Surging gas prices help lift Serica Energy

Serica Energy reported a first-half operating cash flow of £312m on Tuesday, up from £72.8m a year ago, after adjustments for hedge security.

The AIM-traded firm said its performance reflected increased production levels and higher realised commodity prices, partially offset by first-half hedge settlements.

Cash balances at period end on 30 June increased to £258.3m, from £103m at the end of December, with a further £160.4m lodged as hedge security, rising from £115.4m, giving a combined total of £418.7m, growing from £218.4m at the end of 2021.

Serica noted the expiry of the BKR cash flow sharing and Rhum performance-related payments at the end of 2021, with final cash settlements of £93.9m made in the first six months of 2022.

Its average realised gas price in the period was 136p per therm, surging from 50p per therm year-on-year, after system entry fees and including fixed price volumes, with an average overall realised sales price of $101 per barrel of oil equivalent, rising from $43.30 per barrel.

Average operating costs came in at $16.07 per barrel of oil equivalent for the first half, broadly stable from the $16.05 cost its recorded a year ago.

The firm reported an operating profit of £196.3m, rocketing from £5.5m a year earlier, after £56.4m of unrealised hedging provisions, up from £30.3m, and a profit after tax of £116.7m, compared to £1.3m in the first half of 2021.

Serica said its average production was 26,600 barrels of oil equivalent per day net to Serica in the half-year, compared to 18,855 barrels per day in the same period last year, increasing its contribution to the security of UK gas supply.

Gas price volatility was ongoing, the board said, with market prices ranging from below 100p to more than 300p per therm, and averaging 175p per therm for the period.

It maintained its capital investment programme, with the initial Bruce well intervention campaign beginning in May, and preparations for the North Eigg exploration well, which spudded in July.

“Serica's production levels in the first half of 2022 have benefited significantly from our ongoing capital investment campaign which commenced in 2020,” said chief executive officer Mitch Flegg.

“We are now seeing the full contribution from the 2021 Columbus and R3 projects and additionally we have recently completed a successful light well intervention vessel campaign on Bruce.

“As a result of these investment projects, Serica's net production in the first half of 2022 was 41% higher than the first half of 2021.”

Flegg said that furthermore, the BKR cash flow sharing arrangements had come to an end after four years, during which the company shared the net cash flow with the vendors of the relevant assets.

Serica now retained 100% of the net cash flow from BKR.

“Market gas prices, though highly volatile, have continued to strengthen during 2022 and as a result of increased production at higher commodity prices, Serica's operating cash flow for the six-month period was £312m, and profits increased at all levels.

“Over 85% of Serica's production is gas, providing much needed domestic energy during a time of heightened concern around the UK's security of supply.

“This gas will continue to be an important energy source during the net zero transition.”

Serica’s first-half operational and financial performance had enabled it to steadily increase its return to shareholders, Mitch Flegg added.

“Following the recent payment of a 9p per share final dividend for full year 2021, we are today announcing our first interim dividend of 8p per share, which will be paid in November.”

At 1515 BST, shares in Serica Energy were up 3.511% at 354p.

Reporting by Josh White at Sharecast.com.