Serica Energy plc

Good morning, ladies and gentlemen, and welcome to the Serica Energy PLC four-year results investor presentation. Questions are encouraged. They can be submitted at any time via the Q&A tab that's just situated on the right-hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and will publish responses where it's appropriate to do so. Before we begin, we would just 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 the executive management team from Serica Energy PLC. Chris, good morning, sir.

Good morning, and welcome to our 2025 full-year results presentation. I'm joined, as usual, by Martin Copeland, CFO, and Andrew Benbow, our head of investor relations. Thank you to everyone who has submitted questions ahead of the call, but please feel free to post any further questions you have during the presentation. And should we not get time this morning, then please contact Andrew directly. We will respond promptly to every question we receive. Martin and I will now run through a short presentation and then answer as many questions as we can in the time available. This slide is a reminder of our strategy and our purpose. We're here to produce hydrocarbons safely and efficiently while creating value for shareholders and also helping to deliver energy security jobs and investment for the country. You may be aware that this has been our purpose unchanged for some time now, and I know that such statements can sometimes sound like typical corporate speak. But as we speak today against the backdrop of the terrible events in the Middle East, the importance of our contribution to domestic energy security has never been more apparent. We are unapologetic about the role we play in providing much needed energy products for society. We have a two pronged strategy for creating value. Our DNA is taking on mid to late life assets and then extending their field life and optimizing production. We've been delivering on that strategy recently with a number of M&A transactions, and we expect that to continue. And we are well positioned at present with a highly cash generative production portfolio with organic growth options fighting for capital allocation. Our strong positioning is partly as a result of strategic delivery last year. We invested in our existing portfolio, carrying out significant work on resilience and asset life extensions, as well as completing our highly successful five-well drilling program around Triton. These wells will help retain robust production at the FPSO, and the success of that campaign gives us confidence to continue to exploit multiple organic investment opportunities elsewhere in our portfolio. As we continue investing, we also continued our track record of shareholder distributions, with dividends amounting to 16 pence per share. As announced today, these distributions are continuing in 2026, as we recommend a 10p final dividend in respect of last year, continuing to strive to offer investors a compelling mix of growth and returns. And of course, key to our strategic delivery in 2025 were multiple acquisitions. We were one of the more active M&A players in the UK sector last year, announcing multiple acquisitions that increased and diversified our portfolio, enhanced cash flows and added to our opportunity set. In total, we increased our reserves by 19%, adding some quality long life fields to our portfolio. The impact on production will also be material, adding over 20,000 barrels a day to our production capacity. The deals were done at very attractive prices, with reserves added at a low cost of $3.30 per barrel. The acquisitions which we have completed, being Prax Upstream and now Total Energies, which completed today, have resulted in the net receipt of cash by Serica amounting to $75 million in aggregate. And the ones still to be completed from One Deus and Spira Energy will also result in net cash receipts or only limited cash paid out on completion. Hence, these acquisitions will be cash flow accretive this year. thereby supporting further portfolio investment and returns to our shareholders. Looking ahead, our strategy remains unchanged as we seek to acquire assets that may be non-core to others, but can be enhanced by Serica through extending field life and delivering further value both corporately and through the subsurface. We will continue to look for potential acquisitions in the UK. Although the amount of recent consolidation means there may be fewer opportunities in the near term. As a result, and as we previously signaled, we will continue to explore opportunities overseas, but only in areas where we are confident that we can deliver our clear value creation strategy. As we grow, we're ensuring that the capabilities of our team grow with us. We are confident in our strategy and confident that we have the right team to deliver it. Since joining, I felt there were some areas in which Serica lacked the expertise required to excel as a North Sea producer. And as our portfolio has grown, the need to strengthen our capability has grown with it. We've made a number of targeted senior appointments that have materially improved our decision making, our talent management and our ability to deliver for shareholders. We've established a quality executive leadership team and are putting in place the wider organisational structure and processes to position us to deliver on our strategic and operational goals. We are not finished, but I believe we are close to achieving the goal of establishing the right team to lead a top performing FTSE 250 company. We need a team with depth and breadth as we are now building a broader and more complex business. Our portfolio is more diverse and robust with assets that will encompass the entirety of the UK continental shelf from the west of Shetland to the southern North Sea. Our new assets will significantly enhance the predictability and quality of our overall production and cash flows, with less reliance on the two main hubs and the number of producing fields set to more than double. By the end of the year, we will have equity in a total of 26 producing fields. We are growing our presence in the basin and keen to continue growing. We now operate around 10% of the UK's natural gas production. And today, having assumed control of the Shetland gas plant, we have the potential to play a key enabling role in the most prospective gas basin in the UKCS. The projected decline in North Sea production we often see reported is one enforced by policy and not geology. As our chairman has said today, we urge the government to unblock the logjam in its approval of the development of new oil and gas fields, change its stance to the award of new licenses, scrap the onerous and counterproductive EPL and replace it with the already announced OGPM as soon as possible, and to change its tone towards the sector. The opportunities in our portfolio alone show there is more to be delivered from the UKCS, much of which is short cycle in nature, and we're keen to play our part. and we are set to increase our production materially in 2026. As you can see from the chart on the right, our expectation for 65,000 barrels a day by the end of the year is not aspirational. It is in fact less than what we would be delivering today had all the asset transactions completed. That figure does include Lancaster, with production scheduled to cease in May, as expected, when the FPSO moves on to its next project. But of course, we need to actually own these assets first. And I'm pleased to say that completions remain on track with the previously stated timetables. We targeted the end of the first quarter for the total energies acquisition, and that completed today, slightly ahead of schedule. This transaction brings into the portfolio over 5,000 barrels a day of unhedged gas production. We also remain on track for mid-year completion for the 1DS transaction and later in the second half of the year for Spirit Energy. On our core portfolio, production has increased in 2026 year to date compared with Q4 last year, but it's still not where we would want it to be. Production at the Bruce Hub has largely been robust. and we are regularly producing 20,000 barrels a day net from the hub, which is a real positive given the current gas prices. Unfortunately, some further unscheduled maintenance at Triton needed to be carried out in February and early March that required a shutdown for just over three weeks. The operator, Dana, concluded that due to overdue maintenance on some production and power generation systems, they could not wait until the summer shutdown to complete work on those systems. They therefore took the proactive step to fix the issues immediately rather than to continue to run the equipment that could potentially fail. This work was completed on the 9th of March and Triton has been running continuously since that time. As indicated in our January trading statement, we also lost production from Orlando for much of the period due to wave damage caused to the Ninian host platform. But this is now also back online and producing at over 3,000 barrels a day. Since production restart at Triton, We have seen a fortnight of stable production, averaging over 50,000 barrels a day in that period. Over the last few days, we have also seen the first production from Belinda, the last field in the UK to receive development consent. It is too early to determine a stable rate for Belinda, but early indications are promising. Triton is currently running with a single gas export compressor as the second compressor is offline awaiting a spare part. Maximum production in this operating mode is roughly 25,000 barrels a day net to Serica. And as we now have excess well capacity, we can anticipate being able to flow at that rate at least through the end of 2027. Once the second compressor is available, we will need to decide with Dana whether it makes sense to keep the second compressor as a backup to give more stability at 25,000 barrels a day, or to run the two compressors in parallel at a higher rate, but with more vulnerability to downtime. Our production guidance of significantly over 40,000 barrels a day was based on very conservative uptime, effectively building in a weaker month of downtime at Triton. As such, with a significant production uplift to come, we are comfortable in retaining our guidance as unchanged. Going forward, the predictability of our production will be enhanced by the new assets coming in, with some, notably GLA and Cygnus, having historically very high uptime. But for now, we continue to be focused on delivering improved performance from our existing assets, where there's still plenty to do. We are working to embed a culture of operational excellence where we are not satisfied if we produce anything less than the maximum possible on any given day. In the last few years, there have not been enough maximum production days, and we are re-energizing our entire workforce to pull together to deliver more. There is also work to be done this year to help deliver production well into the future. At the Bruce Hub, there is exciting subsurface potential, and we are doing the necessary work this year to prepare for potential drilling in 2027. At Triton, we are working closely with Dana, and the focus is very much on delivering stability of operations. Dana have been taking many of the same actions that we have taken at Serica to improve performance, in particular with strengthening of their team with new offshore installation managers, maintenance team leaders and safety advisors, as well as bringing in-house some key technical specialist roles which were previously outsourced. We are also of course working hard to integrate our new assets. And I am delighted to welcome our new colleagues from Total Energies into Serica and those transferring across to our operations and maintenance contractor, PX, today. Even without the addition of reserves from new assets, I'm pleased to say that our reserves replacement effectively achieved 100% in 2025. This was achieved through the excellent work of our subsurface team and largely by 10.2 million barrels being moved from resources into 2P reserves due to the maturation of the Kyle redevelopment, which has now been renamed Kyla. This effectively offset the 10.1 million barrels of production in the year. With the addition of the newly acquired assets, our 2P reserves rise 19% on a pro forma basis. We will continue to be balanced between oil and gas, but on completion of the acquisitions, we will become slightly more gas-weighted as our acquisitions are mostly gas fields. I'm pleased to say we have also delivered a 16% increase in 2C resources, indicative of our attractive opportunity set. This increase was driven by the extensive work on maturing the potential Bruce Drilling Programme as additional infill well opportunities delivered an 18.2 million barrel increase in 2C resources. This outweighed the relinquishment of the mantle license and transfer of Kyla to reserves. The addition of Wagtail, which we announced during the year, also provided an uplift of 8 million barrels of 2C resources. In total, we now have over 100 million barrels of 2C resources, constituting a diverse and attractive opportunity set. These are projects of various types and across our asset base, but are all tangible and deliverable opportunities. With prudent investment, there is plenty in the hopper to sustain our production at or above current levels into the next decade. We are continuing to high grade the suite of opportunities and plan to share considerably more detail on these at a capital markets day in early June. We are focusing at present on those opportunities that have the potential for rapid payback. And there are a number of projects that fit that description. One that we have talked about before is Bruce. Bruce is a huge field and there is plenty of remaining potential there, as can be seen by the increase in resources we have been able to share today. There has been no drilling on Bruce since 2012. And drilling on the field, which sits within our subsidiaries that do not have tax losses, would be highly tax efficient. First hydrocarbons are possible within one year of drilling, and we see a first phase of wells that could add over 10,000 barrels a day to production. This is a significant opportunity to deliver greater production of critical gas supply to the UK in a relatively short-term timeframe. This opportunity is the result of work done over more than a year now across the integrated disciplines within our exceptional subsurface team, which, as I may have mentioned before, is the best in the business. Market screening for a rig is currently underway to enable us to potentially take an investment decision later in the year, which could enable drilling to begin in 2027. There is still more work to be done, And there are other opportunities also battling for capital. Kyla also offers a material production uplift. This was a previously producing field which ceased production due to the host infrastructure being decommissioned. Horizontal well drilled into the best part of the reservoir and producing into Triton could also therefore add 10,000 barrels a day to our portfolio. And then we have the opportunities just welcomed into or to be brought into our portfolio via acquisition. Glendronach is a compelling opportunity. And there are others not even mentioned on this slide that we look forward to discussing at the Capital Markets Day. And we are very excited by the overall potential west of Shetland. I realize this is quite a busy map, so let me give you a quick overview. We've acquired the acreage, which is shown in blue, which includes the Lagen and Tormor and other producing fields, as well as a number of exploration prospects, plus the associated pipelines in orange and the Shetland gas plant. Further west and north of our acreage is an extensive area colored in gray. This acreage is owned by Adura and Ithaca, two of the largest UK producers, who are bullish about the drilling prospects in the area. The industry consultant Westward Global Energy recently published a report identifying that the west of Shetland Basin holds an estimated 5 trillion cubic feet of gas. Of course, that sounds like a big number, and it is. In fact, it's equivalent to supplying every household in the UK for five years. And yet some people continue to say that the amount of gas we can produce in the UK is not significant. With 1.5 billion barrels of discovered and prospective resources situated within Tyvek distance of our existing infrastructure, this is an area of material potential for the industry and for Serica. And the Shetland gas plant is an asset of strategic importance to the country. While we are not primarily a third party infrastructure company, as well as processing our own gas through the plant, we are currently processing gas for Adura from their Victory Field, which only started producing last September. And we hope soon to be doing the same for Ithaca and Adura Tornado Field. which they are looking to move to final investment decision by the end of the year. But as well as exciting third-party opportunities, which all add value for Serica, there are also opportunities for the GLA joint venture to develop and add value from the assets on which we have completed today. These include the Glendrona tieback and a possible infill well at Tormore, And now that these are in our portfolio, they will be assessed and ranked against the other development opportunities we have in the battle for capital allocation, about which, again, we will give more detail at our Capital Markets Day. And with that, I will hand over to Martin to give you more on our finances and how we are seeing things in the near-term market situations.

Thanks, Chris. As we largely pre-announced with our January trading statement, the story of last year is mostly that despite a challenging year operationally, our relative financial strength and our confidence in the resolution of those issues enabled us to continue delivering on investment in the portfolio and on healthy shareholder returns, including maintaining the full year dividend as 16p, inclusive of the 10p proposed final dividend we are announcing today. When it comes to how we generated and used cash during the year, this waterfall chart shows the picture of what actually happened to gross cash from our year end 2024 to our year end 2025 position. But the real story of the business potential lies in understanding what the deferred production cost us in foregone 2025 revenues from the unscheduled Triton interruptions. Based simply on adjusting for what would have happened if Triton had delivered operating efficiency in line with our 2025 budget, and factoring in the actual prices of oil and gas which prevailed, we estimate we missed out on some $250 million of revenues last year. And because those missed revenues were at Triton, where not only do we still have material tax losses, but we were also investing heavily, which is the key method of sheltering the EPL, and that our cost base is very largely fixed in nature, those foregone revenues would have flowed almost directly to additional free cash flow generation. We were, however, helped last year by the receipt of $63 million tax rebate in respect of overpaid taxes from 2024, but also from a low cash tax bill during the year, given we were able to factor in the impact of group relief into the instalment payments made during the year, These are the reasons why the tax bar is in fact a positive on this chart. So we very much do not see 2025 as representative. And indeed, as we indicated in January, we are confident of material free cash flow generation this year. And that outlook has, of course, only improved in the current market conditions. In fact, as it says on this page, with the completion of the total energies deal today, we have more than halved our net debt by as compared to the year end level, and are on track to be in a net cash position by the end of H1. Turning in a little more detail to the income statement, while realized prices were generally not materially different than in 2024, being marginally lower in oil, but higher in gas, our revenues of $601 million were down 20% from the prior year, essentially in line with the lower volumes. But the truer comparison of the impact of Triton issues can be seen in a comparison with the 2023 pro forma levels. On this basis, production was down some four and a half million barrels or approximately 30%. Our hedge book was in the money at year end, and delivered unrealised hedging gains of $75 million, and just under $8 million in realised gains, as we benefited especially from protection against the lower prices seen in Q2 in the wake of the Liberation Day tariff announcements. Operating costs were roughly 10% higher than 2024, largely as a result of increased maintenance activity at the Bruce platform, as we sought to reduce maintenance backlogs. but also because of a slight weakening of the dollar versus our largely pound-denominated costs. G&A costs grew up by just under $2 million, as we made choices to add capabilities to set us up for future success, and we incurred transaction costs of $5.5 million, associated with the extensive M&A activity. Despite the challenges in the year, we still delivered a profit-before tax of $80 million. but at half the level of the prior year. Our current tax charge was only $2 million, as we benefited from in-year group relief associated with losses made in the Triton subsidiaries. However, in common with all our North Sea peers, and as we also reported in our H1 results last year, we had a material deferred tax charge of $130 million, including a $65 million charge relating to the enactment in Q1 of the extension of the EPL from 2028 to 2030. The result of these non-cash accounting impacts is that we reported a book tax charge of 165% and posted a loss after tax of $52 million for the year. Turning now to the balance sheet, and notable changes in the year which result mostly from acquisitions. Our exploration and evaluation balance doubled to $43 million, primarily as a result of the completion of the Parkmead acquisition, as we became operator and brought into a greater share of the Skerryvore exploration prospect. We also consolidated the acquisition of PraxUpstream, which completed on 11 December, as a business combination. As pre-announced in January, we ended the year with net debt of $200 million being effectively one times EBITDAX. But as already explained, we see this as something of an anomaly and would have been net cash pro forma for the deferred cash flow from the Triton issues. And as already noted, we have more than halved our net debt since the balance sheet date. Finally, inclusive of the impact of new drilling at Belinda and Evelyn, as well as bringing Lancaster into the portfolio from the Prax Upstream business, we ended the year with the exceptionally low level of decon provisions of less than $2 per 2p barrel of oil equivalent. While we always update on our hedging with our results, given the dramatic events in commodity markets year to date, we felt that a slightly deeper dive is merited today. Before turning to how we are positioned and what we expect to be doing in the future, We wanted to give a bit of background on what's been happening in oil and UK wholesale gas markets year to date. We came into the new year with all market fundamentals in terms of physical supply of oil and to a lesser extent gas pointed to a weak Brent prices during 2026 and medium term weakness in gas prices. Bearish sentiment was evident in the market, and this was apparent in that, despite unusually low European storage levels, UK gas prices, averaging around 84 pence per therm for January and February, were roughly half the level of the equivalent midwinter period in 2025. However, of course, things changed dramatically after the war in Iran commenced on 28 February. For the three weeks of March so far, MBP day ahead pricing has averaged 127 pence per therm, and Brent has averaged $103 per barrel. But as the charts on this page, which show the shape of the forward curve for Brent and for MBP at various dates since early January right up to a week ago on the 19th of March, things really elevated in reaction to the de facto closure of the Straits of Hormuz, and the physical attack on the Rastafan LNG and Pearl GTL plants in Qatar. But although near-term prices, the front end of the curve, have risen sharply, the prices further out in time have not risen nearly as much, and the forward curve for both oil and gas are in very steep, and in fact unprecedented, backwardation. These forward prices should not be seen as predictors of future prices, but they do represent the levels at which Serica would be able to hedge in the market through swaps. So with this backdrop in mind, we turn to where our hedge book stands today. We've been building our hedges materially during the first quarter, and the reason for that goes to the reasons why we hedge. Firstly, we have an ongoing requirement by our banks to hedge a certain amount on a rolling basis, being 50% of the current year and 30% of the following year. But beyond that, We are always striving, appreciating that we cannot predict events and prices, to find the Goldilocks solution, not too little and not too much. On the one hand, we seek to ensure that we protect downside sufficiently to ensure that we can cover our cost base in tougher times, as well as to support our capital allocation priorities, including the dividend. This also includes maximising the liquidity available to us through the borrowing base under our RBL. But on the other hand, we do not want to over hedge so that events, even if they are the kind of tail risk events we have seen this month, which cause prices to spike, can benefit our shareholders. So we were always looking to protect the downside, but leave as much as possible of the upside potential. In common with our peers, we do this both by imposing policy limits on our absolute amount of hedging and by the choice of instruments that we use for hedging. As shown on this table, Serica is currently hedged for about 60% of our forecast production in 2026 and about 50% in 2027, which is inside our policy limits. When we combine the impact of the unhedged part with the use of zero-cost collars, which retain an element of upside exposure, we retain about 40% upside exposure in 2026 and around 55% in 2027. The position in gas is actually more exposed to upside than in oil, with only around 50% of our gas volumes hedged this year and less than 40% for next year. While we have built the books since the beginning of the year, about 50% of the hedges we've built have been taken on since the start of hostilities from the 2nd of March, and we've been able to capture some very attractive opportunities. For instance, although the tables show averages for the quarter, we have in fact recently placed some swaps for March at levels up to $111 per barrel for oil, which is especially pleasing given our most recent Triton lifting concluded only earlier this week. We appreciate that it can be confusing to understand the intricacies of hedging approaches, and although we hope the floor prices are quite clear on this table, it is tough to figure out what the foregone upside price implications are, So as a bit of a guide, we estimate that our current hedge book for 2026, with oil prices as a notional $100 a barrel, we realise roughly $80 a barrel. And at 150 pence per therm per gas, we realise roughly 130 pence per therm. Taking a look at this slide, you may think you've seen this before, and that is because you have. We're pleased to say that we are simply reiterating our guidance across production, OPEX and CAPEX at the levels we set forth with our trading statement in January. What we have though updated on this page is the carry forward tax loss balances that we've reported today as of the 31st of December 2025. As you can see from a combination of our own activities during the year, as well as M&A that we completed during 2025, we ended the year with essentially double the level of tax losses as we started with. We now have roughly $2 billion of corporation tax and SCT losses, and roughly $500 million of EPL losses. And using the simple math that we've applied before of corporation tax loss times 30%, SCT times 10%, and EPL times 38%, then the notional value of these losses is around $1 billion. Finally, for me, I wanted to say a few words to add what Chris has already covered in relation to the M&A we announced in the year. In my previous career as a banker, we would tend to consider that the M&A was done when the deal was signed. But what I've since learned is that to ensure we deliver value, we need not only to be capable of efficiently delivering complex operated asset transactions through to completion, but also to ensure that the businesses are integrated efficiently into Serica and set up to realise their value potential. Serica has therefore invested in human capital to ensure that we have the skills and processes that are needed to be successful in an M&A growth strategy. This includes being agile and opportunistic in the execution phase and ensuring that we always do what we say we will do. So we sustain Serica's good reputation in the M&A market as a credible and trustworthy counterparty. That also means having the people, processes and systems that are set up to deliver in a repeatable way to coordinate and drive forward the multiple work streams needed to get to completion and day one in the fastest possible time. All while also ensuring safe and reliable continuous operation of high sensitivity assets and complex IT systems. The process we have just completed to see GLA and the Shetland gas plant come under our control today is a great example of this. Finally, this also means doing the necessary work upfront to protect value from the transaction and to ensure that the people and systems can be integrated as smoothly as possible to ensure that the value can be realised in practice. One example of this is the approach we have taken with the Spirit Energy deal, which is not yet completed. Although we only assume completion from around end September, we know that future gas prices were key to value realisation on this deal. So based on a very constructive relationship with Spirit Energy and with their parent Centrica Energy, we have been able to put in place deal contingent hedging for roughly 50% of the production, but on a basis which protects the value of our deal, but still leaves ample upside potential for Serica to enjoy. This was made possible in part thanks to Centrica Energy being a leading participant in gas markets and working through the complexities of a structure like this with us. With that, I will hand back to Chris for some concluding remarks.