Serica Energy (LSE:SQZ) — Interim Results

0:01 Good afternoon, ladies and gentlemen, and welcome to the SERICA ENERGY PLC interim results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could 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 at any time and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, all questions submitted today will be reviewed with responses published on the investor meet company platform where it is appropriate to

0:31 do so. Before we begin, I would like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I'd now like to hand you over to CEO, Mitch Flag. Good afternoon, sir. Yeah. Good afternoon. Thanks thanks for the introduction. Good afternoon, everyone. Thanks for for joining this. I yeah. I I think most people are pretty aware. I'm Mitch Flag, chief executive in SERICA. And I guess normally at these these things, I I start off with a little bit of background to the company, which I'm not it isn't in this presentation, but clearly, we are a, you know, a North Sea focused oil and gas exploration and production company, heavily focused on gas rather than oil, and heavily focused on production rather than exploration. But but we do we do cover the full the full range.

1:19 This presentation, which I'll go through fairly fairly briefly to to leave time to answer questions, is is fairly short, but is focused very much on what happened in the first half of this year because this is our interim results day and and what happens in the in in the near future. There were some pre submitted questions, and I'll I'll try and answer those as I go along. Fortunately, I think almost well, everything that was in the pre submitted questions is covered in the in the presentation, So I've not had to do too much extra work to to to be ready for those questions. But as I say, I'll be happy to answer other questions at the end as they come in. So first half of this year, what's it all been about? It's been it's been a good it's been a good half. We are very, very pleased with the outturn of the first half of this year.

2:13 What we've seen is that our ongoing strategy of investment is paying off. So we've always and and anyone who's heard me speak before will have heard me banging on about the fact that that we're always investing for the future. We're investing in the growth of the company. And the most recent campaigns, the Columbus well, which we drilled last year and brought on production towards the end of last year. The the RUM r three well intervention, which we carried out last year and brought RUM that well onto on stream at the towards the end of last year as well. And then this year's well intervention campaign, which I'll talk a little bit more about, have really added significant production capability to to to the company. And we're not finished there. We are and, again, we will talk about this more.

3:01 We're we're we're drilling the North Egg exploration well at the moment, and we're accelerating other opportunities to to to do more well intervention work. So the result of that is is seen quite clearly in the increased production. So we've had a 41% increase in our production in the first half of this year compared to the first half of last year. So that is, you know, entirely due to that investment program that we've been we've been running for the last few years. I expect second half of the year to be broadly similar to to where we are in the first. So our guidance for the for the full year is between twenty six and twenty eight thousand BOE per day net. Now we're always talking BOE barrels of oil equivalent even though our production is predominantly gas.

3:51 That's just convention within the industry. If I talked in gas volumes, I I think people would wouldn't find it as easy to follow. So when I'm talking about barrels of oil equivalent, it's it's it's gas rather than oil that I'm talking about. So that increased production has led to increased cash flow. You know, we're we're all aware that the commodity prices generally have been very high, and and I'll talk about this in in more detail. But it's led to increased sales revenue. Our sales revenue was something like £350,000,000 with an operating cash flow of £312,000,000 for the first half of this year. The result of that is that this is all added to our financial strength. Our cash plus hedging advances stood at £418 £418,000,000 at the end of the first half of the year.

4:44 We've got no borrowings. We've got very limited decommissioning liabilities. So we have a very, very strong, very clean balance sheet. The this is led I mean, earlier in the year, we announced and paid our our our annual dividend of of 9p a share that was paid in July. And today, we've announced our first ever interim dividend of a further 8p a share, which will be paid in in November this year. So it's been a really strong six months of technical and financial performance, But it is so important nowadays that that we can't just concentrate on those things. We have to ally to that, be able to demonstrate that we are we have a due regard and an improvement in our ESG, our environmental, social, and governance skills.

5:40 And, again, we've been able to reduce our carbon intensity from the Bruce platform, and we're doing a lot of work. We were one of well, the first signatory and a big supporter of the energy services agreement, which is very, very important to our industry to to protect the supply chain, which really is the future of everything we're doing. So a year of good sorry, six months of of good performance. I'm not gonna go through every every box on this on this plot. I think I've already talked about the fact that our our sales revenue and our operating cash flow was were were both significantly increased. I've talked about our production. Our costs have been broadly broadly level over the first six months of this year compared to the first six months of last year.

6:28 Now in a in a period of, you know, we are seeing increasing inflation in in in the oil field. I think to have kept our cost level is a pretty good performance. I think this is gonna become an increasingly difficult metric to follow. Traditionally, the industry talks about operating costs in dollars per barrel. We're all aware that right now the exchange rate between dollars and pounds is is all over the place, so it's gonna be increasingly difficult to follow this. But in the first six months of this year, you know, dollar pound exchange rates were similar to where they were the previous year. So I think that is, you know, a decent comparison. And the result of that is that, you know, our profit after tax has gone up significantly, and so our earnings per share are are unrecognizable from where they were a year previously.

7:21 So that's that's kind of set the scene. I'll go through some of those things in a little bit more detail. And as I say, take take questions at the end. The the first one is just to talk about our production. I think that that that hopefully the graph says says everything. We started to see the increase in production in the second half of last year. So if you look at the period from from July to December 2021, we saw a, you know, a steadily increasing production trend compared to the first half of last year. By the time we got to the end of last year, we had the green bars in here, which was Columbus, which we've just brought on to on on on stream. And you'll see, I think I've talked previously about the rum increase when we brought the r three well on, which is when the gray bars here go from from wherever they were about 12 to 13,000 BOE per day up to seventeen, eighteen thousand BOE per day. So, you know, we we we saw that increase in the second half of last year, and we've maintained that generally in the first half of this year. We did have a shutdown to rum during March this year, which was a bit disappointing. We had an equipment failure there, which led to you can see again from the gray bars, the the the performance of rum in March was pretty disappointing, but we fixed it very quickly. And during the period that rum was underperforming, we managed to crank up Bruce to optimize the Bruce production. These are the

8:51 blue bars in here. So that the overall impact of that shutdown wasn't as big as it might otherwise have been. So bottom line, 41% increase in '22 over '21 for a production level of 26,600 BOE per day. So we think a very a very strong performance. Allied to that were the commodity prices. Gas prices have been crazy largely, but not not totally, but largely driven by the conflict in the the terrible conflict in in Ukraine. And, you know, it's we don't want to be seen to be benefiting from that, but there is certainly an impact on on on international gas prices.

9:36 We see, you know, huge volatility. So the blue bars here are the average monthly day ahead prices. And you'll see that even as recently as May, we had a month where where where UK gas prices were below a pound a third. Three months later, in in August, they were up at £3.50 a third. Absolutely crazy volatility. Oil prices, the orange curve here, have risen not as fast and at the moment are actually on on the way down. But you'll see here that we've seen, you know, a big increase year on year from $25.25 pence of average in 2020 through to a 113p last year through to 205p year to date in 2022.

10:27 In the first half of the year, it was a 175 p a firm because you can see that July and August were were were slightly were slightly higher. And I can see that that's that's one of the questions that's coming through. I will try and pick up questions as they as they come through. I won't name and shame people, but someone has said that the realized pre hedging gas price looks low relative to average MBP day ahead pricing. So as I said, the average MBP for the first six months of this year was was $1.07 $5,175 pence. I think our our realized price was $13.06, so it is lower. But that's because some of what is called hedging is actually through our gas sales contracts.

11:17 I'm not gonna go into too much detail in this presentation. I think it's probably we don't really have time to do that, but the the $13.06 that we realized basically takes account of our hedging. So that's answered that question. If not, please feel free to to to to add another question in the in the box for that. So commodity prices have been have been strong. So that has led to an increase in in our cash position. You see in this plot, I'm I'm I'm kind of just showing where our cash has been every six months for the last, whatever it is, four years. And you'll see that after we did the the deal to buy these assets from BP, we built our cash in the in the first year. And then for a couple of years, we tried to keep our cash levels at around a £100,000,000.

12:10 We felt that having a £100,000,000 gave us the ability to to to deal with the day to day business and and and have the contingency that we needed. In the last two periods, the last two six month periods, we've seen this this incredible rise in our our cash balances due to the the increased production and the increased gas prices, such that at the end of the first half of this year, we were sat at a total cash, cash equivalents, and hedging advances of £418,000,000. Now I've put some numbers in here so you can see that actually since June, it's continued to rise. Last Friday, which was the last time we we tallied up, that had actually risen to £482,000,000.

12:59 You have to take into account that since the end of June when it was 04/18, we have actually made a tax payment of £66,000,000, and we made a dividend payment of £24,000,000. So there's been two big set piece payments of £90,000,000, and we still raised our our cash from $4.18 to $4.82. So, you know, clearly, it's a very, very cash generative business at at the moment. The the the the the issue for us really has been that we do have a significant amount of hedges in the in the in the company still, and we have to post security, cash security against those hedges. And we can see that so that's the orange part of these curves here. We can see that that has generally risen such that at at the end of June this year, our hedges our hedge security that was in place was something like a £160,000,000.

14:02 I'll come on to that on on on the next slide in a little bit more detail. If I can find the right button. Sorry. There we go. So so this hopefully gives you a bit of an indication on our hedges. Now we haven't put any new hedges in place since July 2021. So it's over a year since we put any hedges in place. But we always, prior to that, had a rolling program of putting hedges in place to protect our downside. And that was very successful for us. It's particularly in 2020 when when gas prices went, you know, incredibly low. Our hedging policy paid off dramatically, and it enabled us to continue to invest in the projects that are doing so well for us at at the moment.

14:48 We haven't put any new hedges in place. This plot, the upper right hand side plot, shows you the number of remaining hedges that we have. At the start of this year, we've had hedges covering a total of a 146,000,000 firms. Part of those were swaps, part of those were fixed price agreements we we talked about earlier. Those those hedges are being extinguished rapidly such that by the middle of the year, we were down to 60 something or 80 something million. I think right now, we're down to 64,000,000 compared to the 146,000,000 we were at at the start of the year. By this time next year, our hedges will be totally extinguished. So everything else being equal, you would expect that the the margin calls or the hedge security that we have to have in place, you would expect that to be dropping at the same rate as our number of hedges is dropping.

15:46 Unfortunately, there has been such volatility in the forward prices of gas that our outstanding margin calls or the hedge security that we have to put in place, as shown in the bottom of these two two plots, has been varying dramatically throughout the year. So there have been I mean and I've just showed you know, it's impossible to show this on a daily basis because there is just so much volatility. I've just shown where it stands at the end of each month this year to date. And so rather than seeing the decreasing trend that we would expect if everything else stayed equal, we've seen this kind of sawtooth effect where at times, the the the the margin calls or the hedge security have been less than a £100,000,000, and at times, they've been well in excess of £300,000,000.

16:35 So, you know, this is one of the reasons that we are no longer putting further further hedges in in place. The the volatility in the market means that the hedge security is is too much of a risk for us to take. So we're not putting new hedges in place. We will continue to review that as we go forward. But at the moment, we're we're we're we're letting our hedge book run down so it expires. So we do not, in the future, expect to have this margin call liability. So it brings us on to capital returns. I think I've already mentioned that, you know, we we last year or this earlier this year, paid a 9p per share dividend in respect of 2021.

17:28 You only gotta go back a couple of years to to to the fact that SERICA, you know, never paid a dividend in the past. Our first ever dividend was 3p a share in 2019. We increased that to 3.5p in 2020. And then for 2021, we paid 9p per share earlier this year. Given the the the, you know, the strong results from the first half of this year, We are today announcing our first ever interim dividend, which we've set at the level of 8p per share, which will bring will be paid in November, and it will bring our combined dividend payments during 2022 to total of 17p per share.

18:10 We also I think you'll be aware at at our AGM in July this year, we passed a resolution to enable us to have the facility to to make share buybacks or to repurchase shares in in the future. This is something we didn't have that that that facility previously, and it's something we've never done as a company. And it's something we've always said that we will utilize when we see the benefit to to shareholders. So when will we see the benefit to shareholders? Well, we need to make sure that we retain sufficient funds in order to to to run the business. So we we need sufficient funds to be able to cater for eventualities on on our production assets, but also to execute our ongoing forward capital expenditure programs.

19:01 So the North Egg well that we're drilling at the moment and the future well interventions. And we'll talk a bit more about well interventions as we go forward. We also right now, we're drilling egg. If egg is successful North Egg is successful, we want to be able to make a very quick investment decision in order to capitalize on the current tax advantages that are out there. But also, if egg is successful, we want to get back to market. We wanna be selling gas as quickly as possible. So we need to retain sufficient cash cash to enable the egg development. We need, at the moment, to be able to cover those hedging security requirements up to £300,000,000, as I said, at the end of last month. So, you know, we need sufficient funds to be able to do all of those things and to follow our our plans to to to be in the m and a market to to grow the portfolio.

19:54 So when we take into account all of those factors, we do not believe that the timing is right immediately to initiate a buyback program. We do think that all of the issues I've talked about are relatively short term, and the hedging requirement, I we believe should go away relatively quickly. We will know where we're going with with with egg relatively quickly. So we believe that we will resolve those issues quite quite quite soon. But at the moment, it is not appropriate to to to launch a share buyback.

20:31 So that really was the the kind of financial bits and pieces. I'll I'll go in and talk now a little bit about about what we're doing technically and and what kind of keeps us busy and keeps the operation team going. We've we've just completed our first ever light well intervention vessel campaign. It's a bit of a mouthful. Light well intervention vessel campaign. Now what this is is going out with a subsea intervention vessel as shown in the bottom left photo there and and reentering subsea wells. So the Bruce Field, a a number of the wells were drilled through the platform and are quite easy to access, but a number of the wells are drilled remotely. So they're they're connected to the platform by a subsea pipeline.

21:20 And there's been no work on any of those wells for a number of years, well, since they were drilled. So these wells were drilled by BP back in the, you know, sort of fifteen, twenty years ago, and there has been no maintenance or intervention done on those those wells in in the interim. So we went back for our first ever campaign. The first well we did was the Bruce M one well. It had been underperforming for a number of years, and we went in initially just to try and see if we could understand why it was underperforming. We found a couple of things. First of all, we found a restriction in the well. So if you look at the this diagram, I don't if you can make it out on bottom left hand side, it kind of shows we we show saw a real restriction, which was a buildup of scale, so calcium carbonate, I think it was scale that had been precipitated from from water production in the well that had caught that had kind of collected and and caused this restriction, which was restricting flow. So we went in and we cleaned out that restriction with some mechanical scrapers and then also with some chemical solvents to to to get that to get that out of there. We also then did some analysis of of of what was flowing into the well from where. We saw that some of the zones just weren't contributing.

22:35 We saw that there was some water coming in at at the bottom of the well, which is never good in a prominently gas well. So we set a plug to plug off the water. We re perforated the the the the the producing zones, and we added some perforations in some new zones that hadn't been perforated previously. And what they did was that added something like 1,500 barrels a day, again, mainly gas, but 1,500 barrels of oil equivalent a day as a direct result of these operations. So we turned a, you know, a a really underperforming well into a into a good performer. We then went on and did the same on the second well at Bruce M 4. It was actually slightly more straightforward. Though we didn't have to put a a shutoff plug into that well, but we we reperforated.

23:24 We increased performance on that well by something like 1,900 barrels a day. So those two wells between them have added 3,000 or, yeah, 3,000 barrels of oil equivalent per day, which is significant. We have learned a lot from those two projects, and we are now we we've we've now got a good list of of other candidate wells that we can do similar actions on. We've been out, and we've contracted a vessel for sixty days to go back in early twenty twenty three, so probably late spring probably, to go and and start looking at the other candidate wells because we think we can repeat this performance on on more wells next year. So it's it's it's worked very, very well.

24:12 The the the financial payback of that project was was incredibly quick. It's it's it's paid for itself very, very quickly, and we think we can repeat that next year. So we're doing everything we can to accelerate that project to to to do it again next year. I also talked about North Egg, and this was I keep on forgetting the questions that people have been asking me, but one of the questions was how is Northlake drilling going and when might the outcome be known? So the how is the drilling going on? I guess it's it it it we had a we had a really, really difficult start. We had problems in the top hole locations that necessitated us having to respud the well twice, which was a big blow.

25:03 It it it we were we were encountering quite unconsolidated drilling conditions in in the top hole section such that what what's called boulders. I don't really think of them as boulders, but probably chunks of rock around 20 centimeters in in in diameter were were becoming dislodged as we drilled the top hole section falling in on top of the of the drill bits such that we would drill, and then these rocks would fall in on top of the drill, and then we get stuck and wouldn't be able to pull out of the hole. It it is a known problem. It was worse here than we had anticipated. We lost a significant amount of time having to re sput the well as a result of that. When we got back and drilling, we had, yeah, an unrelated failure, a one off failure of a piece of rig equipment, which also delayed us for for a little while.

25:58 So progress hasn't been good. We are now back to drilling operations. I think the good thing about all of this is that the the problems we've had have absolutely no impact on the outcome of the well. The problems we've had were in the top hole section in in the top, you know, few 100 feet below the seabed, and that has absolutely no bearing on what we're going to find when we get down to the to to the reservoir. We've still got a long way to drill to get to the reservoir, and so we're not gonna have results from this well until into December this year. I mean, originally, we had hoped to have them by the end of October, but we have had these significant delays. But, yeah, what what we've seen so far has absolutely no impact on the on the ultimate on the ultimate performance of of the well. So, you know, it's it's a significant prospect. It's 60,000,000 barrels and on a p 50 most likely basis of of of recoverable resources if it comes in. It's close to our existing infrastructure. It's close to Bruce.

26:59 So we would be able to tie it back relatively straightforward. I mean, it's it's a high pressure, high temperature prospect, so it's a it's a proper piece of engineering. But it is yeah. I mean, it it it won't require building new platforms or particularly long pipelines. We will tie it back to our existing infrastructure. Someone has just asked what piece of drilling equipment failed. I I I feel it's I mean, it's it's it's not a SERICA piece of equipment. It was a piece of equipment owned by the rig contractor, and I think it would be unfair of me to to comment on the rig contractor's equipment. So sorry, but I am gonna duck that that question. The while we're on that, someone said, would the drilling problems have been less disruptive if you'd used a much newer drilling rig rather than the Paul b Lloyd?

27:49 It's an interesting question. There aren't that many newer drilling rigs that are active in the North Sea, and I would argue that the Paul b Lloyd has the the best record in recent years in drilling these high pressure, high temperature wells. So, you know, this is not this is not a well that could be drilled by every rig that's out there. There are very few HPHT wells that rigs that could do this work, and and and the Port B. Lloyd has a a fantastic reputation through the years. So I think using a a newer rig would nest not necessarily have avoided have these these problems. What else are we doing? I mean, on the exploration front, some of you will have noticed that, you know, we we our partners in the Skarivore prospects at Park Mead are the operator of this. We're not quite unusually in our portfolio. We're not operator of of of this exploration prospect.

28:48 Our partners announced last week, I think it was, that they're moving forward into the next phase of this license. And and that will a well will be drilled within that next three year phase. So the partners are are aligned on this project and looking to accelerate that that that investment and get that well drilled. So you you may have seen that announced by by Parkmeat already. And finally, before I go off of of operations, you know, just just to to to kind of look at some of the things that perhaps don't get as much publicity because there's a lot of work we do that is around improving and extending the life of our assets.

29:39 The Bruce hub, as we call it, so the the fields that that use Bruce so it's Bruce, Keith, and Rum. When we bought those assets, the independent view was that they would last until 2026, and and then we would have to abandon them. We we renew that independent work, so we have a competent person who an independent person who looks at that every year, and they now say that that we will be producing those assets until at least 2030. So we've added four years to the life of those assets by reducing costs, by improving uptime, and by investing in in in in the assets. But we wanna continue to do that, and and we've got an internal project now that that I think a lot of people in the company are getting very excited about that actually enables us to concentrate, and we've set ourselves a target of extending the life of these assets to at least 2035.

30:38 So it's imaginatively called project 2,035 plus. But we think we can do this. We think we can have five years to the life of these these assets, which will add significant value, will add significant reserves. And to do that, we're going to have to reduce our carbon intensity. We're gonna have to be better at making because, you know, you just cannot keep on producing unless you can reduce the emissions that are associated with that. We are we we are obliged to do that. We think that the projects like r three and the campaign have have shown that we can do this. We can add reserves. We can continue to reduce costs. We can continue to reduce carbon, and we can extend the life of these assets. So it doesn't always get the publicity, but but I can assure you there's a huge amount of work in the company to to to focus on extending the life of these of these assets.

31:33 So where does that where where does where does that leave us? Where do we stand?

31:38 I've I've mentioned it a couple of times. You know, we're we're over 85% of our production is gas. We are making a significant contribution to the country's security of supply. A year ago, that was a phrase that most people weren't particularly it wasn't used in the press. It wasn't particularly popular. And and and and if I said that in a in a meeting or a conference, I wouldn't get much recognition for it. But but now everybody everybody understands that as a country, security of gas, in particular, security of gas supply is really important to us. And with our production being 85, 90% gas and Us producing over 5% of The UK's gas, we are in a really favorable position.

32:24 We are bang smack in the middle of what the government wants. The energy security strategy for The UK recognizes the how important domestic production is, and it recognizes that our gas will have a significantly lower carbon footprint than than than than LNG imports in in particular. So we're I think we're in a great position going forward, and we'll continue to invest to maintain those production levels, hoping to increase those production levels whilst whilst reducing our our carbon emissions. So I think we're in a very, very strong market sector at the moment. But we wanna grow our our company. We we want to be bigger because I think we've done a lot of good things with the assets that we've got, but you can't go on forever extending the life of of of one set of assets. So we need more assets. And so we spend a lot of our time looking at m and a mergers and acquisitions opportunities.

33:26 It's it's a complex market. The the tax changes in the last year have made it more difficult. The the the changes in gas price in the last year and the volatility have made have made it very difficult to value deals. And so it has been difficult to to to to to move forward on m and a things in the in the last year, but we do see significant opportunities going forward. And there are some new opportunities that are coming up because of the allowances that are available under the the EPL, the the the windfall tax. So we we see those opportunities in The UK North Sea. We are we've always said, and and you probably will have heard me say it before, we're not just we don't just wanna do deals for the sake of deals. You know, I'm I'm never gonna stand here and say, my ambition is to produce a 100,000 barrels a day because it's not. I mean, we could do that. We could go and buy things that are that are not very profitable and produce a lot of oil, it might sound good. But we're looking to actually do deals where we can add value.

34:25 And so we are we are quite picky, and we do realize that that we may in order to get what we want, we may need to look outside of The UK. And so we are increasingly looking at non UK opportunities. But we will always stay true to our screening, if you like, our process that looks at where we can add value, where we can reduce costs, where we can exploit synergies, where we can improve the environmental performance, and where we can add value to to to to assets. So we do see we do see lots of lots of opportunities. So you'll be glad to hear that I'm coming towards the end. And I think this really is the the final slide before I go into your questions, and I can see some good ones coming through.

35:15 Where are we? As I've said, I think we're well positioned. We have more than 85% of our production is gas. That is crucial to The UK market, and it's crucial to The UK market going forward as we go towards net zero. We are benefiting from from higher international gas prices, but we are reducing The UK reliance on on higher emission imports. So we're in a really good position. We're in a really good sector, if you like. We within that sector, we think we're re really competitively positioned. So we do have significant cash. We don't have any borrowings. We we I've not talked about it. We don't have very much in the way of decommissioning liabilities. You know, a lot of companies, you know, have a lot of money tied up in in future decommissioning. We don't have a lot of decommissioning liabilities.

36:01 I I haven't even really talked about the fact that the the deal we did to buy the assets from BP and others has come to an end now. So we were sharing our our cash flow until the start of this year with the sellers. We're no longer doing that. We now keep a 100% of cash flow. So we are really in a really competitive position. We're fully funded to to to to move forward and grow the company. And we've got lots of opportunities. We've got the egg well that's drilling at the moment. The the LWIF campaign was really good, and it shows the the the benefit of doing those, and we can do more of those. We've got lots of opportunities, as I said, with this project two, three, twenty, thirty five plus to to invest in Bruce going forwards. And there will be investment allowances under the windfall tax that's that that that that will we will benefit from.

36:50 And so and we're also looking at acquisitions of of new assets that may require investments because, again, the opportunities under the windfall tax may may help us finance some of those some of those opportunities. So that's been a fairly quick whistle stop through, and I I can see that there are lots of questions that are coming in, and I'll I'll try and go through the questions as they as they came in. Approximately, what percentage of your costs would you estimate are fixed in dollars versus pounds? 90% plus of our costs are in pounds. Probably 95% of our costs are in pounds. 95% of our revenue is in pounds, So we're not really massively impacted by by the exchange rates.

37:40 Second question, we can buy oil from Kenya. It's really cheap now. Then we can sell it at higher prices. We're not a trader. That's that's not what we do. I I don't know if that's true. I I have no reason to disbelieve it, but we're we're an exploration and production company. We're not a trading company. Next one. You mentioned currency fluctuations. What currencies do you hold? As I said, 95% of our of of our business is is done in pounds. We hold some dollars, but we get some revenue in dollars. So, yeah, we're we're we're a pound company. So next one, separate from BKR a 100% share. What is the like for like performance of production? So all of the production numbers I've talked about are a 100% share. So I I mean, you know, the the fact that our production the production numbers that I've quoted this year are higher than last year. That's not because of the end of the BKR deal. The BKR deal was a cash flow sharing deal. It was nothing to do with production.

38:42 So our real production has gone up from 18,800 last year to 26,600 this year. It's a real increase. It's not a paper increase. Next one's quite a long question. The current forward curve implies that SERICA trades on a free cash flow yield to enterprise value of more than a 100%. What kind of m and a target would you consider sensible compared with the returns that your own stock offers? And do you have a lower yield requirement for m and a than for share buybacks? Does the strong near term pricing in gas imply that predominantly oil focused targets are sensible? There's a lot of there's a lot of questions in there. In reverse order, we we we are focused on gas, but we're focused on gas because it has a a you know, a a very good environmental footprint.

39:32 There are oil projects out there that have good environmental footprints as well. There are some oil projects out there that are terrible. So we are more likely to find what we want with a gas project than an oil project, but we do not discriminate, and and we would consider oil opportunities going forwards. The do we do we have lower yield requirements for M and A than for share buybacks? We we no. We we look at we look at all all all investment opportunities on an equal basis. And as a board, we we look at these things we look at, you know, I don't wanna get too technical, but we'll look at investment opportunities on a discounted cash flow basis. So we will look at the at the the long term value of of an asset and what we can add to that to that value.

40:23 So we do try to compare things on a on a like for like basis. If if I mean, I probably can't go into too much more detail on that, but if the sender of that that question wants to drop me an email, please please do, and and I can give a fuller answer. But I'm I'm conscious of time here, so I can't really I can't really go into too much detail on that. Next question, what is the outlook for Columbus? Columbus, I think as we said previously, has hasn't performed at the at the levels the production rates that we had hoped, but it is producing steadily. And obviously, as a predominantly gas asset has you know, we we brought that on just as we saw the the the peak of gas prices. And so Columbus commercially has done has done very, very well, continues to to produce, but it has produced at at at lower than than we would initially have expected.

41:26 I think there is still a lot of technical work being carried out to see whether Columbus is gonna continue producing at a lower rate for longer and and and make up some of the the shortfall that we're seeing at the moment or whether it will be a lower rate for shorter. I I I don't know the answer to that just yet. We're still we're we're still, yeah, acquiring data as as we go forward. But it's it's it's producing steadily as you saw from the from the plots earlier and is a is a is a good contribution to our to our production mix. Next one. What return are you getting on your cash? I I think, you know, we all know that banking returns are are not particularly good at at the moment. I I don't have an apps I don't have a a simple answer for that, but we're getting, you know, typical bank rates. I'm I'm afraid I don't have a number, and I can't can't really give you that.

42:27 Next one. Can you estimate how much of the 418,000,000 will be reduced by tax due on it? Ah, okay. So what's our outset? Well, we just made a a a tax payment. And as as I said in the in in the presentation, the the tax the tax system runs on installments. So and this is one of the other questions that actually came up in the in the pre questions, was talking about windfall taxes and and and how they will apply. The windfall tax starts from May this year, May 26, I think it was. And and so there is no clawback on on old on on on revenue that was before the May 26.

43:16 So the impact on certainly on our first half from the windfall tax is very, very small. There's a small amount of tax on one month of production. So the outstanding tax on that £418,000,000 number is is not significant. I don't have an exact number for it, but you will see, as we've already said, in q two sorry, in q three, we paid, I think, $6,666,000,000 pound tax bill. Next question. AIM listed Longbow Energy is a firm that takes equity in exploration drills. Would similar investments be eligible for UK windfall tax investment incentive? Yes. So, you know, that's what we're doing on on Skarivot.

44:05 So we are invested in in that. It's another operator, but our investment in that if that well is drilled during the period of the windfall tax, then that will be eligible for the investment incentive. And that was another question that came up in the in the pre read questions. And we I was asked how long will the windfall tax extend for? At the moment, there is a what's called a sunset clause in the energy profits levy, which means that it it exists and it lasts until the end of 2025, and then that legislation is is is removed, if you like. So it's a it is a time bound tax.

44:54 The the particular question was, does it only apply to one year? And it it's not it's not just to one year. So the windfall tax applies from May this year up until December 2025. And so going back to the other question, if we drew if we drill the Skerryvore well during that period, then that investment will be eligible for relief under the windfall tax. So next question, would a £50,000,000 share buyback be easily accommodated given cash and hedge profile? Well, as as we said, we we've assessed, you know, our cash position and our cash requirements, and we've come to the conclusion that immediately, we're not in a position to launch a a share buyback.

45:50 You know, we talked about the fact, yeah, at the end of the half, we have £418,000,000. We've seen margin core requirements of over £300,000,000. So our assessment is that right now, a 50,000,000 share buyback would not be an advisable move. But we do keep that under review, and we will continue to to to review that. Next question. Does the volatility in hedging requirement explains why they don't return cash via dividends or buybacks? Yes. I I I think I think that's the case. So so, you know, whilst the hedging requirements are so volatile, we think it will be unwise to to to return cash.

46:38 Next question. How fast can you schedule further well interventions at Bruce? Do you consider the results of the first two wells a reasonable guide for the expected results of further action? How many well interventions are feasible? Well, I think as I've already said, we we do think that the the first two wells give us good confidence that we can go back and and and and do more. And so we are accelerating. And we I assure you we're doing it as fast as we can. So how fast can we schedule further interventions? Yeah. I mean, spring next year is is is the quickest we're gonna be able to do it. How many well interventions are feasible? I'm you know, we've we've got a a list of candidate wells of, I don't know, perhaps half a dozen or so.

47:31 It depends what we see, and we're gonna get more ambitious with some of the things we try and that may mean that there are more opportunities. But at at the moment, you know, we've got we've got, yeah, up to up to half a dozen, probably two, three, four good candidates and then a couple that we're gonna try and see what happens. Next one, the new investment allowance means that for every £100 invested, there's a £91 reduction. On that basis, isn't the net cash flow to develop NorthEgg or other existing assets relatively small? Why is there a need why is there a need to hold a large amount of cash for CapEx? It's a very good question, and it's it's a question of phasing. So you have to be able to do the work. So, you know, we it it is easy to say that, yeah, if you've got a £100,000,000 development, you're going to get a reduction.

48:26 Actually, it's 85% initially. In time, it's 91.25%. So, yeah, you will get you will get an allowance against tax. So if you've got a £100,000,000 to spend or £200,000,000 to spend, you have to you will only eventually end up paying 15% of that or possibly less. However, you've got to spend it first and then claim it back against tax. So that's why you need to keep the cash in in your account because you need to have the money to put the contracts in place, to pay the bills, and then claim it back against tax. So it's a it's a phasing issue. And apologies if I'm going through these quickly, but I can see that there are more questions coming than more quickly than I'm than I'm answering. Next one is if North Egg is a dry hole, would that mean you then have surplus funds available to do a buyback? As I said, yeah, the the results of North Egg are are one of the one of the factors that will drive our our ability to do buybacks in in the future.

49:21 Next one, excellent results and presentation. Well done to the whole of the team. And I'd like to echo that. I mean, it it is a fantastic team performance. So so thank you for whoever said that in. What's the best place to track the day ahead MBP price that SERICA received? It's really difficult. There is a a website called ICE ICE, the International Commodities Exchange, but that doesn't give you the day ahead price. I don't know of anywhere apart from, Bloomberg and things you have to pay for that will give you the day ahead price. Apologies, but that's that's outside of my area of expertise. But if you want the month ahead price, then ice is a is is not a bad spot to look for it. Next one. What long term gas price would you assume for the purposes of measuring attractiveness of m and a?

50:12 Yeah. I I don't like dodging questions, but if I if I tell you that now, then the our counterparties will know how I'm valuing things, and that might give away our competitive position. So I'm afraid I'm not gonna answer what our long term gas price assumptions are. Next one. Can we get an agreement to only carry out share buybacks where free cash flow permits company as debt free and company is trading below NAV? Well, I I think that's kind of what I've been trying to say that that, you know, we are only going to do a share buyback when free cash flow permits it. We are net debt free, so that's that that's a given. And, yeah, we would only want to buy back shares if we felt we were trading below our net asset value. So I think that is what I've been what I've been trying to say.

51:05 So that's that's that's there's nothing to add there. I must admit I'm skipping through a few here because they are coming in much quicker than I'm answering. But a lot of them are kind of repeated questions. There's a question around capital costs to get North Egg to production. You know, it's it's the North Egg development depends on how big the field actually is. You know, what we we see the analog of of rum, which is, you know, a huge field probably bigger than egg would be, and rum is being produced from three wells. So egg, I think, in in all of our cases is between one and three development wells. So the relative costs for for for those those wells are quite low. You know, it it it's not like one of these fields that's gonna need 15 development wells, and therefore, you have huge costs in terms of Christmas trees and and liner and and and long lead items. So for one or two wells, the costs are relatively relatively low.

52:21 There's a question about if North Egg is successful, what would the production rates be? So we drilled it. I can't really tell you. But, I mean, if you look at at rum, which is a decent analog, you know, rum is producing on a gross basis, you know, something like 30,000,000 30,000 BOE per day, slightly less from three wells. So, yeah, in a in a absolute upside, Northlake could be producing that amount, but it that is absolute total speculation. If your intervention campaign early next year is successful, can you grow production in 2023? I would hope so. That's why that's why we would be doing it. Good one. Next one. Will you be sending Andrew Austin a Christmas card this year? LOL.

53:11 I I yeah. I mean, I've got I've got nothing against Andrew. I've known him for many years, and I don't don't have a problem with him. And a follow-up to that, can you let us know what deal you proposed to Kistos to give us an idea of how you approach deals? They have obviously published the details of their approach to SERICA. I think we did we did publish the the the details of of our approach. Our approach was, you know, in contrast to what they had approached in to to their approach to us, which was financed by debt, which we believe would have left the company in in quite a a risky situation. We proposed a relatively small cash amount plus some some SERICA shares.

53:59 And and so I don't remember the exact numbers, but the proportions were, you know, probably 75% in shares and 25% in cash. It was it was turned down by by Kistos. That wasn't what they were looking for. So so we move on. The but the approach was that we saw some assets there, and and we felt that if we could put them together with our asset base, we we could possibly create a, you know, a stronger company. But it is quite important that you still have the cash in that on the balance sheet to be able to to develop assets and to move things forward. So we weren't just prepared to throw lots of money at it. We we didn't think the opportunity was was there for that.

54:46 Right. Next. To what extent do you regard LNG imports as competing with gas produced by SERICA? Yeah. I mean, LNG is is competition. I mean, all gas goes into the national grid. So, yeah, it doesn't matter where it comes from. What we believe is that our gas is is is better for the environment. It has lower emissions, and and it's better for the company. So so so, yes, LNG is an is is a is competition to us. Do you think we will be better off on the main market or the FTSE two fifty? That's a that's a complex issue. There are lots of issues in favor and against it. There are different tax treatments for, you know, in some cases for some investors. So for some investors, they they like to see us on AIM. The flip side to that is that that some of the the tracker funds tend to follow the larger the larger markets.

55:42 I think our position is that ultimately, we do have the ambition to be on FTSE two fifty. I think we qualify in size. I think we would be, you know, number 190 something if we were on it. I've not checked that recently, you might wanna look at my numbers. There is there is actually there's there's quite a cost in order to do it. I mean, you have to issue a new prospectus, And so we believe that there there are better things for us to be focused on on a day to day basis than than than going into that sort of project. So there may come a time when, you know, associated with a deal of some description, it's it's worthwhile trying to go on to the two fifty. But but right now, it's in itself, it's it's not an ambition. But in the long term, it is an ambition. How active are you intending to be on the up and coming new UK license round?

56:31 Well, when it's announced, we will I I believe we will be active. We're doing some preparation work, we've got some some ideas, but the it hasn't kicked off yet. So I do expect us to be working on that. Are you seeing rig rates and LWIF costs increasing, and are they priced in dollars? We are seeing rig rates and LWIF costs increasing. Most rig rates are in dollars. The LWIF lightweight intervention are a mixture, so we are seeing some increases there. Someone asking about Kistos, which I think we've touched on already. There's a couple of people asking questions about other potential targets, and I I can't comment on whether we're interested in buying a certain other company that would be wrong of me to do that.

57:25 Where do I see SERICA in, say, twelve months time? I think still very much here based in The UK, hopefully with a larger portfolio, hopefully with more production, hopefully with, you know, having made a, you know, a number of significant investments during the twelve months. And looking forward to the next phase of our transition because, you know, we we want to be a consolidator. We want to be a bigger oil and gas company. I think we can do that. But ultimately, we will want to look at things outside of The UK and possibly in alternative energy. So, you know, there's I think there's a lot of future at the moment. We're focused very much on the next step as an oil and gas company. I think we'll be I really hope that we'll be in in the same sphere of operation, but but slightly larger in in a year's time.

58:21 Someone asked me to speculate on gas prices. I I'm I'm not I I can't. I mean, I well, no. I will. I mean, I've been asked the question, so I'll I'll give an honest answer. I think gas prices, I think, will not stay as high as they have been in the last six months because I think it's unsustainable. But I don't think they're gonna go back as low as they were for the last five years or whatever. So I think because as an industry and as a we're not yeah. As as a world, we haven't invested in in oil and gas enough in the last five years. I think that there is gonna be a fundamental rerate. We won't go back to the long term averages, but it won't stay as high as it as it is at the moment. Given your concerns around hedging requirements, is it also the case you're not comfortable executing on m and a currently?

59:13 No. We we do we do have concerns around hedging security, but that doesn't mean we're not comfortable executing on on on m and a. We see those things as as as as not being linked. It's an interesting question. Does the extension of field life rely heavily on high gas price? If prices came back to a 100p a firm, would that mean Bruce is likely to end earlier? I think if gas prices crashed, then then that would that would impact the the end of field life. But I don't see the gas prices prices are going to crash. I think they'll come they will come down, but but not as not as not as not as low as long term averages. So I I don't think that's that's an issue.

1:00:06 I'm I'm aware that I'm up to the 02:00, and I don't know if the if if our host is here, but can I carry on? Is that is that allowed? Absolutely, sir. Okay. Brilliant. Thank you for that. So sorry if I'm testing everyone's patience, but I would like to get through as many of these questions as I as I can. Why have you not paid a special dividend? We paid an interim dividend, and I think for the same reasons that we've talked about not moving into a share buyback, we're not prepared to to to pay a special dividend. We talked to a lot of our investors and particularly our institutional investors, and and special dividends are not particularly favored by institutional investors because of the tax treatment.

1:00:57 Actually, giving someone a big special dividend and then then losing a considerable amount through tax is is not very popular. So we hear generally from our investors that they would we were to return capital, they would prefer it in terms of a of a share buyback as opposed to a special dividend. But I know that everybody has different tax situations, and I'm not qualified to give tax advice, so I wouldn't try try to do that. Same person. You mentioned you'd be looking to invest outside The UK. Where do you find attractive assets? I think we're not gonna go a long way away from The UK. We will look in the North Sea in other nearby countries. But again, I don't want to yeah. I can't really say any more than that. And same person, have you considered Namibia again?

1:01:49 Or is pure exploration outside of The UK not attractive? That's a good question. I mean, we we are, as I say, a production company, and so we are looking for opportunities, but we're not looking for pure exploration outside of The UK. So we would be looking we're we're not against exploration, but we would like it to come with some production. So at the moment, Namibia is not on our our list. Were you able to forward sell gas at recent high prices? We we sell our gas, all of our gas at day ahead prices. So, yes, we've been selling selling our gas at the recent high prices, but we're not going forward selling. We don't sell, you know, two or three months in advance. Question. The company has not made an acquisition for a long time. How seriously are you looking for for acquisitions?

1:02:39 How can shareholders be sure the company is taking m and a seriously? Can you offer any assurance here? I can only offer words. I can only I can only tell you that, you know, my my team, certainly the team in London, spend more time on on m and a than absolutely anything else. I'm guessing I would say we've looked at 20 or 30 opportunities in the last couple of years. I would say we've made serious proposals on, I'm guessing, six or seven, and we haven't been successful. So, you know but they're just words. You have to believe me. We are taking it very, very seriously. I'm afraid that's that's the only assurance I can I can give you? Thank you, someone congratulating us, and then saying, are we concerned that SERICA are a takeover target?

1:03:32 Not overly concerned. I I think there there's there's yeah. I mean, there's there's a limited number of companies that that might be interested in us. And so I don't, at the moment, assess that we would be, you know, particularly exposed to to a takeover bid. I mean, obviously, we have one earlier this year. I think the the really pleasing thing about that was that our shareholders weren't interested in selling. Our major shareholders expressed confidence in the in in the in in the way the company is being run. So I don't think we're an immediate an immediate takeover target. The next one is pretty much the same question.

1:04:27 Another one, pretty much the same question. Another one, have there been any developments on the availability of options to hedge gas prices? And and there haven't really. The gas hedge market and there is another question in here that talks about Harbor and the way that Harbor have hedged. And the the hedging for a company of our size is very, very difficult because of the the level of security that we need to to to provide. A company like Harbor with a, you know, a large company with a with a bigger and better credit rating may have options that aren't available to us. But for us, the the the hedging market is a particularly dangerous place, and I'm not prepared to take those risks to just to get a few more hedges in.

1:05:17 And and I think I've got to the bottom of the list. Finally, when looking outside The UK for acquisitions, how do you factor in the risk of windfall taxes in those countries? Great question. And, you know, we do have access to tax advice and tax advisers, international tax advice and tax advisers, and and we do take that advice on board, and we do look at those things when we look at new countries. But ultimately, it's a political risk, and, you know, we also assess the political risk of going into a new country. So it it it is a factor. We do take advice. We don't pretend we're the experts on these things. We do take independent advice. But it's right now, it that is very difficult. And that is one of the things that that makes it difficult looking to move into a a new country. Then I'm not someone's asked me what what I think the fair value market capitalization of the company is. I'm afraid I'm not allowed to answer those sorts of questions that would be guiding the markets.

1:06:21 Next time I think this is the last question now. Next time there is an approach for the company, would this be RNs with immediate effect? I note Kistos approached SERICA, and initial discussions were held only formally announced to the market when Kistos went public. Yeah. I mean, that's a that's a good question. And please don't think that there was any anything that was withheld from the market. You you will see that when Kystos went public, they they were clear to point out that they hadn't actually made a proposal for the company. I can't remember the exact words they used, but they they they talked about the fact that they had made a a nonbinding approach or something. It wasn't an offer that was capable of acceptance. It was an inquiry.

1:07:18 And, you know, so so we wouldn't necessarily need to and don't, you know, broadcast if there's an inquiry. We would always and, you know, we have an adviser and the regulator that that make sure that we do everything undertake other panel rules. And if there is an approach for the company, so which was your question, if there's an approach for the company, yes, we would be we would be announcing that. But there wasn't a a formal approach for the company with with Kistos. Right. So No. One last question that's coming. Where do I where do I see SERICA's main strengths? I think it's it's the team. I mean, I think we've got just just a fantastic set of people that are really, really dedicated to making this a better place to work, making it a better company, and and and adding value. And and that's why that's where I see our strengths. I think the good things that we're doing, the Elwif campaign came from from within the company. This was what the guys wanted to do. The improvements we've made in in our environmental performance come from Clara and and, you know, a great team of of ESG professionals.

1:08:37 So, you know, I think the strength is is the people and the willingness and and the drive to make this a better company. So at that stage, I'm sorry I've I've I've gone over time. And I and I I realized I've gone through those questions really, really quickly, and and apologies. But thank you for the number of questions. It was really it was really it's good to see. And and apologies if I if I've if I've skipped through anything. You can always get in touch with me, info at SERICA ENERGY sorry, SERICA ENERGY dot com, and we'll answer any questions that that that come through there. So having said that, I'll pass you back to to our host. Perfect. Mitch, that's great. Thank you very much indeed for your presentation this afternoon and for also being so generous of your time there and addressing all of those questions that came in from investors this afternoon.

1:09:26 And, of course, we will make all these questions available to you immediately after the presentation has ended for you to review and then add any additional responses where it's appropriate to do so. Yep. Mitch, I know investor feedback is particularly important to you, and I will shortly redirect those on the call to provide you with their feedback. But perhaps before doing so, if I may just ask you for a few closing comments just to wrap up with. And then as I said, I'll redirect those on the call for feedback. Okay. Well, thank you. I mean, Firstly, just thanks everyone for your time. You know, we I do I do like these sessions. I do like the feedback. I think it is important for us to understand what what our shareholders want. I know that it's it's it's difficult for for for companies to to interact with individual shareholders, and I get a lot of individual questions. And quite often, I'm just the rules don't allow me to say things. And so I do like to do these things where I can talk to a to a wide audience.

1:10:24 Hopefully, you'll see that that we're not ducking any issues. You'll get, you know, you'll get answers from us, and and and we are, I hope, giving you the whole story. We're not hiding anything. I know that not everything I say is popular, but I hope that you understand how we're running the business. And I hope that you can see that that we are getting a return on our investment, our collective investment. We are increasing our performance. We're increasing our production. We're increasing our profitability, which I believe is is to everyone's benefit. So so thanks for your support. Thanks for your time, and that's all I've got to say, really. Mitch, that's great. And thank you once again for taking the time to update investors this afternoon. Could I please ask investors not to close this session? You'll now be automatically redirected for the opportunity to provide your feedback in order the management team can better understand your views and expectations.

1:11:17 This will only take a few moments to complete, but I'm sure it'll 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. Thank you.