Serica Energy Regulatory News (SQZ)

1 Nov 2006 14:30

Serica Energy plc01 November 2006 FOR IMMEDIATE RELEASE: Wednesday 1 November 2006 SERICA ENERGY PLC ANNOUNCES 2006 THIRD QUARTER RESULTS 1 November 2006 - Serica Energy plc (TSX Venture & AIM: SQZ) today announces itsfinancial results for the three and nine months ended 30 September 2006. Theresults and associated Management Discussion and Analysis are included below andcopies are available at www.serica-energy.com and www.sedar.com. Highlights Ongoing drilling programme • Currently drilling two UK North Sea exploration wells • 54/1b Oak prospect - well spudded on 15 October 2006 - farm out to Centrica • 23/16f Columbus prospect - well spudded on 28 October 2006 2007 drilling programme • Four wells planned offshore north Sumatra, Indonesia • Two well exploration programme on the Biliton PSC Kambuna Field development • Planned to come on-stream in 2008 at an initial rate of 50 million cubic feet of gas per day and 5,000 barrels of condensate per day • Gas contracts under negotiation • 3D seismic programme commenced in October 2006 Awarded New Licence Offshore Ireland • Awarded a Licence covering three Blocks in the Slyne Basin off the west coast of Ireland. Serica is the operator and will hold a 100% interest in the Licence Tony Craven Walker, Chairman, commented: "Serica has continued to make significant progress in the third quarter, withthe recent start of its two-well exploration drilling programme in the UK NorthSea and with rigs secured for its Indonesian exploration and field developmentprogramme commencing in the first quarter of 2007. The next twelve months havethe potential to generate material returns for shareholders." Enquiries: Serica Energy plcPaul Ellis, pellis@serica-energy.com +44 (0)20 7487 7300 Chief Executive OfficerChris Hearne, Finance Director chearne@serica-energy.com +44 (0)20 7487 7300 Pelham Public Relations -UKJames Henderson james.henderson@pelhampr.com +44 (0)20 7743 6673Alisdair Haythornthwaite alisdair.haythornthwaite@pelhampr.com +44 (0)20 7743 6676 CHF Investor Relations - CanadaJan Moir jan@chfir.com +1 416 868 1079 x237Heather Colpitts heather@chfir.com +1 416 868 1079 x223 MANAGEMENT OVERVIEW Drilling Operations Serica recently commenced drilling two exploration wells in the UK North Sea.On 15 October 2006 Serica spudded an exploration well to test the Oak prospectusing the ENSCO 92 jack-up and on 28 October 2006 Serica spudded an explorationwell to test the Columbus prospect using the semi-submersible GlobalSantaFe Rig140. The Oak prospect is located in UK North Sea Block 54/1b in the Southern GasBasin. Well 54/1b-6 is targeting the Permian-age Leman Sandstone reservoir at adepth of around 7,500 feet and drilling operations are scheduled to take about30 days. Serica is the operator of the block and the well is being drilledunder a contract with Peak Well Management Limited. As part of its strategy tospread exploration risk and manage costs, Serica reduced its interest in theblock from 100% to 50% through the farm out of a 50% interest to CentricaResources Limited ("Centrica"), a wholly-owned subsidiary of Centrica plc, inconsideration for Centrica bearing 100% of the costs of drilling the Oak well upto the point where the total costs have reached £8.5 million or a decision totest the well has been made, whichever occurs first. The Columbus prospect is located in UK Central North Sea Block 23/16f. TheColumbus well 23/16f-11 is targeting the Paleocene-age Forties Sandstonereservoir at a depth of around 9,700 feet and drilling operations are scheduledto take about 30 days. Serica has a 50% interest and is operator of the block.The well will be drilled by Applied Drilling Technology Inc. a division ofGlobalSantaFe Corporation, under a contract with Serica's partner in Block 23/16f, Endeavour Energy UK Limited. In Indonesia Serica has a drilling programme of at least six wells planned for2007. Serica has contracted the SeaDrill 5 jack-up drilling rig for 136 days during2007. In the Glagah Kambuna Technical Assistance Contract (TAC) and adjacentAsahan Offshore Production Sharing Contract (PSC) the Company is preparing todrill four wells and to carry out one workover. Serica is operator of both the Glagah Kambuna TAC and the Asahan Offshore PSCwith working interests of 65% and 55% respectively. In the Biliton PSC, the Company has finalised plans for a two or three wellexploration programme using the GlobalSantaFe Rig 136. A rig sharing agreementhas been concluded with Total E & P Indonesie and Serica will drill these wellsin mid 2007. Serica has a 90% interest and is operator of Biliton. Field Development In the Glagah Kambuna TAC, Serica is preparing to develop the Kambuna Field onbehalf of its partners and the Indonesian state oil and gas company, PTPertamina Persero ("Pertamina"). The first production from the field remainstargeted for 2008 at initial rates of approximately 50 million cubic feet perday of gas and 5,000 barrels per day of condensate. Engineering design studies for the gas export pipeline are being carried out byWood Group and the project schedule is being finalized with a view to fullproject sanction being given prior to year end. Natural Gas, Butane and Propanewill be sold into the Medan area in north Sumatra where there is a growingshortage of gas for power and industry. Condensate (hydrocarbon liquidsseparated from the gas and sold as oil) will be stored in a Floating Production,Storage and Offtake vessel (FPSO) and loaded into shuttle tankers offshore forsale to international markets. In the adjacent Asahan Offshore PSC, the Indonesian oil industry regulatoryauthority ("BPMigas") has requested further technical information with respectto the marginal Tanjung Perling Field, which Serica has proposed to develop asan incremental project to the Kambuna Field. There may be insufficient time tosatisfy the request of the regulatory authority prior to 16th December 2006,when the exploration period of the PSC would otherwise expire. Serica and itspartners are holding constructive discussions with BPMigas to agree a mutuallysatisfactory means to bring gas from the Asahan Offshore PSC to market andensure continuing operations on the block. These discussions include theproposed drilling of wells planned for the Asahan PSC in 2007 as part of theCompany's drilling operations. New Ventures The Company continues to be successful in generating new venture opportunitiesin areas in which Serica has existing technical knowledge. Following the award of a PSC for Block 06/94 in the Nam Con Son Basin in Vietnamin late July, in the 2006 Irish Offshore Licensing Round Serica was awarded aLicence covering Blocks 27/4, 27/5 (part block) and 27/9 which covers an area ofapproximately 611 square kilometres in the Slyne Basin off the west coast ofIreland. Serica is the operator and will hold a 100% interest in the Licence. Serica has also made applications for new offshore licences in the UK, Indonesiaand Norway and expects to hear the results of these applications by the end ofthis year. Outlook Serica now has a substantial portfolio of existing and new exploration anddevelopment drilling prospects and is in an excellent position to generate valuefor shareholders. The Company's drilling programme is now underway and, by the end of the year,the results of both the Oak and Columbus exploration wells will be known. Serica has a major operational programme for 2006-7 and has the financial andmanagement capability to carry out the programme successfully. 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 23 October 2006 and should be read inconjunction with the attached unaudited interim consolidated financialstatements for the period ended 30 September 2006. The interim financialstatements for the three and nine months ended 30 September 2006 have beenprepared by the Company and are the responsibility of the Company's management. References to the "Company" and the "Group" include Serica and its subsidiarieswhere relevant. All figures are reported in US dollars ("US$") unless otherwisestated. Overall Performance Serica's activities are centred on Indonesia and the UK North Sea, with otherinterests in Spain, Ireland and Vietnam. The Group has no current oil and gasproduction, following the disposal of its Harimau Field interest, with the mainemphasis placed upon its future exploration drilling programmes and near termdevelopments. During 2006 to date, work has continued on managing its portfolioof interests, advancing the Indonesian developments and preparing for the2006-07 drilling programme, which commenced with the Oak prospect in October.Further details are noted in the Management Overview. The results of Serica's operations are detailed below. Serica has adoptedInternational Financial Reporting Standards ("IFRS") for its financialstatements for the year ended 31 December 2005 with a transition date of 1January 2004. The first year reported under IFRS was the year ended 31 December2005, and the results in this MD&A and the financial statements are presented inaccordance with IFRS. Accordingly, Q1, Q2 and Q3 2005 comparatives have beenrestated from Canadian Generally Accepted Accounting Principles ("GAAP") tocomply with IFRS. Results of Operations Serica generated a loss of US$3.8 million for the three months ended 30September 2006 ("Q3 2006") compared to a loss of US$0.8 million for the threemonths ended 30 September 2005 ("Q3 2005"). 2006 2005 Q3 Q2 Q1 Q3 Q2 Q1 US$000 US$000 US$000 US$000 US$000 US$000Sales revenue (1) - 36 25 36 32 31 Expenses: Administrative expenses (1,415) (1,343) (1,322) (1,335) (1,061) (1,113)Foreign exchange gain/(loss) 486 890 (48) (240) (600) (24)Pre-licence costs (3,430) (414) (160) (57) (350) (288)Costs of expired licences (164) - - - - -Share-based payments (515) (533) (436) (254) (383) (78)Depletion, depreciation &amortisation (33) (18) (10) (4) (4) (4)Operating loss before financerevenue and tax (5,071) (1,382) (1,951) (1,854) (2,366) (1,476) Profit on disposal - 2,187 - - - -Finance revenue 1,276 1,210 1,152 61 101 82 (Loss)/profit before taxation (3,795) 2,015 (799) (1,793) (2,265) (1,394) Taxation credit/(charge) - 506 - 1,018 759 (41) (Loss)/profit for the period (3,795) 2,521 (799) (775) (1,506) (1,435) (1) From discontinued operations Revenues from oil and gas production are recognised on the basis of theCompany's net working interest in its properties and throughout each period weregenerated from Serica's 10% interest in the Harimau producing gas and gascondensate field. These revenues are from discontinued operations following thedisposal of the Lematang PSC interest. Direct operating costs for the fieldduring these periods were carried by Medco Energi Limited. Administrative expenses of US$1.4 million for Q3 2006 remained at a consistentlevel with Q1 and Q2 2006 and for the same period last year. The generalincrease from 2005 reflects the growing scale of the Company's activities overthe past twelve months. A significant foreign exchange gain of US$0.5 million was earned in Q3 2006.This chiefly arose from the increase in US$ equivalent value of pounds sterlingcash deposits held, as the pound continued to strengthen against the dollarduring 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 significant increase in the charge from US$0.4 millionin Q2 2006 to US$3.4 million in Q3 2006 is caused by data acquisition costs aspart of the Norway licence applications (US$2.7 million), and a focus on newventures in Vietnam and Indonesia (US$0.5 million). The Q3 2006 US$0.2 million charge against relinquished licences relates to thenon core UK North Sea licence P1180, Blocks 48/16a and 47/20b. Share-based payment costs of US$0.5 million reflect share options granted andcompare with a cost of US$0.3 million for Q3 2005 and US$0.5 million for Q22006. The increase from last year is due to share options granted in the secondhalf of 2005 and early 2006 as the management team was built up. Negligible depletion, depreciation and amortisation charges in all periodsrepresent office equipment, fixtures and fittings. The costs of petroleum andnatural gas properties are not currently subject to such charges pending furtherevaluation and the commencement of production. A profit on disposal of US$2.2 million in Q2 2006 was generated on the sale ofthe 10% interest in the Lematang PSC to Lundin Petroleum AB for US$5 million. Finance revenue, comprising interest income of US$1.3 million for Q3 2006,compares with US$0.1 million for Q3 2005 and US$1.2 million for Q2 2006. Theincrease from last year is due to the significant cash deposit balances heldfollowing the AIM listing and associated fund raising in December 2005. The taxation credit of US$0.5 million in Q2 2006 arose from the release of thedeferred tax liability attached to the Lematang PSC. Summary of Quarterly Results Quarter ended: 2006 2006 2006 2005 2005 2005 2005 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$000 Sales revenue - 36 25 25 36 32 31(Loss)/profit for thequarter (3,795) 2,521 (799) (403) (775) (1,506) (1,435)Basic and diluted lossper share US$ (0.03) - (0.01) (0.01) (0.01) (0.02) (0.02)Basic earnings pershare US$ - 0.02 - - - - -Diluted earnings pershare US$ - 0.02 - - - - - Working Capital, Liquidity and Capital Resources Current Assets and Liabilities An extract of the balance sheet detailing current assets and liabilities isprovided below: 30 Sept 30 June 31 March 2006 31 December 2005 2006 2006 US$000 US$000 US$000 US$000Current assets: Inventories 3,907 681 878 878 Trade and other receivables 6,585 6,241 1,756 2,106 Cash and cash equivalents 101,750 102,430 105,101 109,750Total Current assets 112,242 109,352 107,735 112,734 Less Current liabilities: Trade and other payables (4,972) (3,875) (3,858) (7,136) Net Current assets 107,270 105,477 103,877 105,598 At 30 September 2006, the Company had net current assets of US$ 107.3 millionwhich comprised current assets of US$112.2 million less current liabilities ofUS$5.0 million, giving an overall increase in working capital of US$1.8 millionin the three month period. Inventories increased significantly from US$0.7 million to US$3.9 million in Q32006 from the acquisition of steel casing for the forthcoming Indonesiandrilling program. Trade and other receivables at 30 September 2006 included the US$5.0 millionproceeds due from the Lematang PSC disposal. Other smaller items includedprepayments and sundry UK and Indonesia working capital balances. Net cash receipts in Q3 included US$6.2 million received during the period fromthe exercise of warrants, and US$1.3 million of interest income. Net cashoutgoings in Q3 2006 covered a US$3.2 million payment for steel casing, plusoperational expenses and exploration work. Trade and other payables include a further US$1.5 million payable in respect ofthe Q2 2006 acquisition of an additional 10% interest in the Glagah Kambuna TAC,and a US$1.9 million accrual for Norwegian Q3 data costs. Significant trade andother payables balances in relation to the 2005 drilling programme and the AIMlisting were settled in Q1 2006. Long-Term Assets and Liabilities An extract of the balance sheet detailing long-term assets and liabilities isprovided below: 30 Sep 2006 30 June 2006 31 March 2006 31 December 2005 US$000 US$000 US$000 US$000 Intangible exploration assets 29,138 28,102 24,419 23,591Goodwill 1,877 1,877 2,382 2,382Property, plant and equipment 26 270 304 304Long-term other receivables 2,092 2,003 2,129 1,758 Long-term other payables - - (151) (151)Deferred income tax liabilities (1,631) (1,631) (2,137) (2,137) During Q3 2006, total investments in petroleum and natural gas properties,represented by intangible exploration assets, increased by US$1.0 million toUS$29.1 million. This increase was generated from US$1.2 million of new spend,less US$0.2 million of exploration assets written off as non core licences wererelinquished. Of the Q3 2006 additions, US$0.5 million related to explorationwork and G&A on the Biliton, Asahan and Glagah Kambuna concessions in Indonesia,and US$0.7 million on exploration work and G&A in the UK and Spain. Goodwill, representing the difference between the price paid on acquisitions andthe fair value applied to individual assets, fell by US$0.5 million to US$1.9million following the Lematang disposal in Q2 2006. Long-term other receivables of US$2.1 million represent value added tax ("VAT")on Indonesian capital spend which is expected to be recovered once the fieldscommence production. Long-term other payables at 31 March 2006 comprised VAT payable in Indonesia.This liability was cleared following the Lematang PSC disposal. Deferred income tax liabilities fell by US$0.5 million in Q2 2006 to US$1.6million as the liability associated with the Lematang PSC was removed. Shareholders' Equity An extract of the balance sheet detailing shareholders' equity is providedbelow: 30 September 2006 30 June 2006 31 March 2006 31 December 2005 US$000 US$000 US $000 US$000 Total share capital 157,283 151,119 148,864 148,745Other reserves 2,753 2,238 1,705 1,269Accumulated deficit (21,020) (17,225) (19,746) (18,947) Total share capital includes the total net proceeds from share issues,comprising both nominal value and any premium. Issued share capital during Q1 2006 was increased by the exercise of 121,250warrants and share options of the Company at prices ranging from Cdn$1.00 toCdn$1.20. Issued share capital during Q2 2006 was increased by the exercise of2,128,701 warrants of the Company at a price of Cdn$1.20. In Q3 2006, 5,739,426warrants were converted to ordinary shares at a price of Cdn$1.20. The increase in other reserves from US$1.3 million to US$1.7 million in Q1 2006,from US$1.7 million to US$2.2 million in Q2 2006, and from US$2.2 million toUS$2.7 million in Q3 2006 reflects the amortisation of share options. Capital Resources At 30 September 2006, Serica had US$107.3 million of net working capital and noshort or long-term debt. At that date the Company had commitments to futureminimum payments under operating leases in respect of rental office premises,office equipment and motor vehicles for each of the following period/years asfollows: US$000Period ended 31 December 2006 36Year ended 31 December 2007 198Year ended 31 December 2008 183Year ended 31 December 2009 177Year ended 31 December 2010 36 The Company had no long-term debt or capital lease obligations. The Company hasa contract covering the provision of drilling-related services and equipment inconnection with the Indonesian drilling programme. As part of this, Sericaacquired US$3.2 million of steel casing in Q3 2006 and will acquire furtheramounts up to US$3.8 million. The second tranche is expected to be acquiredduring Q4 2006. This is contracted for but not provided in the Q3 2006 results. Following the end of the period ended 30 September 2006, the Company has madesignificant commitments for capital expenditure on the exploration wellscurrently being drilled on the Oak and Columbus prospects, and also contractedthe SeaDrill 5 jack-up drilling rig for 136 days during 2007 for Indonesianoperations. Until revenues are generated from its planned field developments, Serica willutilise existing financial resources as required to fund its investmentprogramme and ongoing operations. The Company will continue to review otherfinancing alternatives, including debt facilities, in order to optimise itsfinancial structure. Off-balance Sheet Arrangements The Company has not entered into any off-balance sheet transactions orarrangements. Critical Accounting Estimates The accounting policies are summarised in note 2 to the attached financialstatements and full details of the Company's accounting policies are included inthe Serica Energy plc annual report for the year ended 31 December 2005. Therehave been no changes in accounting policies during the period, and following theadoption of International Financial Reporting Standards ("IFRS") for the 2005audited financial statements, the Q1, Q2 and Q3 2005 comparative resultsreported have been restated from Canadian GAAP to IFRS. The cost of exploringfor and developing petroleum and natural gas reserves are capitalised. Unprovedproperties are subject to periodic impairment tests whilst the costs of provedproperties are depleted over the life of such producing fields. In each case,calculations are based upon management 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: Cash and cash equivalents, which comprise short-term cash deposits, aregenerally held in the currency of likely future expenditures to minimise theimpact of currency fluctuations. The majority of funds are currently held in USdollars to match the Group's exploration and appraisal commitments. The holdingof £8.2 million at period-end reflected a proportion of UK licence commitmentsand administrative expenditures expected in pounds sterling. Following the Q4 2005 fundraising, Serica is holding significant net cash.Whilst this does leave exposure to interest rate fluctuations, given the levelof expenditure plans over 2006-07 this is managed in the short-term throughselecting treasury deposit periods of one to six months. There is currently no sales revenue and therefore no customer credit risk. Cashand treasury credit risks are mitigated through spreading the placement of fundsover a range of institutions each carrying acceptable published credit ratingsto minimise counterparty risk. It is the management's opinion that the fair value of its financial instrumentsapproximate to their carrying values, unless otherwise noted. Share Options As at 30 September 2006, the following options were outstanding: Expiry Date Amount Cdn$Share options Aug 2007 400,000 444,000 Jun 2008 400,000 720,000 Aug 2009 100,000 111,000 Feb 2009 877,500 1,895,000 May 2009 100,000 200,000 Dec 2009 325,000 365,000 Jan 2010 600,000 600,000 Jun 2010 1,300,000 2,340,000 £ Nov 2010 696,000 675,120 Jan 2011 1,395,000 1,443,825 May 2011 180,000 172,800 Jun 2011 270,000 259,200 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. Nature and Continuance of Operations The principal activity of the Company is to identify, acquire and subsequentlyexploit oil and gas reserves 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 revenue and, during thethree month period ended 30 September 2006, the Company generated a loss ofUS$3.8 million from continuing operations. At 30 September 2006, the Companyheld cash and cash equivalents of US$101.8 million. Outstanding Share Capital As at 23 October 2006, the Company had 150,537,957 ordinary shares issued andoutstanding and 157,181,456 on a fully diluted basis. 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 1 November 2006 Forward Looking Statements This disclosure contains certain forward looking statements that involvesubstantial known and unknown risks and uncertainties, some of which are beyondSerica Energy plc's control, including: the impact of general economicconditions where Serica Energy plc operates, industry conditions, changes inlaws and regulations including the adoption of new environmental laws andregulations and changes in how they are interpreted and enforced, increasedcompetition, the lack of availability of qualified personnel or management,fluctuations in foreign exchange or interest rates, stock market volatility andmarket valuations of companies with respect to announced transactions and thefinal valuations thereof, and obtaining required approvals of regulatoryauthorities. Serica Energy plc's actual results, performance or achievementcould differ materially from those expressed in, or implied by, these forwardlooking statements and, accordingly, no assurances can be given that any of theevents anticipated by the forward looking statements will transpire or occur, orif any of them do so, what benefits, including the amount of proceeds, thatSerica Energy plc will derive there from. The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release. To receive Company news releases via email, please contact heather@chfir.com and specify "Serica press releases" in the subject line. Serica Energy plcGroup Income Statement Unaudited Three Three Nine Nine months months months months ended ended ended ended 30 Sept 30 Sept 30 Sept 30 Sept 2006 2005 2006 2005 Notes US$000 US$000 US$000 US$000 Sales revenue - 36 61 99 Cost of sales - - - - Gross profit - 36 61 99 Administrative expenses (1,415) (1,335) (4,080) (3,509)Foreign exchange gain/(loss) 486 (240) 1,328 (864)Pre-licence costs (3,430) (57) (4,004) (695)Costs of expired/relinquished licences (164) - (164) -Share-based payments (515) (254) (1,484) (715) Depreciation, depletion & amortisation (33) (4) (61) (12) Operating loss before finance (5,071) (1,854) (8,404) (5,696)revenue and tax Profit on disposal 6 - - 2,187 -Finance revenue 1,276 61 3,638 244Loss before taxation (3,795) (1,793) (2,579) (5,452) Taxation credit for the period - 1,018 506 1,736Loss for the period (3,795) (775) (2,073) (3,716) Loss per ordinary share (US$):Basic and diluted loss per share 0.03 0.01 0.01 0.04 Serica Energy plcConsolidated Balance Sheet 30 September 30 June 31 March 31 December 2006 2006 2006 2005 US$000 US$000 US$000 US$000 (Unaudited) (Unaudited) (Unaudited) (Audited) Intangible exploration assets 29,138 28,102 24,419 23,591Goodwill 1,877 1,877 2,382 2,382Property, plant and equipment 271 304 304 26Other receivables 2,091 2,003 2,129 1,758 33,377 32,286 29,234 27,757 Inventories 3,907 681 878 878Trade and other receivables 6,585 6,241 1,756 2,106Cash and cash equivalents 101,750 102,430 105,101 109,750 112,242 109,352 107,735 112,734 Total assets 145,619 141,638 136,969 140,491 Current liabilitiesTrade and other payables (4,972) (3,875) (3,858) (7,136) Non-current liabilitiesOther payables - - (151) (151)Deferred income tax liabilities (1,631) (1,631) (2,137) (2,137) Total liabilities (6,603) (5,506) (6,146) (9,424) Net Assets 139,016 136,132 130,823 131,067 Share capital 157,283 151,119 148,864 148,745Other reserves 2,753 2,238 1,705 1,269Accumulated deficit (21,020) (17,225) (19,746) (18,947) Total Equity 139,016 136,132 130,823 131,067 Serica Energy plcStatement of Changes in EquityFor the period ended 30 September 2006 Group Share capital Other Deficit Total reserves US$000 US$000 US$000 US$000 At 1 January 2005 33,047 256 (14,828) 18,475 Conversion of warrants 10,190 - - 10,190Issue of 'A' share 90 - - 90Issue of shares (net) 105,418 - - 105,418Share-based payments - 1,013 - 1,013Loss for the year - - (4,119) (4,119) At 1 January 2006 148,745 1,269 (18,947) 131,067 Conversion of warrants 119 - - 119Share-based payments - 436 - 436Loss for the period - - (799) (799) At 31 March 2006 (unaudited) 148,864 1,705 (19,746) 130,823 Conversion of warrants 2,282 - - 2,282Share issue costs (27) - - (27)Share-based payments - 533 - 533Profit for the period - - 2,521 2,521 At 30 June 2006 (unaudited) 151,119 2,238 (17,225) 136,132 Conversion of warrants 6,164 - - 6,164Share-based payments - 515 - 515Loss for the period - - (3,795) (3,795) At 30 September 2006 (unaudited) 157,283 2,753 (21,020) 139,106 Serica Energy plcConsolidated Cash Flow Statement Unaudited Three Three Nine Nine month months months months months ended ended ended ended 30 Sept 30 Sept 30 Sept 30 Sept 2006 2005 2006 2005 US$000 US$000 US$000 US$000Cash flows from operating activities:Operating loss (5,071) (1,854) (8,404) (5,696) Adjustments for:Depreciation, depletion and amortisation 33 4 61 12Relinquished/expired licence costs 164 - 164 - Share-based payments 515 254 1,484 715Changes in working capital (2,561) 4,946 (6,833) 7,939Cash generated from operations (6,920) 3,350 (13,528) 2,970 Taxes received - - 34 - Net cash flow from operations (6,920) 3,350 (13,494) 2,970 Cash flows from investing activities:Disposals - Cash disposed - - (51) -Interest received 1,276 61 3,638 244Purchases of property, plant and equipment - - (368) (10)Purchase of intangible exploration assets (1,200) (6,936) (6,263) (11,060) Net cash used in investing 76 (6,875) (3,044) (10,826) Cash proceeds from financing activities:Proceeds on exercise of ENI loan note - 6,555 - 6,555Proceeds on exercise of warrants/options 6,164 75 8,538 9,754 Net cash from financing activities 6,164 6,630 8,538 16,309 Cash and cash equivalentsNet (decrease)/increase (680) 3,105 (8,000) 8,453Amount at start of period 102,430 7,077 109,750 1,729 Amount at end of period 101,750 10,182 101,750 10,182 Serica Energy plc Notes to the Unaudited Consolidated Financial Statements 1. Nature and continuance of operations Serica Energy plc is a public limited company incorporated and domiciled inEngland and Wales. The Company's ordinary shares are traded on the AlternativeInvestment Market of the London Stock Exchange ("AIM") and the Canadian TSXVenture Exchange. The principal activity of the Company is to identify, acquireand subsequently exploit oil and gas reserves primarily in Asia and Europe. On 1 September 2005, the Company completed a reorganisation whereby the commonshares of Serica Energy Corporation were automatically exchanged on aone-for-one basis for ordinary shares of Serica Energy plc, a newly formedcompany incorporated under the laws of the United Kingdom. In addition, eachshareholder of the Corporation received beneficial ownership of part of the 'A'share of Serica Energy plc issued to meet the requirements of public companiesunder the United Kingdom jurisdiction. Under IFRS this reorganisation wasconsidered to be a reverse takeover by Serica Energy Corporation and as such thefinancial statements of the Group represent a continuation of Serica EnergyCorporation. 2. Accounting Policies Basis of Preparation These unaudited interim consolidated financial statements of the Group have beenprepared in accordance with International Financial Reporting Standardsfollowing the same accounting policies and methods of computation as theconsolidated financial statements for the year ended 31 December 2005. Theseunaudited interim consolidated financial statements do not include all theinformation and footnotes required by generally accepted accounting principlesfor annual financial statements and therefore should be read in conjunction withthe consolidated financial statements and the notes thereto in the Serica Energyplc Annual Report for the year ended 31 December 2005. New accounting standards: 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 2005, except for the adoption of the following mandatory standards forannual periods beginning on or after 1 January 2006: Amendment to IAS 19 'Employee Benefits - Actuarial Gains and Losses, Group Plansand Disclosures'; Amendment to IAS 39 'Financial Instruments: Recognition and Measurement'; IFRIC 4 'Determining Whether an Arrangement Contains a Lease'; IFRIC 5 'Rights to Interests Arising from Decommissioning, Restoration andEnvironmental Rehabilitation Funds'. The adoption of these did not affect the Group's results of operations orfinancial position. The financial statements are unaudited. 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, Asia PetroleumDevelopment Limited, Petroleum Development Associates (Asia) Limited, SericaEnergia Iberica S.L., Firstearl Limited, Serica Energy (UK) Limited, PDALematang Limited, APD (Asahan) Limited, APD (Biliton) Limited, APD (GlagahKambuna) Limited and Serica Energy Pte Limited. Together these comprise the"Group". All significant inter-company balances and transactions have been eliminatedupon consolidation. 3. 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 table presents revenue and profit information regarding theGroup's geographical segments for the nine months ended 30 September 2006. Costsof the Singapore office are included in the Indonesian geographical segment andpre-licence expenditure in Norway is included within UK. Indonesia UK Spain Total US$000 US$000 US$000 US$000Revenue 61 - - 61Net income/(loss) 2,062 (4,013) (122) (2,073) 4. Equity Share Capital 30 Sept 30 Sept 31 December 31 December 2006 2006 2005 2005 Number US$000 Number US$000Authorised:Common shares with no par (1) value - - - -Ordinary shares of US$0.10 200,000,000 20,000 200,000,000 20,000Ordinary 'A' share of £50,000 1 90 1 90 200,000,001 20,090 200,000,001 20,090 On incorporation, the authorised share capital of the Company was £50,000 andUS$20,000,000 divided into one 'A' share of £50,000 and 200,000,000 ordinaryshares of US$0.10 each, two of which were issued credited as fully paid to thesubscribers to the Company's memorandum of association. The balance classified as total share capital includes the total net proceeds(both nominal value and share premium) on issue of the Group and Company'sequity share capital, comprising US$0.10 ordinary shares. Allotted, issued and fully paid: Share prem Share Total capital premium Share capitalGroup Number US$000 US$000 US$000 At 1 January 2006 142,548,580 14,345 134,400 148,745 Warrants/options exercised (2) 121,250 12 107 119 As at 31 March 2006 142,669,830 14,357 134,507 148,864 Warrants/options exercised (3) 2,128,701 213 2,042 2,255 As at 30 June 2006 144,798,531 14,570 136,549 151,119 Warrants exercised (4) 5,739,426 574 5,590 6,164 As at 30 September 2006 150,537,957 15,144 142,139 157,283 (1) Prior to the reorganisation on 1 September 2005, the Group's common shareshad no par value, accordingly all value was classified as share capital. (2) From 1 January 2006 until 31 March 2006, 121,250 share purchase warrants andoptions were converted to ordinary shares at prices ranging from Cdn$1.00 toCdn$1.20. (3) From 1 April 2006 until 30 June 2006, 2,128,701 share purchase warrants wereconverted to ordinary shares at a price of Cdn$1.20. (4) From 1 July 2006 until 30 September 2006, 5,739,426 share purchase warrantswere converted to ordinary shares at a price of Cdn$1.20. 5. Share-Based Payments Share Option Plans Following a reorganisation in 2005, the Company established an option plan (the"Serica 2005 Option Plan") to replace the Serica Energy Corporation Share OptionPlan (the "SEC Share Option Plan"). Serica Energy Corporation was previouslythe holding company of the Group, but is now a wholly owned subsidiary of theCompany. The Serica 2005 Option Plan will govern all future grants of options bythe Company and no further options will be granted under the SEC Share OptionPlan. Existing options under the SEC Share Option Plan entitle holders toacquire ordinary shares of the Company. The Directors intend that the maximum number of ordinary shares which may beutilised pursuant to the Serica 2005 Option Plan will not exceed 10% of theissued ordinary shares of the Company from time to time, in line with therecommendations of the Association of British Insurers. The Company calculated the value of share-based compensation using aBlack-Scholes option pricing model to estimate the fair value of share optionsat the date of grant. The estimated fair value of an option is amortised toexpense over its vesting period. US$436,000, US$533,000 and US$515,000 has beencharged to the income statement in the periods ended 31 March 2006, 30 June 2006and 30 September 2006 respectively. Similar amounts have been credited to otherreserves. The assumptions made for the options granted during 2005 and 2006 include avolatility factor of expected market price of 50%, a weighted average risk-freeinterest rate of 6%, no dividend yield and a weighted average expected life ofoptions of three years. The following table illustrates the number and weighted average exercise prices(WAEP) of, and movements in, share options during the period: Number WAEP Cdn$SEC Share Option Plan Outstanding at 31 December 2005 4,212,500 1.58 Cancelled during the period (110,000) 1.27 Outstanding at 31 March and30 June and 30 September 2006 4,102,500 1.59 Serica 2005 Option Plan £ Outstanding at 31 December 2005 696,000 0.97 Granted during the period 1,395,000 1.03 Outstanding at 31 March 2006 2,091,000 1.01 Granted during the period 450,000 0.96 Outstanding at 30 June and 30 2,541,000 1.00September 2006 6. Asset Acquisitions and Disposals Acquisitions: On 28 April 2006, the Group acquired an additional 10% interest in the GlagahKambuna TAC from PT Gunakarsa Glagah-Kambuna Energi for US$4.5 million.Following receipt of the required regulatory approvals, Serica's workinginterest in the block will increase to 65%. The net effect of the acquisition on the Group's balance sheet and provisionalallocation of assets at acquisition were as follows: Book value Fair value Preliminary fair adjustment value US$000 US$000 US$000 Intangible exploration assets - 4,500 4,500Working capital - - - - 4,500 4,500 The above numbers are preliminary. Adjustments may occur as a result ofobtaining more information regarding asset valuations, liabilities assumed andrevisions of preliminary estimates of fair values made at the date of purchase. Disposals: On 13 June 2006 the Group concluded an agreement for the sale of its 10%interest in the Lematang Production Sharing Contract, onshore south Sumatra, toLundin Petroleum AB ('Lundin Petroleum') for US$5 million in cash subject to therequired partner and Indonesian government approvals. The block includes thenearly depleted Harimau gas field and the Singa gas field development project. The disposal resulted in a profit of US$2.2 million in Q2 2006. 7. Taxation The major components of income tax in the consolidated income statement are: For the nine months ended 30 September 2006 2005 US$000 US$000Current income tax charge Nil NilDeferred income tax credit 506 1,736 The book gain on sale of the Lematang PSC is sheltered from tax by historiccosts not reflected in the book value, indexation, and current UK tax losseselsewhere in the Group. The 2006 deferred tax credit arises from the release of the deferred taxliability attached to the Lematang PSC. This information is provided by RNS The company news service from the London Stock Exchange