Good morning, 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&A tab situated on the right-hand corner of your screen. 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 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 Chris Cox, CEO. Good morning, sir.
Thank you. Good morning, and welcome to our trading and operations update. I'm joined, as usual, by Martin Copeland, CFO, and Andrew Benbow, our Head of Investor Relations. Thanks to everyone who submitted questions ahead of the call, and please feel free to post any further questions you have during the presentation. Should we not get time this morning, please feel free to 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. When I reflect on 2025, there are obvious disappointments in terms of operational performance, so I cannot claim to be entirely happy. However, I'm very pleased with the position we find ourselves in going into 2026. It's always a challenge to get M&A deals over the line.
After deciding to withdraw from our discussions with EnQuest in early May last year, the team did a great job and delivered multiple deals that all support our strategic objectives, growing production and cash flows, and delivering value for shareholders. These deals are set to boost our reserves by over a quarter, will be cash flow accretive this year, and will significantly enhance our production going forward, as well as adding additional development options to our portfolio of investment opportunities. The transactions were also great deals financially, meaning that the acquisitions have been, in the case of Prax, and will be, in the case of the others, completed with either the receipt of cash by Serica or with only minimal cash paid out.
We also continued our track record of shareholder distributions in 2025, with dividends amounting to 16 pence per share, and this was done despite the evident operational challenges and a continued strong investment program. This investment has delivered significant incremental production, as well as enhancing the resilience and positioning for life extension across our asset base. Triton is inevitably the asset that gets the most visibility, of course, due to the prolonged shutdown. In addition to the multiple improvements in key areas of plant on the FPSO that position us for marked improvement in operating resilience, key work also took place on the Bruce platform as we invest to extend the life of production facilities and to ensure that the excellent potential of our subsurface can be fully delivered through the topside facilities.
Finally, we did a lot of work growing our capability as an organization in 2025. We've established a high-quality executive leadership team and are putting in place the wider organizational structure and processes to position us to deliver on our strategic and operational goals. This is how the portfolio looks as we enter 2026. Far more diversified, with assets set to be included in a portfolio that will encompass the entirety of the U.K. North Sea from west of Shetland to the southern North Sea. Production will rise as the acquisition is complete, and importantly, will become significantly more diversified with our total number of assets more than doubling to 25 by year-end. This should mean increased resilience of production and revenues and less reliance on individual facilities or export routes.
We will continue to be balanced between oil and gas, but pro forma for the acquisitions, we expect our production to become slightly more gas-weighted, more towards 60/40 than 50/50, as our acquisitions are mostly gas-oriented. We are also ensuring that our portfolio remains as well-positioned as possible in the context of the disappointing decision by the government to retain the Energy Profits Levy. This means we will act to optimize our tax position, including through targeting investments where they benefit most effectively from the application of capital allowances. We believe that we have set the company up to continue to deliver value-accretive growth whilst also delivering material, direct cash returns to shareholders. As indicated in our RNS today, we will give more details on this in the coming months as we finish the high grading of our future investment opportunities.
Of course, our business starts with the safe and efficient production of hydrocarbons, and we expect this production to be materially higher in 2026 than it was in 2025. As most of you will be only too aware, 2025 was impacted by significant reliability issues at Triton, which resulted in a lengthy outage while comprehensive work was undertaken across the FPSO. This is clear on the chart on this page, which shows no production at all from Triton in Q2, and also far lower production than should have been the case in the other quarters of the year. However, significant work was undertaken across key systems on the FPSO during this time, and with this work having been completed, we expect far greater uptime this year.
The operator is following a methodical and careful process of optimizing both reliability of production and optimized well configuration, including the new wells from our drilling program. This means that running with one compressor and targeting increased reliability is the current focus. With the results of this already seen, with current production over 20,000 barrels a day net to Serica. Following a period of stability on one compressor, there is the potential to move to twin compressor operations and achieve rates of over 30,000 barrels a day net to Serica. While production in 2025 was disappointing, we have already seen improvements in 2026, with year-to-date production of 43,000 barrels a day. This has by no means been a perfect start to the year, as we have dealt with a number of short outages at Triton.
At Bruce, a number of wells require assistance to flow by injecting high-pressure gas, so-called bullheading operations, and these gas injection facilities have not been available to us until the last few days. Hence, Bruce production has also been reduced at the start of the year. Over the course of the last week, both Triton and Bruce have been building back up to more normal production rates and are now performing more in line with their potential. Current production is, again, around 50,000 barrels a day. This is despite losing roughly 2,000 barrels a day from our Orlando field, which is currently shut in due to storm damage at the Ninian host platform.
What this means is that we are therefore confident that we will deliver a 2026 annual outturn, which we expect to be a material increase in our production to significantly over 40,000 barrels a day. The extent to which we surpass this remains uncertain at this stage. This uncertainty comes from a number of different factors which are currently difficult to predict. How reliable Triton is when we switch over to 2 compressor operations, what stable flow rates can be achieved from our 2 new wells at Evelyn and Belinda, the length of the maintenance shutdown at Triton, and the timing of cessation of production at Lancaster. In stating that we will average significantly over 40,000 barrels a day, we've made some fairly conservative assumptions about these factors.
Until we have more information on some of these, we are not in a position to provide more definitive guidance, especially given the fact that 2026 production will be impacted by the completion dates of our various M&A transactions. These schedules remain on track with the previously stated timetables. Around the end of the first quarter for the TotalEnergies acquisitions, mid-year for ONE-Dyas, and then later in the second half for Spirit Energy. Movement in these dates would also impact the outcome of our production for 2026. We will, of course, update the market on the expected production as we reduce these uncertainties during the coming months. Our production bedrock this year will remain Bruce and Triton, and they are also the focus of our activity program through 2026.
In Q4 bullheading at Bruce was sporadic, meaning that production for the quarter averaged 15,400 barrels a day, which is below par for the asset. With bullheading now resumed, production has again hit 20,000 barrels a day net to Serica. As we move towards a potential infill drilling campaign at Bruce, the first time there will have been drilling since 2012, we are also carrying out work this year to ensure that the facility is able to produce the subsurface potential and sustain the life of the asset. This work includes the installation of a new sub-sea umbilical control cable in the western area of the field, initial work on rewheeling of our low-pressure booster compressor, and completing and commissioning our flare gas recovery project. At Triton, the focus is very much on delivering stability of operations, as already mentioned.
There is, of course, still work to do on the asset, hence the operator expects the annual maintenance period to be up to two months. 2026 is set up to be much better than recent years. We will also have a 30-day maintenance stoppage at Bruce, which will enable the commissioning of some of the project work on the platform. Our operational focus is also turning towards the organic growth opportunities across the portfolio. We are currently putting the finishing touches to our detailed subsurface evaluation of a wide range of very attractive opportunities. Bruce may well be leading the way, but there are also attractive opportunities at Glendronach in our newly acquired GLA area and Kyle in the Triton area, as well as others in the capital allocation mix.
We are planning to give a comprehensive update to the market on our organic growth opportunities in the spring, when we will be able to give more detail also on some of the new opportunities, such as Glendronach, which won't officially be a Serica asset until the TotalEnergies deal completes towards the end of Q1. As I have said before, I consider it a good position to be in to have a real battle for capital allocation between growth opportunities and also to have the capital with which to invest. On that note, I'll hand over to Martin.
Thanks, Chris. It's good to be able to speak to you all ahead of what we're confident will be an exciting year for Serica Energy and for our shareholders. First, turning to the headlines of our 2025 performance. As this slide illustrates, inevitably the production issues in 2025, especially at Triton, impacted our financial performance. We estimate that we were down around 4.5 million barrels of oil equivalent in 2025, which at prevailing oil prices is equivalent to around $300 million of lost revenue. As our OpEx is roughly 90% fixed in nature, this impact flowed through to the bottom line of cash generation. It is, though, worth noting that in reality, this production, and hence revenue, is not actually lost, but rather deferred. As Chris has indicated, we are confident of materially better performance in 2026.
Although the lost revenues were painful, this pain was somewhat offset on an after-tax basis. Cash tax paid in 2025 was $9 million, down from $153 million in 2024 and $348 million in 2023. We benefited again from group relief effects in 2025, which also resulted in the $71 million tax refund being received in June 2025 in respect of the same effect applied to tax owing later to 2024. Continued portfolio investment, in particular from the culmination of our Triton well program, meant that our CapEx spend totaled $250 million in line with guidance. The production boost as a result of this spend is very much expected to be seen in the improved performance from Triton in 2026 and beyond.
From a balance sheet perspective, we ended the year with net debt of $200 million, which will be less than 1x estimated 2025 EBITDAX in a year where EBITDAX will also be impacted by the same lost revenues from lower production previously mentioned. It's also worth noting that we had underlift at the year-end of just over $27 million due to lifting timings on Triton and Lancaster, which has turned into cash early in the new year. Our liquidity at year-end remained healthy at $290 million and factoring in the considerable cash flow expected in 2026, this gives us confidence to continue delivering on our strategy of direct returns and judicious investment in the portfolio through which to create shareholder value.
That is what we plan to do in 2026, invest in our portfolio and deliver for our shareholders. Our OpEx in absolute terms will increase to $380 million-$400 million, up from $365 million in 2025 as we add assets and scale up the company. Although there is also an additional amount of around $65 million, which is spend expected on the Lancaster field for the period to the expected cessation of production in Q2 2026. This is essentially the Aoka Mizu leased FPSO costs, and hence is not really a comparable OpEx number. As in common with other leased FPSOs, it embeds a component of capital cost recovery and is therefore not the same as our other operating costs.
Our CapEx for 2026 is focused on ensuring our assets are positioned to deliver more in the years to come, increasing asset uptime and extending the life of assets, while also improving emissions profiles in line with the North Sea Transition Deal to set us up to deliver the subsurface production potential of our portfolio. Our base CapEx is estimated at $125 million-$145 million, focused on the activities that Chris outlined on our Bruce hub and Triton. On Bruce, in particular, this is very tax efficient investment since the retention of investment allowances means that 84.25% of the spend can be recouped in tax relief, a rate higher than the 78% marginal tax rate.
This is in fact even higher for the flare gas recovery project on Bruce, which benefits from the additional decarbonization allowance and hence tax relief of 109% on the spend. We are of course also conscious of the need to protect our balance sheet and our ability to deliver on our strategy from the impact of lower commodity prices. We saw lower average oil prices in 2025 of $67, down from 75 in 2024, and gas prices marginally higher on average at 84 pence a therm as compared to 76 pence a therm. We are conscious that as we enter 2026, we are doing so against a backdrop of fundamentals that could lead to a period of lower oil and gas prices, albeit with continued potential, especially in the age of Trump, for event-driven upside.
We continue to manage our hedge book actively in line, and in line with our RBL requirements. For calendar years 2026 and 2027, the company has hedged approximately 12,300 barrels of oil equivalent per day and 5,500 barrels of oil equivalent per day of production, respectively. We have focused these hedges on collars, and hence these provide downside protection at effective floors of $60 a barrel for Brent oil and GBP 0.67 per barrel for gas, while retaining exposure to the upside up to the ceilings set out in this table. As of the latest mark-to-market valuation, the hedge portfolio has a value of $30 million today. We will continue to manage this portfolio proactively, as well as to build in protection in respect of the acquisition portfolio once those deals complete.
With that, I'll hand back to Chris to conclude.
Thanks, Martin, and hopefully that gives you a good idea of where our focus areas are heading into 2026. Safety is, of course, our number one priority, and delivering reliable production this year that will generate material free cash flow. We are integrating acquisitions, progressing organic growth projects, and still looking in the market to continue to prudently add to the portfolio to deliver for our shareholders. With that, I'll hand over to Andrew to run the Q&A.
Thank you very much, guys. As always, please keep questions coming if you want to be answered today. If we don't answer your question specifically, then do feel free to drop me a line. First question is about compressors at Triton. First one being why is there so much uncertainty as to when the second compressor can be used? Do you need to run with two compressors at Triton to make your production guidance?
Thanks. First of all, the second compressor has been rebuilt and has run and was running through part of December and part of January. We now flip back to the A compressor most recently. As I mentioned in the presentation, the focus right now for Dana is to stabilize production with the new wells online. We actually need two power gen trains in order to start up two compressors at the same time, and that should happen sometime in the next couple of weeks. Up till now, we've been restricted to a single compressor, and it means that we haven't been able to produce all the wells at the same time.
As I said in the presentation, we've made some fairly conservative assumptions in saying we'll be significantly over 40,000 barrels a day for the year. One of those assumptions is we can deliver that with a single compressor. I think the truth is if we can run through a large portion of this year with two compressors and all wells online, it gives us the opportunity to add to the production that we've already spoken about. It's upside, essentially.
An immediate follow-on question to that. Does that mean Belinda and Evelyn haven't flowed yet, or are they flowing?
That's a great question. Evelyn's potential production is really encouraging. So far, we've had to choke the well back because it produces quite a lot of gas, and we expected this. Just to give a little bit of detail, the Evelyn well was drilled quite close to the gas oil contact deliberately, and we expect to produce a lot of gas from it in the first year or so. That means that we bump up against the limit for gas compression for export, and we can't produce the well flat out at the moment. The maximum that Evelyn has done is just over 5,000 barrels a day so far. That's choked back significantly. It can do quite a bit more than that.
Belinda bizarrely is supposed to come online today. We haven't flowed it while we've had Evelyn on and testing that for a while. We're now gonna try Belinda actually later today. Hopefully we can update you a bit more on the actual potential of those two wells next time we speak.
Speaking of potential and given the number of new growth opportunities, how do you go about prioritizing them? Particularly someone has asked about how do the Kyle redevelopment and the Bruce infill program rank, but I think what would be useful at this stage is a general view of how we look at things going forward.
Well, when we're evaluating which things to invest in, we look at a basket of different metrics. Obviously rate of return and the NPV that they deliver are the kind of things we look at. Importantly, capital efficiency is one of the big drivers for us. Bang for the buck which opportunities produce the quickest payback and produce the highest return on the investment are the ones that are likely to get delivered, and obviously the ones that have the least amount of uncertainty in them. The ones where we can be most confident of delivering.
We have a basket of about 10 different metrics that we look at when we discuss these with our board, and it's not one single thing that we're looking at. It's kind of which ones look the best when we combine all of those different metrics.
It may be worth adding, Chris, that when we think about return on investment, we also think about it in the context of tax, right? Some of the investments that we can make are more tax efficient than others, and particularly actually in and around Bruce because that's where we're a full taxpayer. The post-tax return on investment can look more attractive where that's the case. We're gonna factor all of that into how we make decisions. It's basically essentially we're prioritizing on where's the best economic return, taking into account all the factors.
Martin, while you've got the floor and mentioned the word return, we've had a couple of questions about the dividend as well. You previously stated that GBP 0.60 for an interim dividend was described as sustainable in the medium term. How is the dividend looking now?
Yeah, look, I hope we delivered the message today that says what we plan on the focus on combining investment in the portfolio with shareholder returns. W hat we've said in the past sort of remains the case. Obviously we expect this year to be a good strong year. That said, it's only the January 21st, and we're not in a position to declare a dividend for the year, and we will do that in the ordinary course as we announce our results post audit of the 2025 performance. We'll obviously give more details on that in March when we do that.
I think a similar and related note in a way is what's your 2026 break-even oil and gas price?
Yeah, obviously break-even is an interesting question because it does depend a bit on terms of through what cost lines, et cetera, are you talking about a break-even. Just to give people a rough feel on an operating cost basis, it's around $30 a barrel Brent equivalent, a nd if you include the CapEx as well, it's probably more like $45 a barrel. W e also operate a very large part of our portfolio, so we've got the levers of, so we can actually make adjustments to that. Clearly we're we gave information today on where our hedging is. We'll always look at that and see whether it makes sense to pick moments to build in more hedge protection.
We're obviously very actively managing to get that into the strongest possible position.
W hile we're on oil price, a question's just come in asking if there's a realistic chance that the oil and gas prices will reduce to a point where the EPL is dropped.
That's a really good question. W ell, obviously, just not getting too political, but the government in the budget kind of effectively told us where they thought windfall prices were, which was 90 pence a therm and $90 a barrel. But notwithstanding that, they didn't remove the EPL. Where the windfall price gets dropped is actually, I'm gonna get these numbers slightly wrong, but I think it's $76 a barrel and 59 pence a therm today. Those will go up in April. I think they will go up with the today announced 2025 inflation rate of 3.4%. Those numbers will keep creeping up.
The problem is that, just to remind people, in order under the current legislation, in order for the windfall tax to go, both of those need to be below that threshold, and it needs to be for six months. Whilst oil is frankly comfortably below that and has been for some time, the gas price is not. Which obviously is, we're not unhappy about in principle. Look, I can't say. I f you look at the forward curve, it would say that that is gonna happen in the next couple of years. Indeed, that's where the government thinks it's likely, b ut I can't say how likely that is to happen in the near term, unfortunately.
Before we move back to Chris, Martin, asking you one of our Main Market listing, any update on the timeline?
Absolutely. W e put in our RNS that we remain committed to the move to the main market, and we'll do that as soon as it's viable. There are a bunch of sort of procedures and processes, which means that it can't be until after our results. We will obviously update again on the timing of that, but we remain very committed to doing that as soon as we can.
Great. Moving back to Chris now as we focus again on operations. How old is the infrastructure at Bruce, and how would you compare the risks of production disruption there compared to, for example, Triton?
God, I can't give you an actual date of when Bruce came online. I think it was in the 1990s. It's actually similar vintage to Triton. These things always produce for longer than their design life, and we've seen that with fields like Ninian and Brent and Forties all went on for actually decades beyond their original design life. The thing that really matters is not when did they come online, but how well are they looked after. I'd like to think that we've done a pretty good job of maintaining Bruce. We still have more work to do, but it's in reasonable shape for a facility of its age.
S ome of the problems we've had at Triton over the last 18 months or so are related to the fact that they weren't maintained as well as they could have been. W hat's been happening in 2025 is catching up on some of that work that maybe should have been done earlier. Although the performance, the production performance during the year wasn't great, I've got to say, I think Dana's response to the problems they've had has been spot on, and they're catching up on the maintenance, and they're replacing bits of kit that beyond their design life and likely to fail. They've done a lot of work over the last 12 months to improve the resilience of the facility.
What they're doing at the moment is trying to get stable production, as I said, with a single compressor right now before they move up to the next step, which is hopefully boost us to 30,000 barrels a day net. I think they're doing all the right things, frankly, despite a disappointing year last year. Back to Bruce. YT he issue with Bruce has been that we haven't been able to produce the maximum on any given day that the wells are capable of doing. The Bruce facility itself runs quite reliably. Most days of the year, we've got production from Bruce. It's just not as high as we would like.
That requires some additional work in terms of reconfiguring compressors, maybe some additional pipe work, reconfiguring where the different wells come in order to fix that problem. In terms of overall reliability, it's been pretty good.
Sticking with Bruce, so`meone's got a bit more specific. Can you provide more color on what bullheading actually entails? They speculate that by some people, they consider it quite a high-risk operation.
Well, first of all, it's not a risky operation. Obviously, if it was risky, we wouldn't be doing it. It does involve some of the wells. Particularly the subsea wells on Bruce are quite low pressure. If we just open the valve and expect them to flow up onto the platform, some of them just don't start under their own pressure. Because what you've got is a flow line on the seabed and then a wellbore, and then they've got to get up to the platform, and that's all full of liquid. In order to kick the wells off and get them started, what we do is we inject high pressure gas through those flow lines all the way down into the wellbore.
That lightens the load on the well, and it means it can start producing. Generally, once they start, they carry on producing. I'm hesitant to say this because it might give people an idea about my misspent youth, but it's a bit like siphoning petrol out of a car. Once you've sucked on the thing and it starts flowing, it keeps going. Bullheading's a little bit like that, but less illegal.
Misspent youth from previous eras there, I think. Talking about debt now, someone is saying, given the timing of cash outflows, completion date of M&A, should we expect net debt to stay flat, or in what direction can we expect it to go?
Yeah, let me answer that. No, it should definitely not stay flat. I mean, we think that the year-end number was probably effectively at a high point. I mentioned maybe in my comments that we actually had underlift at the year-end, which basically to translate means that we had cash owed to us. It actually would have been less than that had that lifting happened just before the year-end. That's a sort of minor issue. Overall, the cash generation, even at prevailing oil prices, means that we'd expect net debt to come down.
As I also mentioned, when we look at the completion payments on the M&A actually, when we complete the first one, it will be a receipt of cash by us, a fairly significant amount rather than the payment out. The others will be relatively modest amounts. A ssuming we deliver on what we've just said, you would certainly expect to see all else being equal net debt to come down quite markedly.
Very clear. Question about tax losses. What effective tax rate should we model going forward broadly? Also, how quickly do you expect to utilize the losses?
Look, it's a really good question, and we'll obviously say more about actual loss balances, et cetera, with our results. We typically would do that at that point, because this is a trading statement, just a spot update on what happened last year, and obviously we haven't had our results audited yet. We'll give a lot more detail on all of that in March. That's not to try and, you know, duck the question. I think the point here is that we last year and the year before, actually, we benefited from group relief, which has meant that we actually had a significant tax payable in relation to our effectively our gas business, BKR.
Because of the impact on Triton, and this is a silver lining in a sense to some of the issues, we were able to use in-year losses made at the entities that hold the Triton asset to shelter the tax payment due on the BKR side of the business. This year, we don't expect that to be the case. We're also investing a little bit less. Investment at Triton also was very helpful last year in that it sheltered EPL payments, which themselves can't be sheltered by the loss balances. On balance, you'd expect to see our effective tax rate go up this year. We've got investment program at Bruce, which will shelter some of the tax.
We've obviously got the loss balances, which have, which probably have ended up net about the same as they were before, although we'll give the exact balances, come the results. W e'll continue to benefit from shelter of tax losses at the Triton asset. We've got some CapEx at Bruce, so look, I'm not going to give a hard number, but it's going to be up on where it was in the last year. Clearly last year was a very, very low point in terms of our actual effective tax rate.
It looks like we're moving towards the end of the Q&A at the moment, so please do submit any more questions if you have them. One question or a couple of questions actually are coming in relating to the Greater Buchan area. What is the current thinking about that project and what activity is expected this year?
Well, Buchan has to fit into the list of organic opportunities we have, which we discussed earlier around how we look at these things. We will share more in March on, you know, which opportunities we're looking to fund in the short term. I'm not going to commit at this stage until we've been through all of that work. W e continue to look at development options and screen different scenarios for Bruce for Buchan at the moment. I can't tell you where that's gonna sit in our list of high-graded opportunities at this stage.
Yeah, I think in response to another question that's come in, have you set a date for the Capital Markets Day? I think we're sort of aiming towards May at the moment for that, when we'll be able to give a bit more color across the portfolio on the organic growth opportunities. One other question is, can you give some color on the timing of the downtime of the assets? I'll take that. That'll be Q3 this year as per standard practice. I think that actually completes the Q&A that we've had come in today. With that, I'll pass over to Chris.
Okay. Thanks, Andrew. Look, we can't get away from the fact that 2025 was disappointing in terms of operational performance, but I think we set ourselves up for success during the year. We were building resilience, which hopefully we take advantage of in 2026. Of course, we had a lot of success around M&A and growing the portfolio and maturing our organic opportunities during the course of 2025. Our focus for 2026 is stable operations across the portfolio and growing production, delivery of the potential of our new wells, particularly the five new wells around Triton, where we haven't managed to see the full potential of those wells yet, and integration of the new assets which we've announced through the M&A deals.
M ore focus on delivery for this year. Of course, we continue to look at inorganic growth opportunities and further organic opportunities. As Andrew has just said, we'll tell you more about which of those organic opportunities we plan to fund and when as we go through this year. With that, I think we're done.
Chris, Martin, thank you for updating investors today. Can I please ask investors not to close this session, and you should now be automatically redirected 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 and I'm sure it will 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, and good morning.