Serica Energy PLC Announces 2006 Full Year Results



    TORONTO, March 29 /CNW/ - Serica (AIM and TSX Venture: SQZ) today
announces its 2006 full year results. A summary of these results is included
below, and the full 2006 results and management summary are available at
www.serica-energy.com and www.sedar.com.

    
    2006 Operating Highlights

    During 2006, Serica:

    -   Drilled two North Sea exploration wells, both discovering natural
        gas.

    -   Added 8.4 million barrels of oil equivalent ("boe"), on a most likely
        basis, to its contingent hydrocarbon resources as a result of the
        Serica operated North Sea Columbus discovery, a new potentially
        commercial gas-condensate field.

    -   Booked probable reserves of 12.6 million boe in respect of its
        Kambuna gas-condensate field development in Indonesia.

    -   Increased its acreage portfolio significantly with the award of
        prospective new licence blocks in the UK, Norway, Indonesia, Ireland
        and Vietnam.


    2006 Financial Highlights

    Following the 2006 sale of its interest in the Lematang Block, Serica
currently has no income from producing operations. During the year, the
Company:

    -   Spent a net US$25.9 million on exploration activities, including
        pre-application costs and overhead, resulting in the addition of new
        hydrocarbon resources at a cost of US$3.08 per boe.

    -   Acquired an additional 10% interest in the Glagah-Kambuna Block in
        Indonesia for US$4.5 million.

    -   Disposed of its 10% interest in the producing Lematang Block in
        Indonesia for US$5 million, booking a profit of US$2.3 million.

    -   Generated a loss of US$14.4 million as the result of write-downs of
        exploration costs (a loss of US$0.10 per share against a prior year
        restated loss of US$0.13 per share).

    -   Net current assets of US$84.4 million at 31 December 2006.


    2007 Forward Programme

    Serica has a significant forward investment programme. In 2007, Serica's
plans include:

    -   Drilling one vertical well and one horizontal well to appraise its
        North Sea Columbus gas-condensate discovery with the possibility of
        production in 2009.

    -   Drilling a development well in its Kambuna gas-condensate field in
        Indonesia and pressing forward with Phase I of the field development,
        targeting production start-up for 2008.

    -   Drilling an appraisal well to test a possible north-west extension to
        the Kambuna field.

    -   Drilling two exploration wells in its Biliton Block in Indonesia, the
        costs of which are largely carried by a farminee.

    -   Drilling two exploration/appraisal wells in the Asahan PSC in
        Indonesia to identify further gas resources if Indonesian government
        approval is forthcoming.

    -   Commencing exploration work on licence blocks adjacent to the
        Columbus discovery to appraise its upside potential.

    -   Commencing exploration work on licence blocks awarded in Ireland and
        Norway, including preparations for a 2008 appraisal well to evaluate
        the Bream discovery in Norway.

    -   Commencing work on new production sharing contracts awarded in
        Indonesia and Vietnam.


    Serica has contracted the SEDCO 704 drilling rig in the North Sea and the
Seadrill 5 drilling rig in Indonesia to achieve this programme.

    Tony Craven Walker, Non-Executive Chairman, commented:
    "In 2006, with the Columbus Field discovery, Serica has established its
ability both to add shareholder value through the drill-bit and to manage
operational and financial risk through farm-outs and asset swaps. The
management's strong operational expertise is also fully demonstrated by the
quality of the licence awards achieved by Serica.

    2007 will see extensive exploration, appraisal and development programmes
across the Company's diversified portfolio, as we move towards our objective
of achieving first production in 2008."

                                                               29 March 2007
    


    Background Notes

    Serica Energy plc is an international oil and gas exploration company
with operations in the UK, Norway, Spain, Ireland, Indonesia and Vietnam.
    The Company's ordinary shares are listed in London on AIM and on the
Canadian TSX Venture Exchange under the symbol "SQZ". The 2006 Annual Report
and Accounts can be obtained from the Company's web-site www.serica-energy.com
and at www.sedar.com.


    Forward Looking Statements

    This disclosure contains certain forward looking statements that involve
substantial known and unknown risks and uncertainties, some of which are
beyond Serica Energy plc's control, including: the impact of general economic
conditions where Serica Energy plc operates, industry conditions, changes in
laws and regulations including the adoption of new environmental laws and
regulations and changes in how they are interpreted and enforced, increased
competition, the lack of availability of qualified personnel or management,
fluctuations in foreign exchange or interest rates, stock market volatility
and market valuations of companies with respect to announced transactions and
the final valuations thereof, and obtaining required approvals of regulatory
authorities. Serica Energy plc's actual results, performance or achievement
could differ materially from those expressed in, or implied by, these forward
looking statements and, accordingly, no assurances can be given that any of
the events anticipated by the forward looking statements will transpire or
occur, or if any of them do so, what benefits, including the amount of
proceeds, that Serica Energy plc will derive there from.

    The TSX Venture Exchange has not reviewed and does not accept
    responsibility for the adequacy or accuracy of this release.

    To receive Company news releases via email, please contact
heather@chfir.com and specify "Serica press releases" in the subject line.


    CHAIRMAN'S STATEMENT

    Dear Shareholder

    Serica started 2006 with a clear forward programme. Our objectives were
to demonstrate early drilling success on existing prospects and to increase
our opportunities in both the North Sea and South East Asia with the addition
of new prospective acreage.
    I am delighted to report that success was achieved on both fronts. In the
North Sea, the positive outcome of the Columbus well has more than confirmed
the value and potential of our blocks and has resulted in the discovery of a
significant new gas-condensate field at a time when UK gas production is
declining.
    We were also rewarded in our applications for new acreage. Our portfolio
increased considerably over the year with the addition of new blocks in
Ireland, Norway, the UK, Vietnam and Indonesia. The Norwegian award is
particularly encouraging since, in addition to being highly prospective, it
includes a 20% interest in the undeveloped Bream oil discovery which we
believe is already sufficiently well defined to warrant early appraisal and
possible development.
    At Serica, we are very conscious of the need to manage risk and maintain
a balance in our portfolio, not only to take account of the large geological
and technical risks inherent in our business, but also to be aware of our
exposure to different operating regimes and how this might change as our
business develops. Serica has a significant business in South East Asia but
our drilling success in the North Sea and the addition to our portfolio of new
offshore blocks in the UK and Norway over the course of the past year have
materially increased the value and importance of the North Sea to the Company.
We now have a very attractive position, with fields under appraisal or
development in each of our two core areas, and a highly prospective acreage
portfolio.
    In parallel with our exploration programme we aim to build up our
production base. As discussed in the Chief Executive Officer's Report the
development of the Kambuna field in Indonesia has encountered some delay but
we still expect production to commence in 2008. In the North Sea we are now
hopeful that successful appraisal of Columbus this year will enable us to
bring forward an early North Sea development to add to our forward production
profile.
    Serica's progress in 2006 has been largely due to the skill and
commitment of the Serica team and illustrates the considerable experience and
expertise which we now have in the Company. I and my co-directors are
appreciative of the efforts that they have made. At director level, Chris
Atkinson stood down at the end of the year in order to be able to spend more
time on exploration and is now acting as Exploration Advisor to the Board. The
Company's exploration achievements, particularly in South East Asia, owe much
to Chris's expertise and his contribution in bringing the Company to this
point has been immeasurable.
    In addition, Jim Steel, having helped the Company considerably during its
early start-up years has also decided to retire as a non-executive director
during the course of this year and it is our intention to add two new non-
executives to the Board to assist the Company through the next stage of its
development. We are extremely grateful and appreciative to Jim for the
contribution that he has made to the Company.
    In summary, 2006 was a year in which Serica has been able to demonstrate
its ability to add shareholder value. We are now the operator of a field in
the North Sea, Columbus, as well as the Kambuna field in Indonesia and have a
highly prospective acreage bank to explore. Our success in the North Sea makes
us very much a leading North Sea player amongst the junior companies and
complements our growing South East Asia business. 2007 will bring its
challenges but I believe that Serica is in a strong position to build on the
foundations we have laid in 2006. With drilling and development planned for
both the UK and Indonesia we have an active and exciting year ahead of us.

    Tony Craven Walker
    Chairman


    CHIEF EXECUTIVE OFFICER'S REPORT

    I am pleased to report that much progress has been made in 2006 towards
establishing Serica as a leading independent oil and gas exploration company.
During the course of the year the Company considerably expanded its acreage
portfolio, resulting in a substantial improvement in the balance of our
holdings and diversification into new but geographically and technically
related areas. We have built a technical team that has demonstrated, through
the successful outcome to our UK drilling programme and the award of several
attractive new licence blocks, real ability and expertise. This has all been
achieved against the background of a very competitive market for staff,
drilling rigs and offshore services.
    The major highlight for the year was the Columbus discovery in North Sea
Block 23/16f which tested gas at a rate of 17.5 million scfd plus 1,000 bopd
of condensate. This is a significant discovery and is likely to bring
considerable value to the Company. The field appears to extend into Block
23/21 to the south, operated by BG International Limited ("BG"), and a farm-
out and acreage exchange with BG has enabled Serica both to reduce its well
costs and to have a 25% interest in both the northern and southern parts of
the field. Serica is the operator of Block 23/16f and is in discussions with
partners on the most appropriate appraisal programme, planned to commence this
summer, for which Serica has secured the SEDCO 704 drilling rig. The field
lies close to existing infrastructure and is likely to be developed by subsea
tie-back, without the need for a supporting offshore platform.
    In addition to Columbus, the Oak well drilled by Serica in North Sea
Block 54/1b also flowed hydrocarbon gas on test. During the test, the well
flared at a rate of 10 million scfd. However, later analysis indicates that
the gas contains a material proportion of inert components and, as a result,
the discovery is unlikely to be commercial. These were Serica's first wells in
the North Sea and the fact that they were drilled and tested efficiently in
severe winter weather conditions speaks volumes for the ability of Serica's
operations team.
    During the year our applications for new licences were extremely
successful. We were awarded interests in three new offshore licences in the
UK, two licences offshore Norway, one offshore Ireland, a PSC offshore Vietnam
and a PSC in the prolific Kutai Basin of East Kalimantan, Indonesia,
straddling offshore and onshore acreage. All of this new acreage lies close
to, or contains, existing discoveries. In Norway the Company was subject to an
extensive qualification process with the Norwegian authorities to demonstrate
technical and financial ability. The result was the award of two highly
contested blocks, one of which contains the undeveloped Bream oil discovery.
    Our bidding strategy in each case has been very focussed, with
applications only being made for a very limited number of targeted blocks. It
is extremely gratifying that we were awarded such a high percentage of the
blocks for which we submitted applications during the year. With the exception
of the awards in Norway and Vietnam, Serica is the operator of each of the
blocks awarded, enabling us to continue to manage the exploration phase of our
licences.
    In Indonesia, severe rig shortages, coupled with delays in the approval
of our Plan of Development, meant that we were not able to commence drilling
operations to test the small Tanjung Perling gas field, slated for possible
development in the Asahan Offshore PSC, or to drill additional prospects in
the block, prior to the end of the Exploration Period of the PSC in December
2006. As a result we are now in discussions with the Indonesian authorities to
agree an appropriate way forward to enable operations to continue into the
second phase of the Asahan Offshore PSC. In view of the uncertainty of the
outcome of these discussions we are expensing the costs which are associated
with the PSC in this year's financial statements. These largely relate to the
Togar 1A well drilled in 2005 which we announced at the time as a non-
commercial gas discovery and which we are therefore unlikely to wish to retain
in any forward programme.
    On the Kambuna gas-condensate field in the neighbouring Glagah Kambuna
TAC, a delay in the arrival of the vessel to acquire the 3D seismic survey,
necessary for full delineation of the field, contributed to slippage in the
field development programme. Preliminary interpretation of the 3D survey has
indicated that the field consists of two separate accumulations, the second of
which still requires appraisal before reserves can be included. This has
necessitated a revision to the Kambuna development plan to accommodate full
appraisal of the north-western extension. We now plan to develop the field in
two phases with production from the field scheduled to commence in the second
half of 2008.
    At the turn of the year, RPS Energy plc ("RPS") was commissioned by the
Company to review Serica's hydrocarbon resources following the drilling of the
Columbus well. It is our policy not to book hydrocarbon resources as proven
reserves until we have sanctioned a development plan and, in cases where there
is not an existing defined gas market, until we have signed a Heads of
Agreement for gas sales with a purchaser. The RPS report has classified the
Kambuna field as probable reserves and estimates that the gross probable
reserves of the field are 25.7 million boe, of which the Company's net
entitlement is 12.6 million boe. This excludes any additional resources that
could result from a successful test of the north-west extension.
    RPS has also estimated that, on a most likely basis, the Columbus
discovery has added 8.4 million boe to Serica's contingent hydrocarbon
resources, based on Serica's 25% interests in Block 23/16f and part of Block
23/21. Clearly this early estimate will have to be borne out by appraisal
drilling planned for this year but reserves of this size in the North Sea are
very commercial. The addition of the Bream oil discovery through our recent
Norwegian licence award also provides further opportunity for us to increase
our reserve base. With negotiations at an advanced stage for the sale of
Kambuna gas, appraisal drilling scheduled for Columbus, work expected to start
on Bream and consideration being given to drilling a second well on Chablis,
we have a high expectation of being able to move more contingent resources
into the category of proven and probable hydrocarbon reserves this year.
    2006 was a rewarding year for Serica; one in which we saw the Company add
real value and achieve many of the targets that we set at the beginning of the
year. It is our objective this year to demonstrate the potential of the
Columbus area, including the evaluation of options for early production, as
well as completing the appraisal of the Kambuna field and moving the Kambuna
development forward. Our exploration efforts will be focused on the potential
of the new blocks that we have been awarded and of the surrounding areas.
    We are mindful of the fact that, although we are adding value through
drilling success, we have no immediate income from which to fund our future
growth. We are therefore very conscious of the need to conserve our cash
resources and will continue to seek partners for those projects where we
consider that the financial exposure is too great for Serica notwithstanding
the upside potential of the project. We are fortunate to have high percentage
interests in, and to be the operator of, most of our licences, which gives us
a considerable advantage in attracting partners whilst still retaining a level
of participation that would have a material impact on Serica in the case of
success.
    This was demonstrated in 2006 with the financial contributions received
through farm-out of both the Oak and Columbus prospects. More recently, we
have announced the successful farm-out of our interest in the Biliton block in
Indonesia, thereby reducing the risk of drilling in this frontier area whilst
still retaining a high exposure to a successful outcome. We aim to continue
this strategy in 2007 but will also be keeping a watching brief on other
opportunities to improve the potential for shareholder return which we expect
to arise during the year.

    Paul Ellis
    Chief Executive Officer


    REVIEW OF OPERATIONS - OVERVIEW

    Serica holds exploration, appraisal and development interests in some of
the major oil and gas provinces of Western Europe and South East Asia. In
Europe, the Company has licences in the UK North Sea, the East Irish Sea,
Norway, Ireland and Spain. In South East Asia, Serica has production sharing
contracts in Indonesia and Vietnam.
    In 2006 Serica continued its run of drilling success with two discovery
wells in the UK North Sea on blocks operated by the Company. One of these
wells was the Columbus gas-condensate discovery, drilled in December in a
block that Serica operates and that had been awarded only twelve months
earlier. An independent assessment has estimated that the Columbus field has
most likely contingent hydrocarbon resources of 33.5 million boe. Serica
intends to commence Columbus appraisal drilling in the summer of 2007.
    As a result of applications made during 2006, the Company was awarded
offshore exploration licences in the UK, Ireland, Norway, Indonesia and
Vietnam. Serica's entry into Norway resulted in the award of a 20% interest in
two highly sought after blocks, one of which contains an undeveloped oil
discovery, Bream, with gross oil in place estimated by the Company to be in
the range of 250 to 400 million barrels, of which 40 to 100 million barrels
may be recoverable.
    Shortages of equipment, particularly seismic acquisition boats and
drilling rigs, continue to affect the Company's ability to carry out its work
programmes. Despite these issues, Serica carried out a 3D seismic survey in
Indonesia and drilled two wells in the UK North Sea during the year and has
contracted drilling rigs to meet its drilling programme for 2007.


    REVIEW OF OPERATIONS - WESTERN EUROPE

    United Kingdom

    In Western Europe Serica holds offshore licence interests in the UK North
Sea and East Irish Sea, in Ireland and Norway and has onshore licence
interests in Spain.
    The following table summarises the Company's interests in Western Europe.

    
    Block(s)        Description          Role        %    Location

    UK
    --
    14/15a          Exploration          Operator   50%   Central North Sea
    23/16e          Exploration          Operator   50%   Central North Sea
    23/16f(*)       Columbus appraisal   Operator   25%   Central North Sea
    23/16g          Exploration          Operator   50%   Central North Sea
    23/21 (part)(*) Columbus appraisal   Partner    25%   Central North Sea
    23/17b          Exploration          Operator   50%   Central North Sea
    48/16b          Chablis appraisal    Operator  100%   Southern Gas basin
    48/17d          Chablis appraisal    Operator  100%   Southern Gas basin
    54/1b           Oak discovery        Operator   50%   Southern Gas basin
    113/26b         Exploration          Operator  100%   East Irish Sea
    113/27b (part)  Exploration          Operator  100%   East Irish Sea

    Ireland
    -------
    27/4            Exploration          Operator  100%   Slyne Basin
    27/5 (part)     Exploration          Operator  100%   Slyne Basin
    27/9            Exploration          Operator  100%   Slyne Basin

    Norway
    ------
    407             Bream appraisal      Partner    20%   Egersund Basin
    406             Exploration          Partner    20%   Egersund Basin

    Spain
    -----
    Abiego          Exploration          Operator  100%   Pyrenees/Ebro Basin
    Barbastro       Exploration          Operator  100%   Pyrenees/Ebro Basin
    Binéfar         Exploration          Operator  100%   Pyrenees/Ebro Basin
    Peraltilla      Exploration          Operator  100%   Pyrenees/Ebro Basin
    -------------------------------------------------------------------------
    (*) Percentage interests are subject to completion of the transaction
        with BG under which Serica will reduce its 50% interest in
        Block 23/16f to 25% in exchange for a 25% interest in part
        Block 23/21.
    


    Block 14/15a
    ------------

    This block covers an area of approximately 108 square kilometres in the
Central North Sea. Serica is the block operator and has a 50% interest.
Several leads have been identified at Upper Jurassic, Lower Cretaceous and
Paleocene levels within this prospective part of the Outer Moray Firth Basin.
The work programme in 2007 includes the reprocessing of available 3D seismic
data with the objective of confirming the identified leads and defining
prospects that are ready for drilling.

    Columbus Discovery Area - Blocks 23/16e, 23/16f, 23/16g, 23/17b and
    -------------------------------------------------------------------
    23/21(part)
    -----------

    These blocks cover an area of approximately 214 square kilometres in the
Central North Sea. Serica holds interests of 25% or 50% in each of these
blocks and is the operator of each block except for Block 23/21. Block 23/16g
was recently awarded to Serica in the UK 24th Offshore Licensing Round.
    The blocks are contiguous and form part of Serica's strategy to exploit
its detailed knowledge of modern 3D seismic processing techniques,
particularly in the Tertiary reservoirs of the Central North Sea, with the aim
of increasing the chances of exploration success.
    In furtherance of this strategy, in October 2006 a well was drilled to
test the Columbus prospect in Block 23/16f. Well 23/16f-11 reached a final
depth of 10,116 feet subsea and encountered a gross gas column of 125 feet in
the Paleocene Forties sands. A total of 85 feet of the reservoir was tested
and the stabilised average production rates on a 56/64 inch choke during a
five hour flow period were 17.5 million scfd and 1,060 bopd of 47.5 degrees
API condensate. The wellhead flowing pressure was 1,200 pounds per square inch
and the inert gas content was less than 2%.
    Prior to drilling Columbus, Serica established that the prospect extended
into the adjacent Block 23/21 in which, at that time, Serica held no interest.
Consequently, Serica invited the operator of Block 23/21, BG International
Limited ("BG"), to enter into a farm-in and cross-assignment under which
Serica exchanged a 25% interest in Block 23/16f for a 25% interest in part of
Block 23/21 (excluding the Lomond field) and BG contributed to the costs of
the 23/16f-11 well. This transaction will enable the field to be appraised and
developed far more expeditiously than if there had been no common interests
between the two blocks.
    On a most likely basis, an independent engineer's report on Columbus
attributes contingent hydrocarbon resources net to Serica of 8.4 million boe,
based on Serica's 25% interests in Block 23/16f and part of Block 23/21.
    Serica plans to drill a vertical well to appraise the Columbus discovery
in the summer of 2007 and expects to follow this up with a horizontal well in
order to obtain representative production rate data for development planning.
Depending upon the results achieved, the horizontal well will be completed for
use as a production well. Serica has secured the SEDCO 704 semi-submersible
drilling rig for Columbus appraisal drilling, commencing in July/August 2007.
    The Columbus field lies in close proximity to existing production
infrastructure, providing the potential to commence production as soon as
throughput agreements have been reached and the development wells can be tied-
in. Serica is currently studying development options for the Columbus field
including a possible tie-in to the producing Lomond gas-condensate field,
which lies about six kilometres from the Columbus discovery well.

    Chablis Discovery Area - Blocks 48/16b and 48/17d
    -------------------------------------------------

    These contiguous blocks cover a total area of 88 square kilometres in the
Southern North Sea. Serica is the operator and holds an interest of 100% in
both blocks. Block 48/16b contains the undeveloped Chablis discovery, drilled
in 2001 by ConocoPhillips. Block 48/17b was awarded to Serica in the UK 24th
Offshore Licensing Round and may potentially contain part of the Chablis
accumulation. During 2006 Serica relinquished Blocks 47/20b and 48/16a as no
prospects of material size had been identified in these blocks.
    There are several environmental and technical issues surrounding the
appraisal and potential development of the Chablis field that need to be
addressed prior to drilling and a comprehensive feasibility report has
therefore been commissioned that is due to be completed early in 2007.

    Oak Discovery - Block 54/1b
    ---------------------------

    Block 54/1b covers an area of 106 square kilometres in the Southern Gas
Basin. Serica is operator of the block and holds a 50% interest.
    Prior to drilling the 54/1b-6 exploration well to test the Oak prospect,
Serica farmed out half of its original 100% interest to Centrica Resources
Limited ('Centrica') in order to reduce Serica's cost and risk. Under the
terms of the farm-out agreement, Serica's dry-hole risk relating to the well
was largely borne by Centrica.
    Serica commenced drilling well 54/1b-6 in October 2006 and the well
reached its final depth of 8,318 feet subsea in November. A gas-bearing Leman
sandstone reservoir with a gross gas column of 113 feet was encountered and a
production test was carried out on an interval of 80 feet. A stabilised gas
flow rate of approximately 10 million scfd was recorded on a 44/64 inch choke.
However, subsequent laboratory analysis of gas samples taken during the test
indicates that a significant proportion of the gas is made up of inert
components and the Company now feels that it is unlikely that the Oak
discovery can be produced commercially in the foreseeable future.

    East Irish Sea - Blocks 113/26b and 113/27b (part)
    --------------------------------------------------

    Serica was awarded these blocks in the UK 24th Offshore Licensing Round.
The blocks cover an area of 145 square kilometres and lie immediately to the
north of the Millom field and within 10 kilometres of the Morecambe field -
the UK's largest gas field. Serica has identified a number of leads on these
blocks and will be reprocessing the 3D seismic data in order to define
prospects for drilling. The prospective reservoir is the Sherwood Sandstone of
Triassic age that is also the producing reservoir in the Morecambe field.

    Ireland - Blocks 27/4, 27/5 (part) and 27/9
    -------------------------------------------

    In the 2006 Irish Offshore Licensing Round, Serica was awarded Licence
PEL 01/6 containing Blocks 27/4, 27/5 (part) and 27/9 which cover an area of
611 square kilometres in the Slyne Basin off the west coast of Ireland. Serica
is operator and holds a 100% interest in the Licence.
    The blocks are covered by existing modern 3D seismic data and Serica will
be reprocessing this data to assess the prospectivity of the blocks. Prospects
have been identified by Serica in the Triassic sands that have proven to be
gas bearing and productive in the Corrib gas field, which lies about 40
kilometres to the north and is currently under development by Shell. When
Serica's technical evaluation of the 3D seismic data is complete, a decision
to drill an exploration well will be considered.

    Norway - Licence 407 and Licence 406
    ------------------------------------

    Serica was awarded a 20% interest in both of these offshore licences in
Norway's 2006 Awards in Predefined Areas ('APA') Licence Round. The licences
are contiguous and lie in the Egersund Basin, about 120 kilometres southwest
of the port of Stavanger, Norway's fourth largest city.
    The southern licence, Licence 406, covers an area of approximately
900 square kilometres comprising parts of licence blocks 8/3, 9/1, 17/12,
18/10 and 18/11 and includes the 18/10-1 oil discovery well drilled in 1980,
which was tested at 1,800 bopd. The licence contains exploration prospects
that appear analogous to the Bream field in Licence 407.
    The northern licence, Licence 407, covers an area of approximately
725 square kilometres comprising parts of licence blocks 17/8, 17/9, 17/11,
17/12, 18/7 and 18/10. It includes the 1972 Bream oil discovery and the 1973
Brisling oil discovery, which were tested at rates up to 1,000 bopd and
2,200 bopd respectively. These discoveries remain undeveloped since they were
not considered to be commercial at the time and the area has not been open for
licensing for many years.
    Serica has carried out an analysis of recently acquired 3D seismic data
covering the Bream discovery and estimates that, using modern drilling and
completion technology, including horizontal production wells, the potentially
recoverable oil reserves of the Bream field may lie within a range of 40 to
100 million barrels, based on an oil in place estimate of 250 to 400 million
barrels.
    Serica expects a Bream appraisal well to be drilled in Licence 407 early
in 2008 with a view to submitting a development plan to the Norwegian
authorities by the end of that year.

    Spain
    -----

    The Company holds a 100% interest in the Abiego, Barbastro, Binéfar and
Peraltilla exploration Permits onshore northern Spain, approximately
40 kilometres southeast of the Serrablo gas field. The Permits cover an area
of approximately 1,100 square kilometres between the Ebro Basin and the
Pyrenees and could potentially contain significant quantities of gas, which
would find a ready market in Spain.
    An initial evaluation of the four Permits has been completed and it has
been concluded that additional 2D seismic data will need to be acquired in
order to delineate prospects for drilling. Serica intends to carry out a short
seismic acquisition test programme early in 2007 in order to determine the
acquisition parameters for a full survey. It is the Company's intention to
seek a partner to participate in the exploration of the Permits.


    REVIEW OF OPERATIONS - SOUTH EAST ASIA

    In South East Asia, Serica holds interests in Indonesia and in Vietnam.

    The following table summarises the Company's interests in South East
Asia. Percentage interests shown assume the completion of certain farm-out and
acquisition agreements which await final government approval.

    
    Block(s)         Description          Role         %    Location

    Indonesia
    ---------
    Glagah Kambuna   Kambuna development  Operator    65%   Offshore North
     TAC                                                     Sumatra
    Asahan Offshore  Tanjung Perling      Operator    55%   Offshore North
     PSC(*)           appraisal                              Sumatra
    Biliton PSC      Exploration          Operator    45%   Offshore Java Sea
    Kutai PSC        Exploration          Operator  52.5%   Kutai basin

    Vietnam
    -------
    Block 06/94      Exploration          Partner   33.3%   Nam Con Son Basin

    (*) Serica's interest in the Asahan Offshore PSC is subject to the
        successful conclusion of current negotiations with the Indonesian
        authorities regarding the commerciality of the PSC.
    


    Glagah Kambuna
    --------------

    The Glagah Kambuna Technical Assistance Contract ("TAC") covers an area
of approximately 380 square kilometres and lies offshore North Sumatra
adjacent to the Asahan Offshore PSC. Serica has a 65% working interest and
operates the TAC.
    The TAC contains the undeveloped Glagah No. 1 and Kambuna No. 1 discovery
wells and a successful appraisal well drilled by Serica in 2005, Kambuna
No. 2. Serica is progressing the development of the gas-condensate bearing
Upper Belumai Sand reservoir of the Kambuna field and a Plan of Development
was approved by the state oil and gas company Pertamina in 2006. Acquisition
of the 430 square kilometres 3D survey over the Kambuna field and parts of the
Asahan Offshore PSC was not completed until the end of the year due to the
late arrival of the seismic survey vessel. Final processing is now underway
and should be completed in the second quarter of 2007.
    Interpretation by Serica of the preliminary fast-track processing of the
3D seismic data indicates that some of the field gas and liquid contingent
resources, identified by consultants Gaffney Cline & Associates in 2005, may
lie within a Lower Belumai Sand reservoir just to the north-west of the main
area of the Kambuna field. This upside would be classified as prospective
resources since no well has yet been drilled in what may prove be a separate
accumulation. Serica's interpretation has, to a large extent, been confirmed
by an independent report on the Kambuna field commissioned from consultants
RPS Energy plc ("RPS") and has resulted in a revision to the field development
plan to enable the north-west area to be appraised and the field to be
developed in two phases, with the first phase scheduled to commence production
in late 2008.
    The RPS report estimates that the gross probable reserves of the main
area of the Kambuna field are 25.7 million boe. Serica has secured the
Seadrill 5 drilling rig to carry out appraisal and development drilling in the
third or fourth quarter of 2007 and is now progressing the final front-end
engineering design studies. Gas and liquid sales negotiations are proceeding
with several interested parties, including Pertamina, the state oil and gas
company, which operates a refinery and gas liquids plant in the area.

    Asahan Offshore
    ---------------

    The Asahan Offshore Production Sharing Contract ("PSC"), offshore North
Sumatra, lies immediately adjacent to the Glagah Kambuna TAC. Serica has a 55%
interest and is the operator of the PSC.
    In 2006, Serica submitted a Plan of Development for the Tanjung Perling
gas field, which lies in the south of the PSC. The aim was to develop the
field in conjunction with the Kambuna field and thereby achieve economies of
scale. However, the Indonesian Executive Agency for Upstream Oil and Gas
Business, BPMigas, requested additional data in support of the development
plan. That data could only be obtained by drilling a new well in the field
and, with no drilling rigs active in the area, this could not be achieved
prior to the end of the exploration period on 16th December 2006.
    Operations in the PSC have therefore been suspended while negotiations
with the Indonesian authorities continue regarding the commerciality of the
PSC and its consequent continuation into the 20 year exploitation period.
Assuming a successful outcome to these negotiations, Serica intends to carry
out a drilling programme in the second half of 2007 using the Seadrill 5 rig.

    Biliton
    -------

    The Biliton PSC covers an original area of approximately 3,940 square
kilometres in the Java Sea between the Indonesian islands of Java and
Kalimantan. Serica, which operates the PSC, is presently negotiating the area
to be relinquished under the terms of the PSC. The prospective parts of the
PSC will be retained by Serica within the retained area.
    Serica has recently entered into a farm-out agreement under the terms of
which Nations Petroleum will earn a 45% interest in the Biliton PSC by paying
a contribution to Serica's back costs and bearing the majority of the costs of
drilling two wells in the PSC in 2007. Following the completion of this
agreement, Serica will have a retained 45% interest in the PSC.
    The Biliton PSC lies in a virtually unexplored Indonesian basin with many
of the characteristics of analogous basins nearby that have to date produced
substantial volumes of oil and gas. Only one exploration well has been drilled
in the area, the Parang-G1 well drilled by Ashland Petroleum in 1974. Although
this well did not find reserves of oil or gas it did encounter oil shows. In
1990, British Petroleum carried out a seabed survey that indicated the
presence of nine oil seeps within the current block boundary. Both the shows
in the well and the seep information demonstrate that hydrocarbons have been
generated within the area.
    Serica has acquired a total of approximately 4,500 line kilometres of 2D
seismic data in the PSC and has identified several large prospects that could
be oil-bearing. Drilling locations in the Biliton PSC have been selected and
two exploration wells will be drilled in the second quarter of 2007 using the
Seadrill 5 rig.

    Kutai
    -----

    In December 2006, Serica was awarded the Kutai PSC, which covers an area
of approximately 4,700 square kilometres within the prolific Kutai Basin of
East Kalimantan. Serica is the operator and holds a 52.5% interest in the PSC.
    The PSC is divided into several blocks, the majority of which are first
phase relinquishments by the current main operators in the basin, Total,
Chevron and VICO. The PSC lies in and around several giant fields, including
Tunu (1,600 million boe) and Attaka (800 million boe), in the prolific Mahakam
River delta both onshore and offshore. The adjacent major fields on the shelf
were mainly discovered in the late 1960s and 1970s. To date the area has
produced over two billion barrels of oil and 20 trillion cubic feet of gas and
is currently providing over four bcf of gas per day to the Bontang LNG
facility.
    Serica will be acquiring new seismic data to augment the existing 2D and
3D seismic data set, in order to assess the prospectivity of the block and
determine drilling locations.

    Vietnam - Block 06/94
    ---------------------

    In July 2006, Serica was awarded Block 06/94, in the Nam Con Son Basin
offshore South Vietnam. The block covers an area of approximately 4,100 square
kilometres. Serica has a 33.33% interest in the block, which is operated by
Pearl Energy.
    The block lies approximately 350 kilometres offshore and is the part of
Block 06/1 which British Petroleum was contractually obliged to relinquish in
1994 after discovering the major Lan Tay and Lan Do gas fields. These fields
commenced production in 2002, following the construction of a new gas and
liquids pipeline to the Vietnamese mainland.
    Block 06/94 is the Company's first expansion of its interests in
Southeast Asia outside Indonesia. In December 2006, the operator of the
adjacent Block 12/E, Premier Oil, announced that its "Blackbird" discovery
well had been tested at a combined 5,900 bopd from two sands. Serica expects
to be able to identify both oil and gas prospects within Block 06/94.


    
    GLOSSARY

    bcf    billion standard cubic feet
    boe    barrels of oil equivalent (barrels of oil, condensate and LPG plus
            the heating equivalent of gas converted into barrels at a rate of
            6,000 standard cubic feet per barrel)
    bopd   barrels of oil or condensate per day
    LNG    Liquefied Natural Gas (mainly methane and ethane)
    LPG    Liquefied Petroleum Gas (mainly butane and propane)
    PSC    Production Sharing Contract
    scfd   standard cubic feet per day
    TAC    Technical Assistance Contract
    


    MANAGEMENT'S DISCUSSION AND ANALYSIS

    The following management's discussion and analysis ("MD&A") of the
financial and operational results of Serica Energy plc and its subsidiaries
(the "Group") should be read in conjunction with Serica's consolidated
financial statements for the year ended 31 December 2006.
    References to the "Company" include Serica and its subsidiaries where
relevant. All figures are reported in US dollars ("US$") unless otherwise
stated.

    Overall Performance

    Serica's activities are centred on the UK North Sea and Indonesia, with
other interests in Norway, Spain, Ireland and Vietnam. The Group has no
current oil and gas production, following the disposal of its Harimau Field
interest, with the main emphasis placed upon its future exploration drilling
programmes and near term developments. During 2006, work has continued on
managing its portfolio of interests, advancing the Indonesian development and
completing a successful drilling programme in the UK North Sea. Two operated
wells were completed in the UK North Sea and both were gas discoveries.
    Well 23/16f-11, an exploration well drilled on the Columbus prospect in
the UK Central North Sea, encountered a gross gas column of at least 125 feet
in the Paleocene Forties sands. Testing of the Columbus well confirmed the
presence of a potentially commercial gas and condensate reservoir. A total of
85 feet of the reservoir was tested and the stabilised average production
rates on a 56/64 inch choke during a five hour flow period were 17.5 million
cubic feet of gas per day and 1,060 barrels per day of 47.5 degrees API
condensate. The wellhead flowing pressure was 1,200 pounds per square inch and
the inert gas content was less than 2%. These good flow rates demonstrated
commercial potential and the well has been suspended for possible future use
in a development programme.
    Well 54/1b-6, an exploration well drilled on the Oak prospect in the UK
Southern North Sea, encountered a gas bearing Leman sandstone reservoir with a
gross gas column of 113 feet. A production test was carried out on an 80 foot
interval and a stabilised gas flow rate of approximately 10 million standard
cubic feet per day was recorded on a 44/64 inch choke. Laboratory analysis of
the gas indicates that it contains material quantities of inert components and
the Company believes that the accumulation is unlikely to be commercial. The
well was plugged and abandoned.
    In Indonesia, Serica acquired an additional 10% interest in the Glagah-
Kambuna Technical Assistance Contract ("TAC") from PT Gunakarsa Glagah-Kambuna
Energi subject to the necessary government approvals. The consideration of
US$4,500,000 was payable in cash. Following this transaction Serica's interest
in the TAC and the Kambuna Field will be 65%. Serica also disposed of its 10%
interest in the Lematang Production Sharing Contract, which contains the
almost depleted Harimau Field and the undeveloped Singa gas field, to Lundin
Petroleum AB for a cash consideration of US$5,000,000.
    In the Asahan Offshore PSC, approval was not received from the Indonesian
authorities for the development of the small Tanjung Perling gas field prior
to the end of the Exploration Period of the PSC on 16 December 2006. Serica is
in discussions with the Indonesian authorities to agree an appropriate way
forward to enable operations to continue into the second phase of the PSC. In
view of the uncertainty on the outcome of these discussions, costs associated
with the Asahan Offshore PSC have been written off in this year's financial
statements. These costs largely relate to the Togar 1A well drilled in 2005
which was announced at the time as a non-commercial gas discovery, and which
we are therefore unlikely to wish to retain in any forward programme.
    In 2006, Serica was awarded an exploration licence offshore Ireland, and
Production Sharing Contracts in Indonesia and Vietnam.
    In the 2006 Irish Offshore Licensing Round, Serica was awarded a licence
over Blocks 27/4, 27/5 (part block) and 27/9 which cover an area of
approximately 611 square kilometres in the Slyne Basin off the west coast of
Ireland. Serica is the operator and will hold a 100% interest in the licence.
These blocks are already covered by modern 3D seismic data and Serica will be
reprocessing around 300 square kilometres of this data as part of its work
programme to assess the prospectivity of the blocks in the first phase of the
licence. If Serica elects to proceed to the second phase of the licence it
will drill at least one exploration well.
    In Indonesia, Serica was awarded the Kutai Production Sharing Contract
covering an area, both onshore and offshore, of approximately 4,729 square
kilometres within the prolific Kutai Basin of East Kalimantan. Serica is the
operator of the PSC and will hold a 52.5% interest in the block. Serica's
partner, PT Ephindo, will hold the remaining 47.5% interest. The PSC contains
several previously drilled wells that successfully established the presence of
hydrocarbons. Serica will be acquiring a limited amount of new 2D and 3D
seismic to augment the pre-existing seismic data set as part of its work
programme to assess the prospectivity of the block which will also include the
drilling of up to four exploration wells.
    In Vietnam, Serica was awarded Block 06/94 in the Nam Con Son Basin
offshore south Vietnam. Serica and its two partners, Lundin Petroleum and
Pearl Energy, each have a 33.33% interest in the Block, which covers an area
of around 4,100 square kilometers and will be operated by Pearl. Block 06/94
lies approximately 350 kilometres offshore and is the part of Block 06/1 which
British Petroleum was obliged to relinquish in 1994 after retaining the Lan
Tay and Lan Do gas fields for development. The Lan Do gas field commenced gas
production in 2002.
    Since the year end, Serica has been awarded new licences in both the UK
and Norway. In the UK, Serica was awarded Block 23/16g in the Central North
Sea, Block 48/17d in the Southern North Sea and Blocks 113/26b and 113/27b
(part) in the East Irish Sea. Serica is the operator of all four blocks and
has a 100% interest in each block except 23/16g, where it has a 50% interest.
    In Norway, Serica was awarded a 20% interest in two large licences in the
2006 Awards in Predefined Areas ('APA') Licence Round. The licences are
contiguous and cover a total area of approximately 1,625 square kilometres in
the Egersund Basin, about 120 kilometres southwest of Stavanger. One of the
licences contains the undeveloped Bream oil discovery.
    The results of Serica's operations detailed below in this MD&A, and in
the financial statements, are presented in accordance with International
Financial Reporting Standards ("IFRS").

    Results of Operations

    Serica generated a loss of US$14.4 million for 2006 compared to a loss of
US$10.5 million for 2005. The 2005 figures have been restated to take account
of the revised accounting treatment for share purchase warrants outstanding at
31 December 2005.

    
                                                               2006   2005(1)
                                                             US$000   US$000

    Sales revenue                                                61      124
                                                            -------- --------
    Expenses:

      Administrative expenses                                (6,641)  (4,877)
      Foreign exchange gain/(loss)                            1,715     (463)
      Pre-licence costs                                      (4,205)    (695)
      Asset write offs                                      (12,870)       -
      Share-based payments                                   (1,918)  (1,013)
      Change in fair value of share warrants                  1,154   (6,405)
      Depletion, depreciation & amortisation                    (95)     (30)

                                                            -------- --------
    Operating loss before finance revenue and tax           (22,799) (13,359)

      Gain on disposal                                        2,311        -
      Finance revenue                                         4,931      526

                                                            -------- --------
    Loss before taxation                                    (15,557) (12,833)

      Taxation credit                                         1,182    2,309
                                                            -------- --------

    Loss for the year                                       (14,375) (10,524)

    Basic and diluted loss per share (US$)                    (0.10)   (0.13)

    (1) As restated - See note 30 of the financial statements
    

    Revenues from oil and gas production are recognised on the basis of the
Company's net working interest in its properties. Revenues throughout each
period were generated from Serica's 10% interest in the Harimau producing gas
and gas condensate field. These revenues are from discontinued operations
following the disposal of the Lematang PSC interest in 2006. Direct operating
costs for the field during these periods were carried by Medco Energi Limited.
    Administrative expenses of US$6.6 million for 2006 increased from
US$4.9 million for 2005. The general increase from 2005 reflects the growing
scale of the Company's activities over the past twelve months.
    A significant foreign exchange gain of US$1.7 million was earned in 2006.
This chiefly arose from the increase in US$ equivalent value of those pounds
sterling cash deposits held to cover UK licence commitments and administrative
expenditures expected in sterling, as the pound continued to strengthen
against the dollar during the year.
    Pre-licence costs include direct cost and allocated general
administrative cost incurred on oil and gas interests prior to the award of
licences, concessions or exploration rights. The significant increase in the
charge from US$0.7 million in 2005 to US$4.2 million in 2006 is largely caused
by data acquisition costs as part of the Norway licence applications
(US$2.7 million) and a focus on new ventures in Vietnam and Indonesia
(US$0.5 million).
    Asset write offs of US$12.9 million comprise US$12.7 million in regard to
the Asahan Offshore PSC and the Q3 2006 US$0.2 million charge against
relinquished licences relating to the non core UK North Sea licence P1180,
Blocks 48/16a and 47/20b. The Q4 Asahan Offshore PSC asset write offs include
charges against exploration and evaluation assets (US$10.3 million), goodwill
(US$0.7 million), inventory (US$0.6 million) and related long term other
receivables (US$1.1 million).
    Share-based payment costs of US$1.9 million reflect share option grants
made during the course of 2004, 2005 and 2006 and compare with a cost of
US$1.0 million for 2005. The increase from last year is due to share options
granted in the second half of 2005 and early 2006 as the management team was
built up.
    The change in fair value of share warrants in 2005 is a restatement to
reflect evolving interpretation of the treatment of such instruments under the
recently adopted International Financial Reporting Standards. This has arisen
due to the difference in the denominated currency of the warrants compared to
Serica's functional currency. The loss in 2005 was created as the fair value
of warrants not exercised increased due to the rise in share prices over the
year and as further warrants were issued in the year. In 2006 a gain is
recorded, as the fair value of warrants outstanding as at 31 December 2005
fell prior to their exercise in 2006. This has no cash impact on reported
results. More detail is provided in note 30 of the financial statements.
    Negligible depletion, depreciation and amortisation charges for 2005
represent office equipment only. Those costs of petroleum and natural gas
properties classified as exploration and evaluation assets are not currently
subject to such charges pending further evaluation.
    A profit on disposal of US$2.3 million in Q2 2006 was generated on the
sale of the 10% interest in the Lematang PSC to Lundin Petroleum AB for
US$5 million.
    Finance revenue, comprising interest income of US$4.9 million for 2006,
compares with US$0.5 million for 2005. The increase from last year is due to
the significant cash deposit balances held following the AIM listing and
associated fund raising in December 2005.
    The taxation credit of US$1.2 million in 2006 arose from the release of
the deferred tax liabilities attached to the Lematang PSC (US$0.5 million) and
Asahan (US$0.7 million). Expenditures during 2005 and 2006 have reduced any
potential current income tax expense arising for the year to US$ nil.
    The net loss per share decreased from US$0.13 to US$0.10 with the
increase in the net loss for the year, compared to 2005, being offset by the
greater increase in the number of shares in issue during 2006.

    
    Summary of Quarterly Results

    Quarter ended:                         31 Mar   30 Jun   30 Sep   31 Dec
                                           US$000   US$000   US$000   US$000
                                          -----------------------------------
    2006
    Sales revenue                              25       36        -        -
    (Loss)/profit for the quarter(1)        1,037    1,839   (3,795) (13,456)
    Basic and diluted loss per share
     US$(1)                                     -        -    (0.03)   (0.09)
    Basic earnings per share US$(1)          0.01     0.01        -        -
    Diluted earnings per share US$(1)        0.01     0.01        -        -

                                          -----------------------------------

    2005
    Sales revenue                              31       32       36       25
    (Loss) for the quarter(1)              (5,054)    (628)  (3,976)    (866)
    Basic and diluted loss per share
     US$(1)                                 (0.07)   (0.01)   (0.05)   (0.01)

                                          -----------------------------------
    (1) As restated - See note 30 of the financial statements


    The fourth quarter 2006 loss includes asset write offs of US$12.7 million
in regard to the Asahan Offshore PSC. The second quarter 2006 profit includes
a gain of US$2.3 million from the disposal of the 10% interest in the Lematang
Block.

    Working Capital, Liquidity and Capital Resources

    Current Assets and Liabilities
    ------------------------------

    An extract of the balance sheet detailing current assets and liabilities
is provided below:

                                                    31 December  31 December
                                                           2006       2005(1)
                                                         US$000       US$000
                                                    ------------ ------------
    Current assets:
      Inventories                                         6,785          878
      Trade and other receivables                        30,903        2,106
      Cash and cash equivalents                          77,306      109,750
                                                    ------------ ------------
    Total Current assets                                114,994      112,734

    Less Current liabilities:
      Trade and other payables                          (30,619)      (7,136)
      Fair value of warrants                                  -       (6,850)
                                                    ------------ ------------

    Net Current assets                                   84,375       98,748

    (1) As restated - See note 30 of the financial statements
    

    At 31 December 2006, the Company had net current assets of
US$84.4 million which comprised current assets of US$115.0 million less
current liabilities of US$30.6 million, giving an overall decrease in working
capital of US$14.4 million in the year. The Company raised additional new
funds of US$8.5 million through the exercise of warrants and earned interest
income of US$4.9 million, but incurred significant costs in 2006 from
exploration work, principally the Q4 UK drilling programme on the Oak and
Columbus prospects.
    Inventories increased significantly from US$0.9 million to US$6.8 million
from the acquisition in Q3 2006 of steel casing for the forthcoming Indonesian
drilling programme.
    Trade and other receivables at 31 December 2006 included the
US$5.0 million proceeds due from the Lematang PSC disposal, and significant
recoverable amounts from partners in Joint Venture operations. Other smaller
items included prepayments and sundry UK and Indonesia working capital
balances.
    Trade and other payables include significant amounts due to those sub-
contractors operating the UK drilling program. They also include trade
creditors and accruals from 3D seismic acquisition in Indonesia, a further
US$1.5 million payable for acquisition of an additional 10% interest in the
Glagah Kambuna TAC and US$1.9 million payable for Norwegian data costs.
    The fair value of the Canadian $ warrants outstanding at 31 December 2005
is estimated using a Black Scholes pricing model based upon the warrant
exercise price, the share price, volatility and the life of the warrant. This
created a liability as at 31 December 2005, which was cleared in 2006 upon
exercise. There is no cash effect of this liability. See note 30 of the
financial statements for further detail.


    Long-Term Assets and Liabilities
    --------------------------------

    An extract of the balance sheet detailing long-term assets and
liabilities is provided below:

    
                                                    31 December  31 December
                                                           2006         2005
                                                         US$000       US$000
                                                    ------------ ------------

    Exploration and evaluation assets                    40,681       23,591
    Property, plant and equipment                           342           26
    Goodwill                                              1,200        2,382
    Long-term other receivables                             351        1,758
    Long-term other payables                                  -         (151)
    Deferred income tax liabilities                        (955)      (2,137)
    

    During 2006, total investments in petroleum and natural gas properties,
represented by intangible exploration assets, increased to US$40.7 million.
The net US$17.1 million increase consists of US$29.7 million of additions,
less US$2.1 million disposals from Lematang, US$10.3 million of Asahan write
offs and US$0.2 million of relinquished licence costs. Of the 2006
investments, US$17.6 million was spent in the UK principally on drilling
activity on the Columbus and Oak prospects, US$7.1 million in Indonesia on
exploration work and 3D Seismic, US$4.5 million on the further 10% interest in
the Glagah Kambuna TAC, and a further US$0.5 million in Spain.
    Property, plant and equipment includes office fixtures and fittings and
computer equipment.
    Goodwill, representing the difference between the price paid on
acquisitions and the fair value applied to individual assets, fell by
US$0.5 million to US$1.9 million following the Lematang disposal in Q2 2006,
and by US$0.7 million to US$1.2 million following the write off of costs
allocated to the Asahan asset.
    Long-term other receivables of US$0.3 million represent value added tax
("VAT") on Indonesian capital spend, which is expected to be recovered once
the fields commence production.
    Long-term other payables comprised VAT payable in Indonesia. This
liability was cleared following the Lematang PSC disposal.
    Deferred income tax liabilities fell by US$1.2 million to US$1.0 million
as the US$0.5 million liability associated with the Lematang PSC was removed,
and a further US$0.7 million in relation to Asahan released following the
write off of certain Asahan costs.

    Shareholders' Equity
    --------------------

    An extract of the balance sheet detailing shareholders' equity is
provided below:

    
                                                    31 December  31 December
                                                           2006       2005(1)
                                                         US$000       US$000
                                                    ------------ ------------

    Total share capital                                 157,283      148,745
    Other reserves                                       11,767        4,153
    Accumulated deficit                                 (43,056)     (28,681)

    (1) As restated - See note 30 of the financial statements
    

    Total share capital includes the total net proceeds (both nominal value
and any premium on the issue of equity capital).
    Issued share capital during 2006 was increased by the exercise of
7,949,376 warrants at a price of Cdn$1.20 and 40,000 share options of the
Company at a price of Cdn$1.00.
    Other reserves include those equity amounts in respect of the movement in
cumulative expense of share-based payment charges, and the element of the fair
value liability of share purchase warrants eliminated upon exercise of those
warrants.

    Capital Resources
    -----------------

    At 31 December 2006, Serica had US$84.4 million of net working capital
and no significant long-term debt. At that date the Company had commitments to
future minimum payments under operating leases in respect of rental office
premises, office equipment and motor vehicles for each of the following years
as follows:

    
                             US$000
    31 December 2007            344
    31 December 2008            287
    31 December 2009            266
    31 December 2010             42
    

    The Company had no long-term debt or capital lease obligations. In Q4
2006 the Company contracted the Seadrill 5 jack-up drilling rig for 136 days
during 2007 for Indonesia operations at a gross cost of US$26,286,000.
Serica's net share of these costs will depend on the exact split of the
proposed drilling programmes, but following the farm-out of a 45% interest in
Biliton and current paying interests in the Glagah Kambuna TAC, this is
expected to be approximately US$11,100,000.
    In the absence of revenues generated from oil and gas production, Serica
will utilise existing financial resources as required to fund its investment
programme and ongoing operations.

    Off-balance Sheet Arrangements
    ------------------------------

    The Company has not entered into any off-balance sheet transactions or
arrangements.

    Critical Accounting Estimates
    -----------------------------

    The Company's significant accounting policies are detailed in note 2 to
the attached audited 2006 financial statements. International Financial
Reporting Standards have been adopted. The cost of exploring for and
developing petroleum and natural gas reserves are capitalised. Unproved
properties are subject to periodic impairment tests whilst the costs of proved
properties are depleted over the life of such producing fields. In each case,
calculations are based upon management assumptions about future outcomes,
product prices and performance.

    Financial Instruments
    ---------------------

    The Group's financial instruments comprise cash and cash equivalents,
accounts payable and accounts receivable. It is the management's opinion that
the Group is not exposed to significant currency, interest or credit risks
arising from its financial instruments other than as discussed below:

    
        Cash and cash equivalents, which comprise short-term cash deposits,
        are generally held within the currency of likely future expenditures
        to minimise the impact of currency fluctuations. The majority of
        funds are currently held in US dollars to match the Group's
        exploration and appraisal commitments. The holding of
        pnds stlg 4.4 million at year-end reflected a proportion of UK
        licence commitments and administrative expenditures expected in
        pnds stlg sterling.

        Serica is holding significant net cash. Whilst this does leave
        exposure to interest rate fluctuations, given the level of
        expenditure plans over 2007/8 this is managed in the short-term
        through selecting treasury deposit periods of one to six months.

        Where Serica operates joint ventures on behalf of partners it seeks
        to recover the appropriate share of costs from these third parties.
        The majority of partners in these ventures are well established oil
        and gas companies. In the event of non payment, operating agreements
        typically provide recourse through increased venture shares. Cash and
        treasury credit risks are mitigated through spreading the placement
        of funds over a range of institutions each carrying acceptable
        published credit ratings to minimise counterparty risk.

    It is the management's opinion that the fair value of its financial
instruments approximate to their carrying values, unless otherwise noted.

    Share Options

    As at 31 December 2006, the following employee share options were
outstanding: -

                              Expiry Date        Number        Exercise cost
                                                                        Cdn$
    Share options                Aug 2009       500,000              555,000
                                 Feb 2009       817,500            1,635,000
                                 May 2009       100,000              200,000
                                 Dec 2009       325,000              325,000
                                 Jan 2010       600,000              600,000
                                 Jun 2010     1,633,333            2,939,999

                                                               Exercise cost
                                                                   pnds stlg
                                 Nov 2010       671,000              650,870
                                 Jan 2011     1,275,000            1,319,625
                                 May 2011       180,000              172,800
                                June 2011       270,000              259,200
                                 Nov 2011       120,000              134,400
    


    Business Risk and Uncertainties

    Serica, like all exploration companies in the oil and gas industry,
operates in an environment subject to inherent risks. Many of these risks are
beyond the ability of a company to control, particularly those associated with
the exploring for and developing of economic quantities of hydrocarbons:
volatile commodity prices; governmental regulations; and environmental
matters.

    Disclosure Controls and Procedures and Internal Controls over Financial
    Reporting

    Serica's management, including the Chief Executive Officer and Chief
Financial Officer, has reviewed and evaluated the effectiveness of the
Company's disclosure controls and procedures (as defined in Multilateral
Instrument 52-109 of the Canadian Securities Administrators) as of 31 December
2006. Management has concluded that, as of 31 December 2006, the disclosure
controls and procedures were effective to provide reasonable assurance that
material information relating to the Company and its consolidated subsidiaries
would be made known to them by others within those entities, particularly
during the period in which this report was being prepared.
    Management has designed internal controls over financial reporting to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in
accordance with IFRS. There have been no changes in the Company's internal
controls over financial reporting during the year that have materially
affected, or are reasonably likely to materially affect, the Company's
internal controls over financial reporting.

    Nature and Continuance of Operations

    The principal activity of the Company is to identify, acquire and
subsequently exploit oil and gas reserves primarily in Asia and Europe.
    The Company's financial statements have been prepared with the assumption
that the Company will be able to realise its assets and discharge its
liabilities in the normal course of business rather than through a process of
forced liquidation. The Company currently has relatively minor operating
revenues and, during the period ended 31 December 2006 the Company incurred
losses of US$14.4 million from continuing operations. At 31 December 2006 the
Company held cash and cash equivalents of US$77.3 million.

    Outstanding Share Capital

    As at 20 March 2007, the Company had 150,537,955 ordinary shares issued
and outstanding.

    Additional Information

    Additional information relating to Serica can be found on the Company's
website at www.serica-energy.com and on SEDAR at www.sedar.com


    
    Approved on Behalf of the Board

    Paul Ellis                                       Christopher Hearne
    Chief Executive Officer                          Finance Director
    


    29 March 2007


    Forward Looking Statements

    This disclosure contains certain forward looking statements that involve
substantial known and unknown risks and uncertainties, some of which are
beyond Serica Energy plc's control, including: the impact of general economic
conditions where Serica Energy plc operates, industry conditions, changes in
laws and regulations including the adoption of new environmental laws and
regulations and changes in how they are interpreted and enforced, increased
competition, the lack of availability of qualified personnel or management,
fluctuations in foreign exchange or interest rates, stock market volatility
and market valuations of companies with respect to announced transactions and
the final valuations thereof, and obtaining required approvals of regulatory
authorities. Serica Energy plc's actual results, performance or achievement
could differ materially from those expressed in, or implied by, these forward
looking statements and, accordingly, no assurances can be given that any of
the events anticipated by the forward looking statements will transpire or
occur, or if any of them do so, what benefits, including the amount of
proceeds, that Serica Energy plc will derive therefrom.


    
    Serica Energy plc
    Group Income Statement
    for the year ended 31 December 2006


                                                               2006   2005(1)
                                                     Notes   US$000   US$000

    Sales revenue                                        3       61      124

    Cost of sales                                                 -        -
                                                           ------------------

    Gross profit                                                 61      124

    Administrative expenses                              5   (6,641)  (4,877)
    Foreign exchange gain/(loss)                              1,715     (463)
    Pre-licence costs                                        (4,205)    (695)
    Asset write offs                                 12,14  (12,870)       -
    Share-based payments                                     (1,918)  (1,013)
    Change in fair value of share warrants              30    1,154   (6,405)
    Depreciation, depletion and amortisation             6      (95)     (30)
                                                           ------------------
    Operating loss before finance revenue and tax           (22,799) (13,359)

    Profit on disposal                                  16    2,311        -
    Finance revenue                                      9    4,931      526
                                                           ------------------
    Loss before taxation                                    (15,557) (12,833)

    Taxation credit for the year                     10 a)    1,182    2,309
                                                           ------------------
    Loss for the year                                       (14,375) (10,524)
                                                           ------------------
                                                           ------------------
    Loss per ordinary share (US$)
    Basic and diluted LPS                               11    (0.10)   (0.13)

    (1) As restated - See note 30



    Serica Energy plc
    Balance Sheet
    As at 31 December 2006

                                            Group           Company
                                             2006   2005(1)    2006   2005(1)
                                   Notes   US$000   US$000   US$000   US$000

    Non-current assets
    Exploration & evaluation assets   12   40,681   23,591        -        -
    Property, plant and equipment     13      342       26        -        -
    Goodwill                          14    1,200    2,382        -        -
    Investments in subsidiaries       15        -        -  119,682  119,649
    Other receivables                 17      351    1,758        -        -
                                         ------------------------------------
                                           42,574   27,757  119,682  119,649
                                         ------------------------------------
    Current assets
    Inventories                       18    6,785      878        -        -
    Trade and other receivables       19   30,903    2,106   76,120    7,491
    Cash and cash equivalents         20   77,306  109,750   49,098  107,080
                                         ------------------------------------
                                          114,994  112,734  125,218  114,571
                                         ------------------------------------

    TOTAL ASSETS                          157,568  140,491  244,900  234,220
                                         ------------------------------------

    Current liabilities
    Trade and other payables          21  (30,619)  (7,136)  (1,045)  (2,003)
    Fair value of warrants            30        -   (6,850)       -   (6,850)

    Non-current liabilities
    Other payables                              -     (151)       -        -
    Deferred income tax liabilities   10     (955)  (2,137)       -        -

                                         ------------------------------------
    TOTAL LIABILITIES                     (31,574) (16,274)  (1,045)  (8,853)
                                         ------------------------------------

    NET ASSETS                            125,994  124,217  243,855  225,367
                                         ------------------------------------
                                         ------------------------------------


    Share capital                     23  157,283  148,745  122,011  113,473
    Merger reserve                    15        -        -  112,174  112,174
    Other reserves                         11,767    4,153   11,767    4,153
    Accumulated deficit                   (43,056) (28,681)  (2,097)  (4,433)

                                         ------------------------------------
    TOTAL EQUITY                          125,994  124,217  243,855  225,367
                                         ------------------------------------
                                         ------------------------------------

    (1) As restated - See note 30

    Approved by the Board on 29 March 2007


    Paul Ellis                           Chris Hearne
    Chief Executive Officer              Finance Director
    -----------------------------------  ------------------------------------



    Serica Energy plc
    Statement of Changes in Equity
    For the year ended 31 December 2006

    Group                                   Share    Other  Accum'd
                                          capital reserves  deficit    Total
                                           US$000   US$000   US$000   US$000

    At 1 January 2005 previously reported  33,047      256  (14,828)  18,475
    Impact of fair valued warrants(1)           -        -   (3,329)  (3,329)

                                         ------------------------------------
    At 1 January 2005 as restated(1)       33,047      256  (18,157)  15,146
    Issue of shares                       105,418        -        -  105,418
    Conversion of warrants                 10,190        -        -   10,190
    Issue of 'A' share                         90        -        -       90
    Share-based payments                        -    1,013        -    1,013
    Loss for the year                           -        -  (10,524) (10,524)
    Fair value of warrants converted(1)         -    2,884        -    2,884
                                         ------------------------------------
    At 1 January 2006(1)                  148,745    4,153  (28,681) 124,217

    Conversion of warrants                  8,530        -        -    8,530
    Conversion of options                      35        -        -       35
    Issue of shares (net)                     (27)       -        -      (27)
    Share-based payments                        -    1,918        -    1,918
    Loss for the year                           -        -  (14,375) (14,375)
    Fair value of warrants converted            -    5,696        -    5,696
                                         ------------------------------------
    At 31 December 2006                   157,283   11,767  (43,056) 125,994
                                         ------------------------------------
                                         ------------------------------------


    Company                        Share   Merger    Other  Accum'd
                                 capital  reserve reserves  deficit    Total
                                  US$000   US$000   US$000   US$000   US$000

    At incorporation -
     12 May 2005                       -        -        -        -        -
    Share reorganisation(1)        7,475  112,174    3,624   (3,624) 119,649
    Issue of 'A' share                90        -        -        -       90
    Issue of shares (net)        105,418        -        -        -  105,418
    Conversion of warrants           490        -        -        -      490
    Share-based payments               -        -      383        -      383
    Loss for the period                -        -        -     (809)    (809)
    Fair value of warrants
     converted                         -        -      146        -      146
                                ---------------------------------------------
    At 1 January 2006(1)         113,473  112,174    4,153   (4,433) 225,367

    Conversion of warrants         8,530        -        -        -    8,530
    Conversion of options             35        -        -        -       35
    Issue of shares (net)            (27)       -        -        -      (27)
    Share-based payments               -        -    1,918        -    1,918
    Profit for the year                -        -        -    2,336    2,336
    Fair value of warrants
     converted                         -        -    5,696        -    5,696
                                ---------------------------------------------
    At 31 December 2006          122,011  112,174   11,767   (2,097) 243,855
                                ---------------------------------------------
                                ---------------------------------------------

    (1) As restated - See note 30



    Serica Energy plc
    Cash Flow Statement
    For the year ended 31 December 2006

                                            Group           Company
                                             2006   2005(1)    2006   2005(1)
                                           US$000   US$000   US$000   US$000
    Cash flows from operating activities:
    Operating loss                        (22,799) (13,359)  (1,376)  (1,041)

    Adjustments for:
    Depreciation, depletion and
     amortisation                              95       30        -        -
    Asset write offs                       12,870        -        -        -
    Share-based payments                    1,918    1,013    1,918      383
    Change in fair value of share
     warrants(1)                           (1,154)   6,405   (1,154)     462
    Foreign exchange loss on investment         -      417        -        -
    Changes in working capital            (10,813)   2,184     (122)     326
                                         ------------------------------------
    Cash generated from operations        (19,883)  (3,310)    (734)     130

    Taxes received                             35      179        -        -

                                         ------------------------------------
    Net cash (out)/inflow from operations (19,848)  (3,131)    (734)     130
                                         ------------------------------------

    Cash flows from investing activities
    Interest received                       4,999      292    3,872        -
    Purchase of property, plant and
     equipment                               (411)     (50)       -        -

    Purchase of intangible exploration
     assets                               (24,190) (14,048)       -        -
    Funding provided to group subsidiaries      -        -  (68,126)       -
    Disposals of intangible exploration
     assets                                     -    1,046        -        -
    Proceeds from disposal of investment        -    6,772        -        -

                                         ------------------------------------
    Net cash used in investing activities (19,602)  (5,988) (64,254)       -
                                         ------------------------------------
    Cash proceeds from financing
     activities:
    Net proceeds from issue of shares      (1,559) 106,950   (1,559) 106,950
    Proceeds on exercise of warrants/
     options                                8,565   10,190    8,565        -

                                         ------------------------------------
    Net cash from financing activities      7,006  117,140    7,006  106,950
                                         ------------------------------------
    Net (decrease)/increase in cash and
    cash equivalents                      (32,444) 108,021  (57,982) 107,080
    Cash and cash equivalents at
     1 January                            109,750    1,729  107,080        -
                                         ------------------------------------
    Cash and cash equivalents at
     31 December                           77,306  109,750   49,098  107,080

    (1) As restated - See note 30



    Serica Energy plc

    Notes to the Financial Statements

    1.  Authorisation of the Financial Statements and Statement of Compliance
        with IFRS

    The Group's and Company's financial statements for the year ended
    31 December 2006 were authorised for issue by the Board of Directors on
    29 March 2007 and the balance sheets were signed on the Board's behalf by
    Paul Ellis and Chris Hearne. Serica Energy plc is a public limited
    company incorporated and domiciled in England & Wales. The principal
    activity of the Company and the Group is to identify, acquire and
    subsequently exploit oil and gas reserves primarily in Asia and Europe.
    The Company's ordinary shares are traded on AIM and the TSXV.

    The Group's financial statements have been prepared in accordance with
    International Financial Reporting Standards ("IFRS") as adopted by the EU
    as they apply to the financial statements of the Group for the year ended
    31 December 2006. The Company's financial statements have been prepared
    in accordance with IFRS as adopted by the EU as they apply to the
    financial statements of the Company for the period ended 31 December 2006
    and as applied in accordance with the provisions of the Companies Act
    1985. The Group and Company's financial statements are also consistent
    with IFRS as issued by the IASB. The principal accounting policies
    adopted by the Group and by the Company are set out in note 2.

    The Company has taken advantage of the exemption provided under section
    230 of the Companies Act 1985 not to publish its individual income
    statement and related notes. The surplus dealt with in the financial
    statements of the parent Company was US$2,336,000.

    On 1 September 2005, the Company completed a reorganisation (the
    "Reorganisation").  whereby the common shares of Serica Energy
    Corporation were automatically exchanged on a one-for-one basis for
    ordinary shares of Serica Energy plc, a newly formed company incorporated
    under the laws of the United Kingdom. In addition, each shareholder of
    the Corporation received beneficial ownership of part of the 'A' share of
    Serica Energy plc issued to meet the requirements of public companies
    under the United Kingdom jurisdiction. Under IFRS this reorganisation was
    considered to be a reverse takeover by Serica Energy Corporation and as
    such the financial statements of the Group represent a continuation of
    Serica Energy Corporation.

    As detailed in Note 30, the Group and the Company have made certain
    restatements to the comparative year's balances.  All prior year
    comparatives in affected notes to the Group and Company accounts have
    been restated to reflect these restatements.

    2.  Accounting Policies

    Basis of Preparation

    The accounting policies which follow set out those policies which apply
    in preparing the financial statements for the year ended 31 December
    2006.

    The Group and Company financial statements are presented in US dollars
    and all values are rounded to the nearest thousand dollars (US$000)
    except when otherwise indicated.

    Use of Estimates and key sources of estimation uncertainty

    The preparation of financial statements in conformity with IFRS requires
    management to make estimates and assumptions that affect the reported
    amounts of assets and liabilities as well as the disclosure of contingent
    assets and liabilities at the balance sheet date and the reported amounts
    of revenues and expenses during the reporting period. Actual outcomes
    could differ from those estimates.

    The key sources of estimation uncertainty that has a significant risk of
    causing material adjustment to the carrying amounts of assets and
    liabilities within the next financial year are the estimation of share-
    based payment costs and the impairment of intangible exploration assets
    (E&E assets). The estimation of share-based payment costs requires the
    selection of an appropriate valuation model, consideration as to the
    inputs necessary for the valuation model chosen and the estimation of the
    number of awards that will ultimately vest, inputs for which arise from
    judgements relating to the continuing participation of employees (see
    note 25).

    The Group determines whether E&E assets are impaired in cash-generating
    units defined on a geographical segment basis when facts and
    circumstances suggest that the carrying amount of a cash-generating unit
    may exceed its recoverable amount. As recoverable amounts are determined
    based upon risked potential, or where relevant, discovered oil and gas
    reserves, this involves estimations and the selection of a suitable
    discount rate. The capitalisation and any write off of E&E assets
    necessarily involve certain judgements with regard to whether the asset
    will ultimately prove to be recoverable.

    Basis of Consolidation

    The consolidated financial statements include the accounts of Serica
    Energy plc (the "Company") and its wholly owned subsidiaries Serica
    Energy Corporation, Serica Energy Holdings B.V., Asia Petroleum
    Development Limited, Petroleum Development Associates (Asia) Limited,
    Serica Energia Iberica S.L., Firstearl Limited, Serica Energy (UK)
    Limited, PDA Lematang Limited, APD (Asahan) Limited, APD (Biliton)
    Limited, APD (Glagah Kambuna) Limited, Serica Energy Pte Limited, Serica
    Kutei B.V. and Serica Nam Con Son B.V. Together these comprise the
    "Group".

    All significant inter-company balances and transactions have been
    eliminated upon consolidation.

    Foreign Currency Translation

    The functional and presentational currency of Serica Energy plc and all
    its subsidiaries is US dollars.

    Transactions in foreign currencies are initially recorded at the
    functional currency rate ruling at the date of the transaction. Monetary
    assets and liabilities denominated in foreign currencies are retranslated
    at the foreign currency rate of exchange ruling at the balance sheet date
    and differences are taken to the income statement. Non-monetary items
    that are measured in terms of historical cost in a foreign currency are
    translated using the exchange rate as at the date of initial transaction.
    Non-monetary items measured at fair value in a foreign currency are
    translated using the exchange rate at the date when the fair value was
    determined. Exchange gains and losses arising from translation are
    charged to the income statement as an operating item.

    Business Combinations and Goodwill

    Business combinations are accounted for using the purchase method of
    accounting. The purchase price of an acquisition is measured as the cash
    paid plus the fair value of other assets given, equity instruments issued
    and liabilities incurred or assumed at the date of exchange, plus costs
    directly attributable to the acquisition.

    Goodwill on acquisition is initially measured at cost being the excess of
    purchase price over the fair market value of identifiable assets,
    liabilities and contingent liabilities acquired. Following initial
    acquisition it is measured at cost less any accumulated impairment
    losses. Goodwill is not amortised but is subject to an impairment test at
    least annually and more frequently if events or changes in circumstances
    indicate that the carrying value may be impaired.

    At the acquisition date, any goodwill acquired is allocated to each of
    the cash-generating units (business segments) expected to benefit from
    the combination's synergies. Impairment is determined by assessing the
    recoverable amount of the cash-generating unit to which the goodwill
    relates. Where the recoverable amount of the cash-generating unit is less
    than the carrying amount, an impairment loss is recognised.

    Reverse takeovers

    Certain acquisitions whereby the substance of the acquisition is that the
    acquirer is the entity whose equity interests have been acquired, and the
    issuing entity is the acquiree, are considered to represent a reverse
    takeover. The legal subsidiary being acquired is the acquirer if it has
    the power to govern the financial and operating policies of the legal
    parent so as to obtain benefits from its activities.

    Reverse takeovers are treated as a business combination whereby the
    consolidated financial statements prepared following the takeover
    represent a continuation of the financial statements of the legal
    subsidiary acquired.

    Joint Venture Activities

    The Group conducts petroleum and natural gas exploration and production
    activities jointly with other venturers who each have direct ownership in
    and jointly control the assets of the ventures. These are classified as
    jointly controlled assets and consequently, these financial statements
    reflect only the Group's proportionate interest in such activities.

    In accordance with industry practice, the Group does not record its share
    of costs that are `carried' by third parties in relation to its farm-in
    agreements. Similarly, while the Group has agreed to carry the costs of
    another party to a Joint Operating Agreement ("JOA") in order to earn
    additional equity, it records its paying interest that incorporates the
    additional contribution over its equity share.

    Full details of Serica's working interests in those petroleum and natural
    gas exploration and production activities classified as jointly
    controlled assets are included the Review of Operations on pages
    8 and 12.

    Upon the successful development of an oil or gas field in a contract
    area, the cumulative excess of paying interest over working interest in
    that contract is generally repaid out of the field production revenue
    attributable to the carried interest holder.

    Exploration and Evaluation Assets

    As allowed under IFRS 6 and in accordance with clarification issued by
    the International Financial Reporting Interpretations Committee, the
    Group has continued to apply its existing accounting policy to
    exploration and evaluation activity, subject to the specific requirements
    of IFRS 6. The Group will continue to monitor the application of these
    policies in light of expected future guidance on accounting for oil and
    gas activities.

    Pre-licence Award Costs
    -----------------------

    Costs incurred prior to the award of oil and gas licences, concessions
    and other exploration rights are expensed in the income statement.

    Exploration and Evaluation
    --------------------------

    The costs of exploring for and evaluating oil and gas properties,
    including the costs of acquiring rights to explore, geological and
    geophysical studies, exploratory drilling and directly related overheads,
    are capitalised and classified as intangible exploration assets (E&E
    assets). These costs are allocated to cost pools based upon three
    geographical segments; Indonesia, UK & North West Europe and Spain.

    E&E assets are not amortised prior to the conclusion of appraisal
    activities but are assessed for impairment in cash-generating units
    defined on a geographical segment basis when facts and circumstances
    suggest that the carrying amount of a cash-generating unit may exceed its
    recoverable amount. Recoverable amounts are determined based upon risked
    potential, and where relevant, discovered oil and gas reserves. When an
    impairment test indicates an excess of carrying value compared to the
    recoverable amount, the carrying value of the cost pool is written down
    to the recoverable amount in accordance with IAS 36. Such excess is
    expensed in the income statement.

    Costs of relinquished licences are expensed in the income statement.

    The E&E phase is completed when either the technical feasibility and
    commercial viability of extracting a mineral resource are demonstrable or
    no further prospectivity is recognised. At that point, if commercial
    reserves have been discovered, the carrying value of the relevant assets,
    net of any impairment write-down, is classified as a development asset
    and tested for impairment. If commercial reserves have not been
    discovered then the costs of such assets will be retained within the
    relevant geographical E&E segment until subject to impairment or
    relinquishment.

    Asset Purchases and Disposals
    -----------------------------

    When a commercial transaction involves the exchange of E&E assets of
    similar size and characteristics, no fair value calculation is performed.
    The capitalised costs of the asset being sold are transferred to the
    asset being acquired.

    Decommissioning
    ---------------

    Liabilities for decommissioning costs are recognised when the Group has
    an obligation to dismantle and remove a production, transportation or
    processing facility and to restore the site on which it is located.
    Liabilities may arise upon construction of such facilities, upon
    acquisition or through a subsequent change in legislation or regulations.
    The amount recognised is the estimated value of future expenditure
    determined in accordance with local conditions and requirements. A
    corresponding tangible item of property, plant and equipment equivalent
    to the provision is also created. The Group did not carry any provision
    for decommissioning costs during 2005 or 2006.

    Any changes in the present value of the estimated expenditure is added to
    or deducted from the cost of the assets to which it relates. The adjusted
    depreciable amount of the asset is then depreciated prospectively over
    its remaining useful life.

    Property, Plant and Equipment

    Computer equipment and fixtures, fittings and equipment are recorded at
    cost as tangible assets. The straight-line method of depreciation is used
    to depreciate the cost of these assets over their estimated useful lives.
    Computer equipment is depreciated over three years and fixtures, fittings
    and equipment over four years.

    Inventories

    Inventories are valued at the lower of cost and net realisable value.
    Cost is determined by the first-in first-out method and comprises direct
    purchase costs and transportation expenses.

    Investments

    In its separate financial statements the Company recognises its
    investments in subsidiaries at cost.


    Financial instruments
    ---------------------

    Financial instruments comprise financial assets, financial liabilities
    and equity instruments.

    Trade and other receivables, which generally have 30-90 day terms, are
    recognised and carried at original invoice amount less an allowance for
    any uncollectible amounts. Bad debts are written off when identified.

    Financial assets comprise investments and are initially recognised at
    fair value plus transaction costs that are directly attributable to the
    acquisition or issue of the financial asset or financial liability.
    Amortised cost is calculated by taking into account any discount or
    premium on acquisition over the period to maturity.

    For investments carried at amortised cost, gains and losses are
    recognised in income when the investments are de-recognised or impaired,
    as well as through the amortisation process.

    Cash and cash equivalents include balances with banks and short-term
    investments with original maturities of three months or less at the date
    acquired.

    Financial liabilities include outstanding share warrants which are
    carried at fair value. Changes in fair value are recognised in the
    income statement for the period.

    Revenue Recognition

    Revenue is recognised to the extent that it is probable that the economic
    benefits will flow to the Group and the revenue can be reliably measured.
    Revenue from oil and natural gas production is recognised on an
    entitlement basis for the Group's net working interest.

    Finance Revenue

    Finance revenue chiefly comprises interest income from cash deposits on
    the basis of the effective interest rate method and is disclosed
    separately on the face of the income statement.

    Share-Based Payment Transactions

    The Company operates equity settled schemes under which employees may be
    awarded share options from time-to-time. The fair value of each option at
    the date of the grant is estimated using an appropriate pricing model
    based upon the option price, the share price at the date of issue,
    volatility and the life of the option. It is assumed that all performance
    criteria are met.

    No expense is recognised for awards that do not ultimately vest, except
    for awards where vesting is conditional on a market condition. In this
    case such awards are treated as vesting provided that all other
    performance conditions are satisfied.

    At each balance sheet date before vesting, the cumulative expense is
    calculated, representing the extent to which the vesting period has
    expired and management's best estimate of the achievement or otherwise of
    non-market conditions and of the number of equity instruments that will
    ultimately vest or, in the case of an instrument subject to a market
    condition, be treated as vesting as described above. The movement in
    cumulative expense since the previous balance sheet date is recognised in
    the income statement, with a corresponding entry in equity. Estimated
    associated national insurance charges are expensed in the income
    statement on an accruals basis.

    Share Warrants

    The fair value of each outstanding warrant is estimated using a Black
    Scholes pricing model based upon the warrant exercise price, the share
    price, volatility and the life of the warrant.

    Equity

    Equity instruments issued by the Company are recorded at the proceeds
    received, net of direct issue costs.

    Income Taxes

    Deferred tax is provided using the liability method and tax rates and
    laws that have been enacted or substantially enacted at the balance sheet
    date. Provision is made for temporary differences at the balance sheet
    date between the tax bases of the assets and liabilities and their
    carrying amounts for financial reporting purposes. Deferred tax is
    provided on all temporary differences except for:

    -   temporary differences associated with investments in subsidiaries,
        where the timing of the reversal of the temporary differences can be
        controlled by the Group and it is probable that the temporary
        differences will not reverse in the foreseeable future; and

    -   temporary differences arising from the initial recognition of an
        asset or liability in a transaction that is not a business
        combination and, at the time of the transaction, affects neither the
        income statement nor taxable profit or loss.

    Deferred tax assets are recognised for all deductible temporary
    differences, to the extent that it is probable that taxable profits will
    be available against which the deductible temporary differences can be
    utilised. Deferred tax asset and liabilities are presented net only if
    there is a legally enforceable right to set off current tax assets
    against current tax liabilities and if the deferred tax assets and
    liabilities relate to income taxes levied by the same taxation authority.

    Earnings Per Share

    Earnings per share is calculated using the weighted average number of
    ordinary shares outstanding during the period. Diluted earnings per share
    is calculated based on the weighted average number of ordinary shares
    outstanding during the period plus the weighted average number of shares
    that would be issued on the conversion of all potentially dilutive shares
    to ordinary shares. It is assumed that any proceeds obtained on the
    exercise of any options and warrants would be used to purchase ordinary
    shares at the average price during the period. Where the impact of
    converted shares would be anti-dilutive, these are excluded from the
    calculation of diluted earnings.

    New standards and interpretations not applied

    IASB and IFRIC have issued the following standards and interpretations
    with an effective date after the date of these financial statements:

    International Accounting Standards (IAS/IFRSs)
    ----------------------------------------------

    IFRS 7 'Financial Instruments: Disclosures' -
     Effective date 1 January 2007
    IFRS 8 'Operating Segments' - Effective date 1 January 2009
    IAS 1 'Amendment - Presentation of Financial Statements:
     Capital Disclosures' - Effective date 1 January 2007

    International Financial Reporting Interpretations Committee (IFRIC)
    -------------------------------------------------------------------

    IFRIC 7 'Applying the restatement Approach under IAS 29 Financial
     reporting in Hyperinflationary Economies' - Effective 1 March 2006
    IFRIC 8 'Scope of IFRS 2' - Effective date 1 May 2006
    IFRIC 9 'Reassessment of Embedded Derivatives' -
     Effective date 1 June 2006
    IFRIC 10 'Interim Financial Reporting and Impairment' -
     Effective date 1 November 2006
    IFRIC 11 'IFRS 2 - Group and Treasury Share Transactions' -
     Effective 1 March 2007
    IFRIC 12 ' Service Concession Arrangements' -
     Effective date 1 January 2008

    The Directors do not anticipate that the adoption of these statements and
    interpretations will have a material impact on the Group's financial
    statements in the period of initial application.

    Upon adoption of IFRS 7, the Group will have to disclose additional
    information about its financial instruments, their significance and the
    nature and extent of risks that they give rise to. More specifically the
    Group will need to disclose the fair value of its financial instruments
    and its risk exposure in greater detail. There will be no effect on
    reported income or net assets.
    

    %SEDAR: 00022686E




For further information:

For further information: Enquiries: Serica Energy plc, Paul Ellis, Chief
Executive Officer, pellis@serica-energy.com, +44 (0)20 7487 7300; Chris
Hearne, Finance Director, chearne@serica-energy.com, +44 (0)20 7487 7300;
JPMorgan Cazenove, Steve Baldwin, steve.baldwin@jpmorgancazenove.com, +44
(0)20 7588 2828; Pelham Public Relations - UK, James Henderson,
james.henderson@pelhampr.com, +44 (0)20 7743 6673; Alisdair Haythornthwaite,
alisdair.haythornthwaite@pelhampr.com, +44 (0)20 7743 6676; CHF - Canada, Jan
Moir, jan@chfir.com, (416) 868-1079; Heather Colpitts, heather@chfir.com,
(416) 868-1079

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SERICA ENERGY PLC

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