Serica Energy swings to profit, lowers production outlook

The AIM-traded firm said cash flow from operations totalled £157.6m for the 12 months ended 31 December, rising from £44.1m in the prior year.

Average net production totalled 22,200 barrels of oil equivalent per day, slipping from 23,800 barrels per day after extended maintenance programmes in 2021.

The board said the completion of the Rhum R3 and Columbus well programmes had brought increased production from August and November, respectively.

It said its 2P reserves increased to 62.2 million barrels of oil equivalent, up from 61 million barrels year-on-year, with group 2021 production more than replaced.

Financially, Serica achieved an average 2021 sales price of $93 per barrel of oil equivalent before hedging losses, surging from $20 per barrel in 2020.

Its average operating cost came in at $16.47 per barrel, up from $14.12 year-on-year, reflecting its increased work-scope after 2020 was marked by Covid-19 restrictions.

Operating profit totalled £246.1m, swinging from a 2020 loss of £18.7m.

That came after realised losses of £56.6m on 2021 gas price hedging, compared to gains of £12.3m in 2020, as well as unrealised losses of £74.6m based on the value of 2022-2023 gas price hedging, widening from £16.6m.

Closing cash at year-end on 31 December totalled £103m, up from £89.3m, plus a further £115.4m of temporary cash security after £52.2m of capital investment and the payment of £9.4m in dividends.

Looking ahead, Serica said new production from the Rhum R3 and Columbus wells was benefiting from strong commodity prices and the retention of 100% of BKR net cash flows from 1 January.

The company narrowed and slightly reduced its production guidance range for 2022 to between 26,000 and 30,000 barrels of oil equivalent per day, from 27,100 to 33,600 barrels, reflecting lower Columbus production rates and current supply chain limitations causing 2022 programme delays.

It said the North Eigg exploration well was due to spud early in the third quarter, with the prospect of a rapid route to development in the event of a discovery.

A light well intervention vessel campaign was planned for the summer, to enhance production on BKR wells.

Subject to shareholder approval at the annual general meeting, a dividend of 9p per share would be paid on 22 July to shareholders registered on 1 July, with an ex-dividend date of 30 June.

Shareholder approval would also be sought to enable the repurchase of Serica shares of up to 10% of its share capital, though the board said it had no current plans to use that.

“2021 was an outstanding year of progress for Serica, which demonstrated the value of our through-cycle investment strategy resulting in the R3 and Columbus projects reaching first production,” said chief executive officer Mitch Flegg.

“This increases Serica's gas output to over 85% of our total production, further increasing our contribution to the provision of vital lower carbon gas to the UK's energy market.

“We will continue to pursue our investment-led strategy this year with a planned well intervention programme on the Bruce, Keith and Rhum fields (BKR) in addition to our exploration well at North Eigg.”

At 1142 BST, shares in Serica Energy were down 8.68% at 369.09p.