Serica Energy Regulatory News (SQZ)

7 Aug 2007 13:00

Serica Energy plc07 August 2007 Serica Energy Plc ("Serica" or the "Company") SECOND QUARTER 2007 REPORT TO SHAREHOLDERS London, 7 August 2007 - Serica Energy plc (TSX Venture & AIM: SQZ) todayannounces its financial results for the three and six months ended 30 June 2007.The results and associated Management Discussion and Analysis are includedbelow and copies are available at www.serica-energy.com and www.sedar.com. H1 2007 Highlights Operational • Construction of the Kambuna Field offshore facilities progresses towards 2008 production start-up in Indonesia • Exploration portfolio and prospects increased significantly with new prospective licences awarded in the UK, Norway, Indonesia and Vietnam • Farmed-out a percentage of the Company's interest in the Biliton Block, in line with a strategy to spread exploration risk and manage costs whilst continuing to build the portfolio Financial and Corporate • Net Current Assets at the half year stood at US$66 million • US $100 million debt facility arranged with JP Morgan Chase and Bank of Scotland to fund appraisal and development activities in Indonesia, UK and Norway • Ian Vann joined the board as a non-executive director, having recently retired from BP where he led the global exploration team • Steven Theede joined the board as a non-executive director, having held several senior positions in Conoco and most recently served as Chief Executive of Yukos Oil Company Forward Exploration, Appraisal and Development Programmes • SEDCO 704 drilling rig will drill the first Columbus Field appraisal well in September 2007, three kilometres north of the Columbus discovery well • In the Biliton PSC, two wildcat exploration wells are scheduled to be drilled in the fourth quarter of 2007 • The Kambuna Field wellhead support tower under construction in Balikpapan, Indonesia is scheduled to be installed in the fourth quarter of 2007 • Kambuna development drilling from the support tower will commence in the fourth quarter of 2007 with the drilling and workover of three wells • An appraisal well in the Bream field, Norway, is due to be drilled in the second quarter of 2008 • In Vietnam the acquisition of a new 3D seismic survey in Block 06/94 is expected to begin in the third quarter of 2007 • In Indonesia a new 3D seismic survey will be acquired in the Kutai Block Serica's Chief Executive, Paul Ellis, commented: "The first half of 2007 has been a relatively quiet period for Serica as we putinto place the drilling and contractual arrangements for a significant increasein activities planned for the second half. Appraisal drilling on the Columbusfield will commence in the next few weeks and we expect to take delivery of thewell-head tower for the Kambuna field in the next quarter, enabling us to startdrilling the field development wells immediately after installation. "Serica also has significant exposure to exploration upside in the second halfof 2007 with a 45 percent interest in two wildcat wells to be drilled by theCompany in the Biliton Block in Indonesia. Serica's costs in these wells arecarried as a result of the farm-out agreement with Nations Petroleum. We willcontinue this exploration drilling with further wells planned in the UK andNorway in early 2008. "Serica remains very focused on creating shareholder value through itsexploration drilling and field appraisal and development programmes and I amvery optimistic for the Company's prospects". Enquiries: Serica Energy plcPaul Ellis, paul.ellis@serica-energy.com +44 (0)20 7487 7300 Chief Executive OfficerChris Hearne, chris.hearne@serica-energy.com +44 (0)20 7487 7300 Finance Director JPMorgan CazenoveSteve Baldwin steve.baldwin@jpmorgancazenove.com +44 (0)20 7588 2828Pelham Public Relations -UKJames Henderson james.henderson@pelhampr.com +44 (0)20 7743 6673Alisdair Haythornthwaite alisdair.haythornthwaite@pelhampr.com +44 (0)20 7743 6676 CHF - CanadaKelly Cody kelly@chfir.com +1 416 868 1079 MANAGEMENT OVERVIEW Serica has continued to build on its 2006 performance with an active secondquarter of 2007. Serica has recently obtained a commitment from JPMorgan Chase Bank, N.A. and TheGovernor and Company of the Bank of Scotland to enter into a US$100 millionsenior secured debt facility. The facility is subject to legal documentationand fulfillment of standard terms and conditions for a debt financing of thisnature. The facility, which will have a term of twelve months, with the Company havingan option to extend for a further six months, will be used to fund appraisal anddevelopment expenditures for the Kambuna field in Indonesia and the Columbusfield in the UK North Sea as well as for Norwegian appraisal expenditure andgeneral corporate purposes. This facility provides Serica with funds to develop the Company's interests inthe Kambuna and Columbus fields, both of which are operated by Serica, andcontribute to Serica's share of drilling costs for the appraisal of the Breamoil discovery in Norway. In June, Serica announced that Ian Vann would be joining the Board as anon-executive director with effect from 1 July 2007. Ian was employed by BPfrom 1976, and directed and led BP's global exploration efforts from 1996 untilhis recent retirement in January 2007. He was appointed to the executiveleadership team of the Exploration & Production Division of BP in 2001,initially as Group Vice President, Technology and later as Group Vice President,Exploration and Business Development. Ian brings a wealth of valuableexperience in the international oil and gas exploration business to the Board ofSerica. Since the period end, Serica announced that Steven Theede has joined the Boardas a non-executive director with effect from 24 July 2007. Steve was employedby Conoco, later ConocoPhillips, from 1973 until 2003, where he held numerousmanagement positions in Refining and Marketing, Exploration and Production aswell as in corporate activities, located both in the US and Europe. In 2000 hewas appointed President, Exploration and Production for Europe, Russia and theCaspian region. In 2003 he joined Yukos Oil Company located in Russia, as ChiefOperating Officer and became Chief Executive Officer of the Company in July2004, a position he held until August of 2006. His industry backgroundcomplements the talents and experience that already exist on the Board ofSerica. Western Europe: United Kingdom, Ireland, Norway and Spain United Kingdom Serica retained its 50% interest in Block 23/16f, in which it made the Columbusdiscovery in December 2006, having agreed with BG International Limited not tocomplete a previously announced acreage exchange. As operator of the block,Serica has contracted the semi-submersible drilling rig SEDCO 704 to drill thefirst Columbus appraisal well in September 2007, in a location about threekilometres north of the 23/16f-11 discovery well. Discussions have already commenced with nearby infrastructure owners with a viewto reaching a Columbus development decision by the end of the year in the eventof a successful outcome to the appraisal drilling. Serica has secured a secondrig slot on the SEDCO 704 in the summer of 2008, which will be available for aColumbus development well or for an exploration well in Serica's adjacent Block23/16g. In its East Irish Sea Blocks 113/26b and 113/27c to the north of the Morecambegas field, Serica is carrying out a 3D seismic reprocessing project in order toconfirm future exploration well locations. Serica has a 100% interest in thelicence. IrelandSerica holds a 100% interest in Blocks 27/4, 27/5 west and 27/9 in the SlyneBasin off the west coast of Ireland and is carrying out a 3D seismicreprocessing project in order to confirm exploration well locations on severallarge gas prospects that it has already identified. The blocks lie about 40 kmsouth of the 1 tcf Corrib gas field, currently under development by Shell. NorwayIn Serica's Norwegian North Sea licences, the operator of Licence 407, BG NorgeAS, is planning for an appraisal well to be drilled in the Bream field in thesecond quarter of 2008 and the operator of Licence 406, Premier Oil Norge AS, isplanning a 3D seismic survey early in 2008. Serica has a 20% interest in theselicences. SpainIn Spain, Serica has just completed a seismic test line in preparation for a 2Dseismic survey on its four onshore licences in Aragon Province, in thenorth-eastern part of the country. Serica holds a 100% interest in thelicences. Southeast Asia: Indonesia and Vietnam IndonesiaIn March, Serica announced the farm-out of a percentage of the Company'sinterest in the Biliton PSC, in line with its strategy to spread explorationrisk and manage costs. Under the terms of the agreement and subject toregulatory approval, Serica will assign a 45% interest in the Biliton PSC toNations Petroleum Company Ltd., which will bear the majority of the costs of thetwo-well exploration drilling programme, scheduled to commence in the fourthquarter of 2007. Serica will remain the operator and will retain a 45% interestin the Biliton PSC. The two prospects to be drilled are located offshore in avirtually unexplored basin in the central Java Sea. In the Glagah-Kambuna PSC offshore North West Sumatra, development of theKambuna gas/condensate field is now well underway. Negotiations for the sale ofthe gas and condensate are expected to conclude shortly, with the field destinedto supply gas to Medan, Indonesia's third largest city. The field wellheadsupport tower is currently under construction in Balikpapan, Indonesia, and isscheduled for delivery in September and installation in the fourth quarter ofthis year. Two new development wells will be drilled from the tower and theKambuna #2 well will be recompleted in order to develop the Kambuna field.Later this year the offshore and onshore pipeline route surveys will be carriedout in preparation for issuing invitations to tender for pipeline supply andinstallation. In the large Kutai PSC, East Kalimantan, an elevation survey has been completedin preparation for a 2D seismic survey to be carried out in the onshore part ofthe PSC early next year. The existing offshore 3D seismic survey data is to bereprocessed and plans for an additional 3D seismic survey are being prepared. Vietnam Serica holds a 33.3% interest in the Block 06/94 PSC in the Con Son Basinoffshore Vietnam. The block lies immediately south of the producing Lan Tay andLan Do gas fields and immediately east of the Dua and Blackbird oil discoveries.Several prospects have already been identified on the block and acquisition ofa new 3D seismic survey is expected to begin in the third quarter of 2007. Forward Programme Serica will commence an extensive period of drilling activity in the second halfof the year with two exploration wells and four appraisal or development wellsplanned. In the third quarter, Serica will commence its UK drilling programme with aColumbus appraisal well to be drilled in September. Conceptual developmentstudies for the Columbus field are underway, so that development can be advancedonce the results of the appraisal programme are known. In Indonesia, twoexploration wells will be drilled in the fourth quarter and the Kambunadevelopment drilling programme will commence. Serica remains very focused on creating shareholder value through itsexploration drilling and field development programmes. As the Company continuesto build on the exploration success that it has seen in the North Sea andIndonesia, our objectives are to bring the benefits of that success back toshareholders and to lay the foundations for future growth. The results of Serica's operations detailed below in the MD&A, and in thefinancial statements, are presented in accordance with International FinancialReporting Standards ("IFRS"). 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")contains information up to and including 3 August 2007 and should be read inconjunction with the attached unaudited interim consolidated financialstatements for the period ended 30 June 2007. The interim financial statementsfor the three and six months ended 30 June 2007 have been prepared by and arethe responsibility of the Company's management. The interim financial statementsfor the six months ended 30 June 2007 and 2006 have been reviewed by theCompany's independent auditors. 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 the UK and Indonesia, with other interests inNorway, Spain, Ireland and Vietnam. The Group has no current oil and gasproduction, with the main emphasis placed upon its future exploration drillingprogrammes. In 2007 to date, work has continued on managing its portfolio ofinterests, accelerating the appraisal of Columbus in the North Sea, advancingthe Indonesian development and preparing for the 2007 drilling programme.Further details are noted in the Management Overview. The results of Serica's operations detailed below in this MD&A, and in thefinancial statements, are presented in accordance with International FinancialReporting Standards ("IFRS"). Results of Operations Serica generated a loss of US$1.6 million for the three months ended 30 June2007 ("Q2 2007") compared to a profit of US$1.8 million for the three monthsended 30 June 2006 ("Q2 2006"). The Q2 2006 figures have been restated to takeaccount of the revised accounting treatment for share purchase warrantsoutstanding at 30 June 2006. 2007 2007 2006 2006 Q2 Q1 Q2 Q1 US$000 US$000 US$000 US$000 Sales revenue - - 36 25 Expenses: Administrative expenses (1,722) (1,846) (1,343) (1,322) Foreign exchange (loss)/gain (36) 15 890 (48) Pre-licence costs (124) (101) (414) (160) Share-based payments (470) (499) (533) (436) Change in fair value of share warrants (1) - - (682) 1,836 Depletion, depreciation & amortisation (26) (26) (18) (10)Operating loss before finance revenue and taxation (2,378) (2,457) (2,064) (115) Profit on disposal - - 2,187 -Finance revenue 791 862 1,210 1,152 (Loss)/profit before taxation (1,587) (1,595) 1,333 1,037 Taxation credit/(charge) - - 506 - (Loss)/profit for the period (1,587) (1,595) 1,839 1,037 Basic and diluted loss per share (0.01) (0.01) N/A N/ABasic and diluted earnings per share N/A N/A 0.01 0.01 (1) As restated - see note 9 of the financial statements. Revenues from oil and gas production are recognised on the basis of theCompany's net working interest in its properties and, in 2006, were generatedfrom Serica's 10% interest in the Harimau producing gas and gas condensatefield. The Q1 and Q2 2006 revenues are from discontinued operations followingthe disposal of the Lematang PSC interest in 2006 which included the Harimaufield. Direct operating costs for the field during the period of ownership bythe Group were carried by Medco Energi Limited. Administrative expenses of US$1.7 million for Q2 2007 remained at a consistentlevel with Q1 2007 and increased from US$1.3 million for the same period lastyear. The increase reflects the growing scale of the Company's activities overthe past twelve months. No significant foreign exchange movements impacted Q2 2007 results. A largeforeign exchange gain of US$0.9 million was earned in Q2 2006. This chieflyarose from the increase in US$ equivalent value of pounds sterling cash depositsheld, as the pound strengthened against the dollar during the quarter. Pre-licence costs include direct cost and allocated general administrative costincurred on oil and gas interests prior to the award of licences, concessions orexploration rights. The expense of US$0.1 million for Q2 2007 decreased fromUS$0.4 million for the same period last year due to an increased focus onlicence applications in Norway and Ireland in 2006. Share-based payment charges of US$0.5 million reflect share option grants madeand compare with US$0.5 million for both Q1 2007 and Q2 2006. Whilst furthershare options have been granted in 2007, the incremental charge generated fromthose options has been offset by the decline in charge of the options granted in2005 and 2006. The change in fair value of share warrants in Q1 and Q2 2006 is a restatement toreflect evolving interpretation of the treatment of such instruments under therecently adopted IFRS. This has arisen due to the difference in the denominatedcurrency of the share warrants compared to Serica's functional currency. Theloss in Q2 2006 was created as the fair value liability of share warrants notexercised increased due to the rise in share price over the quarter. Allwarrants were exercised in 2006 and there is no income statement impact in 2007.This has no cash impact on reported results. More detail is provided in note 9of the financial statements. Negligible depletion, depreciation and amortisation charges in all periodsrepresent office equipment and fixtures and fittings. The costs of petroleumand natural gas properties are not currently subject to such charges pendingfurther evaluation. Finance revenue, comprising interest income of US$0.8 million for Q2 2007compares with US$0.9 million for Q1 2007 and US$1.2 million for Q2 2006. Thedecrease from last year is due to the reduction in cash deposit balances heldduring 2006 as expenditure was incurred on the drilling programmes. The net loss per share of US$0.01 for Q2 2007 compares to an earnings per shareof US$0.01 for Q2 2006. Summary of Quarterly Results 2007 2007 2006 2006 2006 2006Quarter ended: 30 Jun 31 Mar 31 Dec 30 Sep 30 Jun 31 Mar US$000 US$000 US$000 US$000 US$000 US$000 Sales revenue - - - - 36 25(Loss)/profit for the quarter (1) (1,587) (1,595) (13,456) (3,795) 1,839 1,037Basic and diluted loss per share US$ (0.01) (0.01) (0.09) (0.03) - -Basic and diluted earnings per share (1) - - - - 0.01 0.01 (1) As restated for Q1 and Q2 2006 - See note 9 of the financial statements. The fourth quarter 2006 loss includes asset write offs of US$12.7 million inregard to the Asahan Offshore PSC. The Q2 2006 profit includes a gain of US$2.3million from the disposal of the 10% interest in the Lematang Block. Working Capital, Liquidity and Capital Resources Current Assets and Liabilities An extract of the balance sheet detailing current assets and liabilities isprovided below: 30 June 2007 31 March 31 December 2006 2007 US$000 US$000 US$000Current assets: Inventories 6,438 6,785 6,785 Trade and other receivables 7,147 11,369 30,903 Cash and cash equivalents 56,622 72,175 77,306Total Current assets 70,207 90,329 114,994 Less Current liabilities: Trade and other payables (4,413) (11,864) (30,619) Net Current assets 65,794 78,465 84,375 At 30 June 2007, the Company had net current assets of US$65.8 million whichcomprised current assets of US$70.2 million less current liabilities of US$4.4million, giving an overall reduction in working capital of US$12.7 million inthe three month period. Inventories principally consist of steel casing for the forthcoming Indonesiandrilling programme. Trade and other receivables at 30 June 2007 totalled US$7.1 million. Thisbalance includes recoverable amounts from partners in Joint Venture operationsin the UK and Indonesia. Other smaller items included prepayments and sundry UKand Indonesian working capital balances. A significant debtor balance at 31March 2007, representing a contribution to exploration costs recoverable underthe BG/Serica cross assignment deal in Blocks 23/16f and 23/21b (see ManagementOverview) was no longer receivable, following the announcement in June of themutual agreement between Serica and BG not to complete the deal. This largedecrease was partially offset by a general increase in other balances during Q22007, causing an overall reduction in Q2 2007 of US$4.3 million from US$11.4million. Net cash outgoings in Q2 2007 covered operational expenses and exploration work.These were partially offset by US$0.8 million of interest income received in thequarter. Trade and other payables of US$4.4 million at 30 June 2007 include a US$1.5million payable (settled in July 2007) in respect of the Q2 2006 acquisition ofan additional 10% interest in the Glagah Kambuna TAC, amounts due to thosesub-contractors operating the UK drilling programme, and creditors and accrualsfrom Indonesia. Payables arising from the 2006 drilling campaign weresubstantially settled in Q1 2007. Long-Term Assets and Liabilities An extract of the balance sheet detailing long-term assets and liabilities isprovided below: 30 June 31 March 31 December 2007 2007 2006 US$000 US$000 US$000 Intangible exploration assets 58,470 45,738 40,681Property, plant and equipment 327 316 342Goodwill 1,200 1,200 1,200Long-term other receivables 527 668 351Deferred income tax liabilities (955) (955) (955) During Q2 2007, total investments in petroleum and natural gas properties,represented by intangible exploration assets, increased by US$12.7 million toUS$58.5 million. Following the announcement in June of the agreement betweenSerica and BG not to complete the BG/Serica cross assignment deal, theanticipated recovery credited against intangible exploration assets has beenreversed and Serica's capitalised cost now reflects its 50% share of costsincurred on the Block 23/16f, rather than the 25% previous interest. Of theremaining Q2 2007 investments; US$2.3 million was spent in Vietnam principallyon a signature bonus, US$0.9 million in the UK on exploration work and G&A,US$1.2 million was spent in Indonesia principally on drilling activitypreparation, exploration work and G&A on the Glagah Kambuna and Kutaiconcessions, and US$0.3 million in Spain. In Q1 2007, US$1.0 million of backcosts, received as part of the Biliton farm out, have been credited against thecapitalised pool of costs. Property, plant and equipment includes office fixtures and fittings and computerequipment. Goodwill, representing the difference between the price paid on acquisitions andthe fair value applied to individual assets, remained unchanged at US$1.2million. Long-term other receivables of US$0.5 million represent value added tax ("VAT")on Indonesian capital spend, which would be recovered from future production. Shareholders' Equity An extract of the balance sheet detailing shareholders' equity is providedbelow: 30 June 31 March 31 December 2007 2007 2006 US$000 US$000 US$000 Total share capital 158,871 157,817 157,283Other reserves 12,730 12,226 11,767Accumulated deficit (46,238) (44,651) (43,056) Total share capital includes the total net proceeds (both nominal value and anypremium on the issue of equity capital). Issued share capital during 2007 was increased by the exercise of 1,110,001share options of the Company at prices ranging from Cdn$1.00 to Cdn$2.00. Other reserves include amounts credited in respect of cumulative share-basedpayment charges, and the amount of the fair value liability of share warrantseliminated upon exercise of those share warrants. The increase in other reservesfrom US$12.2 million to US$12.7 million reflects the amortisation of share-basedpayment charges in Q2 2007. Capital Resources At 30 June 2007, Serica had US$65.8 million of net working capital and nolong-term debt. At that date, the Company had commitments to future minimumpayments under operating leases in respect of rental office premises, officeequipment and motor vehicles for each of the following periods/years as follows: US$00031 December 2007 17231 December 2008 28731 December 2009 26631 December 2010 42 At 30 June 2007, the Company had no long-term debt or capital lease obligations.In Q4 2006 the Company contracted the SeaDrill 5 jack-up drilling rig for 136days during 2007 for Indonesian operations at a gross cost of US$26,286,000. Thegross obligation existed at 30 June 2007 and Serica's net share of these costswill depend on the exact split of the proposed drilling programmes but followingthe farm-out of a 45% interest in Biliton and current paying interests in theGlagah Kambuna TAC, this is expected to be approximately US$11,100,000. Althoughthese arrangements have changed post the period end the obligation to beincurred will be similar to that noted above. On 12 July 2007, Serica wasinformed by the rig owners that the SeaDrill 5 had suffered damage on itsprevious location and would no longer be available to drill the Biliton andKambuna wells as previously planned. Serica immediately tendered for areplacement jack-up rig and has now issued a Letter of Intent to Global Santa Fefor the use of either the GSF 136 or the GSF Parameswara to drill the Bilitonand Kambuna wells starting in the fourth quarter of this year (see Note 7 to theFinancial Statements). In Q1 2007 the Company contracted the Sedco 704 semi-submersible drilling rigfor UK operations, specifically the Columbus appraisal wells. The grossobligation under the contract is for 94 days which equates to a value ofUS$32,200,000, of which Serica's share is expected to be 50%, depending upon thework programme finally agreed with the Company's co-venturers. In the absence of revenues generated from oil and gas production, Serica willcontinue to utilise existing financial resources together with financingavailable through the recently arranged US$100 million senior secured debtfacility, to fund its investment programme and ongoing operations. This facility provides Serica with funds to develop the Company's interests inthe Kambuna and Columbus fields, both of which are operated by Serica, andcontribute to Serica's share of drilling costs for appraisal of the Bream oildiscovery in the Norwegian North Sea, planned for early 2008. Off-balance Sheet Arrangements The Company has not entered into any off-balance sheet transactions orarrangements. Critical Accounting Estimates The Company's principal accounting policies are detailed in note 2 to theattached financial statements. International Financial Reporting Standards havebeen adopted. The cost of exploring for and developing petroleum and natural gasreserves are capitalised. Unproved properties are subject to periodicimpairment tests whilst the costs of proved properties are depleted over thelife of such producing fields. In each case, calculations are based uponmanagement assumptions about future outcomes, product prices and performance. 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: Serica has exposure to interest rate fluctuations; given the level ofexpenditure plans over 2007/8 this is managed in the short-term throughselecting treasury deposit periods of one to six months. Cash and treasurycredit risks are mitigated through spreading the placement of funds over a rangeof institutions each carrying acceptable published credit ratings to minimisecounterparty risk. Where Serica operates joint ventures on behalf of partners it seeks to recoverthe appropriate share of costs from these third parties. The majority ofpartners in these ventures are well established oil and gas companies. In theevent of non payment, operating agreements typically provide recourse throughincreased venture shares. It is the management's opinion that the fair value of its financial instrumentsapproximate to their carrying values, unless otherwise noted. Share Options As at 30 June 2007, the following director and employee share options wereoutstanding: - Expiry Date Amount Exercise cost Cdn$Share options Jun 2008 400,000 720,000 Feb 2009 247,499 494,998 May 2009 100,000 200,000 Dec 2009 275,000 275,000 Jan 2010 600,000 600,000 Jun 2010 1,100,000 1,980,000 Exercise cost £ Nov 2010 561,000 544,170 Jan 2011 1,275,000 1,319,625 May 2011 180,000 172,800 June 2011 270,000 259,200 Nov 2011 120,000 134,400 Jan 2012 1,056,000 1,077,120 May 2012 405,000 421,200 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. Disclosure Controls and Procedures and Internal Controls over FinancialReporting Serica's management, including the Chief Executive Officer and Chief FinancialOfficer, has reviewed and evaluated the effectiveness of the Company'sdisclosure controls and procedures in accordance with Multilateral Instrument52-109 and Canadian securities regulations as of 30 June 2007. Management hasconcluded that, as of 30 June 2007, the disclosure controls and procedures wereeffective to provide reasonable assurance that material information relating tothe Company and its consolidated subsidiaries would be made known to them byothers within those entities, particularly during the period in which thisreport was being prepared. Management has designed internal controls over financial reporting to providereasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance withIFRS. There have been no changes in the Company's internal controls overfinancial reporting during the period that have materially affected, or arereasonably likely to materially affect, the Company's internal controls overfinancial reporting. 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 no operating revenues and, during thethree month period ended 30 June 2007, the Company incurred losses of US$1.6million from continuing operations. At 30 June 2007, the Company held cash andcash equivalents of US$56.6 million. Outstanding Share Capital As at 3 August 2007, the Company had 151,647,657 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 7 August 2007 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 therefrom. 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 kelly@chfir.com and specify "Serica press releases" in the subject line. Serica Energy plc Group Income Statement Unaudited Three Three Six Six months months months months ended ended ended ended 30 June 30 June 30 June 30 June 2007 2006 (1) 2007 2006 (1) Notes US$000 US$000 US$000 US$000 Sales revenue - 36 - 61 Cost of sales - - - - Gross profit - 36 - 61 Administrative expenses (1,722) (1,343) (3,568) (2,665)Foreign exchange (loss)/gain (36) 890 (21) 842Pre-licence costs (124) (414) (225) (574)Share-based payments (470) (533) (969) (969)Change in fair value of share warrants - (682) - 1,154Depreciation, depletion & amortisation (26) (18) (52) (28) Operating loss before financerevenue and tax (2,378) (2,064) (4,835) (2,179) Profit on disposal 7 - 2,187 - 2,187Finance revenue 791 1,210 1,653 2,362(Loss)/profit before taxation (1,587) 1,333 (3,182) 2,370 Taxation credit for the period - 506 - 506(Loss)/profit for the period (1,587) 1,839 (3,182) 2,876 Earnings per ordinary share (US$):Basic and diluted loss per share (0.01) - (0.02) -Basic earnings per ordinary share - 0.01 - 0.02Diluted earnings per ordinary share - 0.01 - 0.02 (1) As restated - See note 9 Serica Energy plcConsolidated Balance Sheet 30 June 31 March 31 Dec 30 June 2007 2007 2006 2006 (1) US$000 US$000 US$000 US$000 Notes (Unaudited) (Unaudited) (Audited) (Unaudited)Non-current assetsIntangible exploration assets 58,470 45,738 40,681 28,102Property, plant and equipment 327 316 342 304Goodwill 1,200 1,200 1,200 1,877Other receivables 527 668 351 2,003 60,524 47,922 42,574 32,286Current assetsInventories 6,438 6,785 6,785 681Trade and other receivables 7,147 11,369 30,903 6,241Cash and cash equivalents 56,622 72,175 77,306 102,430 70,207 90,329 114,994 109,352 TOTAL ASSETS 130,731 138,251 157,568 141,638 Current liabilitiesTrade and other payables (4,413) (11,864) (30,619) (8,164) Non-current liabilitiesDeferred income tax liabilities (955) (955) (955) (1,631) TOTAL LIABILITIES (5,368) (12,819) (31,574) (9,795) NET ASSETS 125,363 125,432 125,994 131,843 Share capital 4 158,871 157,817 157,283 151,119Other reserves 12,730 12,266 11,767 6,529Accumulated deficit (46,238) (44,651) (43,056) (25,805) TOTAL EQUITY 125,363 125,432 125,994 131,843 (1) As restated - See note 9 Serica Energy plcStatement of Changes in EquityFor the period ended 30 June 2007 Group Share Other capital reserves Deficit Total US$000 US$000 US$000 US$000 At 1 January 2007 (audited) 157,283 11,767 (43,056) 125,994 Conversion of options 534 - - 534Share-based payments - 499 - 499Loss for the period - - (1,595) (1,595) At 31 March 2007 (unaudited) 157,817 12,266 (44,651) 125,432 Conversion of options 1,054 - - 1,054Share-based payments - 464 - 464Loss for the period - - (1,587) (1,587) At 30 June 2007 (unaudited) 158,871 12,730 (46,238) 125,363 Group Share Other capital reserves Deficit Total US$000 US$000 US$000 US$000 At 1 January 2006 (audited) 148,745 4,153 (28,681) 124,217 Conversion of warrants 119 - - 119Share-based payments - 436 - 436Profit for the period - - 1,037 1,037Fair value of warrants converted - 70 - 70 At 31 March 2006 (unaudited) 148,864 4,659 (27,644) 125,879 Conversion of warrants 2,282 - - 2,282Share issue costs (27) - - (27)Share-based payments - 533 - 533Profit for the period - - 1,839 1,839Fair value of warrants converted - 1,337 - 1,337 At 30 June 2006 (unaudited) (1) 151,119 6,529 (25,805) 131,843 (1) As restated - See note 9 Serica Energy plcConsolidated Cash Flow Statement Unaudited Three Three Six Six month months months months months ended ended ended ended 30 June 30 June 30 June 30 June 2007 2006 2007 2006 US$000 US$000 US$000 US$000Cash flows from operating activities:Operating loss (2,378) (2,064) (4,835) (2,179) Adjustments for:Depreciation, depletion and amortisation 26 18 52 28Fair value of share warrants - 682 - (1,154)Share-based payments 470 533 969 969Changes in working capital (58) (1,011) (5,036) (4,334)Cash generated from operations (1,940) (1,842) (8,850) (6,670) Taxes received - - - 34 Net cash flow from operations (1,940) (1,842) (8,850) (6,636) Cash flows from investing activities:Disposals - Cash disposed - (51) - (51)Interest received 811 1,210 1,673 2,362Proceeds from disposals - - 5,000 -Purchases of property, plant & equipment (37) (8) (37) (306)Purchase of intangible exploration assets (14,387) (4,235) (19,004) (5,063) Net cash used in investing (13,613) (3,084) (12,368) (3,058) Cash proceeds from financing activities:Proceeds on exercise of warrants/options - 2,255 534 2,374 Net cash from financing activities - 2,255 534 2,374 Cash and cash equivalentsNet decrease in period (15,553) (2,671) (20,684) (7,320)Amount at start of period 72,175 105,101 77,306 109,750 Amount at end of period 56,622 102,430 56,622 102,430 Serica Energy plc Notes to the Unaudited Consolidated Financial Statements 1. Corporate information The interim condensed consolidated financial statements of the Group for the sixmonths ended 30 June 2007 were authorised for issue in accordance with aresolution of the directors on 7 August 2007. 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 exploit oil and gas reserves. 2. Basis of preparation and accounting policies Basis of Preparation The interim condensed consolidated financial statements for the six months ended30 June 2007 have been prepared in accordance with IAS 34 Interim FinancialReporting. 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 2006. 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 2006. Significant accounting policies The accounting policies adopted in the preparation of the interim condensedconsolidated financial statements are consistent with those followed in thepreparation of the Group's annual financial statements for the year ended 31December 2006, except for the adoption of the following new standards andinterpretations, noted below, IFRIC 9 'Reassessment of Embedded Derivatives'; IFRIC 10 'Interim Financial reporting and Impairment'. The adoption of these did not affect the Group's results of operations orfinancial position. The financial statements are unaudited but have been reviewed by Ernst & YoungLLP and their report is set out below. The Group financial statements are presented in US dollars and all values arerounded to the nearest thousand dollars (US$000) except when otherwiseindicated. Basis of Consolidation The consolidated financial statements include the accounts of the Company andits wholly-owned subsidiaries Serica Energy Corporation, Serica Energy HoldingsB.V., Asia Petroleum Development Limited, Petroleum Development Associates(Asia) Limited, Serica Energia Iberica S.L., Firstearl Limited, Serica Energy(UK) Limited, PDA Lematang Limited, APD (Asahan) Limited, APD (Biliton) Limited,APD (Glagah Kambuna) Limited and Serica Energy Pte Limited, Serica Kutei B.V.,Serica Nam Con Son B.V. and Serica Norge AS. Together, these comprise the"Group". All inter-company balances and transactions have been eliminated uponconsolidation. 3. Segmental Information The primary segment reporting format is determined to be geographical segmentsand they are based on the location of the Group's assets. The Group has only onebusiness segment, that of oil & gas exploration. The following tables present revenue and profit information regarding theGroup's geographical segments for the six months ended 30 June 2007 and 2006. Six months ended 30 June 2007 Indonesia UK Spain Total US$000 US$000 US$000 US$000Revenue - - - -Net income/(loss) (674) (2,401) (107) (3,182) Six months ended 30 June 2006 Indonesia UK Spain Total US$000 US$000 US$000 US$000Revenue 61 - - 61Net income/(loss) 2,433 499 (56) 2,876 4. Equity Share Capital 30 June 30 June 31 December 31 December 2007 2007 2006 2006 Number US$000 Number US$000Authorised: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 Share Total capital premium Share capitalGroup Number US$000 US$000 US$000 At 1 January 2007 150,537,956 15,144 142,139 157,283 Options exercised (1) 493,334 49 485 534 As at 31 March 2007 151,031,290 15,193 142,624 157,817 Options exercised (2) 616,667 62 992 1,054 As at 30 June 2007 151,647,957 15,255 143,616 158,871 (1) From 1 January 2007 until 31 March 2007, 493,334 share options wereconverted to ordinary shares at prices ranging from Cdn$1.11 to Cdn$2.00. (2) From 1 April 2007 until 30 June 2007, 616,667 share options were convertedto ordinary shares at prices ranging from Cdn$1.00 to Cdn$2.00. 5. Share-Based Payments Share Option Plans Following a reorganisation (the "Reorganisation") in 2005, the Companyestablished an option plan (the "Serica 2005 Option Plan") to replace the SericaEnergy Corporation Share Option Plan (the "SEC Share Option Plan"). Serica Energy Corporation ("Serica BVI") was previously the holding company ofthe Group but, following the Reorganisation, is now a wholly owned subsidiary ofthe Company. Prior to the Reorganisation, Serica BVI issued options under itsoption plan (the "Serica BVI Option Plan") and, following the Reorganisation,the Company has agreed to issue ordinary shares to holders of Serica BVI optionsalready awarded upon exercise of such options in place of the shares in SericaBVI to which they would be entitled. There are currently options outstandingunder the Serica BVI Option Plan entitling holders to acquire up to an aggregateof 2,722,499 ordinary shares of the Company. No further options will be grantedunder the Serica BVI Option Plan. The Company has granted 4,122,000 options under the Serica 2005 Option Plan,3,867,000 of which are currently outstanding. The Serica 2005 Option Plan willgovern all future grants of options by the Company to Directors, officers, keyemployees and certain consultants of the Group. The Serica 2005 Option Plan is comprised of two parts, the basic share optionplan and a part which constitutes an Enterprise Management Incentive Plan ("EMIPlan") under rules set out by the H.M. Revenue & Customs in the United Kingdom.Options granted under the Serica 2005 Option Plan can be granted, at thediscretion of the Board, under one or other of the two parts but, apart fromcertain tax benefits which can accrue to the Company and its UK employees ifoptions are granted under the part relating to the EMI Plan meeting theconditions of that part of the Serica 2005 Option Plan, all other terms underwhich options can be awarded under either part are substantially identical. 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. In December 2005, 330,000 options were awarded to executive directorsexercisable only if certain performance targets are met. 110,000 of these werecancelled during Q2 2007. The Company calculates the value of share-basedcompensation using a Black-Scholes option pricing model (or other appropriatemodel for those Directors' options subject to certain market conditions) toestimate the fair value of share options at the date of grant. The estimatedfair value of options is amortised to expense over the options' vesting period.US$470,000 has been charged to the income statement in the period ended 30 June2007 and a similar amount credited to other reserves. The assumptions made for the options granted during 2005, 2006 and 2007 includea weighted average risk-free interest rate of 6%, no dividend yield and aweighted average expected life of options of three years. The volatility factorof expected market price of 50% used for options granted during 2005 and 2006was reduced to 40% for options granted in 2007. The following table illustrates the number and weighted average exercise prices(WAEP) of, and movements in, share options during the period: Number WAEP Cdn$ Serica BVI Option Plan Outstanding at 31 December 2006 3,975,833 1.57 Exercised during the period (493,334) 1.26Cancelled during the period (60,000) 2.00 Outstanding at 31 March 2007 3,422,499 1.61 Exercised during the period (616,667) 1.83Cancelled during the period (83,333) 1.36 Outstanding at 30 June 2007 2,722,499 1.57 Serica 2005 Option Plan £ Outstanding at 31 December 2006 2,516,000 1.01 Granted during the period 1,056,000 1.02 Outstanding at 31 March 2007 3,572,000 1.01 Granted during the period 405,000 1.04Cancelled during the period (110,000) (0.97) Outstanding at 30 June 2007 3,867,000 1.01 6. Taxation The major components of income tax in the consolidated income statement are: For the six months ended 30 June 2007 2006 US$000 US$000Current income tax charge Nil NilDeferred income tax credit Nil 506 In 2006, the book gain on sale of the Lematang PSC is sheltered from tax byhistoric costs not reflected in the book value, indexation, and current UK taxlosses elsewhere in the group. The 2006 deferred tax credit arises from therelease of the deferred tax liability attached to the Lematang PSC. 7. Subsequent Events On 18 July 2007, Serica obtained a commitment from JPMorgan Chase Bank, N.A. andThe Governor and Company of the Bank of Scotland to enter into a US$100 millionsenior secured debt facility. The facility is subject to legal documentation andfulfillment of standard terms and conditions for a debt financing of thisnature, including the approval of gas sales arrangements. The facility, which will have a term of twelve months, with the Company havingan option to extend for a further six months, will be used to fund appraisal anddevelopment expenditures for the Kambuna field in Indonesia and the Columbusfield in the UK North Sea as well as for Norwegian appraisal expenditure andgeneral corporate purposes. On 12 July 2007, Serica was informed by the rig owners that the SeaDrill 5 hadsuffered damage on its previous location and would no longer be available todrill the Biliton and Kambuna wells as previously planned. Serica immediatelytendered for a replacement jack-up rig and has now issued a Letter of Intent toGlobal Santa Fe for the use of either the GSF 136 or the GSF Parameswara todrill the Biliton and Kambuna wells starting in the fourth quarter of this year. 8. Publication of Non-Statutory Accounts The financial information contained in this interim statement does notconstitute statutory accounts as defined in section 240 of the Companies Act1985. The financial information for the full preceding year is based on thestatutory accounts for the financial year ended 31 December 2006. Thoseaccounts, upon which the auditors issued an unqualified opinion, have beendelivered to the Registrar of Companies. This interim statement will be made available at the Company's registered officeat 52 Bedford Row, London WC1R 4LR and on its website at www.serica-energy.comand on SEDAR at www.sedar.com 9. Retrospective Restatement In the 2006 Annual Report, the prior year income statement and balance sheethave been adjusted to reflect differences in accounting for share warrants thatwere outstanding at 31 December 2005 as a liability, carried at fair value.Previously the warrants were considered to qualify for treatment as equity underIAS 32 Financial Instruments: Presentation. However, precedents now availableindicate that, because the conversion proceeds were denominated in Can$, and thecompany's functional currency is US$, these instruments should have been treatedmore appropriately as a liability for the period the warrants remainedoutstanding, with an income statement charge/credit made to reflect the movementin the fair value of the warrants in each relevant period. All warrants wereexercised during 2006. The effect of this non cash adjustment on the GroupIncome statement, Loss per Ordinary Share, Group and Company Balance Sheets, andGroup and Company Statements of Changes in Equity is detailed in Note 30 of the2006 Annual Report. The impact of this retrospective restatement on the Q1 and Q2 2006 comparativesin this Q2 2007 Report is set out below: Effect on Group Income Statement and Summary of Quarterly Results in Managements Discussion and Analysis (Loss)/profit for the quarterQuarter ended: 31 Mar 30 Jun 2006(Loss)/profit for the quarter previously reported (US$000) (799) 2,521Change in fair value of warrants (US$000) 1,836 (682) Profit for the quarter restated (US$000) 1,037 1,839 (Loss)/earnings per share2006Basic and diluted loss per share previously reported (US$) (0.01) -Basic and diluted earnings per share previously reported (US$) - 0.02 Change in fair value of warrants (US$) 0.02 (0.01) Basic and diluted earnings per share as restated (US$) 0.01 0.01 Effect on Group Balance Sheet 30 June 2006 US$000 Total liabilities as previously reported (5,506)Fair value of warrants (4,289)Total liabilities as restated (9,795) Effect on Statement of Changes in Equity Other Accumulated Reserves Deficit Total US$000 US$000 US$000Group As at 30 June 2006 previously reported 2,238 (17,225) (14,987)Fair value of warrants 4,291 (8,580) (4,289)As at 30 June 2006 as restated 6,529 (25,805) (19,276) Independent Review Report to Serica Energy plc Introduction We have been instructed by the Company to review the financial information forthe six months ended 30 June 2007 which comprises the Consolidated IncomeStatement, Consolidated Balance Sheet, Consolidated Statement of Changes inEquity, Consolidated Cash Flow Statement, and the related notes 1 to 9. We haveread the other information contained in the interim report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe financial information. This report is made solely to the Company having regard to guidance contained inBulletin 1999/4 'Review of interim financial information' issued by the AuditingPractices Board. To the fullest extent permitted by the law, we do not accept orassume responsibility to anyone other than the Company, for our work, for thisreport, or for the conclusions we have formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report as required by the AIM Rulesissued by the London Stock Exchange. Review work performed We conducted our review having regard to the guidance contained in Bulletin 1999/4 'Review of interim financial information' issued by the Auditing PracticesBoard for use in the United Kingdom. A review consists principally of makingenquiries of group management and applying analytical procedures to thefinancial information and underlying financial data, and based thereon,assessing whether the accounting policies and presentation have beenconsistently applied, unless otherwise disclosed. A review excludes auditprocedures such as tests of controls and verification of assets, liabilities andtransactions. It is substantially less in scope than an audit performed inaccordance with International Standards on Auditing (UK and Ireland) andtherefore provides a lower level of assurance than an audit. Accordingly we donot express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2007. Ernst & Young LLPLondon 7 August 2007 This information is provided by RNS The company news service from the London Stock Exchange