TIDMSQZ
RNS Number : 2703G
Serica Energy plc
05 November 2018
Serica Energy plc ("Serica" or the "Company")
Acquisition of BHP Interests in Bruce and Keith
London, 5 November 2018 - Serica Energy plc (AIM: SQZ) is
pleased to announce that Serica Energy (UK) Limited ("Serica UK")
has signed a sale and purchase agreement ("SPA") to acquire further
interests in the Bruce and Keith fields and associated
infrastructure in the UK North Sea (the "Transaction").
Under the SPA, Serica UK will acquire a 16.00% interest in the
Bruce field and a 31.83% interest in the Keith field and associated
infrastructure ("BHP Assets") from BHP Billiton Petroleum Great
Britain Limited ("BHP"). The structure of the Transaction is the
same as the deals entered into by Serica with BP and Total whereby
Serica will acquire interests variously in the Bruce, Keith and
Rhum fields.
The Transaction has an effective date of 1 January 2018 and
completion is subject to completion of the previously announced
acquisition of interests in the Bruce, Keith and Rhum fields from
BP ("BP Transaction"). The Transaction is also subject to inter
alia certain regulatory, government and partner consents with
completion targeted for 30 November 2018.
The Transaction together with the previously announced purchases
from BP and Total will result in Serica consolidating its ownership
of the Bruce and Keith fields to 94.25% and 91.67% respectively
post-completion.
Transaction highlights
Following completion of the BP Transaction and acquisition of
further interests in the Bruce and Keith fields from Total E&P
UK Limited ("Total E&P Transaction") and transfer of
operatorship of the Bruce, Keith and Rhum fields to Serica UK, the
board believes the Transaction will further strengthen Serica's
position as one of the leading mid-tier independent oil and gas
producers on the UK Continental Shelf and will provide incremental
benefits to the Company.
-- Further increase in reserves and production
o Serica's pro-forma net 2P reserves as at 1 August 2018 are
expected to increase by approximately 4.0mmboe from approximately
58.7mmboe[i] post completion of the BP Transaction and Total
E&P Transaction to approximately 62.7mmboe post completion of
this Transaction
o Net production in 1H 2018 from the BHP Assets was
approximately 1,760boe/d, of which 81% was gas
o The Transaction is expected to be immediately cash flow and
value accretive following completion
-- Structured to mitigate financial risk and maintain balance sheet resilience
o The bulk of the consideration under the Transaction is
deferred and the initial cash consideration is expected to be
funded by Serica UK's share of net cash flows between 1 January
2018 and completion
-- Further increased scale in line with strategic growth plans
o The Transaction will enhance the value Serica expects to
unlock from the Bruce/Keith/Rhum areas
o No additional management and administrative resources will be
required.
o The Transaction will further increase Serica's scale and
profile, providing a broader base from which to attract funding and
pursue investment opportunities
Principal terms of the Transaction
The initial cash consideration is GBP1 million, to be adjusted
for working capital and 40% of post-tax cashflows from the
effective date of 1 January 2018. The net 2P Reserves attributable
to the BHP Assets as at 1 August 2018 are estimated to amount to
approximately 4.0mmboe.
BHP will also receive a share of pre-tax net cash flow from the
BHP Assets under a Net Cash Flow Sharing Deed ("NCFSD") on the same
terms as the net cash flow sharing deed entered into as part of the
BP Transaction. BHP will receive a share of pre-tax net cash flow
from the BHP Assets of 60% for the remainder of 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 BHP in the same year. Excess losses in a
year are carried forward to be offset against future income. As a
constituent part of the calculation of the Monthly Net Cash Flow
Payment, Serica shall, subject to the terms of the NCFSD, be
entitled to propose the carrying out of Necessary Investment Works
and / or Discretionary Investment Works.
BHP is retaining liability for the costs of decommissioning
facilities and wells already in place. Serica will pay deferred
consideration to BHP in respect of 30% of BHP's share of future
decommissioning costs when due, reduced by the tax relief
attributable to BHP on such costs. This element of consideration is
capped by the amount of cumulative net cash flow received by Serica
UK, as a result of the Transaction. Deferred consideration will
also be payable in respect of the realised value of oil in the
Bruce pipeline at the end of field life.
Completion of the Transaction is conditional inter alia on:
-- Completion of the BP Transaction;
-- Relevant third-party consents;
-- OGA approval;
-- HMRC clearance with respect to the tax treatment of the NCFSD; and
-- The execution of certain decommissioning documents.
The BHP SPA also contains customary warranties in relation to
the BHP Assets from BHP for a transaction of this nature.
Mitch Flegg, Chief Executive of Serica Energy, commented:
"We are delighted to have agreed with BHP to acquire their
stakes in Bruce and Keith and to be consolidating our ownership in
the fields to 94.25% and 91.67% respectively. This acquisition, in
addition to the previously announced transactions with BP and
Total, place us in an even better position to unlock increased
value from the assets and benefit from economies of scale."
"Completion of the Transaction with BHP is anticipated to take
place immediately after the respective completions of the BP and
Total E&P Transactions. This will represent a major
transformation for Serica in becoming one of the leading UK
independent offshore operators and producers in the North Sea."
Background to and reason for the Transaction
In November 2017 Serica announced the BP Transaction under which
Serica UK will acquire interests in the Bruce, Keith and Rhum
fields in the North Sea and associated infrastructure from BP.
Under the terms of the BP Transaction Serica UK will acquire a 36%
interest in Bruce, a 34.83% interest in Keith and a 50% interest in
Rhum. The deal has an effective date of 1 January 2018. Completion
of the BP Transaction is targeted to take place on 30 November
2018.
In August 2018, Serica announced the Total E&P Transaction
under which further interests in the Bruce and Keith fields and
associated infrastructure in the UK North Sea are to be acquired
from Total. Under the terms of the Total E&P Transaction,
Serica UK will acquire a 42.25% interest in the Bruce field and a
25% interest in the Keith field and associated infrastructure. The
Total E&P Transaction also has an effective date of 1 January
2018 and completion will be subject to completion of the BP
Transaction.
The BP Transaction was deemed a reverse takeover, an admission
document was published and shareholders approved the BP Transaction
at a General Meeting of the Company on 18 December 2017. There are
still a number of conditions precedent which need to be satisfied
ahead of completion of the BP Transaction. As part of the BP
Transaction, operatorship of the Bruce, Keith and Rhum fields will
be transferred from BP to Serica, along with approximately 110 BP
staff.
This Transaction presents Serica with an opportunity to further
increase its reserve and production base by assuming a greater
interest in assets already well known to the Company and its
shareholders. The Transaction is also structured in a way that
minimises downside risk and dilution for shareholders, whilst also
maintaining the Company's balance sheet resilience.
About the Assets
The net 2P Reserves attributable to the BHP Assets as at 1
August 2018 are estimated to amount to approximately 4.0 mmboe.
These reserves will provide a significant addition to the estimated
2P Reserves of approximately 58.7mmboe attributable to Serica
(assuming completion of the BP Transaction and Total E&P
Transaction).
The Bruce field was discovered in June 1974 and is located in
the UK Northern North Sea, 350 km northeast of Aberdeen at a water
depth of 122 metres and with an area of approximately 75 km(2).
Field development was approved 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 had a cumulative production since 1993 of over
3tcf. 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 meters and has been developed as a subsea
tie-back to the Bruce complex. The Keith field 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. No
further capital programmes are planned on Keith as the field is in
the final stages of its producing life. Subject to completion of
the Total UK Acquisition, Serica UK intends to continue production
from its single well as long as economically viable.
Wet gas from the Bruce and Keith fields is processed at the
Bruce complex and then transported via a 6 km spur line through the
Frigg pipeline to St. Fergus for Natural Gas Liquids extraction.
Dry gas is delivered as part of a commingled gas stream at St.
Fergus into the National Transmission System. NGLs are extracted at
St. Fergus and transported via a 12-inch diameter, 22 km pipeline
to Cruden Bay. The condensate is separated at the Bruce complex
then exported via a 24-inch diameter line, 254 km to the Forties
Unity platform. The liquids are then transported via the 36-inch
diameter Forties pipeline 240 km to Cruden Bay, then overland to
Grangemouth.
The BHP Assets include the Bruce field facilities which comprise
three bridge-linked platforms. There is a production platform
housing a crew of up to 168 with production and utilities
equipment. The second platform is a drilling platform, with the
third platform hosting reception and compression facilities.
The BHP Assets being acquired generated an operating profit
before interest, taxation, depletion and amortisation of US$14.68
million for the year ended 31 December 2017 based on unaudited
financial information extracted from the BHP accounting
records.
Summary of Assets (Net 2P Reserves as of 1 August 2018)
Erskine BP Assets Total UK BHP Assets Enlarged
Assets Group
Oil & Liquids mmbls 1.58 4.72 2.88 1.18 10.37
------- -------- ---------- --------- ----------- ---------
Gas mmscf 8,737 236,263 42,525 16,589 304,114
------- -------- ---------- --------- ----------- ---------
Combined mmboe 3.03 45.46 10.21 4.04 62.74
------- -------- ---------- --------- ----------- ---------
Impact on Serica
The Transaction is structured to control risk and minimise
shareholder dilution
The Transaction has been structured primarily on a deferred cash
consideration basis, leaving Serica UK to pay a relatively small
initial consideration of GBP1 million which is expected to be
funded from Serica UK's share of net cash flow from the BHP Assets
during the period from 1 January 2018 to completion of the
Transaction. The Directors expect to be able to meet the future
deferred cash consideration payable from Serica UK's share of the
net cash flows from the BHP Assets following completion of the
Transaction with the level of future payments linked to the
performance of the BHP Assets thereby allowing both parties to
share the benefits of improving field recoveries and production
efficiencies.
Maintains the Company's balance sheet resilience
The consideration structure with its emphasis on future payments
related to asset performance will assist Serica in maintaining its
balance sheet resilience with net cash resources and limited
borrowings. The Company's only borrowings at completion of the
Transaction are expected to be drawings under the prepayment
facility provided by BP in respect of the BP Transaction. In
addition, the arrangements on decommissioning, under which BHP is
retaining all of the decommissioning liabilities of existing
facilities related to BHP Assets, will assist Serica in maintaining
financial capability to support its future operations.
The Transaction is expected to be cash flow and value
accretive
The Transaction is expected to be immediately cash flow and
value accretive post-completion. Based on 2018 production rates,
Serica's net production would increase by approximately 1,760boe/d
as a result of the Transaction. Based on internal management
estimates, pro-forma net 2P Reserves per Serica share are
anticipated to increase by around 7%.
Increased scale
The Directors believe that scale is important in the
international oil and gas industry. The Transaction will further
increase Serica's prominence and profile, improving its ability to
attract new investment funding when required. This increased scale
places the Company in a strong position to grow both organically
through application of technology and operational efficiencies and
inorganically through further acquisitions.
Technical Information
The technical information contained in the 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
& 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).
Regulatory
This announcement is inside information for the purposes of
Article 7 of Regulation 596/2014.
Enquiries
Serica Energy plc
Tony Craven Walker
Executive Chairman tony.cravenwalker@serica-energy.com +44 (0)20 7457 2020
Mitch Flegg
CEO mitch.flegg@serica-energy.com +44 (0)20 7457 2020
Peel Hunt
Richard Crichton richard.crichton@peelhunt.com +44 (0)20 7418 8900
Ross Allister ross.allister@peelhunt.com +44 (0)20 7418 8900
James Bavister james.bavister@peelhunt.com +44 (0)20 7418 8900
Instinctif
David Simonson david.simonson@instinctif.com +44 (0)20 7457 2020
Catherine Wickman catherine.wickman@instinctif.com +44 (0)20 7457 2020
George Yeomans george.yeomans@instinctif.com +44 (0)20 7457 2020
Notes to Editors
Serica Energy is an oil and gas exploration and production
company with exploration, development and production assets in the
UK and exploration interests in the Atlantic margins offshore
Ireland and Namibia. Serica holds an 18% non-operated interest in
the Erskine field in the UK Central North Sea and a 50% operated
interest in the Columbus field scheduled to commence development in
2019. OGA approval of the Columbus FDP was granted in October
2018.
Further information on the Company, the BP Transaction and the
Total E&P Transaction can be found at
www.serica-energy.com.
The Company is listed on the AIM market of the London Stock
Exchange under the ticker SQZ and is a designated foreign issuer on
the TSX. To receive Company news releases via email, please
subscribe via the Company website.
Glossary
Term Meaning
"2P" proved plus probable reserves;
"bbls" barrel of 42 US gallons;
"boe" barrel of oil equivalent;
"boe/d" barrels of oil equivalent per day;
"Discretionary Investment Any works or investment on the BHP
Works" Assets which is not classified as
Necessary Investment Works;
"Dry Gas" Dry Gas is a natural gas containing
insufficient quantities of hydrocarbons
heavier than methane to allow their
commercial extraction or to require
their removal in order to render the
gas suitable for fuel use;
"Monthly Net Cash Flow Monthly payments made subject to the
Payment" terms of the NCFSD
"mmbbls" million barrels of oil;
"mmboe" million barrels of oil equivalents;
"mmscf" million standard cubic feet;
"Necessary Investment Any works or investment relating to
Works" the above water facilities of the
BHP Assets which; (i) is necessary
in Serica's reasonable opinion to
maintain production levels for the
Bruce field up to the close of 2021;
or (ii) is required to comply with
directions from the UK Oil and Gas
Authority or Health and Safety Executive;
"NGLs" natural gas liquids extracted from
gas streams;
"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;
"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;
"Reserves" estimates of discovered recoverable
commercial hydrocarbon reserves;
"Wet Gas" Wet Gas is a natural gas containing
sufficient quantities of hydrocarbons
heavier than methane to allow their
commercial extraction or to require
their removal in order to render the
gas suitable for fuel use.
[i] Throughout this document reserve figures are taken from the
latest Serica internal management estimates dated 1 August
2018.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
ACQLFFVILELSIIT
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