30th Sep 2015 13:48
LONDON (Alliance News) - Serica Energy PLC shares surged on Wednesday after it said it has defied the market downturn by entering production in the UK North Sea, an area under increasing pressure due to lower oil prices, and said it has a healthy cash balance and no debt with a wide range of assets to push forward with.
Serica shares were up 51% to 7.95 pence per share on Wednesday.
The North Sea oil company reported a USD639,000 pretax loss in the first six months of 2015, narrowing from the USD2.6 million loss a year earlier. It generated its maiden revenue of USD2.2 million after starting production in the half.
The loss also narrowed due to administrative expenses being reduced to USD1.5 million from USD2.2 million and due to lower share-based payments.
The company's Erskine field started production in late-May following an 18-month production shutdown so it could conduct maintenance on the infrastructure at the project. Serica acquired an 18% stake in the project from major BP PLC in June.
Net production to the company averaged 3,100 barrels of oil equivalent per day between May and Monday, which was "substantially above base case", with average production over September alone rising to 4,100 barrels of oil equivalent per day. The downstream facilities at the project also are running at 90% uptime and the Lombard platform is "performing well".
There are now five wells currently producing on the field, and the project is generating a cash return at current oil prices as around 50% of production is gas, mitigating the impact of lower oil prices, which have tumbled since the middle of 2014 from highs of USD115 per barrel to trading at only USD48 per barrel on Wednesday.
The North Sea is under increasing pressure from lower oil prices as its fields are more mature than other areas in the world after decades of production, meaning it is generally more expensive to operate in the area.
Serica also has a healthy cash balance of USD15.5 million with no debt and said it has no major commitments that can not be internally funded. That balance excludes the cash receipts for oil and gas sales in September which are expected to total around USD3.5 million.
"Following completion of the Erskine acquisition at the end of the first half and the strong field performance since, Serica has the financial resources, an exciting asset mix and very low overhead to pursue different ways of releasing the value inherent in its portfolio," it said.
"There is considerable opportunity to add value to Erskine by further improving downstream performance, to realise the value of Columbus through field development, to enhance the value of our exploration assets through the drill bit, particularly where we are carried, and to extract full value from our UK tax position through further acquisitions, potentially in partnership with others," Serica added.
The company also has other assets in the UK Columbus field, where it is holding talks with its partners about a commercial development of the field. The development of the nearby Columbus field would improve the economics of the Erksine field and the company's other asset in the North Sea, the Lombard field.
On top of those developments, Serica is planning on exploration activity on blocks 22/19, in which it has a 15% stake, and block 113.27c, in which it holds a 20% stake. It is carried for the first exploration well on each of those blocks.
Serica also has exploration assets in Namibia and offshore Ireland, where is is looking for farm-in partners.
By Joshua Warner; [email protected]; @JoshAlliance
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