Serica Energy Regulatory News (SQZ)

1 May 2007 13:00

Serica Energy plc01 May 2007 FOR IMMEDIATE RELEASE: 1 May 2007 SERICA ENERGY PLC ("Serica" or the "Company") 2007 FIRST QUARTER RESULTS London, 1 May 2007 - Serica Energy plc (TSX Venture & AIM: SQZ) today announcesits financial results for the three months ended 31 March 2007. The results andassociated Management Discussion and Analysis are included below, and copies areavailable at www.serica-energy.com and www.sedar.com. Enquiries: Serica Energy plcPaul Ellis, pellis@serica-energy.com +44 (0)20 7487 7300 Chief Executive OfficerChris Hearne, chearne@serica-energy.com +44 (0)20 7487 7300 Finance Director JPMorgan CazenoveSteve Baldwin steve.baldwin@jpmorgancazenove.com +44 (0)20 7588 2828 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 - CanadaJan Moir jan@chfir.com +1 416 868 1079Kelly Cody kelly@chfir.com +1 416 868 1079 MANAGEMENT OVERVIEW Serica is pleased to report that it has continued to build on its 2006performance with an active first quarter of 2007. UK North Sea and Norway Since the year end, Serica has formally been awarded the new licences in boththe UK and Norway that it reported with its full year results. In the UK, Sericawas awarded Block 23/16g in the Central North Sea, Block 48/17d in the SouthernNorth Sea and Blocks 113/26b and 113/27b (part) in the East Irish Sea. Sericais the operator of all four blocks and has a 100% interest in each block except23/16g, where it has a 50% interest. In Norway, Serica was awarded a 20% interest in two large licences in the 2006Awards in Predefined Areas ('APA') Licence Round. The licences are contiguousand cover a total area of approximately 1,625 square kilometres in the EgersundBasin, about 120 kilometres southwest of Stavanger. One of the licences containsthe undeveloped Bream oil discovery. Preparations for the 2007 drilling campaign continue. In the UK, Serica hassecured the SEDCO 704 semi-submersible drilling rig for Columbus field appraisalwells in Central North Sea Block 23/16f. The rig has been contracted through AGRPeak Group and Serica will have two slots in the programme, with drilling due tocommence in Q3 2007. Serica is the operator of the licence and will initiallydrill a vertical appraisal well. Depending upon the outcome of the verticalwell, Serica plans to sidetrack the well to drill and test a horizontalappraisal well. The Columbus appraisal programme follows the success of theColumbus discovery well, announced in December 2006, which tested at a rate of17.5 million scfd and 1,000 bopd of condensate. Indonesia Serica recently announced the farm-out of a percentage of the Company's interestin the Biliton PSC. In line with its strategy to spread exploration risk andmanage costs, Serica has signed an agreement with a subsidiary of the privatelyowned oil exploration and production company, Nations Petroleum Company Ltd., tofarm-out a 45% interest in the Biliton PSC subject to required regulatoryapproval. Nations Petroleum will bear the majority of the costs of the two welldrilling programme, scheduled to commence in Q3 2007. Serica will remain theoperator and will retain a 45% interest in the Biliton PSC. A number ofpotentially significant prospects have been identified within the PSC, which islocated offshore in a virtually unexplored basin in the central Java Sea, andthe Seadrill-5 drilling rig is contracted to drill the two exploration wellsback-to-back. Development of the Kambuna field offshore north west Sumatra is proceeding andthe Seadrill-5 drilling rig will return to drill the development wells in Q42007 following the installation of the well head support structure. Firstproduction is expected in late 2008. As reported with the full year results,slippage in the 3D seismic programme together with delays in the receipt ofapprovals from Pertamina have resulted in this later start-up and an applicationis being lodged with Pertamina for a revision to the field plan of development. In the neighbouring Asahan Offshore PSC, Serica has been in discussions with theIndonesian authorities regarding the continuation of exploration activity in thearea following the expiry of the initial 10 year exploration period of the PSCin December 2006. To date, in view of the lack of agreement on the commercialityof the PSC, it has not proved feasible to extend the contract and, accordingly,it is likely that the PSC will be formally terminated. The Company has thereforedeferred its plans to drill two exploration wells in the PSC this year but hassubmitted alternative proposals to enable it and its partners to continueexploration work in the area under revised terms. Geological and geophysical work has commenced on the large Kutai Block awardedto Serica late in 2006 and which lies both offshore and onshore East Kalimantan,adjacent to major fields. Forward Programme Serica has started 2007 in a strong financial position and continues to makegood operational progress in its core areas. In Q3, Serica will commence its UK and Indonesian drilling programmes with aColumbus appraisal well and a Biliton exploration well and expects to havedrilled six wells by the year-end. In its new licences and PSCs the Company willbe acquiring and interpreting seismic data and preparing for the 2008exploration and appraisal drilling campaign. Conceptual development studies forthe Columbus field are underway, so that development can be advanced once theresults of the appraisal wells are available. Serica remains very focused on creating shareholder value through itsexploration drilling and field development programmes. 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"). MANAGEMENT'S DISCUSSION AND ANALYSIS The following management's discussion and analysis ("MD&A") of the financial andoperational results of Serica Energy plc and its subsidiaries (the "Group")should be read in conjunction with the attached unaudited interim consolidatedfinancial statements for the period ended 31 March 2007. The interim financialstatements for the three months ended 31 March 2007 have been prepared by andare the responsibility of the Company's management and the independent auditorshave not performed a review of these financial statements. References to the "Company" include Serica and its subsidiaries where relevant.All figures are reported in US dollars ("US$") unless otherwise stated. Overall Performance Serica's activities are centred on 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 31 March2007 ("Q1 2007") compared to a profit of US$1.0 million for the three monthsended 31 March 2006 ("Q1 2006"). The Q1 2006 figures have been restated to takeaccount of the revised accounting treatment for share purchase warrantsoutstanding at 31 March 2006. Q1 Q1 (1) 2007 2006 US$000 US$000 Sales revenue - 25 Expenses: Administrative expenses (1,831) (1,370) Pre-licence costs (101) (160) Share-based payments (499) (436) Change in fair value of share warrants - 1,836 Depletion, depreciation & amortisation (26) (10) Operating loss before finance revenue and taxation (2,457) (115) Finance revenue 862 1,152 (Loss)/profit before taxation (1,595) 1,037 Taxation charge - - (Loss)/profit for the period (1,595) 1,037 Basic and diluted loss per share (0.01) -Basic and diluted earnings per share - 0.01 (1) As restated - see note 5 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 2006 revenues are from discontinued operations following thedisposal of the Lematang PSC interest in 2006 which included the Harimau field.Direct operating costs for the field during the period of ownership by the Groupwere carried by Medco Energi Limited. Administrative expenses of US$1.8 million for Q1 2007 increased from US$1.4million for Q1 2006. The increase reflects the growing scale of the Company'sactivities over the past twelve months. 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. Share-based payment charges of US$0.5 million reflect share option grants madeand compare with US$0.4 million for Q1 2006. The increase is due to shareoptions granted to employees in early 2007. The change in fair value of share warrants in Q1 2006 is a restatement toreflect evolving interpretation of the treatment of such instruments under therecently adopted International Financial Reporting Standards. This has arisendue to the difference in the denominated currency of the warrants compared toSerica's functional currency. The gain in Q1 2006 was created as the fair valueliability of warrants not exercised decreased due to the fall in share priceover the quarter. This has no cash impact on reported results. More detail isprovided in note 5 of the financial statements. Negligible depletion, depreciation and amortisation charges in both 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$0.9 million for Q1 2007compares with US$1.2 million for Q1 2006. The decrease from last year is due tothe reduction in cash deposit balances held during 2006 as expenditure wasincurred on the drilling programmes. The net loss per share of US$0.01 for Q1 2007 compares to an earnings per shareof US$0.01 for Q1 2006. Summary of Quarterly Results 2007 2006 2006 2006 2006Quarter ended: 31 Mar 31 Dec 30 Sep 30 Jun 31 Mar US$000 US$000 US$000 US$000 US$000 Sales revenue - - - 36 25(Loss)/profit for the quarter (1) (1,595) (13,456) (3,795) 1,839 1,037Basic and diluted loss per share US$ (1) (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 5 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 second quarter 2006 profit includes again of US$2.3 million from the disposal of the 10% interest in the LematangBlock. Working Capital, Liquidity and Capital Resources Current Assets and Liabilities An extract of the balance sheet detailing current assets and liabilities isprovided below: 31 March 31 December 2006 2007 US$000 US$000Current assets: Inventories 6,785 6,785 Trade and other receivables 11,369 30,903 Cash and cash equivalents 72,175 77,306Total Current assets 90,329 114,994 Less Current liabilities: Trade and other payables (11,864) (30,619) Net Current assets 78,465 84,375 At 31 March 2007, the Company had net current assets of US$78.5 million whichcomprised current assets of US$90.3 million less current liabilities of US$11.8million, giving an overall reduction in working capital of US$5.9 million in theperiod. Net outgoings in 2007 covered operational expenses and exploration work. Inventories principally consist of steel casing for the forthcoming Indonesiandrilling programme. Trade and other receivables at 31 March 2007 include recoverable amounts frompartners in Joint Venture operations. Other smaller items include prepaymentsand sundry UK and Indonesian working capital balances. A large decrease duringQ1 2007 from US$30.9 million to US$11.4 million occurred as significantrecoverable amounts due from partners in relation to 2006 Joint Ventureoperations were settled, and the US$5.0 million proceeds due from the LematangPSC disposal were received. Trade and other payables chiefly include amounts due to those sub-contractorsoperating the UK drilling programme, trade creditors and accruals fromIndonesia, and also US$2.6 million payable for Norwegian data costs incurredfollowing the recent licence award. Payables arising from the 2006 drillingcampaign have been settled in Q1 2007. Long-Term Assets and Liabilities An extract of the balance sheet detailing long-term assets and liabilities isprovided below: 31 March 31 December 2007 2006 US$000 US$000 Intangible exploration assets 45,738 40,681Property, plant and equipment 316 342Goodwill 1,200 1,200Long-term other receivables 668 351 Deferred income tax liabilities (955) (955) During Q1 2007, total investments in petroleum and natural gas properties,represented by intangible exploration assets, increased by US$5.0 million toUS$45.7 million. Of the 2007 investments; US$2.7 million was spent in Norway onseismic data, US$0.5 million in the UK on exploration work and G&A, US$2.6million was spent in Indonesia principally on a Kutai signature bonus, drillingactivity preparation, exploration work and G&A on the Biliton and Glagah Kambunaconcessions, and US$0.2 million in Spain. US$1.0 million of back costs, receivedin Q1 2007 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$0.7 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: 31 March 31 December 2007 2006 US$000 US$000 Total share capital 157,817 157,283Other reserves 12,226 11,767Accumulated deficit (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 493,334 shareoptions of the Company at prices ranging from Cdn$1.11 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 purchasewarrants eliminated upon exercise of those warrants. The increase in otherreserves from US$11.8 million to US$12.2 million reflects the amortisation ofshare-based payment charges in Q1 2007. Capital Resources At 31 March 2007, Serica had US$79.3 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$000 31 December 2007 25831 December 2008 28731 December 2009 26631 December 2010 42 At 31 March 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 Indonesia operations at a gross cost of US$26,286,000. Thegross obligation existed at 31 March 2007, 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. In Q12007 the company contracted the Sedco 704 semi-submersible drilling rig for UKoperations, specifically the Columbus appraisal wells. The gross obligationunder the contract is for 94 days which equates to a value of US$32,200,000, ofwhich Serica's share is expected to be 25%, depending upon the work programmefinally agreed with the Company's co-venturers. In the absence of revenues generated from oil and gas production, Serica willutilise existing financial resources as required to fund its investmentprogramme and ongoing operations. Off-balance Sheet Arrangements The Company has not entered into any off-balance sheet transactions orarrangements. Critical Accounting Estimates The Company's 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: Cash and cash equivalents, which comprise short-term cash deposits, aregenerally held within the currency of likely future expenditures to minimise theimpact of currency fluctuations. The majority of funds are currently held in USdollars to match the Group's exploration and appraisal commitments. The holdingof £1.2 million at the period end reflected a proportion of UK licencecommitments and administrative expenditures expected in £ Sterling. 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 31 March 2007, the following director and employee share options wereoutstanding: - Expiry Date Amount Exercise cost Cdn$ Share options Jun 2008 400,000 720,000 Aug 2009 100,000 110,000 Feb 2009 697,499 1,394,998 May 2009 100,000 200,000 Dec 2009 325,000 325,000 Jan 2010 600,000 600,000 Jun 2010 1,200,000 2,160,000 Exercise cost £ Nov 2010 671,000 650,870 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 1,082,400 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 (as defined in Multilateral Instrument 52-109of the Canadian Securities Administrators) as of 31 March 2007. Management hasconcluded that, as of 31 March 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 theperiod ended 31 March 2007 the Company incurred losses of US$1.6 million fromcontinuing operations. At 31 March 2007 the Company held cash and cashequivalents of US$72.2 million. Outstanding Share Capital As at 20 April 2007, the Company had 151,031,289 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 1 May 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 for the period ended 31 March 2007 Q1 Q1 2007 2006 US$000 US$000 (Unaudited) (Unaudited) Sales revenue - 25 Cost of sales - - Gross profit - 25 Administrative expenses (1,831) (1,370)Pre-licence costs (101) (160)Share-based payments (499) (436)Change in fair value of share warrants (1) - 1,836Depreciation, depletion and amortisation (26) (10) Operating loss before finance revenue and tax (2,457) (115) Finance revenue 862 1,152(Loss)/profit before taxation (1,595) 1,037 Taxation charge for the period - - (Loss)/profit for the period (1,595) 1,037 (Loss)/earnings per ordinary share (US$):Basic and diluted LPS (0.01) N/ABasic and diluted EPS (1) N/A 0.01 (1) As restated - See note 5 Serica Energy plc Consolidated Balance Sheet 31 March 31 December 2007 2006 Notes US$000 US$000 (Unaudited) (Audited) Intangible exploration assets 45,738 40,681Property, plant and equipment 316 342Goodwill 1,200 1,200Investments in subsidiaries - -Other receivables 668 351 47,922 42,574 Inventories 6,785 6,785Trade and other receivables 11,369 30,903Cash and cash equivalents 72,175 77,306 90,329 114,994 TOTAL ASSETS 138,251 157,568 Current liabilitiesTrade and other payables (11,864) (30,619) Non-current liabilitiesOther payables - -Deferred income tax liabilities (955) (955) TOTAL LIABILITIES (12,819) (31,574) NET ASSETS 125,432 125,994 Share capital 3 157,817 157,283Other reserves 12,266 11,767Accumulated deficit (44,651) (43,056) TOTAL EQUITY 125,432 125,994 Serica Energy plc Statement of Changes in Equity For the period ended 31 March 2007 Group Share capital Other Deficit Total reserves US$000 US$000 US$000 US$000 At 1 January 2006 148,745 4,153 (28,681) 124,217 Conversion of warrants 8,530 - - 8,530Conversion of options 35 - - 35Issue of shares (net) (27) - - (27)Share-based payments - 1,918 - 1,918Loss for the year - - (14,375) (14,375)Fair value of warrants converted - 5,696 - 5,696 At 1 January 2007 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 157,817 12,266 (44,651) 125,432 Serica Energy plc Consolidated Cash Flow Statement For the period ended 31 March 2007 Q1 Q1 2007 2006 US$000 US$000 (Unaudited) (Unaudited) Cash flows from operating activities:Operating loss (2,457) (115) Adjustments for:Depreciation, depletion and amortisation 26 20Share-based payments 499 436Change in fair value of share warrants - (1,836)Changes in working capital (4,978) (3,333)Cash generated from operations (6,910) (4,828) Taxes received - 34 Net cash outflow from operations (6,910) (4,794) Cash flows from investing activities:Interest received 862 1,152Proceeds from disposals 5,000 -Purchases of property, plant and equipment - (298)Purchases of intangible exploration assets - net (4,617) (828) Net cash generated/(used) in investing activities 1,245 26 Cash proceeds from financing activities:Proceeds on exercise of warrants/options 534 119 Net cash from financing activities 534 119 Net decrease in cash and cash equivalents (5,131) (4,649)Cash and cash equivalents at start of period 77,306 109,750 Cash and cash equivalents at end of period 72,175 105,101 Serica Energy plc Notes to the Unaudited Consolidated Financial Statements 1. Nature and continuance of operations Serica Energy plc is a public limited company incorporated and domiciled inEngland & Wales. The Company's ordinary shares are traded on AIM and the TSXV.The principal activity of the Company is to identify, acquire and exploit oiland gas reserves. 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 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. The Group and Company financial statements are presented in US dollars and allvalues are rounded to the nearest thousand dollars (US$000) except whenotherwise indicated. Basis of Consolidation The consolidated financial statements include the accounts of the Company andits wholly owned subsidiaries Serica Energy Corporation, 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.and Serica Nam Con Son B.V. Together these comprise the "Group". All inter-company balances and transactions have been eliminated uponconsolidation. 3. Equity Share Capital 31 March 31 March 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 (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. 4. 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 theCompany 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 3,422,499 ordinary shares of the Company. No further options will be grantedunder the Serica BVI option plan. The Company has granted 3,717,000 options under the Serica 2005 Option Plan,3,572,000 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. The Company calculatesthe value of share-based compensation using a Black-Scholes option pricing model(or other appropriate model for those Directors' options subject to certainmarket conditions) to estimate the fair value of share options at the date ofgrant. The estimated fair value of options is amortised to expense over theoptions' vesting period. US$499,000 has been charged to the income statement inthe period ended 31 March 2007 and a similar amount credited to other reserves. The assumptions made for the options granted during 2005 and 2006 include avolatility factor of expected market price of 50%, a weighted average risk-freeinterest rate of 6%, no dividend yield and a weighted average expected life ofoptions of three years. The following table illustrates the number and weighted average exercise prices(WAEP) of, and movements in, share options during the period: Number WAEP Cdn$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 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 5. 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 2006 comparatives in thisQ1 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 quarter Quarter 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 This information is provided by RNS The company news service from the London Stock Exchange