Serica Energy PLC

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www.serica-energy.com

ANNUAL REPORT &  
FINANCIAL STATEMENTS
2017

 
 
 
 
 
 
2017 was a 
landmark year for 
Serica, delivering 
our highest profit to 
date and providing 
us with a platform 
to grow further. 

Serica Energy plc is an 
independent oil and gas 
company with production, 
development and exploration 
interests in the UK Continental 
Shelf and exploration interests 
in Ireland and Namibia. The 
company’s shares are listed 
on AIM in London under the 
symbol SQZ. 

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SERICA ENERGY PLC

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

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CONTENTS

  2  Highlights 
  4  Executive Chairman’s Statement 

  6  Strategic Report

Chief Executive Officer’s report

  6 
  10  Asset portfolio
  12  BKR Asset acquisition
  14   Review of operations
  17  Licence holdings
  18  Financial review 

 25  Corporate Governance

32   Financial Statements

Independent auditor’s report 

  32  
  39   Financial statements 
  43  Notes to the financial statements

77   Reserves 
 78  Glossary 
 79   Corporate information

  25   Directors’ report
  27   Corporate governance statement 
  30   Directors’ biographies 
  31  Directors’ responsibilities statement 

The  Strategic  Report  of  the  operations  and  financial  results  of  Serica 
Energy  plc  (“Serica”)  and  its  subsidiaries  (the  “Group”)  should  be  read  in 
conjunction  with  Serica’s  consolidated  financial  statements  for  the  year 
ended  31  December  2017.  References  to  the  “Company”  include  Serica  and 
its  subsidiaries  where  relevant.  All  figures  are  reported  in  US  dollars  (“US$”) 
unless otherwise stated.

1

Serica Energy plc Annual Report and Accounts 2017 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HIGHLIGHTS

 Financial 

● 

 Operating profit for 2017 of US$14.1 million, a four-fold 

per barrel) and 41 pence per therm of gas (2016: 

increase over 2016 operating profit of US$3.4 million

33 pence per therm)

●  

 Group profit after tax of US$17.1 million (2016: 

●  

 Total cash balances and term deposits at 

US$10.8 million) after deferred tax credits of 

31 December 2017 of US$34.0 million, increased  

US$6.3 million (2016: US$7.5 million) arising from tax 

from US$16.6 million at 31 December 2016

losses brought forward

●  

 Balance sheet strength maintained with limited 

●  

 Revenues boosted by strengthening average realised 

capital commitments and borrowings

sales prices of US$53.2 per barrel of oil (2016: US$42.1 

 BKR Assets Acquisition

The acquisition of BP’s interests in the Bruce, Keith 

●  

 Significant additions to production volumes 

and Rhum (“BKR”) fields, announced on 21 November 

and reserves

2017 and expected to complete in late Q3 2018, 

transformational for Serica:

●  

 Accelerated utilisation of tax losses enhances value 

to Serica

●  

 Additional revenue streams counterbalance Serica’s 

current Erskine single field exposure

●  

 Deal structured to control risk and minimise 

shareholder dilution

 Operational

Erskine Field

Columbus Field

●  

 Production averaged just under 2,000 boe per day 

Serica, as operator of Columbus with a 50% interest, is 

net to Serica during 2017 despite wax restrictions and 

moving the field towards development:

December Forties Pipeline System shut-in

●  

 Columbus partners have selected an offtake route via 

●  

 Serica’s operating and transportation costs 

the proposed Arran to Shearwater pipeline

maintained at approximately US$15 per barrel for the 

year despite production interruptions

●  

 Submission of a field development plan to the OGA 

targeted for mid-year 

●  

 Capabilities of the Erskine reservoir and wells 

continue to outperform the projections that Serica 

Exploration

made when the asset was first acquired

●  

 Work continues to clear early 2018 blockage in 

Lomond to Everest condensate export line

●  

 Engineering and procurement commenced 

for export pipeline bypass to avoid future wax 

restrictions with expected completion in Q3 2018

●  

 Preparations for a well on the Rowallan prospect in 

the second half of 2018 are progressing to plan with a 

site survey completed last December and tendering 

for a rig underway

●  

 Serica is fully carried on all Rowallan well costs on this 

high pressure, high temperature prospect

●  

 Serica has participated in three licence applications 

in the UKCS 30th Offshore Licensing Round 

2

Serica Energy plc Annual Report and Accounts 2017 Outlook for 2018

●  

 Completion of the Lomond to Everest export line 

bypass during Q3 is expected to deliver more 

consistent Erskine production performance and 

sales revenues

●  

 Serica’s 40% share in 2018 net cash flows from 

the BKR Assets, accruing under the acquisition 

agreement, adds to the Company’s cash resources 

upon completion expected in late Q3 2018

●  

 Transition work for the BKR Assets acquisition is 

well underway:

–  Consultations with transferring staff close to 

completion and recruitment for additional positions 

in progress

–  New premises for Aberdeen operations 

headquarters identified with occupation targeted 

for mid-summer

–  Serica working with BP, OGA and partners to 

ensure safe and orderly transition

●  

 Serica’s management believes that the increased 

scale and diversification that the BKR deal brings, 

along with the associated operating capability, will 

provide a platform from which to further grow the 

business through:

–  Identifying and implementing operational 

efficiencies

–  Targeting investment to further enhance the value 

of its assets

–  Seeking complementary acquisitions with a 

continuing focus on the UK North Sea.

3

Serica Energy plc Annual Report and Accounts 2017 
 
 
 
 
 
EXECUTIVE CHAIRMAN’S 
STATEMENT

Dear Shareholder

I am delighted to report that Serica made strong 

impact of very severe weather conditions in the latter 

progress in 2017. With the announcement in late 

part of February and early March, the assets have been 

November of Serica’s acquisition of operated interests 

performing well since the start of this year. The assets 

in the Bruce, Keith and Rhum fields (BKR Assets), the 

are expected to bring material benefit to Serica upon 

Company had a very strong finish to what was an 

completion of the acquisition, now expected in the third 

excellent year. Gross profits from operations amounted 

quarter this year. The ensuing period will be taken up 

to just under US$20 million, a three-fold increase over 

by implementing the complex programme to enable a 

the prior year, derived solely from our interest in Erskine.

safe and efficient transfer of operations and securing the 

Serica’s target over the past two/three years has been to 

diversify the risk associated with being reliant on Erskine 

as a single production source and grow into a profitable 

mid-tier independent oil and gas producer through an 

various consents required for the transfer and ensuing 

operations. To-date we are making good progress with 

all of these transition requirements, working closely with 

BP, partners and the various regulatory bodies.

acquisition led strategy, concentrating on assets where 

Further information, as well as an update on Erskine 

we believed that we could add value through our own 

where production is currently suspended due to a 

expertise. I am very pleased to report that, with the 

pipeline blockage, is provided in the Chief Executive’s 

agreement to purchase the BKR Assets from BP we are 

Report and the Operations and Financial Reviews but 

now well on our way to achieving this goal. These fields 

the overall impact of the acquisition will be significant 

hold significant potential which Serica believes it can 

to the Company and its future prospects. Underlying 

unlock as a focused, low cost and innovative operator 

reserves will have increased some sixteen-fold to 

under the leadership of Mitch Flegg who joined us as 

approximately 50 million boe as at 1 January 2018 and 

Chief Executive upon announcement of the transaction.

the strength and depth of the Company will have been 

We welcome Mitch and the team who have joined with 

him. They will be joined on completion of the acquisition 

by experienced staff from BP who bring their expertise 

and knowledge of the assets to cement what I believe 

will be a very strong and technically competent team 

transformed by combining the Company’s skills with 

those of the BP employees joining us. Production is 

projected to increase significantly, with potential for 

further increases, and the Company’s financial position is 

expected to increase commensurately.

capable of running an exciting new growth phase 

Following completion of the transaction, Serica’s 

for the Company.

The acquisition of the BKR Assets provides for an 

effective date of 1 January 2018. Apart from a short period 

of production interruptions in early January linked to 

a shutdown of the Forties Pipeline System and the 

production will be predominantly gas, with the Rhum 

and Bruce fields alone accounting for up to 5% of total 

UK gas production. At a time of rising political tensions 

and limited UK gas storage capacity this focus on gas 

should also provide a strong underpinning for Serica. 

4

Serica Energy plc Annual Report and Accounts 2017The Company had a very 
strong finish to what was 
an excellent year. 

Whilst there will undoubtedly be challenges ahead I 

am very optimistic about the Company’s future and its 

ability to consolidate our recent acquisition and build 

on the platform that we have now created. Our future 

plans include organic growth, developing the position 

we will have in four North Sea producing fields as well as 

developing our Columbus interest and commencing an 

exploration programme with the Rowallan well whilst we 

review options for our interests in Namibia and Ireland. 

However, we will also continue to seek ways in which 

we can add new assets through selective acquisition to 

complement our strong production base and build a 

robust and exciting portfolio with further potential for 

value-generating growth.

In summary, I am delighted with the positive outcome 

which has resulted from the skills and focus of Serica’s 

team and a considerable amount of effort on their part. 

I would like to thank them on shareholders’ behalf, 

welcome all newcomers to the Company and look 

forward to an exciting period ahead.

Antony Craven Walker 
Executive Chairman

9 April 2018

5

Serica Energy plc Annual Report and Accounts 2017STRATEGIC REPORT

CHIEF EXECUTIVE OFFICER’S 
REPORT

2017 was a landmark year for Serica, delivering our highest profit to date and providing us 
with a platform to grow further. 

Building on a strong set of financial results, the announcement of the BKR Assets acquisition 
in late November rounded off an excellent year. We believe that the UK North Sea, where 
there are strategic benefits for Serica, will continue to provide new opportunities to grow the 
business and add shareholder value.

Net production of 722,000 boe (2016 – 597,000 boe) and 

The acquisition of the BP interests in the BKR Assets 

operating profits of US$14.1 million (2016 – US$3.4 million) 

will provide Serica with the opportunity to build on the 

represent Serica’s strongest annual performance 

experience gained from Erskine in order to move forward 

to-date even though wax control in the condensate 

as a production operator. I have been tremendously 

export pipeline restricted Erskine second half volumes. 

impressed with the professionalism and enthusiasm of 

The year also saw the announcement of the BKR 

the BP staff that will be transferring to Serica and I look 

Assets acquisition and significant progress on bringing 

forward to welcoming these staff as well as our new 

Columbus to a development decision.

recruits into our new operational headquarters which 

The problems with a wax build-up in the Lomond to 

will be opened in Aberdeen in the second half of 2018.

Everest condensate export line have deferred production 

Meanwhile, we are pleased to confirm that Serica and 

from Erskine but it is expected that this production will 

the other Columbus partners have notified the Oil and 

be recovered once the pipeline restrictions have been 

Gas Authority (“OGA”) of a selected offtake route for the 

cleared. Erskine partners’ focus has therefore been placed 

Columbus field development. This is discussed in more 

on resolving the restrictions that have been preventing 

detail below and in the Operations Report. We now look 

delivery of the field’s full capability. A long-term solution 

forward to working with our partners and infrastructure 

has been sanctioned and work on this has commenced 

owners to develop and submit a Field Development Plan 

alongside the ongoing efforts to clear the build-up.

(“FDP”) to the OGA for Columbus, targeted for mid-year.

The capability of the Erskine reservoir and wells 

Serica remains committed to exploration and the 

continues to outperform the projections that Serica 

forthcoming Rowallan well, on which Serica is fully 

made when the asset was first acquired. Estimated 

carried, is one of the few significant UK exploration wells 

remaining 2P reserves at 1 January 2018 of 3.1 million 

due to be drilled in 2018 targeting gross reserves over 

boe net to Serica compare to an estimated 3.3 million 

100 million boe. Elsewhere in the UK Continental Shelf 

boe when Serica first acquired the field interest in 

(“UKCS”) Serica is looking to grow its exploration portfolio 

mid-2015 even though 1.9 million boe net to Serica 

and has participated in three applications for new 

have been produced during the intervening period. 

licences in the UKCS 30th Offshore Licensing Round. 

When not subject to external restrictions, the field has 

demonstrated an ability to sustain production at rates 

around 3,000 boe per day net to Serica. 

Industry activity in both Ireland and Namibia is showing 

strong signs of recovery as oil prices recover from the 

lows seen in 2015-16; this is expected to enhance our 

ongoing efforts to secure drilling partners in these areas.

6

Serica Energy plc Annual Report and Accounts 2017Net production of 722,000 
boe and operating profit of 
US$14.1 million represents 
Serica’s strongest annual 
performance to-date.

Erskine 

During the first five months of 2017 Serica’s primary 

asset, the Erskine field, delivered a particularly strong 

performance with production averaging 3,100 boe 

per day net to the Company. This was followed by a 

period when wax build-up in the Lomond to Everest 

condensate export line restricted rates through June 

and July leading into a two-month field shut-in as a 

planned August maintenance programme extended into 

September for additional wax management processes 

and repairs to a Lomond caisson. The recommencement 

of production in late September brought a further 

period of steady production, averaging close to 

2,500 boe per day net, until an unplanned outage of the 

Forties Pipeline System (“FPS”) on 11 December shut-in 

Erskine along with approximately 80 other North Sea 

production platforms. 

Though frustrating not to have been able to maintain 

Erskine early year performance, Serica’s net share of 

production for 2017 still averaged close to 2,000 boe 

per day, delivered at improving oil and gas prices, and 

generating profit before tax of US$10.8 million compared 

to US$3.3 million for 2016. It should also be emphasised 

that output restrictions during 2017 were almost entirely 

related to the oil offtake pipelines. 

The FPS interruption was a rare event which the 

operator, Ineos FPS, was quick to address given the 

strategic importance of this line which transports to 

shore over 40% of total UK oil production. However, the 

wax build-up in the Lomond to Everest condensate 

export line has been a recurring challenge and, as 

already reported, has caused a further interruption to 

Erskine production in early 2018. Response to-date has 

been to manage the problem through rate control, 

periodic soaking of the line with solvents and pigging. 

However, pigging programmes have historically been 

limited due to the risk of full blockage. 

7

Serica Energy plc Annual Report and Accounts 2017STRATEGIC REPORT

CHIEF EXECUTIVE OFFICER’S REPORT CONTINUED

New Lomond operator, Chrysaor Holdings Limited, 

allows Serica to achieve further transformation whilst 

after reviewing the various wax management measures 

managing downside risk and avoiding excessive dilution 

employed in recent years, has concluded that the best 

or leverage. 

long-term solution is to bypass the area of wax build-

up by replacing a 26 km section of line, a proposal that 

Serica fully supports. A clean line will allow full and 

regular pigging right from the start thus preventing 

the wax build-up that has proved so difficult to remove. 

Serica’s share of the cost is comparable to some 40 days 

of Serica’s field revenues. Equipment procurement 

has commenced and the installation is expected to be 

completed in Q3 2018.

As the deal also brings operating responsibilities, the 

transition phase will necessarily be of sufficient duration 

to allow the Company to put in place systems and 

resources and obtain the necessary consents. This 

work is progressing well, the consultation phase for 

over 110 staff transferring from BP is almost complete, 

recruitment for additional positions is underway, new 

offices have been identified in Aberdeen and the 

Company is working with BP, the OGA and field partners 

So, although field production is again being curtailed 

to ensure a safe and ordered transition. Completion is 

during early 2018, Serica has confidence that the bypass 

targeted for late Q3 2018.

solution will assist delivery of full field potential in 

future years and pay for itself many times over. In the 

meantime, the Lomond operator continues to make 

every effort to clear the blockage with further equipment 

currently being mobilised. 

BKR Asset acquisition

Since the 2015 acquisition of an interest in the producing 

Erskine field, Serica’s management has been seeking 

additional North Sea production interests. In addition to 

diversifying risk away from a single revenue stream, this 

would also assist in accelerating and fully exploiting the 

value of Serica’s UK North Sea ringfence tax losses. It has 

taken considerable time and patience to deliver the right 

deal but we believe the structure of the BKR transaction 

During Q1 2018, BKR production has remained strong, 

routinely exceeding 20,000 boe per day net to BP. 

However interruptions for the FPS shut-in and the recent 

severe weather conditions in the North Sea mean that in 

Q1 2018 the average production was 16,000 boe per day 

net to BP. Importantly, Ofgem has recently approved the 

raising of the National Transmission System (“NTS”) entry 

specification for CO2 content of gas delivered at the St 

Fergus Gas Terminal to 5.5mol% CO2 largely eliminating 

the need for costly blending gas required up to now to 

offset the relatively higher CO2 content of Rhum gas. 

BP has entered into a contract for a rig to carry out the 

re-entry and re-completion of the previously drilled (but 

8

Serica Energy plc Annual Report and Accounts 2017not yet producing) Rhum R3 well. Operations are expected to commence in 

May this year. The well is already connected to the necessary infrastructure 

and it is expected that production will commence before the year-end. 

$10.8m 

Under the terms of the SPA, Serica will benefit from a 40% share of 2018 net 

cashflow from the acquired assets rising on a stepped basis to 100% in 2022. 

The amount generated in the period up to completion, adjusted for notional 

tax, will be offset against the £12.8 million consideration due at completion. 

At current production volumes and sales prices, this is expected to exceed 

the initial consideration delivering a net cash receipt to Serica.

Columbus

Under the extension terms of the Columbus licences, Serica and its partners 

in the Columbus field were required to notify the OGA by 31 March 2018 

of the choice of an offtake route and to submit an FDP by 30 June 2018. 

Work has concluded on the evaluation of two potential offtake routes 

for Columbus production and the Columbus partners have selected the 

Shearwater hub as providing the optimum export route for Columbus gas 

and liquids. This selection is contingent on a near-term commitment being 

made by the Arran field partners to the construction of a pipeline from the 

$3.3m 

2016

2017

Pre tax profit to Serica from its 
share in Erskine gas field

$17,103k

Arran field to Shearwater passing near the Columbus field with appropriate 

$10,838k

tie-in points. The OGA has been informed of the decision and Serica has 

$6,489k

commenced the preparation of the field development plan which is intended 

2015

2016

2017

Profit after tax

19.7mmboe

of P50 Prospective Resources 
net to Serica from fully-carried 
Rowallan exploration well

to be ready for submission by mid-2018. 

Exploration

The Rowallan well, will be Serica’s first exploration well since 2014 and our 

15% fully carried interest brings significant potential with an independently 

assessed 19.7 mmboe of P50 Prospective Resources net to Serica. A tender 

process is underway to contract a drilling rig to commence drilling of the 

exploration well in H2 2018. Though Serica has been careful to manage its 

exploration commitments during the industry downturn, this well, targeting 

material hydrocarbon volumes, is close to infrastructure within the general 

Erskine/Lomond area making it a strong candidate for early development 

should the well prove successful and will be drilled at no cost to Serica.

Serica intends to continue targeting exploration opportunities where an 

attractive balance can be struck between financial commitment and risked 

commercial return and has participated in three applications for new 

licences in the UKCS 30th Offshore Licensing Round.

Further Opportunities

Though the main effort must necessarily be directed towards preparing 

for BKR operations and completing the transaction with BP, Serica will 

continue to look for opportunities to build the Company and deliver 

further shareholder value. As the time taken to deliver the BKR opportunity 

demonstrates, it requires patience to achieve this but we believe that 

Company progress to date provides a sound platform from which to further 

build our upstream business.

Mitch Flegg 
Chief Executive Officer

9 April 2018

Serica Energy plc Annual Report and Accounts 2017

9

STRATEGIC REPORT

ASSET 
PORTFOLIO

Serica is a British-based independent upstream oil and gas company with 
operations centred on the UK North Sea where we have the full range of 
exploration, development and production assets.

We believe that the UK North Sea, where there are strategic benefits for 
Serica, will continue to provide new opportunities to grow the business and 
add shareholder value.

10

EXPLOREDEVELOPPRODUCESerica Energy plc Annual Report and Accounts 2017ROCKALL

SLYNE

  Exploration

  Development

  Production

UK Northern 

North Sea

RHUM

BRUCE 
KEITH

COLUMBUS

ROWALLAN

ERSKINE

UK Central  

North Sea

11

Serica Energy plc Annual Report and Accounts 2017STRATEGIC REPORT

BKR ASSET 
ACQUISITION

On 21 November 2017 Serica 
announced that it had reached 
agreement to conditionally  
acquire the BKR Assets from BP. 

The BKR Assets comprise of BP's interests in the Bruce, Keith and Rhum fields (36%, 

34.83% and 50% respectively) in the North Sea along with associated oil and gas 

infrastructure. BP is retaining a 1% interest in the Bruce field. Subject to completion, 

Serica will also become the operator of the BKR Assets and the Directors anticipate 

that approximately 110 BP employees will be transferred to Serica with additional 

employees currently being recruited. 

The consideration being paid to BP, comprises:

● 

 an initial consideration of £12.8 million payable on completion to be adjusted for 

working capital calculated from an effective date of 1 January 2018; 

● 

 a further contingent amount of up to £16 million dependent on the Rhum R3 

Well (the third well on the Rhum field) achieving a specified minimum production 

threshold for 90 days during the first year following completion of the workover of 

the well, anticipated to take place in the summer of 2018;

● 

 an additional contingent consideration of up to £23.1 million in aggregate 

payable in three instalments of up to approximately £7.7 million each in respect 

of 2019, 2020 and 2021 if the Rhum field production volumes and sales prices 

meet or exceed certain agreed levels. The amounts payable will be reduced 

if Rhum field production and the price achieved for sales of Rhum gas do not 

meet the agreed levels; 

● 

 deferred cash consideration calculated as a percentage (60% in 2018, 50% in 2019 

and 40% in each of 2020 and 2021) of the pre-tax net cash flows resulting from 

BP's interests in the BKR Assets from 2018 through to 2021;

● 

 deferred consideration equal to 30% of BP's retained share of future 

decommissioning costs, reduced by the tax relief BP receives on such costs; and 

● 

 deferred consideration equal to 90% of Serica’s share of the realised value of oil 

in the Bruce pipeline at the end of field life.

The deferred and contingent cash consideration is expected to be financed from 

the expected cash flow from the BKR Assets. 

BP will retain liability for all the costs of decommissioning facilities, including wells 

existing at completion relating to the BKR Assets. Serica will pay for the costs of 

decommissioning new facilities.

As part of the acquisition, Serica has entered into product sales agreements with 

certain BP entities to off-take Serica's share of production of gas, oil and natural 

gas liquids from the BKR Assets on market terms. In addition, BP Gas has agreed to 

provide Serica with a prepayment facility of up to £16 million to provide for drawings 

to cover the cost of gas price hedging instruments which have been purchased by 

Serica in conjunction with signing the acquisition agreement and, if required, the 

initial consideration.

12

Serica Energy plc Annual Report and Accounts 2017

Accelerated  
utilisation
of tax losses

Deal structured
to mitigate risk
and minimise
shareholder dilution

Additional revenue 
streams diversify  
Serica’s production 
portfolio

Significant  
additions to
production  
volumes
and reserves

Serica Energy plc Annual Report and Accounts 2017

13

STRATEGIC REPORT

REVIEW OF OPERATIONS

Production

Central North Sea: Erskine Field – Blocks 23/26a (Area 

In early December, the FPS, the export route for Erskine 

B) and 23/26b (Area B), Serica 18%

condensate, was shut in due to a hairline crack found in 

an onshore section of pipe. This impacted production for 

much of December and Erskine re-start occurred in early 

January 2018. However later in January during routine 

pipeline cleaning operations of the Lomond to Erskine 

condensate export pipeline, a blockage occurred in the 

pipeline. The operator of this pipeline is continuing to 

clear this wax build up.

Serica is working with the operators of Erskine and 

Lomond to implement long-term solutions to improve 

uptime of the export facilities and return to performance 

levels seen at the beginning of 2017. 

All of Serica’s 2017 production came from its 18% interest 

in Erskine, a gas and condensate field located in the UK 

Central North Sea. Serica’s co-venturers are Chevron, 

50% (operator), and Chrysaor Holdings Limited, 32% 

as of November 2017. Erskine fluids are processed and 

exported via the Lomond platform, which is 100% owned 

and operated by Chrysaor Holdings Limited. 

An updated independent audit of the Erskine field 

confirmed Serica’s share of estimated proven plus 

probable reserves at 3.1 million boe as of 1 January 2018.

Production for 2017 averaged 1,976 boe per day net to 

Serica. Between 1 January and 31 May 2017, production 

was excellent, with a net average of 3,100 boe per day 

and peaking at over 4,100 boe per day net. This was 

achieved through high uptime performance from 

export facilities and good performance from the Erskine 

wells. During June and July, production was reduced 

by approximately 50% to regulate wax deposition in the 

condensate export pipeline and some wax treatment 

procedures were carried out. 

A planned maintenance programme on the Lomond 

platform took place in August, coinciding with 

maintenance activities at the FPS. The operator also 

took the opportunity to undertake a chemical clean of 

the condensate export pipeline to treat wax deposits. 

Production restart was delayed as the operator of FPS 

imposed a restriction on production from the field, in 

order to manage the specialist fluids used in the wax 

treatment process. 

Erskine was brought back into production on 

22 September and rates net to Serica were gradually 

increased to over 2,500 boe per day, achieved with 

only three out of five wells producing. During the 

following months, further chemical and mechanical 

processes were carried out to maintain flow down the 

export pipeline.

14

Serica Energy plc Annual Report and Accounts 2017Development

Central North Sea: Columbus Field – Blocks 23/16f and 

23/21a (part), Serica 50%

The Columbus gas condensate field is located in close 

proximity to the Lomond platform, which is the offtake 

route for production from Serica's Erskine producing 

interest. Serica is Columbus field operator with partners 

EOG Resources United Kingdom Limited (25%) and 

Endeavour Energy UK Limited (25%). The field is located 

in the Eastern Central Graben, UK Central North Sea and 

the reservoir is located within the Forties Sandstone. 

The Columbus field has been appraised with four wells 

and is planned to be developed with a single production 

well. Serica is currently working towards a full field 

development plan for submission to the OGA by mid-

2018 with a view to commencing development work 

before the end of 2018. First gas is currently targeted 

for 2021.

During 2017, Serica pursued two alternative development 

options for Columbus. One option was to drill a subsea 

well into Columbus and connect it to a proposed 

pipeline between the nearby Arran field and the 

Shearwater platform. The alternative option was to drill 

an extended-reach development well into Columbus 

Columbus development plan.

directly from the Lomond platform, located 5 km away. 

The economic benefits of both options were very similar.

Final commitment to this offtake route and submission 

Under the extension terms of the Columbus licences, 

of an FDP in the timetable required by the OGA is, 

Serica and its partners in the Columbus field were 

however, dependent upon the Arran field owners 

required to notify the OGA by 31 March 2018 of the 

committing to development of the Arran field in 

choice of an offtake route and to submit an FDP by 

the timeframe prescribed by the OGA. If the Arran 

30 June 2018.

Serica has informed the OGA that it will prepare an 

FDP to develop Columbus by tying a subsea well into 

the pipeline proposed to be laid between Arran and 

Shearwater. Under this option, Arran and Columbus 

fluids will combine in the new pipeline and be produced 

together over the Shearwater processing facilities via an 

existing riser onto the Shearwater platform. Although 

the expected first gas date would be around a year later 

than the Lomond alternative, the overall capital costs 

development does not proceed as planned, Columbus 

cannot be developed through Shearwater on a stand-

alone basis. The selection of this route has been 

made conditional on that decision being made to 

the satisfaction of Serica. Therefore, discussions on 

commercial arrangements will continue with the 

Lomond field operator, in the event that the Shearwater 

option does not mature in the requisite time frame. The 

Lomond option has been engineered in detail and is 

capable of being fully implemented.

under this option are lower. The Columbus partners will 

A CPR carried out in 2017 estimates net 2C contingent 

now work with the operator of the Arran field and the 

resources to Serica on the Columbus field to be 6.7 

operator of the Shearwater platform and move forward 

mmboe. Once the FDP is submitted, Columbus 

with a Columbus FDP, to be submitted by end of Q2 

contingent resources will be redefined as reserves, based 

2018, the timing requested by the OGA.

on the economic cut off for the selected development. 

15

COLUMBUSWELLSHEARWATERPLATFORMSerica Energy plc Annual Report and Accounts 2017STRATEGIC REPORT

REVIEW OF OPERATIONS CONTINUED

Exploration

Central North Sea: Rowallan Prospect - Block 22/19c, 

Serica estimates P50 Prospective Resources for these 

Serica 15% 

Block 22/19c is located in the Central North Sea, around 

20 km west of the Columbus field. It contains the 

Rowallan Prospect comprising potential condensate 

targets in the Triassic Skagerrak and the Middle Jurassic 

Pentland formations. Serica’s partners comprise ENI 

UK Limited (operator – 40%), JX Nippon Exploration 

and Production (U.K.) Limited (25%) and Mitsui E&P UK 

Limited (20%).

Well preparations for the Rowallan Prospect are 

underway, with spending on a site survey and long-

lead items approved by partners for 2017. A vessel was 

deployed in December 2017 to complete a site survey 

in preparation for the drilling of a well in the second 

half of 2018 and the operator, ENI UK Limited, is now 

conducting a tendering process to contract a rig to drill 

the well. The prospect is located within Serica’s core 

Central North Sea area, close to Erskine and Columbus. 

Serica is fully carried on all costs for a well on this high 

pressure, high temperature prospect. 

A Serica CPR carried out in 2017 estimated the net 

P50 Prospective Resources to Serica on the Rowallan 

Prospect to be 19.7 mmboe.

stacked prospects to be in the order of 4Tcf of gas and 

250 million barrels of condensate. 

Serica secured an extension of Licence 1/09 to January 

2019. Licence 1/09 contains a large, clearly defined 

structural prospect, which is also analogous to the 

Dooish discovery. Serica is seeking a partner to drill a 

well in one or both of blocks 1/09 and 4/13. 

Slyne Basin: Frontier Exploration Licence 1/06, Serica 100%

Serica increased its equity from 50% to 100% following 

the withdrawal of DEA from the licence and secured an 

extension on licence 1/06 until November 2018 to further 

explore the potential first identified through the Bandon 

oil discovery drilled by Serica on the licence in 2009. Serica 

has completed a study to investigate the quality of oil that 

could be expected in the Boyne prospect located on the 

licence. Results indicate that oil would be over 30◦ API, 

significantly lighter than that discovered in the Bandon 

well and capable of producing without assistance.

Serica is seeking to identify a farm-in partner to drill 

the Boyne oil prospect and take advantage of current 

low drilling and development costs. In the event of a 

commercial discovery, a swift development could be 

implemented to achieve an early first oil date. 

East Irish Sea: Doyle Prospect - Blocks 113/22a, 113/26b 

and 113/27c, Serica 20% 

Namibia 

Serica held a 20% non-operated interest in Blocks 113/26b 

and 113/27c in partnership with Zennor Petroleum. 

Zennor were unable to secure a partner prior to the 

licence termination date of 30 April 2017 and, as a result, 

these blocks were relinquished in Q2 2017. The licence 

to the north over Block 113/27c was relinquished in 

December 2017. 

Ireland 

Luderitz Basin: Blocks 2512A, 2513A, 2513B and 2612A 

(part), Serica 85% 

Serica has progressed to the first renewal period of the 

licence, running until the end of 2018. This licence period 

does not include a commitment to drill a well. The 

excellent 3D seismic data acquired in a major seismic 

programme operated by Serica, has identified giant 

carbonate prospects as well as large, more conventional 

Cretaceous fan prospects supported by seismic 

Rockall Basin: Frontier Exploration Licences 1/09 and 

anomalies. Serica plans to work on identifying more 

4/13, Serica 100%

Serica secured a two-year extension on Licence 4/13 

up to the end of November 2018. The licence contains 

structural prospects Aghla Beg and Aghla More and the 

overlying stratigraphic prospect Derryveagh. During 

2017, Serica completed a process to enhance the 3D 

seismic data over the prospects which has enabled the 

identification of a fractured basement play within the 

Aghla Beg prospect. This work has also shown Aghla 

More to be relatively unfractured and so strengthens the 

interpretation that it comprises a clastic sedimentary 

section comparable to nearby Dooish discovery.

prospects supported by the latest seismic visualisation 

techniques as well as seeking a partner.

Morocco 

Sidi Moussa Licence: Serica 5%

Serica held 5% working interest and has withdrawn 

from the licence. The licence operator was previously 

considering a second well, in which Serica retained a 

back-in option, but decided to seek to undertake an 

alternative work programme. In view of this decision, 

the materiality of a 5% interest to Serica and in line with 

Serica’s view of the costs and benefits of retaining an 

interest, Serica elected to withdraw in October 2017.

16

Serica Energy plc Annual Report and Accounts 2017LICENCE HOLDINGS

The following table summarises the Group’s licences as at 31 December 2017.

Block(s) 

Description

Role

% at 31/12/17

Location

UK

22/19c

Exploration

Non-operator 

15% 

Central North Sea

23/16f, 23/21a (part)

Columbus Field -

Operator

50%

Central North Sea

Development planned

23/26a, 23/26b 

Erskine Field - Production Non-operator

18%

Central North Sea

Ireland

27/4 (part)

Exploration

Operator 

27/5 (part)

Exploration

27/9 (part)

Exploration

5/17 (part)

Exploration

5/18

Exploration

5/22 (part)

Exploration

5/23 (part)

Exploration

5/27 (part)

Exploration

5/28 (part)

Exploration

11/10

11/15

Exploration

Exploration

12/1 (part)

Exploration

12/6

Exploration

12/11 (part)

Exploration

Namibia

2512A

2513A

2513B

Exploration 

Exploration 

Exploration 

2612A (part)

Exploration 

Operator

Operator

Operator

Operator

Operator

Operator

Operator

Operator

Operator

Operator

Operator

Operator

Operator

Operator

Operator

Operator

Operator

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

85% 

85% 

85% 

85% 

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

17

Serica Energy plc Annual Report and Accounts 2017STRATEGIC REPORT

FINANCIAL REVIEW

Group profit after tax of US$17.1 million for 2017 compares 

Sales revenues in 2017 were offset by a US$1.2 million 

to a profit after tax of US$10.8 million for 2016. Results for 

charge (2016: US$0.5 million credit) reflecting the 

2016 were adversely impacted by a six-month Erskine 

movement from a combined liquids underlift position at 

field shut-in running from March until August of that 

31 December 2016 to an overlift position at 31 December 

year. 

BKR Asset acquisition

Details of the proposed acquisition, announced on 21 

November 2017, of the BKR Assets from BP are covered 

above. The deal has an effective date of 1 January 2018 

and completion of the acquisition is expected to take 

place in late Q3 2018. Although the most significant 

accounting aspects of the transaction will apply at 

the date of completion, under the prepayment facility 

arranged with BP Gas and dated 21 November 2017, 

BP Gas agreed to provide for drawings to cover the 

initial consideration and cost of premiums payable for 

gas price puts (hedging instruments which set a floor 

price for certain volumes of gas production from the 

BKR assets) which have been purchased by Serica in 

conjunction with signing the acquisition agreement. 

Results from operations

Income statement – continuing operations

2017 (2016: movement from overlift position at 31 

December 2015 to underlift position at 31 December 

2016). 

The 2017 gas production was sold at prices averaging 

US$5.4 per mscf (2016: US$4.6 per mscf) and generated 

US$12.5 million (2016: US$8.4 million) of revenue net to 

Serica. A gas sales contract, under which Serica supplied 

approximately one quarter of its Erskine gas production 

at relatively low contract prices (approximately 30 pence 

per therm in the 2015/6 contract year), terminated on 30 

September 2016. 

Three NGL products (Propane, Butane and Naphtha) are 

derived from associated gas production and contributed 

revenue of US$3.1 million (2016: US$1.2 million) net to 

Serica. 

Cost of sales and depletion charges

Cost of sales is driven by production from the Erskine 

field and comprises field operating costs and a depletion 

Serica generated a gross profit of US$19.3 million in 2017 

charge against the asset’s net book amount.

from its Erskine field operations. The 2016 comparative 

gross profit of US$6.6 million reflected performance 

impacted by a six-month field shut-in. Serica’s 18% 

field interest generated net combined liquids and gas 

production of 722,000 boe in 2017 compared to 597,000 

boe for 2016.

Sales revenues

The Company currently generates all its sales revenue 

from the Erskine field. Revenue is earned from oil, gas 

and NGL product streams. Serica’s condensate allocation 

is sold as Forties crude oil. All products are sold at 

monthly average spot prices for the respective products. 

The Brent oil benchmark averaged over US$54 per barrel 

in 2017 (2016: average of US$45 per barrel) whilst UK 

NBP gas prices averaged approximately 42 pence per 

therm across the 2017 period (2016: average of 35 pence 

per therm).

Erskine field production averaged 1,976 boe per day net 

to Serica in 2017 (2016: 1,636 boe per day net). Net gas 

production averaged 6.3 mmscf per day during 2017 

(2016: 5.0 mmscf per day), whilst condensate production 

averaged 931 barrels per day (2016: 800 barrels per day).

Sales revenues in 2017 from lifted barrels of oil were 

US$17.2 million (2016: US$11.1 million) at an average 

realised price of US$53.2 per barrel (2016: US$42.1 per 

barrel). Associated NGL products earned additional 

revenue of US$0.4 million (2016: US$0.3 million). 

The overall 2017 charge of US$12.7 million (2016: US$14.9 

million) comprised direct field operating costs of US$11.0 

million (2016: US$13.6 million) and non-cash depletion of 

US$1.7 million (2016: US$1.3 million). Serica’s operating 

costs including transportation and processing were 

around US$15 per boe during 2017, averaging well below 

2016 levels of US$23 per boe, which were adversely 

affected by the shut-in. The most significant elements 

of the field operating costs are as follows: Erskine’s 

contribution to the running costs of the Lomond 

facilities, standalone Erskine field operating costs, 

other transportation costs for use of the FPS and CATS 

pipelines, and charges for any necessary surface or 

sub-surface maintenance work. Significant operational 

expenditure continues during periods of field shut-in 

when no revenue is earned. 

The US$2.6 million decrease in field operating costs from 

2016 to 2017 is largely due to lower overall contributions 

by Erskine to Lomond facilities operating costs, arising 

from cost savings generated by the Lomond operator. 

The 2016 expense also included an agreed level of 

contribution from the Erskine partners to the exceptional 

costs incurred by the Lomond operator to resolve a 

Lomond to Everest pipeline blockage. Operating costs 

are billed in £ and, with the average £/US$ exchange rate 

falling from 1.36 in 2016 to 1.29 in 2017, the reported US$ 

equivalent figures have reduced accordingly in 2017.

18

Serica Energy plc Annual Report and Accounts 2017Depletion charges principally represent the costs of 

Serica’s significant UK ring fence tax losses brought 

Erskine acquisition spread over the estimated remaining 

forward have been applied to fully shelter Erskine net 

commercial life of the field on a unit of production basis. 

income from tax payments and are expected to be 

Other expenses and income

The Company generated a profit before tax from 

continuing operations of US$10.8 million for 2017 

sufficient to cover future income from the field leaving 

a surplus available that can be applied to revenues from 

BKR Asset acquisition after completion. The Group held 

approximately US$146 million of UK ring fence tax losses 

compared to a profit before tax of US$3.3 million for 2016. 

as at 31 December 2017.

Other expenditure of US$1.4 million in 2017 (2016: US$0.1 

million) represented hedging premium, including 

unrealised hedging losses of US$1.1 million, net of gains.

Pre-licence expenditure of US$0.3 million for 2017 has 

increased slightly from the 2016 charge of US$0.2 million. 

Pre-licence costs included direct costs and allocated 

general administrative costs incurred on oil and gas 

activities prior to the award of licences, concessions or 

exploration rights.

The deferred taxation credit of US$6.3 million (2016: 

US$7.5 million) arose from the recognition of a 

corresponding deferred tax asset from historic tax losses 

expected to be utilised from future Erskine field profits.

Income statement - discontinued operations

Following the cessation of production and the 

decommissioning of the Kambuna field facilities in 

Indonesia in the second half of 2013, the financial 

results of the Kambuna field business segment are 

The Exploration and Evaluation (‘E&E’) asset impairment 

disclosed within ‘discontinued operations’ in the financial 

charge of US$1.6 million in 2017 (2016: US$0.1 million) 

statements and separate from the results of the retained 

comprised US$1.5 million of asset write-offs from the 

core business segments. 

relinquished Doyle block in the UK and minor asset 

write-offs from licences in Morocco and the UK. 

This discontinued operation loss of US$8,000 in 2016 

comprised the final charge recorded against this 

Administrative expenses of US$2.2 million for 2017 

operation. 

increased slightly from US$2.1 million in 2016.

Balance Sheet 

Foreign exchange

During 2017, the total carrying value of investments in 

Serica retains certain non-US$ cash holdings and other 

E&E assets increased by US$0.2 million from US$53.2 

financial instruments relating to its operations. The US$ 

million to US$53.4 million. This increase consisted of 

value of these may fluctuate from time to time causing 

US$1.8 million of additions in the year largely offset by 

reported foreign exchange gains and losses. 

US$1.6 million of E&E asset write-offs. In the UK, US$0.8 

Foreign exchange gains of US$0.5 million for 2017 (2016: 

US$0.6 million charge) largely reflect an increase in 

the reported US$ equivalent of £ cash balances caused 

by the strengthening of £ against the US$ during 

2017. Unrealised gains on the revaluation of £ cash 

balances have been partially offset by realised losses on 

settlement of significant £ creditors. 

Other

Significant transaction costs of US$3.4 million were 

expensed in 2017 on the proposed acquisition, 

announced on 21 November 2017, of the BKR Assets 

from BP. These were largely incurred on the negotiation 

and documentation of the transaction and on the AIM 

Admission Document published on 30 November 2017. It 

also included other consultancy and advisor fees arising 

throughout the process. 

Finance costs of US$0.1 million were incurred in 2017 

(2016: US$0.2 million) largely comprising the interest 

accruing on the liability payable to BP relating to the 

Erskine acquisition. 

million was incurred on the Columbus development and 

other exploration licences. In Ireland, US$0.4 million was 

incurred on exploration work on the Rockall licences and 

US$0.3 million on the Slyne interest. In Africa, US$0.3 

million was incurred in respect of the Luderitz basin 

licence interests in Namibia.

The property, plant and equipment balance of US$7.6 

million as at 31 December 2017 (2016: US$9.1 million) 

comprises the net book amount of the Erskine asset 

acquisition costs capitalised on completion of the 

transaction net of depletion charges to date.

Trade and other receivables at 31 December 2017 totalled 

US$2.3 million, a decrease of US$4.5 million from the 

2016 balance of US$6.8 million. The 2017 balance includes 

US$1.2 million (2016: US$4.3 million) from December oil, 

gas and NGL sales earned from the Erskine field.

The financial asset of US$2.7 million reflects the fair value 

as at 31 December 2017 of a prepayment for gas put 

options covering production volumes through 2018 to 

1H 2020, purchased in conjunction with signing the BKR 

Assets acquisition agreement (2016: US$nil).

19

Serica Energy plc Annual Report and Accounts 2017STRATEGIC REPORT

FINANCIAL REVIEW CONTINUED

Cash and cash equivalents, and short-term deposits, 

Serica’s share of estimated decommissioning costs 

increased from US$16.6 million to US$34.0 million during 

relating to its 18% Erskine field interest will be met by BP 

the year. Operating cash inflows from net Erskine 

up to a level of £31.3 million, adjusted for inflation, with 

field sales were generated in 2017 providing a strong 

Serica being responsible for any costs beyond that. No 

cash build for the Company in the year. The Company 

provision for decommissioning liabilities for the Erskine 

also paid the third US$2.8 million tranche of Erskine 

field is recorded at 31 December 2017 as the Company’s 

consideration to BP and significant corporate costs 

current estimate for such costs is under the level to be 

arising from the BKR Assets acquisition. Other cash 

funded by BP. 

outflows were incurred on E&E assets across the portfolio 

in the UK, Ireland and Namibia, ongoing administrative 

costs and corporate activity. 

Short-term trade and other payables totalled US$7.8 

million at 31 December 2017 (2016: US$5.9 million). This 

balance comprises the US$3.0 million (including accrued 

interest) final tranche of Erskine consideration payable 

to BP on 1 July 2018, US$1.5 million of liabilities associated 

with the BKR Assets acquisition, capital and operational 

liabilities for the Erskine interest, a US$0.8 million non-

Cash balances and future commitments

Current cash position, capital expenditure 

commitments and other obligations

At 31 December 2017, the Group held cash and cash 

equivalents, and term deposits of US$34.0 million. Cash 

and term deposits had reduced to US$33.0 million 

by 6 April 2018, including cash receipts in respect of 

approximately 35,000 barrels of oil overlift that will be 

adjusted for during Q2 2018. 

cash overlift liability reflecting the combined year end 

At 31 December 2017, the Group held put options 

liquids overlift position (2016: US$0.4 million underlift 

covering 2018, 2019 and 1H 2020 daily volumes of 

classified as an asset within trade and other receivables) 

230,000, 240,000 and 160,000 therms of gas per day 

and other creditors and accruals for E&E asset, corporate 

respectively, at floor prices of 35 pence per therm.

and administrative expenditure.

At 31 December 2017, in addition to the gas price puts 

Provisions of US$2.7 million comprise current (US$2.2 

referred to above, the Group held put options covering 

million) and non-current (US$0.5 million) components of 

Q1 2018 daily volumes of 900 barrels of oil per day at a 

an estimate for certain contingent payments related to 

floor price of US$55 per barrel. 

savings in field operating costs that may be made to BP 

under the terms of the Erskine acquisition. 

Long-term financial liabilities of US$3.8 million as at 

31 December 2017 comprise drawings under the BKR 

prepayment facility. These cover the up-front premium 

cost of gas price puts purchased in conjunction with 

signing the BKR Assets acquisition agreement. The 

prepayment facility carries interest at one-month 

LIBOR plus 4.5% per annum compounded monthly 

and added to the outstanding amount and has a 

maximum duration of three years from initial drawings. 

Repayments will commence six months after completion 

and be based on 35% of Serica’s retained share of gas 

sales revenues from the BKR Assets including any price 

related hedging gains and after deduction of those 

proportions due to BP under the Net Cash Flow Sharing 

Deed.

Erskine field commitments

Net revenues from the Erskine field are expected 

to cover ongoing field expenditures as well as the 

remaining tranche of US$2.8 million (before interest) 

cash consideration payable to BP on or before 1 July 2018. 

Management believes there are sufficient resources to 

meet the current committed programme for 2018 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 and operational 

expenditure continues during periods of field shut-down 

when no revenue is earned. Completion of the BKR 

Assets acquisition will diversify the Group’s sources of 

revenue.

Long-term liabilities of US$2.9 million as at 31 December 

Non-Erskine commitments

2016 comprised the final tranche of Erskine consideration 

The Group has no significant exploration commitments. 

payable to BP on 1 July 2018. 

Progress towards the Columbus development continues 

with a target to compile a Field Development Plan by 

mid-2018. Financing plans for the project will be worked 

in conjunction with the FDP submission.

20

Serica Energy plc Annual Report and Accounts 2017Other 

Business Risk and Uncertainties

Asset values and Impairment

Serica, like all companies in the oil and gas industry, 

At 31 December 2017, Serica’s market capitalisation 

stood at US$298.8 million (£221.5 million), based upon 

a share price of £0.84, which exceeded the net asset 

value at that date of US$102.3 million. By 6 April 2018 

the Company’s market capitalisation had decreased 

to US$241.6 million (£171.4 million). Management has 

conducted a thorough review of the carrying value of the 

Group’s assets and determined that no significant write-

downs were required. 

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 

Management regularly communicates its strategy to 

and lowering the share price

shareholders

Focus is placed on building an asset portfolio capable 

of delivering regular news flow and offering continuing 

prospectivity

Management’s decisions on capital allocation may not 

Rigorous analysis is conducted of all investment 

deliver the expected successful outcomes

proposals 

Investments are spread over a range of areas and risk 

profiles

Each asset carries its own risk profile and no outcome 

Management aims to avoid over-exposure to individual 

can be certain

assets 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 with a 

producing field

major acquisition in progress

Management places a priority on building and retaining 

sufficient working capital

Individual wells may not deliver recoverable oil and gas 

Thorough pre-drill evaluations are conducted to identify 

reserves

the risk/reward balance

Exposure is selectively mitigated through farm-out

21

Serica Energy plc Annual Report and Accounts 2017STRATEGIC REPORT

FINANCIAL REVIEW CONTINUED

Risk

Mitigation

Wells may blow out or equipment may fail causing 

The Group retains fully trained and experienced 

environmental damage and delays

personnel

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 

Management applies rigorous budget control

expected

Adequate working capital is retained to cover 

reasonable eventualities

Production may be interrupted generating significant 
revenue loss

Business interruption cover will be considered when 
appropriate

Offtake routes may depend upon a series of facilities 

The Group aims to diversify its sources of income when 

and pipelines requiring a balance of throughput from a 

suitable opportunities can be identified

number of different fields

Resource estimates may be misleading and exceed 

The Group deploys qualified personnel 

actual reserves recovered

Regular third-party reports are commissioned

A prudent range of possible outcomes are considered 

within the planning process

Personnel: The Group relies upon a pool of experienced and motivated personnel to identify and execute 
successful investment strategies

Risk

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 

environments, typically offshore

organisation

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 

Group policies and procedures are communicated to 

to bribery and corrupt practices

personnel regularly

Management reviews all significant contracts and 

relationships with agents and governments

22

Serica Energy plc Annual Report and Accounts 2017Commercial environment: World and regional markets continue to be volatile with fluctuations and infrastructure 
access issues that might hinder the Group’s business success

Risk

Mitigation

Volatile commodity prices mean that the Group cannot 

Budget planning considers a range of commodity 

be certain of the future sales value of its products

prices

Price mitigation strategies may be employed at the 

point of major capital commitment

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 

cost, to infrastructure and product markets when 

wherever possible 

required

Credit to support field development programmes may 

Serica seeks to build and maintain strong banking 

not 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 

Operations are currently spread over a range of 

and reducing the expected value of reserves

different 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

Mitch Flegg 
Chief Executive Officer

9 April 2018

23

Serica Energy plc Annual Report and Accounts 2017STRATEGIC REPORT

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.

24

Serica Energy plc Annual Report and Accounts 2017CORPORATE GOVERNANCE

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 2017.

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 and 

Namibia.

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 Chief Executive Officer’s Report, 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$17,103,000 (2016: US$10,838,000). 

The Directors do not recommend the payment of a dividend (2016: US$nil).

Financial Instruments

The Group’s financial risk management objectives and policies are discussed in note 24.

Events Since Balance Sheet Date

There have been no events since the balance sheet date that require disclosure.

Directors and their Interests

The following Directors have held office in the Company since 1 January 2017 to the date of this report:

Antony Craven Walker

Neil Pike

Ian Vann

Jeffrey Harris (resigned on 20 November 2017) 

Mitch Flegg (appointed on 21 November 2017) 

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

Mitch Flegg3

Class
of share

Interest at
end of year

Interest at
start of year  
(or date of appointment 
if later) 

Ordinary

Ordinary

Ordinary

Ordinary

7,357,694

7,357,694

505,000

267,935

184,445

505,000

267,935

184,445

1. 

6,448,810 ordinary shares were held by Antony Craven Walker and 908,884 by Rathbones (pension funds). 

2.  

190,000 ordinary shares were held by Romayne Pike in her ISA and 185,000 ordinary shares by Luska Limited. 

3.  

 Mitch Flegg was appointed as a director on 21 November 2017.

25

Serica Energy plc Annual Report and Accounts 2017 
 
 
CORPORATE GOVERNANCE

DIRECTORS’ REPORT CONTINUED

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 27) as follows:

1/1/17

Granted

31/12/17

A Craven Walker

1,000,000

A Craven Walker

1,000,000

A Craven Walker

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 under the Serica 2005 Option Plan since December 2009 have a three-year vesting period. 

Under the Serica 2005 Option Plan, when awarding options to directors, the Remuneration Committee were 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 market price at the time of the grant to establish firm 

performance targets. 

Details of certain share awards that are to be granted to Antony Craven Walker and Mitch Flegg under the Serica 

Energy plc Long Term Incentive Plan (the “LTIP”), which was adopted by the Board on 20 November 2017, are 

included in note 27.

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 

Mitch Flegg 
Director

9 April 2018

26

Serica Energy plc Annual Report and Accounts 2017CORPORATE GOVERNANCE STATEMENT

The Board of Directors fully endorses the importance 

from the Board on 20 November 2017. It is recognised 

of sound corporate governance. Serica is incorporated 

that further strengthening of the Board will be 

in the United Kingdom. During 2014 its shares were 

required in due course as the Company works towards 

traded on both AIM and TSX. On 17 March 2015, the 

completing the BKR Assets acquisition. The non-

Company announced that it had applied for voluntary 

Executive Directors are independent in character and 

delisting of its ordinary shares from the TSX. This was 

judgement and have the range of experience and calibre 

because the directors believed that the minimal trading 

to bring independent judgement on issues of strategy, 

activity of Serica’s shares on the TSX no longer justified 

performance, resources and standards of conduct which 

the expenses and administrative efforts associated with 

is vital to the success of the Group.

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 

The code of practice followed for companies 

major capital expenditure and the framework of internal 

incorporated in the United Kingdom and listed on the 

controls. The matters reserved for the Board include, 

premium sector of the Main Market of the London Stock 

amongst others, approval of the Group’s long term 

Exchange is set out in the UK Corporate Governance 

objectives, policies and budgets, changes relating to the 

Code (the “UK Code”). It is not compulsory for companies 

Group’s management structure, approval of the Group’s 

whose shares are traded on AIM but the Board applies 

annual report and accounts and ensuring maintenance 

those principles of the UK Code to the extent that it 

of sound systems of internal control.

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 

Although the Company has now delisted from the 

executive management. The Board is responsible for 

TSX, the Company is still considered to be a reporting 

monitoring the activities of the executive management. 

issuer in a number of Canadian provinces. The 

The Executive Chairman has the responsibility of 

corporate governance guidelines applying to reporting 

ensuring that the Board discharges its responsibilities. 

issuers in Canada are set out under Ontario Securities 

In the event of an equality of votes at a meeting of 

Commission National Policy 58-201 (the “Corporate 

the Board, the Executive Chairman has a second 

Governance Guidelines”). The Company is a ‘designated 

or casting vote. The Board believes that there is an 

foreign issuer’ as defined under National Instrument 

adequate balance between the non-Executive and 

71-1-2-Continuous Disclosure and Other Exemptions 

Executive Directors, both in number and in experience 

Relating to Foreign Issuers. The Company is subject to 

and expertise, to ensure that the Board operates 

the regulatory requirements of AIM. 

independently of executive management. There is no 

The disclosures below explain the composition of, 
role and responsibilities of the Board and the Board 

Committees.

The Board and its Committees

The composition of the Board changed during 2017 

with the appointment of Mitch Flegg as Chief Executive 

Officer (‘CEO’) on 21 November 2017 at the time of the 

announcement of the proposed acquisition of BP’s 

interests in the Bruce, Keith and Rhum fields in the 

formal Board performance appraisal system in place but 

the Corporate Governance and Nomination Committee 

considers this as part of its remit.

Both of the non-Executive Directors meet the 

requirements of independence prescribed in the UK 

Code. 

Individual Directors may engage outside advisors at the 

expense of the Company upon approval by the Board in 

appropriate circumstances.

The Board has established a Corporate Governance and 

North Sea (the ‘BKR Assets’). As at 31 December 2017, 

Nomination Committee, an Audit Committee, a Reserves 

the Board of the Company consisted of the CEO, the 

Committee, a Remuneration and Compensation 

Executive Chairman and two non-Executive Directors. 

Committee and a Health, Safety and Environmental 

Jeffrey Harris, non-Executive Director, stepped down 

Committee. The terms of reference of the Corporate 

27

Serica Energy plc Annual Report and Accounts 2017CORPORATE GOVERNANCE

CORPORATE GOVERNANCE STATEMENT CONTINUED

Governance and Nomination, Audit and Remuneration 

Reserves Committee

and Compensation Committees can be found on the 

Company’s website www.serica-energy.com

Corporate Governance and Nomination Committee

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 Code and with AIM in respect 

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 regulations which require that the 

Board discuss the reserves 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 met once in 

2017 and typically meets once a year prior to publication 

of the annual results. 

of dealings by directors or employees in the Company’s 

Remuneration and Compensation Committee

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 2017 and will meet 

as required during the next financial year. 

The Corporate Governance and Nomination Committee 

is comprised of the Executive Chairman and two 

independent non-Executive Directors. The committee is 

chaired by Neil Pike and its other members are Antony 

Craven Walker and Ian Vann.

Audit Committee

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 four times in 2017 and proposes 

to meet at least twice during the next financial year. 

In addition, written resolutions of the committee 

The Audit Committee meets regularly and consists 

are passed from time to time particularly in relation 

of two members, both of whom are non-Executive 

to routine matters such as the allotment of shares 

Directors. At such time that the Board appoints a further 

pursuant to share option exercises as well as to record 

non-Executive director it is envisaged that this person 

formally decisions of the committee reached outside the 

would be a member of the committee. The committee’s 

scheduled meetings.

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 transactions. The Audit 

The committee is composed of two non-Executive 

Directors both of whom are independent. The 

committee is chaired by Ian Vann and its other member 

is Neil Pike.

Committee may hold private sessions with management 

Health, Safety and Environmental Committee

and with the external auditor without management 

present. 

The Audit Committee met three times in 2017 and 

proposes to meet at least three times during the next 

financial year. The committee is chaired by Neil Pike and 

its other member is 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.

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 twice during 2017 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. 

28

Serica Energy plc Annual Report and Accounts 2017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 2017 is detailed in the table 

below:

Director

Board 

Audit

Remuneration 
and
Compensation 

Corporate
 Governance and
 Nomination

A Craven Walker 

(Chairman) 

N Pike 

I Vann

J Harris 2

M Flegg 3

Total meetings 

Notes: 

14*

14

14

12

2

14

2§

3*

3

3

–

3

4§

4

4*

–

–

4

–

–*

–

–

–

–

HSE

2

–

2*

–

–

2

Reserves

–

–

1*

–

–

1

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.
Jeffrey Harris resigned from the Board on 20 November 2017.

2. 
3.  Mitch Flegg was appointed to the Board on 21 November 2017.

* Chairman 
§ Invitee 

Amanda Bateman 
Company Secretary

9 April 2018

29

Serica Energy plc Annual Report and Accounts 2017CORPORATE GOVERNANCE

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 the then Chief Executive 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.

Mitch Flegg 

Chief Executive Officer

Mitch Flegg has over 35 years of experience in the upstream oil and gas industry, 

including positions at Shell and Enterprise Oil. Mitch first joined Serica in 2006 and 

had been responsible for all drilling and development operations. He was promoted 

to the position of Chief Operating Office in March 2011 and appointed to the Board of 

Serica in September 2012. He left Serica in May 2015 to become chief executive officer 

of Circle Oil plc. Mitch re-joined the Board of Serica on 21 November 2017 as Chief 

Executive Officer.

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.

30

Serica Energy plc Annual Report and Accounts 2017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 Group 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.

31

Serica Energy plc Annual Report and Accounts 2017FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORT  
TO THE MEMBERS OF SERICA ENERGY PLC

Opinion

In our opinion:

 ■

  Serica Energy plc’s group Financial Statements and parent company Financial Statements (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 2017 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; 

 ■

  the parent company Financial Statements have been properly prepared in accordance with IFRSs as adopted by 

the European Union and as applied in accordance with the provisions of the Companies Act; and

 ■

  the Financial Statements have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the Financial Statements of Serica Energy plc which comprise:

Group

Parent company

Group balance sheet as at 31 December 2017

Balance sheet as at 31 December 2017

Group income statement for the year then ended

Statement of changes in equity for the year then ended

Group statement of comprehensive income for the year 

Statement of cash flows for the year then ended

then ended

Group statement of changes in equity for the year  

Related notes 1 to 30 to the Financial Statements 

then ended

including a summary of significant accounting policies

Group statement of cash flows for the year then ended

Related notes 1 to 30 to the Financial Statements, 

including a summary of significant accounting policies

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, as regards to the parent company 

Financial Statements, as applied in accordance with the provisions of the Companies Act 2006. 

Separate opinion in relation to IFRSs as issued by the IASB

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.

Basis for opinion 

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable 

law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit 

of the Financial Statements section of our report below. We are independent of the group and parent company 

in accordance with the ethical requirements that are relevant to our audit of the Financial Statements in the UK, 

including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities 

in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

32

Serica Energy plc Annual Report and Accounts 2017Use of our report

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. 

Conclusions relating to going concern

We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to 

you where:

 ■

  the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not 

appropriate; or

 ■

  the directors have not disclosed in the Financial Statements any identified material uncertainties that may cast 

significant doubt about the group’s or the parent company’s ability to continue to adopt the going concern basis 

of accounting for a period of at least twelve months from the date when the Financial Statements are authorised 

for issue.

Overview of our audit approach

Key audit matters

Audit scope

 ■

 ■

 ■

   Assessment of commercial reserves and its impact on the Financial Statements

  Recoverability of the Exploration and Evaluation assets

  We performed an audit of the complete financial information of two components and 

audit procedures on specific balances for a further three components.

 ■

  The components where we performed full or specific audit procedures accounted for 

 –  100% of Profit before tax,

–   100% of Revenue and

 –  98% of Total assets.

Materiality

 ■

 Overall group materiality of USD$550 thousand which represents 5% of the Group’s profit 

before tax.

 ■

  Parent company materiality was set at USD$5,110 thousand which represents 5% of 

equity.

Key audit matters 

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the 

Financial Statements of the current period and include the most significant assessed risks of material misstatement 

(whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the 

overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. 

These matters were addressed in the context of our audit of the Financial Statements as a whole, and in our opinion 

thereon, and we do not provide a separate opinion on these matters.

33

Serica Energy plc Annual Report and Accounts 2017 
 
 
FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORT  
TO THE MEMBERS OF SERICA ENERGY PLC CONTINUED

Risk

Our response to the risk

Key observations communicated 
to the Audit Committee 

Assessment of commercial reserves and its impact on the Financial Statements 

Refer to the note 2 Accounting 

 ■ We walked through the group’s 

We did not identify any 

policies section “Use of Judgement 

controls over their internal certification 

exceptions as a result of our 

and Estimates” (page 43); and “Group 

process for technical and commercial 

audit procedures.

Proved plus Probable Reserves“ of the 

experts who are responsible for 

Consolidated Financial Statements 

reserves and resources estimation.

We consider the commercial 

reserves updates have 

(page 77)

 ■ We assessed the competence and 

been correctly included 

The estimate of oil and gas reserves and 

objectivity of these experts, to satisfy 

in the financial statement 

resources has a significant impact on 

ourselves they were appropriately 

calculations, and consider 

the Financial Statements, particularly 

qualified to carry out the volumes 

the disclosures in the 

impairment testing and depreciation, 

estimation.

depletion and amortization (‘DD&A’) 

charges.

 ■ We obtained confirmation directly 

from Netherland, Sewell and 

The estimation of oil and natural gas 

Associates Inc (NSAI) that they are 

reserves and resources is a significant 

independent from Serica and have 

area of judgement due to the technical 

performed their procedures under the 

uncertainty in assessing quantities and 

COGEH standards.

Financial Statements to be 

appropriate. 

complex contractual arrangements 

dictating the group’s share of reportable 

volumes.

Reserves and resources are also a 

fundamental indicator of the future 

potential of the group’s performance. 

 ■ We confirmed that material changes 

in reserves and resources were made 

in the appropriate accounting period.

 ■ We validated that the updated 

reserves and resources estimates 

were included appropriately in the 

group’s preparation of the cash 

flow forecasts for the assessment of 

the going concern assumption, the 

determination of the deferred tax 

asset, accounting for DD&A and as 

part of management’s consideration 

of indicators of impairment. 

34

Serica Energy plc Annual Report and Accounts 2017Risk

Our response to the risk

Key observations communicated 
to the Audit Committee 

Recoverability of the Exploration and Evaluation assets

Refer to note 2 “Accounting policies” 

 ■ We obtained an understanding of the 

We did not identify any 

(page 43); and note 14 “Exploration and 

process to confirm the key controls 

exceptions in our testing of 

Evaluation assets“ of the Consolidated 

mitigate the risk; assess their design 

Exploration and Evaluation 

Financial Statements (page 60)

effectiveness and obtain evidence of 

assets, and agree with 

The carrying value of Exploration and 

their implementation; 

Evaluation assets are held at historic 

 ■ We have held discussions with 

cost and are subject to impairment 

management, and read minutes 

assessments under IAS 36 Impairment 

from their meetings to get an 

management that the 

carrying value of these 

assets does not exceed their 

recoverable amounts.

of assets. Annually management is 

understanding of the status of each 

We believe the conditions 

associated with the 

Columbus licence extension 

have been appropriately 

disclosed in the Annual 

Report.

required to assess for impairment 

license;

indicators in line with IFRS 6 Exploration 

for and Evaluation of Mineral Resources 

to determine whether a full impairment 

test is required. 

Exploration and Evaluation assets shall 

be assessed for impairment when 

facts and circumstances suggest that 

the carrying amount of an Exploration 

and Evaluation asset may exceed its 

recoverable amount. If this occurs, 

 ■ We have obtained management’s 

assessments of the indicators of 

impairment and associated audit 

evidence;

 ■ We have agreed the Columbus license 

extension date to the letters from 

the Oil and Gas Authority ‘OGA’, and 

evaluated management’s plans to 

achieve the necessary milestones;

an entity shall measure, present and 

 ■ We have assessed management’s 

disclose any resulting impairment loss.

business plan in relation to the 

There is a risk that management 

fails to identify a relevant indicator 

and therefore do not perform an 

impairment test. There is also a risk 

Exploration and Evaluation assets and 

ensured any license commitments 

have been included within cashflow 

forecasts; 

that management use inappropriate 

 ■ We have tested the additions to the 

assumptions in the full impairment 

Exploration and Evaluation assets and 

test resulting in an overstatement of 

agreed these to the company’s policy 

Exploration and Evaluation assets.

and ensured they are in line with 

IFRS 6.

An overview of the scope of our audit 

Tailoring the scope

Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine 

our audit scope for each entity within the Group. Taken together, this enables us to form an opinion on the 

consolidated Financial Statements. We take into account size, risk profile, the organisation of the group and 

effectiveness of group wide controls, changes in the business environment and other internal factors when assessing 

the level of work to be performed at each entity.

In assessing the risk of material misstatement to the Group Financial Statements, and to ensure we had adequate 

quantitative coverage of significant accounts in the Financial Statements we selected five components (2016: five), 

which represent the principal business units within the Group.

Of the five components selected, we performed an audit of the complete financial information of two components 

(“full scope components”) which were selected based on their size or risk characteristics. For the remaining three 

components (“specific scope components”), we performed audit procedures on specific accounts within that 

component that we considered had the potential for the greatest impact on the significant accounts in the Financial 

35

Serica Energy plc Annual Report and Accounts 2017FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORT  
TO THE MEMBERS OF SERICA ENERGY PLC CONTINUED

Statements either because of the size of these accounts or their risk profile. 

The components where we performed audit procedures accounted for 100% (2016: 96%) of the Group’s Profit before 

tax measure used to calculate materiality, 100% (2016: 100%) of the Group’s Revenue and 98% (2016: 99%) of the 

Group’s Total assets. 

For the current year, the full scope components contributed 100% (2016: 96%) of the Group’s Profit before tax, 100% 

(2016: 100%) of the Group’s Revenue and 86% (2016: 86%) of the Group’s Total assets. 

The specific scope component contributed 0% (2016: 0%) of the Group’s Profit before tax, 0% (2016: 0%) of the Group’s 

Revenue and 12% (2016: 13%) of the Group’s Total assets. The audit scope of these components may not have included 

testing of all significant accounts of the component but will have contributed to the coverage of significant tested for 

the Group. 

Of the remaining components, we performed other procedures, including analytical review, testing of consolidation 

journals and intercompany eliminations and foreign currency translation recalculations, to respond to any potential 

risks of material misstatement to the Group Financial Statements.

The charts below illustrate the coverage obtained from the work performed by the audit team.

REVENUE

100%

PBT

100%

TOTAL
ASSETS

98%

Full

Specific

Full

Specific

Full

Specific

Changes from the prior year

There were no significant changes in our scoping as compared to the prior year. We have performed full scope and 

specific procedures in 2017 on the same 5 number of components that were classified as full and specific scope in 

2016. Related audit procedures at these components have not significantly changed.

Involvement with component teams 

All audit work performed for the purposes of the audit was undertaken by the Group audit team.

Our application of materiality 

We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified 

misstatements on the audit and in forming our audit opinion. 

Materiality

The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected 

to influence the economic decisions of the users of the Financial Statements. Materiality provides a basis for 

determining the nature and extent of our audit procedures.

We determined materiality for the Group to be USD$550 thousand (2016: USD$800 thousand), which is 5% of Group’s 

Profit before tax (2016: 8% of equity). We believe that Profit before tax represents one of the principal considerations 

for the users of the Financial Statements as opposed to the Group’s equity, which had been previously used in prior 

years’ audits due to the absence of a track record of profit. 

We determined materiality for the Parent Company to be USD$5,110 thousand (2016: USD$ 4,255 thousand, which 

is 5% (2016: 5%) of equity. Materiality for the Parent Company has been determined using equity. This is a different 

basis to the Group, where profit before tax is used, hence the Parent Company’s materiality is greater than that 

used for Group purposes. We use equity as the basis for materiality as the purpose of the Parent Company is to hold 

investments in its subsidiaries. 

During the course of our audit, we reassessed initial materiality and updated its calculation for the actual financial 

results of the year. 

36

Serica Energy plc Annual Report and Accounts 2017Performance materiality

The application of materiality at the individual account or balance level. It is set at an amount to reduce to an 

appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds 

materiality.

On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, 

our judgement was that performance materiality was 75% (2016: 75%) of our planning materiality, namely USD$ 

400 thousand (2016: USD$ 600 thousand). We based this judgement on factors including the past history of 

misstatements, our ability to assess the likelihood of misstatements and the effectiveness of the internal control 

environment.

Audit work at each location for the purpose of obtaining audit coverage over significant financial statement accounts 

is undertaken based on a percentage of total performance materiality. The performance materiality set for each 

component is based on the relative scale and risk of the component to the Group as a whole and our assessment of 

the risk of misstatement at that component. In the current year, the range of performance materiality allocated to 

components was USD$200 thousand to USD$450 thousand (2016: USD$300 thousand to USD$600 thousand). 

Reporting threshold

An amount below which identified misstatements are considered as being clearly trivial.

We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of 

USD$28 thousand (2016: USD$40 thousand), which is set at 5% of planning materiality, as well as differences below 

that threshold that, in our view, warranted reporting on qualitative grounds. 

We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above 

and in light of other relevant qualitative considerations in forming our opinion.

Other information 

The other information comprises the information included in the annual report set out on pages 4 to 24, other than 

the Financial Statements and our auditor’s report thereon. The directors are responsible for the other information. 

Our opinion on the Financial Statements does not cover the other information and, except to the extent otherwise 

explicitly stated in this report, we do not express any form of assurance conclusion thereon. 

In connection with our audit of the Financial Statements, our responsibility is to read the other information and, 

in doing so, consider whether the other information is materially inconsistent with the Financial Statements or 

our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material 

inconsistencies or apparent material misstatements, we are required to determine whether there is a material 

misstatement in the Financial Statements or a material misstatement of the other information. If, based on the work 

we have performed, we conclude that there is a material misstatement of the other information, we are required to 

report that fact.

We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken in the course of the audit:

 ■

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; and 

 ■

the strategic report and directors’ report have been prepared in accordance with applicable legal requirements.

37

Serica Energy plc Annual Report and Accounts 2017FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORT  
TO THE MEMBERS OF SERICA ENERGY PLC CONTINUED

Matters on which we are required to report by exception

In the light of the knowledge and understanding of the group and the parent company and its environment obtained 

in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ 

report.

We have nothing to report in respect of the following matters in relation to which 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

Responsibilities of directors

As explained more fully in the directors’ responsibilities statement set out on page 31, the directors are responsible for 

the preparation of the Financial Statements and for being satisfied that they give a true and fair view, and for such 

internal control as the directors determine is necessary to enable the preparation of Financial Statements that are 

free from material misstatement, whether due to fraud or error. 

In preparing the Financial Statements, the directors are responsible for assessing the group and parent company’s 

ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going 

concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to 

cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the Financial Statements 

Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from 

material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. 

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance 

with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error 

and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the 

economic decisions of users taken on the basis of these Financial Statements. 

A further description of our responsibilities for the audit of the Financial Statements is located on the Financial 

Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our 

auditor’s report.

Paul Wallek (Senior statutory auditor) 
for and on behalf of Ernst & Young LLP, Statutory Auditor 

London

9 April 2018

38

Serica Energy plc Annual Report and Accounts 2017GROUP INCOME STATEMENT 
FOR THE YEAR ENDED 31 DECEMBER

Continuing operations

Sales revenue

Cost of sales 

Gross profit

Other expense

Pre-licence costs

Impairment and write-offs of E&E assets

Administrative expenses

Foreign exchange gain/(loss) 

Share-based payments

Note

2017
US$000

2016
US$000

4

5

14

27

31,966

21,432

(12,668)

(14,860)

19,298

6,572

(1,426)

(303)

(1,612)

(2,244)

511

(98)

(113)

(240)

(62)

(2,062)

(556)

(90)

Operating profit before net finance revenue, tax and transaction costs

14,126

3,449

BKR transaction costs

Finance revenue

Finance costs

Profit before taxation

(3,386)

246

(138)

10

11

–

61

(185)

10,848

3,325

Taxation credit for the year

12a)

6,255

7,521

Profit for the year from continuing operations

17,103

10,846

Discontinued operations

Loss for the year from discontinued operations

3

–

(8)

Profit for the year

17,103

10,838

Earnings per ordinary share - EPS

Basic and diluted EPS on continuing operations (US$)

Basic and diluted EPS on profit for the year (US$)

13

13

0.06

0.06

0.04

0.04

Group Statement of Comprehensive Income 

There are no other comprehensive income items other than those passing through the income statement.

39

Serica Energy plc Annual Report and Accounts 2017FINANCIAL STATEMENTS

BALANCE SHEET 
AS AT 31 DECEMBER

Registered number: 5450950

Non-current assets

Exploration & evaluation assets

Property, plant and equipment

Investments in subsidiaries

Group

Company

Note

2017
US$000

2016
US$000

2017
US$000

2016
US$000

14

15

16

53,413

53,170

7,640

9,078

–

–

–

–

–

–

1,350

1,350

Deferred tax asset

12d)

16,209

9,954

–

–

Current assets

Inventories

Trade and other receivables

Derivative financial asset

Term deposits

Cash and cash equivalents

TOTAL ASSETS

Current liabilities

Trade and other payables

Provisions

Non-current liabilities

Trade and other payables

Financial liabilities

Provisions

TOTAL LIABILITIES

NET ASSETS

Share capital

Merger reserve

Other reserve

17

18

19

20

20

21

23

22

19

23

25

16

77,262

72,202

1,350

1,350

453

2,274

2,670

5,698

401

–

–

6,849

83,269

70,141

–

–

–

1,350

–

–

28,279

16,593

18,712

14,066

39,374

23,843

103,331

84,207

116,636

96,045

104,681

85,557

(7,825)

(2,234)

–

(5,877)

(2,385)

(462)

–

(2,883)

(3,825)

–

(456)

(2,190)

–

–

–

–

–

–

–

–

(14,340)

(10,950)

(2,385)

(462)

102,296

85,095

102,296

85,095

229,308

229,308

194,036

194,036

–

–

–

–

20,813

20,715

20,813

20,715

Accumulated deficit

(147,825)

(164,928)

(112,553)

(129,656)

TOTAL EQUITY

102,296

85,095

102,296

85,095

The profit for the Company was US$17,103,000 for the year ended 31 December 2017 (2016: profit of US$10,838,000). In 

accordance with the exemption granted under section 408 of the Companies Act 2006 a separate income statement 

for the Company has not been presented.

Approved by the Board on 9 April 2018

Antony Craven Walker 
Executive Chairman 

Mitch Flegg 
Chief Executive Officer

40

Serica Energy plc Annual Report and Accounts 2017STATEMENT OF CHANGES IN EQUITY 
FOR THE YEAR ENDED 31 DECEMBER

Group

Share 
capital
US$000

Other
 reserve
US$000

Accum’d
 deficit
US$000

Total
US$000

Note

At 1 January 2016

229,308

20,625

(175,766)

74,167

Profit for the year

Total comprehensive income

Share–based payments

At 31 December 2016

Profit for the year

Total comprehensive income

Share–based payments 

–

–

–

–

–

90

10,838

10,838

10,838

10,838

–

90

229,308

20,715

(164,928)

85,095

–

–

–

–

–

98

17,103

17,103

17,103

17,103

–

98

27

27

At 31 December 2017

229,308

20,813

(147,825)

102,296

Company

Share 
capital
US$000

Other
 reserve
US$000

Accum’d
 deficit
US$000

Total
US$000

At 1 January 2016

194,036

20,625

(140,494)

74,167

Profit for the year

Total comprehensive income

Share–based payments

At 31 December 2016

Profit for the year

Total comprehensive income

Share–based payments

–

–

–

–

–

90

10,838

10,838

10,838

10,838

–

90

194,036

20,715

(129,656)

85,095

–

–

–

–

–

98

17,103

17,103

17,103

17,103

–

98

27

27

At 31 December 2017

194,036

20,813

(112,553)

102,296

41

Serica Energy plc Annual Report and Accounts 2017FINANCIAL STATEMENTS

CASH FLOW STATEMENT 
FOR THE YEAR ENDED 31 DECEMBER

Operating activities:

Profit for the year

Adjustments to reconcile profit for the year to net cash 

flow from operating activities:

Taxation credit

BKR transaction costs

Net finance (income)/costs

Depreciation and depletion 

Oil and NGL over/underlift 

Impairment and write-offs of E&E assets

Unrealised hedging losses

Write-back of loans and investments 

Share-based payments

Other non-cash movements

Cash outflow on BKR transaction

Increase in financial assets

Group

Company

Note

2017
US$000

2016
US$000

2017
US$000

2016
US$000

17,103

10,838

17,103

10,838

(6,255)

(7,521)

3,386

(108)

1,710

1,163

1,612

1,133

–

98

(406)

(1,867)

(3,803)

–

124

1,274

(516)

62

–

–

90

866

–

–

–

–

–

–

(246)

(56)

–

–

–

–

–

–

–

–

(17,909)

(12,954)

98

90

(302)

1,100

–

–

–

–

Decrease/(increase) in trade and other receivables

4,110

(1,862)

(671)

(197)

(Increase)/decrease in inventories

(52)

52

–

–

(Decrease)/increase in trade and other payables

(291)

(3,270)

1,905

(109)

Net cash in/(out)flow from operations

17,533

137 

(22)

(1,288)

Investing activities:

Interest received

Purchase of E&E assets

Purchase of P,P&E

246

61

246

61

(1,855)

(1,418)

(72)

–

–

–

–

–

–

–

Cash outflow arising on asset acquisition

21

(2,775)

(2,775)

Receipts from Group subsidiaries

Net cash flow from investing activities

–

–

(4,456)

(4,132)

5,358

5,604

2,336

2,397

Financing activities:

Changes in term deposits

Proceeds from borrowings

Finance costs paid

Net cash flow from financing activities

(5,698)

19

3,803

(135)

(2,030)

–

–

(77)

(77)

(1,350)

–

–

(1,350)

–

–

(5)

(5)

Net increase/(decrease) in cash and cash equivalents

Effect of exchange rates on cash and cash equivalents

Cash and cash equivalents at 1 January

26

26

26

11,047

(4,072)

4,232

1,104

639

(937)

414

(768)

16,593

21,602

14,066

13,730

Cash and cash equivalents at 31 December

26

28,279

16,593

18,712

14,066

42

Serica Energy plc Annual Report and Accounts 2017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 2017 were authorised for issue by 

the Board of Directors on 9 April 2018 and the balance sheets were signed on the Board’s behalf by Antony Craven 

Walker and Mitch Flegg. Serica Energy plc is a public limited company incorporated and domiciled in England & 

Wales with its registered office at 52 George Street, London, W1U 7EA. 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, and Namibia. 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 

2017. 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 2017 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$17,103,000 (2016: profit US$10,838,000).

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 2017. 

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 2017 the Company held net current assets of US$29.3 million including cash and term deposits of 

US$34.0 million. The Erskine asset acquisition, completed in early June 2015 brought to Serica a producing interest 

capable of generating robust positive 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. 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.

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 judgements 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 the 

recoverability of deferred tax assets.

43

Serica Energy plc Annual Report and Accounts 2017FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

2.  Accounting Policies continued

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 data sets using its own internal 

expertise. There has been no significant change to the management estimates and assumptions during the year that 

may impact the assessment of commercial reserves.

Assessment of the recoverable amount of intangible and tangible assets

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 Group’s most significant E&E 

asset is Columbus which is recorded in the Balance Sheet as at 31 December 2017 with a net book amount of US$40.8 

million. The carrying amount is dependent on the assumption that the terms of the licence extension to September 

2018 continue to be met, as outlined in further detail in the Review of Operations. The assessment of the existence of 

indicators of impairment in E&E assets involves judgement, which includes whether licence performance obligations 

can be met within the required regulatory timeframe, 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 16).

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. 

The most significant variable behind the increased deferred tax asset recognised in 2017 from 2016 is the increase in 

management’s estimate of short-term forward commodity prices from prior year as other variables have remained 

largely unchanged. The most significant pricing assumptions are based on forward curve prices for the first three 

years. 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.

44

Serica Energy plc Annual Report and Accounts 20172.  Accounting Policies continued

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 Energy 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.

45

Serica Energy plc Annual Report and Accounts 2017FINANCIAL STATEMENTS

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.

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.

46

Serica Energy plc Annual Report and Accounts 20172.  Accounting Policies continued

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.

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.

47

Serica Energy plc Annual Report and Accounts 2017FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

2.  Accounting Policies continued

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.

Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is 

probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of 

the amount of the obligation.

The Group’s fair value estimate in respect of contingent consideration that may be payable following the acquisition 

of its interest in the Erskine Field is capitalised as an asset acquisition cost. In determining fair value it is necessary 

to make a series of assumptions to estimate future operating costs and other variables. Accordingly, the fair value is 

categorised as Level 3 in the fair value hierarchy.

Leases

Operating lease payments are recognised as an operating expense in the income statement on a straight line basis 

over the lease term.

48

Serica Energy plc Annual Report and Accounts 20172.  Accounting Policies continued

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.

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.

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:

49

Serica Energy plc Annual Report and Accounts 2017FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

2.  Accounting Policies continued

 ■

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 Group has adopted and applied the following standards that are relevant to its operations for the first time for the 

annual reporting period commencing 1 January 2017:

 ■ Amendments to IAS 12 Income Taxes – Recognition of Deferred Tax Assets for Unrealised Losses;

 ■ Annual Improvements to IFRSs (2014 – 216 Cycle): IFRS 12 Disclosure of interests in other entities; and

 ■ Disclosure Initiative Amendments – IAS 7 Statement of Cash Flows.

There are no new or amended standards or interpretations effective for the first time for periods beginning on or after 

1 January 2017 that had 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 

is currently assessing the impact of these standards and intends to adopt them when they become effective.

Standard

IFRS 9 – Financial Instruments

IFRS 15 – Revenue from Contracts with Customers

IFRS 16 – Leases

* Not yet endorsed by the EU

Effective year commencing on or after

1 January 2018

1 January 2018

1 January 2019*

50

Serica Energy plc Annual Report and Accounts 2017 
2.  Accounting Policies continued

IFRS 9 Financial Instruments 

In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments which replaces IAS 39 Financial 

Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new 

requirements for classification and measurement, impairment under the ‘expected credit loss’ (‘ECL’) model and 

hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application 

permitted. The Group plans to adopt the new standard on the required effective date and will not restate 

comparative information. During 2017, the Group has performed an impact assessment for the application of IFRS 

9. This assessment is based on currently available information and may be subject to changes arising from further 

reasonable and supportable information being made available to the Group in 2018. The Group’s receivables have 

a good credit rating and there has been no noted change in the credit risk of receivables in the year, therefore the 

Group does not believe that the new ECL impairment methodology will have a material impact on the valuation of 

financial assets. The Company’s review of the impact of the new ECL impairment methodology on intercompany 

receivables is ongoing.

IFRS 15 Revenue from Contracts with Customers 

IFRS 15 was issued in May 2014 and amended in April 2016. It establishes a single comprehensive model that will apply 

to revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance 

including IAS 18 Revenue and related interpretations when it becomes effective, for annual periods beginning on or 

after 1 January 2018. 

Although IFRS 15 does not generally represent a change from Serica’s current practice, and the impact review is 

ongoing, the accounting for certain contracts, such as those for underlifts and overlifts, have been identified as areas 

of potential change. Movements in liquids overlift/underlift currently disclosed in sales revenue (see note 4) will be 

classified in cost of sales.

IFRS 16 Leases 

IFRS 16 Leases, issued in January 2016, sets out the principles for the recognition, measurement, presentation and 

disclosure of leases for both lessors and lessees. It replaces the previous leases standard IAS 17 Leases and is effective 

from 1 January 2019. Under the new standard all lease contracts, with limited exceptions, are recognised in financial 

statements by way of right of use assets and corresponding lease liabilities. Compared with the existing accounting 

for operating leases, it will also impact the classification and timing of expenses and consequently the classification 

between cash flow from operating activities and cash flow from financing activities.

Serica will not early adopt IFRS 16. The impact of the adoption of the new standard at 1 January 2019, will be 

dependent on factors such as Serica’s lease contracts at that date and the discount rate to be applied in accordance 

with IFRS 16, and therefore the impact cannot be determined from the disclosure of the minimum lease payments 

in accordance with IAS 17 in Note 28, which are not currently material. A detailed review of Serica’s contracts is under 

way to determine the impact of the new standard.

51

Serica Energy plc Annual Report and Accounts 2017FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

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 2017 and 2016. 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 Kambuna asset in Indonesia is disclosed as a separate segment, with income statement information for 

Kambuna additionally classified as ‘discontinued’.

Year ended 31 December 2017

Revenue

Continuing operations

Depletion

Other expenses

Pre-licence costs

E&E asset impairment/write-offs

Operating and segment profit/loss

BKR acquisition costs (1)

Finance costs

Finance revenue

Profit/(loss) before taxation

Taxation credit for the year

Profit/(loss) after taxation

Other segment information:

Property, plant & equipment

Exploration and evaluation assets

Other assets

Unallocated assets

Total assets

Segment liabilities

Total liabilities

Capital expenditure 2017:

Property, plant & equipment

Exploration and evaluation assets

UK
US$000

Ireland
US$000

Africa
US$000

Continuing
Total
US$000

Discontinued
US$000

31,966

(1,710)

(14,215)

(301)

(1,593)

14,147

(3,386)

(138)

246

10,869

6,255

17,124

–

–

–

(2)

–

(2)

–

–

–

(2)

–

(2)

–

–

–

–

(19)

(19)

–

–

–

31,966

(1,710)

(14,215)

(303)

(1,612)

14,126

(3,386)

(138)

246

(19)

10,848

–

6,255

(19)

17,103

–

–

–

–

–

–

–

–

–

–

–

–

UK
US$000

Ireland
US$000

Africa
US$000

Kambuna
US$000

Total
US$000

7,640

40,818

29,919

–

–

8,902

3,693

87

–

78,377

8,989

3,693

(14,027)

(14,027)

(280)

(280)

272

763

–

697

(33)

(33)

–

395

–

–

–

–

–

–

–

–

7,640

53,413

30,006

25,577

116,636

(14,340)

(14,340)

272

1,855

52

Serica Energy plc Annual Report and Accounts 2017 
3.  Segment Information continued

Year ended 31 December 2016

Revenue

Continuing operations

Other expenses

Pre-licence costs

E&E asset impairment/write-offs

Operating and segment profit/loss

Finance costs

Finance revenue

Profit/(loss) before taxation

Taxation credit for the year

UK
US$000

Ireland
US$000

Africa
US$000

Continuing
Total
US$000

Discontinued
US$000

21,432

(17,681)

(237)

(7)

3,507

61

(185)

3,383

7,521

–

–

(3)

–

(3)

–

–

(3)

–

(3)

–

–

–

(55)

(55)

–

–

(55)

–

21,432

(17,681)

(240)

(62)

3,449

61

(185)

3,325

7,521

(55)

10,846

–

(8)

–

–

(8)

–

–

(8)

–

(8)

Profit/(loss) after taxation

10,904

Other segment information:

Property, plant & equipment

Exploration and evaluation assets

Other assets

Unallocated assets

Total assets

Segment liabilities

Total liabilities

Capital expenditure 2016:

Exploration and evaluation assets

Property, plant & equipment

UK
US$000

Ireland
US$000

Africa
US$000

Kambuna
US$000

Total
US$000

9,078

41,648

19,994

–

–

8,204

3,318

57

–

70,720

8,261

3,318

(10,508)

(10,508)

(338)

(338)

407

1,458

581

–

(91)

(91)

430

–

–

–

12

12

9,078

53,170

20,063

13,734

96,045

(13)

(13)

(10,950)

(10,950)

–

–

1,418

1,458

Unallocated assets comprise cash on deposit.

Information on major customers is provided in note 4.

Note (1) BKR acquisition costs

Significant transaction costs of US$3,386,000 were expensed in 2017 on the proposed acquisition, announced on 21 

November 2017, of the BKR Assets from BP. These were largely incurred on the negotiation and documentation of the 

transaction and on the AIM Admission Document published on 30 November 2017. It also included other consultancy 

and advisor fees arising throughout the process.

53

Serica Energy plc Annual Report and Accounts 2017FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

4.  Sales Revenue

Gas sales

Oil sales

NGL sales

Movement in liquids overlift/underlift

2017
US$000

12,463

17,177

3,489

(1,163)

2016
US$000

8,374

11,090

1,451

517

31,966

21,432

Gas sales revenue in 2017 arose from one key customer. In 2016 this arose from two key customers paying 

US$7,581,000 and US$793,000 respectively. All oil sales revenue in 2016 and 2017 was from one key customer.

5.  Cost of Sales

Operating costs

Depletion (see note 15)

6.   Analysis of Expenses by Function

Administrative

Impairment and write-offs of E&E assets (see note 14)

Other

7.  Group Operating Profit

This is stated after charging:

Operating lease rentals (minimum lease payments):

– Land and buildings

– Other

Total lease payments recognised as an expense

2017
US$000

2016
US$000

10,958

13,586

1,710

1,274

12,668

14,860

2017
US$000

2,244

1,612

1,316

5,172

2016
US$000

2,062

62

999

3,123

2017
US$000

2016
US$000

73

–

73

70

–

70

Depreciation, depletion and amortisation expense

There was no charge for depreciation of other property, plant and equipment in 2016 or 2017.

Depletion of oil and gas properties is classified within cost of sales.

54

Serica Energy plc Annual Report and Accounts 20178.  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:

Corporate transaction services

Other assurance fees

2017
US$000

2016
US$000

100

31

11

142

540

23

563

86

27

10

123

–

–

–

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.

9.  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

2017
No. 

2016
No. 

4

1

1

6

3

1

1

5

US$000

US$000

1,496

190

66

98

1,146

143

55

90

1,850

1,434

791

4

46

841

667

–

22

689

55

Serica Energy plc Annual Report and Accounts 2017FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

9.  Staff Costs and Directors’ Emoluments continued

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$1.355 (2015: £1=US$1.528) to US$ being the reporting 

currency for the purposes of the Company’s accounts.

2017
Salary and
fees
US$000

2017
Bonus
US$000

2017
Pension (4)
US$000

2017
Benefits
in kind
US$000

2017
Total
US$000

2016
Total
US$000

A Craven Walker (1)

386

97

N Pike

I Vann

J Harris (2)

M Flegg (3)

52

52

47

40

–

–

–

–

577

97

–

–

–

–

4

4

29

512

435

–

–

–

–

52

52

47

44

54

54

54

–

29

707

597

Note (1) With effect from 1 June 2015, Mr Craven Walker took the role of Executive Chairman following the departure of the two Executive directors. Under his 
contract as Executive Chairman he is entitled to the award of share options, share schemes and bonus.

Note (2) Jeffrey Harris resigned on 20 November 2017.

Note (3) Mitch Flegg was appointed on 21 November 2017.

Note (4) Cash in lieu of pension.

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

2017

2016

1

–

–

–

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 30.

10.  Finance Revenue 

Bank interest receivable

Other finance revenue

Total finance revenue

11.  Finance Costs

Interest payable on Erskine acquisition consideration

Other interest payable

Other finance costs

Total finance costs

56

2017
US$000

2016
US$000

246

–

246

2017
US$000

113

25

–

138

61

–

61

2016
US$000

179

6

–

185

Serica Energy plc Annual Report and Accounts 201712.  Taxation

a) Tax (credited)/charged 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

b)  Reconciliation of the total tax (credit)/charge

2017
US$000

2016
US$000

–

–

–

–

–

–

–

–

(6,255)

(8,008)

–

487

(6,255)

(7,521)

(6,255)

(7,521)

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 before taxation – continuing ops

2017
US$000

10,848

2016
US$000

3,325

Accounting loss before taxation – discontinued ops

–

(8)

Accounting profit before taxation

10,848

3,317

Expected tax charge at standard UK corporation tax rate of 19.25% (2016 – 20%)

Impact of higher tax rates on ring fence profits

Expenses not deductible for tax purposes

Unrecognised tax losses

Utilisation of tax losses not previously recognised

Different foreign tax rates

Adjustment to reflect tax rate changes

Recognition of losses not previously recognised

Tax credit reported in the income statement

2,088

2,634

1,417

82

663

1,112

88

373

(6,218)

(2,229)

(3)

–

(7)

487

(6,255)

(8,008)

(6,255)

(7,521)

57

Serica Energy plc Annual Report and Accounts 2017FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

12.  Taxation continued

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$16.2 

million (2016: US$10.0 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 Group has UK ring fence tax losses of US$146.5 million available as at 31 December 2017 (2016: US$165.6 million) 

which form part of total UK tax losses of approximately US$176.1 million (2016: US$194.6 million) that are available 

indefinitely for offset against future trading profits of the companies in which the losses arose. Of this amount 

US$47.8 million (2016: US$50.3 million) has been set off against taxable temporary differences. The benefit of 

approximately US$87.8 million (2016: US$119.5 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 either been recognised in the 

net deferred tax asset or set against a deferred tax liability arising.

d)  Deferred tax

The deferred tax included in the balance sheet is as follows:

Deferred tax liability:

Temporary differences on capital expenditure

(19,138)

(20,104)

2017
US$000

2016
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

e)  Changes to UK corporation tax legislation

(19,138)

(20,104)

–

–

35,347

30,058

35,347

30,058

16,209

9,954 

2017
US$000

2016
US$000

(966)

(4,702)

–

–

(5,289)

(2,819)

(6,255)

(7,521) 

The main rate of UK corporation tax changed from 20% to 19% on 1 April 2017 and will change to 18% on 1 April 2020. 

The UK Finance Bill 2016 includes a reduction of the UK corporation tax rate to 17% on 1 April 2020. This will replace 

the 18% UK corporation tax rate that is currently legislated to take effect.

In March 2016 it was announced that the rate of SC would be reduced from 20% to 10% with effect from 1 January 

2016. This was substantively enacted on 6 September 2016 and reduced the headline rate of tax to 40% for ring-fenced 

trading profits.

58

Serica Energy plc Annual Report and Accounts 201712.  Taxation continued

f)  Unrecognised deferred tax liability

In 2017 and 2016 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$29.2 million (2016: US$ 28.7 million) of UK corporation tax  losses which are not recognised as 

deferred tax assets.

13.  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. 

The following reflects the income and share data used in the basic and diluted earnings per share computations:

2017
US$000

2016
US$000

Net profit from continuing operations

17,103

10,846

Net profit attributable to equity holders of the parent

17,103

10,838

Basic weighted average number of shares

263,679

263,679

Diluted weighted average number of shares

266,724

264,358

2017
‘000

2016
‘000

Basic EPS on profit on continuing operations (US$)

Diluted EPS on profit on continuing operations (US$)

Basic EPS on profit for the year (US$)

Diluted EPS on profit for the year (US$)

2017
US$

0.06

0.06

0.06

0.06

2016
US$

0.04

0.04

0.04

0.04

59

Serica Energy plc Annual Report and Accounts 2017 
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

14. Exploration and Evaluation Assets

Group

Cost:

1 January 2016

Additions

Write-offs

31 December 2016

Additions

Write-offs

31 December 2017

Provision for impairment:

1 January 2016

Impairment reversal for the year

31 December 2016 

Impairment reversal for the year

31 December 2017

Net book amount:

31 December 2017

31 December 2016

1 January 2016

Total
US$000

64,378

1,418

(62)

65,734

1,855

(1,612)

65,977

(12,564)

–

(12,564)

–

(12,564)

53,413

53,170

51,814

The aggregate impairment and write-off charge against E&E assets in 2017 was US$1.6 million (2016: US$0.1 million). 

This comprised a US$1.5 million charge following the relinquishment of UK Licence P1482 (containing the Doyle 

prospect) in 1H 2017, other minor UK asset write-offs and a final minor charge against costs incurred on the Sidi 

Moussa block in Morocco.

Company

The Company has no E&E assets.

60

Serica Energy plc Annual Report and Accounts 2017 
15.  Property, Plant and Equipment

Group

Cost:

1 January 2016

Additions

31 December 2016

Additions

31 December 2017

Depreciation and depletion:

1 January 2016

Charge for the year (note 5)

31 December 2016

Charge for the year (note 5)

31 December 2017

Net book amount:

31 December 2017

31 December 2016

1 January 2016

Oil and gas
properties
US$000

10,235

1,458

11,693

272

11,965

1,341

1,274

2,615

1,710

4,325

7,640

9,078

8,894

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 initially recorded was 

US$10.2 million (comprising cash consideration of US$8.885 million and non-cash consideration of US$1.35 million) 

which reflected the headline price plus internal transition costs less net income attributable to the interest from the 

effective date of 1 January 2014. Additions of US$0.3 million during 2017 (2016: US$1.5 million) comprise US$0.5 million 

(2016: US$2.2 million) relating to the Company’s estimate of contingent payments due to BP (see note 23) partially 

offset by other pre-completion date adjustments and revisions.

Other

Depletion charges on oil and gas properties are classified within ‘cost of sales’.

Company

The Company has no property, plant and equipment.

61

Serica Energy plc Annual Report and Accounts 2017FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

16.  Investments

Company – Investment in subsidiaries

Cost:

As at 1 January 2016 and 2017

Increase in investment

As at 31 December 2017

Provision for impairment:

As at 1 January 2016 and 2017

Impairment charge for the year

As at 31 December 2017

Net book amount:

31 December 2017

31 December 2016

1 January 2016

Total
US$000

134,034

–

134,034

(132,684)

–

(132,684)

1,350

1,350

1,350

In the Company financial statements, the cost of the investment acquired on an historic reorganisation in 2005 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. The reduction of US$17,909,000 (2016: US$12,954,000) in 

provision for impairment against amounts owed by Group undertakings (see note 18) has been made following an 

increase in value attributed to certain of the oil and gas assets held by the Company’s subsidiary undertakings.

62

Serica Energy plc Annual Report and Accounts 2017 
16.  Investments continued

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

% voting rights 
and shares held
2017

% voting rights and 
shares held 
2016

Serica Holdings UK Ltd 

Serica Energy Holdings BV (i & iii)

Serica Energy (UK) Ltd (i)

Serica Energy Slyne BV (i & iii)

Serica Energy Rockall BV (i & iii)

Serica Energy Namibia BV (i & iii)

Serica Sidi Moussa BV (i & iii)

Serica Foum Draa BV (i & iii)

Ordinary

Ordinary

Ordinary

Ordinary

Ordinary

Ordinary

Ordinary

Ordinary

Serica Glagah Kambuna BV (i & iii)

Ordinary 

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

(i) Held by a subsidiary undertaking

(ii) Incorporated in the British Virgin Islands

(iii) Incorporated in the Netherlands

Holding

Holding

E&P

Exploration

Exploration

Exploration

Exploration

Dormant

Dormant

Dormant

Dormant

Dormant

Dormant

Dormant

Dormant

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

The registered office of the Company’s subsidiaries incorporated in the UK is 52 George Street, London, W1U 7EA.

The registered office of the Company’s subsidiaries incorporated in the Netherlands is Hoogoorddreef 15, 1101 BA 

Amsterdam, The Netherlands.

The registered office of APD Ltd and PDA Asia Ltd is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, 

British Virgin Islands. The registered office of Serica Energy Corporation is P.O. Box 71, Road Town, Tortola, British 

Virgin Islands.

17.  Inventories

Materials and spare parts

Group

Company

2017
US$000

2016
US$000

2017
US$000

2016
US$000

453

453

401

401

–

–

–

–

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.

63

Serica Energy plc Annual Report and Accounts 2017 
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

18.  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

Liquids underlift

Group

Company

2017
US$000

2016
US$000

2017
US$000

2016
US$000

–

1,208

100

784

182

–

–

82,380

69,829

4,265

1,909

143

182

350

–

–

676

213

–

–

–

138

174

–

2,274

6,849

83,269

70,141

Trade receivables at 31 December 2017 arose from four (2016: four) customers. 

None of the Group’s receivables are considered impaired and there are no financial assets past due but not impaired at 

the year end. 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$49,124,000 (2016: US$67,033,000) – see note 16.

19.  Financial Assets and Liabilities

Financial assets - current

Derivative financial instruments

Financial liabilities – non current 

BKR prepayment facility

Derivative financial instruments

Group

Company

2017
US$000

2016
US$000

2017
US$000

2016
US$000

2,670

2,670

3,825

3,825

–

–

–

–

–

–

–

–

–

–

–

–

The Group enters into derivative financial instruments with various counterparties. The gas put option commodity 

contract with BP (fair value hierarchy level 2) is measured based on a consensus of mid-market values from third 

party providers based on the Black Scholes model with inputs of observable spot commodities price, interest rates 

and the volatility of the commodity.

BKR prepayment facility

Non-current liabilities of US$3.8 million as at 31 December 2017 represent amounts drawn under the prepayment 

facility made between Serica and BP Gas and dated 21 November 2017. Under this facility, BP Gas has agreed to 

provide for drawings to cover the initial consideration and cost of premiums payables for gas price puts (hedging 

instruments which set a floor price for certain volumes of gas production) which have been purchased by Serica in 

conjunction with signing the acquisition agreement. The prepayment facility of up to £16 million carries interest at 

one-month LIBOR plus 4.5% per annum compounded monthly and added to the outstanding amount and has a 

maximum duration of three years from initial drawings. Repayments will commence six months after completion 

and be based on 35% of Serica’s retained share of gas sales revenues from the BKR Assets including any price related 

hedging gains and after deduction of those proportions due to BP under the Net Cash Flow Sharing Deed.

64

Serica Energy plc Annual Report and Accounts 201720. Cash and Term Deposits

Cash at bank and in hand

Short-term deposits

Cash and cash equivalents

Group

Company

2017
US$000

2016
US$000

2017
US$000

2016
US$000

8,400

2,859

4,682

332

19,879

13,734

14,030

13,734

28,279

16,593

18,712

14,066

Term deposits

5,698

–

1,350

–

33,977

16,593

20,062

14,066

As at 31 December 2017, the cash balance of US$28.3 million contains an amount of US$3.1 million that is secured 

against a bank guarantee given in respect of operational and capital expenditure to be carried out during 2018 on the 

Erskine field in the UK. The funds are freely transferrable but alternative collateral would need to be put in place to 

replace the cash security.

Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits and term deposits 

are made for varying periods of between one and ninety-five days 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

2017
US$000

2016
US$000

2017
US$000

2016
US$000

Barclays Bank plc

Lloyds Bank plc

A-2

A-1

18,198

15,748

8,835

7,738

5,663

14,399

6,328

7,738

For the purposes of the consolidated and Company cash flow statement, cash and cash equivalents exclude term 

deposits of US$5,698,000 and US$1,350,000 respectively from the above amounts at 31 December 2017 (2016: US$nil).

65

Serica Energy plc Annual Report and Accounts 2017FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

21.  Trade and Other Payables

Current:

Trade payables

Other payables

Liquids overlift

BP consideration liability

Group

Company

2017
US$000

2016
US$000

2017
US$000

2016
US$000

2,202

1,838

813

2,972

7,825

246

2,749

–

2,882

5,877

1,898

487

–

–

194

268

–

–

2,385

462

The BP consideration liability of US$3.0 million as at 31 December 2017 is the final tranche of outstanding Erskine asset 

consideration payable to BP on or before 1 July 2018. As at 31 December 2016, the aggregate outstanding sum was 

payable in two tranches of US$2.8 million plus accrued interest on 1 July 2017 and 1 July 2018 respectively.

22. Trade and Other Payables – Non current

Group

Company

2017
US$000

2016
US$000

2017
US$000

2016
US$000

–

–

2,883

2,883

–

–

–

–

BP consideration liability (see note 21)

23. Provisions

Group

As at 1 January

Unwinding of discount

Additions

As at 31 December

2017
US$000

2016
US$000

2,190

–

500

–

–

2,190

2,690

2,190

2,234

456

–

2,190

2,690

2,190

Provisions are allocated between current and non-current as follows:

Provisions - current

Provisions - non-current

As at 31 December 

Under the terms of the Erskine acquisition, certain contingent payments may be made by Serica related to savings in field 

operating costs. The current fair value estimated provision for these amounts is US$2.7 million which has been capitalised 

as an asset acquisition cost (see note 15). Uncertainties currently exist as to the quantification of any final payment.

No provision for decommissioning liabilities for the Erskine field is recorded as at 31 December 2016 or 2017 as the 

Group’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.

Company

The Company has no provisions.

66

Serica Energy plc Annual Report and Accounts 201724. 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 the BP consideration liability; given 

the level of expenditure plans over 2018/19 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 2017

Fixed rate

Short-term deposits

Term deposits

Floating rate

Cash

BP consideration liability

BKR facility

Year ended 31 December 2016

Fixed rate

Short-term deposits

Floating rate

Cash

BP consideration liability

Within 1 year
US$000

1–2 years
US$000 

2–5 years
US$000

Total
US$000

19,879

5,698

–

–

–

–

Within 1 year
US$000

1–2 years
US$000 

2–5 years
US$000

8,400

(2,972)

–

–

–

(3,825)

–

–

–

19,879

5,698

25,577

Total
US$000

8,400

(2,972)

(3,825)

1,603

Within 1 year
US$000

1–2 years
US$000 

2–5 years
US$000

Total
US$000

13,734

–

–

13,734

13,734

Within 1 year
US$000

1–2 years
US$000 

2–5 years
US$000

Total
US$000

2,859

–

(2,882)

(2,883)

–

–

2,859

(5,765)

(2,906)

67

Serica Energy plc Annual Report and Accounts 2017 
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

24. 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 profit 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
2017
US$000

Effect on
profit
before tax
2016
US$000

186

(186)

88

(88)

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 2017

Fixed rate

Short-term deposits

Term deposits

Floating rate

Cash

Year ended 31 December 2016

Fixed rate

Short-term deposits

Floating rate

Cash

Credit risk

Within 1 year
US$000

1–2 years
US$000 

2–5 years
US$000

Total
US$000

14,030

1,350

–

–

–

–

14,030

1,350

15,380

Within 1 year
US$000

1–2 years
US$000 

2–5 years
US$000

Total
US$000

4,682

–

–

4,682

4,682

Within 1 year
US$000

1–2 years
US$000 

2–5 years
US$000

Total
US$000

13,734

–

–

13,734

13,734

Within 1 year
US$000

1–2 years
US$000 

2–5 years
US$000

Total
US$000

332

–

–

332

332

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.

68

Serica Energy plc Annual Report and Accounts 201724. 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

2017
US$000

2016
US$000

2017
US$000

2016
US$000

11,416

3,368

7,076

1,377

9

31

8

19

–

–

–

–

3,619

4,017

676

29

7,208

443

2,457

377

2,307

64

421

58

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

Liquidity risk

Effect on
 profit
before tax
2017
US$000

Effect on
 profit
before tax
2016
US$000

783

(783)

493

(493)

The table below summarises the maturity profile of the Group and Company’s financial liabilities at 31 December 2017 

based on contractual undiscounted payments. Financial liabilities (see note 19) are assumed to be repayable by mid-

2019. The Group monitors its risk to a potential shortage of funds by monitoring the maturity dates of existing debt.

Group  

Year ended 31 December 2017

Trade and other payables

Financial liabilities

Year ended 31 December 2016

Within 1 year
US$000

1–2 years
US$000 

2–5 years
US$000

Total
US$000

7,825

–

–

4,117

–

–

7,825

4,117

Within 1 year
US$000

1–2 years
US$000 

2–5 years
US$000

Total
US$000

Trade and other payables

5,877

2,883

–

8,760

69

Serica Energy plc Annual Report and Accounts 2017FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

24. Financial Instruments continued

Company  

Year ended 31 December 2017

Within 1 year
US$000

1–2 years 
US$000

2–5 years
US$000

Total
US$000

Trade and other payables

2,385

–

–

2,385

Year ended 31 December 2016

Within 1 year
US$000

1–2 years 
US$000

2–5 years
US$000

Total
US$000

Trade and other payables

462

–

–

462

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 2016, 9% of the Group’s gas production was sold at fixed prices under a contract which expired on 30 

September 2016. All gas production is now sold at prices linked to the spot market. All oil and NGL production was 

sold at prices linked to the spot market. 

At 31 December 2017, the Group held put options covering 2018, 2019 and 1H 2020 daily volumes of 230,000, 240,000 

and 160,000 therms per day respectively, of gas at floor prices of 35 pence per therm.

At 31 December 2017, the Group held put options, which place no ceiling on sales prices, giving coverage for daily 

volumes of 900 barrels of oil at a floor price of US$55 per barrel to end Q1 2018.

Fair values of financial assets and liabilities

Management assessed that the fair values of cash and short-term deposits, trade receivables, trade payables, other 

current liabilities and the non-current financial liability under the BKR prepayment facility 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, production and development expenditure, and to safeguard 

the entity’s ability to continue as a going concern and create shareholder value. At 31 December 2017, capital 

employed of the Group amounted to US$106.1 million (comprised of US$102.3 million of equity shareholders’ funds 

and US$3.8 of borrowings), compared to US$85.1 million at 31 December 2016 (comprised of US$85.1 million of equity 

shareholders’ funds and US$nil of borrowings). 

At 31 December 2017, capital employed of the Company amounted to US$102.3 million (comprised of US$102.3 million 

of equity shareholders’ funds and US$nil of borrowings), compared to US$85.1 million at 31 December 2016 (comprised 

of US$85.1 million of equity shareholders’ funds and US$nil of borrowings).

70

Serica Energy plc Annual Report and Accounts 201725. 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.

As at 31 December 2017, the share capital of the Company comprised one “A” share of £50,000 and 263,679,039 

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

Total
Share capital
US$000

Number

As at 1 January 2016 and 2017 

263,679,040

26,458

202,850

229,308

Shares issued 

–

–

–

–

As at 31 December 2017

263,679,040

26,458

202,850

229,308

Allotted, issued and fully paid:

Company

Share
capital
US$000

Share 
premium
US$000

Total
Share capital
US$000

Number

As at 1 January 2016 and 2017 

263,679,040

26,458

167,578

194,036

Shares issued 

–

–

–

–

As at 31 December 2017

263,679,040

26,458

167,578

194,036

66,000 ordinary shares were issued in February 2018 and as at 9 April 2018 the issued voting share capital of the 

Company is 263,745,039 ordinary shares and one “A” share.

71

Serica Energy plc Annual Report and Accounts 2017FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

26. Additional Cash Flow Information

Analysis of Group net cash:

Year ended 31 December 2017

1 January
 2017
US$000

Cash flow
US$000

Non-cash
movements
US$000

31 December
2017
US$000

Cash

Short-term deposits

2,859

13,734

5,351

5,696

190

449

8,400

19,879

Year ended 31 December 2016

16,593

11,047

639

28,279

1 January
 2016
US$000

Cash flow
US$000

Non-cash
movements
US$000

31 December
2016
US$000

Cash

Short-term deposits

14,159

(11,103)

7,443

7,031

(197)

(740)

2,859

13,734

Analysis of Company net cash:

Year ended 31 December 2017

21,602

(4,072)

(937)

16,593

1 January
 2016
US$000

Cash flow
US$000

Non-cash
movements
US$000

31 December
 2016
US$000

Cash

Short-term deposits

332

4,248

13,734

(16)

104

310

4,684

14,028

Year ended 31 December 2016

14,066

4,232

414

18,712

1 January
 2016
US$000

Cash flow
US$000

Non-cash
movements
US$000

31 December
 2016
US$000

Cash

Short-term deposits

6,287

7,443

(5,927)

7,031

(28)

332

(740)

13,734

13,730

1,104

(768)

14,066

72

Serica Energy plc Annual Report and Accounts 201727. Share–Based Payments

The Company operates three discretionary incentive share option plans: the Serica Energy Plc Long Term Incentive 

Plan (the “LTIP”), which was adopted by the Board on 20 November 2017 which permits the grant of share-based 

awards, the 2017 CSOP, which was adopted by the Board on 20 November 2017, and the Serica 2005 Option Plan, 

which was adopted by the Board on 14 November 2005. Awards can no longer be made under the Serica 2005 Option 

Plan, however, options remain outstanding under the Serica 2005 Option Plan. The LTIP and the 2017 CSOP together 

are known as the “Discretionary Plans”. The Board has not yet made any grants under the 2017 CSOP but announced 

in November 2017 that certain share awards, detailed below, under the LTIP would be granted in due course. 

A separate plan, the Serica Energy plc Company Share Option Plan (“2016 CSOP”), was approved for adoption at the 

Company’s AGM in June 2016, but this was terminated with effect from 29 November 2017 following the adoption of 

two further discretionary plans on 20 November 2017, and there are no outstanding options under the 2016 CSOP.

The Discretionary Plans will govern all future grants of options by the Company to Directors, officers, key employees 

and certain consultants of the Group. The Directors intend that the maximum number of ordinary shares which may 

be utilised pursuant to the Discretionary Plans 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. 

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 2005 Option Plan

As at 31 December 2017, the Company has granted 24,332,460 options under the Serica 2005 Option Plan, 8,196,330 

of which are currently outstanding. 400,000 of these options were granted to a consultant subject to performance 

conditions, and 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$98,000 has been charged to the income statement 

in continuing operations for the year ended 31 December 2017 (2016: US$90,000) and a similar amount credited to 

the share-based payments reserve, classified as ‘Other reserve’ in the Balance Sheet. A charge of US$46,000 (2016: 

US$22,000) of the total continuing operations charge was in respect of key management personnel (defined in note 

9). The charge of US$98,000 expensed in 2017 includes an amount of US$50,000 (US$25,000 attributable to key 

management personnel) in relation to awards that are to be granted under the LTIP in 2018 and detailed below. This 

charge was attributable for the December 2017 period as the relevant Directors and employees were considered to be 

rendering services in consideration for awards that were deemed as granted at that time under IFRS2. 

No options were granted in 2016 or 2017 under the Serica 2005 Option Plan. 

The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share 

options during the year:

Serica 2005 option plan

2017
Number

2017
WAEP £

2016
Number

2016
WAEP £

Outstanding as at 1 January

8,466,330

0.28

8,601,330

–

–

–

(270,000)

1.036

(135,000)

1.035

0.30

–

Granted during the year

Expired during the year

Outstanding as at 31 December

8,196,330

0.25

8,466,330

Exercisable as at 31 December

4,196,330

0.38

4,016,330

0.28

0.46

73

Serica Energy plc Annual Report and Accounts 2017FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

27. Share–Based Payments continued

The weighted average remaining contractual life of options outstanding as at 31 December 2017 is 5.6 years (2016: 

6.4 years).

For the Serica 2005 option plan, the exercise price for outstanding options at the 2017 year-end ranges from £0.07 to 

£1.04 (2016: £0.07 to £1.04).

As at 31 December 2017, the following director and employee share options were outstanding:

Expiry Date 

March 2018

Amount

318,000

January 2020

1,155,000

April 2021

50,000

January 2022

1,123,330

October 2022

January 2023

November 2023

January 2024

June 2025

July 2025

July 2025

July 2025

400,000

300,000

400,000

450,000

1,500,000

1,000,000

1,000,000

500,000

Exercise 
cost
£

238,500

785,400

15,685

240,112

116,000

81,750

72,000

58,500

99,000

120,000

180,000

120,000

In February 2018, 66,000 share options under the Serica 2005 Option Plan were exercised and in March 2018 252,000 

share options expired.

Long Term Incentive Plan

The Company has announced that the following awards are deemed as granted under IFRS2 to certain Directors and 

employees under the LTIP.

Director/Employees

Antony Craven Walker

Mitch Flegg

Employees below Board level (in aggregate)

Total number of  
shares deemed granted 
subject to Deferred Bonus 
Share Awards

225,000

225,000

575,000

1,025,000

Deferred Bonus Share Awards involve the deferral of bonuses into awards over shares in the Company. They are 

structured as nil-cost options and may be exercised up until the fifth anniversary of the date of grant. They will vest 

on the later of the date of completion of the BKR Asset acquisition and 31 January 2019. They are not subject to 

performance conditions; however, they are conditional on completion of the BKR Acquisition, subject to the Board 

determining otherwise.

Director/Employees

Antony Craven Walker

Mitch Flegg

Employees below Board level (in aggregate)

74

Total number of  
shares deemed granted 
subject to Performance 
Share Awards

1,500,000

1,500,000

2,250,000

5,250,000

Serica Energy plc Annual Report and Accounts 201727. Share–Based Payments continued

Performance Share Awards are subject to performance conditions based on average share price growth targets to 

be measured by reference to dealing days in the period of 90 days ending immediately prior to expiry of a three-year 

performance starting on the date of grant of a Performance Share Award. Performance Share Awards are structured 

as nil-cost options and may be exercised up until the tenth anniversary of the date of grant. They are not subject to 

completion of the BKR Acquisition.

28. Commitments under Operating Leases

Operating lease agreements where the Group is lessee

At 31 December 2017 the Group has entered into commercial leases in respect of the 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

2017
US$000

2016
US$000

2017
US$000

2016
US$000

74

–

74

14

–

14

74

–

74

–

–

–

In March 2017, the Group entered into an extension of its existing London office operating lease with a minimum 

commitment of a rolling three-month period.

In December 2017, the Group entered into a new and additional office operating lease with a minimum commitment 

period until June 2018.

29. Capital Commitments and Contingencies

At 31 December 2017, 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 (2016: 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. 

Other less material minimum obligations include G&G, seismic work and ongoing licence fees in the UK, Namibia and 

Ireland.

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 an 

obligation to pay to BP the remaining tranche of US$2.775 million (excluding interest) cash consideration on or before 

1 July 2018. 

Other

The Group occasionally has to provide security for a proportion of its future obligations to defined work programmes 

or other commitments. As at 31 December 2017, the cash balance of US$28.3 million contains an amount of US$3.1 

million that is secured against a bank guarantee given in respect of operational and capital expenditure to be carried 

out during 2018 on the Erskine field in the UK. The funds are freely transferrable but alternative collateral would need 

to be put in place to replace the cash security. No such obligations and cash collateral existed as at 31 December 2016.

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. 

75

Serica Energy plc Annual Report and Accounts 2017FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

30. Related Party Transactions and Transactions with Directors

There are no related party transactions, or transactions with Directors that require disclosure except for the 

remuneration items disclosed in the Directors Report and note 9 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.

76

Serica Energy plc Annual Report and Accounts 2017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 2016

2.4

10.8

2.4

10.8

4.2

Acquisitions 

Production

–

(0.3)

1.4

(1.8)

–

(0.3)

1.4

(1.8)

0.2

(0.6)

At 31 December 2016

2.1

10.4

2.1

10.4

3.8

Revisions

Production

At 31 December 2017

Proved developed

Probable developed

At 31 December 2017

(0.1)

(0.4)

1.6

0.9

0.7

1.6

0.6

(2.2)

8.8

5.1

3.7

8.8

(0.1)

(0.4)

1.6

0.9

0.7

1.6

0.6

(2.2)

8.8

5.1

3.7

8.8

–

(0.7)

3.1

1.8

1.3

3.1

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 2016 and 2017 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.

The resources of the Columbus field in the UK North Sea have been classified as Contingent Resources as at 31 

December 2016 and 2017.

77

Serica Energy plc Annual Report and Accounts 2017GLOSSARY

bbl

bcf

boe 

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 the appropriate rate)

BKR Assets

Bruce, Keith and Rhum fields interests to be acquired

CPR

FDP

HPHT

mscf

mmbbl

mmboe

mmscf

mmscfd

NGLs

NTS

OGA

Overlift

Underlift

P10

P50

P90

Competent Persons Report

Field Development Plan

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

Natural gas liquids extracted from gas streams

National Transmission System

Oil and Gas Authority

Volumes of oil or NGLs sold in excess of volumes produced

Volumes of oil or NGLs produced but not yet sold

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

Pigging

A process of pipeline cleaning and maintenance which involves the use of devices called pigs

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

UKCS

Technical Assistance Contract

Trillion standard cubic feet

United Kingdom Continental Shelf

78

Serica Energy plc Annual Report and Accounts 2017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

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

79

Serica Energy plc Annual Report and Accounts 201780

Serica Energy plc Annual Report and Accounts 20172017 was a 
landmark year for 
Serica, delivering 
our highest profit to 
date and providing 
us with a platform 
to grow further. 

Serica Energy plc is an 
independent oil and gas 
company with production, 
development and exploration 
interests in the UK Continental 
Shelf and exploration interests 
in Ireland and Namibia. The 
company’s shares are listed 
on AIM in London under the 
symbol SQZ. 

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SERICA ENERGY PLC

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

.

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www.serica-energy.com

ANNUAL REPORT &  
FINANCIAL STATEMENTS
2017