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SERICA ENERGY
ANNUAL REPORT 2015
SERICA ENERGY PLC
HEAD OFFICE 52 GEORGE STREET LONDON W1U 7EA UNITED KINGDOM
T +44 (0) 20 7487 7300
F +44 (0) 20 7487 7330
info@serica-energy.com
www.serica-energy.com
Serica Energy plc is an oil and
gas exploration, development and
production company with activities
based in the UK, Ireland, Namibia and
Morocco. The Company’s shares are
listed on AIM in London under the
symbol SQZ.
CONTENTS
1 Highlights
2 Licence holdings
3 Executive Chairman’s statement
5 Strategic report
5 Review of operations
10 Financial review
16 Directors’ report
18 Corporate governance statement
21 Directors’ biographies
22 Directors’ responsibilities statement
23 Independent auditor’s report
25 Financial statements
29 Notes to the financial statements
62 Group proved plus probable reserves
63 Glossary
64 Corporate information
HIGHLIGHTS
Erskine Field
Exploration
Our 18% Erskine field interest has exceeded expectations
Serica continues to streamline its exploration portfolio
since closing the acquisition:
•
Production over 3,000 boe per day net to Serica over the
second half of 2015, compared to projected production of
2,100 boe per day
•
Actual operating cost below US$20 per barrel compared
to expectations of over US$30 per barrel when Serica
so as to minimise near-term expenditure commitments
whilst retaining exciting upside for access once market
conditions improve:
•
In the UK offshore, carried interests on blocks 22/19c
(Rowallan prospect) and 113/22 (Doyle prospect) with
drilling targeted for 2017/8
acquired the field interest
•
Extensions to Serica’s Irish licence in the Rockall Basin
•
Netherland, Sewell & Associates estimates remaining
reserves at 1 January 2016 of 4.2 million boe net to
(FEL 1/09) to July 2017 and Namibian licence in the
Luderitz Basin to December 2016
Serica, an increase in excess of 50%
•
Retained an interest in the Sidi Moussa licence in
•
No near-term capital expenditure programmed
Morocco with back-in rights should a further well be
drilled on the licence
Financials
•
Serica reports its first annual profit since 2009 of
US$6.5 million post-tax after net impairment provisions
of US$8.2 million
•
Our 18% Erskine field interest generates significant
positive cash flows at current commodity prices
•
Operating cashflow of US$7.6 million and gross profits of
US$16.1 million include seven months of post-acquisition
Erskine production
•
At 31 December 2015, Serica had US$21.6 million of cash,
grown from less than US$5.4 million just prior to closing
the Erskine acquisition
Columbus Field
Serica’s Columbus interest increased from 33.2% to 50%
at nominal cost through the acquisition of the SSE and BG
interests in the field by remaining partners resulting in:
•
An overall increase in contingent resources net to Serica
from 5.2 mmboe to 6.2 mmboe
•
Improved alignment of remaining Columbus partners
that, along with the OGA’s ‘Maximising Economic
Recovery UK’ initiative adds fresh impetus to
development planning
Outlook for 2016
Robust financial position underpins ability to weather
current production shutdown and provides basis for
future growth:
•
Cash resources of US$24 million at end March with no
borrowings or significant capital commitments
•
Oil hedges at US$40 and US$35 per barrel helped
to sustain sales revenues during January/February
price trough
•
Work continues on identifying efficiencies in the Erskine
producing asset and progressing the optimum offtake/
development options for Columbus
•
Farm-outs and licence extensions assist Serica to
maintain exploration upside without overcommitting
near-term capital expenditures
•
Opportunities sought to build our asset base
through acquisitions as larger players rationalise
their asset portfolios
1
Serica Energy plc Annual Report and Accounts 2015 Licence Holdings
The following table summarises the Company’s licences as at 31 December 2015.
Block(s)
Description
Role
% at
31/12/15
Location
UK
22/19c
23/16f
Exploration
Columbus Field –
Development planned
Non-operator
Operator
15%
50%
Central North Sea
Central North Sea
23/26a, 23/26b
Production
Non-operator
18%
Central North Sea
Erskine Field
47/2b (split)
47/3g (split)
47/7 (split)
47/8d (part)
113/26b
113/27c
113/22a
Ireland
27/4 (part)
27/5 (part)
27/9 (part)
5/17
5/18
5/22
5/23
5/27
5/28
11/10
11/15
12/1 (part)
12/6
12/11 (part)
Namibia
2512A
2513A
2513B
2612A (part)
Morocco
Exploration
Exploration
Exploration
Exploration
Exploration
Exploration
Exploration
Exploration
Exploration
Exploration
Exploration
Exploration
Exploration
Exploration
Exploration
Exploration
Exploration
Exploration
Exploration
Exploration
Exploration
Exploration
Exploration
Exploration
Exploration
Non-operator1
Non-operator1
Non-operator1
Non-operator1
Non-operator
Non-operator
Non-operator
Operator
Operator
Operator
Operator
Operator
Operator
Operator
Operator
Operator
Operator
Operator
Operator
Operator
Operator
Operator
Operator
Operator
Operator
37.5%
37.5%
37.5%
37.5%
20%
20%
20%
50%
50%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
85%
85%
85%
85%
Southern North Sea
Southern North Sea
Southern North Sea
Southern North Sea
East Irish Sea
East Irish Sea
East Irish Sea
Slyne Basin
Slyne Basin
Slyne Basin
Rockall Basin
Rockall Basin
Rockall Basin
Rockall Basin
Rockall Basin
Rockall Basin
Rockall Basin
Rockall Basin
Rockall Basin
Rockall Basin
Rockall Basin
Luderitz Basin
Luderitz Basin
Luderitz Basin
Luderitz Basin
Sidi Moussa
Exploration
Non-operator
5%
Tarfaya-Ifni Basin
1.
Interest relinquished in January 2016.
2
Serica Energy plc Annual Report and Accounts 2015 Executive Chairman’s Statement
Dear Shareholder
Today we are reporting our first annual profit since 2009 –
position to do so. In the meantime work continues on
US$6.5 million post-tax even after net impairment provisions
lowering both asset and corporate cost bases and getting the
of US$8.2 million. The large part of this was generated in
best out of our existing operations.
the second half of 2015 and has been achieved during an
unprecedented period of considerable industry uncertainty
when many companies are operating under severe financial
constraint. The transaction which we completed in mid-
Full details of our operations and finances are contained in
the Strategic Report that follows but I would like to highlight
some of the most important points here.
2015 to buy a stake in the Erskine field, and subsequent
Our newly acquired Erskine field interest contributed
efforts to improve performance in the field and associated
gross profit of US$16.1 million from seven months of post-
infrastructure, are the driving factors behind this performance.
acquisition production. Our accumulated tax losses are
Although we are experiencing current problems caused by
a blockage in the pipeline from the Lomond platform through
which Erskine liquids are exported, and work to resolve this
is still ongoing, Erskine field performance has exceeded
expectations since the acquisition and has made a significant
financial contribution since the transaction completed
last June.
expected to be sufficient to offset tax charges on all current
and future income from the field. Since completion, the
benefit of Erskine to Serica has been enhanced through
greatly improved operational reliability and significant cost
reductions. Average production over the second half of 2015,
at 3,000 boe per day net to Serica, compares to projected
production for the period of 2,100 boe per day and gives a
strong indication of the potential for ongoing performance
•
Our 18% Erskine field interest generates significant
if operational reliability can be maintained. Actual operating
positive cash flows at current commodity prices,
cost below US$20 per barrel compares to expectations of
generating 2015 operating cashflow of US$7.6 million.
over US$30 per barrel when we acquired the field interest.
•
At the end of March 2016, Serica had US$24 million in
the bank, grown from US$5.4 million just prior to Erskine
completion and US$21.6 million at year end.
•
Oil price hedges at US$40 and US$35 per barrel are
helping to maintain our income levels in 1H 2016.
This has more than offset lower commodity prices in recent
months. We will continue to work with the field operator
on targeting further value enhancements through cost
reductions and operational efficiencies.
A better than projected sub-surface performance has also
resulted in a boost to reserves. An end of year report by
•
The Company has no borrowings, and with its carried
independent consultant Netherland, Sewell & Associates,
interests, has no exploration obligations or other
shows a significant increase in expected remaining proven
significant capital commitments.
All this means that Serica is considerably stronger than
it was a year ago notwithstanding the headwinds of the
past eighteen months. Naturally we would welcome higher
commodity prices but we know that this industry is heavily
cyclical and an environment where much production
worldwide is experiencing monthly operational cash deficit,
let alone full cycle cost deficit, cannot be sustained for
and probable reserves for Erskine. The estimate upon which
we based our acquisition economics last year was 3.3 million
barrels net to Serica effective June 2015, reducing to 2.7
million barrels at 1 January 2016 after 2H 2015 production
is taken into account. Using recent well data and updated
economic production cut-off, NSAI now estimates remaining
reserves at 1 January 2016 to be 4.2 million boe net to Serica,
an increase in excess of 50%.
long. Global oil demand continues to grow and the means
In March 2016 we reported that BG’s Lomond to Everest
to satisfy this at below US$60 per barrel are diminishing
pipeline, which provides an export route for Erskine
year-by-year as expensive deep water and onshore
condensate, was blocked and that Erskine production had
unconventional production replaces lower cost sources.
been suspended whilst this blockage was removed. More
I firmly believe there is more scope to add value at the low
end of the cycle than the top end and management’s job is
to deliver such opportunities. These may come in the form
of improved use of infrastructure, low cost acquisitions or
corporate transactions. None of this is simple to crystallise
in a tough financial market but Serica has demonstrated
resilience over the past year and this puts us in a good
details on progress to resolve the Lomond to Everest pipeline
blockage are provided in the Operations Review which
follows. It is important to emphasise that the short term
impact of the current production shut-in is not expected
to translate into any reduction in recoverable reserves nor
significant loss of economic value over the longer term
particularly when set against an expectation of rising prices.
3
Serica Energy plc Annual Report and Accounts 2015 Executive Chairman’s Statement continued
We have also seen increases in Columbus contingent
drilling costs through cost carries, and field capital where this
resources where, following the Erskine transaction, we were
delivers near-term cash flow. We continue to hold a number
able to resolve some partnership issues with Columbus.
of high impact exploration prospects that have the potential
The rationalisation of ownership within the Columbus field
to deliver significant upside when the time to drill is right.
group, with Serica’s share increasing from 33.2% to 50%,
has improved partner alignment whilst the OGA initiative
to encourage co-operation between infrastructure and field
owners has given development planning fresh impetus. The
change of ownership increased Serica’s share in estimated
contingent resources attributable to Columbus to 6.2 mmboe
based on our new plans for a one-well development which
we feel presents a more viable basis for development
under current pricing scenarios than the previous two-well
development concept. Our Erskine acquisition has also
strengthened our presence in the Columbus/Lomond area
improving our influence and synergies and the potential
for development.
All in all Serica has seen a substantial improvement during
2015 and the year brought real transformation to the
Company. Our financial position strengthened progressively
through the second half of 2015 with cash resources
increasing from US$5.4 million prior to Erskine completion
in June 2015 to US$21.6 million at the year-end. Reservoir
performance for 2016 to date continues to encourage with
cash resources at end March standing at US$24 million with
no borrowings or significant capital commitments. Although
this will clearly be impacted by the current temporary
Whilst we were able to finally close the Erskine deal in an
environment where many thought small companies could no
longer achieve such things, the departures of both COO Mitch
Flegg and CFO Chris Hearne in May presented our small
team with additional challenges. I would like to thank Mitch
and Chris for their resolve over many months in bringing the
acquisition to conclusion and the remaining team at Serica for
delivering a seamless handover. Though our core team, and
consequently G&A, is much smaller now we have additional
high quality resource to call upon when required.
Outlook
We must now maintain momentum into 2016. This means
encouraging further efficiencies on our Erskine producing
asset, identifying and progressing the optimum Columbus
offtake and development options, maintaining exploration
upside without overcommitting funds and building our
asset base through acquisition. We cannot control or even
predict near-term commodity prices but believe that
finance will be available for the right deals and that Serica’s
strong performance places it in a good position to access
that finance.
shutdown to clear the export pipeline, the Company’s robust
The current market and changes taking place in the
financial position stands it in good stead. The shutdown,
industry can be expected to present attractive acquisition
however, underlines the risk inherent in relying upon a single
opportunities as larger players rationalise asset portfolios
producing asset and it is, accordingly, part of our ongoing
in an effort to reduce costs and smaller underfunded or
strategy to look for opportunities to strengthen and broaden
overleveraged players are forced to raise funds through asset
our revenue base. The low cost hedging options we took out
disposals. It is apparent that much of this was deferred last
in October covering 500 barrels of oil per day at US$40 per
year in the hope of an improvement in commodity prices
barrel and 500 barrels of oil at US$35 per barrel had already
that did not materialise, adding greater urgency now. Our
more than paid back by end February and continue to
accumulated tax losses, in addition to sheltering net income
provide cover until the Erskine/CATS maintenance shut down
from existing assets, may also shelter income from new UKCS
planned in June.
As a result of prudent financial management over recent
years we are robust financially and we are not committed
to any major capital programmes on any of our assets. This
allows us to weather periods when we are not producing
and determine the timing of future investments solely on
the basis of economic returns and availability of finance.
We will prioritise exploration activity, where we can offset
acquisitions. Serica is very well placed to benefit from these
changes if the right opportunities become available.
Antony Craven Walker
Executive Chairman
18 April 2016
4
Serica Energy plc Annual Report and Accounts 2015 Strategic Report
The following Strategic Report of the operations and financial
“designated foreign issuer” as that term is defined under
results of Serica Energy plc and its subsidiaries (the “Group”)
Canadian National Instrument 71-102 – Continuous
should be read in conjunction with Serica’s consolidated
Disclosure and Other Exemptions Relating to Foreign
financial statements for the year ended 31 December 2015.
Issuers. The Company is subject to the foreign regulatory
References to the “Company” include Serica and its
subsidiaries where relevant. All figures are reported in US
requirements of the Alternative Investment Market (“AIM”)
of the London Stock Exchange in the United Kingdom.
dollars (“US$”) unless otherwise stated.
Serica is an oil and gas company with exploration and
Although the Company delisted from the Toronto Stock
Exchange (“TSX”) in March 2015, the Company is a
development activities based in the UK, Ireland, Namibia
and Morocco, and an economic interest in an oilfield
offshore Norway.
Review of Operations
UK Operations
Erskine Production
The Erskine Field is a gas and condensate producing field
located in the UK Central North Sea. Serica acquired an 18%
interest in the field in June 2015. Its partners are Chevron
50% (operator) and BG 32%.
Erskine contributed an average of over 3,000 boe per day
net to Serica in the second half of 2015. Field performance
Following an intervention campaign in 2015, all five Erskine
wells are available for production. The wells produce into
the Erskine platform and flow down a multiphase pipeline
to the BG-operated Lomond platform where condensate
and gas are separated and exported via separate pipelines.
Serica’s condensate allocation is delivered and sold as Forties
crude at the Cruden Bay terminal and gas is sold at the CATS
terminal on Teesside. The 30 kilometre Erskine to Lomond
pipeline was thoroughly inspected in 2015 and found to be in
since June has been above expectations: production volumes
good condition.
have been lifted by a combination of consistent reservoir
performance and high facility uptime whilst costs per
barrel have been lowered by a combination of overall cost
reductions and higher produced volumes. These factors have
contributed to an overall increase in estimated remaining
proven and probable reserves.
Erskine produces from Jurassic sandstone and is classed as a
High Pressure High Temperature (“HPHT”) reservoir. A report
by independent consultant Netherland, Sewell & Associates
(“NSAI”) was published on 13 April 2016. Remaining reserves
from 1 January 2016 are estimated to be 4.2 million boe net
to Serica and the field is expected to continue production
well into the 2020’s. Serica has produced approximately
606,000 boe net up to the end of 2015, which, combined
with estimated remaining reserves, represents a total of
4.8 million boe, compared to Serica’s original estimate at
acquisition of 3.3 million boe.
On 28 February 2016, Erskine production was temporarily
suspended during essential maintenance work to enable a
foam cleaning device, known as a pig, to be recovered from
the BG Lomond to Everest condensate line and to repair a
condensate export pump on the Lomond platform.
This work was intended to be complete by mid-April but has
been aggravated by wax deposits in the area of the blockage
which have been inhibiting recovery of the pig. Efforts to
clear the line, whilst offering encouragement, have not yet
proved fully successful. Further time is needed to complete
this process and to ensure the line is fully cleared of wax.
This work is expected to take several more weeks.
A two month maintenance shut-down was already planned
on the Lomond platform to start in June corresponding
with a one-month shutdown of the CATS system through
which Erskine gas is exported. In view of the additional time
5
Serica Energy plc Annual Report and Accounts 2015 Review of Operations continued
required to clear the Lomond to Everest pipeline it is now
Independent consultant NSAI carried out a reserves report
likely that Erskine restart will be deferred until after those
on the Columbus field for the end of 2015. Under current
programmes have been completed. Erskine should benefit
economic conditions a simplified low-cost development
from flush production due to reservoir pressure re-charge
concept using just one well has been assumed, delivering
once the field restarts with no loss of reserves.
estimated gross contingent resources of 54 bcf of gas and
No near-term capital expenditure is budgeted as extensive
works were carried out in 2014/2015. Operating costs consist
of a share of the processing costs incurred by the Lomond
platform and transportation tariffs from the Forties and CATS
pipelines, as well as the operator’s cost to run the Erskine
platform. These costs have fallen due to improvements in
efficiency and so enable the field to be profitable at lower oil
and gas prices.
The efficiency of the facilities and export route availability
during the second half 2015 of around 70% showed a
significant improvement compared to historical performance
running well below 50% over recent periods. Serica is
working with the operators of Erskine and Lomond to
improve the performance still further and ensure that the
integrity and efficiency of the facilities continue to perform
well now and into the future. The current pigging operations
on the main condensate export line from Lomond are part of
this process.
Columbus Development
The Columbus Field is an undeveloped gas condensate field
located in the UK Central North Sea, 8 kilometres north
of the Lomond Platform. Following agreement in October
2015, Serica’s interest increased from 33.2% to 50% through
3.6 mmbbl of liquids. Although this represents a reduction
in the estimated recovery factor compared to the two-
well concept previously assumed, the increase in Serica’s
share from 33% to 50% at nominal cost represents an
overall increase in contingent resources net to Serica from
5.2 mmboe to 6.2 mmboe. The optimal development
concept will be kept under review in the light of future
economic conditions.
The improved alignment of the Columbus partners, and the
recent performance of the Lomond facilities, combined with
the OGA Maximising Economic Recovery UK initiative to bring
small fields into development have added fresh impetus to
development plans. The OGA are working with infrastructure
owners and owners of undeveloped fields to encourage
collaboration and work towards mutually beneficial solutions
to ensure maximum exploitation of remaining reserves in the
UK North Sea and Columbus should benefit from this.
Exploration
Central North Sea: Block 22/19c
Block 22/19c is located approximately 20 kilometres to the
west of Serica’s Columbus field. Serica has a 15% interest in
the block and has a full cost carry on this licence up to and
including the drilling of an exploration well.
the acquisition of the SSE and BG interests in the field by
The group has identified significant deep HPHT potential in
remaining partners. The advantages of this acquisition,
the Jurassic and Triassic and ENI, operator of the licence,
completed on 2 February 2016, are an increase in contingent
brings considerable experience in HPHT technology.
resources net to Serica and also greater alignment between
partners to select the optimum offtake route.
Four wells have been drilled on Columbus to appraise
the extent and capability of the reservoir. The conceptual
development plan for Columbus is to tie-back a subsea
A Competent Person’s Report (“CPR”) conducted by NSAI and
commissioned by Serica, has assessed the highest ranked
prospect, Rowallan, to contain between a P90 of 40mmboe
and a P10 of 243mmboe of unrisked prospective gross
resources. The current low oil price environment has deferred
production well to the Lomond platform, where the fluids
a drilling decision and the exact timing for the drilling of this
would be processed and exported through the same routes
well is the subject of discussion amongst the partners.
as Erskine production. The performance of the Lomond
Platform in 2015 has been encouraging for the Columbus
partners with greater efficiency leading to a reduction in
operating costs thus improving development economics at
lower commodity prices and a full integrity study is taking
place to determine that performance is sustainable. In the
event that Lomond is not deemed a suitable offtake route, a
number of other routes are being evaluated.
The cost carry and material prospective resources combine
to make this a notably low risk, high reward opportunity
for Serica.
East Irish Sea: Blocks 113/26b and 113/27c – Doyle Prospect
Serica holds a 20% interest in Blocks 113/26b and 113/27c
including the Doyle prospect. Doyle is a Triassic gas prospect
on a fault and dip closed structure and is ready to drill.
Serica has a cost carry on this licence up to and including the
drilling of an exploration well subject to a gross cap of
£11 million (US$16.3 million at year end exchange rates).
6
Serica Energy plc Annual Report and Accounts 2015 The OGA has extended the licence to the end of 2016 to
Serica is seeking farm-in partners to take advantage of
allow time for the partnership to formalise the drilling of an
current low drilling costs and drill the Muckish prospect, a
exploration well on the Doyle Prospect located in the north
large structurally-closed gas condensate prospect in water
of Block 113/27c and extending into 113/22a. The site survey
depth of 1,450 metres. Mean prospective resources for
has been completed and Zennor North Sea Limited, formally
Muckish are estimated to be 1.6 tcf. Recently, drilling costs
MPX, has taken over operatorship of the licence.
have reduced greatly and so an exploration well could cost
East Irish Sea: Block 113/22a
Serica holds a 20% interest in Block 113/22a which is also
operated by Zennor North Sea Limited.
The Doyle prospect in Block 113/27c is believed to extend
into Block 113/22a and a 2D seismic acquisition may be
conducted to confirm this extension.
less than US$40 million. The presence of the Dooish gas
condensate discovery drilled in 2002 in an adjacent block
proves the hydrocarbon bearing nature of the basin.
Frontier Exploration Licence 4/13 – Blocks 11/10, 11/15,
12/1(part), 12/6 and 12/11(part) – Aghla and
Derryveagh Prospects
FEL 4/13 covers an area of approximately 925 square
Central North Sea: Blocks 15/21g and 15/21a (part) –
kilometres in the same area as the Muckish prospect and
Spaniards Appraisal
Serica held a 21% interest in the amalgamated area of Block
contains the Derryveagh, Aghla More (formally Midleton) and
Aghla Beg (formally West Midleton) prospects. The names of
15/21g and Block 15/21a (part), but after careful review
the prospects were changed because an unrelated prospect
of remaining prospectivity, the decision was taken by the
also called Midleton was drilled by third parties in the Celtic
partners to withdraw from these blocks rather than drill an
Sea in 2015.
exploration well. Block 15/21g has been relinquished and
Block 15/21a (part) is in the process of being transferred to
the owners of the adjacent Perth field.
Aghla More and Aghla Beg are analogous to the proven
gas-condensate bearing Dooish discovery lying immediately
to the east. The Derryveagh prospect is a Cretaceous fan
Southern North Sea: Blocks 47/2b (Split), 47/3g (Split), 47/7
prospect overlying Aghla More and an exploration well has
(Split) & 47/8d (Part)
Serica held a 37.5% interest in these blocks which were
been designed to penetrate both prospects. There are no
remaining significant commitments on this licence and Serica
operated by Centrica. Although seismic data showed some
is seeking a partner prior to drilling an exploration well.
prospectivity in these blocks and despite their close proximity
Combined resources for Derryveagh and Aghla More are
to the producing York platform, the partnership could not
3.8 tcf.
identify an exploration prospect that passed economic
hurdles and so the decision was taken to relinquish the
licence effective January 2016.
East Irish Sea: Block 110/8b
Serica held a 100% interest and operatorship of Block
Frontier Exploration Licence 01/06: Blocks 27/4 (part), 27/5
(part) and 27/9 (part) – Liffey & Boyne Prospects
Licence FEL 1/06 covers an area of approximately 305 square
kilometres in the Slyne Basin off the west coast of Ireland.
Serica as operator holds a 50% interest in three blocks which
110/8b. No suitable prospect was found on which to drill
lie some 40 kilometres south of the producing Corrib Field.
an exploration well and so this licence was relinquished on
17 December 2015.
Ireland
The Boyne and Liffey prospects lying in the licence,
have been identified with the potential for commercial
accumulations. These have the potential for both Triassic gas
(Corrib analogue) reserves and Jurassic oil reserves, following
Frontier Exploration Licence 1/09: Blocks 5/17, 5/18, 5/22,
the play proven by the Bandon oil discovery well drilled
5/23, 5/27, and 5/28 – Muckish Prospects
In 2015 Serica reached agreement with the Department of
on the licence by Serica Both prospects are clearly defined
structural closures and in medium water depth (300m).
Communications, Energy and Natural Resources to extend
Current drilling cost estimates make these an attractive
the licence to July 2017. In return Serica relinquished 61%
proposition to access low risk exploration.
of the licence, only keeping acreage over the key prospects,
and now holds 390 square kilometres and has no
outstanding commitments.
Serica undertook further special seismic processing studies
in 2015 which reinforced the existing interpretation of the
prospects. Further work is planned to integrate released well
data in the region, including rock cuttings and oil samples,
into our prospect analysis.
NSAI in their 2014 CPR attribute P50 gross unrisked
prospective resources for the combined Jurassic and Triassic
objectives in Boyne and Liffey of 215 mmboe with a range
from a P90 of 56 mmboe to a P10 of 824 mmboe.
7
Serica Energy plc Annual Report and Accounts 2015 Review of Operations continued
Namibia
Morocco
Luderitz Basin: Blocks 2512A, 2513A, 2513B and 2612A (part)
Serica has an 85% interest in a Petroleum Agreement
covering Blocks 2512A, 2513A, 2513B and 2612A (part) in
Sidi Moussa and Foum Draa Petroleum Agreements
Sidi Moussa
Serica has a 5% working interest in the Sidi Moussa licence
the Luderitz Basin, offshore Namibia in partnership with
on which the partnership drilled the SM-1 well in 2014.
The National Petroleum Corporation of Namibia (Pty) Limited
The well was drilled to a total depth of 2,825 metres and
and Indigenous Energy (Pty) Limited. The blocks lie in the
encountered oil in fractured and brecciated cavernous Upper
centre of the basin and cover a total area of approximately
Jurassic carbonates.
17,400 square kilometres.
Post-well analysis has identified a follow-on prospect and the
This licence offers Serica exciting upside potential in one of
operator is considering drilling a second well on the licence.
the less explored basins offshore West Africa.
Serica has elected not to participate in this well but has the
The licence contains numerous prospects and leads, the
most significant being Prospect B, with a P10 resource
estimate of 1.8 billion barrels. The P50 best estimate is
622 million barrels. The prospect is a clearly defined giant
option to buy back in on agreed terms and will have access
to all the well data.
Foum Draa
In 2015 the partnership elected to relinquish the licence
carbonate structure of Barremian age and measures 700
following an assessment of the remaining prospectivity.
square kilometre area with a 300 metre vertical closure.
Recent drilling in Namibia has proven the presence of
excellent quality thick source rock at Barremian/Aptian levels
which if mature, as is currently modelled, would charge
the prospect with oil. High quality 3D seismic data over the
prospect demonstrates external geometries and internal
character coincident with a significant build-up of reservoir
quality rock.
Norway
Serica has an economic interest in the potential development
of the Vette field (previously known as Bream) dependent
upon the level of oil prices prevailing at first production. In
December 2015, the previous operator Premier completed
the sale of its interest in the field to Det Norske Oljeselskap
ASA. In Serica’s view, development is unlikely to be
The licence contains at least six additional leads in shallower
commercial at current oil prices. The Company has not been
levels within canyon-channel turbidite systems and shelf
notified of any development plans.
edge prospects, some of which exhibit seismic amplitude
(AVO) anomalies that are consistent with hydrocarbon-
charged reservoirs. Best estimate (P50) of gross unrisked
prospective oil resources associated with all the seven
identified prospects is 2.3 billion barrels. Serica is seeking a
partner to farm-in to the licence in order to drill Prospect B
and the Namibian authorities have given Serica an extension
to the licence to allow the process to progress.
8
Serica Energy plc Annual Report and Accounts 2015 Group Proved plus Probable Reserves – Unaudited
At 1 January 2015
Acquisitions1
Revisions
Production
At 31 December 2015
1. Serica internal estimate at acquisition on 4 June 2015
Total
Oil
mmbbl
–
1.9
0.8
(0.3)
2.4
Total
Gas
bcf
Total
Oil & gas
mmboe
–
8.8
3.8
(1.8)
10.8
–
3.3
1.5
(0.6)
4.2
Proved and probable reserves at 31 December 2015 are based on independent reports prepared by consultants NSAI (for the
Erskine Field in the UK North Sea) in accordance with the reserve definitions of the Canadian Oil and Gas Evaluation Handbook.
Gas reserves at 31 December 2015 have been converted to barrels of oil equivalent using a factor of 6.0 bcf per mmboe for
Western Europe (Erskine field reserves) on the basis of a nominal gas calorific value of 1,000 BTU per cubic foot.
Group Contingent Resources - Unaudited
At 1 January 2015
Acquisitions
Revisions2
At 31 December 2015
Total
Oil
mmbbl
1.5
0.8
(0.5)
1.8
Total
Gas
bcf
Total
Oil & gas
mmboe
21.9
11.0
(6.3)
26.6
5.2
2.6
(1.6)
6.2
2. Revisions relate to a change in field development concept from 2-well to 1-well
At the end of 2014, the directors of Serica believed that in the oil price environment at that time and the lack of agreement
on an export route, it was appropriate for Columbus field reserves to be properly considered as Contingent Resources rather
than the previous categorisation as Reserves. It was therefore not considered cost effective or necessary to obtain an updated
report for Columbus at the end of 2014. The directors continue to believe the categorisation of Contingent Resources is still
appropriate as at 31 December 2015.
Independent consultant NSAI carried out a reserves report on the Columbus field for the end of 2015.
During 2015 Serica increased its share in the Columbus field from 33% to 50% which is reflected by acquisitions in the table
above. Under current economic conditions and reduced product prices a simplified low-cost development concept using just
one well has been assumed delivering estimated gross contingent resources of 54 bcf of gas and 3.6 mmbbl of liquids. Although
this represents a reduction in estimated recovery factor compared to the two-well concept previously assumed, the combination
of this with an increased equity interest represents an overall increase in contingent resources net to Serica from 5.2 mmboe to
6.2 mmboe. The optimal development concept will be kept under review in the light of future economic conditions.
9
Serica Energy plc Annual Report and Accounts 2015
Financial Review
Group profit after tax of US$6.5 million for 2015 compares to
The transaction provides Serica with an immediate and long
a loss of US$36.1 million for 2014. This turnaround reflects
term cash flow stream, is tax efficient for the Company,
the inclusion of Erskine net income from completion of the
accelerating recovery of past tax losses in the UK, and is in
acquisition in June and the much lower level of E&E asset
line with Serica’s strategy to unlock the value of its existing
impairments and write-offs of US$8.2 million compared to
assets and build a platform from which it can generate
US$30.0 million in 2014. Gross profit of US$16.1 million
future growth.
(2014 – nil) reflected the contribution from seven months of
Erskine production.
Up to 60% of the gas is purchased by SSE on formula
contract prices and the balance is sold in the market at
Although commodity prices continued to fall during
monthly average spot prices. All of the oil is sold at monthly
the second half of the year the effect was partially
average spot prices.
counterbalanced by strong well performance, improved
offtake facility uptime and reduced operational costs. The
combined effect of these has rendered gross profit robust at
current prices whilst a programme of corporate cost cutting
has delivered further benefits at the operating cost level.
Erskine acquisition
Field production is still expected to generate good cash flow
in 2016, even if oil prices remain at current levels. Although
the impact of the current production interruption will be kept
under review, assuming steady ongoing production through
the second half of 2016, we expect operating costs to be in
the order of US$20 per boe or below.
In June 2015 the Company completed the acquisition of an
18% interest in UK blocks 23/26a (Area B) and 23/26b (Area
B) containing the Erskine Field, from BP.
Results from operations
Income statement – continuing operations
Serica generated a gross profit of US$16.1 million from
Under the terms of the transaction, the base cash
its retained 18% interest in the Erskine Field, reflecting
consideration to BP amounted to US$11.1 million in cash
performance from the date of completion, 4 June 2015, to
plus 13.5 million Serica new Ordinary Shares (the
the year end, 31 December 2015.
“Consideration Shares”), a number reduced from the
original 27 million shares due to the impact of certain
interim period adjustments. 25% of the cash consideration
was settled at completion with the remaining 75% payable
in three equal tranches on 1 July 2016, 1 July 2017 and 1 July
2018 respectively.
The net cash of US$9 million received by Serica at completion
resulted from the impact of certain working capital and
interim period adjustments between 1 January 2014, the
Effective Date of the transaction, and the completion date.
This included receipts from 55,000 bbls of oil pre-sold at
prices averaging US$100/bbl which were then satisfied
through volumes produced from Erskine in June and July.
The Consideration Shares allotted to BP on completion of
the transaction rank pari passu with existing Serica Ordinary
Shares. BP has agreed to hold the shares as an investment
for a period not less than one year with any subsequent sales
Sales revenues
The Company currently generates all its sales revenue from
the Erskine field in the UK North Sea. Revenue is earned from
gas, oil and NGL product streams.
In the period from 4 June to 31 December 2015, net Erskine
field gas production averaged 8.6 mmscf per day together
with average condensate production of 1,462 barrels per
day. The 2015 gas production was sold at prices averaging
US$5.1 per mscf and generated US$9.1 million of revenue
net to Serica. NGL products are derived from associated gas
production and earned revenue of US$1.1 million net
to Serica.
Condensate production in the period was initially allocated
against the overlift position inherited at acquisition. The oil
sales recorded in 2015 from lifted barrels of oil were
US$10.4 million at an average realised price of US$44.5/bbl.
subject to standard orderly market provisions.
Sales revenues also include US$3.4 million arising from the
Provision for decommissioning at the end of field life has
been provided for on the basis that Serica’s estimate of
decommissioning costs relating to the asset acquired will
be met by BP, on an inflation adjusted basis, with Serica
being responsible for any costs above a fixed 18% net
significant reduction in oil overlift (from 55,000 barrels at the
acquisition date of 4 June to 14,000 barrels at the year end)
and butane and propane overlift positions.
Cost of sales and depletion charges
Cost of sales is driven by production from the Erskine
level of £31.32 million. The terms of the Sale and Purchase
field and will typically comprise field operating costs and a
Agreement also provide for certain future contingent
depletion charge against the asset’s net book amount.
payments to be made by Serica in the event that operating
costs for the field fall below certain levels.
10
Serica Energy plc Annual Report and Accounts 2015 The overall 2015 charge of US$7.9 million comprised
Other minor asset write-offs in 2015 and 2014 included costs
direct field operating costs of US$6.6 million and non-cash
from relinquished licences and obsolete inventory amounts.
depletion of US$1.3 million. Depletion charges principally
represent the costs of Erskine acquisition spread over
the estimated remaining commercial life of the field. The
increase in estimated remaining reserves arising from the
NSAI report has reduced depletion costs per barrel compared
to previous estimates.
Administrative expenses of US$2.7 million for 2015
decreased from US$4.3 million for 2014. Following the
recent severe drop in oil prices and consequent impact
upon the financial resources available to companies such
as Serica, management has reviewed all of its expenditure
commitments and reduced its personnel, office and other
The US$ reported value of any movements in product over/
costs substantially effective 1H 2015. The Company expects
underlift have been classified within revenue.
savings achieved during the course of 1H 2015 to give further
Other expenses and income
The Company generated a profit before tax from continuing
operations of US$4.3 million for 2015 compared to a loss
before tax of US$35.6 million for 2014.
Pre-licence expenditure of US$0.1 million for 2015 has fallen
from the 2014 charge of US$0.5 million due to a reduced
level of activity on new business in the year as the Company
has increased its focus on its existing UK Central North Sea
benefit in 2016. The underlying benefit in £ sterling overhead
reduction in 2015 has also been positively impacted on
reported US$ charges by the weaker average £ sterling
exchange rate in 2015 against 2014.
Finance costs of US$0.2 million were incurred in 2015
comprising minor levels of interest accruing on the long
term liability payable to BP and hedging costs for the Q4
2015 period.
asset portfolio. Pre-licence costs included direct costs and
The income statement deferred taxation credit of
allocated general administrative costs incurred on oil and
US$2.4 million arose from the recognition of a corresponding
gas activities prior to the award of licences, concessions or
deferred tax asset on the Erskine field interest.
exploration rights.
The aggregate E&E asset impairment charge of US$8.2 million
Income statement – discontinued operations
Following the cessation of production and the
in 2015 is largely comprised from: a US$3.7 million partial
decommissioning of the Kambuna field facilities in the
write-off of costs on its Slyne licence in Ireland; relinquished
second half of 2013, the financial results of the Kambuna
asset write offs from the York (US$3.1 million) and Darwen
field business segment are disclosed within ‘discontinued
North (US$0.3 million) licences in the UK; a US$5.8 million
operations’ in the financial statements and separate from the
partial impairment of costs on its P1482 licence in the UK;
results of the retained core business segments.
offset by a US$4.9 million pre-tax impairment reversal
recorded against E&E assets related to the Columbus
field asset.
This discontinued operation has no significant further
activity and generated a loss of US$0.3 million in 2015 which
comprised a final assessment for asset write offs and minor
Impairments on the Slyne and P1482 (containing the Doyle
operator expense as residual matters are closed out.
prospect) licences represent the write-off of the cost of
wells drilled in 2009 and 2010 respectively which are not
considered to hold remaining economic potential.
Balance Sheet
During 2015, the total carrying value of investments in E&E
The partial impairment reversal recorded against Columbus
assets decreased by US$6.0 million from US$57.8 million to
book amounts has arisen from revised economic evaluations.
US$51.8 million. This decrease consisted of the significant net
The Company increased its interest in the asset in the year
impairment charge noted above of US$8.2 million, offset by
from 33.2% to 50% for nominal consideration. Incremental
US$2.2 million of additions in the year.
economic value attributed to the increased holding in the
asset has more than offset the use of lower hydrocarbon
prices in management’s estimation of future discounted cash
flows of the asset leading to an overall gain.
Activity on the Company’s exploration portfolio has been
reduced in the year given the focus on the producing Erskine
asset. In Africa, US$0.3 million was incurred in respect of the
Luderitz basin licence interests in Namibia. US$0.2 million
The aggregate E&E asset impairment charge in 2014 was
was incurred in the UK on the Greater York asset, Columbus
largely comprised from asset write offs from the Sidi Moussa
development and other exploration licences. In Ireland,
(US$7.4 million) and Foum Draa (US$5.0 million) licences in
US$0.7 million was incurred on exploration work on the
Morocco, and a US$17.5 million pre-tax impairment recorded
Rockall licences and US$0.2 million on the Slyne interest.
against E&E assets related to the Columbus field asset.
11
Serica Energy plc Annual Report and Accounts 2015 Financial Review continued
The property, plant and equipment balance of US$8.9 million
Cash balances and future commitments
as at 31 December 2015 entirely comprises the net book
amount of the Erskine asset acquisition costs capitalised
on completion of the transaction on 4 June net of depletion
charges to-date.
Trade and other receivables at 31 December 2015 totalled
US$4.2 million, an increase of US$1.8 million from the
2014 balance of US$2.4 million. The 2015 balance includes
US$3.2 million from December oil, gas and NGL sales earned
from the Erskine field.
Cash and cash equivalents increased from US$9.9 million to
US$21.6 million during the year. Serica received net cash of
Current cash position, capital expenditure commitments
and other obligations
At 31 December 2015, the Group held cash and cash
equivalents of US$21.6 million. The Company continues to
build its cash resources and cash balances had increased
to US$24 million as at 15 April 2016 following the receipt of
February 2016 sales revenue.
At 31 December 2015 the Group held oil price options
covering 500 bbls per day at US$40/bbl and 500 bbls per day
at US$35/bbl covering the period up to 31 May 2016 when
the summer CATS transportation system maintenance shut-
US$9 million from BP in June, which resulted from the impact
in is due to commence.
of certain working capital and interim period adjustments
between 1 January 2014, the Effective Date of the Erskine
transaction, and the completion date. This cash inflow was
partially offset by cash payments of US$1.8 million to settle
liabilities from the 2H 2014 well drilled in Morocco, other
E&E costs on work across the portfolio in the UK, Ireland and
Namibia, and ongoing administrative costs and corporate
activity. Cash receipts from Erskine field sales commenced
in July 2015 and have significantly boosted cash resources in
the post-acquisition period to December 2015.
Short term trade and other payable liabilities totalled
US$9.6 million at 31 December 2015. This balance comprises
capital and operational expenditure liabilities for the Erskine
interest, the US$2.9 million (including accrued interest)
short-term tranche of Erskine consideration payable to
BP on 1 July 2016, and a US$0.2 million non-cash overlift
liability reflects the year end overlift position of oil and
two NGL products for the Erskine field. The 2014 year-end
balance of US$4.0 million included creditors and accruals of
US$2.0 million from the Sidi Moussa well drilling in Morocco,
which was settled in 2015.
Long term liabilities of US$5.6 million as at 31 December
2015 comprise two of the three tranches of outstanding
consideration payable to BP following the acquisition of the
Erskine producing asset. The aggregate outstanding sum is
payable in three equal tranches of US$2.8 million plus accrued
interest on 1 July 2016, 1 July 2017 and 1 July 2018 respectively.
No provision for decommissioning liabilities for the Erskine
field is recorded as at 31 December 2015 as the Company’s
current estimate for such costs is under the agreed capped
level to be funded by BP.
Erskine field commitments
Net revenues from the Erskine field are expected to cover
ongoing field expenditures as well as the three remaining
tranches of US$2.775 million (excluding interest) cash
consideration payable to BP on 1 July 2016, 2017 and
2018 respectively.
Management believe these are sufficient resources to meet
the current committed programme for 2016 but remains
conscious that a single field income stream exposes it to
operational and infrastructure risks and the consequent need
for adequate working capital to cover associated fluctuations
in revenue. The field has a history of intermittent production
performance prior to the remedial work undertaken and
operational expenditure continues during periods of field
shut-down when no revenue is earned.
Non-Erskine commitments
The Group has no significant exploration commitments.
In the UK East Irish Sea, the Group’s carry on the exploration
well on the Doyle prospect is subject to a cap although no
overrun is currently forecast. The Group has no significant
commitments on its other exploration licences.
The Company will continue to give priority to the careful
management of existing financial resources. Although a key
objective for the Group is to get the Columbus development
back on track, the Group would seek to use alternative
means of finance to fund its share of development costs.
Other
Asset values and Impairment
At 31 December 2015 Serica’s market capitalisation stood
at US$30.6 million (£20.7 million), based upon a share price
of £0.0785, which was exceeded by the net asset value at
that date of US$74.2 million. By 15 April 2016 the Company’s
market capitalisation had increased to US$42.0 million.
Management conducted a thorough review of the carrying
value of the Group’s assets and determined that no significant
write-downs were required other than those noted above.
12
Serica Energy plc Annual Report and Accounts 2015 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 retain a broad portfolio of assets with
varied risk/reward profiles, to apply prudent industry practice in all operations, to carry insurance where available and cost
effective, and to retain adequate working capital.
The principal risks currently recognised and the mitigating actions taken by the management are as follows:
Investment Returns: Management seeks to raise funds and then to generate shareholder returns though investment in a
portfolio of exploration, development and producing acreage leading to the discovery and exploitation of commercial reserves.
Delivery of this business model carries a number of key risks.
Risk
Mitigation
Market support may be eroded obstructing fundraising and
Management regularly communicates its strategy to
lowering the share price
shareholders
Focus is placed on building an asset portfolio capable
of delivering regular news flow and offering continuing
prospectivity
General market conditions may fluctuate hindering delivery
Management aims to retain adequate working capital to ride
of the Group’s business plan
out downturns should they arise
Management’s decisions on capital allocation may not
Rigorous analysis is conducted of all investment proposals
deliver the expected successful outcomes
Operations are spread over a range of areas and risk profiles
Each asset carries its own risk profile and no outcome can
Management aims to avoid over-exposure to individual assets
be certain
and to identify the associated risks objectively
Operations: Operations may not go according to plan leading to damage, pollution, cost overruns or poor outcomes.
Risk
Mitigation
The Group’s income is currently derived from a single
Efforts are underway to add to producing assets
producing field
Management places a priority in building and retaining
sufficient working capital
Individual wells may not deliver recoverable oil and
Thorough pre-drill evaluations are conducted to identify the
gas reserves
risk/reward balance
Wells may blow out or equipment may fail causing
The Group retains fully trained and experienced personnel
Exposure is selectively mitigated through farm-out
environmental damage and delays
The planning process involves risk identification and
establishment of mitigation measures
Emphasis is placed on engaging experienced contractors
Appropriate insurances are retained
Operations may take far longer or cost more than expected
Management applies rigorous budget control
Production may be interrupted generating significant
Business interruption cover will be considered when
revenue loss
appropriate
Adequate working capital is retained to cover reasonable
eventualities
13
Serica Energy plc Annual Report and Accounts 2015 Financial Review continued
Operations: continued
Risk
Mitigation
Offtake routes may depend upon a series of facilities and
The Group aims to diversify its sources of income when
pipelines requiring a balance of throughput from a number of
suitable opportunities can be identified
different fields
Resource estimates may be misleading and exceed actual
The Group deploys qualified personnel
reserves recovered
Regular third-party reports are commissioned
A prudent range of possible outcomes are considered within
the planning process
Personnel: The company relies upon a pool of experienced and motivated personnel to identify 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
A culture of safety is encouraged throughout the organisation
environments, typically offshore
Responsible personnel are designated at all appropriate levels
The Group maintains up-to-date emergency response
resources and procedures
Insurance cover is carried in accordance with industry best
practice
Staff and representatives may find themselves exposed to
Group policies and procedures are communicated to personnel
bribery and corrupt practices
regularly
Management reviews all significant contracts and relationships
with agents and governments
Commercial environment: World and regional markets continue to be volatile with fluctuations and infrastructure
access issues that might hinder the company’s business success
Risk
Mitigation
Volatile commodity prices mean that the company cannot
Budget planning considers a range of commodity prices
be certain of the future sales value of its products
Price mitigation strategies may be employed at the point of
major capital commitment
Gas may be sold under long-term contracts reducing
exposure to short term fluctuations
Oil and gas price hedging contracts may be utilised where
viable
The Group may not be able to get access, at reasonable
A range of different off-take options are pursued wherever
cost, to infrastructure and product markets when required
possible
14
Serica Energy plc Annual Report and Accounts 2015 Commercial environment: continued
Risk
Mitigation
Credit to support field development programmes may not
Serica seeks to build and maintain strong banking
be available at reasonable cost
relationships and initiates funding discussions at as early a
stage as practicable
Fiscal regimes may vary, increasing effective tax rates and
Operations are currently spread over a range of different
reducing the expected value of reserves
fiscal regimes in Western Europe and Africa
Before committing to a significant investment the likelihood
of fiscal term changes is considered when evaluating the risk/
reward balance
In addition to the principal risks and uncertainties described herein, the Group is subject to a number of other risk factors
generally, a description of which is set out in our latest annual information form available on www.sedar.com.
Key Performance Indicators (“KPIs”)
The Company’s main business is the acquisition of interests in prospective exploration acreage, the discovery of hydrocarbons
in commercial quantities and the crystallisation of value whether through production or disposal of reserves. The Company
tracks its non-financial performance through the accumulation of licence interests in proven and prospective hydrocarbon
producing regions, the level of success in encountering hydrocarbons and the development of production facilities. In parallel,
the Company tracks its financial performance through management of expenditures within resources available, the cost-
effective exploitation of reserves and the crystallisation of value at the optimum point. A review of the Company’s progress
against these KPIs is covered in the operations and financial review within this Strategic Report.
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
Antony Craven Walker
Executive Chairman
18 April 2016
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.
15
Serica Energy plc Annual Report and Accounts 2015 Directors’ Report
The Directors of the Company present their report and the Group financial statements of Serica Energy plc (“Serica” or the
“Company”) for the year ended 31 December 2015.
Principal Activities
The principal activity of the Company and its subsidiary undertakings (the “Group”) is to identify, acquire, explore and
subsequently exploit oil and gas reserves. Its current activities are located in the United Kingdom, Ireland, Namibia and
Morocco.
Business Review and Future Developments
A review of the business and the future developments of the Group is presented in the Strategic Report (including a Review of
Operations and Financial Review) and Chairman’s Statement (all of which, together with the Corporate Governance Statement,
are incorporated by reference into this Directors’ Report).
Results and Dividends
The profit for the year was US$6,489,000 (2014: loss US$36,076,000).
The Directors do not recommend the payment of a dividend (2014: US$nil).
Financial Instruments
The Group’s financial risk management objectives and policies are discussed in note 25.
Events Since Balance Sheet Date
Events since the balance sheet date are included in note 32.
Directors and their Interests
The following Directors have held office in the Company since 1 January 2015:
Antony Craven Walker
Christopher Hearne (resigned 31 May 2015)
Neil Pike
Ian Vann
Jeffrey Harris
Mitchell Flegg (resigned 31 May 2015)
Steven Theede (resigned 30 June 2015)
On 30 June 2015, Jan Davies resigned as Company Secretary and was replaced by Amanda Bateman.
The Directors who held office at the end of the financial year had the following interests in the ordinary shares of the Company
according to the register of Directors’ interests:
Antony Craven Walker1
Neil Pike2
Ian Vann
Jeffrey Harris3
Class
of share
Ordinary
Ordinary
Ordinary
Ordinary
Interest at
end of year
7,829,916
505,000
267,935
Interest at
start of year
7,829,916
505,000
267,935
46,090,576
46,090,576
1.
6,448,810 ordinary shares were held by Antony Craven Walker and 1,381,106 by Rathbones (pension funds).
2.
190,000 ordinary shares were held by Romayne Pike and 185,000 ordinary shares by Luska Limited. In January 2016, Neil Pike notified the Company that he had
transferred 130,000 ordinary shares in the Company to his ISA, and his wife also transferred 190,000 ordinary shares in the Company to her ISA. Following these
transfers, Mr Pike’s beneficial interest in the Company (which includes that of his wife) remains unchanged at 505,000 ordinary shares.
3.
46,090,576 ordinary shares are held by GRG UK Oil LLC who are represented on the Board by Jeffrey Harris.
16
Serica Energy plc Annual Report and Accounts 2015
None of the Directors who held office at the end of the financial year had any disclosable interest in the shares of other Group
companies.
No rights to subscribe for shares in or debentures of Group companies were granted to any of the Directors or their
immediate families, or exercised by them, during the financial year except as indicated below:
The following Director is also interested in share options held by them pursuant to the terms of the Serica Energy plc Share
Option Plan 2005 (“Serica 2005 Option Plan”) (a summary of which is set out in note 28) as follows:
A Craven Walker
A Craven Walker
A Craven Walker
1/1/15
Granted
31/12/15
–
–
–
1,000,000
1,000,000
500,000
1,000,000
1,000,000
500,000
Exercise
Price £
0.12
0.18
0.24
Date of grant
Expiry date
17/7/15
17/7/15
17/7/15
16/7/25
16/7/25
16/7/25
All options awarded since December 2009 have a three year vesting period. Under the Serica 2005 Option Plan, when awarding
options to directors, the Remuneration Committee is required to set Performance Conditions, in addition to the vesting
provisions, before vesting can take place. The options granted in July 2015 were all awarded at prices higher than the current
market price at the time of the grant to establish firm performance targets.
Auditor
A resolution to reappoint Ernst & Young LLP, as auditor will be put to the members at the annual general meeting.
Disclosure of information to auditors
The directors who were members of the Board at the time of approving the Directors’ Report are listed above. So far as
each person who was a director at the date of approving this report is aware, there is no relevant audit information, being
information needed by the auditor in connection with preparing its report, of which the auditor is unaware. Having made
enquiries of fellow directors and the Group’s auditor, each director has taken all the steps that he is obliged to take as a
director in order to made himself aware of any relevant audit information and to establish that the auditor is aware of
that information.
On behalf of the Board
Antony Craven Walker
Director
18 April 2016
17
Serica Energy plc Annual Report and Accounts 2015 Corporate Governance Statement
The Board of Directors fully endorses the importance of
once the Company has achieved its short term strategic
sound corporate governance. Serica is incorporated in the
goals. All the non-Executive Directors and the Chairman are
United Kingdom. During 2014 its shares were traded on
independent in character and judgement and have the range
both the AIM market of the London Stock Exchange (“AIM”)
of experience and calibre to bring independent judgement on
and on the Toronto Stock Exchange in Canada (“TSX”). On 17
issues of strategy, performance, resources and standards of
March 2015, the Company announced that it had applied for
conduct which is vital to the success of the Group.
voluntary delisting of its ordinary shares from the TSX. This
was because the directors believed that the minimal trading
activity of Serica’s shares on the TSX no longer justified
the expenses and administrative efforts associated with
maintaining its dual listing, with Serica’s AIM listing providing
its shareholders with sufficient liquidity. The Company’s
shares were formally delisted from the TSX at the close of
trading on 31 March 2015. After this date Serica’s shares
continue to trade solely on AIM under its ticker SQZ.
The Board retains full and effective control over the
Company. The Company holds regular Board meetings at
which financial, operational and other reports are considered
and, where appropriate, voted on. The Board is responsible
for the Group’s strategy, performance, key financial and
compliance issues, approval of any major capital expenditure
and the framework of internal controls. The matters reserved
for the Board include, amongst others, approval of the
Group’s long term objectives, policies and budgets, changes
The code of practice followed for companies incorporated
relating to the Group’s management structure, approval
in the United Kingdom and listed on the premium sector of
of the Group’s annual report and accounts and ensuring
the Main Market of the London Stock Exchange is set out
maintenance of sound systems of internal control.
in the UK Corporate Governance Code (the “UK Code”). It is
not compulsory for companies whose shares are traded on
the AIM market but the Board applies those principles of the
UK Code to the extent that it considers it reasonable and
practical to do so given the size and nature of the Company.
There is a clearly defined organisational structure with lines
of responsibility and delegation of authority to executive
management. The Board is responsible for monitoring the
activities of the executive management. The Chairman has
the responsibility of ensuring that the Board discharges
Although the Company has now delisted from the TSX, the
its responsibilities. In the event of an equality of votes at a
Company is still considered to be a reporting issuer in a
meeting of the Board, the Chairman has a second or casting
number of Canadian provinces. The corporate governance
vote. The Board believes that there has been an adequate
guidelines applying to reporting issuers in Canada are set
balance between the non-Executive and Executive Directors,
out under Ontario Securities Commission National Policy
both in number and in experience and expertise, to
58-201 (the “Corporate Governance Guidelines”). The
ensure that the Board operates independently of executive
Company is a ‘designated foreign issuer’ as defined under
management. Details of the recent Board changes are
National Instrument 71-1-2-Continuous Disclosure and Other
disclosed in the Chairman’s Report. There is no formal Board
Exemptions Relating to Foreign Issuers. The Company is
performance appraisal system in place but the Corporate
subject to the foreign regulatory requirements of the AIM
Governance and Nomination Committee considers this as
Market of the London Stock Exchange.
part of its remit.
The disclosures below explain the composition of, role and
Other than Jeffrey Harris who represents Global Reserve
responsibilities of the Board and the Board Committees.
Group, the Company’s largest shareholder, all of the non-
Executive Directors meet the requirements of independence
The Board and its Committees
prescribed in the UK Code.
At 1 January 2015, the Board of the Company consisted of
The chairman was independent on appointment but has not
two Executive Directors, four non-Executive Directors and
been independent for the whole of his tenure due to holding
the Chairman of the Board who had been acting as Interim
share options and his executive responsibilities.
CEO since April 2011. With effect from 1 June 2015, the
Chairman has taken the role of Executive Chairman following
the departure of the two Executive directors. One of the
non-Executive Directors also stepped down at the conclusion
Individual Directors may engage outside advisors at the
expense of the Company upon approval by the Board in
appropriate circumstances.
of the 2015 annual General Meeting. With effect from 1 July
The Board has established a Corporate Governance and
2015, the Board therefore comprised the Executive Chairman
Nomination Committee, an Audit Committee, a Reserves
and three non-Executive Directors, one of whom holds the
Committee, a Remuneration and Compensation Committee
position of Senior Independent Director. It is recognised that
and a Health, Safety and Environmental Committee. The
further Board restructuring will be required in due course
terms of reference of the Corporate Governance and
18
Serica Energy plc Annual Report and Accounts 2015 Nomination, Audit and Remuneration and Compensation
Reserves Committee
Committees can be found on the Company’s website
www.serica-energy.com.
The Reserves Committee is a sub-committee of the Audit
Committee. The committee’s purpose is to review the reports
of the independent reserves auditors pursuant to Canadian
Corporate Governance and Nomination Committee
regulations which require that the Board discuss the reserves
The Corporate Governance and Nomination Committee
is responsible for the Company’s observance of the UK
Code and the Corporate Governance Guidelines where
they apply to the Company, for compliance with the rules
of AIM, the rules applicable to designated foreign issuers
in Canada and for other corporate governance matters,
including compliance with the Company’s Share Dealing
reports with the independent reserves auditors or delegate
authority to a reserves committee comprised of at least two
non-Executive Directors. The committee is chaired by Ian
Vann and its other member is Neil Pike. The committee did
not meet in 2015 but typically meets at least once a year
prior to publication of the annual results.
Code and with AIM in respect of dealings by directors or
Remuneration and Compensation Committee
employees in the Company’s shares. The committee is
responsible for monitoring the effectiveness of the Board
and its Committees, proposing to the Board new nominees
for election as directors to the Board, determining successor
plans and for assessing directors on an ongoing basis.
The committee did not meet during 2015 and will meet as
required during the next financial year.
The Corporate Governance and Nomination Committee is
comprised of the Chairman and two non-Executive Directors
all of whom are independent (other than as described in “The
Board and its Committees” above). The committee is chaired
by Neil Pike and its other members are Antony Craven
Walker and Ian Vann.
Audit Committee
The Audit Committee meets regularly and consists of three
members, all of whom are non-Executive Directors and two
of whom are independent including the chairman of the
committee. The committee’s purpose is to assist the Board’s
oversight of the integrity of the financial statements and
other financial reporting, the independence and performance
of the auditors, the regulation and risk profile of the
Group and the review and approval of any related party
The Remuneration and Compensation Committee
meets regularly to consider all material elements of
remuneration policy, the remuneration and incentivisation
of Executive Directors and senior management and to
make recommendations to the Board on the framework
for executive remuneration and its cost. The role of the
Remuneration and Compensation Committee is to keep
under review the remuneration policies to ensure that Serica
attracts, retains and motivates the most qualified talent who
will contribute to the long-term success of the Company.
The committee met three times in 2015 and proposes to
meet at least twice during the next financial year. In addition,
written resolutions of the committee are passed from time
to time particularly in relation to routine matters such as
the allotment of shares pursuant to share option exercises
as well as to record formally decisions of the committee
reached outside the scheduled meetings.
The committee was composed of the Chairman and two
non-Executive Directors all of whom were independent
(other than as described in “The Board and its Committees”
above). Antony Craven Walker resigned from the committee
with effect from 1 June 2015, the date of his appointment
as Executive Chairman. Steven Theede was chairman of the
transactions. The Audit Committee may hold private sessions
committee until his resignation on 30 June 2015 when he was
with management and the external auditor.
replaced by Ian Vann. The committee is now chaired by Ian
The Audit Committee met three times in 2015 and proposes
to meet at least three times during the next financial year.
The committee is chaired by Neil Pike and its other members
are Jeffrey Harris and Ian Vann.
The responsibilities and operation of the Audit Committee
are more particularly set out in the Company’s Audit
Committee Charter, a copy of which is available on the
Company’s website at www.serica-energy.com.
Vann and its other member is Neil Pike.
Health, Safety and Environmental Committee
The Health, Safety and Environmental Committee is
responsible for matters affecting occupational health, safety
and the environment, including the formulation of a health,
safety and environmental policy.
The committee met three times in 2015 and proposes to
meet at least three times during the next financial year. The
committee is chaired by Ian Vann and its other member is
Antony Craven Walker.
19
Serica Energy plc Annual Report and Accounts 2015 Corporate Governance Statement continued
Directors’ attendance at meetings
The Board generally has one scheduled Board meeting every month over the course of the financial year with informal
discussions scheduled as required. Additional meetings are held depending upon opportunities or issues to be dealt with by
the Company from time to time. The non-Executive Directors hold informal meetings during the course of the year at which
members of management are not in attendance.
The directors’ attendance at scheduled Board meetings and Board committees during 2015 is detailed in the table below:
Director
Board
A Craven Walker (Chairman)
CJ Hearne (CFO)
M Flegg (COO)
N Pike
S Theede2
I Vann
J Harris
Total meetings
9*
3
3
10
3
10
10
10
Audit
2§
2§
2§
3*
1
–
3
3
Remuneration
and
Compensation
Corporate
Governance and
Nomination
HSE
Reserves
21§
–
–
3
1*
2*
–
3
–
–
–
–*
–
–
–
–
3
–
1
–
–
3*
–
3
–
–
–
–
–*
–*
–
–
Notes:
1.
The Chairman and non-executive directors attended a number of meetings of committees of which they were not members during the course of the year at the
invitation of the committee chairman.
2.
Steven Theede was chairman of the remuneration and compensation committee and reserves committee until his resignation on 30 June 2015, when he was
replaced by Ian Vann.
* Chairman
§ Invitee
Amanda Bateman
Company Secretary
18 April 2016
20
Serica Energy plc Annual Report and Accounts 2015 Directors’ Biographies
Antony Craven Walker Executive Chairman
Tony Craven Walker started his career with BP and has been a leading figure in the British independent oil industry since the
early 1970s. He founded two British independent oil companies, Charterhouse Petroleum, where he held the post of Chief
Executive, and Monument Oil and Gas, where he held the post of Chief Executive and later became Chairman. He was also a
founder member of BRINDEX (Association of British Independent Oil Exploration Companies). He was appointed Chairman of
Serica in 2004 and following the retirement of Paul Ellis in April 2011, initially acted as interim Chief Executive. With effect from
1 June 2015, he took the role of Executive Chairman following the departure of the two Executive directors.
Neil Pike Non–Executive Director and Senior Independent Director
Neil Pike has been involved in the global petroleum business as a financier since joining the energy department at Citibank in
1975 until joining the board of Serica. Neil remained an industry specialist with Citibank throughout his career and was closely
involved in the development of specialised oil field finance. Latterly he was responsible for Citibank’s relationships with the oil
and gas industry worldwide. He was appointed to the Board of Serica in 2004.
Ian Vann Non–Executive Director
Ian Vann was employed by BP from 1976, and directed and led BP’s global exploration efforts from 1996 until his retirement
in January 2007. He was appointed to the executive leadership team of the Exploration & Production Division of BP in 2001,
initially as Group Vice President, Technology and later as Group Vice President, Exploration and Business Development. He was
appointed to the Board of Serica in 2007.
Jeffrey Harris Non–Executive Director
Jeffrey Harris founded Global Reserve Group LLC in 2012 following a twenty-nine year career with Warburg Pincus, during
which period he invested in and advised companies in the industrial, consumer, technology and energy sectors. Jeffrey has
served on the board of directors of over thirty companies, including twelve publicly-traded entities. He is past chairman of the
National Venture Capital Association and an adjunct professor at the Columbia University Graduate School of Business where
he teaches courses on venture capital, and entrepreneurship and innovation. He was appointed to the Board of Serica in
December 2012.
21
Serica Energy plc Annual Report and Accounts 2015 Directors’ Responsibilities Statement
in relation to the Group and Company financial statements
The Directors are responsible for preparing the Strategic Report, the Director’s Report and financial statements in accordance
with applicable United Kingdom law and regulations and those International Financial Reporting Standards as adopted by the
European Union.
Company law requires the directors to prepare financial statements for each financial year. As required by the AIM Rules of the
London Stock Exchange they are required to prepare the Group financial statements in accordance with International Financial
Reporting Standards as adopted by the European Union. Under United Kingdom company law the directors have elected to
prepare the Parent Company financial statements in accordance with International Financial Reporting Standards as adopted
by the European Union. Under company law the directors must not approve the financial statements unless they are satisfied
that they give a true and fair view of the state of affairs of the Group and the Company and the profit or loss of the company
for that period.
In preparing those Group and Company financial statements the Directors are required to:
• present fairly the financial position, financial performance and cash flows of the Group;
•
select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
•
state that the Group and Company has complied with IFRSs, subject to any material departures disclosed and explained in
the financial statements;
•
present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
•
provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to
understand the impact of particular transactions, other events and conditions on the Group’s and Company’s financial
position and financial performance; and
•
state whether the Group financial statements have been prepared in accordance with IFRSs as adopted by the European
Union, subject to any material departures disclosed and explained in the financial statements.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s
transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable
them to ensure that the Group and Company financial statements comply with the Companies Act 2006. They are also
responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The Directors confirm that they have complied with these requirements and, having a reasonable expectation that the
Company and the Group have adequate resources to continue in operational existence for the foreseeable future, will
continue to adopt the going concern basis in preparing the accounts.
22
Serica Energy plc Annual Report and Accounts 2015 Independent Auditor’s Report
to the members of Serica Energy plc
We have audited the financial statements of Serica Energy plc for the year ended 31 December 2015 which comprise the
Group Income Statement, the Group Statement of Comprehensive Income, the Group and Parent Company Balance Sheets,
the Group and Parent Company Statements of Changes in Equity, the Group and Parent Company Cash Flow Statements and
the related notes 1 to 32. The financial reporting framework that has been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the European Union and International Accounting standards
Board (IASB), as regards the parent company financial statements, as applied in accordance with the provisions of the
Companies Act 2006.
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required
to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express
an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and
Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error.
This includes an assessment of: whether the accounting policies are appropriate to the group’s and the parent company’s
circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting
estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial
and non-financial information in the Annual Report and Accounts to identify material inconsistencies with the audited financial
statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements
or inconsistencies we consider the implications for our report.
Opinion on financial statements
In our opinion:
•
the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31
December 2015 and of the group’s profit for the year then ended;
•
the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union
and IFRS as adopted by International Accounting standards Board (IASB); and
•
the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the
European Union and IFRS as adopted by International Accounting Standards Board (IASB) and as applied in accordance
with the provisions of the Companies Act 2006; and
The financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Separate opinion in relation to IFRSs as issued by the IASB
As explained in Note 1 to the financial statements, the group in addition to complying with its legal obligation to apply IFRSs as
adopted by the European Union, has also applied IFRSs as issued by the International Accounting Standards Board (IASB).
In our opinion the financial statements comply with IFRSs as issued by the IASB.
23
Serica Energy plc Annual Report and Accounts 2015 Independent Auditor’s Report
to the members of Serica Energy plc continued
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Strategic Report and the Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in
our opinion:
•
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been
received from branches not visited by us; or
•
•
the parent company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Paul Wallek (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
18 April 2016
24
Serica Energy plc Annual Report and Accounts 2015 Group Income Statement
for the year ended 31 December 2015
Continuing operations
Sales revenue
Cost of sales
Gross profit
Pre-licence costs
Impairment and write-offs of E&E assets
Other asset write-offs
Administrative expenses
Foreign exchange loss
Share-based payments
Operating profit/(loss) before net finance revenue and tax
Finance revenue
Finance costs
Profit/(loss) before taxation
Note
2015
US$000
2014
US$000
4
5
15
15
28
11
12
24,017
(7,934)
16,083
(117)
(8,186)
(170)
(2,705)
(430)
9
–
–
–
(512)
(30,019)
(250)
(4,296)
(235)
(337)
4,484
(35,649)
38
(202)
26
–
4,320
(35,623)
Taxation credit for the year
13a)
2,433
–
Profit/(loss) for the year from continuing operations
6,753
(35,623)
Discontinued operations
Loss for the year from discontinued operations
7
(264)
(453)
Profit/(loss) for the year
6,489
(36,076)
Earnings per ordinary share - EPS
Basic and diluted EPS on continuing operations (US$)
Basic and diluted EPS on loss for the year (US$)
14
14
0.03
0.03
(0.14)
(0.14)
Group Statement of Comprehensive Income
There are no other comprehensive income items other than those passing through the income statement.
25
Serica Energy plc Annual Report and Accounts 2015 Balance Sheet
as at 31 December 2015
Registered number: 5450950
Non-current assets
Exploration & evaluation assets
Property, plant and equipment
Investments in subsidiaries
Other receivables
Deferred tax asset
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Group
Company
Note
2015
US$000
2014
US$000
2015
US$000
2014
US$000
15
16
17
18
13d)
19
20
21
51,814
8,894
–
–
2,433
63,141
453
4,165
21,602
26,220
57,843
–
–
247
–
–
–
1,350
–
–
58,090
1,350
–
2,352
9,893
12,245
–
59,635
13,730
73,365
–
–
–
–
–
–
–
58,057
9,447
67,504
TOTAL ASSETS
89,361
70,335
74,715
67,504
Current liabilities
Trade and other payables
Non-current liabilities
Trade and other payables
Provisions
TOTAL LIABILITIES
NET ASSETS
Share capital
Merger reserve
Other reserve
Accumulated deficit
TOTAL EQUITY
22
(9,573)
(3,998)
(548)
(1,167)
23
24
(5,621)
–
–
–
–
–
–
–
(15,194)
(3,998)
(548)
(1,167)
74,167
66,337
74,167
66,337
26
17
229,308
227,958
194,036
192,686
–
–
–
–
20,625
20,634
20,625
20,634
(175,766)
(182,255)
(140,494)
(146,983)
74,167
66,337
74,167
66,337
Approved by the Board on 18 April 2016
Antony Craven Walker
Executive Chairman
Neil Pike
Non-Executive Director
26
Serica Energy plc Annual Report and Accounts 2015 Statement of Changes in Equity
for the year ended 31 December 2015
Group
Share
capital
US$000
Other
reserve
US$000
Accum’d
deficit
US$000
Total
US$000
Note
At 1 January 2014
227,958
20,297
(146,179)
102,076
Loss for the year
Total comprehensive income
Share-based payments
At 31 December 2014
Profit for the year
Total comprehensive income
Share-based payments
Issue of ordinary shares
–
–
–
–
–
337
(36,076)
(36,076)
–
(36,076)
(36,076)
337
227,958
20,634
(182,255)
66,337
–
–
–
1,350
–
–
(9)
–
6,489
6,489
–
–
6,489
6,489
(9)
1,350
28
28
26
At 31 December 2015
229,308
20,625
(175,766)
74,167
Company
Share
capital
US$000
Merger
reserve
US$000
Other
reserve
US$000
Accum’d
deficit
US$000
Total
US$000
At 1 January 2014
192,686
Loss for the year
Total comprehensive income
Share-based payments
–
–
–
At 31 December 2014
192,686
Profit for the year
Total comprehensive income
Share-based payments
Issue of ordinary shares
At 31 December 2015
–
–
–
1,350
194,036
–
–
–
–
–
–
–
–
–
–
20,297
(89,915)
123,068
–
–
337
(57,068)
(57,068)
–
(57,068)
(57,068)
337
20,634
(146,983)
66,337
–
–
(9)
–
6,489
6,489
–
–
6,489
6,489
(9)
1,350
20,625
(140,494)
74,167
27
Serica Energy plc Annual Report and Accounts 2015 Cash Flow Statement
For the year ended 31 December 2015
Operating activities:
Profit/(loss) for the year
Adjustments to reconcile loss for the year
to net cash flow from operating activities:
Taxation credit
Net finance costs/(income)
Depletion and amortisation
Oil and NGL overlift reduction
Other asset write-offs
Impairment and write-offs of E&E assets
Impairment of loans and investments
Share-based payments
Other non-cash movements
(Increase)/decrease in trade and other
receivables
(Increase)/decrease in inventories
(Decrease)/increase in trade and other payables
Group
2015
US$000
2014
US$000
Company
2015
US$000
2014
US$000
Note
6,489
(36,076)
6,489
(57,068)
(2,433)
164
1,341
(3,407)
170
8,186
–
(9)
431
(2,137)
(369)
(865)
–
(26)
–
–
250
30,019
–
337
235
2,856
42
(688)
–
53
–
–
–
–
–
(26)
–
–
–
–
(8,043)
54,521
(9)
443
273
–
(586)
337
165
608
–
208
Cash inflow/(outflow) from operations
7,561
(3,051)
(1,380)
(1,255)
Taxation paid
–
–
–
–
Net cash in/(outflow) from operations
7,561
(3,051)
(1,380)
(1,255)
Investing activities:
Interest received
Purchase of E&E assets
Cash inflow arising on asset acquisition
Funding provided from/(to) Group subsidiaries
Net cash flow from investing activities
Financing activities:
Gross proceeds from issue of shares
Fees from issue of shares
Finance costs paid
Net cash flow from financing activities
16
26
11
(3,957)
8,874
–
26
(12,967)
–
–
4,928
(12,941)
–
–
(254)
(254)
–
–
–
–
10
–
–
6,345
6,355
–
–
(249)
(249)
26
–
–
(14,618)
(14,592)
–
–
–
–
Net increase/(decrease) in cash and cash
27
12,235
(15,992)
4,726
(15,847)
equivalents
Effect of exchange rates on cash and cash
equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
27
27
27
(526)
9,893
(177)
26,062
(443)
9,447
(165)
25,459
21,602
9,893
13,730
9,447
28
Serica Energy plc Annual Report and Accounts 2015 Notes to the Financial Statements
1. Authorisation of the Financial Statements and Statement of Compliance with IFRS
The Group’s and Company’s financial statements for the year ended 31 December 2015 were authorised for issue by the Board
of Directors on 18 April 2016 and the balance sheets were signed on the Board’s behalf by Antony Craven Walker and Neil
Pike. Serica Energy plc is a public limited company incorporated and domiciled in England & Wales. The principal activity of the
Company and the Group is to identify, acquire and subsequently exploit oil and gas reserves. Its current activities are located
in the United Kingdom, Ireland, Namibia and Morocco. The Company’s ordinary shares are traded on AIM.
The Group’s financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”)
as adopted by the EU as they apply to the financial statements of the Group for the year ended 31 December 2015. The
Company’s financial statements have been prepared in accordance with IFRS as adopted by the EU as they apply to the
financial statements of the Company for the year ended 31 December 2015 and as applied in accordance with the provisions
of the Companies Act 2006. The Group’s financial statements are also prepared in accordance with IFRS as issued by the IASB.
The principal accounting policies adopted by the Group and by the Company are set out in note 2.
The Company has taken advantage of the exemption provided under section 408 of the Companies Act 2006 not to publish its
individual income statement and related notes. The profit dealt with in the financial statements of the parent Company was
US$6,489,000 (2014: deficit US$57,068,000).
On 1 September 2005, the Company completed a reorganisation (the “Reorganisation”). whereby the common shares of
Serica Energy Corporation were automatically exchanged on a one-for-one basis for ordinary shares of Serica Energy plc, a
newly formed company incorporated under the laws of the United Kingdom. In addition, each shareholder of the Corporation
received beneficial ownership of part of the ‘A’ share of Serica Energy plc issued to meet the requirements of public companies
under the United Kingdom jurisdiction. Under IFRS this reorganisation was considered to be a reverse takeover by Serica
Energy Corporation and as such the financial statements of the Group represent a continuation of Serica Energy Corporation.
2. Accounting Policies
Basis of Preparation
The accounting policies which follow set out those policies which apply in preparing the financial statements for the year
ended 31 December 2015.
The Group and Company financial statements have been prepared on a historical cost basis and are presented in US dollars.
All values are rounded to the nearest thousand dollars (US$000) except when otherwise indicated.
Going Concern
The Directors are required to consider the availability of resources to meet the Group’s liabilities for the foreseeable future.
The financial position of the Group, its cash flows and capital commitments are described in the Financial Review above.
At 31 December 2015 the Company held net current assets of US$16.6 million including cash resources of US$21.6 million
with no borrowings outstanding. The Erskine asset acquisition in early June 2015 has brought to Serica a producing interest
capable of generating robust continuing cash flow at current oil and gas prices. Existing resources plus Erskine revenues are
expected to be sufficient to cover ongoing Erskine costs and the outstanding instalments of the acquisition price plus other
operational, technical and administrative costs in the short to medium term.
Since acquisition in June 2015, Erskine field production capability has been above expectations. However, in prior years
production has been intermittent due largely to poor downstream infrastructure performance which the recent shut-in was
designed to address. Mindful of the risks of reliance on revenues from a single field, which are underlined by the current
shutdown caused by pigging problems, management will seek to continue building Group cash reserves so as to improve
its financial resilience. The strategy is to restrict near-term spend on administrative costs and exploration licences, only
committing to exploration drilling where the costs are substantially carried by third parties. The Company’s costs of the
exploration well on 22/19c will be carried by a third party as will the bulk of the subsequent Doyle well.
Management continues to seek new business opportunities to add shareholder value and, where these can offer attractive
returns, appropriate financing structures will be investigated. When the final decision to proceed with the Columbus
development is made, the Group would consider a range of alternative means of finance to fund its share of development costs.
After making enquiries and having taken into consideration the above factors, the Directors have reasonable expectation that
the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly they continue
to adopt the going concern basis in preparing the financial statements.
29
Serica Energy plc Annual Report and Accounts 2015 Notes to the Financial Statements continued
2. Accounting Policies continued
Use of judgement and estimates and key sources of estimation uncertainty
The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets and liabilities at
the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Estimates and
judgments are continuously evaluated and are based on management’s experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances. Actual outcomes could differ from these estimates.
The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the amounts
recognised in the financial statements are: the assessment of commercial reserves, the impairment of the Group and
Company’s assets (including oil & gas development assets and Exploration and Evaluation “E&E” assets) and share-based
payment costs.
Assessment of commercial reserves
Management is required to assess the level of the Group’s commercial reserves together with the future expenditures to
access those reserves, which are utilised in determining the amortisation and depletion charge for the period and assessing
whether any impairment charge is required. The Group employs independent reserves specialists who periodically assess the
Group’s level of commercial reserves by reference to data sets including geological, geophysical and engineering data together
with reports, presentation and financial information pertaining to the contractual and fiscal terms applicable to the Group’s
assets. In addition the Group undertakes its own assessment of commercial reserves and related future capital expenditure by
reference to the same datasets using its own internal expertise.
Impairment
The Group monitors internal and external indicators of impairment relating to its intangible and tangible assets, which
may indicate that the carrying value of the assets may not be recoverable. The assessment of the existence of indicators
of impairment in E&E assets involves judgement, which includes whether management expects to fund significant further
expenditure in respect of a licence and whether the recoverable amount may not cover the carrying value of the assets. For
development and production assets judgement is involved when determining whether there have been any significant changes
in the Group’s oil and gas reserves.
The Group determines whether E&E assets are impaired at an asset level and in regional cash generating units (‘CGUs’)
when facts and circumstances suggest that the carrying amount of a regional CGU may exceed its recoverable amount. As
recoverable amounts are determined based upon risked potential, or where relevant, discovered oil and gas reserves, this
involves estimations and the selection of a suitable pre-tax discount rate relevant to the asset in question. The calculation of
the recoverable amount of oil and gas development and production properties involves estimating the net present value of
cash flows expected to be generated from the asset in question. Future cash flows are based on assumptions on matters such
as estimated oil and gas reserve quantities and commodity prices. The discount rate applied is a pre-tax rate which reflects the
specific risks of the country in which the asset is located.
Management is required to assess the carrying value of investments in subsidiaries in the parent company balance sheet for
impairment by reference to the recoverable amount. This requires an estimate of amounts recoverable from oil and gas assets
within the underlying subsidiaries (see note 17).
Deferred tax assets
Deferred tax assets, including those arising from unutilised tax losses, require management to assess the likelihood that the
Group will generate sufficient taxable profits in future periods, in order to utilise recognised deferred tax assets. Assumptions
about the generation of future taxable profits depend on management’s estimates of future cash flows. These estimates are
based on forecast cash flows from operations (which are impacted by production and sales volumes, oil and natural gas prices,
reserves, operating costs, decommissioning costs, capital expenditure, dividends and other capital management transactions)
and judgement about the application of existing tax laws. To the extent that future cash flows and taxable income differ
significantly from estimates, the ability of the Group to realise deferred tax assets could be impacted.
30
Serica Energy plc Annual Report and Accounts 2015 2. Accounting Policies continued
Share–based payment costs
The estimation of share-based payment costs requires the selection of an appropriate valuation model, consideration as to the
inputs necessary for the valuation model chosen and the estimation of the number of awards that will ultimately vest, inputs
for which arise from judgments relating to the continuing participation of employees (see note 28).
Basis of Consolidation
The consolidated financial statements include the accounts of Serica Energy plc (the “Company”) and its wholly owned
subsidiaries Serica Holdings UK Limited, Serica Energy Holdings B.V., Serica Energy (UK) Limited, Serica Glagah Kambuna B.V.,
Serica Sidi Moussa B.V., Serica Foum Draa B.V., Serica Energy Slyne B.V., Serica Energy Rockall B.V., Serica Namibia B.V., Serica
Energy Corporation, Asia Petroleum Development Limited, Petroleum Development Associates (Asia) Limited and Petroleum
Development Associates Lematang Limited. Together these comprise the “Group”.
All inter-company balances and transactions have been eliminated upon consolidation.
Foreign Currency Translation
The functional and presentational currency of Serica Energy plc and all its subsidiaries is US dollars.
Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are retranslated at the foreign currency rate of exchange
ruling at the balance sheet date and differences are taken to the income statement. Non-monetary items that are measured
in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of initial transaction.
Non-monetary items measured at fair value in a foreign currency are translated using the exchange rate at the date when
the fair value was determined. Exchange gains and losses arising from translation are charged to the income statement as an
operating item.
Business Combinations and Goodwill
Business combinations from 1 January 2010
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the
aggregate of consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest
in the acquiree. Acquisition costs incurred are expensed and included in administrative expenses.
Goodwill on acquisition is initially measured at cost being the excess of purchase price over the fair market value of identifiable
assets, liabilities and contingent liabilities acquired. Following initial acquisition it is measured at cost less any accumulated
impairment losses. Goodwill is not amortised but is subject to an impairment test at least annually and more frequently if
events or changes in circumstances indicate that the carrying value may be impaired.
At the acquisition date, any goodwill acquired is allocated to each of the cash-generating units, or groups of cash generating
units expected to benefit from the combination’s synergies. Impairment is determined by assessing the recoverable amount of
the cash-generating unit, or groups of cash generating units to which the goodwill relates. Where the recoverable amount of
the cash-generating unit is less than the carrying amount, an impairment loss is recognised.
Joint Arrangements
A joint operation is a type of joint arrangement whereby the parties that have joint control of the arrangement have the rights
to the assets and obligations for the liabilities, relating to the arrangement.
The Group conducts petroleum and natural gas exploration and production activities jointly with other venturers who each
have direct ownership in and jointly control the operations of the ventures. These are classified as jointly controlled operations
and the financial statements reflect the Group’s share of assets and liabilities in such activities. Income from the sale or use of
the Group’s share of the output of jointly controlled operations, and its share of joint venture expenses, are recognised when
it is probable that the economic benefits associated with the transaction will flow to/from the Group and their amount can be
measured reliably.
Full details of Serica’s working interests in those petroleum and natural gas exploration and production activities classified as
joint operations are included in the Review of Operations.
31
Serica Energy plc Annual Report and Accounts 2015 Notes to the Financial Statements continued
2. Accounting Policies continued
Exploration and Evaluation Assets
As allowed under IFRS 6 and in accordance with clarification issued by the International Financial Reporting Interpretations
Committee, the Group has continued to apply its existing accounting policy to exploration and evaluation activity, subject to
the specific requirements of IFRS 6. The Group will continue to monitor the application of these policies in light of expected
future guidance on accounting for oil and gas activities.
Pre–licence Award Costs
Costs incurred prior to the award of oil and gas licences, concessions and other exploration rights are expensed in the income
statement.
Exploration and Evaluation (E&E)
The costs of exploring for and evaluating oil and gas properties, including the costs of acquiring rights to explore, geological
and geophysical studies, exploratory drilling and directly related overheads, are capitalised and classified as intangible E&E
assets. These costs are directly attributed to regional CGUs for the purposes of impairment testing; UK & Ireland and Africa.
E&E assets are not amortised prior to the conclusion of appraisal activities but are assessed for impairment at an asset level
and in regional CGUs when facts and circumstances suggest that the carrying amount of a regional cost centre may exceed
its recoverable amount. Recoverable amounts are determined based upon risked potential, and where relevant, discovered
oil and gas reserves. When an impairment test indicates an excess of carrying value compared to the recoverable amount,
the carrying value of the regional CGU is written down to the recoverable amount in accordance with IAS 36. Such excess
is expensed in the income statement. Where conditions giving rise to impairment subsequently reverse, the effect of the
impairment charge is reversed as a credit to the income statement.
Costs of licences and associated E&E expenditure are expensed in the income statement if licences are relinquished, or if
management do not expect to fund significant future expenditure in relation to the licence.
The E&E phase is completed when either the technical feasibility and commercial viability of extracting a mineral resource
are demonstrable or no further prospectivity is recognised. At that point, if commercial reserves have been discovered, the
carrying value of the relevant assets, net of any impairment write-down, is classified as an oil and gas property within property,
plant and equipment, and tested for impairment. If commercial reserves have not been discovered then the costs of such
assets will be written off.
Asset Purchases and Disposals
When a commercial transaction involves the exchange of E&E assets of similar size and characteristics, no fair value calculation
is performed. The capitalised costs of the asset being sold are transferred to the asset being acquired. Proceeds from a part
disposal of an E&E asset, including back-cost contributions are credited against the capitalised cost of the asset, with any
excess being taken to the income statement as a gain on disposal.
Farm–ins
In accordance with industry practice, the Group does not record its share of costs that are ‘carried’ by third parties in relation
to its farm-in agreements in the E&E phase. Similarly, while the Group has agreed to carry the costs of another party to a Joint
Operating Agreement (“JOA”) in order to earn additional equity, it records its paying interest that incorporates the additional
contribution over its equity share.
32
Serica Energy plc Annual Report and Accounts 2015 2. Accounting Policies continued
Property, Plant and Equipment – Oil and gas properties
Capitalisation
Oil and gas properties are stated at cost, less any accumulated depreciation and accumulated impairment losses. Oil and
gas properties are accumulated into single field cost centres and represent the cost of developing the commercial reserves
and bringing them into production together with the E&E expenditures incurred in finding commercial reserves previously
transferred from E&E assets as outlined in the policy above. The cost will include, for qualifying assets, borrowing costs.
Depletion
Oil and gas properties are not depleted until production commences. Costs relating to each single field cost centre are
depleted on a unit of production method based on the commercial proved and probable reserves for that cost centre. The
depletion calculation takes account of the estimated future costs of development of recognised proved and probable reserves.
Changes in reserve quantities and cost estimates are recognised prospectively from the last reporting date.
Impairment
A review is performed for any indication that the value of the Group’s development and production assets may be impaired.
For oil and gas properties when there are such indications, an impairment test is carried out on the cash generating unit.
Each cash generating unit is identified in accordance with IAS 36. Serica’s cash generating units are those assets which
generate largely independent cash flows and are normally, but not always, single development or production areas. If
necessary, impairment is charged through the income statement if the capitalised costs of the cash generating unit exceed the
recoverable amount of the related commercial oil and gas reserves.
Acquisitions, Asset Purchases and Disposals
Acquisitions of oil and gas properties are accounted for under the acquisition method when the assets acquired and liabilities
assumed constitute a business.
Transactions involving the purchase of an individual field interest, or a group of field interests, that do not constitute a
business, are treated as asset purchases. Accordingly, no goodwill and no deferred tax gross up arises, and the consideration
is allocated to the assets and liabilities purchased on an appropriate basis. Proceeds from the entire disposal of a development
and production asset, or any part thereof, are taken to the income statement together with the requisite proportional net book
value of the asset, or part thereof, being sold.
Decommissioning
Liabilities for decommissioning costs are recognised when the Group has an obligation to dismantle and remove a production,
transportation or processing facility and to restore the site on which it is located. Liabilities may arise upon construction
of such facilities, upon acquisition or through a subsequent change in legislation or regulations. The amount recognised
is the estimated present value of future expenditure determined in accordance with local conditions and requirements. A
corresponding tangible item of property, plant and equipment equivalent to the provision is also created.
Any changes in the present value of the estimated expenditure is added to or deducted from the cost of the assets to which
it relates. The adjusted depreciable amount of the asset is then depreciated prospectively over its remaining useful life. The
unwinding of the discount on the decommissioning provision is included as a finance cost.
Underlift/Overlift
Lifting arrangements for oil and gas produced in certain fields are such that each participant may not receive its share of the
overall production in each period. The difference between cumulative entitlement and cumulative production less stock is
‘underlift’ or ‘overlift’. Underlift and overlift are valued at market value and included within debtors (‘underlift’) or creditors
(‘overlift’). Movements during an accounting period are adjusted through revenue, such that gross profit is recognised on an
entitlement basis.
Property, Plant and Equipment – Other
Computer equipment and fixtures, fittings and equipment are recorded at cost as tangible assets. The straight-line method
of depreciation is used to depreciate the cost of these assets over their estimated useful lives. Computer equipment is
depreciated over three years and fixtures, fittings and equipment over four years.
33
Serica Energy plc Annual Report and Accounts 2015 Notes to the Financial Statements continued
2. Accounting Policies continued
Inventories
Inventories are valued at the lower of cost and net realisable value. Cost is determined by the first-in first-out method and
comprises direct purchase costs and transportation expenses.
Investments
In its separate financial statements the Company recognises its investments in subsidiaries at cost less any provision for
impairment.
Financial Instruments
Financial instruments comprise financial assets, cash and cash equivalents, financial liabilities and equity instruments.
Financial assets
Financial assets within the scope of IAS 39 are classified as either financial assets at fair value through profit or loss, or loans
and receivables, as appropriate. When financial assets are recognised initially, they are measured at fair value. Transaction
costs that are directly attributable to the acquisition or issue of the financial asset are capitalised unless they relate to a
financial asset classified at fair value through profit and loss in which case transaction costs are expensed in the income
statement.
The Group determines the classification of its financial assets at initial recognition and, where allowed and appropriate,
re-evaluates this designation at each financial year end.
Financial assets at fair value through profit or loss include financial assets held for trading and derivatives. Financial assets are
classified as held for trading if they are acquired for the purpose of selling in the near term.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. After initial measurement loans and receivables are subsequently carried at amortised cost, using the effective interest
rate method, less any allowance for impairment. Amortised cost is calculated by taking into account any discount or premium
on acquisition over the period to maturity. Gains and losses are recognised in the income statement when the loans and
receivables are de-recognised or impaired, as well as through the amortisation process.
Cash and cash equivalents
Cash and cash equivalents include balances with banks and short-term investments with original maturities of three months or
less at the date acquired.
Financial liabilities
Financial liabilities include interest bearing loans and borrowings, and trade and other payables.
Obligations for loans and borrowings are recognised when the Group becomes party to the related contracts and are
measured initially at the fair value of consideration received less directly attributable transaction costs.
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the
effective interest method.
Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the
amortisation process.
Equity
Equity instruments issued by the Company are recorded in equity at the proceeds received, net of direct issue costs.
34
Serica Energy plc Annual Report and Accounts 2015 2. Accounting Policies continued
Leases
Operating lease payments are recognised as an operating expense in the income statement on a straight line basis over the
lease term.
Revenue Recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue
can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable and represents
amounts receivable for goods provided in the normal course of business, net of discounts, customs duties and sales taxes.
Revenue from oil and natural gas production is recognised on an entitlement basis for the Group’s net working interest.
Finance Revenue
Finance revenue chiefly comprises interest income from cash deposits on the basis of the effective interest rate method and is
disclosed separately on the face of the income statement.
Finance Costs
Finance costs of debt are allocated to periods over the term of the related debt using the effective interest method.
Arrangement fees and issue costs are amortised and charged to the income statement as finance costs over the term of
the debt.
Borrowing costs
Borrowing costs directly relating to the acquisition, construction or production of a qualifying capital project under
construction are capitalised and added to the project cost during construction until such time the assets are substantially
ready for their intended use i.e when they are capable of commercial production. Where funds are borrowed specifically
to finance a project, the amounts capitalised represent the actual borrowing costs incurred. All other borrowing costs are
recognised in the income statement in the period in which they are incurred.
Share–Based Payment Transactions
Employees (including directors) of the Group receive remuneration in the form of share-based payment transactions, whereby
employees render services in exchange for shares or rights over shares (‘equity-settled transactions’).
Equity–settled transactions
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date on which they
are granted. In valuing equity-settled transactions, no account is taken of any service or performance conditions, other than
conditions linked to the price of the shares of Serica Energy plc (‘market conditions’), if applicable.
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which
the relevant employees become fully entitled to the award (the ‘vesting period’). The cumulative expense recognised for equity-
settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired
and the Group’s best estimate of the number of equity instruments that will ultimately vest. The income statement charge or
credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market
or non-vesting condition, which are treated as vesting irrespective of whether or not the market or non-vesting condition is
satisfied, provided that all other performance conditions are satisfied. For equity awards cancelled by forfeiture when vesting
conditions are not met, any expense previously recognised is reversed and recognised as a credit in the income statement.
Equity awards cancelled are treated as vesting immediately on the date of cancellation, and any expense not recognised for
the award at that date is recognised in the income statement. Estimated associated national insurance charges are expensed
in the income statement on an accruals basis.
Where the terms of an equity-settled award are modified or a new award is designated as replacing a cancelled or settled
award, the cost based on the original award terms continues to be recognised over the original vesting period. In addition, an
expense is recognised over the remainder of the new vesting period for the incremental fair value of any modification, based
on the difference between the fair value of the original award and the fair value of the modified award, both as measured on
the date of the modification. No reduction is recognised if this difference is negative.
35
Serica Energy plc Annual Report and Accounts 2015 Notes to the Financial Statements continued
2. Accounting Policies continued
Income Taxes
Current tax, including UK corporation tax and overseas corporation tax, is provided at amounts expected to be paid using the
tax rates and laws that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is provided using the liability method and tax rates and laws that have been enacted or substantively enacted at
the balance sheet date. Provision is made for temporary differences at the balance sheet date between the tax bases of the
assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax is provided on all temporary
differences except for:
•
temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary
differences can be controlled by the Group and it is probable that the temporary differences will not reverse in the
foreseeable future; and
•
temporary differences arising from the initial recognition of an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither the income statement nor taxable profit or loss.
Deferred tax assets are recognised for all deductible temporary differences, to the extent that it is probable that taxable
profits will be available against which the deductible temporary differences can be utilised. Deferred tax assets and liabilities
are presented net only if there is a legally enforceable right to set off current tax assets against current tax liabilities and if the
deferred tax assets and liabilities relate to income taxes levied by the same taxation authority.
Earnings Per Share
Earnings per share is calculated using the weighted average number of ordinary shares outstanding during the period. Diluted
earnings per share is calculated based on the weighted average number of ordinary shares outstanding during the period
plus the weighted average number of shares that would be issued on the conversion of all relevant potentially dilutive shares
to ordinary shares. It is assumed that any proceeds obtained on the exercise of any options and warrants would be used to
purchase ordinary shares at the average price during the period. Where the impact of converted shares would be anti-dilutive,
these are excluded from the calculation of diluted earnings.
New and amended standards and interpretations
The accounting policies adopted are consistent with those of the previous financial year, there are no new or amended
standards or interpretations adopted during the year that have a significant impact on the financial statements.
Standards issued but not yet effective
Certain standards or interpretations issued but not yet effective up to the date of issuance of the Group’s financial statements
are listed below. This listing of standards and interpretations issued are those that the Group reasonably expects to have an
impact on disclosures, financial position or performance when applied at a future date. The Group intends to adopt these
standards when they become effective.
Standard
IFRS 9 – Financial Instruments
IFRS 15 – Revenue from Contracts with Customers
IFRS 16 – Leases
Effective year commencing on or after
1 January 2018*
1 January 2018*
1 January 2019*
Amendments to IAS 16 and IAS 38 – Clarification of Accountable Methods of
1 January 2016
Depreciation and Amortisation
Amendments to IFRS 11 – Accounting for Acquisition of Interests in Joint Operations
1 January 2016
* Not yet endorsed by the EU
36
Serica Energy plc Annual Report and Accounts 2015
3. Segment Information
The Group’s business is that of oil & gas exploration, development and production. The Group’s reportable segments are
based on the location of the Group’s assets.
The following tables present revenue, profit and certain asset and liability information regarding the Group’s geographical
reportable segments for the years ended 31 December 2015 and 2014. Costs associated with the UK corporate centre are
included in the UK reportable segment. Reportable information in respect of the Group’s interest in the producing Kambuna
field in Indonesia is disclosed as a separate segment, with income statement information for the Kambuna field in Indonesia
additionally classified as ‘discontinued’.
UK
US$000
Ireland
US$000
Africa
US$000
Continuing
Total
US$000
Discontinued
US$000
24,017
–
Year ended 31 December 2015
Revenue
Continuing operations
Depletion
Other expenses
Pre-licence costs
Other asset write-offs
E&E asset impairment/write-offs
Operating and segment profit/loss
Finance costs
Finance revenue
Profit/(loss) before taxation
Taxation credit for the year
Profit/(loss) after taxation
Other segment information:
Plant, property & equipment
Exploration and evaluation assets
Other assets
Unallocated assets
Total assets
Segment liabilities
Total liabilities
Capital expenditure 2015:
Plant, property & equipment
Exploration and evaluation assets
24,017
(1,341)
(9,719)
(59)
–
(4,385)
8,513
(202)
38
8,349
2,433
10,782
–
–
–
(52)
–
(3,737)
(3,789)
–
–
(3,789)
–
(3,789)
–
–
–
(6)
(170)
(64)
(240)
–
–
(240)
–
(240)
(1,341)
(9,719)
(117)
(170)
(8,186)
4,484
(202)
38
4,320
2,433
6,753
UK
US$000
Ireland
US$000
Africa
US$000
Kambuna
US$000
8,894
41,248
20,901
–
7,623
86
–
2,943
231
71,043
7,709
3,174
(14,770)
(14,770)
10,235
927
(124)
(124)
–
859
(297)
(297)
–
371
–
–
2
2
(3)
(3)
–
–
(264)
–
–
–
(264)
–
–
(264)
–
(264)
Total
US$000
8,894
51,814
21,220
7,433
89,361
(15,194)
(15,194)
10,235
2,157
37
Serica Energy plc Annual Report and Accounts 2015 Notes to the Financial Statements continued
3. Segment Information continued
Year ended 31 December 2014
Revenue
Continuing operations
Other expenses
Pre-licence costs
Other asset write-offs
E&E asset impairment/write-offs
Operating loss and segment loss
Finance revenue
Loss before taxation
Taxation charge for the year
Loss after taxation
Other segment information:
Exploration and evaluation assets
Other assets
Unallocated assets
Total assets
Segment liabilities
Total liabilities
Capital expenditure 2014:
UK
US$000
–
(4,868)
(254)
(34)
(17,559)
(22,715)
Ireland
US$000
Africa
US$000
–
–
–
–
–
–
–
–
(258)
(216)
(12,460)
(12,934)
Continuing
Total
US$000
–
(4,868)
(512)
(250)
(30,019)
(35,649)
26
(35,623)
–
(35,623)
UK
US$000
Ireland
US$000
Africa
US$000
Kambuna
US$000
44,706
9,581
10,501
137
2,636
138
54,287
10,638
2,774
(1,462)
(1,462)
(180)
(180)
(2,354)
(2,354)
–
636
636
(2)
(2)
Discontinued
US$000
–
(453)
–
–
–
(453)
–
(453)
–
(453)
Total
US$000
57,843
10,492
2,000
70,335
(3,998)
(3,998)
Exploration and evaluation assets
1,302
1,093
10,858
–
13,253
Unallocated assets and liabilities comprise financing items (including cash on deposit).
Information on major customers is provided in note 4.
4. Sales Revenue
Gas sales
Oil sales
NGL sales
Movement in liquids overlift/underlift
2015
US$000
9,137
10,377
1,096
3,407
24,017
2014
US$000
–
–
–
–
–
Gas sales revenue in 2015 arose entirely from two key customers paying US$6,590,000 and US$2,547,000 respectively which
individually represented more than 10% of total sales. All oil sales revenue in 2015 was from one key customer.
38
Serica Energy plc Annual Report and Accounts 2015 5. Cost of Sales
Operating costs
Depletion (see note 16)
6. Analysis of Expenses by Function
Administrative
Impairment and write-offs of E&E assets (see note 15)
Other asset write-offs
Other
2015
US$000
6,593
1,341
7,934
2015
US$000
2,705
8,186
170
538
2014
US$000
–
–
–
2014
US$000
4,296
30,019
250
1,084
11,599
35,649
7. Discontinued Operation
During 2013, Serica’s sole remaining interest in Indonesia was its 25% interest in the Glagah Kambuna Technical Assistance
Contract (“TAC”). The TAC covered an area offshore North Sumatra and contained the Kambuna gas field. In July 2013,
the field reached the end of its economic life and was shut-in. The partnership agreed handover arrangements with the
Indonesian authorities which involved securing the three wells and wellhead structure. Following the completion of the agreed
decommissioning procedures in Q4 2013, the TAC was formally terminated on 31 December 2013 and the facilities handed
over to Pertamina.
Following the developments of the Kambuna business segment in the second half of 2013, the financial results of the Kambuna
field are now disclosed as ‘discontinued’ operations and separate from the results of the continuing business segments.
Results of discontinued operations
The results of the discontinued operations are presented below:
Sales revenue
Cost of sales
Gross profit
Other operating expenses
Operating loss and loss before tax
Taxation charge for the year
Loss for the year
Earnings per ordinary share (EPS)
Basic and diluted EPS on result in year
Year ended
31 December
2015
US$000
Year ended
31 December
2014
US$000
–
–
–
–
–
–
(264)
(453)
(264)
(453)
–
–
(264)
(453)
US$
(0.00)
US$
(0.00)
39
Serica Energy plc Annual Report and Accounts 2015 Notes to the Financial Statements continued
7. Discontinued Operation continued
The loss for 2015 comprised a final assessment for asset write offs and minor operator expense as residual matters are
closed out.
The earnings per ordinary share for the discontinued operations is derived from the net loss attributable to equity holders of
the parent from discontinued operations of US$264,000 (2014: loss of US$453,000), divided by the weighted average number
of ordinary shares for both basic and diluted amounts as disclosed in note 14.
Other
There are no taxation components within discontinued operations.
The net cash flows attributable to the disposal group in discontinued operations in 2015 are operating cash inflows of
US$370,000 (2014: US$1,404,000).
8. Group Operating Loss
This is stated after charging:
Operating lease rentals (minimum lease payments):
– Land and buildings
– Other
Total lease payments recognised as an expense
2015
US$000
2014
US$000
172
10
182
552
22
574
Operating sublease agreements where the Group is lessor
In the year ended 31 December 2015, the Group received US$30,000 (2014: US$140,000) of rental income receivable under a
sub-lease of its office premises which expired in March 2015.
Depreciation, depletion and amortisation expense
There was no charge for depreciation of other property, plant and equipment in 2014 or 2015.
Depletion of oil and gas properties is classified within cost of sales.
9. Auditor’s Remuneration
Audit of the Group accounts
Audit of the Company’s accounts
Audit of accounts of Company’s subsidiaries
Total audit fees
Other fees to auditor:
Taxation advisory services
2015
US$000
2014
US$000
101
32
12
145
86
28
10
124
US$000
US$000
–
–
–
–
Fees paid to Ernst & Young LLP and its associates for non-audit services are not disclosed in the individual accounts of the
Company as Group financial statements are prepared which are required to disclose such fees on a consolidated basis.
40
Serica Energy plc Annual Report and Accounts 2015 10. Staff Costs and Directors’ Emoluments
a) Staff Costs
The average monthly number of persons
employed by the Group during the year was:
Management
Technical
Finance and administration
Staff costs for the above persons:
Wages and salaries
Social security costs
Other pension costs
Share-based long-term incentives
Staff costs for key management personnel:
Short-term employee benefits
Post-employment benefits
Share-based payments
2015
No.
2014
No.
2
2
2
6
3
3
4
10
US$000
US$000
1,832
215
98
(9)
2,468
309
176
337
2,136
3,290
1,054
32
(136)
1,934
86
134
950
2,154
b) Directors’ Emoluments
The emoluments of the individual Directors were as follows. Other than fees paid to Jeffrey Harris in US$, all sums are paid in
£ sterling but are converted at an exchange rate of £1=US$1.528 (2014: £1=US$1.648) to US$ being the reporting currency for
the purposes of the Company’s accounts.
A Craven Walker1
C Hearne2
M Flegg3
N Pike
I Vann
S Theede4
J Harris
2015
Salary and
fees
US$000
334
163
163
52
48
17
48
825
2015
Bonus
US$000
92
–
–
–
–
–
–
92
2015
Pension
US$000
–
16
16
–
–
–
–
32
2015
Benefits
in kind
US$000
12
5
6
–
–
–
–
2015
Total
US$000
2014
Total
US$000
438
184
185
52
48
17
48
546
476
479
91
74
74
66
23
972
1,806
1.
Mr Craven Walker has acted as Interim CEO since 10 April 2011. Since 1 May 2012, Mr Craven Walker has received a combined fee in respect of services as
Chairman and Interim CEO pending the appointment of a successor to the CEO position. Since 1 January 2013 his combined fee for services as Chairman and
Interim CEO has included a provision for travel allowance but he was not entitled to any other award such as share options, share scheme, bonus, pension or
medical insurance. With effect from 1 June 2015, he took the role of Executive Chairman following the departure of the two Executive directors. Under his new
contract as Executive Chairman he is entitled to the award of share options, share schemes and bonus.
2.
Chris Hearne resigned on 31 May 2015
3. Mitch Flegg resigned on 31 May 2015
4.
Steve Theede resigned on 30 June 2015
41
Serica Energy plc Annual Report and Accounts 2015 Notes to the Financial Statements continued
10. Staff Costs and Directors’ Emoluments continued
Number of Directors securing benefits under defined
contribution schemes during the year
Number of Directors who exercised share options
Aggregate gains made by Directors on the exercise of options
2015
2014
2
–
2
–
US$000
US$000
–
–
The Group defines key management personnel as the Directors of the Company. There are no transactions with Directors
other than their remuneration as disclosed above and those described in Note 31.
11. Finance Revenue
Bank interest receivable
Other finance revenue
Total finance revenue
12. Finance Costs
Interest payable on Erskine acquisition consideration
Other interest payable
Other finance costs
Total finance costs
13. Taxation
a) Tax charged/(credited) in the income statement
Charge for the year
Adjustment in respect of prior years
Total current income tax charge
Deferred tax
Origination and reversal of temporary differences in the current year
Adjustment in respect of prior years
Adjustment to reflect tax rate changes in recognition of deferred tax
Total deferred tax (credit)
Tax credit in the income statement
42
2015
US$000
2014
US$000
11
27
38
26
–
26
2015
US$000
2014
US$000
107
5
90
202
–
–
–
–
2015
US$000
2014
US$000
–
–
–
(2,433)
–
–
(2,433)
(2,433)
–
–
–
–
–
–
–
–
Serica Energy plc Annual Report and Accounts 2015
13. Taxation continued
b) Reconciliation of the total tax charge/(credit)
The tax in the income statement for the year differs from the amount that would be corporation tax in the UK of expected by
applying the standard UK corporation tax rate for the following reasons:
Accounting profit/(loss) before taxation – continuing ops
Accounting loss before taxation – discontinued ops
Accounting profit/(loss) before taxation
Expected tax charge/(credit) at standard UK corporation tax rate of 20.25% (2014 – 21.5%)
Expenses not deductible for tax purposes
Write-off of exploration assets
Unrecognised tax losses
Utilisation of tax losses not previously recognised
Accelerated Capital Allowances
Different foreign tax rates
Recognition of losses not previously recognised
Tax credit reported in the income statement
2015
US$000
4,320
2014
US$000
(35,623)
(264)
(453)
4,056
(36,076)
821
140
1,899
304
(2,734)
(192)
(238)
(2,433)
(2,433)
(7,756)
264
7,016
1,246
–
(298)
(472)
–
–
c) Recognised and unrecognised tax losses
Following the acquisition of a producing UK asset in 2015, the Group has recognised a deferred tax asset of US$2.4 million in
respect of certain carried forward losses that are expected to be utilised in the foreseeable future to offset the taxable profits
that the acquired asset is expected to generate.
The benefit of approximately US$149.1 million (2014: US$168.1 million) of tax losses has not been recognised in these
consolidated statements which reflects the extent of the total available UK tax losses that have not been set against a deferred
tax liability arising. The Group has UK ring fence tax losses of US$171.3 million available as at 31 December 2015 (2014:
US$186.3 million) which form part of total UK tax losses of approximately US$198.7 million (2014: US$212.2 million) that
are available indefinitely for offset against future trading profits of the companies in which the losses arose. Of this amount
US$49.6 million (2014: US$44.1 million) has been set off against taxable temporary differences.
43
Serica Energy plc Annual Report and Accounts 2015 Notes to the Financial Statements continued
13. Taxation continued
d) Deferred tax
The deferred tax included in the balance sheet is as follows:
Deferred tax liability:
Temporary differences on capital expenditure
(24,806)
(27,345)
2015
US$000
2014
US$000
Deferred tax liability
Deferred tax asset:
Temporary difference on future recoverable costs
Tax losses carried forward
Deferred tax asset
Net deferred tax asset
The deferred tax in the Group income statement is as follows:
Deferred tax in the income statement:
Temporary differences on capital expenditure
Temporary difference on future recoverable costs
Tax losses carried forward
Deferred income tax (credit)
(24,806)
(27,345)
–
–
27,239
27,345
27,239
27,345
2,433
–
2015
US$000
2014
US$000
(2,539)
(10,027)
–
106
–
10,027
(2,433)
–
e) Changes to UK corporation tax legislation
Legislation to reduce the main rate of UK corporation tax to 18% effective 1 April 2020 was introduced in Finance Act 2015.
From 1 January 2015, the rate of Supplementary Charge (SC) was 20%, which reduced the headline rate of tax from 62% to 50%
for ring-fenced trading profits. The Chancellor of the Exchequer of the United Kingdom announced in his Budget Statement on
16 March 2016 that the rate of SC will be reduced from 20% to 10% with effect from 1 January 2016. This further reduces the
headline rate of tax to 40% for ring-fenced trading profits.
f) Unrecognised deferred tax liability
In 2015 and 2014 there are no material temporary differences associated with investments with subsidiaries for which
deferred tax liabilities have not been recognised.
g) Company
The Company has US$26.8 million (2014: US$ 25.4 million) of UK corporation tax losses which are not recognised as deferred
tax assets.
44
Serica Energy plc Annual Report and Accounts 2015
14. Earnings Per Share
Basic earnings or loss per ordinary share amounts are calculated by dividing net profit or loss for the year attributable to
ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the
Company by the weighted average number of ordinary shares outstanding during the year plus the weighted average number
of ordinary shares that would be issued on the conversion of dilutive potential ordinary shares into ordinary shares. As a result
of the net loss for the year ended 31 December 2014, there is no dilutive effect of the share options in that year.
The following reflects the income and share data used in the basic and diluted earnings per share computations:
Net profit/(loss) from continuing operations
2015
US$000
6,753
2014
US$000
(35,623)
Net profit/(loss) attributable to equity holders of the parent
6,489
(36,076)
Basic weighted average number of shares
2015
’000
2014
’000
257,946
250,179
Diluted weighted average number of shares
257,946
250,179
Basic EPS on profit/(loss) on continuing operations (US$)
Diluted EPS on profit/(loss) on continuing operations (US$)
Basic EPS on profit/(loss) for the year (US$)
Diluted EPS on profit/(loss) for the year (US$)
2015
US$
0.03
0.03
0.03
0.03
2014
US$
(0.14)
(0.14)
(0.14)
(0.14)
On completion of the acquisition of an 18% interest in the Erskine field, 13,500,000 ordinary shares were issued to BP as part
of the consideration (see note 16).
45
Serica Energy plc Annual Report and Accounts 2015 Notes to the Financial Statements continued
15. Exploration and Evaluation Assets
Group
Cost:
1 January 2014
Additions
Write offs
31 December 2014
Additions
Write offs
31 December 2015
Provision for impairment:
1 January 2014
Impairment charge for the year
31 December 2014
Impairment reversal for the year
31 December 2015
Net book value:
31 December 2015
31 December 2014
1 January 2014
Total
US$000
74,609
13,253
(12,519)
75,343
2,157
(13,122)
64,378
–
(17,500)
(17,500)
4,936
(12,564)
51,814
57,843
74,609
The aggregate impairment and write-off charge against E&E assets in 2015 was US$8.2 million (2014: US$30.0 million) and
comprised E&E asset write-offs of US$13.1 million (2014: US$12.5 million) and an impairment reversal of US$4.9 million (2014:
charge of US$17.5 million) million against the Columbus asset in the UK. The 2015 E&E asset write-offs of US$13.1 million
related to the costs incurred on relinquished UK licences (US$3.5 million), a charge of US$5.8 million on the UK P1482 licence, a
US$3.7 million charge against the Slyne asset in Ireland, and a US$0.1 million charge in Morocco.
Impairments on the Slyne and P1482 (containing the Doyle prospect) licences represent the write-off of the cost of wells drilled
in 2009 and 2010 respectively which are not considered to hold remaining economic potential.
The partial impairment reversal recorded against Columbus book amounts has arisen from revised economic evaluations.
The Company increased its interest in the asset in the year from 33.2% to 50% for nominal consideration. Incremental
economic value attributed to the increased holding in the asset has more than offset the use of lower hydrocarbon prices in
management’s estimation of future discounted cash flows of the asset leading to an overall gain.
The recoverable amount of US$39.8 million (2014: US$34.5 million) for the Columbus asset was determined on a fair value less
costs of disposal basis using a discounted cash flow model. The projected cash flows are extrapolated until 2029 using a 2.5%
(2014: 2.5%) growth rate and were adjusted for risks specific to the asset and discounted using a discount rate of 10.5% (2014:
10.57%). This discount rate is derived from the Group’s estimates of discount rates that might be applied by active market
participants and is adjusted where applicable to take into account any specific risks relating to the region where the cash
generating unit is located.
46
Serica Energy plc Annual Report and Accounts 2015
15. Exploration and Evaluation Assets continued
In determining FVLCD it is necessary to make a series of assumptions to estimate future cash flows including volumes, price
assumptions and cost estimates. Accordingly, the fair value is categorised as Level 3 in the fair value hierarchy.
The calculation is most sensitive to the following assumptions; discount rates, oil prices, reserves estimates and project risk.
Changes in these assumptions, or the status of negotiations on the infrastructure access for the asset, could lead to a material
change to the recoverable amount in future periods.
Other asset write offs in the Income Statement consisted of a US$0.2 million charge against obsolete inventory (2014:
US$0.2 million).
Company
The Company has no E&E assets.
16. Property, Plant and Equipment
Group
Cost
1 January 2014
Disposals
31 December 2014
Additions
Disposals
Oil and gas
properties
US$000
Computer/IT
Equipment
US$000
Fixtures,
Fittings &
Equipment
US$000
–
–
–
10,235
–
189
–
189
–
(189)
901
–
901
–
(901)
Total
US$000
1,090
–
1,090
10,235
(1,090)
31 December 2015
10,235
–
–
10,235
Depreciation and depletion
1 January 2014
Charge for the year
Disposals
31 December 2014
Charge for the year (note 5)
Disposals
31 December 2015
Net book amount
31 December 2015
31 December 2014
1 January 2014
–
–
–
–
1,341
–
1,341
8,894
–
–
189
–
–
189
–
(189)
–
–
–
–
901
–
901
–
(901)
–
–
–
–
1,090
–
–
1,090
1,341
(1,090)
1,341
8,894
–
–
47
Serica Energy plc Annual Report and Accounts 2015
Notes to the Financial Statements continued
16. Property, Plant and Equipment continued
In June 2015, Serica Energy (UK) Limited acquired an 18% non-operated interest in the Erskine field located in the UK
Central North Sea. This was treated as an asset acquisition. The total acquisition cost was US$10.2 million (comprising cash
consideration of US$8.885 million and non-cash consideration of US$1.35 million) which reflects the headline price plus
internal transition costs less net income attributable to the interest from the effective date of 1 January 2014.
The net cash of US$9 million received by Serica at completion in June 2015 resulted from the deferral of 75% of headline cash
consideration of US$11.1 million and the impact of certain working capital and interim period adjustments between 1 January
2014, the effective date of the transaction, and the completion date. This included receipts from 55,000 bbls of oil pre-sold at
2014 realised prices.
Other
Depletion charges on oil and gas properties are classified within ‘cost of sales’.
Company
The Company has no property, plant and equipment.
17. Investments
Company – Investment in subsidiaries
Cost:
As at 1 January 2014 and 31 December 2014
Increase in investment
31 December 2015
Provision for impairment:
As at 1 January 2014 and 31 December 2014
Impairment charge for the year
31 December 2015
Net book amount:
31 December 2015
31 December 2014
1 January 2014
Total
US$000
132,684
1,350
134,034
(132,684)
–
(132,684)
1,350
–
–
In the Company financial statements, the cost of the investment acquired on the Reorganisation (see note 1) was calculated
with reference to the market value of Serica Energy Corporation as at the date of the Reorganisation. As a UK company, under
Section 612 of the Companies Act 2006, the Company is entitled to merger relief on its share reorganisation with Serica Energy
Corporation, and the excess of US$112,174,000 over the nominal value of shares issued (US$7,475,000) has been credited to a
merger reserve. Following the impairment charges recorded in 2010 and 2013 against the Company’s investment in subsidiary
undertakings, all amounts initially credited to the merger reserve have been eliminated.
Management has assessed the carrying value of investments in subsidiaries in the parent company balance sheet for
impairment by reference to the recoverable amount.
48
Serica Energy plc Annual Report and Accounts 2015
17. Investments continued
The reduction of US$8,043,000 in provision for impairment against amounts owed by Group undertakings (see note 20) has
been made following an increase in value attributed to certain of the oil and gas assets held by the Company’s subsidiary
undertakings. This increase in value has arisen following the acquisition of the Erskine field interest and increased holding in
Columbus asset.
Details of the investments in which the Group and the Company (unless indicated) hold 20% or more of the nominal value of
any class of share capital are as follows:
Name of company:
Holding
Nature of business
Serica Holdings UK Ltd
Serica Energy Holdings B.V. (i & iii)
Serica Energy (UK) Ltd (i)
Serica Sidi Moussa BV (i & iii)
Serica Foum Draa BV (i & iii)
Serica Energy Slyne BV (i & iii)
Serica Energy Rockall BV (i & iii)
Serica Energy Namibia BV (i & iii)
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Holding
Holding
Exploration
Exploration
Exploration
Exploration
Exploration
Exploration
Serica Glagah Kambuna BV (i & iii)
Ordinary
Development
Serica Energy Corporation (i & ii)
APD Ltd (i & ii)
PDA Asia Ltd (i & ii)
PDA (Lematang) Ltd (i)
Serica UK Exploration Ltd (i)
Serica Walvis Namibia BV (i & iii)
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
(i) Held by a subsidiary undertaking
(ii) Incorporated in the British Virgin Islands
(iii) Incorporated in the Netherlands
18. Other Non–current Assets
% voting rights and
shares held
% voting rights and
shares held
2015
2014
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Group
Company
2015
US$000
2014
US$000
2015
US$000
2014
US$000
Other receivables
–
247
–
–
Other receivables are represented by amounts recoverable from the Indonesian authorities relating to the Kambuna asset.
19. Inventories
Materials and spare parts
Group
Company
2015
US$000
2014
US$000
2015
US$000
2014
US$000
453
453
–
–
–
–
–
–
Inventories are valued at the lower of cost and net realisable value. Cost is determined by the first-in first-out method and
comprises direct purchase costs and transportation expenses. US$170,000 was expensed in the income statement as an asset
write-off against materials and spare parts in 2015 (2014: US$216,000).
49
Serica Energy plc Annual Report and Accounts 2015
Notes to the Financial Statements continued
20. Trade and Other Receivables
Due within one year:
Amounts owed by Group undertakings
Trade receivables
Amounts recoverable from JV partners
Other receivables
Prepayments and accrued income
Group
Company
2015
US$000
2014
US$000
2015
US$000
2014
US$000
–
3,188
401
216
360
–
–
531
1,293
528
59,211
57,513
–
–
215
209
–
–
193
351
Trade and other receivables
4,165
2,352
59,635
58,057
Trade receivables at 31 December 2015 arose from four customers.
None of the Group’s receivables are considered impaired. The Directors consider the carrying amount of trade and other
receivables approximates to their fair value.
Management considers that there are no unreasonable concentrations of credit risk within the Group or Company.
At the reporting date the amounts owed by Group undertakings to the Company are disclosed net of an impairment of
US$79,987,000 (2014: US$88,030,000) – see note 15.
21. Cash and Short–Term Deposits
Group
Company
2015
US$000
2014
US$000
2015
US$000
2014
US$000
Cash at bank and in hand
Short-term deposits
14,159
7,443
7,893
2,000
6,287
7,443
7,447
2,000
21,602
9,893
13,730
9,447
Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying
periods of between one day and six months depending on the immediate cash requirements of the Group, and earn interest
at the respective short to medium term deposit rates. The Group’s exposure to credit risk arises from potential default of a
counterparty, with a maximum exposure equal to the carrying amount. The Group seeks to minimise counterparty credit risks
by only depositing cash surpluses with major banks of high quality credit standing, and spreading the placement of funds over
a range of institutions.
Financial institutions, and their credit ratings, which held greater than 10% of the Group’s cash and short-term deposits at the
balance sheet date were as follows:
Group
Company
S&P credit
rating
2015
US$000
2014
US$000
2015
US$000
2014
US$000
Barclays Bank plc
HSBC Bank plc
Lloyds Bank plc
A-2
A-1+
A-1
10,719
4,909
5,963
7,408
2,476
–
2,858
4,909
5,963
6,971
2,476
–
For the purposes of the consolidated and Company cash flow statement, cash and cash equivalents comprise the above
amounts at 31 December.
50
Serica Energy plc Annual Report and Accounts 2015 22. Trade and Other Payables
Trade payables
Other payables
Liquids overlift
BP consideration liability (see note 23)
23. Trade and Other Payables – Non current
BP consideration liability
Group
Company
2015
US$000
1,909
4,687
166
2,811
2014
US$000
1,119
2,879
–
–
9,573
3,998
2015
US$000
2014
US$000
277
271
–
–
548
847
320
–
–
1,167
Group
Company
2015
US$000
2014
US$000
2015
US$000
2014
US$000
5,621
5,621
–
–
–
–
–
–
Long term liabilities of US$5.6 million as at 31 December 2015 comprise two of the three tranches of outstanding
consideration payable to BP following the acquisition of the Erskine producing asset. The aggregate outstanding sum is
payable in three equal tranches of US$2.8 million plus accrued interest on 1 July 2016, 1 July 2017 and 1 July 2018 respectively.
24. Provisions
Provisions for decommissioning and restoration of oil and gas assets are:
At 1 January
Unwinding of discount
Payments and utilisation of provision
At 31 December
2015
US$000
2014
US$000
–
–
–
–
–
–
–
–
No provision for decommissioning liabilities for the Erskine field is recorded as at 31 December 2015 as the Company’s current
estimate for such costs is under the agreed capped level to be funded by BP. This has been fixed at a gross £174.0 million
(£31.32 million net to Serica) with this figure adjusted for inflation.
51
Serica Energy plc Annual Report and Accounts 2015
Notes to the Financial Statements continued
25. Financial Instruments
The Group’s financial instruments comprise cash and cash equivalents, bank loans and borrowings, accounts payable and
accounts receivable. It is management’s opinion that the Group is not exposed to significant interest, credit or currency risks
arising from its financial instruments other than as discussed below:
Serica has exposure to interest rate fluctuations on its cash deposits and bank loans; given the level of expenditure plans
over 2016/17 this is managed in the short-term through selecting treasury deposit periods of one to three months. Cash
and treasury credit risks are mitigated through spreading the placement of funds over a range of institutions each carrying
acceptable published credit ratings to minimise concentration and counterparty risk.
Where Serica operates joint ventures on behalf of partners it seeks to recover the appropriate share of costs from these third
parties. The majority of partners in these ventures are well established oil and gas companies. In the event of non payment,
operating agreements typically provide recourse through increased venture shares.
Serica retains certain non US$ cash holdings and other financial instruments relating to its operations. The US$ reporting
currency value of these may fluctuate from time to time causing reported foreign exchange gains and losses. Serica maintains
a broad strategy of matching the currency of funds held on deposit with the expected expenditures in those currencies.
Management believes that this mitigates most of any actual potential currency risk from financial instruments.
It is management’s opinion that the fair value of its financial instruments approximate to their carrying values, unless
otherwise noted.
Interest Rate Risk Profile of Financial Assets and Liabilities
The interest rate profile of the financial assets and liabilities of the Group as at 31 December is as follows:
Group
Year ended 31 December 2015
Fixed rate
Short-term deposits
Floating rate
Cash
Year ended 31 December 2014
Fixed rate
Short-term deposits
Floating rate
Cash
52
Within 1 year
US$000
1–2 years
US$000
2–5 years
US$000
Total
US$000
7,443
–
–
Within 1 year
US$000
1–2 years
US$000
2–5 years
US$000
14,159
–
–
7,443
7,443
Total
US$000
14,159
14,159
Within 1 year
US$000
1–2 years
US$000
2–5 years
US$000
Total
US$000
2,000
–
–
2,000
2,000
Within 1 year
US$000
1–2 years
US$000
2–5 years
US$000
Total
US$000
7,893
–
–
7,893
7,893
Serica Energy plc Annual Report and Accounts 2015 25. Financial Instruments continued
The following table demonstrates the sensitivity of finance revenue and finance costs to a reasonably possible change in
interest rates, with all other variables held constant, of the Group’s loss before tax (through the impact on fixed rate short-
term deposits and applicable bank loans).
Increase/decrease in interest rate
+0.75%
-0.75%
Effect on
profit
before tax
2015
US$000
101
(101)
Effect on
(loss)
before tax
2014
US$000
138
(138)
The other financial instruments of the Group that are not included in the above tables are non-interest bearing and are
therefore not subject to interest rate risk.
The interest rate profile of the financial assets and liabilities of the Company as at 31 December is as follows:
Company
Year ended 31 December 2015
Fixed rate
Short-term deposits
Floating rate
Cash
Year ended 31 December 2014
Fixed rate
Short-term deposits
Floating rate
Cash
Within 1 year
US$000
1–2 years
US$000
2–5 years
US$000
Total
US$000
7,443
–
–
7,443
7,443
Within 1 year
US$000
1–2 years
US$000
2–5 years
US$000
Total
US$000
6,287
–
–
6,287
6,287
Within 1 year
US$000
1–2 years
US$000
2–5 years
US$000
Total
US$000
2,000
–
–
2,000
2,000
Within 1 year
US$000
1–2 years
US$000
2–5 years
US$000
Total
US$000
7,447
–
–
7,447
7,447
Credit risk
The Group’s and Company’s exposure to credit risk relating to financial assets arises from the default of a counterparty with a
maximum exposure equal to the carrying value as at the balance sheet date. The Group’s oil and gas sales are all contracted
with well established oil and gas or energy companies. Also, where Serica operates joint ventures on behalf of partners it seeks
to recover the appropriate share of costs from the third party counterparties. The majority of partners in these ventures are
well established oil and gas companies. In the event of non payment, operating agreements typically provide recourse through
increased venture shares. Cash and treasury credit risks are mitigated through spreading the placement of funds over a range
of institutions each carrying acceptable published credit ratings to minimise counterparty risk.
53
Serica Energy plc Annual Report and Accounts 2015 Notes to the Financial Statements continued
25. Financial Instruments continued
Foreign currency risk
The Group enters into transactions denominated in currencies other than its US dollar reporting currency. Non US$
denominated balances, subject to exchange rate fluctuations, at year-end were as follows:
Cash and cash equivalents:
Pounds sterling
Norwegian kroner
Euros
Accounts receivable:
Pounds sterling
Trade and other payables:
Pounds sterling
Euros
Group
Company
2015
US$000
2014
US$000
2015
US$000
2014
US$000
7,886
8
47
4,663
9
125
5,857
4,362
–
–
–
–
1,065
451
28
177
6,071
116
1,343
157
642
39
776
40
The following table demonstrates the Group’s sensitivity to a 10% increase or decrease in the US Dollar against the Pound
sterling. The sensitivity analysis includes only foreign currency denominated monetary items and adjusts their translation at
the year end for a 10% change in the foreign currency rate.
Increase/decrease in foreign exchange rate
10% strengthening of US$ against £GBP
10% weakening of US$ against £GBP
Effect on
profit
before tax
2015
US$000
288
(288)
Effect on
(loss)
before tax
2014
US$000
377
(377)
Liquidity risk
The table below summarises the maturity profile of the Group and Company’s financial liabilities at 31 December 2015 based
on contractual undiscounted payments. The Group monitors its risk to a potential shortage of funds by monitoring the
maturity dates of existing debt.
Group
Year ended 31 December 2015
Within
1 year
US$000
1 to 2 years
US$000
2 to 5 years
US$000
Total
US$000
Trade and other payables
9,573
2,811
2,810
15,194
Year ended 31 December 2014
Within
1 year
US$000
1 to 2 years
US$000
2 to 5 years
US$000
Total
US$000
Trade and other payables
3,998
–
–
3,998
54
Serica Energy plc Annual Report and Accounts 2015 25. Financial Instruments continued
Company
Year ended 31 December 2015
Within 1 year
US$000
1–2 years
US$000
2–5 years
US$000
Total
US$000
Trade and other payables
548
–
–
548
Year ended 31 December 2014
Within 1 year
US$000
1–2 years
US$000
2–5 years
US$000
Total
US$000
Trade and other payables
1,167
–
–
1,167
Commodity price risk
The Group is exposed to commodity price risk. Where and when appropriate the Group will put in place suitable hedging
arrangements to mitigate the risk of a fall in commodity prices.
During 2015, 32% of the Group’s gas production was sold at fixed contracted prices. All oil and NGL production was sold at
prices linked to the spot market.
At 31 December 2015 the Group held oil price options covering 500 bbls per day at US$40/bbl and 500 bbls per day at US$35/
bbl covering the period up to 31 May 2016 when the summer CATS transportation system maintenance shut-in is due to
commence.
The Group had no gas or liquid sales in 2014.
Fair values of financial assets and liabilities
Management assessed that the fair values of cash and short-term deposits, trade receivables, trade payables and other
current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments. As such
the fair value hierarchy is not provided.
Capital management
The primary objective of the Group’s capital management is to maintain appropriate levels of funding to meet the
commitments of its forward programme of exploration and development expenditure, and to safeguard the entity’s ability to
continue as a going concern and create shareholder value. At 31 December 2015, capital employed of the Group amounted to
US$74.2 million (comprised of US$74.2 million of equity shareholders’ funds and US$nil million of borrowings), compared to
US$66.3 million at 31 December 2014 (comprised of US$66.3 million of equity shareholders’ funds and US$nil of borrowings).
At 31 December 2015, capital employed of the Company amounted to US$74.2 million (comprised of US$74.2 million of equity
shareholders’ funds and US$nil million of borrowings), compared to US$66.3 million at 31 December 2014 (comprised of
US$66.3 million of equity shareholders’ funds and US$nil million of borrowings).
55
Serica Energy plc Annual Report and Accounts 2015
Notes to the Financial Statements continued
26. Equity Share Capital
The concept of authorised share capital was abolished under the Companies Act 2006 and shareholders approved the
adoption of new Articles of Association at the 2010 Annual General Meeting which do not contain any reference to authorised
share capital.
The share capital of the Company comprises one “A” share of £50,000 and 250,179,039 ordinary shares of US$0.10 each. The
“A” share has no special rights.
The balance classified as total share capital includes the total net proceeds (both nominal value and share premium) on issue
of the Group and Company’s equity share capital, comprising US$0.10 ordinary shares and one ‘A’ share.
Allotted, issued and fully paid:
Group
Share
capital
US$000
Share
premium
US$000
Number
Total
Share
capital
US$000
As at 1 January 2014 and 31 December 2014
250,179,040
25,108
202,850
227,958
Shares issued(i)
13,500,000
1,350
–
1,350
As at 31 December 2015
263,679,040
26,458
202,850
229,308
Allotted, issued and fully paid:
Company
Share
capital
US$000
Share
premium
US$000
Number
Total
Share
capital
US$000
As at 1 January 2014 and 31 December 2014
250,179,040
25,108
167,578
192,686
Shares issued (i)
13,500,000
1,350
–
1,350
As at 31 December 2015
263,679,040
26,458
167,578
194,036
(i)
On 4 June 2015, the Company issued 13,500,000 ordinary shares at nominal value of US$0.10 each to BP as part of the
acquisition of an 18% interest in UK blocks 23/26a (Area B) and 23/26b (Area B) containing the Erskine field. No cash
proceeds were received by the Company in respect of the ordinary shares issued.
As at 18 April 2016 the issued voting share capital of the Company is 263,679,039 ordinary shares and one “A” share.
56
Serica Energy plc Annual Report and Accounts 2015
27. Additional Cash Flow Information
Analysis of Group net cash
Year ended 31 December 2015
Cash
Short-term deposits
Year ended 31 December 2014
Cash
Short-term deposits
Analysis of Company net cash
Year ended 31 December 2015
Cash
Short-term deposits
Year ended 31 December 2014
Cash
Short-term deposits
1 January
2015
US$000
Cash flow
US$000
Non-cash
movements
US$000
31 December
2015
US$000
7,893
2,000
6,583
5,652
(317)
(209)
14,159
7,443
9,893
12,235
(526)
21,602
1 January
2014
US$000
Cash flow
US$000
Non-cash
movements
US$000
31 December
2014
US$000
10,178
15,884
(2,246)
(13,746)
(39)
(138)
7,893
2,000
26,062
(15,992)
(177)
9,893
1 January
2015
US$000
Cash flow
US$000
Non-cash
movements
US$000
31 December
2015
US$000
7,447
2,000
(926)
5,652
(234)
(209)
6,287
7,443
9,447
4,726
(443)
13,730
1 January
2014
US$000
Cash flow
US$000
Non-cash
movements
US$000
31 December
2014
US$000
9,575
15,884
(2,101)
(13,746)
(27)
(138)
7,447
2,000
25,459
(15,847)
(165)
9,447
57
Serica Energy plc Annual Report and Accounts 2015 Notes to the Financial Statements continued
28. Share–Based Payments
Share Option Plans
Following a Reorganisation in 2005 (see note 1), the Company established an option plan (the “Serica 2005 Option Plan”) to
replace the Serica Energy Corporation Share Option Plan (the “Serica BVI Option Plan”). The objective of these plans is to
develop the interest of Directors, officers, key employees and certain consultants of the Group in the growth and development
of the Group by providing them with the opportunity to acquire an interest in the Company and to assist the Company in
retaining and attracting executives with experience and ability.
Serica Energy Corporation (“Serica BVI”) was previously the holding company of the Group but, following the Reorganisation,
is now a wholly owned subsidiary of the Company. Prior to the Reorganisation, Serica BVI issued options under the Serica BVI
Option Plan and following the Reorganisation the Company agreed to issue ordinary shares to holders of Serica BVI Options
already awarded upon exercise of such options in place of the shares in Serica BVI to which they would be entitled. At 31
December 2015 there were no options outstanding under the Serica BVI Option Plan and no further options will be granted
under the Serica BVI option plan.
As at 31 December 2015, the Company has granted 24,332,460 options under the Serica 2005 Option Plan, 8,601,330 of which
are currently outstanding. No further options will be granted under the Serica 2005 Option Plan as the ability to grant new
options under the plan expired on its 10th anniversary in November 2015. A new plan, if implemented, will govern all future
grants of options by the Company to Directors, officers, key employees and certain consultants of the Group.
The Serica 2005 Option Plan is comprised of two parts, the basic share option plan and a part which constitutes an Enterprise
Management Incentive Plan (“EMI Plan”) under rules set out by the H.M. Revenue & Customs in the United Kingdom. Options
granted under the Serica 2005 Option Plan can be granted, at the discretion of the Board, under one or other of the two parts
but, apart from certain tax benefits which can accrue to the Company and its UK employees if options are granted under the
part relating to the EMI Plan meeting the conditions of that part of the Serica 2005 Option Plan, all other terms under which
options can be awarded under either part are substantially identical.
The Directors intend that the maximum number of ordinary shares which may be utilised pursuant to the Serica 2005 Option
Plan will not exceed 10% of the issued ordinary shares of the Company from time to time in line with the recommendations of
the Association of British Insurers.
600,000 of the 8,601,330 options outstanding under the Serica 2005 Option Plan are exercisable only if certain performance
targets being met. These include the following options subject to market conditions; In April 2011, 200,000 options were
awarded to an employee exercisable only if certain operational performance targets are met. In November 2012, 400,000
options were granted to a consultant subject to performance conditions. The 2,500,000 options granted to a director in July
2015 were all awarded at prices higher than the current market price at the time of the grant to establish firm performance
targets.
The Company calculates the value of share-based compensation using a Black-Scholes option pricing model (or other
appropriate model for those Directors’ options subject to certain market conditions) to estimate the fair value of share options
at the date of grant. There are no cash settlement alternatives. The estimated fair value of options is amortised to expense
over the options’ vesting period. US$9,000 has been credited to the income statement in continuing operations for the year
ended 31 December 2015 (2014 – charge of US$337,000) and a similar amount debited to the share-based payments reserve,
classified as ‘Other reserve’ in the Balance Sheet. The income statement credit of US$9,000 in 2015 consists of a charge of
US$174,000 offset by a credit of US$183,000 which arose following the forfeiture by two executive directors of certain share
options that had not fully vested. A credit of US$136,000 (2014 – charge of US$134,000) of the total continuing operations
charge was in respect of key management personnel (defined in note 10).
The options granted in 2015 and 2014 were consistently valued in line with the Company’s valuation policy. Assumptions made
included a weighted average risk-free interest rate of 3%, no dividend yield, a weighted average expected life of three years,
and a volatility factor of expected market price of in a range from 50-70%. The expected volatility reflects the assumption that
the historical volatility is indicative of future trends, which may not necessarily be the actual outcome. The weighted fair value
of options granted during the year was £0.03 (2014:£0.07).
58
Serica Energy plc Annual Report and Accounts 2015 28. Share–Based Payments continued
The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share options
2015
WAEP Cdn$
2014
Number
2014
WAEP Cdn$
during the year:
Serica BVI option plan
Outstanding as at 1 January
Expired during the year
Forfeited during the year
Outstanding as at 31 December
Exercisable as at 31 December
Serica 2005 option plan
Outstanding as at 1 January
Granted during the year
Forfeited during the year
Expired during the year
2015
Number
700,000
(600,000)
(100,000)
–
–
10,680,460
4,000,000
(5,193,940)
(885,190)
1.11
1.00
1.80
1,900,000
(1,200,000)
–
–
–
£
0.44
0.13
0.44
0.50
700,000
700,000
9,108,460
1,800,000
–
(228,000)
Outstanding as at 31 December
8,601,330
0.30
10,680,460
Exercisable as at 31 December
3,451,330
0.42
4,735,500
1.46
1.67
–
1.11
1.11
£
0.50
0.13
–
0.32
0.44
0.74
The weighted average remaining contractual life of options outstanding as at 31 December 2015 is 7.3 years (2014: 5.8 years).
There are no outstanding options for the Serica BVI option plan. For the Serica 2005 option plan, the exercise price for
outstanding options at the 2015 year end ranges from £0.07 to £1.04 (2014: £0.13 to £1.04).
As at 31 December 2015, the following director and employee share options were outstanding:
Expiry Date
January 2016
January 2017
May 2017
March 2018
January 2020
April 2021
January 2022
October 2022
January 2023
November 2023
January 2024
June 2025
July 2025
July 2025
July 2015
Amount
135,000
60,000
210,000
318,000
1,155,000
50,000
1,123,330
400,000
300,000
400,000
450,000
1,500,000
1,000,000
1,000,000
500,000
Exercise
cost
£
139,725
61,200
218,400
238,500
785,400
15,685
240,112
116,000
81,750
72,000
58,500
99,000
120,000
180,000
120,000
59
Serica Energy plc Annual Report and Accounts 2015 Notes to the Financial Statements continued
28. Share–Based Payments continued
On 30 June 2015, 1,500,000 share options were granted to employees with an exercise cost of £0.066 and an expiry date of 29
June 2025.
On 17 July 2015, 2,500,000 share options were granted to a director with an expiry date of 16 July 2025. Of these, 1,000,000
were granted with an exercise cost of £0.12, 1,000,000 with an exercise cost of £0.18 and 500,000 with an exercise cost of
£0.24.
In January 2016, 135,000 share options under the Serica 2005 Option Plan expired.
29. Commitments under Operating Leases
Operating lease agreements where the Group is lessee
At 31 December 2015 the Group has entered into commercial leases in respect of rental of office premises and office
equipment.
Future minimum rentals payable under non–cancellable operating leases are as follows:
Not later than one year
Later than one year and not later than five years
Group
Company
2015
US$000
2014
US$000
2015
US$000
2014
US$000
13
–
13
129
–
129
–
–
–
–
–
–
In March 2015, the Group entered into a new two year office operating lease on smaller premises with a minimum
commitment period until February 2016, expiring in March 2017.
Operating sublease agreements where the Group is lessor
In January 2013 the Group entered into an operating sublease for part of its UK office, initially expiring in March 2014 but
extended until March 2015 when it expired.
30. Capital Commitments and Contingencies
At 31 December 2015, other amounts contracted for but not provided in the financial statements for the acquisition of
exploration and evaluation assets amounted to US$nil for the Group and US$nil for the Company (2014: US$nil and US$nil
respectively).
The Company also has obligations to carry out defined work programmes on its oil and gas properties, under the terms of
the award of rights to these properties. The Company is not obliged to meet other joint venture partner shares of these
programmes.
Non–Erskine commitments
The Group has no significant exploration commitments. Two exploration commitment wells in Morocco have been drilled
and the completed 3D Seismic acquisition programme in Namibia has exceeded the minimum obligation expenditure on
exploration work of US$15.0 million covering the entire initial period of the licence, now ending in December 2016.
In the UK East Irish Sea, the Group’s carry on the exploration well on the Doyle prospect is subject to a cap although no
overrun is currently forecast. The Group has no significant commitments on its other exploration licences.
Other less material minimum obligations include G&G, seismic work and ongoing licence fees in the UK and Ireland.
60
Serica Energy plc Annual Report and Accounts 2015 30. Capital Commitments and Contingencies continued
Erskine field commitments
The Erskine field acquisition has brought certain financial commitments. Net revenues from the Erskine field are expected to
assist Serica in building its cash resources over coming months and years, but the Group has obligations to pay to BP the three
remaining 25% tranches of US$2.775 million (excluding interest) cash consideration on 1 July 2016, 1 July 2017 and 1 July 2018
respectively. The terms of the Sale and Purchase Agreement also provide for certain future contingent payments to be made
by Serica in the event that operating costs for the field fall below certain levels. Considerable uncertainties currently exist as to
the quantification of any final payment that might be due in the longer term.
Other
The Group occasionally has to provide security for a proportion of its future obligations to defined work programmes or other
commitments. No such obligations and cash collateral existed as at 31 December 2014 or 2015.
Where the Company enters into financial guarantee contracts and guarantees the indebtedness of other companies within
the Group, the Company considers these to be insurance arrangements, and accounts for them as such. In this respect, the
Company treats the guarantee contract as a contingent liability until such time that it becomes probable that the Company will
be required to make a payment under the guarantee.
31. Related Party Transactions and Transactions with Directors
During the year ended 31 December 2015, a total sum of £77,785 (2014: £122,500) was paid by the Company for consultancy
services provided on behalf of Antony Craven Walker. All sums paid by the Company were reimbursed by Antony Craven
Walker and no net expense therefore incurred.
There are no other related party transactions, or transactions with Directors that require disclosure except for the
remuneration items disclosed in the Directors Report and note 8 above. These disclosures include the compensation of key
management personnel.
The Company’s related parties consist of its subsidiaries and the transactions and amounts due to/due from them are
disclosed in the accompanying notes to the Company financial statements.
32. Post Balance Sheet Events
On 28 February 2016, Erskine production was temporarily suspended during essential maintenance work to enable a foam
cleaning device, known as a pig, to be recovered from the Lomond to Everest condensate line and to repair a condensate
export pump on the Lomond platform.
This work was intended to be complete by mid-April but has been aggravated by wax deposits in the area of the blockage
which have been inhibiting recovery of the pig. Efforts to clear the line, whilst offering encouragement, have not yet proved
fully successful. Further time is needed to complete this process and to ensure the line is fully cleared of wax. This work is
expected to take several more weeks.
A two month maintenance shut-down was already planned on the Lomond platform to start in June corresponding with a one-
month shutdown of the CATS system through which Erskine gas is exported. In view of the additional time required to clear
the Lomond to Everest pipeline it is now likely that Erskine restart will be deferred until after those programmes have been
completed. Erskine should benefit from flush production due to reservoir pressure re-charge once the field restarts with no
loss of reserves.
61
Serica Energy plc Annual Report and Accounts 2015 Reserves
Group Proved plus Probable Reserves – Unaudited
United Kingdom
Oil
mmbbl
Gas
bcf
Total
Oil
mmbbl
Total
Gas
bcf
Total
Oil & gas
mmboe
At 1 January 2014
1.5
21.9
1.5
21.9
5.2
Revisions to Contingent Resources
(1.5)
(21.9)
(1.5)
(21.9)
(5.2)
At 31 December 2014
Acquisitions
Production
–
2.7
(0.3)
–
12.6
(1.8)
–
2.7
(0.3)
–
12.6
(1.8)
–
4.8
(0.6)
At 31 December 2015
2.4
10.8
2.4
10.8
4.2
Proved developed
Probable developed
At 31 December 2015
1.1
1.3
2.4
5.0
5.8
10.8
1.1
1.3
2.4
5.0
5.8
10.8
1.9
2.3
4.2
Proved and probable reserves are based on independent reports prepared by consultants Netherland, Sewell & Associates
(for the Erskine Field in the UK North Sea) in accordance with the reserve definitions of the Canadian Oil and Gas Evaluation
Handbook. Gas reserves at 31 December 2015 have been converted to barrels of oil equivalent using a factor of 6.0 bcf per
mmboe for Western Europe (Erskine field reserves) on the basis of a nominal gas calorific value of 1,000 BTU per cubic foot.
In 2014, the directors of Serica believed that in the oil price environment at that time, it was appropriate for Columbus field
reserves to be properly considered as Contingent Resources rather than the previous categorisation as Reserves. It was
therefore not considered cost effective or necessary to obtain an updated report for Columbus at the end of 2014. The
directors continue to believe the categorisation of Contingent Resources is still appropriate as at 31 December 2015.
62
Serica Energy plc Annual Report and Accounts 2015 Glossary
bbl
bcf
boe
CPR
FEED
HPHT
mscf
mmbbl
mmboe
mmscf
mmscfd
OGA
P10
P50
P90
barrel of 42 US gallons
billion standard cubic feet
barrels of oil equivalent (barrels of oil, condensate and LPG plus the heating equivalent of gas
converted into barrels at a rate of 6,000 standard cubic feet per barrel)
Competent Persons Report
Front End Engineering Design
High pressure high temperature
thousand standard cubic feet
million barrels
million barrels of oil equivalent
million standard cubic feet
million standard cubic feet per day
Oil and Gas Authority
A high estimate that there should be at least a 10% probability that the quantities recovered will
actually equal or exceed the estimate.
A best estimate that there should be at least a 50% probability that the quantities recovered will
actually equal or exceed the estimate.
A low estimate that there should be at least a 90% probability that the quantities recovered will
actually equal or exceed the estimate.
Proved Reserves
Proved reserves are those Reserves that can be estimated with a high degree of certainty to be
recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated
proved reserves.
Probable Reserves
Probable reserves are those additional Reserves that are less certain to be recovered than proved
reserves. It is equally likely that the actual remaining quantities recovered will be greater or less
than the sum of the estimated proved + probable reserves.
Possible Reserves
Possible reserves are those additional Reserves that are less certain to be recovered than probable
reserves. It is unlikely that the actual remaining quantities recovered will exceed the sum of the
estimated proved + probable + possible reserves
Reserves
Estimates of discovered recoverable commercial hydrocarbon reserves calculated in accordance
with the Canadian National Instrument 51–101
Contingent Resources
Estimates of discovered recoverable hydrocarbon resources for which commercial production is
not yet assured, calculated in accordance with the Canadian National Instrument 51–101
Prospective Resources
Estimates of the potential recoverable hydrocarbon resources attributable to undrilled prospects,
calculated in accordance with the Canadian National Instrument 51–101
TAC
tcf
Technical Assistance Contract
trillion standard cubic feet
63
Serica Energy plc Annual Report and Accounts 2015 Company Secretary
Amanda Bateman
UK Registrar
Capita Asset Services
34 Beckenham Road
Kent BR3 4TU
Listing
AIM, London
Symbol: SQZ
Website
www.serica-energy.com
Company Number
5450950
Corporate Information
Registered and Main Office
52 George Street
London W1U 7EA
Nominated Advisor & UK Broker
Peel Hunt LLP
Moor House
120 London Wall
London EC2Y 5ET
Auditor
Ernst & Young LLP
1 More London Place
London SE1 2AF
Bankers
Barclays, Lloyds
UK Legal Advisor
Herbert Smith Freehills
Exchange House
Primrose Street
London EC2A 2HS
Canadian Legal Advisor
Stikeman Elliott LLP
Dauntsey House
4b Fredericks’s Place
London EC2R 8AB
64
Serica Energy plc Annual Report and Accounts 2015 S
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SERICA ENERGY
ANNUAL REPORT 2015
SERICA ENERGY PLC
HEAD OFFICE 52 GEORGE STREET LONDON W1U 7EA UNITED KINGDOM
T +44 (0) 20 7487 7300
F +44 (0) 20 7487 7330
info@serica-energy.com
www.serica-energy.com