1st Quarter Results

Serica Energy plc 15 May 2006 FOR IMMEDIATE RELEASE: 15 MAY 2006 Serica Energy plc ('Serica' or the 'Company') 2006 FIRST QUARTER RESULTS 15 May 2006 - Serica Energy plc (TSX Venture: SQZ; AIM: SQZ) today announces its 2006 first quarter results. A summary of these results is included below, and the full 2006 first quarter results and Management Discussion and Analysis are available at www.serica-energy.com and www.sedar.com. Highlights • Indonesian government approval received for Serica's Plan of Development for the Kambuna Field offshore north Sumatra. Production targeted for 2008. • An additional 10% interest acquired in the Glagah Kambuna TAC which contains the Kambuna Field. Serica's interest thereby raised to 65%. • The Tanjung Perling Field in the neighbouring Asahan block (Serica 55%) has been identified as potentially commercial. The Company is submitting a Plan of Development to the Indonesian Government in May 2006. • Offer received and negotiations in progress to dispose of non-core 10% interest in Lematang PSC onshore south Sumatra which contains the producing Harimau field and Singa field development. • Terms of agreement being finalised to secure a jack up drilling rig for a three well exploration programme in the Biliton block in Indonesia (Serica 90%). Drilling expected to commence in December 2006 or early 2007. • In the UK North Sea a rig has been secured for the first well in block 23/16f (Serica 50%), to be spudded in Q4 2006. Tony Craven Walker, Chairman, commented: 'Serica continued to make good steady progress in the first quarter of 2006. With equipment being secured we expect drilling to commence on core blocks in both Indonesia and the North Sea in the fourth quarter whilst approval of the Plan of Development for the Kambuna Field puts us on track for production start-up in 2008.' Enquiries: Serica Energy plc Paul Ellis, pellis@serica-energy.com +44 (0)20 7487 7300 Chief Executive Officer Chris Hearne, Finance Director chearne@serica-energy.com +44 (0)20 7487 7300 Pelham Public Relations -UK James Henderson james.henderson@pelhampr.com +44 (0)20 7743 6673 Alisdair Haythornthwaite alisdair.haythornthwaite@pelhampr.com +44 (0)20 7743 6676 CHF Investor Relations - Canada Jan Moir jan@chfir.com +1 416 868 1079 Heather Colpitts heather@chfir.com +1 416 868 1079 MANAGEMENT OVERVIEW Serica is pleased to report that it has continued to build on its strong 2005 performance during an active first quarter of 2006 for the Company. In Indonesia, the Company has received Government approval of its Plan of Development for the Kambuna Field, has increased its ownership interest in the Glagah Kambuna TAC and is negotiating an offer to dispose of its non-core interest in the Lematang PSC. Serica is also making preparations for exploration drilling both in the UK and in Indonesia to commence later this year. Serica has received Indonesian government approval of its Plan of Development for the Kambuna Field in north Sumatra. Serica is the operator of the Glagah Kambuna TAC, which contains the Kambuna Field, and has a 55% interest. The Company will conduct a large 3D seismic survey over the block in the third quarter 2006 prior to commencing development well drilling in 2007. First production is scheduled for 2008 and gas sales negotiations are underway. The Glagah Kambuna TAC is an important asset for Serica and the Company announces that it has acquired an additional 10% interest from PT Gunakarsa Glagah-Kambuna Energi. Following receipt of the required regulatory approvals Serica's working interest in the block will increase to 65%. In the neighbouring Asahan Offshore PSC, in which Serica has a 55% interest, Serica will be submitting a Plan of Development for the Tanjung Perling Field to the Indonesian authorities in May 2006. This follows the 2005 seismic programme conducted by the Company which has indicated that the Tanjung Perling Field, in the south of the Asahan block, is of commercial size. Further exploration drilling in this block is scheduled for 2007. Serica has recently received an offer and is in negotiations to dispose of its 10% interest in the Lematang PSC onshore south Sumatra. This block includes the producing Harimau Field and the Singa Field development. Lematang is not regarded by Serica as a core asset due to the small level of working interest held by the Company and the proceeds from the sale can be better deployed elsewhere in the Company's portfolio. Preparations for drilling continue. In Indonesia, Serica is currently finalising the terms of an agreement to provide a jack-up drilling rig for the Company's three well exploration programme in the Biliton Block, expected to commence in December 2006 or early 2007. Serica has a 90% working interest and is operator of the Biliton PSC, located in the Java Sea. In the UK North Sea, Serica has announced that it has secured a rig for its first well in Block 23/16f, to be spudded in the fourth quarter 2006 and in which it has a 50% interest and is operator. The Company continues to review options to bring forward exploration drilling on its other blocks but is cautious to avoid incurring excessive drilling costs in the current overly tight rig market. Serica has started 2006 in a strong financial position and continues to make significant operational progress in its core areas of the UK North Sea and Indonesia. Serica remains very positive on its future and its ability to create shareholder value through exploration drilling and field development programmes. MANAGEMENT'S DISCUSSION AND ANALYSIS The following management's discussion and analysis ('MD&A') of the financial and operational results of Serica Energy plc and its subsidiaries (the 'Group') should be read in conjunction with the attached unaudited interim consolidated financial statements for the period ended 31 March 2006. The interim financial statements for the three months ended 31 March 2006 have been prepared by and are the responsibility of the Company's management and the independent auditors have 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 Indonesia, the UK and Spain. The Group has limited current oil and gas production with the main emphasis placed upon exploration and its future drilling programmes. During early 2006, work has continued on managing its portfolio of interests, advancing the Indonesian developments and preparing for the 2006 drilling programme. Further details are noted in the Management Overview. The results of Serica's operations are detailed below. Serica chose to adopt International Financial Reporting Standards ('IFRS') for its financial statements for the year ended 31 December 2005 with a transition date of 1 January 2004. The first year reported under IFRS was the year ended 31 December 2005, and henceforth the results presented in this MD&A and the financial statements will be presented in accordance with IFRS. Accordingly, Q1 2005 comparatives have been restated from Canadian GAAP to comply with IFRS. Results of Operations Serica generated a loss of US$0.80 million for the three months ended 31 March 2006 ('Q1 2006') compared to a loss of US$1.44 million for the three months ended 31 March 2005 ('Q1 2005'). Q1 Q1 2006 2005 US$000 US$000 Sales revenue 25 31 Expenses: Administrative expenses (1,370) (1,137) Pre-licence costs (160) (288) Share-based payments (436) (78) Depletion, depreciation & amortisation (10) (4) Operating loss before finance revenue and taxation (1,951) (1,476) Finance revenue 1,152 82 Loss before taxation (799) (1,394) Taxation charge - (41) Loss for the period (799) (1,435) Revenues from oil and gas production are recognised on the basis of the Company's net working interest in its properties. Revenues throughout each period were generated from Serica's 10% interest in the Harimau producing gas and gas condensate field. Whilst steady during 2005, the decrease in sales revenues from US$0.031 million for Q1 2005 to US$0.025 million for Q1 2006 reflects a gradual decline in production levels partly offset by higher sales prices. Direct operating costs for the field during these periods were carried by Medco Energi Limited. Administrative expenses of US$1.37 million for Q1 2006 increased from US$1.14 million for Q1 2005. The increase reflects the growing scale of the Company's activities over the past twelve months. Share-based payment costs of US$0.44 million reflects share option grants made and compares with a cost of US$0.08 million for Q1 2005. The increase is due to share options granted in the second half of 2005 and early 2006. Negligible depletion, depreciation and amortisation charges in both periods represent office equipment and fixtures and fittings. The costs of petroleum and natural gas properties are not currently subject to such charges pending further evaluation. Finance revenue, comprising interest income of US$1.15 million for Q1 2006 compares with US$0.08 million for Q1 2005. The increase from last year is due to the significant cash deposit balances held following the recent AIM listing. The net loss per share fell from US$0.02 for Q1 2005 to US$0.01 for the current period due to the substantial increase in the number of shares in issue, and the decrease in the net loss for the period. Summary of Quarterly Results 2006 2005 2005 2005 2005 Quarter ended: 31 Mar 31 Dec 30 Sep 30 Jun 31 Mar US$000 US$000 US$000 US$000 US$000 Sales revenue 25 25 36 32 31 Loss for the quarter 799 403 775 1,486 1,435 Basic and diluted loss per share US$ 0.01 0.01 0.01 0.02 0.02 Working Capital, Liquidity and Capital Resources Current Assets and Liabilities An extract of the balance sheet detailing current assets and liabilities is provided below: 31 March 31 December 2005 2006 US$000 US$000 Current assets: Inventories 878 878 Trade and other receivables 1,756 2,106 Cash and cash equivalents 105,101 109,750 Total Current assets 107,735 112,734 Less Current liabilities: Trade and other payables (3,858) (7,136) Net Current assets 103,877 105,598 At 31 March 2006, the Company had net current assets of US$103.9 million which comprised current assets of US$107.7 million less current liabilities of US$3.9 million, giving an overall reduction in working capital of US$1.7 million in the period. Net outgoings in 2006 covered operational expenses and exploration work. Significant trade and other payables balances in relation to the 2005 drilling programme and the AIM listing have been settled in Q1 2006. Long-Term Assets and Liabilities An extract of the balance sheet detailing long-term assets and liabilities is provided below: 31 March 31 December 2006 2005 US$000 US$000 Intangible exploration assets 24,419 23,591 Goodwill 2,382 2,382 Property, plant and equipment 304 26 Long-term other receivables 2,129 1,758 Long-term other payables (151) (151) Deferred income tax liabilities (2,137) (2,137) During Q1 2006, total investments in petroleum and natural gas properties, represented by intangible exploration assets, increased to US$24.4 million. Of the 2006 investments, US$0.4 million was spent in Indonesia principally on drilling activity on the Asahan and Glagah Kambuna concessions, and US$0.4 million in the UK on exploration work. Goodwill, representing the difference between the price paid on acquisitions and the fair value applied to individual assets, remained unchanged at US$2.4 million. 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 fields commence production. Long-term other payables comprise mainly VAT payable in Indonesia. Shareholders' Equity An extract of the balance sheet detailing shareholders' equity is provided below: 31 March 31 December 2006 2005 US$000 US$000 Total share capital 148,864 148,745 Other reserves 1,705 1,269 Accumulated deficit (19,746) (18,947) Total share capital represents shares at nominal value and share premium. Total share capital includes the total net proceeds (both nominal value and any premium on the issue of equity capital). Issued share capital during 2006 was increased by the exercise of 121,250 warrants and share options of the Company at prices ranging from Cdn$1.00 to Cdn$1.20. The increase in other reserves from US$1.3 million to US$1.7 million reflects the amortisation of share options. Capital Resources At 31 March 2006, Serica had US$103.9 million of net working capital and no significant long-term debt. At that date the Company had commitments to future minimum payments under operating leases in respect of rental office premises, office equipment and motor vehicles for each of the following years as follows: US$000 31 December 2006 275 31 December 2007 198 31 December 2008 183 31 December 2009 177 31 December 2010 36 The Company had no long-term debt, capital lease obligations, purchase obligations or other long-term obligations. In view of the limited revenues currently generated from oil and gas production, Serica will utilise existing financial resources as required to fund its investment programme and ongoing operations. Off-balance Sheet Arrangements The Company has not entered into any off-balance sheet transactions or arrangements. Critical Accounting Estimates The Company's significant accounting policies are summarised in note 2 to the attached financial statements. There have been no changes in accounting policies during the period, and following the adoption of International Financial Reporting Standards ('IFRS') for the 2005 audited financial statements, the Q1 2005 comparative results reported have been restated from Canadian GAAP to IFRS. The cost of exploring for and developing petroleum and natural gas reserves are capitalised. Unproved properties are subject to periodic impairment tests whilst the costs of proved properties 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, accounts payable and accounts receivable. It is the management's opinion that the Group is not exposed to significant currency, interest or credit risks arising from its financial instruments other than as discussed below: Cash and cash equivalents, which comprise short-term cash deposits, are generally held within the currency of likely future expenditures to minimise the impact of currency fluctuations. The majority of funds are currently held in US dollars to match the Group's exploration and appraisal commitments. The holding of £9.6 million at period-end reflected a proportion of UK licence commitments and administrative expenditures expected in £ sterling. Following the recent fund-raising, Serica is holding significant net cash. Whilst this does leave exposure to interest rate fluctuations, given the level of expenditure plans over 2006/7 this is managed in the short-term through selecting treasury deposit periods of one to six months. The low levels of sales revenue leave little customer credit risk. Cash and treasury credit risks are mitigated through spreading the placement of funds over a range of institutions each carrying acceptable published credit ratings to minimise counterparty risk. It is the management's opinion that the fair value of its financial instruments approximate to their carrying values, unless otherwise noted. Warrants and Share Options As at 31 March 2006, the following warrants and options were outstanding: - Expiry Date Amount Value Cdn$ Warrants 6 Aug 2006 6,427,500 7, 713,000 28 Jul 2006 1,521,876 1,826,251 Share options Aug 2009 500,000 555,000 Feb 2009 947,500 1,895,000 May 2009 100,000 200,000 Dec 2009 365,000 365,000 Jan 2010 600,000 600,000 Jun 2010 1,700,000 3,060,000 Value £ Nov 2010 696,000 675,120 Jan 2011 1,395,000 1,443,825 Business Risk and Uncertainties Serica, like all exploration companies in the oil and gas industry, operates in an environment subject to inherent risks. Many of these risks are beyond the ability of a company to control, particularly those associated with the exploring for and developing of economic quantities of hydrocarbons: volatile commodity prices; governmental regulations; and environmental matters. Nature and Continuance of Operations The principal activity of the Company is to identify, acquire and subsequently exploit oil and gas reserves primarily in Asia and Europe. The Company's financial statements have been prepared with the assumption that the Company will be able to realise its assets and discharge its liabilities in the normal course of business rather than through a process of forced liquidation. The Company currently has relatively minor operating revenues and, during the period ended 31 March 2006 the Company incurred losses of US$0.8 million from continuing operations. At 31 March 2006 the Company held cash and cash equivalents of US$105.1 million. Outstanding Share Capital As at 8 May 2006, the Company had 142,669,830 ordinary shares issued and outstanding. Additional Information Additional information relating to Serica can be found on the Company's website at www.serica-energy.com and on SEDAR at www.sedar.com Approved on Behalf of the Board Paul Ellis Christopher Hearne Chief Executive Officer Finance Director 15 May 2006 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: 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 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 plc Group Income Statement for the period ended 31 March Q1 Q1 2006 2005 US$000 US$000 (Unaudited) (Unaudited) Sales revenue 25 31 Cost of sales - - Gross profit 25 31 Administrative expenses (1,370) (1,137) Pre-licence costs (160) (288) Share-based payments (436) (78) Depreciation, depletion and amortisation (10) (4) Operating loss before finance revenue and tax (1,951) (1,476) Finance revenue 1,152 82 Loss before taxation (799) (1,394) Taxation charge for the period - (41) Loss for the period (799) (1,435) Loss per ordinary share (US$): Basic and diluted LPS (0.01) (0.02) Serica Energy plc Consolidated Balance Sheet 31 March 31 December 2006 2005 Notes US$000 US$000 (Unaudited) (Audited) Intangible exploration assets 24,419 23,591 Goodwill 2,382 2,382 Property, plant and equipment 304 26 Investments in subsidiaries - - Other receivables 2,129 1,758 29,234 27,757 Inventories 878 878 Trade and other receivables 1,756 2,106 Cash and cash equivalents 105,101 109,750 107,735 112,734 TOTAL ASSETS 136,969 140,491 Current liabilities Trade and other payables (3,858) (7,136) Non-current liabilities Other payables (151) (151) Deferred income tax liabilities (2,137) (2,137) TOTAL LIABILITIES (6,146) (9,424) NET ASSETS 130,823 131,067 Share capital 3 148,864 148,745 Other reserves 1,705 1,269 Accumulated deficit (19,746) (18,947) TOTAL EQUITY 130,823 131,067 Serica Energy plc Statement of Changes in Equity For the period ended 31 March 2006 Group Share capital Other reserves Deficit Total US$000 US$000 US$000 US$000 At 1 January 2005 33,047 256 (14,828) 18,475 Conversion of warrants 10,190 - - 10,190 Issue of 'A' share 90 - - 90 Issue of shares (net) 105,418 - - 105,418 Share-based payments - 1,013 - 1,013 Loss for the year - - (4,119) (4,119) At 1 January 2006 148,745 1,269 (18,947) 131,067 Conversion of warrants 119 - - 119 Share-based payments - 436 - 436 Loss for the year - - (799) (799) At 31 March 2006 148,864 1,705 (19,746) 130,823 Serica Energy plc Consolidated Cash Flow Statement For the period ended 31 March Q1 Q1 2006 2005 US$000 US$000 (Unaudited) (Unaudited) Cash flows from operating activities: Operating loss (1,951) (1,476) Adjustments for: Depreciation, depletion and amortisation 20 4 Share-based payments 436 78 Changes in working capital (3,333) 888 Cash generated from operations (4,828) (506) Taxes received 34 - Net cash flow from operations (4,794) (506) Cash flows from investing activities: Interest received 1,152 82 Purchases of property, plant and equipment (298) - Purchase of intangible exploration assets (828) (1,047) Net cash generated/(used) in investing activities 26 (965) Cash proceeds from financing activities: Proceeds on exercise of warrants/options 119 8,894 Net cash from financing activities 119 8,894 Net (decrease)/increase in cash and cash equivalents (4,649) 7,423 Cash and cash equivalents at start of period 109,750 1,729 Cash and cash equivalents at end of period 105,101 9,152 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 in England & Wales. The Company's ordinary shares are traded on AIM and the TSX Venture Exchange. The principal activity of the Company is to identify, acquire and subsequently exploit oil and gas reserves primarily in Asia and Europe. On 1 September 2005, the Company completed a reorganisation whereby the common shares of Serica Energy Corporation were automatically exchanged on a one-for-one basis for ordinary shares of Serica Energy plc, a newly formed company incorporated under the laws of the United Kingdom. In addition, each shareholder of the Corporation received beneficial ownership of part of the 'A' share of Serica Energy plc issued to meet the requirements of public companies under the United Kingdom jurisdiction. Under IFRS this reorganisation was considered to be a reverse takeover by Serica Energy Corporation and as such the financial statements of the Group represent a continuation of Serica Energy Corporation. 2. Accounting Policies Basis of Preparation These unaudited interim consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards following the same accounting policies and methods of computation as the consolidated financial statements for the year ended 31 December 2005. These unaudited interim consolidated financial statements do not include all the information and footnotes required by generally accepted accounting principles for annual financial statements and therefore should be read in conjunction with the consolidated financial statements and the notes thereto in the Serica Energy plc annual report for the year ended 31 December 2005. The Group and Company financial statements are presented in US dollars and all values are rounded to the nearest thousand dollars (US$000) except when otherwise indicated. Basis of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries Serica Energy Corporation, 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. Together these comprise the 'Group'. All significant inter-company balances and transactions have been eliminated upon consolidation. 3. Equity Share Capital 31 March 31 March 31 December 31 December 2006 2006 2005 2005 Number US$000 Number US$000 Authorised: Common shares with no par (1) value - - - - Ordinary shares of US$0.10 200,000,000 20,000 200,000,000 20,000 Ordinary '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 and US$20,000,000 divided into one 'A' share of £50,000 and 200,000,000 ordinary shares of US$0.10 each, two of which were issued credited as fully paid to the subscribers 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's equity share capital, comprising US$0.10 ordinary shares. Allotted, issued and fully paid: Share prem Share Total capital premium Share capital Group 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 (1) Prior to the reorganisation on 1 September 2005, the Group's common shares had 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 and options were converted to ordinary shares at prices ranging from Cdn$1.00 to Cdn$1.20. 4. 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 Option Plan (the 'SEC Share Option Plan'). Serica Energy Corporation was previously the holding company of the Group but, is now a wholly owned subsidiary of the Company. The Serica 2005 Option Plan will govern all future grants of options by the Company and no further options will be granted under the SEC Share Option Plan. Existing options under the SEC Share Option Plan entitle holders to acquire ordinary shares of the Company. The Directors intend that the maximum number of ordinary shares which may be utilised pursuant to the Serica 2005 Option Plan will not exceed 10 per cent. of the issued ordinary shares of the Company from time to time, in line with the recommendations of the Association of British Insurers. The Company calculated the value of share-based compensation using a Black-Scholes option pricing model to estimate the fair value of share options at the date of grant. The estimated fair value of an option is amortised to expense over its vesting period. US$436,000 has been charged to the income statement in the period ended 31 March 2006 and a similar amount credited to other reserves. The assumptions made for the options granted during 2005 and 2006 include a volatility factor of expected market price of 50%, a weighted average risk-free interest rate of 6%, no dividend yield and a weighted average expected life of options of three years. The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share options during the period: Number WAEP Cdn$ 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 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 This information is provided by RNS The company news service from the London Stock Exchange GDUCSBGGLD

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