Serica Energy swings back to gross profit in first half

The AIM-traded firm said group average production for the six months ended 30 June totalled 18,900 barrels of oil equivalent per day net to Serica, compared to 21,600 barrels per day in the first half of 2020, after extended field maintenance shut-ins during the period following Covid-19-related deferrals last year.

It completed the Rhum R3 well workover in the period, starting production in late August, while the Columbus production well was drilled and tied into the export system, ready for first production in the fourth quarter.

Capital investment of £43m was made in the half-year, up from £26.6m a year ago, all funded from internal cash resources.

Serica reported a closing cash balance of £92m on 30 June, up from £89.3m at the end of December, despite its “significant” capital expenditure spend.

Its average realised sales price came in at $43.30 per barrel of oil equivalent for the period, compared to $15.20 per barrel in the first half of 2020, before net hedging adjustments.

The company’s average operating cost totalled $16.05 per barrel of oil equivalent, up slightly from $15.12 year-on-year, reflecting its lower production, with underlying costs down 10% year-on-year.

Operating profit totalled £5.5m, swinging from losses of £12.7m a year earlier, after £30.3m of unrealised hedging provisions.

Serica reported a profit before tax of £2.2m, down from £20.4m in the first half of 2020, while its profit after tax slid to £1.3m from £12.4m, after a non-cash deferred tax provision of £0.9m, compared to £8m a year earlier.

“In the current environment Serica's focus on gas production and investment in new projects is expected to generate very significant returns for shareholders and help support further investment,” said chief executive officer Mitch Flegg.

“In the first half of the year, we continued to pursue our strategy of capital investment in our assets.

“This has allowed us to recomplete the Rhum R3 well and bring it into production in August and to drill the Columbus development well which is now ready to produce.”

Flegg said Serica's production was over 80% gas, with the company ”delighted” that it was already seeing the benefits of its investment strategy in the second half, through increasing production levels at a time of record high wholesale gas prices.

“We expect first production from Columbus in the fourth quarter of this year, and then Serica's share of receipts under the BKR net cash flow sharing mechanism increases from 60% to 100% on 1 January.”

Later in 2022, Mitch Flegg said the firm was intending to drill the North Eigg well which, if successful, would enhance gas reserves in the BKR area and potentially extend the life of Bruce and related infrastructure.

“Serica is currently responsible for around 5% of UK gas production and our role in enhancing and extending the life of that production and helping to maintain forward supply during a period of energy transition, is essential to meet UK energy needs.”

At 1524 BST, shares in Serica Energy were up 1.26% at 217.71p.