First Quarter Results
Serica Energy plc
01 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 announces
its financial results for the three months ended 31 March 2007. The results and
associated Management Discussion and Analysis are included below, and copies are
available at www.serica-energy.com and www.sedar.com.
Enquiries:
Serica Energy plc
Paul Ellis, pellis@serica-energy.com +44 (0)20 7487 7300
Chief Executive Officer
Chris Hearne, chearne@serica-energy.com +44 (0)20 7487 7300
Finance Director
JPMorgan Cazenove
Steve Baldwin steve.baldwin@jpmorgancazenove.com +44 (0)20 7588 2828
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 - Canada
Jan Moir jan@chfir.com +1 416 868 1079
Kelly Cody kelly@chfir.com +1 416 868 1079
MANAGEMENT OVERVIEW
Serica is pleased to report that it has continued to build on its 2006
performance 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 both
the UK and Norway that it reported with its full year results. In the UK, Serica
was awarded Block 23/16g in the Central North Sea, Block 48/17d in the Southern
North Sea and Blocks 113/26b and 113/27b (part) in the East Irish Sea. Serica
is the operator of all four blocks and has a 100% interest in each block except
23/16g, where it has a 50% interest.
In Norway, Serica was awarded a 20% interest in two large licences in the 2006
Awards in Predefined Areas ('APA') Licence Round. The licences are contiguous
and cover a total area of approximately 1,625 square kilometres in the Egersund
Basin, about 120 kilometres southwest of Stavanger. One of the licences contains
the undeveloped Bream oil discovery.
Preparations for the 2007 drilling campaign continue. In the UK, Serica has
secured the SEDCO 704 semi-submersible drilling rig for Columbus field appraisal
wells in Central North Sea Block 23/16f. The rig has been contracted through AGR
Peak Group and Serica will have two slots in the programme, with drilling due to
commence in Q3 2007. Serica is the operator of the licence and will initially
drill a vertical appraisal well. Depending upon the outcome of the vertical
well, Serica plans to sidetrack the well to drill and test a horizontal
appraisal well. The Columbus appraisal programme follows the success of the
Columbus discovery well, announced in December 2006, which tested at a rate of
17.5 million scfd and 1,000 bopd of condensate.
Indonesia
Serica recently announced the farm-out of a percentage of the Company's interest
in the Biliton PSC. In line with its strategy to spread exploration risk and
manage costs, Serica has signed an agreement with a subsidiary of the privately
owned oil exploration and production company, Nations Petroleum Company Ltd., to
farm-out a 45% interest in the Biliton PSC subject to required regulatory
approval. Nations Petroleum will bear the majority of the costs of the two well
drilling programme, scheduled to commence in Q3 2007. Serica will remain the
operator and will retain a 45% interest in the Biliton PSC. A number of
potentially significant prospects have been identified within the PSC, which is
located offshore in a virtually unexplored basin in the central Java Sea, and
the Seadrill-5 drilling rig is contracted to drill the two exploration wells
back-to-back.
Development of the Kambuna field offshore north west Sumatra is proceeding and
the Seadrill-5 drilling rig will return to drill the development wells in Q4
2007 following the installation of the well head support structure. First
production is expected in late 2008. As reported with the full year results,
slippage in the 3D seismic programme together with delays in the receipt of
approvals from Pertamina have resulted in this later start-up and an application
is 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 the
Indonesian authorities regarding the continuation of exploration activity in the
area following the expiry of the initial 10 year exploration period of the PSC
in December 2006. To date, in view of the lack of agreement on the commerciality
of 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 therefore
deferred its plans to drill two exploration wells in the PSC this year but has
submitted alternative proposals to enable it and its partners to continue
exploration work in the area under revised terms.
Geological and geophysical work has commenced on the large Kutai Block awarded
to 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 make
good operational progress in its core areas.
In Q3, Serica will commence its UK and Indonesian drilling programmes with a
Columbus appraisal well and a Biliton exploration well and expects to have
drilled six wells by the year-end. In its new licences and PSCs the Company will
be acquiring and interpreting seismic data and preparing for the 2008
exploration and appraisal drilling campaign. Conceptual development studies for
the Columbus field are underway, so that development can be advanced once the
results of the appraisal wells are available.
Serica remains very focused on creating shareholder value through its
exploration drilling and field development programmes.
The results of Serica's operations detailed below in this MD&A, and in the
financial statements, are presented in accordance with International Financial
Reporting Standards ('IFRS').
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 2007. The interim financial
statements for the three months ended 31 March 2007 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 the UK and Indonesia, with other interests in
Norway, Spain, Ireland and Vietnam. The Group has no current oil and gas
production, with the main emphasis placed upon its future exploration drilling
programmes. In 2007 to date, work has continued on managing its portfolio of
interests, accelerating the appraisal of Columbus in the North Sea, advancing
the 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 the
financial statements, are presented in accordance with International Financial
Reporting Standards ('IFRS').
Results of Operations
Serica generated a loss of US$1.6 million for the three months ended 31 March
2007 ('Q1 2007') compared to a profit of US$1.0 million for the three months
ended 31 March 2006 ('Q1 2006'). The Q1 2006 figures have been restated to take
account of the revised accounting treatment for share purchase warrants
outstanding 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 the
Company's net working interest in its properties and, in 2006, were generated
from Serica's 10% interest in the Harimau producing gas and gas condensate
field. The Q1 2006 revenues are from discontinued operations following the
disposal 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 Group
were carried by Medco Energi Limited.
Administrative expenses of US$1.8 million for Q1 2007 increased from US$1.4
million for Q1 2006. The increase reflects the growing scale of the Company's
activities over the past twelve months.
Pre-licence costs include direct cost and allocated general administrative cost
incurred on oil and gas interests prior to the award of licences, concessions or
exploration rights.
Share-based payment charges of US$0.5 million reflect share option grants made
and compare with US$0.4 million for Q1 2006. The increase is due to share
options granted to employees in early 2007.
The change in fair value of share warrants in Q1 2006 is a restatement to
reflect evolving interpretation of the treatment of such instruments under the
recently adopted International Financial Reporting Standards. This has arisen
due to the difference in the denominated currency of the warrants compared to
Serica's functional currency. The gain in Q1 2006 was created as the fair value
liability of warrants not exercised decreased due to the fall in share price
over the quarter. This has no cash impact on reported results. More detail is
provided in note 5 of the financial statements.
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$0.9 million for Q1 2007
compares with US$1.2 million for Q1 2006. The decrease from last year is due to
the reduction in cash deposit balances held during 2006 as expenditure was
incurred on the drilling programmes.
The net loss per share of US$0.01 for Q1 2007 compares to an earnings per share
of US$0.01 for Q1 2006.
Summary of Quarterly Results
2007 2006 2006 2006 2006
Quarter ended: 31 Mar 31 Dec 30 Sep 30 Jun 31 Mar
US$000 US$000 US$000 US$000 US$000
Sales revenue - - - 36 25
(Loss)/profit for the quarter (1) (1,595) (13,456) (3,795) 1,839 1,037
Basic and diluted loss per share US$ (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 in
regard to the Asahan Offshore PSC. The second quarter 2006 profit includes a
gain of US$2.3 million from the disposal of the 10% interest in the Lematang
Block.
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 2006
2007
US$000 US$000
Current assets:
Inventories 6,785 6,785
Trade and other receivables 11,369 30,903
Cash and cash equivalents 72,175 77,306
Total 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 which
comprised current assets of US$90.3 million less current liabilities of US$11.8
million, giving an overall reduction in working capital of US$5.9 million in the
period. Net outgoings in 2007 covered operational expenses and exploration work.
Inventories principally consist of steel casing for the forthcoming Indonesian
drilling programme.
Trade and other receivables at 31 March 2007 include recoverable amounts from
partners in Joint Venture operations. Other smaller items include prepayments
and sundry UK and Indonesian working capital balances. A large decrease during
Q1 2007 from US$30.9 million to US$11.4 million occurred as significant
recoverable amounts due from partners in relation to 2006 Joint Venture
operations were settled, and the US$5.0 million proceeds due from the Lematang
PSC disposal were received.
Trade and other payables chiefly include amounts due to those sub-contractors
operating the UK drilling programme, trade creditors and accruals from
Indonesia, and also US$2.6 million payable for Norwegian data costs incurred
following the recent licence award. Payables arising from the 2006 drilling
campaign have been settled in Q1 2007.
Long-Term Assets and Liabilities
An extract of the balance sheet detailing long-term assets and liabilities is
provided below:
31 March 31 December
2007 2006
US$000 US$000
Intangible exploration assets 45,738 40,681
Property, plant and equipment 316 342
Goodwill 1,200 1,200
Long-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 to
US$45.7 million. Of the 2007 investments; US$2.7 million was spent in Norway on
seismic data, US$0.5 million in the UK on exploration work and G&A, US$2.6
million was spent in Indonesia principally on a Kutai signature bonus, drilling
activity preparation, exploration work and G&A on the Biliton and Glagah Kambuna
concessions, and US$0.2 million in Spain. US$1.0 million of back costs, received
in Q1 2007 as part of the Biliton farm out, have been credited against the
capitalised pool of costs.
Property, plant and equipment includes office fixtures and fittings and computer
equipment.
Goodwill, representing the difference between the price paid on acquisitions and
the fair value applied to individual assets, remained unchanged at US$1.2
million.
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 provided
below:
31 March 31 December
2007 2006
US$000 US$000
Total share capital 157,817 157,283
Other reserves 12,226 11,767
Accumulated deficit (44,651) (43,056)
Total share capital includes the total net proceeds (both nominal value and any
premium on the issue of equity capital).
Issued share capital during 2007 was increased by the exercise of 493,334 share
options of the Company at prices ranging from Cdn$1.11 to Cdn$2.00.
Other reserves include amounts credited in respect of cumulative share-based
payment charges, and the amount of the fair value liability of share purchase
warrants eliminated upon exercise of those warrants. The increase in other
reserves from US$11.8 million to US$12.2 million reflects the amortisation of
share-based payment charges in Q1 2007.
Capital Resources
At 31 March 2007, Serica had US$79.3 million of net working capital and no
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 periods/years as follows:
US$000
31 December 2007 258
31 December 2008 287
31 December 2009 266
31 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 136
days during 2007 for Indonesia operations at a gross cost of US$26,286,000. The
gross obligation existed at 31 March 2007, Serica's net share of these costs
will depend on the exact split of the proposed drilling programmes but following
the farm-out of a 45% interest in Biliton and current paying interests in the
Glagah Kambuna TAC, this is expected to be approximately US$11,100,000. In Q1
2007 the company contracted the Sedco 704 semi-submersible drilling rig for UK
operations, specifically the Columbus appraisal wells. The gross obligation
under the contract is for 94 days which equates to a value of US$32,200,000, of
which Serica's share is expected to be 25%, depending upon the work programme
finally agreed with the Company's co-venturers.
In the absence of revenues 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 principal accounting policies are detailed in note 2 to the
attached financial statements. International Financial Reporting Standards have
been adopted. 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 £1.2 million at the period end reflected a proportion of UK licence
commitments and administrative expenditures expected in £ Sterling.
Serica has exposure to interest rate fluctuations; given the level of
expenditure plans over 2007/8 this is managed in the short-term through
selecting treasury deposit periods of one to six months. 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.
Where Serica operates joint ventures on behalf of partners it seeks to recover
the appropriate share of costs from these third parties. The majority of
partners in these ventures are well established oil and gas companies. In the
event of non payment, operating agreements typically provide recourse through
increased venture shares.
It is the management's opinion that the fair value of its financial instruments
approximate to their carrying values, unless otherwise noted.
Share Options
As at 31 March 2007, the following director and employee share options were
outstanding: -
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 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.
Disclosure Controls and Procedures and Internal Controls over Financial
Reporting
Serica's management, including the Chief Executive Officer and Chief Financial
Officer, has reviewed and evaluated the effectiveness of the Company's
disclosure controls and procedures (as defined in Multilateral Instrument 52-109
of the Canadian Securities Administrators) as of 31 March 2007. Management has
concluded that, as of 31 March 2007, the disclosure controls and procedures were
effective to provide reasonable assurance that material information relating to
the Company and its consolidated subsidiaries would be made known to them by
others within those entities, particularly during the period in which this
report was being prepared.
Management has designed internal controls over financial reporting to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
IFRS. There have been no changes in the Company's internal controls over
financial reporting during the period that have materially affected, or are
reasonably likely to materially affect, the Company's internal controls over
financial reporting.
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 no operating revenues and, during the
period ended 31 March 2007 the Company incurred losses of US$1.6 million from
continuing operations. At 31 March 2007 the Company held cash and cash
equivalents of US$72.2 million.
Outstanding Share Capital
As at 20 April 2007, the Company had 151,031,289 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
1 May 2007
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 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$000
(Unaudited) (Unaudited)
Sales revenue - 25
Cost of sales - -
Gross profit - 25
Administrative expenses (1,831) (1,370)
Pre-licence costs (101) (160)
Share-based payments (499) (436)
Change in fair value of share warrants (1) - 1,836
Depreciation, depletion and amortisation (26) (10)
Operating loss before finance revenue and tax (2,457) (115)
Finance revenue 862 1,152
(Loss)/profit before taxation (1,595) 1,037
Taxation charge for the period - -
(Loss)/profit for the period (1,595) 1,037
(Loss)/earnings per ordinary share (US$):
Basic and diluted LPS (0.01) N/A
Basic 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 40,681
Property, plant and equipment 316 342
Goodwill 1,200 1,200
Investments in subsidiaries - -
Other receivables 668 351
47,922 42,574
Inventories 6,785 6,785
Trade and other receivables 11,369 30,903
Cash and cash equivalents 72,175 77,306
90,329 114,994
TOTAL ASSETS 138,251 157,568
Current liabilities
Trade and other payables (11,864) (30,619)
Non-current liabilities
Other payables - -
Deferred income tax liabilities (955) (955)
TOTAL LIABILITIES (12,819) (31,574)
NET ASSETS 125,432 125,994
Share capital 3 157,817 157,283
Other reserves 12,266 11,767
Accumulated 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 - - 8,530
Conversion of options 35 - - 35
Issue of shares (net) (27) - - (27)
Share-based payments - 1,918 - 1,918
Loss 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 - - 534
Share-based payments - 499 - 499
Loss 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 20
Share-based payments 499 436
Change 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 1,152
Proceeds 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 in
England & 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 oil
and gas reserves.
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 2006. 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 2006.
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, Serica Energy Holdings
B.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 upon
consolidation.
3. Equity Share Capital
31 March 31 March 31 December 31 December
2007 2007 2006 2006
Number US$000 Number US$000
Authorised:
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 Share Total
capital premium Share capital
Group 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 were
converted 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 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 ('Serica BVI') was previously the holding company of
the Group but, following the Reorganisation, is now a wholly owned subsidiary of
the Company. Prior to the Reorganisation, Serica BVI issued options under its
option plan (the 'Serica BVI Option Plan') and following the Reorganisation the
Company has agreed to issue ordinary shares to holders of Serica BVI Options
already awarded upon exercise of such options in place of the shares in Serica
BVI to which they would be entitled. There are currently options outstanding
under the Serica BVI Option Plan entitling holders to acquire up to an aggregate
of 3,422,499 ordinary shares of the Company. No further options will be granted
under 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 will
govern all future grants of options by the Company to Directors, officers, key
employees and certain consultants of the Group.
The Serica 2005 Option Plan is comprised of two parts, the basic share option
plan and a part which constitutes an Enterprise Management Incentive Plan ('EMI
Plan') 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 the
discretion of the Board, under one or other of the two parts but, apart from
certain tax benefits which can accrue to the Company and its UK employees if
options are granted under the part relating to the EMI Plan meeting the
conditions of that part of the Serica 2005 Option Plan, all other terms under
which options can be awarded under either part are substantially identical.
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.
In December 2005, 330,000 options were awarded to executive directors
exercisable only if certain performance targets are met. The Company calculates
the value of share-based compensation using a Black-Scholes option pricing model
(or other appropriate model for those Directors' options subject to certain
market conditions) to estimate the fair value of share options at the date of
grant. The estimated fair value of options is amortised to expense over the
options' vesting period. US$499,000 has been charged to the income statement in
the period ended 31 March 2007 and a similar amount credited to other reserves.
The assumptions made for the options granted during 2005 and 2006 include a
volatility factor of expected market price of 50%, a weighted average risk-free
interest rate of 6%, no dividend yield and a weighted average expected life of
options of three years.
The following table illustrates the number and weighted average exercise prices
(WAEP) of, and movements in, share options during the period:
Number WAEP Cdn$
Serica BVI option plan
Outstanding at 31 December 2006 3,975,833 1.57
Exercised during the period (493,334) 1.26
Cancelled 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 sheet
have been adjusted to reflect differences in accounting for share warrants that
were outstanding at 31 December 2005 as a liability, carried at fair value.
Previously the warrants were considered to qualify for treatment as equity under
IAS 32 Financial Instruments: Presentation. However, precedents now available
indicate that, because the conversion proceeds were denominated in Can$, and the
company's functional currency is US$, these instruments should have been treated
more appropriately as a liability for the period the warrants remained
outstanding, with an income statement charge/credit made to reflect the movement
in the fair value of the warrants in each relevant period. All warrants were
exercised during 2006. The effect of this non cash adjustment on the Group
Income statement, Loss per Ordinary Share, Group and Company Balance Sheets, and
Group and Company Statements of Changes in Equity is detailed in Note 30 of the
2006 Annual Report.
The impact of this retrospective restatement on the Q1 2006 comparatives in this
Q1 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) 2,521
Change in fair value of warrants (US$000) 1,836 (682)
Profit for the quarter restated (US$000) 1,037 1,839
(Loss)/earnings per share
2006
Basic and diluted loss per share previously reported (US$) (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
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