Serica Energy Regulatory News (SQZ)

15 May 2006 07:02

Serica Energy plc15 May 2006 FOR IMMEDIATE RELEASE: 15 MAY 2006 Serica Energy plc ("Serica" or the "Company") 2006 FIRST QUARTER RESULTS 15 May 2006 - Serica Energy plc (TSX Venture: SQZ; AIM: SQZ) today announces its2006 first quarter results. A summary of these results is included below, andthe full 2006 first quarter results and Management Discussion and Analysis areavailable at www.serica-energy.com and www.sedar.com. Highlights • Indonesian government approval received for Serica's Plan of Development for the Kambuna Field offshore north Sumatra. Production targeted for 2008. • An additional 10% interest acquired in the Glagah Kambuna TAC which contains the Kambuna Field. Serica's interest thereby raised to 65%. • The Tanjung Perling Field in the neighbouring Asahan block (Serica 55%) has been identified as potentially commercial. The Company is submitting a Plan of Development to the Indonesian Government in May 2006. • Offer received and negotiations in progress to dispose of non-core 10% interest in Lematang PSC onshore south Sumatra which contains the producing Harimau field and Singa field development. • Terms of agreement being finalised to secure a jack up drilling rig for a three well exploration programme in the Biliton block in Indonesia (Serica 90%). Drilling expected to commence in December 2006 or early 2007. • In the UK North Sea a rig has been secured for the first well in block 23/16f (Serica 50%), to be spudded in Q4 2006. Tony Craven Walker, Chairman, commented: "Serica continued to make good steady progress in the first quarter of 2006.With equipment being secured we expect drilling to commence on core blocks inboth Indonesia and the North Sea in the fourth quarter whilst approval of thePlan of Development for the Kambuna Field puts us on track for productionstart-up in 2008." Enquiries: Serica Energy plcPaul Ellis, pellis@serica-energy.com +44 (0)20 7487 7300 Chief Executive OfficerChris Hearne, Finance Director chearne@serica-energy.com +44 (0)20 7487 7300 Pelham Public Relations -UKJames Henderson james.henderson@pelhampr.com +44 (0)20 7743 6673Alisdair Haythornthwaite alisdair.haythornthwaite@pelhampr.com +44 (0)20 7743 6676 CHF Investor Relations - CanadaJan Moir jan@chfir.com +1 416 868 1079Heather Colpitts heather@chfir.com +1 416 868 1079 MANAGEMENT OVERVIEW Serica is pleased to report that it has continued to build on its strong 2005performance during an active first quarter of 2006 for the Company. InIndonesia, the Company has received Government approval of its Plan ofDevelopment for the Kambuna Field, has increased its ownership interest in theGlagah Kambuna TAC and is negotiating an offer to dispose of its non-coreinterest in the Lematang PSC. Serica is also making preparations forexploration drilling both in the UK and in Indonesia to commence later thisyear. Serica has received Indonesian government approval of its Plan of Developmentfor the Kambuna Field in north Sumatra. Serica is the operator of the GlagahKambuna TAC, which contains the Kambuna Field, and has a 55% interest. TheCompany will conduct a large 3D seismic survey over the block in the thirdquarter 2006 prior to commencing development well drilling in 2007. Firstproduction is scheduled for 2008 and gas sales negotiations are underway. The Glagah Kambuna TAC is an important asset for Serica and the Companyannounces that it has acquired an additional 10% interest from PT GunakarsaGlagah-Kambuna Energi. Following receipt of the required regulatory approvalsSerica's working interest in the block will increase to 65%. In the neighbouring Asahan Offshore PSC, in which Serica has a 55% interest,Serica will be submitting a Plan of Development for the Tanjung Perling Field tothe Indonesian authorities in May 2006. This follows the 2005 seismic programmeconducted by the Company which has indicated that the Tanjung Perling Field, inthe south of the Asahan block, is of commercial size. Further explorationdrilling in this block is scheduled for 2007. Serica has recently received an offer and is in negotiations to dispose of its10% interest in the Lematang PSC onshore south Sumatra. This block includes theproducing Harimau Field and the Singa Field development. Lematang is notregarded by Serica as a core asset due to the small level of working interestheld by the Company and the proceeds from the sale can be better deployedelsewhere in the Company's portfolio. Preparations for drilling continue. In Indonesia, Serica is currently finalisingthe terms of an agreement to provide a jack-up drilling rig for the Company'sthree well exploration programme in the Biliton Block, expected to commence inDecember 2006 or early 2007. Serica has a 90% working interest and is operatorof the Biliton PSC, located in the Java Sea. In the UK North Sea, Serica has announced that it has secured a rig for itsfirst well in Block 23/16f, to be spudded in the fourth quarter 2006 and inwhich it has a 50% interest and is operator. The Company continues to reviewoptions to bring forward exploration drilling on its other blocks but iscautious to avoid incurring excessive drilling costs in the current overly tightrig market. Serica has started 2006 in a strong financial position and continues to makesignificant operational progress in its core areas of the UK North Sea andIndonesia. Serica remains very positive on its future and its ability tocreate shareholder value through exploration drilling and field developmentprogrammes. MANAGEMENT'S DISCUSSION AND ANALYSIS The following management's discussion and analysis ("MD&A") of the financial andoperational results of Serica Energy plc and its subsidiaries (the "Group")should be read in conjunction with the attached unaudited interim consolidatedfinancial statements for the period ended 31 March 2006. The interim financialstatements for the three months ended 31 March 2006 have been prepared by andare the responsibility of the Company's management and the independent auditorshave not performed a review of these financial statements. References to the "Company" include Serica and its subsidiaries where relevant.All figures are reported in US dollars ("US$") unless otherwise stated. Overall Performance Serica's activities are centred on Indonesia, the UK and Spain. The Group haslimited current oil and gas production with the main emphasis placed uponexploration and its future drilling programmes. During early 2006, work hascontinued on managing its portfolio of interests, advancing the Indonesiandevelopments and preparing for the 2006 drilling programme. Further details arenoted in the Management Overview. The results of Serica's operations are detailed below. Serica chose to adoptInternational Financial Reporting Standards ("IFRS") for its financialstatements for the year ended 31 December 2005 with a transition date of 1January 2004. The first year reported under IFRS was the year ended 31 December2005, and henceforth the results presented in this MD&A and the financialstatements will be presented in accordance with IFRS. Accordingly, Q1 2005comparatives have been restated from Canadian GAAP to comply with IFRS. Results of Operations Serica generated a loss of US$0.80 million for the three months ended 31 March2006 ("Q1 2006") compared to a loss of US$1.44 million for the three monthsended 31 March 2005 ("Q1 2005"). Q1 Q1 2006 2005 US$000 US$000 Sales revenue 25 31 Expenses: Administrative expenses (1,370) (1,137)Pre-licence costs (160) (288) Share-based payments (436) (78) Depletion, depreciation & amortisation (10) (4)Operating loss before finance revenue and taxation (1,951) (1,476) Finance revenue 1,152 82 Loss before taxation (799) (1,394) Taxation charge - (41) Loss for the period (799) (1,435) Revenues from oil and gas production are recognised on the basis of theCompany's net working interest in its properties. Revenues throughout eachperiod were generated from Serica's 10% interest in the Harimau producing gasand gas condensate field. Whilst steady during 2005, the decrease in salesrevenues from US$0.031 million for Q1 2005 to US$0.025 million for Q1 2006reflects a gradual decline in production levels partly offset by higher salesprices. Direct operating costs for the field during these periods were carriedby Medco Energi Limited. Administrative expenses of US$1.37 million for Q1 2006 increased from US$1.14million for Q1 2005. The increase reflects the growing scale of the Company'sactivities over the past twelve months. Share-based payment costs of US$0.44 million reflects share option grants madeand compares with a cost of US$0.08 million for Q1 2005. The increase is due toshare options granted in the second half of 2005 and early 2006. Negligibledepletion, depreciation and amortisation charges in both periods representoffice equipment and fixtures and fittings. The costs of petroleum and naturalgas properties are not currently subject to such charges pending furtherevaluation. Finance revenue, comprising interest income of US$1.15 million for Q1 2006compares with US$0.08 million for Q1 2005. The increase from last year is dueto the significant cash deposit balances held following the recent AIM listing. The net loss per share fell from US$0.02 for Q1 2005 to US$0.01 for the currentperiod due to the substantial increase in the number of shares in issue, and thedecrease in the net loss for the period. Summary of Quarterly Results 2006 2005 2005 2005 2005Quarter ended: 31 Mar 31 Dec 30 Sep 30 Jun 31 Mar US$000 US$000 US$000 US$000 US$000 Sales revenue 25 25 36 32 31Loss for the quarter 799 403 775 1,486 1,435Basic and diluted loss per share US$ 0.01 0.01 0.01 0.02 0.02 Working Capital, Liquidity and Capital Resources Current Assets and Liabilities An extract of the balance sheet detailing current assets and liabilities isprovided below: 31 March 31 December 2005 2006 US$000 US$000Current assets: Inventories 878 878 Trade and other receivables 1,756 2,106 Cash and cash equivalents 105,101 109,750Total Current assets 107,735 112,734 Less Current liabilities: Trade and other payables (3,858) (7,136) Net Current assets 103,877 105,598 At 31 March 2006, the Company had net current assets of US$103.9 million whichcomprised current assets of US$107.7 million less current liabilities of US$3.9million, giving an overall reduction in working capital of US$1.7 million in theperiod. Net outgoings in 2006 covered operational expenses and exploration work.Significant trade and other payables balances in relation to the 2005 drillingprogramme and the AIM listing have been settled in Q1 2006. Long-Term Assets and Liabilities An extract of the balance sheet detailing long-term assets and liabilities isprovided below: 31 March 31 December 2006 2005 US$000 US$000 Intangible exploration assets 24,419 23,591Goodwill 2,382 2,382Property, plant and equipment 304 26Long-term other receivables 2,129 1,758 Long-term other payables (151) (151)Deferred income tax liabilities (2,137) (2,137) During Q1 2006, total investments in petroleum and natural gas properties,represented by intangible exploration assets, increased to US$24.4 million. Ofthe 2006 investments, US$0.4 million was spent in Indonesia principally ondrilling activity on the Asahan and Glagah Kambuna concessions, and US$0.4million in the UK on exploration work. Goodwill, representing the difference between the price paid on acquisitions andthe fair value applied to individual assets, remained unchanged at US$2.4million. Long-term other receivables of US$2.1 million represent value added tax ("VAT")on Indonesian capital spend, which is expected to be recovered once the fieldscommence production. Long-term other payables comprise mainly VAT payable in Indonesia. Shareholders' Equity An extract of the balance sheet detailing shareholders' equity is providedbelow: 31 March 31 December 2006 2005 US$000 US$000 Total share capital 148,864 148,745Other reserves 1,705 1,269Accumulated deficit (19,746) (18,947) Total share capital represents shares at nominal value and share premium. Totalshare capital includes the total net proceeds (both nominal value and anypremium on the issue of equity capital). Issued share capital during 2006 was increased by the exercise of 121,250warrants and share options of the Company at prices ranging from Cdn$1.00 toCdn$1.20. The increase in other reserves from US$1.3 million to US$1.7 million reflectsthe amortisation of share options. Capital Resources At 31 March 2006, Serica had US$103.9 million of net working capital and nosignificant long-term debt. At that date the Company had commitments to futureminimum payments under operating leases in respect of rental office premises,office equipment and motor vehicles for each of the following years as follows: US$00031 December 2006 27531 December 2007 19831 December 2008 18331 December 2009 17731 December 2010 36 The Company had no long-term debt, capital lease obligations, purchaseobligations or other long-term obligations. In view of the limited revenues currently generated from oil and gas production,Serica will utilise existing financial resources as required to fund itsinvestment programme and ongoing operations. Off-balance Sheet Arrangements The Company has not entered into any off-balance sheet transactions orarrangements. Critical Accounting Estimates The Company's significant accounting policies are summarised in note 2 to theattached financial statements. There have been no changes in accountingpolicies during the period, and following the adoption of InternationalFinancial Reporting Standards ("IFRS") for the 2005 audited financialstatements, the Q1 2005 comparative results reported have been restated fromCanadian GAAP to IFRS. The cost of exploring for and developing petroleum andnatural gas reserves are capitalised. Unproved properties are subject toperiodic impairment tests whilst the costs of proved properties are depletedover the life of such producing fields. In each case, calculations are basedupon management assumptions about future outcomes, product prices andperformance. Financial Instruments The Group's financial instruments comprise cash and cash equivalents, accountspayable and accounts receivable. It is the management's opinion that the Groupis not exposed to significant currency, interest or credit risks arising fromits financial instruments other than as discussed below: Cash and cash equivalents, which comprise short-term cash deposits, aregenerally held within the currency of likely future expenditures to minimise theimpact of currency fluctuations. The majority of funds are currently held in USdollars to match the Group's exploration and appraisal commitments. The holdingof £9.6 million at period-end reflected a proportion of UK licence commitmentsand administrative expenditures expected in £ sterling. Following the recent fund-raising, Serica is holding significant net cash.Whilst this does leave exposure to interest rate fluctuations, given the levelof expenditure plans over 2006/7 this is managed in the short-term throughselecting treasury deposit periods of one to six months. The low levels of sales revenue leave little customer credit risk. Cash andtreasury credit risks are mitigated through spreading the placement of fundsover a range of institutions each carrying acceptable published credit ratingsto minimise counterparty risk. It is the management's opinion that the fair value of its financial instrumentsapproximate to their carrying values, unless otherwise noted. Warrants and Share Options As at 31 March 2006, the following warrants and options were outstanding: - Expiry Date Amount Value Cdn$Warrants 6 Aug 2006 6,427,500 7, 713,000 28 Jul 2006 1,521,876 1,826,251 Share options Aug 2009 500,000 555,000 Feb 2009 947,500 1,895,000 May 2009 100,000 200,000 Dec 2009 365,000 365,000 Jan 2010 600,000 600,000 Jun 2010 1,700,000 3,060,000 Value £ Nov 2010 696,000 675,120 Jan 2011 1,395,000 1,443,825 Business Risk and Uncertainties Serica, like all exploration companies in the oil and gas industry, operates inan environment subject to inherent risks. Many of these risks are beyond theability of a company to control, particularly those associated with theexploring for and developing of economic quantities of hydrocarbons: volatilecommodity prices; governmental regulations; and environmental matters. Nature and Continuance of Operations The principal activity of the Company is to identify, acquire and subsequentlyexploit oil and gas reserves primarily in Asia and Europe. The Company's financial statements have been prepared with the assumption thatthe Company will be able to realise its assets and discharge its liabilities inthe normal course of business rather than through a process of forcedliquidation. The Company currently has relatively minor operating revenues and,during the period ended 31 March 2006 the Company incurred losses of US$0.8million from continuing operations. At 31 March 2006 the Company held cash andcash equivalents of US$105.1 million. Outstanding Share Capital As at 8 May 2006, the Company had 142,669,830 ordinary shares issued andoutstanding. Additional Information Additional information relating to Serica can be found on the Company's websiteat www.serica-energy.com and on SEDAR at www.sedar.com Approved on Behalf of the Board Paul Ellis Christopher HearneChief Executive Officer Finance Director 15 May 2006 Forward Looking Statements This disclosure contains certain forward looking statements that involvesubstantial known and unknown risks and uncertainties, some of which are beyondSerica Energy plc's control, including: the impact of general economicconditions where Serica Energy plc operates, industry conditions, changes inlaws and regulations including the adoption of new environmental laws andregulations and changes in how they are interpreted and enforced, increasedcompetition, the lack of availability of qualified personnel or management,fluctuations in foreign exchange or interest rates, stock market volatility andmarket valuations of companies with respect to announced transactions and thefinal valuations thereof, and obtaining required approvals of regulatoryauthorities. Serica Energy plc's actual results, performance or achievementcould differ materially from those expressed in, or implied by, these forwardlooking statements and, accordingly, no assurances can be given that any of theevents anticipated by the forward looking statements will transpire or occur, orif any of them do so, what benefits, including the amount of proceeds, thatSerica Energy plc will derive there from. The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release. To receive Company news releases via email, please contact heather@chfir.com and specify "Serica press releases" in the subject line. Serica Energy plcGroup Income Statementfor the period ended 31 March Q1 Q1 2006 2005 US$000 US$000 (Unaudited) (Unaudited) Sales revenue 25 31 Cost of sales - - Gross profit 25 31 Administrative expenses (1,370) (1,137)Pre-licence costs (160) (288)Share-based payments (436) (78)Depreciation, depletion and amortisation (10) (4) Operating loss before finance revenue and tax (1,951) (1,476) Finance revenue 1,152 82Loss before taxation (799) (1,394) Taxation charge for the period - (41)Loss for the period (799) (1,435) Loss per ordinary share (US$):Basic and diluted LPS (0.01) (0.02) Serica Energy plcConsolidated Balance Sheet 31 March 31 December 2006 2005 Notes US$000 US$000 (Unaudited) (Audited) Intangible exploration assets 24,419 23,591Goodwill 2,382 2,382Property, plant and equipment 304 26Investments in subsidiaries - -Other receivables 2,129 1,758 29,234 27,757 Inventories 878 878Trade and other receivables 1,756 2,106Cash and cash equivalents 105,101 109,750 107,735 112,734 TOTAL ASSETS 136,969 140,491 Current liabilitiesTrade and other payables (3,858) (7,136) Non-current liabilitiesOther payables (151) (151)Deferred income tax liabilities (2,137) (2,137) TOTAL LIABILITIES (6,146) (9,424) NET ASSETS 130,823 131,067 Share capital 3 148,864 148,745 Other reserves 1,705 1,269Accumulated deficit (19,746) (18,947) TOTAL EQUITY 130,823 131,067 Serica Energy plcStatement of Changes in EquityFor the period ended 31 March 2006 Group Share capital Other reserves Deficit Total US$000 US$000 US$000 US$000 At 1 January 2005 33,047 256 (14,828) 18,475 Conversion of warrants 10,190 - - 10,190Issue of 'A' share 90 - - 90Issue of shares (net) 105,418 - - 105,418Share-based payments - 1,013 - 1,013Loss for the year - - (4,119) (4,119) At 1 January 2006 148,745 1,269 (18,947) 131,067 Conversion of warrants 119 - - 119Share-based payments - 436 - 436Loss for the year - - (799) (799) At 31 March 2006 148,864 1,705 (19,746) 130,823 Serica Energy plcConsolidated Cash Flow StatementFor the period ended 31 March Q1 Q1 2006 2005 US$000 US$000 (Unaudited) (Unaudited)Cash flows from operating activities:Operating loss (1,951) (1,476) Adjustments for:Depreciation, depletion and amortisation 20 4Share-based payments 436 78Changes in working capital (3,333) 888Cash generated from operations (4,828) (506) Taxes received 34 - Net cash flow from operations (4,794) (506) Cash flows from investing activities:Interest received 1,152 82Purchases of property, plant and equipment (298) -Purchase of intangible exploration assets (828) (1,047) Net cash generated/(used) in investing activities 26 (965) Cash proceeds from financing activities:Proceeds on exercise of warrants/options 119 8,894 Net cash from financing activities 119 8,894 Net (decrease)/increase in cash and cash equivalents (4,649) 7,423Cash and cash equivalents at start of period 109,750 1,729 Cash and cash equivalents at end of period 105,101 9,152 Serica Energy plc Notes to the Unaudited Consolidated Financial Statements 1. Nature and continuance of operations Serica Energy plc is a public limited company incorporated and domiciled inEngland & Wales. The Company's ordinary shares are traded on AIM and the TSXVenture Exchange. The principal activity of the Company is to identify, acquireand subsequently exploit oil and gas reserves primarily in Asia and Europe. On 1 September 2005, the Company completed a reorganisation whereby the commonshares of Serica Energy Corporation were automatically exchanged on aone-for-one basis for ordinary shares of Serica Energy plc, a newly formedcompany incorporated under the laws of the United Kingdom. In addition, eachshareholder of the Corporation received beneficial ownership of part of the 'A'share of Serica Energy plc issued to meet the requirements of public companiesunder the United Kingdom jurisdiction. Under IFRS this reorganisation wasconsidered to be a reverse takeover by Serica Energy Corporation and as such thefinancial statements of the Group represent a continuation of Serica EnergyCorporation. 2. Accounting Policies Basis of Preparation These unaudited interim consolidated financial statements of the Group have beenprepared in accordance with International Financial Reporting Standardsfollowing the same accounting policies and methods of computation as theconsolidated financial statements for the year ended 31 December 2005. Theseunaudited interim consolidated financial statements do not include all theinformation and footnotes required by generally accepted accounting principlesfor annual financial statements and therefore should be read in conjunction withthe consolidated financial statements and the notes thereto in the Serica Energyplc annual report for the year ended 31 December 2005. The Group and Company financial statements are presented in US dollars and allvalues are rounded to the nearest thousand dollars (US$000) except whenotherwise indicated. Basis of Consolidation The consolidated financial statements include the accounts of the Company andits wholly owned subsidiaries Serica Energy Corporation, Asia PetroleumDevelopment Limited, Petroleum Development Associates (Asia) Limited, SericaEnergia Iberica S.L., Firstearl Limited, Serica Energy (UK) Limited, PDALematang Limited, APD (Asahan) Limited, APD (Biliton) Limited, APD (GlagahKambuna) Limited and Serica Energy Pte Limited. Together these comprise the"Group". All significant inter-company balances and transactions have been eliminatedupon consolidation. 3. Equity Share Capital 31 March 31 March 31 December 31 December 2006 2006 2005 2005 Number US$000 Number US$000Authorised:Common shares with no par (1) value - - - -Ordinary shares of US$0.10 200,000,000 20,000 200,000,000 20,000Ordinary 'A' share of £50,000 1 90 1 90 200,000,001 20,090 200,000,001 20,090 On incorporation, the authorised share capital of the Company was £50,000 andUS$20,000,000 divided into one 'A' share of £50,000 and 200,000,000 ordinaryshares of US$0.10 each, two of which were issued credited as fully paid to thesubscribers to the Company's memorandum of association. The balance classified as total share capital includes the total net proceeds(both nominal value and share premium) on issue of the Group and Company'sequity share capital, comprising US$0.10 ordinary shares. Allotted, issued and fully paid: Share prem Share Total capital premium Share capitalGroup Number US$000 US$000 US$000 At 1 January 2006 142,548,580 14,345 134,400 148,745 Warrants/options exercised (2) 121,250 12 107 119 As at 31 March 2006 142,669,830 14,357 134,507 148,864 (1) Prior to the reorganisation on 1 September 2005, the Group's common shareshad no par value, accordingly all value was classified as share capital. (2) From 1 January 2006 until 31 March 2006, 121,250 share purchase warrants andoptions were converted to ordinary shares at prices ranging from Cdn$1.00 toCdn$1.20. 4. Share-Based Payments Share Option Plans Following a reorganisation in 2005, the Company established an option plan (the"Serica 2005 Option Plan") to replace the Serica Energy Corporation Share OptionPlan (the "SEC Share Option Plan"). Serica Energy Corporation was previouslythe holding company of the Group but, is now a wholly owned subsidiary of theCompany. The Serica 2005 Option Plan will govern all future grants of options bythe Company and no further options will be granted under the SEC Share OptionPlan. Existing options under the SEC Share Option Plan entitle holders toacquire ordinary shares of the Company. The Directors intend that the maximum number of ordinary shares which may beutilised pursuant to the Serica 2005 Option Plan will not exceed 10 per cent. ofthe issued ordinary shares of the Company from time to time, in line with therecommendations of the Association of British Insurers. The Company calculated the value of share-based compensation using aBlack-Scholes option pricing model to estimate the fair value of share optionsat the date of grant. The estimated fair value of an option is amortised toexpense over its vesting period. US$436,000 has been charged to the incomestatement in the period ended 31 March 2006 and a similar amount credited toother reserves. The assumptions made for the options granted during 2005 and 2006 include avolatility factor of expected market price of 50%, a weighted average risk-freeinterest rate of 6%, no dividend yield and a weighted average expected life ofoptions of three years. The following table illustrates the number and weighted average exercise prices(WAEP) of, and movements in, share options during the period: Number WAEP Cdn$ SEC Share Option Plan Outstanding at 31 December 2005 4,212,500 1.58 Cancelled during the period (110,000) 1.27 Outstanding at 31 March 2006 4,102,500 1.59 Serica 2005 Option Plan £ Outstanding at 31 December 2005 696,000 0.97 Granted during the period 1,395,000 1.03 Outstanding at 31 March 2006 2,091,000 1.01 This information is provided by RNS The company news service from the London Stock Exchange