Serica Energy (LSE:SQZ) — Full-year results 2024

0:00 Good morning, and welcome to the SERICA ENERGY PLC full year results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged, they can be submitted at any time by the q and a tab situated in the right hand corner of your screen. Just simply type in your questions and press send. Company may not be in a position to answer every question it receives during the meeting itself. However, the company can review the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to CEO, Chris Cox. Good morning, sir.

0:31 Good morning, and welcome to our full year results for 2024. I'm joined as usual by Martin Copeland, CFO and Andrew Benbow, our Group Investor Relations Manager. Thank you to those of you who have submitted questions ahead of the call. As always, we have a good amount to get through, but do please post any further questions you have during the presentation. Should we not get time this morning then please contact Andrew directly. We are happy to respond to every question we receive. Martin and I will now run through a presentation and then answer as many questions as we can in the time available.

1:13 Our usual disclaimer is available for anyone to read. However, while I'm on this slide, it does allow me to also say upfront that unfortunately for regulatory reasons, we're not able to comment on or address questions in relation to the possible offer and reverse takeover with EnQuest. We would refer shareholders to what we and EnQuest said in our respective announcements on the March 7 and also to the dedicated section on our website with all disclosure relevant to this. We start with a brief introduction to SERICA ENERGY, especially for anyone new to our story. We are a significant producer in The UK North Sea, with roughly 5% of The UK's domestic gas production coming from our Bruce, Keith And Rum assets and a total of 10 producing fields in our portfolio.

2:10 We have a broadly even mix of oil and gas, meaning that we are not overly exposed to the price fluctuations of a single commodity. Our production comes primarily from two main hubs, with the Bruce hub being predominantly gas and the Triton hub predominantly oil. We have the potential to generate material free cash flow with the Triton hub having tax losses and generating capital and investment allowances from our ongoing CapEx program, which shelter its profits from the high tax rate on The UK continental shelf. We have plenty of opportunities in the portfolio to add to our production. Some at Triton we have seen preliminary results from and others that are contingent resources which we plan to convert into reserves in coming years.

3:03 Alongside investment in new wells, our cash generation also supports material shareholder returns. We have returned over GBP $250,000,000 to shareholders through our dividend and carried out an inaugural share buyback in 2024. While we absolutely intend to continue with this track record, and you will note that we have today announced an adjustment to our final dividend in order to rebalance our capital allocation, and both Martin and I will cover this more in our comments today. It is worth adding that we also contribute meaningfully to society and The UK economy. And over the last three years, we have in fact paid over £500,000,000 of taxes to the Exchequer as well as contributing to The UK's security of energy supply.

3:56 In addition, our balance sheet strength bolstered by the lowest level of decommissioning liabilities among our peer group help support our continued focus on value additive M and A, where we continue to evaluate a range of opportunities across the North Sea and overseas. And last, but by no means least, we are always striving to reduce our emissions, which remain below the North Sea average for emissions intensity. The next slide shows our unchanged strategy and business model, The first tenet of which is, of course, safety. This is our top priority, and we absolutely believe that the practices that drive good safety performance also drive good production reliability.

4:45 So as well as operating safely, what are we here for? We're here to create shareholder value, and we aim to do this by operating and growing a portfolio that delivers free cash flow and supports sustained investment as well as growth and returns. When looking at the outer circle, there are some things that I think we do very well and others in which we can improve. I believe, for example, that we excel at subsurface analysis and have a great m and a team. But we need a more balanced portfolio for predictable performance. Safety is always a continuing work in progress, and our operational efficiency has been poor of late. However, we understand our gaps, and we know what we need to do to improve.

5:36 SERICA has a history of generating value from mid to late life assets, And I firmly believe we can continue to create value in this area. I spent a large part of my career working on mid to late life fields, delivering organic growth and building companies. And there is a tremendous potential here both organically and with the right market backdrop and M and A expertise to deliver transactional value creation. Our portfolio should be producing over 40,000 barrels of oil equivalent per day on an average basis and would be if we could deliver even basin average annual uptime. This represents a significant opportunity compared with recent performance. The natural decline rate of our assets is roughly 15% per year, but the current Triton drilling program can offset this through 2026 and beyond with the potential for further work on Kyle or at BKR and possibly Buchenhorst to do the same for the remainder of the decade.

6:41 As well as organic opportunities, we are also actively pursuing multiple m and a opportunities at present. One, of course, you know about, and as already mentioned, I cannot comment on this further. There are, though, many other active processes in which we are involved. We will, however, always be disciplined when it comes to m and a. We know that bigger does not always mean better for shareholders, and hence, our focus is absolutely on value creation and cash flow accretion. If the right deal isn't available at the right time, the strength of our asset portfolio means that we do not have to transact. Nonetheless, we are confident that there are things out there which we can get done and that will create value.

7:30 As we do this, we will not lose focus from optimizing the cash generation to come from our current portfolio.

7:40 But, of course, there's no cash generation without production. And as you are all aware, 2024 was a disappointing year with 2025 frustratingly for us, and I'm sure for you, starting out in a similar fashion. This graph shows the last fifteen months of net production, and it is clear how erratic that has been. The frustration is that as the early results from recent drilling demonstrates very successfully, the portfolio can be doing so much more. As you can see in the right hand bar on the graph, the day before storm Eowyn, we produced over 50,000 barrels a day with over 25,000 barrels a day net to SERICA coming just from Triton.

8:28 While we cannot expect this daily rate to become an annual average given well decline and normal uptime, it is worth noting that on this particular day, there were in fact also wells being worked on at RUM that meant BKR was not producing at its full potential. With With production still to come from new wells at Guillemot and Evelyn, you can understand why at the time of our trading statement on the January 21, we were very upbeat about the possibilities for 2025. And we remain excited about those possibilities. The barrels have not disappeared and are still in the ground. So let's move on to deal clearly and openly with the issues that have arisen. In 2024, the key issue at Triton, as many of you will be aware, was with the single available gas export compressor.

9:22 This compressor suffered multiple failures of the dry gas seals during last year, and Dana initially struggled to identify the root cause of the failures. But in December, we believe the cause was correctly identified and fixed, and then storm Eowyn hit. It's worth pausing here to note that we appreciate that people will naturally extrapolate from the issues we've had to questions about the fundamental integrity of the FPSO and how fit for purpose it remains. As you would expect, we and Dana are not leaving any stone unturned when it comes to the FPSO and hence commissioned an engineering report from Kent Group, which confirmed our view that the FPSO is fundamentally sound.

10:11 Things that can typically require an FPSO to be dry docked are not an issue. It was built with a double hull, and that has been confirmed to be in good shape. And there are no fundamental issues with either the swivel or the turret. The same conclusion has also been reached by another independent third party study. There are other FPSOs of similar vintage that are functioning well in the North Sea with far better uptime. So we know that we can get Triton into a much better place than we have seen in the recent past. So let me address what is the current issue with Triton. Storm Eoin caused a crack to open up in one of the onboard crude storage tanks. Now that sounds worse than it is, but these problems occur quite regularly and are normally fixed within a few days.

11:02 To fix them though, you need to weld inside the tank and given the obvious ignition risk that this creates, the tanks need to be purged through the injection of inert gas to replace any residual hydrocarbon gases. As this was happening, issues were found with the integrity of the pipework carrying the inert gas. This was clearly a safety risk, and the path to resolving it has been an evolving situation. Initially, as we announced, mid to late March seemed an appropriate target for completion of the maintenance. However, following further investigation with all piping and valves in the inert gas system and the venting system to the cargo oil tanks being inspected, it became clear that a more significant work scope would have to be undertaken to replace whole sections of pipework in this system on the FPSO.

12:01 It was also necessary to completely empty all cargo tanks on the vessel prior to starting any of the repair work. The schematic on this slide shows the entire inert gas system and the venting system, which essentially runs the length of the vessel, about 200 meters. You may be able to make out sections of pipe in yellow, which means they require repair, and a few sections in red, which need which need to be completely replaced. Although it's not visible on this scale, there are also 30 isolation valves in the system, which need to be replaced. We've been working hard with Dana to put in place an appropriate forward plan that minimizes downtime over the course of the year.

12:49 So we're pleased to be able to announce today that the operator's plan is to bring forward the summer maintenance program to begin that work while the FPSO is offline for these ongoing repairs. This makes a lot of sense. When carrying out out a maintenance, it effectively takes a week or so just to purge tanks and shut down operations, as well as then taking a similar time to ramp up when you restart. As a result, simply combining the two outages saves two weeks of downtime this year.

13:24 By June, we should have an overhauled piping system, a second compressor in place, and a much more confident outlook for reliability going forward. Now that we have much more clarity on the way forward, we're able to reinstate production guidance. But of course, there will unfortunately be an impact on our full year annual average guidance. We cannot make up for what will be a loss of Triton production for at least four months. Production guidance for 2025 has therefore been amended to between 33,037 barrels of oil equivalent per day. With maintenance work at the Triton FPSO set to complete in June and no subsequent summer shutdown, portfolio production in the second half of the year is forecast to be well ahead of the annual average guidance figure.

14:22 I think it is important to explain how we get to these figures. We are keenly aware of our recent failures to meet guidance, and therefore, we want to be very open and clear about our assumptions. The midpoint of that production range assumes that Triton comes back online at the end of June, which is intended to be a prudent assessment of a restart date with the operator currently believing work will be completed at at the the start of June. The midpoint also presumes 80% uptime of the Triton FPSO in the second half of the year, a figure that we would hope can be bettered. We have built in p ninety expectations for our two newest wells, which have not produced yet. We think this is prudent, although the drilling results look very encouraging, and the first two wells have delivered rates significantly better than the P50.

15:22 The potential of these new wells is what excites us going forward. As I mentioned, our portfolio was producing over 50,000 barrels a day in January at a time when BKR was operating below its capacity and with more to come from Triton. So let's move on to look in more detail at the new wells. Four wells have been drilled in our Triton area campaign, and we are delighted with all of them. In fact, with this program and the drilling of the Belinda well, which started recently, we are one of the most active companies over the last two years when it comes to drilling development wells in the North Sea. And importantly, the program to date has been conducted safely and on time and on budget.

16:12 To date, due to the issues with the Triton FPSO, only two of these wells have added to production. They alone would have offset a year of portfolio decline. And two more are ready to produce when the FPSO starts up again. While it may be obvious to some, it is perhaps worth clarifying that the drilling operations are completely unaffected by the FPSO issues. The wells are being drilled for SERICA ENERGY PLC Innovator rig and with Petrofac well management. And we have been very pleased with how our contractors and operating teams have worked together so effectively on this campaign. With that, let's look at the two new wells that we have not yet reported on.

17:01 On the right hand side of this page, we have shown extracts from the ultra deep resistivity tool, which is a display we have used previously to show the results of the first two wells. Red and yellow colors indicate reservoir sands with good oil saturations. The first of these was drilled very successfully with Dana as operator, being the W7Z well on Gilliam North West. We only have a 10% working interest in this field and so it will make a minor difference to our production. But as you can see from the diagram at the top right, it has shown similarly promising results to those we saw on our earlier Bitton and Gannett wells.

17:48 As has EVO2 on Evelyn, a field in which we have a 100% working interest. The well encountered 300 meters of excellent quality reservoir mainly at either end of the horizontal section, which should in turn lead to very good production. It is worth noting that the reservoir properties are quite different in the two fields, and we therefore expected to have a section in the middle of the Evelyn Reservoir that was not such good quality. However, the section we encountered at the very end of the well was outstanding and better than we were expecting prior to the drilling of the well. The combined impact, therefore, of the four new wells at Bitton, Gannett, Gilliamotte, North West and Evelyn is what really excites us about the potential for the second half of the year.

18:39 The outcome of these wells continues to reaffirm the value that our subsurface and wells teams working with our contractor partners can deliver from these mature fields, and there is much more to come from the portfolio. In this context, you might consider it odd to be taking this optimistic tone on a slide that actually shows a fall in 2P reserves, the first time SERICA has not at least had a 100% reserves replacement ratio in recent years. My optimism therefore needs a bit of explanation as, of course, reserves is a metric that we want to see at least remaining flat, if not increasing year on year. A large portion of the 2p reduction this year is due as normal to the 12,000,000 barrels of production, with a significant part of the rest being the result of a reevaluation of the two Bruce well opportunities already booked in 2P.

19:43 These are the SCE and SCW wells, which have been in SERICA's reserves in fact for a number of years. Thanks to a detailed reevaluation of our subsurface team using reprocessed seismic, the scale of these opportunities has been reduced, although they are still likely to prove economic. However, the important point is that the process that concluded this was the very same process that resulted in a material increase in 2C resources elsewhere.

20:18 We therefore are not too disappointed by this. Where one opportunity now looks less attractive, we now see many new targets, some of which may prove to be more attractive. But these opportunities have not yet reached the level of maturity necessary to be booked as reserves as that requires more detailed analysis and economics. So we are generally excited by the fact that for the first time, we are disclosing a hopper of contingent resources of 89,000,000 barrels, I e, over 75% of the size of our two p reserves.

20:55 What is more, it is important to appreciate that not all contingent resources are equal, and I happen to believe that the quality of our 2C opportunities is such that we can anticipate a high percentage eventually being reclassified as reserves in the coming years.

21:13 30,000,000 barrels of R2C relates to our interest in the Greater Buchan area, including the Buchan Horse development, which is a very attractive project, but for which we will need to see confidence in the longer term political, fiscal and regulatory backdrop before committing to execute. The remainder represents infills or tiebacks in our existing hubs, just the kind of short cycle, quick payback and tax efficient investment we have been undertaking to date.

21:46 And as you can see, there are a lot of opportunities from which to choose. This is a complex slide, but its busy nature is indicative of how much we have going on. As we move from left to right across the page, we see more mature opportunities from exploration and immature concepts on the left to approved projects and existing production on the far right.

22:11 Our aim is to do the work, analyze, and where technical analysis looks positive, move those opportunities on the left of this diagram through the various stage gates to the right. So on the left, we have our exploration assets, including an additional asset, Finn Bewley, which we will pick up when the Parkmeat deal completes, and other less mature opportunities. But it is on what makes up the contingent resources and the justified for development columns that I want to now focus.

22:43 Extending the life of our assets would bring with it an increase in reserves as as would further drilling across our portfolio. You will see that there are three tubing head pressure reduction projects that we have high graded into justified for development this year. These are all no brainer projects. They're they're essentially low CapEx projects, which reduce the pressure against which the wells have to flow and, hence, accelerate production and with it, value.

23:13 We expect to be taking FID on these in 2025 and moving ahead with the projects next year.

23:21 I also want to shine the spotlight a bit on Kyle. This license in which we have 100% was awarded in the thirty third and potentially last licensing round. As you can see from the map, we picked it up with the intent to establish if it could be rerouted via Bitton into our Triton area.

23:44 And the the more work the team has done on it, the more we like it. It can easily be tied back into Triton via Bitten. With the appropriate fiscal and licensing environment, there is the potential for first oil in 2028 on a project that could be twice the size of Belinda, which is currently being drilled, with over 11,000,000 barrels of two c resources.

24:10 Kyle is an example of why the government should revisit the proposal not to issue new licenses. It shows that the industry is still able to generate new projects, which use existing infrastructure, reduce imports, and don't add to The UK's emissions. The headline grabbing stories around the North Sea come from the celebrated mega projects in the basin, but is these kind of incremental short cycle opportunities that are potentially more important for the future of the North Sea. Having looked at the Triton area fields, as we have previously indicated, the same team has been set to work on the bigger sandpit that is BKR. There haven't been any new wells drilled on the Bruce Field since 2012, but what was subscale and would not have attracted capital allocation for BP can offer serious material potential for SERICA.

25:08 Our team have carried out a full reassessment of the field, building the first full field dynamic simulation model. As you may be able to see from the map, it it has identified a lot of opportunities. The colors are a bit difficult to make out, but in the center of the map are two bluish shapes, which are the SCE and SCW opportunities mentioned earlier.

25:34 To the top right, there are some orange colored shapes, which are some opportunities which are currently being evaluated. And scattered across the rest of the map are a number of reddish shapes, which are immature opportunities still to be fully evaluated. Of course, not all of the opportunities will mature into drill ready targets, but they will be ranked, and we will select the best ones based on a range of criteria. We will have a lot of choice, which is a nice problem to have.

26:04 The opportunities in Bruce range from infill wells into areas not drained by the existing wells, potential horizontal wells into a lower permeability layer above the main Bruce reservoir, and enhanced production from an oil zone in the southern part of the field. There's still a lot of work to be done, but we expect to uncover more 2C resources as that work is completed.

26:32 We will mature these through the course of this year, high grade opportunities and aim to include some in our 2P as we get drilling plans in place for the end of twenty twenty six and into 2027. And now I will pass over to Martin, will talk about our financial results for the year and update on our balance sheet and capital allocation to help deliver the value we see in these opportunities. Thanks, Chris. This This slide gives a snapshot of the key figures from our results announced today, which for the first time for a full year are presented in US dollars, including a restatement of 2023 in US dollars.

27:12 Although, overall, our 2024 performance was impacted by the well rehearsed challenges of the Triton operation in q four, we nonetheless generated strong CFFO after tax of $4.00 $3,000,000, which enabled us not only to invest materially in the portfolio with $278,000,000 of CapEx and ABEX, but also to make very material cash distributions to shareholders in dividends and the buyback.

27:38 The $132,000,000 we paid out in the year comprises the 14p per share final dividend for financial year 2023 and the 9p per share interim for FY 'twenty four as well as a $19,000,000 for our inaugural buyback. I will comment further on our adjusted dividend approach later.

27:58 Finally, we retained our focus on best in class ESG reporting and emissions reduction, and our 17 kilograms of c o two e per barrel of oil equivalent was better than the base in average. And we are continuing this focus in 2025, including with progressing a flare gas recovery project on our Bruce platform, which will be tied in during the 2026 summer maintenance.

28:22 Turning to the income statement. Our $727,000,000 of revenues for the year equated to realized prices after hedging of just under $60 per barrel of oil equivalent, slightly down on the roughly $64 per barrel of oil equivalent in 'twenty three and over a $100 per BOE in 2022. Lower realized prices also reflected like for like volumes down some 2,000,000 barrels, largely due to the Triton downtime deferring that production and revenue and a change in the commodity mix with gas at just over 60% of volumes as opposed to 50% in 2023.

29:01 Although our overall OpEx came in essentially in line with our guidance at $330,000,000, with the increase in 2023 largely explained by a full year of the post tailwind in large business in 2024. The impact of the lower volume of barrels meant our OpEx per barrel was around $26 per BOE, up from $21 per BOE in the prior year.

29:27 The p and l tax charge was $68,000,000, down sharply from $252,000,000 in 2023 as a result of lower pretax profits and rate effects. Our booked tax rate of 43 was down from 66% in 2023 due to the application of losses and capital allowances as well as benefiting for the first time from group relief from in year losses, which I will expand on more in a minute.

29:58 Turning to the balance sheet. The strength of our position and the positive support of our bank group is what has allowed us to continue to invest in the portfolio whilst paying out considerable shareholder distributions in the year and all the time while weathering the impact of deferred production and revenues from the Triton outages.

30:16 Our adjusted net debt, which removes the accounting impact of unamortized loan fees, stood at $83,000,000 at year end or 0.2x EBITDAX, which is very much at the low end of our peer group, giving us the capacity to invest in the portfolio and grow through M and A.

30:36 This relative resilience to the portfolio is demonstrated by the fact that our net debt position as at the March 27 was essentially the same as at year end. This despite the fact that we continued throughout the period with spend on our Triton Wells program and that we've had no production or, of course, revenues from the Triton area since the January 24.

30:59 Our cash generation year to date was helped by stronger q one gas prices relative to q four twenty twenty three and to q one twenty twenty three, with NBP averaging a 116p per therm across the quarter, and that also that our tax computations meant that no January installment cash tax was owing. On which note, another important aspect of our f y twenty four balance sheet is that that I want to highlight is that not only do we have no tax payable this year, but we also have a $71,000,000 tax receivable. This year end receivable reflects the amount of overpayment of tax through the installment process in 2024. While clearly the outturn on Triton production was not what we would have wished, there is at least a partial financial silver lining from this.

31:51 The impact of the lost revenues, coupled with strong investment during the year, meant that our subsidiaries, which hold our Triton assets, ended up generating a taxable loss for the year. This position, which was only determinable following the year end through our tax computations, allowed us to benefit from group relief for in year losses, which offset tax already paid in advance largely in respect to BKR where we have no tax loss shelter under the ring fenced tax installment system. The cash impact of this will be reflected in 2025 and will likely be recouped by being set off against tax charges for the July and possibly October tax installments and will go some way to help offset some of the cash flow impact of q one twenty twenty five Triton outages.

32:44 That turning to the next slide. Now that we have we and our peer group have all reported, we have been able to update our usual analysis to show that SERICA remained in a standout position in terms of our decommissioning intensity. The peer group is a group of independent listed E and P companies with material operations in The UK, Norway, or Denmark, where they have already released their 2024 results. The table shows the as reported pretax decommissioning provisions adjusted where relevant, including for ourselves, by disclosed decommissioning related contingent payments or reimbursements, and that all of that divided by the reported two p barrels of oil equivalent. While the value impact of these future liabilities is typically reflected in NAVs, we nonetheless consider that our positioning does give us greater balance sheet flexibility in terms of lower calls on posting decommissioning security, especially when compared to our sub investment grade peers.

33:47 Back to the topic of tax, which is hard not to spend time on when we remain in a world of 78% headline rate, following the additional 3% of EPL that was the gift of the new government bestowed from the November 1. The left hand side of this chart shows how the headline tax rate is built up from the 40% in the permanent regime to the now 38% EPL on top, but we've also shown where we are on capital reliefs following the autumn budget. So the CapEx that we are spending on Triton and to a lesser extent on BKR still benefits from up to 84.25% capital allowances. And where we can find things that qualify, we can get up to a 109 relief. In this category, we are progressing a flare gas recovery project on the Bruce platform, which will be tied in in 2076.

34:39 This is a real win win project and that it reduces our emissions, but also qualifies for decarbonization allowance, and hence, the capital cost is effectively totally funded by reducing our tax payable at BKR. However, the main thing that we wanted to address on this slide is that in part due to the expected recent production from the Triton area, but also due to investment choices we have made, such as the investment in the Belinda field development, our tax loss balances are now expected to provide a shelter against corporation tax and supplementary corporation tax through the remainder of this decade. Our year end loss balances remained at over $1,000,000,000 with 1,100,000,000 of corporation tax losses and just under $1,000,000,000 of SCT as well as over a $150,000,000 of EPL losses, with the latter the product of our relatively active investment program since the May 2022 introduction of the EPL.

35:39 We also have just over 500,000,000 of activated investment allowances. Using the simple maths we normally show of applying the relevant rates to the applicable loss balance, these losses would retain $500,000,000 of notional value. So while we continue invest to invest in the Triton area, and thanks to these loss balances, our oil production is largely sheltered from tax even if we have no loss tax loss balances in the entity that owns BKR and the vast majority of our gas production. Thanks to the tax attributes and the tax rebate I've already discussed, we anticipate meaningfully lower cash tax payments this year than we have seen in the last two years. Finally, a brief word on the ongoing tax consultation just launched by the government that runs through to the May 28.

36:30 We are engaging direct and in conjunction with our peers and trade bodies on responding to this consultation. However, it is encouraging that many of the proposed features of the new regime look to be aimed at fixing some of the issues with the EPL. The two key things that need to be established, though, are what constitutes unusually high oil and gas prices where the new tax would kick in, and we believe that we need to ensure that the new tax regime does not wait until 2030 to be implemented as is currently envisaged. As we indicated at the time of our January trading statement, we've set our CapEx budget for 2025 broadly in line with 2024.

37:16 Unlike '24, we have no abandonment activities and expenditure in 2025. The bulk of the program continues to be our Triton well program, which spend this year on closing out the Gannett GEO five costs, the Guillemot and Evelyn wells, as well as on drilling and completions and SERF activities related to Belinda. We are confident that the strong project delivery and technical success of the wells drilled to date will translate into the kind of highly attractive post tax economics that form the basis for our original investment decisions. Once we've seen a decent period of production following the resumption of the Triton FPSO, we are looking forward to coming back to show our shareholders the realized economics of these short cycle projects, which will, of course, form the blueprint for the exciting future opportunities about which Chris has already spoken.

38:10 In addition to the Triton wells, we're also going ahead with a range of smaller capital projects on both Bruce and on Triton, which are designed to enhance overall medium term reliability and resilience. For moving Buck and Horse forward, we are essentially waiting for the outcome of the environmental statement consultation. Although the recent statements by Rachel Reeves in relation to Rosebank and Jackdaw are clearly encouraging in terms of where this will land, but the joint venture will also want clarity on the EPL successor regime and its timing. Our investment case remains anchored in the twin tracks of organic investment in portfolio renewal and healthy shareholder returns, supplemented by m and a where transactions can enhance our ability to deliver more of the same and hence supercharge the investment case.

39:02 And we intend to deliver this all while retaining a conservative financial frame. As we've announced today, we have, though, taken the decision to adjust our final dividend in respect of $20.24 to 10p per share, bringing the total dividend attributable for the year to 19p, down from 23p for the prior year. When this is translated into actual pounds, shillings and pence, or in fact US dollars, that means that together with the buyback we undertook in late spring twenty twenty four, the cash call on our business in shareholder returns attributable for the year will be essentially the same for 2024 as for 2023. However, the reason for this rebalancing today is in part prudence, reflecting the structural shift in the profitability of the business following the imposition of the EPL in 2022 as well as the continued operational and commodity price volatility to which we're exposed.

40:00 But our decision is more importantly to ensure that we can deliver a sustainable continuation of this twin track strategy, balancing the allocation of cash generated by our business between reinvestment and returns. Our load star for capital allocation will remain, at least for as long as we retain the fiscal regime that we have on the UKCS right now, CFFO after tax. When we calculate this, we focus on deducting the accounting measure of current tax as the ring fence corporation tax installment payment regime can make cash tax swings very material. In this, we we will look to retain a level of dividend which is competitive with our peers in terms of the proportion of CFFO after tax.

40:47 We may vary the mix between dividends and buybacks, but we'll always look to have a base level of dividend in the mix. We know full well that buybacks divide opinion, but we do believe that there will be times where, if we were able under the regulatory provisions that govern buybacks, it may make sense for us to utilize them, and we intend, therefore, to seek approval to refresh our buyback mandate in our 2025 AGM. And now I'll hand back to Chris for some closing remarks. Thanks, Martin. So that effectively concludes the presentation, and we want to leave time for Q and A. So I'll sum up very briefly. We look very confidently at 2025 and beyond. We have multiple catalysts ahead: increasing operational efficiency, maturing the exciting opportunities in the portfolio and progressing some of the multiple M and A opportunities also.

41:46 There is the chance for us to create significant shareholder value. And with that, I will hand over to Andrew, who will run the Q and A. Thank you very much, Chris, and thank you to everyone who submitted questions. I think it's fair to say we already have too many that we'll be able to deal with at this time. So I'd like to reemphasize as always that if you do have any questions you feel we don't answer, then please email them to me. I can guarantee you that we will reply. The first question is something we did cover in the presentation, but I think it's worth reemphasizing, and that is, is Triton so bad and poorly maintained that it needs a dry dock shut down? Yeah. I think I think we we did cover that a bit. Look. Abs absolutely not. We've got a couple of independent reports that say the vessel itself is in good shape.

42:36 You know, the the things that you would worry about typically with an FPSO are the hull, the swivel, and the turret. Those are the things that if there's if there's a serious issue, you might have to go to dry dock to fix it, and you'd be off station for a long time. And and these independent studies show that we don't have those issues with Triton. Where we've had problems is the kit that sits on top of the boat, basically. And and that's it's the same kind of kit that you'd have on any fixed platform. So so, no, I don't I don't think we've got a a fundamental issue with the vessel itself. We we we do have a problem with keeping production flowing, and that's largely down to we need to improve the maintenance and and stay on top of it. And that's what we're doing, and that's what Donna's very much focused on.

43:34 I think that probably leads quite automatically into the next question then, which is what lessons has SERICA learned from the prolonged Triton FPSO outage? Well, an unfortunately, there's nothing new in this, and and we kind of knew that stuff like this could happen. You know, when I when I first joined SERICA, I did say we got production issues on both Bruce and Triton that it takes a couple of years to fix those things. And and so, you know, I'm I'm not gonna sit here and try and tell people that everything's perfect and we won't have any other outages. The, you know, the fundamental issue is to to get good uptime performance, you need to clear your maintenance backlog and stay on top of it.

44:28 And, you know, the the the pipework that we are having to repair and replace at the moment on the FPSO just hasn't been maintained well enough. And it should have been fixed a couple of years ago, and it wasn't. And so now we're playing catch up. And it's those kind of things that are causing us problems. Obviously, Obviously, we had an issue last year with a with a compressor. That that that's the one delicate piece of kit that we have. Everything else is pretty agricultural, and it's simple. It's like owning an old car. If you don't maintain it properly and you don't change the oil, you're gonna have problems, and that's that's kinda where we are. But I I'm encouraged that Dana realized this. I I think think I think they've got some a really good team in place now, actually, who are getting after this and fixing the problems that have been created over the last few years. So so, yeah, the the question is about what lessons have been learned. And, unfortunately, I've seen the lessons before, and it's not a massive surprise.

45:35 But we but we know how to fix this. It's not rocket science. Just take time. Maybe just to add. I mean, one thing I mean, I obviously covered it already in my in my remarks, but we we have also learned an interesting lesson, which is that there are can be silver lining silver linings in terms of actual cash generation even when you don't have production because of the impact of the ability that's given us to to use group relief in year, which is only available for in year losses, which is not something that SERICA has actually had before. So, you know, that was actually an interesting lesson, and, obviously, it was only a we only really determined that after the year end because that was the only point at which we could figure out that that the entities had actually been taxable loss making. I think sticking with Triton, we'll try to move on from it in the next couple of questions. But in in this is probably one for Martin. In light of recent events, is the company actively reviewing its 2025 CapEx priorities?

46:27 Continuing to invest in Wells at times the Triton FPSO does not seem like a capital efficient strategy at this time. I think, Martin, if you just touch on capital allocation and Chris Sure. I mean, look. I mean, I hopefully in the remarks that we've put today, we are very confident that these are temporary issues that will get fixed. And I know it can, you know, can they can feel sort of all encompassing when you're when they're right on top of you, but we're very confident that and hopefully, delivered that message clearly today that they will get fixed. So, you know, the the the the the production that, you know, is being you know, the and the value that's being unlocked by our drilling campaign and the CapEx that's being spent on it is deferred production and deferred value. It's not lost. And, clearly, that's recognized not only by, you know, our reserves reports, but also our banks, for instance, and, you know, who who are clearly aware of everything, you know, and and and where we are. So no. I mean, we're continuing on with the CapEx, but it's not because we're, you know you know, kind of doing so in a kind of, you know, nonresponsible way. We completely understand and and believe it's the right thing to to be doing.

47:28 Yeah. Just just to add to that. Look. A couple of things. Firstly, we're committed to the rig to drill these wells. So so even if we stopped, we'd still be on the hook for most of the cost. But more importantly, they they still represent incredible investment opportunities. And, you know, we we said last year that we expected payback on those first two wells in six months or so. Okay. They've not been producing for a few months. They'll be back online in June. They'll still pay out before the end of this year. And and the two new wells look like they'll have similar potential. So we wouldn't be investing in these if we didn't think it was the best possible use of our cash.

48:18 And and if we if we had more opportunities as good as these, we'd we'd be sanctioning those as well. The next question is one that actually I'll take since it's gonna be answered very quickly. Could you provide free cash flow guidance at $70 barrel oil? The answer to that at the moment is because we're in offer period, we can't provide any free cash flow guidance at all. All. We can't give any profit forecasts. So we have to be very careful of what we say. It's one of the things that when we say that we can't talk about the current offer, it's something we also can't talk about any any future guidance in that respect as well. So we will talk about that more in in in future presentations when we are allowed to because I think we all liked the the slide we gave that kind of showed our future potential cash flow generation. Another one for Martin here. Does the 71,000,000 tax rebate get paid directly to SERICA, or does it reduce the balance of payments in 2025?

49:11 So yeah. I mean, as as we still expect to be a taxpayer, the most logical thing for us to do is just to net it against our tax returns for the installments in July. And depending on exactly how much tax we owe in July, maybe some of it into October as well. I mean, in theory, we could go and file for it to be paid back to us now, but we're, you know, clearly, we're not in a stressed balance sheet position at all. So there's no real merit in us doing that. And so most likely, we'll just net it off our future tax payables. Another one for you, I'm afraid, Martin. Why not hedge more? Is it not sensible to eliminate the risk of substantial falls in commodity prices? So okay. Good questions. We we hedge in line with the with the requirements of our reserve based lending policy, and we think actually that it's quite well balanced in terms of what it it has us doing. There's a slide in this presentation, which I didn't go through at the back, shows you exactly where the hedge position is. So we we keep topping it up to maintain the level of hedging that's compliant with that with that. But a couple other things just to observe on that.

50:19 On gas, to a certain extent, because of our gas is 78% taxed, right, that acts as quite a dampener to exposure to the commodity price. So it's kind of like a natural hedge to a certain extent. And there's also a bit of a risk of overhedging if we're not careful because of that tax regime. So, you know, we do we don't wanna be overhedging either. And then finally, I'd just say that I think our many of our shareholders, probably the majority, I think, still want to have, you know, a decent amount of exposure to the commodity price. You know? And then and oddly for us, we've always been seen as a kind of gas company. In in reality, we, you know, we we're actually probably more exposed to to oil in terms of the commodity. But just to give you figures, we're 40% hedged for our production in 2025 and 20% for 2026 right now.

51:10 While you're in full flow, is the in presentational currency purely to ease comparisons with peers, or is there anything related to expectations of sales into dollar dominated markets relative to sterling dominated MBP? Well, I mean, basically, as I mentioned, because you we we you know, oil production, which I know, obviously, we haven't been producing so much of it because of the Triton issues, but oil is a dollar denominated commodity, and that is actually less taxed or effectively almost no tax on that right now. So our cash flows are probably actually more linked to oil than they are to gas today, and that's a bit of a change for the company. So, actually, we've probably become a bit more inherently dollar linked. So that's, you know, that's, if you like, one of the kind of fundamental drivers that that reflects that. And in fact, our subsidiary, which the Triton subsidiaries that that have our oil assets are dollar reporting subsidiaries in in the in the in them in themselves.

52:07 Of course, at the group consolidated level, it's a it's a it's a presentational issue in dollars, and that is in part due to the fact that we wanted to ease comparison because essentially all of our peers report in dollars, and it just makes life a lot easier for folks. Another one I'll take quickly because someone asked for an update on the OFAC license. So just that they may have missed the announcement that that was extended until February 2027. Moving back to one for Chris, I think, which is relating to Bruce and drilling and how and and and how things would be done. The question is would you be able to develop more than one of the targets outlined with a single well? It's I mean, we'll look at it. There are areas where we have adjacent fault blocks that we think might not be currently being drained.

53:00 Whether we can drill a horizontal well that catches both of those is a possibility. So we we will look at it. But as as you saw on the map, if you could see the colors, mostly, they're discrete fault blocks that have that have some gap in between them. So we'll we'll obviously look at that. The the the other thing I'd say about the Wells is most of those opportunities are likely to require semi sub to drill, and they'd be drilled as subsea wells. There is potential that we could drill platform wells from Bruce. There is a rig on Bruce that has been mothballed.

53:48 And one of the things we need to look at is do we have enough opportunities to justify putting that that rig back in service? And I and I think if we've got more than three or four wells that we can drill from it, it'll probably make sense because then we could use it for decommissioning as well. Going back to one for Martin relating to the change in dividend. Should investors anticipate a similar reduction in the interim dividend? And does the change signal an expected increase in capital spending on the existing portfolio in future years? It's gonna be bit annoying, this one, because it it I slightly have to use the same rationale that Andrew just mentioned about cash flow forecast because projecting a forward dividend is also a form of profits forecast. And because we're in the position of where we are, we can't do that. So I can't really comment on that other than in sort of generalities.

54:43 Clearly, at the time we would come to declare an interim, we should, you know, on by all accounts, have Triton back up and running, and everything should be in in in good order. And we'll, you know, the board will obviously look at where we are around that at the time. But, obviously, we we do expect to carry on our normal practice in relation to the payment of an interim dividend. And so what was the second part of the question? It was about future. Does it mean that you can expect SERICA to spend a lot more on capital expenditure in coming years? I don't think there's a lot mean, some I don't necessarily a lot more. I mean, in fact, it you know, I think it's pretty clear that 2026 will probably be a lot well, almost certainly will be a lower CapEx period than we've seen in '25 and '24 because we will have completed our existing Triton well program. And in fact, partially because of the actions of the government, which have essentially created a hiatus in really committing to new projects.

55:30 I think for the whole basin, there will probably be a bit of a a dearth of activity in '26. And then, hopefully, we'll be able to pick it up towards the end of '26 and '27. It's just when you factor in the planning times and the cycle times, let alone us needing and actually to know exactly what the regime is to get approvals, it's hard to imagine that we're gonna have to be able to have meaningful new CapEx in in in 2026. Yeah. While we can't comment much on profits and future dividends, one thing is that anyone who follows Martin on LinkedIn will know he likes commenting on his politics. So let let's take one political one. You stated that the two key points regarding the ongoing EPL review were, number one, the level at which prices were considered windfall, and two, the implementation of any findings of the review before 2030.

56:15 Do you not consider a decoupling of the oil and the gas pricing to also be key? Yeah. Sorry. I mean, I didn't comment in detail, but, actually, I did mention that there are some good features in the consultation, and one of them is that the government is understands and accepts that you should separate oil and gas. For they've also, for instance, said that the way in which it recognizes prices should be realized prices, so after hedging, which is something that's impacted other companies than ours badly with the current regime. So there are a lot of, you know, if you like, design thoughts with the EPL that the regime, the new consultation has actually listened to industry and looks to be addressing. So I think there's a lot to like about it. The reason I called out those two things are, you know, it's all very well having all of those other features put in place. But if the if the level at which they deem unusually high prices is the wrong level, that's that's a big deal. And then the last point is, you know, to me, it's kind of fanciful to be having a discussion about a tax that might come in in 2030. We need attacks that comes in now.

57:17 And I and I and I do think that the sort of force of gravity will probably cause that to happen actually in in in but, obviously, can't promise. Moving back briefly onto Triton, and I think, again, we touched upon this, but who will shoulder all the costs, parts, and labor for the repairs and costs for getting Triton back online? Well, the the costs are minimal. I mean I mean, it's it's almost nothing, and that's that's partly because it's just some bits of steelwork and some labor. There's not there's nothing complicated about this. As I said, it's it's quite an agricultural system, and there's Chris, just to go on my stuff. It's not nothing, but it's nothing in comparison to what's already budgeted anyway. Right? So it's kind of spend that in It's minimal. I it it it this this repair work was already planned for the summer maintenance shutdown. So, actually, the pipe work that needs to be replaced and all of the valves that are going in are already sitting in a warehouse in Aberdeen and have been for some time. So it's it's not incremental spend. It's spend that was going to happen during the the maintenance shutdown anyway.

58:29 We'll take a couple of quick fire ones now because we're running out of time. Think OpEx is unchanged in 2025 despite trying being down for four to five months. Does this reflect additional maintenance costs, or is there no saving to be made for not processing output? Yeah. The reality is that the the the vast majority of our costs are fixed. Right? We do have some variable costs related to sort of tariff charges and related. It's relatively small, right, in in in the overall scale of things. Clearly, you know, costs are fixed until they're not, if you see what I mean, but, essentially, they're fixed. And and and, of course, the act you know, just we've just been describing activities going on on Triton, right, to to to fix things. So it's still got costs related to it. Yeah. So before we take the final question, just to reemphasize if you'll feel that that question hasn't been answered or if they have any other questions at any time, then please do email me, andrew.benbo@sarica-energy.com.

59:17 So the last question we've hit which we've had a couple of times is, what would the production guidance be for the second half alone based on the full year guidance of '33 to '37? And also some people have asked, what is the peak production rate that the portfolio could produce? So So I'm not sure. Are we are we okay to give a number for the second half of the year, Andrew? Well, it's it's kind of inherent in the guidance. Someone has guessed that it could mean if you're flat in in q two on q one, and it should be worth pointing out that January did start with Triton production on as well, and we did do 50,000 barrels a day. Certain points, then you can come to the presumption that you'll get to production of of of the kind of early to mid 40,000 barrels a day. It'll be it'll yes. It'll be in the low forties. I I I think as a as a daily rate in January, we were able to do I think we did 53,000 barrels a day on a good day. Well, that that that included a bit of downtime on Bruce on that day, and we've got two new wells to add.

1:00:17 So on a net basis, we could be above 55,000 barrels a day when everything's flowing in the second half of the year. So I I think with that nicely optimistic note at the end of what the portfolio could be doing, I'll pass back over to Chris. Have you got any closing remarks? And then thank you everyone for taking your time today. Yeah. I think we're I think we're right on time. So I'll I'll just very briefly mention kinda highlights that we mentioned going through. Look. We we had a poor end to 2024, and we had a similarly poor start to 2025, which is unfortunate, and and and we must improve. The the good news is we know what the issues are, and we know what it takes to fix them. We just need a bit of time.

1:01:04 Meanwhile, we've got lots of really interesting organic opportunities in the portfolio. We probably can't fund all of them, actually, so we're gonna have to high grade those opportunities. We're looking at lots of m and a opportunities alongside that. And and lastly, look, despite the adjustment to the dividend today, it still reflects a very attractive yield for shareholders. And, yeah, I think I'll close with that. Perfect. Thanks very much for updating investors today. Can I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations?

1:01:49 On behalf of the management team of SERICA ENERGY PLC, we'd like to thank you for attending today's presentation, and good morning to you all.