SERICA ENERGY PLC
2023
ANNUAL REPORT AND ACCOUNTS
Company Number: 5450950
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CHAIRMAN’S STATEMENT
Dear Shareholder
Without doubt times are currently difficult for independent oil and gas companies working
in the UK. However, I am pleased to say that Serica is no ordinary company, and it is
strong and well equipped to withstand the current headwinds. The purpose of the Company
remains to contribute responsibly towards meeting the world's energy needs through the
safe and efficient production of hydrocarbons. Its Board is resolute that it will stay focussed
on responsible capital allocation to invest prudently in our business whilst also delivering
increasing returns for shareholders over time. We do this by investing in our mid to late
life assets, optimising them and extending their lives, while seeking opportunities to
further add value through operationally and financially accretive acquisitions. Given the
significant fiscal uncertainty driven by both major political parties in the UK, we have
stepped up efforts to identify attractive opportunities to apply our approach in the broader
North Sea region.
2023 in Overview
In operational terms, 2023 was another year of sound progress at Serica. Notwithstanding
an unexpectedly long summer maintenance shut down, we again delivered within the
range of our production guidance, and more than replaced production for the 6th year in
succession.
The troubling developments in 2023 (and sadly again in 2024) came from Westminster.
First, the Government elected to keep its supposed ‘Windfall’ Profits Tax in place long after
any possible justification for it based on oil and gas prices had disappeared and then most
recently in the Spring budget announced that they would extend it by a further year to
2029. Second, the Labour Party announced that, if elected to Government, they would not
only increase the rate of the tax to 78% but also significantly reduce the amount of capital
relief on investment as compared to the current regime. Uncertainty caused by political
short termism risks killing off investment across the UK sector of the North Sea and with
it the associated high-quality jobs this creates throughout the UK. It would seem that the
established policy of maximising the economic recovery of the UK’s remaining reserves of
oil and gas in support of the energy transition has been abandoned. Instead, our politicians
appear to have embarked on a race to the bottom with policy aimed at maximising the
near-term Government take, notwithstanding that this will necessarily accelerate both
production decline and the timing of decommissioning, which in turn will inevitably reduce
Government overall receipts from UKCS and serve only to increase imports of oil and gas
to the UK. Imported production can easily be interrupted, pays no UK taxes, sustains no
UK jobs, and often involves greater carbon emissions. This policy volte face is a sad
demonstration of the elevated level of UK political risk which our industry now faces and
has necessarily caused all companies operating on the UKCS, including Serica, to
reconsider their UK investment plans.
Significant Developments in 2023
The acquisition of Tailwind Energy was completed in March. Amongst other benefits flowing
from this acquisition, our portfolio of producing assets became more evenly balanced
between oil and gas, which had the consequence (consistent with one of our objectives
from the Tailwind transaction) of reducing the impact of falling gas prices through the year
– a trend which has continued into 2024. Serica also signed an innovative deal to add to
our resource hopper by farming into Jersey Oil and Gas’s project to redevelop existing
discovered resources in the Buchan field. We will be continuing to work this pre-sanction
opportunity with our partners in the field during 2024. At the same time, our team
supplemented by the expertise of our new former Tailwind colleagues, continued to identify
opportunities to invest in our existing assets, providing significant additions to our oil and
gas reserves in both our hubs, and so providing potential to defer decommissioning
activities.
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The Company’s Finances
Serica’s finances remain strong despite reduced commodity prices and the impact of
unwelcome high tax rates, with revenues of £633 million (£812 million in 2022). Group
Profit before taxation for 2023 amounts to £306 million (£488 million in 2022). After
providing for the impact of materially increased taxes, profit after tax for 2023 was £103
million (£178 million in 2022). Furthermore, the Company retains the confidence of major
financial institutions and hence was able to raise significant support in the form of a new
US$525 million reserve-based loan facility completed in January 2024. This loan facility,
together with our existing cash balances, provide us with flexibility for capital allocation in
line with our stated strategy of investing in our assets, disciplined M&A and ensuring robust
shareholder distributions.
Outlook and Policy
Notwithstanding the current political turbulence, Serica will continue to seek ways to invest
in our UK assets where we believe such investments will create value for our shareholders.
Given our operational skills and very low exposure to decommissioning cost (our liabilities
are among the lowest in the UKCS), we are better placed to do this than most. However,
our ambitions for increased shareholder value are far greater than simply maximising
returns from our current portfolio of assets. If good opportunities for increased value
should arise in the UK of course we will not ignore them, but in the current circumstances
we must consider other alternatives. Hence the Board has now refocused and increased
its search for projects outside the UK where we believe we can deploy our skillsets to
deliver increased shareholder value. We are currently focussed on identifying attractive
opportunities in the broader North Sea region beyond the UK. However, we will remain
disciplined and will only invest in projects or make acquisitions where we are confident
that they will deliver increased value and returns for shareholders.
Shareholder Distributions
The Board of Serica is committed to a shareholder distribution policy which reflects the
underlying performance and ambitions of the Company and so provides a good return to
shareholders whilst also leaving room for investment in continuing asset growth. The total
dividend for 2022 was 22 pence per share returning £76 million to shareholders. In
November 2023 we paid an interim dividend of 9 pence per share. Subject to approval of
shareholders at the Annual General Meeting in June 2024, we are proposing a final
dividend of 14 pence per share, bringing the total dividend for the year to 23 pence per
share. In addition, in response to the Board’s view on the intrinsic value of the Company,
we are today announcing a Share Buyback programme which will contribute to the
shareholder distributions in respect of 2024.
Board and Management Changes
In February 2024, after many years of exemplary service within the Company and having
played a leading role in the structuring and closing of the BKR acquisition, Andy Bell
retired. I was then delighted to welcome Martin Copeland to the Board as the new Chief
Financial Officer. Martin has a wealth of highly relevant experience in the banking and M&A
sectors and is a fine addition to the team. We are extremely grateful that Andy has stayed
on to provide support to ensure a smooth transition of the CFO role.
Also in January, we announced that Mitch Flegg will step down from his role as CEO in
April following publication of the 2023 results. Mitch is leaving the Company later this year
after the AGM with our heartfelt thanks for all his excellent work over his six years as CEO
and before that as COO. Amongst his many achievements, Mitch successfully managed
the integration of the BKR assets and led the acquisition and integration of Tailwind in
2023. He will leave a Company in robust health positioned for future growth.
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As previously announced, upon Mitch’s departure I will move into the role of interim CEO
during the search to identify and appoint a permanent CEO to lead the next phase of the
Company’s development.
After six years on the Serica Board, Malcolm Webb our Senior Independent Director, has
informed the Board of his wish not to stand for re-election at the AGM. As chair of the
Nominations Committee, Malcolm will continue to lead the CEO recruitment process which
is now at an advanced stage. It is anticipated that an announcement on the conclusion of
this process will be made by the time of the AGM in June. The Board is very grateful for
Malcolm’s considerable contribution to the transformation of the Company over the last
several years.
I wish to take this opportunity to record a special tribute to Tony Craven Walker, who
retired as Chairman of the Board in June 2023. Tony is a legendary figure in the industry
and the effective founder and creator of Serica as we know it today. It is not an
overstatement to say that without Tony, Serica would not have survived, let alone thrived
as it has. His was the inspiration behind the Erskine deal and the genius and determination
behind the company-making BKR acquisition. But above and beyond all that, Tony inspired
the commercial, operational and corporate aspirations of our Company. We continue to
aspire to the high standards that he set. We are also so very pleased and honoured that
he remains a substantial shareholder in the Company.
Finally, and on behalf of the Board I extend thanks to the Serica team, especially to all
employees, whether based in Aberdeen, London or Offshore, for their efforts throughout
the last year and the enthusiasm and professionalism which they bring to their work every
day. Thanks also to colleagues working alongside us in our supply chain, whose partnership
is a vital element of our continued success. And, last but not least, a thank you to all
shareholders for your investment in and support for our Company, which I can assure you
is greatly appreciated and which I and all at Serica will do our very best to justify.
David Latin
Chairman
23 April 2024
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STRATEGIC REPORT
The following Strategic Report of the operations and financial results of Serica Energy plc
(“Serica”) and its subsidiaries (the “Group”) should be read in conjunction with Serica’s
consolidated financial statements for the year ended 31 December 2023.
References to the “Company” include Serica and its subsidiaries where relevant. All figures
are reported in GB Sterling (“£”) unless otherwise stated.
The Company is subject to the regulatory requirements of AIM, a market of the London
Stock Exchange in the United Kingdom. Although the Company delisted from the Toronto
Stock Exchange (“TSX”) in March 2015, the Company is a “designated foreign issuer” as
that term is defined under Canadian National Instrument 71-102 - Continuous Disclosure
and Other Exemptions Relating to Foreign Issuers.
Serica is an independent oil and gas company with production, development and
exploration interests in the UK Continental Shelf.
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CEO’s REVIEW
During 2023, Serica grew and diversified its business through acquisition, maintained its
record of reserves replacement and prepared for significant new well programmes linked
to its existing fields and infrastructure. These investments, to be carried out over the next
twelve months, offer the prospect of additional near term production with minimal
additions to total operating costs and carbon emissions.
In addition, the new financing facility brings increased capacity with duration extended to
end 2029, strengthening Serica’s capability to pursue further growth.
The acquisition of Tailwind Energy Investments Ltd, was completed in March 2023 and has
provided operational diversity and scale for Serica. The net proforma production from the
combined portfolio for 2023 was 40,121 boe/d, which was split 56% gas and 44% oil. This
split between oil and gas is far more balanced than in 2022 when Serica’s production was
91% gas.
Market benchmark gas prices were significantly reduced at an average of 99p/therm in
2023 compared with 198p/therm in 2022 (and have fallen to an average of only 69p in
the first quarter of 2024). Oil prices were more resilient averaging US$83/bbl (US$101/bbl
in 2022).
The Tailwind assets have therefore provided Serica with substantial protection against the
significant fall in gas prices. 86% of Serica’s production is operated and the Bruce, Keith
and Rhum contribution is now around 50% of net production rather than 80% prior to the
Tailwind transaction.
Serica has maintained its record of more than replacing reserves since 2018 with net
Proved plus Probable (“2P”) reserves on 31 December 2023 of 140 million boe, up 10
million boe from 130 million boe at 31 December 2022 despite producing 14.6 million boe
in 2023 on a proforma combined Serica and Tailwind basis. This addition of 24 million boe
during 2023 represents a reserves replacement ratio of 179% with over 90% of the 2P
reserves in fields that are already in production.
The Company is therefore continuing with its growth strategy of investment in projects
designed to enhance and extend future production profiles. The Tailwind portfolio came
with several short-cycle, highly value-adding opportunities which were matured in 2023
and will be exploited by our ongoing four well drilling programme which is also being
undertaken with the benefit of the current capital allowances and with the resultant
production sheltered by the ring-fence tax losses we acquired with Tailwind. This comprises
wells on Bittern, Gannet E, Guillemot NW and Evelyn. We are now anticipating a fifth well,
on the Belinda development, pending final NSTA approval of the field development plan.
Following the success of last year’s Light Well Intervention Vessel (“LWIV”) programme on
Bruce, a second campaign was executed in 2023, and a third campaign is now ongoing.
The common theme amongst these capital projects is that they are all designed to add
production quickly from existing fields without the requirement for substantial new
infrastructure. We continue to focus on emissions reduction whilst maximising production.
Carbon intensity (emissions divided by production) from the Bruce hub for 2023 was
16.4kg CO2/boe, significantly lower than the average for offshore UK Facilities of 19.8 kg
CO2/boe1. The absolute level of CO2 emissions is approximately 27% lower than the 2018
benchmark levels. On Triton, the 2023 carbon intensity was 20.6kg CO2/boe, which
represents a reduction of roughly 20% from 2022. As new production from Serica’s
1 2022 NSTA Emissions Monitoring Report (2023 numbers not yet published)
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forthcoming drilling campaign will be tied back to existing offtake facilities, such additions
add reserves without adding significant carbon emissions.
The UK remains heavily reliant on energy imports; our energy production is only 60% of
demand and oil and gas comprise three quarters of our energy use. The growth of offshore
wind, hydrogen and CCS will underpin the UK’s net zero emissions future, but oil and gas
will provide the bridge to that future.
Energy prices have fallen back to pre-crisis levels and are showing greater stability. This
leads to lower costs for homes and businesses and lower overall inflation. The UK Energy
Profits Levy (“EPL”) has a significant impact on post-tax profitability for all UK oil and gas
producers. The EPL is a wholly unwelcome burden that is already leading to the delay and
cancellation of longer-term investment projects across the sector. Current oil and gas
prices do not represent windfall conditions for UK producers and the increased tax burden
on domestic oil and gas production is damaging for UK jobs.
However, the substantial tax losses acquired with the Tailwind transaction have had the
effect of lowering Serica’s effective rate of taxation and so we are still attempting to add
investment opportunities to the portfolio. In October we announced the award of Block
29/2a containing the decommissioned Kyle oil field. This field ceased production in June
2020 and the host FPSO at the time was subsequently removed. During an initial two-year
licence period, Serica will carry out studies to determine the feasibility of re-developing
the Kyle field by means of a subsea tie-back to the Triton FPSO vessel via the Bittern field
facilities.
In November we announced the acquisition of a 30% non-operated interest in the Greater
Buchan Area from Jersey Oil & Gas (“JOG”). The partners in the project are Serica Energy
(UK) Limited (30%), NEO Energy (50% and operator) and JOG (20%). This provides Serica
with the option of participating in the re-development of the Buchan field (formally re-
named ‘Buchan Horst’) and other potential projects in the GBA, such as the development
of the J2 and Verbier discoveries.
Given the challenging UK fiscal regime we continue to seek M&A opportunities elsewhere
in the North Sea. For example, Norway offers a wide range of sub-surface opportunities
and a relatively stable fiscal regime but less deal flow than UKCS. We are adopting a
disciplined and patient approach exploiting Serica’s technical skills, financial capacity and
relationships.
Finally, this is my last ‘CEO Review’, and I would like to take the opportunity to thank
everyone who has helped build Serica into what it is today. The support of shareholders,
analysts, regulators, and contractors has been outstanding, but it is the efforts and skills
of the exceptional workforce that has established a company with such strong operational
and financial foundations. Serica is extremely well placed to continue its growth trajectory.
Mitch Flegg
Chief Executive Officer
23 April 2024
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ACQUISITION OF TAILWIND ENERGY INVESTMENTS LTD
On 23 March 2023 Serica Energy completed the acquisition of Tailwind Energy Investments
Ltd, a privately owned independent oil and gas company with assets in the UK North Sea.
As part of the transaction, Mercuria - an investor in Tailwind - became a strategic investor
in Serica.
The assets acquired by Serica with the Tailwind transaction comprise primarily a mix of
operated and non-operated producing fields tied-back to the Triton FPSO in the UK Central
North Sea. Tailwind’s interests in producing fields also include 100% in the Orlando field
located in the UK Northern North Sea and a non-operated 25% in the Columbus field in
the UK Central North Sea (operated by Serica).
The acquisition of Tailwind was aimed at achieving Serica’s longstanding objective to have
a more diverse and broadly based UKCS portfolio of producing fields, with material
reserves and value upside potential, coupled with a more balanced exposure to commodity
price risk. The transaction represents substantial progress towards this objective with the
number of producing fields increased from five to eleven, mainly centred around two hubs
(Bruce and Triton), a substantial increase in 2P reserves (combined 130.4 million boe as
at 31 December 2022) and a balance of gas and oil production.
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REVIEW OF OPERATIONS
Production
Northern North Sea: Bruce Field – Blocks 9/8a, 9/9b and 9/9c, Serica 98% and operator
Serica operates the Bruce field and facilities consisting of three bridge-linked platforms,
wells, pipelines and subsea infrastructure. The platforms contain living quarters, reception,
compression, power generation, processing and export facilities and a drilling derrick that
is currently mothballed. There is also the subsea Western Area Development (“WAD”) that
produces from the western part of the Bruce field and is tied back to the existing facilities.
Bruce production is predominantly gas which is rich in liquids. Gas is exported through the
Frigg pipeline to the St Fergus terminal, where it is separated into sales gas and NGLs. Oil
is exported through the Forties Pipeline System to Grangemouth.
In the first half of 2023 Serica completed the replacement and upgrade of the control
system for the Bruce platform, increasing the amount of data that can be captured and
processed, helping us to unlock the ability to implement AI based improvements to our
control, monitoring and maintenance activities.
We also successfully carried out the replacement of the subsea control modules on the
WAD manifold to support the LWIV activity which took place in Q3 2023 and which will
support ongoing LWIV activities in the future.
On the platform topsides a series of surveillance and intervention activities were
undertaken on a number of the Bruce wells, verifying well integrity, identifying future
production options and implementing several simple interventions to boost production.
Major works were undertaken during the summer outage to replace the main platform
flare tip, 140 metres above the sea surface requiring a heli-lift, along with major overhauls
of the glycol system and a booster compressor. The extensive maintenance campaigns
were all integrity and reliability focussed helping to underpin the plans to extend Bruce
production to 2035+. The programme duration was extended to approximately two
months following inspection findings on the flare tower during the planned work. The
decision was taken to carry out permanent rather than temporary repairs. These repairs
at height were hampered by bad weather, delaying the return of Bruce and Rhum to
production.
The 2023 LWIV campaign comprised work on the Bruce M3, M6 and M4 wells including
scale removal, water shut-off, reperforation and the addition of new perforations. The
programme was successfully executed boosting overall Bruce production capability. A
further LWIV campaign, covering two Bruce wells, commenced in April 2024.
Bruce field production in 2023, which averaged circa 6,500 boe/d of oil and gas net to
Serica (2022: 6,900 boe/d) was impacted by the extended summer shut-in.
An independent reserves report by RISC estimated 2P reserves of 41.7 million boe net to
Serica as of 1 January 2024 (2023: 31.8 million boe). This represents a significant uplift
in reserves compared to year end 2022 and not withstanding 2023 production. This is
predominantly attributed to the maturation of the South Central East infill well from
contingent resources, the inclusion of an 8 well platform intervention campaign for 2024
and also a performance uplift observed in certain producing wells. This was partially offset
by deferral of the Bruce enhanced recovery project so as to prioritise these other projects.
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Northern North Sea: Keith Field – Block 9/8a, Serica 100% and operator
Keith is an oil field produced by one subsea well tied back to the Bruce facilities and
requires very little maintenance. In normal operation Keith produces at a relatively low
rate but provides a low-cost contribution to the oil export from Bruce. The well has been
shut-in since 2022 due to a fault in the electrical supply.
During 2023 the Keith subsea control module was changed out to allow the planned LWIV
intervention in Q2 2024 to restore production from the field.
An independent reserves report by RISC estimated 2P reserves of 3.2 million boe net to
Serica as of 1 January 2024 (2023: 2.4 million boe). These reserves are based upon the
2023 activities and planned LWIV programme in Q2 2024.
Northern North Sea: Rhum Field – Blocks 3/29a, Serica 50% and operator
The Rhum field is a gas condensate field producing from three subsea wells tied into the
Bruce facilities through a 44km pipeline. Rhum production is separated into gas and oil
and exported to St Fergus and Grangemouth along with Bruce and Keith production. Rhum
gas has a higher CO2 content than Bruce gas and so is blended with Bruce gas before
leaving the offshore facilities.
A new power umbilical was installed on the R1 well in March 2023 and further works to
remove power supply vulnerabilities to Rhum were carried out in the summer. Topsides
works in the first half of the year increased the throughput limits of the Rhum separator
creating more capacity for any future production increases.
Average Rhum field production in 2023 was circa 12,500 boe/d net to Serica compared to
15,700 boe/d for 2022, largely reflecting the impact of the extended summer maintenance
shut-in.
An independent reserves report by RISC estimated 2P reserves of 39.2 million boe net to
Serica as of 1 January 2024. The uplift in reserves compared to 36.4 million boe at year
end 2022, and notwithstanding 2023 production, is predominantly attributed to the
inclusion of a planned project later in field life to convert compression on the Bruce
platform to low pressure operations.
Northern North Sea: Orlando Field – Block 3/3b, Serica 100% and operator (acquired from
Tailwind)
Serica is operator of Orlando which is an oil field producing from a single subsea well tied
into the Ninian Central facilities through an 11km pipeline. Orlando production is separated
into gas and oil, with oil exported to the Sullom Voe Terminal and gas used by the Ninian
operator as fuel on the platform.
Orlando produced steadily in 2023, following a workover in 2022 to replace the dual
electric submersible pumps. During 1H 2023, there were some minor outages for repairs
to some topsides electrical cables.
Average Orlando field production in 2023 was circa 3,500 boe/d including downtime.
Average net production for the post-Tailwind acquisition period from 23 March to 31
December was 3,540 boe/d.
An independent reserves report by RISC estimated 2P reserves of 2.4 million boe net to
Serica as of 1 January 2024 compared to 3.4 million boe reported by ERCE in an
independent reserves report for Tailwind at end 2022.
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Northern North Sea: Mansell – Block 3/8g, Serica 100% and operator (acquired from
Tailwind)
The Mansell discovery is located in licence P2448 in UKCS Block 3/8g south and east of
the Ninian field. Mansell was discovered by well 3/8b-10, drilled by BP in 1985, and
following successful appraisal was developed as a subsea tieback to the Ninian South
Platform and produced between 1992 and 1995 (field was then named Staffa). The field
was shut in 1995 following waxing-up of the flowline and decommissioned. The Mansell
field has 2C contingent resources of 8.3 million boe net to Serica. An extension of 2 years
was awarded by the NSTA in February 2023 to allow sufficient time to evaluate the
feasibility and timing of a redevelopment.
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Central North Sea
Central North Sea: Triton Area - Bittern 64.63%, Evelyn 100%, Gannet E 100%, Guillemot
West & North West 10%, Belinda 100% (Serica % shares all acquired from Tailwind)
The Triton Area consists of eight producing oil fields Bittern, Evelyn, Gannet E, Guillemot
West and Guillemot North West, Clapham, Pict and Saxon. Serica holds equity in five as
listed above, as well as the undeveloped Belinda field. The Triton area fields were
developed via common subsea infrastructure, located approximately 190km east of
Aberdeen in water depths of approx. 90 metres. The fields produce oil and gas via the
Triton Floating Production Storage & Offloading (“FPSO”) vessel. Dana Petroleum Limited
("Dana") and Waldorf Production UK Limited (''Waldorf'') are our partners in the Triton
cluster. Dana operate the Triton FPSO along with the Bittern, Guillemot West / North West,
Clapham, Saxon, and Pict fields. Serica is operator of the Gannet E, Evelyn and Belinda
fields, with Dana as pipeline operator and Petrofac as well operator.
Well GE04 on the Gannet E field was drilled and completed in Q4 2022 with a subsea tie-
in to the Triton system completed during early 2023. First oil was achieved on 14 February
2023, with initial rates around 9,000 boe/d. By the end of 2023, the well had produced a
total of approx. 1.34 million boe with a year-end exit rate of 6,000 boe/d.
From early July to mid-September 2023, Dana carried out an extended shutdown on
Triton, supported by a six month walk-to-work campaign, which involved a vessel
stationed alongside Triton to provide additional personnel on site during the fair-weather
summer months so enabling additional work scopes. Critical activities completed were
fabric maintenance work scopes integral to the life extension of Triton, completion of
structural repairs, an upgrade to the Guillemot West separator and successful repair to the
Bittern water injection pipeline. Further work was completed on the distributed Triton
control system, which is planned to have been replaced fully by the end of 2024, following
replacement work which was phased across the 2022 and 2023 shutdowns. The length of
the 2023 summer shut-down was extended to carry out an essential repair on a piece of
equipment identified during a pre-production inspection, a seawater lift pump failure and
initial difficulties operating the upgraded FPSO control systems. These issues were each
successfully resolved.
Production from Gannet E and Evelyn averaged 6,100 boe/d and 3,800 boe/d respectively
(Serica net) in 2023. Bittern field production was steady at rates averaging circa. 4,000
boe/d (Serica net) and Guillemot West / North West at circa. 250 boe/d (Serica net). Triton
gross peak rates exceeded 30,000 boe/d in March 2023 for the first time in 10 years. Two
Guillemot West well workovers were completed in July 2023 and came on stream
averaging 3,200 boe/d gross (320 boe/d Serica net).
A four well programme is planned for execution in 2024 and has already started with the
Bittern B1z sidetrack. This will be followed by the Gannet E fifth well, a Guillemot North
West infill well and an Evelyn second well. These wells will be drilled using the COSL
Innovator semi-submersible rig.
In April 2024 Serica took a final investment decision on the Belinda development. Consent
to the project has been received from OPRED and NSTA approval of the final Field
Development Plan (“FDP”) is expected shortly. Serica proposes to use the COSLInnovator
to drill the Belinda development well during 1H 2025 having exercised the option for an
additional 5th well in the current Triton area drilling campaign in September 2023.
Serica’s average net share of Triton Area production in 2023 was circa 14,150 boe/d of oil
and gas. Average net production for the post-Tailwind acquisition period from 23 March to
31 December 2023 was 13,120 boe/d.
An independent reserves report by RISC estimated 2P reserves of 49.2 million boe net to
Serica as of 1 January 2024 compared to 49.4 million reported by ERCE in an independent
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reserves report for Tailwind at end 2022. The uplift in reserves compared to the prior year,
after taking account of 2023 production of approx. 5.2 million boe, is predominantly
attributed to the transfer of volumes associated with the Belinda development from
contingent resources to reserves and better than expected performance from the fourth
production well on the Gannet E field which came into production during 2023.
Central North Sea: Erskine Field – Blocks 23/26a (Area B) and 23/26b (Area B), Serica
18%
Serica holds a non-operated interest in Erskine, a gas and condensate field located in the
UK Central North Sea. Serica’s co-venturers are Ithaca Energy 50% (operator) and
Harbour Energy 32%.
The Erskine field has five production wells and produces oil and gas over the Erskine
normally unattended installation. This is transported via a multiphase pipeline and
processed on the Lomond platform which is 100% owned and operated by Harbour. Then
condensate is exported down the Forties Pipeline System via the CATS riser platform at
Everest and gas is exported via the CATS pipeline to the terminal at Teesside.
In 2023 Erskine produced steadily from the four currently available wells. Topsides
surveillance of the W1 well was undertaken in Q3 2023 in readiness for carrying out a
MODU (semi-submersible) rig-based intervention in 2024 to return the well to production.
The regular pigging programme on the condensate export line has continued and no
indications of wax build-up have been seen.
Erskine production levels in 2023 averaged 1,325 boe/d net (2022: 1,680 boe/d).
An independent reserves report by RISC estimated 2P reserves of 2.2 million boe net to
Serica as of 1 January 2024 (2023: 3.3 million boe).
Central North Sea: Columbus Field – Blocks 23/16f and 23/21a (part), Serica 75%
Serica Energy (UK) Limited is Operator with its partner Waldorf Production Limited
(“Waldorf”) (25%). Following the acquisition of Tailwind Mistral Limited by the Serica group
on 23 March 2023, the Serica group’s net interest in Columbus increased from 50% to
75%.
The Columbus field development consists of a single horizontal well which runs along the
central axis of the reservoir and was drilled in the spring of 2021 with production
commencing in November 2021. Columbus is a gas condensate field.
The well is connected to the Arran export pipeline through which Columbus products are
exported along with Arran field production. When production reaches the Shearwater
platform, it is separated into gas and condensate. The gas is exported to St Fergus via the
SEGAL line and the condensate to Cruden Bay via the Forties Pipeline System.
Average net Columbus production of gas and condensate in 2023 for Serica’s combined
75% interest was c. 2,180 boe/d (2022: 1,900 boe/d for 50% interest). Average net
production for the Group’s combined 75% interest in the post-acquisition period from 23
March to 31st December 2023 was c. 2,085 boe/d.
An independent reserves report by RISC estimated 2P reserves of 2.4 million boe net to
Serica’s 75% field interest as of 1 January 2024 (2023: 1.1 million boe for 50% interest,
equivalent to 1.7 million boe on a 75% basis). The uplift in reserves compared to the prior
year, and before 2023 production is taken into account, is predominantly attributed to
better than expected performance from the Columbus well.
- 13 -
Outer Moray Firth
Outer Moray Firth: Buchan Horst Field – Blocks 20/5a, 205d, 21/1d & 21/1a. Serica 30%
In November 2023 Serica announced the acquisition of a 30% working interest in the
Greater Buchan Area (“GBA”) licences P.2498 and P.2170 with co-venture partners Jersey
Oil and Gas (20%) and NEO Energy (50% and operator). The GBA encompasses several
oil and gas accumulations some 150 km north-east of Aberdeen. The largest of these
accumulations is the Buchan Horst field which produced for over thirty years, ceasing
production in 2017 owing to the end of the useable life of the floating production facility.
An FDP submitted to the NSTA for the re-development of the area assumes a new
production hub located at the Buchan Horst field utilising the FPSO vessel currently
operating on the UK Western Isles fields. This is planned to come off-station in the second
half of 2024.
A phased development is envisaged involving the re-development of the Buchan Horst
field in Phase 1 and the possible development of the J2 and Verbier discoveries in Phase
2. Mid-case contingent resources from the Buchan Horst field alone are estimated to be in
region of 70 million boe gross, making it the third largest pre-development field on the
UKCS. Owing to the completion of the acquisition of the interest in GBA in February 2024,
contingent resource estimates have not been independently verified as part of the RISC
competent persons report for year-end 2023.
There are other discoveries and prospects in close proximity which may provide additional
tie-back opportunities to the FPSO. Subject to project sanction and regulatory approval,
the target for first production from Buchan Horst is Q4 2026.
UK Exploration
North Eigg and South Eigg – Blocks 3/24c and 3/29c, Serica Energy (UK) Limited 100%
and Operator
In December 2019, Serica was awarded the P.2501 Licence as part of an out of round
application comprising Blocks 3/24c and 3/29c including the North Eigg and South Eigg
prospects.
The 3/24c-6B North Eigg exploration well was drilled to a depth of 5,099 metres in the
Jurassic Heather formation, completing in early 2023. Following detailed interpretation of
the well results, Serica decided there was insufficient accessible oil to justify re-entering
the suspended well and drilling a sidetrack. After consultation with the NSTA, Serica
elected to go into the second term of the P.2501 Licence for the purpose of completing the
decommissioning of the North Eigg well. Only the area immediately around the well
necessary for the abandonment was retained with the remainder of the block being
relinquished. In late 2023 a vessel-based abandonment of the North Eigg exploration well
was completed and the licence will be relinquished in 2024.
Skerryvore and Ruvaal– Blocks 30/12c (part), 30/13c (split), 30/17h, 30/18c and 30/19c
(part), Serica Energy (UK) Limited: 20% working interest, operator Parkmead
The P2400 Licence was awarded in the 30th licence round in 2018. It is located in the
Central North Sea, 60km south of the Erskine field, and comprises blocks 30/12c, 30/13c,
30/17h and 30/18c. Current equity holders are Serica 20%, Parkmead 50% (operator)
and CalEnergy 30%. The licence is in phase C, which expires on 30 September 2025. The
licence terms include a commitment to drill a well to a depth of 3,500 metres or 200
metres into the Chalk Group, whichever is shallower, by the end of the current phase. The
Operator has proposed a vertical well targeting the Mey reservoir (primary target) and a
- 14 -
deeper Tor chalk reservoir (secondary target). Detailed planning is underway with a site
survey scheduled for Q3 2024 and drilling in 2025.
In the region around Skerryvore, Harbour is progressing with the Talbot development,
with drilling ongoing and first oil expected from Q3 2024. In a Skerryvore success case,
Talbot infrastructure could provide an export route via the Judy platform and the
subsequent export of produced hydrocarbons to Teesside, UK.
Licence Awards in the UK 32nd licensing round
The P2506 Licence was awarded to Serica 100% in the 32nd Licence Round in 2020 and
covered blocks in the greater Bruce/Rhum area. Following a detailed subsurface evaluation
in 2023, it was concluded that the prospectivity did not meet Serica’s investment criteria,
and the licence has now been fully relinquished with all work commitments fulfilled.
Licence Awards in the UK 33rd licensing round
On 30 October 2023 the Kyle licence in UK block 29/2c was provisionally awarded to Serica
(100%) and was formalised as licence P.2616 on 31 January 2024. Kyle is a previously
producing oil field, 20km southeast of Triton and represents a potential redevelopment
tie-back to existing Serica equity infrastructure. Studies are underway in order to
determine whether there is a viable project. There are no other work commitments.
This is a 'Straight to Second Term' licence and the work programme is already underway.
- 15 -
Group Proved plus Probable Reserves (“2P”)
Oil
mmbbl
Total oil and
gas1
mmboe
Gas
bcf
2P Reserves at 31 December 2022
18.7
337.4
76.9
Acquisitions2
2023 production2
Revisions
44.5
(4.9)
11.3
44.7
(42.9)
70.8
52.2
(12.3)
23.5
2P Reserves at 31 December 2023
69.6
410.0
140.3
1Group reserves at 31 December 2023 above show Serica net sales values which have been
converted to barrels of oil equivalent using a factor of 5.8 bcf per mmboe for reporting and
comparison purposes. Group reserves at 31 December 2022 were previously converted to barrels of
oil equivalent using a factor of 6.0 bcf per mmboe for reporting and comparative purposes. The
opening combined reserves figure for 31 December 2022 in the table above has been restated using
5.8 bcf per mmboe. As the actual calorific values of gas produced from individual fields varies,
reported production rates for each field and the total production and revisions numbers reported
above may not convert precisely.
2 Production from the Tailwind fields from the acquisition date of 23 March 2023 is included within
‘2023 production’.
Group Proved and Probable reserves at 31 December 2023 shown here are extracted from
an independent report prepared by RISC Advisory (“RISC”) in accordance with the reserve
definitions guidelines defined in SPE Petroleum Resources Management System 2018
(“PRMS 2018”).
Figures quoted relate to export fluids, so Fuel in Operation has already been subtracted.
- 16 -
LICENCE HOLDINGS
The following table summarises the Group's licences as at 31 December 2023.
Licence
UK
P.090
Block(s)
Description
Role
%
Location
9/9a Bruce
Bruce Field Production
Operator
99%
Northern North Sea
P.090
9/9a Rest of Block Excluding
Bruce (REST)
Development
Operator
98%
Northern North Sea
P.198
3/29a (ALL)
Rhum Field Production
Operator
50%
Northern North Sea
P.209
9/8a Bruce
Bruce Field Production
Operator
98%
Northern North Sea
P.209
9/8a Keith
Keith Field Production
Operator
100%
Northern North Sea
P.209
9/8a Rest of Block Excluding
Bruce and Keith (REST)
Development
Operator
98%
Northern North Sea
P.276
9/9b BRUCE
Bruce Field Production
Operator
98%
Northern North Sea
P.276
9/9c (ALL)
Bruce Field Production
Operator
98%
Northern North Sea
P.276
9/9b Rest of Block Excluding
Bruce Unit (REST)
Development
Operator
98%
Northern North Sea
P.566
3/29b (ALL)
Rhum Field non-unitised production Operator
100%
Northern North Sea
P.975
3/24b (ALL)
Rhum non-unitised production
Operator
100%
Northern North Sea
P.975
3/29d (ALL)
Rhum non-unitised production
Operator
100%
Northern North Sea
P101
23/21a Columbus
Columbus Development Area
Operator
75%
Central North Sea
P1314
23/16f
Columbus Development Area
Operator
75%
Central North Sea
P57
23/26a Area B
Erskine Field – Production
P264
23/26b Area B
Erskine Field – Production
P264
23/26b Area C
Erskine Field – Production
P2400
30/12c, 30/13c, 30/17h,
30/18c
Exploration
Non-
operator
Non-
operator
Non-
operator
Non-
operator
18%
Central North Sea
18%
Central North Sea
40%
Central North Sea
20%
Central North Sea
P2501
3/24c, 3/29c
Exploration
Operator
100%
Northern North Sea
P215
21/29b
Guillemot W
P233
29/1a Bittern
P361
29/1b
Bittern
Bittern
Non-
Operator
50%
Central North Sea
Operator
100%
Central North Sea
Non-
Operator
29.26% Central North Sea
- 17 -
P13
21/30c A
P13
21/25a UPPER , 21/30a
UPPER
P1606
3/3b
Gannet E
Gannet E
Orlando
Operator
100%
Central North Sea
Non-
operator
50%
Central North Sea
Operator
100%
Northern North Sea
P1792
21/30f
Evelyn/Belinda
Operator
100%
Central North Sea
P2170
20/5b, 21/1d
Greater Buchan Area
Non-
operator
30%
Central North Sea
P2448
3/8g
Mansell/Staffa
Operator
100%
Central North Sea
P2498
20/5a, 20/5e, 21/1a
Greater Buchan Area
Non-
operator
30%
Central North Sea
P2616
29/2c
Kyle
Operator
100%
Central North Sea
- 18 -
FINANCIAL REVIEW
SUMMARY OF 2023 FINANCIAL RESULTS
In addition to continuing strong performance from its existing assets, Serica’s 2023 results
benefitted from inclusion of net production and income from the Tailwind field interests
from the acquisition completion date of 23 March 2023 to the year end. In order to provide
a more representative picture of the enlarged group, unaudited proforma information (“PF
2023”) in relation to volumes, revenues and costs including contributions from the Tailwind
assets for the full calendar year, has been included in this Financial Review.
Further analysis of the summary metrics provided in the Summary Financial Information
table below is detailed in the following pages of this Financial Review.
Incorporating the business assets from the Tailwind acquisition, Serica today has a
balanced mix of oil and gas and greater production resilience arising from a wider asset
spread. The Group balance sheet at 31 December 2023 reflects the full set of assets and
liabilities arising from the business combination, which include a reserve-based lending
(“RBL”) facility assumed through the Tailwind acquisition, which has subsequently been
refinanced as a post Balance Sheet event.
Market sales prices for oil and, to a greater extent, gas were lower than for the 2022 year
with NBP gas prices averaging 99p/th (2022: 198p/th) and Brent crude averaging
US$83/bbl (2022: US$101/bbl). Total operating costs increased broadly in line with
production volumes but with an additional impact from inflation over the year. Importantly
FY 2023 saw the full impact of the EPL with a marginal ring-fence aggregate tax rate of
75% as compared to 40% for the initial months of 2022, increasing to 65% for the period
from 26 May 2022.
Serica generated EBITDAX of £381.0 million compared to £616.5 million for 2022 and a
profit before taxation of £305.6 million for 2023 compared to £488.2 million for 2022.
- 19 -
Summary Financial InformationUnitsPF 2023FY 2023FY2022Production and pre hedging, post contract sales realised pricesProductionkboepd40.135.226.2Sales volumesmmboe14.212.39.3Natural Gas (net of NTS system charges)p/th94.393.3160.0Crude Oil$/Bbl67.570.597.2NGLs£/MT364363480Income StatementRevenue£ million728633812EBITDAX(1)£ millionn/a381617Profit before taxation£ millionn/a306488Profit after taxation£ millionn/a103178Basic earnings per sharepencen/a2965Other key financial figuresCapital expenditure(1)£ million7998Operating cashflow£ million378705CFFO less current tax(1)£ million195427Dividends paid£ million8946Adjusted Net Cash / (Debt)£ million78433(1) See Reconciliation of non-IFRS measures for further detail
After current and deferred tax provisions of £202.6 million (2022: £310.4 million), profit
for the year was £103.0 million compared to £177.8 million for 2022.
Further detail is provided in the following sections.
Sales revenues
The total 2023 sales revenue of £632.6 million (2022: £812.4 million) included a
contribution of £242.6 million from the Tailwind assets from the acquisition date of 23
March 2023 (2022: £nil). Proforma 2023 sales revenue on the same basis would have
been £728.0 million.
Sales comprised gas revenue of £346.7 million (2022: £690.2 million), oil revenue of
£265.5 million (2022: £88.0 million) and NGL revenue of £20.4 million (2022: £34.2
million). The fall in gas revenue was driven by lower realised pricing compared to the
unprecedented highs of 2022 whilst the threefold increase in oil revenue reflected new
revenue streams from the oil-weighted Tailwind portfolio, offset partially by lower oil
prices.
Total product sales volumes for the year comprised approximately 371 million therms of
gas (2022: 432 million therms), 4.7 million lifted barrels of oil (2022: 1.1 million barrels)
and 56,312 metric tonnes of NGLs (2022: 71,290 metric tonnes). This amounted to
product sales as reported of 12.3 million boe or 14.2 million boe on a proforma basis
(2022: 9.1 million boe).
Average 2023 sales prices were: 93 pence per therm (2022: 160 pence per therm including
contract revenue) for gas net of NTS system fees, US$70.5 per barrel (2022: US$97.2 per
barrel) for oil and £363 per metric tonne (2022: £480 per metric tonne) for NGLs. Average
oil and gas sales prices reflect a mix of sales volumes sold at current spot prices and
volumes sold at contracted fixed prices (reflecting an embedded hedge for volumes sold
under such contracts) and are before realised hedging costs on gas price swaps.
Gross profit
The gross profit for 2023 was £306.6 million compared to £594.3 million for 2022. Overall
cost of sales of £326.1 million compared to £218.2 million for 2022. This comprised £218.7
million of operating costs (2022: £121.0 million) and £109.2 million of non-cash depletion
charges (2022: £76.9 million).
- 20 -
Revenue (pre hedging)UnitsPF 2023FY 2023FY 2022Total revenue£ million728 633 812 Gas Sales (incl contract revenue)£ million358 347 690 Crude Oil£ million349 265 88 NGLs£ million21 20 34 Operating costsUnitsFY 2023FY 2022Total operating costs£ million326 218 Field operating costs£ million219 121 Lifting costs£ million7 - DD&A£ million109 77 Movement in over / underlift£ million(9) 20 (1) See Reconciliation of non-IFRS measures for further detail
The increase in overall operating costs reflected higher production volumes for the
enlarged business. Operating costs as reported per boe were US$21 per boe, increased
from US$15.9 per boe for 2022 mainly due to the impact of the extended summer field
shut-ins which spread fixed costs over reduced production volumes and some underlying
cost inflation. Proforma operating costs, including the Tailwind assets from 1 January, were
lower at circa US$19 per boe. These increases were partially offset by a £9.3 million credit
representing an increase during the year of the liquids underlift position (2022: charge of
£20.3 million). The increase in total DD&A reflected the larger PP&E base following the
Tailwind acquisition.
EBITDAX, operating profit before net finance costs and tax
EBITDAX for 2023 was £381.0 million compared to £616.5 million for 2022 with the
reduction very much in line with lower commodity prices and revenues.
The operating profit for 2023 was £321.2 million compared to £476.2 million for 2022 and
includes a gain on acquisition of £34.0 million on the Tailwind transaction (2022: £nil).
Net hedging income of £4.8 million (2022: £24.5 million expense) comprised realised
hedging expense, primarily related to gas swaps, of £15.6 million during 2023 (2022:
£45.4 million expense) as well as unrealised hedging gains of £20.4 million (2022: gains
of £20.9 million), mainly arising from the movement in valuation of Serica’s 2022 year-
end gas swap position as it fully unwound during the year.
Contract revenue of £23.9 million (2022: £nil) arose from the partial unwind of an
underlying revenue offtake contract that was fair valued in connection with the Tailwind
acquisition (see note 16). An original liability of £54.2 million was recognised which is
released to the Income Statement across 2023 and 2024 as the underlying contract
unwinds.
Exploration expenses and asset write-offs totalled £10.8 million in 2023 (2022: £82.9
million) including final charges from the North Eigg exploration well.
Administrative expenses for 2023 of £19.6 million compared to £9.2 million for 2022 and
reflected the growth in activities of the Group arising following the Tailwind transaction
completion and the extension of activities that this entailed, but also some non-recurring
charges. In addition, transaction costs of £10.1 million (2022: £1.8 million) comprised
fees and other transaction costs associated with the acquisition of Tailwind.
Currency losses of £3.6 million (2022: gains of £3.9 million) largely arose on GBP-reported
US$ holdings as sterling strengthened compared to the US$ during 2023. Share-based
payments were £4.0 million (2022: £3.5 million).
- 21 -
Operating profit to EBITDAX(1)UnitsFY 2023FY 2022Operating profit£ million321 476 Add back DD&A£ million109 77 Add back E&E costs£ million11 83 Deduct Unrealised hedging£ million(20) (21) Deduct contract revenues£ million(24) - Add back / (deduct) transaction costs and other£ million14 (2) Add back share based payments£ million4 4 Deduct gain on acquisition£ million(34) -EBITDAX(1)£ million381 617 (1) See Reconciliation of non-IFRS measures for further detail
The gain on acquisition of £34.0 million (2022: £nil) represents the difference between
the fair value of assets acquired and consideration paid or potentially payable, calculated
in accordance with applicable accounting standards. Such calculations are complex and
involve a range of projections and assumptions related to future costs, production
volumes, sales prices, discount rates and tax.
Profit before taxation and profit for the period after taxation
Profit before taxation for 2023 of £305.6 million (2022: £488.2 million) took into account
a £7.6 million charge arising from an increase in the fair value of financial liabilities (2022:
£8.4 million credit), £13.5 million of finance revenue (2022: £4.5 million) and £21.5 million
of finance costs (2022: £0.9 million).
The total £7.6 million charge for financial liabilities included £5.9 million related to the
remaining BKR financial liabilities (2022 - £8.4 million credit) and £1.7 million for royalty
liabilities and other consideration (2022: £nil). The fair value of the liabilities is re-assessed
at each financial period end. The increase for the BKR liability arose from the unwinding
of discount and other timing revisions on the estimated amounts of those remaining
liabilities. The prior year credit reflected the impact of Serica’s plan for field life extension
on the BKR assets.
Finance revenue of £13.5 million (2022: £4.5 million) primarily represented interest
income earned on cash deposits and has increased following the recent rises in interest
rates during 2023 compared to 2022. Finance costs of £21.5 million (2022: £1.0 million)
included interest payable and other charges on the debt facility acquired with the Tailwind
acquisition in March 2023, the discount unwind on decommissioning provisions and other
minor finance costs.
The 2023 taxation charge of £202.6 million (2022: £310.4 million) comprised current tax
charges, including prior year adjustments, of £183.3 million (2022: £277.7 million) and a
deferred tax charge of £19.3 million (2022: £32.7 million). The reduction in current tax
charges mainly reflected lower net income and higher capital spend in 2023 as well as the
utilisation of brought forward tax losses within the acquired Tailwind business. The gain
on acquisition is a non-taxable accounting entry.
In addition to corporation tax and supplementary charge, 2022 and 2023 full year results
also include charges for the EPL. The EPL applied an additional 25% tax on profits earned
from the production of UK oil and gas from 26 May 2022, increasing to 35% effective 1
January 2023. The current tax charge includes EPL charges of £97.1 million (2022: £64.3
million).
Overall, this generated a profit after taxation of £103.0 million for 2023 compared to a
profit after taxation of £177.8 million for 2022. This resulted in an earnings per share of
£0.29 (2022: £0.65) after taking into account the weighted average number of ordinary
shares in issue.
- 22 -
Reported and Effective tax rate(1)UnitsFY 2023FY 2022Profit before tax£ million306 488 Current tax£ million183 278 Deferred tax charge£ million19 33 Tax charge for the year£ million203 310 Book tax rate%66%64%Effective tax rate(1)%48%45%Applicable ring-fence aggregate tax rate(1)%75%40% - 65%(1) See Reconciliation of non-IFRS measures for further detail
GROUP BALANCE SHEET
Serica retains a strong balance sheet following completion of the Tailwind acquisition
including remaining in a net cash position. This gives the Group flexibility in capital
allocation including the ability to fund its ongoing capital investment programmes whilst
supporting distributions to shareholders. Completion of a new financing facility to refinance
the RBL, assumed as part of the Tailwind acquisition following year end has further boosted
the Group’s resources as it seeks new acquisition and investment opportunities. The
balance sheet as at 31 December 2023 includes assets and liabilities from the acquired
Tailwind business.
Total property, plant and equipment increased from £265.9 million at year end 2022 to
£711.5 million at 31 December 2023. The main driver for the significant increase in the
balance is the fair value of £486.3 million attributed to the Tailwind assets upon
acquisition. The acquisition of Tailwind Energy Investments Ltd is classified as a business
combination and the calculation of fair value is carried out involving a series of judgements
and assumptions (see note 2 - Use of judgement and estimates and sources of estimation
uncertainty) in accordance with applicable accounting standards.
Net PP&E additions comprised capital expenditure during 2023 of £68.6 million across
various field assets. These included expenditure on the Bruce LWIV campaign and
preparations for the 2024 Triton area drilling programme. There were also increases from
decommissioning asset revisions of £16.0 million offset by depletion charges for 2023 of
£109.2 million (2022: £76.9 million), other depreciation charges of £0.2 million (2022:
£0.2 million) and currency translation adjustments of £16.0 million. Depletion charges
represent the allocation of field capital costs over the estimated producing life of each field
and comprise costs of asset acquisitions and subsequent investment programmes.
- 23 -
AssetsFY 2023FY 2022£ million£ millionE&E2 1 PP&E711 266 Deferred tax asset84 - Inventory11 4 Trade and other receivables139 135 Hedging Security- 24 DSA Security28 - Cash & cash equivalents263 433 Total Assets1,238 862 Equity and liabilitiesFY 2023FY 2022£ million£ millionEquity655 409 Borrowings213 - Provisions117 25 Deferred tax liability- 153 Financial liabilities73 54 Contract liabilities29 1 Tax payable54 150 Trade and other payables97 70 Total Equity and Liabilities1,238 862
The net deferred tax asset of £84.1 million at 31 December 2023 compared to a deferred
tax liability of £153.3 million at year end 2022, mainly as a result of the inclusion of
significant net deferred tax assets of £264.9 million in relation to the Tailwind acquisition.
This net deferred tax asset comprised the recognition in relation to tax losses and future
relief available on decommissioning, partially offset by deferred tax liabilities arising on
PP&E balances. Deferred tax liabilities arising upon the Group’s PP&E balances will be
released in future periods as those balances are depleted.
The inventories balance of £10.9 million at 31 December 2023 increased from £4.0 million
at the end of 2022 including £5.9 million for oil inventory held in the pipeline and terminal
for the acquired Orlando field. Trade and other receivables increased from £134.6 million
at the end of 2022 to £138.6 million at 31 December 2023.
Hedging security advances of £24.3 million at 31 December 2022 were recovered during
1H 2023 as all gas swaps and the majority of fixed forward contracts crystalised.
The decrease in cash balances from £432.5 million at 31 December 2022 to £263.5 million
at 31 December 2023 reflected cash flow from operations of £378.4 million mainly offset
by £279.5 million of UK tax payments, £88.8 million of dividend payments, capital
expenditures of £78.3 million, net cash outflows of £44.0 million on the Tailwind acquisition
(cash consideration net of cash and cash equivalents acquired), and £46.9 million
(US$58.8 million) on debt repayments in the post-acquisition period. Overall cash was
supplemented by Decommissioning Security Agreement (“DSA”) cash advances of £27.5
million at 31 December 2023 (31 December 2022: £nil) when cash security temporarily
lodged in respect of decommissioning obligations was released to Serica in 2024 when
replaced by security in the form of letters of credit as provided under the new financing
facility.
Current trade and other payables increased to £97.4 million at 31 December 2023 from
£69.9 million at the end of 2022. UK corporation tax payable of £53.7 million at 31
December 2023 (31 December 2022: £150.0 million) reflects liabilities for corporation tax,
supplementary charge and the EPL. The decrease over the year reflected the higher level
of taxable income in late 2022 and also the timing of initial payments under the EPL.
Derivative financial liabilities of £4.4 million at 31 December 2023 largely represent the
valuation of UKA Emission Trading Scheme (“ETS”) swaps in place at the period end
following the Tailwind acquisition. The 31 December 2022 liability of £24.9 million reflected
Serica’s gas swaps in place at that date which unwound during 2023.
Contract liabilities of £28.8 million reflect the outstanding portion of an underlying revenue
offtake contract that was fair valued in connection with the Tailwind acquisition (see note
16). An original liability of £54.2 million was recognised which is released to the Income
Statement across 2023 and 2024 as the underlying contract unwinds.
Financial liabilities of £68.6 million (31 December 2022: £29.4 million) are split between
current liabilities of £3.6 million (31 December 2022: £nil) and non-current liabilities of
£65.0 million (31 December 2022: £29.4 million). Non-current financial liabilities comprise
remaining deferred consideration projected to be paid under the BKR acquisition
agreements of £35.3 million (31 December 2022: £29.4 million) and royalty liabilities of
£29.7 million (31 December 2022: £nil) for amounts payable to third parties under the
terms of Triton asset acquisitions previously made by Tailwind. Current liabilities reflect
the final contingent consideration payment of shares issued in March 2024 in respect of
the Tailwind acquisition.
Provisions of £116.9 million (split current of £12.9 million and non-current of £103.9
million) predominantly relate to future decommissioning obligations. The significant
increase from the prior year balance of £25.2 million was largely due to £75.9 million of
balances within the Tailwind acquisition representing the net exposure retained by Tailwind
- 24 -
after reflecting the contractual undertakings in asset purchase agreements under which
the Tailwind field interests were acquired, increases of £16.4 million from revisions to
estimates in the year and a charge of £2.9 million from the unwinding of the discounts
applied. Increases were partially offset by currency translation adjustments and some
minor spend in the period.
Interest bearing loans of £213.0 million at 31 December 2023 (31 December 2022: £nil)
comprise the RBL facility assumed with the Tailwind acquisition. Amounts drawn in US
dollars under the facility at 31 December 2023 were US$271.2 million which are disclosed
as gross drawings as all remaining unamortised fees were expensed at year end given the
impending refinancing. The facility was US$330 million drawn at the date of acquisition
with net repayments of US$58.8 million made in the post-acquisition period to 31
December 2023. Although this facility was repaid and replaced by a new financing facility
in January 2024 it has been classified under non-current liabilities at year end 2023 as
there were no contractual obligations existing at the year end to make repayments within
one year.
Overall, net assets have increased from £408.7 million at year end 2022 to £655.3 million
at 31 December 2023.
The increase in share capital from £183.2 million to £192.9 million arose from shares
issued following the exercise of share options, shares issued under employee share
schemes and the nominal value of shares issued for the Tailwind acquisition, whilst the
increase in other reserves from £25.6 million to £29.6 million arose from share-based
payments related to share option awards. The merger reserve of £230.4 million in the
consolidated Group accounts arose in connection with the shares issued for the Tailwind
acquisition.
CASH BALANCES AND FUTURE COMMITMENTS
Current cash position and price hedging
At 31 December 2023 the Group held adjusted net cash of £78 million. This consisted of
cash and cash equivalents of £263.5 million (31 December 2022: £432.5 million) plus
£27.5 million of DSA cash advances net of the RBL drawings of £213 million (31 December
2022: £nil). The DSA cash advance of £27.5 million was temporarily lodged in respect of
decommissioning obligations and then released to Serica in 2024 when replaced by
security in the form of letters of credit as provided under the new financing facility.
Cash hedging security advances of £24.3 million that had been lodged with hedge
counterparties at 31 December 2022 as security against settlement of future gas hedge
instruments were fully recovered during the 1H 2023 period. Of total cash and cash
equivalents, £18.3 million was held in restricted accounts against letters of credit issued
in respect of certain decommissioning liabilities as at 31 December 2023 (31 December
2022: £18.1 million).
As at 22 April 2024, the Company held cash and cash equivalents of £264.7 million and
debt drawings of US$231 million (£186.7 million). This is after 2023 final tax payments of
£58.2 million, capital spend and drawings under the new finance facility totalling £9.7
- 25 -
Adjusted Net Cash / (Debt)FY 2023FY 2022£ million£ millionInterest bearing loans(213) - Cash & Cash Equivalents263 433 DSA Security28 - Adjusted Net Cash / (Debt)78 433
million to cover arrangement fees and other costs of the refinancing. This excludes approx.
£19 million of revenues from the March Triton oil lifting due for receipt on 1 May 2024.
Hedging
Serica carries out hedging activity to manage commodity price risk, to meet its contracted
arrangements under its RBL facility and to ensure there is sufficient funding for future
investments. At 31 December 2023 Serica held the following instruments:
Oil - fixed pricing under oil offtake agreements: for 2024 approximately 2.5 million barrels
at an average price of US$67 per barrel. These are applied to individual oil tanker liftings
from the Triton area FPSO and are expected to be fully utilised during 1H 2024.
UKA ETS - fixed price swaps for UKA ETS products consisting of 132,000 MT at £79.24/MT
for 2024. These are spread over 2024.
Since year end Serica has added further oil hedges plus some gas hedges. At 18 April
2024 Serica held the following commodity price hedges:
Field and other capital commitments
Serica’s planned 2024 investment programme includes a LWIV campaign on the Bruce and
Keith fields and a four-well drilling campaign in the Triton Area (Bittern B1z, Gannet GE-
05, Evelyn Phase 2 (EV02) and a Guillemot NW infill well). Potential further programmes
to enhance current production profiles and extend field life are under consideration but
will be reviewed carefully in the light of the uncertainty related to the UKCS fiscal regime.
In April 2024 Serica took a final investment decision on the Belinda development. Consent
to the project has been received from OPRED and NSTA approval of the final FDP is
expected shortly.
At 31 December 2023, the Group had commitments for future capital expenditure relating
to its oil and gas properties amounting to £214 million which relate primarily to the Triton
- 26 -
Oil HedgingGas HedgingUnitsQ1 2024Q2 2024Q3 2024Q4 2024Q1 2025Q2 2025Q3 2025Q4 2025Q1 2026Weighted average prices:Puts net$/Bbl68 68 Swap Price$/Bbl66 69 81 81 81 75 75 75 75 Collar floor$/Bbl- 68 68 68 69 68 68 69 Average Floor$/Bbl66 69 72 71 72 69 69 69 70 Collar Ceiling$/BblN/AN/A111 100 96 88 88 86 86 Puts'000 bpd3.0 2.0 Swaps'000 bpd12.8 14.6 2.0 2.0 2.0 0.8 0.8 0.8 0.8 Collars'000 bpd2.0 4.0 4.0 5.0 4.8 4.5 3.0 Hedged Volume'000 bpd13 15 7 8 6 6 6 5 4 Gas HedgingUnitsQ1 2024Q2 2024Q3 2024Q4 2024Q1 2025Q2 2025Q3 2025Q4 2025Q1 2026Weighted Average Prices:Swap Pricep/therm71 71 84 84 77 77 84 87 Collar floorp/therm80 80 70 70 80 80 Floor Averagep/therm- 71 71 82 81 74 74 83 84 Collar ceilingp/thermN/AN/AN/A120 125 115 115 130 130 Swaps'000 therms pd84 100 100 100 100 100 100 50 Collars'000 therms pd50 150 50 50 50 50 Hedged Volume000 therms pd- 84 100 150 250 150 150 150 100 Hedged Volume'000 boepd- 1 2 3 4 3 3 3 2
Area four well programme, the Bruce and Keith LWIVs, other capital works on Bruce,
Erskine, Arthur decommissioning and general exploration.
The Group’s only significant exploration commitment is a commitment well on Licence
P2400 (Skerryvore – Serica 20%) to be drilled before October 2025.
Cash projections are run periodically to examine the potential impact of extended low oil
and gas prices as well as possible production interruptions. Serica currently has substantial
net cash resources and relatively low operating costs per boe which means that the
Company is well placed to withstand such risks and its capital commitments can be funded
from existing cash resources.
OTHER
Asset values
At 31 December 2023, Serica’s market capitalisation stood at £898.5 million based upon
a share price of 229.6 pence which exceeded the net asset value of £655.3 million. By 22
April the Company’s market capitalisation had decreased to £764.1 million
- 27 -
BUSINESS RISK AND UNCERTAINTIES
Serica, like all companies in the oil and gas industry, operates in an environment subject
to inherent risks and uncertainties. The Board regularly considers the principal risks to
which the Group is exposed and monitors any agreed mitigating actions. The overall
strategy for the protection of shareholder value against these risks is to carry a broad
portfolio of assets with varied risk/reward profiles, to apply prudent industry practice, to
carry insurance where both available and cost effective, and to retain adequate working
capital.
Serica has built a strong working capital reserve which is available to respond to a range
of risks including production interruptions, severe commodity price falls and unexpected
costs. To supplement this the Company carries business interruption insurance to mitigate
the impact of ongoing operating costs over sustained periods of production shut-in beyond
an initial 60 days, where caused by events covered under such policies. The Company also
uses price hedging instruments to help manage field revenues where considered cost
effective and to meet minimum hedge requirements under its debt financing facility.
The introduction of the Energy Profits Levy in May 2022, increased and extended in
November 2022 and then extended again in March 2024, has increased the perceived risk
of continuing fiscal instability directed at UK oil and gas producers. Serica is monitoring
this situation and making representations to relevant authorities on the risks that this
presents to future UK investment in a critical national resource.
The principal risks currently recognised and the mitigating actions taken by management
are as follows:
Investment Returns: Management seeks to invest in a portfolio of oil and gas assets
and acreage capable of delivering returns to shareholders. This is principally conducted
through acquisitions of development or producing assets to which it can add further
value and through efficient operations and the addition of further commercial reserves.
Delivery of this business model carries a number of key risks.
Risk
Mitigation
Business conditions may deteriorate and
stock market support may be eroded,
lowering investor appetite and hindering
fundraising
• Management regularly
communicates its strategy to
shareholders
• Focus is placed on building a
Each investment carries its own risk
profile and no outcome can be certain
diverse and resilient asset portfolio
capable of offering investment
options throughout the business
cycle
• Serica has recently refinanced its
debt facility with a diverse group of
international banks and extended
the duration to end 2029.
• Management aims to avoid over-
exposure to individual assets, to
identify the associated risks
objectively and mitigate these
where practical
- 28 -
Operations: Operations may not go according to plan leading to damage, pollution,
cost overruns or poor outcomes.
Risk
Production may be interrupted generating
significant revenue loss whilst costs
continue to be incurred
• The Group seeks to diversify its
revenue streams
Mitigation
• Management determines and
retains an appropriate level of
working capital
Safety may be compromised or control of
wells may be lost
Asset integrity of the production facilities
may cause production or HSE disruptions
• The Group carries business
interruption cover
• Safe operating procedures are
applied and continually updated
• Emergency response planning is
carried out and rehearsed regularly
• Strict adherence is applied to
Company ‘Integrity Management
Framework’ and Performance
Standards
• The Company runs a
comprehensive maintenance
programme and assurance process
Third party offtake routes may experience
restrictions or interruptions and full
availability may depend upon sustained
production from other fields in the system
• The Group aims to diversify its
exposure to offtake routes where
possible
• The Group carries business
Capital programmes may be delayed and
costs may overrun
The Company is reliant upon its IT
systems to maintain operations and
communications
Excessive flaring causes increased
emissions and exceeds guidelines
interruption cover
• 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
• Close monitoring of flaring is
conducted and targets set
• Work is ongoing to eliminate
routine flaring from assets
Personnel: The Group relies upon a pool of experienced and motivated personnel to
conduct its operations and execute successful investment strategies
Risks
Key personnel may be lost to other
companies
• The Remuneration Committee
Mitigation
regularly evaluates incentivisation
schemes to ensure they remain
competitive
Personal safety may be at risk in
demanding operating environments,
typically offshore
• The Group seeks to build depth of
experience in all key functions to
ensure continuity
• 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
- 29 -
Political and commercial environment: World share and commodity markets and
political environments continue to be volatile
Risk
Tax rates and allowances may be varied
at short notice, significantly reducing
retained income and adding risk to future
investment planning
Volatile commodity prices mean that the
Group cannot be certain of the future
sales value of its products
• Management will utilise investment
incentives where available and
consider geographical
diversification
• Planning and forecasting considers
downside price scenarios
Mitigation
• Oil and gas floor price hedging is
utilised where deemed cost
effective
Sanctions imposed by the U.S.
government may threaten continuing
production from the Rhum field and
licences are required to be renewed
periodically, with the current licence to be
renewed in January 2025
The UKCS licensing regime under which
Serica’s operational rights and obligations
are defined may be subject to future
change
Serica’s reputation may be damaged
impacting its ability to raise finance or
sustain operations
Climate change brings a range of risks to
the Group’s operations, its ability to
continue investing and its reputation
• Price mitigation strategies are
considered at the point of major
capital commitment
• Serica operates comprehensive
controls to ensure compliance with
license terms
• The renewal process is initiated
well in advance of renewal dates
• Management maintains regular
communication with regulatory
authorities
• The Company aligns its standards
and objectives with government
policies as closely as possible
• The Company adheres to good
governance practices and
compliance with legislation and
regulations.
• These risks, mitigations and
associated disclosure
requirements, are covered in detail
in the following section on ‘TCFD’.
- 30 -
Task Force for Climate-related Financial Disclosures (“TCFD”)
Details of ESG strategies directed towards reducing carbon emissions and contributing to
government Net Zero targets are described on pages 75 and 76 and also in a separate
ESG Report.
The TCFD framework aims to formalise the implementation and reporting of financial
disclosures related to climate change. Serica has reviewed guidance issued by the TCFD
with regard to the identification, management and reporting of climate-related financial
risks and the Company has continuously developed its capabilities to analyse and report
climate-related risks giving consideration to the TCFD guidance.
This disclosure has been made on a voluntary basis and is a summary of Serica's wider
Climate-Related Risk disclosure, which is available separately on Serica’s website. This
summary of disclosures is not in full alignment with all 11 recommendations of the TCFD.
The Company recognises the release and implementation of the IFRS S1 and S2 standards
and in 2024, will work to enhance and align its disclosures to these standards.
Governance
• The Board is ultimately responsible for the governance of climate-related risks and
opportunities. It sets policies and then reviews these as appropriate.
• The Board recognises climate change as a material risk to Serica with potential financial
implications and understands that responding to the risks associated with climate change
and building resilience is integral to the long-term success of the organisation.
• It reviews major risks regularly, receives updates from its committees and also takes
direct reports from key personnel. It sets general policy related to climate risks and
opportunities, identifies where further actions are required and delegates authorities
accordingly. This includes progress on emissions reduction, general environmental
performance, developments in climate-related regulation and cost impacts.
• The Sustainability Committee, which was formed in 2023, reports to the Board on the
effectiveness of the Company’s ESG Programmes and the management of climate-related
risks and opportunities. The Committee also reviews Serica’s environmental performance
for both operated and non-operated assets and has input into metrics and targets used to
measure environmental performance. The Committee aids in steering Serica’s long-term
emissions reduction strategy ensuring that decarbonisation projects are progressing in a
timely manner.
• The Health, Safety and Environment Committee reports to the Board on the effectiveness
of the Company’s HSEQ programme and ensures that risks, including environmental or
carbon-related hazards are fully assessed and appropriately mitigated. In addition, this
committee ensures that all personnel, including contractors employed by the Company,
are fully aware of their HSE responsibilities and have been properly trained.
• The Audit Committee supervises the financial analysis of climate-related risks and
opportunities and its incorporation into economic and investment models.
• The Remuneration Committee determines employee compensation packages and bonus
structures which incorporate incentives to deliver climate-related objectives.
• The above committees all meet regularly as required.
Strategy
The Company’s focus is on acquiring or developing oil and gas assets, extending the
producing lives of mid-to-late life assets and developing additional reserves where this can
- 31 -
be done with a low carbon footprint, typically by utilising existing processing and export
facilities.
Serica aligns with the UK government’s commitment to achieving Net Zero emissions by
2050. Although our current assets are estimated to cease production well before 2050,
Serica takes into account the incremental emissions reduction targets of the North Sea
Transition Deal when making strategic decisions. Serica uses the risk categories
recommended by the TCFD to identify and assess climate-related risk and opportunities:
namely transition risks, including policy, legal, technology, market changes, and physical
risks resulting from event driven (acute) or longer-term (chronic) shifts in climate
patterns.
Serica also recognises the opportunities presented to its organisation that are associated
with climate change and the transition to a low carbon economy. These include divestments
by larger companies of assets where Serica can seek to improve environmental
performance, investment in energy efficient technology and collaboration between asset
and infrastructure owners. Domestically produced gas has a strategic role to play in the
UK’s energy transition. This offers a lower carbon alternative to more carbon intensive
fuels and LNG imports, and also assists in protecting the UK’s security of energy supply as
global energy sourcing is restructured. Serica is well-placed to apply its proven capabilities
to extending the production lives of such assets whilst driving carbon-reduction
programmes.
Serica has developed operational objectives which are aligned with climate-related risk
reduction and climate change resilience planning. These include:
• Creation of emissions-related key performance indicators (“KPIs”) and targets that
directly affect employee bonus payments, including those of the Senior Management and
Executive Teams;
• Formation of a Sustainability Board Committee, to focus on specific ESG topics and
issues, including climate-related risk and opportunities;
• Continued development and enhancement of a robust ESG policy and strategy with a
corresponding communication structure to internal and external stakeholders;
• A dedicated VP ESG and Business Innovation position to lead strategy development,
drive change and support continuous improvement in emissions performance and wider
ESG commitments;
• Creation of an Emissions Reduction Group that looks at opportunities to reduce Serica’s
carbon emissions in line with Industry targets. This group is led by Serica’s Energy
Transition Engineering Advisor;
• Active membership of the Net Zero Technology Centre, whose aim is to help accelerate
the development and implementation of technology to lower emissions;
• Alignment to recognised international ESG benchmarks and transparency initiatives such
as the Global Reporting Initiative (“GRI”) and Sustainability Accounting standards Board
(“SASB”) in addition to developing a response to the TCFD recommendations;
• Continued development of an ESG strategy ensuring associated commitments and
disclosures are aligned with investor and lender requirements;
• Empowering employees to identify and own ESG initiatives within the Serica organisation
and the wider community; and
• Integration of internal stakeholder communications to ensure that the requirements of
finance and ESG are aligned.
- 32 -
Scenario Analysis
The TCFD recommends that business resilience to climate risks should be assessed through
scenario analysis. Scenarios begin with the end goal, i.e. limiting global temperature rise
to 1.5°C, and then model the steps that society, industry, governments, etc. must take in
order to achieve it. The scenarios describe the impact on factors such as supply, demand,
regulations, taxes and commodity pricing. Serica has taken a pragmatic approach to
modelling and looks at the comparative changes to commodity and carbon prices under
different scenarios. Serica has decided to base its analysis on three scenarios developed
by the International Energy Agency’s (IEA) World Outlook:
1. Net Zero – accelerated emissions reduction to achieve Net Zero emissions in the
energy industry by 2050
2. Stated Policies – slower progress based upon existing governmental policies
3. Announced Pledges – all current targets and announced pledges are met by countries
with temperature-limiting targets narrowly missed
In 2023, Serica ran quantitative scenario analysis against its business economic models
on the whole Serica asset portfolio. Parameters for the economic models were based on
those of the International Energy Agency’s (“IEA”) 2022 Net Zero, Stated Policies, and
Announced Pledges scenarios and concentrated on carbon prices and commodity prices.
The results of the exercise confirmed that Serica’s business models remain resilient under
these scenarios. Serica will continue to use scenario analysis to test its resilience under
different climate scenarios.
Serica is currently partially aligned with the Strategy C recommendation. Information on
future steps can be found in Serica’s TCFD Summary Report.
Climate Risk Management
• The Senior Management Team is structured and empowered to ensure that the Board
has the necessary climate-related information to assess and manage the associated risks
and opportunities. The team is responsible for compliance with and reporting against the
organisational climate-related metrics and targets in their individual business areas. The
team evaluates climate-related risks and opportunities as an integral part of its business
activities developing risk management systems, standards and procedures as required to
achieve this.
• Serica’s Risk Management Policy underlines the identification, assessment and mitigation
of climate-related risks. As its existing assets are all currently projected to cease
production within the next ten to fifteen years, this is the key period of focus for the
Company.
• Serica uses an Operating Risk Management Framework and risk assessment matrix to
capture, rank and manage significant risks.
• Having assessed climate-related risks the Company either identifies specific mitigating
actions and programmes or, where such specific responses are not considered feasible,
builds likely financial impacts into valuations and planning.
• When investigating new investment opportunities and acquisitions, reviews are
conducted of all climate-related risks and potential mitigations.
• As Serica’s climate-related risk identification and management programme progresses,
regular updates are provided to the Board and where appropriate added into the Group’s
risk register which is then reviewed monthly. As Serica’s existing fields are all currently
projected to cease production within the next fifteen years, this is the key period of focus
for the Company. Therefore, Serica has primarily targeted its considerations of climate-
- 33 -
related risks and opportunities over the short and medium terms. Serica have defined the
time period for short, medium and long terms risks as:
• Short term risks: 1 – 3 years
• Medium term risks: 4 – 9 years
• Long term risks: 10 + years
A summary of Serica’s transition and physical risks is presented in the table below.
Risk Description
Perceived
impact
timescale
Potential Consequences
Mitigations/Actions
Sources of finance including
equity markets and debt
providers may be harder to
access or become more
expensive
Short Term
The transition away from fossil
fuel-based power generation
may restrict the future demand
for, or production of, the
Company’s oil and gas reserves
Medium to
Long term
Energy transition objectives
may bring additional costs,
levies, or taxes
Short term
The range of potential
acquisitions may be restricted
by ESG considerations
Short to
Medium Term
Transition Risk
All lenders reduce funding available to
exploration and production companies and
this may impact debt terms and/or debt
capacity.
Demonstration of the impacts of climate
change and associated company action are
likely for the basis of access to finance.
Organisations with poor ESG commitments,
disclosures and performance can expect to
see materially reduced lending appetite over
time.
Cost of debt and debt capacity significantly
impacted by anti-fossil fuel pressures in the
lending community.
Less debt capacity and increased cost of debt
may lead to reduced asset and company
valuation.
Reduced demand for goods and services due
to shift in consumer preferences
Increased production costs due to changing
input prices (e.g. energy, water) and output
requirements (e.g. waste treatment)
Abrupt and unexpected shifts in energy costs
Change in revenue mix and sources, resulting
in decreased revenues
Re-pricing of assets (e.g. fossil fuel reserves,
land valuations, securities valuations)
R&D expenditures in new and alternative
technologies
Capital investments in technology
development
Costs to adopt/deploy new practices and
processes
Increases the risk associated with longer term
capital investments
Increased operating costs (e.g., higher
compliance costs, increased insurance
premiums)
Write-offs, asset impairment, and early
retirement of existing assets due to policy
changes
Increased costs and/or reduced demand for
products and services resulting from fines
and judgments
Reduced revenues from lower sales/output
Reduced capital availability
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
- 34 -
• Serica has put in place a new six-year financing
facility with a group of international banks. This
facility includes provisions for the incorporation of
ESG performance indicators
• The Company also seeks to retain a range of
alternative financing options
• Potential funding cost increases and loan
structures (i.e. sustainability led loans) are
considered when planning investments
• The impact of the value of future reserves is
lower for later periods of production due to
discounting
• Since the acquisition of Tailwind Energy, the
Company’s reserves are more evenly split
between oil and gas mitigating the risk of demand
for one commodity over another
• The Company closely follows industry related
forecasts and trends from numerous sources
• The Company reviews opportunities for
investment in clean technology and is currently
involved in projects with the Net Zero Technology
Centre
• Estimates of climate-related charges are
included in cost estimates where reasonably
identifiable
• Management prioritises the delivery of ESG
objectives aimed at mitigating any additional
carbon levies, i.e., by reducing its asset emissions
• The impact of the Energy Profits Levy and
potential changes are taken into account when
running corporate economic models, resilience
testing and assessing new acquisitions
• Management considers the emissions profiles of
potential acquisition targets and the mitigating
actions that it can implement
• It prioritises opportunities to deliver low carbon
intensity production into the UK market
compared to imports
• The Company reviews investments in countries
Risk Description
Perceived
impact
timescale
Potential Consequences
The industry or Company’s
reputation could be damaged
as the oil and gas industry is
perceived negatively by
external stakeholders
Short to
Medium Term
More extreme weather
patterns may threaten or
disrupt operations or supply
chain
Short to Long
Term
•
•
•
•
•
•
•
•
•
•
Reduced revenue from decreased demand for
goods/services
Reduced revenue from decreased production
capacity (e.g., delayed planning approvals,
supply chain interruptions)
Reduced revenue from negative impacts on
workforce management/planning (e.g.,
employee attraction/retention)
Physical Risk
Reduced revenue in the short term due to
decreased production capacity (e.g. transport
difficulties, supply chain interruptions)
Reduced revenue and higher costs in the
short term due to negative impacts on
workforce (e.g. health, safety, absenteeism)
Write-offs and early retirement in the long
term of existing assets (e.g. damage to
property and assets in “high-risk” locations)
Increased operating costs in the long term
(e.g. inadequate water supply for
hydroelectric plants or to cool nuclear and
fossil fuel plants)
Increased capital costs in the long term (e.g.
damage to facilities)
Reduced revenues from lower sales/output
Increased insurance premiums and potential
for reduced availability of insurance on assets
in “high-risk” locations in the long term
Mitigations/Actions
outside the UK and their climate-related policies
and outlook
• Ensure the Company reports transparently and
follows internationally recognised ESG reporting
guidelines
• Regularly engage with stakeholders on its ESG
activities and performance
• The Company seeks to maintain robust
transport and supply chains
• The impact of extreme climatic conditions such
as exceptional waves are incorporated into risk
management scenarios
• The Company operates under a Severe Weather
Action Plan
• Plan contingency into operations such as
drilling/diving/seismic to reflect poor weather
Serica is currently partially aligned with the Risk Management B recommendation.
Information of future steps can be found in Serica’s TCFD Summary Report.
Metrics and Targets
Criteria used to assess climate-related risks is aligned to the criteria used in Serica’s risk
assessment matrix. This matrix looks at the potential frequency of an event or risk
occurring and the potential financial impact this may have on the organisation. Once its
likelihood and potential financial impact has been determined it is given a risk rating, which
is then used by Serica to rank the risks in relation to their severity and importance.
Naturally, there is a focus to concentrate efforts on mitigating the most significant risks
identified.
Carbon emissions data is collected from Serica’s assets, including operated and partnered
facilities. Serica assures this data for consistency and comparability throughout its portfolio
over time. This data is used to ensure compliance with UKCS emissions regulation and to
comply with all operating permits and consents associated with Serica’s assets. It also
provides benchmarks for delivering emissions reductions through the adoption of
meaningful and achievable carbon reduction targets.
Serica is fully aligned to the emission reduction targets as set out in the North Sea
Transition Deal, which commits the UK oil and gas industry to reduce absolute basin
emissions by 10% by 2025, by 25% by 2027, 50% by 2030, and become Net Zero by
2050 from a 2018 baseline. Serica also supports the World Bank’s target of reaching zero
routine flaring by 2030.
- 35 -
Serica sets annual emissions targets as part of its annual bonus scheme. Performance
against these targets is directly linked to the remuneration of our staff and executives.
Serica has implemented ESG bonus linked targets since 2021.
The environmental targets put in place for the Bruce Hub in 2023 included:
•
•
Limiting total Scope 1 emissions to below 200,000 tonnes of CO2
Limiting total volumes of flared gas to under 5,000 tonnes
In 2023, Serica achieved both targets, with total Scope 1 emissions reaching 179,447
tonnes of CO2 by the end of the year and total flaring volumes limited to 4,708 tonnes.
The main contributors to this were the successful implementation of the temporary power
generators installed for the summer maintenance shutdown, which saved approximately
5,500 tonnes of CO2 from being emitted. Further details on Scope 1 and 2 emissions can
be found on page 76 of the Annual Report and Accounts.
In 2024, Serica will continue to tie emissions reduction initiatives to its remuneration and
corporate bonus scheme and has implemented the following emissions related targets:
•
Limiting total Scope 1 carbon intensity to 15.5 kgCO2/boe
This target is intensity based and performance is monitored on a regular basis and is
reported across the organisation, including the Board and all staff and contractors. Details
on executive remuneration can be found on page ** of the Annual Report and Accounts.
Serica also has a suite of other environmental targets and KPIs used to monitor its
performance, these include the average daily flaring volumes, the percentage of waste
diverted from disposal, the volume of general waste generated and quantity of oil in
produced water that is discharged to sea. Performance against these targets is also
monitored on a regularly and performance is reported across the organisation.
The Company’s main business is the acquisition, development and production of
commercially attractive oil and gas reserves in a safe and environmentally sensitive
manner. This is achieved both through pursuing the full cycle of exploration, discovery,
development and production and also through acquiring existing reserves where
management believe that further value can be added.
Further information upon the Company’s HSEQ and ESG policies and delivery can be found
within the ESG Report which will be issued along with the 2023 Annual Report.
Serica is currently partially aligned with the Metrics and Targets A recommendation.
Information on future steps can be found in Serica’s TCFD Summary Report.
- 36 -
Key Performance Indicators (“KPIs”)
The Company’s main business is the acquisition, development and production of
commercially attractive oil and gas reserves in a safe and environmentally sensitive
manner. This is achieved both through pursuing the full cycle of exploration, discovery,
development and production and also through acquiring existing reserves where
management believe that further value can be added.
Operational and financial performance is tracked through the following KPIs whose
progress is covered within the Review of Operations and Finance Review within this
strategic report:
• Daily production volumes
• Production costs per barrel of oil equivalent
• Realised sales income per barrel of oil equivalent
HSE performance is tracked through the following KPIs whose progress is covered within
an updated ESG Report:
• Recordable incidents and injuries
• Workforce engagement in HSE
• Quality of discharges to water and air
• Ongoing maintenance programmes
ESG performance is tracked through the following KPIs whose progress is covered within
the ESG Report:
• Annual carbon emissions
• Flare volumes
• Scope 1 carbon intensity
Elements falling within each of the above categories are included within annual incentive
schemes for all Group employees.
The Company tracks its new business development objectives through the building of a
risk-balanced portfolio of full cycle assets. Specific KPI’s are not applied due to the range
of different potential acquisition targets. However, successful delivery will add to future
production volumes and net realised income.
Further information upon the Company’s HSEQ and ESG policies and delivery can be found
within the ESG Report which will be issued along with the 2023 Annual Report.
Section 172 statement
The Directors’ statement under Section 172 of the Companies Act 2006 is included on
pages 72 to 74.
Additional Information
Additional information relating to Serica, can be found on the Company’s website at
www.serica-energy.com and on SEDAR at www.sedar.com
The Strategic Report has been approved by the Board of Directors.
On behalf of the Board
Mitch Flegg
Chief Executive Officer
23 April 2024
- 37 -
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.
- 38 -
EXECUTIVE MANAGEMENT TEAM AND BOARD OF DIRECTORS/PROFILES
David Latin, Non-Executive Chairman, joined the Board on 7 December 2021 firstly as an
Independent Non-Executive Director and was appointed as Non-Executive Chairman
following the retirement of Antony Craven Walker in June 2023. Mr Latin has over 30 years’
experience in Upstream Exploration and Production. He worked at BP for 18 years, where
he was responsible for the BKR assets for 6 years and then held a number of senior VP
and global/regional business roles. He was later OMV Group Senior Vice President for E&P
in NW Europe, Africa and Australasia during which time he was responsible for building
significant businesses in the UK (sold to Siccar Point Energy) and in Norway.
As announced on 1 February 2024 and 16 April 2024, Mr Latin will assume the role of
Interim CEO of the Company from 24 April 2024 pending the search process for a
permanent CEO.
Committees: Mr Latin until March 2024 was a member of the Nominations Committee, a
decision was made for him to stand down from this committee while he assumes the role
of Interim CEO. He will join the Health Safety & Environmental Committee, Reserves
Committee and Sustainability Committee in April 2024.
Key External Appointments: None
Mitch Flegg, Chief Executive Officer, has over 40 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 become a leading producer and operator.
As announced on 1 February 2024 and 16 April 2024, as at the close of business on 23
April 2024, Mr Flegg has stepped down as CEO of the Company, he will remain as an
advisor to the Company until after the Annual General Meeting in June 2024.
Committees: Health Safety & Environmental (“HSE”) Committee, Reserves Committee and
Sustainability Committee.
Key External Appointments:
The UK Offshore Energies Association Limited
Martin Copeland, Chief Financial Officer, joined the Board on 5 February 2024. Mr Copeland
was previously a Principal at energy advisory firm Kirk Lovegrove & Co. Ltd and has over
30 years’ experience in oil and gas financing and advisory roles across a number of
investment banks. His more recent experience includes advising Premier Oil on their
reverse takeover by Chrysaor to create Harbour Energy, advising JX Nippon on the sale of
their UKCS business to Neo Energy and advising Tailwind Energy on their sale to the
Company last year.
Committees: None
Key External Appointments: None
Malcolm Webb, Senior Independent Non-Executive Director (“SID”), joined the Board on
30 November 2018, on completion of the BKR transaction. Mr Webb was appointed SID in
April 2022. Mr Webb started his career with Burmah Oil Company in 1974 as a company
- 39 -
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.
Committees: Nominations Committee (Chair).
Key External Appointments: None
Kate Coppinger, Independent Non-Executive Director, joined the Board on 22 April 2020.
Ms. Coppinger has over 20 years’ investment banking experience. Ms Coppinger’s career
includes roles at Canadian Imperial Bank of Commerce, Harrison Lovegrove and 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.
Committees: Remuneration Committee (Chair), Audit Committee and Nominations
Committee.
Key External Appointments:
Star Energy Group plc
Plant Health Care plc
Jérôme Schmitt, Independent Non-Executive Director, joined the Board on 1 July 2022.
Mr Schmitt has over 30 years’ experience in the energy and mobility sector, with particular
emphasis across Finance, Sustainability and Business streams. Mr Schmitt was the Head
of M&A and Chief Sustainability officer at TotalEnergies and Chairman of OGCI Executive
Committee until 2021. He was responsible for developing and financing gas value chain
projects in Middle East & Asia and created and led the Net Zero Businesses division of
TotalEnergies.
Committees: Sustainability Committee (Chair) and HSE Committee.
Key External Appointments:
Bramble Energy Limited
Michiel Soeting, Independent Non-Executive Director, joined the Board on 1 February
2023. Mr Soeting is a chartered accountant, qualified in both the Netherlands and the
United Kingdom, he has extensive financial expertise, strong governance, risk
management and regulatory compliance experience. Mr Soeting has over 30 years’
experience in the audit and financial service sector, he was the former global lead partner
and global head of energy & natural resources at KPMG.
Committees: Audit Committee (Chair), Remuneration Committee and Reserves Committee.
Key External Appointments:
Veon Ltd
Robert Lawson, Non-Executive Director, joined the Board on 23 March 2023. Mr Lawson
represents Mercuria Holdings (“Mercuria”) (a major shareholder of the Company) which
was agreed following the acquisition of Tailwind Energy Investments Ltd. Mr Lawson spent
a large part of his career with BP in various roles including Commercial Vice President for
BP’s Refining and Marketing Segment then becoming the Global Head of Mergers and
Acquisitions. In 2022, Mr Lawson joined Mercuria Energy Group as Executive Vice President
and a member of its board.
Committees: Nominations Committee.
- 40 -
Key External Appointments:
Seacrest Petroleo Bermuda Limited
Guillaume Vermersch, Non-Executive Director, joined the Board on 23 March 2023. Mr
Vermersch also represents Mercuria. Mr Vermersch started his career with Arthur Andersen
in Paris. His career includes roles at ING/BBL Bank and CIB in Geneva and Paris and as
head of the Credit and Finance Risk department of Sempra Oil Trading for Europe and Asia
where he was responsible for defining, implementing and monitoring the full scope of the
Sempra Energy credit and financial strategies, from trading business requirements to
banking, finance and risk management responsibilities to support the oil and energy
division’s expansion. He is the group chief financial officer and a group board member of
Mercuria Energy Group.
Committees: None
Key External Appointments: None
Kaat Van Hecke, Independent Non-Executive Director, joined the Board on 17 July 2023.
Ms Van Hecke has over 25 years’ experience in the petrochemicals and oil and gas
business, she has held positions with ExxonMobil, Shell, OMV and Nostrum in Belgium, the
Netherlands, Nigeria, Russia, Austria and Kazakhstan. Ms Van Hecke was previously MD
and Senior Vice President OMV Austria E&P and interim CEO at Nostrum Oil and Gas, she
is also a Non-Executive director of Glover Gas & Power BV/ Axxela Ltd and Trinity
Exploration & Production plc.
Committees: HSE Committee (Chair), Reserves Committee (Chair) and Audit Committee.
Key External Appointments:
Glover Gas & Power B.V/Axxela Limited
Trinity Exploration & Production plc
Sian Lloyd Rees, Independent Non-Executive Director, joined the Board on 17 July 2023.
Ms Rees career includes roles at Halliburton Corporation, Oracle Corporation and Aker
Group and most recently as UK MD of Aker Horizons and Mainstream Renewable Power
responsible for growing a renewable energy portfolio in offshore wind and hydrogen. Ms
Rees has over 30 years’ experience in the Oil and Gas, IT and Renewable Energy
industries, she is also a Non-Executive director and co-chair of OEUK, non-executive
director for the Net Zero Technology Centre and non-executive director of Port of
Aberdeen.
Committees: Remuneration Committee and Sustainability Committee.
Key External Appointments:
OEUK
Net Zero Technology Centre Ltd
Port of Aberdeen
- 41 -
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 2023.
Principal Activities
The principal activity of the Company and its subsidiary undertakings (the “Group”) is to
identify, acquire, explore and subsequently exploit oil and gas reserves. Its current
activities are located in the United Kingdom.
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 72 to 74.
Results and Dividends
The profit for the year was £102,984,000 (2022: £177,796,000).
The Directors are recommending the payment of a final dividend by the Company of 14.0
pence per share for the year to 31 December 2023, see note 11 (2022: 14.0 pence per
share). Subject to shareholder approval at the AGM, this will be payable on 24 July 2024
to shareholders registered on 28 June 2024 with an ex-dividend date of 27 June 2024.
Financial Instruments
The Group’s financial risk management objectives and policies are discussed in note 22.
Events Since Balance Sheet Date
On 23 January 2024 Serica announced the completion of a new US$525 million 6-year
Borrowing Facility which replaced its existing facility.
On 26 February 2024 Serica announced the completion of the acquisition of 30% non-
operated interests in the P2498 and P2170 licences (together the Greater Buchan Area)
from Jersey Oil & Gas.
On 6 March 2024, the UK government announced that EPL would be extended for a further
12 months to 31 March 2029 from the former end date of 31 March 2028.
- 42 -
Directors and their Interests
The following Directors have held office in the Company since 1 January 2023 to the date
of this report:
Antony Craven Walker (retired 30 June 2023)
David Latin
Mitch Flegg
Malcolm Webb
Kate Coppinger
Andrew Bell (retired 5 February 2024)
Trevor Garlick (retired 17 July 2023)
Jérôme Schmitt
Michiel Soeting (appointed 1 February 2023)
Robert Lawson (appointed 23 March 2023)
Guillaume Vermersch (appointed 23 March 2023)
Kaat Van Hecke (appointed 17 July 2023)
Sian Lloyd Rees (appointed 17 July 2023)
Martin Copeland (appointed 5 February 2024)
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
Ordinary
Ordinary
David Latin
Mitch Flegg
Andrew Bell
Kate Coppinger
Jérôme Schmitt
Malcolm Webb
Michiel Soeting
Robert Lawson
Sian Lloyd Rees
Kaat Van Hecke
Guillaume Vermersch
Interest at
end of year
45,000
316,165
171,616
-
9,100
64,506
42,300
-
-
-
-
Interest at
start of year
(or date of
appointment
if later)
-
184,445
18,709
-
-
64,506
-
-
-
-
-
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”) and under the Serica
Energy plc Long Term Incentive Plan (the “LTIP”) are included in note 25.
Greenhouse gas (“GHG”) emissions
Information regarding Serica’s GHG disclosure is included in the Environmental, Social and
Governance (“ESG”) section on pages 75 to 76.
- 43 -
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
23 April 2024
- 44 -
CORPORATE GOVERNANCE STATEMENT
Chair’s Corporate Governance Statement:
The corporate governance section of our report explains how the Company has a
comprehensive corporate governance framework with clearly defined responsibilities and
accountabilities to safeguard long-term shareholder value. At the time of writing this report
I am Non-Executive Chairman of the Company, and it is my responsibility to work with my
fellow Board members to ensure that the Company continues to maintain high standards
of governance and provides governance structures and processes that are fit for purpose
and support good decision making by the Board. 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. It
is imperative that the Board possesses a wide range of skills so that we emerge well placed
to take advantage of new opportunities. A key focus in 2023 has been to develop our
leadership capabilities and we have made significant progress in enhancing the
composition of the Board. I was delighted to welcome several new directors during the
year and am particularly proud of the strong and diverse Board we have now assembled,
which is equipped with a compelling mix of skills and experience relevant to Serica and
the challenges and opportunities it faces. As we move further into 2024 and as announced
on 1 February 2024 and 16 April 2024, Mitch Flegg will be standing down from the Board
and David Latin, the Chairman of the Board, will also take on the role of Interim CEO
(effective 24 April 2024) while the Board secures a successor to Mr Flegg. The Company
has in place a strong governance structure that will underpin the growth of the business
and help build further the success of the Company that we have seen under the leadership
of Mr Flegg over the last six years.
This report, together with the reports of the Audit, Nominations, Remuneration, Reserves,
Health Safety and Environment and Sustainability Committees, seeks to demonstrate our
commitment to high standards of governance.
The terms of reference for each Committee are available on the Company website
https://www.serica-energy.com/corporate-governance or are available on request from
the Company Secretary.
In 2018 the Company adopted the Quoted Companies Alliance (“QCA”) Corporate
Governance Code 2018. Following the updates made by the 2023 Quoted Companies
Alliance Corporate Governance (the ‘2023 QCA Code’) it was agreed that the Company
would comply as far as possible with the 2023 QCA Code now, earlier than required, in
order to continue to adhere to the best possible level of good governance. The directors
believe that the 2023 QCA Code with its updates remains at this stage to be the most
appropriate recognised corporate governance code for the Company. It is believed that
the 2023 QCA Code provides the Company with the framework to help ensure that a sound
level of governance is maintained, enabling the Company to embed the governance culture
that exists within the organisation as part of building a successful and sustainable business
for all its stakeholders.
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. This has been recently
updated to comply, as much as possible at this stage, with the 2023 QCA Code. The
Company’s website disclosures can be found at www.serica-energy.com.
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 2023, Michiel Soeting was appointed to the
Board and following the Company’s acquisition of Tailwind Energy Investments Ltd, Robert
- 45 -
Lawson and Guillaume Vermersch were appointed to the Board as Non-Executive Directors
and as representatives of the Company’s largest shareholder, Mercuria Holdings in line
with the terms of a Relationship Agreement. Antony Craven Walker retired from the from
his position as Non-Executive Chair in June 2023 and was replaced by David Latin. Trevor
Garlick also retired as an Independent Non-Executive Director. Following the retirements
of Antony and Trevor the Board welcomed Kaat Van Hecke and Sian Lloyd Rees as
Independent Non-Executive Directors in July 2023. Martin Copeland has recently been
appointed to the Board in February 2024, replacing Andy Bell as Chief Financial Officer. As
announced on 1 February 2024 and 16 April 2024, David Latin, the Chairman of the Board,
will also take on the role of Interim CEO, with Mitch Flegg stepping down from 24 April
2024. Mitch Flegg will remain as an adviser to the Company until after the Company’s
Annual General Meeting in 2024.
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. During 2023, the Executive Directors were available to meet with
shareholders and analysts following the Company’s interim and final results, shareholders
were welcomed to the Company’s Annual General Meeting and at the beginning of 2023,
the Company also held a General Meeting which provided shareholders with an opportunity
to raise questions in connection with the Company’s acquisition of Tailwind Energy
Investments Ltd and to vote on the approval of the acquisition.
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:
QCA Code
Principle
Number
One
QCA Code
Principle
Disclosure
A) Explain the Company’s purpose, business model and strategy including key
challenges in their execution.
Establish a purpose,
strategy and
business model
which promotes
long-term value for
shareholders.
Comment
a) See page 2 and the Strategic Report on pages 5 to 37.
The Company’s purpose is to contribute responsibly towards meeting the world’s energy needs through the safe and
efficient production of hydrocarbons.
It operates in the upstream oil and gas exploration, development and production sector and is therefore exposed to
political, operational, commercial, product pricing and hazard risk. The Company’s strategy is to maintain a portfolio of
properties and risk diversity which enables it to manage the risks, the financial capacity and the growth opportunities in
the business. It does this both by an active programme of acquisition and divestment where possible to balance risk and
potential whilst also seeking to optimise operating costs and procedures to improve performance and by identifying where
new technologies can enhance value. The Company strives to maintain a forward looking, professional and safety
conscious culture in all that it does as this also provides essential checks and balances and underpins a value creative
environment to the benefit of all stakeholders.
Two
Promote a
corporate culture
that is based on
ethical values and
behaviours
a) Describe the desired company culture within the strategic report. How is the
desired corporate culture supportive of the Company’s purpose, strategy, and
business model? How is the tone from the top (board, chief executive, and senior
management) supportive of this culture? How does the board assess and monitor
corporate culture and how were any actions which notably deviated from what is
expected addressed?
Comment
a) The corporate culture of the Company is established within the Board of directors and communicated to the Company
by the CEO and senior management through a regular series of internal meetings and supporting processes. By this means
- 46 -
the Company’s strategy, objectives and approach to health, safety, environmental and diversity issues are communicated
to all employees with the Board maintaining full oversight.
The Company operates a full feed-back system directly to the Chairman, CEO or Senior Independent Director (SID) which
provides the mechanism to enable the Company to become aware of any deviation from the Company’s ethical values.
Three
a) Describe the shareholder engagement activities, including the topics discussed
and actions taken in response.
Seek to understand
and meet
shareholder needs
and expectations
b) Provide appropriate quantitative and qualitative reporting of a company’s
environmental and social matters to meet investor needs and expectations
Comment
a) The Company engages with its shareholders through regulatory news flow, providing financial results on a half yearly
basis, operational updates to maintain information on overall performance, additional news flow when there is a material
deviation from the operational updates, releases relating to matters of material importance to the Company’s business
and releases of a regulatory nature.
The Company maintains an informative and regularly updated website at www.serica-energy.com through which
shareholders can obtain copies of the Company’s annual report, interim report, ESG report and other regulatory
documents and regulatory news service releases. The website includes copies of all presentations made from time to time
to analysts, shareholders and the general market and includes a facility under which shareholders may submit questions
or make comments relating to the Company’s business. Whenever possible the Company endeavours to respond to
enquiries.
The Company’s AGM is a regular opportunity for shareholders to meet with the Company and receive a corporate
presentation. There is also an opportunity for shareholders to ask questions after the presentation, during the formal
business of the meeting and informally following the meeting. The Board pro-actively engages with investors on
governance matters.
The Chairman, CEO and the CFO are together responsible for shareholder liaison and a listening board for shareholders. In
all communications with shareholders and the general market the Company maintains strict compliance with the
requirements of the AIM Rules and Market Abuse Regulations.
b) See the ESG Report published on the Company’s website and the ESG report.
Four
Take into account
wider stakeholder
interests, including
social and
environmental
responsibilities, and
their implications
for long-term
success.
a) Describe the environmental and social issues that the board has identified as
being material to the company with reference to its purpose, strategy, and business
model.
b) Set out any relevant associated KPIs that are used for tracking performance on
such matters and, where relevant, key forward-looking targets that have been
established.
Comment
a) The Company annually reviews and updates an ESG Materiality assessment which relies on stakeholder engagement
activities throughout the reporting year and incorporates insights from experts across the business. The assessment covers
the materiality of topics, ranging from economic and environmental considerations to social aspects and potential human
rights implications. Material environmental issues include, GHG Emissions, Environmental Compliance, Waste, Water and
Effluents. Material social topics include, Occupational Health and Safety, Diversity and Equal Opportunities, Training and
Education and Employment practices. More information can be found in the ESG report.
b) The Company is aligned to the emission reduction targets as set out in the North Sea Transition Deal, which commits
the UK oil and gas industry to reduce absolute production emissions by 10% by 2025, by 25% by 2027, by 50% by 2030, and
become Net Zero by 2050 from a 2018 baseline. The Company also supports the World Bank’s target of reaching zero
routine flaring by 2030.
Since 2021, the Company has set annual emissions targets as part of its annual bonus scheme. Performance against these
targets is directly linked to the remuneration of its employees, senior management and executives.
The environmental targets put in place for the Bruce Hub in 2023 included:
- 47 -
-
-
Limiting total Scope 1 emissions to below 200,000 tonnes of CO2
Limiting total volumes of flared gas to under 5,000 tonnes
In 2024, the Company will continue to tie emissions reduction initiatives to its remuneration and corporate bonus scheme
and has implemented the following emissions related targets:
-
Limiting total Scope 1 carbon intensity to 15.5 kgCO2/boe
The Company also has a suite of other environmental targets and KPIs used to monitor its performance, these include the
average daily flaring volumes, the percentage of waste diverted from disposal, the volume of general waste generated and
quantity of oil in produced water that is discharged to sea. Performance against these targets is monitored on a regular
basis and performance is reported across the organisation.
Five
Embed effective risk
management,
internal controls
and assurance
activities,
considering both
opportunities and
threats, throughout
the organisation
a) Describe how the board has embedded effective risk management, internal
controls and assurance activities in order to execute and deliver strategy. This
should include a description of what the board does to identify, assess and manage
risk and how it gets assurance that the risk management and related control systems
in place are effective.
b) Risk and control information should be disclosed as required in the strategic
report and corporate governance statements, including the non-financial reporting
narrative.
c) Explain the Company’s governance around climate-related risks and
opportunities; the process for identifying, assessing and managing climate-related
risks and how these processes are integrated into the Company’s overall risk
management framework.
d) Explain how the audit committee has monitored and formally considered auditor
independence during the corporate reporting cycle.
Comment
a) The Company’s approach to the management and identification of risk is set out in the Business Risks and Uncertainties
section of the Strategic Report on pages 28 to 30.
The Company encourages a culture of risk awareness and management at all levels throughout the Company. Risks are
reviewed by the Board at every Board meeting and, at executive level, the Company employs outside advisors to assess
and advise on risk when it is felt additional third-party expertise is required.
Through the HSE and Audit Committees and the feedback provided by these committees to the Board via verbal and/or
written reports and accessible minutes, the Board maintains a full and active awareness of operational and financial risks
and the assurances that effective control systems are in place.
b) See Business Risks and Uncertainties section of the Strategic Report on pages 28 to 30.
c) The VP ESG and Business Innovation and her dedicated team work on the process of identifying climate-related risks.
More information can be found in ESG report.
A dedicated Sustainability Committee was set up in 2023 and reports to the Board on climate-related risks and issues. The
Board discusses climate-related risks on a regular basis.
d) The Audit Committee formally assesses the independence of the Company’s auditors on an annual basis, there has been
a rotation of audit partners after five years to ensure independence is maintained. An audit tender policy was put in place
during 2023 which will continue to support auditor rotation and independence
Six
Establish and
maintain the board
as a well-
functioning,
balanced team led
by the chair.
a) Identify each director and describe the relevant experience, skills, and
capabilities that each director has brought to the board’s agenda during the year.
- 48 -
b) Explain how the board contains (or will contain) the necessary mix of
experience, skills, and capabilities – including with reference to diversity
characteristics
c) Identify those directors who the board considers to be independent; where
there are grounds to question the real, or perceived independence of a director,
this must be explained.
d) Describe the time commitment required from directors (including non-executive
directors as well as part-time executive directors) and any restrictions on both
executives and non-executives with respect to assuming external roles.
e) Include the number of meetings of the board (and any committees) during the
year, together with the attendance record of each director.
f) Where performance-related remuneration for non-executive directors has been
introduced, the company must disclose how it has consulted its shareholders and
how their support was obtained.
Comment
a) Information on each of the directors as at 23 April 2024 is provided on pages 39 to 41. All their details can be found on
the Company’s website.
b) The make-up of the Company’s Board of directors has kept pace with transformational changes made by the Company
within the last few years with the introduction of new experience and skill-sets complementing those already on the Board.
By this means the Board is continuing to refresh and enhance its performance.
The Board of directors covers a wide range of experience and skills. To meet the requirements of an independent upstream
oil and gas exploration, development and production company these experiences and skills must cover financial, legal,
operational and technical knowledge experience of risk management and growth in the independent sector and of public
markets.
Each of the directors on the Board, Executive, Independent Non-Executive Directors (“INEDs”) and Non-Executive Directors
(‘NED’s’), have considerable experience and all have demonstrated skills which are complementary, independent and
sufficient to cover all of the requirements of the Board.
All directors have extensive and complementary skills, knowledge and experience covering all facets of the business which
requires both entrepreneurial and custodian oversight.
As the Company continues to grow its business and to refresh the Board the Nominations Committee maintains oversight
of the Company’s requirements to ensure that the make-up of the Board is kept in line with the Company’s needs and
provides a mix of experience, skills, personal qualities and capabilities appropriate to the task. These include full
consideration to maintain a healthy diversity where this is possible, including gender and ethnic diversity.
c) The Board as at 23 April 2024 has a Non-Executive Chairman, a CEO, a CFO, six INEDs (all are considered independent in
terms of character and judgement) and two NEDs The Board is aware of the need to maintain and build upon this balance
of backgrounds and to maintain a diversity of talent through succession planning as the Company further develops and the
needs of its business grows.
Malcolm Webb, Kate Coppinger, Jérôme Schmitt, Michiel Soeting, Kaat Van Hecke and Sian Rees are INED’s and considered
to be independent.
For full background refer to “Board Composition” on pages 53 to 54 and the Company’s website.
d) The Executive directors are expected to devote substantially the whole of their time to their duties with the Company.
INED’s and NED’s have a lesser time commitment which is set out in their letter of appointment. It is anticipated that INED’s
and NED’s will each dedicate 12 days a year in addition to their duties as Board members and as members from time to
time of Board committees.
There is no formal policy restricting the directors external appointments, however the Nominations Committee (and Board)
review external appointments and time commitments at least annually, and each director discusses with the Chair any
proposed additional appointments prior to being appointed
e) See page 57.
- 49 -
f) NED’s nor INED’s are not awarded any performance related pay.
a) Explain how each director keeps their skillset up-to-date, setting out how the
company provides the necessary resources for updating and developing each
director’s knowledge and skills.
Seven
Maintain
appropriate
governance
structures and
ensure that
individually and
collectively the
directors have the
necessary up to
date experience,
skills and
capabilities
b) Set out any board sub-committees that have been established to facilitate more
focussed discussions and/or oversight of particular subject matters.
c) Where the board or any committee has sought external advice on a significant
matter, this must be described and explained.
d) Where external advisers to the board or any of its committees have been
engaged, explain their role.
Comment
a) The directors are provided with an AIM Rule briefing from the Company’s Nominated Advisor on an annual basis along
with dedicated sessions on varying topics from the Company’s legal advisors.
The Company’s lawyers attend meetings and deliver updates and training to the Board as a whole and individual directors
as and when required.
The Audit Committee has requested that the Company’s auditor provide details of training that the Audit Committee
members may find useful to develop their knowledge further and for them to keep up to date with changes in auditor and
accounting regulations, standards and areas of focus.
The Board is aware that there is a need for a structured training plan for all directors. One training plan already in plac e
is the ‘Major Accident Awareness Training’ course at the Spadeadam facility in north east England. One of the Company’s
key objectives is to ensure the highest possible standards of Process Safety Awareness. Process Safety is seen as a
Company-wide responsibility to prevent major accidents from occurring. All directors will undergo this training which
demonstrates the significance of the hazards faced in the industry and the critical importance of Process Safety.
b) The Audit Committee assists with the Board’s oversight of the integrity of the financial reporting and the independence
and performance of the Company’s Auditor.
The Reserves Committee meets prior to the publication of the annual results. The Committee is a sub-committee of the
Audit Committee and meets to review the reports of the independent reserves auditors.
The Nominations Committee is responsible for monitoring the overall effectiveness of the Board and its Committees,
proposing to the Board new nominees for election as directors to the Board, determining succession plans and for assessing
directors on an ongoing basis.
The Remuneration Committee meets to consider all material elements of remuneration for executive directors and senior
management, including remuneration policy, share incentive plans and other employee incentive schemes.
The HSE Committee is responsible for matters affecting health, safety and the environment.
The Sustainability Committee is responsible for matters relating to emissions reductions and climate change.
Details of the Terms of Reference for all committees can be found on the Company’s website.
c) During 2023, the Board and committees have used a number of external professional advisers in respect of various
segments of its business where it was felt that external advice was required.
- 50 -
The Remuneration Committee engaged remuneration consultants to assist in various matters relating to executive
remuneration and packages. Further details can be found in the Remuneration Committee report.
The Nominations Committee engaged a leadership advisory firm to assist with executive and non-executive search.
d) The directors have access to the Company’s Nominated Advisor, company secretary, lawyers and appointed
remuneration consultants and are able to obtain advice from other external bodies as and when required.
The management team and directors are in regular dialogue with the Company’s Nominated Adviser. The Nominated
Adviser provides ongoing advice on matters pertaining to the Company’s compliance with the AIM Rules for Companies.
The Company Secretary advises on corporate governance, arranges, attends and minutes all Board and committee
meetings. The Company Secretary works closely with the Chairman, all Board members and advisors of the Company as
and when required.
Lawyers are engaged to provide legal advice when required by the management team and by the Board or committees.
The Remuneration Committee have engaged remuneration consultants to provide advice in relation to executive
remuneration, benchmarking and remuneration policy.
The Nominations Committee have engaged a leadership advisory firm to assist with executive and non-executive search.
Eight
Evaluate board
performance based
on clear and
relevant objectives,
seeking continuous
improvement
a) Include a high-level explanation of the board performance effectiveness
process.
b) Set out when the last externally facilitated board review took place and when the
next one is planned for. Where an externally facilitated review has not taken place
and there are no plans to have one, this must be explained.
c) Where a board performance evaluation has taken place in the year, provide a
brief overview of it, how it was conducted and its results and recommendations.
Progress against previous recommendations should also be addressed.
d) Provide an outline description of the succession planning process including any
indicative timelines for expected appointments (to the extent practicable).
Comment
a) See website disclosure, Principle Eight above and page 55.
The Board conducted an external Board and Committee evaluation process at the end of 2023 and in line with the 2023
QCA Code will conduct a Board evaluation every year.
b) As set out above, the Board conducted an external Board evaluation at the end of 2023. The Company plan to conduct
a Board evaluation every year and a review of the Board Committees and NEDs bi-annually.
c) See website disclosure, Principle Eight above. For further information see ‘Board Evaluation’ page 55.
d) The Nominations Committee meets regularly to consider the requirements of the Board. Consideration is given to
succession both planning and timelines and expected changes.
a) Explain how the remuneration structure and practice supports the delivery and
attainment of the Company’s purpose, business model, strategy and culture.
Nine
Establish
a
remuneration policy
which is supportive
long-term value
of
creation and
the
Company’s purpose,
strategy and culture.
Comment
- 51 -
a) The Remuneration Committee meet regularly to discuss the remuneration structure to ensure that it motivates the
executive teams and senior management team and promotes the long-term growth of shareholder value. The
Remuneration Committee consults with other committees (HSE and Sustainability) in order to set appropriate incentive
targets and to appraise performance in respect of those targets.
Pay structures for the executive team and senior management team are simple and easy to understand and foster
alignment with shareholders through building and holding a meaningful shareholding in the Company.
The Remuneration Report on pages 65 to 71 will be put to an advisory vote at the 2024 AGM. The Remuneration Committee
shall continue to follow guidance with a view to putting a Remuneration Policy to an advisory vote in the future together
with any future share schemes or long-term incentive plans.
a) Within the corporate governance report, reflect on challenges experienced in the
year and signpost to how these were addressed at the board and whether any
changes were made to board structure or process.
Ten
Communicate how
the Company is
governed and is
performing by
maintaining a
dialogue with
shareholders and
any other key
stakeholders
b) Include an audit committee report (or equivalent report if such committee is
not in place).
c) Include a remuneration committee report (or equivalent report if such
committee is not in place).
d) If the Company has not published one or more of the disclosures set out under
Principles 1-10, the omitted disclosures must be identified and the reason for their
omission explained.
Comment
a) See Corporate Governance Report on pages 53 to 54.
The Board maintains a healthy dialogue between it and its stakeholders including its shareholders. The Chairman is
primarily responsible for communicating with shareholders, but the CEO maintains regular dialogue. The SID is also
available to communicate with shareholders as required.
Copies of the Company’s report and accounts, and all other shareholder communications are maintained on the Company’s
website.
b) See pages 60 to 61.
c) See pages 65 to 71.
d) The Company has published all of the disclosures set out under Principles 1-10.
- 52 -
CORPORATE GOVERNANCE FRAMEWORK
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 ensuring that the Company has a robust
governance framework in place, ensuring that governance is appropriately embedded
throughout the business. The Company holds regular Board meetings at which financial,
operational, risk and other reports are considered and, where appropriate, voted on. The
Board Committees provide regular updates at the meeting. The Board is responsible for
the Group’s strategy, performance, risk, key financial and compliance issues, approval of
any major capital expenditure and the framework of internal controls.
The Chairman has overall responsibility for the management of the Board, which in turn
oversees the Company’s strategy and operational and financial performance, and manages
business requirements through a formal schedule of matters reserved for decision making.
An annual rolling Board agenda helps ensure that matters of governance are addressed
throughout the year.
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. As at 23 April 2024, there are a total of 11
directors of which seven are Independent Non-Executive Directors one of whom (Malcolm
Webb) acts as Senior Independent Director who provides additional support to the
Chairman. 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, ESG report and internally through
its communications to its employees and other stakeholders.
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 annual 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 2023, the Board of the Company consisted of the Non-Executive
Chairman, the Chief Executive Officer, Chief Financial Officer, six Independent Non-
Executive Directors and two Non-Executive Directors. The Chair and Malcolm Webb, as the
- 53 -
senior Independent Non-Executive director, along with the other Independent Non-
Executive Directors ensure that the Board remains independent. All the Independent Non-
Executive Directors are independent in character and judgement. The appointments of
Robert Lawson and Guillaume Vermersch as Non-Executive Directors in March 2023
following the Company’s acquisition of Tailwind Energy Investments Ltd strengthen the
Board further.
The Board is mindful of the importance of ensuring that the directors have a mix of
experience, skills, independence and diversity across the Board.
During 2023, Michiel Soeting was appointed to the Board bringing a wealth of financial
experience, following the retirements of Antony Craven Walker and Trevor Garlick in 2023,
the appointments of Kaat Van Hecke and Sian Lloyd Rees as Independent Non-Executive
Directors continues to provide the Board with a wide 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. The appointment of Martin Copeland,
replacing Andrew Bell as Chief Financial Officer which was announced to the market on 5
February 2024 will bring a full range of financial capabilities and relevant market
knowledge.
There are to be further changes as announced to the market in February 2024 and 16
April 2024 with the departure of Mitch Flegg as CEO and David Latin (Chairman of the
Company) taking on the role of Interim CEO effective 24 April 2024) for a period of time
whilst the Board secures a successor to Mr Flegg. Malcolm Webb has informed the Board
of his wish not to stand for re-election at the AGM.
Board Committees and Structure
The Board has the following Committees: Nominations Committee, Audit Committee
(including Reserves Committee), Health, Safety & Environment Committee, Remuneration
Committee and Sustainability 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 58 to 71.
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.
David Latin
Non-Executive Chairman
23 April 2024
- 54 -
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.
As set out in our report last year, it was recognised that, with the expansion of the Board
in parallel with the growth 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 and its
Committees was required. In November 2023 performance evaluations of the Board and
of each of its Committees was undertaken by an external advisor (Nurole) where
recommendations were put to the Board and each Committee for review. Key themes
emerged from this review including Board appetite for increased focus on strategy and
growth.
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 quoted company. 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 three new appointments made in the last
twelve months, together with the CEO change as announced in February 2024, with full
consideration of diversity aspects where this is possible and uses independent external
advisers to help the Board meet these objectives. The Nominations 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. The
assistance of an external recruitment advisor was used to make recent Independent Non-
Executive Director appointments and, if assistance with recruitment is required by the
Committee, this will continue to be made available.
The Nominations Committee is mindful of the Board’s performance and composition
together with the performance of individual Directors and senior management.
- 55 -
Matters Reserved for the Board
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.
Structure and Capital
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.
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 £20m; major capital contracts over £20m; 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.
Communications
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 Succession Planning
Director appointments and succession planning for the Board and senior executives is evaluated on a regular
basis commensurate with good corporate governance practice on diversity, experience and skills and the evolving
needs of the Company.
Remuneration
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.
Delegation of Authority
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.
Other
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.
- 56 -
Directors’ attendance at meetings
The Directors’ attendance at Board meetings and Board committees during 2023 is detailed
in the table below:
Adhoc
Board
(which
include
administrative
meetings (e.g.
share
allotments
where the
whole Board
is not
required)
Director
Board
(attended/eligible
to attend
Audit Remuneration Nominations HSE
Reserves
Sustainability
D. Latin*
A. Craven
Walker**
M. Flegg
M. Webb
T. Garlick**
K. Coppinger
A. Bell
J. Schmitt
M. Soeting***
K. Van
Hecke***
S. Lloyd
Rees***
R. Lawson***
G.
Vermersch***
Notes:
9/9
5/5
9/9
9/9
4/5
9/9
9/9
9/9
8/8
4/4
4/4
7/7
7/7
5
4
6*
5*
1
5
1
5
5
1
5
5
5
5
4
4
5
5
5*
4
3*
1
5
8
7*
4
1
2
4
2
2*
1*
2*
8*
3
2
2
2*
3
3*
1
During the year, following a change in the composition of the Board, there were a number of changes
made to each Committee membership including changes made to the Chair of each Committee.
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 chair, the number of meetings attended by
non-committee members have not been recorded in the above table.
*Chair
** Antony Craven Walker retired from the Board on 30 June 2023 and Trevor Garlick retired from
the Board on 17 July 2023.
- 57 -
*** Michiel Soeting joined the Board in February 2023, Rob Lawson, Guillaume Vermersch joined
the Board on 23 March 2023 and Kaat Van Hecke and Sian Lloyd Rees joined the Board on 17 July
2023.
NOMINATIONS COMMITTEE REPORT
CORPORATE GOVERNANCE COMMITTEE)
(PREVIOUSLY NOMINATIONS &
The Nominations Committee assisted the Board on succession planning at senior level and
on matters related to Corporate Governance.
Following changes to the Company’s Board composition in March 2023, the Committee’s
membership comprised Malcolm Webb (Senior Independent Non-Executive director and
Committee Chair), David Latin (Non-Executive Chairman of the Company) and Robert
Lawson (Non-Executive Director). In March 2024 and anticipating his taking up the role of
Interim CEO in April 2024, David Latin stood down from the Committee to be replaced by
Kate Coppinger (Independent Non-Executive Director).
Also in March 2024, the Committee’s Terms of Reference were refocussed solely on
matters related to succession planning and senior appointments with full responsibility for
Corporate Governance returned to the Board and its Chairman, advised by the Company
Secretary.
The Committee met seven times during 2023, and has, so far, met four times in 2024.
Independence of Non-Executive Directors
Following a review and enquiry, including consideration of relevant factors as outlined in
the updates made to the QCA Code in 2023, the Committee and the Board are satisfied
that each Independent Non-Executive director of the Company remains independent and
that all of the Non-Executive Directors continue to have sufficient time to discharge their
responsibilities to the Company.
Board changes
Michiel Soeting was appointed as an Independent Non-Executive Director in February
2023. Pursuant to the terms of the Tailwind acquisition agreement, Guillaume Vermersch
and Robert Lawson were appointed as Non-Executive Directors in March 2023. Antony
Craven Walker and Trevor Garlick (Independent Non-Executive Director) retired from the
Board in June and July 2023 respectively. David Latin replaced Mr Craven Walker as Non-
Executive Chairman in June 2023. Kaat Van Hecke and Sian Lloyd Rees were appointed as
Independent Non-Executive Directors in July 2023. In February 2024 and April 2024, the
Company announced that Mitch Flegg would be stepping down as CEO and that David Latin
(Chairman of the Company) would also assume the role of Interim CEO until a permanent
replacement is appointed.
The Committees activities during 2023 and into early 2024 included:
• Maintaining and helping the Board to implement succession plans at Board and
Senior Executive level.
Introducing a new induction process for directors.
• Assisting on the streamlining and hence improved efficiency of Board processes.
• Advising on the membership of Board Committees.
•
• Assisting the Chairman to conduct Board and Committee evaluations with external
professional advisers (Nurole), which evaluations, whilst confirming the strength of
the Board and its Committees, also gave practical suggestions for continued
improvement, which were accepted and are being acted on.
• Updating of the terms of reference of all Board Committees.
• Advising on the adoption of the QCA 2023 Corporate Governance Code.
- 58 -
2024 Looking Forward:
The scope of the Committee changed in March 2024 with the decision that oversight of
‘Corporate Governance’ should be elevated and reinstated as a prime responsibility of the
Board, led by the Chairman with professional support and advice from the Company
Secretary. This in turn allows the Committee, now renamed Nominations Committee, to
focus its time and attention on:
• Evaluation of the effectiveness of the Board and its Committees.
• Reviewing the independence and ability of Non-Executive Directors to fulfil their
duties as directors of the Company.
• Succession planning for Board and Senior Executive roles.
• The recruitment and continuing education of directors.
Malcolm Webb
Chair of the Nominations Committee
23 April 2024
- 59 -
AUDIT COMMITTEE REPORT
Purpose and Responsibilities
The Audit Committee is a standing committee of the Board and reviews and makes
recommendations to the Board on all material financial decisions affecting the Company,
including:
• Any change in accounting policies.
• Requiring a major element of judgement and risk.
• With accounting standards and legal and regulatory requirements.
• Disclosures in the interim and annual report and financial statements.
• Reviewing the integrity 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.
An essential element of the integrity of the financial statements concerns the key
assumptions and judgements to be made. The Committee reviews key judgements 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 judgements exercised by management on material items contained
within the Report and Financial Statements are reasonable.
Membership
The Committee’s membership was reviewed during the year following various Board
appointments and now comprises Michiel Soeting (Committee Chair), Kate Coppinger and
Kaat Van Hecke all of whom are Independent Non-Executive Directors. The Chief Financial
Officer and Group Treasurer and external auditors are also invited to attend the meetings.
Mr Soeting (Committee Chair), a qualified Chartered Accountant has over 30 years’
experience in the audit and financial sector, 20 of which in oil and gas. Mr Soeting has
extensive financial expertise and strong experience in governance, risk management and
regulatory compliance related matters.
The Committee meets at least four times a year and in 2023 met on six occasions. It has
met three times so far in 2024. The Committee also holds private sessions with
management and with the external auditor without management present whenever it
deems it appropriate to do so.
2023 activities and into early 2024 included:
• Reviewing the financial reporting judgements and key accounting estimates
associated with the Company’s full and half-year results.
• Reviewing the impact of the Energy Profits Levy, introduced in the United
Kingdom.
• Considering scenarios for climate-related disclosures in the Annual Report.
• Reviewing the Company’s Hedging Policy including risks and threats.
• Reviewing and agreed an audit tender policy.
• Reviewing and updated the Committee Terms of Reference.
• Agreeing a Committee work programme for 2024.
• The Committee was satisfied that the Group does not currently require an
internal audit function, although this will be kept under review as the Company
continues to grow.
- 60 -
• Reviewing and made recommendations to the Board regarding dividends and
other payments which could be made to shareholders by the Company during
the course of the year.
• Reviewing the findings of the Reserves Committee.
• Reviewing and overseeing the succession of the Chief Financial Officer.
• Making a recommendation to the Board to approve a hedging policy.
External Auditors
The external auditors, EY, were re-appointed in 2023 at the Company’s annual general
meeting. The Serica Group fee to EY for the financial year to 31 December 2023 is
£885,000. The Audit Committee undertook a comprehensive review of the quality,
effectiveness, value and independence of the audit provided by EY each year.
The Committee is comfortable that EY’s audit remained independent during the year.
Auditor independence is considered at the planning phase of each corporate reporting
cycle. Management upon the request of the Committee are also in the process of putting
in place a policy for non-audit services to be provided by EY. EY assigned a new audit
partner after the previous audit partner had served a maximum term of 5 years. In 2023,
the Committee introduced an Audit Tender Policy which requires a tender process to be
run every 10 years with effect from 2018 when the Company underwent a major and
transformative change in its size and the scope of its operations.
2024 looking forward:
The Committee, will continue to work according to its Terms of Reference, and in
particular:
• Continue to oversee the transition of the Chief Financial Officer during the year.
• Keep under review the Company’s existing control framework.
• Ensure that risk management procedures and controls over financial reporting
remain appropriate.
• Continue to consider whether there is a need for an internal audit function.
• Continue to assess the Company’s hedging policy and practice.
• Continue to adhere to the Quoted Companies Alliance Corporate Governance.
Code (‘QCA Code’), Audit Guide and updates made to the QCA code in 2023.
• Review the appropriate climate related disclosures within the Annual Report.
• Consider whether a dividend or other payments can be made to shareholders
under the Company’s financial framework.
• Review the quality and independence of the Company’s external auditors.
• Undertake a review of its Terms of Reference.
Michiel Soeting
Chair of the Audit Committee
23 April 2024
- 61 -
RESERVES COMMITTEE REPORT
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 Independent Non-Executive
Directors.
The Committee composition changed during the year after Trevor Garlick retired from the
Board and David Latin replaced Antony Craven Walker as Non-Executive Chairman of the
Company in June 2023. The current Committee members are Kaat Van Hecke who joined
the Board in July 2023 (Independent Non-Executive director and Committee Chair), Mitch
Flegg (Chief Executive Officer of the Company) and from April 2023 Michiel Soeting
(Independent Non-Executive director). The Committee met once in 2023 and typically
meets once a year prior to publication of the annual results. The VP Technical is invited to
attend the meeting. David Latin will join the Committee following Mitch Flegg’s departure.
2023 activities and into early 2024 included:
• Working with the reserves auditor, RISC Advisory, who audited the work carried
out by the Company’s technical team to calculate reserves in respect of each field.
• Meet with management and the qualified reserves auditor to review the reserves
data and the auditor's annual reserves report.
• Discussing assumptions related to cessation of production and life extension.
• Reviewing assets added to the portfolio since the last CPR (Tailwind acquisition)
and the evaluation process used to incorporate them into the reserves of the
expanded portfolio.
• Reviewing and recommending to the Board approval of the content and filing of the
Company’s annual statement of reserves.
Kaat Van Hecke
Chair of the Reserves Committee
23 April 2024
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HEALTH, SAFETY & ENVIRONMENT COMMITTEE REPORT
The Health, Safety & Environment Committee provides assurance to the Board on
occupational health & safety leadership. It is primarily focused on ensuring that health &
safety policies are adopted and applied across the Group. Until last year, Environmental,
Social and Governance (ESG) also fell under the Committees remit, however a separate
Sustainability Committee was established focusing primarily on monitoring environmental
performance, tracking our emissions reduction action plan projects (ERAP), ESG reporting
and reviewing investment options in the energy transition sector.
The Committee composition changed during the year after Trevor Garlick retired from the
Board and David Latin replaced Antony Craven Walker as Non-Executive Chairman of the
Company in June 2023. The current Committee members are Kaat Van Hecke who joined
the Board in July 2023 (Independent Non-Executive director and Committee Chair), Mitch
Flegg (Chief Executive Officer of the Company) and Jérôme Schmitt who joined the
Committee in July 2023 (Independent Non-Executive director). The VP Operations is
invited to attend the meeting to present his report. David Latin will join the Committee
following Mitch Flegg’s departure.
During 2023, the Committee has met quarterly to discuss matters pertaining to Health &
Safety issues. The Committee consider 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.
2023 activities and into early 2024 included:
• Evaluating HSE performance against industry standards and acted on Regulator
feedback.
• Monitoring interactions with the HSE inspector and ensured that the relationship
with the Regulator is constructive and responsive.
• Monitoring delivery of HSE performance against the HSE and Risk Management
Plan at each meeting.
• Monitoring HSE performance of personal and process safety metrics, looking
at both leading and lagging indicators.
• Reviewing major and reportable HSE incidents that occurred, investigations and
lessons learned at each meeting.
• Reviewing Maintenance Backlogs and the Innovative Campaign Execution Plan to
address the backlog at each meeting.
Integration of Tailwind and reviewing Health and Safety on the Triton Vessel.
•
• Conducting a risk review of the upcoming well work and drilling programme.
• Reviewing and fed into the Process Safety Improvement Plan.
• Agreeing with the Remuneration Committee the HSE performance metrics linked
to the Company bonus scheme.
• Reviewing the Committee Terms of Reference.
2024 looking forward:
During 2024, 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 2024 plan, agree a HSE bonus scorecard for
2024 to be linked to the Company bonus scheme for 2024 and ensure that the HSE policy
and procedures remain effective. The Committee will continue to monitor progress against
the maintenance backlog campaigns and start to monitor the effectiveness of the process
safety improvement plan.
Kaat Van Hecke
Chair of the Health and Safety and Environmental Committee
23 April 2024
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SUSTAINABILITY COMMITTEE REPORT
The Sustainability Committee was formed in early 2023 and provides assurance to the
Board on Environmental, Social and Governance (ESG) which previously fell under the
Health & Safety Committee’s remit. The Sustainability Committee focuses primarily on
monitoring environmental performance, tracking our emissions reduction action plan
projects (ERAP), ESG reporting and reviewing investment options in the energy transition
sector. In addition, the Committee oversees and advises the Board on the Company's
strategies, goals and commitments related to sustainability and ESG. The strategies, goals
and commitments include but are not limited to: diversity and inclusion, human rights,
human capital management and supply chain management. A separate ESG Report is
also published separately.
The Committee members are Jérôme Schmitt (Independent Non-Executive director and
Committee Chair), Mitch Flegg (Chief Executive Officer of the Company) and Sian Lloyd
Rees (Independent Non-Executive director). The VP Operations, VP ESG, Business
Innovation, ESG Analyst and Energy Transition Engineering Advisor are invited to attend
the meetings. David Latin will join the Committee following Mitch Flegg’s departure.
During 2023, the Committee has met quarterly to discuss matters pertaining to ESG.
The Committee’s role is to assist the Board in fulfilling its responsibility to review and
provide oversight of the Company’s strategies, goals, policies, procedures, performance
and disclosure related sustainability and ESG matters.
2023 activities and early into 2024 included:
• Establishing the Committee Terms of Reference.
• Reviewing the results of the Materiality Survey sent to the Company and its
stakeholders (including employees, contractors and suppliers) and the Materiality
Matrix 2022 and changes since 2021.
• Reviewing and discussed the Company’s ESG Rating Scores received from scoring
agencies in comparison with its peers.
• Advising the Remuneration Committee of the agreed ESG performance metrics
linked to the Company bonus scheme.
• Reviewing the Bruce Asset Emissions Reduction Action Plan (ERAP) and project
progression plan.
• Reviewing the Taskforce on Climate Related Financial Disclosures workplan to
understand the Company’s reporting obligations.
• Reviewing the Government’s approach to energy security and delivering Net Zero.
• Reviewing the Methane Action Plan.
• Reviewing the environmental performance on Bruce and Triton.
• Considering and monitoring the ERAP together with potential projects and
investment criteria.
• Overseeing and reviewing Serica’s Climate Related Risk Register.
• Considering the Company’s Sustainability Roadmap and provided feedback to
management.
2024 looking forward:
During 2024, the Committee plans to continue to monitor plans to reduce carbon intensity
and emissions and track against targets, review potential energy transition projects and
ensure transparent and comprehensive ESG reporting.
Jérôme Schmitt
Chair of the Sustainability Committee
23 April 2024
- 64 -
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. The Committee also
reviews and makes recommendations based on benchmarking data relating to the
attraction, compensation, evaluation and retention of Executive Directors and key senior
management. The Committee aims to ensure that fair and competitive compensation is
awarded with appropriate performance incentives across the Company.
The Committee comprises Kate Coppinger (Independent Non-Executive Director and
Committee Chair from June 2023), Michiel Soeting (Independent Non-Executive Director
from February 2023) and Sian Lloyd Rees (Independent Non-Executive Director from July
2023). Malcom Webb (Senior Independent Non-Executive Director) was a member of the
Committee until March 2024 and David Latin was Chair and member of the Committee
until June 2023. The Committee met eight times in 2023 and has, so far, met four times
in 2024.
The Committee invites the Chief Executive Officer to attend meetings to provide business
context, but he is not present when his own remuneration is discussed. FIT Remuneration
Consultants LLP (FIT) attended some meetings to provide external support. FIT is a
founding member of the Remuneration Consultants Group and is a signatory to its Code
of Conduct. FIT provides no other services to the Company.
Consideration by the Committee of matters relating to Directors’ remuneration
The Committee is responsible for reviewing and deciding the framework for the
remuneration of the Executive Directors, Chair of the Board and other members of key
senior management. The Committee works within its terms of reference, and its role
includes:
•
•
•
•
•
•
•
•
•
•
•
Reviewing the Company's overall remuneration philosophy and programmes.
Determining the remuneration policy for all Executive Directors and, under
guidance of the Executive Directors, other members of the key senior
management team.
Ensuring Executive Director remuneration packages are competitive.
Determining the structure of the annual bonus plan, determining annual bonus
outcomes and approving payments to the Executive Directors.
Determining each year whether any awards/grants should be made under the
incentive schemes and the value of such awards.
Consider recommending to the Board launching a Save As You Earn invitation
on an annual basis.
Considering long-term incentive (LTIP) scheme awards and performance
criteria.
Reviewing share allocation and employee share schemes and recommending
to the Board the framework for all employee share schemes.
Agreeing service contracts and notice periods.
Reviewing the Gender Pay Gap.
Reviewing the Company’s compliance with any applicable Corporate
Governance Code in relation to remuneration policy.
The Company is committed to maintaining an open and transparent dialogue with
shareholders on all aspects of Remuneration within the Group.
- 65 -
The Committee’s activities in 2023 and early 2024 included:
• Reviewing the measures and targets for the all employee cash bonus scheme for
2023.
• Agreeing the 2023 salary increases for the Executive Directors following a third
party benchmarking exercise.
• Approving the grant of LTIP awards for 2023.
• Recommending that the Board approve a Sharesave Scheme invitation for 2023.
• Approving the vesting of performance awards granted in 2020.
• Approving the outcome of the 2023 cash bonus (to all employees) and the
discretionary executive bonus.
• Reviewing pay according to job groupings across the Company and being satisfied
that no gender pay gap exists.
• Recommending to the Board making a change to the measurement of the share
price performance condition of the 2022 LTIP award under the LTIP Plan to ensure
that share price performance is measured over the final six months during the three
year performance period.
• Approving the compensation package for Martin Copeland as the new CFO.
• Approving the compensation for David Latin as the new Chairman of the Board.
• Reviewing and recommending changes to be made to the Committee Terms of
Reference.
• Approving the compensation package for the temporary arrangements for David
Latin as interim CEO and reviewing and approving the exit arrangements for Mitch
Flegg.
Looking forward to 2024, we anticipate the following:
• Following the recent updates made to the Quoted Company Alliance Code (QCA
Code) 2023 and in particular new Principle 9, one of the key changes relates to
remuneration and requires companies to put in place a formal remuneration policy
(‘Policy’) that is supportive of long-term value creation and the company’s purpose,
strategy and culture. The Committee has engaged FIT to help review the Policy for
compliance with the QCA Code and wider market practice prior to considering any
future formal vote.
Further, the application requirements of Principle 9 also states that the
remuneration report should be put to an advisory vote at the AGM. The Committee
reviewed the requirements and has made a recommendation to the Board to adopt
this approach for the 2024 AGM which is earlier than required by the new QCA
Code.
• Approving the compensation package for the new CEO when appointed.
• Continuation of key Committee tasks as set out in the Committee’s Terms of
Reference.
Executive Directors’ service contracts.
The Company’s policies on Directors’ service contracts are indicated below:
Director
Effective term
Notice period
Mitch Flegg
21 November 2017
Andy Bell
3 September 2021
Martin Copeland
5 February 2024
6 months from Executive
12 months from Company
6 months from Executive
6 months from Company
6 months from Executive
6 months from Company
- 66 -
Executive remuneration
The table below sets out the single total figure of remuneration and breakdown for each
Executive Director paid for the 2023 financial year.
Mitch Flegg
£575,000
£624
£75,791
£371,306
£1,022,721
£651,415
Salary
Benefits
Pension
Allowance
Annual
Bonus
Total
Total
fixed pay
ADDITIONAL DETAILS
Base salary
Andy Bell
£345,000
£1,266
£45,475
£247,227
£638,968
£391,741
Mitch Flegg was awarded a 9.94% increase to £575,000 with effect from 1st January 2023.
This increase reflected that the size and scale of the role had increased significantly
following the Tailwind acquisition and the Committee felt it was necessary to recognise
Mitch’s experience and performance in the role. Andy Bell was awarded an increase of
5.18% to £345,000 with effect from 1st January 2023. The average increase for all other
employees in 2023 was 8%.
Benefits and Pension
The Executive Directors are entitled to a suite of company benefits which include private
medical insurance and income protection insurance. A cash allowance of 13% of salary
(which is aligned to that of the wider workforce) is payable in lieu of membership to the
Company’s pension scheme.
Annual Bonus
The annual bonus maximum for 2023 was set at 125% of salary for the CEO and 100% of
salary for the CFO. These award levels were set taking into account the size and scale of
the business, particularly following the Tailwind acquisition.
For 2023, the annual bonus was based on a scorecard of measures featuring:
• Share price performance, production performance and HSE/ESG performance
(40% weighting).
• Successful integration of Tailwind (10% weighting).
• Value creation (20% weighting).
• Personal and organisational development (10% weighting).
•
Increasing shareholder confidence (20% weighting).
The targets were set to be challenging, yet realistic in light of market conditions, internal
forecasts and external consensus.
Achievement against the scorecard was assessed by the Committee, taking into account
input from the HSE Committee and other independent directors as appropriate. When
determining performance, the Committee considered a number of quantitative and
qualitative factors which included, for example; production levels, overall safety
performance and carbon dioxide emissions.
- 67 -
The Committee determined the annual bonus for 2023 was £371,306 for the CEO and
£247,227 for the CFO. The Committee considered the bonus outcomes in light of wider
stakeholder experience and was satisfied that no adjustments were required.
Share Incentive Plans
The Company operates two discretionary incentive share 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 to Directors and employees of the
Group; and (ii) 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 is
known as the "Discretionary Plan". The Discretionary Plan 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 Plan is to align the interest of Directors, officers and
employees with shareholders. It is also designed to encourage them 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.
Vested awards are satisfied through the issuance of new shares.
Following the approval of the Company’s 14p per share final 2022 dividend to shareholders
in 2023, 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.
Serica 2005 Option Plan
Antony Craven Walker, who stepped down as Chairman at the 2023 AGM was previously
granted, when serving in an executive capacity 2,500,000 options under the 2005 Plan,
Following his retirement, Mr Craven Walker exercised all options in full in 2023 at the
following prices:
Number of
Options
Exercise
Cost
1,000,000
1,000,000
500,000
£0.12
£0.18
£0.24
Long Term Incentive Plan
The Company operates 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 to executive directors, senior employees and on some occasions to all employees
of the Company.
Performance Share Awards were granted in May 2023 (vesting in May 2026) at (125% of
salary for Chief Executive Officer (‘CEO’) and 100% of salary for the Chief Financial Officer)
which were subject to the achievement of absolute share price performance over a three-
year period (50% weighting) and specific carbon intensity reduction targets to the period
ending 31 December 2025 (50% weighting). The Performance Share Award granted in
- 68 -
2023 to the CEO was increased from 100% of salary in previous years following advice
taken from external remuneration consultants (FIT).
Share price performance is to be assessed using the average share price over the final six
months of the three-year performance period. The target range used for both measures
includes a sliding scale with none of the award vesting at Threshold (300p) and rising pro-
rata to full vesting for achieving the Maximum (500p).
The performance condition on carbon intensity is based on the Company’s operated
portfolio. The target is to achieve a 10% improvement in the weighted average carbon
intensity from the operated portfolio. In 2022 the weighted average was 17.5kgCO2/boe
(‘Current Carbon Intensity’), the target is therefore set as an average of 15.7kgCO2/boe
(over any calendar year) (‘Lowest Average Carbon Intensity’). For the condition to be met
in full, the Lowest Average Carbon Intensity must be lower than an average of
15.7kgCO2/boe over any calendar year during the CO2 performance period (1 January
2023 until 31 December 2025).
The target is tested on a yearly basis and a proportion of the award (one third of the award
each year) attributed to carbon intensity is capable of being met when tested at 31
December 2023, 31 December 2024 and 31 December 2025.
If the Lowest Average Carbon Intensity is lower than the Current Carbon Intensity as at
31 December 2023, the target for the first calendar year would have been met and one
third of the Performance Share Award attributed to carbon intensity can be exercised upon
vesting of the award. The target will be tested again at 31 December 2024 (second
calendar year) and 31 December 2025 (third calendar year) to determine whether the
target has been met and the proportion (one third of the award each year) of the
Performance Share Award attributed to carbon intensity is capable of exercise upon vesting
of the award.
For the avoidance of doubt, if the Lowest Average Carbon Intensity is equal to or higher
than the Current Carbon Intensity over any calendar year during the CO2 performance
period, then that proportion attributed to carbon intensity will lapse and will not be capable
of exercise.
The target in respect of the 2020 Performance Share Awards were met and vested in full
on 18th May 2023. The target share price of 207.2p (representing a 100% increase from
the base price (103.6p)) was met in full as externally verified.
All Performance Share Awards are structured as nil-cost options and may be exercised up
until the tenth anniversary of the date of grant. The table below shows the outstanding
LTIP awards.
Director
Antony
Craven
Walker*
Mitch
Flegg
Andy
Bell
2023
2022
-
49,942
2021
2020
(vested
in full)
407,881 386,100
319,444
147,615
587,349 386,100
153,333
92,576
306,210 224,478
472,777
378,491
1,480,908 996,678
*Awards made to Antony Craven Walker in 2021 and 2022 were pro-rated due to his
retirement, pro-rated figures are set out in the table above. Following his retirement, all
vested awards granted to Antony Craven Walker were exercised in full in 2023.
- 69 -
Performance Share Awards were granted 2021, 2022 and 2023, and were subject to
different vesting criteria based on absolute share price performance and ESG performance
targets to be met.
Participants are entitled to dividend equivalents on vested awards.
THE CHAIR, THE INDEPENDENT NON-EXECUTIVE DIRECTORS AND THE NON-
EXECUTIVE DIRECTORS
From 1 April 2023 the Non-Executive Directors’ (NED’s) and Independent Non-Executive
Directors’ (‘INEDs) base fees were increased from £50,000 to £60,000. A decision was
made to increase these fees to be more reflective of the work undertaken by the NEDs
and INEDs. Additional Board Committee Chair fees remained unchanged at £10,000. The
Company Chair fee is £200,000.
Independent Non-
Executive Directors &
Non-Executive
Directors
Pro-
rated
Director
Fees
Pro-rated
Board Chair/
Committee
Chair Fees
Total fees (£)
Antony Craven Walker*
(until 29/06/2023)
Malcolm Webb
Trevor Garlick
(until 17/07/2023)
Kate Coppinger
Jérôme Schmitt
(committee chair from
01/04/2023)
Michiel Soeting
(Director from 01/02/2023
and committee chair from
01/04/2023)
David Latin*
(Independent Non-Executive
Director until 28/06/2023 &
Company Chair from
29/06/2023)
Robert Lawson
(from 23/03/2023)
Guillaume Vermersch
(from 23/03/2023)
Kaat Van Hecke
(from 17/7/23)
Sian Lloyd Rees
(from 17/7/2023)
-
-
-
57,500
30,038
57,500
57,500
10,000
5,423
10,000
7,500
£67,500
£35,461
£67,500
£65,000
53,333
7,500
£60,833
57,500 5,833 for chair
of the
Remuneration
Committee and
£100,000 for
chair of the
Company
46,346
46,346
-
-
£163,333
£46,346
£46,346
27,538
4,590
£32,128
27,538
-
£27,538
* Following Mr Craven Walker’s appointment as Non-Executive Chair on 1 July 2022 his annual fees
for the role of Non-Executive Director and Non-Executive Chair were £50,000 and £125,000 per
annum respectively. However, Mr Craven Walker waived his entitlement to both the Non-Executive
Director and Non-Executive Chair fees until July 2023 while he was receiving payment in lieu of the
one year notice served during 2022 under his Executive Service Contract. The total payment for
2022 was £490,000 and in 2023 was £245,000.
Following Mr David Latin‘s appointment as Non-Executive Chair on 28 June 2023 his annual fees for
the role of Non-Executive Director and Non-Executive Chair were pro-rated as follows:
- 70 -
Chair Fee INED Fee
-
£27,500
Chair
Committee
Fee
£5,833
of
Total
Note
£33,333
Pro-rated
£100,000
£30,000
-
£130,000
Pro-rated
1 January – 29 June
2023
INED and Chair of
Remuneration
Committee
1 July - December
2023 Chairman Fees
DIRECTORS’ (AS AT END OF 2023) OUTSTANDING SHARE AWARDS
Name:
Andy
Bell
Mitch
Flegg
Grand
Total
2018 award 2019 award 2020 award 2021 award
2022 award
2023 award
Grand
Total
800,000
234,308
224,478
306,210
92,576
153,333
1,810,905
1,500,000
411,067
386,100
587,349
147,615
319,444
3,351,575
2,300,000
645,375
610,578
893,559
240,191
472,777
5,162,480
*M. Flegg’s 2022 and 2023 award will be pro-rated on his departure.
Mr Bell and Mr Flegg are entitled to dividend equivalents on vested awards.
Kate Coppinger
Remuneration Committee Chair
23 April 2024
- 71 -
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
the need to act fairly as between members of the Company.
f.
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.
• Personal development reviews and work appraisals 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 favorable.
• Newsletters and management updates are provided.
• Team-building sessions and social events are arranged.
- 72 -
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.
Suppliers, Customers and Regulatory Authorities
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’.
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. Recently, the Board has put in place a dedicated Sustainability Committee, who
focusses primarily on sustainability, environmental and social aspects of the Company.
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 sustainability 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 quarterly meetings, the recently formed Sustainability Committee 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 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.
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
- 73 -
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, QCA Code disclosure
and 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 AGM are available to all shareholders. The Company also published its ESG
report in 2022 which is available to all shareholders. The Interim Report and other investor
presentations are also available on our website.
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.
On behalf of Board
David Latin
Non-Executive Chair
23 April 2024
- 74 -
Environmental, Social and Governance (ESG)
Our investment in growing ESG awareness throughout the business and building
environmental concerns into our decision-making, made 2023 a year of significant
emissions savings on our Bruce facilities. One of the major factors in our Scope 1emissions
reductions was during an important maintenance campaign, where colleagues opted to
install a temporary power unit that used much lower volumes of diesel and slashed our
emissions.
We comfortably achieved both our emissions and flaring targets for the year and in other
key ESG metrics, including carbon intensity and oil-in-water, we also had our best year-
to-date.
Our commitment January 2023
Total flare below 5,000 tonnes
Scope 1 CO2 emissions below 200,000 tonnes
Outcome
4,708 tonnes
179,447 tonnes
✓
✓
We continue to include ESG-related targets for Serica-operated facilities in the company-
wide staff remuneration scheme. Our 2024 ESG bonus-related target for the Bruce
facilities is to further reduce its Scope 1 carbon intensity, to 15.5 kg CO2/boe, which will
be our lowest level ever.
In 2023 we stepped up our efforts on methane reduction and joined OGMP 2.0, the UN’s
flagship oil and gas reporting and mitigation programme and have started our journey
towards gold standard status. As part of our membership, we developed a Methane Action
Plan, kicking off with aerial methane surveys of our Bruce facilities. Another innovation
contributing to the significant reduction in our emissions, was the isolation of a vent line
in our glycol unit, which resulted in diverting gas away from the vent line to be processed
instead.
Reinstatement of a water injection well dedicated to eliminating oil in water over-boarding
was completed in April 2023, reducing our oil discharged from 0.9 to 0.2 tonnes.
Following our acquisition of Tailwind Energy, we integrated the Triton area and Orlando
assets into our portfolio. As these assets are not under our direct control their emissions
are classified as ‘Scope 3’. We use our influence to help the operators to find better ways
to monitor and reduce emissions. We have participated in partner workshops and shared
best practice and knowledge to help the operators to develop their own Emissions
Reduction Plans.
Serica has been actively involved in industry-wide initiatives to reduce emissions from oil
and gas production, including the Atmospherics group of Offshore Energies UK, the NSTA
Emissions Reduction Group and the Technology Leadership Board. The Company’s
commitment to research into delivering cleaner energy continues, including investment in
research into flare gas combustion, alternative fuels and offshore electrification, also
supporting research and development of wave energy technology.
Serica now has just over 200 employees and we empower them to give back to their
communities by participating in activities relating to charity, D&I and education. During
2023 we stepped up our education outreach, partnering with schools and universities in
educational events, offering paid summer placements and apprenticeships and sponsoring
a university team in their design of a solar-powered racing car. To help young people in
their career preparation we became a Young Persons Guarantee employer. Our charitable
work drew together many members of staff on and offshore, in Aberdeen and London,
supporting causes close to their hearts like mental health and support for people with
cancer.
Many ex-Services personnel join our industry and become highly-valued colleagues. With
this in mind, we founded an Armed Forces Support Group, and were proud to be awarded
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silver status from the Armed Forces Covenant. During the year we instigated the
foundation of an industry-wide forum which is now gathering momentum.
Our Board
Strong and effective governance is bolstered by the experience of the Board. During 2023
we welcomed five new Board members, increasing the number of independent non-
executive directors to broaden both its diversity and experience. We set up a dedicated
Sustainability Committee to focus on ESG-related risks and opportunities and to enhance
sustainability governance. Serica is a signatory to the UN Global Compact and aligns with
TCFD reporting recommendations.
Greenhouse Gas Emissions disclosure
We are aligned to the North Sea Transition Deal, a deal backed by the UK Government
and industry to reach a net-zero UKCS basin by 2050, with targets to reduce CO2 emissions
by 10% by 2025, 25% by 2027, 50% by 2030 and 100% by 2050 from a 2018 baseline.
To meet these targets, we have developed and begun to implement our Emissions
Reduction Action Plan (ERAP), which sets out the projects that we need to implement to
lower our emissions from the Bruce Platform. At the end of 2023, our Scope 1 emissions
had fallen by over 20% compared to 2018.
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.
The Bruce facilities qualifies for the UK Emissions Trading Scheme and so our emissions
are reported, audited and verified based on this scheme. In 2023 our UK ETS emissions
were 179,447 tonnes of CO2, a reduction compared to our 2022 emissions which were
218,567 tonnes. Energy consumption on Bruce in 2023 was 835 GWh compared to 1,017
GWh in 2022. Carbon intensity, which is CO2 emissions divided by production, was 16.36
kg CO2/boe in 2023, which is similar to 2022’s carbon intensity of 16.37 kg CO2/boe.
Much of the reduction in emissions compared to 2022 was due to an extended maintenance
shutdown in the summer, which reduced the number of days the platform was operational
and its associated emissions. However, emissions during the shutdown were actively
reduced by installing a new Temporary Power unit which saved approximately 5,500
tonnes of CO2 compared to using the incumbent power generators. This project was the
first item in our ERAP to be implemented.
Scope 2 emissions make up less than 0.01% of our total emissions and refer to the indirect
GHG emissions generated from purchased or acquired electricity, steam, heat, and cooling
(GHG Protocol). We calculate this by taking the electricity invoices for our London and
Aberdeen offices and converting the energy usage (KWh) into CO2e using conversion
factors set out in the” Greenhouse gas reporting: conversion factors 2023” (Department
for Energy Security and Net Zero, 2023). Using the location-based method, our total Scope
2 emissions totalled 43 tonnes of CO2e in 2023. Following the acquisition of Tailwind
Energy, we took over the use of their office, whose energy provider supplied the office
with 100% renewable energy. Using the market-based method, our Scope 2 emissions
came to 24 tonnes of CO2e.
In our 2023 ESG report, which will be published alongside our annual report, we provide
a detailed data book of our Scope 1, 2 and 3 emissions for 2023 compared to previous
years. Our ESG Report will also provide greater detail on our emission reduction activities
and statistics as well as our plans for 2024.
- 76 -
Directors’ responsibilities statement in relation to the Group 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 UK-adopted International Accounting Standards.
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. Under United Kingdom company law the Directors have elected to prepare the
parent company financial statements in accordance with United Kingdom Generally
Accepted Accounting Practice, including FRS 101 ‘Reduced Disclosure Framework’ (United
Kingdom Accounting Standards and applicable law). 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 profit or loss of the Group for that
period.
In preparing these Group financial statements the Directors are required to:
•
select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
•
state that the Group has complied with UK-adopted International Accounting
Standards, 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 is insufficient to enable users to
understand the impact of particular transactions, other events and conditions on
the Group’s financial position and financial performance; and
• prepare the financial statements on the going concern basis, unless it is
inappropriate to presume that the Group will continue in business.
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 enable them to ensure that the Group financial
statements comply with the Companies Act 2006. They are also responsible for
safeguarding the assets of the Group 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 Group have adequate resources to continue in operational
existence for the foreseeable future, will continue to adopt the going concern basis in
preparing the financial statements.
- 77 -
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SERICA ENERGY PLC
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 2023 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 United
Kingdom Generally Accepted Accounting Practice; 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 2023 which comprise:
Group
Parent company
Group balance sheet as at 31 December 2023
Balance sheet as at 31 December 2023
Statement of changes in equity for the
year then ended
Related notes 1 to 11 to the financial
statements
material
accounting policy information.
including
Group income statement for the year then ended
Group statement of comprehensive income for the year
then ended
Group statement of changes in equity for the year then
ended
Group cash flow statement for the year then ended
Related notes 1 to 31 to the financial statements,
including material accounting policy information
The financial reporting framework that has been applied in the preparation of the group financial
statements is applicable law and UK adopted international accounting standards. The financial
reporting framework that has been applied in the preparation of the parent company financial
statements is applicable law and United Kingdom Accounting Standards, including FRS 101 “Reduced
Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice).
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.
- 78 -
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:
• obtaining an understanding of management’s going concern assessment process including
discussions with management to assess whether key factors were taken into account;
• obtaining management's going concern assessment including the cash forecast covering the
period to 30 June 2025 (the going concern period). Management’s assessment included a
base case and a downside scenario, which are described in the basis of preparation in note 2
to the financial statements;
•
testing the clerical accuracy of the model and confirming that the method used to calculate the
cash forecast in management's model is appropriate;
• evaluating the forecast production profile, operating and capital expenditure and other key
assumptions used in the going concern assessment for consistency with the business plans
and information obtained through auditing other areas of the business. We also determined
whether management’s forecasts reflected the expected cash cost to Serica of executing plans
aimed towards delivering the group’s ESG and climate change commitments.
•
challenging the key assumptions included in the forecasts, with the most sensitive assumption
being management’s view on forecast oil and gas prices during the going concern period. We
compared management’s price assumptions with the most recently available price forecasts
issued by a range of banks, brokers and consultants, which we obtained independently;
• assessing 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;
• obtaining bank confirmations of the Group's cash and cash equivalent balances as at
31 December 2023 and received bank statements to confirm the balances as at 22 April 2024;
• obtaining the RBL debt facility agreement, reading and confirming the terms of the facility,
including the maturity date, redetermination mechanism and covenant calculations. We also
confirmed the total amount available under the facility and the amount utilised as at the start of
the going concern assessment period;
•
•
•
independently conducting a reverse stress test to determine the conditions under which the
group could potentially breach the financial covenants or potentially experience a liquidity
shortfall during the going concern period;
considering the likelihood of management's ability to execute mitigating actions, as required, to
continue its business activities in the downside scenario; and
reviewing 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 2025
and to ensure such disclosures are in accordance with relevant standards.
Our Key Observations:
In management’s downside scenario, which has conservative price assumptions and where the group’s
Triton hub and BKR hub are shut-in consecutively for six months each, sufficient liquidity headroom
remains and the group operates within the requirements of its covenants. In addition, we have
concluded that our independently modelled reverse stress scenario, under which the covenants are
breached, has a remote likelihood of occurrence.
- 79 -
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 a period to 30 June 2025.
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
Key audit
matters
• We performed an audit of the complete financial information of five components.
• The components where we performed full audit procedures accounted for 100%
of the profit before tax measure used to calculate materiality, 100% of revenue
and 100% of total assets.
• Acquisition of Tailwind, specifically the judgements around purchase price
allocation
• Assessment of commercial oil and gas reserves and their impact on the financial
statements.
Materiality
• Overall group materiality of £12 million which represents 5% of profit before tax
adjusted to exclude non-recurring transaction costs, gain on acquisition and
exploration and evaluation asset write-offs (“adjusted profit before tax”).
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 group financial statements. We take into account size, risk profile, the organisation of
the group and effectiveness of group-wide controls, the potential impact of climate change, changes in
the business environment 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 17 reporting
components of the Group, we selected 5 components covering entities within the UK, which represent
the principal business units within the Group.
For the 5 components selected, we performed an audit of the complete financial information of these
components (“full scope components”) which were selected based on their size or risk characteristics.
The reporting components where we performed audit procedures accounted for 100% (2022: 99%) of
the Group’s adjusted profit before tax used to calculate materiality, 100% (2022: 100%) of the Group’s
revenue and 100% (2022: 100%) of the Group’s total assets.
The remaining 12 components together represent less than 1% of the Group’s adjusted profit before
tax used to calculate materiality. For these components, we performed other procedures, including
analytical review, testing of consolidation journals, intercompany eliminations and foreign currency
translation recalculations to respond to any potential risks of material misstatement to the group
financial statements.
Changes from the prior year
The current year audit work has covered five full scope components compared with the two full scope
components in the 2022 audit. The change in scope is a result of the acquisition of Tailwind Energy
Investments Ltd and its subsidiaries in 2023.
- 80 -
Involvement with component teams
All audit work performed for the purposes of the audit was undertaken by the group audit team.
Climate change
Stakeholders are increasingly interested in how climate change will impact Serica Energy plc. The
Group has determined that the most significant future impacts from climate change on their operations
will be from decarbonisation and the investment required to reduce carbon emissions and to improve
energy efficiency. These are explained on pages 31 to 36 in the Task Force On Climate Related
Financial Disclosures and on pages 28 to 30 in the principal risks and uncertainties. They have also
explained their climate commitments on pages 35 to 36. All of these disclosures form part of the “Other
information,” rather than the audited financial statements. Our procedures on these unaudited
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, in line with our responsibilities on “Other information”.
In planning and performing our audit we assessed the potential impacts of climate change on the
Group’s business and any consequential material impact on its financial statements.
The Group has explained in the Basis of Preparation in note 2 how they have reflected the impact of
climate change in their financial statements. These disclosures also explain where governmental and
societal responses to climate change risks are still developing, and where the degree of certainty of
these changes means that they cannot be taken into account when determining financial statement
impacts under the requirements of UK adopted international accounting standards.
Our audit effort in considering the impact of climate change on the financial statements was focused on
evaluating management’s assessment of the impact of climate risk, physical and transition, their climate
commitments, the effects of material climate risks disclosed on pages 31 to 36 and whether these have
been appropriately reflected in asset values where these are impacted by future cash flows and
associated sensitivity disclosures and in the timing and nature of liabilities recognised, following the
requirements of UK adopted international accounting standards. As part of this evaluation, we
performed our own risk assessment, supported by our climate change internal specialists, to determine
the risks of material misstatement in the financial statements from climate change which needed to be
considered in our audit.
We also challenged the Directors’ considerations of climate change risks in their assessment of going
concern and associated disclosures. Where considerations of climate change were relevant to our
assessment of going concern, these are described above.
Based on our work we have not identified the impact of climate change on the financial statements to
be a key audit matter or to impact a key audit matter.
Key audit matters
Key audit matters are those matters that, in our professional judgement, 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.
- 81 -
observations
Key
communicated to the Audit
Committee
Business
The
Combination
constituted a 100% acquisition of
Tailwind Energy Investments Ltd
and
its subsidiaries and has
therefore been correctly accounted
for in accordance with IFRS 3. As a
result, Tailwind is fully consolidated
in the financial statements with
effect from 23 March 2023, and all
results prior to this date represent
those of legacy Serica only.
We reported to the Audit Committee
following agreement with
that
management on
fair value
the
methodology to be applied, we
consider
the key assumptions
applied by management in the final
purchase price accounting to be
reasonable.
The disclosure of the transaction in
the financial statements is in line
with IFRS.
Risk
Our response to the risk
Acquisition
specifically
around
allocation (PPA)
of
the
Tailwind,
judgements
the purchase price
Refer to the Accounting policies
section “Use of judgement and
estimates
of
estimation uncertainty” (pages 95
to 96)
sources
and
As described in note 29 to the
consolidated financial statements,
on 23 March 2023, the company
acquired
Energy
Tailwind
its
Ltd
Investments
subsidiaries through issuance of
shares and cash consideration for
a total consideration of £303.7
million Net assets acquired were
valued at £337.8 million with a
bargain gain of £34.1 million being
recognised.
and
judgement
recognition of Tailwind’s
The
assets and liabilities at fair value
in
require significant
applying
and
assumptions. These include the
estimation of future oil and gas
prices, a future production profile
and an appropriate discount rate.
forecasts
We engaged specialists to assist
with the audit of the PPA. Our team
included valuation and business
modelling specialists who have
significant experience
the
valuation of oil and gas assets and
liabilities.
in
Our procedures focused primarily
on the risks relating to the valuation
and
model,
judgements associated with the
estimation of
fair value
measurements. These included:
assumptions
the
• gaining
an
understanding
through enquiry and review of
valuation methodology
the
adopted
and
comparing the approach with
accepted industry practice;
Serica,
by
• assessing the appropriateness
of key assumptions, including oil
and gas prices and discount
rates, by comparing them with
external benchmarks;
• confirming
consistency
of
assumptions with other areas of
the financial statements;
• checking the
integrity of
the
valuation model; and
• recalculating the consideration
and bargain gain.
reviewed management’s
We
proposed IFRS 3 disclosures and
assessed their appropriateness in
disclosing
judgements
the key
applied in measuring the fair value
of acquired assets and liabilities.
The above audit procedures were
performed by the group audit team
in respect of covering 100% of this
risk amount.
- 82 -
Assessment of commercial oil
and gas reserves and its impact
on
financial
group
statements
the
Refer to the Accounting policies
section “Use of judgement and
estimates
of
and
estimation uncertainty” (page 95)
sources
the
financial
The estimate of oil and gas
reserves has a significant impact
statements,
on
particularly
impairment
the estimation of
assessments,
depreciation,
and
amortisation (“DD&A”) charges and
the determination of fair values
the purchase price
used
in
the
relation
in
allocation
acquisition of Tailwind.
depletion
to
As described in note 15 to the
group financial statements, oil and
gas properties amounted to £711.5
million and have an associated
DD&A charge of £109.2 million.
the
quantities
The estimation of oil and natural
gas reserves is complex as there is
significant estimation uncertainty in
assessing
of
reserves in place. If reserves are
recognised that are not ultimately
produced,
be
DD&A
understated, and the recoverable
amount of assets may be
overstated.
will
group’s
Reserves are also a fundamental
indicator of the future potential of
the
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:
We did not identify any exceptions
as a result of our audit procedures.
in
confirmed
We
that material
changes in reserves volumes have
the appropriate
been made
accounting period and validated
that the updated reserves estimates
are included appropriately in the
group’s forecasts for impairment
assessments and the calculation of
DD&A. We consider the disclosures
in the financial statements to be
appropriate.
• confirming our understanding of
the group’s controls over their
certification process for technical
and commercial specialists who
are
reserves
estimation by performing a walk
through and assessing
the
design effectiveness of controls;
responsible
for
• assessing the competence and
objectivity of these specialists, to
they were
satisfy ourselves
appropriately qualified to carry
out the volumes estimation;
they
• obtaining confirmation directly
from management’s third-party
specialists
are
that
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 were made
in the appropriate accounting
period;
• assessing, where
life of
of
relevant,
field and
whether
production
cessation
incorporated
assumptions
costs
Serica’s estimate of
associated with
the potential
impact of climate change and the
energy transition;
the
that
were
reserves
• validating
included
estimates
inputs
appropriately as key
financial
within
statements,
the
determination of the recoverable
amount of assets and accounting
for DD&A.
the group’s
including
The above audit procedures were
performed by the group audit team
full scope
in respect of three
components, covering 100% of this
risk amount.
In the prior year, our auditor’s report included a key audit matter in relation to the impairment of property,
plan and equipment related to Columbus. This was not relevant in the current year as management’s
assessment identified no impairment trigger, which was challenged by us and considered reasonable,
and accordingly no impairment test was required. In addition, in the current year, we have included a
new key audit matter relating to the acquisition of Tailwind, acquired in March 2023.
- 83 -
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of
identified misstatements on the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably
be expected to influence the economic decisions of the users of the financial statements. Materiality
provides a basis for determining the nature and extent of our audit procedures.
We determined materiality for the Group to be £12 million (2022: £11.7 million), which is 5% (2022: 5%)
of profit before tax, adjusted for the impact of non-recurring items. We believe that adjusted profit before
tax provides us with 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, with only change being we have not normalised earnings
considering the oil and gas prices were relatively stable in the current period. 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.
In our calculation of planning materiality, we excluded from profit before tax the impact of the significant
non-recurring items being the gain on acquisition of Tailwind, the transaction costs incurred in relation
to the acquisition and write down of exploration & evaluation assets. These amounts represented net
income statement gains of £15.2 million that have therefore been excluded from adjusted profit before
tax.
We determined materiality for the parent company to be £9.5 million (2022: £5.4 million), which is 2%
(2022: 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. The annual profits generated by the company in future periods,
will be dependent on the level and timing of any intra-group dividends paid by the Group’s operating
companies.
During the course of our audit, we reassessed initial materiality. We did not find it necessary to revise
our level of overall materiality.
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% (2022: 75%) of our planning
materiality, namely £9 million (2022: £8.8 million). We have set performance materiality at this
percentage due to quantitative and qualitative assessment of prior year misstatement and our
assessment of the Group’s overall control environment.
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 range of performance materiality allocated to components was £3.2 million to
£7.8 million (2022: £5.7 million to £7.4 million).
- 84 -
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
more than £0.6 million (2022: £0.59 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.
Other information
The other information comprises the information included in the annual report set out on pages 2 to 77,
144 and 152 to 155, 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 statements set out on pages 77 and 144, 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
- 85 -
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.
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 UK adopted International Accounting
Standards, the Companies Act 2006, AIM listing rules and UK tax legislation.
• We understood how Serica is complying with those frameworks by making enquiries of
management and 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 incorporating 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.
- 86 -
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.
Khilan Shah (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
23 April 2024
- 87 -
Serica Energy plc
Group Income Statement
For the year ended 31 December 2023
Continuing operations
Sales revenue
Cost of sales
Gross profit
Hedging income/(expense)
Contract revenue - other
Exploration and pre-licence costs
E&E asset write-offs
Administrative expenses
Transaction costs
Foreign exchange (loss)/gain
Share-based payments
Gain on acquisition
Operating profit before net finance revenue
and tax
Change in fair value of financial liabilities
Finance revenue
Finance costs
Profit before taxation
Note
2023
£000
2022
£000
4
5
6
16
12
29
25
29
19
8
8
632,638
812,423
(326,064)
(218,155)
306,574
594,268
4,762
23,904
(2,103)
(8,741)
(19,637)
(10,085)
(3,591)
(3,975)
34,048
(24,507)
-
(185)
(82,749)
(9,225)
(1,785)
3,903
(3,510)
-
321,156
476,210
(7,584)
13,532
(21,481)
8,407
4,499
(938)
305,623
488,178
Taxation charge for the year
9
(202,639)
(310,382)
Profit for the year
102,984
177,796
Profit for the year attributable to:
Equity owners of the Company
Earnings per ordinary share - EPS
Basic EPS on profit for the year (£)
Diluted EPS on profit for the year (£)
102,984
177,796
10
10
0.29
0.27
0.65
0.62
- 88 -
Serica Energy plc
Group Statement of Comprehensive Income
For the year ended 31 December 2023
2023
£000
2022
£000
Profit for the year
102,984
177,796
Other comprehensive loss
Items that may be subsequently reclassified to income statement:
Exchange differences on translation
Other comprehensive loss for the year
(11,729)
(11,729)
-
-
Total comprehensive profit for the year
91,255
177,796
Total comprehensive profit attributable to:
Equity owners of the Company
91,255
177,796
- 89 -
Serica Energy plc
Registered Number: 5450950
Group Balance Sheet
As at 31 December 2023
Non-current assets
Exploration & evaluation assets
Property, plant and equipment
Deferred tax asset
Current assets
Inventories
Trade and other receivables
Hedging security advances
Decommissioning security advances
Cash and cash equivalents
TOTAL ASSETS
Current liabilities
Trade and other payables
Corporate tax payable
Derivative financial liabilities
Contract liabilities
Financial liabilities
Provisions
Non-current liabilities
Financial liabilities
Provisions
Deferred tax liability
Interest bearing loans
TOTAL LIABILITIES
NET ASSETS
Share capital
Merger reserve
Other reserve
Accumulated funds
Currency translation reserve
TOTAL EQUITY
Note
2023
£000
2022
£000
12
13
9
14
15
16
17
17
18
16
16
19
20
19
20
9
21
23
23
25
1,930
711,499
84,107
797,536
10,888
138,610
-
27,537
263,492
440,527
1,001
265,907
-
266,908
3,998
134,627
24,320
-
432,529
595,474
1,238,063
862,382
97,415
53,660
4,371
28,829
3,635
12,935
65,003
103,918
-
213,035
582,801
69,887
149,998
24,914
987
-
-
29,378
25,199
153,295
-
453,658
655,262
408,724
192,921
230,350
29,551
214,169
(11,729)
655,262
183,177
-
25,576
199,971
-
408,724
Approved by the Board on 23 April 2024
Mitch Flegg
Chief Executive Officer
Martin Copeland
Chief Financial Officer
- 90 -
Serica Energy plc
Group Statement of Changes in Equity
For the year ended 31 December 2023
Share capital Merger reserve
£000
£000
Other reserve
£000
At 1 January 2022
181,993
Profit for the year
Total comprehensive income
Issue of shares
Share-based payments
Dividend paid
-
-
1,184
-
-
At 31 December 2022
183,177
-
-
-
-
-
-
-
Profit for the year
Other comprehensive income
Total comprehensive income
Issue of shares
Share-based payments
Dividend paid
At 31 December 2023
(unaudited)
-
-
-
9,744
-
-
-
-
-
230,350
-
-
Currency
translation
reserve
£000
Accumulated
funds
£000
Total
£000
-
-
-
-
-
-
-
-
(11,729)
(11,729)
-
-
-
68,469
272,528
177,796
177,796
-
-
(46,294)
177,796
177,796
1,184
3,510
(46,294)
199,971
408,724
102,984
-
102,984
-
-
(88,786)
102,984
(11,729)
91,255
240,094
3,975
(88,786)
22,066
-
-
-
3,510
-
25,576
-
-
-
-
3,975
192,921
230,350
29,551
(11,729)
214,169
655,262
- 91 -
Serica Energy plc
Group Cash Flow Statement
For the year ended 31 December 2023
Cash inflow from operations
Taxation paid
Decommissioning spend
Net cash inflow from operating activities
Investing activities:
Interest received
Purchase of E&E assets
Purchase of property, plant and equipment
Cash outflow from BKR business combination
Acquisition of subsidiary, net of cash acquired
Net cash flow from investing activities
Financing activities:
Payments of lease liabilities
Proceeds from issue of shares
Repayment of borrowings
Proceeds from borrowings
Dividends paid
Finance costs paid
Net cash flow from financing activities
Net (decrease)/increase 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
2023
£000
2022
£000
378,369
(279,463)
(896)
98,010
704,858
(143,500)
(1,218)
560,140
Note
24
24
19
29
26
23
21
21
11
13,532
(9,673)
(68,588)
-
(44,036)
(108,765)
(628)
801
(81,406)
34,478
(88,786)
(18,832)
(154,373)
4,499
(80,801)
(16,298)
(93,871)
-
(186,471)
(132)
1,184
-
-
(46,294)
(385)
(45,627)
(165,128)
328,042
24
24
(3,909)
432,529
263,492
1,503
102,984
432,529
- 92 -
Serica Energy plc
Notes to the Financial Statements
1. Authorisation of the Financial Statements and Statement of Compliance with
UK adopted International Accounting Standards
The Group’s financial statements for the year ended 31 December 2023 were authorised
for issue by the Board of Directors on 23 April 2024 and the balance sheet was signed on
the Board’s behalf by Mitch Flegg and Martin Copeland. 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 its
subsidiaries (together the ‘Group’) is to identify, acquire and subsequently exploit oil and
gas reserves. A listing of the Group’s companies is contained in note 30 to these Group
financial statements. 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 as they apply to the financial statements of the Group
for the year ended 31 December 2023. The principal accounting policies adopted by the
Group are set out in note 2.
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 2023.
The Group financial statements have been prepared on a historical cost basis and
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 2025 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. The Group has additional planned expenditure related to flare
gas recovery and other emission reduction measures, however, as all of the Group’s
currently producing assets are projected to cease production by 2036, it is believed that
any such future changes would have a relatively 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 period ending 30 June 2025, the ‘going concern period’.
As at 22 April 2024 the Group held cash and term deposits of £264.7 million including
£18.3 million of restricted funds. Following the re-financing completion in January 2024,
separate RBL liquidity headroom of US$232 million existed at 31 March 2024 (US$231
million drawn versus US$463 million available). See note 21 for further details of the
current RBL facility.
- 93 -
The acquisition of Tailwind in 2023 gives the Group increased production and operating
cash flows, a balance in product mix between gas and oil, and two main operating hubs
which reduces the potential impact of production interruptions.
The Group regularly monitors its cash, funding and liquidity position, including available
facilities and compliance with facility covenants. 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. In recent years,
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 two cash
projections for the going concern period. These projections cover a base case forecast and
an extreme stress test scenario for the operations of the Group. RBL repayments have
been assumed based on the current redetermination and no covenant compliance matters
noted.
The base case assumptions for the going concern period included commodity pricing of 70
pence/therm for gas and US$80/bbl for oil for the remainder of 2024 and 75 pence/therm
gas and US$75/bbl oil for 1H 2025. Production, opex, capex and tax assumptions are those
currently included in standard management forecasting. The forward looking price
assumptions are considered as reasonable in light of recent commodity forward pricing
and a consensus of published forecasts from the industry, brokers and other analysts.
The stress test assumptions assume a full six-month shut-in of Triton hub production for
2H 2024 and a full six-month shut-in of BKR hub production for 1H 2025. Production
remains at base case levels to the end of the going concern period outside of these
separate production hub shut-ins. Base case commodity pricing is retained for 2024 but
lower commodity pricing of 50 pence/therm gas and US$60/bbl oil are assumed for the
1H 2025 period in this scenario which are significantly below the range of current market
expectations for the going concern period. Under this scenario, which would result in lower
cash inflows and any repayments of the RBL facility as redetermined, the Group was able
to maintain sufficient cash to meet its obligations and maintain covenant compliance. A
number of mitigating factors and mitigating actions that are under management control
are available to management in the stress test event. These would mitigate the reduced
operating cash outflows experienced and are not included in the projection.
After making enquiries and having taken into consideration the above factors, the Directors
considered it appropriate 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.
- 94 -
Use of judgement and estimates and sources of estimation uncertainty
The preparation of financial statements in conformity with UK-adopted International
Accounting Standards requires management to make judgements and estimates that
affect the reported amounts of assets and liabilities as well as the disclosure of contingent
assets and liabilities at the balance sheet date and the reported amounts of revenues and
expenses during the reporting period. Estimates and judgements are continuously
evaluated and are based on management’s experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances.
Actual outcomes could differ from these estimates. The Group has identified the following
areas where significant judgement, estimates and assumptions are required, which
following the acquisition of Tailwind Energy Investments Ltd in the year now include the
acquisition of assets via a business combination and the recognition of deferred tax assets.
I) Uses of judgement
Key sources of judgement that may have a significant risk of causing material adjustment
to the amounts recognised in the financial statements are as follows: assessing whether
impairment triggers exist that might lead to the impairment of the Group assets (including
oil and gas producing & development assets and Exploration and Evaluation “E&E” assets):
assessing factors involved in the fair value assessments required upon a business
combination; and taxation including recognition of deferred tax assets.
Details on these sources of judgements are given below.
Assessment of the impairment indicators 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.
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 2023 in accordance with the
stated policy and no impairment triggers were noted.
Acquisition through business combination
The Group made a significant acquisition in the year – see note 29 for further details of
the final purchase price allocation, including the assets and liabilities acquired, the gain on
purchase arising on acquisition and details of the consideration paid. The acquisition was
accounted for as a business combination under IFRS 3. The assets and liabilities identified
in the purchase price allocation include oil & gas assets, decommissioning liabilities,
deferred tax assets and liabilities, contract liabilities, derivatives and working capital.
In determining the fair value on acquisition of a pre-existing oil revenue contract a
judgement was made to value the contract at the differential between the contract pricing
and market price and to unwind the liability through ‘contract revenue – other’ in the
income statement upon satisfaction of the performance obligations of the contract.
Taxation including the recognition of deferred tax assets
The Group’s operations are subject to a number of specific tax rules which apply to
exploration, development and production companies such as the Energy Profits Levy, ring-
fenced Corporation Tax at 30%, the Supplementary Charge of 10% and the application of
investment allowances. As a result of these factors, the tax provision process necessarily
involves the use of a number of judgements around expenditure deductible under different
ring-fenced tax rules. Further recognition of deferred tax assets on the acquisition date of
- 95 -
Tailwind involves judgement that it is appropriate to anticipate tax losses to be available
in relation to planned restructuring.
II) Sources of estimation uncertainty
Key sources of estimation uncertainty
The key sources of estimation uncertainty that may have a significant risk of causing
material adjustment to the amounts recognised in the financial statements are: the
assessment of commercial reserves and production profiles; and decommissioning
provisions.
Details on these key sources of estimation uncertainty are given below.
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 depletion charge for the period, decommissioning provisions, whether deferred tax
assets are recoverable and assessing whether any impairment charge is required.
Estimates of oil and gas reserves require critical judgement. The Group uses proven and
probable (“2P”) reserves (see page 16) as the basis for calculations of depletion and
expected future cash flows from underlying assets because this represents the reserves
management intends to develop. 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 2023 of £12.3 million (2022:
£8.5 million).
Decommissioning provisions
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 estimates and
assumptions, actual results could differ from these estimates. Expected timing of
expenditure can also change, for example in response to changes in laws and regulations
or their interpretation, and/or due to changes in commodity prices. The payment dates
are uncertain and depend on the production lives of the respective fields. For further details
including sensitivities of the calculation to changes in input variables (see note 20).
Non-key sources of estimation uncertainty
Non-key sources of estimation uncertainty include determining the fair value of contingent
consideration, royalty liabilities, recoverability of deferred tax and fair value of assets and
liabilities acquired through the Tailwind acquisition.
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. Any cash flows specific to the contingent
consideration also reflect applicable commercial terms and risks. In calculating the fair
value of the remaining contingent consideration on the BKR acquisitions payable as at 31
December 2023, assumptions underlying the calculation were updated from 2022. These
included updated commodity prices, production profiles, future opex, capex and
- 96 -
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 19).
Royalty liabilities
The Group determined the fair value of a royalty liability assumed upon the Tailwind
acquisition in 2023 at the time of the acquisition and subsequently as at 31 December
2023. In calculating the fair value of the royalty payable, assumptions included commodity
prices, future production and discount rates. For further details including sensitivities of
the calculation to changes in input variables (see note 19).
Recoverability of deferred tax assets
Deferred tax assets, including those arising from unutilised tax losses, require
management to assess the likelihood that the Group will generate sufficient taxable profits
in future periods, in order to utilise recognised deferred tax assets. Assumptions about the
generation of future taxable profits depend on management’s estimates of future cash
flows. These estimates are based on forecast cash flows from operations (which are
impacted by production and sales volumes, oil and natural gas prices, reserves, operating
costs, decommissioning costs, capital expenditure, dividends and other capital
management transactions) and judgement about the application of existing tax laws – see
use of judgements: Taxation. There is no critical estimation uncertainty at the end of the
reporting period.
Fair value of assets and liabilities acquired through the Tailwind acquisition
Estimates are required to be made regarding the calculation of the fair value of the oil and
gas assets acquired, including estimating the future cash flows expected to arise from the
CGUs in the acquired business using discounted cash flow models. Key assumptions
include: commodity prices, discount rates and oil and gas reserves estimates. In addition,
the Group has considered the value that a market participant would prescribe to
prospective resources in determining the fair value of the oil & gas assets acquired. In
determining the value of the deferred tax asset recognised on acquisition, the Group has
also made assumptions in respect of the amount of tax losses brought forward which will
be available to offset against future taxable profits of the Group. There is no critical
estimation uncertainty related to this estimate at the end of the reporting period.
Basis of Consolidation
The consolidated financial statements include the accounts of Serica Energy plc (the
“Company”) and entities controlled by the Company (its subsidiaries) made up to 31
December each year. Together these comprise the "Group".
Control is achieved when the Company:
• has power over the investee;
• is exposed, or has rights, to variable returns from its involvement with the investee; and
• has the ability to use its power to affect its returns.
The Company reassesses whether or not it controls an investee if facts and circumstances
indicate that there are changes to one or more of the three elements of control listed
above. Consolidation of a subsidiary begins when the Company obtains control over the
subsidiary and ceases when the Company loses control of the subsidiary. Specifically, the
results of the subsidiaries acquired or disposed of during the year are included in profit or
loss from the date the Company gains control until the date when the Company ceases to
control the subsidiary.
The results and financial position of all of the Group entities that have a functional currency
different from the presentation currency are translated into the presentation currency as
follows:
- 97 -
• Assets and liabilities for each balance sheet presented are translated at the closing
•
rate at the date of that balance sheet;
Income and expenses for each income statement are translated at average
exchange rates (unless this average is not a reasonable approximation of the rates
prevailing on the transaction dates, in which case income and expenses are
translated at the rate on the dates of each transaction);
• The exchange differences arising on translation for consolidation are recognised in
other comprehensive income; and
• Any fair value adjustments to the carrying amounts of assets and liabilities arising
on the acquisition are treated as assets and liabilities of the acquired entity and are
translated at the spot rate of exchange at the reporting date.
Where necessary, adjustments are made to the financial statements of subsidiaries to
bring the accounting policies used into line with the Group’s accounting policies. All inter-
company balances and transactions have been eliminated upon consolidation.
Foreign Currency Translation
Items included in the financial statements of each of the Group’s entities are measured
using the currency of the primary economic environment in which the entity operates
(‘functional currency’). The Group’s financial statements are presented in £ sterling, the
currency which the Group has elected to use as its presentational currency.
In the financial statements of Serica Energy plc and its individual subsidiaries, 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
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.
Goodwill/gain on acquisition
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
- 98 -
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 on acquisition 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.
Joint Arrangements
Oil and gas operations are usually conducted by the Group as co-licensees in
unincorporated joint operations with other companies. Most of the Group’s activities are
conducted through joint operations, 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 recognises its share of assets, liabilities, income and expenses of
the joint operation in the consolidated financial statements on a line-by-line basis.
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.
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.
- 99 -
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.
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 annual
reporting date. Proved and probable reserves estimates obtained from an independent
reserves specialist have been used as the basis for 2022 and 2023 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 carrying amount of
- 100 -
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. If a change in the decommissioning liability
exceeds the carrying amount of the asset, the excess is recognised immediately in profit
or loss. 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.
- 101 -
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.
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 of deposit.
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 loans and borrowings, trade and other payables, BKR consideration
liabilities, royalty liabilities, deferred shares in relation to the Tailwind acquisition and
derivative liabilities. 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.
- 102 -
Emissions liabilities
The Group operates in an energy intensive industry and is therefore required to partake
in emission trading schemes (“ETS”). The Group recognises an emission liability in line
with the production of emissions that give rise to the obligation. To the extent the liability
is covered by allowances held, the liability is recognised at the cost of these allowances
held and if insufficient allowances are held, the remaining uncovered portion is measured
at the spot market price of allowances at the balance sheet date. The expense is presented
within ‘production costs’ under ‘cost of sales’ and the accrual is presented in ‘trade and
other payables’.
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 16.
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.
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.
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
- 103 -
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 Group
principally satisfies its performance obligations at a point in time and the amounts of
revenue recognised relating to performance obligations satisfied over time are not
significant. The normal credit term is 15 to 30 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.
- 104 -
Where the terms of an equity-settled award are modified or a new award is designated as
replacing a cancelled or settled award, the cost based on the original award terms
continues to be recognised over the original vesting period. In addition, an expense is
recognised over the remainder of the new vesting period for the incremental fair value of
any modification, based on the difference between the fair value of the original award and
the fair value of the modified award, both as measured on the date of the modification.
No reduction is recognised if this difference is negative.
Income Taxes
Current tax, including UK corporation tax and overseas corporation tax, is provided at
amounts expected to be paid using the tax rates and laws that have been enacted or
substantively enacted by the balance sheet date.
Deferred tax is provided using the liability method and tax rates and laws that have been
enacted or substantively enacted at the balance sheet date. Provision is made for
temporary differences at the balance sheet date between the tax bases of the assets and
liabilities and their carrying amounts for financial reporting purposes. Deferred tax is
provided on all temporary differences except for:
•
•
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
- 105 -
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 new standards, amended
standards or interpretations, which are effective for annual periods beginning on or after
1 January 2023. These include the following:
Insurance contracts (IFRS 17)
-
- Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice
Statement 2)
- Definition of Accounting Estimates (Amendments to IAS 8)
- Deferred tax related to Assets and Liabilities arising from a Single Transaction
(amendments to IAS 12)
International Tax reform – Pillar Two Model Rules (Amendments to IAS 12)
-
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 above, the
accounting policies adopted are consistent with those of the previous financial year.
There are no new or amended standards or interpretations adopted from 1 January 2023
onwards, that have a significant impact on the consolidated financial statements of the
Group.
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. These include the following:
-
IFRS 10 and IAS 28 (amendments) - Sale or Contribution of Assets between an
investor and its Associate or Joint Venture
- Amendments to IAS 1 – Classification of Liabilities as Current or Non-current
- Amendments to IAS 1 – Non-current Liabilities with Covenants
- Amendments to IAS 7 and IFRS 7 – Supplier Finance Arrangements
- Amendments to IFRS 16 – Lease Liability in a Sale and Leaseback
The Group intends to adopt them when they become effective but these new or amended
standards not yet adopted are not expected to have a material impact on the financial
statements.
- 106 -
3. Segment Information
For the purposes of segmental reporting, the Group currently operates a single class of
business being oil and gas exploration, development and production and related activities
in a single geographical area, being presently the UK North Sea.
4. Sales Revenue
Gas sales
Gas supply contract revenue
Total gas sales
Oil sales
NGL sales
Total revenue
2023
£000
2022
£000
345,704
987
652,680
37,505
346,691
690,185
265,497
20,450
88,048
34,190
632,638
812,423
Gas sales revenue in 2023 arose from three key customers (2022: one). Gas supply
contract revenue in 2022 arose from the unwind of gas contract liabilities initially
recognised upon the restructuring of certain gas swaps to other fixed price instruments
under a gas sales contract in August 2021. Further information is provided note 16.
Oil sales revenue in 2023 was from three key customers (2022: one), and NGL sales in
2023 were made to six customers (2022: six).
The revenue from three customers individually constitutes more than 10% of total revenue
amounting to £608.2 million.
5. Cost of Sales
Operating costs
Lifting costs
Change in decommissioning estimates expensed (note 20)
Depletion (note 13)
Movement in liquids overlift/underlift
2023
£000
2022
£000
218,688
7,066
368
109,198
(9,256)
120,998
-
-
76,887
20,270
326,064
218,155
- 107 -
6. Operating Profit
Net hedging income/(expense)
2023
£000
2022
£000
Unrealised hedging gains (see note 16)
20,397
20,877
Realised hedging losses (see note 16)
(15,635)
(45,384)
4,762
(24,507)
Depreciation and depletion expense
Depreciation of right of use assets totalled £795,000 (2022: £172,000) of which £622,000
(2022: £nil) was allocated to cost of sales and £173,000 (2022: £172,000) allocated to
administrative expenses.
Depletion charges on oil and gas properties are classified within cost of sales.
Auditor’s Remuneration
Audit of the Group accounts
Audit of the Company’s accounts
Audit of accounts of Company’s subsidiaries
Total audit fees
2023
£000
£000
724
32
129
885
2022
£000
338
30
36
404
No fees were paid to Ernst & Young LLP and its associates for non-audit services in 2022
or 2023.
- 108 -
7. Staff Costs and Directors’ Emoluments
a) Staff Costs - Group
Wages and salaries
Social security costs
Other pension costs
Share-based long-term incentives
2023
£000
2022
£000
25,901
6,488
2,669
3,975
21,755
3,727
2,199
3,510
39,033
31,191
The average number of persons employed by the Group during the year was 202
(2022: 175), with 11 in management functions (2022: 9), 172 in technical functions
(2022: 155) and 19 (2022: 11) in finance and administrative functions.
Staff costs for key management personnel:
Short-term employee benefits
Post-employment benefits
Share-based payments (note 25)
2,701
122
2,341
2,616
111
2,036
5,164
4,763
b) Directors’ Emoluments
The emoluments of the individual Directors were as follows. All amounts are paid in £ sterling.
2023
Salary and
2023
2023
Bonus Pension
fees
£000
245
575
345
163
-
35
68
68
-
65
61
46
46
32
28
1,777
£000
£000
-
371
247
-
-
-
-
-
-
-
-
-
-
618
-
76
46
-
-
-
-
-
-
-
-
-
-
122
2023
Benefits
in kind
£000
2023
Total
2022
Total
£000
£000
-
1
1
-
-
-
-
-
-
-
-
-
-
2
245
1,023
639
163
-
35
68
68
-
65
61
46
46
32
28
2,519
490
1,015
618
57
20
60
60
60
24
25
-
-
-
-
-
2,429
A Craven Walker (2)
M Flegg (1)
A Bell (1)
D Latin
I Vann (3)
T Garlick (4)
M Webb
K Coppinger
R Rose (5)
J Schmitt (6)
M Soeting (7)
R Lawson (8)
G Vermersch (9)
K Van Hecke (10)
S Lloyd Rees (11)
Note (1) Cash in lieu of pension.
Note (2) Antony Craven Walker retired on 30 June 2023
Note (3) Ian Vann retired on 30 April 2022
Note (4) Trevor Garlick retired on 17 July 2023
Note (5) Richard Rose resigned on 21 June 2022
- 109 -
Note (6) Jérôme Schmitt was appointed on 1 July 2022
Note (7) Michiel Soeting was appointed on 1 February 2023
Note (8) Robert Lawson was appointed on 23 March 2023
Note (9) Guillaume Vermersch was appointed on 23 March 2023
Note (10) Kaat Van Hecke was appointed on 17 July 2023
Note (11) Sian Lloyd Rees was appointed on 17 July 2023
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
2023
2022
2
3
2
-
£000
1,544
£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 28.
8. Finance Revenue/Costs
2023
£000
2022
£000
13,532
4,499
13,532
4,499
2023
£000
13,757
4,302
509
2,913
21,481
2022
£000
-
-
385
553
938
Bank interest receivable
Total finance revenue
Loan interest payable
Loan commitment fees
Other charges and interest payable
Unwinding of discount on provisions (note 20)
Total finance costs
- 110 -
9. Taxation
2023
£000
2022
£000
a) Tax charged/(credited) in the income statement
Charge for the year
Adjustment in respect of prior years
181,442
1,889
276,674
1,021
Total current income tax charge
183,331
277,695
Deferred tax
Origination and reversal of temporary differences in the
current year
Adjustment in respect of prior years
Total deferred tax charge
19,308
-
32,687
-
19,308
32,687
Tax charge in the income statement
202,639
310,382
b) Reconciliation of the total tax charge/(credit)
The tax in the income statement for the year differs from the amount that would be
expected by applying the standard UK corporation tax rate for the following reasons:
2023
£000
2022
£000
Accounting profit before taxation
305,623
488,178
Statutory rate of corporation tax in the UK of 40% (2022:
40%)
Permanent differences
Movement in unrecognised deferred tax assets
Investment Allowance
EPL – Rate differential
EPL - Income taxed at different rates
EPL – Investment allowance
Income tax at different rates
Adjustment in respect of prior years
Non-taxable gain on acquisition
Tax charge reported in the income statement
122,249
3,175
2,634
(4,316)
(9,455)
102,417
(5,321)
2,986
1,889
(13,619)
202,639
195,271
(7,243)
(500)
(1,927)
59,045
82,473
(18,136)
378
1,021
-
310,382
- 111 -
c) Recognised and unrecognised tax losses
The Group’s Balance Sheet has a deferred tax asset amount of £438.1 million as at the
31 December 2023 (2022: £12.9 million) arising from ring-fence losses, decommissioning
liabilities and other temporary differences. These deferred tax assets are expected to be
recovered through utilisation against deferred tax liabilities, primarily related to
temporary differences on fixed assets (£354.0 million) and through future taxable
profits. The increase in net assets to £84.1 million as at 31 December 2023 (2022: £153.3
million net deferred tax liability) in the year is primarily due to the Tailwind acquisition
(note 29).
The Group’s deferred tax assets at 31 December 2023 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 2023 with respect to ring
fence losses and allowances.
The Group has recognised deferred tax assets in full on its UK ring-fence losses but has
unrecognised UK mainstream corporation tax losses and temporary differences of £118.7
million (2022: £60.2 million) for which no deferred tax asset has been recognised at the
Balance Sheet date. These tax losses and temporary differences are unrecognised
because they streamed within entities for which no profits are expected. The increase in
balance in the year is primarily due to the Tailwind acquisition.
Unrecognised deferred tax assets
Tax losses
Other temporary differences
Total
The above unrecognised amounts have no expiry.
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:
Tax losses
Decommissioning liability
Investment allowances
Contract liability
Other temporary differences
Deferred tax asset
2023
£000
2022
£000
99,339
19,349
25,427
34,776
118,688
60,203
2023
£000
2022
£000
(353,994)
(166,219)
(353,994)
(166,219)
331,277
46,611
33,056
21,622
5,535
-
10,080
-
-
2,844
438,101
12,924
Net deferred tax asset/(liability)
84,107
(153,295)
- 112 -
Reconciliation of net deferred tax assets/(liabilities)
At 1 January
Acquisitions (note 29)
Tax charge during the year recognised in profit
Currency translation adjustment
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
Tax losses
Other temporary differences
2023
£000
2022
£000
(153,295)
(120,608)
264,914
(19,308)
(8,204)
-
(32,687)
-
84,107
(153,295)
2023
£000
2022
£000
(18,493)
26,493
11,308
34,373
-
(1,686)
Deferred income tax charge
19,308
32,687
e) Unrecognised deferred tax liability
In 2023 and 2022 there are no material temporary differences associated with
investments withbsidiaries forhich
investments in the Group’s subsidiaries for which a deferred tax liability has not been
recognised.
f) Changes to UK corporation tax legislation
Changes to UK corporation tax legislation
The main rate of UK corporation tax for non-ring fence profits increased from 19 per cent
to 25 per cent from 1 April 2023. This change has not had a material impact on the Group
as the UK profits are primarily subject to the UK ring fence tax rate. 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 Energy Profits Levy (‘EPL’) on the profits earned from the production of oil and gas in
the UK was introduced in the previous period. From 1 January 2023, the EPL is charged at
the rate of 35 per cent on taxable profits in addition to ring fence corporation tax of 30
per cent and the Supplementary Charge of 10 per cent. The EPL is a temporary measure
which at 31 December 2023 was to cease to apply on 31 March 2028. In the 2023 financial
statements, any temporary differences subject to the EPL expected to reverse in the period
to 31 March 2028 have been measured to the higher rate. Following the 2024 Spring
budget it was announced that it will cease to apply on 31 March 2029, the impact on the
current year financial statements would be an increase in the deferred tax charge and
deferred tax for EPL by £20.2 million.
In the Autumn Statement on 22 November 2023, the UK government confirmed it will
bring in legislation for the Energy Security Investment Mechanism (‘ESIM’) which would
end the imposition of EPL earlier than 31 March 2028 (now 2029) where certain conditions
- 113 -
are met. Under the proposed ESIM, which will be formally implemented upon royal assent
of the Spring Budget 2024 finance bill, if both average oil and gas prices fall to, or below,
US$71.40 per barrel for oil and 54p per therm for gas, for two consecutive quarters, then
the EPL will be repealed and the headline tax rate on UK oil and gas profits will return to
40 per cent. The change as currently proposed is not expected to have a material impact
for the Group.
The UK has introduced legislation implementing the Organisation for Economic Co-
operation and Development’s (“OECD”) proposals for global minimum corporation tax rate
(Pillar Two) which is effective for periods beginning on or after 31 December 2023. The
only jurisdiction in which the Group operates is the UK and the Group does not expect an
exposure to Pillar Two income taxes.
- 114 -
10. 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 25) and deferred consideration for the Tailwind
acquisition (see note 29) into ordinary shares.
The following reflects the income and share data used in the basic and diluted earnings
per share computations:
2023
£000
2022
£000
Net profit from continuing operations
102,984
177,796
Net profit attributable to equity holders of the parent
102,984
177,796
2023
’000
2022
’000
Basic weighted average number of shares
360,643
271,678
Dilutive potential of ordinary shares granted under
share-based payment plans
Dilutive potential of ordinary shares under deferred
consideration for acquisition
12,054
16,757
1,849
-
Diluted weighted average number of shares
374,546
288,435
Basic EPS on profit for the year (£)
Diluted EPS on profit for the year (£)
11. Dividends proposed
Proposed dividends on ordinary shares
2023
£
0.29
0.27
2022
£
0.65
0.62
A final cash dividend for 2023 of 14.0 pence per share (2022: 14.0 pence per share) is
proposed which would generate a payment of approximately £55.1 million (2022: £53.4
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.
Dividends on ordinary shares paid in 2023
A final cash dividend for 2022 of 14.0 pence per share was proposed in April 2023 and
approved at the annual general meeting on 29 June 2023 and £53.4 million was paid in
July 2023.
- 115 -
An interim cash dividend for 2023 of 9.0 pence per share was announced in September
2023 and £35.4 million was paid in November 2023.
As disclosed in the 2022 Annual Report, following the prior year end, the Directors became
aware that certain dividends paid in 2022 had been made otherwise than in accordance
with the Companies Act 2006, section 838, because interim accounts had not been filed
at Companies House prior to payment. It is important to note that the Company had
sufficient distributable profits at the time each relevant dividend was paid and therefore
did not pay out by way of dividends more income than it had, and no payments were made
out of capital. Relevant dividends were the final dividend paid in July and the interim
dividend paid in November. To rectify these breaches, a resolution was passed at the
Annual General Meeting held on 29 June 2023 to remove any right that the Company may
have had to claim from shareholders or Directors or former Directors for repayment of
these amounts by entering into deeds of release in relation to any such claims. This
constituted a related party transaction under IAS 24. The overall effect of the resolution
was to return the parties so far as possible to the position they would have been in had
the relevant dividends been made in full compliance with the Act. The amounts for
dividends included within the financial statements in 2022 have not been restated as the
financial resources had left the Company and the intention of the resolution was to remove
any right for the Company to pursue shareholders or directors for repayments.
12. Exploration and Evaluation Assets
Total
£000
2,949
80,801
(82,749)
1,001
9,673
(8,741)
(3)
1,930
1,930
1,001
Cost:
1 January 2022
Additions
Write-offs
31 December 2022
Additions
Write-offs
Currency translation adjustment
31 December 2023
Net book amount:
31 December 2023
31 December 2022
- 116 -
13. Property, Plant and Equipment
Oil and gas
properties
£000
Equipment,
fixtures
and fittings
£000
Right-of-
use assets
Total
£000
£000
Cost:
1 January 2022
466,554
212
516
467,282
Additions
Decom asset revisions (note 20)
15,953
(2,231)
-
-
345
-
16,298
(2,231)
31 December 2022
480,276
212
861
481,349
Acquisitions (note 29)
Additions
Decom asset revisions (note 20)
Currency translation adjustment
482,881
68,588
16,012
(16,777)
-
-
-
-
3,450
-
-
(115)
486,331
68,588
16,012
(16,892)
31 December 2023
1,030,980
212
4,196 1,035,388
Depreciation and depletion:
1 January 2022
137,698
Charge for the year (note 5)
76,887
31 December 2022
Charge for the year (note 5)
Charge for the year - other
Currency translation adjustment
214,585
108,576
-
(915)
167
45
212
-
-
-
473
138,338
172
77,104
645
215,442
622
173
(9)
109,198
173
(924)
31 December 2023
322,246
212
1,431
323,889
Net book amount:
31 December 2023
31 December 2022
708,734
265,691
-
-
2,765
711,499
216
265,907
Depreciation and depletion
Depletion charges on oil and gas properties are classified within ‘cost of sales’. £622,000
and £173,000 of right of use asset depreciation has been charged to cost of sales and
administrative expenses respectively.
117
14. Inventories
Materials and spare parts
Hydrocarbons
2023
£000
4,981
5,907
2022
£000
3,998
-
10,888
3,998
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 £3.1 million (2022:
£3.1 million).
15. Trade and Other receivables
Due within one year:
Trade receivables
Amounts recoverable from JV partners
Other receivables
Prepayments
VAT recoverable
Liquids underlift
2023
£000
2022
£000
83,409
1,720
20,144
10,793
2,525
20,019
100,445
2,567
9,192
18,306
4,117
-
138,610
134,627
Trade receivables at 31 December 2023 arose from seven (2022: six) 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 other significant concentrations of credit risk within the Group.
118
16. Derivative financial liabilities
Financial liabilities
Derivative financial instruments
2023
£000
2022
£000
4,371
24,914
4,371
24,914
Fair value hierarchy
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 19. A table summarising the
Group’s liabilities measured at fair value is included in note 22.
Derivative financial instruments
The Group enters into derivative financial instruments with various counterparties.
Commodity and foreign currency derivative contracts are designated as at fair value
through profit and loss (FVTPL), and gains and losses on these contracts are recognised
in the income statement. Derivative financial instruments held at 31 December 2023 solely
comprised UKA ETS swaps and at 31 December 2022 solely comprised gas swaps. These
were valued by counterparties, with the valuations reviewed internally and corroborated
with readily available market data of forward pricing (level 2). Details of the Group’s
derivative financial instruments held as at 31 December 2023 are provided in note 22. The
mark-to-market of the Group’s open contracts as at 31 December 2023 was a liability of
£4.4 million (2022: £24.9 million).
The following gains and losses were recognised in the income statement:
Commodity contracts designated as FVTPL
Mark-to-market unrealised gains on gas swaps
Other unrealised losses
Unrealised hedging income
Gas swaps matured during the year
Other contracts matured during the year
Realised hedging expense
2023
£000
2022
£000
24,592
(4,195)
20,877
-
20,397
20,877
(12,118)
(3,517)
(45,384)
-
(15,635)
(45,384)
Unrealised hedging gains in 2023 comprise gains on gas swaps partially offset by
unrealised losses on the UKA ETS swap instruments held (2022: gains on gas swaps).
Unrealised hedging gains on gas and other swaps comprise unrealised charges on the
movement during the year in the calculated fair value liability of outstanding gas price or
119
other derivative contracts measured at the respective Balance Sheet dates.
Realised hedging losses measured at fair value through profit or loss for 2023 comprise
losses realised on gas swaps and UKA ETS swaps. For 2022 losses were solely realised on
gas swaps.
Hedging security advances
Hedging security advances of £24.3 million at 31 December 2022 represented cash
security lodged with commodity hedging counterparties which reflected the gas prices at
the end of 2022. This was returned to Serica when forward gas prices fell or when monthly
contracts were settled.
Contract liabilities
Contract liabilities
Gas contract liabilities
2023
£000
28,829
-
28,829
2022
£000
-
987
987
On acquisition of Tailwind Energy Investments Ltd (see note 29) a pre-existing oil revenue
contract was fair valued, resulting in contract liabilities of £54.2 million being recognised.
The contract liabilities represent the differential in contract pricing and market price and
will be realised as performance obligations are considered met in the underlying revenue
contract. To the extent the contract liability represents the fair value differential between
contract price and market price, it will be unwound through ‘contract revenue – other’
upon satisfaction of the performance obligation. £23.9 million has been released to the
Income Statement in 2023 and £1.5 million of currency translation adjustment recognised
through other comprehensive income.
The Group’s gas contract liabilities which arose in 2021 upon the restructuring of certain
hedging arrangements were fully released to the income statement in 2023 when the
relevant volumes were delivered at the fixed-price forward sales prices.
17. Cash and cash equivalents
Cash at bank and in hand
Short-term deposits
2023
£000
2022
£000
182,167
81,325
146,986
285,543
263,492
432,529
As at 31 December 2023, the cash balance of £263.5 million (2022: £432.5 million)
contained an amount of £18.3 million held in a separate bank account for the purpose of
providing security against letters of credit issued in respect of certain decommissioning
liabilities (2022: £18.1 million). The use of cash is restricted by virtue of contractual
restrictions with a 3rd party.
120
Decommissioning Security Agreement (‘DSA’) cash advances
DSA cash advances of £27.5 million at 31 December 2023 (31 December 2022: £nil)
represented cash security temporarily lodged in respect of decommissioning obligations.
These are not included in the cash and cash equivalents balance of £263.5 million above
but were released to Serica in 2024 when security was provided under the new financing
facility.
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.
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
DNB Bank ASA
Investec Bank plc
S&P/Moody’s
credit rating
2023
£000
2022
£000
A-1
A-1
P-1
P-1
29,125
128,394
65,374
40,544
104,586
184,548
103,272
40,071
121
18. Trade and Other Payables
Current:
Trade payables
Other payables
Accrued expenses
Liquids overlift
2023
£000
2022
£000
17,049
9,256
59,224
11,886
15,832
7,972
32,108
13,975
97,415
69,887
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 to 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.
19. Financial liabilities
BKR
Royalty
Other
consideration
£000
liability consideration
£000
£000
Total
£000
At 31 December 2022
29,378
-
-
29,378
Acquisitions (note 29)
-
34,869
6,273
41,142
Change in fair value liability
Payments and settlements
Transfer to accruals
Currency translation adjustment
5,910
-
-
630
-
(4,649)
(1,135)
1,044
(3,682)
-
-
7,584
(3,682)
(4,649)
(1,135)
At 31 December 2023
35,288
29,715
3,635
68,638
Classified as:
Current
Non-current
-
35,288
-
29,715
3,635
-
3,635
65,003
35,288
29,715
3,635
68,638
BKR consideration
On 30 November 2018 Serica completed the four BKR acquisitions. During 2022, the final
elements of contingent cash consideration arising from the net cash flow sharing
arrangements, and other contingent payments arising from Rhum R3 well production and
Rhum performance criteria, were made. The following elements of consideration were
outstanding at 31 December 2022 and 2023:
122
• BP, Total E&P and BHP 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.
• 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.
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 estimates of future decommissioning expenditure, taxation, future operating and
development costs, production volumes, oil and gas sales prices and discount rates. The
underlying assumptions have been updated
from 2022. Estimated contingent
consideration payments have been calculated at a discount rate of 10% (2022: 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, production profiles, estimated decommissioning costs and future commodity
prices.
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 £3.9 million, and an increase from 10% to 11% would result in a decrease
in the fair value of the contingent consideration by £3.4 million.
Royalty liability
Royalty represents amounts payable under a pre-existing Tailwind sale and purchase
agreement subject to future production volumes and commodity prices over the life of
certain assets in the Triton Cluster.
The fair value of the royalty liability 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 involve a range of assumptions related to oil prices,
production volumes and discount rates. Estimated payments have been calculated at a
discount rate of 8.5%.
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, production profiles, estimated decommissioning costs and future commodity
prices.
A sensitivity analysis to the oil price assumption used shows a decrease in the oil price
assumed by US$5/bbl would result in a decrease in the fair value of the royalty liability by
£5.9 million, and an increase by US$5/bbl would result in an increase in the fair value of
the royalty liability by £5.9 million.
123
Other consideration
Other consideration reflects the remaining deferred consideration payable under the
Tailwind acquisition. This was settled in March 2024 (see note 29).
20. Provisions
At 1 January 2022
Additions
Revisions during the year (note 13)
Unwinding of discount (note 8)
Payments
At 31 December 2022
Acquisitions (note 29)
Change in estimate (note 13)
Change in estimate expensed (note 5)
Unwinding of discount (note 8)
Payments
Currency translation adjustment
Decommissioning
provision
£000
Other
provision
£000
28,095
-
(2,231)
553
(1,218)
25,199
75,499
16,012
368
2,913
(896)
(2,565)
-
-
-
-
-
-
400
-
-
-
(65)
(12)
Total
£000
28,095
-
(2,231)
553
(1,218)
25,199
75,899
16,012
368
2,913
(961)
(2,577)
At 31 December 2023
116,530
323
116,853
Classified as:
Current
Non-current
12,871
103,659
64
259
12,935
103,918
116,530
323
116,853
Decommissioning provision
The decommissioning provision represents the present value of decommissioning costs
relating to oil and gas interests in the UK which are expected to be incurred up to 2036.
Bruce, Keith and Rhum fields
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 prior to 2040 and assumes no
further development of the Group’s assets. The liability is discounted at a rate of 3.75%
(2022: 3.25%) and the unwinding of the discount is classified as a finance cost (see note
8).
Triton area
The Triton area decommissioning provision is based on Serica group’s obligations which
are in excess of certain agreed decommissioning liability caps with the previous owners of
Tailwind’s equity interests in Triton. The Group’s provision represents the present value of
124
decommissioning costs which are expected to be incurred up to 2036 and assumes no
further development of the Group’s assets. These provisions have been created based on
the Group’s internal estimates and, where available, operator estimates and third-party
reports. These estimates are reviewed regularly to take into account any material changes
to the assumptions. The liability is discounted at a rate of 3.75% and the unwinding of the
discount is classified as a finance cost (see note 8).
Orlando, Arthur and Columbus fields
The Group makes full provision for the decommissioning liabilities for these fields on its
respective equity interests. The Group’s provision represents the present value of
decommissioning costs which are expected to be incurred between 2024 and up to 2030
and assumes no further development of the Group’s assets. The liability is discounted at
a rate of 3.75% (2022: 3.25%) and the unwinding of the discount is classified as a finance
cost (see note 8).
Erskine field
No provision for decommissioning liabilities for the Erskine field is recorded as at 31
December 2022 or 2023 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 and
actual decommissioning costs will ultimately depend upon future market prices for the
necessary decommissioning works required, which will reflect market conditions at the
relevant time. Furthermore, the timing of decommissioning is likely to depend on when
the fields cease to produce at economically viable rates. This in turn will depend upon
future oil and gas prices, which are inherently uncertain.
If the cost estimates were increased by 10% and the spread between inflation and discount
rate reduced to 0%, the value of the provisions could increase by c.£31.5 million (2022:
c. £4.2 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 2036 it is believed
that any such future changes would have limited impact compared to assets with longer
durations.
125
21. Interest bearing loans and borrowings
The Group’s loan is carried at amortised cost
as follows:
Reserve based lending – at beginning of year
Acquisitions (note 29)
Repayments of borrowings
Proceeds from borrowings
Expense of loan commitment fees
Currency translation adjustment
Reserve based lending – at end of year
Loan commitment fees
Reserve based lending – at end of year
Due within one year
Due after more than one year
2023
£’000
-
264,835
(81,406)
34,478
3,331
(8,203)
213,035
-
213,035
-
213,035
213,035
2022
£’000
-
-
-
-
-
-
-
-
-
-
-
-
Reserve Based Lending facility arrangements existing at 31 December 2023
Following completion of the acquisition of Tailwind Energy Investments Ltd on 23 March
2023, the Serica Group assumed the reserve-based lending and junior facility
arrangements linked to the legacy Tailwind sub-group. This had a reserve-based lending
facility (RBL) of US$425 million from a syndicate of banks, secured over the Tailwind sub-
group’s oil and gas assets. The facility had a maturity date of 30 June 2027 and at the last
RBL redetermination in June 2023, the facility available for drawdown was amended to
US$377 million. Interest accrued at LIBOR/SOFR plus a margin of between 2.5% to 3.1%
depending on the maturity of the facility, with the primary exposure after 30 June 2023
being 1 month term SOFR.
At the acquisition date of 23 March, US$330 million under the facility was drawn. During
2023, US$58.8 million of repayments were made and the facility was US$271.2 million
drawn (£213.0 million) at 31 December 2023. All previously unamortised facility fee costs
were expensed in 2023 following the announcement of the Group’s new RBL facility noted
below and the balance of the loan in the 31 December 2023 Balance Sheet therefore solely
represents drawings of £213.0 million.
On 24 September 2019, the Tailwind sub-group also entered in a Junior Facility agreement
with Mercuria Energy Trading S.A. for a facility of US$50.0 million available on demand
and with a maturity of 24 September 2026. This was a committed facility but there were
no drawdowns on this facility as at the completion date of 23 March 2023 or any date
thereafter until its cessation in January 2024 upon the signing of the new RBL.
New Reserve Based Lending facility arrangements effective January 2024
In December 2023 Serica announced the signing of a new US$525 million secured RBL
facility. Following the satisfaction of conditions precedent, this completed in January 2024
and refinanced the Group’s previous financing arrangements.
The new RBL facility is a revolving credit facility available in multiple currencies, it provides
significantly increased liquidity to support future acquisitions and investments and has
established new relationships with a syndicate of leading international banks. The new RBL
126
has a maturity date of 31 December 2029 with amortisation commencing on 31 December
2026. The interest rate for loan drawings is SOFR plus a margin of 3.90% per annum and
the Borrowing Base Assets comprise all of Serica’s interests in producing fields except
Serica’s largest single producing field the Rhum field, and the available amount under the
facility is subject to semi-annual redeterminations. The new facility also includes a
separate US$100 million sub limit which can be utilised to issue Letters of Credit without
the need for cash security.
The facility agreement also has an uncommitted accordion feature which provides an
option for an additional financing of up to US$525 million, amounting to facilities of up to
US$1,050 million. The accordion facility can be exercised within thirty-six months of the
facility signing date, subject to certain conditions.
22. 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 2024/25 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.
127
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 2023
Fixed rate
Short-term deposits
Floating rate
Cash
Loans and borrowings
Within 1 year 1-2 years 2-5 years
£000
-
£000
81,325
£000
-
Within 1 year 1-2 years 2-5 years
£000
-
(213,035)
£000
182,167
-
£000
-
-
Total
£000
81,325
81,325
Total
£000
182,167
(213,035)
(30,868)
Year ended 31 December 2022
Within 1 year 1-2 years 2-5 years
Total
Fixed rate
Short-term deposits
£000
285,543
£000
-
£000
-
Floating rate
Cash
Within 1 year 1-2 years 2-5 years
£000
£000
£000
146,986
-
-
£000
285,543
285,543
Total
£000
146,986
146,986
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 Effect on profit
before tax
2022
£000
before tax
2023
£000
1,008
(1,008)
1,618
(1,618)
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.
128
Credit risk
The Group’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.
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:
US Dollar
Norwegian kroner
Euros
Accounts receivable:
US Dollar
Interest bearing loans:
US Dollar
Trade and other payables:
US Dollar
Group
2023
£000
115,427
5
117
2022
£000
44,535
6
106
56,252
8,410
213,035
-
9,492
6,829
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
Effect on profit
before tax
2023
£000
Effect on profit
before tax
2022
£000
10% strengthening of £ against US$
10% weakening of £ against US$
5,085
(5,085)
(4,612)
4,612
129
Liquidity risk
The table below summarises the maturity profile of the Group and Company’s financial
liabilities at 31 December 2023 based on contractual undiscounted payments. The Group
monitors its risk to a potential shortage of funds by monitoring the maturity dates of
existing debt.
Year ended 31 December 2023 Within
1 year
£000
1 to 2
years
£000
2 to 5
years
£000
>5
years
£000
Total
£000
Trade and other payables
Loans and borrowings
Derivative financial liabilities
Royalty liability
97,415
-
4,371
5,425
-
-
- 213,035
-
-
6,910
-
-
-
14,436 16,362
97,415
213,035
4,371
43,133
Year ended 31 December 2022 Within
1 year
£000
1 to 2
years
£000
2 to 5
years
£000
>5
years
£000
Trade and other payables
Derivative financial liabilities
69,887
24,914
-
-
-
-
-
-
Total
£000
69,887
24,914
Amounts payable as BKR contingent consideration are explained in detail in note 19.
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 currently sold at prices linked to the spot market and the
significant majority NGL production is sold at prices linked to the spot market. Oil
production for 2024 will be sold at a mix of fixed and spot market linked pricing.
At 31 December 2023 Serica held fixed pricing under oil sales agreements (equivalent to
oil price swaps) for approximately 2.5 million barrels at an average price of US$67.4 per
barrel for the 2024 period.
Serica held no gas price swaps or equivalent fixed gas price mechanisms at 31 December
2023.
Serica also held fixed price swaps for UKA ETS products consisting of 132,000 MT at
£79.24/MT for 2024.
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.
130
The table below details the Group’s fair value measurement hierarchy for liabilities as at
31 December:
Fair value measurement using
Quoted
prices in
Significant
Significant
active
markets
Level 1
£’000
Note
16
19
19
16
19
-
-
-
-
-
observable
unobservable
inputs
Level 2
£’000
4,371
-
-
inputs
Level 3
£’000
-
35,288
29,715
24,914
-
-
29,378
Liabilities measured at fair value
Year ended 31 December 2023
Derivative financial liabilities
Contingent consideration liability
Royalty liability
Year ended 31 December 2022
Derivative financial liabilities
Contingent consideration liability
There were no transfers between Level 1 and Level 2 during 2022 or 2023.
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 2023, capital employed of the
Group amounted to £867.2 million (comprised of £654.2 million of equity shareholders’
funds and £213.0 million of borrowings), compared to £408.7 million at 31 December 2022
(comprised of £408.7 million of equity shareholders’ funds and £nil of borrowings).
The acquisition of Tailwind Energy Investments Ltd on 23 March 2023 to further the
Group’s business objectives, has brought some debt into the capital structure of the Group.
This consists of the borrowings disclosed in note 29. The Board regularly reassesses the
appropriate dividend payments proposed within the capital structure of the Group. Any
future payment of dividends is expected to depend on the earnings and financial condition
of the Company and such other factors as the Board considers appropriate.
131
23. Equity Share Capital
As at 31 December 2023, the share capital of the Company comprised one “A” share of
GB£50,000 and 391,321,053 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’s equity share capital, comprising
US$0.10 ordinary shares and one ‘A’ share.
Allotted, issued and
fully paid:
Group
Number
‘000
Share
capital
£000
Share Total Share
capital
£000
premium
£000
As at 1 January 2022
268,891
21,186
160,807
181,993
Shares issued
4,062
328
856
1,184
As at 1 January 2023
272,953
21,514
161,663
183,177
Merger
reserve
£000
£000
-
-
-
Shares issued
118,368
9,439
305
9,744
230,350
As at 31 December 2023
391,321
30,953
161,968
192,291
230,350
During 2023, 8,758,407 ordinary shares were issued to satisfy awards under the
Company’s share-based incentive schemes. In connection with the acquisition of Tailwind
Energy Investments Ltd in March 2023, 108,170,426 ordinary shares were issued at
completion of the transaction on 23 March and a further 1,438,849 ordinary shares were
issued in September 2023 (see note 29).
2,147,354 ordinary shares have been issued in 2024 to date and as at 19 April 2024 the
issued voting share capital of the Company was 393,468,407 ordinary shares and one “A”
share.
Group merger reserve
Merger relief was applied by the group’s parent entity Serica Energy plc upon the
respective issues of 108,170,426 ordinary shares in March 2023 and 1,438,849 ordinary
shares in September 2023, for the acquisition of Tailwind Energy Investments Ltd. The
valuation of the shares issued was based on the fair value at the date of issue, with the
nominal value of the shares issued credited to share capital and the excess value of £230.3
million above nominal share capital credited to a merger reserve in the consolidated Group
accounts.
132
24. Additional Cash Flow Information
Net cash flows from operating activities consist of:
For the year ended 31 December 2023
Operating activities:
Profit for the year
Adjustments to reconcile profit for the year
to net cash flow from operating activities:
Taxation charge
Change in fair value liabilities
Change in provisions
Gain on acquisition
Net finance costs/(income)
Depletion and depreciation
Oil and NGL over/underlift
E&E asset write-offs
Unrealised hedging gains
Movement in gas contract revenue
Contract revenue - other
Share-based payments
Other non-cash movements
Decrease in hedging security advances
Increase in DSA cash advances
Decrease/(increase) in trade and other
receivables
(Increase)/decrease in inventories
(Decrease)/increase in trade and other payables
Cash inflow from operations
Note
2023
£000
2022
£000
102,984
177,796
202,639
7,584
368
(34,048)
7,949
109,371
(9,256)
8,741
(20,397)
(987)
(23,904)
3,975
3,104
24,320
(27,537)
69,895
(983)
(45,449)
378,369
310,382
(8,407)
-
-
(3,870)
76,887
20,270
82,749
(20,877)
(37,505)
-
3,510
(1,503)
91,070
-
(8,571)
55
22,872
704,858
Taxation paid
Decommissioning spend
(279,463)
(896)
(143,500)
(1,218)
Net cash inflow from operating activities
98,010
560,140
133
Reconciliation of movement in net cash flow to movement in
net cash/(borrowings)
Loans assumed upon acquisition (note 29)
Repayment of borrowings
Proceeds from borrowings
Amortisation of fees
Currency translation adjustments
Movement in total borrowings
Movement in cash and cash equivalents
(Decrease)/increase in net cash in the year
Opening net cash
Closing net cash
Analysis of Group net cash
Cash
Short-term deposits
Loans
Closing net cash
Changes in lease liabilities arising from financing activities
Lease liability at beginning of the year
Acquisition during the year
Lease payments
Lease interest expense
Currency translation adjustment
Lease liability at end of the year
134
2023
£000
2022
£000
(264,835)
81,406
(34,478)
(3,331)
8,203
-
-
-
-
(213,035)
(169,037)
(382,072)
-
329,545
329,545
432,529
102,984
50,457
432,529
2023
£000
2022
£000
182,167
81,325
(213,035)
146,986
285,543
-
50,457
432,529
2023
£000
2022
£000
213
343
2,180
(628)
151
(62)
-
(132)
-
-
1,854
213
25. 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 2023, 800,000 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. No options were granted in 2022 or
2023 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
2023
Number
Outstanding as at 1 January
Exercised during the year
3,900,000
(3,100,000)
2023
WAEP
£
0.14
0.16
2022
Number
4,100,000
(200,000)
2022
WAEP
£
0.14
0.27
Outstanding as at 31 December
800,000
0.07
3,900,000
0.14
Exercisable as at 31 December
800,000
0.07
3,900,000
0.14
The weighted average remaining contractual life of options outstanding as at 31 December
2023 is 1.5 years (2022: 2.4 years). The weighted average share price during 2023 across
the period that options were exercised in was £2.36 (2022: £3.28).
For the Serica 2005 option plan, the exercise price for all outstanding options at the 2023
year-end is £0.07 (2022: £0.07 to £0.24).
135
Long Term Incentive Plan
The following awards granted to certain Directors and employees under the LTIP are
outstanding as at 31 December 2023.
Deferred Bonus Share Awards
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. The 726,000 Deferred Bonus Share Awards
outstanding and fully vested at 31 December 2022 were all exercised prior to their expiry
date in May 2023. There are no Deferred Bonus Share Awards outstanding at 31 December
2023.
Performance Share Awards
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.
Performance and Retention Share Awards
Outstanding as at 1 January
Granted during the year
Expired or cancelled during the year
Exercised during the year
2023
Number
2022
Number
13,326,567
1,075,668
(267,827)
(4,217,078)
14,448,764
665,632
-
(1,787,829)
Outstanding as at 31 December
9,917,330
13,326,567
Exercisable as at 31 December
5,718,825
7,264,623
The weighted average remaining contractual life of options outstanding as at 31 December
2023 is 5.6 years (2022: 7.0 years). The weighted average share price during 2023 across
the period that options were exercised in was £2.36 (2022: £3.23).
LTIP awards in 2022
In May 2022, the Company granted nil-cost Performance Share Awards over 665,632
ordinary shares under the LTIP. All of the total awards were outstanding at 31 December
2022. The award was made to members of the Group’s executive team, senior
management and employees.
The vesting criteria are based on absolute share price performance over a three-year
period and specific performance targets related to carbon emissions from operations over
the same period. For the awards to vest in full, a 100% increase in average share price
must be maintained for at least a six-month period together with a significant decrease in
carbon emissions per barrel of oil equivalent produced. These awards are not exercisable
at 31 December 2023.
LTIP awards in 2023
In May 2023, the Company granted nil-cost Performance Share Awards over 1,075,668
136
ordinary shares under the LTIP. The award was made to members of the Group’s executive
team and senior management.
The vesting criteria are based on absolute share price performance over a three-year
period and specific performance targets related to carbon emissions from operations over
the same period. For the awards to vest in full, the highest average share price must be
at least equal to 500p during the 180 day period terminating on the end of the performance
period together with a significant decrease in carbon emissions per barrel of oil equivalent
produced. All of the total awards were outstanding and are not exercisable at 31 December
2023.
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 2022 and 2023 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%, 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 £1.69
(2022: £1.95). The estimated fair value of options is amortised to expense over the
options' vesting period.
£3,975,000 has been charged to the income statement for the year ended 31 December
2023 (2022: £3,510,000) 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 £29,551,000 as at 31
December 2023 (2022: £25,576,000). A charge of £2,341,000 (2022: 2,036,000) of the
total charge was in respect of key management personnel (defined in note 7).
26. Leases
A right of use asset for oil and gas operations (note 13) and its related finance lease were
acquired as part of the Tailwind acquisition (note 29). This lease is secured by the assets
leased and bears interest at a fixed rate with repayments due over a 5-year period. The
total lease liability amounts to £1,768,000 of which £653,000 is due for settlement within
12 months and £1,115,000 due after 12 months. These are classified within trade and
other payables. A depreciation charge of £622,000 (2022: £nil) was expensed within cost
of sales.
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.
The Group confirmed a two-year option extension in March 2022 and the office lease now
expires in Q2 2024. A depreciation charge of £173,000 (2022: £172,000) was expensed
within administrative expenses.
£628,000 (2022: £132,000) of cash payments made against the lease liabilities during
2023 are reflected in the 2023 Group cash flow statement as a cash outflow in financing
activities.
137
27. Capital Commitments and Contingencies
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.
Serica’s planned 2024 investment programme includes a Light Well Intervention Vessel
campaign on the Bruce and Keith fields and a four-well drilling campaign in the Triton Area
(Bittern B1z, Gannet GE-05, Evelyn Phase 2 (EV02) and a Guillemot NW infill well).
Potential further programmes to enhance current production profiles and extend field life
are under consideration but will be reviewed carefully in the light of the uncertainty related
to the UKCS fiscal regime.
At 31 December 2023, the Group had commitments for future capital expenditure relating
to its oil and gas properties amounting to £214 million which relate primarily to the Triton
Area four well programme, the Bruce and Keith LWIVs, other capital works on Erskine,
Arthur decommissioning and general exploration.
The Group’s only significant exploration commitment is the drilling of a commitment well
on Licence P2400 (Skerryvore – Serica 20%) to be drilled before October 2025.
Serica has posted cash collateral of approximately £18.3 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 £263.5 million as at 31 December 2023. The funds are freely
transferable but alternative collateral would need to be put in place to replace the cash
security.
Other
The Group occasionally has to provide security for a proportion of its future obligations to
defined work programmes or other commitments.
138
28. Related Party Transactions and Transactions with Directors
The Group financial statements include the financial statements of Serica Energy plc and
its subsidiaries listed in note 30. Balances and transactions between the Company and its
subsidiary, which are related parties, have been eliminated on consolidation and are not
disclosed in this note. The related party balances have no fixed repayment terms and bore
no interest.
The Group’s main related parties comprise the Directors and Mercuria Group entities, the
latter being related parties due to the significant shareholding of a Mercuria Group
subsidiary, Mercuria Holdings (UK) Limited, in Serica Energy plc. Balances and transactions
with Mercuria Energy Trading S.A., a subsidiary of the Mercuria Group are disclosed below.
Balances with related party at year end
Mercuria Energy Trading S.A.
Accrued receivables
Other financial liabilities
Trade payables
Accruals
31 December
2023
£000
20,526
(4,371)
(1,426)
(988)
On 24 September 2019, the Tailwind sub-group entered in a Junior Facility agreement
with Mercuria Energy Trading S.A. for a facility of US$50.0 million with a maturity of 24
September 2026. There were no drawdowns on this facility as at 31 December 2023. This
facility was terminated in January 2024 following the refinancing of the Group's reserve-
based lending facility (note 21).
Transactions in income statement with Mercuria
Energy Trading S.A.
Revenue
Cost of sales
Loss on commodity derivative contracts
Gain on currency derivative contracts
Loan commitment fee accrued
Year ended
31 December
2023
£000
162,574
(7,576)
(6,872)
741
224
The above transactions were conducted under contracts already in place when Serica
acquired Tailwind Energy Investments Ltd on 23 March 2023, principally the Offtake and
Marketing Agreement covering oil offtake from Serica’s share in the Triton area and part
of Serica’s share in Columbus. These contracts were set on prevailing market terms.
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 7
above. These disclosures include the compensation of key management personnel.
A resolution passed at the Annual General Meeting held on 29 June 2023 to remove any
right that the Company may have had to claim from shareholders or Directors or former
Directors for repayment of certain dividend amounts by entering into deeds of release in
relation to any such claims constituted a related party transaction under IAS 24 and further
detail is provided in note 11.
139
29. Acquisition of Tailwind Energy Investments Ltd
On 23 March 2023, the Company acquired 100% of the shares of Tailwind Energy
Investments Ltd for an initial purchase consideration of £297.4 million. This comprised
cash of £61.6 million and the fair value of 108,170,426 ordinary shares in Serica Energy
plc issued in exchange for all Tailwind shares. The fair value of the shares issued was
calculated using the market price of the Company’s shares of £2.18 on the AIM Market of
the London Stock Exchange at its opening of business on 23 March 2023.
A further 2,877,698 ordinary shares were issued to the sellers in two equal tranches of
1,438,849 ordinary shares in September 2023 and March 2024 respectively. These form
part of the aggregate 111,048,124 ordinary shares issued as part of the purchase
consideration and were issued after periods of no successful warranty claims.
Tailwind’s activities comprise development and production oil & gas assets in the UK North
Sea held in interests in joint operations. The acquisition of Tailwind was aimed at achieving
Serica’s longstanding objective to have a more diverse and broadly based UKCS portfolio
of producing fields, with material reserves and value upside potential. The transaction
represents substantial progress towards this objective with the number of producing fields
increased from five to eleven, mainly centred around two hubs (Bruce and Triton), a
substantial increase in 2P and 2C reserves and a balance of gas and oil production.
As the activity constitutes a business as defined in IFRS 3 Business Combinations, the
acquisitions have been accounted for as a business combination. The consolidated financial
statements include the fair values of the identifiable assets and liabilities as at the date of
acquisition 23 March 2023, and the results of the combined transaction assets for the nine-
month period from the acquisition date. In accordance with IFRS 3 Business Combinations,
the fair values of the assets and liabilities in the acquisition table below are now final. The
fair value of property, plant and equipment was determined using modelled future cash
flows on a post-tax basis. A deferred tax liability was also then separately recognised and
included in the net deferred tax asset on acquisition as part of the identifiable net assets.
Assets acquired and liabilities assumed at date of acquisition
Assets
Property, plant and equipment (note 13)
Exploration and evaluation assets
Net deferred tax asset (note 9)
Debtors and other assets
Inventory
Cash and cash equivalents
Liabilities
Trade and other payables
Contract liabilities (note 16)
Financial liabilities
Royalty liabilities (note 19)
Provisions (note 20)
Interest bearing loans (note 21)
Total identifiable net assets at fair value
140
Fair value
recognised on
acquisition
£000
486,331
-
264,914
68,226
6,112
17,600
843,183
(71,798)
(54,174)
(3,839)
(34,869)
(75,899)
(264,835)
(505,414)
337,769
Cash consideration
Initial consideration shares issued
Deferred consideration shares
Purchase consideration
Gain arising on acquisition
61,636
235,812
6,273
303,721
34,048
Fair value of consideration
The combined purchase consideration of the transaction was £303.7 million, which
comprised cash of £61.6 million, the fair value of 108,170,426 ordinary shares in Serica
Energy plc issued in exchange for all Tailwind shares, and the fair value of a further
2,877,698 ordinary shares which were issued to the sellers subsequent to the acquisition
after the conclusion of periods with no successful warranty claims. The fair value of the
initial consideration shares issued was calculated using the market price of the Company’s
shares of £2.18 on the AIM Market of the London Stock Exchange at its opening of business
on 23 March 2023. The deferred consideration share consideration was also valued using
the share price on acquisition and this value is approximate to the fair value.
The gain arising on acquisition representing the excess of fair value of the net assets
acquired over the purchase consideration largely arose due to a reduction in the value of
consideration paid based on the market price of shares issued at the completion date of
23 March 2023.
The excess of fair value of the net assets acquired over the purchase consideration has
been recognised as a gain on acquisition in the income statement.
From the date of acquisition, the Tailwind assets have contributed £243 million of revenue
and £86 million of profit before tax in the period ended 31 December 2023. Had the
acquisition occurred on 1 January 2023, the Tailwind assets would have contributed £338
million of revenue and £154 million of profit before tax for the year ended 31 December
2023.
Transaction costs of £1.8 million incurred in 2022 and £10.1 million in 2023 have been
expensed in the Income Statement. Debtors and other assets included in the total
identifiable net assets at fair value were equivalent to gross contractual amount
receivables.
Reserve Based Lending facility arrangements
Following completion of the acquisition on 23 March 2023, the Serica Group assumed
reserve-based lending and junior facility arrangements linked to the legacy Tailwind sub-
group (see note 21).
141
30. Subsidiaries
Details of the investments in which the Group and the Company (unless indicated) hold
20% or more of the nominal value of any class of share capital are as follows:
Name of company:
Holding
Nature of
business
Serica Holdings UK Ltd (ii)
Ordinary
Tailwind Energy Investments Ltd (ii)* Ordinary
Ordinary
Serica Energy Holdings BV (i & iii)
Ordinary
Serica Energy (UK) Ltd (i & ii)
Ordinary
NSV Energy Limited (i & ii)
Ordinary
Tailwind Energy Ltd (i & ii)*
Tailwind Energy Sirocco Ltd (i & ii)*
Ordinary
Tailwind Energy Chinook Ltd (i & ii)* Ordinary
Ordinary
Tailwind Mistral Ltd (i & ii)*
Ordinary
Tailwind Energy Bora Ltd (i & ii)*
Ordinary
Serica Energy Corporation (i & iv)
Ordinary
APD Ltd (i & iv)
Ordinary
PDA Asia Ltd (i & iv)
Ordinary
PDA (Lematang) Ltd (i & ii)
Ordinary
Serica UK Exploration Ltd (i & ii)
Holding
Holding
Holding
E&P
Holding
E&P
Holding
E&P
E&P
E&P
Dormant
Dormant
Dormant
Dormant
Dormant
(i) Held by a subsidiary undertaking
(ii) Incorporated in the UK
(iii) Incorporated in the Netherlands
(iv) Incorporated in the British Virgin Islands
% voting
rights
and
shares
held
2023
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
*On 10 April 2024 the following companies changed their names as detailed in the table
below:
Previous name
Tailwind Energy Investments Ltd
Tailwind Energy Ltd
Tailwind Mistral Ltd
Tailwind Energy Sirocco Ltd
Tailwind Energy Chinook Ltd
Tailwind Energy Bora Ltd
New name
Serica Energy Investments Limited
Serica Energy Meltemi Limited
Serica Energy Mistral Limited
Serica Energy Sirocco Limited
Serica Energy Chinook Limited
Serica Energy Bora Limited
The registered office of Serica Holdings UK Limited, Serica Energy (UK) Limited, PDA
(Lematang) Limited and Serica UK Exploration Limited is 48 George Street, London, W1U
7DY.
The registered office of Tailwind Energy Investments Ltd, NSV Energy Limited, Tailwind
Energy Sirocco Ltd, Tailwind Mistral Ltd and Tailwind Energy Bora Ltd is 62 Buckingham
Gate, London, SW1E 6AJ.
The registered office of Tailwind Energy Chinook Ltd is H1 Building, Hill of Rubislaw,
Anderson Drive, Aberdeen, AB15 6BY.
142
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.
31. Events Since Balance Sheet Date
On 23 January 2024 Serica announced the completion of a new US$525 million 6-year
Borrowing Facility which replaced its existing facility.
On 26 February 2024 Serica announced the completion of the acquisition of 30% non-
operated interests in the P2498 and P2170 licences (together the Greater Buchan Area)
from Jersey Oil & Gas.
On 6 March 2024, the UK government announced that EPL would be extended for a further
12 months to 31 March 2029 from the former end date of 31 March 2028.
143
Directors’ responsibilities statement in relation to the Company financial
statements
The Directors are responsible for preparing the Company financial statements in
accordance with applicable United Kingdom law and regulations.
Company law requires the Directors to prepare financial statements for each financial year.
Under United Kingdom company law the Directors have elected to prepare the parent
company financial statements in accordance with United Kingdom Generally Accepted
Accounting Practice including FRS 101 ’Reduced Disclosure Framework’ (United Kingdom
Accounting Standards and applicable law). 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 Company and the profit or loss of the Company for that
period.
In preparing the Company financial statements the Directors are required to:
•
select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
•
state whether applicable UK Accounting Standards have been followed, subject to
any material departures disclosed and explained in the financial statements;
• prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient
to show and explain the Company’s transactions and disclose with reasonable accuracy at
any time the financial position of the Company and enable them to ensure that the
Company financial statements comply with the Companies Act 2006. They are also
responsible for safeguarding the assets of the Company and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
144
Serica Energy plc
Registered Number: 5450950
Company Balance Sheet
As at 31 December 2023
Non-current assets
Property, plant and equipment
Investments in subsidiaries
Current assets
Trade and other receivables
Cash and cash equivalents
TOTAL ASSETS
Current liabilities
Trade and other payables
Financial liabilities
TOTAL LIABILITIES
NET ASSETS
Share capital
Merger reserve
Other reserve
Accumulated funds/(deficit)
TOTAL EQUITY
Note
2023
£000
2022
£000
3
4
5
6
7
8
8
8
43
420,106
420,149
18,484
120,718
139,202
216
105,256
105,472
25,445
141,218
166,663
559,351
272,135
2,616
3,635
3,367
-
6,251
3,367
553,100
268,768
165,222
318,440
29,551
39,887
155,478
88,088
25,576
(374)
553,100
268,768
The profit for the Company was £129.0 million for the year ended 31 December 2023
(2022: £43.5 million).
Approved by the Board on 23 April 2024
Mitch Flegg
Chief Executive Officer
Martin Copeland
Chief Financial Officer
145
Serica Energy plc
Company Statement of Changes in Equity
For the year ended 31 December 2023
Company
Share
capital
Merger
reserve
Other
reserve
£000
£000
£000
Accum’d
funds
(deficit)
£000
Total
£000
At 1 January 2022
154,294
88,088
22,066
2,416 266,864
Profit for the year
Total comprehensive income
Share-based payments
Issue of share capital (note 8)
Dividend paid
-
-
-
1,184
-
-
-
-
-
-
-
-
3,510
-
-
43,504
43,504
-
-
43,504
43,504
3,510
1,184
(46,294) (46,294)
At 31 December 2022
155,478
88,088
25,576
(374) 268,768
Profit for the year
Total comprehensive income
Share-based payments
Issue of share capital (note 8)
Dividend paid
-
-
-
-
-
-
9,744 230,350
-
-
-
-
3,975
-
-
129,049 129,049
129,049 129,049
3,975
-
- 240,094
(88,786) (88,786)
At 31 December 2023
165,222 318,438
29,551
39,889 553,100
146
1. Corporate information
The Company’s financial statements for the year ended 31 December 2023 were
authorised for issue by the Board of Directors on 23 April 2024 and the balance sheet was
signed on the Board’s behalf by Mitch Flegg and Martin Copeland. 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
its subsidiaries (together the ‘Group’) is to identify, acquire and subsequently exploit oil
and gas reserves.
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 2023.
The Company financial statements have been prepared on a historical cost basis and
presented in £ sterling. All values are rounded to the nearest thousand pounds (£000)
except when otherwise indicated.
These separate financial statements have been prepared in accordance with Financial
Reporting Standard 101, ‘Reduced Disclosure Framework’ (‘FRS 101’) and the Companies
Act 2006. The Company meets the definition of a qualifying entity under FRS 100,
‘Application of Financial Reporting Requirements’ as issued by the Financial Reporting
Council. The Company has undergone a transition to FRS 101 for the year ended 31
December 2023 and, as permitted by FRS 101, has taken advantage of the disclosure
exemptions available under that standard in relation to share-based payments, financial
instruments, fair value measurement, capital management, presentation of comparative
information in respect of certain assets, presentation of a cash flow statement, standards
not yet effective, impairment of assets and related party transactions. Where relevant,
equivalent disclosures have been given in the Group accounts.
The Company has taken advantage of the exemption provided under section 408 of the
Companies Act 2006 not to publish its individual income statement and related notes. The
profit of the parent Company was £129,049,000 (2022: £43,504,000).
Going concern
The Directors’ assessment of going concern concludes that the use of the going concern
basis is appropriate and the Directors have a reasonable expectation that the Group, and
therefore the Company, will be able to continue in operation and meet its commitments
as they fall due over the going concern period. See note 2 of the Group financial
statements for further details.
Critical accounting estimates and judgements
The management of the Company has to make estimates and judgements when preparing
the financial statements of the Company. Uncertainties in the estimates and judgements
could have an impact on the carrying amount of assets and liabilities and the Company’s
results.
The most important judgements and estimates in relation thereto are:
Impairment of investments in subsidiaries
Management is required to assess the carrying value of investments in subsidiaries in the
parent company balance sheet for impairment. This requires a judgement whether
147
impairment triggers exist that might lead to the impairment of investments in subsidiaries.
If a trigger is identified then the assessment for impairment requires an estimate of
amounts recoverable from oil and gas assets within the underlying subsidiaries.
Investments
In its separate financial statements the Company recognises its investments in subsidiaries
at cost less any provision for impairment.
Trade and other receivables and contract assets
Provision for expected credit losses of trade receivables and contract assets
The Company holds inter-company loans with subsidiary undertakings with repayment
dates being repayable on demand. These inter-company loans are disclosed on the face
of the balance sheet. None are past due nor impaired. The carrying value of these loans
approximates their fair value. The expected credit loss on these loans with subsidiary
undertakings is expected to be immaterial, both on initial recognition and subsequently.
Foreign currencies
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 are charged to the income
statement.
3. Investments
Company – Investment in subsidiaries
Cost:
At 1 January and 31 December 2022
Additions in year
At 31 December 2023
Provision for impairment:
At 1 January 2022, 31 December 2022 and 31 December 2023
Net book amount:
At 31 December 2023
At 1 January and 31 December 2022
Total
£000
105,256
314,850
420,106
-
420,106
105,256
148
Historic reorganisation
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.
2023 acquisition of Tailwind Energy Investments Ltd
Merger relief was applied by the Company upon the issue of ordinary shares in 2023 for
the acquisition of Tailwind Energy Investments Ltd. The valuation of the shares issued was
based on the fair value at the date of issue, with the nominal value of the shares issued
credited to share capital and the excess value above nominal share capital credited to a
merger reserve in the Company accounts (see note 8).
Details of the investments in which the Company’s subsidiaries are provided in note 30 of
the Group financial statements.
4. Trade and Other receivables
Due within one year:
Amounts owed by Group undertakings
Other receivables
Prepayments and accrued income
VAT recoverable
2023
£000
2022
£000
16,153
2,316
15
-
24,998
222
-
225
18,484
25,445
At the reporting date the amounts owed by Group undertakings to the Company are
disclosed net of an impairment of £nil (2022: £13,231,000). Amounts previously impaired
were written-off in the year as there was no reasonable expectation of recovery. These
amounts have not been secured, have no maturity and bear no interest.
The Company holds inter-company loans with subsidiary undertakings being repayable on
demand. The carrying value of these loans approximates their fair value. The expected
credit loss on these loans with subsidiary undertakings is expected to be immaterial, both
on initial recognition and subsequently.
5. Cash and cash equivalents
Cash at bank and in hand
Short-term deposits
2023
£000
2022
£000
88,542
32,176
49,261
91,957
Cash and cash equivalents
120,718
141,218
149
6. Trade and Other Payables
Current:
Trade payables
Other payables
Accrued expenses
7. Financial liabilities
Current:
Consideration payable
2023
£000
1,387
181
1,048
2022
£000
603
521
2,243
2,616
3,367
2023
£000
3,635
3,635
2022
£000
-
-
Other consideration reflects the remaining deferred consideration payable under the
Tailwind acquisition. This was settled in March 2024 (note 29 of Group accounts).
8. Equity Share Capital and Reserves
As at 31 December 2023, the share capital of the Company comprised one “A” share of
GB£50,000 and 391,321,053 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 Company’s equity share capital, comprising
US$0.10 ordinary shares and one ‘A’ share.
Allotted, issued and fully paid:
Company
Number
Share
Share
Total
capital premium Share capital
£000
£000
£000
As at 1 January 2022
268,891,044
21,186 133,108
154,294
Shares issued
4,062,328
328
856
1,184
As at 1 January 2023
272,953,372
21,514 133,964
155,478
Shares issued
118,367,682
9,439
305
9,744
As at 31 December 2023
391,321,054
30,953 134,269
165,222
150
During 2023, 8,758,407 ordinary shares were issued to satisfy awards under the
Company’s share-based incentive schemes. In connection with the acquisition of Tailwind
Energy Investments Ltd in March 2023, 108,170,426 ordinary shares were issued at
completion of the transaction on 23 March and a further 1,438,849 ordinary shares were
issued in September 2023 (see note 32 of the Group financial statements).
Merger relief was applied by the Company upon the issue of ordinary shares for the
acquisition of Tailwind Energy Investments Ltd in 2023. The valuation of the shares issued
was based on the fair value at the date of issue, with the nominal value of the shares
issued credited to share capital and the excess value above nominal share capital credited
to a merger reserve in the Company accounts.
The ‘Other reserve’ was comprised solely of the share-based payment reserve which
totaled £29,551,000 as at 31 December 2023 (2022: £25,576,000).
9. Auditor’s remuneration
Fees payable to the Company’s auditor for the audit of the Company and Group financial
statements are disclosed in note 6 of the Group financial statements.
10. Directors’ remuneration
The emoluments of the Directors are paid to them in their capacity as Directors of the
Company for qualifying services to the Company and the Group. Further information is
provided in note 7 of the Group financial statements.
11. Events Since Balance Sheet Date
On 23 January 2024 Serica announced the completion of a new US$525 million 6-year
Borrowing Facility which replaced its existing facility (see note 31 in Group accounts).
151
Reconciliation of non-IFRS measures
Serica uses certain measures of performance that are not specifically defined under IFRS
or other generally accepted accounting principles (“GAAP”). These non-IFRS measures,
which are presented within the financial review, are defined below:
Capital Expenditure (Capex): Comprises the spend (prior to tax allowances) on the
acquisition of PP&E assets, the purchase of exploration and appraisal assets and
decommissioning spend. Depicts how much the Group has spent on purchasing fixed
assets in order to further its business goals and objectives. It is a useful indicator of the
Group’s organic expenditure on oil and gas assets, and exploration and appraisal assets,
incurred during a period on a pre-tax basis.
CFFO less current tax: comprises Cash inflow from Operations adjusted by the tax
charge for the year as reflected in Note 9 a). Serica considers that this is a useful measure
of the cash generation of the business prior to the decisions made by the Group in relation
to capital allocation.
EBITDAX: Earnings before interest, tax, depreciation and amortisation, impairments,
transaction costs, unrealised hedging expenses, FX translation effects, asset revaluation
effects, other noncash gains or expenses and exploration expenditure. This is a useful
indicator of underlying business performance and the definition adopted by Serica is
consistent with that stipulated in the Group’s reserve based lending (“RBL”) facility. A
reconciliation from Operating Profit to EBITDAX is provided below:
152
£ 00020232022Purchase of PP&E Assets68,588 16,298 Purchase of E&E Assets9,673 80,801 Decommissioning Spend8961,218 Capital Expenditure79,157 98,317 £ 00020232022Cash inflow from operations378,369 704,858 Less current tax(183,331) (277,695) Adjusted CFFO less tax195,038 427,163
Adjusted Net cash / (debt): Total cash and cash equivalents plus the balance of
amounts of cash security temporarily lodged in respect of DSAs prior to the finalisation of
the RBL recognised on the consolidated balance sheet less the drawn balance under RBL
(net of the carrying value of unamortised fees). This is an indicator of the Group’s
indebtedness and contribution to capital structure.
153
£ 00020232022Operating Profit321,156 476,210 Add Back Transaction Costs10,085 1,785 Add Back DD&A109,198 76,887 Add back DD&A in G&A173- Add Back E&E Expenses and licence costs10,844 82,934 Deduct contract revenue - other(23,904) - (Deduct) / Add Back Unrealised Hedging(20,397) (20,877) Add Back FX Effects3,591 (3,903) Add back remeasurements368- Add back share based payments3,975 3,510 Deduct Gain on Acquisition(34,048) - EBITDAX 381,041 616,546 £ 00020232022Interest bearing loans(213,035) - Cash and cash equivalents263,492 432,529 DSA Cash 27,537 - Adjusted Net Cash (Debt)77,994 432,529
GLOSSARY
bbl
bcf
barrel of 42 US gallons
billion standard cubic feet
boe
BKR
BPEOC
CGU
CPR
DSA
ESG
ETS
FDP
FPS
GRI
HPHT
LWIV
mscf
mmbbl
mmboe
mmscf
mmscfd
NBP
NGLs
NTS
OGA
Overlift
Underlift
P10
P50
P90
Pigging
Proved
Reserves
Probable
Reserves
Possible
Reserves
Reserves
SASB
Tcf
TCFD
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
Decommissioning Security Agreement
Environmental, Social and Governance
Emissions Trading Scheme
Field Development Plan
Forties Pipeline System
Global Reporting Index (framework for sustainability reporting)
High pressure high temperature
Light Weight Intervention Vessel
thousand standard cubic feet
million barrels
million barrels of oil equivalent
million standard cubic feet
million standard cubic feet per day
National Balancing Point
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
A process of pipeline cleaning and maintenance which involves the use of
devices called pigs
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
154
UKCS
UNSDG
United Kingdom Continental Shelf
United Nations Sustainable Development Goals
155