DELIVERING
ENERGY
ANNUAL REPORT 2021
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www.serica-energy.com
CORPORATE INFORMATION
Registered and Main Office
Bankers
48 George Street
London W1U 7DY
Operational Headquarters
H1 Building
Hill of Rubislaw
Anderson Drive
Aberdeen AB15 6BY
Nominated Advisor & UK Broker
Peel Hunt LLP
100 Liverpool Street
London EC2M 2AT
UK Broker
Jefferies International Limited
100 Bishopsgate
London EC2N 4JL
Auditor
Ernst & Young LLP
1 More London Place
London SE1 2AF
Barclays, Lloyds
Company Secretary
AMBA Secretaries Limited
UK Registrar
Link Asset Services
10th Floor, Central Square
29 Wellington Street
Leeds LS1 4DL
Listing
AIM, London
Symbol: SQZ
Website
www.serica-energy.com
Company Number
5450950
CONTENTS
Highlights
Corporate Governance
2021 Performance
Executive Chairman’s Statement
Serica at a Glance
Strategic Report
Chief Executive’s Review
HSEQ
Environmental, Social & Governance
Review of Operations
Reserves
Licence Holdings
Financial Review
1
2
4
6
8
10
12
18
19
20
Board of Directors
Directors’ Report
Corporate Governance
Directors’ Responsibilities Statement
Financial Statements
Independent Auditor’s Report
Primary Financial Statements
Notes to the Financial Statements
Other Information
Glossary
Corporate Information
28
30
32
46
47
56
60
96
97
Produced by Communiqué Associates Limited, Edinburgh +44 7802 349934
2021 PERFORMANCE
£135.1 MILLION
Full year profit before tax
DIVIDEND
An increased dividend of 9p to be
recommended at 2022 AGM
ESG ADVANCES
Continued focus resulted in
16% reduction in flare volumes
INVESTMENT
Through-cycle investment strategy brought
R3 and Columbus wells to first production
RESERVES
New CPR again indicates significant
reserves upgrade despite allowing for
2021 production
2021
9
2021
2021
9
62.2
2021
2021
62.2
387
2021
2021
387
2021
218
218
Gross profit £m
Cash resources* £m
2020
3.5
2020
3.5
2020
61.0
2020
2020
-3
61.0
2020
-3
2020
91
2020
2019
3
2018
2017
2019
3
2019
2018
2018
2017
2017
3.1
62.3
2019
2019
86
68.8
2018
2018
2017
2017
3.1
20
19
62.3
68.8
2019
2019
86
2018
2018
20
2017
2017
19
102
2019
43
25
2018
43
2017
25
91
102
Reserves mmboe
Dividend p/share
* Combined cash plus hedging advances
2021
9
2020
3.5
2019
3
2018
2017
2021
2020
2019
2018
62.2
2021
387
2021
2021
9
2021
218
62.2
2021
387
2021
218
61.0
2020
-3
2020
2020
3.5
91
62.3
2019
86
2019
2019
3
102
68.8
2018
20
2018
2018
43
2020
2019
2018
61.0
2020
-3
62.3
2019
86
2020
2019
91
102
68.8
2018
20
2018
43
2017
3.1
2017
19
2017
2017
25
2017
3.1
2017
19
2017
25
LOOKING TO THE FUTURE
Serica is benefiting from the
retention of 100% of our BKR
net cash flows, alongside new
production from the Rhum R3 and
Columbus wells at a time of strong
commodity prices, placing us in a
strong and stable position for 2022
and beyond
•
A strong balance sheet, no debt, limited decommissioning liability
• Well positioned for ongoing M&A activity
•
•
•
Continuation of our strategy of investing in our assets
The Transocean Paul B Lloyd is contracted to drill the HPHT
North Eigg exploration well which we expect to spud in Q3
A Light Well Intervention Vessel campaign to enhance production
on BKR wells is planned for summer
Serica Energy plc Annual Report & Accounts 2021 l 1
EXECUTIVE CHAIRMANʼS STATEMENT
“Serica has seen a remarkable
transformation from the very
small company that we were
only a few years ago and
that is wholly due to the skill,
dedication and experience of
Serica’s team.”
Dear Shareholder,
The past 24 months have seen extraordinary swings in
supply and demand for oil and gas resulting in massive
movements in commodity prices, from the unprecedented
lows of mid-2020 when most upstream producing companies
were operating at a loss, to exceptional highs reached in late
2021 and continuing into 2022. Underlying price movements
have been exacerbated by extreme gas price volatility
in recent months, with both current and forward prices
fluctuating daily. This has made forecasting and planning in
the industry extremely difficult and comes at a time when the
industry is also playing a major part in the energy transition
and therefore having to find investment on many fronts.
Mindful of the volatile environment in
which we work, Serica has always aimed
to structure its finances so as to sustain
its operations and investment programmes
throughout the business cycle. This is
evident in a robust balance sheet with
strong cash reserves, and in a measured
approach to taking on decommissioning
and other fixed liabilities.
Over this period Serica managed its
operations with a view to maintaining
a constancy of production whilst also
increasing investment in new gas projects
such as Rhum R3 and Columbus, now
yielding significant benefits. That this was
achieved against the backdrop of ongoing
COVID restrictions which impacted both
onshore and offshore operations, speaks
volumes for the skills and commitment of
our operations teams. Serica is playing its
part in the energy transition. Approximately
85% of Serica’s production is gas which is
fundamentally important both to security
of the UK’s domestic energy supply during
periods of international crisis, such as we
are currently experiencing, as well as to
continuity of energy supply to support the
period of transition to new energy sources.
2 l Serica Energy plc Annual Report & Accounts 2021
Profits were strong at all levels compared
to a difficult 2020. Gross profit for 2021
was £386.8 million compared with a prior
year £2.9 million loss, illustrating the
substantial changes that occurred during
2021. With oil and particularly gas price
rises concentrated in the latter part of the
year much of that increase took place in
the second half but it was helped also by
the successful outcome of the R3 and
Columbus capital investment projects.
Profit before tax for the year increased to
£135.1 million (2020: £12.5 million) despite
both provision for significant unrealised
hedging exposure at the year end and a
final adjustment, reflecting higher energy
prices, to the fair value of the BKR net cash
flow sharing arrangements which ended on
31 December 2021.
We enter 2022 with strong cash balances
and no borrowings, prices remaining high
and the retention of 100% of the cashflow
from BKR. Year-end cash resources stood
at £218.4 million comprising £103.0
million of cash and deposits plus a further
£115.4 million lodged as security against
settlement of future hedge instruments. At
20 April 2022 cash and deposits stand at
£213.1 million plus £150.6 million lodged
as hedge security. It is the view of the
Board that this ongoing strengthening of
our financial position provides us with the
resources to make new investments both
to improve our operating efficiencies and
to seek out possible new sources of gas
supply, such as North Eigg which we plan to
drill later this year, as well as to support an
acquisition programme to complement and
build on our existing operations.
Our strengthened financial position also
enables us to look to current and future
shareholder returns. Shareholders have
seen very material growth in the Company’s
share price as the underlying value of
our assets and the efficiencies we have
introduced become recognised. However,
we also live in very uncertain times and it
is the view of the Board that we have to
maintain a prudent and balanced approach
for the year ahead.
We are committed to maintaining a
dividend at a level which reflects the growth
in core asset value and liquidity but also
reflects the unpredictability and capital
requirements of the industry. To this end we
are recommending an increased dividend of
9 pence per share for 2021. This compares
with the dividend of 3.5 pence per share
paid in respect of 2020 and maintains a
dividend yield in line with that of prior years.
This will be put to shareholders for approval
at the Annual General Meeting in June 2022
and, subject to approval, will be paid as a
single final dividend to all shareholders on
the register at 1 July 2022.
We will also be seeking shareholder
approval to enable possible future
repurchases of our share capital. We have
no immediate intention of making any share
repurchases and would only do so if we
saw benefit to shareholders but we feel that
“As a British company operating major
facilities in the North Sea we believe we
have an important role to play.”
it is appropriate to make provision at this
year’s Annual General Meeting to enable us
to make a repurchase should we see future
shareholder benefit.
Serica has seen a remarkable
transformation from the very small
company that we were only a few years
ago. That this is wholly due to the skill,
dedication and experience of Serica’s
team goes absolutely without saying. It
requires discipline, hard work and focus
but also requires an open working attitude,
welcoming diversity and new ideas. Serica
meets all of that and more. It has been a
great pleasure for all of us on the Board to
be able to work with a team like that.
As to the future, Serica wholly endorses the
overall transition to Net Zero. We continue
to make significant improvements in our
own operations and annually publish a
detailed ESG performance report on our
website. We will continue to seek new ways
in which we can be part of the transition.
However, recent events have demonstrated
that traditional energy sources will continue
to be a fundamental part of the overall
energy equation for many years to come.
We see the need to maximise the value of
the UK’s own domestic resources as part of
this but also to give the UK greater security
of supply as well as generating major
revenues for the UK with the added benefit
of a much lower environmental impact
than most import alternatives. As a British
company operating major facilities in the
North Sea we believe we have an important
role to play.
In summary, the tragic events in Europe
now taking place have underscored
the importance of our own domestic
resources. I am hopeful that, with the recent
publication of the British Energy Security
Strategy, government policy imbalances
will now be corrected and that companies
like Serica will be given the encouragement
needed to continue the investment required
to optimise the value and benefit of existing
domestic resources whilst the development
of new energy sources continues.
I and my fellow Board members are
appreciative of the support we have
received from shareholders during what are
very complex times.
Tony Craven Walker
Chairman
20 April 2022
2 l Serica Energy plc Annual Report & Accounts 2021
Serica Energy plc Annual Report & Accounts 2021 l 3
Performance Overview SERICA AT A GLANCE
Serica is a nimble, dynamic company that
has grown to become one of the UK’s leading
independent oil and gas Operators.
Our production is over 85% gas and is a vital
part of the country’s energy mix as we move
towards Net Zero, contributing to energy
supply, emissions accountability, and the
UK economy.
We are responsible through our Bruce platform
for more than 5% of the UK’s gas production.
NORTH EIGG
RHUM
BRUCE, KEITH
ABERDEEN
COLUMBUS
ERSKINE
PRODUCTION
EXPLORATION
BRUCE, KEITH AND RHUM
SERICA 98% BRUCE, 100% KEITH,
50% RHUM
Serica acquired the BKR assets in 2018 and with
the successful commissioning of the third Rhum
well in 2021, BKR now accounts for more than
80% of Serica’s total production.
COLUMBUS
SERICA 50%
Columbus was discovered by Serica in 2006.
The development well was successfully
drilled and completed last year, and the field
commenced production in November 2021.
Over 80% of Columbus production is gas.
ERSKINE SERICA 18%
NORTH EIGG SERICA 100%
The Erskine gas condensate field is operated
by Ithaca Energy. The field has already
produced more oil and gas than the 2P reserves
independently assessed when Serica purchased
its interest (effective date 1 January 2014) and
production is expected to continue until 2028.
The North Eigg exploration prospect is estimated
to contain 60 mmboe (P50) and potentially over
236 mmboe (P10) of recoverable resources
(unrisked). Serica has contracted the Transocean
Paul B. Loyd Jr. harsh environment semi-
submersible drilling rig to drill the well in Q3
2022. Development concepts being investigated
include a subsea tie-back to Serica’s nearby
Bruce facilities.
ONGOING INVESTMENT FOR GROWTH
Serica’s strong balance sheet with significant cash, no debt and limited decommissioning liabilities enables
it to pursue its investment strategies unaffected by short-term commodity price fluctuations.
COMPLETED PROJECTS
PLANNED PROJECTS
2020/21
Rhum R3 intervention –
well now online
2021
Columbus Development
and first production
2022
North Eigg
exploration well
2022
BKR
intervention campaign
4 l Serica Energy plc Annual Report & Accounts 2021
FIRMLY COMMITTED TO OUR STRATEGY TO DELIVER GROWTH
Performance Overview
RESERVES UPGRADE
Serica’s relentless focus on cost reduction and
operating efficiency has resulted in further
revisions to the Company’s net 2P reserves.
Net 2P developed and undeveloped reserves (mmboe)
61.0
end 2020
62.2
end 2021
Production during 2021
7.3mmboe
ESG IN
OPERATION
SINCE 2019
Total flaring volumes down 53%
Scope 1 CO2 emissions down 13.5%
Waste to landfill down 88%
S
E
N
N
O
T
12,000
10,000
8,000
6,000
4,000
2,000
0
S
E
N
N
O
T
250,000
200,000
150,000
100,00
50,000
0
S
E
N
N
O
T
120
100
80
60
40
20
0
2019 2020 2021
2019 2020 2021
2019 2020 2021
100% CASHFLOW FROM BKR ASSET
A major milestone for Serica was achieved on
31 December 2021 as the 2018 earn out deals with
BP, Total E&P and BHP came to an end. Serica now
benefits from 100% of its share of BKR cash flows.
These innovative acquisition deals had shared risk
and benefits with the vendors.
The mechanism has concluded at a time when
commodity prices remain strong and our investment
in BKR’s R3 well is delivering increased production.
Serica
Vendors
100%
40%
50%
60%
2018
2019
2020/21
2022
HEDGING PROGRAMME
DIVIDEND
Serica has a hedging policy to provide downside
protection in case of low commodity prices. This
policy allowed Serica to maintain its investment
policy through the 2020 commodity price downturn.
The Company sets a limit of 25% of projected gas
volumes to be covered by swaps and other fixed
price instruments (around 20% of combined oil and
gas volumes). The level of cover declines from mid-
2022 offering the Company further benefit from
the current historically high gas prices and strong
oil prices.
9p /share
recommended
for 2022
3.5p
3p
9p
0p
2019 2020 2021
2022
Serica Energy plc Annual Report & Accounts 2021 l 5
Performance Overview
CEO’S REVIEW
“2021 has been a
year in which Serica
continued to execute
its strategy of investing
in our assets in order
to both add value
and prolong their life.
The Company has a
strong balance sheet
with significant cash,
no debt and limited
decommissioning
liabilities.”
2021 has been a year in which Serica
continued to execute its strategy of
investing in our assets in order to both add
value and prolong their life. The Company
has a strong balance sheet with significant
cash, no debt and limited decommissioning
liabilities. This has allowed us to make
these investments despite the backdrop
of volatile commodity prices.
Two major capital growth projects were
executed during the year. The Rhum R3
well intervention had commenced in 2020
and was finished in 2021. This was an
ambitious programme to re-enter a well
that had been suspended by the previous
operator some 16 years previously. The
workscope involved recovery of equipment
left in the well by the previous operator,
removal of an obstruction crossing parts
of the downhole completion, installation
of new completion equipment and then
connecting the well up to the production
facilities and commissioning production.
First production was achieved in August
2021 and the well has added over 6,000
boe/d to Serica’s net production from
the field.
The second project was Serica’s operated
development of the Columbus field
consisting of a single horizontal well tied
into the Aran to Shearwater pipeline. The
development well was drilled to a total
depth of 17,600ft with a horizontal section
of over a mile in length in the Forties
Sandstone formation. First production was
achieved in November 2021.
The result of these two projects was
that Serica’s net production has grown
significantly through the year. Net
production increased from an average
18,900 boe/d in 1H to 25,500 boe/d in 2H,
rising to near 30,000 boe/d in December.
Successful delivery of increasing production
levels and higher commodity prices have
resulted in gross cash revenues increasing
month-on-month for each month from July
to December 2021.
Both R3 and Columbus produce
predominantly gas with the result that by
the end of the year Serica’s production
consisted of more than 85% gas. Serica
is making a significant contribution to UK
gas supply with over 5% of the UK’s gas
production coming from Bruce, Keith and
Rhum (“BKR”). Current UK government
forecasts suggest that gas will remain
a vital part of the UK’s energy mix as we
move towards Net Zero. Since becoming
operator of the Bruce, Keith and Rhum hub,
Serica has made significant reductions
in flaring, greenhouse gas emissions and
waste to landfill. Most importantly our
production reduces the need for much
higher carbon intensity hydrocarbon
imports. Our third annual Environment
Social and Governance (“ESG”) Report
which details the further improvements
in our ESG performance during 2021,
will be published in conjunction with the
full Annual Report and will be found at
www.serica-energy.com.
After a challenging year in 2020 when
gas prices averaged below 25 pence per
therm and oil prices averaged US$42/
bbl we experienced a strong recovery in
commodity prices during 2021. Average
market gas prices for 2021 were over
113 pence per therm and oil prices
averaged around US$70/bbl. As a result,
Serica ended 2021 with £218.4 million
of cash, cash equivalents and hedging
advances of which £103.0 million was held
in cash and deposits (2020: £89.3 million)
and a further £115.4 million had been
lodged as temporary security with gas price
hedge counterparties (2020: £1.8 million).
This security is required to cover future
period gas price hedge valuations which
reflect the impact of high forecast forward
prices on hedged production but do not
reflect the far greater revenues that would
be realised should actual prices match
those forward prices. Surplus security is
returned to Serica should forward prices
fall and when monthly contracts expire.
Serica has a hedging policy to provide
downside protection in case of low
commodity prices. In 2021 Serica had
gas price hedging in place covering
approximately 25% of retained gas sales
(or around 20% of combined oil and gas
production) after adjustment for net cash
flow sharing. These hedges are in the
form of swaps and equivalent fixed price
instruments. The majority (>80%) of Serica’s
oil and gas production is now unhedged
6 l Serica Energy plc Annual Report & Accounts 2021
“2021 was an outstanding year of progress for Serica,
demonstrating the value of our through-cycle investment
strategy, resulting in the R3 and Columbus projects reaching
first production.”
value-addition through deploying our skills
on assets that no longer fit the objectives of
current owners.
Finally, I would like to recognise the
outstanding performance of our 160
strong workforce who have achieved
all of the above despite the continued
restrictions created by the ongoing COVID-
19 pandemic. Throughout the year we have
operated with significantly limited staffing
levels on the Bruce platform to reduce the
risk of an outbreak, allow social distancing
offshore and provide isolation areas for
suspected cases. These reduced manning
levels mean that the working conditions
are more difficult for those staff remaining
on the platform and mean that we have
to prioritise essential (especially safety
and environmentally critical) activities
throughout the year. I am delighted to
report that due to the incredible skill, hard
work and professionalism of our team
we have again incurred no COVID-related
interruptions to production.
Mitch Flegg
Chief Executive Officer
20 April 2022
allowing the Company to benefit from the
current historically high gas prices and
strong oil prices. Serica has downside
protection for over 20% of projected gas
volumes in 2022 but has added no gas
price hedges since July 2021 due to
extreme market volatility.
2021 production rates of 22,200 boe/d
were a little lower than the 23,600 boe/d
achieved in the previous year, primarily
reflecting extended summer maintenance
programmes to catch up work delayed
from 2020 due to COVID restrictions. Serica
has commissioned a new Competent
Person’s Report (“CPR”) effective 1 January
2022 and I am delighted to announce
that this has once again identified an
upgrade to net 2P Reserves estimates,
particularly due to the success of the R3
well intervention. Our net 2P reserves stood
at 61.0 million boe at 1 January 2021 and
our 2021 net production was more than
7.5 million boe but our net 2P reserves at
1 January 2022 stand at 62.2 million boe
with reclassification and revisions having
more than replaced 2021 production.
This remarkable achievement is further
evidence that Serica’s long-term strategy
is delivering value.
At the end of 2021 a major milestone for
Serica was achieved as the 2018 earn out
deals with BP, Total E&P and BHP came
to an end. These innovative acquisition
structures had shared risk and reward
with the BKR vendors during the period
from 2018 to 2021. From 1 January 2022
Serica will now benefit from 100% of its
share of BKR cash flows. The mechanism
has concluded at a time when commodity
prices remain strong and our investment
in BKR’s R3 well is delivering increased
production.
As we move into 2022, Serica is continuing
the strategy of investing in its assets.
The Transocean Paul B. Loyd Jr. harsh
environment semi-submersible drilling rig
has been contracted to drill the HPHT North
Eigg exploration well which we expect to
spud in Q3. This prospect is located in
the area adjacent to the Serica operated
Rhum field. In the event of a discovery,
Serica will investigate options for a subsea
tie-back to the nearby Bruce facilities
and which require only platform topsides
modifications to ensure a low cost, low
emission design. This would enable early
development, maximise recovery and
optimise production. Serica has carried out
an in-house evaluation of the prospect and
estimates the unrisked P50 prospective
(recoverable) resources, based on seismic
mapping and Rhum analogue data, to be
around 60 million boe.
The second capital growth project planned
for 2022 is a campaign to add reserves
and prolong production from BKR subsea
wells. The scope of the campaign will be
production re-instatement, well surveillance,
production enhancement and well integrity
activities on up to five BKR wells which
are subsea completions tied back to the
Bruce platform. The work will be carried
out this summer using a Light Well
Intervention Vessel (“LWIV”) equipped with
a dive system.
Serica continues to seek new opportunities
to expand our portfolio so as to spread
risk and further increase production for
delivery into the UK markets. We believe
that the UKCS contains a wide range of
merger and acquisition opportunities, but
we have taken care to avoid overbidding
in recent market conditions. Our priority
remains to identify clear opportunities for
Serica Energy plc Annual Report & Accounts 2021 l 7
Strategic Report HSEQ
HSEQ is integral to our business. Our HSEQ Manager reports directly to our Chief Executive and our HSE
Board Committee meets quarterly. We continuously focus on improving our HSEQ performance and during
2021 delivered a series of initiatives.
ELECTED SAFETY REPRESENTATIVES
Recognising the important role played by our Elected Safety
Representatives, we have been working with them to raise their profile,
and ensure they feel engaged and adequately supported. So far we have:
•
•
•
Held 1-2-1 engagement sessions to listen to their concerns,
suggestions, and create an improvement plan
Helped to update ESR handovers, minutes, and meeting agendas
Developed an ESR Charter, which includes both Serica and ESR commitments
• Reviewed the ESR training and development matrix
We have already seen an increased number of personnel volunteering to become
ESRs as a result of this initiative, and are committed to further improvements in 2022.
PROCESS SAFETY MANAGEMENT
Process safety performance was positive in 2021, with no reportable hydrocarbon releases occurring on
our operated assets. However, we recognise that risk is inherent in the production of hydrocarbons and that
a strong process safety culture is crucial to protect our people, the environment, and our assets. In support
of this objective, and alignment with industry bodies, we used resources provided by Step Change in
Safety to improve organisational understanding of Major Accident Hazards and commenced a
proactive evaluation of how well we are meeting OEUK’s Principles of Process Safety Leadership
Plant reinstatement, following maintenance, has been noted as a common factor in process safety
incidents by the Health and Safety Executive. Throughout 2021, we have reviewed, redefined, and
simplified our procedures which control plant reinstatement, and believe this is another step towards
eliminating the uncontrolled release of hydrocarbons on our assets.
In Q4 we were delighted to work with Joe Meanen, one of only 61 survivors from the Piper Alpha
tragedy. Joe delivered a series of powerful and thought provoking webinars which left a lasting
impression on the attendees.
In 2022, as part of our continued focus on process safety, we will be implementing IOGP’s Process
Safety Fundamentals to help deliver a consistent understanding of the causes and situations which
can lead to process safety events.
HEALTH AND WELLBEING
Principles of Process Safety Leadership
for the offshore UKCS Oil & Gas Industry
Good process safety is at the heart of everything. As industry leaders, we acknowledge
our role in ensuring continuous improvement in this area. In pursuit of this challenge,
we have established the following principles of process safety management for our industry:
P R I N C I P L E S :
• Clear and positive process safety leadership is at the core
of managing a major hazard business and is vital to ensure
that risks are effectively managed;
• Process safety leadership requires senior leadership team
involvement, understanding and competence;
• Good process safety management requires constant
active engagement and vigilance;
• Senior leadership team visibility and promotion of
process safety leadership is essential to set a positive
safety culture throughout the organisation;
• Engagement of the workforce is needed in the promotion
and achievement of good process safety management;
• Robust and regular auditing of the safety management
system and associated major accident hazard barriers, is
essential to ensure that system weaknesses are identified
and process safety risks are being effectively managed;
• Publication of process safety performance information
provides important assurance about the management
of risks by an organisation;
• Sharing good practice across industry sectors in order
to learn and implement lessons from relevant incidents
occurring internally and externally to the organisation,
is important to maintain the currency of corporate
knowledge and competence.
competence;
and performance;
ORGANISATION AND RESOURCES:
We regard these principles as fundamental to the successful management of a major hazard industry. We will work with all
stakeholders to establish them as foundations to effective management of risks via the following arrangements:
1. Process safety accountabilities should be defined and championed at the senior
leadership team level and all should be held accountable for process safety leadership
6. Business risks relating to process safety should be assessed and reviewed
using an appropriate business risk analysis methodology;
2. At least one senior leader should be fully conversant in process safety management in
7. Leading and lagging process safety indicators should be set for the organisation and
order to advise the leadership team of the status of process safety risk management
reviewed to ensure they remain appropriate for the needs of the business. Information
within the organisation and of the process safety implications of their decisions;
on process safety performance should be routinely reviewed by the senior leadership
3. Appropriate resources should be made available to ensure a high standard of
team and relevant information made available to OGUK for inclusion in their H&S
process safety management throughout the organisation and staff with process
safety management responsibilities should have or develop an appropriate level of
8. Companies should actively engage with others within their sector and elsewhere to
share good practice and information on process safety incidents that may benefit
4. Organisations should develop a programme for the promotion of process safety by
others. Companies should have mechanisms and arrangements in place to incorporate
active senior management engagement with the workforce, both direct and contract
learning from others within their organisation;
staff, to underline the importance of process safety leadership and to support the
9. Systems and arrangements should be in place to ensure the retention of corporate
maintenance of a positive process safety culture within the organisation;
knowledge relating to process safety management. Such arrangements should include
5. Systems and arrangements should be in place to ensure the active involvement of the
information on the basis of safety design concept of the plant and processes, plant and
workforce in the design of process safety controls and in the review of process safety
process changes, and any past incidents that impacted on process safety integrity and
the improvements adopted to prevent a recurrence.
OUR COMMITMENT
Implementation of the above process safety leadership principles and arrangements may vary in both detail and time in different organisations. However, in recognition
of the essential role these principles and arrangements play in the management and sustainability of our major hazard industry, we commit to working to establishing
B a r r iers
them as foundations of effective process safety management and the prevention of major accidents.
LLIIFFEE AAFFTTEERR PPIIPPEERR AALLPPHHAA
annual report;
performance;
Signed:
L I F T I N G
O P E R AT I O N S C H A R T E R
s
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C e r t i fi e d E q u i p m e n t
Martin Temple CBE
Chair
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Health & Safety Executive
p
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Wendy Kennedy OBE
Chief Executive
Offshore Petroleum Regulator for
Environment and Decommissioning
Deirdre Michie OBE
Chief Executive
OGUK
Steve Rae
Executive Director
Step Change in Safety
(cid:936)(cid:936)(cid:679)(cid:679)(cid:884)(cid:884)(cid:660)(cid:660)(cid:1681)(cid:1681)
Matthew Brodie
Chair North Sea Chapter
International Association of
Drilling Contractors
(cid:265)(cid:265)(cid:775)(cid:775)(cid:612)(cid:612)(cid:1681)(cid:1681)(cid:291)(cid:291)(cid:612)(cid:612)(cid:504)(cid:504)(cid:759)(cid:759)(cid:612)(cid:612)(cid:759)(cid:759)
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arriers
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(cid:650)(cid:612)(cid:884)(cid:1681)(cid:827)(cid:612)(cid:775)(cid:827)(cid:723)(cid:612)(cid:1681)(cid:660)(cid:775)(cid:752)(cid:612)(cid:1681)(cid:867)(cid:504)(cid:645)(cid:612)(cid:723)(cid:950)(cid:1404)(cid:1681)
(cid:197)(cid:645)(cid:1681)(cid:950)(cid:775)(cid:899)(cid:1681)(cid:660)(cid:504)(cid:932)(cid:612)(cid:1681)(cid:504)(cid:759)(cid:950)(cid:1681)(cid:833)(cid:899)(cid:612)(cid:867)(cid:884)(cid:679)(cid:775)(cid:759)(cid:867)(cid:1681)(cid:645)(cid:775)(cid:837)(cid:1681)(cid:265)(cid:775)(cid:612)(cid:1681)(cid:660)(cid:612)(cid:1681)(cid:679)(cid:867)(cid:1681)(cid:660)(cid:504)(cid:827)(cid:827)(cid:950)(cid:1681)(cid:884)(cid:775)(cid:1681)(cid:504)(cid:759)(cid:867)(cid:936)(cid:612)(cid:837)(cid:1681)(cid:884)(cid:660)(cid:612)(cid:752)(cid:1681)(cid:504)(cid:884)(cid:1681)
(cid:884)(cid:660)(cid:612)(cid:1681)(cid:612)(cid:759)(cid:594)(cid:1681)(cid:775)(cid:645)(cid:1681)(cid:884)(cid:660)(cid:612)(cid:1681)(cid:936)(cid:612)(cid:575)(cid:679)(cid:759)(cid:504)(cid:837)(cid:1404)
Serica Energy plc Corporate Update 2020
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8 l Serica Energy plc Annual Report & Accounts 2021
Recognising the importance physical activity plays in our health and wellbeing, we
participated in the industry wide exercise challenge RigRun for the first time in 2021.
Our Bruce team finished as convincing winners of the RigRun Cup covering 15905.4
COMMUNICATION
Good communication is key to an effective and productive
miles and 159948 minutes of exercise. There were some tremendous individual efforts
workforce. We strive to keep people informed, encourage ideas
LEARNING
and feedback and want everyone to feel they can challenge the
norm or speak out.
but, overall, this was a fantastic team performance which boosted morale and will have
Learning happens all day, every day. We learn when we share
This value improves understanding of the importance of individual
knowledge or experience, when we look outside the organisation
tasks and how the activities and skills of each team member
and when we discuss mistakes.
long term health benefits for those involved.
contribute to our overall success.
This value reassures our employees that it’s okay to ask and helpful
to offer advice or share ideas. We want our personnel to explore
opportunities for further learning and to be all they can be.
Looking forward to 2022, our offshore team will participate in 2 RigRun events, and our
onshore team will participate in the Virgin Pulse VP GO challenge.
EMPOWERMENT
& ACCOUNTABILITY
We want our employees to feel that they are empowered to make
decisions or put forward ideas and have the confidence to be
CATEGORY*
RESPECT
accountable for their actions. This means that we take pride in our
work, following up on actions and looking beyond our individual roles
Respect comes in many forms. We value the opinions of others.
to find out how to help.
We are supportive of all our colleagues, in our own and other
This value provides a sense of ownership which encourages
teams, on and offshore and we value our colleagues within our
Day Away From Work Cases (DAFWC)
individuals to develop and grow in their roles, delivering job
contracting companies.
satisfaction and a sense of common purpose.
This value makes Serica a rewarding place to work, helping to bond
our team. Showing respect for contractors and the communities in
which we operate will build our reputation in the wider world.
Restricted Work Injury/Illness
2019
2021
2020
0
0
3
0
0
3
Medical Treatment Injury/Illness
1
0
1
* BKR statistics
“Our people are our most important asset, they drive our success
and make us who we are as a company. We are committed to
providing our team with a working environment that is safe,
responsible, and respectful.”
Craig Robertson
HSEQ Manager
HEALTH AND SAFETY PERFORMANCE
WELL INTEGRITY
In another year beset by Covid challenges, health and safety
performance on our operated assets remained positive, with a
single recordable injury, a total recordable injury frequency of
0.4 per 200,000 manhours, and no lost or restricted workdays.
Unfortunately, performance across our major projects was more
challenging, but we are committed to learning from this experience
and have redoubled our efforts to improve health and safety
performance on major projects in 2022.
Serica believes that the best practice for effectively managing
the integrity of our wells is through proactive well monitoring
and preventative maintenance. To this end, we have created and
continue to develop our own Well Integrity Management System
(WIMS), which is based around the OEUK Well Life Cycle Guidelines,
and ISO 16530-1 Well Life Cycle principles. In combination with
SafeWells, an application which provides a central repository of all
well integrity data, implemented in 2020, our aim is to ensure that
our wells are managed safely and responsibly through their lifecycle.
CONTRACTOR SAFETY
COLLABORATION
Contract personnel are responsible for 60%-70% of the working
hours at Serica and, as a key part of our team, their contribution
to our success is never underestimated. From the integration of
HSEQ criteria in our contractor selection process, to hosting regular
contractor HSEQ forums, we continue to focus on the establishment
and maintenance of cooperative and supportive relationships.
Serica is committed to working with industry bodies and our peers
to foster learning and share best practice. During 2021, our team
actively supported working groups in Step Change in Safety, OEUK
formerly OGUK, and presented at webinars hosted by industry
bodies such as the Society of Petroleum Engineers.
Serica Energy plc Annual Report & Accounts 2021 l 9
Strategic Report ENVIRONMENTAL, SOCIAL & GOVERNANCE (ESG)
Throughout 2021 Serica has been relentless in stressing the
importance of ESG and the role that our staff, contractors
and partners can play in helping Serica to achieve its goals.
We encourage all our staff and contractors to get involved in ESG, be it through emissions
reduction ideas on the platform or by providing interview practice in secondary schools. We
clearly demonstrate our commitment to ESG through bonus-related targets at all levels in
the Company and consistent messaging that we value and encourage sustainable ways of
working and giving back to the communities in which we work. We are proactively reporting
to the 2021 updated GRI standards and have expanded our TCFD reporting alignment.
We have also expanded our Scope 3 emissions reporting for projects and assets where
emissions are controlled by others.
2020 BONUS-RELATED TARGETS
2021 OUTCOME
Carbon intensity of 17 kg/boe
Reducing flaring below 10.5 tonnes/day
Total general waste from Bruce platform below
200 tonnes of general waste
10 novel ESG initiatives approved
and significantly advanced
17.8 kg/boe
9.7 tonnes/day
199 tonnes
Over 20
Proportion of workforce that is female above 10%
11.8%
Our ESG bonus-related targets for 2022 are:
• Daily flare (CAT A) below 9.5 tonnes/day, total flare below
5,000 tonnes
• Scope 1 CO2 emissions below 210,000 tonnes
• 60% waste recycled, total general waste below 90 tonnes
• Develop a Methane Action Plan and establish a baseline
Our staff understand the vital role they play as Serica is responsible for over 5% of the UK’s
domestic gas production that is processed through the Bruce facilities. This provides security
of supply to the UK under a strict regulatory environment as well as providing jobs and
supporting UK industry, compared to the alternative of importing fuel. The COVID pandemic
highlighted the importance of our critical national infrastructure and this has become even
more apparent in recent times with the war in Ukraine.
During 2021 we found more ways of targeting emissions reduction
We reduced our volumes of flared gas by setting low daily targets
and having clear procedures on identifying and resolving causes
of higher flaring.
Our skilled staff discuss emissions from flare and fuel gas on a
daily basis and utilise software using artificial intelligence.
We formed the Bruce ESG Champions committee, located on the
platform, who generated and executed a number of initiatives to
reduce waste and emissions from day-to-day activities.
Longer term, our Emissions Reduction Group is looking at
projects that will bring emissions down further, through
equipment change out and enhancements.
10 l Serica Energy plc Annual Report & Accounts 2021
VP Operations Mike Killeen visits CLAN Cancer Support
Our staff led committees, Charity, Diversity
and Inclusion, Education, Emissions
Reduction and the Bruce ESG Champions
all played a key role in our achievements for
2021. Our main charity for 2021 was CLAN
who support the families of cancer patients
in the Aberdeenshire area. We funded their
‘Power to Help’ campaign, sponsored their
Lighthouse trail and raised money with a
5,000 mile staff cycling challenge. We also
provided practical help to smaller charities,
giving winter clothing via Abernecessities
and supported refugees in the London
area by donating school equipment. The
committee welcomes suggestions from
staff and has responded by providing sports
equipment to kids’ clubs and supporting
the Mental Health Foundation, Trussel Trust
and Movember amongst others.
We increased our proportion of women
staff members by 23% compared to 2020,
exceeding our target, although from a very
low base. We changed our recruitment
process to remove bias and increase
diversity of applicants and a staff D&I
survey identified areas for improvement.
Unconscious bias training and regular
staff engagement events enhanced the
inclusivity of Serica’s culture.
The Education Committee supported
schools by donating Chromebooks to
aid home learning, participated in school
events, supported staff in their training
needs and encouraged further education.
Despite remote working we also offered
three eight-week paid student placements.
We continue to support the OPITO
apprenticeship scheme, providing over
£250,000 of funding per year.
Our Governance section outlines in detail
the Company Governance framework
and how we manage risk and ensure
ethical practices. Our Board has the
appropriate skillsets to apply appropriate
governance with backgrounds in business,
legal, banking, finance, technical oil and
gas and HSE. Serica is a member of
“There’s an ESG buzz at Serica, every week something is going
on, be it a charity fitness challenge, an initiative to reduce
our emissions, interaction with local schools or celebrating
staff achievements. It’s now part of our psyche and ESG is
considered in every decision we make.”
Clara Altobell
VP ESG and Business Innovation
the UN Global Compact and follows its
ten guiding principles and aligns with
TCFD reporting recommendations. Our
business management system ensures
we have the appropriate policies to ensure
ethical practices are followed. In 2021 we
became a proud supporter of the Energy
Services Agreement, which aims to deliver
a fair, equitable and transparent base for
minimum pay rates, holiday allowances
and working hours for all workers of energy
services companies across the UKCS.
NAVIGATING THE
ENERGY TRANSITION
Environmental, Social & Governance (ESG)
2021
Our 2021 ESG Report is now published
Greenhouse Gas Emissions disclosure
As part of our GRI reporting, we provide a
detailed data book of our Scope 1, 2 and 3
emissions for 2021 compared to 2020 in
our 2021 ESG report, which will be released
with our published 2021 Annual Report. Our
Scope 1 emissions are those generated
by the Serica operated Bruce facilities to
provide power and compression to produce
and export oil and gas from the Bruce, Keith
and Rhum fields. This includes fuel gas
usage, diesel, flared and vented gas. The
company does not own any vehicles.
In 2021 we reduced the total volume of
gas flared on Bruce by 16% compared to
2020 through a combination of increased
monitoring, enhanced operating procedures
and fewer plant interruptions. The Bruce
facilities qualified for the UK Emissions
Trading Scheme and so our emissions are
reported, audited and verified based on this
scheme. In 2021 our UK ETS emissions
were 208,868 tonnes of CO2, which is within
2% of our 2020 emissions which were
204,648 tonnes. This continues our efforts
to keep emissions low and were 14% lower
than 2019. Energy consumption on Bruce
in 2021 was 975 GWh compared to 950
GWh in 2020. Carbon intensity, which is
CO2 emissions divided by production, was
17.8 kg CO2/boe in 2021 compared to
17.5 kg CO2/boe in 2020.
Other initiatives to reduce our emissions
on Bruce included installation of AI based
emissions monitoring software, changes to
operating procedures and studies on waste
heat recovery and compressor efficiency.
Our electricity usage in our Aberdeen
operations headquarters was 11,895 kg
of CO2e for 2021 compared to 13,476 kg
in 2020. Our London office emissions
were 3,444 kg of CO2e for 2021 compared
to 2,578 kg in 2020. The offices were
unattended for much of 2021 and we have
introduced a blended working approach,
giving staff more flexible working conditions,
which will have the added benefit of keeping
office emissions low. CO2e was calculated
using the UK Government GHG Conversion
Factors for Company Reporting for 2021
issued by BEIS and DEFRA.
Monitoring our emissions using the OPEX.AI tool
Serica Energy plc Annual Report & Accounts 2021 l 11
Strategic Report REVIEW OF OPERATIONS – PRODUCTION
Northern North Sea: Bruce Field
Blocks 9/8a, 9/9b and 9/9c, Serica 98%
Serica operates the Bruce field and
facilities consisting of three bridge-linked
platforms, wells, pipelines and subsea
infrastructure. The platforms contain living
quarters for up to 156 people, reception,
compression, power generation, processing
and export facilities and a drilling derrick
that is currently mothballed. There is also
the subsea Western Area Development
(WAD) that produces from the edges of the
Bruce area.
Bruce production is predominantly gas
which is rich in liquids. Gas is exported
through the Frigg pipeline to the St Fergus
terminal, where it is separated into sales
gas and NGL’s. Oil is exported through the
Forties Pipeline System to Grangemouth.
COVID-19 continued to present a constant
threat to society in 2021 and that was
reflected in the challenges Serica faced in
maintaining safe and efficient operations.
The team continued to use social
distancing offshore, pre-mobilisation
testing, social distancing on transportation
(including helicopters), and other practical
control measures. In 2021 Serica added
pre-mobilisation quarantine and offshore
testing. Serica experienced no production
impacts related to COVID in 2021.
The overall headcount offshore remained
lower than previous years but by
challenging the way work was executed,
improving our use of technology, and
further developing the synergies between
different teams, we were able to carry out
platform-based interventions; complete the
strip down, recoat and return to service of
the helideck; execute all planned wellhead
maintenance and deliver a one month,
planned maintenance outage within the
restricted headcount. The use of the digital
twin we built in 2020 was able to help the
onshore team plan and synchronise these
activities without the need to be physically
present on the platform, allowing more
time and space for the people who execute
the scopes.
Bruce field production in 2021 averaged
approx. 6,700 boe/d (2020: 9,600 boe/d)
of exported oil and gas net to Serica. The
latest independent estimate of reserves
by RISC Advisory estimated 2P reserves
of 15.8 million boe net to Serica as of
1 January 2022 (2021: 15.7 million boe)
effectively replacing all of 2021 production.
Monitoring progress from the Dive
Support Vessel as a diver at 120m
depth undertakes essential electrical
testing of the Bruce WAD subsea power
distribution system
12 l Serica Energy plc Annual Report & Accounts 2021
“ Throughout 2021 the overall head count offshore remained lower
than previous years, but we were able to effectively and safely
carry out significant projects by challenging the way work was
executed, improving our use of technology and further developing
synergies between teams.”
Mike Killeen
VP Operations
Mike Killeen
VP Operations
Serica Energy plc Annual Report & Accounts 2021 l 13
Strategic Report REVIEW OF OPERATIONS – PRODUCTION continued
Northern North Sea: Keith Field
Block 9/8a, Serica 100%
Keith is an oil field produced by one subsea
well tied back to the Bruce facilities and
requires very little maintenance. Keith
produces at relatively limited rates but
provides a low-cost contribution to the oil
export from Bruce. The well has been shut
in since early 2021 but in the second half
of the year we were able to do a topsides-
based investigation which has been used
to define the scope of planning a return the
field to production. The latest independent
estimate of reserves by RISC Advisory
estimated 2P reserves of 0.9 million boe net
to Serica as of 1 January 2022 (2021: nil).
Northern North Sea: Rhum Field
Blocks 3/29a, Serica 50% and Operator
Rhum is a gas condensate field producing
from three subsea wells tied into the Bruce
facilities through a 44km pipeline. Rhum
production is separated into gas and oil and
exported to St Fergus and Grangemouth
along with Bruce and Keith production.
Rhum gas has a higher CO2 content than
Bruce gas and so is blended with Bruce gas
before leaving the offshore facilities.
COVID not only added to the complexity of
core offshore operations but it also added
to the challenges Serica experienced when,
during late 2020 and 1H 2021, Serica
successfully carried out intervention work
on the third Rhum well, R3, to bring it into
production for the first time.
R3 originally encountered technical issues
while it was being completed in 2006
and had remained shut in ever since. The
intervention removed the hydrate that
had formed whilst the well was being
completed and also recovered equipment
which had been stuck downhole during
the original operations. The intervention
also required us to remove the original
5½ inch completion equipment and replace
it with a new 7 inch completion. After a
visit from a diving support vessel (“DSV”)
to install the subsea control equipment,
the well was brought into production
on 23 August 2021. The well has since
demonstrated a capability to produce at
rates in excess of 12,000 boe per day gross
giving a significant boost to overall Rhum
production capacity and resilience.
Average Rhum production capability
in 2021 before R3 was commissioned
was approximately 12,500 boe/d net to
Serica and once R3 was brought into
production, it averaged some 18,000
boe/d over the remainder of the year. The
latest independent estimate of reserves
by RISC Advisory estimated 2P reserves
of 37.2 million boe net to Serica as of
1 January 2022 (2021: 35.1 million boe).
This represented a significant upgrade in
reserves after taking account of production
in 2021.
Central North Sea: Erskine Field
Blocks 23/26a (Area B) and 23/26b
(Area B), Serica 18%
Serica holds a non-operated interest
in Erskine, a gas and condensate field
located in the UK Central North Sea.
Serica’s co-venturers are Ithaca Energy 50%
(operator) and Harbour Energy 32%.
Erskine is produced through five production
wells over the Erskine normally unattended
installation, transported to the Lomond
platform via a multiphase pipeline
and processed on the platform. Then
condensate is exported down the Forties
Pipeline System via the CATS riser platform
at Everest and gas is exported via the CATS
pipeline to the CATS terminal at Teesside.
Serica provides a secondee as part of
the offshore management team on the
Lomond platform which is 100% owned
and operated by Harbour Energy.
The field was shut down for approximately
three months in mid-2021 to allow the
replacement of equipment on the Erskine
production module (“EPM”) sited on the
Lomond platform. The outage also included
work to improve the reliability of the EPM
and other maintenance programmes.
The Erskine production levels in 2021
averaged approx. 1,650 boe/d net to Serica
(2020: 2,300 boe/d) after the significant
maintenance and upgrade outage. An
updated independent audit of the Erskine
field by RISC Advisory confirmed Serica’s
share of estimated 2P reserves at
3.4 million boe as of 1 January 2022 (2021:
3.1 million boe). The level of estimated
remaining reserves at the beginning of 2022
matched those at the point of acquisition
in June 2015 with all production in the
intervening period effectively having been
replaced through reserves upgrades to-date.
14 l Serica Energy plc Annual Report & Accounts 2021
Strategic Report
“The Bruce Hub is at the core of
Serica’s business. We continue
to be focused on investing in our
assets both in terms of upgrading
equipment to improve reliability
and lower emissions, and increased
production opportunities”
Carol Stewart
North Sea Business Manager
OUR STRATEGY TO MAXIMISE THE ECONOMIC LIFE OF BRUCE
Serica’s strategic objective for the Bruce Hub is to maximise its economic life. In pursuit of this
objective, Serica will:
•
Aim to enhance utilisation of the
Bruce facilities through investment
in equity production and attracting
third-party business
•
•
Operate safely and fulfil our ESG and HSE
responsibilities
Seek to sustain base production through
management of the existing well
stock including well work, investing in
maintenance of the facilities and efficiently
controlling operating costs
We will harness technology and innovate
to maximise the economic life of the
Bruce Hub
Serica Energy plc Annual Report & Accounts 2021 l 15
REVIEW OF OPERATIONS – DEVELOPMENT
“ 2021 saw Serica’s Columbus
Development brought on stream and
investment in growth continues in 2022
with potentially high impact exploration.”
Fergus Jenkins
VP Technical
Central North Sea: Columbus Development
Blocks 23/16f and 23/21a (part)
Serica 50% and Operator
Serica is operator of Columbus with
partners Tailwind Mistral Limited (25%) and
Waldorf Production Limited (25%). The field
is located in the Eastern Central Graben,
UK Central North Sea and the reservoir
is located within the Forties Sandstone.
Although Columbus is designated within
the Lomond Field Area, it is independent
of Lomond, having separate development
consent, export route and licence terms.
The development comprises a single
subsea well drilled to a total depth
of 17,600ft with a 5,600ft horizontal
section through the reservoir,
connected to the Arran-Shearwater
export pipeline. Columbus production is
exported through the pipeline along with
Arran field production. The Arran field has
been developed in parallel with Columbus
and its export pipeline to the Shearwater
platform was re-routed a short distance
to pass close to the Columbus wellhead
location. When co-mingled production
from Arran and Columbus reaches the
Shearwater facilities, it is separated into gas
and liquids and exported via the SEGAL line
to St Fergus and Forties Pipeline System to
Cruden Bay respectively.
Planning for the development began as
soon as FDP approval was received in
October 2018. Serica worked closely
with Shell, the operator of the Arran field
and Shearwater platform, to ensure
effective construction and operation of
the two developments. The Columbus
horizontal development well and the Arran
development wells were drilled during 2021
and Columbus production commenced in
November of that year.
During the first full month of production,
December 2021, Columbus produced
6,498 boe/d gross of which 82% was gas.
The start-up of production has coincided
with strong commodity prices offering a
rapid payback of capital investment. Current
performance is being monitored to assess
the field’s future production capability.
The latest independent report of reserves,
compiled by RISC Advisory, estimated 2P
reserves of 4.9 million boe net to Serica as
at 1 January 2022 (2021: 7.1 million boe).
Previous estimates were pre-drill and
these have now been updated following
modelling using actual data from the well.
The reserves model will continue to be
updated as more production and other data
becomes available.
MAERSK RESILIENT
Shearwater A
COLUMBUS EXPORT INFRASTRUCTURE
Shearwater C
Columbus Drill Centre
Arran North
Arran South
Production Pipeline
Electro-Hydraulic Control Umbilical
16 l Serica Energy plc Annual Report & Accounts 2021
Licence Awards in the UK
32nd licensing round
In December 2020 Serica was formally
awarded four new blocks in the UK 32nd
licensing round. Blocks 3/25b, 3/30, 4/26
and 9/5a are in the vicinity of the Bruce
hub and include several leads which, if
successful, could be tied back to Serica’s
existing infrastructure, or to other facilities
in the region. The work programme does
not include any commitment wells but is
designed to mature these leads to drill-
ready status. A decision on whether to
continue with the licences is due before the
end of 2022.
REVIEW OF OPERATIONS – EXPLORATION
UK
North Eigg and South Eigg –
Blocks 3/24c and 3/29c
Serica 100% and Operator
In December 2019, Serica was awarded the
P2501 Licence as part of an out-of-round
application; this comprises Blocks 3/24c
and 3/29c and contains the North Eigg and
South Eigg prospects. The official start date
for the licence was 1 January 2020. The
work programme involves reprocessing
seismic and drilling an exploration well
within three years of the start of the licence.
The North Eigg prospect has been high-
graded for drilling, being clearly visible
on 3D seismic data and sharing many
similarities with the nearby Rhum field,
operated by Serica.
Preparation for the exploration well, which
is expected to be high temperature and
high pressure, is fully under way. Long-lead
items have been ordered and a drilling rig
has been contracted. Operational planning
and applications for regulatory approval are
in progress.
In the event of a commercial discovery,
Serica would seek a fast-track route to
develop the field; an option would be a
subsea tie-back to the Serica operated and
98% owned Bruce facilities, which are to
the south of the prospect. This solution
would both provide Serica with potentially
significant additional reserves and reduce
combined unit operating costs, which could
extend the economic life of this strategic
North Sea infrastructure. The use of existing
offtake facilities would also significantly
restrict additional carbon emissions. The
Company is undertaking conceptual design
studies aimed at identifying ways that such
a development could be undertaken while
working within the framework of the North
Sea Transition Deal agreed between the
industry and government to expedite the
energy transition.
Skerryvore and Ruvaal– Blocks 30/12c
(part), 30/13c (split), 30/17h, 30/18c and
30/19c (part)
Serica 20%, Operator Parkmead
The Skerryvore and Ruvaal prospects lie in
the Central North Sea, 60km south of the
Erskine field. Potential for both sandstone
and chalk reservoirs has been identified.
Over 500km² of 3D seismic data was
purchased over the licence areas. However,
the company that was contracted to
reprocess the data and enhance it prior to
interpretation, was unable to deliver the
new dataset in the agreed timescale. That
meant it was not possible to undertake
the necessary work programme in time to
make a drilling decision by the end of the
initial three-year term, in September 2021.
An extension application was therefore
submitted to the Oil and Gas Authority
which approved an extension of the
current phase of the licence to the end of
September 2022.
NORTH EIGG EXPLORATION WELL, HIGH GRADED TO DRILL IN 2022
Rhum
Wells
South Eigg Prospect
East Shetland Bounding Fault
Rhum Field
North Eigg Prospect
Serica Energy plc Annual Report & Accounts 2021 l 17
Strategic Report GROUP PROVED PLUS PROBABLE RESERVES (“2P”)
Group Proved plus Probable Reserves (“2P”)
2P Reserves at 31 December 2020
2021 production
Revisions
Oil
mmbbl
12.8
(1.2)
1.6
Gas
bcf
Total oil and gas
mmboe
289.2
61.0
(36.7)
41.6
(7.3)
8.5
2P Reserves at 31 December 2021
13.2
294.1
62.2
*
Total Group gas reserves at 31 December 2020 and 2021 have been converted to barrels of oil equivalent using a factor of 6.0 bcf per mmboe for reporting
and comparison purposes. As the actual calorific values of gas produced from individual fields vary, reported production rates for each field and the total
production and revisions numbers reported above may not convert precisely.
Group Proved and Probable reserves at 31 December 2021 shown here are extracted from an independent report prepared by RISC Advisory
(“RISC”) in accordance with the reserve definitions guidelines defined in SPE Petroleum Resources Management System 2018 (“PRMS 2018”).
RISC were familiar with the assets, having also completed an audit in the previous year.
Figures quoted relate to export fluids, so fuel used in operation has already been subtracted.
Aggregate reserves revisions result from several factors, including field production performance in the time between audits and prevailing
commodity prices, which are used for the economic evaluation.
Some volumes classified as contingent resources during the previous audit have now been re-classified as reserves, primarily because work
has been included in the approved forward work programme to address previously identified issues and to further enhance production. In
addition, the Rhum R3 well has performed at the upper end of expectations since its successful workover.
Columbus reserves had a downward revision due to geological modelling updates which used data gathered during drilling of the
development well.
Serica has assumed the cessation of production (COP) for all current assets will occur no later than the end of 2030 and this view was
supported by RISC. As part of the ‘North Sea Transition Deal’ the UK plans ‘Zero Routine Flaring’ at the end of 2030. Continuing production
past this date would require a major investment related to flare gas recovery. This is not in the current plans for Serica’s assets. Flare gas
recovery may however become economically feasible if additional volumes are tied back to the platform in future.
18 l Serica Energy plc Annual Report & Accounts 2021
LICENCE HOLDINGS
The following table summarises the Groupʼs licences as at 31 December 2021.
Licence
Block(s)
Description
Role
%
Location
United Kingdom
P.090
9/9a Bruce
Bruce Field Production
Operator
99%
Northern North Sea
P.090
9/9a Rest of Block Excluding
Bruce (REST)
Development
Operator
98%
Northern North Sea
P.198
3/29a (ALL)
Rhum Field Production
Operator
50%
Northern North Sea
P.209
9/8a Bruce
Bruce Field Production
Operator
98%
Northern North Sea
P.209
9/8a Keith
Keith Field Production
Operator
100% Northern North Sea
P.209
9/8a Rest of Block Excluding
Bruce and Keith (REST)
Development
Operator
98%
Northern North Sea
P.276
9/9b BRUCE
Bruce Field Production
Operator
98%
Northern North Sea
P.276
9/9c (ALL)
Bruce Field Production
Operator
98%
Northern North Sea
P.276
9/9b Rest of Block Excluding
Bruce Unit (REST)
Development
Operator
98%
Northern North Sea
P.566
3/29b (ALL)
Rhum Field non-unitised production
Operator
100% Northern North Sea
P.975
3/24b (ALL)
Rhum non-unitised production
Operator
100% Northern North Sea
P.975
3/29d (ALL)
Rhum non-unitised production
Operator
100% Northern North Sea
P101
23/21a Columbus
Columbus Development Area
Operator
50%
Central North Sea
P1314
23/16f
P57
23/26a
P264
23/26b
Columbus Development Area
Operator
50%
Central North Sea
Erskine Field – Production
Non-operator
18%
Central North Sea
Erskine Field – Production
Non-operator
18%
Central North Sea
P2400
30/12c, 30/13c, 30/17h, 30/18c Exploration
Non-operator
20%
Central North Sea
P2402
30/19c
P2501
3/24c, 3/29c
Exploration
Exploration
Non-operator
20%
Central North Sea
Operator
100% Northern North Sea
P2506
3/25b, 3/30, 4/26, 9/5a
Exploration
Operator
100% Northern North Sea
Serica Energy plc Annual Report & Accounts 2021 l 19
Strategic Report FINANCIAL REVIEW
“A combination of successful investment
and high gas prices boosted gross profit to
£386.8 million (2020: loss of £2.9 million) and
cash flow from operations to £157.6 million
(2020: £44.1 million)”
Andrew Bell
Chief Financial Officer
Field revenues and costs are booked for
Serica’s full equity interests and included
within gross profits. Under the BKR deals,
amounts are due to the asset vendors for
net cash flow sharing (40% in both 2020 and
2021) and certain other deferred payments.
Estimates of these amounts were included
within the fair value upon acquisition and
subsequent changes are included as
‘Change in fair value of BKR financial liability’
within profit before tax for each reported
period. 2021 is the last year to which net
cash flow sharing arrangements apply and
Serica retains 100% of BKR net cash flow
from 2022 onwards.
2021 Results
Serica generated a profit before taxation
of £135.1 million for 2021 compared to
£12.5 million for 2020. After current and
deferred tax provisions of £55.8 million
(2020: £4.8 million), profit for the year was
£79.3 million compared to £7.8 million
for 2020.
Gross profit was boosted during the
second half of the year by a combination
of increased production from successful
operations on the Rhum R3 and Columbus
wells and high gas prices. However, a surge
in future period gas pricing also caused
significant non-cash accounting provisions
resulting from the Group’s hedging position,
which reduced operating profits.
During 2H 2021 some 2022/3 gas price
swaps were replaced by equivalent fixed
pricing for the same volumes under gas
sales contracts. This has created gas
contract liabilities valued at the point of
replacement in August 2021 and held at
that value without revaluation. The liabilities
are then extinguished when the relevant
gas volumes are delivered. Consequently,
at year-end Serica’s gas price hedging
comprised a mix of gas price swaps, fair
valued at the balance sheet date, and fixed
pricing under gas sales contracts held at
initial value until extinguished.
The unrealised expense arising from
valuations related to future period gas price
hedging will only become fully realised
should actual gas sales prices for 2022
and 2023 reach the levels assumed in such
valuations. In addition, they do not factor
in the substantial benefits that would be
realised from unhedged gas sales should
actual prices for those future periods match
such forward gas market pricing.
The strong 2H 2021 sales revenues also
generated a significant fair value charge
against profit before taxation caused by
an increase in BKR net cash flow sharing
payments. 2021 is the final year to which
these apply.
Sales revenues
Total product sales volumes for the year
comprised approximately 373.7 million
therms of gas (2020: 386.3 million therms),
778,600 lifted barrels of oil (2020: 1,002,000
barrels) and 52,400 metric tonnes of NGLs
(2020: 71,800 metric tonnes). Overall,
this represented total 2021 product sales
of 20,900 boe/d (2020: 22,400 boe/d)
delivering total revenue of £514.1 million
(2020: £125.6 million). This consisted of
BKR revenues of £463.4 million (2020:
£108.8 million), Erskine revenues of
£36.3 million (2020: £16.8 million) and
Columbus revenues of £14.4 million
(2020: nil).
Average sales prices net of system
fees were 122 pence per therm (2020:
21 pence per therm), US$71.4 per barrel
(2020: US$42.4 per barrel) and £340
per metric tonne (2020: £176 per metric
tonne) respectively, giving a combined
realised sales price for lifted volumes
of approximately US$93 per barrel of
oil equivalent (2020: US$20 per boe).
This is before gas price hedging costs
detailed below.
Gross profit
The gross profit for 2021 was
£386.8 million compared to a gross loss
of £2.9 million for 2020. Overall cost
of sales of £127.3 million compared to
£128.6 million for 2020. This comprised
£97.1 million of operating costs (2020:
£89.7 million) and £37.0 million of non-cash
depletion charges (2020: £38.5 million)
plus a £6.9 million credit representing a
reduction during the year of the opening
liquids underlift position (2020: charge of
£0.3 million).
Operating costs comprise production,
processing, transportation and insurance
and also included some non-recurring
charges. Operating costs per boe were
US$16.47 compared to US$14.12 for 2020.
The increase in costs per boe reflected
reduced production volumes for 2021 and
increased workscope following COVID
restrictions in 2020. Higher production
volumes projected for 2022 offer the
prospect of reduced costs per boe.
Operating profit before BKR fair value
adjustment, net finance revenue and tax
The operating profit for 2021 was
£246.1 million compared to a loss of
£18.7 million for 2020. This included
realised gas price hedging expenses of
£56.6 million (2020: gain of £12.3 million)
plus unrealised hedging expenses of a
further £74.6 million (2020: £16.6 million).
There were no E&E asset write-offs for
2021 (2020: £3.7 million). Administrative
expenses for 2021 of £6.1 million compared
to £5.6 million for 2020 whilst share-
based payments were £2.4 million (2020:
£1.9 million) and currency losses were
£0.9 million (2020: £0.3 million) largely
arising on US$ holdings.
20 l Serica Energy plc Annual Report & Accounts 2021
Profit before taxation and profit for the
year after taxation
Profit before taxation for 2021 was
£135.1 million (2020: £12.5 million)
after a £110.5 million charge arising
from an increase in the fair value of the
BKR financial liability (2020: credit of
£31.3 million) and £0.4 million of net
finance costs (2020: £nil). Net finance
costs represent the discount unwind on
decommissioning provisions less interest
earned on cash deposits.
The fair value charge of £110.5 million
arose following an increase in the remaining
financial liabilities to be paid under the
BKR agreements. The fair value of these
liabilities, which are described under BKR
asset acquisitions below, is re-assessed
at each financial period end and the most
significant factors behind the increase in
the year are the impacts of significantly
higher production and gas prices on BKR
net cash flow payments in respect of the
second half of 2021.
The 2021 taxation charge of £55.8 million
(2020: £4.8 million) comprised current
tax charges of £15.8 million (2020: £nil)
and non-cash deferred tax provisions of
£40.0 million (2020: £4.8 million). As the
Company has utilised its losses carried
forward from previous years during 2021,
cash taxes are expected to be payable on
future income.
Overall, this generated a profit after taxation
of £79.3 million for 2021 compared to a
profit after taxation of £7.8 million for 2020.
Group Balance Sheet
The Company retained a strong balance
sheet during the year allowing it to sustain
a significant capital investment programme
without recourse to additional funding whilst
also sustaining and increasing its dividend.
An increase in exploration and evaluation
assets from £1.0 million in 2020 to
£2.9 million at 31 December 2021 reflected
new expenditure on UK licences during
the year.
Total property, plant and equipment
increased from £311.1 million at
year end 2020 to £328.9 million at
31 December 2021. Net book amount
additions comprised capital expenditure
on Columbus and Rhum during 2021
of £50.2 million (2020: £25.5 million)
and an initial decommissioning asset of
£4.8 million capitalised on the set up of an
equivalent decommissioning provision for
the Columbus field. These were offset by
depletion charges for 2021 of £37.0 million
(2020: £38.5 million) and other depreciation
charges of £0.2 million (2020: £0.2 million).
Depletion charges represent the allocation
of field capital costs over the estimated
producing life of each field and comprise
costs of asset acquisitions and subsequent
investment programmes.
An inventories balance of £4.1 million at
31 December 2021 showed little change
from £4.6 million at the end of 2020. An
increase in trade and other receivables
from £39.5 million at the end of 2020 to
£132.4 million (excluding hedging security
advances) at 31 December 2021 largely
reflected higher prices and volumes for
December gas sales. Hedging advances
of £115.4 million at 31 December 2021
(2020: £1.8 million) represented cash
security lodged with commodity hedging
counterparties which reflected the very
high gas prices at the end of 2021. This
will be returned to Serica should forward
gas prices fall or when monthly contracts
are settled.
The increase in cash balances from
£89.3 million at 31 December 2020 to
£103.0 million at 31 December 2021
reflected cash flow from operations
of £157.6 million mainly offset by
the significant capital expenditures
of £52.1 million (2020: £26.6 million),
£81.3 million of net cash flow payments
and other consideration to BKR
counterparties (2020: £21.8 million) and
dividends totalling £9.4 million (2020:
£8.0 million) during the year.
Current trade and other payables increased
to £49.5 million at 31 December 2021
from £31.1 million at the end of 2020. The
balance at 31 December 2021 includes UK
corporation tax payable of £15.8 million
(2020: £nil).
The derivative financial liabilities of
£45.8 million at 31 December 2021 (2020:
£9.7 million) represents the valuation of
gas price swaps in place at year end and
the consequent amounts projected to be
due based upon futures pricing prevailing
at those points. Year end 2021 pricing
reflected a particularly strong surge in
forward prices which, should it be realised,
would deliver greatly increased gas sales
revenues during 2022 and 2023.
Gas contract liabilities arising from the
replacement of some gas price swaps
by contracted fixed price elements as
described above, are split between current
liabilities of £37.5 million and non-current
liabilities of £1.0 million. Although gas
contract liabilities are not revalued at each
period end, they are still subject to cash
security requirements in the same way as
the remaining gas price swaps.
Current financial liabilities of £93.9 million
(2020: £53.6 million) and non-current
financial liabilities of £37.8 million (2020:
£48.8 million) comprise remaining deferred
consideration projected to be paid under the
BKR acquisition agreements.
The current financial liability comprises the
final two net cash flow sharing payments
due, those for November and December
2021 totalling £63.3 million, a fixed payment
of £16.0 million arising from the successful
outcome of the Rhum R3 well operations
and a further £14.6 million of contingent
consideration in respect of Rhum field
performance during 2021 and over the
previous two years.
The non-current liability comprises
deferred consideration in respect of BKR
decommissioning and oil linefill. Under
arrangements for those BKR field interests
acquired from BP, Total E&P and BHP,
decommissioning liabilities were retained
by the vendors with Serica liable to pay
deferred consideration equivalent to 30% of
the actual costs of decommissioning net of
tax recovered by them.
Non-current provisions relate to future
decommissioning obligations. These
showed an increase from £22.8 million in
2020 to £28.1 million in 2021, due to the
addition of Serica’s share of Columbus
decommissioning now that the development
has been completed. The balance of
provisions is in respect of the Bruce and
Keith interests acquired from Marubeni.
The deferred tax liability of £120.6 million
at 31 December 2021 increased from
£80.6 million at year end 2020 and reflects
accounting provisions expected to be
released in future periods once the Group’s
tax losses have been fully utilised.
Overall, net assets have increased from
£199.8 million at year end 2020 to
£272.5 million at 31 December 2021 after
payment of £9.4 million in dividends (2020:
£8.0 million).
The increase in share capital from
£181.6 million to £182.0 million arose
from shares issued following the exercise
of share options and shares issued
under employee share schemes, whilst
the increase in other reserves from
£19.7 million to £22.1 million arose from
share-based payments related to share
option awards.
Serica Energy plc Annual Report & Accounts 2021 l 21
Strategic Report FINANCIAL REVIEW continued
Cash Balances and Future
Commitments
Current cash position and price hedging
At 31 December 2021 the Group
held cash and cash equivalents of
£103.0 million (2020: £89.3 million)
excluding £115.4 million of cash
lodged as security with gas price hedge
counterparties (2020: £1.8 million). This
is after capital investments during the
year of £52.1 million (2020: £26.6 million)
and dividend payments of £9.4 million
(2020: £8.0 million) plus monthly net
cash flow sharing payments and other
BKR consideration totalling £81.3 million
(2020: £21.8 million) and a final settlement
of Erskine contingent consideration of
£1.0 million (2020: nil). Of total cash
and cash equivalents, £12.9 million was
held in a restricted account against
letters of credit issued in respect of
certain decommissioning liabilities as at
31 December 2021 (2020: £6.4 million).
At 31 December 2021 Serica held gas
price swaps and equivalent fixed price
mechanisms for periods to Q3 2023. For
2022, it held an average 350,000 therms per
day for H1 and 275,000 therms per day for
H2 at average prices of 48 pence per therm
and 44 pence per therm respectively. For
2023, it held an average 150,000 therms
per day for H1 and 50,000 therms per day
for Q3 at average prices of 49 pence per
therm and 41 pence per therm respectively.
At 31 December 2021 cash hedging
security advances of £115.4 million had
been lodged with hedge counterparties
as security against settlement of future
hedge instruments (31 December 2020:
£1.8 million).
Cash security against swap and equivalent
fixed price mechanisms for Serica’s gas
price hedging has continued to fluctuate
with the very volatile forward market. At the
same time the volume of remaining hedges
is declining steadily as each month’s
contracts are settled. A hedge limit of
25% of projected gas production volumes
has been applied and the proportion of
production actually hedged declines from
July 2022 onwards, expiring completely by
the end of Q3 2023.
No additional hedges have been put in place
since early July 2021. Serica continues to
consider future gas hedging possibilities but
simple floor price hedging (“put options”)
has remained at an uncompetitive level for
most of the last two years and the current
structuring of swap-type instruments does
not appear practical in light of the recent
extreme price volatility. This approach
is appropriate in view of Serica’s lack of
borrowings.
The Company’s oil and liquids production
remains unhedged.
Cash projections are run periodically to
examine the potential impact of extended
low oil and gas prices as well as possible
production interruptions. Some 85% of
Serica’s production is gas with exposure
to price falls partially mitigated by price
hedging extending up to Q3 2023. Serica
currently has substantial cash resources,
no borrowings and relatively low operating
costs per boe which means that the
Company is well placed to withstand such
risks and its capital commitments can be
funded from existing cash resources.
Field and other capital commitments
There are no existing capital commitments
on the Erskine producing field and net
production revenues are expected to cover
all ongoing field expenditures. Serica’s share
of decommissioning costs relating to its
18% Erskine field interest will be met by BP
up to a level of £31.3 million, adjusted for
inflation, and Serica’s current estimate of
such costs is below this level.
On the BKR producing fields plans are in
hand to conduct well work during 2022 at
an estimated cost of £15 million designed
to enhance current production profiles and
extend field life. Net revenues from Serica’s
share of income from the BKR fields is
expected to cover Serica’s share of ongoing
field expenditures including deferred
consideration due under the respective BKR
acquisition agreements as set out below.
Serica’s share of decommissioning costs
relating to its interests in the existing BKR
field facilities will be met by the vendors
apart from those field shares acquired from
Marubeni (Bruce 3.75%, Keith 8.33%) for
which Serica is directly responsible.
The Columbus development was completed
during summer 2021 with first gas delivered
in late November 2021. Serica’s share of
production revenue is expected to cover
Serica’s share of ongoing field expenditures.
Decommissioning obligations are limited
as the development comprises a single
well linked via a subsea completion to an
existing pipeline.
The Group’s only significant exploration
commitment is the drilling of a well on the
North Eigg prospect to be drilled in Q3 2022
at an estimated cost of £45 million.
BKR asset acquisitions
On 30 November 2018 Serica completed
the four BKR acquisitions. The following
elements of consideration were outstanding
at 31 December 2021:
•
•
•
•
A contingent payment of £16.0 million
due to BP Exploration Operating
Company (“BPEOC”) in early 2022
following the bringing of the Rhum R3
well onto production and achievement of
a minimum cumulative 90 days of gas
production at a defined level. This has
been included within current financial
liabilities at 31 December 2021.
A contingent payment of £7.7 million is
due to BPEOC in early 2022 based upon
Rhum 2021 average field production and
commodity sales prices in the year. The
payment for 2019 was £2.6 million and
the payment for 2020 was £1.0 million.
A final calculation of the combined
average performance covering years
2019 to 2021 and applied to the
total potential consideration for the
three years has been calculated at an
additional £6.8 million. This has been
included within current financial liabilities
at 31 December 2021.
Final net cash flow sharing payments
of £63.3 million were settled in Q1
2022 representing amounts due to
BPEOC, Total E&P and BHP from the
net cash flow sharing arrangements
in the final quarter of 2021. 40% of
2021 net cash flows resulting from the
respective field interests acquired from
those companies was payable as cash
consideration. These settlements have
been included with current financial
liabilities at 31 December 2021.
BP, Total E&P and BHP will retain
liability, in respect of the field interests
Serica acquired from each of them,
for all the costs of decommissioning
those facilities that existed at the
date of completion. Serica will pay
deferred consideration equal to 30% of
actual future decommissioning costs,
reduced by the tax relief that each
of BP, Total E&P and BHP receives
on such costs. Staged prepayments
against such projected amounts will
commence in 2022 and be spread over
the remaining years before cessation of
field production. This has been included
within non-current financial liabilities at
31 December 2021.
22 l Serica Energy plc Annual Report & Accounts 2021
•
Serica will pay to each of BP, Total E&P and BHP, deferred
consideration equal to 90% of their respective shares of the
realised value of oil in the Bruce pipeline at the end of field life.
This has been included within non-current financial liabilities at
31 December 2021.
and monitors any agreed mitigating actions. The overall strategy for
the protection of shareholder value against these risks is to carry a
broad portfolio of assets with varied risk/reward profiles, to apply
prudent industry practice, to carry insurance where both available
and cost effective, and to retain adequate working capital.
Other
Asset values and impairment
At 31 December 2021, Serica’s market capitalisation stood at
£648.0 million based upon a share price of 241.0 pence which
exceeded the net asset value of £272.5 million. A review was
performed for any indication that the value of the Group’s oil and gas
assets may be impaired at the balance sheet date of 31 December
2021 and no impairment triggers were noted. By 19 April the
Company’s market capitalisation has risen to £1,114.5 million.
Business Risk and Uncertainties
Serica, like all companies in the oil and gas industry, operates in an
environment subject to inherent risks and uncertainties. The Board
regularly considers the principal risks to which the Group is exposed
Serica has built a strong working capital reserve which is available
to respond to a range of risks including production interruptions,
severe commodity price falls and unexpected costs. To supplement
this the Company carries business interruption insurance to mitigate
the impact of deferred or lost revenues over sustained periods of
production shut-in beyond an initial 60 days, where caused by events
covered under such policies. The Company also uses price hedging
instruments to help manage field revenues and will continue to seek
cost effective opportunities to add to its existing hedge position.
These currently cover a maximum 25% of the Company’s share of
projected 2022 gas production.
The principal risks currently recognised and the mitigating actions
taken by management are as follows:
Investment Returns: Management seeks to invest in a portfolio of exploration, development and producing acreage capable of delivering
returns to shareholders through acquisitions of producing assets to which it can add further value and through the discovery and exploitation
of commercial reserves. Delivery of this business model carries a number of key risks.
Risk
Mitigation
Stock market support may be eroded lowering investor appetite
and obstructing fundraising
Each investment carries its own risk profile and no outcome can
be certain
•
•
•
Management regularly communicates its strategy to shareholders
Focus is placed on building a diverse and resilient asset portfolio
capable of offering prospectivity throughout the business cycle
Management aims to avoid over-exposure to individual assets, to
identify the associated risks objectively and mitigate where practical
Operations: Operations may not go according to plan leading to damage, pollution, cost overruns or poor outcomes.
Risk
Mitigation
Production may be interrupted generating significant revenue
loss whilst costs continue to be incurred
•
•
The Company seeks to diversify its revenue streams
Management determines and retains an appropriate level of
working capital
• The Group carries business interruption cover
Third party offtake routes may experience restrictions or
interruptions and full availability may depend upon sustained
production from other fields in the system
•
The Group aims to diversify its exposure to offtake routes where
possible though all of its oil production currently uses the FPS system
• The Group carries business interruption cover
Capital programmes may be delayed and costs may overrun
The Company is reliant upon its IT systems to maintain
operations and communications
•
Planned programmes incorporate the potential impact of normal
delays and overruns
• The Group retains working capital reserves to cover these
• The Group employs specialist support
•
Protection against external intrusion is incorporated within the system
and tested regularly
Serica Energy plc Annual Report & Accounts 2021 l 23
Strategic Report FINANCIAL REVIEW continued
Personnel: The Group relies upon a pool of experienced and motivated personnel to conduct its operations 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
environments, typically offshore
• A culture of safety is encouraged throughout the organisation
• Responsible personnel are designated at all appropriate levels
•
The Group maintains up-to-date emergency response resources
and procedures
Political and commercial environment: World share and commodity markets and political environments continue to be volatile
Risk
Mitigation
Sanctions imposed by the U.S. government may threaten
continuing production from the Rhum field and licences are
required to be renewed periodically, with the current licence to be
renewed in January 2023
•
An OFAC License has been obtained which has enabled continuing
production from Rhum
• Serica initiates the renewal process well in advance of specified dates
The UKCS licensing regime under which Serica’s operational
rights and obligations are defined may be subject to
future change
•
•
Management maintains regular communication with regulatory
authorities
The Company aligns its standards and objectives with government
policies as closely as possible
Volatile commodity prices mean that the Group cannot be certain
of the future sales value of its products
• Planning and forecasting considers downside price scenarios
• Oil and gas floor price hedging is utilised where deemed cost effective
•
Price mitigation strategies are employed at the point of major capital
commitment
Climate change and environmental protection: The UK government has set a range of emissions reduction objectives
Risk
Mitigation
The transition away from carbon-based energy sources may
restrict the future demand for, or production of, the Group’s oil
and gas reserves
Energy transition objectives may bring additional costs, levies
or taxes
More extreme weather patterns may threaten or disrupt
operations
Sources of finance including equity markets and debt providers
may be harder to access or become more expensive
The range of potential acquisitions may be restricted by ESG
considerations
24 l Serica Energy plc Annual Report & Accounts 2021
•
•
•
•
The estimated value of future reserves is progressively discounted for
later periods of production
The Group’s reserves are weighted towards gas which is playing a key
role in the national energy transition
Estimates of climate-related charges are included in cost estimates
where reasonably identifiable
Management prioritises the delivery of ESG objectives which may
reduce such impacts
• The Company seeks to maintain robust transport and supply chains
•
•
•
•
•
•
The impact of extreme climatic conditions such as exceptional waves
are incorporated in risk management scenarios
Management engages with potential sources to anticipate their
ESG compliance requirements
The Company also seeks to retain a range of alternative
financing options
Potential funding cost increases are considered when planning
investments
Management considers the emissions profiles of potential acquisition
targets and the mitigating actions that it can implement
It prioritises opportunities to deliver low carbon intensity production
into the UK market
COVID-19: The impact of the virus has significantly affected the majority of global activities and markets. The full extent and duration of the
crisis remains uncertain
Risk
Mitigation
The Company’s personnel may be at risk from catching the virus
•
The spread of infection and associated counter measures may
interrupt offshore operations
•
•
•
The Company has instituted recommended safe practices and will
maintain these as necessary
Serica demonstrates a flexible approach to working from home
whilst supporting appropriate working practices in its London and
Aberdeen offices
The Company has reduced the number of staff working offshore to a
safe minimum
Management encourages safe practices travelling to and from the
platform and mandates additional precautions whilst offshore
The continued operation of Serica’s fields may be adversely
affected by interruptions to operations of fields and
infrastructure downstream
• Serica carries a working capital reserve to cover such eventualities
•
Serica works with the regulatory bodies and infrastructure owners to
identify and mitigate any such risks
Task Force for Climate-related
Financial Disclosures (“TCFD”)
Details of ESG strategies directed towards
reducing carbon emissions and contributing
to government Net Zero targets are
described on pages 10 and 11 and also in
a separate ESG Report which will be issued
in conjunction with publication of the 2021
Annual Report.
The TCFD has developed a framework to
formalise and implement the reporting
of financial disclosures related to climate
change. This is gradually being adopted
though the TCFD recognises that full
implementation will take some time for
smaller businesses. Serica has reviewed
guidance issued by the TCFD with regard
to the identification, management and
reporting of climate-related financial
risks and the Company is developing
its capabilities to analyse and report
climate-related risks in accordance with
TCFD guidance.
Governance
•
•
The Board is ultimately responsible for
the governance of climate-related risks
and opportunities. It sets policies and
then reviews these as appropriate.
The Board recognises climate change
as a material risk to Serica with potential
financial implications and understands
that responding to the risks associated
with climate change and building
resilience is integral to the long-term
success of the organisation.
•
•
•
•
It reviews major risks regularly, receives
updates from its subcommittees
and also takes direct reports from
key personnel. It sets general
policy related to climate risks and
opportunities, identifies where further
actions are required and delegates
authorities accordingly. This includes
progress on emissions reduction,
general environmental performance,
developments in climate-related
regulation and cost impacts.
The Health, Safety and Environment
Committee reports to the Board on
the effectiveness of the Company’s
HSE and ESG programs and ensures
that risks, including environmental
or carbon-related hazards are fully
assessed and appropriately mitigated.
In addition, this sub-committee
ensures that all personnel, including
contractors employed by the Company,
are fully aware of their HSE and
ESG responsibilities and have been
properly trained.
The Audit Committee supervises the
financial analysis of climate-related risks
and opportunities and its incorporation
into economic and investment models.
The Remuneration Committee
determines employee compensation
packages and bonus structures which
incorporate incentives to deliver climate-
related objectives.
Strategy
The Company’s focus is on acquiring or
developing oil and gas assets focussed
within the UKCS, extending the producing
lives of mid-to-late life assets and
developing additional reserves where this
can be done with a low carbon footprint,
typically by utilising existing processing and
export facilities.
Serica aligns with the UK government’s
commitment to achieving Net Zero
emissions by 2050 and takes into account
the emissions reduction targets when
making strategic decisions. Serica uses the
risk categories recommended by the TCFD
to further its reflection of climate-related
risk and opportunities: Transition risks,
including policy, legal, technology, market
changes, and Physical risks resulting from
event driven (acute) or longer-term (chronic)
shifts in climate patterns.
Serica also recognises the opportunities
presented to its organisation that are
associated with climate change and the
transition to a low carbon economy. These
include divestments by larger companies,
investment in energy efficient technology
and collaboration between asset and
infrastructure owners. Domestically-
produced gas has a strategic role to play
in the UK’s energy transition. This offers a
lower carbon alternative to more carbon-
intensive fuels and to LNG imports and
also assists in protecting the UK’s security
of energy supply as global energy sourcing
is restructured. Serica is well-placed to
apply its proven capabilities to extending
the production lives of such assets whilst
driving carbon-reduction programmes.
Serica Energy plc Annual Report & Accounts 2021 l 25
Strategic Report FINANCIAL REVIEW continued
Serica has developed operational objectives
which are aligned with climate-related risk
reduction and climate change resilience
planning. These include:
•
•
•
•
Creation of emissions related key
performance indicators (KPIs) and
targets that directly affect employee
bonus payments;
Continued development and
enhancement of a robust ESG strategy
with a corresponding communication
structure to internal and external
stakeholders;
A dedicated VP ESG and Business
Innovation to lead strategy development,
drive change and support continuous
improvement in emissions performance
and wider ESG commitments;
Alignment to recognised international
ESG benchmarks and transparency
initiatives such as the Global Reporting
Initiative (“GRI”) and Sustainability
Accounting standards Board (“SASB”) in
addition to developing a response to the
TCFD recommendations.
Climate Risk Management
•
•
The Senior Management Team is
structured and empowered to ensure
that the Board has the necessary
climate related information to assess the
associated risks and opportunities. The
team is responsible for compliance with
and reporting against the organisational
climate related metrics and targets in
their individual business areas. The
team evaluates climate-related risks
and opportunities as an integral part of
its business activities developing risk
management systems, standards and
procedures as required to achieve this.
Serica’s Risk Management Policy
underlines the identification, assessment
and mitigation of climate-related risks.
Climate-related risks and opportunities
are identified under the Company’s Risk
Management Policy. As its existing
assets are all currently projected to
cease production within the next ten
years, this is the key period of focus
for the Company. Serica has primarily
targeted its considerations of climate-
related risks and opportunities over the
short and medium terms.
•
•
•
•
Serica uses an operating risk
management framework and risk
assessment matrix to capture, rank and
manage significant risks.
Having assessed climate-related risks
the Company either identifies specific
mitigating actions and programmes or,
where such specific responses are not
considered feasible, builds likely financial
impacts into valuations and planning.
Where investigating new investment
opportunities and acquisitions, reviews
are conducted of all climate-related risks
and potential mitigations.
As Serica’s climate-related risk
identification and management
programme progresses, regular updates
are provided to the Board and where
appropriate added into the Group’s risk
register which is then reviewed monthly.
Metrics and Targets
Carbon emissions data is collected from
Serica’s assets, including operated and
partnered facilities. Serica assures this
data for consistency and comparability
throughout its portfolio over time. This
data is used to ensure compliance with
UKCS emissions regulation and to comply
with all operating permits and consents
associated with Serica’s assets. It also
provides benchmarks for delivering
emissions reductions through the adoption
of meaningful and achievable carbon
reduction targets. Details on progress
will be provided in the ESG Report to
be published in conjunction with the
Annual Report.
The TCFD has proposed that business
resilience to climate risks should be
assessed through scenario analysis.
Scenarios start with the end goal, i.e.
limiting global temperature rise to 1.5°C,
and then model the steps that society,
industry, governments etc must take in
order to achieve it. The scenarios describe
the impact on factors such as supply,
demand, regulations, taxes and commodity
pricing. Serica has taken a pragmatic
approach to modelling and looks at the
comparative changes to commodity prices
under different scenarios, i.e., modelling
a high and a low-price case, rather than
taking the absolute values suggested in
the scenarios. Serica has decided to base
its analysis on two scenarios developed
by the International Energy Agency’s (IEA)
World Outlook:
1. Net Zero – accelerated emissions
reduction to achieve Net Zero emissions
in the energy industry by 2050
2. Stated Policies – slower progress based
upon existing governmental policies
This approach is applied to investment
planning including exploration and
conceptual developments, running
economics by varying parameters
depending on either a Net Zero scenario
or a Stated Policies scenario. Examples of
such parameters are carbon pricing, capital
costs and commodity prices. These are
also applied to general corporate modelling.
Key Performance Indicators (“KPIs”)
The Company’s main business is the
acquisition, development and production of
commercially attractive oil and gas reserves
in a safe and environmentally sensitive
manner. This is achieved both through
pursuing the full cycle of exploration,
discovery, development and production and
also through acquiring existing reserves
where management believe that further
value can be added.
Operational and financial performance is
tracked through the following KPI’s whose
progress is covered within the Review of
Operations and Finance Review within this
strategic report:
•
•
•
Daily production volumes
Production costs per barrel of oil
equivalent
Realised sales income per barrel of
oil equivalent
HSE performance is tracked through the
following KPI’s whose progress is covered
within an updated ESG Report to be issued
along with the 2021 Annual Report:
• Recordable incidents and injuries
• Workforce engagement in HSE
• Quality of discharges to water and air
ESG performance is tracked through the
following KPI’s whose progress is covered
within the ESG Report to be issued along
with the 2021 Annual Report:
• Carbon intensity
• Flare volumes
• Workforce engagement in ESG
• Waste volumes generated
• Diversity of personnel
26 l Serica Energy plc Annual Report & Accounts 2021
Elements falling within each of the above
categories are included within annual
incentive schemes for all Group employees.
The Company tracks its new business
development objectives through the building
of a risk-balanced portfolio of full cycle
assets. Specific KPI’s are not applied due to
the range of different potential acquisition
targets. However, successful delivery will
add to future production volumes and net
realised income.
Further information upon the Company’s
HSE and ESG policies and delivery can be
found within the ESG Report which will be
issued along with the 2021 Annual Report.
Section 172 statement
The Directors’ statement under Section 172
of the Companies Act 2006 is included on
pages 44 and 45.
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.
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.
On behalf of the Board
Mitch Flegg
Chief Executive Officer
20 April 2022
Serica Energy plc Annual Report & Accounts 2021 l 27
Strategic Report BOARD OF DIRECTORS
Antony Craven Walker
Executive Chairman / Appointed: 2004
Antony Craven Walker, Executive Chairman, started his career with BP as a petroleum engineer in 1966 and has
been a leading figure in the British independent oil industry since the early 1970s. Mr Craven Walker 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. Both companies
were acquired by larger groups in 1986 and 1999 respectively. Mr Craven Walker was also a founder member
of BRINDEX (Association of British Independent Oil Exploration Companies). Mr Craven Walker was appointed
Non-Executive 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. Under his direction the Company embarked upon its strategy to refocus on the North Sea and build
a strong production base. Mr Craven Walker’s experience in the oil and gas and public market sectors gives him
the skills necessary to provide the services of Executive Chairman as the Company continues to develop its
business strategy.
COMMITTEES Nomination & Corporate Governance Committee
Mitch Flegg
Chief Executive Officer / Appointed: 2017
Mitch Flegg, Chief Executive Officer, has over 35 years of experience in the upstream oil and gas industry,
including positions at Shell and Enterprise Oil. Mr Flegg first joined the Company in 2006 and was responsible
for all drilling and development operations. He was promoted to the position of Chief Operating Officer in March
2011 and appointed to the Board in September 2012. Mr Flegg left the Company in May 2015 to become
CEO of Circle Oil Plc. Mr Flegg re-joined the Board on 21 November 2017 as Chief Executive Officer on the
announcement of the BKR transaction. Mr Flegg’s background and experience ensures that the Company is
effectively led to achieve the Company’s long-term strategic goals and becomes a leading producer and operator.
COMMITTEES Reserves Committee, Health Safety & Environmental Committee
Andrew Bell
Chief Financial Officer / Appointed: 2021
Andrew Bell, Chief Financial Officer, joined the Board on 4 September 2021. Mr Bell had provided consultancy to
Serica since 2004 on the Company’s original AIM listing, the implementation of all finance systems and also on
supporting acquisitions, disposals and associated financing structures. Mr Bell worked on the BKR transactions
and was appointed VP Finance upon signature in 2017. Mr Bell has approaching 40 years’ experience of
all aspects of upstream finance for public companies listed in London and Toronto and for private-backed
companies. These include Charterhouse Petroleum plc, Monument Oil and Gas plc, Consort Resources Ltd and
Centric Energy Corp.
Kate Coppinger
Non-Executive Director / Appointed: 2020
Kate Coppinger, Non-Executive Director, joined the Board on 22 April 2020. Ms. Coppinger has over 20 years’
investment banking, Ms Coppinger’s career includes roles at Canadian Imperial Bank of Commerce, Harrison
Lovegrove and most recently as Managing Director at Standard Chartered in the Oil and Gas team responsible
for origination and execution of transactions for European clients. Her global M&A transaction experience spans
Asia through to South America with particular emphasis on the North Sea. Ms Coppinger chairs the Company’s
Audit Committee.
COMMITTEES Audit Committee (Chair) and Remuneration Committee
28 l Serica Energy plc Annual Report & Accounts 2021
Trevor Garlick
Non-Executive Director / Appointed: 2018
Trevor William Garlick, Non-Executive Director, joined the Board on 30 November 2018, on completion of the
BKR transaction. Mr Garlick spent most of his career in BP where he worked for 30 years, latterly as Regional
President of UK / Norway from 2010 until retirement in 2016. Mr Garlick is a director of Energy Transition
Zone (ETZ) Limited. Mr Garlick chairs the Company’s Health, Safety and Environmental Committee and the
Reserves Committee.
COMMITTEES Health Safety & Environmental Committee (Chair), Reserves Committee (Chair), Audit
Committee and Nomination & Corporate Governance Committee
David Latin
Non-Executive Director / Appointed: 2021
David Latin, Non-Executive Director, joined the Board on 7 December 2021. Mr Latin has over 30 years’ experience
in Upstream Exploration and Production and Investment/Advisory sector. He worked for BP from 1993 to 2011,
holding a number of VP and global/regional business roles. He was then OMV Group Senior Vice President for
E&P in NW Europe, Africa and Australasia from 2011 to 2017. In 2017 he co-founded First Alpha Energy Capital,
investing in Upstream E&P and Energy Services, Technology and Equipment sectors and in 2021 he co-founded
Talaria Technology, providing smart sensors focused on assisting offshore wind energy and carbon storage.
COMMITTEES Health Safety & Environmental Committee, Remuneration Committee and Reserves Committee
Richard Rose
Non-Executive Director / Appointed: 2021
Richard Rose, Non-Executive Director, joined the Board on 28 September 2021. Mr Rose is a qualified accountant
with over 25 years’ experience in the oil and gas industry working within audit and corporate finance within
the E&P sector. Mr Rose’s career includes roles at Ernst & Young LLP, Oriel Securities, RBC Capital Markets,
Ophir Energy and most recently as Finance Director and Interim Chief Executive Officer of Premier Oil. He has
extensive knowledge of debt and equity markets and refinancing.
COMMITTEES Audit Committee
Ian Vann
Non-Executive Director / Appointed: 2007
Ian Vann, Non-Executive Director, joined the Board in 2007. Mr Vann was employed by BP from 1976 and
directed and led BP’s global exploration efforts from 1996 until his retirement in January 2007. Mr Vann 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. Mr
Vann’s industry background provides the Board with the necessary expertise to review and challenge decisions
and opportunities presented both within the formal arena of the boardroom and as called upon when needed by
the executives. Mr Vann chairs the Company’s Remuneration Committee.
COMMITTEES Remuneration Committee (Chair), Health Safety & Environmental Committee, Audit Committee
and Reserves Committee
Malcolm Webb
Non-Executive Director / Appointed: 2018
Malcolm Webb, Non-Executive Director, joined the Board on 30 November 2018, on completion of the BKR
transaction. Mr Webb started his career with Burmah Oil Company in 1974 as a company legal adviser. Between
1986 and 1999, Mr Webb worked in the Petrofina SA Group in various senior management roles. In 2001, Mr
Webb was appointed Director General of the UK Petroleum Industry Association and in 2004 he joined Oil &
Gas UK as Chief Executive, from which post he retired in 2015. Mr Webb’s industry background, together with
his corporate and legal experience provides the Board with the expertise to review and challenge decisions and
opportunities presented. Mr Webb chairs the Company’s Nomination and Corporate Governance Committee.
COMMITTEES Nomination & Corporate Governance Committee (Chair) and Remuneration Committee
Serica Energy plc Annual Report & Accounts 2021 l 29
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 2021.
Principal Activities
Results and Dividends
Directors and their Interests
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.
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).
Engagement with Employees,
Suppliers and Customers
Information regarding Serica’s engagement
with employees, suppliers and customers is
included in the Directors’ statement under
Section 172 of the Companies Act 2006 on
pages 44 and 45.
Antony Craven Walker¹
Mitch Flegg
Andrew Bell
Kate Coppinger
Trevor Garlick
David Latin
Richard Rose
Ian Vann
Malcolm Webb
The profit for the year was £79,294,000
(2020: £7,779,000).
The Directors are recommending the
payment of a final dividend by the Company
of 9 pence per share for the year to
31 December 2021, see note 13 (2020:
3.5 pence per share). Subject to shareholder
approval at the AGM, this will be payable
on 22 July 2022 to shareholders registered
on 1 July 2022 with an ex-dividend date of
30 June 2022.
Financial Instruments
The Group’s financial risk management
objectives and policies are discussed in
note 24.
Events Since Balance Sheet Date
There are no post balance sheet events to
disclose in the financial statements.
The following Directors have held office in
the Company since 1 January 2021 to the
date of this report:
Antony Craven Walker
Neil Pike (retired 24 June 2021)
Ian Vann
Mitch Flegg
Trevor Garlick
Malcolm Webb
Kate Coppinger
Andrew Bell (appointed 3 September 2021)
Richard Rose (appointed 28 September
2021)
David Latin (appointed 7 December 2021)
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:
Class
of share
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Interest at
end of year
7,357,694
184,445
18,709
–
–
–
–
267,935
64,506
Interest at
start of year (or date of
appointment if later)
7,357,694
184,445
18,709
–
–
–
–
267,935
44,681
1. 6,448,810 ordinary shares were held by Antony Craven Walker and 908,884 by Rathbones (pension funds).
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.
Details of share awards that have been granted to certain Directors under the Serica Energy plc Share Option Plan 2005 (“Serica 2005 Option
Plan”) are included in note 27 to the Financial Statements. Details of share awards made during 2021 and up to 19 April 2022 under the Serica
Energy plc Long Term Incentive Plan (the “LTIP”) are also included in note 27.
30 l Serica Energy plc Annual Report & Accounts 2021
Greenhouse Gas Emissions (“GHG”)
Information regarding Serica’s GHG
disclosure is included in the Environmental,
Social and Governance (ESG) section on
pages 10 and 11.
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 they are obliged to take
as a director in order to make themselves
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
20 April 2022
Serica Energy plc Annual Report & Accounts 2021 l 31
Corporate Governance CORPORATE GOVERNANCE STATEMENT
Chairman’s Corporate Governance Statement:
The corporate governance section of
our report explains how the Company’s
governance framework supports the
principles of integrity, strong ethical
values and professionalism integral to our
business. As Executive Chairman of the
Company, it is my responsibility to work
with my fellow Board members to ensure
that the Company embraces corporate
governance and delivers the highest
standards we can. It is within my role to
manage the Board in the best interests of
our many stakeholders. As we said last
year, as a Board we believe that practicing
good corporate governance is essential
for building a successful and sustainable
business. Good governance depends
on strong and effective leadership and
a healthy corporate culture, supported
by robust systems and processes
and a good understanding of risk. The
Board has a comprehensive corporate
governance framework, with clearly defined
responsibilities and accountabilities to
safeguard long-term shareholder value.
This report, together with the reports
of the Audit, Nomination & Corporate
Governance, Remuneration and Health,
Safety & Environmental Committees, seeks
to demonstrate our commitment to high
standards of governance.
The Company adopts the Quoted
Companies Alliance Corporate Governance
Code 2018 (the ‘QCA Code’) which it
believes to be the most appropriate
recognised corporate governance code for
the Company. The QCA has ten principles
which the Company is required to adhere
to and to make certain disclosures both
within this report and on its website. The
Company’s website disclosures can be
found at www.serica-energy.com.
Like 2020, 2021 continued to be a
particularly challenging year, with the
COVID-19 pandemic having an impact
on economies and businesses across
the globe. The importance of a united
Board working to ensure that the
Company continues to deliver for its
shareholders whilst maintaining high
standards of employee welfare, safety,
corporate governance and commitment to
environmental issues is imperative to the
continuing success of the business. During
2021 Neil Pike, non-executive director,
stepped down from his position, following
which Richard Rose and David Latin were
appointed to the Board. The Board thanks
Mr Pike for his contribution to the business
over many years and welcomes Mr Rose
and Mr Latin to the business.
The importance of maintaining strong
relationships and engaging with our
shareholders continues and underpins
the success of the business. The Board
strives to ensure that there are numerous
opportunities for investors to engage with
both the Board and Executive Directors.
Due to COVID-19 the Company’s 2020
and 2021 Annual General Meeting were
held as closed meetings and shareholders
were encouraged to ask questions via the
online Q&A session following the meeting.
The Board looks forward to welcoming
shareholders in person at the 2022
Annual General Meeting. The Executive
Directors were available to meet with
shareholders and analysts on-line following
the Company’s interim and final results.
In 2021, a face to face investor meeting
was held.
32 l Serica Energy plc Annual Report & Accounts 2021
The QCA Code has ten principles of corporate governance that the Company has committed to apply within the foundations of the business.
These principles are:
Principles
Serica Response
Establish a strategy and business model which promote long-term
value for shareholders
Seek to understand and meet shareholder needs and expectations
The Company operates in a sector that is exposed to political,
operational, commercial, product pricing and hazard risks.
Its strategy is to manage risks, financial capacity and growth
opportunities through an active programme of acquisition and
divestment to balance risk and potential whilst optimising operating
costs and procedures to improve performance and identifying
new technologies that can enhance value. The Company seeks
a forward looking, professional and safety conscious culture
in all that it does to provide an environment for the benefit of
all stakeholders.
The Company engages with shareholders at the Annual General
Meeting and after the announcements of interim and final
results. It also regularly presents at investor events. During 2021,
the Company engaged as best as possible with stakeholders
through online forums, and was also able to hold a face to face
investor event.
Take into account wider stakeholder and social responsibilities and
their implications for long-term success
The Company seeks to be a responsible corporate citizen in all its
areas of operation and is committed to maintaining a high standard
of corporate governance.
Embed effective risk management, considering both opportunities
and threats, throughout the organisation
The Company publishes an Environmental, Social and Governance
Report. There are also further details on pages 10 and 11 of
this report.
The Company has an effective risk management framework, which
is subject to oversight by the Audit Committee and the Board. See
further details on page 38.
Maintain the Board as a well-functioning balanced team led by
the Chair
Refer to further discussion of the Board structure and composition
on page 34.
Ensure that between them the Directors have the necessary up-to-
date experience, skills and capabilities
The complementary skills and experience of our Board and
Executive Management team are included on pages 28 and 29.
Evaluate Board performance based on clear and relevant objectives,
seeking continuous improvement
Refer to discussion of Board evaluation on page 35.
Promote a corporate culture that is based on ethical values
and behaviours
Maintain governance structures and processes that are fit for
purpose and support good decision-making by the Board
Communicate how the Company is governed and is performing
by maintaining a dialogue with shareholders and other relevant
stakeholders
The Company has a zero-tolerance approach to bribery and
corruption and has an Anti-Bribery Policy in place to protect the
Company, its employees and those third parties with which the
business engages. Employees have each partaken in Anti-Bribery
training and assessment.
Refer to further discussion of the Company’s governance
structures, including matters reserved for the Board, on pages 35
and 36.
The Company’s financial and operational performance is
summarised in the Annual Report and the Interim Report, with
regular updates provided to stakeholders in other forums through
the year, including press releases and regular updates to the
Company’s website.
Serica Energy plc Annual Report & Accounts 2021 l 33
Corporate Governance Board Committees and Structure
The Board has five Committees as
follows: Nomination & Corporate
Governance Committee, Audit Committee,
Reserves Committee, Health, Safety
and Environmental Committee and
Remuneration Committee. All Committees
operate under clearly defined terms of
reference to ensure proper functioning and
effective application of best practice. The
Committee terms of reference are reviewed
by the Committees and by the Board on
an annual basis. Committees are required
to report back to the Board following a
Committee meeting.
More detailed information of each
Committees can be found on pages
37 to 40.
The Board is responsible for formulating,
reviewing and approving the Company’s
strategy, budgets and corporate actions.
The effectiveness of the Board, director
and senior management appointments
and the Company’s succession planning is
evaluated on a regular basis.
CORPORATE GOVERNANCE FRAMEWORK
The Company has adopted a code of
dealings in securities which the Board
regards as appropriate for an AIM listed
company and is compliant with the UK
Market Abuse Regulations. The Company
takes all reasonable steps to ensure
compliance by the Directors, employees and
agents with the provisions of the AIM rules
relating to dealings in securities.
The Directors acknowledge the importance
of ensuring that the Company, its
employees and those third parties with
which the business engages are operating
within the requirements of the Bribery
Act. The Company has a zero-tolerance
approach to bribery and corruption and has
adopted an anti-bribery policy to protect
the Group, its employees and those third
parties with which the Company engages.
An online training session is adopted by
the Company to ensure that all employees
and the Board are compliant with the anti-
bribery policy.
Board Composition
As at 31 December 2021, the Board of
the Company consisted of the Executive
Chairman, the Chief Executive Officer,
Chief Financial Officer and six independent
Non-Executive Directors. Ian Vann, as
the senior independent Non-Executive
director, along with the other Non-Executive
Directors ensure the Board independence
required given the Company has an
Executive Chairman. All the Non-Executive
Directors are independent in character and
judgement, the appointments of Richard
Rose and David Latin in 2021 provides the
Board with a wider range of experience and
calibre to bring independent judgement on
issues of strategy, performance, resources
and standards of conduct which is vital to
the success of the Group.
Governance Structure
The Board of Directors acknowledge the
importance of corporate governance,
believing that the QCA Code provides the
Company with the right framework to
maintain a strong level of governance.
The Board retains ultimate accountability
for good governance and maintains full
and effective control over the Company.
The Company holds regular Board
meetings at which financial, operational
and other reports are considered and,
where appropriate, voted on. The Board
is responsible for the Group’s strategy,
performance, key financial and compliance
issues, approval of any major capital
expenditure and the framework of
internal controls.
There is a clearly defined organisational
structure with lines of responsibility
and delegation of authority to executive
management. The Board is responsible
for monitoring the activities of the
executive management. The Board has
six independent Non-Executive Directors
to bring an independent view to the Board
one of whom (Ian Vann) acts as Senior
Independent Director. The Chairman has
the responsibility of ensuring that the
Board discharges its responsibilities and
is also responsible for facilitating full and
constructive contributions from each
member of the Board in determination of
the Group’s strategy and overall commercial
objectives. In the event of an equality
of votes at a meeting of the Board, the
Chairman has a second or casting vote.
The Company is committed to a corporate
culture that embraces equal opportunity,
diversity, social responsibility, safety and
commitment to the environment and
is based on sound ethical values and
behaviours and it seeks to instil these
values across the organisation as a whole.
The Company promotes its commitment
through its public statements on its
website, in its report and accounts and
internally through its communications to its
employees and other stakeholders.
34 l Serica Energy plc Annual Report & Accounts 2021
BOARD EVALUATION/REVIEW OF THE BOARD’S EFFECTIVENESS
The Board considers that its effectiveness
and the individual performance of
its directors is vital to the success of
the Company.
It was recognised that, with the expansion
of the Board in parallel with the expansion
of the Company’s activities and the need
to meet the requirements of the QCA
Code, a formal evaluation process for
each of the Board, its Committees and
the Non- Executive Directors should
be conducted. In 2020, performance
evaluations of the Board and of each of
its Committees were undertaken. It was
intended to conduct the evaluation process
for the Non-Executive Directors in 2021
but changes in Board composition coupled
with Covid-19 complications resulted in this
being postponed to early 2022, when the
Chairman duly conducted a performance
evaluation with each of the Non-Executive
directors, the results of which were entirely
satisfactory. The next regular evaluation
of the Board and its Committees will be
performed in 2023.
During 2021, the Non-Executive directors
met amongst other things agreed that
Board meetings should place more focus
on asset performance, that the agendas for
Board meetings should not always follow
a standard form and that they should have
more interface with senior VP’s.
There is a strong flow of communication
between the Directors, and in particular
between the Chief Executive Officer, Chief
Financial Officer and the Chairman, with
consideration being given to the strategic
and operational needs of the business.
Comprehensive board and committee
papers are circulated in advance of
meetings, giving Directors due time to
review the documentation and enabling an
effective meeting. Minutes are drawn up to
reflect the true record of the discussions
and decisions made. Resulting actions
are tracked for appropriate delivery and
follow up.
The Directors have a wide knowledge of the
Company’s business and understand their
duties as directors of a company quoted
on AIM. The Directors have access to the
Company’s Nominated Adviser (Nomad),
auditors and solicitors as and when
required. The Company’s Nomad provides
annual board room training. These advisors
are available to provide formal support and
advice to the Board from time to time and
do so in accordance with good practice.
The Company Secretary helps keep the
Board up to date with developments in
corporate governance and liaises with the
Nomad on areas of AIM requirements.
The Company Secretary has frequent
communication with the Chairman, Chief
Executive Officer, Chief Financial Officer
and chairs of the Committees and is
available to other members of the Board as
required. The Directors are also able, at the
Company’s expense, to obtain advice from
external advisers if required.
The Board is mindful of the need for
succession and diversity planning
when making Board changes and is
actively putting this in place with two
new appointments made in 2021.The
Nomination & Corporate Governance
Committee regularly monitors the
requirements for succession planning
and Board appointments to ensure that
the Board is fit for purpose and keeps
pace with the evolution of the Company. If
assistance with recruitment is required by
the Committee, this will be made available.
The Nomination & Corporate Governance
Committee is mindful of the Board’s
performance and composition together with
the performance of individual Directors and
senior management.
Financial Reporting and Controls
Approval of: finance reports; interim
management statements and any other
preliminary announcement of the final
results; annual reports and accounts;
dividend policy and declaration of any
dividend and significant changes in
accounting policies/practice.
Internal Controls
Ensuring maintenance of a sound system
of internal control and risk management
including regular risk review.
Finance
Raising new capital and confirmation of
major financing facilities; recommendation
of dividends; operating and capital
expenditure budgets; granting of security
over any material Company asset; financial
stress testing.
Contracts
All contracts above £3m; major capital
contracts over £3m; contracts which are
material or strategic; contracts outside of
the approved budget and not in the ordinary
course of business; major investments or
any acquisitions/disposals and transactions
with Directors or other related parties which
are not in the ordinary course of business.
Matters Reserved for the Board
Communications
The Board retains full and effective control
over the Company and is responsible for
the Company’s strategy and key financial
and compliance issues. There are certain
matters that are reserved for the Board and
they include but are not limited to:
Strategy and Management
Approval of: long-term objectives;
commercial strategic aims; annual
operating and capital expenditure budgets;
extending the Company’s activities into
new business; any decision to cease to
operate all or any material part of the
Company’s business.
Approval of resolutions and documentation
put forward to shareholders; approval
of circulars, prospectuses and listing
particulars and approval of press releases
concerning matters decided by the Board.
Board membership and other
appointments
Director and senior management
appointments and the Company’s
succession planning is evaluated on a
regular basis commensurate with good
corporate governance practice on diversity,
experience and skills and the evolving
needs of the Company.
Structure and Capital
Remuneration
Capital structure; major changes to the
Company’s corporate structure; changes
to the management and control structure;
change to the Company’s listing; alteration
of the Company’s articles of association;
change in the Company’s accounting
reference date, registered name or
business name.
Determining the remuneration policy for
the Executive Directors, senior executives
and all staff and the remuneration of the
Non-Executive Directors. Introduction of
new share incentive plans or major changes
to existing plans, to be put to shareholders
for approval.
Serica Energy plc Annual Report & Accounts 2021 l 35
Corporate Governance BOARD EVALUATION/REVIEW OF THE BOARD’S EFFECTIVENESS continued
Directors’ attendance at meetings
The Directors’ attendance at Board
meetings and Board committees during
2021 is detailed in the table below:
Delegation of Authority
Other
Division of responsibilities between
the Chairman, the Chief Executive and
Executive Directors; delegated levels of
authority, including the Chief Executive’s
authority limits; establishment of Board
Committees and approval of terms of
reference of Board Committees.
Corporate Governance Matters
Review of the Company’s overall corporate
governance arrangements.
Policies including the share dealing code;
appointment or change of the Company’s
principal professional advisers and auditors;
overall levels of insurance for the Company;
material litigation; any decision likely to have
a material impact on the Group or Company
from any perspective including, but not
limited to, financial, operational, strategic
or reputational; matters reserved for Board
decisions and which the Board considers
suitable for delegation are contained in the
terms of reference of its Committees; and
the grant of options, warrants or any other
form of security convertible into shares.
Director
A Craven Walker
(Chairman of the Board)
Board
11*
N Pike**
I Vann
M Flegg
M Webb
T Garlick
K Coppinger*
R Rose ***
A Bell ***
D Latin ***
Total meetings
Notes:
6
10
11
10
11
11
2
2
–
11
Ad Hoc
Audit
Remuneration
Nomination
& Corporate
Governance
HSE
Reserves
7
3
3
7
2
3
3
2
2
1
7
–
2*
5
2†
–
5
5*
–
3†
–
5
–
3
4*
4†
4
–
1
–
–
–
4
3
2
–
1†
3*
3
–
–
–
–
3
–
–
4
4
–
4*
–
–
–
–
4
–
–
1
–
–
1*
–
–
–
–
1
The Chairman, Chief Executive Officer 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.
* Chairman
†
Invitee
** Neil Pike resigned from the Board on 24 June 2021.
*** Andrew Bell was appointed to the Board on 4 September 2021, Richard Rose was appointed to the Board on 28 September 2021 and David Latin was
appointed to the Board on 7 December 2021.
36 l Serica Energy plc Annual Report & Accounts 2021
NOMINATION AND CORPORATE GOVERNANCE COMMITTEE REPORT
The Nomination and Corporate Governance
Committee assists the Board in the
oversight of Corporate Governance at Board
level. In that regard the Company follows
the Corporate Governance Code of the
Quoted Companies Alliance, of which it is a
member. The Committee is also responsible
for monitoring the overall effectiveness
of the Board and the appointment of new
directors, together with succession planning
for the Board.
The Committee’s membership comprises
Malcolm Webb (Non-Executive director
and Committee Chairman), Trevor Garlick
(Non-Executive director) and Antony
Craven Walker (Executive Chairman of
the Company). During the year, upon
resignation of Neil Pike from the Board,
Trevor Garlick replaced Neil Pike on the
Committee.
The Committee met three times during
2021 and will meet at least three times
during 2022.
Independence of Non-Executive
Directors.
The Committee and the Board are satisfied
that each Non-Executive director serving
at the end of the year remains independent
and continues to have sufficient time
to discharge their responsibilities to the
Company. Neil Pike resigned from the Board
during the year, Ian Vann has served on
the Board for over ten years, standing for
re-election annually. Further appointments
to the Board were made during the year to
aid the Company’s succession planning.
2021 activities
•
•
•
•
During the year, the Committee
continued to review succession planning
and assisted in the appointment of
Richard Rose and David Latin to the
Board as part of this ongoing process.
The Committee supported the
appointment of Andrew Bell to the
Board.
The Whistleblowing Policy was reviewed
and updated which was then formally
adopted by the Board.
The Committee terms of reference were
reviewed.
2022 looking forward
The Committee will continue to monitor
and advise on Corporate Governance and
pay particular attention to Board structure,
diversity and succession planning and
expects to see further Board changes
consistent with these objectives as the
Company’s needs evolve. A non-executive
director evaluation and appraisal was
conducted early 2022.
Malcolm Webb
Chairman of the Nomination and Corporate
Governance Committee
20 April 2022
Serica Energy plc Annual Report & Accounts 2021 l 37
Corporate Governance AUDIT COMMITTEE REPORT
The Audit Committee is a standing
committee of the Board and assists
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 Committee may hold
private sessions with management and with
the external auditor without management
present. The Committee is also responsible
for overseeing the relationship with the
external auditor.
An important part of the role of the
Committee is its responsibility for reviewing
and monitoring the effectiveness of
the Group’s financial reporting, internal
control policies, and procedures for the
identification, assessment and reporting of
risk. The latter two areas are integral to the
Group’s core management processes and
the Committee devotes significant time to
their review.
An essential element of the integrity of the
financial statements lies around the key
assumptions and estimates or judgments
to be made. The Committee reviews key
judgments prior to publication of the
financial statements at both the end of
the financial year and at the end of the six-
month interim period, as well as considering
significant issues throughout the year.
In particular, this includes reviewing any
subjective material assumptions within the
Group’s activities to enable an appropriate
determination of asset valuation,
provisioning and the accounting treatment
thereof. The Committee reviewed and was
satisfied that the judgments exercised by
management on material items contained
within the Report and Financial Statements
are reasonable.
The Audit Committee meets regularly and
comprises Kate Coppinger (Non-Executive
director and Committee Chair), Ian Vann
(Non-Executive director), Trevor Garlick
(Non-Executive director) and Richard Rose
(Non-Executive director). Neil Pike (previous
Non-Executive director and Committee
Chair) resigned in June 2021.
2021 activities
2022 looking forward
The Committee continues to engage Ernst
& Young (EY) to act as external auditors and
they are also invited to attend the relevant
Committee meetings, unless they have a
conflict of interest.
•
•
•
During the year, the Committee
reviewed the Company’s Treasury
Policy, Hedging Strategy and Deposit
Strategy. The Committee also discussed
the Emissions Trading Scheme and
delegated authority for purchase.
The Committee considered the controls
review conducted by a specialist who
provided a review of the Company’s
existing systems of financial control.
This review involved assessing the
Group’s internal control and risk
management policies and systems
and their effectiveness. The Committee
continues to be satisfied that the Group
does not currently require an internal
audit function, although this will be kept
under review.
The external auditors, EY, were
re-appointed at the Company’s annual
general meeting. The Serica Group fee to
EY for the financial year to 31 December
2021 is £355,000. The Audit Committee
undertakes a comprehensive review
of the quality, effectiveness, value and
independence of the audit provided by
EY each year.
•
The Company declared and paid a
dividend to shareholders and considered
whether an interim dividend should
be paid.
Whilst EY have been the Company’s
auditors for many years, the Committee
are comfortable that EY’s audit remains
independent. The current audit partner has
served the Company for 4 years.
The Committee, which so far has met
three times in 2022 shall continue to work
according to its Terms of Reference, and in
particular:
•
•
•
•
•
Keep under review the Company’s
existing control framework.
Ensure that risk management
procedures and controls are appropriate.
Continue to assess the Company’s
Hedging strategy.
Continue to consider the
recommendations of the Quoted
Companies Alliance Corporate
Governance Code, Audit Guide.
Review the Taskforce for Climate-related
Disclosure (“TCFD”) recommendations
and monitor the implementation of
scenario analysis.
•
Consider whether a dividend should be
payable to shareholders.
Responsibilities
The Committee reviews and makes
recommendations to the Board on all
material financial decisions affecting the
Company, including:
• Any change in accounting policies
•
•
•
•
•
Decisions requiring a major element of
judgement and risk
Compliance with accounting standards
and legal and regulatory requirements
Disclosures in the interim and annual
report and financial statements
Reviewing the effectiveness of the
Group’s financial and internal controls
Any significant concerns of the external
auditor about the conduct, results or
overall outcome of the annual audit of
the Group
•
Any matters that may significantly affect
the independence of the external auditor
Kate Coppinger
Chair of the Audit Committee
20 April 2022
38 l Serica Energy plc Annual Report & Accounts 2021
RESERVES COMMITTEE REPORT
•
•
Met with management and the
qualified reserves auditor to review the
reserves data and the auditor’s annual
reserves report.
Reviewed and recommended to the
Board approval of the content and filing
of the Company’s annual statement
of reserves data and other oil and gas
information.
2022 looking forward
Make a recommendation to the Board
(via the Audit Committee) regarding the
Company’s annual statement of reserves
data and other oil and gas information.
Trevor Garlick
Chairman of the Reserves Committee
20 April 2022
The Reserves Committee is a sub-
committee of the Audit Committee. The
Committee’s purpose is to review the
reports of the independent reserves auditor
which require that the Board discuss the
reserves reports with the independent
reserves auditor or delegate authority to a
reserves committee comprised of at least
two Non-Executive Directors.
The Committee comprises of Trevor Garlick
(Non-Executive director and Committee
Chairman), Ian Vann (Non-Executive
director) and Mitch Flegg (Chief Executive
Officer of the Company). David Latin joined
the Committee in January 2022. The
Committee met once in 2021 and typically
meets once a year prior to publication of
the annual results.
2021 activities
•
Worked with new reserves auditor,
RISC Advisory who advised a different
methodology used to calculate the
reserves in respect of each field.
•
Engaged RISC Advisory for a minimum
of 12 months for the 2021 audit.
Serica Energy plc Annual Report & Accounts 2021 l 39
Corporate Governance HEALTH, SAFETY AND ENVIRONMENTAL COMMITTEE REPORT
The Health, Safety and Environmental
Committee provides assurance to the
Board on occupational health, safety and
environmental leadership. It is primarily
focused on ensuring that HSE policies are
adopted and applied across the Group.
Environmental, Social and Governance
(ESG) assurance also falls under the
Committees remit.
The Committee comprises of Trevor Garlick
(Non-Executive director and Committee
Chairman), Ian Vann (Non-Executive director
and previous chairman of the Committee),
and Mitch Flegg (Chief Executive Officer
of the Company). David Latin joined the
Committee in 2022. The VP Operations
and VP ESG and Business Innovation are
invited to attend the meeting and present
their reports.
During 2021, the Committee has met
quarterly to discuss matters pertaining to
Health, Safety and Environmental issues
which were complicated and continued
to be dominated by the increasing threat
of COVID-19 amongst the workforce. In
addition, the Committee focused all the
Company’s operations, ensuring that
adequate HSE policies are adopted and
applied across the Group and the Safety
Leadership of both Management and the
workforce is visible and impactful.
2021 activities
2022 looking forward
During 2022, the Committee plans to
continue to review the on-going HSE
procedures and culture, evaluate HSE
performance against our internal plan and
industry standards, evaluate performance
against the internal 2022 plan, agree a HSE
bonus scorecard for 2022 to be linked to
the Company bonus scheme for 2022 and
ensure that the HSE policy and procedures
remain effective. The Committee shall
continue to place a focus on ESG, reviewing
various projects on how the Company
can plan to reduce carbon intensity
and emissions.
Trevor Garlick
Chairman of the Health, Safety and
Environmental Committee
20 April 2022
•
•
•
•
•
•
•
•
•
•
•
Monitored the operation of COVID-19.
Evaluated HSE performance against
industry standards and acted on
Regulator feedback.
Monitored interactions with the
HSE inspector and ensured that the
relationship with the Regulator is
constructive and responsive.
Monitored delivery of HSE performance
against the HSE and Risk Management
Plan at each meeting.
Monitored HSE performance of personal
and process safety metrics looking
at both leading and lagging indicators.
Reviewed major and reportable HSE
incidents that occurred, investigations
and lessons learned at each meeting.
Introduced a new team to address
Backlogs.
Monitored environmental performance
and emissions management, focusing
on the Company’s environmental
footprint and plans to contribute to the
decarbonisation and energy transition of
the North Sea industry.
Reviewed various energy transition
projects.
Agreed HSE performance metrics linked
to the Company bonus scheme.
Reviewed the Committee Terms
of Reference.
40 l Serica Energy plc Annual Report & Accounts 2021
DIRECTORS’ REMUNERATION REPORT
The Remuneration Committee
The Remuneration Committee is a standing
Committee of the Board and meets
regularly to consider all material elements
of remuneration policy, share schemes,
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 Committee
assists the Board in discharging its
oversight responsibilities relating to the
attraction, compensation, evaluation
and retention of Executive Directors and
key senior management employees.
The Committee aims to ensure that the
Company has the right skills and expertise
needed to enable the Company to achieve
its goals and strategies and that fair and
competitive compensation is awarded with
appropriate performance incentives across
the Company.
The Committee comprises Ian Vann
(Non-Executive Director and Committee
Chairman), Kate Coppinger (Non-Executive
Director), Malcolm Webb (Non-Executive
Director) and David Latin (Non-Executive
Director). Neil Pike resigned from the
Board in June 2021 and David Latin joined
the Committee in January 2022. The
Committee met four times in 2021 and
proposes to meet at least three times
during the next financial year.
Consideration by the Directors
of matters relating to Directors’
remuneration
The Committee is responsible for making
recommendations to the Board regarding
the framework for the remuneration of the
Executive Directors and other members of
executive management. The Committee
works within its terms of reference, and its
role includes:
• Reviewing and approving the Company’s
overall compensation philosophy and
programmes.
•
•
•
•
•
•
Determining and agreeing with the
Board, the Remuneration Policy for
all Executive Directors and, under
guidance of the Executive Directors,
other members of the Executive
Management Team.
Ensuring Executive remuneration
packages are competitive.
Determining whether annual bonus
payments should be made and
approving levels for individual
Executive Directors.
Determining each year whether any
awards/grants should be made under
the incentive schemes and the value of
such awards.
Considering any new long-term
incentive scheme awards and
performance criteria.
Agreeing Directors’ service contracts and
notice periods.
The Company is committed to maintaining
an open and transparent dialogue
with shareholders on all aspects of
Remuneration within the Group.
2021 activities
The Committee:
•
•
•
•
•
•
•
•
•
•
Approved the level of both the 2020 cash
bonus and discretionary bonus.
Agreed the targets for the 2021 cash
bonus scheme.
Agreed the 2021 employee salary
increases.
Approved the grant of Long Term
Incentive Plan (LTIP) awards for 2021.
Approved the vesting of performance
awards granted in 2019.
Reviewed Executive Director
remuneration report (prepared
by Deloitte).
Reviewed CEO and Chair Scorecard
(Mid-Year Review).
Reviewed any Significant Changes to
Employee Benefits.
Reviewed the Gender Balance of
the Company.
Evaluated effectiveness of
the Committee.
2022 looking forward
•
•
•
•
•
•
•
•
Reviewing and agreeing the cash bonus
to be awarded to employees in respect
of the financial year 2021.
Considering and agreeing any
discretionary bonuses to be awarded to
senior management.
Considering and agreeing a programme
for the grant of any LTIP awards
for 2022.
Proposing and agreeing the
remuneration packages for Executive
Directors and advising the Board on the
remuneration of Non-executive Directors
for 2022.
Reviewing and agreeing salary proposals
for all employees.
Considering a Share Save scheme
for 2022.
Agreeing a framework for the cash
bonus plan 2022.
Establish a remuneration subcommittee
to conduct a remuneration review
focussing on attraction and retention
of employees.
•
Annual Gender pay review.
Serica Energy plc Annual Report & Accounts 2021 l 41
Corporate Governance DIRECTORS’ REMUNERATION REPORT continued
Executive Directors’ service contracts
The Company’s policies on Directors’ service contracts are indicated below:
Director
Antony Craven Walker
Mitch Flegg
Andrew Bell
Executive Remuneration
Effective term
1 July 2015
21 November 2017
3 September 2021
Notice period
6 months from Executive
12 months from Company
6 months from Executive
12 months from Company
6 months from Executive
6 months from Company
The table below sets out the single total figure of remuneration and breakdown for each Executive Director paid for the 2021 financial year.
Remuneration for Mr Bell reflects the period since his appointment to the Board on 3 September 2021.
Salary
Annual Bonus
Benefits
Pension
Total
Anthony Craven Walker
Mitch Flegg
Andrew Bell
£455,000
£136,500
Nil
Nil
£591,500
£455,000
£341,250
£522
£68,250
£865,022
£93,699
£86,925
£383
£14,055
£195,062
Mr Craven Walker has waived his entitlement to Illness and Medical Insurance, pension contribution and participation in the SIP.
Mr Flegg receives cash in lieu of his entitlement to pension contribution.
Mr Bell receives cash in lieu of his entitlement to pension contribution.
Additional Details
Share Option Plans
The Company operates three discretionary incentive share option plans: (i) 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, (ii) the 2017 Serica Energy plc
Company Share Option Plan (“2017 CSOP”), which was adopted by the Board on 20 November 2017, and (iii) 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
Discretionary Plans will govern all future grants of options by the Company to Directors, officers and employees of the Group. The Directors
intend that the maximum number of ordinary shares which may be utilised across all of the Company’s share option 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 the Discretionary Plans is to develop the interest of Directors, officers and employees 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
Director options outstanding at 31 December 2021 under the Serica 2005 Option Plan are detailed below:
Director/Employees
Antony Craven Walker
Total number of shares granted
2,500,000
2,500,000
Following the approval of the Company’s 3.5p per share dividend to shareholders in 2021, dividend accrual amounts of 68,146 LTIP scheme
interests (nil cost) were granted in relation to the 2,500,000 Serica 2005 Option Plan awards that had fully vested.
Long Term Incentive Plan
The following awards have been granted to Directors under the LTIP, these were deemed to be granted in November 2017 under IFRS 2 in
accordance with the 30 November 2017 Admission Document:
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. These awards vested on 31 January 2019 and were not subject to
performance conditions; however, they were conditional on completion of the BKR Acquisition, subject to the Board determining otherwise.
42 l Serica Energy plc Annual Report & Accounts 2021
Director
Antony Craven Walker
Mitch Flegg
Andrew Bell
Total number of shares granted subject
to Deferred Bonus Share Awards
225,000
225,000
138,000
588,000
Following the Company’s 3.5p per share dividend to shareholders in 2021, dividend accrual amounts of 6,133 LTIP scheme interests (nil cost)
were granted to both Mr Craven Walker and Mr Flegg and 3,761 LTIP scheme interests (nil cost) were granted to Mr Bell in relation to their
respective 225,000 and 138,000 DSA Plan awards respectively that had fully vested.
Performance Share Awards were granted in 2018, 2019, 2020 and 2021, these awards are subject to different vesting criteria based on
absolute share price performance over a three-year period. The awards granted in 2021 were also subject to ESG performance targets to be
met. The targets in respect of the 2018 Performance Share Awards were met and vested in full on 1 December 2020. The targets in respect of
the 2019 Performance Share Awards were met and vested in full on 5 March 2022. All Performance Share Awards are structured as nil-cost
options and may be exercised up until the tenth anniversary of the date of grant.
Director
Antony Craven Walker
Mitch Flegg
Andrew Bell
2021
587,349
587,349
306,210
1,480,908
2020
386,100
386,100
224,478
996,678
Total number of shares granted
subject to Performance Share Awards
2019
(vested in full)
2018
(vested in full)
411,067
411,067
234,308
1,056,443
1,500,000
1,500,000
800,000
3,800,000
Following the Company’s 3.5p per share dividend to shareholders in 2021, dividend accrual amounts of 40,887 LTIP scheme interests (nil cost)
were granted to both Mr Craven Walker and Mr Flegg and 21,806 LTIP scheme interests (nil cost) were granted to Mr Bell in relation to their
respective 2018 PSA Plan awards that had fully vested on 30 November 2020.
Non-Executive Directors
2021 Non-Executive Director fees
Non-Executive Directors
Neil Pike
Ian Vann
Malcolm Webb
Trevor Garlick
Kate Coppinger
Richard Rose
David Latin
Chair/Director
Fees (£)*
Committee Chair
Fees (£) **
25,000
50,000
50,000
50,000
50,000
13,077
3,654
5,000
10,000
10,000
10,000
5,154
–
–
*
Neil Pike resigned on 24 June 2021 and the Director Fee for 2021 is a pro-rata figure of the base annual salary of £50,000. Richard Rose
was appointed on 28 September 2021 and David Latin was appointed on 7 December 2021. A Directors Fee for 2021 is a pro-rata figure of
the base annual salary of £50,000.
** The Committee Chair fees for 2021 is a pro-rata figure for Neil Pike and Kate Coppinger.
Ian Vann
Remuneration Committee Chairman
20 April 2022
On behalf of the Board
AMBA Secretaries Limited
20 April 2022
Serica Energy plc Annual Report & Accounts 2021 l 43
Corporate Governance DIRECTORS’ STATEMENT UNDER SECTION 172 (1) OF THE COMPANIES ACT 2006
The Section 172 (1) of the Companies
Act obliges the Directors to promote the
success of the Company for the benefit of
the Company’s members as a whole.
The section specifies that the Directors
must act in good faith when promoting the
success of the Company and in doing so
have regard (amongst other things) to:
a) the likely consequences of any decision
in the long term,
b) the interests of the Company’s
employees,
c) the need to foster the Company’s
business relationship with suppliers,
customers and others,
d) the impact of the Company’s operations
on the community and environment,
e) the desirability of the Company
maintaining a reputation for high
standards of business conduct, and
f)
the need to act fairly as between
members of the Company.
Stakeholder engagement is a priority for
the Board, with a view to obtaining a wide
range of views and achieving a common
understanding of the opportunities and
challenges that underpin a long-term
sustainable business plan.
Engagement typically takes place with
stakeholders through both the Board and
the senior management team. Outcomes
are reported through to the Board to have
a holistic understanding of all stakeholder
positions, to balance competing interests
and to take into account various views
when making decisions.
The Board of Directors is collectively
responsible for the decisions made towards
the long-term success of the Company and
the way in which the strategic, operational
and risk management decisions have been
implemented throughout the business is
detailed in the Strategic Report.
Selective examples of the highlights in
respect of each stakeholder group are set
out below.
Employees
Our employees are one of the primary
assets of our business and the Board
recognises that our employees are the
key resource which enables the delivery of
Company’s vision and goals.
We ensure that:
Health, Safety and the Environment
are considered paramount throughout
the organisation (both on-shore and
off-shore).
Annual pay and benefit reviews are
carried out to determine whether all
levels of employees are benefitting fairly
and to retain and encourage skills vital
for the business.
There is competitive pay and
employee benefits.
There is ongoing necessary training
and development and career
prospects available.
There are freely available Company
policies and procedures.
Staff engagement surveys are
conducted.
•
•
•
•
•
•
•
•
Employees are informed of the results
and important business decisions and
are encouraged to feel engaged and to
improve their potential. This is carried
out with Company Town Hall meetings
together with individual team and one to
one engagement.
• Working conditions are favourable.
•
•
Newsletters and management updates
are provided.
Team-building sessions and social
events are arranged.
Engagement during 2021 continued
to be paramount due to the COVID-19
pandemic. The Company has worked to
ensure that employees are safe and well,
both physically and mentally. Onshore
staff primarily worked remotely and were
eligible for financial support to improve
their working environment. Those who
experienced difficulties working from
home were allowed back into the office
on a strictly manged basis. COVID-19 was
managed offshore by reducing the number
of people on the platform allowing single
occupancy cabins and safer transportation
as well as strict testing, isolation and
evacuation procedures. Social distancing
measures and mask-wearing were also
implemented offshore to reduce the risk of
transmission. During 2022 the Company
hopes to build its phased return to the
office in a safe and positive environment
for all staff and continues to manage the
situation offshore.
The Remuneration Committee oversees
and makes recommendations of
executive remuneration and any long-term
share awards. The Board encourages
management to improve employee
engagement and to provide necessary
training in order to use their skills in the
relevant areas in the business. The Health,
Safety and Environmental Committee
reviews the health and safety measures
implemented across the business on a
quarterly basis and improvements are
continuously recommended for better
practice.
The Board acknowledges that a strong
business relationship with suppliers
and customers is a vital part of growth.
Whilst day to day business operations are
delegated to the executive management
and the senior management team, the
Board sets directions with regard to new
business ventures. The Board upholds
ethical business behaviour across all of
the Company’s activities and encourages
management to seek comparable business
practices from all suppliers and customers
doing business with the Company. We
value the feedback we receive from our
stakeholders and we take every opportunity
to ensure that where possible their wishes
are duly considered. The Board supported
the Company’s adoption of the OEUK
Energy Services Agreement that sets base
terms for employees working offshore in
the UK and promotes a ‘safe, stable and fair
operating environment’.
Personal development reviews and work
appraisals are conducted.
Suppliers, Customers and Regulatory
Authorities
44 l Serica Energy plc Annual Report & Accounts 2021
The Board acknowledges that encouraging
effective two-way communication
with shareholders encourages mutual
understanding and better connection
with them. Investor events are also
arranged with shareholders throughout
the year which present an opportunity for
shareholders to speak with the Executive
Directors in a formal environment and in
more informal one to one meetings. By
providing a variety of ways to communicate
with investors the Company feels that it
reaches out to engage with a wide range
of its stakeholders. The Board is mindful
that during the global COVID-19 pandemic
face to face meeting with shareholders
was not possible during 2020 and limited
meetings took place face to face in 2021.
The Company has endeavoured to maintain
communication with investors remotely and
believes that engagement has been carried
out efficiently during these challenging
times. It is hoped that further face to face
engagement with stakeholders will be
possible in 2022.
On behalf of Board
Antony Craven Walker
Executive Chairman
20 April 2022
The importance of making all employees
feel safe in their environment is maintained
and a Whistleblowing Policy is in place
to enable staff to confidentially raise any
concerns freely and to discuss any issues
that arise. Strong financial controls are in
place and are well documented. The Board
regularly considers the key business risks
and a risk matrix is discussed by the Board
on a monthly basis.
Shareholders
The Board places equal importance
on all shareholders and recognises the
significance of transparent and effective
communications with shareholders. As
an AIM listed company there is a need
to provide fair and balanced information
in a way that is understandable to
all stakeholders and particularly our
shareholders.
The primary communication tool with our
shareholders is through the Regulatory
News Service, (“RNS”) on regulatory
matters and matters of material substance.
The Company’s website provides details
of the business, investor presentations
and details of the Board and Board
Committees, changes to major shareholder
information and QCA Code disclosure
updates under AIM Rule 26. Changes
are promptly published on the website to
enable the shareholders to be kept abreast
of Company’s affairs. The Company’s
Annual Report and Notice of Annual
General Meetings (AGM) are available to all
shareholders. The Company also published
its ESG report in 2021 which is available
to all shareholders. The Interim Report
and other investor presentations are also
available on our website.
Community and Environment
The Company runs an active community
support programme through its
committees; Charity and Fundraising,
Education and Diversity and Inclusion.
The Board is kept informed of events
through monthly Board papers and regular
HSE subcommittee meetings. Staff and
stakeholders are updated by various means
such as the company newsletter, a weekly
staff ‘round-up’ email, posts on social media
– LinkedIn and Twitter, as well as staff HSE
and ESG meetings. The annual ESG report
provides details of the Company’s social
activities and is approved by the Board.
Improving environmental performance of
the company and acting responsibly is
a key Company objective and the Board
receives monthly performance updates
of key environmental metrics such as
emissions, flaring and waste. More detailed
updates are given in the HSE/ESG quarterly
meetings and by in-person updates in
the main board. The Board is regularly
updated on the activities and progress of
the Emissions Reduction Group and the
offshore ESG Champions. Feedback from
industry bodies and the Regulator is also
provided via the Board committee meetings.
Maintaining High Standards of
Business Conduct
The Company is incorporated in the UK
and governed by the Companies Act 2006.
The Company has adopted the Quoted
Companies Alliance Corporate Governance
Code 2018 (the ‘QCA Code’) and the Board
recognises the importance of maintaining
a good level of corporate governance,
which together with the requirements to
comply with the AIM Rules ensures that the
interests of the Company’s stakeholders are
safeguarded. The Board has prompted that
ethical behaviour and business practices
should be implemented across the
business. Anti-corruption and anti-bribery
training are compulsory for all staff and
contractors and the anti-bribery statement
and policy is provided on the Company’s
website. The Company’s expectation of
honest, fair and professional behaviour is
reflected by this and there is zero tolerance
for bribery and unethical behaviour by
anyone representing the Company.
Serica Energy plc Annual Report & Accounts 2021 l 45
Corporate Governance 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 UK-adopted
International Accounting Standards in
conformity with the requirements of the
Companies Act 2006.
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 UK-adopted
International Accounting Standards in
conformity with the requirements of
the Companies Act 2006. Under United
Kingdom company law the Directors have
elected to prepare the parent company
financial statements in accordance with
UK-adopted International Accounting
Standards in conformity with the
requirements of the Companies Act 2006.
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 UK-adopted International
Accounting Standards in conformity
with the requirements of the Companies
Act 2006, 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 UK-adopted
International Accounting Standards in
conformity with the requirements of
the Companies Act 2006 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 UK-adopted
International Accounting Standards in
conformity with the requirements of
the Companies Act 2006, 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.
46 l Serica Energy plc Annual Report & Accounts 2021
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 2021 and of the group’s profit for the year
then ended;
the group financial statements have been properly prepared in accordance with UK adopted international accounting standards;
the parent company financial statements have been properly prepared in accordance with UK adopted international accounting standards
as applied in accordance with section 408 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 (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended
31 December 2021 which comprise:
Group
Parent company
Consolidated balance sheet as at 31 December 2021
Balance sheet as at 31 December 2021
Consolidated income statement for the year then ended
Statement of changes in equity for the year then ended
Consolidated statement of comprehensive income for the year then ended
Statement of cash flows for the year then ended
Consolidated statement of changes in equity for the year then ended
Consolidated 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
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 UK adopted international accounting
standards and, as regards to the parent company financial statements, as applied in accordance with section 408 of the Companies Act 2006.
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. 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.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of
the financial statements is appropriate. Our evaluation of the directors’ assessment of the group and parent company’s ability to continue to
adopt the going concern basis of accounting included the following:
•
•
•
•
•
•
we understood and walked through management’s process and controls related to assessing going concern including discussion with
management to assess whether all key factors were taken into account.
we obtained the Group’s going concern assessment which includes the cash flow forecast and its liquidity position covering the period
to 30 June 2023 (the going concern period) and confirmed that the method used in management’s model is appropriate and checked the
clerical accuracy of the model;
we evaluated the information used in the going concern assessment for consistency with the business plans and information obtained
through auditing other areas of the business;
we assessed the key risks to going concern, such as future oil and gas prices and operational issues impacting production volumes, based
on management’s identification of those risks and our own understanding of the business;
we compared future short and long-term commodity prices to consensus analysts’ forecasts and those adopted by other oil and
gas companies and we evaluated whether prices were used consistently across Serica. We also compared Serica’s oil and gas price
scenarios to the IEA’s Net Zero Emissions 2050 (NZE) and to the IEA’s Announced Pledges Scenario (APS) price assumptions as potential
contradictory evidence for best estimates of future oil and gas prices;
we reviewed and challenged the significant assumptions applied in the forecast, focussing on the plausible downside scenarios modelled
by management, which included the impact on the business model of potential operational issues resulting in a temporary shutdown of the
facilities and the impact of changing gas prices on the group’s gas price hedging arrangements. We assessed the reasonableness of these
assumptions and consistency with information used in other aspects of the preparation of the financial statements;
Serica Energy plc Annual Report & Accounts 2021 l 47
Auditor’s Report INDEPENDENT AUDITOR’S REPORT to the members of Serica Energy plc continued
•
•
•
•
•
•
•
we obtained bank confirmations of the Group’s cash and cash equivalent balances as at 31 December 2021 and received bank statements
to confirm the balances as at 1 April 2022;
we reviewed the performance during the first quarter of 2022 to identify any issues which may impact management’s going concern
assessment. We further confirmed that no external debt had been issued after the year-end date;
we assessed management’s ability to forecast accurately based on their historical performance and, where management have experienced
differences between forecasts and actuals (whether due to oil and gas prices or other factors), this has informed our view of the adequacy
of the stress testing performed by management in their assessment;
we also performed inquiries of those charged with governance, inquiries with members of management outside of the finance function,
review of board minutes and other financial information to consider events or conditions beyond 30 June 2023 that may cast significant
doubt on the entity’s ability to continue as a going concern and compared their response to other information gathered during the course
of our audit;
considered the likelihood of management’s ability to execute mitigating actions, as required, to continue its business activities in the severe
downside scenarios simulated in the sensitivity analysis;
considered whether possible financial consequences of Serica’s potential ESG and climate change commitments have been appropriately
reflected in the forecasted cash flows; and
we reviewed the appropriateness of management’s going concern disclosures in describing the risks associated with its ability to continue
as a going concern for the period to 30 June 2023 and to ensure such disclosures are in accordance with relevant standards.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually
or collectively, may cast significant doubt on the group and parent company’s ability to continue as a going concern for the period to
30 June 2023.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group’s ability to continue as
a going concern.
Overview of our audit approach
Audit scope
• We performed an audit of the complete financial information of two components.
• The components where we performed full scope audit procedures accounted for 99% of the profit before tax
measure used to calculate materiality, 100% of Revenue and 99% of Total assets.
Key audit matters
• Assessment of oil and gas reserves and their impact on the financial statements
• Valuation of gas hedging instruments
•
Impairment of property, plant and equipment relating to Columbus
Materiality
• Overall group materiality of £5.8m which represents 5% of normalised profit before tax excluding the impact
of fair value movements on the BKR contingent consideration, commodity price swaps (“adjusted profit
before tax”).
48 l Serica Energy plc Annual Report & Accounts 2021
An overview of the scope of the parent company and group audits
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each
company 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
factors when assessing the level of work to be performed at each company.
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, of the ten reporting components of the Group, we selected two components covering entities
within the UK, which represent the principal business units within the Group.
For both of the components selected, we performed an audit of the complete financial information of the components (“full scope
components”) which were selected based on their size or risk characteristics.
The reporting components where we performed audit procedures accounted for 99% (2020: 100%) of the Group’s adjusted profit before tax
(PBT) measure used to calculate materiality, 100% (2020: 100%) of the Group’s Revenue and 99% (2020: 99%) of the Group’s Total assets.
The remaining eight components together represent 1% of the Group’s adjusted profit before tax. For these components, we performed other
procedures, including analytical review, testing of consolidation journals and intercompany eliminations to respond to any potential risks of
material misstatement to the Group financial statements.
Changes from the prior year
In the prior year, our audit covered two full scope components and one specific scope component. As one subsidiary (Serica Energy Namibia
BV) relinquished its license and wrote off its property, plant and equipment in 2020, the entity was removed from the specific scope and was
covered by other procedures in 2021.
Involvement with component teams
All audit work performed for the purposes of the audit was undertaken by the Group audit team.
Climate change
There has been increasing interest from stakeholders as to how climate change will impact Serica Energy plc. The Group has determined
that the most significant future impacts from climate change on its operations will be around decarbonisation, investment required to reduce
carbon emissions and improve energy efficiency. These are explained on pages 25 to 26 in the Task Force for Climate related Financial
Disclosures and on pages 23 to 25 in the principal risks and uncertainties, which form part of the “Other information,” rather than the audited
financial statements. Our procedures on these disclosures therefore consisted solely of considering whether they are materially inconsistent
with the financial statements or our knowledge obtained in the course of the audit or otherwise appear to be materially misstated.
As explained in the Basis of Preparation in note 2 to the consolidated financial statements governmental and societal responses to climate
change risks are still developing, and are interdependent upon each other, and consequently financial statements cannot capture all possible
future outcomes as these are not yet known. The degree of certainty of these changes may also mean that they cannot be taken into account
when determining asset and liability valuations and the timing of future cash flows under the requirements of UK adopted international
accounting standards. The consideration of reasonably possible changes in significant judgements and estimates have been described in note
2 to the consolidated financial statements.
Our audit effort in considering climate change was focused on ensuring that the effects of material climate risks disclosed on pages 23 to 25
have been appropriately reflected in the disclosures in note 2 to the consolidated financial statements. Details of our procedures and findings
with respect to assessment of impairment indicators related to Columbus are included in our key audit matters below. We also challenged the
Directors’ considerations of climate change in their assessment of going concern and associated disclosures.
Serica Energy plc Annual Report & Accounts 2021 l 49
Auditor’s Report INDEPENDENT AUDITOR’S REPORT to the members of Serica Energy plc continued
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.
Key observations
communicated to the
Audit Committee
We did not identify any
exceptions as a result of
our audit procedures.
We consider the
commercial reserves
updates have been
correctly included in
the financial statement
calculations and consider
the disclosures in the
Financial Statements to be
appropriate.
Risk
Our response to the risk
Assessment of commercial reserves and its impact
on the Financial Statements
Refer to the Accounting policies section “Use
of judgement and estimates and key sources of
estimation uncertainty” (page 61)
The estimate of oil and gas reserves and
resources has a significant impact on the Financial
Statements, particularly impairment assessments
and the estimation of depreciation, depletion and
amortisation (‘DD&A’) charges.
As described in note 15 to the consolidated financial
statements, oil and gas properties amounted to
£328.9 million and have an associated DD&A charge
of £37.0 million.
The estimation of oil and natural gas reserves
and resources is complex as there is significant
estimation uncertainty in assessing the quantities
of reserves and resources in place. If reserves and
resources are recognised that are not ultimately
produced, DD&A will be understated, and the
recoverable amount of assets may be overstated.
Reserves and resources are also a fundamental
indicator of the future potential of the group’s
performance. Estimation uncertainty is further
elevated given the transition to a low-carbon
economy which could impact life-of-field
assumptions and increase the risk of underutilised
or stranded oil and gas assets. Also, given the
estimation of oil and gas reserves is complex,
there is a risk that inappropriate management bias
influences the estimate.
Our procedures included, amongst others:
• confirming our understanding of the group’s
controls over their certification process for
technical and commercial specialists who are
responsible for reserves and resources estimation
by performing a walk through and assessing the
design effectiveness of controls;
• assessing the competence and objectivity of
these specialists, to satisfy ourselves they were
appropriately qualified to carry out the volumes
estimation;
• obtaining confirmation directly from management’s
third party specialists that they are independent
from Serica and have performed their procedures
in line with the guidelines set out by the Society of
Petroleum Engineers;
• confirming that any material changes in reserves
and resources were made in the appropriate
accounting period;
• assessing, where relevant, whether life of field and
cessation of production assumptions incorporated
Serica’s estimate of costs associated with the
potential impact of climate change and the
energy transition;
• validating that the reserves and resources
estimates were included appropriately as key inputs
within the group’s financial statements, including
preparation of the cash flow forecasts for the
assessment of the going concern assumption,
the determination of the deferred tax asset and
accounting for DD&A.
The above audit procedures were performed by the
group primary team in respect of one full scope
component, covering 100% of this risk amount.
50 l Serica Energy plc Annual Report & Accounts 2021
Key observations
communicated to the
Audit Committee
On the basis of our
audit procedures, we
are satisfied with the
appropriateness of
management’s conclusion
that there are no indicators
of impairment of the
group’s Columbus oil
and gas properties as at
31 December 2021.
Management’s December
2021 price assumptions for
Brent and NBP fall within
our consensus range and
through comparison to
a range of forecasts by
banks/brokers, consultants
and oil and gas peer
companies, we concluded
these forecasts are
reasonable.
Risk
Impairment of property, plant and equipment
related to Columbus
Refer to the Accounting policies section “Use
of judgement and estimates and key sources of
estimation uncertainty” (page 61)
As described in note 15 to the consolidated financial
statements, oil and gas properties recorded within
property, plant and equipment (PP&E) amounted
to £328.9 million as at 31 December 2021. Of this
amount, £83.6m related to the Columbus project.
PP&E is assessed for impairment when facts and
circumstances suggest that the carrying amount of
an asset exceeds its recoverable amount (which is
the higher of the estimation of Value in Use and Fair
Value less Cost of Disposal).
Potential indicators of impairment include a
producing asset’s operational performance and
significant changes (reductions) in oil and gas
reserve estimates and oil and gas prices. There is a
risk that impairment indicators are not identified, and
any resulting impairment tests are not performed on
a timely basis.
The asset that we assessed as having presented the
highest risk of potential impairment was Columbus.
Although oil and gas prices were high during the year
and at year-end, additional costs were incurred in the
finalisation of the Columbus development during the
year and initial production (from November 2021)
was impacted by export restrictions. Serica also
recognised decommissioning obligations in respect
of Columbus of £4.8 million as at year-end. Where
impairment tests are performed, the most complex
judgements in determining the recoverable amount
of oil and gas properties are the estimation of future
oil and gas price, both in the short term and the long
term, and the estimation of oil and gas reserves. The
estimation of future oil and gas prices is subject to
increased uncertainty, given climate change and the
energy transition on the demand for both crude oil
and natural gas products. Where impairment tests
are performed, there is a risk that management’s
oil and gas price assumptions are not appropriate,
potentially leading to a material misstatement.
A further management judgement relates to the
estimation of oil and gas reserves as there is
significant estimation uncertainty in the process
of assessing the quantities of Serica’s commercial
reserves and resources. We have described the risk
within the assessment of commercial reserves and
its impact on the financial statements key audit
matter above.
Our response to the risk
Our procedures included:
• confirming our understanding of the process to
confirm the key controls to mitigate the risk and
assessed their design and operating effectiveness;
• obtaining management’s assessment of whether
any indicators of impairment were present for
Columbus as at 31 December 2021;
• challenging the validity and completeness of the
indicators identified by management based on
our understanding of the business, experience
of auditing other oil and gas companies and
knowledge gained from other areas of the audit.
Also, we have considered the extent to which
management’s assertions in the impairment
indicator assessment reflect the uncertainty
associated with the energy transition;
•
to test price assumptions, we compared future
short and long-term commodity prices to
consensus analysts’ forecasts and those adopted
by other oil and gas companies. We evaluated
whether prices were used consistently across
Serica. Also, we compared Serica’s oil and gas price
scenarios to the IEA’s Net Zero Emissions 2050
(NZE) and to the IEA’s Announced Pledges Scenario
(APS) price assumptions as potential contradictory
evidence for best estimates of future oil and
gas prices;
• challenging the impact of the delays in
commissioning Columbus and the cost overruns,
assessing whether these have been appropriately
considered by management;
• assessing the economic performance of Columbus
since commissioning against approved budgets,
taking into account updated reserves and
resources estimates;
• assessing whether the cash flow forecasts tested
as part of our audit of going concern, including the
impact of price downside scenarios and sensitivity
analyses, supported the conclusion that the
recoverable amounts of the group’s Columbus oil
and gas property was not sensitive to changes in
current price assumptions; and
•
the procedures we performed in relation to oil
and gas estimates are described above within
the Assessment of commercial reserves key
audit matter.
The above audit procedures were performed in one
component under full scope audit, covering 100% of
this risk amount.
Serica Energy plc Annual Report & Accounts 2021 l 51
Auditor’s Report Key observations
communicated to the
Audit Committee
The fair valuation
assessment of the
derivative contracts
was appropriate and the
amounts recorded were
materially correct.
The treatment of
changes to derivative
arrangements during the
year was in accordance
with IFRS 9 and IFRS 15.
The presentation and
disclosure of the hedging
arrangements was
appropriate.
INDEPENDENT AUDITOR’S REPORT to the members of Serica Energy plc continued
Risk
Our response to the risk
Valuation of gas hedging instruments
Our procedures included:
Refer to the Accounting policies section “Use
of judgement and estimates and key sources of
estimation uncertainty” (page 61)
• confirming our understanding of the process to
confirm the key controls to mitigate the risk and
assessed their design and operating effectiveness;
The calculation of the fair value of the gas swaps is
complex due to the valuation techniques used and
because it involves significant estimation uncertainty
in the process, which has been compounded by the
increased volatility in gas prices. This accounting
estimate impacts the other (expense)/income in
the income statement and the financial (liabilities)/
assets in the balance sheet.
The group incurred unrealised and realised losses
on hedging of £74.6 million and £56.6 million,
respectively. At year-end Serica holds derivative
contracts in the form of swaps and forwards to
mitigate the risk against a fall in gas prices.
The group continued to increase its hedged position
throughout H1 2021, providing coverage of up to
25% of gas sales. As a result of the significant
increase in NBP during the second half of 2021, the
group incurred significant hedging losses.
As disclosed in note 19, in August 2021, the group
restructured a number of derivate contracts held
with one counterparty and the new agreements were
classified as own use contracts, which are outside
of the scope of IFRS 9. Consequently, Serica has
accounted for the new hedging arrangements in
accordance with IFRS 15.
The group obtains the fair value of the commodity
price swaps from third parties. The valuations
are then reviewed internally by corroborating the
assumptions against level two market inputs such
as the forward NBP gas price curve.
• obtaining the schedule of hedging instruments and
assessed the completeness and accuracy of the
listing by comparing the total to the trial balance
and reviewing board meetings, correspondence with
third parties and other documentation throughout
the audit;
• verifying the existence and ownership of
derivative contracts by obtaining confirmations
from the brokers for both settled and unsettled
transactions with the brokers. The confirmations
were then agreed back to calculations prepared by
management;
• engaging internal EY valuation specialists to
independently calculate the fair value of the swaps.
We then compared the EY expected fair value with
the calculation prepared by management to assess
any variances;
• assessing the accounting treatment of the
restructured swaps to ensure compliance with IFRS,
including whether the new agreements met the
definition of “own use” contracts under IFRS 9; and
•
reviewing the disclosures in the annual report and
ensure compliance with IFRS.
The above audit procedures were performed by the
group audit team in respect of one full scope audit
component, covering 100% of this risk amount.
In the prior year, our auditor’s report included a key audit matter in relation to the measurement of BKR contingent consideration. In the current
year, the most significant judgements and level of estimation uncertainty relating to the arrangement were settled prior to the balance sheet
date. As a result, the complexity relating to the valuation of the future consideration and magnitude of misstatement has reduced.
In the current year, we have added the valuation of gas hedging instruments as a key audit matter given the significant gas price volatility
experienced during 2021 and the material impact on the financial statements of a relatively small percentage change in gas prices. In addition,
the risk was elevated by the restructuring of contracts held with one counterparty and the accounting implications of the change.
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.
52 l Serica Energy plc Annual Report & Accounts 2021
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 £5.8 million (2020: £3.2 million), which is 5% (2020: 4%) of adjusted profit before tax. We believe
that adjusted profit before tax, on a normalised basis, provides us with an appropriate basis for planning materiality for the current year audit.
Our key criterion in determining materiality remains our perception of the needs of Serica’s stakeholders. We consider which earnings, activity
or capital-based measure aligns best with the expectations of the users of Serica’s financial statements. In doing so, we apply a ‘reasonable
investor perspective’, which reflects our understanding of the common financial information needs of the members of Serica as a group.
Consistent with our approach in the prior period, the financial measure on which we have determined materiality is adjusted profit before
tax. We believe that adjusted profit before tax is the most appropriate measure upon which to calculate materiality as it represents a key
performance indicator used by Serica’s investors and is the expectation for a listed company that is generating profits.
Given the significant increase and volatility in commodity prices experienced in the second half of 2021, we determined that the basis of
planning materiality should be normalised adjusted profit before tax. We normalised the 2021 adjusted profit before tax by applying the
average price for the first half of the year to the actual volumes sold during the second half of the period. Under auditing standards, the use of
a normalised basis is appropriate where an entity’s results are directly impacted by a significant change in the market price for a commodity
whilst the underlying operating activity remains similar to previous years, provided this is viewed as a temporary change. In the second half of
2021, NBP gas prices have increased to unprecedented high levels and are forecast to decrease in 2022 and 2023. Whilst R3 and Columbus
achieved first production in the second half of the year, Serica’s remaining business and operations have remained fundamentally the same.
By applying a normalised approach, large year-on-year swings in materiality, caused primarily by commodity price volatility, are minimised.
In our calculation of planning materiality, we also excluded from profit before tax the impact of fair value movements on the BKR contingent
consideration and commodity price hedges. This was based on the fact that both of these financial statement items are impacted by
significant changes in oil and gas prices, which could distort the underlying results of the performance of the business. These amounts
represented net income statement losses of £242 million (2020: gains of £27 million) that have therefore been excluded from adjusted profit
before tax.
We determined materiality for the Parent Company to be £5.3 million (2020: £5.4 million), which is 2% (2020: 2%) of equity. We use equity as
the basis for materiality as the purpose of the parent company is to hold investments in its subsidiaries. We do not expect significant annual
profits to be generated by the company in future periods, as this will be dependent on the level and timing of any subsequent intra-group
dividends paid by the group’s operating companies. Any balances in the parent company financial statements that were relevant to our audit
of the consolidated group were audited using an allocation of group performance materiality.
During the course of our audit, we reassessed initial materiality and based on the final results for 2021, we concluded that no changes
were required.
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% (2020: 75%) of our planning materiality, namely £4.3 million (2020: £2.4 million). We have set performance
materiality at this percentage due to the stability in the group post the material acquisition of BKR in 2018 and the low number of audit
differences identified in the 2020 audit.
Audit work at component locations 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
performance materiality allocated to components was £3.7 million (2020: £2.1 million).
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 £0.28 million (2020:
£0.16 million), 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.
Serica Energy plc Annual Report & Accounts 2021 l 53
Auditor’s Report INDEPENDENT AUDITOR’S REPORT to the members of Serica Energy plc continued
Other information
The other information comprises the information included in the annual report set out on pages 2 to 3 and 6 to 46, other than the financial
statements and our auditor’s report thereon. The directors are responsible for the other information within the annual report.
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.
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 course of 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 this gives rise to a material misstatement
in the financial statements themselves. 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.
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 46, 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.
54 l Serica Energy plc Annual Report & Accounts 2021
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud is higher
than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional
misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities, including fraud is
detailed below.
However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the company
and management.
• We obtained an understanding of the legal and regulatory frameworks that are applicable to the group and determined that the most
significant are international accounting standards in conformity with the requirements of the Companies Act 2006, the Companies Act
2006, AIM listing rules and UK tax legislation
• We understood how Serica Energy plc is complying with those frameworks by making enquiries of management, those responsible for
legal and compliance procedures. We corroborated our enquiries through our review of Board minutes, papers provided to the Audit
Committee and correspondence received from regulatory bodies, and noted there was no contradictory evidence.
• We assessed the susceptibility of the group’s financial statements to material misstatement, including how fraud might occur by
meeting with management from various parts of the business to understand what areas were susceptible to fraud. We also considered
performance targets and their propensity to influence management to manage earnings.
• Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Our procedures
involved incorporated data analytics across our audit approach, journal entry testing with a focus on manual consolidation journals and
journals meeting our defined risk criteria based on our understanding of the business; enquiries of management, review of Board and Audit
Committee reporting; and focused testing as referred to in the key audit matters section above.
• We ensured our audit team has appropriate industry experience through working for many years on relevant audits, including experience of
oil and gas companies. Our audit planning included considering external market factors, for example geopolitical risk, the potential impact
of climate change, commodity price risk and major trends in the industry.
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.
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.
Mark Woodward (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
20 April 2022
Serica Energy plc Annual Report & Accounts 2021 l 55
Auditor’s Report GROUP INCOME STATEMENT for the year ended 31 December
Continuing operations
Sales revenue
Cost of sales
Gross profit/(loss)
Unrealised hedging expense
Realised hedging (expense)/income
Pre-licence costs
E&E asset write-offs
Administrative expenses
Foreign exchange loss
Share-based payments
Operating profit/(loss) before net finance revenue and tax
Change in fair value of BKR financial liabilities
Finance revenue
Finance costs
Profit before taxation
Note
2021
£000
2020
£000
4
5
6
6
14
27
22
9
10
514,136
125,641
(127,313)
(128,560)
386,823
(2,919)
(74,592)
(56,615)
(199)
–
(6,097)
(854)
(2,386)
(16,571)
12,295
–
(3,725)
(5,579)
(344)
(1,862)
246,080
(18,705)
(110,529)
31,296
82
(527)
465
(508)
135,106
12,548
Taxation charge for the year
11a)
(55,812)
(4,769)
Profit for the year
79,294
7,779
Earnings per ordinary share – EPS
Basic EPS on profit for the year (£)
Diluted EPS on profit for the year (£)
12
12
0.30
0.28
0.03
0.03
Group Statement of Comprehensive Income
There are no other comprehensive income items other than those passing through the income statement.
56 l Serica Energy plc Annual Report & Accounts 2021
BALANCE SHEET as at 31 December
Registered number: 5450950
Non-current assets
Exploration & evaluation assets
Property, plant and equipment
Investments in subsidiaries
Current assets
Inventories
Trade and other receivables
Hedging security advances
Cash and cash equivalents
TOTAL ASSETS
Current liabilities
Trade and other payables
Derivative financial liabilities
Gas contract liabilities
Financial liabilities
Provisions
Non-current liabilities
Gas contract liabilities
Financial liabilities
Provisions
Deferred tax liability
TOTAL LIABILITIES
NET ASSETS
Share capital
Merger reserve
Other reserve
Accumulated funds/(deficit)
Group
Company
Note
2021
£000
2020
£000
2021
£000
2020
£000
14
15
16
17
18
19
20
21
19
19
22
23
19
22
23
2,949
328,944
–
1,043
311,125
–
331,893
312,168
–
43
105,256
105,299
–
215
105,256
105,471
4,053
132,351
115,390
102,984
354,778
4,633
39,529
1,800
89,333
–
–
162,010
162,291
–
578
–
7,078
135,295
162,588
169,369
686,671
447,463
267,887
274,840
(49,501)
(45,791)
(37,505)
(93,861)
–
(987)
(37,795)
(28,095)
(31,121)
(9,691)
–
(53,634)
(1,002)
–
(48,770)
(22,799)
(80,600)
(1,023)
(995)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
11d)
(120,608)
(414,143)
(247,617)
(1,023)
(995)
272,528
199,846
266,864
273,845
25
16
27
181,993
181,606
154,294
153,907
–
22,066
68,469
–
19,680
(1,440)
88,088
22,066
2,416
88,088
19,680
12,170
TOTAL EQUITY
272,528
199,846
266,864
273,845
The loss for the Company was £0.4 million for the year ended 31 December 2021 (2020: profit of £71.2 million). 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 20 April 2022
Mitch Flegg
Chief Executive Officer
Andrew Bell
Chief Financial Officer
Serica Energy plc Annual Report & Accounts 2021 l 57
Financial Statements
STATEMENT OF CHANGES IN EQUITY for the year ended 31 December
Group
At 1 January 2020
Profit for the year
Total comprehensive income
Share-based payments
Issue of share capital
Dividend paid
At 31 December 2020
Profit for the year
Total comprehensive income
Share-based payments
Issue of share capital
Dividend paid
Share
capital
£000
Other
reserve
£000
Note
Accum’d
funds/
(deficit)
£000
Total
£000
181,385
17,818
(1,193)
198,010
–
–
–
221
–
–
–
1,862
–
–
7,779
7,779
–
–
7,779
7,779
1,862
221
(8,026)
(8,026)
181,606
19,680
(1,440)
199,846
–
–
–
387
–
–
–
2,386
–
–
79,294
79,294
–
–
79,294
79,294
2,386
387
(9,385)
(9,385)
27
25
13
27
25
13
At 31 December 2021
181,993
22,066
68,469
272,528
Company
Share
capital
£000
Merger
reserve
£000
Other
reserve
£000
Accum’d
funds/
(deficit)
£000
Total
£000
At 1 January 2020
153,686
88,088
17,818
(51,009)
208,583
Profit for the year
Total comprehensive income
Share-based payments (note 27)
Issue of share capital (note 25)
Dividend paid
–
–
–
221
–
–
–
–
–
–
–
–
1,862
–
–
71,205
71,205
–
–
71,205
71,205
1,862
221
(8,026)
(8,026)
At 31 December 2020
153,907
88,088
19,680
12,170
273,845
Loss for the year
Total comprehensive income
Share-based payments (note 27)
Issue of share capital (note 25)
Dividend paid (note 13)
–
–
–
387
–
–
–
–
–
–
–
–
2,386
–
–
(369)
(369)
–
–
(369)
(369)
2,386
387
(9,385)
(9,385)
At 31 December 2021
154,294
88,088
22,066
2,416
266,864
58 l Serica Energy plc Annual Report & Accounts 2021
CASH FLOW STATEMENT for the year ended 31 December
Profit/(loss) for the year
Adjustments to reconcile profit for the year
to net cash flow from operating activities:
Taxation charge
Change in BKR fair value liability
Net finance costs/(income)
Depreciation and depletion
Oil and NGL over/underlift
E&E asset write-offs
Unrealised hedging losses
Write-back of loans and investments
Share-based payments
Other non-cash movements
Hedging security advances
(Increase)/decrease in trade and other receivables
Decrease in inventories
Increase/(decrease) in trade and other payables
Net cash inflow from operations
Investing activities:
Interest received
Purchase of E&E assets
Purchase of property, plant and equipment
Cash outflow from business combination
Cash outflow arising on asset acquisitions
Net cash flow from investing activities
Financing activities:
Payments of lease liabilities
Proceeds from issue of shares
Dividends paid
Finance costs paid
Net cash flow from financing activities
Net increase/(decrease) in cash and cash equivalents
Effect of exchange rates on cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
Group
Company
Note
2021
£000
2020
£000
2021
£000
2020
£000
79,294
7,779
(369)
71,205
55,812
110,529
445
37,048
(6,859)
–
74,592
–
2,386
349
(113,590)
(86,527)
580
3,544
157,603
82
(1,906)
(50,252)
(81,277)
(1,002)
4,769
(31,296)
43
38,495
342
3,725
16,571
–
1,862
629
(1,800)
(3,623)
38
6,537
44,071
465
(1,116)
(25,530)
(21,759)
–
(134,355)
(47,940)
(179)
387
(9,385)
(71)
(9,248)
(133)
221
(8,026)
(56)
(7,994)
14,000
(11,863)
(349)
(629)
89,333
102,984
101,825
89,333
22
23
28
25
13
26
26
26
26
–
–
49
–
–
–
–
–
2,386
80
–
453
–
207
2,806
7
–
–
–
–
7
(179)
387
(9,385)
(56)
(9,233)
(6,420)
(80)
7,078
578
–
–
(20)
–
–
–
–
–
1,862
182
–
(68,961)
–
(438)
3,830
57
–
–
–
–
57
(133)
221
(8,026)
(37)
(7,975)
(4,088)
(182)
11,348
7,078
Serica Energy plc Annual Report & Accounts 2021 l 59
Financial Statements NOTES TO THE FINANCIAL STATEMENTS
1.
Authorisation of the Financial Statements and Statement of Compliance with International Accounting Standards in
conformity with the requirements of the Companies Act 2006
The Group’s and Company’s financial statements for the year ended 31 December 2021 were authorised for issue by the Board of Directors on
20 April 2022 and the balance sheets were signed on the Board’s behalf by Mitch Flegg and Andrew Bell. Serica Energy plc is a public limited
company incorporated and domiciled in England & Wales with its registered office at 48 George Street, London, W1U 7DY. 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. The Company’s ordinary shares are traded on AIM.
The Group’s financial statements have been prepared in accordance with UK-adopted International Accounting Standards in conformity with
the requirements of the Companies Act 2006 as they apply to the financial statements of the Group for the year ended 31 December 2021.
The Company’s financial statements have been prepared in accordance with UK-adopted International Accounting Standards in conformity
with the requirements of the Companies Act 2006 as they apply to the financial statements of the Company for the year ended 31 December
2020 and as applied in accordance with the provisions of the Companies Act 2006. 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 loss dealt with in the financial statements of the parent Company was £369,000 (2020: profit
£71,205,000).
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 2021.
The Group and Company financial statements have been prepared on a historical cost basis and following the change in functional and
presentational currency from US$ to £ sterling with effect from 1 January 2019 are presented in £ sterling. All values are rounded to the
nearest thousand pounds (£000) except when otherwise indicated.
In preparing the Group financial Statements management has considered the impact of climate change. These considerations did not have a
material impact on the financial reporting judgements and estimates and consequently climate change is not expected to have a significant
impact on the Group’s going concern assessment to June 2023 nor the viability of the Group over the next five years. However, governmental
and societal responses to climate change risks are still developing, and are interdependent upon each other, and consequently financial
statements cannot capture all possible future outcomes as these are not yet known. It is recognised that Net Zero targets and third party
expectations may drive government action that imposes further requirements and costs on companies in the future. However, as all of the
Group’s currently producing assets are projected to cease production by 2030 it is believed that any such future changes would have limited
impact compared to assets with longer durations.
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 2021 the Group held cash and term deposits of £103.0 million which had increased to approximately £213.1 million by
20 April 2022 with a further £150.6 million of security advances lodged with hedge counterparties. The cash balance at 20 April 2022 included
£12.9 million of restricted funds.
The Group regularly monitors its cash, funding and liquidity position. Near term cash projections are revised and underlying assumptions
reviewed, generally monthly, and longer-term projections are also updated regularly. Downside price and other risking scenarios are
considered. In addition to commodity sales prices the Group is exposed to potential production interruptions and these are also considered
under such scenarios. Serica’s acquisitions to-date have been structured to reduce post-completion risk and, following completion of the BKR
transactions, management has given priority to building a strong cash reserve which can respond to different types of risk. For the purposes
of the Group’s going concern assessment we have reviewed cash projections for the period ending 30 June 2023, the ‘going concern period’.
Serica currently has no borrowings, relatively low operating costs per boe and its capital commitments can be funded from existing
cash resources.
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 going concern period. Accordingly, they continue to adopt the going concern
basis in preparing the financial statements.
60 l Serica Energy plc Annual Report & Accounts 2021
2. Accounting Policies continued
Use of judgement and estimates and key sources of estimation uncertainty
The preparation of financial statements in conformity with UK-adopted International Accounting Standards in conformity with the
requirements of the Companies Act 2006 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.
Sources of estimation uncertainty
The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the amounts recognised in the
financial statements are: determining the fair value of contingent consideration, decommissioning provisions, the valuation of gas hedging
instruments and the assessment of commercial reserves.
Determining the fair value of contingent consideration on BKR acquisitions
The Group determined the fair value of initial contingent consideration payable based on discounted cash flows at the time of the acquisition
in 2018, calculated for each separate component of the contingent consideration. The same models and assumptions were used in the
calculation of the fair value of property, plant and equipment arising on the business combination. Any cash flows specific to the contingent
consideration also reflect applicable commercial terms and risks. In calculating the fair value of contingent consideration on the BKR
acquisitions payable as at 31 December 2021, assumptions underlying the calculation were updated from 2020. These included updated
commodity prices, production profiles, future opex, capex and decommissioning cost estimates, discount rates, proved and probable reserves
estimates and risk assessments. For further details including sensitivities of the calculation to changes in input variables, see note 22.
Decommissioning provision
Amounts used in recording a provision for decommissioning are estimates based on current legal and constructive requirements and current
technology and price levels for the removal of facilities and plugging and abandoning of wells. Due to changes in relation to these items, the
future actual cash outflows in relation to decommissioning are likely to differ in practice. To reflect the effects due to changes in legislation,
requirements and technology and price levels, the carrying amounts of decommissioning provisions are reviewed on a regular basis. The
effects of changes in estimates do not give rise to prior year adjustments and are dealt with prospectively. While the Group uses its best
estimates and judgement, actual results could differ from these estimates (see note 23).
Valuation of gas hedging instruments
The calculation of the fair value of the Group’s gas swaps is complex due to the valuation techniques used and involves significant estimation
uncertainty in the process which has been compounded by the increased volatility in gas prices. The accounting estimate impacts unrealised
hedging losses in the income statement (see note 6) and financial liabilities in the balance sheet (see note 19). An increase of 20 pence per
therm from the 2022 and 2023 forecast forward pricing used in the 31 December 2021 valuation of outstanding gas swaps held would lead to
an increase of £9.1 million in the recorded liability and unrealised 2021 hedging losses.
Assessment of commercial oil and gas 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. A 10%
reduction in the assessed quantity of commercial reserves would lead to an increase in the depletion charge for 2021 of £4.1 million.
Uses of judgement
A key source of judgement that has a significant risk of causing material adjustment to the amounts recognised in the financial statements is
whether impairment triggers exist that might lead to the impairment of the Group and Company’s assets (including oil and gas development
assets and Exploration and Evaluation “E&E” assets).
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 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.
Serica Energy plc Annual Report & Accounts 2021 l 61
Financial Statements NOTES TO THE FINANCIAL STATEMENTS continued
2. Accounting Policies continued
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 proven and probable 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).
A review was performed for any indication that the value of the Group’s oil and gas assets may be impaired at the balance sheet date of 31
December 2021 in accordance with the stated policy and no impairment triggers were noted.
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
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 its subsidiaries is £ sterling following the change in functional and
presentational currency from US$ to £ sterling with effect from 1 January 2019.
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.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation
in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. Any contingent
consideration to be transferred to the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as an
asset or liability that is a financial instrument and within the scope of IFRS 9 Financial Instruments, is measured at fair value with the changes
in fair value recognised in the statement of profit or loss in accordance with IFRS 9. Other contingent consideration that is not within the
scope of IFRS 9 is measured at fair value at each reporting date with changes in fair value recognised in profit or loss.
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. If the fair value of the net assets acquired is in excess of the aggregate consideration
transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews
the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of fair
value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss.
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.
62 l Serica Energy plc Annual Report & Accounts 2021
2. Accounting Policies continued
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.
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.
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, any applicable borrowing costs.
Serica Energy plc Annual Report & Accounts 2021 l 63
Financial Statements NOTES TO THE FINANCIAL STATEMENTS continued
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 management’s assessment of proved and probable reserves, reflecting risks applicable to
the specific assets. Changes in reserve quantities and cost estimates are recognised prospectively from the last reporting date. Proved and
probable reserves estimates obtained from an independent reserves specialist have been used as the basis for 2020 and 2021 calculations.
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 are 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’).
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, and right-of-use assets over the period of lease.
Inventories
Inventories are valued at the lower of cost and net realisable value. Cost is determined by the first-in first-out method and comprises direct
purchase costs and transportation expenses.
Investments
In its separate financial statements the Company recognises its investments in subsidiaries at cost less any provision for impairment.
Financial Instruments
Financial instruments comprise financial assets, cash and cash equivalents, financial liabilities and equity instruments. Financial assets and
financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument.
64 l Serica Energy plc Annual Report & Accounts 2021
2. Accounting Policies continued
Financial assets
Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through profit or loss, and fair
value through other comprehensive income (OCI).
The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the
Group’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component or
for which the Group has applied the practical expedient, the Group initially measures a financial asset at its fair value plus transaction costs (in
the case of a financial asset not at fair value through profit or loss). Trade receivables that do not contain a significant financing component or
for which the Group has applied the practical expedient are measured at the transaction price determined under IFRS 15.
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.
In order for a financial asset to be classified and measured at amortised cost it needs to give rise to cash flows that are ‘solely payments of
principal and interest (SPPI)’ on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an
instrument level. Financial assets with cash flows that are not SPPI are classified and measured at fair value through profit or loss, irrespective
of the business model.
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 are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables,
or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group’s financial liabilities currently include
trade and other payables. All financial liabilities are recognised initially at fair value. 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.
Derivative financial instruments
The Group uses derivative financial instruments, such as forward commodity contracts, to hedge its commodity price risks. The Group has
elected not to apply hedge accounting to these derivatives. Such derivative financial instruments are initially recognised at fair value on the
date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets
when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in the fair
value of derivatives are taken directly to the statement of profit or loss and other comprehensive income and presented within operating profit.
Further details of the fair values of derivative financial instruments and how they are measured are provided in Note 19.
Equity
Equity instruments issued by the Company are recorded in equity at the proceeds received, net of direct issue costs.
Trade and other receivables and contract assets
Trade receivables and contract assets
A receivable represents the Group’s right to an amount of consideration that is unconditional (i.e., only the passage of time is required
before payment of the consideration is due). A contract asset is the right to consideration in exchange for goods or services transferred to
the customer.
Provision for expected credit losses of trade receivables and contract assets
For trade receivables and contract assets, the Group applies a simplified approach in calculating expected credit losses ‘ECLs’. Therefore, the
Group does not track changes in credit risk, but instead, recognises a loss allowance based on lifetime ECLs at each reporting date. The Group
has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the
debtors and the economic environment. A financial asset is written off when there is no reasonable expectation of recovering the contractual
cash flows. 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.
Serica Energy plc Annual Report & Accounts 2021 l 65
Financial Statements NOTES TO THE FINANCIAL STATEMENTS continued
2. Accounting Policies continued
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 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. The value of the provision is determined by the amounts and nature of operating costs incurred over
a contractual period.
Revenue from contracts with customers
Revenue from contracts with customers is recognised when control of the goods or services are transferred to the customer at an amount
that reflects the consideration to which the Group expects to be entitled to in exchange for those goods or services. 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. The Group has concluded that it is the principal in its revenue arrangements
because it typically controls the goods or services before transferring them to the customer.
The sale of crude oil, gas or condensate represents a single performance obligation, being the sale of barrels equivalent on collection of a
cargo or on delivery of commodity into an infrastructure. Revenue is accordingly recognised for this performance obligation when control over
the corresponding commodity is transferred to the customer. The normal credit term is 15 to 45 days upon collection or delivery.
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 Executive 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.
66 l Serica Energy plc Annual Report & Accounts 2021
2. Accounting Policies continued
Income Taxes
Current tax, including UK corporation tax and overseas corporation tax, is provided at amounts expected to be paid using the tax rates and
laws that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is provided using the liability method and tax rates and laws that have been enacted or substantively enacted at the balance
sheet date. Provision is made for temporary differences at the balance sheet date between the tax bases of the assets and liabilities and their
carrying amounts for financial reporting purposes. Deferred tax is provided on all temporary differences except for:
•
•
temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be
controlled by the Group and it is probable that the temporary differences will not reverse in the foreseeable future; and
temporary differences arising from the initial recognition of an asset or liability in a transaction that is not a business combination and, at
the time of the transaction, affects neither the income statement nor taxable profit or loss.
Deferred tax assets are recognised for all deductible temporary differences, to the extent that it is probable that taxable profits will be available
against which the deductible temporary differences can be utilised. Deferred tax assets and liabilities are presented net only if there is a legally
enforceable right to set off current tax assets against current tax liabilities and if the deferred tax assets and liabilities relate to income taxes
levied by the same taxation authority.
Earnings Per Share
Earnings per share is calculated using the weighted average number of ordinary shares outstanding during the period. Diluted earnings per
share is calculated based on the weighted average number of ordinary shares outstanding during the period plus the weighted average
number of shares that would be issued on the conversion of all relevant potentially dilutive shares to ordinary shares. It is assumed that any
proceeds obtained on the exercise of any options and warrants would be used to purchase ordinary shares at the average price during the
period. Where the impact of converted shares would be anti-dilutive, these are excluded from the calculation of diluted earnings.
Leases
As a lessee, the Group recognises a right-of-use asset and a lease liability at the lease commencement date. The lease liability is initially
measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the
lease, or, if that rate cannot be readily determined, the Group uses its incremental borrowing rate.
The lease liability is subsequently recorded at amortised cost, using the effective interest rate method. The liability is remeasured when
there is a change in future lease payments arising from a change in an index or rate or if the Group changes its assessment of whether it
will exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is
made to the carrying amount of the right-of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been
reduced to zero.
The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made
at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying
asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. Right-of-use assets are
depreciated over the shorter period of lease term and useful life of the underlying asset.
The Group does not currently act as a lessor.
New and amended standards and interpretations
The Group has adopted and applied for the first time, certain standards and amendments, which are effective for annual periods beginning on
or after 1 January 2021. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet
effective. Other than the changes described below, the accounting policies adopted are consistent with those of the previous financial year.
Several amendments and interpretations apply for the first time in 2021, but do not have an impact on the consolidated financial statements
of the Group. The Group has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective.
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. In reviewing the below standards, the Group does not believe that there will be a material impact on the
financial statements.
Serica Energy plc Annual Report & Accounts 2021 l 67
Financial Statements NOTES TO THE FINANCIAL STATEMENTS continued
2. Accounting Policies continued
Amendments to IAS 1: Classification of Liabilities as Current or Non-current
The amendments are effective for annual reporting periods beginning on or after 1 January 2023 and must be applied retrospectively.
The Group is currently assessing the impact the amendments will have on current practice.
Reference to the Conceptual Framework – Amendments to IFRS 3
The amendments are effective for annual reporting periods beginning on or after 1 January 2022 and apply prospectively.
Property, Plant and Equipment: Proceeds before Intended Use – Amendments to IAS 16
The amendment is effective for annual reporting periods beginning on or after 1 January 2022 and must be applied retrospectively to items
of property, plant and equipment made available for use on or after the beginning of the earliest period presented when the entity first applies
the amendment.
3. Segment Information
The Group’s business is that of oil and 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 2021 and 2020. Following the relinquishment in 2020 of the Group’s interest in its Namibian licence,
no financial information is relevant to the Africa segment in 2021. Costs associated with the UK corporate centre are included in the UK
reportable segment.
Year ended 31 December 2021
Revenue
Continuing operations
Depletion
Other expenses
E&E asset write-offs
Operating and segment profit
Change in BKR financial liability
Finance revenue
Finance costs
Profit before taxation
Taxation charge for the year
Profit after taxation
Other segment information:
Property, plant & equipment
Exploration and evaluation assets
Other assets
Unallocated assets
Total assets
Segment liabilities
Total liabilities
Capital expenditure 2021:
Property, plant & equipment
Exploration and evaluation assets
68 l Serica Energy plc Annual Report & Accounts 2021
UK
£000
Total
£000
514,136
514,136
(37,048)
(37,048)
(231,008)
(231,008)
–
–
246,080
246,080
(110,529)
(110,529)
82
(527)
82
(527)
135,106
135,106
(55,812)
79,294
(55,812)
79,294
328,944
328,944
2,949
2,949
354,778
354,778
–
686,671
686,671
(414,143)
(414,143)
(414,143)
(414,143)
50,252
1,906
50,252
1,906
3. Segment Information continued
Year ended 31 December 2020
Revenue
Continuing operations
Depletion
Other expenses
E&E asset write-offs
Operating and segment loss
Change in BKR financial liability
Finance revenue
Finance costs
Profit/(loss) before taxation
Taxation charge 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 2020:
Property, plant & equipment
Exploration and evaluation assets
UK
£000
Africa
£000
Total
£000
125,641
(38,495)
(102,126)
(267)
(15,247)
31,296
465
(508)
16,006
(4,769)
11,237
311,125
1,043
135,295
447,463
(247,617)
(247,617)
–
–
–
(3,458)
(3,458)
–
–
–
125,641
(38,495)
(102,126)
(3,725)
(18,705)
31,296
465
(508)
(3,458)
12,548
–
(3,458)
(4,769)
7,779
–
–
–
–
–
–
311,125
1,043
135,295
–
447,463
(247,617)
(247,617)
25,530
1,006
–
110
25,530
1,116
Unallocated assets comprise cash on deposit. In 2020 and 2021 all cash on deposit is allocated to the UK operating segment.
Information on major customers is provided in note 4.
4. Sales Revenue
Gas sales
Oil sales
NGL sales
2021
£000
455,969
40,215
17,952
2020
£000
80,066
32,917
12,658
514,136
125,641
Gas sales revenue in 2020 and 2021 arose from one key customer, all oil sales revenue in 2020 and 2021 was from one key customer, and
NGL sales in 2021 were made to six (2020: four) customers.
Serica Energy plc Annual Report & Accounts 2021 l 69
Financial Statements NOTES TO THE FINANCIAL STATEMENTS continued
5. Cost of Sales
Operating costs
Depletion (see note 15)
Movement in liquids overlift/underlift
6. Group Operating Profit
This is stated after crediting/(charging):
Realised hedging (losses)/gains
Unrealised hedging losses on gas swaps
Other hedging losses (note 19)
Unrealised hedging losses
2021
£000
97,124
37,048
(6,859)
2020
£000
89,723
38,495
342
127,313
128,560
2021
£000
2020
£000
(56,615)
12,295
(36,100)
(38,492)
(16,571)
–
(74,592)
(16,571)
Realised hedging losses comprise losses realised on 2021 gas price swaps.
Unrealised hedging losses on gas swaps comprise unrealised charges on the movement during 2021 in the calculated fair value liability of
outstanding gas price derivative contracts measured at the respective Balance Sheet dates.
Other hedging losses comprise charges for the fair value of 2022 and 2023 hedging instruments crystalised as gas contract liabilities upon
a restructuring of certain gas swaps to other fixed price instruments under a gas sales contract in August 2021. Further detail is provided in
note 19.
Depreciation, depletion and amortisation expense
Depreciation of other property, plant and equipment totalled £225,000 in 2021 (2020: £225,000) and was allocated within general and
administrative expenses.
Depletion of oil and gas properties is classified within cost of sales.
7. Auditor’s Remuneration
Audit of the Group accounts
Audit of the Company’s accounts
Audit of accounts of Company’s subsidiaries
Total audit fees
No fees were paid to Ernst & Young LLP and its associates for non-audit services in 2020 or 2021.
2021
£000
310
30
15
355
2020
£000
300
30
10
340
70 l Serica Energy plc Annual Report & Accounts 2021
8. Staff Costs and Directors’ Emoluments
a) Staff Costs
Staff costs – Group
Wages and salaries
Social security costs
Other pension costs
Share-based long-term incentives
Staff Costs – Company
Staff costs
Wages and salaries
Social security costs
Other pension costs
2021
£000
19,637
2,525
2,104
2,386
2020
£000
17,935
2,276
1,966
1,862
26,652
24,039
3,064
554
126
2,432
362
145
3,744
2,939
The average number of persons employed by the Group during the year was 164 (2020: 153), with 9 in management functions (2020: 9),
145 in technical functions (2020: 134) and 10 (2020: 10) in finance and administrative functions.
The average number of persons employed by the Company during the year was 11 (2020:11) with 7 in management functions (2020: 7),
1 in technical functions (2020:1) and 3 (2020: 3) in finance and administrative functions.
Staff costs for key management personnel:
Short-term employee benefits
Post-employment benefits
Share-based payments
2,040
82
617
1,340
40
544
2,739
1,924
Serica Energy plc Annual Report & Accounts 2021 l 71
Financial Statements NOTES TO THE FINANCIAL STATEMENTS continued
8. Staff Costs and Directors’ Emoluments continued
b) Directors’ Emoluments
The emoluments of the individual Directors were as follows. All amounts are paid in £ sterling.
A Craven Walker
M Flegg1
A Bell1 2
N Pike³
I Vann
T Garlick
M Webb
K Coppinger4
R Rose5
D Latin6
2021
Salary and
fees
£000
2021
Bonus
£000
2021
Pension
£000
2021
Benefits
in kind
£000
455
455
94
30
60
60
60
55
13
4
137
341
87
–
–
–
–
–
–
–
–
68
14
–
–
–
–
–
–
–
1,286
565
82
–
1
–
–
–
–
–
–
–
–
1
1 Cash in lieu of pension.
2 Andrew Bell was appointed on 3 September 2021
3 Neil Pike retired on 24 June 2021
4 Kate Coppinger was appointed on 22 April 2020
5 Richard Rose was appointed on 28 September 2021
6 David Latin was appointed on 7 December 2021
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
2021
Total
£000
592
865
195
30
60
60
60
55
13
4
2020
Total
£000
485
521
–
50
50
50
50
28
–
–
1,934
1,234
2021
2020
2
–
£000
–
1
–
£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.
9. Finance Revenue
Bank interest receivable
Total finance revenue
72 l Serica Energy plc Annual Report & Accounts 2021
2021
£000
82
82
2020
£000
465
465
10. Finance Costs
Other interest payable
Unwinding of discount on decommissioning provisions (note 23)
Total finance costs
11. Taxation
a) Tax charged/(credited) in the income statement
Charge for the year
Total current income tax charge
Deferred tax
Origination and reversal of temporary differences in the current year
Adjustment in respect of prior years
Total deferred tax charge
Tax charge in the income statement
b) Reconciliation of the total tax charge/(credit)
2021
£000
71
456
527
2021
£000
15,804
15,804
2020
£000
56
452
508
2020
£000
–
–
41,060
(1,052)
4,769
–
40,008
4,769
55,812
4,769
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
Statutory rate of corporation tax in the UK of 40% (2020: 40%)
Expenses/(income) not deductible/(chargeable) for tax
Unrecognised tax losses
Exploration write-offs
Investment Allowance
Revisions to assets
Different foreign tax rates
Other
Adjustment in respect of prior years
Tax charge reported in the income statement
2021
£000
2020
£000
135,106
12,548
54,042
5,299
717
–
5,019
(29)
745
971
(3,140)
(1,600)
–
7
(61)
(1,052)
(338)
521
(520)
–
55,812
4,769
Serica Energy plc Annual Report & Accounts 2021 l 73
Financial Statements NOTES TO THE FINANCIAL STATEMENTS continued
11. Taxation continued
c) Recognised and unrecognised tax losses
The Group’s deferred tax assets at 31 December 2021 are recognised to the extent that taxable profits are expected to arise in the future
against which tax losses and allowances in the UK can be utilised. In accordance with IAS 12 Income Taxes, the Group assessed the
recoverability of its deferred tax assets at 31 December 2021 with respect to ring fence losses and allowances.
The Group has UK ring fence tax losses of £nil million available as at 31 December 2021 (2020: £46.1 million) which form part of total UK
tax losses of approximately £28.0 million (2020: £72.4 million) that are available indefinitely for offset against future trading profits of the
companies in which the losses arose. Of this amount £nil million (2020: £46.1 million) has been set off against taxable temporary differences.
The benefit of approximately £28.0 million (2020: £26.3 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
Deferred tax liability
Deferred tax asset:
Movement in tax losses carried forward
Deductibles under the Net Cash Flow Sharing Deed
Decommissioning liability
Deferred tax asset
Net deferred tax liability
Reconciliation of net deferred tax (liabilities)/assets
At 1 January
Tax charge during the year recognised in profit
At 31 December
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
Net Cash Flow Sharing Deed
Other temporary differences
Deferred income tax charge
74 l Serica Energy plc Annual Report & Accounts 2021
2021
£000
2020
£000
(131,846)
(124,781)
(131,846)
(124,781)
–
–
11,238
20,427
14,635
9,119
11,238
44,181
(120,608)
(80,600)
2021
£000
2020
£000
(80,600)
(75,831)
(40,008)
(4,769)
(120,608)
(80,600)
2021
£000
2020
£000
7,065
–
20,427
14,635
(2,119)
(5,381)
–
(4,032)
14,265
(83)
40,008
4,769
11. Taxation continued
e) Changes to UK corporation tax legislation
The Finance Bill 2021 contained legislation to increase the main rate of UK corporation tax from 19% to 25% with effect from 1 April 2023.
This rate was substantively enacted in May 2021. The Group does not currently recognise any deferred tax assets in respect of UK non-ring
fence tax losses and therefore this rate change did not impact the disclosed results. The headline rate of tax for UK ring-fenced trading profits
remains at 40%.
f) Unrecognised deferred tax liability
In 2021 and 2020 there are no material temporary differences associated with investments subsidiaries for which deferred tax liabilities have
not been recognised.
g) Company
The Company has £28.0 million (2020: £26.3 million) of UK corporation tax losses which are not recognised as deferred tax assets.
12. 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 granted under share-based payment plans (see note 27) into ordinary shares.
The following reflects the income and share data used in the basic and diluted earnings per share computations:
Net profit from continuing operations
Net profit attributable to equity holders of the parent
2021
£000
2020
£000
79,294
7,779
79,294
7,779
2021
‘000
2020
‘000
Basic weighted average number of shares
268,262
267,523
Dilutive potential of ordinary shares granted under share-based payment plans
13,106
10,511
Diluted weighted average number of shares
281,368
278,034
Basic EPS on profit for the year (£)
Diluted EPS on profit for the year (£)
2021
£
0.30
0.28
2020
£
0.03
0.03
Serica Energy plc Annual Report & Accounts 2021 l 75
Financial Statements NOTES TO THE FINANCIAL STATEMENTS continued
13. Dividends Proposed
Proposed dividends on ordinary shares
A final cash dividend for 2021 of 9.0 pence per share is proposed which would generate a payment of £24.4 million. Proposed dividends on
ordinary shares are subject to approval at the annual general meeting and are not recognised as a liability as at 31 December.
Dividend on ordinary shares paid in 2021
A final cash dividend for 2020 of 3.5 pence per share was proposed in April 2021 and approved at the annual general meeting on 24 June
2021. Following the approval in the 1H 2021 period, the dividend payable of £9.4 million was paid in July 2021.
14. Exploration and Evaluation Assets
Group
Cost:
1 January 2020
Additions
Write-offs
31 December 2020
Additions
Write-offs
31 December 2021
Provision for impairment:
1 January 2020
Impairment reversal for the year
31 December 2020
Impairment reversal for the year
31 December 2021
Net book amount:
31 December 2021
31 December 2020
1 January 2020
Total
£000
3,652
1,116
(3,725)
1,043
1,906
–
2,949
–
–
–
–
–
2,949
1,043
3,652
The 2020 asset write-off figure comprised a £3.458 million charge against the Group’s Namibian licence following the region exit in the year,
and £0.267 million from the relinquishment of UK Licence P2388 Block 23/21b.
Company
The Company has no E&E assets.
76 l Serica Energy plc Annual Report & Accounts 2021
15. Property, Plant and Equipment
Group
Cost:
1 January 2020
Additions
Revisions (note 23)
31 December 2020
Additions
Decommissioning asset
Revisions (note 23)
Oil and gas
properties
£000
Equipment,
fixtures and
fittings
£000
Right-of-use
assets
£000
Total
£000
387,021
212
516
387,749
25,530
(1,089)
–
–
–
–
25,530
(1,089)
411,462
212
516
412,190
50,252
4,840
–
–
–
–
–
–
–
50,252
4,840
–
31 December 2021
466,554
212
516
467,282
Depreciation and depletion:
1 January 2020
Charge for the year (note 5,6)
31 December 2020
Charge for the year (note 5,6)
31 December 2021
Net book amount:
31 December 2021
31 December 2020
1 January 2020
Other
62,155
38,495
100,650
37,048
137,698
328,856
310,812
324,866
61
53
114
53
167
45
98
151
129
62,345
172
38,720
301
101,065
172
37,273
473
138,338
43
328,944
215
387
311,125
325,404
Depletion charges on oil and gas properties are classified within ‘cost of sales’. Depreciation on other elements of property, plant and
equipment is provided on a straight-line basis, and taken through general and administration expenses.
Company
The Company has right-of-use assets with a net book amount of £0.04 million as at 31 December 2021 (2020: £0.2 million).
Serica Energy plc Annual Report & Accounts 2021 l 77
Financial Statements NOTES TO THE FINANCIAL STATEMENTS continued
16. Investments
Company – Investment in subsidiaries
Cost:
As at 1 January 2020
Movement in investment
As at 1 January 2021
Movement in investment
As at 31 December 2021
Provision for impairment:
As at 1 January 2020
Impairment reversal for the year
As at 1 January 2021
Impairment reversal for the year
As at 31 December 2021
Net book amount:
31 December 2021
31 December 2020
1 January 2020
Total
£000
105,256
–
105,256
–
105,256
–
–
–
–
–
105,256
105,256
105,256
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 £88,088,000
over the nominal value of shares issued (US$7,475,000) was credited to a merger reserve. The merger reserve is adjusted for any write-down
in the value of the investment in subsidiary.
78 l Serica Energy plc Annual Report & Accounts 2021
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:
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 Glagah Kambuna BV (i & iii)
Serica Energy Corporation (i & ii)
APD Ltd (i & ii)
PDA Asia Ltd (i & ii)
PDA (Lematang) Ltd (i)
Serica UK Exploration Ltd (i)
(i) Held by a subsidiary undertaking
(ii) Incorporated in the British Virgin Islands
(iii) Incorporated in the Netherlands
% voting
rights and
shares held
2021
% voting
rights and
shares held
2020
Nature of business
Holding
Holding
E&P
Exploration
Exploration
Exploration
Exploration
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
Holding
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
The registered office of the Company’s subsidiaries incorporated in the UK is 48 George Street, London, W1U 7DY.
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
2021
£000
2020
£000
2021
£000
2020
£000
4,053
4,633
4,053
4,633
–
–
–
–
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. Inventories are recorded net of an obsolescence provision of £2.7 million (2020: £1.6 million).
Serica Energy plc Annual Report & Accounts 2021 l 79
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
VAT recoverable
Liquids underlift
Group
Company
2021
£000
2020
£000
2021
£000
2020
£000
–
121,373
1,466
426
1,180
1,611
6,295
–
161,759
162,119
20,172
15,665
60
1,176
2,456
–
–
–
131
–
120
–
–
–
–
82
90
–
132,351
39,529
162,010
162,291
Trade receivables at 31 December 2021 arose from five (2020: five) customers. They are non-interest bearing and are generally on 15 to
30-day terms.
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 £13,231,000 (2020:
£13,231,000). These amounts have not been secured, have no maturity and bear no interest.
19. Derivative Financial (Liabilities)/Assets
Financial liabilities
Derivative financial instruments
Fair value hierarchy
Group
Company
2021
£000
2020
£000
2021
£000
2020
£000
(45,791)
(9,691)
(45,791)
(9,691)
–
–
–
–
All financial instruments for which fair value is recognised or disclosed are categorised within the fair value hierarchy, based on the lowest
level input that is significant to the fair value measurement as a whole, as follows: Level 1: Quoted (unadjusted) market prices in active
markets for identical assets or liabilities; Level 2: Valuation techniques for which the lowest level input that is significant to the fair value
measurement is directly (i.e. as prices) or indirectly (i.e. derived from prices) observable; Level 3: Valuation techniques for which the lowest
level input that is significant to the fair value measurement is unobservable. The valuation methodology for derivative financial instruments is
detailed below and for contingent consideration is disclosed in note 22. A table summarising the Group’s liabilities measured at fair value is
included in note 24.
Derivative financial instruments
The Group enters into derivative financial instruments with various counterparties. No gas put options were held at 31 December 2020 or
31 December 2021. Other derivative financial instruments held at 31 December 2020 and 2021 comprised gas swaps which were valued by
counterparties, with the valuations reviewed internally and corroborated with readily available market data of forward gas pricing (level 2).
Details of the Group’s derivative financial instruments held as at 31 December 2021 are provided in note 24.
Hedging security advances
Hedging security advances of £115.4 million at 31 December 2021 (2020: £1.8 million) represented cash security lodged with commodity
hedging counterparties which reflected the very high gas prices at the end of 2021. This will be returned to Serica should forward gas prices
fall or when monthly contracts are settled.
80 l Serica Energy plc Annual Report & Accounts 2021
19. Derivative Financial (Liabilities)/Assets continued
Gas contract liabilities
Gas contract liabilities (<1 year)
Gas contract liabilities (>1 year)
Group
Company
2021
£000
2020
£000
2021
£000
2020
£000
(37,505)
(987)
(38,492)
–
–
–
–
–
–
–
–
–
In August 2021, Serica restructured certain existing hedging arrangements with one of its hedging counterparties covering swap agreements
for the 2022 and 2023 periods through moving these from fixed price swaps to fixed-price forward sales of gas. The new fixed-price
instruments (“gas contract liabilities”) were on the same terms (volumes, prices and delivery dates) as the existing swap arrangements that
they superseded. The new arrangements have changed from net settled gas swaps to a physically settled gas supply contract. This change is
substantive and is therefore considered from an accounting perspective as a cancellation of the financial swaps and the formation of a new
agreement including physical forward sales. Consequently, the new arrangements are no longer accounted for at fair value in accordance
with IFRS 9 but rather assigned a contract value at inception and accounted for in accordance with IFRS 15 “Revenue from Contracts
with Customers”.
The new arrangements do not represent financial instruments within the scope of IFRS 9 as they were entered into and continue to be
held for the purpose of the delivery of a non-financial item in accordance with the company’s sale or usage requirements and instead are
accounted for under IFRS 15. The gas contract liability value is calculated as the fair value at the point of inception in August 2021 but not
then re-measured at the period end.
Consequently, an unrealised hedging loss of £38.5 million, representing the crystallised fair value of the swaps cancelled in August, has been
expensed in the income statement (see note 6) with an equivalent gas contract liability created and then retained in the balance sheet as at 31
December 2021. This liability will be released to the income statement and recorded as revenue during 2022 and 2023 when the relevant fixed
price volumes are delivered in these periods.
Details of the fixed price instruments that together with gas swaps, comprise the Group’s hedging instruments in place at 31 December 2021,
are provided in note 24.
20. Cash and Term Deposits
Cash at bank and in hand
Short-term deposits
Group
Company
2021
£000
102,363
621
2020
£000
36,010
53,323
2021
£000
208
370
578
2020
£000
1,217
5,861
7,078
Cash and cash equivalents
102,984
89,333
As at 31 December 2021, the cash balance of £103.0 million (2020: £89.3 million) contains an amount of £22.9 million (2020: £12.1 million)
held in a restricted account as security against letters of credit issued in respect of certain decommissioning liabilities (£12.9 million) and to
cover margining arrangements (£10.0 million). This secured amount was reduced to £12.9 million on 1 January 2021.
Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods with original
maturities of between one day and three months at the date acquired. They are considered to be readily convertible into cash and subject to
an insignificant risk of changes in value. The placing of deposits depends on the immediate cash requirements of the Group and they 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.
Serica Energy plc Annual Report & Accounts 2021 l 81
Financial Statements NOTES TO THE FINANCIAL STATEMENTS continued
20. Cash and Term Deposits continued
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:
Barclays Bank plc
Lloyds Bank plc
Investec Bank plc
21. Trade and Other Payables
Current:
Trade payables
Other payables
Accrued expenses
UK corporation tax payable (note 11a)
Liquids overlift
S&P/
Moody’s
credit rating
A-1
A-1
P-1
Group
Company
2021
£000
16,650
76,166
10,124
2020
£000
38,076
38,885
12,333
2021
£000
380
198
–
2020
£000
4,121
2,957
–
Group
Company
2021
£000
2020
£000
2021
£000
2020
£000
2,262
16,977
14,458
15,804
–
11,237
384
18,936
–
564
100
153
770
–
–
49,501
31,121
1,023
246
327
422
–
–
995
Trade payables are non-interest bearing and are generally on 15 to 30 day terms.
Accrued expenses include accruals for operating and capital expenditure in relation the oil and gas assets. The Directors consider the carrying
amount of trade and other payables approximates to their fair value.
Lease liabilities in respect of right of use assets are included within other payables.
82 l Serica Energy plc Annual Report & Accounts 2021
22. Financial Liabilities
Group
Company
2021
£000
2020
£000
2021
£000
2020
£000
BKR contingent consideration
131,656
102,404
Split:
Current
Non-current
131,656
102,404
93,861
37,795
53,634
48,770
131,656
102,404
–
–
–
–
–
–
–
–
–
–
BKR consideration
On 30 November 2018 Serica completed the four BKR acquisitions. These comprised:
• 36% in Bruce, 34.83333% in Keith and 50% in Rhum plus operatorship of each field from BP Exploration Operating Company Limited (“BP”).
Initial consideration, paid at completion, was £12.8 million with contingent payments of £16 million due in relation to the outcome of future
work on the Rhum R3 well and up to a total £23.1 million due in relation to Rhum field performance and sales prices in respect of 2019,
2020 and 2021.
• 42.25% in Bruce and 25% in Keith from Total E&P UK Limited (“Total E&P”). Initial consideration was US$5 million with three further
instalments of deferred consideration of US$5 million each due on 31 July 2019, 31 March 2020 and 30 November 2020.
• 16% in Bruce and 31.83333% in Keith from BHP Billiton Petroleum Great Britain Limited (“BHP”). Initial consideration was £1 million.
• 3.75% in Bruce and 8.33334% in Keith from Marubeni Oil and Gas (UK) Limited (“Marubeni”). Initial consideration was US$1 million payable
to Serica with no contingent or deferred consideration.
In addition to combined initial, deferred and contingent considerations, Serica pays contingent cash consideration to BP, Total E&P and BHP
calculated as a percentage (60% in 2018, 50% in 2019 and 40% in each of 2020 and 2021) of net cash flows resulting from the respective field
interests acquired. Serica will also pay deferred contingent consideration equal to 30% of their respective shares of future decommissioning
costs, reduced by the tax relief that each of BP, Total E&P and BHP Billiton receives on such costs.
Fair value measurement of BKR contingent consideration
The fair value of the contingent consideration is estimated as at applicable reporting dates from a valuation technique using future expected
discounted cash flows. This methodology uses several significant unobservable inputs which are categorised within Level 3 of the fair value
hierarchy.
The calculations are complex and involve a range of projections and assumptions related to future operating and development costs,
production volumes, oil and gas sales prices, discount rates, estimates of future decommissioning expenditure and taxation.
Consideration due at 31 December 2021 under the Net Cash Flow Sharing Deed and arising from Rhum performance criteria represents final
amounts payable in respect of 2021 activity and, unlike in previous years, is not therefore dependent on future forecasts and is not discounted.
Other contingent consideration payable has assumed repayment across the other operational timelines that trigger payment of consideration.
Estimated contingent consideration payments have been calculated at a discount rate of 10% (2020: 10%).
Given the multiple input variables and judgements used in the calculations, and the inter relationships between changes in these variables,
an estimate of a reasonable range of possible outcomes of undiscounted value of the contingent consideration has not been considered
feasible. In isolation, the calculations are most sensitive to assumed oil and gas reserves and production profiles and future natural gas
prices. Changes in most of the key assumptions noted above would also impact the fair value of assets/liabilities in addition to the contingent
consideration.
In calculating the fair value of contingent consideration on the BKR acquisitions payable as at 31 December 2021, assumptions underlying the
calculation were updated from 2020. These included updated commodity prices, production profiles, future opex, capex and decommissioning
cost estimates, discount rates, proved and probable reserves estimates and risk assessments.
A sensitivity analysis to the discount rate used shows a decrease in the discount rate used from 10% to 9% would result in an increase in the
fair value of the contingent consideration by £3.5 million, and an increase from 10% to 11% would result in a decrease in the fair value of the
contingent consideration by £3.1 million.
Serica Energy plc Annual Report & Accounts 2021 l 83
Financial Statements NOTES TO THE FINANCIAL STATEMENTS continued
22. Financial Liabilities continued
2021 payments and income statement charge of £110.5 million arising on revaluation of BKR consideration
Short and long-term financial liabilities representing estimated BKR consideration as at 31 December 2020 totalled £102.4 million. During
2021, £81.3 million of BKR contingent consideration was paid comprising £1.0 million of Rhum contingent consideration (paid to BP) and
£80.3 million of Net Cash Flow Sharing Deed payments (paid to BP, Total E&P and BHP).
As noted above, the fair value of this financial liability was re-assessed for the 2021 financial period end, with the final estimate of short and
long-term liabilities as at 31 December 2021 amounting to £131.7 million (2020: £102.4 million). The overall liability increase of £29.3 million in
2021 comprised cash payments of £81.3 million and a non-cash revision of £110.6 million recorded as a charge in the Income Statement.
The most significant factors behind the upward revision released to the Income Statement are the higher production and realised gas pricing
on amounts paid and payable in respect of 2021 Net Cash Flow payments and other elements of contingent consideration.
Reconciliation of movement in BKR consideration
Total
£000
102,404
(81,277)
103,650
6,879
110,529
131,656
93,861
37,795
131,656
At 31 December 2020
Payments made in year
Revisions during the year
Unwinding of discount
Change in fair value liability
At 31 December 2021
Classified as:
Current
Non-current
84 l Serica Energy plc Annual Report & Accounts 2021
23. Provisions
Erskine
consideration
£000
Decommissioning
provision
£000
Total
£000
At 1 January 2020
1,848
22,590
24,438
Revisions during the year (note 15)
Unwinding of discount (note 10)
(846)
–
(243)
452
(1,089)
452
At 31 December 2020
1,002
22,799
23,801
Additions
Revisions during the year (note 15)
Unwinding of discount (note 10)
Payments
At 31 December 2021
Classified as:
Current
Non-current
Decommissioning provision
Bruce, Keith and Rhum fields
–
–
–
(1,002)
–
–
–
–
4,840
–
456
–
4,840
–
456
(1,002)
28,095
28,095
–
28,095
–
28,095
28,095
28,095
The Group makes full provision for the future costs of decommissioning its production facilities and pipelines on a discounted basis. With
respect to the Bruce, Keith and Rhum fields, the decommissioning provision is based on the Group’s contractual obligations of 3.75%, 8.33334%
and 0% respectively of the decommissioning liabilities rather than the Group’s equity interests acquired. The Group’s provision represents the
present value of decommissioning costs which are expected to be incurred up to 2032 and assumes no further development of the Group’s
assets. The liability is discounted at a rate of 2% (2020: 2%) and the unwinding of the discount is classified as a finance cost (see note 10).
Columbus field
Additions during the year relate to the decommissioning provision set up following completion of the Columbus field development work in
2H 2021. The Group makes full provision for the decommissioning liabilities for the Columbus field on its 50% equity interest. The Group’s
provision represents the present value of decommissioning costs which are expected to be incurred up to 2030 and assumes no further
development of the Group’s assets. The liability is discounted at a rate of 2% and the unwinding of the discount is classified as a finance cost
(see note 10).
Erskine field
No provision for decommissioning liabilities for the Erskine field is recorded as at 31 December 2020 or 2021 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.
Other
The estimation of costs, inflation and discount rates are considered to be judgemental although changes in single variables are not individually
considered to have a significant impact. If the cost estimates were increased by 10% and the spread between inflation and discount rate also
increased to 1%, the value of the provisions could increase by c.£5.5 million.
The Group considers the impact of climate change and Net Zero targets, including action that may impose further requirements and costs
on companies in the future, on decommissioning provisions, specifically the timing of future cash flows, and has concluded that it does not
currently represent a key source of estimation uncertainty. As all of the Group’s currently producing assets are projected to cease production
by 2030 it is believed that any such future changes would have limited impact compared to assets with longer durations.
Serica Energy plc Annual Report & Accounts 2021 l 85
Financial Statements NOTES TO THE FINANCIAL STATEMENTS continued
23. Provisions continued
Erskine consideration payments
Under the terms of the Erskine acquisition, certain contingent payments were due to be made by Serica related to savings in field operating
costs. The payment for these amounts has been capitalised as an oil and gas asset cost (see note 15) and a final settlement of £1.0 million
was made in 2021.
Company
The Company has no provisions.
24. Financial Instruments
The Group’s financial instruments comprise cash and cash equivalents, bank loans and borrowings, accounts payable and accounts
receivable, derivative financial instruments and contingent consideration. 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 given the level of expenditure plans over 2022/23 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.
• Serica sells oil, gas and related products only to recognised international oil and gas companies and has no previous history of default or
non-payment of trade receivables. 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-£ cash holdings and other financial instruments relating to its operations. The £ 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 2021
Fixed rate
Short-term deposits
Floating rate
Cash
Year ended 31 December 2020
Fixed rate
Short-term deposits
Floating rate
Cash
86 l Serica Energy plc Annual Report & Accounts 2021
Within 1 year
£000
1–2 years
£000
2–5 years
£000
621
–
–
Within 1 year
£000
1–2 years
£000
2–5 years
£000
102,363
–
–
Within 1 year
£000
1–2 years
£000
2–5 years
£000
53,323
–
–
Within 1 year
£000
1–2 years
£000
2–5 years
£000
36,010
–
–
Total
£000
621
621
Total
£000
102,363
102,363
Total
£000
53,323
53,323
Total
£000
36,010
36,010
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
2021
£000
Effect on
profit
before tax
2020
£000
611
(611)
733
(733)
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 2021
Fixed rate
Short-term deposits
Floating rate
Cash
Year ended 31 December 2020
Fixed rate
Short-term deposits
Floating rate
Cash
Credit risk
Within 1 year
£000
1-2 years
£000
2-5 years
£000
370
–
–
Within 1 year
£000
1–2 years
£000
2–5 years
£000
Total
£000
370
370
Total
£000
208
–
–
208
Within 1 year
£000
1–2 years
£000
2–5 years
£000
5,861
–
–
Within 1 year
£000
1–2 years
£000
2–5 years
£000
Total
£000
5,861
5,861
Total
£000
1,216
–
–
1,216
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. 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.
In addition, there are credit risks of commercial counterparties including exposures in respect of outstanding receivables. 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. Receivable balances are monitored on an ongoing basis with appropriate follow-up action taken where necessary.
Serica Energy plc Annual Report & Accounts 2021 l 87
Financial Statements NOTES TO THE FINANCIAL STATEMENTS continued
24. Financial Instruments continued
Foreign currency risk
The Group enters into transactions denominated in currencies other than its GBP£ reporting currency. Non-GBP denominated balances,
subject to exchange rate fluctuations, at year-end were as follows:
Cash and cash equivalents:
US Dollar
Norwegian kroner
Euros
Accounts receivable:
US Dollar
Trade and other payables:
US Dollar
Group
Company
2021
£000
2020
£000
2021
£000
2020
£000
11,947
25,064
5
81
6
51
5,079
5,468
1,470
2,069
379
–
–
21
49
4,302
–
–
17
46
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 £ against US$
10% weakening of £ against US$
Liquidity risk
Effect on
profit
before tax
2021
£000
Effect on
profit
before tax
2020
£000
(1,556)
1,556
(2,846)
2,846
The table below summarises the maturity profile of the Group and Company’s financial liabilities at 31 December 2021 based on contractual
undiscounted payments. The Group monitors its risk to a potential shortage of funds by monitoring the maturity dates of existing debt.
Group
Year ended 31 December 2021
Within 1 year
£000
1 to 2 years
£000
2 to 5 years
£000
>5 years
£000
Trade and other payables
Derivative financial liabilities
49,501
29,421
–
16,370
–
–
–
–
Year ended 31 December 2020
Trade and other payables
Derivative financial liabilities
Within 1 year
£000
1 to 2 years
£000
2 to 5 years
£000
>5 years
£000
32,121
6,984
–
2,707
–
–
–
–
Total
£000
49,501
45,791
Total
£000
32,121
9,691
Amounts payable as BKR contingent consideration are explained in detail in note 22. The bulk of contingent consideration due under the BKR
acquisition agreements is related to future successful field performance and either paid out as a proportion of cash inflows or dependent on
successful performance, with liquidity risk impacted downwards accordingly.
88 l Serica Energy plc Annual Report & Accounts 2021
24. Financial Instruments continued
Company
Year ended 31 December 2021
Within
1 year
£000
1 to 2 years
£000
2 to 5 years
£000
Total
£000
Trade and other payables
1,022
–
–
1,022
Year ended 31 December 2020
Within
1 year
£000
1 to 2 years
£000
2 to 5 years
£000
Total
£000
Trade and other payables
995
–
–
995
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. All gas production is sold at prices linked to the spot market. The significant majority of oil and
NGL production was sold at prices linked to the spot market.
At 31 December 2021 Serica held gas price swaps and equivalent fixed price mechanisms covering 350,000 therms per day for H1 2022
and 275,000 therms per day for H2 2022 at average prices of 47 pence per therm and 44 pence per therm respectively. It further held gas
price swaps and equivalent fixed price mechanisms covering 150,000 therms per day for H1 2023 and 50,000 therms per day for Q3 2023 at
average prices of 49 pence per therm and 41 pence per therm respectively.
Fair values of financial assets and liabilities
Management assessed that the fair values of cash and short-term deposits, trade receivables, trade payables and other current liabilities
approximate their carrying amounts largely due to the short-term maturities of these instruments. As such the fair value hierarchy is not
provided.
The table below details the Group’s fair value measurement hierarchy for liabilities as at 31 December:
Liabilities measured at fair value
Year ended 31 December 2021
Derivative financial liabilities – gas swaps
Contingent consideration liability
Year ended 31 December 2020
Derivative financial liabilities – gas swaps
Contingent consideration liability
Fair value measurement using
Quoted
prices in
active
markets
Level 1
£’000
Significant
observable
inputs
Level 2
£’000
Significant
unobservable
inputs
Level 3
£’000
–
–
–
–
45,791
–
–
131,656
9,691
–
–
102,404
Note
19
22
19
22
There were no transfers between Level 1 and Level 2 during 2021.
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 2021, capital employed of the Group amounted to £272.5 million (comprised of £272.5 million of
equity shareholders’ funds and £nil of borrowings), compared to £199.8 million at 31 December 2020 (comprised of £199.8 million of equity
shareholders’ funds and £nil of borrowings).
At 31 December 2021, capital employed of the Company amounted to £266.9 (comprised of £266.9 million of equity shareholders’ funds and
£nil of borrowings), compared to £273.8 million at 31 December 2020 (comprised of £273.8 million of equity shareholders’ funds and £nil of
borrowings).
Serica Energy plc Annual Report & Accounts 2021 l 89
Financial Statements NOTES TO THE FINANCIAL STATEMENTS continued
25. Equity Share Capital
As at 31 December 2021, the share capital of the Company comprised one “A” share of GB£50,000 and 268,891,043 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
Number
Share
capital
£000
Share
premium
£000
Total
Share
capital
£000
As at 1 January 2020
267,230,217
21,062
160,323
181,385
Shares issued
579,486
45
176
221
As at 1 January 2021
267,809,703
21,107
160,499
181,606
Shares issued
1,081,341
79
308
387
As at 31 December 2021
268,891,044
21,186
160,807
181,993
Allotted, issued and fully paid:
Company
As at 1 January 2020
Number
267,230,217
Share
capital
£000
21,062
Share
premium
£000
132,624
Total
Share
capital
£000
153,686
Shares issued
579,486
45
176
221
As at 1 January 2021
267,809,703
21,107
132,800
153,907
Shares issued
1,081,341
79
308
387
As at 31 December 2021
268,891,044
21,186
133,108
154,294
1,081,341 ordinary shares were issued in 2021 under the Company’s Share Incentive Plans. 2,614,470 ordinary shares have been issued in
2022 to date and as at 19 April 2022 the issued voting share capital of the Company was 271,505,513 ordinary shares and one “A” share.
90 l Serica Energy plc Annual Report & Accounts 2021
26. Additional Cash Flow Information
Analysis of Group net cash
Year ended 31 December 2021
Cash
Short-term deposits
Year ended 31 December 2020
Cash
Short-term deposits
Analysis of Company net cash
Year ended 31 December 2021
Cash
Short-term deposits
Year ended 31 December 2020
Cash
Short-term deposits
1 January
2021
£000
Cash flow
£000
Non-cash
movements
£000
31 December
2021
£000
36,010
53,323
66,639
(52,639)
(286)
(63)
102,363
621
89,333
14,000
(349)
102,984
1 January
2020
£000
Cash flow
£000
Non-cash
movements
£000
31 December
2020
£000
42,584
59,241
(6,282)
(5,581)
(292)
(337)
36,010
53,323
101,825
(11,863)
(629)
89,333
1 January
2021
£000
Cash flow
£000
Non-cash
movements
£000
31 December
2021
£000
1,217
5,861
(990)
(5,430)
7,078
(6,420)
(19)
(61)
(80)
208
370
578
1 January
2020
£000
Cash flow
£000
Non-cash
movements
£000
31 December
2020
£000
5,281
6,067
(3,963)
(125)
(101)
(81)
1,217
5,861
11,348
(4,088)
(182)
7,078
Serica Energy plc Annual Report & Accounts 2021 l 91
Financial Statements NOTES TO THE FINANCIAL STATEMENTS continued
27. Share-Based Payments
Share Option Plans
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 Serica Energy plc Company Share
Option Plan (“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 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 2021, 4,100,000 options granted by the Company under the Serica 2005 Option Plan were outstanding. All options
awarded under the Serica 2005 Option Plan since November 2009 have a three-year vesting period. When awarding options to Directors, the
Remuneration Committee are required to set Performance Conditions in addition to the vesting provisions before vesting can take place. Of
the above options, 2,500,000 of these options were granted to Mr Craven Walker in July 2015 at exercise prices higher than the market price at
the time of the grant to establish firm performance targets.
No options were granted in 2020 or 2021 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
Outstanding as at 1 January
Exercised during the year
Expired during the year
2021
Number
4,578,050
(478,050)
–
2021
WAEP
£
0.15
0.22
–
2020
Number
4,578,050
–
–
Outstanding as at 31 December
4,100,000
0.14
4,578,050
Exercisable as at 31 December
4,100,000
0.14
4,578,050
2020
WAEP
£
0.15
–
–
0.15
0.15
The weighted average remaining contractual life of options outstanding as at 31 December 2021 is 3.3 years (2020: 4.0 years).
For the Serica 2005 option plan, the exercise price for outstanding options at the 2021 year-end ranges from £0.07 to £0.27 (2020: £0.07
to £0.31).
As at 31 December 2021, the following director and employee share options were outstanding:
Expiry Date
January 2023
January 2024
Amount
200,000
300,000
June 2025
1,100,000
July 2025
1,000,000
July 2025
1,000,000
July 2025
500,000
Total
4,100,000
Exercise cost
GB£
54,500
39,000
72,600
120,000
180,000
120,000
92 l Serica Energy plc Annual Report & Accounts 2021
27. Share-Based Payments continued
Following the approval of the Company’s 3p per share dividend to shareholders in 2020 and 3.5p per share dividend to shareholders in 2021,
dividend accrual amount of LTIP scheme interests (nil cost) were granted in relation to the 2005 Option Plan awards that had fully vested. The
combined figure of 218,951 dividend accrual LTIP scheme interests were outstanding at 31 December 2021.
Long Term Incentive Plan
The following awards granted to certain Directors and employees under the LTIP (deemed to be granted in November 2017 under IFRS 2) are
outstanding as at 31 December 2021.
Director/Employees
Antony Craven Walker
Mitch Flegg
Andrew Bell
Employees below Board level (in aggregate)
Total number of shares
granted subject to Deferred
Bonus Share Awards
225,000
225,000
138,000
138,000
726,000
Following the Company’s 3p per share dividend to shareholders in 2020 and 3.5p per share dividend to shareholders in 2021, dividend accrual
amounts of LTIP scheme interests (nil cost) were granted in relation to the DSA Plan awards that had fully vested. The combined figure of
764,214 initial award and dividend accrual LTIP scheme interests were outstanding at 31 December 2021.
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. Vesting of the Deferred Bonus Share Awards was the later of the date
of completion of the BKR Acquisition and 31 January 2019 and all awards have therefore now vested. They were not subject to performance
conditions; however, they were conditional on completion of the BKR Acquisition, subject to the Board determining otherwise.
Director/Employees
Antony Craven Walker
Mitch Flegg
Andrew Bell
Employees below Board level (in aggregate)
Total number of shares
granted subject to
Performance Share Awards
1,500,000
1,500,000
800,000
1,450,000
5,250,000
Performance Share Awards have a three-year vesting period and 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 were not subject to completion of the BKR Acquisition and are exercisable
as at 31 December 2021.
Following the Company’s 3p per share dividend to shareholders in 2020 and 3.5p per share dividend to shareholders in 2021, dividend accrual
amounts of 276,352 LTIP scheme interests (nil cost) have been granted in relation to the 5,250,000 PSA Plan awards that had fully vested on
30 November 2020. The combined figure of 5,526,352 LTIP scheme interests were outstanding at 31 December 2021.
Serica Energy plc Annual Report & Accounts 2021 l 93
Financial Statements NOTES TO THE FINANCIAL STATEMENTS continued
27. Share-Based Payments continued
LTIP awards in 2019
In Q1 2019, the Company granted nil-cost Performance Share Awards over 3,735,640 ordinary shares and nil-cost Retention Share Awards
over 309,415 ordinary shares, a combined total of 4,045,055 ordinary shares under the LTIP. 3,802,452 of the total awards were outstanding
at 31 December 2021. The award was made to members of the Group’s executive team, senior management and employees. The awards
included a total of 1,056,442 ordinary shares for the Executive Directors and persons discharging managerial responsibilities as follows:
Director/PDMR
Antony Craven Walker
Mitch Flegg
Andrew Bell
Total number of shares
granted subject to
Performance Share Awards
411,067
411,067
234,308
1,056,442
These awards are subject to vesting criteria based on absolute share price performance over a three-year period and are not exercisable as at
31 December 2021.
LTIP awards in 2020
In May 2020, the Company granted nil-cost Performance Share Awards over 2,669,280 ordinary shares under the LTIP. All of the total
awards were outstanding at 31 December 2021. The award was made to members of the Group’s executive team, senior management
and employees. The awards included a total of 996,678 ordinary shares for the Executive Directors and persons discharging managerial
responsibilities as follows:
Director/PDMR
Antony Craven Walker
Mitch Flegg
Andrew Bell
Total number of shares
granted subject to
Performance Share Awards
386,100
386,100
224,478
996,678
These awards are subject to vesting criteria based on absolute share price performance over a three-year period and are not exercisable as at
31 December 2021.
LTIP awards in 2021
In May 2021, the Company granted nil-cost Performance Share Awards over 2,725,032 ordinary shares under the LTIP. All of the total
awards were outstanding at 31 December 2021. The award was made to members of the Group’s executive team, senior management
and employees. The awards included a total of 1,480,908 ordinary shares for the Executive Directors and persons discharging managerial
responsibilities as follows:
Director/PDMR
Antony Craven Walker
Mitch Flegg
Andrew Bell
Total number of shares
granted subject to
Performance Share Awards
587,349
587,349
306,210
1,480,908
These awards are subject to vesting criteria based on absolute share price performance over a three-year period (75%) and on reductions in
carbon intensity of production from the BKR assets (25%) and are not exercisable at 31 December 2021.
94 l Serica Energy plc Annual Report & Accounts 2021
27. Share-Based Payments continued
Share-based compensation
The Company calculates the value of share-based compensation using a Black-Scholes option pricing model (or other appropriate model
for those 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 options granted in 2020 and 2021 were consistently valued in line with the Company’s valuation policy. For
the options subject to market conditions, assumptions made included a weighted average risk-free interest rate of 2%, no dividend yield, a
weighted average expected life of 5 years, and a volatility factor of expected market price of in a range from 55-70%. The expected volatility
reflects the assumption that the historical volatility is indicative of future trends, which may not necessarily be the actual outcome. The
weighted fair value of options granted during the year was £0.71 (2020: £0.67). The estimated fair value of options is amortised to expense
over the options’ vesting period.
£2,386,000 has been charged to the income statement for the year ended 31 December 2021 (2020: £1,862,000) and a similar amount
credited to the share-based payments reserve, classified as ‘Other reserve’ in the Balance Sheet. The ‘Other reserve’ was comprised solely
of the share-based payment reserve which totaled £22,066,000 as at 31 December 2021 (2020: £19,680,000). A charge of £617,000 (2020:
£544,000) of the total charge was in respect of key management personnel (defined in note 8).
28. Leases
In March 2019 the Group entered into a three-year lease at its new registered office, 48 George Street, following the expiry of its previous
London office lease at 52 George Street. Initial right-of-use assets and lease liabilities of £516,000 were recognised by the Group during 2019
within property, plant and equipment and other liabilities respectively. A depreciation charge of £172,000 (2020: £172,000) was expensed
within administrative expenses. £179,000 (2020: £133,000) of cash payments made against the lease liability during 2021 are reflected in the
2021 Group cash flow statement as a cash outflow in financing activities.
29. Capital Commitments and Contingencies
At 31 December 2021, other amounts contracted for but not provided in the financial statements for the acquisition of exploration and
evaluation assets and oil and gas properties, other than the commitments set out below, amounted to £nil for the Group and £nil for the
Company (2020: £nil and £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.
BKR commitments
There are no significant existing capital commitments on the BKR producing fields outstanding at 31 December 2021, however on the Bruce
and Keith fields plans are in hand to conduct well work at an estimated costs of £15 million designed to enhance current production profiles
and extend field life. Net revenues from Serica’s share of income from the fields, are expected to cover Serica’s retained share of ongoing field
expenditures and deferred or contingent consideration due under the respective acquisition agreements. These include £16 million due to BP
upon a successful outcome from the Rhum R3 workover, and further amounts totalling of £15 million due to BP in respect of certain Rhum
field production and gas price levels in the 2019-2021 period. Further deferred contingent consideration amounts will fall due to each of BP,
Total E&P and BHP representing 30% of their retained share of the actual costs of decommissioning the BKR field facilities in existence at
completion net of tax relief.
Serica has posted cash collateral of approximately £12.9 million under BKR decommissioning security arrangements, related to the interests
acquired from Marubeni in support to the issue of letters of credit required. This secured amount is within the Group’s cash balances of
£103.0 million as at 31 December 2021. The funds are freely transferable but alternative collateral would need to be put in place to replace the
cash security.
Other commitments
The Group’s only significant exploration commitment is the drilling of a well on the North Eigg prospect to be drilled in Q3 2022 at an
estimated cost of £45 million. Other less material minimum obligations include G&G, seismic work and ongoing licence fees in the UK.
Other
The Group occasionally has to provide security for a proportion of its future obligations to defined work programmes or other commitments.
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.
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 8 above. The disclosures in note 8 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.
Serica Energy plc Annual Report & Accounts 2021 l 95
Financial Statements GLOSSARY
bbl
bcf
boe
BKR
BPEOC
CGU
CPR
ESG
FDP
FPS
GRI
HPHT
mscf
mmbbl
mmboe
mmscf
mmscfd
NGLs
NTS
OGA
Overlift
Underlift
P10
P50
P90
barrel of 42 US gallons
billion standard cubic feet
barrels of oil equivalent (barrels of oil, condensate and LPG plus the heating equivalent of gas converted into
barrels at the appropriate rate)
Bruce, Keith and Rhum fields
BP Exploration Operating Company
Cash generating unit
Competent Persons Report
Environmental, Social and Governance
Field Development Plan
Forties Pipeline System
Global Reporting Index (framework for sustainability reporting)
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
Probable Reserves
Possible Reserves
Reserves
SASB
Tcf
TCFD
UKCS
UNSDG
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 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 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
Estimates of discovered recoverable commercial hydrocarbon reserves calculated in accordance with the
revised June 2018 Petroleum Resources Management System (PRMS) version 1.01
Sustainability accounting standards board
trillion standard cubic feet
Taskforce on Climate-related Financial Disclosures
United Kingdom Continental Shelf
United Nations Sustainable Development Goals
96 l Serica Energy plc Annual Report & Accounts 2021
CORPORATE INFORMATION
Registered and Main Office
Bankers
48 George Street
London W1U 7DY
Operational Headquarters
H1 Building
Hill of Rubislaw
Anderson Drive
Aberdeen AB15 6BY
Nominated Advisor & UK Broker
Peel Hunt LLP
100 Liverpool Street
London EC2M 2AT
UK Broker
Jefferies International Limited
100 Bishopsgate
London EC2N 4JL
Auditor
Ernst & Young LLP
1 More London Place
London SE1 2AF
Barclays, Lloyds
Company Secretary
AMBA Secretaries Limited
UK Registrar
Link Asset Services
10th Floor, Central Square
29 Wellington Street
Leeds LS1 4DL
Listing
AIM, London
Symbol: SQZ
Website
www.serica-energy.com
Company Number
5450950
CONTENTS
Highlights
Corporate Governance
2021 Performance
Executive Chairman’s Statement
Serica at a Glance
Strategic Report
Chief Executive’s Review
HSEQ
Environmental, Social & Governance
Review of Operations
Reserves
Licence Holdings
Financial Review
1
2
4
6
8
10
12
18
19
20
Board of Directors
Directors’ Report
Corporate Governance
Directors’ Responsibilities Statement
Financial Statements
Independent Auditor’s Report
Primary Financial Statements
Notes to the Financial Statements
Other Information
Glossary
Corporate Information
28
30
32
46
47
56
60
96
97
Produced by Communiqué Associates Limited, Edinburgh +44 7802 349934
DELIVERING
ENERGY
ANNUAL REPORT 2021
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