Independent N. Sea oil explorer Serica has succeeded in slashing its production costs to $16-barrel – despite a six month production shut-down on its flagship Erskine field.
Since production re-started in Aug 2016, Serica has pumped an average of more than 3,000-barrels a day, while its Lomond offtake facilities achieved uptime in excess of 80% since end August restart and averaged 95% last month.
Tony Walker, Chairman, commented: “A strong second half operational performance from the Erskine field, boosted by much improved commodity prices and favourable exchange rate movements, has helped Serica following the six-month Erskine shut-in earlier in the year. The underlying resilience of Serica’s balance sheet has allowed the company to absorb the period of no income resulting from the shut-in and to enter 2017 in a strong position to take advantage of new opportunities to grow its asset base.“
“Following the successful restart of the Erskine field in late August, we are pleased to report sustained strong performance since then. During this period Serica’s share of oil and gas production has averaged approximately 3,150 boe per day, exceeding our previous 2,500-3,000 boe per day guidance.
“It is also encouraging that the second half of the year saw improved commodity prices. The Brent oil benchmark has averaged $50-barrel since Erskine restart whilst UK gas prices have shown an even stronger rise from 30 pence per therm in the first half of the year to over 40 pence per therm since the end of August, with over 45 pence per therm realised in November and December.
“A gas sales contract, under which Serica supplied approximately one quarter of its Erskine gas production at relatively low contract prices (approximately 30 pence per therm in the 2015/6 contract year), terminated on 30 September allowing Serica the full benefit of the higher prices since then.
“Operating costs since August are averaging well below our guidance of $20 per boe, including transportation costs, reflecting overall cost reductions, sustained production rates and also the impact of the lower £/$ exchange rate.
“In addition to continuing cost control and improved production uptime, future costs per barrel can also be reduced through the introduction of new third party throughput to Lomond including the Columbus field whose progress is discussed below.
“Strong net income from Erskine since re-start of production in late August has allowed Serica to rebuild cash resources. As at 31 December, cash balances were $16.6 million before receipt of December sales which are expected to add in excess of $3.5 million net of operating costs. Serica has no borrowings and minimal licence expenditure commitments.
“Ongoing reductions to our Erskine/Lomond cost-base have combined with increased throughput volumes to lower Erskine operating costs, including transportation costs, for the September-to-December period to well below our guidance of $20 per boe which takes account of a level of planned and unplanned shut-ins. This illustrates that maintaining production volumes is as important as cutting costs in the drive to minimise costs per barrel.
““Though the short-term commodity-price outlook remains uncertain, we are optimistic that the industry re-set of the past two-years will underpin the North Sea sector for some time to come, encouraging extension of existing field lives as well as development of many small, as yet undeveloped, new fields.”
“The challenging environment of the past two-years has precipitated extensive reviews within the high-cost North Sea sector and extended focus beyond simple cost cutting.”