Serica Energy plc ("Serica" or the "Company") - 2007 Annual report to shareholders



    LONDON, March 11 /CNW/ - Serica Energy plc (TSX Venture & AIM: SQZ) today
announces its financial results for the three and twelve months ending 31
December 2007. The results and associated Management Discussion and Analysis
are included below and copies are available at www.serica-energy.com and
www.sedar.com.

    2007 Highlights

    Developments
    ------------

    
    -   Successful installation of the production platform on the Kambuna
        Field offshore North Sumatra with first production and cash flow
        expected at the end of 2008

    -   15% increase in reserves: Kambuna 2P reserves estimated by RPS Energy
        at 29.7 million barrels of oil equivalent (100% basis)

    -   Excellent terms offered for Kambuna gas: initial tranche of
        28 million cubic feet per day ("mmscfd") at approximately US$5.40 per
        thousand cubic feet ("mcf") and second tranche of 10 mmscfd at over
        US$6.50 per mcf with a further 10 mmscfd of gas to be marketed

    -   Serica's interest in Kambuna, based on the initial tranche gas sales
        price of approximately US$5.40 per mcf, valued by RPS Energy as at
        31 December 2007 at US$145 million post tax (based on constant oil
        prices and costs)

    Appraisal
    ---------

    -   Two successful appraisal wells drilled in the Columbus field in the
        North Sea, confirming its commercial potential

    Forward Drilling Programme
    --------------------------

    -   Development drilling on Kambuna underway, with two new production
        wells currently being drilled and a recompletion of Kambuna No.2

    -   Two appraisal wells in the Bream oil field in Norway to be drilled in
        2H 2008 - best estimate of gross contingent resources 59 million
        barrels

    -   Planning to drill an exploration well off the west coast of Ireland
        in 2H 2008 - four gas prospects identified on the licence, with total
        best estimate gross prospective resources estimated at 3 tcf

    -   Vietnam exploration well to be drilled in 2H 2008 following the
        successful evaluation of new 3D Seismic data

    -   A site survey is to be undertaken in the Chablis field in preparation
        for appraisal drilling

    Financial & Corporate
    ---------------------

    -   Successfully raised US$52 million in new equity from new and existing
        shareholders

    -   Completed a US$100 million debt facility with JP Morgan and Bank of
        Scotland to fund field development activities

    -   Jonathan Cartwright, Finance Director of Caledonia Investments, to
        join board as a non-executive director in March 2008
    

    Serica's Chief Executive, Paul Ellis commented:

    "Serica made significant progress in 2007, increasing its proven and
probable reserves and confirming that the Columbus field is a candidate for
development."
    "The Kambuna production platform in Indonesia is now installed and the
development wells are being drilled with the company targeting first
production by the end of 2008. Gas sales terms have been agreed for 80% of the
Kambuna production at excellent prices. Furthermore, the company is due to
commence drilling in Norway, Ireland and Vietnam in the second half of this
year with all three projects offering significant upside potential."
    "Serica is well funded for 2008 with an exciting forward drilling
programme. It now has the opportunity to establish a growing reserve base,
commence production and to build further its underlying asset value."

    Paul Ellis MA (Oxon) Engineering and Serica's Chief Executive, who has
over 35 years' experience in the upstream oil and gas industry, has reviewed
and approved the technical information contained in this announcement.

    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.

    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
sarah@chfir.com and specify "Serica press releases" in the subject line.

    CHAIRMAN'S REPORT

    Dear Shareholder

    During 2007 much progress was achieved in the development of our reserves
in Indonesia and the appraisal of our Columbus discovery in the North Sea.
    With the production platform now successfully installed on the Kambuna
field offshore North Sumatra we are expecting gas and condensate sales to
commence at the end of 2008, bringing the first significant cash flow to
Serica. As stated in the Chief Executive's Report, the level of reserves which
we carry for this field has been increased.
    In the North Sea, two successful appraisal wells drilled in late
September and October on our Columbus discovery have demonstrated the
commerciality of this gas condensate field and bring it nearer to production.
Reserves from this field will be booked once a development plan for the field
has been approved.
    In addition to this growth in reserves, the Company has considerable
exposure to several significant exploration wells, some of which we hope to
drill this year. These wells result from extensive seismic work conducted
during the year over our blocks in Indonesia, Vietnam, the UK North Sea, Spain
and Ireland.
    Of course we do not expect to find oil or gas with all of our wells. At
the turn of the year we drilled our first two wells in the Biliton block in
Indonesia. Neither of these wells encountered hydrocarbons and we have written
off the costs incurred to-date on this block, amounting to US$8.9 million.
Before drilling the wells we decided to farm-out part of our interest to an
industry partner to substantially reduce the financial risk whilst retaining a
large share of the upside potential. As a result the wells were drilled at a
very low cost to Serica.
    The farm out of certain of our interests, such as Biliton, where we
perceive Serica's exposure to be too high, is an important part of our
strategy to manage the funds available to the Company and enhance returns for
shareholders. In the current high cost environment, therefore, we shall
continue with this approach where appropriate.
    The Company is well funded to meet its forward programme. The successful
raising of approximately US$52 million in new equity before expenses increased
our net cash balances at the start of 2008 to over US$70 million. With access
also to a US$100 million debt facility primarily for field development, the
Company is well placed to continue with its exploration activities and add to
the growth of our oil and gas reserves.
    It is clearly important that this growth is translated into growth in the
Company's share price. The Board is conscious that the recent volatility in
the market for our shares, may not be giving a clear picture for shareholders.
It is the Board's view that this volatility is caused partly by the limited
liquidity for our shares in the market place. We operate in two markets,
Toronto and London. The different nature of these markets makes inter-trading
more complex, thus reducing liquidity still further.
    We shall be seeking ways to improve the market liquidity for our shares,
and hence provide a better platform for shareholders, whilst also looking for
opportunities to broaden the Company's asset base through acquisition and
divestment. In this way we would hope to achieve a share price more in line
with the Company's underlying performance whilst also maintaining our
corporate objective to reduce risk and increase overall opportunity.
    As a final note, I would like to welcome Jonathan Cartwright, who joins
the Board as a non-executive director on 27 March 2008. Jonathan brings
considerable financial experience to the Company and we look forward to
working with him in our task of building value for shareholders. He is Finance
Director of Caledonia Investments, one of our major shareholders, and is a
member of the board of Bristow Group who are one of the world's leading
providers of helicopter services to the offshore oil and gas industry.
    With a strong and experienced Board, field developments and exploration
prospects in two distinct areas, most of which we operate, and with sound
finances Serica is ideally placed in the sector. It is our objective to build
on this position during 2008 and I have every expectation that we shall be
more than successful in these efforts.

    Tony Craven Walker
    Non-executive Chairman


    CHIEF EXECUTIVE OFFICER'S REPORT

    During the course of 2007, despite the industry-wide shortage of seismic
crews and drilling rigs, we have been able to make progress in both Western
Europe and South East Asia and, as a result, have taken significant steps
towards the development of our discoveries and the establishment of Serica as
an oil and gas producer in both regions.
    Serica is the operator of the Kambuna gas-condensate field offshore North
Sumatra, Indonesia, and holds a 65% working interest. Following the
acquisition and interpretation of a 3D seismic survey in the field, an
independent Reserves Evaluation by RPS Energy ("RPS") has estimated that the
gross Proved and Probable Reserves for the field are 29.7 million barrels of
oil equivalent ("boe"). This represents an increase of over 15% in the Proved
and Probable Kambuna Reserves, compared to the figure of 25.7 million boe
estimated by RPS at the end of 2006, before the 3D seismic data was available.
This new reserves estimate excludes any additional reserves that may
ultimately be proved to exist in an area immediately to the north of the
Kambuna field that has been identified on the 3D seismic data as potentially
gas-bearing.
    Based on these revised reserve estimates, RPS has estimated the net
present value of Serica's future revenue from the Kambuna field at 31 December
2007 at a 10% discount factor. Based on constant oil prices and costs, an
initial gas sales price of US$4.50 per mmBtu and a fixed condensate price of
US$93.51 per bbl, RPS estimates the net present value to Serica of the proved
and probable Kambuna reserves, after all Indonesian taxes, to be
US$144.7 million. This figure does not take into account the higher gas price
that we expect to be achieved for the uncontracted gas, as described below.
    The first sales contract will be with the Indonesian State Electricity
Company, PLN, which will purchase 28 mmscfd of gas at an initial price of
US$4.50 per mmBtu (approximately US$5.40 per mcf). Following a tender process,
several offers for a further 12 mmscfd of gas have been received at initial
prices between US$5.20 and US$5.80 per mmBtu (approximately US$6.25 to
US$7.00 per mcf). These tenders have been subject to commercial evaluation and
we expect an award to be made shortly. Both of these sales contracts will
include take or pay provisions and gas price escalation at a rate of 3% per
annum.
    These contracts account for a total of 40 mmscfd and leave a further
10 mmscfd of gas to be contracted once the development wells have been drilled
and an updated reservoir model has been presented to the Indonesian regulator
to demonstrate the expected field production capacity of 50 mmscfd and around
5,000 bpd of condensate.
    The excellent prices achieved for our gas reflect the fact that gas for
the Indonesian domestic market is in short supply, resulting in the greater
use of oil as fuel for electricity generation. Given the present level of oil
prices, the cost of generation has risen significantly and electricity supply
has been restricted.
    In January 2008 we installed the Kambuna production platform in the field
and commenced development drilling, using the GSF136 jack-up rig. The platform
will initially support three Kambuna production wells and has the capacity to
support at least one additional well. The existing Kambuna No.2 well, that we
drilled and suspended in 2005, is now being recompleted for production and we
are currently drilling two further development wells. Kambuna No.3 will be a
deviated production well that will enter the reservoir on the crest of the
structure close to the original discovery well. Kambuna No.4 will be a
deviated production well that will enter the reservoir in the southern area of
the field. Additionally, this well will test whether the gas-water contact
(not found in the existing wells) may be significantly lower than the lowest
known gas encountered in Kambuna No.2. If this is the case, the Kambuna field
reserves could be subject to further upward revision.
    In Western Europe, Serica holds interests in two potential near-term
field developments. We hold a 50% interest as operator of UK North Sea Block
23/16f, in which we drilled the Columbus gas-condensate discovery in 2006 and
a 20% interest in the Bream oil field, offshore Norway. We also hold a 100%
interest in the Chablis gas field appraisal project in the UK southern North
Sea.
    During 2007 we drilled two Columbus appraisal wells, 23/16f-12 and
23/16f-12z, that successfully delineated the Columbus field within Block
23/16f. Development studies have indicated that the field could be produced
via a subsea tie-back to a host platform and we believe that production from
Columbus could start in late 2010. We have already carried out an engineering
study with BP regarding a potential tie-back of Columbus to BP's Lomond field,
which lies immediately to the south of the Columbus field and a further
engineering study is being conducted regarding offtake via BP's ETAP gas and
oil transportation system.
    It has been considered possible that the Columbus field may extend to the
south into Block 23/21, operated by BG Group. To demonstrate whether this
extension exists, an appraisal well is required in Block 23/21, but the timing
of this well is not clear. The 23/16f partners, having already drilled three
wells in the Columbus field, have therefore decided to prepare alternative
plans to develop the field without the involvement of the Block 23/21 group at
this stage.
    It has taken some time to address the environmental, logistical and
commercial issues associated with drilling in Serica's near-shore UK Southern
Gas Basin Block 48/16b, which contains the Chablis gas discovery. We will
shortly be carrying out a site survey for the appraisal well to be drilled in
the Chablis field.
    In Norway, our operator, BG Group, is planning to drill an appraisal well
in the Bream oil field in the second half of 2008, comprising a vertical well
followed by a horizontal sidetrack to demonstrate well productivity. The gross
best estimate Contingent Resources of the Bream field have been estimated to
lie in the range of 22 to 120 million barrels of oil. The appraisal well is
designed to narrow this range and to provide the data necessary to demonstrate
field commerciality.
    In addition to our development and appraisal projects, we shall be
continuing exploration work in several areas during the coming year.
    In Ireland, we are planning to carry out a site survey in preparation for
drilling an exploration well off the west coast in Licence PEL 01/06, in which
Serica holds a 100% interest. We have identified four large gas prospects in
the licence with estimated total unrisked Prospective Resources ranging from
800 bcf to 6 tcf with a best estimate of 3 tcf. These would be attractive
prospects anywhere in the world, but have even greater significance in Ireland
because the country imports nearly 90% of its energy supplies and oil makes up
the majority of the imports. A rig has been identified for drilling this
summer and we are currently seeking a farminee to share the costs and risks of
the drilling programme.
    In Vietnam, evaluation of the new 3D seismic data has confirmed the
prospectivity of our PSC 06/94 and a well is planned in the second half of
2008. Serica holds a 33% interest in the PSC.
    In Indonesia, in the Biliton PSC, offshore Java, we were naturally
disappointed that the two exploration wells drilled at the end of 2007 were
unsuccessful, but we had always viewed the prospects as having a high
exploration risk and had therefore sought a farminee. We were successful in
attracting a farminee to drill both wells at little cost to Serica, and we now
hold a 45% interest in the PSC and remain the operator. In the Kutai PSC we
are interpreting the existing 3D seismic data covering an area of over
2,000 square kilometres and can already see a large number of prospective
features within the PSC, some of which should become drilling targets.
    In Spain, we farmed out a 25% interest in our Spanish exploration Permits
to Beach Petroleum, an Australian E&P company prior to undertaking a seismic
programme. The 315 kilometre 2D seismic programme has been carried out and the
quality of the data acquired is excellent. Interpretation of the data is
underway and it appears likely that one or more prospects will be identified
on the Permits. We have until November 2008 to elect to drill a well and
thereby extend the life of the Permits, in which Serica is the operator and
holds a 75% interest.
    Serica set out in 2007 to confirm the potential of the Columbus discovery
and to advance the development of the Kambuna field, while evaluating the
prospectivity of the new licences awarded to the Company in 2006 and early
2007. We succeeded in all these areas - successful appraisal of Columbus, gas
sales terms agreed for Kambuna, exploration and appraisal drilling planned in
Norway, UK, Ireland and Vietnam. With first production expected from the
Kambuna field in December and with significant exploration and appraisal wells
to be drilled, 2008 promises to be a year in which Serica further demonstrates
the underlying value of its assets.

    Paul Ellis
    Chief Executive Office


    REVIEW OF OPERATIONS

    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.

    REVIEW OF OPERATIONS - WESTERN EUROPE

    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.

    
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    Block(s)    Description           Role         %     Location
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    UK
    --
    -------------------------------------------------------------------------
    14/15a      Exploration           Operator     50%   Central North Sea
    -------------------------------------------------------------------------
    23/16f      Columbus appraisal    Operator     50%   Central North Sea
    -------------------------------------------------------------------------
    23/16g      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     75%   Pyrenees/Ebro Basin
    -------------------------------------------------------------------------
    Barbastro   Exploration           Operator     75%   Pyrenees/Ebro Basin
    -------------------------------------------------------------------------
    Binéfar     Exploration           Operator     75%   Pyrenees/Ebro Basin
    -------------------------------------------------------------------------
    Peraltilla  Exploration           Operator     75%   Pyrenees/Ebro Basin
    -------------------------------------------------------------------------
    

    United Kingdom

    Central North Sea - 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 included the reprocessing of available 3D seismic
data, which is scheduled to complete in the first quarter of 2008 with the
objective of confirming prospects that are ready for drilling.

    Columbus Discovery - Block 23/16f
    ---------------------------------
    This block covers an area of approximately 52 square kilometres in the
Central North Sea. Serica operates Block 23/16f and holds a 50% interest in
the Licence. In December 2007 Serica relinquished the adjacent part-blocks
23/16e and 23/17b as no prospects of material size could be identified.
    Following Serica's December 2006 Columbus discovery well 23/16f-11,
appraisal drilling commenced in the third quarter of 2007. Two Columbus
appraisal wells, 23/16f-12 and 23/16f-12z, were drilled and both were
successful.
    Well 23/16f-12 was drilled as a vertical well approximately three
kilometres north of the Columbus discovery well and encountered
gas/condensate-bearing Paleocene sands at a higher elevation than those tested
in well 23/16f-11. Reservoir pressure measurements indicated that these sands
are separate to those discovered in well 23/16f-11 and the full extent of this
new accumulation is not yet known. The net pay sand encountered in the well
was approximately 40 vertical feet.
    To further evaluate the Columbus discovery, the 23/16f-12 well was then
sidetracked to a bottom-hole location approximately 2.2 kilometres north of
the Columbus discovery well and encountered gas/condensate-bearing Paleocene
sands similar to those found in 23/16f-11. Evaluation of down-hole pressure
data indicated that the sands encountered in the sidetrack are in pressure
communication with those in the discovery well. The net pay sand in the
sidetrack was approximately 70 vertical feet, compared with 56 vertical feet
in 23/16f-11. The sidetrack well 23/16f-12z has been suspended for potential
use in the development of the Columbus field.
    The successful outcome of the two new wells supports the commercial
development of Columbus and data from these wells is being used to advance
field development studies. 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.
    It is likely that initial field development will be based around
horizontal or high-angle production wells, tied back to a host production
platform. Serica is currently studying options including a possible tie-back
to the producing Lomond field, which lies about six kilometres from the
Columbus discovery well. At the host platform, the gas and condensate will be
separated and processed to export pipeline specifications.
    Last year, we reported best estimate Columbus Contingent Resources net to
Serica of 8.4 million boe, on the basis of our expected interests of 25% in
Block 23/16f and 25% in part of Block 23/21, subject to completion of an
acreage exchange with BG Group. This agreement was not completed and, as a
result, Serica retained its original 50% interest in 23/16f and expects that
its net Contingent Resources in Columbus will be greater than those reported
last year, although the studies to integrate data from the three wells in the
field with a newly acquired 3D seismic survey have not yet been completed.

    Central North Sea - Block 23/16g
    --------------------------------
    Serica has a 50% interest in this 7.4 square kilometre Central North Sea
block and is the operator. The block contains a Paleocene sand prospect called
Livingstone, similar to and on trend with the Columbus discovery in Serica's
adjacent Block 23/16f to the south.
    A new 3D seismic data set has recently been acquired covering both blocks
and this data is being integrated with the new Columbus well data in order to
select the best location in which to test this gas-condensate prospect. If
successful, a Livingstone discovery well could potentially be used for
production and tied in to the Columbus development.

    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.
    The issues concerned with drilling in the shallow water near-shore
Chablis field area have mostly been resolved and Serica will shortly carry out
a site survey in preparation for drilling a potential appraisal well later in
the year.

    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.
    Well 54/1b-6 was drilled in the fourth quarter 2006 and encountered a
gas-bearing Leman sandstone reservoir that produced at a stabilized flow rate
of approximately 10 mmscfd during a drill-stem test. However, subsequent
laboratory analysis of gas samples taken during the test indicated that a
significant proportion of the gas is made up of inert components - just over
50% of the gas was found to be carbon dioxide and nitrogen.
    There are several fields to the north and east of the Oak field with
similar gas compositions, several of them in Dutch waters where a new operator
is studying the exploitation of such fields by installing offshore gas
treatment to remove the inert gases and then transport the hydrocarbons for
sale in the Netherlands through the existing extensive offshore pipeline
system. The potential is speculative but, during 2008, Serica plans to
participate in these studies in order to determine whether commercial
development of Oak may ultimately be feasible.

    East Irish Sea - Blocks 113/26b and 113/27b (part)
    --------------------------------------------------
    These blocks cover an area of 145 square kilometres and lie immediately
to the north of the Millom and Morecambe gas fields. The prospective reservoir
is the Sherwood Sandstone of Triassic age that is also the producing reservoir
in the Millom and Morecambe fields. Serica has identified a number of leads on
these blocks and is carrying out a 3D seismic reprocessing project in order to
confirm future exploration well locations.
    Serica is the operator and has a 100% interest in the licence.

    Ireland

    Slyne Basin - Blocks 27/4, 27/5 (west) and 27/9
    -----------------------------------------------
    Serica is the operator and holds a 100% interest in these blocks, which
cover an area of 611 square kilometres in the Slyne Basin off the west coast
of Ireland and lie 42 kilometres south of the Corrib gas field, currently
being developed by Shell.
    The blocks are covered by existing 3D seismic data that has now been
reprocessed and has confirmed the presence of four significant gas prospects.
An independent report by RPS Energy has estimated unrisked Prospective
Resources net to Serica in the range of 800 bcf to 6 tcf with a best estimate
of 3 tcf for the four prospects in total. Serica expects to drill the first of
these prospects in the summer of 2008 and will soon be carrying out a site
survey over the identified drilling targets.

    Norway

    Egersund Basin - Licences PL406 and PL407
    -----------------------------------------
    Serica was awarded a 20% interest in both of these offshore licences in
February 2007. The licences are contiguous and lie in the Egersund Basin,
about 120 kilometres southwest of the port of Stavanger, Norway's fourth
largest city.
    Licence PL406 covers an area of approximately 900 square kilometres 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 undeveloped Bream oil field in Serica's Licence PL407, immediately to
the north.
    Licence PL407, covers an area of approximately 725 square kilometres. 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.
    In the early seventies oil prices were around $3/bbl and this, combined
with the technology available at the time, did not allow commercial
development. The three discoveries remained undeveloped for over thirty years,
since the Norwegian authorities did not make the area available for licensing
again until 2006.
    On the basis of the modern 3D seismic data now available covering the
Bream and 18/10-1 discoveries, an independent report by RPS Energy has
estimated that, using modern drilling and completion technology, including
horizontal production wells, the gross Contingent Resources of the Bream field
may lie within a range of 22 to 120 mm bbl, with a best estimate of 59 mm bbl.
The 18/10-1 discovery is estimated to have gross Contingent Resources of 5 to
41 mm bbl, with a best estimate of 18 mm bbl. Serica's 20% share of these best
estimate Contingent Resources would amount to a total of 15 mm bbl.
    The operator of Licence PL407, BG Norge AS, is planning to drill vertical
and horizontal appraisal wells in the Bream field in 2008, with a view to
submitting a Plan of Development early in 2009. The operator of PL406, Premier
Oil Norge AS, is planning to acquire a 500 km2 3D seismic survey early in 2008
to identify the best locations for exploration drilling in 2009. Any discovery
made in PL406 could potentially be produced through facilities designed for
the development of the Bream field.

    Spain

    The Company holds a 75% interest in the Abiego, Barbastro, Binéfar and
Peraltilla exploration Permits onshore northern Spain. 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.
    In early 2007, Serica entered into a farm out agreement with Beach
Petroleum Limited, under which Beach has earned a 25% interest in the Permits,
with Serica retaining a 75% interest and operatorship. A 315 kilometre 2D
seismic survey commenced in late 2007 and was completed in January 2008. The
data is of excellent quality, revealing deep features that can now be mapped
with far more confidence than was possible previously and prospects are being
identified. Due to the comprehensive nature of the environmental assessments
required before drilling in this area, these have already been commissioned
although a decision on drilling is not required until later this year.

    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. The interests shown may assume the completion of agreements which await
final government approval.

    
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    Block(s)      Description       Role        %     Location
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Indonesia
    ---------
    -------------------------------------------------------------------------
    Glagah        Kambuna
     Kambuna TAC    development     Operator    65%   Offshore North Sumatra
    -------------------------------------------------------------------------
    Biliton PSC   Exploration       Operator    45%   Offshore Java Sea
    -------------------------------------------------------------------------
    Kutai PSC     Exploration       Operator    78%   Kutai basin
    -------------------------------------------------------------------------

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

    Indonesia

    Glagah Kambuna TAC
    ------------------
    The Glagah Kambuna Technical Assistance Contract ("TAC") covers an area
of approximately 380 square kilometres and lies offshore North Sumatra. 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 the first Plan of Development
was approved by the state oil and gas company Pertamina in 2006.
    A 3D seismic survey covering the Kambuna field was acquired in late 2006
and detailed processing and interpretation were carried out during 2007.
    Using the results of the new 3D seismic data, consultants RPS Energy have
carried out a new reserves report of the Kambuna field. This report estimates
that the gross Proved plus Probable Reserves of the field are 119 bcf of sales
gas and 9.9 mm bbl of condensate, a total of 29.7 mm boe, with an upside gross
Proved plus Probable plus Possible Reserves of 45.6 mm boe. The present
estimate of Proved plus Probable Reserves is 15% higher than the estimate
prepared by RPS Energy last year, before the 3D survey results were available.
    During 2007, the first phase of the development programme for the Kambuna
gas/condensate field commenced: the field production platform was built and in
the first quarter 2008 was positioned over the Kambuna No. 2 well and piled to
the seabed. The GSF136 jack-up drilling rig is now drilling the Kambuna
development wells No. 3 and No. 4 and will then complete all three wells for
production. Onshore and offshore facilities and a 14-inch offshore pipeline
will be installed later this year, with production targeted to commence by the
end of 2008.
    Following the agreement of terms for the sale of 28 mmscfd of gas to the
Indonesian State electricity generation company Perusahan Listrik Negara
("PLN"), at an initial price of US$4.50 per million Btu (approximately
US$5.40 per million cubic feet), offers for a further 12 mmscfd of gas have
been received at prices between US$5.20 and US$5.80 per million Btu
(approximately US$6.25 to US$7 per million cubic feet) escalating at 3% per
annum for both agreements.
    The sale of a further 10 mmscfd of gas is expected to be agreed later
this year after a revised reservoir model is submitted to the authorities
following the completion of the new Kambuna development wells currently being
drilled. The Kambuna development wells are expected to produce at a total rate
of 50 mmscfd, delivered at Pangkalan Brandan, about eight kilometres onshore
and the site of a Pertamina gas plant and refinery. In addition to the gas,
Serica will initially be marketing 4,000-5,000 barrels per day of condensate
at a price close to that of crude oil.
    Gas demand is strong in North Sumatra but supply from existing gas
sources is insufficient and the main power station near Medan is reported to
be burning around 25,000 barrels of fuel oil and diesel per day. Medan is the
third largest city in Indonesia and the Kambuna production will go a long way
to relieve the lack of gas-fuelled power in the area.

    Biliton PSC
    -----------
    The Biliton PSC covers an area of approximately 3,940 square kilometres
in the Java Sea between the Indonesian islands of Java and Kalimantan. Serica
is the operator of the PSC and originally held a 90% interest in the block.
    In March 2007, Serica entered into a farm-out agreement under the terms
of which Nations Petroleum has earned 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 the first two wells in the PSC. Serica now holds a
45%interest in the PSC and retains the operatorship.
    Between November 2007 and January 2008, using the GSF136 drilling rig,
wildcat exploration wells Batara Ismaya No. 1 and Batara Indra North No. 1
were drilled, but neither well contained hydrocarbons and both were therefore
plugged and abandoned.
    Serica had always recognised that the high potential of Biliton came with
a significant exploration risk, since the block is around 200 kilometres away
from the established oil and gas fields of East Java. However, there is still
an undrilled prospect on the block and Serica will be considering approaches
to farm-in to the Biliton PSC.

    Kutai PSC
    ---------
    The Kutai PSC in East Kalimantan was awarded to Serica in January 2007
and covers an area of around 4,700 square kilometres in the Mahakam Delta,
mainly offshore. Serica originally held an interest of 52.5% in the PSC and is
the operator. In January 2008 Serica announced that it had acquired an
additional 25.5% working interest and now holds a 78% 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 PSC is adjacent to the Mahakam PSC
operated by Total and which contains some of Indonesia's largest gas and
condensate fields, with total daily production of around 2.5 billion cubic
feet of gas and 90,000 barrels of oil and condensate. Total has an active
exploration programme and in October 2007 announced two new discoveries in the
southern part of the Mahakam block, a few kilometres from the Kutai PSC. In
2007, an airborne elevation survey was carried out as part of the planning for
a 2D seismic survey to be carried out in the onshore part of the PSC.
    Over 2,000 square kilometers of existing modern 3D seismic data is now
being interpreted by Serica in order to identify prospects and determine
drilling locations for our first exploration campaign in the Mahakam Delta. On
the basis of the early interpretation of this large volume of 3D data it
appears that several potentially commercial prospects are likely to be
identified. A new offshore 3D seismic survey is also being planned and
drilling in the Kutai PSC will commence in 2009.

    Vietnam

    Block 06/94 PSC
    ---------------
    Serica has a 33.33% interest in the Block 06/94 PSC, which is operated by
Pearl Energy and lies in the Nam Con Son Basin about 350 kilometres offshore
South Vietnam. The block covers an area of approximately 4,100 square
kilometres and is the part of Block 06/1 which British Petroleum was
contractually obliged to relinquish in 1994 at the end of its contractual
exploration period, 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.
    During 2007 a 730 square kilometre 3D seismic survey was carried out and,
based on the interpretation of this data, a rig has been contracted and a well
is planned to be drilled in 2H08 in the south-western part of the block. A
further 1,000 square kilometre 3D seismic survey is expected to be acquired in
May 2008 and a 2D seismic survey is also planned.
    The operator of the adjacent Block 12/E, Premier Oil, has announced that
it is seeking bids for an FPSO for the development of its Blackbird and Dua
oil fields. Serica expects to be able to identify both oil and gas prospects
within Block 06/94.

    GLOSSARY

    
    bbl          barrel of 42 US gallons
    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 or bpd  barrels of oil or condensate per day
    FPSO         Floating Production, Storage and Offtake vessel (often a
                 converted oil tanker)
    LNG          Liquefied Natural Gas (mainly methane and ethane)
    LPG          Liquefied Petroleum Gas (mainly butane and propane)
    mcf          thousand cubic feet
    mm bbl       million barrels
    mmBtu        million British Thermal Units
    mmscfd       million standard cubic feet per day
    PSC          Production Sharing Contract
    Reserves     Estimates of discovered recoverable commercial hydrocarbon
                 reserves calculated in accordance with the Canadian National
                 Instrument 51-101
    Contingent
     Resources   Estimates of discovered recoverable hydrocarbon resources
                 for which commercial production is not yet assured,
                 calculated in accordance with the Canadian National
                 Instrument 51-101
    Prospective
     Resources   Estimates of the potential recoverable hydrocarbon resources
                 attributable to undrilled prospects, calculated in
                 accordance with the Canadian National Instrument 51-101
    TAC          Technical Assistance Contract
    tcf          trillion standard cubic feet
    


    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 2007.
    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 based in Western Europe and South East Asia, with
interests in the UK, Norway, Spain, Ireland, Indonesia and Vietnam. The Group
has no current oil and gas production, with the main emphasis placed upon its
near term developments and future exploration drilling programmes. In the
year, work has continued on managing its portfolio of interests, advancing its
Indonesian development towards first production, and completing a successful
drilling programme in the UK North Sea. At a Group Board level, Ian Vann and
Steven Theede joined as non-executive directors in the summer, and in October,
Serica confirmed the retirement of James Steel as a non-executive director of
the Company. Ian and Steve bring a wealth of valuable experience in the
international oil and gas business to the Board of Serica.

    Western Europe: United Kingdom, Ireland, Norway and Spain
    ---------------------------------------------------------
    Early in the year, the formal award of new licences in both the UK and
Norway was completed.
    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. The licences
contain the undeveloped Bream, Brisling and 18/10-1 oil discoveries. In
Licence 407, an appraisal well is planned to be drilled in the Bream field in
the second half of 2008 and, in Licence 406, a 3D seismic survey will be
acquired early in 2008. Serica has a 20% interest in both of these licences.
    In UK Block 23/16f, appraisal of the Company's Columbus discovery
commenced in the third quarter of 2007. Two Columbus appraisal wells, 23/16f-
12 and 23/16f-12z, were drilled and both were successful. Well 23/16f-12 was
drilled as a vertical well approximately three kilometres north of the
Columbus discovery well and encountered gas/condensate-bearing Paleocene sands
at a higher elevation than those tested in well 23/16f-11. To further evaluate
the Columbus discovery, the 23/16f-12 well was then sidetracked to a bottom-
hole location approximately 2.2 kilometres north of the Columbus discovery
well and encountered gas/condensate-bearing Paleocene sands similar to those
found in 23/16f-11. The successful outcome of the two new wells supports the
commercial development of Columbus and data from these wells will be used to
advance field development studies. 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.
    In June 2007, Serica agreed with BG International Limited not to complete
a previously announced acreage exchange, as a result of which Serica retained
its 50% interest in Block 23/16f.
    In Ireland, Serica is the operator and holds a 100% interest in Blocks
27/4, 27/5 (west) and 27/9, which cover an area of 611 square kilometres in
the Slyne Basin off the west coast of Ireland and lie 42km south of the Corrib
gas field currently being developed by Shell. The blocks are covered by
existing 3D seismic data that has now been reprocessed and has confirmed the
presence of four significant prospects. Serica will shortly carry out a site
survey and expects to drill the first of these prospects in the summer of
2008.
    In Spain, prior to carrying out a seismic survey, Serica entered into an
agreement with Beach Petroleum Limited, under which the Company farmed out a
25% interest in its four exploration Permits onshore northern Spain, retaining
a 75% interest and operatorship. The 315 kilometre 2D seismic survey, which
commenced in the third quarter 2007, has recently been completed and the data
is currently being evaluated.

    South East Asia: Indonesia and Vietnam
    --------------------------------------
    In the Glagah Kambuna TAC, the first phase of the development programme
for the Kambuna gas/condensate field commenced. The field production platform
was built and in the first quarter of 2008 was positioned over the Kambuna No.
2 well and piled to the seabed. The GSF136 jack-up drilling rig is now
drilling the Kambuna development wells No. 3 and No. 4 and will then complete
all three wells for production. Onshore and offshore facilities and a 14-inch
offshore pipeline will then be installed, with production targeted to commence
by the end of 2008. The transfer of Serica's book costs of US$19.2 million in
respect of Kambuna, from exploration and evaluation assets to development
assets, classified under property, plant and equipment, occurred effective
31 December 2007.
    Following the agreement of terms for the sale of gas to the Indonesian
State electricity generation company Perusahan Listrik Negara ("PLN"), at an
initial price of US$4.50 per million Btu (approximately $5.40 per million
cubic feet) escalating at 3% per annum, tenders for a further quantity of gas
have now been received at considerably higher prices. In addition to the gas,
Serica will initially be marketing 4,000-5,000 barrels per day of condensate
at a price close to that of crude oil. The Company anticipates that production
from the field will commence in December 2008.
    In the Biliton PSC, in March 2007, Serica entered into a farm-out
agreement under the terms of which Nations Petroleum earned a 45% interest by
paying a contribution to Serica's back costs and bearing the majority of the
costs of drilling two wells in the PSC. Serica retains a 45% interest and
operates the PSC.
    Two exploration wells were drilled in the Biliton PSC in December 2007
and January 2008 using the GSF 136 drilling rig. Neither well contained
hydrocarbons and each was therefore plugged and abandoned. Serica had always
recognised that the high potential of Biliton came with a significant
exploration risk, since the block is around 200 kilometres away from the
established oil and gas fields of East Java. Costs associated with the Biliton
PSC have been written off in these financial statements.
    In Vietnam, a 730 kilometre 3D seismic survey was carried out and, based
on the interpretation of this data, a well is planned to be drilled in 2H08 in
the south-western part of the block. The operator of the adjacent Block 12/E,
Premier Oil, has announced that it is seeking bids for an FPSO for the
development of its Blackbird and Dua oil fields. Serica expects to be able to
identify both oil and gas prospects within Block 06/94.

    Debt facility
    -------------
    In November 2007 the Company entered into a US$100 million senior secured
debt facility with JPMorgan Chase Bank, N.A. and The Governor and Company of
the Bank of Scotland. The facility, which has an initial term of twelve
months, with the Company having an option to extend for a further six months,
will be used to fund appraisal and development expenditures for the Kambuna
field in Indonesia and the Columbus field in the UK North Sea as well as for
Norwegian appraisal expenditure and general corporate purposes.

    Post year end
    -------------
    In January 2008 the Company announced the completion of a placing of
24,770,354 new ordinary shares to the AIM Market and the TSX-V in Canada. The
total funds raised for the Company was approximately US$49 million after
expenses. The funding available from the loan facility, in conjunction with
the finance raised in the recent January 2008 placing will provide sufficient
resources to progress with the Company's forward programme.
    In February 2008 Serica announced that it had acquired an additional
25.5% working interest in the Kutai PSC in East Kalimantan, Indonesia. Serica,
the operator of the Kutai PSC, now holds a 78% interest. The PSC was awarded
to Serica in January 2007 and covers an area of around 4700 square kilometres
in the Mahakam Delta, mainly offshore. There is a large amount of existing
modern 3D seismic data on the block that Serica is currently analysing and
interpreting in order to determine drilling locations for 2009.
    Serica remains very focused on creating shareholder value through its
field development and exploration drilling programmes. As the Company
continues to build on the exploration success that it has seen in the North
Sea and Indonesia, its objectives are to bring the benefits of that success
back to shareholders and to lay the foundations for future growth.
    The results of Serica's operations detailed below in the 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$13.6 million for 2007 compared to a loss of
US$14.4 million for 2006.

    
                                                          2007          2006
                                                        US$000        US$000

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

      Administrative expenses                           (7,897)       (6,641)
      Foreign exchange gain                                394         1,715
      Pre-licence costs                                   (375)       (4,205)
      Asset write offs                                  (9,282)      (12,870)
      Share-based payments                              (1,962)       (1,918)
      Change in fair value of share warrants                 -         1,154
      Depreciation and depletion                          (149)          (95)

                                                      ---------     ---------
    Operating loss before net finance revenue and tax  (19,271)      (22,799)

      Profit on disposal                                     -         2,311
      Finance revenue                                    2,814         4,931
      Finance costs                                       (321)            -

                                                      ---------     ---------
    Loss before taxation                               (16,778)      (15,557)

      Taxation credit for the year                       3,149         1,182
                                                      ---------     ---------

    Loss for the year                                  (13,629)      (14,375)

    Basic and diluted loss per share (US$)               (0.09)        (0.10)
    

    Revenues from oil and gas production are recognised on the basis of the
Company's net working interest in its properties. In 2007 the Company had no
revenue. Revenue in 2006 was generated from Serica's 10% interest in the
Lematang PSC which contained the Harimau field. These revenues are from
discontinued operations following the disposal of the Lematang PSC interest in
2006. Direct operating costs for the field during that period were carried by
Medco Energi Limited.
    Administrative expenses of US$7.9 million for 2007 increased from
US$6.6 million for 2006. The general increase from 2006 reflects the growing
scale of the Company's activities, including further recruitment, over the
past twelve months.
    No significant foreign exchange movements impacted 2007 results. The
significant foreign exchange gain of US$1.7 million earned in 2006 chiefly
arose from the increase in US$ equivalent value of pounds sterling cash
deposits held, 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 Company did not incur
significant pre-licence expense in 2007, and the decrease in the charge from
US$4.2 million in 2006 to US$0.4 million in 2007 is largely caused by data
acquisition costs specific to the 2006 Norway licence applications
(US$2.7 million) and Vietnam pre-licence activity, absent in 2007.
    Asset write offs of US$9.3 million comprise US$9.0 million of largely
pre- drilling costs in regard to the Biliton PSC and the Q4 2007 US$0.3
million charge against relinquished UK North Sea licences P1180 23/16e and
23/17b. The Q4 Biliton PSC asset write offs include charges against
exploration and evaluation assets (US$7.7 million), goodwill (US$0.4 million),
inventory (US$0.6 million) and related long term other receivables (US$0.3
million). 2006 asset write offs of US$12.9 million comprised US$12.7 million
in regard to the Asahan Offshore PSC and the Q3 2006 US$0.2 million charge
against relinquished UK North Sea licence P1180, Blocks 48/16a and 47/20b.
    Share-based payment costs of US$2.0 million reflect allocations of
charges related to share option grants made during the course of 2005, 2006
and 2007 and compare with costs of US$1.9 million for 2006.
    In 2006 a fair value gain was recorded, as the fair value liability of
warrants outstanding as at 31 December 2005 fell prior to their exercise in
2006. This had no impact in 2007 and no cash impact on any reported results.
    Depletion and depreciation charges for 2006 and 2007 represent office
equipment only and are negligible. Those costs of petroleum and natural gas
properties classified as exploration and evaluation assets are not currently
subject to such charges pending further evaluation. The Kambuna asset costs
now classified as development costs and held within plant, property and
equipment as at 31 December 2007, will be depleted once production commences.
    The profit on disposal of US$2.3 million in 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$2.8 million for 2007,
compares with US$4.9 million for 2006. The decrease from last year is due to
the reduced cash deposit balances held following expenditure on various
drilling programmes.
    The first drawdown on the senior secured debt facility occurred soon
after the facility was arranged in Q4 2007. Finance costs consist of interest
payable and issue costs spread over the term of the bank loan facility.
    The taxation credit of US$3.1 million in 2007 represents the following; a
current tax credit from actual and expected tax recoveries on Norwegian
expenditure to date (US$6.1 million); a US$0.4 million credit from the release
of the deferred tax liabilities attached to Biliton; a partial offset of the
current tax credit in respect of Norwegian expenditure by a deferred income
tax charge of US$3.4 million from the timing differences arising from
capitalised exploration expenditure. 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$0.7 million).
    Expenditures during 2005, 2006 and 2007 have reduced any potential
current income tax expense arising for 2007 and 2006 to US$ nil.
    The net loss per share decreased from US$0.10 to US$0.09 in 2007.

    
    Summary of Quarterly Results

    Quarter ended:                         31 Mar   30 Jun   30 Sep   31 Dec
                                           US$000   US$000   US$000   US$000
                                          -----------------------------------
    2007
    Sales revenue                               -        -        -        -
    (Loss)/profit for the quarter          (1,595)  (1,587)   1,237  (11,684)
    Basic and diluted loss per share US$    (0.01)   (0.01)       -    (0.08)
    Basic earnings per share US$                -        -     0.01        -
    Diluted earnings per share US$              -        -     0.01        -

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

    2006
    Sales revenue                              25       36        -        -
    Profit/(loss) for the quarter           1,037    1,839   (3,795) (13,456)
    Basic and diluted loss per share US$        -        -    (0.03)   (0.09)
    Basic earnings per share US$             0.01     0.01        -        -
    Diluted earnings per share US$           0.01     0.01        -        -

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

    

    The fourth quarter 2007 loss includes asset write offs of US$9.0 million
in regard to the Biliton PSC.
    The fourth quarter 2006 loss includes asset write offs of US$12.7 million
in regard to the Asahan Offshore PSC.

    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
                                                          2007          2006
                                                        US$000        US$000
                                                  ------------- -------------
    Current assets:
      Inventories                                        6,991         6,785
      Trade and other receivables                       21,906        30,872
      Tax receivable                                     3,387            31
      Cash and cash equivalents                         22,638        77,306
                                                  ------------- -------------
    Total Current assets                                54,922       114,994

    Less Current liabilities:
      Trade and other payables                         (23,604)      (30,619)
                                                  ------------- -------------

    Net Current assets                                  31,318        84,375
    

    At 31 December 2007, the Company had net current assets of
US$31.3 million which comprised current assets of US$54.9 million less current
liabilities of US$23.6 million, giving an overall decrease in working capital
of US$53.1 million in the year.
    Inventories increased from US$6.8 million to US$7.0 million over the
period.
    Trade and other receivables at 31 December 2007 included a US$9.4 million
upfront deposit payment for the Global Santa Fe drilling rig for Indonesian
operations, and significant recoverable amounts from partners in Joint Venture
operations in the UK, Indonesia and Spain. Other smaller items included
prepayments and sundry UK and Indonesia working capital balances.
    Cash and cash equivalents fell from US$77.3 million to US$22.6 million.
The Company received US$5.0 million proceeds from the 2006 Lematang asset
disposal, raised additional new funds of US$1.6 million through the exercise
of share options and earned interest income of US$2.8 million, but incurred
significant costs in 2007 from exploration work (principally the Q4 UK
drilling programme on the Columbus discovery, preparation and start up costs
of the Indonesian drilling programme, spend in Vietnam, Norway, Spain and
Kutai) together with ongoing administrative costs.
    Trade and other payables chiefly include significant trade creditors and
accruals from the Indonesian drilling programme and amounts due to the sub-
contractor operating the Q4 Columbus drilling programme. Other smaller items
include sundry creditors and accruals for administrative expenses and other
corporate costs.

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

    
                                                   31 December   31 December
                                                          2007          2006
                                                        US$000        US$000
                                                  ------------- -------------

    Exploration and evaluation assets                   71,874        40,681
    Property, plant and equipment                       19,543           342
    Goodwill                                               768         1,200
    Financial assets                                     4,680             -
    Long-term other receivables                          1,224           351
    Financial liabilities                               (9,582)            -
    Deferred income tax liabilities                     (3,910)         (955)
    

    During 2007, total investments in petroleum and natural gas properties,
excluding property, plant and equipment and represented by exploration and
evaluation assets, increased from US$40.7 million to US$71.9 million. The net
US$31.2 million increase consists of US$58.3 million of additions, less
US$7.7 million of Biliton asset write offs and US$0.3 million of relinquished
licence costs and the transfer of US$19.2 million of Kambuna costs from
exploration and evaluation assets to property, plant and equipment which
occurred effective 31 December 2007.
    The US$58.3 million of additions were incurred on the following assets:
    In South East Asia, US$9.7 million was spent in Indonesia on; drilling
activity preparation, G&A on the Glagah Kambuna TAC (US$5.6 million),
signature bonuses and seismic on the Kutai concessions (US$3.1 million), and
US$1.0 million (net of US$1.0 million of back costs received in Q1) on
Serica's share of Biliton drilling costs incurred on the two Biliton wells
that exceeded the agreed carry by Nations Petroleum. US$6.7 million was spent
in Vietnam on entry costs and seismic data acquisition.
    In the UK & Western Europe, significant expenditure was incurred on
Columbus 2007 drilling and other Block 23/16f cost (US$23.6 million),
US$3.6 million in Spain (chiefly on a 2D seismic survey), US$4.4 million in
Norway (on seismic data acquisition and other exploration) and US$2.0 million
in the UK and Ireland on exploration work and other G&A.
    The 2007 additions in UK & Western Europe also include costs capitalised
when the anticipated recovery previously credited against exploration and
evaluation assets as at 31 December 2006, was reversed in Q2 2007 following
the announcement in June of the agreement between Serica and BG not to
complete the BG/Serica cross assignment deal announced in 2006. Serica's
capitalised cost now reflects its 50% share of costs incurred on the Block
23/16f in 2006, rather than the 25% previous interest.
    The US$19.2 million increase in property, plant and equipment from
US$0.3 million in 2006 results from the reclassification of Kambuna from
exploration and evaluation assets to development assets effective 31 December
2007. Property, plant and equipment also includes immaterial balances of
US$0.4 million for 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$0.4 million from US$1.2 million to US$0.8 million following the write off
of costs allocated to Biliton.
    Financial assets include US$4.7 million of restricted cash deposits.
    Long-term other receivables of US$1.2 million are represented by value
added tax ("VAT") on Indonesian capital spend, which would be recovered from
future production.
    Financial liabilities are represented by the first drawdown under the
senior secured debt facility, which occurred in Q4 2007. This includes accrued
interest payable and is disclosed net of the unamortised portion of allocated
issue costs.
    The deferred income tax liability increase of US$3.0 million from
US$0.9 million to US$3.9 million, occurred from timing differences arising
following the recognition of the Norwegian tax recovery asset. An increase of
US$3.4 million was partially offset by a US$0.4 million liability decrease in
relation to Biliton, which was released following the write off of Biliton
costs.

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

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

    
                                                    31 December  31 December
                                                           2007         2006
                                                         US$000       US$000
                                                   ------------- ------------

    Total share capital                                 158,871      157,283
    Other reserves                                       13,729       11,767
    Accumulated deficit                                 (56,685)     (43,056)
    

    Total share capital includes the total net proceeds (both nominal value
and any premium on the issue of equity capital).
    Issued share capital during 2007 was increased by the exercise of
1,110,001 share options of the Company at prices ranging from Cdn$1.00 to
Cdn$2.00.
    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 2007, Serica had US$31.3 million of net working capital,
US$9.6 million of long term debt and no capital lease obligations. 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 2008            381
    31 December 2009            389
    31 December 2010             83
    

    During the year the Company contracted the Sedco 704 drilling rig for
96 days during 2007 and 2008 for UK & NW Europe operations. As at 31 December
2007 the Company has a commitment for a remaining 40 days at a gross cost of
US$13.5 million. The operations currently identified for use of the rig are
ventures where joint venture partners are expected to pay a share of the
costs.
    The Company also has obligations to carry out defined work programmes on
its oil and gas properties, under the terms of the award of rights to these
properties, over the next twelve months as follows:

    Year ending 31 December 2008 US$43,442,000

    These obligations reflect the Company's share of interests in the defined
work programmes and are not formally contracted at 31 December 2007. The
Company is not obliged to meet other joint venture partner shares of these
programmes.
    In the absence of revenues generated from oil and gas production Serica
will utilise its existing cash balances, together with the US$100 million
senior secured debt facility, to fund the immediate needs of its investment
programme and ongoing operations. After the year end the cash balances
existing at 31 December 2007 were supplemented by a net US$49 million raised
from the share placing announced in January 2008.

    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 2007 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 review for impairment 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,
bank loans and borrowings, accounts payable and accounts receivable. It is
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:

    Serica has exposure to interest rate fluctuations; given the level of
    expenditure plans over 2008/9 this is managed in the short-term through
    selecting treasury deposit periods of one to six months. 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.

    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.

    It is 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 2007, the following employee share options were
outstanding: -

    
                              Expiry Date        Number        Exercise cost
                                                                        Cdn$
    Share options                Jun 2008       400,000              720,000
                                 Feb 2009       247,499              494,998
                                 May 2009       100,000              200,000
                                 Dec 2009       275,000              275,000
                                 Jan 2010       600,000              600,000
                                 Jun 2010     1,100,000            1,980,000

                                                               Exercise cost
                                                                   pnds stlg
                                 Nov 2010       561,000              544,170
                                 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
                                 Jan 2012     1,056,000            1,077,120
                                 May 2012       405,000              421,200
                                 Aug 2012     1,200,000            1,182,000
    

    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
2007. Management has concluded that, as of 31 December 2007, 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 no operating revenues and,
during the period ended 31 December 2007 the Company incurred losses of
US$13.6 million from continuing operations. At 31 December 2007 the Company
held cash and cash equivalents of US$22.6 million and a financial asset of
restricted cash of US$4.7 million. Following the year end the Company raised
an additional US$49 million net of expenses as the result of a Placing of
24,770,354 ordinary shares in the Company.

    Outstanding Share Capital

    As at 7 March 2008, the Company had 176,418,310 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
    

    11 March 2008

    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 2007

                                                              2007      2006
                                                   Notes    US$000    US$000

    Sales revenue                                      3         -        61

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

    Gross profit                                                 -        61

    Administrative expenses                            5    (7,897)   (6,641)
    Foreign exchange gain                                      394     1,715
    Pre-licence costs                                         (375)   (4,205)
    Asset write offs                               13,15    (9,282)  (12,870)
    Share-based payments                                    (1,962)   (1,918)
    Change in fair value of share warrants                       -     1,154
    Depreciation and depletion                         6      (149)      (95)

                                                         --------------------
    Operating loss before net finance revenue
     and tax                                               (19,271)  (22,799)

    Profit on disposal                                17         -     2,311
    Finance revenue                                    9     2,814     4,931
    Finance costs                                     10      (321)        -

                                                         --------------------
    Loss before taxation                                   (16,778)  (15,557)

    Taxation credit for the year                    11 a)    3,149     1,182

                                                         --------------------
    Loss for the year                                      (13,629)  (14,375)
                                                         --------------------
                                                         --------------------
    Loss per ordinary share (US$)
    Basic and diluted LPS                             12     (0.09)    (0.10)



    Serica Energy plc
    Balance Sheet
    As at 31 December 2007

                                         Group             Company
                                          2007      2006      2007      2006
                                 Note   US$000    US$000    US$000    US$000
    Non-current assets
    Exploration & evaluation
     assets                        13   71,874    40,681         -         -
    Property, plant and
     equipment                     14   19,543       342         -         -
    Goodwill                       15      768     1,200         -         -
    Investments in subsidiaries    16        -         -   130,684   119,682
    Financial assets               18    4,680         -     4,680         -
    Other receivables              18    1,224       351         -         -
                                      ---------------------------------------
                                        98,089    42,574   135,364   119,682
                                      ---------------------------------------
    Current assets
    Inventories                    19    6,991     6,785         -         -
    Trade and other receivables    20   21,906    30,872   117,373    76,120
    Tax receivable                 20    3,387        31         -         -
    Cash and cash equivalents      21   22,638    77,306     7,172    49,098
                                      ---------------------------------------
                                        54,922   114,994   124,545   125,218
                                      ---------------------------------------

    TOTAL ASSETS                       153,011   157,568   259,909   244,900
                                      ---------------------------------------

    Current liabilities
    Trade and other payables       22  (23,604)  (30,619)   (6,376)   (1,045)

    Non-current liabilities
    Financial liabilities          23   (9,582)        -    (9,582)        -
    Deferred income tax
     liabilities                   11   (3,910)     (955)        -         -

                                      ---------------------------------------
    TOTAL LIABILITIES                  (37,096)  (31,574)  (15,958)   (1,045)
                                      ---------------------------------------

    NET ASSETS                         115,915   125,994   243,951   243,855
                                      ---------------------------------------
                                      ---------------------------------------

    Share capital                  25  158,871   157,283   123,599   122,011
    Merger reserve                 16        -         -   112,174   112,174
    Other reserves                      13,729    11,767    13,729    11,767
    Accumulated deficit                (56,685)  (43,056)   (5,551)   (2,097)

                                      ---------------------------------------
    TOTAL EQUITY                       115,915   125,994   243,951   243,855
                                      ---------------------------------------
                                      ---------------------------------------


    Approved by the Board on 11 March 2008

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



    Serica Energy plc
    Statement of Changes in Equity
    For the year ended 31 December 2007

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

    At 1 January 2006                  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

    Conversion of options                1,588         -         -     1,588
    Share-based payments                     -     1,962         -     1,962
    Loss for the year                        -         -   (13,629)  (13,629)

                                      ---------------------------------------
    At 31 December 2007                158,871    13,729   (56,685)  115,915
                                      ---------------------------------------
                                      ---------------------------------------



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

    At 1 January 2006         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

    Conversion of options       1,588        -         -               1,588
    Share-based payments            -        -     1,962               1,962
    Loss for the year               -        -         -    (3,454)   (3,454)

                             ------------------------------------------------
    At 31 December 2007       123,599  112,174    13,729    (5,551)  243,951
                             ------------------------------------------------
                             ------------------------------------------------



    Serica Energy plc
    Cash Flow Statement
    For the year ended 31 December 2007
                                         Group             Company
                                          2007      2006      2007      2006
                                        US$000    US$000    US$000    US$000
    Cash flows from operating
     activities:
    Operating loss                     (19,271)  (22,799)   (5,011)   (1,376)

    Adjustments for:
    Depreciation and depletion             149        95         -         -
    Asset write offs                     9,282    12,870         -         -
    Share-based payments                 1,962     1,918     1,962     1,918
    Change in fair value of
     share warrants                          -    (1,154)        -    (1,154)
    Changes in working capital          (5,008)  (10,813)   (1,899)     (122)
                                     ----------------------------------------
    Cash generated from operations     (12,886)  (19,883)   (4,948)     (734)

    Taxes received                       2,717        35         -         -

                                     ----------------------------------------
    Net cash outflow from operations   (10,169)  (19,848)   (4,948)     (734)
                                     ----------------------------------------
    Cash flows from investing
     activities
    Interest received                    2,873     4,999     1,497     3,872
    Purchase of property,
     plant and equipment                  (185)     (411)        -         -
    Purchase of intangible
     exploration assets                (58,766)  (24,190)        -         -
    Funding provided to group
     subsidiaries                            -         -   (45,054)  (68,126)
    Funding provided for work
     programmes                         (4,680)        -    (4,680)        -
    Disposals of intangible
     exploration assets                  5,000         -         -         -

                                     ----------------------------------------
    Net cash used in investing
     activities                        (55,758)  (19,602)  (48,237)  (64,254)
                                     ----------------------------------------
    Cash proceeds from financing
     activities:
    Net loan financing                   9,671         -     9,671         -
    Net proceeds from issue of shares        -    (1,559)        -    (1,559)
    Proceeds on exercise of
     warrants/options                    1,588     8,565     1,588     8,565

                                     ----------------------------------------
    Net cash from financing
     activities                         11,259     7,006    11,259     7,006
                                     ----------------------------------------

    Net decrease in cash
     and cash equivalents              (54,668)  (32,444)  (41,926)  (57,982)
    Cash and cash equivalents
     at 1 January                       77,306   109,750    49,098   107,080

                                     ----------------------------------------
    Cash and cash equivalents
     at 31 December                     22,638    77,306     7,172    49,098



    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 2007 were authorised for issue by the Board of Directors on
    11 March 2008 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 2007. 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 2007
    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 deficit dealt with in the financial
    statements of the parent Company was US$3,454,000 (2006: profit 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.

    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
    2007.

    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 27).

    The Group determines whether E&E assets are impaired in cost pools when
    facts and circumstances suggest that the carrying amount of a cost pool
    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., Serica Holdings UK 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. ,Serica Nam Con Son B.V. and Serica Energy Norge AS. 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, or groups of cash generating units expected to
    benefit from the combination's synergies. Impairment is determined by
    assessing the recoverable amount of the cash-generating unit, or groups
    of cash generating units 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 in the Review of Operations.

    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; Indonesia, Vietnam, 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 cost pools when facts and
    circumstances suggest that the carrying amount of a cost pool 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 licences are expensed in the income statement if licences are
    relinquished, or if management do not expect to fund significant future
    expenditure in relation to the licence.

    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
    within property, plant and equipment, 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 2006 or 2007.

    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 - Development Assets

    Capitalisation
    --------------
    Development and production assets are accumulated into single field cost
    centres and represent the cost of developing the commercial reserves and
    bringing them into production together with the E&E expenditures incurred
    in finding commercial reserves previously transferred from E&E assets as
    outlined in the policy above.

    Depreciation
    ------------
    Development assets are not depreciated until production commences. Costs
    relating to each single field cost centre are depleted on a unit of
    production method based on the commercial proven and probable reserves
    for that cost centre. The depletion calculation takes account of the
    estimated future costs of development of recognised proven and probable
    reserves, based on current price levels. Changes in reserve quantities
    and cost estimates are recognised prospectively from the last reporting
    date.

    Impairment
    ----------
    A review is performed for any indication that the value of the Group's
    development and production assets may be impaired.

    For development assets when there are such indications, an impairment
    test is carried out on the cash generating unit. Each cash generating
    unit is identified in accordance with IAS 36. Serica's cash generating
    units are those assets which generate largely independent cash flows and
    are normally, but not always, single development or production areas. If
    necessary, additional depletion is charged through the income statement
    if the capitalised costs of the cash generating unit exceed the
    associated estimated future discounted cash flows of the related
    commercial oil and gas reserves.

    Property, Plant and Equipment - Other

    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, cash and cash
    equivalents, 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
    ----------------
    Financial assets are initially recognised at fair value plus transaction
    costs that are directly attributable to the acquisition or issue of the
    financial asset. 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
    -------------------------
    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
    ---------------------
    Financial liabilities include interest bearing loans and borrowings, and
    outstanding share warrants which are carried at fair value.  Changes in
    fair value are recognised in the income statement for the period.

    Obligations for loans and borrowings are recognised when the Group
    becomes party to the related contracts and are measured initially at the
    fair value of consideration received less directly attributable
    transaction costs.

    After initial recognition, interest-bearing loans and borrowings are
    subsequently measured at amortised cost using the effective interest
    method.

    Gains and losses arising on the repurchase, settlement or otherwise
    cancellation of liabilities are recognised respectively in finance
    revenue and finance cost.

    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.

    Finance Costs

    Finance costs of debt are allocated to periods over the term of the
    related debt at a constant rate on the carrying amount. Arrangement fees
    and issue costs are amortised and charged to the income statement as
    finance costs over the term of the debt.

    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 2 'Amendment to IFRS 2 - Vesting Conditions and Cancellations' -
    Effective date 1 January 2009
    IFRS 3 'Business Combinations (revised January 2008)' - Effective date 1
    July 2009
    IFRS 8 'Operating Segments' - Effective date 1 January 2009
    IAS 1 'Presentation of Financial Statements (revised September 2007)' -
    Effective date 1 January 2009
    IAS 23 'Borrowing Costs (revised March 2007) - Effective date 1 January
    2009
    IAS 27 Consolidated and Separate Financial Statements (revised January
    2008) - Effective date 1 July 2009

    International Financial Reporting Interpretations Committee (IFRIC)
    -------------------------------------------------------------------
    IFRIC 11 'IFRS2 - Group and Treasury Share Transactions' - Effective for
    periods starting 1 March 2007
    IFRIC 12 'Service Concession Arrangements' - Effective date 1 January
    2008
    IFRIC 13 'Customer Loyalty Programmes' - Effective date 1 July 2008
    IFRIC 14 'IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding
    Requirements and their Interaction' - 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.
    

    %SEDAR: 00022686E




For further information:

For further information: Enquiries: Serica Energy plc, Paul Ellis, Chief
Executive Officer, paul.ellis@serica-energy.com, +44 (0)20 7487 7300; Chris
Hearne, Finance Director, chris.hearne@serica-energy.com, +44 (0)20 7487 7300;
JPMorgan Cazenove, Steve Baldwin, steve.baldwin@jpmorgancazenove.com, +44
(0)20 7588 2828; Tristone Capital Limited, Majid Shafiq,
mshafiq@tristonecapital.com, +44 (0)20 7355 5872; 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, Sarah Gingerich, sarah@chfir.com, (416) 868-1079

Organization Profile

SERICA ENERGY PLC

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