TIDMSQZ
RNS Number : 0444X
Serica Energy plc
21 November 2017
This announcement and the information contained herein is
restricted and is not for publication, distribution or release
directly or indirectly in whole or in part in or into the United
States, Canada, Australia, Japan or the Republic of South Africa or
in any other jurisdiction in which such publication, distribution
or release would be restricted by any applicable law
Serica Energy plc
("Serica" or the "Company")
Acquisition of BP interests in the Bruce, Keith and Rhum fields
in the North Sea
Appointment of CEO
London, 21 November, 2017 - Serica Energy plc (AIM: SQZ)
("Serica" or "the Company") is pleased to report that Serica UK, a
wholly-owned subsidiary of the Company, has signed a Sale and
Purchase Agreement to acquire BP's interests in the Bruce, Keith
and Rhum fields in the North Sea and associated infrastructure (the
"Acquisition"). Under the Sale and Purchase Agreement, Serica will
acquire a 36% interest in Bruce, a 34.83% interest in Keith and a
50% interest in Rhum (collectively the "BKR Assets"). Subject to
completion of the Acquisition, Serica will also become production
operator of the BKR Assets and the Directors anticipate that
approximately 110 BP staff will be transferred to Serica. The
Acquisition is subject to certain regulatory, government and
partner consents. The deal has an effective date of 1 January 2018
and Completion of the Acquisition is expected to take place in
mid-2018.
The Initial Consideration for the Acquisition is GBP12.8
million, to be adjusted for working capital, with additional
contingent consideration amounts of up to GBP39.1 million payable
dependent on certain production and gas price thresholds being
achieved. The Initial Consideration is expected to be exceeded by
Serica's share of net cash flow from the BKR Assets between 1
January 2018 and Completion of the Acquisition. The contingent cash
consideration will be financed by expected cash flows from the BKR
Assets.
BP will also receive a share of pre-tax net cash flow from the
BKR Assets of 60% in 2018, 50% in 2019 and 40% in each of 2020 and
2021. The net cash flow shares are calculated on a monthly basis.
No amounts are payable by Serica UK unless this cash flow is
positive and amounts are repayable to Serica UK in the event of
negative cash flow, up to the amount of prior payments made to BP
in the same year. Excess losses in a year are carried forward to be
offset against future income.
BP will retain liability for all decommissioning costs relating
to facilities existing at Completion, including wells, associated
with the BKR Assets acquired by Serica UK. Serica UK will pay BP
additional consideration equal to 30% of such costs at the time of
decommissioning reduced by the tax relief that BP receives on these
costs. This element of consideration is capped by the amount of net
cash flow received by Serica UK as a result of the Acquisition.
As part of the Acquisition, Serica UK has entered into product
sales agreements with BP to off-take Serica's share of gas and oil
production from the BKR Assets on market terms. It has also agreed
to enter sales contracts for Natural Gas Liquids production on a
similar basis. BP Gas Marketing Ltd ("BPGM") has also agreed to
provide Serica UK with a Prepayment Facility of up to GBP16
million. This can be used to provide further financing flexibility
to cover the cost of hedging instruments which have been purchased
by Serica UK in conjunction with signing the Acquisition Agreement
and, if required, the Initial Consideration.
Transaction Highlights
The Board of Serica believes that the Acquisition will be
transformational for the Company, positioning it as one of the
leading mid-tier independent oil and gas producers on the UK
Continental Shelf ("UKCS").
-- Significant increase in Reserves and production
o Serica's pro-forma net 2P Reserves at 1 January 2018 are
projected to increase sixteen-fold to 50 mmboe[1]
o Based on H1 2017 production rates Serica's net production
would increase approximately seven-fold to over 21,000 boepd[2] of
which over 85% is gas
o Acquisition expected to be immediately cash flow and value
accretive post-Completion
-- Diversification of production streams and export routes
o Serica's asset and production base will expand from one to
four fields, mitigating sole producing asset risk
o Following the Acquisition Serica will be delivering
hydrocarbons via three export systems: Frigg, the Central Area
Transmission System and the Forties Pipeline System
-- Structured to mitigate financial risk
o Bulk of consideration deferred and contingent
o Initial Consideration expected to be exceeded by Serica's
share of net cash flows from the BKR Assets between 1 January 2018
and Completion of the Acquisition anticipated in mid-2018
o Future payments linked to the performance of the BKR Assets,
allowing both parties to share the benefits of improving field
recoveries and production efficiencies
o The BKR Assets are predominantly gas assets. Gas sales
arrangements include price hedging to further mitigate risk
-- Maintains balance sheet strength with no shareholder dilution
o Serica is not raising equity finance to fund the
Acquisition
o BP to retain decommissioning liability for existing facilities
of the BKR Assets
o Cash flows from the BKR Assets can be used to invest in
Maximising Economic Recovery from the BKR Assets and to pursue
further growth opportunities
o Existing net cash resources are not expected to be impacted by
the Acquisition. These stood at approximately US$34 million on 17
November 2017 and are expected to be further supplemented by
production from the Erskine field prior to Completion of the
Acquisition
o The Company has no borrowings other than under the Prepayment
Facility provided by BP as part of the gas sales arrangements
-- Tax efficient
o Accelerated utilisation of Serica's tax allowances against
profits from the Bruce, Keith and Rhum fields
-- Operatorship positions Serica to deliver the full potential of the BKR Assets
o Serica expects to drive value through investment and
implementation of efficiencies, focusing on the OGA's target of
Maximising Economic Recovery
o Serica's management experience and skill sets will be combined
with those of existing BP staff, who will become an integral part
of Serica's team
-- Transition plan to be put in place
-- Transferred staff employment terms to be guaranteed for at
least 12 months post-Completion
-- Increased scale to support strategic growth plans
o The Acquisition will increase Serica's prominence and profile
and improve its ability to attract new investment opportunities and
funding
o The Enlarged Group's diversification, increased scale and
operating capabilities will position Serica for both organic growth
and further acquisitions
-- Board changes
o Mitch Flegg appointed CEO and to the Board of Serica with
immediate effect
o Further appointments are planned to broaden and diversify
representation on the Board in line with the significantly
increased scale and nature of the Company's expanded operations and
strategic potential for further growth following the
Acquisition
o In compliance with US regulations limiting the involvement of
US Persons in relation to assets in which there are Iranian
interests, Jeffrey Harris has stepped down from the Board to ensure
that the Company is not encumbered in future operations on the Rhum
field in which Iranian Oil Company (UK) Limited holds a 50%
interest
-- The Acquisition will constitute a reverse takeover under the AIM Rules
o Trading in the Company's Ordinary Shares will be suspended
shortly following the release of this announcement
o An Admission Document, setting out full details of the Company
and the proposed Acquisition, is anticipated to be published on or
around 30 November 2017 at which time trading in the Ordinary
Shares is expected to be restored
Tony Craven Walker, Serica's Executive Chairman, commented:
"This transaction will establish Serica as a leading British
independent oil and gas company with the scale, balance sheet and
operating capability to prosper in the North Sea's rapidly changing
upstream oil and gas industry. It will diversify Serica from being
a single asset to a multi-asset production company. It will also
broaden our role as an operator, which will enable us to maximise
performance from Bruce, Keith and Rhum, complement the continuing
good performance from Erskine and deliver further value growth.
We have achieved this through an earn-out structure which
enables both Serica and BP to share the risk and benefit from the
future performance of the BKR Assets. For Serica, the transaction
is expected to be both cash flow and value accretive. It has been
delivered without diluting existing shareholder equity and
significantly increases reserves and production per share.
Since completing the Erskine acquisition in 2015, Serica has
been strengthening its balance sheet to pursue expansion
opportunities which are diversifying, value creating, tax efficient
and non-dilutive. This acquisition meets these criteria. I am proud
of what the team at Serica has achieved during this period,
increasing Serica's net 2P reserve base to approximately 50 mmboe
and achieving a seven-fold increase in production with no new
equity raised.
Our priority now is to maximise the economic value of our
producing assets for the benefit of our shareholders, our field
partners and our employees. We very much look forward to welcoming
the extremely capable team that will be transferring to Serica from
BP and combining skillsets and operational expertise.
Prior to completion of the transaction, we expect to strengthen
our Board with a number of new appointments. Today we are
announcing the appointment of Mitch Flegg as CEO of Serica and I am
delighted to welcome him back to our senior management team. Mitch
has worked closely with Serica in recent months to help bring this
transaction to fruition and I and my co-directors look forward to
working with him as we build on the opportunities that this deal
will bring."
Mitch Flegg, Serica's new CEO, commented:
"I am delighted to return to Serica in the role of CEO. I am
re-joining a dynamic, fast growing company, which is focused on
enhancing the value of both its existing and soon to be acquired
assets on the UKCS. I am also looking forward to working with the
highly skilled team that will be transferring to Serica from BP.
They will be joining us at a very exciting time for the Company.
Successful Completion of the transaction will establish Serica as a
new force in the North Sea and as a robustly financed upstream
operator with the experience, expertise, cash flow, breadth of
assets and balance sheet to expand organically and to identify and
develop new opportunities to grow shareholder value."
Bernard Looney, Chief Executive, BP Upstream commented:
"This is an example of BP's Upstream strategy in action -
refreshing our portfolio and focusing our activity on assets which
will add most value over the long-term.
We remain committed to the North Sea and continue to invest. We
expect our production there to double to around 200,000 barrels
equivalent a day by 2020 through new projects like Quad 204 and
Clair Ridge.
While the Bruce assets are no longer core to BP, we are
confident that Serica is the right owner and operator to maximise
their continuing value for both companies and for the UK."
Suspension of Trading and General Meeting
The Acquisition constitutes a reverse takeover under the AIM
Rules for Companies. As such, trading in the Company on AIM will be
suspended until the publication of an Admission Document
anticipated to be published on or around 30 November 2017. The
Acquisition is also subject to the approval of Shareholders, which
is being sought at a General Meeting, notice of which will be set
out in the Admission Document.
Analyst Conference Call
A conference call for analysts will be held at 09:30am this
morning, Tuesday 21 November 2017. To participate in this call,
please contact serica@instinctif.com for dial-in details.
Technical Information
The technical information contained in this announcement has
been reviewed and approved by Clara Altobell, VP Technical at
Serica Energy plc. Clara Altobell (MSc in Petroleum Engineering
from Imperial College, London) has over 20 years of experience in
oil and gas exploration, production and development and is a member
of the Society of Petroleum Engineers (SPE) and the Petroleum
Exploration Society of Great Britain (PESGB).
The Reserves information extracted from the BKR CPR and the
Serica CPR and presented in this announcement has been prepared in
accordance with generally accepted petroleum engineering and
evaluation principles set forth in standards pertaining to the
estimating and auditing of Oil and Gas reserves information
promulgated by the SPE (the SPE Standards).
Regulatory
This announcement includes inside information for the purposes
of MAR.
Enquiries:
Serica Energy
plc
================== ===================================== ===============
Tony Craven
Walker
Executive +44 (0)20 7457
Chairman tony.cravenwalker@serica-energy.com 2020
================== ===================================== ===============
Mitch Flegg +44 (0)20 7457
CEO mitch.flegg@serica-energy.com 2020
================== ===================================== ===============
Peel Hunt
================== ===================================== ===============
+44 (0)20 7418
Richard Crichton richard.crichton@peelhunt.com 8900
================== ===================================== ===============
+44 (0)20 7418
Ross Allister ross.allister@peelhunt.com 8900
================== ===================================== ===============
Instinctif
================== ===================================== ===============
+44 (0)20 7457
David Simonson david.simonson@instinctif.com 2020
================== ===================================== ===============
+44 (0)20 7457
Laura Syrett laura.syrett@instinctif.com 2020
================== ===================================== ===============
+44 (0)20 7457
George Yeomans george.yeomans@instinctif.com 2020
================== ===================================== ===============
Lambert Energy Advisory Limited act as advisors to Serica in
respect of the Acquisition. Peel Hunt LLP act as the Company's
Nominated Adviser and Broker in respect of the Acquisition.
NOTES TO EDITORS
Serica Energy is an independent oil and gas exploration and
production company focused on the North Sea with exploration,
development and production interests in the UK sector and
exploration interests in the Atlantic margins offshore Ireland and
Namibia. Further information on the Company can be found at
www.serica-energy.com.
The Company's Ordinary Shares are quoted on the AIM market of
the London Stock Exchange under the ticker SQZ and Serica is a
designated foreign issuer on the TSX. To receive Company news
releases via email, please contact serica@instinctif.com and
specify "Serica press releases" in the subject line.
Background to, reasons for and benefits of the Acquisition
In June 2015, Serica completed the acquisition of an 18%
interest in the Erskine field located in the Central North Sea Area
of the UK Continental Shelf. Since that time Serica has benefited
from strong cash flow generation as production efficiencies at the
Erskine field increased and operating costs reduced. This has been
reflected in a five-fold increase in the Company's market
capitalisation since the time of the acquisition. However, the
Company has remained dependent on a single field and the continuing
performance of the downstream processing and transportation systems
for the delivery of its sole source of production to the
market.
It has been the Board's stated objective to seek to diversify
this risk and, by doing so, to provide the platform for future
growth. The Acquisition meets these criteria and will establish
Serica as a leading British independent oil and gas company with
the scale, balance sheet and operating capability to grow and
prosper in the rapidly changing upstream oil and gas environment.
As well as helping to establish Serica as a technically capable and
robustly financed upstream operator with the experience, expertise,
assets and finances to create new opportunities for growth, the
Directors believe the Acquisition provides the following
benefits:
Diversification of production streams and export routes
The purchase of the BKR Assets will represent a significant step
in the evolution of the Company from an exploration and development
group with no current operating role in producing fields to the
operator of major gas fields in the North Sea. Serica will no
longer be dependent on the Erskine field as its sole source of
production. The Acquisition will also provide Serica with access to
the Frigg gas pipeline through which Bruce, Keith and Rhum field
gas is exported in addition to the Central Area Transmission System
pipeline through which Erskine field gas is exported. The
condensate from each of these fields is exported through the
Forties Pipeline System.
Addition of new Reserves
The net 2P Reserves attributable to the BKR Assets as at 1
January 2018 are projected to amount to approximately 47 mmboe.
These reserves will provide a significant addition to the projected
remaining net approximately 3 mmboe 2P Reserves attributable to
Serica's share of the Erskine field as at 1 January 2018.
The Acquisition is structured to control risk and minimise
Shareholder dilution
The Acquisition has been structured primarily on a deferred
cash/contingent consideration basis, leaving Serica with a
relatively small Initial Consideration of GBP12.8 million which is
expected to be funded from Serica's share of net cash flow from the
BKR Assets during the period from 1 January 2018 to Completion but
can also be funded through the Prepayment Facility provided by BP.
The Directors expect to be able to meet the future deferred cash
and contingent consideration payable from Serica's share of the net
cash flows from the BKR Assets following Completion with the level
of future payments linked to the performance of the BKR Assets
thereby allowing both parties to share the benefits of improving
field recoveries and production efficiencies.
Maintains the Company's Balance Sheet strength
The Consideration structure with the emphasis on future payments
related to asset performance will assist Serica in maintaining its
current Balance Sheet strength with net cash resources and limited
borrowings. The Enlarged Group's only borrowings at Completion are
expected to be drawings under the Prepayment Facility provided by
BPGM. In addition, the arrangements on decommissioning, under which
BP is retaining all of the decommissioning liabilities of existing
facilities, assists Serica in maintaining financial capability to
support its future operations. The Directors believe that a strong
balance sheet supported by cash flows from the BKR Assets can be
used to invest in the BKR Assets and will assist the Company in
working with its new field partners to achieve the objective of
adding recoverable Reserves, extending field life and pursuing
further growth opportunities.
The Acquisition is expected to be cash flow and value
accretive
The Acquisition is expected to be immediately cash flow and
value accretive post-Completion. Based on H1 2017 production rates,
Serica's net production would increase approximately seven-fold as
a result of the Acquisition. Based on the BKR CPR and the Serica
CPR, pro-forma net 2P Reserves per Serica share at 1 January 2018
are anticipated to increase sixteen-fold.
Management input through operatorship
Serica is development operator of the Columbus field in the
Central North Sea in respect of which the Directors are aiming to
submit a Field Development Plan by mid-2018. Subject to Completion
of the Acquisition, Serica UK will become production operator of
the BKR Assets and will be able to complement its skill sets and
its management experience with those of the existing BP staff who
will become an integral and valuable part of Serica's team. The
Directors believe that this combination of entrepreneurial skills
and operating expertise will enable Serica to build on BP's
achievements and deliver the full potential of the BKR Assets
through new investment, operational efficiencies and focus and also
meet the OGA's targets of Maximising Economic Recovery.
Efficient use of tax pool
Serica is expected to be able to optimise the value of its pool
of carried forward tax allowances by accelerating their use against
taxable profits from the Bruce, Keith and Rhum fields. The value of
the pool stood at approximately US$165 million at 1 January 2017
and a portion will have been used against taxable profits from the
Erskine field prior to Completion.
Limited exposure to commodity prices
The BKR Assets are predominantly gas assets and, as such, have
limited exposure to international oil price movements. Under the
Product Sales Agreements Serica UK will sell all of its future
production from the BKR Assets to BP entities and has hedged 60% of
its retained share of the gas production for 2018, 60% for 2019 and
40% for the first half of 2020 at a floor price of 35p per therm.
The cost of these hedging instruments has been drawn under the
Prepayment Facility. Gas price hedging mitigates risk for Serica in
relation to the Acquisition.
Increased scale
The Directors believe that scale is important in the
international oil and gas industry. The Acquisition will increase
Serica's prominence and profile, improving its ability to attract
new investment funding when required. The diversification of
Serica's assets through the Acquisition and limited borrowings
places the Company in a strong position to grow both organically
through application of technology and operational efficiencies and
inorganically through further acquisitions. The Acquisition is
expected to place Serica as the third largest quoted European
independent upstream oil and gas company measured by UK
production.
Background information on the BKR Assets
The BKR Assets being acquired comprise a 36% interest in the
Bruce field, a 34.83% interest in the Keith field, and a 50%
interest in the Rhum field. With net production of approximately 5
million boe[3] in 2016 the BKR Assets were significantly cash flow
positive, generating an operating profit of $49.8 million[4] before
tax for the year
ended 31 December 2016.
The Bruce field is operated by BP and, upon Completion, will be
operated by Serica UK, with partners Total E&P UK Limited
(43.25%), BHP Billiton Petroleum Great Britain Limited (16%),
Marubeni Oil and Gas (North Sea) Limited (3.75%) and BP (1%). The
Bruce field was discovered in June 1974 and is located 350 km
northeast of Aberdeen at a water depth of 122 metres and with an
area of approximately 75km(2) . Field development was sanctioned in
1990 and production started in 1993. Production is primarily gas
with associated condensate and NGLs. The field produces from 11
reservoir units, separated by faulting and has a cumulative
production since 1993 of over 3Tcf. Bruce 1H 2017 production was
approximately 4,400 boepd net to BP[5]. The field utilises three
bridge-linked
platforms and a subsea manifold for production. There is a
production platform housing a crew of up to 168 with production and
facilities equipment. The second platform is a drilling platform,
with the third platform hosting reception and compression
facilities. Gas compression was installed in 2004. The field was
originally appraised with 26 wells. To date there are over 60 well
penetrations in the field with 21 producing wells.
The Keith field lies 6.8 km to the southwest of the Bruce field
in a water depth of 120 metres and has been developed as a subsea
tie-back to the Bruce complex. It is operated by BP and on
Completion will be operated by Serica UK, (34.83%), with partners
Total E&P UK Limited (25%), BHP Billiton Petroleum Great
Britain Limited (31.83%) and Marubeni Oil and Gas (8.34%). Keith
was confirmed as a separate field to Bruce after drilling in 1987
and first came on production in 2000, with a second phase of
development in 2002. Keith 1H 2017 production was approximately 450
boepd net to BP[6]. No further capital programmes are planned on
Keith as the field is in
the final stages of its producing life.
The Rhum field lies 380km north east of Aberdeen, 44 km north of
the Bruce field and in 109 metres of water and is operated by BP
(50%). On Completion it will be operated by Serica UK, with Iranian
Oil Company (UK) Limited (50%) as its partner. As a consequence of
US primary sanctions imposed on Iran, BP, as the current operator,
has obtained a licence granted by the US Office of Foreign Assets
Control for the deployment of certain resources on field
operations. The field was discovered by BP in 1977 and encountered
high pressure and high temperature gas. Production started in
December 2005 and peaked at 300mmscfd (51,000 boepd), shortly after
start-up. Cumulative production since 2005 has been approximately
65 million boe gross, and 1H 2017 gas and condensate production was
approximately 13,500[7] boepd net to BP from two wells. A third
well (Rhum R3 Well) was drilled
but not brought into production due to complications with the
completion and hydrate formation. The Rhum field partners are
planning that the Rhum R3 Well be re-entered and completed for
production in 2018.
Summary of Bruce, Keith and Rhum Reserves (net to BKR
Assets)[8]
As of 1 June 2017
Total 1P Total 2P Total 3P
--------- --------- ---------
Net Remaining Reserves
Oil & Liquids (MMBarrels) 3.394 4.994 5.430
Gas (MMCF) 171,008 264,258 306,686
Summary of Erskine Reserves (net to Serica's interest)[9]
As of 30 June 2017
Total 1P Total 2P Total 3P
--------- --------- ---------
Net Remaining Reserves
Oil (MMBarrels) 0.821 1.499 2.323
NGL (MMBarrels) 0.108 0.195 0.301
Gas (MMCF) 5,415 9,825 15,164
Enlarged Group strategy
The Directors intend that the Enlarged Group will build upon its
technical and financial strengths both organically, through its
existing assets, and inorganically, through further acquisitions
which have near term potential. As operator of the BKR Assets,
Serica will seek to enhance the value of its assets to the benefit
of stakeholders and partners through increased operating
efficiencies to reduce costs and the application of new
technologies to increase production, maximise recovery and extend
producing life of the fields where possible without compromising
the highest safety, environmental and employment standards. As a
non-operator of the other Enlarged Group assets (save for Columbus
where Serica is the development Operator), Serica will seek to work
closely with its operators to maximise the recovery of Reserves and
resources. The Directors intend to build new opportunities by
combining the operational skills of BP staff with the existing
Serica management team. The Company will also continue to seek ways
of broadening its asset base and resources through selected
acquisitions where these can be identified to strengthen its
portfolio and add to its capabilities over the full exploration to
production cycle.
Principal terms of the Acquisition and Product Sales
Agreements
Pursuant to the Acquisition Agreement, Serica UK has
conditionally agreed to acquire the entire interests and
operatorship of BP in the Bruce, Keith and Rhum fields save for a
1% interest in the Bruce field, which is to be retained by BP. In
addition, pursuant to the Product Sales Agreements, Serica UK will
sell to BP, Serica UK's share of gas, oil and NGLs produced from
the BKR Assets.
The Consideration for the Acquisition is to be entirely funded
by cash, with the bulk of the consideration being deferred and/or
contingent and expected to be financed from Serica's share of the
net cash flows from the BKR Assets. The consideration is made up of
the following elements.
An Initial Consideration of GBP12.8 million is payable at the
date of Completion. Serica is entitled to a share of the net cash
flows from the BKR Assets during the interim period from the
effective date of the Acquisition (1 January 2018) to the date of
Completion, which, in the light of the conditions to be satisfied
as referred to below, is not expected to be until mid-2018. The
Directors anticipate that Serica's share of the net cash flow in
this period will be more than the amount of the Initial
Consideration and, since these net cash flows are to be netted off
against the amount of the Initial Consideration, this would mean
that at Completion there would be a net amount paid to Serica UK by
BP. Serica also has the option to draw down the amount of the
Initial Consideration pursuant to the Prepayment Facility described
below.
In addition to the Initial Consideration, up to GBP16 million is
payable to BP in January 2019 or thereafter provided that the Rhum
R3 Well has achieved a specified minimum production threshold for
90 days during the first year following completion of the workover
anticipated to take place during 2018. If the production threshold
is not met, this element of the consideration will not be paid.
.
Up to a further GBP23.1 million in aggregate is payable in three
annual instalments (of up to GBP7.7 million each), in respect of
2019, 2020 and 2021. The amounts payable will be reduced if Rhum
field production and the price achieved for sales of Rhum gas do
not meet certain thresholds.
BP will also receive a share of net cash flow from the BKR
Assets of 60% in 2018, 50% in 2019 and 40% in each of 2020 and
2021. The net cash flow shares are calculated on a monthly basis.
No amounts are payable by Serica UK unless this cash flow is
positive and amounts are repayable to Serica UK in the event of
negative cash flow, up to the amount of prior payments made to BP
in the same year. Excess losses in a year are carried forward to be
offset against future income.
In addition to the consideration amounts outlined above, Serica
UK will pay consideration equal to 30% of BP's share of
decommissioning costs reduced by the tax relief that BP receives on
those costs. This element of consideration is capped by the amount
of net cash flow received by Serica UK as a result of the
Acquisition.
Serica UK will also pay deferred consideration equal to 90% of
its share of the realised value of oil in the Bruce pipeline at the
end of field life.
BP will retain liability for all the costs of decommissioning
facilities existing at Completion relating to the BKR Assets.
Serica UK will pay for the costs of decommissioning new
facilities.
The Product Sales Agreements provide for sales prices based on
standard spot pricing, subject to deductions for marketing fees and
normal system charges. In addition, pursuant to the Prepayment
Facility, BPGM has provided up to GBP16 million to cover agreed
hedging costs and the Initial Consideration, if required, with
repayments out of 35% of Serica UK's retained share of gas sales to
be made on a monthly basis subject to a six-month payment holiday
from the date of Completion. The Prepayment Facility has a term of
3 years and carries an interest rate of 4.5% above LIBOR. The
Prepayment Facility and associated hedging provides Serica UK with
additional liquidity and mitigates gas price risk.
Serica and Serica UK have each provided certain financial
guarantees to BP in relation to the obligations under the
Acquisition documents, Net Cash Flow Sharing Deed and gas sales
arrangements. These include a charge over the BKR Assets during the
period of the Net Cash Flow Sharing Deed and a parent company
guarantee in respect of certain obligations under the Sale and
Purchase Agreement and gas sales arrangements. There are also
constraints on Serica UK in terms of selling or encumbering the BKR
Assets in the future.
Completion of the Acquisition is conditional inter alia on:
-- The OGA's consent to the assignment of the interests in the
BKR licences to Serica UK and the transfer of operatorship of the
BKR Assets to Serica UK
-- A waiver of pre-emption rights from Iranian Oil Company (UK)
Limited, BP's partner on the Rhum field;
-- The approval of BP's partners in the BKR Assets to the
assignment of the licence interests and the transfer of
operatorship to Serica (the requirement for such approval is
customary for transactions of this type);
-- Clearance being received from HMRC for the tax treatment of
the sharing of the net cash flows from the BKR Assets pursuant to
the Net Cash Flow Sharing Deed as intended;
-- Receipt by Serica UK of an OFAC licence and arrangement of
satisfactory banking facilities to conduct Rhum operations;
-- Renewal of certain of the BKR Assets' licences prior to Completion;
-- Amendments to BKR operating and decommissioning agreements to
give effect to the decommissioning arrangements as between BP and
Serica UK; and
-- The passing of the Resolution at the General Meeting
It is anticipated that some of the conditions (and in particular
the OGA consents referred to above) will take some months to
satisfy. Accordingly, it is not anticipated that Completion will
take place until mid-2018. Completion will not take place unless
Admission also occurs.
In addition to the conditions under the Acquisition Agreement,
Serica UK has the right to terminate the Acquisition Agreement
prior to Completion in the event of catastrophic damage to the
facilities. Each of Serica UK and BP can also terminate the
Acquisition Agreement if there is cessation of production from the
Rhum field due to sanctions. The Iranian Oil Company (UK) Limited
is a joint venture partner in the Rhum field and is subject to US
restrictions in relation to Iran. As a British company, Serica is
not itself a US Person and is not restricted in its partnership
joint venture arrangements but will otherwise comply with US
sanctions law in every respect insofar as it applies to US persons
as they relate to Rhum field operations.
The Acquisition Agreement also contains customary warranties in
relation to the BKR Assets from BP for a transaction of this
nature.
BP and Serica UK have also entered into the Transfer of
Operatorship Agreement pursuant to which the parties have set out
the process and obligations between them for transferring to Serica
UK the operatorship of the BKR Assets. The transfer of operatorship
to Serica is a substantial undertaking and requires the consent of
OGA and BP's field partners in the BKR Assets. The transfer of
operatorship involves, amongst other things, Serica UK taking on
approximately a further 110 employees, the transfer of inventory,
the assignment or replacement of a substantial number of contracts
relating to the day to day operations of the BKR Assets and the
identification of IT software and hardware to be transferred or
replaced. The Company also expects to open its own office in
Aberdeen from which it will manage day to day operations. The TOA
includes mutual indemnities in relation to the matters to be
performed under it.
Serica is committed to protect terms and conditions above and
beyond TUPE requirements for a period of at least 12 months after
the date of Completion of the Acquisition. Serica has no plans to
reduce workforce numbers and will consult and engage with in-scope
employees, contractors and agency staff throughout the sale process
during which time a transition plan will be put in place.
Board changes
Mitchell "Mitch" Robert Flegg, aged 57 has been appointed as CEO
and a Director to the Board with immediate effect.
One of the assets that Serica is acquiring, the Rhum field, is
held in a joint venture with Iranian Oil Company (UK) Limited.
Jeffrey Harris, as a US Person, is subject to US restrictions in
relation to Iran. He has therefore recused himself from Board
discussions relating to the Acquisition and has elected to step
down from the Board in order to ensure that Serica is not
encumbered in its future operations by his presence as a Director.
GRG UK Oil LLC, an entity controlled by Jeffrey Harris, remains a
significant shareholder of Serica.
Serica recognises the importance of meeting best practice
corporate governance standards and will seek to strengthen its
Board further in the near-term with Non-Executive Director
appointments to ensure it can facilitate the diversity and growth
ambitions of the business.
Reverse takeover and timetable
The Acquisition will constitute a reverse takeover in accordance
with Rule 14 of the AIM Rules for Companies and is subject to a
number of conditions including approval by Serica shareholders.
Accordingly, the Company's Ordinary Shares will be suspended from
trading on AIM shortly following the release of this announcement
and will remain suspended until a new AIM Admission Document has
been published.
The Company anticipates publishing an AIM Admission Document
together with a Notice of General Meeting to approve the
Acquisition on or around 30 November 2017. Following publication,
the Board expects that trading in the Company's Ordinary Shares on
AIM will resume.
Notes:
Mitch Flegg has held the following directorships during the last
five years:
Current directorships Previous directorships
Greenoaks Advisory Limited Serica Energy plc
Serica Energy (UK) Limited
Serica Holdings UK Limited
Serica UK Exploration Limited
Circle Oil plc
Circle Oil Maroc Limited
Circle Oil Egypt Limited
Circle Oil Tunisia Limited
Circle Oil Oman Limited
Circle Oil Jersey Limited
Mr Flegg holds 184,445 Ordinary Shares in the Company.
Circle Oil plc went into a creditors voluntary liquidation on 20
February 2017, and Circle Oil Jersey Limited went into
administration on 26 January 2017. Mr Flegg was a director of both
of these companies at the time of, or within the period of twelve
months prior to the dates on which these events occurred. Mr Flegg
has nothing further to disclose pursuant to paragraph (g) of
Schedule Two of the AIM rules for Companies.
NOTICE
This announcement includes statements that are, or may be deemed
to be, "forward-looking statements". These forward-looking
statements can be identified by the use of forward-looking
terminology, including the terms "believes", "envisages",
"estimates", "anticipates", "projects", "expects", "intends",
"may", "will", "could", "seeks" or "should" or, in each case, their
negative or other variations or comparable terminology, or by
discussions of strategy plans, objectives, goals, future events or
intentions. These forward-looking statements include statements
regarding the Company's and the Directors' current intentions,
beliefs or expectations concerning, amongst other things,
investment strategy, financing strategy, performance, results of
operations, financial condition, liquidity, prospects, growth,
strategies and the industry in which the Enlarged Group will
operate.
By their nature, forward-looking statements involve risks
(including unknown risks) and uncertainties because they relate to
events and depend on circumstances that may or may not occur in the
future. Forward-looking statements are not an assurance of future
performance. The Company's actual performance, results of
operations, financial condition, liquidity and dividend policy and
the development of the business sector in which the Enlarged Group
will operate, may differ materially from those suggested by the
forward-looking statements contained in this announcement. In
addition, even if the Company's performance, results of operations,
financial condition, liquidity and dividend policy and the
development of the industry in which the Enlarged Group will
operate, are consistent with the forward-looking statements
contained in this document, those results or developments may not
be indicative of results or developments in subsequent periods.
Any forward-looking statements in this announcement reflect the
Company's and the Directors' current view with respect to future
events and are subject to risks relating to future events and other
risks, uncertainties and assumptions relating to the matters
referred to above. Other than in accordance with the Company's
obligations under the AIM Rules for Companies, the Company does not
undertake to update or revise publicly any forward-looking
statements, whether as a result of new information, future events
or otherwise.
Information pertaining to the petroleum assets in which the
Enlarged Group will be interested is derived from the BKR CPR and
Serica CPR.
Various market data and forecasts used in this announcement have
been obtained from independent industry sources. The Company has
not verified the data, statistics or information obtained from
these sources and cannot give any guarantee of the accuracy or
completeness of the data. Forecasts and other forward-looking
information obtained from these sources are subject to the same
qualifications, risks and uncertainties as above.
DEFINITIONS
The following definitions apply throughout this announcement
unless the context requires otherwise:
"Acquisition" the proposed acquisition by
Serica UK of the BKR Assets
on the terms of the Sale and
Purchase Agreement;
"Admission" the re-admission of the Ordinary
Shares to trading on AIM becoming
effective in accordance with
the AIM Rules at Completion;
"Admission Document" the admission document proposed
to be published by the Company
in connection with Admission;
"AIM" AIM, a market of the London
Stock Exchange;
"AIM Rules" the AIM Rules for Companies
and the AIM Rules for Nominated
Advisers, as applicable;
"AIM Rules for the rules for AIM companies
Companies" published by the London Stock
Exchange, as amended or re-issued
from time to time;
"AIM Rules for the rules for nominated advisers
Nominated Advisers" to AIM companies published
by the London Stock Exchange,
as amended or re-issued from
time to time;
"BP" BP Exploration Operating Company
Limited;
"BPGM" BP Gas Marketing Limited;
"BKR Assets" BP's interests in the Bruce,
Keith and Rhum fields in the
North Sea (save for a 1% interest
in the Bruce field which is
being retained by BP), along
with the associated oil and
gas infrastructure and as
more specifically set out
in the Sale and Purchase Agreement;
"BKR CPR" or "BKR the independent technical
Competent Person's report of Ryder Scott Company
Report" L.P. dated 17 November 2017
in relation to the Reserves
and resources of the BKR Assets;
"Board" the board of directors of
the Company as constituted
from time to time;
"Company" or "Serica" Serica Energy Plc, a company
incorporated in England and
Wales with registration number
5450950;
"Completion" completion of the Acquisition
in accordance with the terms
of the Acquisition Agreement;
"Directors" the current directors of the
Company;
"Enlarged Group" Serica and its subsidiaries
following Completion;
"General Meeting" the general meeting of the
Company proposed to be convened
for the purposes of considering
the Resolution;
"HMRC" Her Majesty's Revenue and
Customs;
"Initial Consideration" the initial consideration
of GBP12.8 million payable
for the BKR Assets pursuant
to the Sale and Purchase Agreement,
against which Serica UK's
share of net cash flow from
the effective date (1 January
2018) will be netted off;
"London Stock London Stock Exchange plc;
Exchange"
"MAR" the EU Market Abuse Regulation
(No 596/2014);
"Maximising Economic an OGA programme to maximise
Recovery" the recovery of oil and gas
on the UKCS;
"Net Cash Flow a deed between BP and Serica
Sharing Deed" UK to be entered into on Completion
which sets out the methodology
for calculating BP's share
of future net cash flows from
the BKR Assets;
"OFAC" US Office of Foreign Assets
Control;
"OGA" the Oil and Gas Authority;
"Ordinary Shares" the ordinary shares in the
capital of Serica of US$0.10
each;
"Prepayment Facility" The prepayment facility between
BPGM and Serica UK dated 21
November 2017
"Product Sales those agreements for the purchase
Agreements" by BP entities of Serica UK's
share of gas, oil and NGLs
relating to the BKR Assets;
"Resolution" the resolution to be put to
Shareholders to approve the
Acquisition;
"Rhum R3 Well" the third well drilled on
the Rhum field which is proposed
to be re-entered in 2018;
"Ryder Scott" Ryder Scott Company L.P.,
the technical consultants
on the BKR Assets;
"Sale and Purchase the conditional agreement
Agreement", "SPA" between Serica UK and BP dated
or "Acquisition 21 November 2017 in relation
Agreement" to the acquisition of the
BKR Assets;
"Security Agreements" the agreements between Serica
UK and BP to be entered into
at Completion pursuant to
which security will be granted
to BP on Completion, to secure,
inter alia, its rights under
the Acquisition documents,
Net Cash Flow Sharing Deed;
"Shareholders" holders of Ordinary Shares
or "Serica Shareholders" from time to time;
"Serica CPR" or the independent technical
"Serica Competent report of Netherland Sewell
Person's Report" & Associates Inc, dated 20
November 2017 in relation
to the Company's Reserves
and resources;
"Serica UK" Serica Energy (UK) Limited,
a wholly owned subsidiary
of the Company;
"Transfer of Operatorship the agreement between BP and
Agreement" or Serica UK dated 21 November
"TOA" 2017 relating to the transfer
of operatorship of the BKR
Assets to Serica;
"TSX" Toronto Stock Exchange;
"TUPE" the Transfer of Undertakings
(Protection of Employment)
Regulations;
"UKCS" the UK Continental Shelf.
GLOSSARY OF TECHNICAL TERMS
The following glossary of technical terms applies throughout
this announcement unless the context requires otherwise:
Term Meaning
"1P" proved reserves;
"2C" the best estimate of contingent
resources;
"2P" proved plus probable reserves;
"3P" proved plus probable plus
possible reserves;
"bbls" barrel of 42 US gallons;
"bbls/day" or barrels per day;
"bpd"
"bcf" billion standard cubic feet;
"boe" barrel of oil equivalent;
"boepd" barrels of oil equivalent
per day;
"contingent resources" contingent resources are those
quantities of petroleum which
are estimated to be potentially
recoverable from known accumulations,
but the applied project(s)
are not yet considered mature
enough for commercial development
due to one or more contingencies;
"mmbbls" or "MMbbls" million barrels of oil;
"MM Barrels"
"MMBoe" or "mmboe" million barrels of oil equivalent;
"mmscf" "MMCF" million standard cubic feet;
"mmscfd" million standard cubic feet
per day;
"mscf" thousand standard cubic feet;
"NGLs" natural gas liquids extracted
from gas streams;
"P10" the high estimate of prospective
resources;
"P50" the best estimate of prospective
resources;
"P90" the low estimate of prospective
resources;
"possible reserves" possible reserves are those
additional Reserves that are
less certain to be recovered
than probable reserves. It
is unlikely that the actual
remaining quantities recovered
will exceed the sum of the
estimated proved + probable
+ possible reserves;
"probable reserves" probable reserves are those
additional Reserves that are
less certain to be recovered
than proved reserves. It is
equally likely that the actual
remaining quantities recovered
will be greater or less than
the sum of the estimated proved
+ probable reserves;
"prospective resources" prospective resources are
those quantities of petroleum
which are estimated to be
potentially recoverable from
undiscovered accumulations
by application of future projects.
Prospective resources have
both an associated chance
of discovery and a chance
of development;
"proved reserves" proved reserves are those
Reserves that can be estimated
with a high degree of certainty
to be recoverable. It is likely
that the actual remaining
quantities recovered will
exceed the estimated proved
reserves;
"p/th" Pence/therm;
"Reserves" estimates of discovered recoverable
commercial hydrocarbon reserves;
"Tcf" trillion standard cubic feet.
[1] Source: BKR CPR and Serica CPR
[2] Source: OGA production statistics H1 2017
[3] Source: OGA production statistics
[4] Source: Operating profit before interest, tax, depreciation
and amortization, based on unaudited financial information
extracted from BP's accounting records
[5] Source: OGA production statistics H1 2017
[6] Source: OGA production statistics H1 2017
[7] Source: OGA production statistics H1 2017
[8] Source: BKR CPR
[9] Source: Serica CPR
This information is provided by RNS
The company news service from the London Stock Exchange
END
ACQGGBDBLSDBGRB
(END) Dow Jones Newswires
November 21, 2017 02:01 ET (07:01 GMT)
Serica Energy (LSE:SQZ)
Historical Stock Chart
From Apr 2024 to May 2024
Serica Energy (LSE:SQZ)
Historical Stock Chart
From May 2023 to May 2024