Serica Energy (LSE:SQZ) — Interim Results

0:00 Good afternoon, ladies and gentlemen. Welcome to the SERICA ENERGY PLC interim results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the q and a tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so, and these will be available via your investor meet company dashboard.

0:34 Before we begin, I would like to submit the following poll, and I'll now like to hand you over to CEO, Mitch Flegg. Good afternoon, sir. Good afternoon thanks for the introduction and thanks everyone for joining. I appreciate your time as always. I think we've got into a bit of routine of doing these things now so each time we issue our annual results or interim results we try to do one of these to, you know, not necessarily to inform, but to give everybody out there the opportunity to ask questions. So I've got a short presentation and it is quite short and I'll try and get through that in half an hour or so and really give time for the Q and A session afterwards. So we'll go straight into it. I mean, really is all about our first half results for 2023.

1:24 And really that period, the first six months of this year, was dominated by the completion of the acquisition of Tailwind Energy. So we finished the first half of the year as a very different, and I would say a much stronger company than we started the first half of this year. On the big picture scale of things, obviously we've added a considerable amount of reserves, something like 55,000,000 BOE of reserves as of the 01/01/2023 valuation. We've doubled the number of producing more than doubled the number of producing fields that we have in the company. And that sort of does a couple of things. It gives us greater scale, and we'll come back to the size of the company as we go through this. But it also gives us more diversity and reduces our risk.

2:14 Basically we have far less risk because we are no longer tied to a single asset as we were previously at SERICA, where we were dependent almost entirely on the Bruce platform. But we were also dependent almost entirely on gas. Over 90% of our production in SERICA was gas. And now we have a far more balanced mix between oil and gas now that we have the new assets that we've acquired earlier in the year. So I think the acquisition of Tailwind has made us a much stronger company. It's doubled our production or nearly doubled our production. So our production from the combined portfolio in the first half of the year was 49,000 BOE per day. There's a couple of things there. One, I always talk about BOE per day, so it's barrels of oil equivalent. So we take the gas and convert that into an equivalent amount of oil. I think it's an easier way to talk about it. The other thing is that I'm talking there about what we're calling the pro form a performance there. So that's the performance of the two portfolios of assets. Obviously the deal didn't complete until the March 23.

3:25 So in terms of pure financial results that would only include the production from the tailwind portfolio after the March 23. But when we're talking about the overall production here, I'm talking about the pro formas, I'm talking about both portfolios for the entire period. On the financial front, we had a very, very strong cash flow for the year for the six months, something like £266,000,000 of income in the first half of the year, broadly similar to where we were last year, leaving us with a closing net cash position of £234,000,000 So again, a very, very strong financial performance. I'll talk about that in a little bit more detail as we go forward. We've got a strong balance sheet and a strong ongoing cash flow profile for the company.

4:17 At the same time, we've taken the opportunity to improve the structure and the organization of the company. We have a new chairman, David Latten has joined the board, sorry, has stepped up from the board to become chairman. And we've taken the opportunity to bring some new non executive directors on board, at which stage we've been able to increase the diversity such that we now have 27% female participation on the board. As I've said, one of the big things about doing the deal was that it gives us a more resilient portfolio. I think most of you, and I assume that most people on here probably are investors already, so will be familiar with the story.

5:02 We now have two production hubs in the Bruce area to the North and the Triton area in the Central North Sea. So still, the vast majority of our production is operated by SERICA. Over 80% of our production is operated by us. The important thing is that there's no real overlap in the infrastructure that we use between Bruce and Triton, and that's very important to us. That allows us to yeah. It it gives us the confidence that that we can't be shut down by any individual incidents or or, anything that may be beyond our control. So we've got far more diversity, but we've kept a lot of the good things of the of the portfolio. So neither the SERICA or Tailwind portfolio had significant decommissioning liabilities.

5:53 So not only have we got cash in the bank and a very good balance sheet, but we also do not have the huge millstone of decommissioning that a lot of companies find themselves with. There's a plot here just to kind of show the evolution of reserves through the year. So this is just going back to 2018 when SERICA did the deal to buy the Bruce assets from BP. And at that stage, can see, you know, red is gas, green is oil. We had, you know, massively, we were massively overweight on gas. We have very little oil in the portfolio. The black diamonds there show our RP ratio, so the ratio of reserves over production. And if you look back to 2018, you read that off from the right hand scale, our reserves at that stage, indicated something like six years of, of reserves life. So if we if we had continued producing our reserves at that rate, we would have had six years of, of life left. That's in 2018.

7:03 So we would have been coming towards the end of of of of life, if you like, by 2024. What you see then on the intervening years, 2019, 2020, 2021, even though we produced a huge amount of oil, during that period, oil and gas, something like 36,000,000 barrels during that period, we maintained that RP ratio. So in 2021, we still had more than six years of life left, would have taken us out to 2027, 2028. Now with the acquisition of the Tailwind assets, our RP ratio is back up above eight years. So now if we continued producing at the current rate, we would actually be producing well into the 2030s.

7:51 So this kind of demonstrates, I think quite neatly, the model that we have. We've increased reserves, we've increased the life of those reserves, but we're producing and creating value from those reserves, from the production that we have. So I think that plot quite neatly shows business model. If we get a little bit more granular and look at the last six months, this is our production from the first six months of this year. So as I've already said, the pro form a production from the combined portfolios is just over 49,000 BOE per day. And the split between oil and gas was 55% gas, 45% oil.

8:40 Mean the first six months was largely uninterrupted as you can see. We always had anticipated that the second half of the year actually would never have been as good as the first half of the year because as is customary around the North Sea almost every field shuts down for a summer maintenance program generally in July into August, and we were no exception. We were always planning to shut down both Bruce and Triton during that period. We had always guided the market that our full year production guidance, even though the first half of the year was over 49,000, we'd always guided the market that our full year would be somewhere between forty and forty seven. So we'd never indicated that the second half would be as good as the first. The shutdowns on both Bruce Triton have taken longer than we expected, and and the ramp up has been slower than we expected.

9:33 And so now we have trimmed our guidance slightly. So rather than the 40 to 47 that we were talking about previously, we're now giving full year guidance for this year of 40 to 45,000 BOE per day. So on the midpoint basis, that's down by a thousand barrels a day from, from where it was previously. The the issues on on both Bruce and Triton, although they've not been the same, have been similar. You know, we we've we've done these summer maintenance programs, and in both cases, we've identified a problem that needed more work than we expected to, to to fix it. On in the in the Bruce case, it was it was simply it was a structural problem as much as anything with a piece of equipment that we could have kind of bandaged it up and and carried on for another year and then fixed it next summer. But we would have had to have taken a much longer shutdown next summer to to fix the problem. We elected, and I think it was the right decision. We elected to solve the problem this year, to to fix what to replace the piece of kit that had failed.

10:33 And, and I think that means we will not have to do any summer shutdown on Bruce next year. So I think it was the right decision to do that. On Triton, we we found a piece of equipment that that was due for maintenance during the this this summer shutdown, and the actual maintenance on that proved to be far more difficult and time consuming. But, again, we elected to to do it properly and and solve the problem, and that means that that returning to production has taken a little bit longer than we expected. So, you know, we're we're relatively relaxed about these problems. This is not lost production. It's deferred production. It's in no way indicative of the future. You know, this isn't they're not reservoir problems. They're not wells problems.

11:18 They are problems with the surface equipment, with surface, kit that just we haven't been able to get back into service as quickly as we would have liked. So the full year guidance I think is still very healthy at between 40,045 thousand BOE per day.

11:36 I think finally for this kind of introduction session, we're starting to see the benefit of the Tailwind transaction in other ways coming through. One of the issues, one of the benefits of the Tailwind transaction was that we acquired significant tax losses when we acquired Tailwind. And actually those tax losses in time have the ability to generate something like £400,000,000 Now we've only just started to see the benefit of that, you know, because we only completed the deal on the March 23. So in the first half of the year, in the first half of the results, we've only got really three months of benefit of those tax losses. But what we see there is that we've tried to back calculate what our tax charge would have been if we were just old SERICA or what the tax charge would have been in the combined entity.

12:29 And we see that we would have been paying a tax rate of 76% in the first half of this year had we not done the tailwind deal. Whereas actually we've paid 55%. We don't like tax. We don't like the imposition of the energy profits levy. We think it is very, very shortsighted and it will negatively impact the industry. It will kill investment across the industry and we're seeing that already. But we do believe that we have certain levers and certain ways in which we can, I won't say benefit, but we can mitigate against the worst impacts of that tax? And I think we're seeing that already in the first half numbers. So perhaps to put a little bit more detail on financial performance, I've already talked about production going across the top line here.

13:25 Our sales revenue in the first half of this year was pretty similar to our sales revenue in the first half of last year for wildly different reasons. Know, we've seen commodity prices are way below where they were a year ago, particularly gas prices, we'll come back to that. But as I've already explained our production was much higher than it was in the first half of last year. Those two things have kind of balanced each other out and we still have very very strong sales revenue from the first half of this year and that translates down into cash flow in the bottom left hand corner there. In the top right hand corner you'll see that our operating costs are slightly higher than they were a year ago. These are still settling down obviously it's a different portfolio than it was a year ago so you would expect to see some changes. Operating costs rather annoyingly as an industry we always talk about operating costs in dollars per barrel and so there are exchange rate fluctuations in there that make it difficult to compare one year to the next. Because most of our costs, if we're honest, most of our costs are in pounds.

14:25 So we're not seeing a massive increase in operating costs. We guided for the year that we would expect our operating costs to be below $20 per BOE, so we're comfortably below that and we still expect to beat that for the year. So I think our costs are in control and compared to the rest of the industry I think we're in a pretty good shape. There is an increase in our profit after tax and I'll come back to that and part of that is due to financial reporting requirements and the way that the transaction with Tailwind is handled that unfortunately I think distorts that number and raises that number a little bit. But it is nonetheless a very very healthy profit after tax and accordingly the earnings per share have increased despite the fact that the number of shares in circulation has gone up significantly in the last year.

15:20 To put a little bit more detail on the accounting extracts, the big issue here and I'm not going to go into it in a lot of detail, there is more detail in the interim report which I'm sure you can read at your leisure should you need summits put you to sleep in the evening. But the gain on acquisition does impact the results for the year. And this is really just simply the difference between a fair valuation of the assets under certain accounting rules and the consideration that was actually paid. And that shows as a net gain and a net profit. We are bound by IFRS, the financial reporting system that we have to follow to report in this manner. I think it doesn't necessarily make things any more transparent, but they're the rules we need to follow.

16:22 Sorry, slipped a head there. I talked a little bit about gas prices. I think the blue curve there really shows you the the volatility in gas prices over the the the the the prior year and a half. So from from mid twenty one up to the start of twenty three, we saw, you know, phenomenal volatility in gas prices, which we benefited from as SERICA and that certainly in the first half of last year led to very, very strong income levels. Gas prices have come off significantly and you'll see that, you know, in the last couple of months of this year, we're down now to gas prices of under £100 a therm. You know, historically that is still very, very good. I think the long term historic average for gas prices would be in the, you know, 40 to 60p a firm with a seasonal variation.

17:15 So to have seen something, I think it's been around 80p a firm in the last couple of months is still very, very strong. It's been 108p a firm year to date. So way above the long term average. Oil prices have been far more stable, but still relatively elevated against the long term average. So we're still in an era of relatively high commodity prices, but we are happy that we now have a better mix between oil and gas. I think that is a far stronger position for us. Our hedging position is relatively modest. Mean our gas hedges, those of you that have been invested in us for a while will remember that you know a year or so ago our gas hedges were sourced of a huge problem not because of the hedges but because of the margin requirements and the margin calls associated with them.

18:08 We've been running down our gas hedges since then and really within the next couple of months our gas hedges get down to zero. We have some oil hedging in place, which was legacy that was picked up with the Tailwind transaction. We have something like 2,000,000 barrels hedged for the rest of this year at $61 a barrel, and then correspondingly smaller amounts at higher prices through 2024. So we have some hedging. And and we're in the market looking for for for for for for for trying to find good opportunities to increase hedging going forward if we can see the right value. So that performance leads us to be in a position where we are still a dividend payer. You'll see that through 'nineteen, 'twenty, 'twenty one and 'twenty two we've increased our dividend year on year and today we've announced an interim dividend for 2023 of 9p per share which is up from the 8p a share that we paid in the first half of last year.

19:15 And we're you know, we have more shares in circulation now post the the tailwind deal. So the amount that we're returning to shareholders is is significantly increased. And you know, I mean to put it in perspective there's different ways of looking at it you know we're paying 9p a share as an interim dividend. It's not that many years ago that our share price was less than 9p a share. We're now able to pay that as a half year dividend. We've paid dividends since April 2020, paid or declared dividends of £152,000,000 in total. So there is a significant return of capital. The cash position is always of interest and something that we all follow very, very closely.

20:03 We've put two slides on here, sorry two plots on here, the left hand plot is our gross cash position. And you'll see that we started the the half year with $433,000,000 of gross cash. We've ended with £444,000,000 of gross cash. So a very, very modest increase. But during that period, we paid £141,000,000 tax bill. Some of that is in arrears and some of that is in advance. We paid we had a net cash outflow of £44,000,000 on the Tailwind acquisition and we've repaid £48,000,000 of debt. So the debt that we acquired with Tailwind has been reduced significantly.

20:54 We're trying to display that on the net cash plot on the right hand side, which shows the waterfall that takes us from gross cash at the start of the period to net cash at the end of the period, which is now £234,000,000 So the debt during that period has reduced from £265,000,000 to £210,000,000 the end of the period. So again, very I think a very strong cash story and a very strong balance sheet. Operationally, what are we going to do with that? Well, we've always been a company and Tailwind were always a company that took pride in investing in the assets.

21:40 We recognize that we're running mid to late life assets that we bought from majors. And we recognize that the way to extract most value out of those assets is to invest in them. And I'm not going to go back through the successes of the past, but you know in SERICA there was you know the RUM R3 project, in Tailwind there was the Gannett GEO4 well but of each added significantly to production and reserves and with relatively modest investments have extended the life and added value to those fields. And we're not going to stop. I mean, it's in the DNA of both companies and we're going to continue to do that. So in the Bruce area, we have two Lightwell intervention campaigns coming up within the next year. The first of them has started already, so we're out there working on one of those at the moment. And these are campaigns where we go out to sub sea wells, reenter sub sea wells, and really do some basic late life or midlife maintenance on these wells.

22:44 So going back in, cleaning the wells out, get a scale removal, re perforating in order to get more flow out of existing zones. In some cases, perforating previously un perforated zones, performing water shutoffs. And, you know, this was very successful. The campaign we had last year was very successful. We've just started this year's campaign, and we've committed to the vessel for next year's campaign already. So so that has started. And then in the Triton area, the ex tailwind assets, we have I think a really exciting four well drilling campaign to go back. Now each of these are not exploration wells. We're not going into, you know, we're not we're not trying to find, you know, new reserves here. We're trying to go back into existing fields and boost production through better sited wells, better located wells, which can easily be tied back to existing infrastructure.

23:49 So we believe each of these four wells will add production, will add production quite quickly, can add production without an unnecessary environmental burden because these are all using existing production facilities, they're all using existing fields, know we're not having to build new kits and have new processing facilities, we're using what is already there. So the timeline of these projects looks something like this. And what you can see is the dark blue the period of execution and the light blue circles show when we can expect to get the incremental production from these projects.

24:34 So first LWIV is ongoing now. The four well drilling campaign starts with the Bitten B1Z sidetrack in in January 2024. So we have that rig on a a four well campaign, which will take the best part of a year. We will do the Bitten well, the Gannett GEO five well, Gilliamott well, which is less significant to us. We're only a 10% interest holder in that. And then the Evelyn phase two well, which which has always been planned. So we have that rig on contract. We, you know, we start the work soon. All of this work is eligible for the investment allowances, I. E. Can be sheltered against tax, against the EPL.

25:20 So it is highly, highly tax efficient operations. And I think, as I say, exciting, very exciting programme that starts very, very shortly. We looking to the future, I guess the next cab off the rank, if you if you like, will be the Belinda development. You know, you can see from the plot to the to the right hand side here, this is the Triton area. You know, I've already talked about Gannett, Evelyn, Guillemot, and Bitten Wells that are all tied back existing existing tiebacks to to to Triton. The next planned tieback to try Triton will be the Belinda field. It's a single well development, a single well tieback discovered many years ago, been appraised.

26:06 So, you know, this doesn't carry significant exploration risk. We've got very, very good quality data. It's a lookalike to Evelyn, which has been very successful over the last couple of years. And we have now submitted the field development plan to the authorities that went in within the last few weeks. Subject to approval of that field development plan, we will make the final investment decision and we're looking to drill that as quickly as possible. Now to that end, we have secured an option on a rig to be able to drill that in 2025 and it's subject to getting all of the necessary approvals in place. We would expect to drill that in direct continuation from the four well campaign that I just talked about earlier. So, you know, if I go back a slide or two, we would we would hope that if we get approvals in place, we will be in a position to drill the Belinda well in direct continuation from the Evelyn well, which finishes sometime early in 2025.

27:08 So we could be extending this drilling campaign for one more well and tie back. And again, this qualifies for investment allowances under the EPL, which means that up to 91% of the cost of this effectively can be written off against tax, which makes the economics of these projects very, very encouraging. So you'll be glad to know that I'm coming towards the end now. I'll just try and tie all of these things together. We, I think, exit the first six months with a more diverse and balanced portfolio. We end with greater scale.

27:53 So our production and reserves have both gone to a new level that are really significant and are far greater than the sum of the parts in many ways. We're seeing the benefit of those assets in terms of security of supply for ourselves, but we're starting to see the benefit of those tax losses and that is feeding through to the bottom line. And I think the results in the first half of the year were very, very encouraging because of that. That means we're able to continue the plan. We're able to continue the strategy. We're able to continue to invest in the assets that we've got. At the same time as paying dividends, and I've talked about the numbers of the amount of cash that we're paying in dividends, but we're creating significant profits so that we can invest, we can pay dividends, and we can also continue to look for the next assets. We can continue to do M and A. We can continue to look for new opportunities to grow the portfolio.

28:57 Clearly The UK is there's a lack of certainty confidence around The UK at the moment that has largely been driven by the the the changes in the fiscal regime, by the changes in the in the tax regime. And that means that not just us, but everybody is cautious around investments in The UK. We do want to do more m and a. We do want to grow the portfolio, but we're only going to do it if we can identify projects that that add value, that that that actually fit in to to to our structure, that fit into our ambitions, that give us the opportunity to create more value without creating more carbon. You know, we do have to be very, very aware of our social license to operate and we do need to be able to demonstrate that not only can make value or create value, but we can do it without damaging the environment.

29:57 We think we can do that. There are opportunities to do that in The UK, but we're not limiting ourselves to looking in The UK. So we are spending time looking at opportunities outside of The UK, and we will continue to do both. We'll continue to be looking for both. I think the other thing is that, the the organization of the company has evolved. We now have, you know, a considerable number of of new people in the organization that have joined us from Tailwind that are and it's great that we can look at even some of the existing projects that we've had in our portfolio for a long time we can look at with new eyes. I think we've got you know some really good people and we've managed to evolve our organisation and that will continue. That's continued at board level And we feel we're set up, to build on the foundations that we've created, over the last, five or so years of both SERICA and Tailwind.

30:57 So I think we're very very well set up to move forward. I think these are a great set of results and I'm quite happy now to well I hand you back initially to our host who will take us through the next stage. Mitch that's great and thank you very much indeed for your presentation this afternoon. Ladies and gentlemen please do continue to submit your questions just by using the Q and A tab that's situated on the right hand corner of your screen but just while the team take a few moments to review those questions that were submitted already I would like to remind you that a recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard. Mitch, as you can see, we have received a number of questions throughout your presentation this afternoon, and thank you to all of those on the call for taking the time to submit their questions. But Mitch if I could just ask you just to make your way through the questions and give your responses where it's appropriate to do so and then I'll pick up from you at the end. Thank you. Yeah okay thanks for that and anyone who's been on these before know that I always struggle to get through the questions because we do get a lot and I can see a long list there at the moment. I'll start off with there was a pre submitted question which reads as follows. At the Capital Markets Day, Steve Edwards said that SERICA were considering a new country entry in Northwest Europe. The presentation made it clear that the most compelling opportunities to be found on the Norwegian continental shelf, and I seem to recall Steve saying Norway would be his preferred location to set up a new beachhead. My question is, has

32:27 any firm progress been made with regards to entering a new country? Think I mean who would have said that's a good question thank you. I don't think you would expect me to be too specific in my answers but I can tell you that we have been and we remain in discussions on more than one opportunity in Norway. And we are looking at things in other European countries as well. We're in a classic M and A position right now. The question is, know, or no, the reality is that we've seen assets that could work for us, but can we find the right price? Can we find the price that works for the seller and the buyer? And, you know, and and that's where we are with those with those discussions at the moment.

33:18 And what I can say is that, you know, we're not gonna do a deal for the sake of it. Yes, we would like, and and I'm sure Steve, I was talking to him a moment ago, sure Steve would would agree with this. You know? We we would like to make that entry, but not at any cost. So we're not just going to overpay in order to get into something just because it's in a different country. If we can find the right asset with the right profile and the right environment, at the right price, we will do it. But yeah, that's really all I can say on that. Next question. The tax losses acquired with Tailwind do not seem to have been used as effectively as expected. Yeah, I'm a little bit surprised by that. Whoever put the the note in then goes on to say that, it talks about the slide that I showed earlier show that shows SERICA alone would have had a tax rate of 76 and the combined group has a tax rate of 55.

34:17 Yeah, mean, think what you have to take into account there is that the tailwind tax losses were only applicable for the period after completion. So had we have had the tailwind assets for the entire half year, my instinct is that that 55% number would have been lower. So think you know we're quite comfortable with the way that the tax losses have been utilised and and to say they've not been used as effectively as expected I I I don't agree with to be honest. I think they they have been very effective for us.

35:00 Sorry, just going back to this. There's a couple of things that that I need to talk about. Right. So, the next one that I'll pick up on was, you lowered production guidance. Does it mean the tailwind fields perform much worse than expected? Hopefully, I thought I'd I'd I'd kind of address that. This is this is nothing about field or or reservoir or well performance. This is about maintenance of topside equipment, and the maintenance of the topside equipment for both, both SERICA and sorry, for both Bruce and and Triton has taken longer and it's taken us longer to get back onto to production. This is not lost production. It's deferred production.

35:48 It's, you know, we we always expected to have a a summer shutdown. It's just taken a little bit longer than than expected. It doesn't mean and I I've gotta be very clear about that. It doesn't mean that the tailwind and I'm quoting here. It doesn't mean that the tailwind field fields perform much worse than expected. You know, you've seen from the plots that I put up, the performance has been very good. And the first half performance was probably slightly ahead of where we expected to be. To be producing 49,000 BOE per day from on a pro form a basis from those assets, I think was outstanding and I have no problem with that. I'm not sure there's much more I can say on that. What I will say with all of these things, if anyone feels I've not really necessarily answered the question, drop us an email afterwards. I may not be able to get through everything on this list as we stand at the moment, but I will do what I can.

36:47 The the next question, is, says, be interested on the opinion of the company on its political outlook for SERICA with an election to come and windfall tax.

37:02 Yeah. I mean, this this actually goes to to the heart of of everything we do. There is an election coming up. I'm I'm not I'm not gonna make political judgement or or or predictions, but most commentators I I believe would say that there's likely to be a a a change of government. And we do we do factor that into our our We do factor that into how we look at opportunities and how we look at the assets we've already got. And we do run various scenarios about various tax regimes and what may or may not happen. However, what's more important, it's not just about the numbers, it's about opportunities and how we behave.

37:48 I think what we've described is that we like to have what we call short cycle opportunities. So we like to invest in our assets, but we tend to invest in short term projects. So you know going back historically you saw SERICA invest in the R3 project, saw Tailwind invest in the Gannett GE04. We've invested in light well intervention campaigns, We're investing in lots of other wells going forward. The things that all of those projects have in common is that they pay back relatively quickly. Most of the historical projects that we worked on you know pay back in months or occasionally it might take a year or so to pay back. And that tends to be the sorts of projects that we look at.

38:35 In a period of of political uncertainty the reason for liking doing that is that we are not exposing ourselves to long term changes in tax. So we're not getting involved in projects where we invest a huge amount of money now but don't expect to see the return for five years. So we're not going out exploring trying to develop new fields trying to do big new projects West Of Shetlands which may take I don't know ten years to get your money back during which stage during which period you are you're exposed to political risks. So we tend to do things that that timeline that I that I put up showing the the activities that we're going to to carry out Almost all of that is done before the next general election will happen. Obviously, they could call a snap election early, but I think that's that's unlikely.

39:22 But so, you know, we are trying to to to to do the short cycle immediate projects that pay back quite quickly whilst we've got some degree of certainty on what the tax regime is going to look like. So I won't make comment on what is going to happen after the next election. I will say and talking more generally now than just about SERICA, talking about the industry in general, there is a huge amount of engagement with politicians of every flavor. So you know we are speaking we obviously do still spend a lot of time talking to the current government. We spend a lot of time talking to Labour. We talk to the SNP. We talk to you know other parties as well.

40:10 And there is definitely a, you know, an education job going on here. Speaking to and I personally have spoken to to to to Labour politicians, to union leaders, you know, within the last couple of weeks. And, you know Labour certainly have not been in power for a long time, and need some educating, about how the industry works, what levers we can pull, they can pull, because we do in this country still need oil and gas and and labor politicians understand that. You know, we are moving towards net zero. We are moving towards, generating more electricity from wind, but the wind doesn't always blow. And at the moment, gas is very, very important. The politicians know that, and they need to know how we can can maintain our our supply. So there is good dialogue with these guys.

40:59 And and I'm I'm I'm pleased that we've got that dialogue now because it's gonna be important going forward if they if they do if they do win if if they do get into power. There's a question here. How do you see 2024 shaping up? I think we've we've really we've talked about that in in some detail. So probably not gonna go through that anymore. The there's there's a couple of questions around the production increases anticipated from your well enhancement programs. And are there any areas where you would anticipate production declines over the next three years? I think you know what we've shown historically and I talked about this at the start is that we have replaced reserves and maintained production year on year. If you do nothing generally with fields of the sorts of age that we're working on you would expect a decline of 12 to 15% year on year. I expect that the production enhancement programmes that we're following right now and will continue to follow will at least arrest that decline and I would expect a modest increase in production over twenty twenty four-twenty twenty five.

42:07 So we're not going to double production from the existing portfolio but I would modest expect increase in those years. There's a question about the annual guidance. Is the annual guidance pro form a or equity based? The annual guidance is pro form a. So on a pro form a basis our guidance was 40 to 47. It's now changed to 40 to 45. Both of those are on a pro form a basis. Next one, what is the feedback you've received from institutional investors read today's report? Any specific reasons mentioned resulting in an SP share price decline today? Yeah it's interesting we had a session with analysts this morning and there have been a number of analysts that that have written reports that have been published this morning and I know for a lot of investors it's very frustrating because you know under the MiFID rules the analyst reports are not available to to to all of the public and some of it filters through in time.

43:11 The three analyst reports that were written this morning were all very positive and I've spoken to all three of those analysts who were very very surprised at the share price movement this morning. I mean, you know, we often see that, yeah, it's the old thing that people, you know, buy shares in the run up to results and sell on results. Companies often see that. I think it was a surprise to us that share price fell this morning. I don't know where it is right now and I can't follow it minute by minute as we're speaking. I think there's been a slight recovery this afternoon. But you know we've seen a very strong run-in the share price in the last month.

44:00 And yeah we've had a little bit of a correction today that may just be a bunch of people taking profits. I don't know. We will analyse that as the day goes on and when we've got the full story. But I mean I think we are more concerned about long term growth about driving the company forward than we are worried about you know individual intraday movements. Another question, given you increased the interim dividend to 9p can we expect the total dividend to be at or above 25p? I mean I think you know we will comment on that when we get to the appropriate time. I think you know I think it is a positive statement today. We're very happy with the health of the company and we're very happy with how the Tailwind acquisition has turned out and that gives us the confidence to announce that that increase to from 8p to 9p in the interim dividend.

45:00 But we can't and in fact I'm not allowed to make to give too much expectation on what the final dividend is going to be. So I'm afraid I can't really say anything about that. Then relating to the realized oil price, which amount percentage of tailwind oil production is hedged in H2 twenty twenty three? When will the hedges roll off? Well, mean in the presentation we put some detail on that. I think we've got 2,000,000 barrels hedged in the second half of this year which is roughly 50% of our projected performance and then 900,000 barrels in the first half next year and 0.5 from memory in the second half of next year. So you know that which will be roughly 25 and what 12% next year. So the amount of hedging does decline dramatically as we go forward.

46:10 So just going back through these questions. There are questions here around the debt and fixed interest rates, and I'm afraid that's outside of I'm afraid that I'm not really at liberty to, yeah to disclose where we are with the the the finer details of of of our debt facility. Other than to say that we are paying that debt off at I think quite a quite a a a an impressive rate. So you would have seen earlier that we've paid off £50,000,000 roughly of that debt within the last six months or the last three months in actual fact. Someone here, our share buybacks in the pipeline.

47:00 The I mean, we we have, you know, repeatedly said that we have we've gained the authority from shareholders in order to to to allow us to be able to make share buybacks. At the moment, our preferred method of returning cash to shareholders is through the dividend process. We we retain the ability to do buybacks for for a couple of reasons. One, you know, if if we ever got into the position where we you know, if if commodity prices you know, went out of control again as they have in in the past, we may, you know, find that we get into a position where we are building up cash more quickly than we can actually put it back through dividends. So we have the ability to do that. I don't think we're in that position at the moment because we want to keep cash on the balance sheet because right now having cash puts us in a in a really, really strong position for m and a.

47:59 The the debt markets around the world are are well, not around the world, but around The UK debt markets for for for oil and gas are drying up. The position that we we find ourselves in of having cash puts us in a good position for M and A. So if we're not able to find M and A opportunities, if we're not able to deploy that cash through M and A and if we start to massively increase that cash then we would look at share buybacks. But at this stage we believe the amount of cash that we hold is appropriate to give us the strength and the resilience to do the MLA work that we're pursuing. Next question, have you bid in the thirty third licensing round? I think there were some notes on that in the interim report. We have put in a couple of bids on near field appraisal projects. So, you know, discoveries that are close to our existing infrastructure.

49:03 We are awaiting announcement of those bids. It was supposed to be by the end of September. If I'm honest, I'm not holding my breath. So, I'm not not really not really sure. What is the stumbling block in partnering in ongoing drills in The UK area? It appears scant such deals have been forthcoming despite the compelling tax advantages. Yeah. I think I think the question is, yeah, why don't we just find a bunch of partners, go out and drill a bunch of wells because it's cheap because of the tax advantages. And and and that logic is is is is good except that every company, ourselves included, have a certain amount of bandwidth. There's a certain amount of things that we can concentrate on if we want to do them efficiently and do them well and do them safely.

50:01 We've got a very very active drilling campaign coming up over the next eighteen months to two years and we've got the right people working on that. We don't just want to throw money at other projects because it's cheap. We want to high grade projects. We want to do the projects that are that are right. We want to develop and mature prospects for beyond '24 and '25, and that's what we're doing right now. So we're looking at at infill drilling on Bruce, for example. But we're not going to rush out and just drill wells in places because there seems to be some short term tax advantage. So that's I can understand the logic but you know basically we want to we really want to do the right thing and to high grade the opportunities that we have.

50:57 Mitch, absolutely. Thank you very much indeed for being so generous of your time and addressing all of those questions that came in from investors this afternoon. And of course, we will be able to give you back all of the questions that were submitted today just for you to review immediately after the presentation has ended. And, of course, we'll publish all those responses out on the platform where it's appropriate. But, Mitch, perhaps before really just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments to wrap up with, that'd be great. Yeah, I mean, think, know, we've I've touched on hopefully I've touched on all the high points. I mean, I think we exited the first half of the year as a far stronger, far more diverse and balanced company than we started. But that's not the end game. You know, what we've created here is, you know, a fantastic set of foundations.

51:47 We've got the balance sheet. We've got the people. And I've probably not talked about enough enough about the people, but we've got the skills and people to to accommodate more assets within the within the company. And so we've built this this this this this great set of foundations for us to go on and to get more value out of the existing assets, but also to grow the portfolio as quickly as possible. It's a difficult, there's a lot of, I mean, talked a lot about tailwind, there's a lot of headwinds in the industry at the moment as well. We are seeing a lot of regulatory lag, we're seeing a lot of tax issues and we're seeing the environmental lobby that are making life difficult for us. But I think we've got tools to address each of those and I think we can achieve the goals that we've set us.

52:36 So yeah that really is my closing points. Mitch, thank you very much indeed for updating investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations? This may take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of SERICA ENERGY PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all. Thanks, guys.