Serica Energy plc (AIM: SQZ) today announces its financial results for the six months ended 30 June 2022.

Mitch Flegg, Serica's CEO stated:
“Serica’s production levels in the first half of 2022 have benefitted significantly from our ongoing capital investment campaign which commenced in 2020. We are now seeing the full contribution from the 2021 Columbus and R3 projects and additionally we have recently completed a successful Light Well Intervention Vessel (LWIV) campaign on Bruce. As a result of these investment projects, Serica’s net production in the first half of 2022 was 41% higher than the first half of 2021.

Furthermore, the BKR cash flow sharing arrangements have now come to an end after four years during which the Company shared the net cash flow with the vendors of the relevant assets. We now retain 100% of the net cash flow from BKR.

Market gas prices, though highly volatile, have continued to strengthen during 2022 and as a result of increased production at higher commodity prices, Serica’s operating cash flow for the six-month period was £312.0 million and profits increased at all levels.

Over 85% of Serica’s production is gas, providing much needed domestic energy during a time of heightened concern around the UK’s security of supply. This gas will continue to be an important energy source during the Net Zero transition.

This operational and financial performance has enabled the Company to steadily increase its return to shareholders. Following the recent payment of a 9 pence per share final dividend for full year 2021, we are today announcing our first interim dividend of 8 pence per share which will be paid in November 2022.”

First Half 2022 Performance

• Average production of 26,600 boe per day net to Serica compared to 18,855 boe per day for 1H 2021, increasing Serica’s contribution to security of UK gas supply.
• Gas price volatility continues with market prices ranging from below 100 pence to over 300 pence per therm and averaging 175 pence per therm for the period (1H 2021: 50 pence per therm).
• Capital investment programme maintained with initial Bruce well intervention campaign commencing in May and preparations for North Eigg exploration well which spudded in July. 

Financial Highlights

• Cash balances at 30 June 2022 increased to £258.3 million (31 Dec 2021: £103.0 million) with a further £160.4 million lodged as hedge security (31 Dec 2021: £115.4 million) giving a combined total of £418.7 million (31 Dec 2021: 218.4 million).
• Operating cash flow of £312.0 million (1H 2021: £72.8 million), after adjustment for hedge security
• Expiry of the BKR cash flow sharing and Rhum performance-related payments at end 2021 with final cash settlements of £93.9 million made in 1H 2022.
• Average realised gas price of 136 pence per therm (1H 2021: 50 pence per therm) after system entry fees and including fixed price volumes, with average overall realised sales price of US$101.00 per boe (1H 2021: US$43.30 per boe).
• Average operating cost of US$16.07 per boe for 1H 2022 (1H 2021: US$16.05 per boe).
• Operating profit of £196.3 million (1H 2021: £5.5 million) after £56.4 million of unrealised hedging provisions (1H 2021: £30.3 million) and profit after tax of £116.7 million (1H 2021: £1.3 million).

Operational

• Serica’s first ever LWIV campaign concluded without any safety incidents or environmental issues.
• Initial well (Bruce M1) re-entered for first time since 1998 and production increased from around 400 boe/d before intervention to over 1,800 boe/d in July 2022
• Second well (Bruce M4) increased from around 450 boe/d to over 2,400 boe/d.
• Plans to perform similar interventions on other Bruce and Keith wells, both subsea and from the platform, are now being accelerated.
• Capital investment of £20.9 million (2021 full year: £52.2 million) all funded from internal cash resources.

Outlook

• Serica’s North Sea investment programme continues with results from its North Eigg exploration well due in December and further BKR well campaigns planned for 2023.
• Full year 2022 production guidance narrowed to 26,000-28,000 boepd.
• Gas price outlook likely to stay volatile but unhedged proportion of sales to increase as remaining hedges expire.
• Combined cash of £482.4 million at 23 September 2022.
• The Board is announcing its first interim dividend at a rate of 8 pence per share payable on 25 November 2022 to shareholders registered on 28 October 2022 with an exdividend date of 27 October 2022.
• The potential for further distributions to shareholders, including share buybacks, will be kept under review as the Company continues to pursue M&A opportunities.

KeyFacts Energy: Serica Energy UK country profile