, this committee ensures that all personnel, including contractors employed by the Company, are fully aware of their HSE responsibilities and have been properly trained.

• The Audit Committee supervises the financial analysis of climate-related risks and opportunities and its incorporation into economic and investment models.

• The Remuneration Committee determines employee compensation packages and bonus structures which incorporate incentives to deliver climate-related objectives.

• The above committees all meet regularly as required.

Strategy

The Company's focus is on acquiring or developing oil and gas assets, extending the producing lives of mid-to-late life assets and developing additional reserves where this can be done with a low carbon footprint, typically by utilising existing processing and export facilities.

Serica aligns with the UK government's commitment to achieving Net Zero emissions by 2050. Although our current assets are estimated to cease production well before 2050, Serica takes into account the incremental emissions reduction targets of the North Sea Transition Deal when making strategic decisions. Serica uses the risk categories recommended by the TCFD to identify and assess climate-related risk and opportunities: namely transition risks, including policy, legal, technology, market changes, and physical risks resulting from event driven (acute) or longer-term (chronic) shifts in climate patterns.

Serica also recognises the opportunities presented to its organisation that are associated with climate change and the transition to a low carbon economy. These include divestments by larger companies of assets where Serica can seek to improve environmental performance, investment in energy efficient technology and collaboration between asset and infrastructure owners. Domestically produced gas has a strategic role to play in the UK's energy transition. This offers a lower carbon alternative to more carbon intensive fuels and LNG imports, and also assists in protecting the UK's security of energy supply as global energy sourcing is restructured. Serica is well-placed to apply its proven capabilities to extending the production lives of such assets whilst driving carbon-reduction programmes.

Serica has developed operational objectives which are aligned with climate-related risk reduction and climate change resilience planning. These include:

• Creation of emissions-related key performance indicators ("KPIs") and targets that directly affect employee bonus payments, including those of the Senior Management and Executive Teams;

• Formation of a Sustainability Board Committee, to focus on specific ESG topics and issues, including climate-related risk and opportunities;

• Continued development and enhancement of a robust ESG policy and strategy with a corresponding communication structure to internal and external stakeholders;

• A dedicated VP ESG and Business Innovation position to lead strategy development, drive change and support continuous improvement in emissions performance and wider ESG commitments;

• Creation of an Emissions Reduction Group that looks at opportunities to reduce Serica's carbon emissions in line with Industry targets. This group is led by Serica's Energy Transition Engineering Advisor;

• Active membership of the Net Zero Technology Centre, whose aim is to help accelerate the development and implementation of technology to lower emissions;

• Alignment to recognised international ESG benchmarks and transparency initiatives such as the Global Reporting Initiative ("GRI") and Sustainability Accounting standards Board ("SASB") in addition to developing a response to the TCFD recommendations;

• Continued development of an ESG strategy ensuring associated commitments and disclosures are aligned with investor and lender requirements;

• Empowering employees to identify and own ESG initiatives within the Serica organisation and the wider community; and

• Integration of internal stakeholder communications to ensure that the requirements of finance and ESG are aligned.

Scenario Analysis

The TCFD recommends that business resilience to climate risks should be assessed through scenario analysis. Scenarios begin with the end goal, i.e. limiting global temperature rise to 1.5°C, and then model the steps that society, industry, governments, etc. must take in order to achieve it. The scenarios describe the impact on factors such as supply, demand, regulations, taxes and commodity pricing. Serica has taken a pragmatic approach to modelling and looks at the comparative changes to commodity and carbon prices under different scenarios. Serica has decided to base its analysis on three scenarios developed by the International Energy Agency's (IEA) World Outlook:

1. Net Zero - accelerated emissions reduction to achieve Net Zero emissions in the energy industry by 2050

2. Stated Policies - slower progress based upon existing governmental policies

3. Announced Pledges - all current targets and announced pledges are met by countries with temperature-limiting targets narrowly missed

In 2023, Serica ran quantitative scenario analysis against its business economic models on the whole Serica asset portfolio. Parameters for the economic models were based on those of the International Energy Agency's ("IEA") 2022 Net Zero, Stated Policies, and Announced Pledges scenarios and concentrated on carbon prices and commodity prices. The results of the exercise confirmed that Serica's business models remain resilient under these scenarios. Serica will continue to use scenario analysis to test its resilience under different climate scenarios.

Serica is currently partially aligned with the Strategy C recommendation. Information on future steps can be found in Serica's TCFD Summary Report.

Climate Risk Management

• The Senior Management Team is structured and empowered to ensure that the Board has the necessary climate-related information to assess and manage the associated risks and opportunities. The team is responsible for compliance with and reporting against the organisational climate-related metrics and targets in their individual business areas. The team evaluates climate-related risks and opportunities as an integral part of its business activities developing risk management systems, standards and procedures as required to achieve this.

• Serica's Risk Management Policy underlines the identification, assessment and mitigation of climate-related risks.  As its existing assets are all currently projected to cease production within the next ten to fifteen years, this is the key period of focus for the Company.

• Serica uses an Operating Risk Management Framework and risk assessment matrix to capture, rank and manage significant risks.

• Having assessed climate-related risks the Company either identifies specific mitigating actions and programmes or, where such specific responses are not considered feasible, builds likely financial impacts into valuations and planning.

• When investigating new investment opportunities and acquisitions, reviews are conducted of all climate-related risks and potential mitigations.

• As Serica's climate-related risk identification and management programme progresses, regular updates are provided to the Board and where appropriate added into the Group's risk register which is then reviewed monthly. As Serica's existing fields are all currently projected to cease production within the next fifteen years, this is the key period of focus for the Company. Therefore, Serica has primarily targeted its considerations of climate-related risks and opportunities over the short and medium terms. Serica have defined the time period for short, medium and long terms risks as:

• Short term risks: 1 - 3 years

• Medium term risks: 4 - 9 years

• Long term risks: 10 + years

 

A summary of Serica's transition and physical risks is presented in the table below.

Risk Description	Perceived impact timescale	Potential Consequences	Mitigations/Actions
Transition Risk
Sources of finance including equity markets and debt providers may be harder to access or become more expensive	Short Term	·          All lenders reduce funding available to exploration and production companies and this may impact debt terms and/or debt capacity. ·          Demonstration of the impacts of climate change and associated company action are likely for the basis of access to finance. ·          Organisations with poor ESG commitments, disclosures and performance can expect to see materially reduced lending appetite over time. ·          Cost of debt and debt capacity significantly impacted by anti-fossil fuel pressures in the lending community.  ·          Less debt capacity and increased cost of debt may lead to reduced asset and company valuation.	• Serica has put in place a new six-year financing facility with a group of international banks. This facility includes provisions for the incorporation of ESG performance indicators • The Company also seeks to retain a range of alternative financing options • Potential funding cost increases and loan structures (i.e. sustainability led loans) are considered when planning investments
The transition away from fossil fuel-based power generation may restrict the future demand for, or production of, the Company's oil and gas reserves	Medium to Long term	·          Reduced demand for goods and services due to shift in consumer preferences ·          Increased production costs due to changing input prices (e.g. energy, water) and output requirements (e.g. waste treatment) ·          Abrupt and unexpected shifts in energy costs ·          Change in revenue mix and sources, resulting in decreased revenues ·          Re-pricing of assets (e.g. fossil fuel reserves, land valuations, securities valuations) ·          R&D expenditures in new and alternative technologies ·          Capital investments in technology development ·          Costs to adopt/deploy new practices and processes	• The impact of the value of future reserves is lower for later periods of production due to discounting • Since the acquisition of Tailwind Energy, the Company's reserves are more evenly split between oil and gas mitigating the risk of demand for one commodity over another • The Company closely follows industry related forecasts and trends from numerous sources • The Company reviews opportunities for investment in clean technology and is currently involved in projects with the Net Zero Technology Centre
Energy transition objectives may bring additional costs, levies, or taxes	Short term	·          Increases the risk associated with longer term capital investments ·          Increased operating costs (e.g., higher compliance costs, increased insurance premiums) ·          Write-offs, asset impairment, and early retirement of existing assets due to policy changes ·          Increased costs and/or reduced demand for products and services resulting from fines and judgments	• Estimates of climate-related charges are included in cost estimates where reasonably identifiable • Management prioritises the delivery of ESG objectives aimed at mitigating any additional carbon levies, i.e., by reducing its asset emissions • The impact of the Energy Profits Levy and potential changes are taken into account when running corporate economic models, resilience testing and assessing new acquisitions
The range of potential acquisitions may be restricted by ESG considerations	Short to Medium Term	·          Reduced revenues from lower sales/output ·          Reduced capital availability	• Management considers the emissions profiles of potential acquisition targets and the mitigating actions that it can implement • It prioritises opportunities to deliver low carbon intensity production into the UK market compared to imports • The Company reviews investments in countries outside the UK and their climate-related policies and outlook
The industry or Company's reputation could be damaged as the oil and gas industry is perceived negatively by external stakeholders	Short to Medium Term	·          Reduced revenue from decreased demand for goods/services ·          Reduced revenue from decreased production capacity (e.g., delayed planning approvals, supply chain interruptions) ·          Reduced revenue from negative impacts on workforce management/planning (e.g., employee attraction/retention)	• Ensure the Company reports transparently and follows internationally recognised ESG reporting guidelines • Regularly engage with stakeholders on its ESG activities and performance
Physical Risk
More extreme weather patterns may threaten or disrupt operations or supply chain	Short to Long Term	·          Reduced revenue in the short term due to decreased production capacity (e.g. transport difficulties, supply chain interruptions)   ·          Reduced revenue and higher costs in the short term due to negative impacts on workforce (e.g. health, safety, absenteeism)   ·          Write-offs and early retirement in the long term of existing assets (e.g. damage to property and assets in "high-risk" locations)   ·          Increased operating costs in the long term (e.g. inadequate water supply for hydroelectric plants or to cool nuclear and fossil fuel plants)   ·          Increased capital costs in the long term (e.g. damage to facilities)   ·          Reduced revenues from lower sales/output   ·          Increased insurance premiums and potential for reduced availability of insurance on assets in "high-risk" locations in the long term	• The Company seeks to maintain robust transport and supply chains   • The impact of extreme climatic conditions such as exceptional waves are incorporated into risk management scenarios   • The Company operates under a Severe Weather Action Plan   • Plan contingency into operations such as drilling/diving/seismic to reflect poor weather

 

Serica is currently partially aligned with the Risk Management B recommendation. Information of future steps can be found in Serica's TCFD Summary Report.

Metrics and Targets

Criteria used to assess climate-related risks is aligned to the criteria used in Serica's risk assessment matrix. This matrix looks at the potential frequency of an event or risk occurring and the potential financial impact this may have on the organisation. Once its likelihood and potential financial impact has been determined it is given a risk rating, which is then used by Serica to rank the risks in relation to their severity and importance. Naturally, there is a focus to concentrate efforts on mitigating the most significant risks identified.

Carbon emissions data is collected from Serica's assets, including operated and partnered facilities. Serica assures this data for consistency and comparability throughout its portfolio over time. This data is used to ensure compliance with UKCS emissions regulation and to comply with all operating permits and consents associated with Serica's assets. It also provides benchmarks for delivering emissions reductions through the adoption of meaningful and achievable carbon reduction targets.

Serica is fully aligned to the emission reduction targets as set out in the North Sea Transition Deal, which commits the UK oil and gas industry to reduce absolute basin emissions by 10% by 2025, by 25% by 2027, 50% by 2030, and become Net Zero by 2050 from a 2018 baseline. Serica also supports the World Bank's target of reaching zero routine flaring by 2030.

Serica sets annual emissions targets as part of its annual bonus scheme. Performance against these targets is directly linked to the remuneration of our staff and executives. Serica has implemented ESG bonus linked targets since 2021.

The environmental targets put in place for the Bruce Hub in 2023 included:

•        Limiting total Scope 1 emissions to below 200,000 tonnes of CO₂

•        Limiting total volumes of flared gas to under 5,000 tonnes

In 2023, Serica achieved both targets, with total Scope 1 emissions reaching 179,447 tonnes of CO₂ by the end of the year and total flaring volumes limited to 4,708 tonnes. The main contributors to this were the successful implementation of the temporary power generators installed for the summer maintenance shutdown, which saved approximately 5,500 tonnes of CO₂ from being emitted. Further details on Scope 1 and 2 emissions can be found on page 76 of the Annual Report and Accounts.

In 2024, Serica will continue to tie emissions reduction initiatives to its remuneration and corporate bonus scheme and has implemented the following emissions related targets:

•        Limiting total Scope 1 carbon intensity to 15.5 kgCO₂/boe 

This target is intensity based and performance is monitored on a regular basis and is reported across the organisation, including the Board and all staff and contractors. Details on executive remuneration can be found on page ** of the Annual Report and Accounts.

Serica also has a suite of other environmental targets and KPIs used to monitor its performance, these include the average daily flaring volumes, the percentage of waste diverted from disposal, the volume of general waste generated and quantity of oil in produced water that is discharged to sea. Performance against these targets is also monitored on a regularly and performance is reported across the organisation.

The Company's main business is the acquisition, development and production of commercially attractive oil and gas reserves in a safe and environmentally sensitive manner. This is achieved both through pursuing the full cycle of exploration, discovery, development and production and also through acquiring existing reserves where management believe that further value can be added.

Further information upon the Company's HSEQ and ESG policies and delivery can be found within the ESG Report which will be issued along with the 2023 Annual Report.

Serica is currently partially aligned with the Metrics and Targets A recommendation. Information on future steps can be found in Serica's TCFD Summary Report.

 

 

 

Key Performance Indicators ("KPIs")

 

The Company's main business is the acquisition, development and production of commercially attractive oil and gas reserves in a safe and environmentally sensitive manner. This is achieved both through pursuing the full cycle of exploration, discovery, development and production and also through acquiring existing reserves where management believe that further value can be added.  

 

Operational and financial performance is tracked through the following KPIs whose progress is covered within the Review of Operations and Finance Review within this strategic report:

 

·      Daily production volumes

·      Production costs per barrel of oil equivalent

·      Realised sales income per barrel of oil equivalent

 

HSE performance is tracked through the following KPIs whose progress is covered within an updated ESG Report:

 

·      Recordable incidents and injuries

·      Workforce engagement in HSE

·      Quality of discharges to water and air

·      Ongoing maintenance programmes

 

ESG performance is tracked through the following KPIs whose progress is covered within the ESG Report:

 

·      Annual carbon emissions

·      Flare volumes

·      Scope 1 carbon intensity

 

Elements falling within each of the above categories are included within annual incentive schemes for all Group employees.

 

The Company tracks its new business development objectives through the building of a risk-balanced portfolio of full cycle assets. Specific KPI's are not applied due to the range of different potential acquisition targets. However, successful delivery will add to future production volumes and net realised income.

 

Further information upon the Company's HSEQ and ESG policies and delivery can be found within the ESG Report which will be issued along with the 2023 Annual Report.

 

Section 172 statement

 

The Directors' statement under Section 172 of the Companies Act 2006 is included on pages 72 to 74.

 

Additional Information

 

Additional information relating to Serica, can be found on the Company's website at www.serica-energy.com and on SEDAR at www.sedar.com

 

The Strategic Report has been approved by the Board of Directors.

 

 

On behalf of the Board

Mitch Flegg

Chief Executive Officer

23 April 2024

 

Forward Looking Statements

This disclosure contains certain forward looking statements that involve substantial known and unknown risks and uncertainties, some of which are beyond Serica Energy plc's control, including: the impact of general economic conditions where Serica Energy plc operates, industry conditions, changes in laws and regulations including the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof, and obtaining required approvals of regulatory authorities.  Serica Energy plc's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward looking statements will transpire or occur, or if any of them do so, what benefits, including the amount of proceeds, that Serica Energy plc will derive therefrom.

 

 

Serica Energy plc
Group Income Statement
For the year ended 31 December 2023
		2023	2022
	Note	£000	£000
Continuing operations
Sales revenue	4	632,638	812,423
Cost of sales	5	(326,064)	(218,155)
Gross profit		306,574	594,268
Hedging income/(expense)	6	4,762	(24,507)
Contract revenue - other	16	23,904	-
Exploration and pre-licence costs		(2,103)	(185)
E&E asset write-offs	12	(8,741)	(82,749)
Administrative expenses		(19,637)	(9,225)
Transaction costs	29	(10,085)	(1,785)
Foreign exchange (loss)/gain		(3,591)	3,903
Share-based payments	25	(3,975)	(3,510)
Gain on acquisition	29	34,048	-
Operating profit before net finance revenue		321,156	476,210
and tax
Change in fair value of financial liabilities	19	(7,584)	8,407
Finance revenue	8	13,532	4,499
Finance costs	8	(21,481)	(938)
Profit before taxation		305,623	488,178
Taxation charge for the year	9	(202,639)	(310,382)
Profit for the year		102,984	177,796
Profit for the year attributable to:
Equity owners of the Company		102,984	177,796
Earnings per ordinary share - EPS
Basic EPS on profit for the year (£)	10	0.29	0.65
Diluted EPS on profit for the year (£)	10	0.27	0.62

 

 

Serica Energy plc

Group Statement of Comprehensive Income

For the year ended 31 December 2023

 

			2023	2022
			£000	£000
Profit for the year			102,984	177,796
Other comprehensive loss
Items that may be subsequently reclassified to income statement:
Exchange differences on translation			(11,729)	-
Other comprehensive loss for the year			(11,729)	-
Total comprehensive profit for the year			91,255	177,796
Total comprehensive profit attributable to:
Equity owners of the Company			91,255	177,796

 

 

Serica Energy plc

Registered Number: 5450950

Group Balance Sheet

As at 31 December 2023

		2023	2022
	Note	£000	£000
Non-current assets
Exploration & evaluation assets	12	1,930	1,001
Property, plant and equipment	13	711,499	265,907
Deferred tax asset	9	84,107	-
		797,536	266,908
Current assets
Inventories	14	10,888	3,998
Trade and other receivables	15	138,610	134,627
Hedging security advances	16	-	24,320
Decommissioning security advances	17	27,537	-
Cash and cash equivalents	17	263,492	432,529
		440,527	595,474
TOTAL ASSETS		1,238,063	862,382
Current liabilities
Trade and other payables	18	97,415	69,887
Corporate tax payable		53,660	149,998
Derivative financial liabilities	16	4,371	24,914
Contract liabilities	16	28,829	987
Financial liabilities	19	3,635	-
Provisions	20	12,935	-
Non-current liabilities
Financial liabilities	19	65,003	29,378
Provisions	20	103,918	25,199
Deferred tax liability	9	-	153,295
Interest bearing loans	21	213,035	-
TOTAL LIABILITIES		582,801	453,658
NET ASSETS		655,262	408,724
Share capital	23	192,921	183,177
Merger reserve	23	230,350	-
Other reserve	25	29,551	25,576
Accumulated funds		214,169	199,971
Currency translation reserve		(11,729)	-
TOTAL EQUITY		655,262	408,724

 

Approved by the Board on 23 April 2024

 

 

Mitch Flegg                                          Martin Copeland

Chief Executive Officer                           Chief Financial Officer