Serica Energy plc (SQZ), a British independent upstream
oil and gas company with operations in the UK North Sea announces its audited
financial results for the year ended 31 December 2020.
Commenting on the results, Mitch Flegg, Serica's CEO stated:
“We are reporting solid results after a challenging year and a severe industry downturn.
Despite the many obstacles 2020 presented, Serica has continued to strengthen its
financial and operational foundations and also to deliver returns to its shareholders. COVID-19 caused disruption to global markets and threatened operations during 2020 but
Serica responded rapidly to protect its personnel and ensure continuing supplies of oil and gas into the British market. The impact of a substantial fall in commodity prices during the
year plus a 45-day shut-in of BKR production in 1H to repair a damaged caisson on the Bruce platform was mitigated by the flexible structure of the BKR net cash flow sharing
arrangements and the Group’s gas price hedging programme. This financial and operational resilience enables the recommendation of an increased dividend of 3.5 pence per share.
The R3 workover is now nearing completion despite a series of technical challenges and periodic severe weather throughout the campaign and the Columbus development well
was spudded in mid-March 2021. These projects are expected to boost production during 2H and Q4 respectively and we continue to actively pursue M&A opportunities that can broaden our asset base and add further value for our stakeholders. I look forward to
updating shareholders on our progress during the rest of the year.”
- Group profit before tax of BGP12.5 million (2019: BGP108.8 million) impacted by low
commodity prices and Bruce caisson shut-in.
- Average net production of 23,800 boe per day (2019: 30,000 boe per day) - reduction
reflects 1H caisson repairs and other field maintenance work.
- Cash flow from operations of £44.1 million (2019: £137.1 million).
- Capital expenditure of BGP26.6 million (2019: BGP5.3 million).
- Maiden 3 pence per share dividend paid in July totalling £8.0 million (2019: nil).
- Closing cash and cash equivalents of BGP89.3 million (2019: BGP101.8 million) after capital
expenditure and dividend payment with no debt.
- Resource base reinforced as Group production of approx. 8.1 million boe for the year
largely offset by a 12% increase oil and gas reserves, leaving year end reserves of 61.0 million boe (2019: 62.3 million boe).
- Average 2020 sales price of approx. US$20 per boe (2019: US$30 per boe) and
average operating cost of US$14.12 per boe (2019: US$12.60 per boe).
- Gross loss of BGP2.9 million (2019: profit of BGP85.8 million) and operating loss of £18.7
million (2019: profit of £87.7 million) included BGP38.5 million (2019: BGP52.6 million) of non-cash depletion charges.
- Realised gains of BGP12.3 million (2019: BGP3.9 million) on 2020 gas price hedging offset by unrealised losses of £16.6 million (2019: unrealised gains of BGP6.7 million) on 2021/2022 hedging:
- based on market futures curve at balance sheet date and reflects rapidly
strengthening forward gas prices at the year end.
- Cash flow from operations of BGP44.1 million (2019: BGP137.1 million) after payment of:
- BGP21.8 million of BKR cash flow sharing and other liabilities (2019: £57.3 million)
- BGP26.6 million of capital expenditure (2019: £5.3 million) and
- BGP8.0 million of dividends (2019: nil).
- Profit after tax was BGP7.8 million (2019: £64.0 million) after a non-cash deferred tax
provision of £4.8 million (2019: £44.8 million).
- Updated independent audit of field reserves reported Serica’s share of estimated
remaining 2P reserves as 61.0 million boe as at 1 January 2021:
- approximate 12% increase over the 62.3 million boe reported as at 1 January 2020, after adjustment for 2020 production
- largely the result of improved production efficiencies and lower operating costs achieved on the BKR assets since acquisition by Serica
- projected BKR field life now extended by a further two years.
- Bruce, Keith and Rhum fields produced 21,500 boe per day net to Serica for 2020 compared to 27,300 boe per day for 2019 - reduction largely due to the 45-day shutdown in 1H to effect caisson repairs on the Bruce platform and to planned
- Erskine field continued its strong performance averaging over 2,300 boe per day net
to Serica during 2020 (2019: 2,700 boe per day) after five-week planned maintenance shut-in.
- Serica continued its cost reduction programme on BKR, lowering underlying operating costs by a further 10% in 2020. However, overall Group costs per barrel increased to
US$14.12 per boe from US$12.30 in 2019 as fixed cost elements were spread over lower production volumes.
- Successful completion of the Rhum R3 workover is expected to accelerate field production, with the potential to bring additional reserves into the commercial lifespan
of the field and to provide operational back-up to the existing two wells. Total costs now projected at £21 million, after adjustment for net cash flow sharing, of which £11.5 million to be spent in 2021 – represents total cost overrun of £9.7 million net to Serica.
- The Maersk Resilient heavy-duty jack-up rig spudded the Columbus development well on 17 March 2021 and drilling is progressing to plan. The Arran-Shearwater export pipeline has been laid and first gas from Columbus is expected for Q4 2021.
- Active management on flaring resulted in a 45% reduction in flare volumes compared to 2019.
- CO2 emissions on Bruce of approx. 214,500 tonnes were over 10% lower compared to 2019 (241,500 tonnes).
- ESG performance metrics added to annual incentive scheme for all Group employees covering flaring, carbon intensity, diversity and waste.
- As a demonstration of its commitment to reporting transparency, Serica intends to publish its second Environmental, Social and Governance (“ESG”) Report in conjunction with the publication of the full Annual Report and this will be available on Serica’s
website www.serica-energy.com .
- The resurgence in commodity prices which commenced in Q4 2020 has continued into 2021 with average market prices for Q1 of approximately 50 pence per therm for NBP gas and US$61 per barrel for Brent oil, significantly higher than the respective average
prices of 25 pence per therm and US$42 per barrel seen in 2020.
- Gas in particular, currently some 80% of Serica’s production mix, has seen prices since the year end reach sustained levels not seen since 2018. Apart from the significant benefit this brings to realised revenues, Serica also continues to build its price hedge
position to cushion against commodity price falls such as seen in 2020 whilst maintaining high exposure to higher prices such as seen in the period following the year end.
- Significant increases in Serica’s retained share of production volumes in prospect with R3 expected to be contributing in Q3, Columbus from Q4 and Serica’s retained share of net cash flow from the BKR assets increasing from 60% to 100% effective 1 January 2022.
- As a core part of pursuing our objectives we will continue to increase our focus on ESG
issues, in particular in efforts to reduce the carbon intensity of our production.
- Having initiated a dividend policy last April it is the Board’s intention to maintain
dividend payments for future years and to grow the level when financial performance supports this.
- Subject to shareholder approval at the AGM, a dividend of 3.5 pence per share will be
payable on 23 July 2021 to shareholders registered on 25 June 2021 with an exdividend date of 24 June 2021.
- With strong operating, ESG and financial credentials Serica is well-placed to grow through developing the potential of its existing assets as well as building on new opportunities to diversify risk, provide new growth prospects and achieve economies of scale.