TIDMSQZ
RNS Number : 7269T
Serica Energy plc
10 January 2017
Serica Energy plc ("Serica" or the "Company")
Operations Update
London, 10 January 2017 - Serica Energy plc (AIM: SQZ), an
independent oil and gas company with production, development and
exploration licence interests in the UK North Sea and exploration
interests in Ireland, Morocco and Namibia, is pleased to provide a
year-end operations update as follows:
Highlights:
UK North Sea Erskine Field
-- Strong production since late August field restart averaging
3,150 boepd net to Serica, ahead of guidance
-- December production average over 3,800 boepd net to Serica at improved commodity prices
-- Lomond offtake facilities achieved uptime in excess of 80%
since end August restart and averaged 95% in December
-- New Lomond operator continues to drive costs down and improve reliability
Columbus Development
-- Serica working with other hub partners to maximise economic recovery from the area
-- Development plan for Columbus targeted for 2017
-- Improved facilities performance increasing confidence in Lomond as potential off-take route
Exploration
-- Preparations in progress for Rowallan drilling in 2018. Long-lead items planned for 2017
-- Costs of Rowallan and Doyle wells carried by third parties
-- Expected extension of Namibian licence will afford more time to conclude a farm-out
-- Renewed industry interest in Ireland
Finance
-- Cash balance of US$16.6 million as at 31 December expected to
increase to over US$20 million after receipt of December net
sales
-- Cash resources enhanced by strong production and much improved commodity prices
-- No borrowings or material capital commitments
Tony Craven Walker, Serica's Chairman commented:
"A strong second half operational performance from the Erskine
field, boosted by much improved commodity prices and favourable
exchange rate movements, has helped Serica following the six-month
Erskine shut-in earlier in the year. The underlying resilience of
Serica's balance sheet has allowed the Company to absorb the period
of no income resulting from the shut-in and to enter 2017 in a
strong position to take advantage of new opportunities to grow its
asset base."
Overview
Following the successful restart of the Erskine field in late
August, we are pleased to report sustained strong performance since
then. During this period Serica's share of oil and gas production
has averaged approximately 3,150 boe per day, exceeding our
previous 2,500-3,000 boe per day guidance. This offers confidence
that the improvement work carried out on the Lomond platform,
through which Erskine product is exported, is now paying dividends.
In recent months Erskine has demonstrated consistent capability to
achieve production rates of 20,000-23,000 boe per day gross (3,600
- 4,100 boe net to Serica) when unconstrained by offtake and
transportation facility restrictions.
It is also encouraging that the second half of the year saw
improved commodity prices. The Brent oil benchmark has averaged
US$50 per barrel since Erskine restart whilst UK gas prices have
shown an even stronger rise from 30 pence per therm in the first
half of the year to over 40 pence per therm since the end of
August, with over 45 pence per therm realised in November and
December. A gas sales contract, under which Serica supplied
approximately one quarter of its Erskine gas production at
relatively low contract prices (approximately 30 pence per therm in
the 2015/6 contract year), terminated on 30 September allowing
Serica the full benefit of the higher prices since then.
Operating costs since August are averaging well below our
guidance of US$20 per boe, including transportation costs,
reflecting overall cost reductions, sustained production rates and
also the impact of the lower GBP/US$ exchange rate. In addition to
continuing cost control and improved production uptime, future
costs per barrel can also be reduced through the introduction of
new third party throughput to Lomond including the Columbus field
whose progress is discussed below.
Strong net income from Erskine since re-start of production in
late August has allowed Serica to rebuild cash resources. As at 31
December, cash balances were US$16.6 million before receipt of
December sales which are expected to add in excess of US$3.5
million net of operating costs. The Company has no borrowings and
minimal licence expenditure commitments.
Serica, as operator of the Columbus gas and condensate field,
continues work on export options. Improved Lomond facility
reliability offers support for prioritising the Lomond offtake
route as compared to higher capital cost alternatives. It is
expected that a full development plan will be compiled during the
course of 2017 ready for presentation to the Oil and Gas Authority
("OGA"). The OGA initiative to encourage all parties within North
Sea hub areas to work more closely together to maximise combined
economic benefit and reserves recovery has already brought all
parties within the Lomond hub area into closer co-operation. In
addition to the Lomond and Erskine producing fields this
incorporates Serica's Columbus development plus several other
fields in the area.
Though markets have been showing little enthusiasm for
exploration investment, this can be expected to change once the
impact of greatly-reduced industry investment programmes begins to
be felt on commodity prices and the full effects of cost reductions
have filtered through. Serica's exploration strategy is to hold
significant interests in acreage offering a balance between risk
and opportunity, with a mix of lower risk mature basins and high
risk, high reward frontier areas. Associated expenditure is
mitigated through farm-outs as far as possible. The costs of
Serica's most likely next two exploration wells, on the Rowallan
prospect in Central North Sea block 22/19c and on the Doyle
prospect in East Irish Sea block 113/27c, are both subject to carry
arrangements. The Company is also continuing to pursue
opportunities to farmdown its interest in Namibia and its Irish
offshore acreage.
Production and Operations
Central North Sea: Erskine Field - Blocks 23/26a (Area B) and
23/26b (Area B)
Erskine field production since the 29 August production restart
has delivered strong and consistent volumes, averaging
approximately 3,150 boe per day to year-end despite a series of
capacity restrictions on the Forties Pipeline, through which
Erskine liquids are exported, and some minor system trips on the
Lomond offtake facilities. The strong performance of the Erskine
wells over the last 18 months, when unconstrained by offtake
restrictions, fully supports current estimates of ultimate recovery
and may leave scope for further upside.
Improved planning and communication between the Erskine and
Lomond facility operators, supported by Serica, has resulted in
reducing production interruptions. This has been achieved by
identifying system vulnerabilities and planning more efficient
maintenance programmes. Production efficiency has exceeded 80%
since the end of August to the end of the year and averaged 95% for
December, demonstrating continued performance improvement.
Having assessed the lessons from the blockage of the Lomond to
Everest condensate export pipeline last year, the Lomond facilities
operator has implemented a number of changes to reduce the chance
of a reoccurrence. These include improved pipeline monitoring and
more regular pigging programmes, the first of which commenced in
November.
Ongoing reductions to the Erskine/Lomond cost-base have combined
with increased throughput volumes to lower Erskine operating costs,
including transportation costs, for the September-to-December
period to well below our guidance of US$20 per boe which takes
account of a level of planned and unplanned shut-ins. This
illustrates that maintaining production volumes is as important as
cutting costs in the drive to minimise costs per barrel.
Apart from maximising production volumes from the existing
Erskine and Lomond fields, this also drives the strategy to bring
other fields such as Columbus through the Lomond hub as soon as
practicable to the benefit of all hub fields. Recent analysis by
Oil & Gas UK suggests that average operating costs of US$16 per
barrel are now being achieved through the UK North Sea as a whole,
setting a benchmark for all operators which should sustain
profitable North Sea operations even during future periods of low
commodity prices.
No significant capital investment is planned for Erskine in
2017.
Development
Central North Sea: Columbus Field - Blocks 23/16f and 23/21a
Serica, as operator and 50% owner of the Columbus development,
has been working with its partners and, under the OGA's Maximising
Economic Recovery ("MER") initiative, with neighbouring field
operators to determine optimal development and offtake solutions.
The steadily improving reliability of the Lomond facilities
provides encouragement for Columbus to use these facilities, an
approach that Serica's management believes would deliver the best
economic value for other facility users. In addition to lowering
operating costs per barrel for all parties, this can extend the
economic life of the facilities thus maximising total reserves
recovery.
The current low cost plan for Columbus is based on a single well
development delivering estimated P50 6.2* million boe of contingent
resources net to Serica. During 2017 Serica expects to be working
on a full development plan. The recent rise in UK gas prices is
encouraging but it is important to ensure the development is
underpinned by sound economics through what may continue to be a
period of volatile commodity prices.
Current plans for 2017 include reaching agreement on the offtake
route and drilling plans, gaining partner support for an investment
decision and compiling a full development plan for presentation to
the OGA.
*The contingent resources figure has been derived from an
independent competent persons report prepared by Netherland, Sewell
and Associates Inc.
Exploration
Although most companies have been reluctant to commit to new
capital spend since 2014, progress on reducing drilling costs
allied to firmer indications on the mid-term direction of commodity
prices offer encouragement for companies to look ahead to 2018 and
beyond with greater confidence.
In the Central North Sea, a licence extension for block 22/19c
(Serica 15%) to June 2019 now allows operator ENI and its partners
to progress drilling plans. These comprise a high pressure, high
temperature, exploration well on the Rowallan Prospect with a site
survey in summer 2017, long lead items purchased in H2 2017 and a
likely spud date in mid-2018. Serica is fully carried and will not
incur any costs on this licence up to the completion of the well.
Drilling success would deliver material value to Serica.
In East Irish Sea block 113/27c (Serica 20%), a farm in partner
is being sought by the operator to enable an exploration well on
the Doyle prospect to be drilled in 2018. Serica's costs of an
exploration well are carried and, although the carry is capped,
reductions in rig rates and other drilling costs offer
encouragement that this cap is unlikely to be breached.
In Namibia and Ireland, licence extensions will allow Serica
more time to bring in partners to unlock the potential of this
acreage. In Namibia, an application to extend the Company's
Luderitz Basin licence (Serica 85%) to December 2018 is awaiting
final signature which will enable the Company to utilise its US$50
million 3D seismic survey and pre-drill scoping to engage potential
co-investors.
In Ireland, applications have been made to extend the Company's
Rockall Basin licence FEL 4/13 (Serica 100%) and Slyne Trough
licence FEL 1/06 (Serica increasing to 100%). Recent increased
farm-in activity in the Porcupine Basin to the south offers
encouragement of finding partners to drill in Serica's acreage.
A constructive approach by regulatory authorities during the
industry down-turn allows companies such as Serica, who have
demonstrated long-term commitment to exploration acreage, to retain
their assets and defer commitments in order that they are ready to
participate in drilling as soon as industry appetite returns.
Commodity price exposure
Responding to recent years of high commodity price volatility,
Serica employs limited price hedging programmes when management
considers the cost-to-risk ratio warrants this. Serica currently
has coverage for daily volumes of 750 barrels of oil and 40,000
therms per day (4,000 mmscf/day) of gas at average floor prices of
US$35 per barrel and 38 pence per therm respectively to end Q1
2017. These all take the form of put options which place no ceiling
on sales prices. We will continue to look for opportunities to
protect against oil and gas downside where we consider market
pricing offers good value.
Outlook
Serica has weathered the setback of the six-month Erskine
shut-in caused by a pipeline blockage down-stream of the Lomond
platform and is now enjoying significant growth in revenues and net
income. Management is continuing to work with its partners to
reduce the Erskine/Lomond cost base, further raise facility and
export route uptime and improve alignment with all
stake-holders.
The challenging environment of the past two-years has
precipitated extensive reviews within the high-cost North Sea
sector and extended focus beyond simple cost cutting, important
though that is. Recent industry analysis indicates that average UK
North Sea operating costs have been cut from US$29 to around US$16
per barrel since 2014. To sustain and enhance these gains requires
extending perspectives beyond individual field performance towards
the often complex relationships between all offtake hub
participants and transport networks. Greater alignment can optimise
overall production rates, reserves recovery and efficient
cost-bases, meeting the OGA's objectives for maximising ultimate UK
North Sea reserves extraction.
Though the short-term commodity-price outlook remains uncertain,
we are optimistic that the industry re-set of the past two-years
will underpin the North Sea sector for some time to come,
encouraging extension of existing field lives as well as
development of many small, as yet undeveloped, new fields.
We have been working hard on adding to our single-field
production stream through progressing Columbus towards a
development decision whilst also looking for acquisition
opportunities and believe 2017 can be a transformational year for
the Company.
Technical Information
The technical information contained in the announcement has been
reviewed and approved by Clara Altobell, Head of Operations at
Serica Energy plc. Clara Altobell (MSc in Petroleum Engineering
from Imperial College, London) has over 20 years of experience in
oil & gas exploration, production and development and is a
member of the Society of Petroleum Engineers (SPE) and the
Petroleum Exploration Society of Great Britain (PESGB).
Regulatory
This announcement is inside information for the purposes of
Article 7 of Regulation 596/2014.
Enquiries:
Serica Energy plc
+44 (0)20 7487
Tony Craven Walker tony.cravenwalker@serica-energy.com 7300
Peel Hunt
+44 (0)20 7418
Richard Crichton richard.crichton@peelhunt.com 8900
+44 (0)20 7418
Ross Allister ross.allister@peelhunt.com 8900
Instinctif
+44 (0)7831
David Simonson david.simonson@instinctif.com 347 222
+44 (0)20 7457
Catherine Wickman catherine.wickman@instinctif.com 2020
+44 (0)20 7457
George Yeomans george.yeomans@instinctif.com 2020
NOTES TO EDITORS
Serica Energy is an oil and gas exploration and production
Company with exploration, development and production assets in the
UK and exploration interests in the Atlantic margins offshore
Ireland, Morocco and Namibia. Further information on the Company
can be found at www.serica-energy.com.
The Company is listed on the AIM market of the London Stock
Exchange under the ticker SQZ and is a designated foreign issuer on
the TSX. To receive Company news releases via email, please contact
serica@instinctif.com and specify "Serica press releases" in the
subject line.
FORWARD LOOKING STATEMENTS
This disclosure contains certain forward looking statements that
involve substantial known and unknown risks and uncertainties, some
of which are beyond Serica Energy plc's control, including:
geological, geophysical and technical risk, the impact of general
economic conditions where Serica Energy plc operates, industry
conditions, changes in laws and regulations including the adoption
of new environmental laws and regulations and changes in how they
are interpreted and enforced, increased competition, the lack of
availability of qualified personnel or management, fluctuations in
foreign exchange or interest rates, stock market volatility and
market valuations of companies with respect to announced
transactions and the final valuations thereof, and obtaining
required approvals of regulatory authorities. Serica Energy plc's
actual results, performance or achievement could differ materially
from those expressed in, or implied by, these forward looking
statements and, accordingly, no assurances can be given that any of
the events anticipated by the forward looking statements will
transpire or occur or, if any of them do so, what benefits,
including the amount of proceeds, that Serica Energy plc will
derive therefrom.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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January 10, 2017 02:00 ET (07:00 GMT)