Serica Energy has announced its audited financial results for the year ended 31 December 2022. 

Commenting on the results, Mitch Flegg, Serica's CEO stated:
"2022 was another year of outstanding progress for Serica. There was strong growth in production volumes, a significant upgrade to reserves and increased profitability at all levels.

Serica's two-pronged strategy is to invest in our high-quality portfolio of UK North Sea assets to unlock value and prolong their life whilst continuing to target future acquisition opportunities. It is to be hoped that the Government will ensure that the fiscal terms applying in the UK North Sea make the UK competitive for future energy investment.

We have now completed the acquisition of Tailwind which has boosted production and reserves and provides a number of short-cycle growth opportunities for the Company.

I'm delighted that we can recommend an increased final dividend of 14p per share. The continued strength of the Company underpins the intention to maintain or increase the dividend in future years."

2022 Summary

• Profits increased at all levels with a 93% increase in operating profit and a 124% increase in profit after tax, boosted by the end of BKR net cash flow sharing, increased production volumes and higher commodity prices.
• Average net production of 26,200 boe per day compared to 22,200 boe per day for 2021, an 18% increase.
• Serica 2P reserves increased to 74.9 million boe effective 1 January 2023 (1 January 2022: 62.2 million boe) with Group 2022 production replaced more than two-fold .
• Acquisition of Tailwind Energy Investments Limited announced on 20 December 2022 and completed post year-end on 23 March 2023.
• Final 2022 dividend of 14p per share recommended, bringing 2022 full year total to 22p per share1 compared to 9p per share for 2021.

Financial

• Average 2022 realised sales price, after hedging, of approx. US$104 per boe (2021: US$77 per boe) and average operating cost of US$15.7 per boe (2021: US$16.5 per boe).
• Operating profit of £476.2 million (2021: £246.1 million) after:
  • realised losses of £45.4 million on 2022 gas price hedging (2021: £56.6 million)
  • unrealised gains of £20.9 million on hedge valuations (2021: losses £74.6 million)
  • E&E asset write-off of £82.7 million related to North Eigg exploration well.
• Profit after tax of £177.8 million (2021: £79.3 million) after current tax charges of £277.7 million (2021: £15.8 million) and non-cash deferred tax provisions of £32.7 million (2021: £40.0 million).
• Net cash inflow from operating activities of £560.1 million (2021: £157.6 million) including:
  • £91.0 million net release of cash security held by gas price hedge counterparties (2021: net payments lodged £113.6 million)
  • £143.5 million cash taxes paid in 2022 (2021: nil). Further £140 million of 2022 tax charges paid in early 2023.
• Closing cash at 31 December 2022 of £432.5 million (2021: £103.0 million) plus a further £24.3 million of cash security lodged with gas price hedge counterparties (2021: £115.4 million). Remaining cash hedge security fully released post year end. Closing cash at 31 December 2022 is after:
  • £97.1 million exploration and development spend (2021: £52.2 million)
  • £93.9 million final BKR cash flow related payments (2021: £81.3 million)
  • £46.3 million dividends paid (2021: £9.4 million).
• Following the 2022 year end the Directors became aware that a filing in respect of certain dividends paid in 2022 had not been made as required under the Companies Act. Accordingly a resolution will be proposed at this year's AGM to resolve this.

Operational

• Updated independent audit of field reserves reported Serica's share of estimated remaining 2P reserves as 74.9 million boe effective 1 January 2023:
  • represents net upward revision of about 250% of 2022 production compared to 62.2 million boe reported as at 1 January 2022
  • result of projected deferral of Bruce hub cessation of production until 2035, ongoing interventions on Bruce wells and plans for further drilling.
• Initial Light Well Vessel Intervention campaign conducted in mid-2022 to boost production from two Bruce wells with further campaigns planned:
  • M1 re-entered and rates increased from 400 boe/d to 1,800 boe/d in July after successful scale removal, water shut-off and perforation/reperforation
  • similar programme then carried out on M4 increasing rates from 450 boe/d to 2,400 boe/d.
• North Eigg HPHT exploration well successfully drilled to 16,728 feet - encountered hydrocarbons in sub-commercial quantities and well has been suspended pending analysis of data and assessment of any further potential in the area.

ESG

• Reduced carbon intensity on Bruce platform by 8% compared to 2021 through closer emissions monitoring, improved performance and greater production efficiency.
• Developed and submitted Bruce Emissions Reduction Action Plan (ERAP), demonstrating a pathway to meeting the North Sea Transition Deal emissions reduction targets.
• Supported new technology projects such as energy from waves, eco-friendly concrete, alternative fuels, arial methane monitoring and flare gas combustion efficiency.

Outlook

• Tailwind acquisition completed in late March 2023 and is already contributing strongly to Serica's combined reserves growth and production rates as well as better diversifying the Group's offtake routes and commodity balance and offering a range of near term investment options:
  • updated Tailwind reserves report shows increase in 2P reserves from 41.8 million boe at 1 January 2022 to 55.5 million boe at 1 January 2023, replacing 2022 production four-fold
  • Gannet GE04 well onstream in February 2023 at initial production rates above 10,000 boe/d and exceeding pre-drill estimates
  • net production for the combined Serica and Tailwind portfolios averaged 46,800 boe/d during Q1 2023
  • preparations during 2023 for a four-well Triton area drilling campaign in 2024 starting with the Gannet GE05 well
  • integration plans on track, including sharing best practices, prioritising work programmes and high grading investment opportunities.
• Combined Group production guidance range for 2023 maintained at 40,000 - 47,000 boe/d on a full year proforma basis:
  • combined operating costs to remain below $20 per boe
  • Price hedging under borrowing facility for oil production acquired from Tailwind
    • 2023 from 23 March, approx. 11,000 bbl/d @ average $58/bbl
    • 2024 approx. 4,000 bbl/d @ average $74/bbl
• A second light Well Intervention Vessel campaign to enhance production on BKR wells planned for the summer with a further campaign expected in 2024.
• Subject to shareholder approval at the AGM, a final 2022 dividend of 14p per share will be payable on 27 July 2023 to shareholders registered on 30 June 2023 with an ex-dividend date of 29 June 2023.
• Completion of the acquisition of Tailwind puts the Company in a strong position to maintain and grow its dividend. Following the introduction of an interim dividend in 2022, future dividends will continue to be paid in two annual instalments determined by the financial performance and cash flow generation of the business. 

Licence Awards in the UK 32nd licensing round

In December 2020 Serica was formally awarded four new blocks in the UK 32nd licensing round. Blocks 3/25b, 3/30, 4/26 and 9/5a are in the vicinity of the Bruce hub and include several leads which, if successful, could be tied back to Serica’s existing infrastructure, or to other facilities in the region. The work programme does not include any commitment wells but is designed to mature these leads to drill-ready status. A decision whether to continue with the licences is due before the end of 2023. A decision about next steps therefore needs to be nominated to NSTA by the end of September 2023.

KeyFacts Energy: Serica Energy UK country profile