Preliminary Results

Serica Energy plc
29 March 2007


FOR IMMEDIATE RELEASE: 29 March 2007

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                 SERICA ENERGY PLC ('Serica' or 'The Company')

                             2006 FULL YEAR RESULTS


Serica today announces its 2006 full year results.  A summary of these results
is included below, and the full 2006 results and management summary are
available at www.serica-energy.com and www.sedar.com.

2006 Operating Highlights

During 2006, Serica:

  • Drilled two North Sea exploration wells, both discovering natural gas.

  • Added 8.4 million barrels of oil equivalent ('boe'), on a most likely
    basis, to its contingent hydrocarbon resources as a result of the Serica
    operated North Sea Columbus discovery, a new potentially commercial
    gas-condensate field.

  • Booked probable reserves of 12.6 million boe in respect of its Kambuna
    gas-condensate field development in Indonesia.

  • Increased its acreage portfolio significantly with the award of
    prospective new licence blocks in the UK, Norway, Indonesia, Ireland and
    Vietnam.

2006 Financial Highlights

Following the 2006 sale of its interest in the Lematang Block, Serica currently
has no income from producing operations.   During the year, the Company:

  • Spent a net US$25.9 million on exploration activities, including
    pre-application costs and overhead, resulting in the addition of new
    hydrocarbon resources at a cost of US$3.08 per boe.

  • Acquired an additional 10% interest in the Glagah-Kambuna Block in
    Indonesia for US$4.5 million.

  • Disposed of its 10% interest in the producing Lematang Block in Indonesia
    for US$5 million, booking a profit of US$2.3 million.

  • Generated a loss of US$14.4 million as the result of write-downs of
    exploration costs (a loss of US$0.10 per share against a prior year restated
    loss of US$0.13 per share).

  • Net current assets of US$84.4 million at 31 December 2006.




2007 Forward Programme

Serica has a significant forward investment programme. In 2007, Serica's plans
include:

•        Drilling one vertical well and one horizontal well to appraise its
North Sea Columbus gas-condensate discovery with the possibility of production
in 2009.

•        Drilling a development well in its Kambuna gas-condensate field in
Indonesia and pressing forward with Phase I of the field development, targeting
production start-up for 2008.

•        Drilling an appraisal well to test a possible north-west extension to
the Kambuna field.

•        Drilling two exploration wells in its Biliton Block in Indonesia, the
costs of which are largely carried by a farminee.

•        Drilling two exploration/appraisal wells in the Asahan PSC in Indonesia
to identify further gas resources if Indonesian government approval is
forthcoming.

•        Commencing exploration work on licence blocks adjacent to the Columbus
discovery to appraise its upside potential.

•        Commencing exploration work on licence blocks awarded in Ireland and
Norway, including preparations for a 2008 appraisal well to evaluate the Bream
discovery in Norway.

•        Commencing work on new production sharing contracts awarded in
Indonesia and Vietnam.


Serica has contracted the SEDCO 704 drilling rig in the North Sea and the
Seadrill 5 drilling rig in Indonesia to achieve this programme.


Tony Craven Walker, Non-Executive Chairman, commented:

'In 2006, with the Columbus Field discovery, Serica has established its ability
both to add shareholder value through the drill-bit and to manage operational
and financial risk through farm-outs and asset swaps. The management's strong
operational expertise is also fully demonstrated by the quality of the licence
awards achieved by Serica.



2007 will see extensive exploration, appraisal and development programmes across
the Company's diversified portfolio, as we move towards our objective of
achieving first production in 2008.'

                                                                   29 March 2007




Background Notes


Serica Energy plc is an international oil and gas exploration company with
operations in the UK, Norway, Spain, Ireland, Indonesia and Vietnam.



The Company's ordinary shares are listed in London on AIM and on the Canadian
TSX Venture Exchange under the symbol 'SQZ'. The 2006 Annual Report and Accounts
can be obtained from the Company's web-site www.serica-energy.com and at
www.sedar.com.





Enquiries:


Serica Energy plc
Paul Ellis,                        [e-mail]                             [phone]
Chief Executive Officer
Chris Hearne,                      [e-mail]                            [phone]
Finance Director

JPMorgan Cazenove
Steve Baldwin                      [e-mail]                   [phone]

Pelham Public Relations -UK
James Henderson                    [e-mail]                         [phone]
Alisdair Haythornthwaite           [e-mail]                [phone]

CHF - Canada
Jan Moir                           [e-mail]                                        [phone]
Heather Colpitts                   [e-mail]                                    [phone]



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 [e-mail] and
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CHAIRMAN'S STATEMENT



Dear Shareholder



Serica started 2006 with a clear forward programme.  Our objectives were to
demonstrate early drilling success on existing prospects and to increase our
opportunities in both the North Sea and South East Asia with the addition of new
prospective acreage.



I am delighted to report that success was achieved on both fronts. In the North
Sea, the positive outcome of the Columbus well has more than confirmed the value
and potential of our blocks and has resulted in the discovery of a significant
new gas-condensate field at a time when UK gas production is declining.



We were also rewarded in our applications for new acreage.  Our portfolio
increased considerably over the year with the addition of new blocks in Ireland,
Norway, the UK, Vietnam and Indonesia.  The Norwegian award is particularly
encouraging since, in addition to being highly prospective, it includes a 20%
interest in the undeveloped Bream oil discovery which we believe is already
sufficiently well defined to warrant early appraisal and possible development.



At Serica, we are very conscious of the need to manage risk and maintain a
balance in our portfolio, not only to take account of the large geological and
technical risks inherent in our business, but also to be aware of our exposure
to different operating regimes and how this might change as our business
develops.  Serica has a significant business in South East Asia but our drilling
success in the North Sea and the addition to our portfolio of new offshore
blocks in the UK and Norway over the course of the past year have materially
increased the value and importance of the North Sea to the Company.  We now have
a very attractive position, with fields under appraisal or development in each
of our two core areas, and a highly prospective acreage portfolio.



In parallel with our exploration programme we aim to build up our production
base. As discussed in the Chief Executive Officer's Report the development of
the Kambuna field in Indonesia has encountered some delay but we still expect
production to commence in 2008.  In the North Sea we are now hopeful that
successful appraisal of Columbus this year will enable us to bring forward an
early North Sea development to add to our forward production profile.



Serica's progress in 2006 has been largely due to the skill and commitment of
the Serica team and illustrates the considerable experience and expertise which
we now have in the Company.  I and my co-directors are appreciative of the
efforts that they have made.  At director level, Chris Atkinson stood down at
the end of the year in order to be able to spend more time on exploration and is
now acting as Exploration Advisor to the Board.  The Company's exploration
achievements, particularly in South East Asia, owe much to Chris's expertise and
his contribution in bringing the Company to this point has been immeasurable.



In addition, Jim Steel, having helped the Company considerably during its early
start-up years has also decided to retire as a non-executive director during the
course of this year and it is our intention to add two new non-executives to the
Board to assist the Company through the next stage of its development.  We are
extremely grateful and appreciative to Jim for the contribution that he has made
to the Company.



In summary, 2006 was a year in which Serica has been able to demonstrate its
ability to add shareholder value.  We are now the operator of a field in the
North Sea, Columbus, as well as the Kambuna field in Indonesia and have a highly
prospective acreage bank to explore.  Our success in the North Sea makes us very
much a leading North Sea player amongst the junior companies and complements our
growing South East Asia business.  2007 will bring its challenges but I believe
that Serica is in a strong position to build on the foundations we have laid in
2006.  With drilling and development planned for both the UK and Indonesia we
have an active and exciting year ahead of us.



Tony Craven Walker

Chairman




CHIEF EXECUTIVE OFFICER'S REPORT



I am pleased to report that much progress has been made in 2006 towards
establishing Serica as a leading independent oil and gas exploration company.
During the course of the year the Company considerably expanded its acreage
portfolio, resulting in a substantial improvement in the balance of our holdings
and diversification into new but geographically and technically related areas.
We have built a technical team that has demonstrated, through the successful
outcome to our UK drilling programme and the award of several attractive new
licence blocks, real ability and expertise.  This has all been achieved against
the background of a very competitive market for staff, drilling rigs and
offshore services.



The major highlight for the year was the Columbus discovery in North Sea Block
23/16f which tested gas at a rate of 17.5 million scfd plus 1,000 bopd of
condensate.  This is a significant discovery and is likely to bring considerable
value to the Company.  The field appears to extend into Block 23/21 to the
south, operated by BG International Limited ('BG'), and a farm-out and acreage
exchange with BG has enabled Serica both to reduce its well costs and to have a
25% interest in both the northern and southern parts of the field.  Serica is
the operator of Block 23/16f and is in discussions with partners on the most
appropriate appraisal programme, planned to commence this summer, for which
Serica has secured the SEDCO 704 drilling rig.  The field lies close to existing
infrastructure and is likely to be developed by subsea tie-back, without the
need for a supporting offshore platform.



In addition to Columbus, the Oak well drilled by Serica in North Sea Block 54/1b
also flowed hydrocarbon gas on test.  During the test, the well flared at a rate
of 10 million scfd.  However, later analysis indicates that the gas contains a
material proportion of inert components and, as a result, the discovery is
unlikely to be commercial. These were Serica's first wells in the North Sea and
the fact that they were drilled and tested efficiently in severe winter weather
conditions speaks volumes for the ability of Serica's operations team.



During the year our applications for new licences were extremely successful.  We
were awarded interests in three new offshore licences in the UK, two licences
offshore Norway, one offshore Ireland, a PSC offshore Vietnam and a PSC in the
prolific Kutai Basin of East Kalimantan, Indonesia, straddling offshore and
onshore acreage.  All of this new acreage lies close to, or contains, existing
discoveries.  In Norway the Company was subject to an extensive qualification
process with the Norwegian authorities to demonstrate technical and financial
ability.  The result was the award of two highly contested blocks, one of which
contains the undeveloped Bream oil discovery.



Our bidding strategy in each case has been very focussed, with applications only
being made for a very limited number of targeted blocks.  It is extremely
gratifying that we were awarded such a high percentage of the blocks for which
we submitted applications during the year.  With the exception of the awards in
Norway and Vietnam, Serica is the operator of each of the blocks awarded,
enabling us to continue to manage the exploration phase of our licences.



In Indonesia, severe rig shortages, coupled with delays in the approval of our
Plan of Development, meant that we were not able to commence drilling operations
to test the small Tanjung Perling gas field, slated for possible development in
the Asahan Offshore PSC, or to drill additional prospects in the block, prior to
the end of the Exploration Period of the PSC in December 2006.  As a result we
are now in discussions with the Indonesian authorities to agree an appropriate
way forward to enable operations to continue into the second phase of the Asahan
Offshore PSC.  In view of the uncertainty of the outcome of these discussions we
are expensing the costs which are associated with the PSC in this year's
financial statements.  These largely relate to the Togar 1A well drilled in 2005
which we announced at the time as a non-commercial gas discovery and which we
are therefore unlikely to wish to retain in any forward programme.



On the Kambuna gas-condensate field in the neighbouring Glagah Kambuna TAC, a
delay in the arrival of the vessel to acquire the 3D seismic survey, necessary
for full delineation of the field, contributed to slippage in the field
development programme. Preliminary interpretation of the 3D survey has indicated
that the field consists of two separate accumulations, the second of which still
requires appraisal before reserves can be included.  This has necessitated a
revision to the Kambuna development plan to accommodate full appraisal of the
north-western extension. We now plan to develop the field in two phases with
production from the field scheduled to commence in the second half of 2008.



At the turn of the year, RPS Energy plc ('RPS') was commissioned by the Company
to review Serica's hydrocarbon resources following the drilling of the Columbus
well.   It is our policy not to book hydrocarbon resources as proven reserves
until we have sanctioned a development plan and, in cases where there is not an
existing defined gas market, until we have signed a Heads of Agreement for gas
sales with a purchaser. The RPS report has classified the Kambuna field as
probable reserves and estimates that the gross probable reserves of the field
are 25.7 million boe, of which the Company's net entitlement is 12.6 million
boe.  This excludes any additional resources that could result from a successful
test of the north-west extension.



RPS has also estimated that, on a most likely basis, the Columbus discovery has
added 8.4 million boe to Serica's contingent hydrocarbon resources, based on
Serica's 25% interests in Block 23/16f and part of Block 23/21.  Clearly this
early estimate will have to be borne out by appraisal drilling planned for this
year but reserves of this size in the North Sea are very commercial.  The
addition of the Bream oil discovery through our recent Norwegian licence award
also provides further opportunity for us to increase our reserve base.  With
negotiations at an advanced stage for the sale of Kambuna gas, appraisal
drilling scheduled for Columbus, work expected to start on Bream and
consideration being given to drilling a second well on Chablis, we have a high
expectation of being able to move more contingent resources into the category of
proven and probable hydrocarbon reserves this year.



2006 was a rewarding year for Serica; one in which we saw the Company add real
value and achieve many of the targets that we set at the beginning of the year.
It is our objective this year to demonstrate the potential of the Columbus area,
including the evaluation of options for early production, as well as completing
the appraisal of the Kambuna field and moving the Kambuna development forward.
Our exploration efforts will be focused on the potential of the new blocks that
we have been awarded and of the surrounding areas.



We are mindful of the fact that, although we are adding value through drilling
success, we have no immediate income from which to fund our future growth.  We
are therefore very conscious of the need to conserve our cash resources and will
continue to seek partners for those projects where we consider that the
financial exposure is too great for Serica notwithstanding the upside potential
of the project.  We are fortunate to have high percentage interests in, and to
be the operator of, most of our licences, which gives us a considerable
advantage in attracting partners whilst still retaining a level of participation
that would have a material impact on Serica in the case of success.



This was demonstrated in 2006 with the financial contributions received through
farm-out of both the Oak and Columbus prospects.  More recently, we have
announced the successful farm-out of our interest in the Biliton block in
Indonesia, thereby reducing the risk of drilling in this frontier area whilst
still retaining a high exposure to a successful outcome.  We aim to continue
this strategy in 2007 but will also be keeping a watching brief on other
opportunities to improve the potential for shareholder return which we expect to
arise during the year.



Paul Ellis

Chief Executive Officer


REVIEW OF OPERATIONS - OVERVIEW



Serica holds exploration, appraisal and development interests in some of the
major oil and gas provinces of Western Europe and South East Asia.  In Europe,
the Company has licences in the UK North Sea, the East Irish Sea, Norway,
Ireland and Spain.  In South East Asia, Serica has production sharing contracts
in Indonesia and Vietnam.



In 2006 Serica continued its run of drilling success with two discovery wells in
the UK North Sea on blocks operated by the Company.  One of these wells was the
Columbus gas-condensate discovery, drilled in December in a block that Serica
operates and that had been awarded only twelve months earlier.  An independent
assessment has estimated that the Columbus field has most likely contingent
hydrocarbon resources of 33.5 million boe.  Serica intends to commence Columbus
appraisal drilling in the summer of 2007.



As a result of applications made during 2006, the Company was awarded offshore
exploration licences in the UK, Ireland, Norway, Indonesia and Vietnam.
Serica's entry into Norway resulted in the award of a 20% interest in two highly
sought after blocks, one of which contains an undeveloped oil discovery, Bream,
with gross oil in place estimated by the Company to be in the range of 250 to
400 million barrels, of which 40 to 100 million barrels may be recoverable.



Shortages of equipment, particularly seismic acquisition boats and drilling
rigs, continue to affect the Company's ability to carry out its work programmes.
  Despite these issues, Serica carried out a 3D seismic survey in Indonesia and
drilled two wells in the UK North Sea during the year and has contracted
drilling rigs to meet its drilling programme for 2007.




REVIEW OF OPERATIONS - WESTERN EUROPE



United Kingdom



In Western Europe Serica holds offshore licence interests in the UK North Sea
and East Irish Sea, in Ireland and Norway and has onshore licence interests in
Spain.



The following table summarises the Company's interests in Western Europe.



Block(s)            Description              Role               %       Location

UK
14/15a              Exploration              Operator          50%      Central North Sea
23/16e              Exploration              Operator          50%      Central North Sea
23/16f *            Columbus appraisal       Operator          25%      Central North Sea
23/16g              Exploration              Operator          50%      Central North Sea
23/21 (part) *      Columbus appraisal       Partner           25%      Central North Sea
23/17b              Exploration              Operator          50%      Central North Sea
48/16b              Chablis appraisal        Operator          100%     Southern Gas basin
48/17d              Chablis appraisal        Operator          100%     Southern Gas basin
54/1b               Oak discovery            Operator          50%      Southern Gas basin
113/26b             Exploration              Operator          100%     East Irish Sea
113/27b (part)      Exploration              Operator          100%     East Irish Sea

Ireland
27/4                Exploration              Operator          100%     Slyne Basin
27/5 (part)         Exploration              Operator          100%     Slyne Basin
27/9                Exploration              Operator          100%     Slyne Basin

Norway
407                 Bream appraisal          Partner           20%      Egersund Basin
406                 Exploration              Partner           20%      Egersund Basin

Spain
Abiego              Exploration              Operator          100%     Pyrenees/Ebro Basin
Barbastro           Exploration              Operator          100%     Pyrenees/Ebro Basin
Binefar             Exploration              Operator          100%     Pyrenees/Ebro Basin
Peraltilla          Exploration              Operator          100%     Pyrenees/Ebro Basin

* Percentage interests are subject to completion of the transaction with BG
under which Serica will reduce its 50% interest in Block 23/16f to 25% in
exchange for a 25% interest in part Block 23/21.





Block 14/15a



This block covers an area of approximately 108 square kilometres in the Central
North Sea.  Serica is the block operator and has a 50% interest.  Several leads
have been identified at Upper Jurassic, Lower Cretaceous and Paleocene levels
within this prospective part of the Outer Moray Firth Basin.  The work programme
in 2007 includes the reprocessing of available 3D seismic data with the
objective of confirming the identified leads and defining prospects that are
ready for drilling.



Columbus Discovery Area - Blocks 23/16e, 23/16f, 23/16g, 23/17b and 23/21(part)


These blocks cover an area of approximately 214 square kilometres in the Central
North Sea.  Serica holds interests of 25% or 50% in each of these blocks and is
the operator of each block except for Block 23/21.  Block 23/16g was recently
awarded to Serica in the UK 24th Offshore Licensing Round.



The blocks are contiguous and form part of Serica's strategy to exploit its
detailed knowledge of modern 3D seismic processing techniques, particularly in
the Tertiary reservoirs of the Central North Sea, with the aim of increasing the
chances of exploration success.



In furtherance of this strategy, in October 2006 a well was drilled to test the
Columbus prospect in Block 23/16f.  Well 23/16f-11 reached a final depth of
10,116 feet subsea and encountered a gross gas column of 125 feet in the
Paleocene Forties sands.  A total of 85 feet of the reservoir was tested and the
stabilised average production rates on a 56/64 inch choke during a five hour
flow period were 17.5 million scfd and 1,060 bopd of 47.5 degrees API
condensate.  The wellhead flowing pressure was 1,200 pounds per square inch and
the inert gas content was less than 2%.



Prior to drilling Columbus, Serica established that the prospect extended into
the adjacent Block 23/21 in which, at that time, Serica held no interest.
Consequently, Serica invited the operator of Block 23/21, BG International
Limited ('BG'), to enter into a farm-in and cross-assignment under which Serica
exchanged a 25% interest in Block 23/16f for a 25% interest in part of Block 23/
21 (excluding the Lomond field) and BG contributed to the costs of the 23/16f-11
well.  This transaction will enable the field to be appraised and developed far
more expeditiously than if there had been no common interests between the two
blocks.



On a most likely basis, an independent engineer's report on Columbus attributes
contingent hydrocarbon resources net to Serica of 8.4 million boe, based on
Serica's 25% interests in Block 23/16f and part of Block 23/21.



Serica plans to drill a vertical well to appraise the Columbus discovery in the
summer of 2007 and expects to follow this up with a horizontal well in order to
obtain representative production rate data for development planning.  Depending
upon the results achieved, the horizontal well will be completed for use as a
production well.  Serica has secured the SEDCO 704 semi-submersible drilling rig
for Columbus appraisal drilling, commencing in July/August 2007.



The Columbus field lies in close proximity to existing production
infrastructure, providing the potential to commence production as soon as
throughput agreements have been reached and the development wells can be
tied-in.  Serica is currently studying development options for the Columbus
field including a possible tie-in to the producing Lomond gas-condensate field,
which lies about six kilometres from the Columbus discovery well.



Chablis Discovery Area - Blocks 48/16b and 48/17d



These contiguous blocks cover a total area of 88 square kilometres in the
Southern North Sea.  Serica is the operator and holds an interest of 100% in
both blocks.  Block 48/16b contains the undeveloped Chablis discovery, drilled
in 2001 by ConocoPhillips.  Block 48/17b was awarded to Serica in the UK 24th
Offshore Licensing Round and may potentially contain part of the Chablis
accumulation.  During 2006 Serica relinquished Blocks 47/20b and 48/16a as no
prospects of material size had been identified in these blocks.



There are several environmental and technical issues surrounding the appraisal
and potential development of the Chablis field that need to be addressed prior
to drilling and a comprehensive feasibility report has therefore been
commissioned that is due to be completed early in 2007.





Oak Discovery - Block 54/1b



Block 54/1b covers an area of 106 square kilometres in the Southern Gas Basin.
Serica is operator of the block and holds a 50% interest.



Prior to drilling the 54/1b-6 exploration well to test the Oak prospect, Serica
farmed out half of its original 100% interest to Centrica Resources Limited
('Centrica') in order to reduce Serica's cost and risk.  Under the terms of the
farm-out agreement, Serica's dry-hole risk relating to the well was largely
borne by Centrica.



Serica commenced drilling well 54/1b-6 in October 2006 and the well reached its
final depth of 8,318 feet subsea in November.  A gas-bearing Leman sandstone
reservoir with a gross gas column of 113 feet was encountered and a production
test was carried out on an interval of 80 feet.  A stabilised gas flow rate of
approximately 10 million scfd was recorded on a 44/64 inch choke.  However,
subsequent laboratory analysis of gas samples taken during the test indicates
that a significant proportion of the gas is made up of inert components and the
Company now feels that it is unlikely that the Oak discovery can be produced
commercially in the foreseeable future.



East Irish Sea - Blocks 113/26b and 113/27b (part)



Serica was awarded these blocks in the UK 24th Offshore Licensing Round.  The
blocks cover an area of 145 square kilometres and lie immediately to the north
of the Millom field and within 10 kilometres of the Morecambe field - the UK's
largest gas field.  Serica has identified a number of leads on these blocks and
will be reprocessing the 3D seismic data in order to define prospects for
drilling.  The prospective reservoir is the Sherwood Sandstone of Triassic age
that is also the producing reservoir in the Morecambe field.



Ireland - Blocks 27/4, 27/5 (part) and 27/9



In the 2006 Irish Offshore Licensing Round, Serica was awarded Licence PEL 01/6
containing Blocks 27/4, 27/5 (part) and 27/9 which cover an area of 611 square
kilometres in the Slyne Basin off the west coast of Ireland.  Serica is operator
and holds a 100% interest in the Licence.



The blocks are covered by existing modern 3D seismic data and Serica will be
reprocessing this data to assess the prospectivity of the blocks.  Prospects
have been identified by Serica in the Triassic sands that have proven to be gas
bearing and productive in the Corrib gas field, which lies about 40 kilometres
to the north and is currently under development by Shell.  When Serica's
technical evaluation of the 3D seismic data is complete, a decision to drill an
exploration well will be considered.



Norway - Licence 407 and Licence 406



Serica was awarded a 20% interest in both of these offshore licences in Norway's
2006 Awards in Predefined Areas ('APA') Licence Round.  The licences are
contiguous and lie in the Egersund Basin, about 120 kilometres southwest of the
port of Stavanger, Norway's fourth largest city.



The southern licence, Licence 406, covers an area of approximately 900 square
kilometres comprising parts of licence blocks 8/3, 9/1, 17/12, 18/10 and 18/11
and includes the 18/10-1 oil discovery well drilled in 1980, which was tested at
1,800 bopd. The licence contains exploration prospects that appear analogous to
the Bream field in Licence 407.



The northern licence, Licence 407, covers an area of approximately 725 square
kilometres comprising parts of licence blocks 17/8, 17/9, 17/11, 17/12, 18/7 and
18/10.  It includes the 1972 Bream oil discovery and the 1973 Brisling oil
discovery, which were tested at rates up to 1,000 bopd and 2,200 bopd
respectively.  These discoveries remain undeveloped since they were not
considered to be commercial at the time and the area has not been open for
licensing for many years.



Serica has carried out an analysis of recently acquired 3D seismic data covering
the Bream discovery and estimates that, using modern drilling and completion
technology, including horizontal production wells, the potentially recoverable
oil reserves of the Bream field may lie within a range of 40 to 100 million
barrels, based on an oil in place estimate of 250 to 400 million barrels.


Serica expects a Bream appraisal well to be drilled in Licence 407 early in 2008
with a view to submitting a development plan to the Norwegian authorities by the
end of that year.



Spain



The Company holds a 100% interest in the Abiego, Barbastro, Binefar and
Peraltilla exploration Permits onshore northern Spain, approximately 40
kilometres southeast of the Serrablo gas field.  The Permits cover an area of
approximately 1,100 square kilometres between the Ebro Basin and the Pyrenees
and could potentially contain significant quantities of gas, which would find a
ready market in Spain.



An initial evaluation of the four Permits has been completed and it has been
concluded that additional 2D seismic data will need to be acquired in order to
delineate prospects for drilling.  Serica intends to carry out a short seismic
acquisition test programme early in 2007 in order to determine the acquisition
parameters for a full survey.  It is the Company's intention to seek a partner
to participate in the exploration of the Permits.






REVIEW OF OPERATIONS - SOUTH EAST ASIA



In South East Asia, Serica holds interests in Indonesia and in Vietnam.



The following table summarises the Company's interests in South East Asia.
Percentage interests shown assume the completion of certain farm-out and
acquisition agreements which await final government approval.



Block(s)                     Description          Role             %      Location

Indonesia
Glagah Kambuna TAC           Kambuna              Operator        65%     Offshore

                             development                                  North Sumatra
Asahan Offshore PSC *        Tanjung Perling      Operator        55%     Offshore

                             appraisal                                    North Sumatra
Biliton PSC                  Exploration          Operator        45%     Offshore Java Sea
Kutai PSC                    Exploration          Operator       52.5%    Kutai basin

Vietnam
Block 06/94                  Exploration          Partner        33.3%    Nam Con Son Basin



* Serica's interest in the Asahan Offshore PSC is subject to the successful
conclusion of current negotiations with the Indonesian authorities regarding the
commerciality of the PSC.



Glagah Kambuna



The Glagah Kambuna Technical Assistance Contract ('TAC') covers an area of
approximately 380 square kilometres and lies offshore North Sumatra adjacent to
the Asahan Offshore PSC.  Serica has a 65% working interest and operates the
TAC.



The TAC contains the undeveloped Glagah #1 and Kambuna #1 discovery wells and a
successful appraisal well drilled by Serica in 2005, Kambuna #2.  Serica is
progressing the development of the gas-condensate bearing Upper Belumai Sand
reservoir of the Kambuna field and a Plan of Development was approved by the
state oil and gas company Pertamina in 2006.  Acquisition of the 430 square
kilometres 3D survey over the Kambuna field and parts of the Asahan Offshore PSC
was not completed until the end of the year due to the late arrival of the
seismic survey vessel.  Final processing is now underway and should be completed
in the second quarter of 2007.



Interpretation by Serica of the preliminary fast-track processing of the 3D
seismic data indicates that some of the field gas and liquid contingent
resources, identified by consultants Gaffney Cline & Associates in 2005, may lie
within a Lower Belumai Sand reservoir just to the north-west of the main area of
the Kambuna field.  This upside would be classified as prospective resources
since no well has yet been drilled in what may prove be a separate accumulation.
  Serica's interpretation has, to a large extent, been confirmed by an
independent report on the Kambuna field commissioned from consultants RPS Energy
plc ('RPS') and has resulted in a revision to the field development plan to
enable the north-west area to be appraised and the field to be developed in two
phases, with the first phase scheduled to commence production in late 2008.



The RPS report estimates that the gross probable reserves of the main area of
the Kambuna field are 25.7 million boe.    Serica has secured the Seadrill 5
drilling rig to carry out appraisal and development drilling in the third or
fourth quarter of 2007 and is now progressing the final front-end engineering
design studies.  Gas and liquid sales negotiations are proceeding with several
interested parties, including Pertamina, the state oil and gas company, which
operates a refinery and gas liquids plant in the area.



Asahan Offshore



The Asahan Offshore Production Sharing Contract ('PSC'), offshore North Sumatra,
lies immediately adjacent to the Glagah Kambuna TAC.  Serica has a 55% interest
and is the operator of the PSC.



In 2006, Serica submitted a Plan of Development for the Tanjung Perling gas
field, which lies in the south of the PSC.  The aim was to develop the field in
conjunction with the Kambuna field and thereby achieve economies of scale.
However, the Indonesian Executive Agency for Upstream Oil and Gas Business,
BPMigas, requested additional data in support of the development plan.  That
data could only be obtained by drilling a new well in the field and, with no
drilling rigs active in the area, this could not be achieved prior to the end of
the exploration period on 16th December 2006.



Operations in the PSC have therefore been suspended while negotiations with the
Indonesian authorities continue regarding the commerciality of the PSC and its
consequent continuation into the 20 year exploitation period.  Assuming a
successful outcome to these negotiations, Serica intends to carry out a drilling
programme in the second half of 2007 using the Seadrill 5 rig.



Biliton



The Biliton PSC covers an original area of approximately 3,940 square kilometres
in the Java Sea between the Indonesian islands of Java and Kalimantan.  Serica,
which operates the PSC, is presently negotiating the area to be relinquished
under the terms of the PSC.  The prospective parts of the PSC will be retained
by Serica within the retained area.



Serica has recently entered into a farm-out agreement under the terms of which
Nations Petroleum will earn a 45% interest in the Biliton PSC by paying a
contribution to Serica's back costs and bearing the majority of the costs of
drilling two wells in the PSC in 2007.  Following the completion of this
agreement, Serica will have a retained 45% interest in the PSC.



The Biliton PSC lies in a virtually unexplored Indonesian basin with many of the
characteristics of analogous basins nearby that have to date produced
substantial volumes of oil and gas.  Only one exploration well has been drilled
in the area, the Parang-G1 well drilled by Ashland Petroleum in 1974.  Although
this well did not find reserves of oil or gas it did encounter oil shows.  In
1990, British Petroleum carried out a seabed survey that indicated the presence
of nine oil seeps within the current block boundary. Both the shows in the well
and the seep information demonstrate that hydrocarbons have been generated
within the area.



Serica has acquired a total of approximately 4,500 line kilometres of 2D seismic
data in the PSC and has identified several large prospects that could be
oil-bearing.  Drilling locations in the Biliton PSC have been selected and two
exploration wells will be drilled in the second quarter of 2007 using the
Seadrill 5 rig.



Kutai



In December 2006, Serica was awarded the Kutai PSC, which covers an area of
approximately 4,700 square kilometres within the prolific Kutai Basin of East
Kalimantan.  Serica is the operator and holds a 52.5% interest in the PSC.



The PSC is divided into several blocks, the majority of which are first phase
relinquishments by the current main operators in the basin, Total, Chevron and
VICO.  The PSC lies in and around several giant fields, including Tunu (1,600
million boe) and Attaka (800 million boe), in the prolific Mahakam River delta
both onshore and offshore.  The adjacent major fields on the shelf were mainly
discovered in the late 1960s and 1970s.  To date the area has produced over two
billion barrels of oil and 20 trillion cubic feet of gas and is currently
providing over four bcf of gas per day to the Bontang LNG facility.



Serica will be acquiring new seismic data to augment the existing 2D and 3D
seismic data set, in order to assess the prospectivity of the block and
determine drilling locations.

--

Vietnam - Block 06/94



In July 2006, Serica was awarded Block 06/94, in the Nam Con Son Basin offshore
South Vietnam.  The block covers an area of approximately 4,100 square
kilometres. Serica has a 33.33% interest in the block, which is operated by
Pearl Energy.



The block lies approximately 350 kilometres offshore and is the part of Block 06
/1 which British Petroleum was contractually obliged to relinquish in 1994 after
discovering the major Lan Tay and Lan Do gas fields. These fields commenced
production in 2002, following the construction of a new gas and liquids pipeline
to the Vietnamese mainland.



Block 06/94 is the Company's first expansion of its interests in Southeast Asia
outside Indonesia.  In December 2006, the operator of the adjacent Block 12/E,
Premier Oil, announced that its 'Blackbird' discovery well had been tested at a
combined 5,900 bopd from two sands. Serica expects to be able to identify both
oil and gas prospects within Block 06/94.




GLOSSARY




bcf  billion standard cubic feet
boe  barrels of oil equivalent (barrels of oil, condensate and LPG plus the heating equivalent of gas converted into
     barrels at a rate of 6,000 standard cubic feet per barrel)
bopd barrels of oil or condensate per day
LNG  Liquefied Natural Gas (mainly methane and ethane)
LPG  Liquefied Petroleum Gas (mainly butane and propane)
PSC  Production Sharing Contract
scfd standard cubic feet per day
TAC  Technical Assistance Contract


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 Serica's consolidated financial statements
for the year ended 31 December 2006.



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 North Sea and Indonesia, with other
interests in Norway, Spain, Ireland and Vietnam. The Group has no current oil
and gas production, following the disposal of its Harimau Field interest, with
the main emphasis placed upon its future exploration drilling programmes and
near term developments. During 2006, work has continued on managing its
portfolio of interests, advancing the Indonesian development and completing a
successful drilling programme in the UK North Sea. Two operated wells were
completed in the UK North Sea and both were gas discoveries.



Well 23/16f-11, an exploration well drilled on the Columbus prospect in the UK
Central North Sea, encountered a gross gas column of at least 125 feet in the
Paleocene Forties sands. Testing of the Columbus well confirmed the presence of
a potentially commercial gas and condensate reservoir. A total of 85 feet of the
reservoir was tested and the stabilised average production rates on a 56/64 inch
choke during a five hour flow period were 17.5 million cubic feet of gas per day
and 1,060 barrels per day of 47.5 degrees API condensate. The wellhead flowing
pressure was 1,200 pounds per square inch and the inert gas content was less
than 2%.  These good flow rates demonstrated commercial potential and the well
has been suspended for possible future use in a development programme.



Well 54/1b-6, an exploration well drilled on the Oak prospect in the UK Southern
North Sea, encountered a gas bearing Leman sandstone reservoir with a gross gas
column of 113 feet. A production test was carried out on an 80 foot interval and
a stabilised gas flow rate of approximately 10 million standard cubic feet per
day was recorded on a 44/64 inch choke. Laboratory analysis of the gas indicates
that it contains material quantities of inert components and the Company
believes that the accumulation is unlikely to be commercial. The well was
plugged and abandoned.



In Indonesia, Serica acquired an additional 10% interest in the Glagah-Kambuna
Technical Assistance Contract ('TAC') from PT Gunakarsa Glagah-Kambuna Energi
subject to the necessary government approvals. The consideration of US$4,500,000
was payable in cash.  Following this transaction Serica's interest in the TAC
and the Kambuna Field will be 65%. Serica also disposed of its 10% interest in
the Lematang Production Sharing Contract, which contains the almost depleted
Harimau Field and the undeveloped Singa gas field, to Lundin Petroleum AB for a
cash consideration of US$5,000,000.



In the Asahan Offshore PSC, approval was not received from the Indonesian
authorities for the development of the small Tanjung Perling gas field prior to
the end of the Exploration Period of the PSC on 16 December 2006. Serica is in
discussions with the Indonesian authorities to agree an appropriate way forward
to enable operations to continue into the second phase of the PSC. In view of
the uncertainty on the outcome of these discussions, costs associated with the
Asahan Offshore PSC have been written off in this year's financial statements.
These costs largely relate to the Togar 1A well drilled in 2005 which was
announced at the time as a non-commercial gas discovery, and which we are
therefore unlikely to wish to retain in any forward programme.



In 2006, Serica was awarded an exploration licence offshore Ireland, and
Production Sharing Contracts in Indonesia and Vietnam.

In the 2006 Irish Offshore Licensing Round, Serica was awarded a licence over
Blocks 27/4, 27/5 (part block) and 27/9 which cover an area of approximately 611
square kilometres in the Slyne Basin off the west coast of Ireland. Serica is
the operator and will hold a 100% interest in the licence. These blocks are
already covered by modern 3D seismic data and Serica will be reprocessing around
300 square kilometres of this data as part of its work programme to assess the
prospectivity of the blocks in the first phase of the licence. If Serica elects
to proceed to the second phase of the licence it will drill at least one
exploration well.

In Indonesia, Serica was awarded the Kutai Production Sharing Contract covering
an area, both onshore and offshore, of approximately 4,729 square kilometres
within the prolific Kutai Basin of East Kalimantan.  Serica is the operator of
the PSC and will hold a 52.5% interest in the block. Serica's partner, PT
Ephindo, will hold the remaining 47.5% interest. The PSC contains several
previously drilled wells that successfully established the presence of
hydrocarbons. Serica will be acquiring a limited amount of new 2D and 3D seismic
to augment the pre-existing seismic data set as part of its work programme to
assess the prospectivity of the block which will also include the drilling of up
to four exploration wells.

In Vietnam, Serica was awarded Block 06/94 in the Nam Con Son Basin offshore
south Vietnam.  Serica and its two partners, Lundin Petroleum and Pearl Energy,
each have a 33.33% interest in the Block, which covers an area of around 4,100
square kilometers and will be operated by Pearl. Block 06/94 lies approximately
350 kilometres offshore and is the part of Block 06/1 which British Petroleum
was obliged to relinquish in 1994 after retaining the Lan Tay and Lan Do gas
fields for development.  The Lan Do gas field commenced gas production in 2002.



Since the year end, Serica has been awarded new licences in both the UK and
Norway. 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.



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$14.4 million for 2006 compared to a loss of
US$10.5 million for 2005. The 2005 figures have been restated to take account of
the revised accounting treatment for share purchase warrants outstanding at 31
December 2005.


                                                                                                2006           2005 (1)
                                                                                              US$000             US$000

Sales revenue                                                                                     61               124

Expenses:

     Administrative expenses                                                                 (6,641)            (4,877)
     Foreign exchange gain/(loss)                                                              1,715              (463)
     Pre-licence costs                                                                       (4,205)              (695)
     Asset write offs                                                                       (12,870)                  -
     Share-based payments                                                                    (1,918)            (1,013)
     Change in fair value of share warrants                                                    1,154            (6,405)
     Depletion, depreciation & amortisation                                                     (95)              (30)

Operating loss before finance revenue and tax                                               (22,799)           (13,359)

     Gain on disposal                                                                          2,311                 -
     Finance revenue                                                                           4,931               526

Loss before taxation                                                                        (15,557)           (12,833)

     Taxation credit                                                                           1,182             2,309

Loss for the year                                                                           (14,375)           (10,524)

Basic and diluted loss per share (US$)                                                        (0.10)             (0.13)



(1) As restated - See note 30 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.  Revenues throughout each
period were generated from Serica's 10% interest in the Harimau producing gas
and gas condensate field. These revenues are from discontinued operations
following the disposal of the Lematang PSC interest in 2006. Direct operating
costs for the field during these periods were carried by Medco Energi Limited.



Administrative expenses of US$6.6 million for 2006 increased from US$4.9 million
for 2005.  The general increase from 2005 reflects the growing scale of the
Company's activities over the past twelve months.



A significant foreign exchange gain of US$1.7 million was earned in 2006. This
chiefly arose from the increase in US$ equivalent value of those pounds sterling
cash deposits held to cover UK licence commitments and administrative
expenditures expected in sterling, as the pound continued to strengthen against
the dollar during the year.



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. The significant increase in the charge from US$0.7 million
in 2005 to US$4.2 million in 2006 is largely caused by data acquisition costs as
part of the Norway licence applications (US$2.7 million) and a focus on new
ventures in Vietnam and Indonesia (US$0.5 million).



Asset write offs of US$12.9 million comprise US$12.7 million in regard to the
Asahan Offshore PSC and the Q3 2006 US$0.2 million charge against relinquished
licences relating to the non core UK North Sea licence P1180, Blocks 48/16a and
47/20b. The Q4 Asahan Offshore PSC asset write offs include charges against
exploration and evaluation assets (US$10.3 million), goodwill (US$0.7 million),
inventory (US$0.6 million) and related long term other receivables (US$1.1
million).



Share-based payment costs of US$1.9 million reflect share option grants made
during the course of 2004, 2005 and 2006 and compare with a cost of US$1.0
million for 2005. The increase from last year is due to share options granted in
the second half of 2005 and early 2006 as the management team was built up.



The change in fair value of share warrants in 2005 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 loss in 2005 was created as the fair value of warrants
not exercised increased due to the rise in share prices over the year and as
further warrants were issued in the year. In 2006 a gain is recorded, as the
fair value of warrants outstanding as at 31 December 2005 fell prior to their
exercise in 2006. This has no cash impact on reported results. More detail is
provided in note 30 of the financial statements.



Negligible depletion, depreciation and amortisation charges for 2005 represent
office equipment only. Those costs of petroleum and natural gas properties
classified as exploration and evaluation assets are not currently subject to
such charges pending further evaluation.



A profit on disposal of US$2.3 million in Q2 2006 was generated on the sale of
the 10% interest in the Lematang PSC to Lundin Petroleum AB for US$5 million.



Finance revenue, comprising interest income of US$4.9 million for 2006, compares
with US$0.5 million for 2005. The increase from last year is due to the
significant cash deposit balances held following the AIM listing and associated
fund raising in December 2005.



The taxation credit of US$1.2 million in 2006 arose from the release of the
deferred tax liabilities attached to the Lematang PSC (US$0.5 million) and
Asahan (US$0.7 million). Expenditures during 2005 and 2006 have reduced any
potential current income tax expense arising for the year to US$ nil.



The net loss per share decreased from US$0.13 to US$0.10 with the increase in
the net loss for the year, compared to 2005, being offset by the greater
increase in the number of shares in issue during 2006.



Summary of Quarterly Results


Quarter ended:                                                  31 Mar          30 Jun          30 Sep           31 Dec
                                                                US$000          US$000          US$000           US$000
2006
Sales revenue                                                       25              36               -                -
(Loss)/profit for the quarter (1)                                1,037           1,839         (3,795)         (13,456)
Basic and diluted loss per share US$(1)                              -               -          (0.03)           (0.09)
Basic earnings per share US$ (1)                                  0.01            0.01               -                -
Diluted earnings per share US$ (1)                                0.01            0.01               -                -


2005
Sales revenue                                                       31              32              36               25
(Loss) for the quarter (1)                                     (5,054)           (628)         (3,976)            (866)
Basic and diluted loss per share US$ (1)                        (0.07)          (0.01)          (0.05)           (0.01)


(1) As restated - See note 30 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 December             31 December 2005 (1)
                                                                                  2006
                                                                                US$000                           US$000
Current assets:
    Inventories                                                                  6,785                              878
    Trade and other receivables                                                 30,903                            2,106
    Cash and cash equivalents                                                   77,306                          109,750
Total Current assets                                                           114,994                          112,734

Less Current liabilities:
   Trade and other payables                                                   (30,619)                          (7,136)
   Fair value of warrants                                                            -                          (6,850)


Net Current assets                                                              84,375                           98,748



(1) As restated - See note 30 of the financial statements



At 31 December 2006, the Company had net current assets of US$84.4 million which
comprised current assets of US$115.0 million less current liabilities of US$30.6
million, giving an overall decrease in working capital of US$14.4 million in the
year. The Company raised additional new funds of US$8.5 million through the
exercise of warrants and earned interest income of US$4.9 million, but incurred
significant costs in 2006 from exploration work, principally the Q4 UK drilling
programme on the Oak and Columbus prospects.



Inventories increased significantly from US$0.9 million to US$6.8 million from
the acquisition in Q3 2006 of steel casing for the forthcoming Indonesian
drilling programme.



Trade and other receivables at 31 December 2006 included the US$5.0 million
proceeds due from the Lematang PSC disposal, and significant recoverable amounts
from partners in Joint Venture operations. Other smaller items included
prepayments and sundry UK and Indonesia working capital balances.



Trade and other payables include significant amounts due to those
sub-contractors operating the UK drilling program. They also include trade
creditors and accruals from 3D seismic acquisition in Indonesia, a further
US$1.5 million payable for acquisition of an additional 10% interest in the
Glagah Kambuna TAC and US$1.9 million payable for Norwegian data costs.



The fair value of the Canadian $ warrants outstanding at 31 December 2005 is
estimated using a Black Scholes pricing model based upon the warrant exercise
price, the share price, volatility and the life of the warrant. This created a
liability as at 31 December 2005, which was cleared in 2006 upon exercise. There
is no cash effect of this liability. See note 30 of the financial statements for
further detail.



Long-Term Assets and Liabilities



An extract of the balance sheet detailing long-term assets and liabilities is
provided below:


                                                                                31 December                 31 December
                                                                                       2006                        2005
                                                                                     US$000                      US$000

Exploration and evaluation assets                                                    40,681                     23,591
Property, plant and equipment                                                           342                          26
Goodwill                                                                              1,200                       2,382
Long-term other receivables                                                             351                       1,758

Long-term other payables                                                                  -                       (151)
Deferred income tax liabilities                                                       (955)                     (2,137)



During 2006, total investments in petroleum and natural gas properties,
represented by intangible exploration assets, increased to US$40.7 million.  The
net US$17.1 million increase consists of US$29.7 million of additions, less
US$2.1 million disposals from Lematang, US$10.3 million of Asahan write offs and
US$0.2 million of relinquished licence costs. Of the 2006 investments,  US$17.6
million was spent in the UK principally on drilling activity on the Columbus and
Oak prospects, US$7.1 million in Indonesia on exploration work and 3D Seismic,
US$4.5 million on the further 10% interest in the Glagah Kambuna TAC, and a
further US$0.5 million in Spain.



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, fell by US$0.5 million to US$1.9
million following the Lematang disposal in Q2 2006, and by US$0.7 million to
US$1.2 million following the write off of costs allocated to the Asahan asset.



Long-term other receivables of US$0.3 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 comprised VAT payable in Indonesia. This liability was
cleared following the Lematang PSC disposal.



Deferred income tax liabilities fell by US$1.2 million to US$1.0 million as the
US$0.5 million liability associated with the Lematang PSC was removed, and a
further US$0.7 million in relation to Asahan released following the write off of
certain Asahan costs.



Shareholders' Equity



An extract of the balance sheet detailing shareholders' equity is provided
below:


                                                                             31 December                    31  December
                                                                                    2006                        2005 (1)
                                                                                  US$000                          US$000

Total share capital                                                              157,283                         148,745
Other reserves                                                                    11,767                           4,153
Accumulated deficit                                                             (43,056)                        (28,681)



(1) As restated - See note 30 of the financial statements



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 7,949,376
warrants at a price of Cdn$1.20 and 40,000 share options of the Company at a
price of Cdn$1.00.



Other reserves include those equity amounts in respect of the movement in
cumulative expense of share-based payment charges, and the element of the fair
value liability of share purchase warrants eliminated upon exercise of those
warrants.



Capital Resources



At 31 December 2006, Serica had US$84.4 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 2007                                                                 344
31 December 2008                                                                 287
31 December 2009                                                                 266
31 December 2010                                                                  42



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. 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 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 significant accounting policies are detailed in note 2 to the
attached audited 2006 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 £4.4 million at year-end reflected a proportion of UK licence commitments and
administrative expenditures expected in £ sterling.



Serica is holding significant net cash. Whilst this does leave 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.



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. 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.



Share Options



As at 31 December 2006, the following employee share options were outstanding: -


                                                              Expiry Date                Number      Exercise cost Cdn$
Share options                                                    Aug 2009               500,000                 555,000
                                                                 Feb 2009               817,500               1,635,000
                                                                 May 2009               100,000                 200,000
                                                                 Dec 2009               325,000                 325,000
                                                                 Jan 2010               600,000                 600,000
                                                                 Jun 2010             1,633,333               2,939,999


                                                                                                        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

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 December 2006. Management
has concluded that, as of 31 December 2006, 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 year 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 relatively minor operating revenues and,
during the period ended 31 December 2006 the Company incurred losses of US$14.4
million from continuing operations.  At 31 December 2006 the Company held cash
and cash equivalents of US$77.3 million.



Outstanding Share Capital



As at 20 March 2007, the Company had 150,537,955 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

29 March 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.


Serica Energy plc

Group Income Statement

for the year ended 31 December 2006



                                                                                             2006              2005 (1)
                                                                       Notes               US$000                US$000

Sales revenue                                                              3                   61                   124

Cost of sales                                                                                   -                     -



Gross profit                                                                                   61                   124

Administrative expenses                                                    5              (6,641)               (4,877)
Foreign exchange gain/(loss)                                                                1,715                 (463)
Pre-licence costs                                                                         (4,205)                 (695)
Asset write offs                                                       12,14             (12,870)                     -
Share-based payments                                                                      (1,918)               (1,013)
Change in fair value of share warrants                                    30                1,154               (6,405)
Depreciation, depletion and amortisation                                   6                 (95)                  (30)

Operating loss before finance revenue and tax                                            (22,799)              (13,359)

Profit on disposal                                                        16                2,311                     -
Finance revenue                                                            9                4,931                   526

Loss before taxation                                                                     (15,557)              (12,833)





Taxation credit for the year                                      10 a)                     1,182                2,309







Loss for the year                                                                        (14,375)              (10,524)

Loss per ordinary share (US$)
Basic and diluted LPS                                                     11               (0.10)                (0.13)





(1) As restated - See note 30


Serica Energy plc

Balance Sheet

As at 31 December 2006


                                                               Group                            Company
                                                                2006            2005(1)            2006         2005(1)
                                            Notes             US$000             US$000          US$000          US$000
Non-current assets
Exploration & evaluation assets             12                40,681            23,591                -              -
Property, plant and equipment               13                   342                26                -              -
Goodwill                                    14                 1,200             2,382                -              -
Investments in subsidiaries                 15                    -                  -          119,682        119,649
Other receivables                           17                   351             1,758                -              -
                                                              42,574            27,757          119,682        119,649
Current assets
Inventories                                 18                 6,785               878                -              -
Trade and other receivables                 19                30,903             2,106           76,120          7,491
Cash and cash equivalents                   20                77,306           109,750           49,098        107,080
                                                             114,994           112,734          125,218        114,571

TOTAL ASSETS                                                 157,568           140,491          244,900         234,220

Current liabilities
Trade and other payables                    21              (30,619)            (7,136)         (1,045)         (2,003)
Fair value of warrants                      30                     -            (6,850)               -         (6,850)

Non-current liabilities
Other payables                                                     -              (151)               -              -
Deferred income tax liabilities             10                 (955)            (2,137)               -              -

TOTAL LIABILITIES                                           (31,574)           (16,274)         (1,045)         (8,853)

NET ASSETS                                                   125,994           124,217          243,855         225,367


Share capital                               23               157,283            148,745         122,011        113,473
Merger reserve                              15                     -                  -         112,174        112,174
Other reserves                                                11,767              4,153          11,767          4,153
Accumulated deficit                                         (43,056)           (28,681)         (2,097)         (4,433)

TOTAL EQUITY                                                 125,994           124,217          243,855        225,367








(1) As restated - See note 30



Approved by the Board on 29 March 2007







Paul Ellis                                         Chris Hearne

Chief Executive Officer                            Finance Director

________________________________    _____________________________________


Serica Energy plc

Statement of Changes in Equity

For the year ended 31 December 2006


Group                                             Share capital Other reserves        Accum'd         Total
                                                                                      deficit
                                                         US$000         US$000         US$000        US$000
At 1 January 2005 previously reported                   33,047             256       (14,828)       18,475
Impact of fair valued warrants (1)                            -              -        (3,329)       (3,329)

At 1 January 2005 as restated (1)                        33,047            256       (18,157)       15,146
Issue of shares                                         105,418             -              -       105,418
Conversion of warrants                                   10,190             -              -        10,190
Issue of 'A' share                                           90             -              -            90
Share-based payments                                          -          1,013             -         1,013
Loss for the year                                             -             -        (10,524)      (10,524)
Fair value of warrants converted (1)                          -          2,884              -         2,884
At 1 January 2006 (1)                                   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 31 December 2006                                     157,283         11,767       (43,056)       125,994



Company                                         Share                      Other      Accum'd     Total
                                              capital                   reserves      deficit
                                                            Merger
                                                           reserve
                                               US$000       US$000        US$000       US$000        US$000

At incorporation - 12 May 2005                      -            -             -            -             -
Share reorganisation (1)                        7,475      112,174         3,624      (3,624)       119,649
Issue of 'A' share                                 90            -             -            -            90
Issue of shares (net)                         105,418            -             -            -       105,418
Conversion of warrants                            490            -             -            -           490
Share-based payments                                -            -           383            -           383
Loss for the period                                 -            -             -        (809)         (809)
Fair value of warrants converted                    -            -           146            -           146
At 1 January 2006 (1)                         113,473      112,174         4,153      (4,433)       225,367

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
Profit for the year                                 -            -             -        2,336         2,336
Fair value of warrants converted                    -            -         5,696            -         5,696

At 31 December 2006                           122,011      112,174        11,767      (2,097)       243,855





(1) As restated - See note 30

Serica Energy plc

Cash Flow Statement

For the year ended 31 December 2006




                                                              Group        2005 (1)       Company      2005 (1)

                                                               2006         US$000          2006        US$000

                                                              US$000                       US$000
Cash flows from operating activities:
Operating loss                                                 (22,799)        (13,359)      (1,376)      (1,041)

Adjustments for:
Depreciation, depletion and amortisation                             95              30            -            -
Asset write offs                                                 12,870               -            -            -
Share-based payments                                              1,918           1,013        1,918          383
Change in fair value of share warrants (1)                      (1,154)           6,405      (1,154)          462
Foreign exchange loss on investment                                   -             417            -            -
Changes in working capital                                     (10,813)           2,184        (122)          326
Cash generated from operations                                 (19,883)         (3,310)        (734)          130

Taxes received                                                       35             179            -            -

Net cash (out)/inflow from operations                          (19,848)         (3,131)        (734)          130

Cash flows from investing activities
Interest received                                                 4,999             292        3,872            -
Purchase of property, plant and equipment                         (411)            (50)            -            -



Purchase of intangible exploration assets                     (24,190)        (14,048)            -            -
Funding provided to group subsidiaries                               -               -     (68,126)            -
Disposals of intangible exploration assets                           -           1,046            -            -
Proceeds from disposal of investment                                 -           6,772            -            -

Net cash used in investing activities                         (19,602)         (5,988)     (64,254)            -

Cash proceeds from financing activities:
Net proceeds from issue of shares                              (1,559)         106,950      (1,559)      106,950
Proceeds on exercise of warrants/options                         8,565          10,190        8,565            -

Net cash from financing activities                               7,006         117,140        7,006      106,950

Net (decrease)/increase in cash and                                            108,021                   107,080

cash equivalents                                              (32,444)                     (57,982)
Cash and cash equivalents at 1 January                         109,750           1,729      107,080            -
Cash and cash equivalents at 31 December                        77,306         109,750       49,098      107,080

(1) As restated - See note 30











Serica Energy plc



Notes to the Financial Statements



1.       Authorisation of the Financial Statements and Statement of Compliance
with IFRS



The Group's and Company's financial statements for the year ended 31 December
2006 were authorised for issue by the Board of Directors on 29 March 2007 and
the balance sheets were signed on the Board's behalf by Paul Ellis and Chris
Hearne. Serica Energy plc is a public limited company incorporated and domiciled
in England & Wales. The principal activity of the Company and the Group is to
identify, acquire and subsequently exploit oil and gas reserves primarily in
Asia and Europe. The Company's ordinary shares are traded on AIM and the TSXV.



The Group's financial statements have been prepared in accordance with
International Financial Reporting Standards ('IFRS') as adopted by the EU as
they apply to the financial statements of the Group for the year ended 31
December 2006. The Company's financial statements have been prepared in
accordance with IFRS as adopted by the EU as they apply to the financial
statements of the Company for the period ended 31 December 2006 and as applied
in accordance with the provisions of the Companies Act 1985. The Group and
Company's financial statements are also consistent with IFRS as issued by the
IASB. The principal accounting policies adopted by the Group and by the Company
are set out in note 2.



The Company has taken advantage of the exemption provided under section 230 of
the Companies Act 1985 not to publish its individual income statement and
related notes. The surplus dealt with in the financial statements of the parent
Company was US$2,336,000.



On 1 September 2005, the Company completed a reorganisation (the '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.



As detailed in Note 30, the Group and the Company have made certain restatements
to the comparative year's balances.  All prior year comparatives in affected
notes to the Group and Company accounts have been restated to reflect these
restatements.



2. Accounting Policies



Basis of Preparation



The accounting policies which follow set out those policies which apply in
preparing the financial statements 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.





Use of Estimates and key sources of estimation uncertainty



The preparation of financial statements in conformity with IFRS requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities as well as the disclosure of contingent assets and
liabilities at the balance sheet date and the reported amounts of revenues and
expenses during the reporting period. Actual outcomes could differ from those
estimates.



The key sources of estimation uncertainty that has a significant risk of causing
material adjustment to the carrying amounts of assets and liabilities within the
next financial year are the estimation of share-based payment costs and the
impairment of intangible exploration assets (E&E assets). The estimation of
share-based payment costs requires the selection of an appropriate valuation
model, consideration as to the inputs necessary for the valuation model chosen
and the estimation of the number of awards that will ultimately vest, inputs for
which arise from judgements relating to the continuing participation of
employees (see note 25).



The Group determines whether E&E assets are impaired in cash-generating units
defined on a geographical segment basis when facts and circumstances suggest
that the carrying amount of a cash-generating unit may exceed its recoverable
amount. As recoverable amounts are determined based upon risked potential, or
where relevant, discovered oil and gas reserves, this involves estimations and
the selection of a suitable discount rate. The capitalisation and any write off
of E&E assets necessarily involve certain judgements with regard to whether the
asset will ultimately prove to be recoverable.



Basis of Consolidation



The consolidated financial statements include the accounts of Serica Energy plc
(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, Serica Energy Pte Limited,
Serica Kutei B.V. and Serica Nam Con Son B.V.. Together these comprise the
'Group'.



All significant inter-company balances and transactions have been eliminated
upon consolidation.



Foreign Currency Translation



The functional and presentational currency of Serica Energy plc and all its
subsidiaries is US dollars.



Transactions in foreign currencies are initially recorded at the functional
currency rate ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are retranslated at the foreign
currency rate of exchange ruling at the balance sheet date and differences are
taken to the income statement. Non-monetary items that are measured in terms of
historical cost in a foreign currency are translated using the exchange rate as
at the date of initial transaction. Non-monetary items measured at fair value in
a foreign currency are translated using the exchange rate at the date when the
fair value was determined. Exchange gains and losses arising from translation
are charged to the income statement as an operating item.



Business Combinations and Goodwill



Business combinations are accounted for using the purchase method of accounting.
The purchase price of an acquisition is measured as the cash paid plus the fair
value of other assets given, equity instruments issued and liabilities incurred
or assumed at the date of exchange, plus costs directly attributable to the
acquisition.



Goodwill on acquisition is initially measured at cost being the excess of
purchase price over the fair market value of identifiable assets, liabilities
and contingent liabilities acquired. Following initial acquisition it is
measured at cost less any accumulated impairment losses. Goodwill is not
amortised but is subject to an impairment test at least annually and more
frequently if events or changes in circumstances indicate that the carrying
value may be impaired.



At the acquisition date, any goodwill acquired is allocated to each of the
cash-generating units (business segments) expected to benefit from the
combination's synergies. Impairment is determined by assessing the recoverable
amount of the cash-generating unit to which the goodwill relates. Where the
recoverable amount of the cash-generating unit is less than the carrying amount,
an impairment loss is recognised.

Reverse takeovers

Certain acquisitions whereby the substance of the acquisition is that the
acquirer is the entity whose equity interests have been acquired, and the
issuing entity is the acquiree, are considered to represent a reverse takeover.
The legal subsidiary being acquired is the acquirer if it has the power to
govern the financial and operating policies of the legal parent so as to obtain
benefits from its activities.

Reverse takeovers are treated as a business combination whereby the consolidated
financial statements prepared following the takeover represent a continuation of
the financial statements of the legal subsidiary acquired.

Joint Venture Activities



The Group conducts petroleum and natural gas exploration and production
activities jointly with other venturers who each have direct ownership in and
jointly control the assets of the ventures. These are classified as jointly
controlled assets and consequently, these financial statements reflect only the
Group's proportionate interest in such activities.



In accordance with industry practice, the Group does not record its share of
costs that are 'carried' by third parties in relation to its farm-in agreements.
Similarly, while the Group has agreed to carry the costs of another party to a
Joint Operating Agreement ('JOA') in order to earn additional equity, it records
its paying interest that incorporates the additional contribution over its
equity share.



Full details of Serica's working interests in those petroleum and natural gas
exploration and production activities classified as jointly controlled assets
are included the Review of Operations on pages 8 and 12.



Upon the successful development of an oil or gas field in a contract area, the
cumulative excess of paying interest over working interest in that contract is
generally repaid out of the field production revenue attributable to the carried
interest holder.



Exploration and Evaluation Assets



As allowed under IFRS 6 and in accordance with clarification issued by the
International Financial Reporting Interpretations Committee, the Group has
continued to apply its existing accounting policy to exploration and evaluation
activity, subject to the specific requirements of IFRS 6. The Group will
continue to monitor the application of these policies in light of expected
future guidance on accounting for oil and gas activities.



Pre-licence Award Costs



Costs incurred prior to the award of oil and gas licences, concessions and other
exploration rights are expensed in the income statement.



Exploration and Evaluation



The costs of exploring for and evaluating oil and gas properties, including the
costs of acquiring rights to explore, geological and geophysical studies,
exploratory drilling and directly related overheads, are capitalised and
classified as intangible exploration assets (E&E assets). These costs are
allocated to cost pools based upon three geographical segments; Indonesia, UK &
North West Europe and Spain.



E&E assets are not amortised prior to the conclusion of appraisal activities but
are assessed for impairment in cash-generating units defined on a geographical
segment basis when facts and circumstances suggest that the carrying amount of a
cash-generating unit may exceed its recoverable amount.  Recoverable amounts are
determined based upon risked potential, and where relevant, discovered oil and
gas reserves. When an impairment test indicates an excess of carrying value
compared to the recoverable amount, the carrying value of the cost pool is
written down to the recoverable amount in accordance with IAS 36. Such excess is
expensed in the income statement.



Costs of relinquished licences are expensed in the income statement.



The E&E phase is completed when either the technical feasibility and commercial
viability of extracting a mineral resource are demonstrable or no further
prospectivity is recognised. At that point, if commercial reserves have been
discovered, the carrying value of the relevant assets, net of any impairment
write-down, is classified as a development asset and tested for impairment. If
commercial reserves have not been discovered then the costs of such assets will
be retained within the relevant geographical E&E segment until subject to
impairment or relinquishment.



Asset Purchases and Disposals



When a commercial transaction involves the exchange of E&E assets of similar
size and characteristics, no fair value calculation is performed. The
capitalised costs of the asset being sold are transferred to the asset being
acquired.



Decommissioning



Liabilities for decommissioning costs are recognised when the Group has an
obligation to dismantle and remove a production, transportation or processing
facility and to restore the site on which it is located. Liabilities may arise
upon construction of such facilities, upon acquisition or through a subsequent
change in legislation or regulations. The amount recognised is the estimated
value of future expenditure determined in accordance with local conditions and
requirements. A corresponding tangible item of property, plant and equipment
equivalent to the provision is also created. The Group did not carry any
provision for decommissioning costs during 2005 or 2006.



Any changes in the present value of the estimated expenditure is added to or
deducted from the cost of the assets to which it relates. The adjusted
depreciable amount of the asset is then depreciated prospectively over its
remaining useful life.



Property, Plant and Equipment



Computer equipment and fixtures, fittings and equipment are recorded at cost as
tangible assets. The straight-line method of depreciation is used to depreciate
the cost of these assets over their estimated useful lives. Computer equipment
is depreciated over three years and fixtures, fittings and equipment over four
years.



Inventories



Inventories are valued at the lower of cost and net realisable value. Cost is
determined by the first-in first-out method and comprises direct purchase costs
and transportation expenses.









Investments



In its separate financial statements the Company recognises its investments in
subsidiaries at cost.



Financial instruments



Financial instruments comprise financial assets, financial liabilities and
equity instruments.



Trade and other receivables, which generally have 30-90 day terms, are
recognised and carried at original invoice amount less an allowance for any
uncollectible amounts. Bad debts are written off when identified.



Financial assets comprise investments and are initially recognised at fair value
plus transaction costs that are directly attributable to the acquisition or
issue of the financial asset or financial liability. Amortised cost is
calculated by taking into account any discount or premium on acquisition over
the period to maturity.



For investments carried at amortised cost, gains and losses are recognised in
income when the investments are de-recognised or impaired, as well as through
the amortisation process.



Cash and cash equivalents include balances with banks and short-term investments
with original maturities of three months or less at the date acquired.



Financial liabilities include outstanding share warrants which are carried at
fair value.  Changes in fair value are recognised in the income statement for
the period.



Revenue Recognition



Revenue is recognised to the extent that it is probable that the economic
benefits will flow to the Group and the revenue can be reliably measured.
Revenue from oil and natural gas production is recognised on an entitlement
basis for the Group's net working interest.



Finance Revenue



Finance revenue chiefly comprises interest income from cash deposits on the
basis of the effective interest rate method and is disclosed separately on the
face of the income statement.



Share-Based Payment Transactions



The Company operates equity settled schemes under which employees may be awarded
share options from time-to-time. The fair value of each option at the date of
the grant is estimated using an appropriate pricing model based upon the option
price, the share price at the date of issue, volatility and the life of the
option. It is assumed that all performance criteria are met.



No expense is recognised for awards that do not ultimately vest, except for
awards where vesting is conditional on a market condition. In this case such
awards are treated as vesting provided that all other performance conditions are
satisfied.



At each balance sheet date before vesting, the cumulative expense is calculated,
representing the extent to which the vesting period has expired and management's
best estimate of the achievement or otherwise of non-market conditions and of
the number of equity instruments that will ultimately vest or, in the case of an
instrument subject to a market condition, be treated as vesting as described
above. The movement in cumulative expense since the previous balance sheet date
is recognised in the income statement, with a corresponding entry in equity.
Estimated associated national insurance charges are expensed in the income
statement on an accruals basis.

Share Warrants



The fair value of each outstanding warrant is estimated using a Black Scholes
pricing model based upon the warrant exercise price, the share price, volatility
and the life of the warrant.



Equity



Equity instruments issued by the Company are recorded at the proceeds received,
net of direct issue costs.



Income Taxes



Deferred tax is provided using the liability method and tax rates and laws that
have been enacted or substantially enacted at the balance sheet date. Provision
is made for temporary differences at the balance sheet date between the tax
bases of the assets and liabilities and their carrying amounts for financial
reporting purposes. Deferred tax is provided on all temporary differences except
for:



•         temporary differences associated with investments in subsidiaries,
where the timing of the reversal of the temporary differences can be controlled
by the Group and it is probable that the temporary differences will not reverse
in the foreseeable future; and



•         temporary differences arising from the initial recognition of an asset
or liability in a transaction that is not a business combination and, at the
time of the transaction, affects neither the income statement nor taxable profit
or loss.



Deferred tax assets are recognised for all deductible temporary differences, to
the extent that it is probable that taxable profits will be available against
which the deductible temporary differences can be utilised. Deferred tax asset
and liabilities are presented net only if there is a legally enforceable right
to set off current tax assets against current tax liabilities and if the
deferred tax assets and liabilities relate to income taxes levied by the same
taxation authority.



Earnings Per Share



Earnings per share is calculated using the weighted average number of ordinary
shares outstanding during the period. Diluted earnings per share is calculated
based on the weighted average number of ordinary shares outstanding during the
period plus the weighted average number of shares that would be issued on the
conversion of all potentially dilutive shares to ordinary shares. It is assumed
that any proceeds obtained on the exercise of any options and warrants would be
used to purchase ordinary shares at the average price during the period. Where
the impact of converted shares would be anti- dilutive, these are excluded from
the calculation of diluted earnings.



New standards and interpretations not applied



IASB and IFRIC have issued the following standards and interpretations with an
effective date after the date of these financial statements:



International Accounting Standards (IAS/IFRSs)



IFRS 7 'Financial Instruments: Disclosures' - Effective date 1 January 2007

IFRS 8 'Operating Segments' - Effective date 1 January 2009

IAS 1 'Amendment - Presentation of Financial Statements: Capital Disclosures' -
Effective date 1 January 2007



International Financial Reporting Interpretations Committee (IFRIC)



IFRIC 7 'Applying the restatement Approach under IAS 29 Financial reporting in
Hyperinflationary Economies' - Effective 1 March 2006

IFRIC 8 'Scope of IFRS 2' - Effective date 1 May 2006

IFRIC 9 'Reassessment of Embedded Derivatives' - Effective date 1 June 2006

IFRIC 10 'Interim Financial Reporting and Impairment' - Effective date 1
November 2006

IFRIC 11 'IFRS 2 - Group and Treasury Share Transactions' - Effective 1 March
2007

IFRIC 12 ' Service Concession Arrangements' - Effective date 1 January 2008





The Directors do not anticipate that the adoption of these statements and
interpretations will have a material impact on the Group's financial statements
in the period of initial application.



Upon adoption of IFRS 7, the Group will have to disclose additional information
about its financial instruments, their significance and the nature and extent of
risks that they give rise to. More specifically the Group will need to disclose
the fair value of its financial instruments and its risk exposure in greater
detail. There will be no effect on reported income or net assets.


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