Serica Energy (LSE:SQZ) — Investor Presentation

0:02 Good afternoon, ladies and gentlemen, and welcome to the SERICA ENERGY PLC 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 in a position to answer every question it receives during the meeting itself. However, the company will review all questions, that are submitted today and publish responses where it's appropriate to do so, and these will

0:33 be available via your investor meet company dashboard. Before we begin, if I may, 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 Flegg. Good afternoon, sir. Good afternoon. Thanks thanks everyone for for for joining this afternoon. Thanks for your time. I think this is the third one of these that that that we've done, and I failed miserably to to finish everything within the allotted time on the first two. So I'll try and keep the try to keep this moving along. I'm gonna make a short presentation, and I'll try and keep it as short as as possible so that we can get on to the to the questions. Please put your questions into the the q and a function, and I've got a number of questions that were were sent in advance. So so thanks for for those of you that have that have sent those questions through.

1:26 It's it's a bit of a strange thing, actually. You know, we're we're now here almost four months through 2023, and I'm talking about the 2022 full year and results. And if you you know, if anyone cast their mind back to the start of 2022, we're in a completely different world. You know, gas prices were were still less volatile than than than they are at the moment. It was pre the Russia invasion of Ukraine. It was pre the tax changes that we've seen in The UK for for oil and gas companies in the in the last year. And finally, it was it was it was well before we'd even thought about anything to do with tailwinds. So we were a very different company, and the industry was very different.

2:15 So but as I say, this is about our 2022 results. So the first half of the presentation will be about that. And then I will go on to talk a little bit more about the the Tailwind transaction because I'm sure that's really more what you guys want to to hear about. You know, it it is worth going back and and and looking at what we did in 2022 because it was a year that I think we're we're proud of the performance of of the company, and and I think everybody in the company worked worked very, very hard and achieved an incredible amount. Production for the year so this is as through all of this section, I'm just talking about SERICA. There's nothing here about the the tailwind assets. But production on the SERICA assets increased by 18% compared to to 2021.

3:02 So we produced 26,200 barrels of oil equivalent per day throughout 2022. I use barrels of oil equivalent because it's a kind of industry convention. Most of our production was actually gas, but we convert that into into the equivalent of oil barrels just in order to to be able to compare. So, you know, a really strong performance year on year compared to, 2021. But at the same time, we've managed to increase our reserves. We've managed to increase the amount of reserves left in the ground, and and I'll talk more than that more about that as we as we go through. But but, actually, our our we've more than twice covered the the production that we had during the year. So we produced a lot of oil and gas through through the year. We started off with 62,000,000 barrels, and we ended up with 75,000,000 almost. So that is a pretty neat pretty neat trick.

4:02 The operating profit for the year, as you would have expected, with with, you know, strong production throughout the year and high gas prices, the operating profit was, you know, virtually double what it had been the previous year. And despite the the changes to the tax regime during the year, which were unwelcome, despite those changes to the tax regime, our profit after tax was by far a record for the company and more than double what it was in 2021. So I think a really, really strong set of results, and that allows us to recommend a final dividend for 2022 of 14p a share. And that will bring the the full year payment up to 22p a share following the the interim that we that we paid in November of last year of of of 8p.

4:58 So 22p a share of dividend compared to 9p the previous year. I think it was 3.5p the year before that. We're we're we're we're very pleased that we're able to to to make that return to to shareholders. And finally, the other highlight, I think, of of 2022 was our our diversification of the portfolio. We were able to announce the acquisition of Tailwind. I will talk about this more. It wasn't completed until March this year, but it was announced during 2023. So they're the the kind of high level highlights of of of the year. To put a little bit more detail on that, and and I'm not gonna go through each of these plots in detail. I I would hope that you've you've each seen these these plots previously.

5:45 As I mentioned, revenue, very, very strong, a combination of of of high commodity prices and very good production. So you can see a, you know, a very, very good upward trend from 2018 through to 2022 in revenue. The year that stands out was 2020 when, you know, the first year of COVID when there was a, know, a a huge downturn in gas prices. We still we still did okay that year, but but but that was the only year where we haven't shown year on year improvement in our in our revenue. We've kept costs under control. You know, when we took over the the Bruce, Keith and rum assets from BP, costs were running, in fact, higher than this in the previous year. We're running at about $18 per BOE.

6:31 In 2022, we're down to just well, we're yeah. We're down to just just under $16 per BOE. So I think that's a pretty good performance, but we are seeing an uptrend as as everybody is seeing an uptrend in costs. We're seeing inflation in in the oil patch. So to keep those costs steady, let's say, over the last few years, I think has been a very, very good performance. As I said, that then led you know, if you're making more revenue and you're keeping your costs under control, that leads to an increased operating profit and an increased profit after taxation, which then leads to the increased dividend that that that I've already talked about. So it's I think it's a nice flow through the story. And then finally, as I've already mentioned, our reserves now stand higher than the the the the the when we bought the Bruce Keith and Rum assets from BP back in 2017, 2018.

7:25 So, again, I think, you know, outstanding performance by the team to to continue to to upgrade reserves through through the really good technical work that's been going on. I talked about commodity prices. In some ways, this is a horrific plot. It it kinda shows what what gas prices have done in the last well, this goes back to the start of 2020. I talked about and and the blue the blue bars here are gas prices. I've put in the orange curve here is oil prices to show that I think in in relative terms, there's probably less volatility in in in oil, but but the gas prices have been incredibly volatile. In 2020, we saw gas prices, you know, below 10p a firm at some stages.

8:13 In fact, even during there was one point last year where we saw gas prices below 10p a firm. I think that was around this time last year. It was towards the end of towards the end of April, I think, last year. We've also seen on a daily basis prices in excess of £5 per So the volatility is is is incredible. Throughout the last three, four years, we've seen we've seen this range from 2020 where the year's average was 25p a tonne, 2021, a 113p a tonne, and last year, a 198p a tonne. This year, prices have fallen back somewhat, but still, I think, are well in excess of the the the long term averages. So everything we're doing is against the backdrop of of that volatility.

9:01 And I I think we're again, we we look back at some of the decisions we made and some of the decisions we made back in this tough period in 2020 when we carried on investing in our assets, where we committed to the RUM r three project, we committed to Columbus. They were some of the best decisions we made because those were when times were hard, we we invested in our assets, and that's why we're seeing the increase in production now. So I think that's it's really important that we have consistent plan to continue to invest in in in assets, you know, whatever the day to day prices of oil and gas are doing. I will talk a little bit about our our hedges. So and and and bearing in mind, this is we're we're talking primarily here about, you know, SERICA as as as was in last year.

9:52 And one of the big problems we faced during 2022 were the the the levels of security we had to provide against our our hedges. You will recall that we have always hedged to provide us with protection against downside volatility, and we've not been hedging for the last couple of years. We we have not put any new hedges in place since July 2021. But at the start of last year, we had something like a 146,000,000 firms hedged. Some of those were swaps. Some of those were fixed prices under a gas sales agreement. And at one stage during last year, that led us having to lay out security of in excess of £300,000,000.

10:41 So although the hedges were giving us that protection and were mitigating risk, they became a risk in themselves because we had to put out so much security to to to the counterparties. Because of that, we've not been entering into any new hedges. We've been letting the old hedges run off. So by the end of last year, we only had, I think, 22% of the hedges left that we'd started the year with. And and so right now, our hedging security has reduced to zero. So it was one of the key risks and one of the key issues that we faced last year, but it is something that that is now under control, and we have we we we no longer have have have that exposure to to margin calls.

11:29 We do, as part of the the transaction with Tailwind, we have picked up a relatively modest amount of of oil hedging, which is associated with the RBL, which is the the the debt facility that we acquired with the Tailwind transaction. So we have some level of hedging on oil this year and a small amount of oil next year. I'll go into this in a little bit more detail as we as as we go through this this session. So what has that done to our cash position? You know, we report our cash every every six months. And at the end of of last year, our cash position was £433,000,000 compared to a 103,000,000 a year previously.

12:22 Plus, at that stage, we had a relatively small amount of 24,000,000 of of of security or hedging related margin calls. So our total tax position at the end of last year was £457,000,000 compared to the start of the year when we had a 103 in cash and something like a 115 in margin calls. So we were 218 the year previously. So our cash levels have have doubled within the the twelve month period. And that is after the fact that we, during 2022, we continue to invest in our in in our in our assets, in our portfolio. So we had something like £97,000,000 of of exploration and development spend. There was something like £93,000,000, which were the final payments under the Bruce, Keith, and Rum cash flow sharing mechanism, which which finished at the start of the year.

13:19 And we paid something like £46,000,000 in dividends in the calendar year. So that the the amounts in respect to 2022 would be higher than that because we're about to pay the big one now. But during the year, during the calendar year, we paid £46,000,000 in in dividends. As I've already said, we are recommending a final dividend of 14p per share. This requires shareholder approval, and this will go to the AGM. And if approved, will be payable in July with the next dividend date at the end of June. And I think the, you know, the ongoing strength of the company does underpin our intention to to maintain or increase dividend in future years.

14:10 In any extractive industry, particularly with the the commodity price volatility that we've seen, there are no guarantees, but it is our strong intention to have a progressive in a progressive dividend. And I do expect that we will at least maintain and hopefully increase the dividend in in future years. I've not spoken thus far, about our ESG credentials. I think we have a very, very strong, ESG ethos within the company. We are driving down our carbon intensity, and we have, you know, really a first rate team, working on, our environmental, social, and governance issues.

14:56 We, are pleased to say that, in in some recent benchmarking, from the NSTA, the North Sea Transition Authority, our carbon intensity is something like 32% lower than the equivalent North Sea facilities, the average of the the equivalent. So we're we're we're pleased with where we sit, but we are still following a stringent process to try and reduce our our emissions going forward. The the the the targets we set ourselves are in line with the the North Sea transition deal. And compared to a baseline of 2018, we intend to reduce our emissions by 50% by 2030 with the aim of getting to net zero by by 2050. And we're well online to do that. So the the the record that we have is outstanding, and we were able to to reduce our emissions last year.

15:55 We, on every year, produce a a pretty extensive ESG report. This year's report is due I should know exactly when, but it's within the next couple of weeks, it will be published. You'll be able to find it on our website. It's not it's not anything that that ever is is is published in in hard copy, but you will be able to download it from our website. And there's a huge amount of information about all of the the initiatives that go on within the company on a on a day to day basis and and some of the longer term projects that we're involved in. So that will be published very shortly. So that was really what I was gonna talk about about 2022. Excuse me. But, I mean, I think it's you know, it is it is important that we talk about the tailwind acquisition that was announced at the tail end of last year.

16:52 Why are we doing this deal? There are a number of reasons. I think the the the first the first and most important factor is that this puts some diversification into our portfolio. Prior to doing the tailwind transaction, we in SERICA were very, very reliant on on on a single piece of kit. We were very, very reliant on the Bruce platform and the pipelines that take the oil and gas from Bruce to town. If we had a failure in that system, we would have been in in a pretty bad position. And no industry, no company wants to be a single asset company or rely relying on a, you know, a single piece of kit.

17:37 By by doing the tailwind transaction, we then have two production hubs. So we're not reliant just on Bruce. We're not reliant just on Triton, which is the main asset we're buying. There's a bunch of other assets in there as we'll see, but it gives us that diversity. And it also gives us a better balance between oil and gas. We were previously 90% gas and and and absolutely totally exposed to to to to to those gyrations in gas prices by by by buying tailwind the tailwind portfolio of assets. We now have a far better mix between oil and gas. It's almost fifty fifty, and that in itself gives us a hedge. So we're no longer just totally reliant on on gas prices.

18:25 And it also gives us a huge number of of growth opportunities. So there are a huge number of projects that we can get after, and we'll talk about about some of those as we go forward. It makes us a bigger company. It it and we don't do that just for the sake of it. It's not scale for scale sake, but, we do become, and are now one of the top 10 UK producers. It will increase our 2023 production, by somewhere between, 5080%, it and increases our reserves dramatically. We'll talk a little bit more about that as we go through this this presentation. It it's accretive to shareholders. So on on every basis, it will, over the next year and over the next three years, be accretive in terms of reserves per share and in terms of cash flow per share.

19:16 It's it it enables us to to remain a a financially strong company. We will have a very, very strong balance sheet. We do have a very strong balance sheet right now. We've got an enhanced cash flow, and it will create significant firepower for future expansion of the company because this is not the end game. Doing this deal doesn't create the company that we we want to be forever, but it gives us a fantastic platform to to to go on and and grow the company. It doesn't take on any significant new liabilities. Both portfolios, both SERICA and Tailwind had relatively low or very low decommissioning obligations. So we're not taking on any any hidden nasties or any hidden obligations here. And it brings a committed strong shareholder in into the group. So we now have Mercuria as a strategic shareholder with a 25% interest in the company, and they have they have some skills that we don't. They have some international reach and some some risk management capabilities that that are very welcome. So they're they're the reasons for doing the deal.

20:28 Is it is it working? What has it done? Well, it now means we've got production this year, our production guidance of between forty and forty seven thousand BOE per day, which is split between oil and gas, as I said. It gives us now a total of 11

20:43 producing fields, importantly, two producing hubs. We still are our operator of 80%, and we like to be the operator. We we believe that's where we can add most value. And it enhances our our technical skills. We now have over 200 staff in between London, Aberdeen, and and and offshore. And as you can see from the from the plot, it gives us a good geographical spread of of assets. I talked a little bit about the the reserves additions, and it's quite interesting that both SERICA and Tailwind in the last twelve months have have significantly increased their two p reserves. So I I'm not sure if if everyone will be familiar with the system that we run, but like most companies, we have an independent assessment made on an annual basis of the reserves, the oil the recoverable oil and gas that we have left in the ground.

21:45 And both both ourselves and Tailwind have done this on a on on an annual basis. If we go back to the end of twenty twenty one, SERICA reserves were just over 60,000,000 barrels, and the Tailwind reserves were just over 40,000,000 barrels. So I think it was a 104,000,000 barrels if we if we took a pro form a combination between the two companies. In the last year, both companies have have produced a lot of oil and gas. So we produced over 8,000,000 barrels, and Tailwind produced 4,000,000 barrels. So with all other things being equal, we produced over 12,000,000 barrels. We started the year with a 104, so it would have gone down to to just over 90,000,000 barrels. But because of the good technical work to to to add reserves and to add value to the company and so this is and this hasn't involved going out on on exploring and and and and finding new fields, but this is through additions to the the fields that were already in the portfolio.

22:44 We've managed to add almost 40,000,000 barrels of 2P reserves. So rather than being at at 90 as we would have been, we stand at the end of the year being somewhere around a 130,000,000 barrels. So the revision the revisions are more than three times the the the amount produced during 2022. And if you look at the the the new SERICA, where we stand today with a 130,000,000 barrels, that's something like double where the old SERICA was at 62,000,000 barrels only a year ago. So I think this really demonstrates the ability of both companies to to add value from a a basket of portfolio of of assets. And we believe we got the skills within the enlarged company to continue doing that. So there are lots of opportunities to continue adding to our reserves and continue adding value for for all of our shareholders.

23:41 Talk a little bit about this year and and the production year to date. So if we combine the two portfolios, and so, you know, obviously, most of most of the first quarter, we weren't combined. But if we, for the sake of argument, combine the the two portfolios, the average production for the for the first quarter of the year was just a shade under 47,000 barrels of oil equivalent per day. So, you know, a really, really strong performance. I think the the the plot actually quite neatly demonstrates many, many things about our business and many, many of the things that that actually were reasons behind us wanting to do this this transaction. You'll see the volatility just in our production levels. You know, a lot of people think that we've got a bunch of oil and gas fields out there. We turn on the tap, and it's a it's, you know, it's it's it's a very, very steady flow. It it's not. The engineering challenges associated with operating in the North Sea are such that we see huge variability on a on a day to day basis.

24:42 Despite that variability and and, you know, just to get your eye in here, the the the brown and orange curves are ex tailwind assets. The blue curves are ex SERICA assets. And you'll see that that at various times, we've had we've had shutdowns. We've had issues on in both portfolios. So around the start of March, there were some issues on the on the tailwind portfolio. Around the start of February, there were some issues on the SERICA portfolio. This demonstrates why the diversity in the portfolio is so important because, you know, through that three month period, there has never been a day when those those problems have coincided. The worst there was only one single day during that ninety day period when production fell below 25,000 BOE per day.

25:29 And, you know, we've we've managed to maintain a very, very strong performance throughout. One of the big reasons for that, you'll see here in the, whatever it is, the second lightest brown color that we saw a big increase in the Gannett's production from mid February onwards. And this is when we brought the Gannett GE o four well, the fourth well on Gannett into production, and that has really outperformed and helped us achieve, you know, really these stunning performance towards the end of the quarter when on a number of days between the two portfolios, production was in excess of 60,000 BOE per day. So I think this is demonstrating the the the value and and many of the reasons that that we wanted to do this this transaction.

26:18 Our full year production guidance at the moment is unchanged. We when we announced the deal, we said we expected our full year guidance to be between forty and forty seven thousand BOE per day. In the first quarter, we've done almost exactly 47. I, you know, I mean, I think there's still a lot of variability as the year goes through. We will, on both portfolios, have or on both hubs, we will have planned shutdowns during the summer months. So, you know, we always shut down for for planned maintenance purposes. So we would expect that will happen during July, August. So I would expect the third quarter of the of the year to be slightly lower. I I do expect that we will revisit this production guidance as the year goes on. I do expect that we will narrow the guidance. I hope we'll be able to to narrow it towards the top end of that range.

27:06 But but right now, we're still planning on 40,000 to 47,000 BOE per day for the for the full year. As I said, we've got a number of of short term growth opportunities. We've got on on on the Bruce platform, we did a light well intervention campaign. I'm probably not gonna go through the details of that, but we did one in 2022, which was successful in adding production. So it boosted our our daily production, and it added a little bit of reserves. So we've committed to another one of those campaigns for 2023, which will take place during this summer, early summer, and we've now committed to one in 2024 as well. And we've also committed to a rig for a four well campaign in the Triton area, which will be the sidetrack of a of a bitten well. The fifth Gannett well, I talked earlier about Gannett GEO four being such a success. There's a there's a fifth well to be drilled there.

28:07 The the Evelyn field, which came on last year, was always planned as a phased development. So we have now committed to drilling the the second well, the second phase of that. And there's a Gillamot infill well, which is probably less material to us. We have a less a lower interest in that, but there will be four wells realistically starting early in 2024. So we've got a huge portfolio of opportunities to, to continue to to add value, and we're really excited about getting after those, those campaigns. So it's kind of bringing me to the end. I I I was trying to aim to to talk for half an hour. And for once, I think I might have might have got it about right. We we think this is the start of a of a new era for the company. We think this is the start of something rather than the end of something.

28:56 It it's it is challenging in The UK. The the the tax changes have been difficult, but we do think that that the transaction with Tailwind gives us this this diversity. It gives us a balance, and it gives us a an opportunity with these short term growth projects. We've got, you know, a great team, and both teams had, yeah, a really impressive record of doing deals and delivering projects. We think we can we can build on those. We think we've got the financial firepower. We we certainly have a a strong balance sheet. We certainly have good borrowing capacity, and we have a huge, you you know, cash generation facility that that is, as you can see from the production rates that we're getting, is working very, very well.

29:43 So we think all of that gives gives us the the platform for for for for increased and and continuing shareholder returns. And we think we want to to continue growing that that return to shareholders. So with that, I think that's the the end of the the first phase. I I apologize if that's been fairly quick, but I do want to get on to the the the q and a's, which will probably add some some color to some of those some of those points. Mitch, that's great. If I may just jump back in there, 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 top right hand corner of your screen. But just while Mitch takes 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.

30:38 Mitch, we did receive a number of pre submitted questions, as you did kindly mention, ahead of today's event. And as you can see there in the q and a tab, we have also received a number of questions throughout your presentation this afternoon as well. So firstly, thank you to all of those on the call for taking the time to submit their questions. And, Mitch, if I may hand back to you just to respond to those questions where it's appropriate to do so, and then I'll pick up from you at the end. Thank you. Okay. Thanks. Right. I'll go through these, and I will answer every question that that has been sent in. So question one, a lot of companies in the oil and gas space are buying back shares and paying dividends. Up to now, SERICA has focused on growth and has done so very successfully. However, given the expansion with tailwind and the recent reserves update, the company seems to be sufficiently large and diversified to focus more on the low valuation and creating shareholder wealth through dividend and or buy ax buybacks.

31:32 Can you please elaborate on any plans you have with respect to this matter? Well, I mean, as I think I've already said, we do have a progressive dividend policy that is driven by the the financial performance and and cash flow generation. And and, you know, the the 14p final dividend, I think that's equivalent to to £53,000,000 in in shareholder returns, which will bring the full return to, I think, it's over £75,000,000 for for 2022. So so, yeah, in answer to the question, we do have a a focus on on dividends, and that that is, I think, a pretty big commitment on our part. We consider to look at this. And and when we think we have cash holdings that are surplus to to to requirements, we will continue to look at the optimum method of returning that cash to shareholders. And we do have the authority for share buybacks, and it may come to an appropriate time to to to use that. But at the moment, the primary method of, of delivering cash back to shareholders is through the dividend policy, and it's that progressive dividend policy that I think is paying quite handsomely, at the moment.

32:51 The next question, and apologies if I'm reading these off a separate piece of paper. Can you please pay dividends quarterly? It would help stabilize the share price and make SERICA more appealing to shareholders. Yeah. Good good question. You know, we in in November, we paid our first ever interim. So that was the first time we'd ever paid six monthly. It's only three years ago we paid our first ever dividend. So we've gone from not paying a dividend to paying one annually to paying one six monthly. I don't think we're quite ready to go to quarterly just yet. There is a huge administrative burden, but that wouldn't hold us back if it was the right thing to do. But, you know, we're we're not signaling that we are an income stock. We still see ourselves as a growth company. Our our primary or my primary aim is to grow the share price, and I believe we can do that with the appropriate investment of of the cash that we have. So we're not ruling out going to quarterly dividends in the future. At the moment, we report on a semiannual basis. We report on a six monthly basis, and I think it works best to keep our our dividend payments in line with our our reporting schedule.

34:06 The next I said I said I'll answer all questions, but the next two are almost exactly the same. And so I will just take one of them. And this says, the results stated that from March 2023, we've hedged 11,000 barrels a day at an average of $58 per barrel. And in 2024, approximately 4,000 at an average of $74 per barrel. When exactly does the $58 per barrel hedge end? When exactly does the $74 hedge begin? And finally, was $58 per barrel for 2023 the best price we could have achieved on the open market? So there's a number of questions in there. And and I I should probably explain, you you know, how this works. I mean, basically, we we've we didn't put these hedges in place when we did the deal with Tailwind.

34:58 We acquired these hedges with from with the deal. So these these hedges were put in place by Tailwind because it is customary that with any debt facility, and Tailwind had this this small reserve based lending facility, it's customary that requires a level of commodity price hedging. And and that can be provided by any of the lenders in that in that facility. So the the the the hedges that that that are there are not new hedges that have been been put in price. They were put in place in, you know, many years ago. And so the the question about was 58 the best we could have achieved in the market, I I think, is is is not really relevant because '58 was the best that could have been achieved, you know, back two or three years ago whenever those hedges were put in place.

35:50 The the the the other part of the question about when does the '58 expire and when does the '74 start, it it's the the the numbers we quoted, the $58 per per per barrel in 2023 are the average throughout the year. So it isn't $58 a barrel for every month. It's on an increasing trend. And and next month and next year, it isn't 74 throughout the year. It's also on a on a slightly different trend. So yeah. I mean, basically, in the second half of this year, the the average hedge price is considerably higher than $58 per per barrel. And then but it doesn't it doesn't it doesn't it's not a step change from 58 to 74 at the at the end of the year. It's it's a it's a it's a gradually rising trend.

36:41 These were all known about and all valued and all part of the the the transaction. And, yeah, we you know, there is there are no surprises here, and these were in the public domain prior to the prior to the transaction being announced.

37:00 The next question is, and this is, this is an interesting one. I've had several emails on on this from people, and, and I I'm aware that, it's caused some some interest on on some of the bulletin boards. I'm sure a number of you will will be aware of. And it the question reads, there is a paragraph in the results that reads, following the 2022 year end, the directors became aware that a filing in respect of certain dividends paid in 2022 had not been made as required under the Companies Act. Accordingly, a resolution will be proposed at this year's AGM to resolve this. Can you explain in simple terms what has happened? I'll try. And I I think the the important points to to note here, and I'm I'm answering not just this question, but but some of the other questions that have been sent in by by email and and other methods. The important thing here is that this is in respect of dividends paid in 2022.

38:03 A lot of people have been speculating that this is somehow related to the future, and it's somehow related to the dividend that we're about to pay, that we're about to recommend to to the AGM. And so that that's the first thing to to point out is that this is in respect of dividends paid in 2022, and that's the it says that in in the question. What happened was that following the the the end of last year, we we did become aware that we had missed the filing of a of some interim accounts that need to be filed with Companies House prior to the payments of of a dividend. Now these interim accounts show that the company has significant distributable profits, in order to be able to make the, in order to be able to make the dividend payments.

38:58 The accounts were prepared, and they do, of course, show that we had significant profits, and we had sufficient profits to be able to make the payment. The the yeah. So the accounts were prepared. And due to a totally innocent admin error, they were not properly filed. So they never arrived at company's house. It's, yeah, just a simple admin error. We've investigated this a lot, and we find that we're we're not the only company that's made this mistake. It is quite an outmoded, old fashioned process. And there are a number of companies, and I'm not gonna name names, but there are a number of household named companies that have made the same mistake and missed this.

39:46 The the the system can be resolved by a resolution, which we will propose at the annual general meeting, which will basically mean that shareholders have the ability to to to to vote on on on this and to put the situation back to it would have been if we'd had the resolution made in full compliance. So frustrating and oversight. Absolutely nothing to do with 2023. Absolutely nothing to do with the tailwind deal, and absolutely nothing to do with some of the, frankly, absurd, comments that that that we've seen and received, about this being part of some big conspiracy theory. It was purely, an oversight in in 2022.

40:37 Next question. Does the CEO intend to purchase SQZ shares given the low valuation? The depressed share valuation is even more stark given the valuation of the recently acquired tailwind assets. Investors appear to be mindful of the lack of CEO share purchases in the open market and the relatively minor shareholding shareholding given the CEO's tenure and generous compensation. Yeah. I mean, I I've said I'll answer all the questions. I I'm not willing to to discuss my own personal finances here, but I will point out that I am very, very aligned with shareholders due, you know, due to the existing shares I have and the fact that I have a number of options. My focus is on trying to deliver value for all shareholders, and I think, you know, we're demonstrating that through our our capital turn capital returns approach. And I think the dividends that we've announced this year are demonstrate that.

41:36 I'm committed to to delivering. I believe in the strategy, and I believe we positioned ourselves with a you know, in a fantastic position to to capitalize on what we've done and and and drive the company drive the company forwards. So I I'm not gonna discuss my personal finances, and and and I don't think I could. I think if I made a statement here that I was gonna buy some shares or I'm not gonna buy some shares, that would be seen as misleading to the market. So I'm I'm afraid I'm not going to do that. And, you know, if if people wanna email me directly, feel free. If you wanna chat, I'm happy to chat about these things, but I I I'm I'm not going to to to make any statements here. The next question. Presuming 2023 is the year of consolidation, does the enlarged board plan to actively seek significant new opportunities thereafter, especially outside the North Sea, with a view to building SERICA into a much larger company, or would its main strategic focus be to optimize existing assets and extend these with occasional bolt ons?

42:45 Yeah. I mean, I hope we've we've we've made this clear. And, you know, we we have repeatedly stated that, and I think I said it earlier today, that the tailwind deal is is not the endpoint. It's not the endgame. We've created, I think, a, you know, a really good platform to go ahead and do more deals. We've got the firepower. We've got the expertise. We've got the deal makers, and we are act we you know, we've reorganized the way we look at m and a because we've got some good new people in the organization now that that are tasked with doing this. And and so we are very much looking at growing the portfolio and and and creating a a larger company that's got more opportunities in it. Because in the way that we're adding reserves year on year to the assets we've got, we want to get more assets so that we can continue to do that.

43:38 So so, yeah, the answer to the question can't remember exactly what the question was. But the answer to the question is that we're, yeah, we're not we're not sitting back now and and saying that that this is a done deal. We are looking to to grow the company through acquisitions, through mergers as much as we can. We will we're we're in a in a in a very, very fortunate position that we have the the cash. We have the the the the the borrowing capability. We can do small bolt on deals that were mentioned. We can do larger transactions. We will definitely be looking at those things. But we're not gonna forget the day job. You know? And we have the vast majority of our people are working on getting more and more value out of the assets that that that we already own and doing a fantastic job, I must say. You know? And that's both the the SERICA staff and the ex tailwind staff have demonstrated the ability to get more value out of what we've got.

44:34 So so so so, yeah, it's it's very much a a two pronged strategy. It's it's grow the company through m and a and add value through, you know, the undoubted engineering and subsurface skills that that that that we have. So they were the presubmitted questions. I can see that I'm guessing probably 50 or so questions have come in in in in real time. If you give me a moment, I'll just have a a flick through those. There's there's a there's a there's a number here about about the tax regime, and and and we have to we have to be prepared to talk on on tax. If the windfall tax remains permanent, how will SERICA manage the new environment?

45:24 I think in the way that we are at the moment, I mean, I think we you know, the windfall tax came in last year. We we remained very, very profitable. We I I think the windfall tax will be damaging to to the industry on a long term scale, and I think people investing in longer term projects will will will just be unwilling or unable to to to to make those investments. But I think investing in short cycle, quick payback, quick return projects is viable still. I think the investment allowances that are available under the windfall tax at the moment are are are help companies like us. We do as I've said, we do want to invest through the cycles, and I think we can. We're not a company that is going out doing wildcat exploration, looking to put new platforms in West Of Shetlands.

46:17 You know, we we are a very short cycle company, and I think we can be nimble and focused and continue to thrive through the through through these ups and downs. Next question. There's another one on on windfall tax, which I won't do. Next question. Is the 22p dividend a benchmark? And given the increased share count. Well, that 22p is on the increased share count, and and I've already said that we expect to have a progressive dividend. So so, yeah, that is the benchmark going forward. What is the cost of producing a firm of gas? That's a good question. I don't know the answer to that. I mean, we've we've published our cost of production in terms of dollars per BOE.

47:08 I would have to back calculate on on on on the production cost of a therm of gas. But I promise we'll put that in whatever our next presentation is. I I'll I'll put that out there, and we'll get that fact in there because it is quite quite useful to people. Next question. Is SERICA looking at opportunities outside of The UK? Yes. We are. I won't say any more than that. Next one, why fix 11,000 barrels at $58? It seems very low. As I said, that was fixed years ago, so I'm I'm afraid that isn't something that we've done. Has there been any clarity on whether you can use Tailwind's tax losses on all of SERICA's taxable income or just legacy tailwind profits? I think we've we've discussed this several times previously.

47:56 And in in the short term, the the the the the, you know, the tax legislation says that the tax losses remain within the company where the assets are and where the profit is. So right now, the the the the the tailwind tax losses and are applicable to the tailwind assets. It is not inconceivable that we will look during coming years to to rationalize and to move assets around. But at the moment, the tax losses are within the within the tailwind asset companies. There's a couple of people asking me to make cash flow predictions for the year, and I'm afraid I I can't do that.

48:46 You know, we have we've talked about our our, know, our our our production guidance for the year, I think anyone can can then make their own assumptions on commodity prices. But I'm afraid that I'm not really allowed to to to do that. There's a question on the unaudited net cash position at the end of twenty twenty three. I don't have that to hand, but it was in the report, and so we have published that. Next one. How many new wells do your 2P reserves assume at both the legacy SERICA and legacy Tailwind fields? So they assume the wells that we have committed to.

49:34 And so reserves are not classed as two p reserves unless they're committed to. So that includes the the four wells campaign that are you know, we've announced and a a well on Bruce that we're planning in in subsequent years. So, yeah, I I can't I can't say more than that. So it it includes the the worlds that we have committed to. Question then, how much skin in the game do directors have? Think I think something like 2% of the company is is owned by the current directors. That is published on our website. Again, I've not got the number to hand in front of me, and I am I'm seeing these these questions in real time. So I'm afraid I've not got everything at my at my fingertips, but I believe it's something like 2% of the of the shares in the company are are held by by directors.

50:35 Another question I get quite often, why no details on the lockbox locked box nature of the Tailwind deal? I think there's there's a, yeah, some some misunderstanding about about what that lockbox means. The lockbox mechanism was was designed to provide us with protection against Terwyn taking money out of the out of the the company after we'd agreed to buy it. So there is no I'm not quite sure what people seem to see. People I I think some people were expecting there to be a, you know, a treasure trove that we opened up that had some some goodies in it. It the lockbox is not like that. The lockbox is to to protect us, and it's a common mechanism that is used to to protect the buying company against the selling company, yeah, stripping assets out of it. So so that was that was what the lockbox was about.

51:44 Yeah. I mean, there's a couple of questions here that that, yeah, are difficult to answer, but I I will yeah. I'm not gonna duck them. And one is yeah. They're both the same effectively. Effectively. Can you add some flavor as to why the market has reacted negatively to the tailwind deal and the subsequent collapse in share price? Yeah. I mean, it's it's a it's a very difficult question. And I I think I I'm I'm again, I'm not gonna duck it, but I I would I would suggest that if you compare our share price to a number of our peers, you've seen the same sort of movement. So if you look at companies that you know, I'm not gonna name names here because it would be wrong of me to do so. I'm not gonna comment on on what other companies are doing. But if you look at a number of UK focused oil and gas companies, they have seen significant impacts on their share price from a number of a number of issues. One is the imposition of of the windfall tax, which has hit hit a number of companies.

52:50 And and the other is that, really, the collapsing in gas prices. You know, the gas prices I I've not got the up to date numbers again in front of me, but gas prices have fallen by more than 50% from when we announced the the the the tailwind transaction to to where we are right now. So there has been yeah. I mean, the market position has has has changed significantly. Market sentiment has changed. So we're not the only company that has had a, you know, a a significant downgrade in in our share price. I I personally don't believe it it is due to the the the the transaction that we announced. Clearly, the market didn't fully appreciate what we were talking about when we when we put the deal out there. But, clearly, I think that's well, I think that that the performance of the portfolio is, you know, is is demonstrating why we did the deal. I think the production figures are are sparkling.

53:50 I think the the split between oil and gas is helping us dramatically. And and so, yeah, I mean, I I think we we are starting to get the message across. We've got a big job to do to to to to actually turn some people around. There has been a lot of negative comment, and there will continue to be negative comment. And and, know, we welcome the the debates. I I you know? But, I mean, we we we have a job to actually demonstrate to people the value of this deal. But I think producing 47,000 BOE per day in the first three months of this year is demonstrating why this is good a deal. Right. Would we consider acquiring production assets overseas? Yes. I think I've said that already. And next question is the same. The one after that is it's a it's a question that comes up regularly.

54:43 And, you know, we've been asked previously, and I've answered it previously, about becoming a FTSE two fifty company and and looking for a a main market listing. We we qualify. I I think we would be comfortably within the FTSE two fifty at the moment, and we are looking at the pros and cons. You know, we've been talking to a lot of shareholders just recently, and, you know, it's something that that it's a bit it's a Marmite question. You know? Some shareholders want us to remain on on on on AIM. Some shareholders like the and and I'm not giving financial advice here, and I wouldn't I'm not qualified to give tax advice. Some people like the inheritance tax benefits. Other people believe that that if we go to the main market, we will get more coverage and tracker funds following us.

55:35 It's it's quite a balanced argument. It's something we're looking at really seriously right now. A a final decision hasn't been made, but I can assure you that we are looking at transitioning to the main market, and and that will will continue. Right. There's a very, very long question here about our hedging policy. And, know, I've talked about our hedging policy. We we hedged previously as downside protection, and, you know, that was hugely, hugely important to us during 2020 when when gas prices were very low. It enabled us to continue investing in in our assets, which is why we're performing so well right now.

56:22 In 2021 and 2022, as this questioner points out, it our hedging cost us a lot of money. It it was it was it it was not. It didn't look so smart in those years, and we've paid out during those years. But the value that we got in 2020 was significant, and that enables us to be the company that we we are to today. So, yeah, I mean, I think, you know, that that hedging, it was a risk mitigation, and it went to becoming a risk when we got into the situation of the margin calls. And that's why we put no new hedges in place for the last few years. Yeah. I mean, an interesting question. A good question. It's something I probably should have raised.

57:07 Our chairman is stepping down. So Tony Graven Walker has been with the company more or less since the start. He's been in the industry for fifty years. He's a he's a legend. He's been an inspiration to everyone in the company. And the question is, will he still be holding any role, or will he be stepping away fully from the business? He's he's a significant shareholder, and and he won't mind me saying that I know that he'll never step fully away. He'll always be involved, but he won't have any formal role in the company. I I'm sure we will use his advice, and we'll use him as a sounding board. I'm sure he will he will he will keep in touch, but he won't have a formal role in in the company. Next question.

57:53 Are there any cost savings to be had from the acquisition of Tailwind? Again, that's what I get a lot. You know, this the the Tailwind deal wasn't done with a view to to synergies. It wasn't done so that we said, oh, we can we can put these two companies together and and fire a bunch of people and and stop using a bunch of consultants and stop using a bunch of contractors. It was done because we wanted the diversity. We wanted two separate hubs and two production hubs. And so there are there are some cost savings. There are some things that we will only need to do once rather than twice. You know, at the moment, we had two CPRs next year. It'll be one CPR with one provider. There there are a lot there are some small savings, but it wasn't done primarily for for for cost savings.

58:39 And I know that I'm in risk of running over my time, but I don't really want to miss out on any of these questions. So, hopefully, you will bear with me. Someone here is saying, does acquiring oil production provide the best value for shareholders and strategy for growth when the current gas price is more than double the current oil price? I'm afraid that's just not true. The current gas price is pretty well equivalent to the current oil price, so if not slightly lower. So I'm I I I don't I I can't answer that. We think that acquiring oil assets is is the right thing to do. I think the important thing, and this is another question that's on here, is that they have to be oil assets with the proper ESG credentials.

59:27 So, you know, I know there are lots of oil assets out there that we could buy, but they have you know, they're incredibly polluting. They have a very, very high carbon emissions, and we're not prepared to do that. So we're quite comfortable with oil if the assets have a good carbon efficiency or we we know that we can improve improve the carbon efficiency. So there's nothing nothing wrong with oil, think and it it gives us that that good, yeah, protection. I think oil and gas act as a as a hedge against each other. Another question about the lockbox, which I think I've answered.

1:00:17 More questions. Did the company consider acquiring the Norwegian company, Meme, that have just acquired? Frankly, no. It it it wasn't something that was on our radar. I think I think probably, you know, a good deal for Kistos, and good luck to them. I I think for for for a company of our size, and we are significantly larger than Kistos, I I think the materiality in that deal was probably not there. I I can I can see why it's a good deal for Kistos? But in the short term, it adds something like 2,000 BOE per day. And as I've said repeatedly, we're producing 47,000 at the moment. So I think the short term materiality doesn't wouldn't have worked for us. I think long term, it has it has potential, but it wasn't something that we that we looked at.

1:01:11 Another question about the lockbox. And it was the question was about reassuring investors that Mercurio would not pay themselves a large dividend prior to completion. That that didn't happen. I'm not quite sure why that would be suggested. So I think I've got to most of the questions. Oh, there's one here. When will the tailwind results for 2022 be announced? I'm afraid I just don't know the answer to that. I know that they're being worked on. I believe it's it's relatively soon. Apologies. I don't know the answer to that. And and and finally yeah. And I I will make this the final one. Oh, no. Actually, there's one here. Not a question, but thanks to you and the SERICA team. So thank you for whoever put that in. And the final one is, has there been any further works or advancements on the North Egg well? And I I should have talked about that. So as you know, North Egg was an exploration well that we drilled last year, high pressure, high temperature, very deep well that was a disappointment. We didn't find what we were looking for. It was very close to to to the rum field.

1:02:19 And, you know, at its closest, a couple of kilometers from rum. And the sands in rum that we expected to find in in egg just weren't there. The the reservoir wasn't developed to the extent that we would have liked. However, we we drilled right through and right very close to to where we expected the the final total depth of the well to be. We encountered some some hydrocarbons. From memory, it was 15 or 20 foot of of hydrocarbons. So not enough to be significant, or not enough to be commercial, but but actually quite significant. I mean, anytime you find 25 feet of hydrocarbons, you gotta try and understand where it's coming from and where it's going to. And, you know, have we drilled into, you know, a a small edge of a of a field that goes up a bit from us? We are analyzing all of the data that that that we've acquired from that well, and there's some really good quality well data.

1:03:14 We suspended the well rather than abandoning it abandoning it so that we can go back and reenter that well and drill a sidetrack if if we can find a location where we think there is going to be an enhanced reservoir thickness. There's a lot of work going on in the team to do that. So far, we haven't found the the the evidence that that we really need to to say, yes. We're gonna go back and drill a sidetrack. But that work is still ongoing. I can't rule it out just yet. I would expect we'll have that work wrapped up this quarter, and and I would expect we'll make an announcement at at at that well, we will make an announcement at that stage. So there's been lots of further work, but no further advancements to to to answer the question.

1:04:02 So at that stage, I I think we've done my hour, and I apologize for running over again. But but thanks for your patience. And I think, you know, one thing I will say we regularly get questions from from shareholders, and we always answer them. Although I I I see some people accuse me of not answering, but I think we always answer questions. And, yeah, I mean, we're we're we're happy to take those on board. So so feel free to contact us. I like the feedback. I like to know what people are thinking. But with that, I'll I'll hand you back to to our hosts.

1:04:53 Mitch, thank you very much indeed for being so generous of your time there and addressing all of those questions that came in from investors this afternoon. And, And, of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended just for you to review to then add any additional responses, of course, where it's appropriate to do so. And then we'll publish all those responses out on the investor meet company platform. But, Mitch, just before really looking to redirect those on the call to provide you a 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. Thanks. Yeah. So, it's a bit of a strange one. I mean, you know, the the the the presentation was about 2022. It's ancient history. It's all about 2023.

1:05:38 I think the and and 2024 and beyond. I think the the the Tailwind transaction really does establish the company, and it gives us the strength that we need to to to to to kick on from here. So as I've said, there are there are two there are two themes. There are two strands to the strategy. We want to expand the portfolio through through m and a. I think we're brilliantly positioned to be able to do that, and we wanna continue to get as much value out out of the out of the assets as we possibly can. And I think we've demonstrated the ability to do that. So we want to continue replacing reserves. We want to continue to to to try and increase our our 2P reserves. And we want to continue to to to to play our role in providing energy for the for the country, providing jobs and and and doing our bit. We think the industry is is really, really important. We think it's got a fantastic future despite the the political and tax changes that that we're seeing.

1:06:42 We are here to stay, and and we are here to share those gains with our shareholders. So so that really is my my my the end of it, and I'm seven minutes over. So so thanks for your attention. Mitch, that's great. And thank you once again 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 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.