Serica Energy Regulatory News (SQZ)

14 Nov 2007 15:45

Serica Energy plc14 November 2007 Serica Energy plc ("Serica" or the "Company") THIRD QUARTER 2007 REPORT TO SHAREHOLDERS London, 14 November 2007 - Serica Energy plc (TSX Venture & AIM: SQZ) todayannounces its financial results for the three months ending 30 September 2007.The results and associated Management Discussion and Analysis are included belowand copies are available at www.serica-energy.com and www.sedar.com. Q3 Highlights Operational • Appraisal of the UK North Sea Columbus discovery commenced with the spudding of the first appraisal well in September 2007, at a step out location three kilometres north of initial discovery well • On 6 November 2007, the Company announced that it had drilled two successful appraisal wells, supporting the commercial development of the field • Completed 3D seismic survey in Block 06/94, offshore Vietnam • Farm out of 25% of four onshore licences in Spain agreed with Beach Petroleum Limited and seismic survey in progress Financial & Corporate • Commitment obtained for US$100 million debt facility to fund appraisal and development activities in Indonesia, UK and Norway from JPMorgan Chase Bank and Bank of Scotland in July 2007 • Ian Vann and Steven Theede joined the board as non-executive directors in July 2007 Forward Drilling Programmes • Global Santa Fe GSF 136 drilling rig contracted for the drilling of two wildcat high impact exploration wells in the Biliton PSC, Indonesia, in Q4 2007 • Following a farmout to Nations Energy, Serica will retain a 45% interest and Nations Energy will bear the majority of the drilling costs • Kambuna development fully underway • Production platform arrives on location in Q4 2007 • Three development wells to be completed during Q1 2008 • Appraisal well in the Bream field, Norway, due to be drilled in Q2 2008 Serica's Chief Executive, Paul Ellis commented: "The third quarter of 2007 has seen the start of a period of greatly increasedactivity for Serica. The success of the two Columbus appraisal wells underlinesthe potential of the field and supports its commercial development. "In Indonesia this month we shall start drilling the first of two explorationwells in the Biliton PSC. These are located in virtually unexplored territoryand have significant upside potential with limited downside financial risk toSerica due to the farm-out arrangements. The rig will then move to the Kambunagas field, as the Company targets first production by the end of 2008. "Serica continues to focus on creating shareholder value through the drillbitand has demonstrated this with its success at Columbus." 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 2828 Tristone Capital LimitedMajid Shafiq mshafiq@tristonecapital.com +44 (0)20 7355 5872 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 - CanadaKelly Cody kelly@chfir.com +1 416 868 1079 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. MANAGEMENT OVERVIEW During the third quarter 2007, Serica completed preparations for its drillingcampaign in the UK North Sea and in Indonesia. The Company has commenced anextensive programme including appraisal of the Company's Columbus discovery inthe UK North Sea, two exploration wells in the Biliton PSC offshore Java, anddevelopment wells in the Kambuna field, offshore Sumatra. In July, Serica 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 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. Serica announced that Ian Vann and Steven Theede had joined the Board asnon-executive directors with effect from 1 July and 24 July 2007 respectively.Mr Vann was employed by BP from 1976, and directed and led BP's globalexploration efforts from 1996 until his recent retirement in January 2007. MrTheede held senior management positions with Conoco, later ConocoPhillips, andin 2000 was appointed President, Exploration and Production for Europe, Russiaand the Caspian region. In 2003 he joined Yukos Oil Company and became its ChiefExecutive Officer in July 2004, a position he held until August 2006. InOctober, Serica confirmed the retirement of James Steel as a non-executivedirector of the Company. Western Europe: United Kingdom, Spain, Ireland and Norway UK North Sea Following Serica's 2006 Columbus discovery well 23/16f-11, in the UK CentralNorth Sea, appraisal drilling commenced in the third quarter 2007. As announced by Serica on 6 November 2007, two Columbus appraisal wells, 23/16f-12 and 23/16f-12z, were drilled and both were successful. The nethydrocarbon pay was approximately 40 feet in well 12, 70 feet in well 12z and 56feet in the discovery well. The results of these wells support the commercialdevelopment of the Columbus field and Serica is studying various options for theexport of gas and condensate via nearby facilities. Serica operates Block 23/16f and holds a 50% interest in the licence. Spain Serica is currently carrying out a 330 kilometre 2D seismic survey on its fouronshore licences in Aragon Province, in the north-eastern part of the country.Serica has entered into a contract with Beach Petroleum Limited under whichSerica will farm out a 25% interest in the licences and will retain a 75%interest and operatorship. 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 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. South East Asia: Indonesia and Vietnam Indonesia The Global Santa Fe GSF 136 drilling rig has been contracted for the drilling oftwo wildcat exploration wells in the Biliton PSC, located offshore in avirtually unexplored basin in the central Java Sea, commencing in Q4 2007. Ifsuccessful, these wells could demonstrate that the block contains significantoil reserves and have a major impact on the Company. Serica will operate thewells and retains a 45% interest following a farmout to Nations Petroleum(Biliton) B.V., which will bear the majority of the costs of the drillingprogramme. In the Glagah-Kambuna PSC offshore Sumatra, the development programme for theKambuna gas/condensate field is underway with first production planned for theend of 2008. The field production platform has been built and will arrive onlocation in Q4 2007, following which two development wells will be drilled andthe Kambuna No. 2 well will be recompleted. In addition, offshore and onshorepipeline route surveys are in progress in preparation for the tender forpipeline supply and installation, whilst negotiations for the sale of the gasand condensate are expected to conclude in Q4 2007. Serica operates the fieldand has a 65% interest. In the large Kutai PSC, East Kalimantan, an airborne elevation survey has beencompleted in preparation for a 2D seismic survey to be carried out in theonshore part of the PSC early next year. The existing offshore 3D seismicsurvey data is to be reprocessed and plans for an additional 3D seismic surveyare being prepared. Serica operates the PSC and has a 52.5% interest. Vietnam The acquisition of a 780 square kilometre 3D seismic survey has been completedin Block 06/94, in the Con Son Basin offshore Vietnam, in which Serica has a33.3% interest. The block lies immediately south of the producing Lan Tay andLan Do gas fields and immediately east of the Dua and Blackbird oil discoveries. Forward Programme Serica is set for an extremely active period of exploration, appraisal anddevelopment drilling with operations on six wells in the UK North Sea andIndonesia over the next six months. In addition, seismic surveys are beingconducted in Spain and Vietnam, whilst preparations for 2008 drilling in Norwayand the UK are also underway. Following the results of the two Columbus appraisal wells, conceptualdevelopment studies for the Columbus field are underway, as is engineeringdesign for the potential production off-take options. The development can now beadvanced, given the results of the appraisal programme. 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, its 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 12 November 2007 and should be read inconjunction with the attached unaudited interim consolidated financialstatements for the period ended 30 September 2007. The interim financialstatements for the three and nine months ended 30 September 2007 have beenprepared by and are the responsibility of the Company's management, and havebeen reviewed by the Company's independent auditors. Comparative information forthe three and nine months ended 30 September 2006 has not been reviewed by theauditors. 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, commencing the appraisal of Columbus in the North Sea, advancing theIndonesian development and preparing for the 2007 Indonesian 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 profit of US$1.2 million for the three months ended 30September 2007 ("Q3 2007") compared to a loss of US$3.8 million for the threemonths ended 30 September 2006 ("Q3 2006"). 2007 2007 2007 2006 2006 2006 Q3 Q2 Q1 Q3 Q2 Q1 US$000 US$000 US$000 US$000 US$000 US$000 Sales revenue - - - - 36 25 Expenses: Administrative expenses (1,658) (1,728) (1,846) (1,415) (1,343) (1,322)Foreign exchange gain/(loss) 31 (36) 15 486 890 (48)Pre-licence costs (76) (124) (101) (3,430) (414) (160)Relinquished licence costs - - - (164) - -Share-based payments (485) (464) (499) (515) (533) (436)Change in fair value of share warrants - - - - (682) 1,836(1)Depletion, depreciation & amortisation (34) (26) (26) (33) (18) (10)Operating loss before finance revenueand taxation (2,222) (2,378) (2,457) (5,071) (2,064) (115) Profit on disposal - - - - 2,187 -Finance revenue 663 791 862 1,276 1,210 1,152 (Loss)/profit before taxation (1,559) (1,587) (1,595) (3,795) 1,333 1,037 Taxation credit/(charge) 2,796 - - - 506 - Profit/(loss) for the period 1,237 (1,587) (1,595) (3,795) 1,839 1,037 Basic and diluted loss per share N/A (0.01) (0.01) (0.03) N/A N/ABasic and diluted earnings per share 0.01 N/A N/A N/A 0.01 0.01 (1) As restated - see note 7 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 Q3 2007 remained at a consistentlevel with Q2 2007 and increased from US$1.4 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 Q3 2007 results. A largeforeign exchange gain of US$0.5 million was earned in Q3 2006. This chieflyarose from the increase in US$ 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 Q3 2007 decreased fromUS$3.4 million for the same period last year when significant cost was incurredon licence applications in Norway, Ireland and Vietnam. Share-based payment charges of US$0.5 million reflect share option grants madeand compare with US$0.5 million for both Q2 2007 and Q3 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 7of 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$0.7 million for Q3 2007compares with US$0.8 million for Q2 2007 and US$1.3 million for Q3 2006. Thedecrease from last year is due to the reduction in cash deposit balances heldsince Q3 2006 as expenditure was incurred on the drilling programmes. The taxation credit in Q3 2007 represents expected tax recoveries on Norwegianexpenditure to date, partially offset by a deferred income tax charge from thetiming differences arising from capitalised exploration expenditure. The net earnings per share of US$0.01 for Q3 2007 compares to a net loss pershare of US$0.03 for Q3 2006. Summary of Quarterly Results 2007 2007 2007 2006 2006 2006 2006Quarter ended: 30 Sep 30 Jun 31 Mar 31 Dec 30 Sep 30 Jun 31 Mar US$000 US$000 US$000 US$000 US$000 US$000 US$000 Sales revenue - - - - - 36 25Profit/(loss) for the quarter 1,237 (1,587) (1,595) (13,456) (3,795) 1,839 1,037(1)Basic and diluted loss pershare US$ - (0.01) (0.01) (0.09) (0.03) - -Basic and diluted earningsper share (1) 0.01 - - - - 0.01 0.01 (1) As restated for Q1 and Q2 2006 - See note 7 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$2.2million 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 September 2007 30 June 2007 31 March 2007 31 December 2006 US$000 US$000 US$000 US$000Current assets: Inventories 5,411 6,438 6,785 6,785 Trade and other receivables 14,165 7,147 11,369 30,903 Cash and cash equivalents 45,564 56,622 72,175 77,306Total Current assets 65,140 70,207 90,329 114,994 Less Current liabilities: Trade and other payables (6,051) (4,413) (11,864) (30,619) Net Current assets 59,089 65,794 78,465 84,375 At 30 September 2007, the Company had net current assets of US$59.1 millionwhich comprised current assets of US$65.1 million less current liabilities ofUS$6.1 million, giving an overall reduction in working capital of US$6.7 millionin the three month period. Inventories principally consist of steel casing for the forthcoming Indonesiandrilling programme. The reduction in balance of US$1.0 million during Q3 2007from US$6.4 million at 30 June 2007 to US$5.4 million arose as a share ofamounts now directly assigned to specific Indonesian projects was recharged topartners. Trade and other receivables at 30 September 2007 totalled US$14.2 million, whichincludes a prepayment of US$5.8 million in respect of the ongoing Columbusdrilling programme, recoverable amounts from partners in Joint Ventureoperations in the UK and Indonesia, and a tax recovery of explorationexpenditure from the Norwegian fiscal regime. Other smaller items includedprepayments and sundry UK and Indonesian working capital balances. The increasein Q3 2007 of US$7.0 million to US$14.2 million was largely caused by theongoing Columbus operations and the recognition of the tax recovery. Net cash outgoings in Q3 2007 covered a US$7.7 million payment to cover UK rigcommitments, operational expenses and other exploration work. These werepartially offset by US$0.7 million of interest income received in the quarter. Trade and other payables of US$6.1 million at 30 September 2007 include amountsdue to those sub-contractors operating the UK drilling programme, and creditorsand accruals from Indonesia. Payables arising from the 2006 drilling campaignwere substantially settled in Q1 2007. Long-Term Assets and Liabilities An extract of the balance sheet detailing long-term assets and liabilities isprovided below: 30 September 2007 30 June 2007 31 March 2007 31 December 2006 US$000 US$000 US$000 US$000 Intangible exploration assets 66,639 58,470 45,738 40,681Property, plant and equipment 411 327 316 342Goodwill 1,200 1,200 1,200 1,200Long-term other receivables 3,121 527 668 351Deferred income tax liabilities (3,375) (955) (955) (955) During Q3 2007, total investments in petroleum and natural gas properties,represented by intangible exploration assets, increased by US$8.2 million toUS$66.6 million. The most significant expenditure was incurred on the ongoingColumbus drilling (US$4.1 million), and of the remaining Q3 2007 investment inthe UK & NW Europe; US$0.8 million related to Spain (US$0.5 million on aspecific 2D seismic survey), US$0.6 million related to Norway, US$0.6 million inthe UK on exploration work and G&A. US$1.5 million was spent in Indonesiaprincipally on drilling activity preparation, exploration work and G&A on theGlagah Kambuna and Kutai concessions, and US$0.6 million in Vietnam. In Q1 2007,US$1.0 million of back costs, received as part of the Biliton farm out, havebeen credited against the capitalised 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$3.1 million are represented by a tax recoveryof exploration from the Norwegian fiscal regime, and value added tax ("VAT") onIndonesian capital spend, which would be recovered from future production. The deferred income tax liability increase of US$2.4 million from US$1.0 millionto US$3.4 million, occurred from timing differences arising following therecognition of the long term Norwegian tax recovery asset. Shareholders' Equity An extract of the balance sheet detailing shareholders' equity is providedbelow: 30 September 2007 30 June 2007 31 March 2007 31 December 2006 US$000 US$000 US$000 US$000 Total share capital 158,871 158,871 157,817 157,283Other reserves 13,215 12,730 12,226 11,767Accumulated deficit (45,001) (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$12.7 million to US$13.2 million reflects the amortisation of share-basedpayment charges in Q3 2007. Capital Resources At 30 September 2007, Serica had US$59.1 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 8631 December 2008 28731 December 2009 26631 December 2010 42 At 30 September 2007, the Company had no long-term debt or capital leaseobligations. In Q3 2007 the Company contracted the GSF 136 jack-up drilling rigfor a minimum of 120 days during 2007 and early 2008 for Indonesian operationsat a gross cost of US$22.2 million. Serica's net share of these costs willdepend on the exact split of the proposed drilling programmes but following thefarm-out of a 45% interest in Biliton and current paying interests in the GlagahKambuna TAC, this is expected to be approximately US$10.1 million. 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 of US$32.2million, of which Serica's share is expected to be 50%, depending upon the workprogramme finally agreed with the Company's co-venturers. In the absence of revenues generated from oil and gas production Serica willutilise its existing cash balances, together with the recently arranged US$100million senior secured debt facility, to fund the immediate needs of itsinvestment programme and ongoing operations and will supplement these existingfinancial resources as needed. 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 September 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 August 2012 1,200,000 1,182,000 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 September 2007. Managementhas concluded that, as of 30 September 2007, the disclosure controls andprocedures were effective to provide reasonable assurance that materialinformation relating to the Company and its consolidated subsidiaries would bemade known to them by others within those entities, particularly during theperiod in which this report 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 September 2007, the Company earned a profit ofUS$1.2 million from continuing operations. At 30 September 2007, the Companyheld cash and cash equivalents of US$45.6 million. Outstanding Share Capital As at 12 November 2007, the Company had 151,647,957 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 14 November 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 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 kelly@chfir.com and specify "Serica press releases" in the subject line. Serica Energy plc Group Income Statement Unaudited Three Three Nine Nine months months months months ended ended ended ended 30 Sep 30 Sep 30 Sep 30 Sep 2007 2006 2007 2006 (1) Notes US$000 US$000 US$000 US$000 Sales revenue - - - 61 Cost of sales - - - - Gross profit - - - 61 Administrative expenses (1,658) (1,415) (5,232) (4,080)Foreign exchange (loss)/gain 31 486 10 1,328Pre-licence costs (76) (3,430) (301) (4,004)Relinquished licence costs - (164) - (164)Share-based payments (485) (515) (1,448) (1,484)Change in fair value of share warrants - - - 1,154Depreciation, depletion & amortisation (34) (33) (86) (61) Operating loss before financerevenue and tax (2,222) (5,071) (7,057) (7,250) Profit on disposal 6 - - - 2,187Finance revenue 663 1,276 2,316 3,638Loss before taxation (1,559) (3,795) (4,741) (1,425) Taxation credit for the period 6 2,796 - 2,796 506Profit/(loss) for the period 1,237 (3,795) (1,945) (919) Loss per ordinary share (US$):Basic and diluted earnings per share 0.01 N/A N/A N/ABasic and diluted loss per share N/A (0.03) (0.01) (0.01) (1) As restated - See note 7 Serica Energy plc Consolidated Balance Sheet 30 Sept 30 June 31 March 31 Dec 2007 2007 2007 2006 US$000 US$000 US$000 US$000 Notes (Unaudited) (Unaudited) (Unaudited) (Audited)Non-current assetsIntangible exploration assets 66,639 58,470 45,738 40,681Property, plant and equipment 411 327 316 342Goodwill 1,200 1,200 1,200 1,200Other receivables 3,121 527 668 351 71,371 60,524 47,922 42,574Current assetsInventories 5,411 6,438 6,785 6,785Trade and other receivables 14,165 7,147 11,369 30,903Cash and cash equivalents 45,564 56,622 72,175 77,306 65,140 70,207 90,329 114,994 TOTAL ASSETS 136,511 130,731 138,251 157,568 Current liabilitiesTrade and other payables (6,051) (4,413) (11,864) (30,619) Non-current liabilitiesDeferred income tax liabilities (3,375) (955) (955) (955) TOTAL LIABILITIES (9,426) (5,368) (12,819) (31,574) NET ASSETS 127,085 125,363 125,432 125,994 Share capital 4 158,871 158,871 157,817 157,283Other reserves 13,215 12,730 12,266 11,767Accumulated deficit (45,001) (46,238) (44,651) (43,056) TOTAL EQUITY 127,085 125,363 125,432 125,994 Serica Energy plcStatement of Changes in EquityFor the period ended 30 September 2007 Group Other Share 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 Share-based payments - 485 - 485Loss for the period - - 1,237 1,237 At 30 September 2007 (unaudited) 158,871 13,215 (45,001) 127,085 Group Other Share capital reserves Deficit Total US$000 US$000 US$000 US$000 At 1 January 2006 (audited) 148,745 4,153 (28,681) 124,217Conversion 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) 125,879Conversion 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) 151,119 6,529 (25,805) 131,843Conversion of warrants 6,164 6,164Share-based payments - 515 - 515Loss for the period - (3,795) (3,795)Fair value of warrants converted - 4,289 - 4,289 At 30 September 2006 (unaudited) 157,283 11,333 (29,600) 139,016 Serica Energy plc Consolidated Cash Flow Statement Unaudited Three Three Nine Nine months months months months ended ended ended ended 30 Sept 30 Sept 30 Sept 30 Sept 2007 2006 2007 2006 US$000 US$000 US$000 US$000Cash flows from operating activities:Operating loss (2,222) (5,071) (7,057) (7,250) Adjustments for:Depreciation, depletion and amortisation 34 33 86 61Relinquished licence costs - 164 - 164Fair value of share warrants - - - (1,154)Share-based payments 485 515 1,448 1,484Changes in working capital (3,785) (2,561) (8,815) (6,833)Cash generated from operations (5,488) (6,920) (14,338) (13,528) Taxes received - - - 34 Net cash flow from operations (5,488) (6,920) (14,338) (13,494) Cash flows from investing activities:Disposals - Cash disposed - - - (51)Interest received 663 1,276 2,336 3,638Proceeds from disposals - - 5,000 -Purchases of property, plant & equipment (118) - (155) (368)Purchase of intangible exploration assets (7,169) (1,200) (26,173) (6,263) Net cash used in investing (6,624) 76 (18,992) (3,044) Cash proceeds from financing activities:Proceeds on exercise of warrants/options 1,054 6,164 1,588 8,538 Net cash from financing activities 1,054 6,164 1,588 8,538 Cash and cash equivalentsNet decrease in period (11,058) (680) (31,742) (8,000)Amount at start of period 56,622 102,430 77,306 109,750 Amount at end of period 45,564 101,750 45,564 101,750 Serica Energy plc Notes to the Unaudited Consolidated Financial Statements 1. Corporate information The interim condensed consolidated financial statements of the Group for thenine months ended 30 September 2007 were authorised for issue in accordance witha resolution of the directors on 14 November 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 nine monthsended 30 September 2007 have been prepared in accordance with IAS 34 InterimFinancial Reporting. 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 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 nine months ended 30 September 2007 and2006. Nine months ended 30 September 2007 Indonesia UK & NW Europe Spain Total US$000 US$000 US$000 US$000 Revenue - - - -Loss for the period (953) (808) (184) (1,945) Nine months ended 30 September 2006 Indonesia UK & NW Europe Spain Total US$000 US$000 US$000 US$000 Revenue 61 - - 61Income/(loss) for the period 1,581 (2,374) (126) (919) 4. Equity Share Capital 30 Sept 30 Sept 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 and 30 Sep 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 5,322,000 options under the Serica 2005 Option Plan,5,067,000 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. In August 2007, 1,200,000 options were awarded tonon-executive directors exercisable only if certain performance targets are met.The Company calculates the value of share-based compensation using aBlack-Scholes option pricing model (or other appropriate model for thoseDirectors' options subject to certain market conditions) to estimate the fairvalue of share options at the date of grant. The estimated fair value of optionsis amortised to expense over the options' vesting period. US$485,000 has beencharged to the income statement in the period ended 30 September 2007 and asimilar amount credited to other reserves. The assumptions made for the options granted during 2005, 2006 and 2007 includea weighted average risk-free interest rate of 6%, no dividend yield and aweighted average expected life of options of three years. The volatility factorof expected market price of 50% used for options granted during 2005 and 2006was reduced to 40% for options granted in 2007. The following table illustrates the number and weighted average exercise prices(WAEP) of, and movements in, share options during the period: Number WAEP Cdn$ 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 and 30 September 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 Granted during the period 1,200,000 0.99 Outstanding at 30 September 2007 5,067,000 1.00 6. Taxation The major components of income tax in the consolidated income statement are: Nine months ended 30 September: 2007 2006 US$000 US$000 Current income tax credit 5,216 -Deferred income tax (charge)/credit (2,420) 506 Total tax credit 2,796 506 In 2006, the book gain on sale of the Lematang PSC is sheltered from tax byhistoric costs not reflected in the book value, indexation, and current UK taxlosses elsewhere in the group. The 2006 deferred tax credit arises from therelease of the deferred tax liability attached to the Lematang PSC. In 2007, expected tax recoveries from Norwegian expenditure to date have beenrecorded as a current income tax credit. These are partially offset by adeferred income tax charge from the timing differences arising from capitalisedexploration expenditure. 7. Retrospective Restatement In the 2006 Annual Report, the prior year income statement and balance sheethave been adjusted to reflect differences in accounting for share warrants thatwere outstanding at 31 December 2005 as a liability, carried at fair value.Previously the warrants were considered to qualify for treatment as equity underIAS 32 Financial Instruments: Presentation. However, precedents now availableindicate that, because the conversion proceeds were denominated in Can$, 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 Q3 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 INDEPENDENT REVIEW REPORT TO SERICA ENERGY PLC Introduction We have been instructed by the company to review the condensed set of financialstatements in the report to shareholders for the nine months ended 30 September2007 which comprises the Consolidated Income Statement, Consolidated BalanceSheet, Consolidated Statement of Changes in Equity, Consolidated Cash FlowStatement, and the related notes 1 to 7. We have read the other informationcontained in the report to shareholders and considered whether it contains anyapparent misstatements or material inconsistencies with the condensed set offinancial statements. This report is made solely to the company in accordance with guidance containedin ISRE 2410 (UK and Ireland) "Review of Interim Financial Information Performedby the Independent Auditor of the Entity" issued by the Auditing PracticesBoard. To the fullest extent permitted by the law, we do not accept or assumeresponsibility to anyone other than the company, for our work, for this report,or for the conclusions we have formed. Directors' responsibilities The report to shareholders is the responsibility of, and has been approved by,the directors. As disclosed in note 2, the annual financial statements of the Company areprepared in accordance with IFRSs as adopted by the European Union. Thecondensed set of financial statements included in this report to shareholdershas been prepared in accordance with International Accounting Standards 34, "Interim Financial Reporting," as adopted by the European Union. Our responsibility Our responsibility is to express to the Company a conclusion on the condensedset of financial statements in the report to shareholders based on our review. Scope of Review We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, "Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity" issued by the AuditingPractices Board for use in the United Kingdom. A review consists of makingenquiries, primarily of persons responsible for financial and accountingmatters, and applying analytical and other review procedures. A review issubstantially less in scope than an audit conducted in accordance withInternational Standards on Auditing (UK and Ireland) and consequently does notenable us to obtain assurance that we would become aware of all significantmatters that might be identified in an audit. Accordingly, we do not express anaudit opinion. Review conclusion Based on our review, nothing has come to our attention that causes us to believethat the condensed set of financial statements in the report to shareholders forthe nine months ended 30 September 2007 is not prepared, in all materialrespects, in accordance with International Accounting Standard 34 as adopted bythe European Union. Ernst & Young LLP London 14 November 2007 This information is provided by RNS The company news service from the London Stock Exchange