Serica Energy (LSE:SQZ) — Investor Presentation

0:00 Good afternoon, and welcome to the SERICA ENERGY PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q and A tab situated in the right hand corner of your screen. Just click Q and A, scroll to the bottom, type your question and press in. Company may not be in a position to answer every question received during the meeting itself. However, the company review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Mitch Flex, CEO. Good afternoon, sir.

0:29 Good afternoon. Thanks, and thanks, everyone, for for joining us this afternoon. This is the same presentation that that we made to to the analysts immediately following our results, which went out on Thursday last week. We had a lot of feedback from from shareholders that that they would like to know exactly what we say to the analysts, and and we're we're only too pleased to, to be able to deliver this, and give you this presentation. It's it's a fairly long presentation, so I will try and go through it relatively quickly. It's on our website. It's on this site here, so you can go through the detail at at your own leisure. I I think what I would like to do, though, is to get through it quickly so that we can leave adequate time for the the q and a session, which I think is is probably the most most important part of this.

1:20 And we've got a number of questions that have been sent in in advance, and we'll address those. And and, hopefully, you'll you'll you'll add some more questions as we as we go along. For those of the those of you that aren't familiar with the company, SERICA is a UK focused exploration and production company. We're now one of the leading mid tier independent oil and gas producers, and we're responsible for delivering over 5% of The UK's gas production, which right now, you know, is a vital contribution to to the country's security and supply. And, you know, we've all seen from the the terrible events in in in in Ukraine just recently and the knock on effect of that, how important it is that that we have that that security of supply.

2:10 Our our assets are all based in the Central And Northern North Sea. We have a cluster of assets around the Bruce Field, and we have Bruce, Keith, and Rumfields up there. And then in the Central North Sea, we have Columbus and Erskine, and we will talk a little bit more about those a little later. We've a team of a 170 staff. And, you know, what we're about is really using technology and our experience to reduce the costs, to reduce the emissions, and therefore maximize the life of the assets that we have. So our producing assets, Bruce, Keith, Rum, Erskine in particular, are all relatively late life. They're midlife to late life assets. And and and our game is to try and improve those assets to extend the life and and to to get more value out of those assets.

3:02 These are are generally fields that have been in production for at least twenty years. They were generally discovered and developed by by majors. You know, companies like b BP Total were were involved in in these assets. But they've got to a stage in their life where it's inappropriate probably for major to be running these assets, and it's more appropriate for a nimble dynamic company like SERICA to extract that that that remaining value.

3:35 These are our results for for for 2021. So I'll take a couple of minutes just to talk about some of the numbers. We we delivered very, very strong profits at at almost every level. So at a gross level, at a cash flow level, at a at a pretax and post tax level. And we'll we'll touch on the numbers a little bit later. What we're particularly proud of is that at the same time as we managed to realize those profits, we've actually not significantly dented our our reserves, the the the oil and gas that we have below ground. We have an independent assessment made every year of of our remaining reserves. And last year, that actually increased from 61,000,000 to 62,000,000 barrels of oil equivalent.

4:25 I use that phrase a lot, barrels of oil equivalent. Most of our production is actually gas, but people find it difficult to to comprehend gas volumes when we're talking billions of cubic feet. So we convert everything to to to barrels of oil equivalent. So so, yeah, we we we we've maintained our reserves whilst creating significant profits from from what we produced in the last year. How have we done that? Well, we've done it by investing in our assets. And and and, you know, again, this is our strategy. We're continually investing time and money in our assets. Last year, there were two big projects. This year, we got two more big projects, and I'll come on to them in a bit more detail. But we had what we call the r three project, which was rejuvenating an old well on the RUM platform, and Columbus, which was a which was a new development. We invested in both of those. It's an investment that goes back several years, but it it it actually paid off very, very nicely for us because we brought those fields into well, those wells into production in the second half of last year, which really benefited from the very high gas prices that we were seeing and still still are seeing that really started from the midpoint in next year.

5:39 And all those things together have enabled us to announce an increased dividend. Our dividend in the previous year was 3.5p. We increased our dividends to 9p per share, or that will be recommended to to shareholders at the AGM in in June this year.

6:00 Production, importantly, is over 85% gas. This has been increased somewhat in the last year because the two new projects, R 3 and Columbus, were both predominantly gas. And and really being a gas producer right now is is more important than ever. The new British energy security strategy actually recognizes this this importance, but it's not just a question for us of producing more and more gas. It's a question of trying to produce more gas and reduce our carbon footprint at the same time. Because the gas that is produced in The UK generally has a lower carbon footprint than, for example, imported LNG, which the process of trans of of liquefying, transporting, and degasifying LNG is far more carbon intensive. So not only are we producing the gas that is needed domestically, but we're producing it with with with fewer carbon emissions.

7:00 And our gas is produced and goes straight into the national grid. A proportion of that goes directly to domestic users for for you know, to go directly into cookers or for for heating, and a proportion goes into electricity manufacture, which again ends up with domestic users through the the through through electricity network. The industry is a a huge employer. We create not not SERICA, but as an industry, we support something like 200,000 jobs in The UK, which is obviously to everyone's benefit. I talked a little bit about our our strategy, and the strategy is to to to add value to our assets through the implementation of technology and and continued investment.

7:57 We're able to do this because we have a very strong balance sheet. We have cash on the balance sheet. We have no debt, which is really, I think, quite unusual amongst amongst our peers. And we have limited decommissioning liabilities. So we have limited, you know, stored costs, if you like, to decommission the the platforms that we that we use. And that's due really to the kind of innovative nature of the deals that we've done. When we bought these assets, we've tended to to leave the decommissioning liabilities with the people that we bought them from. So we've always had this investment strategy, and we've managed to execute this this investment strategy year on year despite commodity prices. So it's quite easy for me to sit here now with with gas prices around wherever they are today, you know, towards 200p a firm. It's quite easy to talk about investing in in this scenario.

8:46 But it's only two years ago that we were seeing gas prices that were sub 8p of them. And at that stage, we were still confident enough in in our ability and confident enough in the future of the industry that we were still making investment commitments and investing even in those those pretty, pretty dark times when when gas prices were very low. In in in 2021, we spent something like £52,000,000 on capital expenditure, and that will be increased this year. So we would expect it to be closer to 60,000,000 this year. So we're continuing to invest in our assets. Last year, as I say, we had the Rum R 3 well, which is now online, and Columbus, which is now online.

9:32 In this year, 2022, we have an exploration well, and I'll come back and talk about that a little bit more, which is quite an exciting step out for us. And we also have an intervention campaign when we're gonna go back to a number of wells on our Bruce, Keith and Rumfields and try and improve improve those wells to add production and hopefully to add reserves to to to the portfolio. So and then we have in 2023 and 2024, you know, further investment campaigns coming along because we're we're not you know, we're we're in no way at the end of this strategy. We still see that we can continue to add value to to to the portfolio. So some numbers. And and I think, you know, we're just concentrating here on the last four years in each of these, and you can see how how lumpy this this industry can can sometimes be.

10:26 2019, our revenue was was around £250,000,000. So it's our total sales revenue for the gas and oil that we produce. It halved the following year. So in 2020, it was down to a £126,000,000. This year, it was over 500,000,000. And it it shows that we need to have strategies that can cope with these peaks and troughs of activity. The peaks and troughs are even more pronounced when you when you look at that in in terms of a gross profit or a profit before taxation level. We do see, you know, a strong correlation between revenue and and profits. As I've said through all of that, we managed to keep our reserves relatively un unscathed, and I will come back to that. But what we have managed to do is to grow our cash balance. So our cash plus plus cash equivalents and hedging advances have grown such that at the end of last year, they were in excess of £200,000,000, which gives us the ability to to recommend the increased dividend.

11:33 So talking about cash, the the plot here shows the the the cash build that we've had over the over the last few years. And as you can see, I've I've used the phrase already or used the term lumpy already. It's not a straight line. You know, nothing in this industry ever is a straight line, and this does reflect the the impact of commodity prices year on year, but we are seeing generally that that strong increase. And the increase in the first five months of this year has been even stronger. So as at April 20, which was last Wednesday, the day before, we we issued these results, the combined cash and cash deposits and hedging advances have risen to over 360,000,000. So a strong cash build from the from the portfolio.

12:24 We do have a hedging policy. We have always had hedges in place to protect ourselves from the downside, and that's one of the reasons we were able to to continue investing during the the difficult times in 2020. We do not, however, attempt to hedge to to to lock in the upside. We believe that our investors are in a in a better position to do that than than we are. So we have very, very modest levels of hedging. Something like 20% of our production is hedged at very modest prices to give us that protection should there be a a price crash. We've added no new hedges since the middle of last year. I think July last year was the last time we put hedges in place. And part of that is is is really that we now have more cash on deposit, and so we are better equipped to to withstand any any downside shocks on oil and gas prices. So we have less less requirement for that for that hedging. So modest hedging to give us downside protection.

13:36 It's worth looking, I think, at the the commodity prices over the last couple of years. I'm trying to show gas prices and oil prices on here. So gas prices are the the gray bars, which we're more interested in because 85% of our production is gas. The orange is the is is the oil price. And we can see that we've seen more highs and lows in gas. So gas, as I said, was was was down in the kind of 8p per therm. Where are we almost exactly two years ago?

14:05 We saw a, you know, a modest increase through the start of last year. And and to put this in perspective, the long term average gas prices have probably been between £30.50 per therm. And so at the start of last year, at the start of '21, we saw a return to those long term averages. But it was only really in the second half of last year we saw the the this sudden ramp up to unprecedented highs for for of of gas prices. We've also seen oil prices recovering, but it's gas in particular that has this, you know, relatively short term. We're still only probably six months into into this unprecedented spike. This this plot probably doesn't show the whole story. This is the average price for the month, and we've seen greater volatility within the month, within the day. You know, we've we've seen huge swings on on very short periods of time. So it's a far more comfortable position for us as a gas producer now than it was only two years ago.

15:10 And all of this, as I said, means that we are in a position to propose a dividend of 9p per share for this year. So a little bit about the assets, a little bit about the company now. We as I as I think I mentioned, we we have an independent assessment made on an annual basis of of our reserves. So how much oil and gas do we have remaining in the ground? And and we assess that on the January 1 every year, or we have an independent company do that. And I've just showed the last two years here. So in each of the last two years, we've produced a certain amount of oil and gas. So we produced over 15,000,000 barrels of oil equivalent in the last two years.

15:55 And in each of those two years, we've had a revision in the reserves that we have because of the work we've done to extend the life of our assets, because of the technical improvements we've made to the fields that we have. We've managed to ink well, and because of r three, the the the the well that we we brought back into production, We've managed to increase reserves at a faster rate than than we were producing the reserves last year. So last year, we produced 7,300,000 barrels, but we revised upwards by 8,500,000 barrels. Now I think it's a pretty neat trick. I mean, I think to to be able to to to produce that much oil, to sell it, to make that considerable level of profit, but to still have the same amount or more oil left or oil and gas left at the end of the year is is is is what we're about. And to me, that is a a demonstration that our strategy is working, that we can take these assets.

16:57 We can add value to the assets and extract more value from those assets and extend the life of of our portfolio. So I think that's that's a it's a technical slide, but it demonstrates, I think, very well what what our strategy is is all about. As I said, we want to do all of this whilst improving our environmental footprint. This presentation isn't really about ESG. We have an annual ESG report, which will be issued within the next couple of weeks. And at that stage, we'll probably be talking far more about what we're doing on on the ESG front, on the environmental front. But we're very proud that we managed to, at the same time as as as creating profits, we're reducing our footprint. So we've reduced our flaring volumes by 53% in two years, and we've reduced them by 30% the year before that. So, you know, we're making big strides to to to cut out flaring, which is one of the biggest sources of c o two emissions. We've cut our overall c o two emissions significantly.

18:04 And and it doesn't just stop there. We're also looking at waste to landfill. We'd I'm trying to get this down to zero. We didn't quite make it. But to get waste to landfill down by 88% in two years is is significant. And and we have to do that. To be a responsible operator these days, we have to be able to to to achieve those things. We I know lot of people here are interested in in production levels. This shows our production through last year. So at first half of last year, we were averaging, I think it was around eighteen, nineteen thousand BOE per day. There was a planned shutdown during the summer when our offtake pipeline is shut down, so we took the opportunity to to do some some maintenance on our own equipment.

18:50 And then you can see, I think, the the rapid increase in the in the second half of the year when we got up to an average for the year of, I think, 22,200 BOE per day. But in the second half of the year, we're averaging, I think, 25. Towards the end of the year, we were up towards the 30,000 barrels of oil equivalent per day. This year has started generally quite strong, although we did have a well publicized rum shutdown in in March, which which meant that that that that month was slightly below where we would have liked to be. But, but generally, good strong production, thus far this year.

19:30 I think importantly, this year also marks the fact that the the deal under which we bought the Bruce, Keith, and Rum assets has come to an end. It was a really innovative deal that enabled us to effectively, we bought the assets on on HP, I I like to think of it. We we shared the the cash flow from those assets with the companies that sold them to us for the first four years. So the companies that sold them to us were BP, Total, BHP, and a and a smaller company called Marubeni. And we shared those the we shared the cash flow such that in the first year, we were only keeping 40% of the cash flow. Second year, we kept 50%. In the last two years, we've been keeping 60%.

20:18 But now from the January 1 this year, we keep a 100%. And and, obviously, that's happened again at a very fortunate time for us because it it it corresponds to the to the very high production levels and the very high commodity prices that we're seeing. So this really is a step change for us now. In 2022, we're seeing 100% of the the cash flow from these assets. I'm not gonna dwell too much on the next couple of slides because I think these are these are history, and they've been flagged pretty well. I talked about the RUM R 3 well. This was a it was a really complex engineering project, and it was a big project. It was an £80,000,000 project, £80,000,000 investment for us and our partners to to to to to intervene on a well that had been drilled fifteen, sixteen years ago, but the previous operator had had had problems with it and had never managed to get it into production. So we went back into that well, removed some equipment, put some new completion equipment in there, got it back onto production in in in August.

21:25 And you can see the impact in terms of of our net production in the at the end of last year compared to the start of last year. So that well has added something like 6,000 BOE per day net to SERICA. There's some numbers in there that kinda put all this into perspective. You know, it was it was an £84,000,000 project, but the the value in December of of the gas that was being produced out of that well was in excess of a million pounds a day. So you can see that that project, has the ability to pay back, very, very quickly. The other project, that we did last year was the Columbus well. We Columbus was a field that was was discovered by SERICA some years ago. It took a long time to get it to market, but we eventually drilled the development well last year and got first production in November.

22:19 It's another gas well, it's a gas condensate field, but 80% of production is is gas. Another fairly expensive project for us and our partners, we have a 50% interest. For us and our partners, it was like a £76,000,000 project. And that well came on and produced very well in in November and December. It's been a little bit disappointing in the first few months of this year. There have been some top sides problems. So this field goes back through through someone else's platform and someone else's processing equipment. It goes back through the Shearwater platform, and Shearwater has had some downtime so far this year. And so production hasn't been as strong as we would have liked. I think the reservoir deliverability is not as good as we might have expected.

23:06 But generally, again, bringing that well on at a time of high commodity prices at relatively high high rates has been has been very valuable to us. And, again, you can see from the numbers here, the payback on that project is is is relatively short. We're not finished there. We're gonna continue investing. So we've got two big projects this year. We've got this light well intervention campaign. So we're gonna go back to up to five wells on BKR. These are subsea wells that no one has been into for the last, I don't know, probably twelve years or so. And we're gonna go and do some some late life maintenance on these on these wells. Some of it will just be clean up and and access to the reservoir.

23:52 We'll we'll do some production logging surveys. We will re perforate some of the old zones, and we will add additional perforations and water shutoffs in in some of those wells. So that will be happening this summer, and we are targeting not just an uplift in production, but some new reserves from that up to 4,000,000 BOE potentially of of gas reserves from that. And then the big project this year is the North Egg exploration well. So, you know, we're not an out and out wildcat exploration company. We don't drill a lot of exploration wells. We're probably never gonna be in the situate situation where we go out wildcatting, drilling in the middle of nowhere to to to try and find new resources.

24:41 But we do believe in in what we call infrastructure led exploration. So exploration prospects that are close to our existing infrastructure, we think, can be potentially very, very, very valuable to us, not just because of the reserves that we might find, but also because of the fact if we can bring these reserves back through our existing platforms, we enhance and extend the life of those platforms. We bring down our unit costs so we will have benefits on the other fields of ours that use those same platforms. So we're gonna drill the North Egg exploration prospect this year. It's exploration, so there's no guarantee of success. But we believe the the the p 50 or the mid case reserves are around 60,000,000 BOE.

25:30 As I've said, the current reserves of the company are 62,000,000 BOE. So, you know, this is this will be not far it has the capacity to be not far short of of doubling the the company's reserves. It's similar and very, very close to our existing rum field. So we understand the geology. We understand the how how this was sourced. We've got good quality three d seismic over it. So and we can see that the geophysical attributes are are similar. So we think it it is as derisked as it can be. And and so the next thing now is to drill it. We've contracted the the rig, the the Paul B. Lloyd Junior, and we expect to spud in July. If it's successful, as I say, we would expect to to be able to tie it back to our nearby Bruce facilities, which will be, therefore, a relatively quick job to tie it back and relatively inexpensive, if if anything in this industry can ever be, inexpensive.

26:29 And incidentally, if, if that comes in, there's another prospect, imaginatively called South Egg, which, is relatively close, which would be a very good candidate for drilling if if North Egg works. So it's an exciting prospect to be drilled this summer. I talked I talked a little bit about Columbus, and I've talked a little bit about the fact that we had a rum delay or deferral during the first quarter of this year. As a result of that, we've we've revisit revisited our production guidance for this year, and I expect our production to fall within the 26,000 to 30,000 BOE per day range for for 2022. So strong production continuing and hopefully continuing into the into the following year.

27:20 I've talked up until now. So what's that? 25 slides. And and that's all been about one plank of our strategy. You know? It's about getting more value and extracting value and extending the life of the of the portfolio of the assets that that we have. There is, however, a completely separate strength plank of the strategy, and that is around growing the portfolio through mergers and acquisition. And we spend a huge amount of time, looking for opportunities to to grow the portfolio. We're looking primarily still in in The UK. We believe that we have the skills and the team and the relationships with the regulator, with the supply chain, with with everyone involved.

28:05 We think that that that The UK is is still the right place for us. But we need to find things where we think we can add volume. We're not just going out there to to buy assets for the hell of it. And it it it is it is complex, and and commodity price volatility has added to that complexity. But we still see a number of opportunities to to grow that portfolio, and we're still very, very committed to to to the whole m and a process. So that kind of brings me to the end. I think I've almost got to the the half hour mark. Just as a reminder, where are we? Well, we're we're a producing company producing a significant amount of of oil, but predominantly gas. We're investing a lot to to to add low carbon energy to to help The UK's energy security.

28:54 We are benefiting from from high high gas prices at the moment. There's there's no denying that. We believe we're doing our bit to reduce the country's reliance on on on imports, and we think we've got a fantastic operating capability. So we're we're very well positioned. We've got no borrowings. We've got no decommissioning or very little decommissioning liability. We've got considerable cash. And now we are in a position where we get 100% of the cash flow from from the from the BKR assets. So we're very, very well positioned, in a very strong position to to to go into the m and a market. We're still not finished with the strategy of adding value to our assets. We've done our three. We've done Columbus. But going forward, we have the North Egg exploration well and the light well intervention campaign.

29:45 So so that's the summary. That that necessarily has had to be a little bit a whistle stop tour. I think, you know, we're always willing to to talk to shareholders, and I like talking to shareholders. You can always contact us at any time through our website or through info at sericaenergy.com. I think anyone whoever has contacted us there will will will tell you that they've got a response back. We won't duck any questions. So, you know, we're we've got a half an hour left here. I hope I can get through as many of your questions as possible, but I see there's a huge number have come through, and I've not been able to read all of them as we're speaking. We've got some we've got some questions. Well, I'll hand you back anyway whilst I'm I was gonna say, Mitch, just to give you a little moment just to read some of those questions, and and thank you very much for the presentation. Ladies and gentlemen, do please continue to submit your questions, and and thank you for submitting those you have done so far. While Mitch takes just a few moments to have a review of those already submitted, I'd like to remind you that recording of the presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard.

30:49 As Mitch said, we did receive a number of pre submitted questions as well as those submitted today, and to thank you to everyone who submitted them. Mitch, perhaps if I can, I know I haven't given you a huge amount of time and that those questions are probably growing? If I could hand back to you just to turn through some of the presubmitted and the the live questions, that'd be fantastic. Thank you indeed. Yeah. I mean, I I just just reading through the live questions. I I I will start off with some of the presubmitted ones because there's a lot of overlap between what what's been submitted and and and what's what's coming in as we still coming in as we speak. You know, I'll start off with the the big one. The the the question that's been asked most is is probably summarized by by one of the one of the questions that that that came in in in advance, and it was as follows.

31:35 What was the logic behind the dividend announcement? Many people were underwhelmed by a nine p dividend. It would be nice to know how the board came to this decision. And as as I this is the most common question that that we've received and and I've received from outside of this process as well. I I I think we need to or I probably need to to remind everybody that we do not consider ourselves to be an income stock. We consider ourselves to be a growth stock. It's always been our intention and our and we work towards rewarding shareholders through share price growth rather than through dividends. You know, this time last year, our share price was around, I think, about about 120p.

32:23 The last time I looked today, it was around 390p. Five years ago, it was 26p. So I I think our our focus and the focus of everyone in the company is to is to reward shareholders through growth. However, we know, and it's that word again, growth is lumpy. It doesn't it doesn't come in a straight line. And so we, some time ago, launched a dividend policy to that is aimed at rewarding shareholders in the times when the lumpy growth isn't as fast as it as as it is at the moment. And so the the 9p dividend is a a continuation of that existing policy. It is not our primary aim to reward shareholders through the dividend policy, but it is a method of rewarding shareholders in periods that the growth isn't as high as it has been just now. So that was the that was the board logic.

33:26 And, yeah, there's there's there's there's not there's not much that I can I can add to that? This, of course, all is subject to shareholder approval at the at the AGM. The next question, which is kind of related and and comes up a number of times, and I'll take from the the the presubmitted questions, is what is the future strategy? For five years, management have hinted at acquisitions but not willing to overpay. A number of deals have been done in the sector during that time. It is the market that determines the price. If the company does not want to acquire due to high prices, then they should look to sell the company to give shareholders value. So I think that's a that's an interesting point and quite a strong point.

34:12 So first of all, it starts with what is the future strategy. Well, I I think I've I think I've explained the strategy, but I'll I'll reiterate. The strategy is to add value and extend the life of our existing assets. And the second part of it is to grow the portfolio through through M and A. The second part of the question suggests that we should sell the company to give shareholders value. And I'm I'm afraid I just don't agree with that. And, you know, I believe that we've got the skills and the team and the knowledge and the and and the ability to create further shareholder value. I think we can demonstrate that we have been creating shareholder value for the last five years. We've grown the company. We've generated significant cash reserves. So we're in in a very good position to take it forward whilst whilst maintaining our our oil and gas reserves. So I think we have created shareholder value. I think we can show that we've created that, you know, in in abundance in the last year. And so I I don't, I'm afraid, agree with the the the view that we should sell the company to to to to give shareholders value.

35:21 The next one really comes back where it it has a couple of questions in it, but it it I'll read it out. It says, given that there are no taxes on dividend payments, why not pay an extra special dividend instead of a buyback program? It goes on then to talk about a a few other things, but I'll answer those. I mean, first part is I'm I'm not a tax expert, and I'm not here to give tax advice, But I don't think it's true to say that there are no taxes on dividend payments. I you know, I'd advise people to take their their own advice on that. But secondly, I I'd like to to make it clear that that we haven't committed to a share buyback program. What we've stated, and and a lot of people, I think, perhaps missed this, we've stated that in the AGM, we're going to seek approval to have the ability to be able to do a share buyback pro program in the future.

36:13 So that's different from saying we're going to do a share buyback program as opposed to a a special dividend or an increased dividend. Our primary goal is still to deploy the cash through m and a. If we don't find the right opportunity and if we continue to to maintain such a a high level of cash because commodity prices remain buoyant, we will look at the options of of of returning cash to shareholders. But I've got to be really clear. No decision has been made as to whether that would be through through special dividends or through ordinary dividends or through share buybacks. So so those are all on the table, but using the cash through m and a is is probably the number one option.

37:03 Right. A couple of technical questions next. Firstly, what is the geological chance of success for the North Egg well? We you know, and and I I don't like ducking any questions, but we've never we've never published a geological chance of success for that well. And I think it's not necessarily meaningful to to to talk about chance of success for a single well. The the one thing you know is as soon as you quote a a chance of success, you know it's wrong because the answer is either yes or no. So if you shan't you know, if you say it's 36% chance, then you know that's that's gonna be wrong. I've seen a number of analysts suggest that egg has a 50% chance of success. I can tell you it's not that big. I I I don't believe it can be that high.

37:48 I believe it has a bigger chance of failure than success. Typically, a good exploration well, I believe, is in the range of one in five to perhaps a one in three chance of success. I'll I'll I'll leave it at that. This is a this is good exploration well, but it's not a 50% chance of success. The next question was if the exploration well is successful, what's the approximate time and cost to get it into production? Frankly, it just depends on how big the the discovery If it comes in at that that range of expectation of 60,000,000 barrels, it will probably be a one or two well development. We got a lot of experience through rum. You know? And if it's a one or two well development, it's a relatively inexpensive you know, there's a couple of wells which would cost a £100,000,000 for for for two wells if we had to drill them. I say relatively inexpensive. That's a huge amount of money. But in oilfield terms, that's relatively inexpensive.

38:43 It will be a relatively short term pipeline tieback, I would expect, to our existing Bruce facilities, which wouldn't need huge upgrades. We would probably take the opportunity to upgrade some of the some of the the the the the facilities, particularly around emissions reduction programs. We'd have to work with the the the regulator and the regulatory bodies to agree exactly what the the development scheme looks like. So, you know, I I don't have an accurate up to date cost right now, but it wouldn't involve building a new platform. It wouldn't involve significant new kit. So we would expect the the timeline to be relatively short and and the cost to be to be relatively low. If it is a single well tieback, then I think we would reasonably be targeting 2025 for for for first production.

39:40 There was a question that I'm not gonna read all of it out because it's a very, very long question. A question actually criticizing our our costs and saying that we've not reduced costs as much as as this correspondent expected and that we've not increased production as much as they expected and asking about future production. We when we took over the assets of BKNR, BKR, the the operating costs were around $18 per barrel. That was in 2018. We're we're still below that. We're at $16.50 last year. And, you know, that compares to a to to a UK average of over $20 per per BOE. So I think we can demonstrate that we've kept our costs good. I think just to be lower than they were four years ago is is is is quite quite an achievement.

40:32 But I understand that that that that that some some people are are disappointed with that. The production levels also seem to disappoint some people, but I think as I've said probably too often now, we're very proud of the fact that we, you know, have increased production through last year, and we've done this whilst not impacting our reserves in the ground. So I think that is, you know, a very, very significant achievement. And this question was asking how we're gonna keep production up in the future. And, you know, I think I've already talked about the fact we're doing an intervention campaign, and we have a a, you know, a program in in in following years. We will continue to invest in our assets, and that, I think, will help us to to to continue to to to maintain and increase production.

41:26 Right. Next question. During rum DSV repair downtime, appears as if Bruce increased daily production by circa 50%. Mitch's r and s on rum stated during the rum shutdown, we've been able to optimize the Bruce production rates. Question is, are we maintaining that optimized production? If not, what is restricting us from doing so? Sorry. Phone call coming in. Need to kill. So Bruce and Rum share elements of of processing equipment on the Bruce platform. When when Bruce well, sorry. When rum wasn't producing, it's only Bruce that is using that that that that facility.

42:14 When they're both commingled, the Bruce production needs to overcome back pressure that is is created by rum coming into those facilities. I'm oversimplifying. I'm not a process engineer. This is a big oversimplification. So when rum isn't there, it's easier for Bruce production to to to to to to hit the equipment. And we were able to to maximize that to get this extra 3,000 BOE per day out of out of out of out of Bruce. Now that rum is back on and back up at at high rates, we are we're not able to do that. So Bruce has gone back to its its previous levels. So I think it was good work by the team to be able to maximize Bruce production during the the lack of rum production, but, unfortunately, you can't have both. So I hope that I hope that explains that.

43:08 Next question was on hedging. And there have been a few questions on hedging, and I see that there are a few coming in on the on on on on the live q and a. So and this question was, are are you now seeing the options market catch up with UK gas prices? Are there now counterparties willing to offer puts at prices you might consider buying? Our hedging strategy has has always been to to protect our downside rather than to to to capture our upside. And we could do that by by buying puts, which are, you know, floor protection, if if you like. The put market has not recovered to a position where we see any value in that market at all.

43:54 The basically, the put market is where it was. In fact, it's probably slightly more expensive than where it was prior to the current takeoff in in gas prices. The the counterparties are are are scared by volatility and do not want to sell fixed priced instruments. So we have not put any new hedges in place since last July, and we have no immediate intention to do so. As I've said before, you know, our our hedging policy worked really well for us in 2020. It enabled us to to invest and enable us to get to where we are today. But we've now got significant cash, and we see that cash as providing the the the the hedges that that that we need.

44:42 What next? That's an interesting question. And it goes like this. A few years ago, I seem to recall that you expressed an interest in leaving the AIM market and transferring to the main market. Is that still your intention? And if so, what timescale could we expect? We've we've we've looked at this in in a lot of detail. And and, yeah, first, I guess, I should say there's there's pros and cons in in moving to the to the main market. You know, on the positive side, there are definitely or there is definitely the perception that there would be more interest from some tracker funds who would be almost obliged to to invest. The flip side of that is that there were some there were some funds that only invest in in in AimStop, so we might have a a negative there.

45:31 The biggest negative as we see it is from an individual investor's point of view where if you go to the main market, our shares would attract stamp duty. There would be inheritance tax issues and capital gain gift relief issues. So, you know, whilst we have a I have a number of shareholders who who regularly ask and and lobby for us to to move to the main market, and I think we're we're we're just about big enough that we could do that, there are also a number of shareholders that that are very, very concerned about the the tax implications of of doing so. I think the other two things that come into it is that if you go to the main market, there is an increased regulatory burden.

46:16 There are more there's more bureaucracy for for us to do. But more importantly, the actual entry to the main market requires a an extensive prospectus to be to to to to be published. And this really is an expensive and time consuming legal process to to to to gain entry. Our thinking is that that would be better addressed at the time that we're doing something else. So if we do another m and a deal, that is likely to lead to the requirement for a prospectus. And if we're doing the prospectus in order to do the m and a deal, then that may be a better time for us to to to look at the main market. So we're we're not saying no, but we are saying that we need to find the right time to to look at to look at moving to the to the main market.

47:14 I think that's that's got the gist of most of the pre sent messages. I'm not sure if I did this one. There's one around direct to share purchases, which I think it's it's a difficult one, but I'll take it on. And it says director share purchases. In all the time I've been a shareholder, I've not experienced an RNS stating that a director has purchased shares on the open market. Why is that? Why do the directors at all levels not participate in purchasing shares and backing the company? It is a tricky one, and I can't speak for for individual directors. And I I wouldn't want to speak for the individual directors. I can point out that that I think almost 3% of the company is held by the the directors collectively.

48:04 So there is no lack of director investment or interest in in the company. I could also point out that every single employee in the company is enrolled in incentive schemes that are linked to share price performance. So every single employee has an incentive to to be aligned with investors to to to to work on the share price. So I can't answer why or how individual directors choose to to to invest, But I can say that I don't believe there's any misalignment between the directors or the staff and and shareholders. So I think that's got got most of the of the pre sent Wells questions. I'll I'll go through now the the long list of other questions that have just come in. Some of these I'll I'll apologize. I I I won't dodge any questions, but some I'm not allowed to answer. So and I'm not going to answer questions on specific m and a targets, and I'm not gonna answer questions. Yeah. I I I that's that would just be I'm sure you can understand would be commercially insensitive.

49:18 And I can't forecast cash positions for the end of this year as someone has asked because yeah. I I I just under under AIM rules, I'm I'm not allowed to do those things. So next question, can I get thinking about hedging, letting the contracts run off? I think I've touched that already. Next question. Does the April 20 cash balance include March revenue payments received in April? Yes. It does. Next question was about dividend. I've answered. Next question was about share buybacks, which I think I've answered. Next question. Why just one dividend a year? Why no interim? I think I've answered that. We are we we will consider a a dividend an interim dividend, but at the moment, it has just just been one one per year.

50:10 Next question. Do you see opportunities for further North Sea consolidation? Absolutely. We see lots of opportunities within the North Sea, and we think we're ideally positioned to to to to to to participate in that. So so, yes, we're very, very buoyant around the future of the North Sea, and we see that the political environment is improving. We're seeing a lot of stuff coming out of government now that is encouraging investment in the North Sea. So we're we're very happy with with where we are. Next question. Would you consider paying special dividends? Sorry. I think I've captured that already. Next question. Would you consider diversifying away from the North Sea? Yes. We will. But initially, we see lots of opportunities in the North Sea. So I think at the moment, that's where we want to be. But, ultimately, I do hope that we will be able to to to go further further from the North Sea.

51:05 Next question was about share buybacks. Next question was, are you continuing efforts to farm down the North Egg well, or have you stopped that process and want to remain at a 100%? I mean, the the well is spudding, as I say, within the next three months. So we are committed to drilling that well 100% now. So that will be a a 100% SERICA well. You never say never. If someone came in with a knockout offer and really wanted to to join in at the last moment, we would we would consider it, but I think it's I think it's very, very unlikely now. Next question. What are the prospects for repeating the value enhancing nondilutive purchases from BP and Total? Are the North Sea aspects of other oil majors realistic potential targets?

51:51 Yeah. As I said, I I think there are prospects to to repeat those sorts of deals, not perhaps not in exactly the same form as the BKR deal, but we believe that that majors will continue to to be looking to divest in in the next few years. And so so so, yeah, I think there are good opportunities going going forward. Next one. As a private investor, I can't really hedge against gas price falls other than sell my shares in SERICA. Wouldn't it make sense to hedge at high prices at least some of your production? Yeah. I mean, this is this is a question we we face routinely, and I I think the the hedge market is is dysfunctional at the moment. A lot of people think we can just go out and hedge at at current prices.

52:41 If we were to do that, we will be taking significant security risk, and and so the market isn't there. You know, we do, as I say, and we've always said, we do see hedging as a downside product protection, and we're not trying to lock in high sides. So, you know, it's it's it's difficult, but there isn't really that option to us. Next one. How much of the reserves increase is due to gas price increase versus technical revisions? I don't have a percentage. I would say that this year more was due to technical revisions than gas price increases because of the big impact of r three and the impact of the work that we're doing on on Bruce. So, yeah, it it's it certainly wouldn't be true to assume that that all of the the reserve revisions is due to gas price.

53:31 It's it's it's it's largely due to technical technical issues. How long can you keep increasing reserves on your existing fields at similar rates to the last two years? I don't know. We will do it for as long as we can. I think, you know, the Erskine purchase is a really good example. So we we bought Erskine, which is a much smaller field that I haven't really talked about very much today. We bought our interest in Erskine seven or eight years ago. When we bought that, from memory, we were buying 3,300,000 barrels of oil equivalent. I may have that number slightly wrong. We had a an independent CPR done on Erskine at the start of this year, and there's 3,200,000 BOE left. So, you know, we we've been producing that field for seven years. We've produced over 5,000,000 BOE, our share, out of that field, and and we still got left what we started with. So I think that shows that you if you get it right and we're not the operator there, so the, you know, the the operator and and the other partners are are all responsible for that. But if you get it right, you can replace reserves year on year for for seven years.

54:46 So, you know, I think we've got a long way to go with the the portfolio we've got. Are there any debottlenecking opportunities to increase production from BKR given the productive capacity of r three is higher? We're looking at these things, and and I think there may be, but I would hate to to be definitive on that. So, you know, we're aware of the potential of of rum, and we're looking for ways to to debottleneck. And, also, as I said earlier, you know, we we've we've discovered this phenomenon that that Bruce on its own can do more than when runs there. So we're looking at ways that we can, you know, we can we can access that extra productivity.

55:31 So, yeah, that's that's that's a possibility, but it's not something I can give you a definitive answer on. From the same question, are you considering a second Columbus? Well, not yet. I mean, Columbus has been in production for, you know, less than five months. We need to get good pressure data and understand more about Columbus before we before we would would consider a second well. It was always planned as a one well development. I think a second well is unlikely. Can you confirm what, if any, payments have been paid or are yet to be paid in 2022 for BKR to the operators you acquired the assets from?

56:18 So, yeah, at the start of the year, there were still some outstanding payments to be made. I think it was from memory, it was £93,000,000 was outstanding. The vast majority of that has now been settled and was settled before the April 20 when we gave that new cash number out. So there there is probably single figure millions left to pay. The the vast majority of that has been has been settled now. Just had an RNS. A nonexec director has resigned. Any information on this? Ian Van was a nonexecutive director since I joined the company. He's been on the board for, I think, fourteen, fifteen years, and there are guidelines about independence of nonexecutive directors, and so we are encouraged to to rotate directors.

57:16 Ian was a fantastic, fantastic aid to this company and has been really, really instrumental that in everything we've done. We're really, really sad to see him go, but I'm afraid, you know, core best corporate governance does does determine that you do need to move your nonexecutive directors on every every now and again. Can the presentation be shared? Well, given that we are now two minutes before the end, I may hand you back to to Absolutely. I can answer that question as well, Mitch. The presentation will be available on the investment company platform literally moments after we finish the meeting today.

58:04 And thank you very much, Mitch, as I say, for covering off so many questions. And thank you to all the investors for that. Perhaps, Mitch, as as we are coming up to time, I could just ask you just for a few closing comments just to summarize before redirecting investors to give you feedback. And, of course, you will have the ability to review any further questions that we have in, we'll and publish responses where appropriate to do so on the investor meet company platform. Okay. Thanks. Well, thank you, everyone. We you know, we've got through a lot in in a short period of time there. The the presentation will be shared on this platform. It's also already on our on our website, so you can find it there. I I yeah. I'm not gonna reiterate. I think I've I've I've gone over the story so much. I think we've got ourselves in a in a in a really strong position, and we see some exciting opportunities going forward.

58:51 We as I've already said, we do like interacting with our shareholders. We do appreciate the support of our shareholders, and and we do you know, we we we we we value your input. So, you know, we will this is the first time I've done one of these, and I I'd I'd be interested in your feedback on on on how you think this has gone. But we we will do this again. But in the interim, please feel free, as I say, to contact us through our website or through the info@saricaenergy.com email address. If at that stage, I don't think there's anything else I want to say. So I appreciate your time, and that's all from me. Great. Thank you so much for for a great presentation and for answering so many of the investors' questions. Can I please ask investors not to close the session? Should be automatically redirected to provide your feedback in order that Mitch and the team can better understand your views and expectations.

59:46 This will only take a few moments to complete. Be greatly valued by the company. On behalf of the management team of SERICA ENERGY PLC, we'd like to thank you for attending today's presentation. That concludes today's session. Thank you, and good afternoon.