energy-pedia general news

Europe / Caspian / CIS >>> United Kingdom

Serica Energy announces results for the year ended 31 December 2023

24 Apr 2024

AIM-listed Serica Energy, a British independent upstream oil and gas company with operations in the UK North Sea has announced its audited financial results for the year ended 31 December 2023. The results are included below and copies are available at www.serica-energy.com and www.sedar.com.

Commenting on the results, David Latin, Serica's Chairman and incoming Interim CEO, stated:

'I am very pleased that Serica has delivered a strong set of results for 2023 despite significantly lower sales prices compared to 2022 and a full year of the UK marginal tax rate being at 75%. Any 'windfall' due to high commodity prices has long gone and the high tax situation is ill-suited to a mature oil and gas basin such as the UK North Sea. Its continuation will not benefit people in the UK either financially or environmentally.

The resilience of Serica's financial position allows the Company to maintain the final dividend at 14p per share meaning an increase in the total dividend for 2023 to 23p per share compared to 22p per share in respect of 2022. Furthermore, the £15 million share buyback initiated today is a demonstration of the Board's confidence in 2024 cash flows and the longer-term value of the Company's assets.

By virtue of its financial strength and in-house skills, Serica is able to combine cash returns to shareholders with growth through investment in its assets and an ambitious, while disciplined, M&A effort. This situation is a testament to the achievements of everyone in Serica.

Finally, I would like to take this opportunity to reiterate the Board's appreciation for Mitch Flegg's very significant contribution to the Company over many years, most recently as CEO since 2018.'

Mitch Flegg, Serica's outgoing CEO, stated:

'The completion of the Tailwind acquisition in March 2023 represented a step change in the scale and diversity of Serica's portfolio. The merits of seeking diversity and organic growth opportunities through the transaction have been borne out by the sharp decline in gas prices relative to oil prices during 2023 and Serica maintaining its track record of more than replacing production through reserves additions in both the Bruce and Triton production hubs. Moreover, there are further growth opportunities within the Company's existing producing fields and other assets in Serica's portfolio, such as the potential Buchan Horst project.

My term as CEO ends with these results. More than the metrics of the last six years, it is the quality of the team we have built at Serica that gives me the most satisfaction and pride. Clearly, the BKR and Tailwind transactions represented the most significant organisational changes. Creating the culture and expertise of an organisation like Serica, however, is an everyday process that involves everyone in the Company. I am grateful to far too many people to mention here.

The result of the last several years is that Serica combines distinctive financial and operational strengths with a high-quality team, providing a platform for further returns to shareholders through investment and M&A.'

2023 Summary

Acquisition of Tailwind Energy Investment Ltd completed 23 March 2023.
Proforma production from the combined Serica and Tailwind portfolios averaged 40,121 boe per day during 2023 as a whole. Equity production for the year as reported (excluding Tailwind volumes between 1 January and 23 March 2023) averaged 35,167 boe per day (Serica net production in 2022: 26,200 boe per day).
Serica 2P reserves increased to 140.3 million boe at 31 December 2023 (31 December 2022: 76.9 million boe) with net upwards reserves revisions of 23.5 million boe and a proforma reserves replacement ratio of 179% for the combined Serica and Tailwind portfolio.
EBITDAX of £381.4 million (2022: £616.5 million) reflecting an average realised sales price after hedging of $63 per boe compared to $104 per boe in 2022.
Final 2023 dividend of 14p per share recommended (2022: 14p per share), bringing 2023 full year total to 23p per share compared to 22p per share for 2022, an increase of 4.5%.

Financial

Average 2023 realised sales price, after hedging, of approximately US$63 per boe (2022: US$104 per boe) comprising average realised prices for gas of 93 pence per therm, oil of US$71 per barrel and NGLs of £363 per tonne.
Revenue of £632.6 million (2022: £812.4 million), largely reflecting lower natural gas prices partially offset by nine months of production contribution from the Tailwind assets.
EBITDAX of £381.4 million (2022: £616.5 million) reflecting the lower commodity prices whilst operating costs increased largely in line with higher production, albeit with some inflationary impact.
Profit before tax of £305.6 million (2022: £488.2 million).
Profit after tax of £103.0 million (2022: £177.8 million) reflecting current tax charges of £183.3 million (2022: £277.7 million) deriving an effective tax rate of 48% (2022: 45%), notwithstanding an increase in the marginal overall rate of tax on UK oil and gas production to 75% during 2023 and with the benefit for only nine rather than twelve months of Tailwind's brought forward tax losses.
Cash flow from operations, after deduction of 2023 current tax, of £195 million[1] (2022: £427 million). Serica considers this measure to be representative of the cash generation of the business prior to discretionary decisions regarding capital allocation.
Capital expenditure (including exploration and abandonment) of £79.2 million largely comprising Bruce well work and long lead items for the Triton area drilling campaign commencing in 2024 (2022: £98.3 million).
Cash dividends paid of £88.8 million (2022: £46.3 million) for 2022 Final and 2023 Interim dividends.
Gross cash and cash equivalents, including £28 million of cash security temporarily lodged with a third party in respect of decommissioning obligations, of £291.0 million at 31 December 2023 (2022: £432.5 million) after capital expenditure (£79.2 million), dividends (£88.8 million) and tax paid (£279.5 million).
Amount drawn at 31 December 2023 under the RBL facility assumed with the Tailwind acquisition of US$271.2 million (£213.0 million).
Net cash of £78.0 million (2022: £432.5 million).
Executed a refinancing into new six-year US$525 Reserve Base Lending ("RBL") facility with a syndicate of international banks (facility completed and borrowings assumed with the Tailwind acquisition were repaid in January 2024).

Operational

Updated independent audit of field reserves reported Serica's share of estimated remaining 2P reserves as 140.3 million boe at 31 December 2023 increased from 76.9 million boe at 31 December 2022. Movements in the year include:
- Acquisitions of 52.2 million boe relating to the completion of the acquisition of Tailwind Energy Investments Ltd on 23 March 2023.
- Net upward revisions of 23.5 million boe reflecting better than expected production performance in the Rhum and Gannet E fields, the movement of Belinda from contingent resources to 2P reserves and the maturing of projects to enhance production from the Bruce and Rhum fields.
A series of surveillance and interventions carried out on several Bruce wells by means of platform based and Light Well Intervention Vessel ("LWIV") activities. These interventions delivered incremental near-term production and identified additional intervention opportunities for future well campaigns.
The GE-04 well on the Gannet E field came onstream in February 2023 and achieved initial rates higher than pre-drill estimates. This contributed to the Triton hub reaching gross production levels in excess of 30,000 boe per day for the first time in ten years.
A 'walk to work' campaign was conducted on the Triton FPSO, continuing the maintenance and upgrades that have been pivotal in improving the performance of the facilities and hydrocarbon throughput. A key item of work currently is the replacement of the Triton control system, which is planned to be completed during a further 'walk to work' campaign planned in 2024.
Work was carried out to remove power supply vulnerabilities to the Rhum field including the installation of a new power umbilical on one of the three Rhum production wells.
Planned shutdowns in 2023 of both the Bruce and Triton hubs to carry out essential maintenance and life extension work were extended unexpectedly. On Bruce, it was decided to make permanent rather than temporary repairs to issues identified on the flare tower during an inspection, which, in combination with bad weather, caused an approximate one-month overrun. The Triton shutdown was extended due to a combination of equipment and control system issues, which are now resolved.
Serica elected to relinquish the P.2501 North Eigg licence following the evaluation of the results of the exploration well on the prospect in 2022. The relinquishment will be completed during 2024.

ESG

Achieved lowest Scope 1 Carbon Intensity (16.36kg CO2/boe) since taking operatorship of Bruce.
Received Supply Chain Principles Gold Award for companies demonstrating outstanding commitment to business relationships.
33% reduction in methane emissions compared to 2022.
Awarded Gold Standard Pathway for methane reduction and monitoring plans from the Oil and Gas Methane Partnership (OGMP) 2.0.

Outlook

The Triton area drilling campaign started earlier this month with the first well in the programme being the B1z sidetrack on the Bittern field. The programme using the COSLInnovator rig now comprises five wells with the addition of the 100% owned Belinda development well. Serica has taken a final investment decision on Belinda and is waiting for NSTA approval of the field development plan.
An extensive programme of well interventions is being carried out on the Bruce and Keith fields during 2024. It is hoped to bring the Keith field back into regular production during this year.
Capital expenditure in 2024 (cash spent) is estimated at around £170 million, based on sanctioned projects previously disclosed, plus up to £25 million on the newly sanctioned Belinda development.
The production guidance range for 2024 is updated to 41,000 - 46,000 boe/d. The narrowing of the range from 41,000 - 48,000 boe/d factors in the unplanned shut-in of Erskine (production recently restarted and expected to ramp up), production to date in 2024 from the rest of the portfolio and the later than expected start of the Triton area drilling programme. Notwithstanding the shut-in of Erskine, production in 2024 year-to-date[2] has averaged about 45,400 boe per day. Production in the second half of 2024 will be impacted by the planned 40-day shutdown of the Triton area for maintenance work.
Targeting operating costs at around US$20 per boe produced during 2024 despite significant inflationary pressures.
Production for 2025 is anticipated to be in the same range (41,000 - 46,000 boe/d) as 2024 reflecting the updated view coming out of 2024 and slippage in some of the planned work in the Bruce and Triton hubs.
New commodity price hedges being added to supplement the existing fixed price hedges coming to an end during 1H 2024. Initially, these are weighted towards oil in view of current market levels, run through to Q1 2026 and are mainly 'collars' affording downside protection while retaining upside exposure. Currently[3], hedges are approaching a quarter of Serica's projected production volumes (c.10 kboe/d for 2024, tapering to around 6 kboe/d by Q1 2026).
A draft FDP has been submitted for the Buchan Horst field. As with all major capital projects, a final investment decision, which is not expected before the latter part of 2024, depends in part on the impact on project economics of expectations for the future tax regime which will apply through the life of the project.
Subject to shareholder approval at the AGM, a final 2023 dividend of 14p per share will be payable on 24 July 2024 to shareholders registered on 28 June 2024 with an ex-dividend date of 27 June 2024.
Additionally, a £15 million share buyback is being initiated today under the authority granted at the AGM in 2023. This reflects the confidence of the Board in the Company's current financial position, the cash generating capacity of the portfolio during 2024 and the long-term value of the assets. Serica will look to provide further detail on its future policy of cash returns to shareholders in due course. This policy will be framed by reference to Serica's post-tax operating cash flow, its organic and inorganic investment opportunities, and the maintenance of a prudent balance sheet.
After six years on the Serica Board, Malcolm Webb has informed the Board of his wish not to stand for re-election at the forthcoming AGM. As chair of the Nominations Committee, Malcolm will continue to lead the CEO recruitment process. 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.