2023-09-19 16:29:09 ET
Serica Energy plc (SQZZF)
Q2 2023 Earnings Conference Call
September 19, 2023 8:30 AM ET
Company Participants
Mitch Flegg - Chief Executive Officer
Conference Call Participants
Presentation
Operator
Ladies and gentlemen, welcome to the Serica Energy plc Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged. They can be submitted at any time via the Q&A tab that's just situated on the right-hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself, however, the company will review all questions submitted today, and publish responses where it's appropriate to do so, and these will be available via your Investor Meet Company dashboard.
Before we begin, I would like to submit the following poll, and I would now like to hand you over to CEO, Mitch Flegg. Good afternoon, sir.
Mitch Flegg
Good afternoon. Thanks for the introduction, and thanks, everyone, for joining. I appreciate your time as always. I think we got into a bit of routine of doing these things now, so, each time we issue our annual results or interim results, we try to do one of these to, not necessarily to inform, but to give everybody out there the opportunity to ask questions. So, I've got a short presentation, and it is quite short, and I'll try and get through that in half an hour or so, and really give time for the Q&A session afterwards. So, we'll go straight into it.
I mean, this really is all about our first-half results for 2023. And really that period, the first six months of this year was dominated by the completion of the acquisition of Tailwind Energy. So, we finished the first half of the year as a very different, and I would say, a much stronger company than we started the first-half of this year.
On the big picture scale of things, obviously, we've added a considerable amount of reserves, something like 55 million boe of reserves as of the 1st of January, 2023, valuation. We've doubled the number of produced -- more than doubled the number of producing fields that we have in the company. And that sort of does a couple of things. It gives us -- it gives us greater scale and we'll come back to the size of the company as we go through this. But it also gives us more diversity and reduces our risk.
Basically, we have far less risk because we are no longer tied to a single asset as we were previously in Serica, where we were dependent almost entirely on the Bruce platform. But we were also dependent almost entirely on gas. Over 90% of our production in Serica was gas and now we have a far more balanced mix between oil and gas, now that we have the new assets that we've acquired earlier in the year. So, I think the acquisition of Tailwind has made us a much stronger company. It's doubled our production or nearly doubled our production. So, our production from the combined portfolio in the first-half of the year was 49,000 boe per day.
Now, there's a couple of things there. One, I always talk about boe per day, so it's barrels of oil equivalent, so we take the gas and convert that into an equivalent amount of oil. I think it's an easier way to talk about it. The other thing is, I'm talking there about the pro -- what we're calling the pro forma performance there. So, that's the performance of the two portfolios of assets. Obviously, the deal didn't complete until the 23rd of March. So, in terms of pure financial results, that would only include the production from the Tailwind portfolio after the 23rd of March. But when we're talking about the overall production here, I'm talking about the pro forma, so I'm talking about both portfolios for the entire period.
On the financial front, we had a very, very strong cash flow for the year -- for the six months, sorry, something like GBP266 million of income in the first-half of the year, broadly similar to where we were last year, leaving us with a closing net cash position of GBP234 million. So, again, a very, very strong financial performance. I'll talk about that in a little bit more detail as we go forward.
We've got a strong balance sheet and a strong ongoing cash flow profile for the company. So -- and at the same time, we've taken the opportunity to improve the structure and the organization of the company. We have a new Chairman. David Latin has joined the Board -- sorry, has stepped up from the Board to become Chairman, and we've taken the opportunity to bring some new Non-Executive Directors on Board, which -- at which stage, we've been able to increase the diversity such that we now have 27% female participation on the Board.
As I said, one of the big things about doing the deal was the that it gives us a more resilient portfolio. I think most of you, and I assume that most people on here probably are investors already, so will be familiar with the story. We now have two production hubs in the Bruce area to the North, and the Triton area in the Central North Sea. So, still, the vast majority of our production is operated by Serica. Over 80% of our production is operated by us. The important thing is that there is no real overlap in the infrastructure that we use between Bruce and Triton, and that's very important to us. That allows us to -- yes, it gives us the confidence that we can't be shut down by any individual incidents or anything that may be beyond our control. So, we've got far more diversity.
But we've kept a lot of the good things of the portfolio. So, neither the Serica or Tailwind portfolio had significant decommissioning liabilities. So, not only have we got cash in the bank and a very good balance sheet, but we also do not have the huge millstone of decommissioning that a lot of companies find themselves with.
There's a plot here just to kind of show the evolution of our reserves through the years. So, this is just going back to 2018 when Serica did the deal to buy the Bruce assets from BP. And at that stage, you can see, red is gas, green is oil, we had massively -- we were massively overweight on gas. We had very little oil in the portfolio. The black diamonds there show our RP ratio, so the ratio of reserves over production.
And if you look back to 2018, you read that off of the right-hand scale, our reserves at that stage indicated something like six years of reserves life. So, if we had continued producing our reserves at that rate, we would have had six years of life left, that's in 2018. So, we would have been coming towards the end of life, if you like, by 2024. What you see then on the intervening years, 2019, 2020, 2021, even though we produced a huge amount of oil during that period, oil and gas, something like 36 million barrels during that period, we maintained that RP ratio. So, in 2021, we still had more than six years of life left, which would have taken us out to 2027, 2028.
Now, with the acquisition of the Tailwind assets, our RP ratio is back up above eight years. So, now if we continued producing at the current rate, we would actually be producing well into the 2030s. So, this kind of demonstrates I think quite neatly the model that we have. We've increased reserves, we've increased the life of those reserves, but we're producing and creating value from those reserves from the production that we have. So, I think that plot quite neatly shows the business model.
If we get a little bit more granular and look at the last six months, this is our production from the -- from the first six months of this year. So, as I've already said, the pro forma production from the combined portfolios is just over 49,000 boe per day. And the split between oil and gas was 55% gas, 45% oil. We -- I mean, the first six months was largely uninterrupted as you can see. We always had anticipated that the second-half of the year actually would never have been as good as the first-half of the year, because as is customary around the North Sea, almost every field shuts down for a summer maintenance program generally in July into August, and we were no exception.
We were always planning to shut down both Bruce and Triton during that period. We had always guided the market that our full year production guidance, even though the first-half of the year was over 49,000 boe per day, we've always guided the market that our full-year will be somewhere between 40,000 boe per day and 47,000 boe per day. So, we've never indicated that the second half would be as good as the first.
The shutdowns on both Bruce and Triton have taken longer than we expected. And the ramp-up has been slower than we expected. And so, now we have trimmed our guidance slightly. So, rather than the 40,000 boe per day to 47,000 boe per day that we were talking about previously, we're now giving full-year guidance for this year of 40,000 boe per day to 45,000 boe per day. So, on the midpoint basis, that's down by 1,000 barrels a day from where it was previously.
The issues on both Bruce and Triton, although they've have not been the same, have been similar. We've done these summer maintenance programs, and in both cases, we've identified a problem that needed more work than we expected to fix it. On -- in the Bruce case, it was simply -- it was a structural problem as much as anything with a piece of equipment, that we could have kind of bandaged it up and carried on for another year, and then fixed it next summer. But we would have had to have taken a much longer shutdown next summer to fix the problem. We elected -- and I think it was the right decision, we elected to solve the problem this year to fix or to replace the piece of kit that had failed. And I think that means we will not have to do any summer shutdown on Bruce next year. So, I think it was the right decision to do that.
On Triton, we found a piece of equipment that was due for maintenance during this summer shutdown, and the actual maintenance on that proved to be far more difficult and time-consuming. But again, we elected to do it properly and solve the problem, and that means, the returning to production has taken a little bit longer than we expected. So, we're relatively relaxed about these problems. This is not lost production, it's deferred production. It's in no way indicative of the future. This isn't -- they are not reservoir problems, they are not wells problems, they are problems with the surface equipment, with surface kit that just we haven't been able to get back into service as quickly as we would have liked. So, the full-year guidance I think is still very healthy at between 40,000 boe per day and 45,000 boe per day.
I think, finally, for this kind of introduction session, we're starting to see the benefit of the Tailwind transaction in other ways coming through. One of the issues -- one of the benefits of the Tailwind transaction was that we acquired significant tax losses when we acquired Tailwind, and actually, those tax losses in time have the ability to generate something like GBP400 million. Now, we've only just started to see the benefit of that, because we only completed the deal on the 23rd of March.
So, in the first-half of the year, in the first-half of results, we've only got really three months of benefit of those tax losses. But what we see there is that we've tried to back-calculate what our tax charge would have been if we were just old Serica or what the tax charge would have been in the combined entity and we see that we would have been paying a tax rate of 76% in the first-half of this year had we not done the Tailwind deal, whereas actually, we've paid 55%.
We don't like tax. We don't like the imposition of the energy profits levy. We think it is very, very short-sighted and it will negatively impact the industry. It will kill investment across the industry and we're seeing that already. But we do believe that we have certain levers and certain ways in which we can, I won't say benefit, but we can mitigate against the worst impacts of that tax. And I think we're seeing that already in the first-half numbers.
So, perhaps to put a little bit more detail on the financial performance, I've already talked about production going across the front -- the top line here. Our sales revenue in the first-half of this year was pretty similar to our sales revenue in the first-half of last year, for wildly different reasons. We've seen commodity prices are way below where they were a year ago, particularly gas prices and we'll come back to that. But as I've already explained, our production was much higher than it was in the first-half of last year. Those two things have kind of balanced each other out and we still have very, very strong sales revenue from the first-half of this year, and that translates down into cash flow in the bottom left-hand corner there.
In the top right-hand corner, you'll see that our operating costs are slightly higher than they were a year ago. These are still settling down. Obviously, it's a different portfolio than it was a year ago, so you would expect to see some changes. Operating costs rather annoyingly, as an industry, we always talk about operating costs in dollars per barrel. And so, there are exchange rate fluctuations in there that make it difficult to compare one year to the next. Because most of our costs -- if we're honest, most of our costs are in pounds. So, we've not seen a massive increase in operating costs. We guided for the year that we would expect our operating costs to be below $20 per boe, so we're comfortably below that, and we still expect to beat that for the year. So, I think our costs are in control. And compared to the rest of the industry, I think we're in a pretty good shape.
There is an increase in our profit after tax, and I'll come back to that, and part of that is due to financial reporting requirements, and the way that the transaction with Tailwind is handled. But unfortunately, I think distorts that number and raises that number a little bit. But it is a -- nonetheless a very, very healthy profit after tax. And accordingly, the earnings per share have increased despite the fact that the number of shares in circulation has gone up significantly in the last year.
To put a little bit more detail on the accounting extracts, the big issue here, and I'm not going to go into it in a lot of detail, there is more detail in the interim report, which I'm sure you can read at your leisure should you need some -- something to put you to sleep in the evening. But the gain on acquisition, it does impact the results for the year. And this is really, it's just simply the difference between a fair valuation of the assets under certain accounting rules and the consideration that was actually paid. And that shows as a net gain and a net profit. We are bound by IFRS, the financial reporting system that we have to follow to report in this manner. I think it doesn't necessarily make things any more transparent, but they are the rules we need to -- we need to follow.
Sorry, slipped up there. I talked a little bit about gas prices. I think the blue curve there really shows you the volatility in gas prices over the prior year and a half. So, from mid-'21 up to the start of '23, we saw phenomenal volatility in gas prices, which we benefited from at Serica, and that certainly in the first-half of last year led to very, very strong income levels. Gas prices have come off significantly, and you'll see that in the last couple of months of this year, we are down now to gas prices of under GBP1 a therm.
Historically, that is still very, very good. I think the long-term historic average for gas prices would be in the GBP0.40 to GBP0.60 a therm, with a seasonal variation. So, to have seen something, I think it's been around GBP0.80 a therm in the last couple of months, is still very, very strong. It's been a GBP1.08 a therm year-to-date, so way above the long-term average. Oil prices have been far more stable, but still relatively elevated against the long-term average. So, we're still in an era of relatively high commodity prices, but we are happy that we now have a better mix between oil and gas. I think that is a far stronger position for us.
Our hedging position is relatively modest. I mean, our gas hedges, those of you that have been invested in us for a while will remember that a year or so ago, our gas hedges were sort of a huge problem, not because of the hedges, but because of the margin requirements and the margin calls associated with them. We've been running down our gas hedges since then and really within the next couple of months, our gas hedges get down to zero.
We have some oil hedging in place, which was a legacy that was picked up with the Tailwind transaction. We have something like 2 million barrels hedged for the rest of this year at $60 -- $61 a barrel and then correspondingly smaller amounts at higher prices through 2024, so we have some hedging. And we're in the market looking for trying to find good opportunities to increase hedging going forward if we can see the right value.
So, that performance leads us to be in a position where we are still a dividend payer. You'll see that through '19, '20, '21, and '22, we've increased our dividend year-on-year. And today, we've announced an interim dividend for 2023 of GBP0.09 per share, which is up from the GBP0.08 a share that we paid in the first-half of last year and we have more shares in circulation now post the Tailwind deal, so the amount that we're returning to shareholders is significantly increased.
And I mean, to put it in perspective, there is different ways of looking at it. We're paying GBP0.09 a share as an interim dividend. It's not that many years ago that our share price was less than GBP0.09 a share. We are now able to pay that as a half year dividend. We've paid dividends, and since April 2020, we've paid or declared dividends of GBP152 million in total. So, there is a significant return of capital.
The cash position is always of interest and something that we all follow very, very closely. We've put two slides on here, the -- sorry, two plots on here. The left-hand plot is our gross cash position and you'll see that we started the half year with GBP433 million of gross cash. We ended with GBP444 million of gross cash. So, a very, very modest increase. But, during that period, we paid a GBP141 million tax bill. Some of that is in arrears and some of that is in advance. We paid -- we had a net cash outflow of GBP44 million on the Tailwind acquisition and we repaid GBP48 million of debt.
So, the debt that we acquired with Tailwind has been reduced significantly. We're trying to display that on the net cash plots on the right-hand side, which shows the waterfall that takes us from the gross cash at the start of the period to net cash at the end of the period, which is now GBP234 million. So, the debt during that period has reduced from GBP265 million to GBP210 million at the end of the period. So, again, a very -- I think, a very strong cash story and a very strong balance sheet.
Operationally, what are we going to do with that? Well, we've always been a company, and Tailwind were always a company that took pride in investing in the assets. We recognize that we are running mid to late-life assets that we bought from majors, and we recognize that the way to extract most value out of those assets is to invest in them. And I'm not going to go back through the successes of the past.
But in Serica, there was the Rhum R3 project. In Tailwind, there was the Gannet GE-04 well. That have each added significantly to production and reserves, and with relatively modest investments, have extended the life and added value to those fields. And we're not going to stop. I mean, but it's in the DNA of both companies and we're going to continue to do that.
So, in the Bruce area, we have two Light Well Intervention campaigns coming up within the next year. The first of them has started already. So, we're out there working on one of those at the moment. And these are campaigns where we go out to subsea wells, re-enter subsea wells, and really do some basic late-life or mid-life maintenance on these wells. So, going back in, cleaning the wells out, scale removal, re-perforating in order to get more flow out of existing zones. In some cases, perforating previously un-perforated zones, performing water shut-offs, and this was very successful. The campaign we had last year was very successful. We've just started this year's campaign, and we've committed to the Vessel for next year's campaign already. So that has started.
And then in the Triton Area, the ex-Tailwind asset, we have I think a really exciting four-well drilling campaign to go back. Now each of these are not exploration wells. We're not going into -- we're not trying to find new reserves here. We're trying to go back into existing fields and boost production through better sighted wells, better located wells, which can easily be tied back to existing infrastructure.
So, we believe each of these four wells will add production quite quickly, can add production without an unnecessary environmental burden, because these are all using existing production facilities. They are all using existing fields. We are not having to build new kit, and have new processing facilities. We're using what is -- what is already there.
So, the timeline of these projects looks something like this, and what you can see is the dark blue is the period of execution and the light blue circle show when we can expect to get the incremental production from these projects. So, the first LWIV is ongoing now. The four-well drilling campaign starts with the Bittern B1z sidetrack in January 2024. So, we have that rig on a four-well campaign, which will take the best part of a year. We will do the Bittern well, the Gannet GE-05 well, Guillemot well, which is less significant to us, we're only a 10% interest holder in that.
And then the Evelyn Phase 2 well, which has always been planned. So, we have that rig on contract. We'll start the work soon. All of this work is eligible for the Investment Allowances, i.e., can be sheltered against tax against the EPL, so is highly, highly tax-efficient operations and I think, as I say, an exciting -- very exciting program that starts very, very shortly.
We -- looking to the future, I guess, the next cab off the rank, if you like, will be the Belinda development. You can see from the plot to the right-hand side here, this is the Triton area. I've already talked about Gannet, Evelyn, Guillemot, and Bittern wells that are all tied back existing -- all existing tie-backs to Triton. The next planned tie-back to Triton will be the Belinda Field. It's a single-well development, a single-well tie-back discovered many years ago, been appraised, so this doesn't carry a significant exploration risk.
We've got very, very good quality data. It's a look-alike to Evelyn, which has been very successful over the last couple of years, and we have now submitted the Field Development Plan to the authorities that went in within the last few weeks. Subject to approval of that Field Development Plan, we will make the final investment decision and we are looking to drill that as quickly as possible. Now to that end, we have secured a -- an option on a rig to be able to drill that in 2025. And subject to getting all of the necessary approvals in place, we would expect to drill that in direct continuation from the four-well campaign that I just talked about earlier.
So, if I go back a slide or two, we would hope that if we get approvals in place, we'll be in a position to drill the Belinda well in direct continuation from the Evelyn well which finishes sometime early in 2025. So, we could be extending this drilling campaign for one more well and tie-back. And again, this qualifies for Investment Allowances under the EPL, which means that up to 91% of the cost of this effectively can be written-off against tax, which makes the economics of these projects, very, very encouraging.
So, you'll be glad to know that I'm coming towards the end now. I'll just try and tie all of these things together. We -- I think exit the first six months with a more diverse and balanced portfolio. We end with greater scale, so our production and reserves have both gone to a new level that are really significant and are far greater than the sum of the parts in many ways. We are seeing the benefit of those assets in terms of security of supply for ourselves, but we're starting to see the benefit of those tax losses and that is feeding through to the bottom line. And I think the results in the first-half of the year were very, very encouraging because of that.
That means we're able to continue the plan. We're able to continue the strategy. We're able to continue to invest in the assets that we've got. At the same time, it's paying dividends, and I've talked about the numbers of the amount of cash that we're paying in dividends. But we are creating significant profit so that we can invest, we can pay dividends, and we can also continue to look for the next asset. We can continue to do M&A. We can continue to look for new opportunities to grow the portfolio.
Clearly, the U.K. is -- there is a lack of certainty around the U.K. at the moment. There is a lack of investor confidence around the U.K. at the moment, that has largely been driven by the changes in the fiscal regime, by the changes in the tax regime. And that means that not just us, but everybody is cautious around investments in the U.K. We do want to do more M&A. We do want to grow the portfolio. But we're only going to do it if we can identify projects that add value, that actually fit into our structure, that fit into our ambitions, that give us the opportunity to create more value without creating more carbon.
We do have to be very, very aware of our social license to operate and we do need to be able to demonstrate that not only can we -- can we make value or create value, but we can do it without damaging the environment. We think we can do that. There are opportunities to do that in the U.K., but we're not limiting ourselves to looking in the U.K. So, we are spending time looking at opportunities outside of the U.K. and we will continue to do both. We'll continue to be looking for both.
I think the other thing is that the organization of the company has evolved. We now have a considerable number of new people in the organization that have joined us from Tailwind, that are -- and it's great that we can look at -- even some of the existing projects that we've had in our portfolio for a long time, we can look at with new eyes. I think we've got some really good people, and we've managed to -- yes, to evolve our organization, and that will continue. That's continued at Board level, and we feel we're set up to build on the foundations that we've created over the last five or so years of both Serica and Tailwind. So, then we are very, very well set up to move forward. I think these are a great set of results.
And I'm quite happy now to -- well, I'll hand you back initially to our host, who will take us through to next stage.
Question-and-Answer Session
Operator
Mitch, that's great. Thank you very much indeed for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the Q&A tab that's situated on the right-hand corner of your screen. But just while the team take a few moments to review those questions that were submitted already, I would like to remind you that a recording of this presentation along with a copy of the slides and the published Q&A can be accessed via your Investor dashboard.
Mitch, as you can see, we have received a number of questions throughout your presentation this afternoon, and thank you to all of those on the call for taking the time to submit their questions. But Mitch, if I could just ask you just to make your way through the questions and give your responses where it's appropriate to do so, and then I'll pick up from you at the end. Thank you.
Mitch Flegg
Yes. Okay. Thanks for that. And anyone who has been on these before will know that I always struggle to get through the questions, because we do get a lot, and I can see a long list there at the moment. I'll start off with -- there was a pre-submitted question, which reads as follows. At the Capital Markets Day, Steve Edwards said that Serica were considering a new country entry in Northwest Europe. The presentation made it clear that the most compelling opportunities to be found on the Norwegian Continental Shelf, and I seem to recall Steve saying, Norway would be his preferred location to set up a new beachhead. My question is, has any firm progress been made with regards to entering a new country?
I think -- I mean, whoever said, that's a good question. Thank you. I don't think you would expect me to be too specific in my answers. But I can tell you that we have been and we remain in discussions on more than one opportunity in Norway and we are looking at things in other European countries as well. This is a -- we're in a classic M&A position right now. The question is, we -- you know, the reality is that we've seen assets that could work for us. But can we find the right price, can we find the price that works for the seller and the buyer?
And that's where we are with those discussions at the moment. And what I can say is that we are not going to do a deal for the sake of it. Yes, we would like, and I'm sure Steve, I was talking to him a moment ago, sure Steve would agree with this. We would like to make that entry, but not at any cost. So, we are not just going to overpay in order to get into something just because it's in a different country. If we can find the right asset with the right profile and the right environment, we -- at the right price, we will do it. But yes, that's really all I can say on that.
Next question. The tax losses acquired with Tailwind do not seem to have been used as effectively as expected? I'm a little bit surprised by that, and he then goes -- whoever put the notes in, then goes on to say that, it talks about the slide that I showed earlier that shows Serica alone would have had a tax rate of 76%, and the combined group has a tax rate of 55%.
Yes, I mean, I think the -- I think what you have to take into account there is that the Tailwind tax losses were only applicable for the period after completion. So, had we have had the Tailwind assets for the entire half year, my instinct is that that 55% number would have been lower. So, I think we are quite comfortable with the way that the tax losses have been utilized. And to say they've not been used as effectively as expected, I don't agree with to be honest. I think they have been very effective for us. Sorry, just going back to this. There is a couple of things that I need to talk about, right?
So, the next one that I'll pick up on was, you lowered production guidance, does it mean the Tailwind fields perform much worse than expected?
Hopefully, I thought, I kind of addressed that. This is nothing about field or reservoir or well performance. This is about maintenance of topside equipment, and the maintenance of the topside equipment for both Serica and -- sorry, for both Bruce and Triton has taken longer and it's taken us longer to get back on to production. This is not lost production. It's deferred production. It -- we always expected to have a summer shutdown, it's just taken a little bit longer than expected. It doesn't mean -- and I've got to be very clear about that, it doesn't mean that the Tailwind, and I'm quoting here, it doesn't mean that the Tailwind fields perform much worse than expected.
You've seen from the plots that I put up, the performance has been very good, and the first-half performance was probably slightly ahead of where we expected to be. To be producing 49,000 boe per day from -- on a pro forma basis from those assets I think was outstanding and I have no problem with that. I'm not sure there's much more I can say on that. What I will say, with all of these things, if anyone feels I've not really necessarily answered the question, drop us an email afterwards. I may not be able to get through everything on this list as we stand at the moment, but I will do what I can.
The next question is -- it says, would be interested on the opinion of the company on its political outlook for Serica with an election to come and windfall tax?
Yes, I mean, this actually goes to the heart of everything we do. There is an election coming up, I'm not going to make political judgment or predictions, but most commentators, I believe, would say that there is likely to be a change of government. And we do factor that into our economics, we do factor that into how we look at opportunities and how we look at the assets we've already got and we do run various scenarios about various tax regimes and what may or may not happen.
However, what's more important, it's not just about the numbers, it's just about -- it's about opportunities and how we behave. I think what we've described is that we like to have what we call short-cycle opportunities. So, we like to invest in our assets, but we tend to invest in short-term projects. So, going back historically, you saw Serica invest in the R3 project, you saw Tailwind invest in the Gannet GE-04, we're invest -- we've invested in Light Well Intervention campaigns. We're investing in lots of other wells going forward.
The things that all of those projects have in common is that they pay back relatively quickly. Most of the historical projects that we worked on, pay back in months or occasionally it might take a year or so to pay back, and that tends to be the sorts of projects that we look at. In a period of a political uncertainty, the reason for liking doing that is that we are not exposing ourselves to long-term changes in tax. So, we're not getting involved in projects where we invest a huge amount of money now, but don't expect to see the return for five years. So, we are not going out exploring trying to develop new fields, trying to do big new projects West of Shetlands, which may take, I don't know, 10-years to get your money back, during which stage -- during which period you're exposed to political risks.
So, we tend to do things, that timeline that I've put up showing the activities that we are going to carry out, but almost all of that is done before the next general election will happen. Obviously, they could call a snap election early, but I think that's unlikely. But -- so, we are trying to do the short -- the short-cycle immediate projects that pay back quite quickly, whilst we've got some degree of certainty on what the tax regime is going to look like.
So, I won't make a comment on what is going to happen after the next election. I will say, I'm talking more generally now than just about Serica, talking about the industry in general, we -- there is a huge amount of engagement with politicians of every flavor. So, we are speaking -- we, obviously, do still spend a lot of time talking to the current government. We spend a lot of time talking to labor. We talk to the SNP. We talk to other parties as well. And there is definitely a -- an education job going on here.
Speaking to -- and I personally have spoken to labor politicians, to union leaders, within the last couple of weeks and they -- labor certainly have not been in power for a long time, and need some educating about how the industry works. What levers we can pull, they can pull, because we do in this country still need oil and gas, and labor politicians understand that. We are moving towards net zero.
We are moving towards generating more electricity from wind. But the wind doesn't always blow, and at the moment, gas is very, very important. The politicians know that and they need to know how we can maintain our supply. So, there is good dialog with these guys, and I'm pleased that we've got that dialog now because it's going to be important going forward if they -- if they do win -- if they do get into power.
There's a couple of questions here about the net cash position, and it's -- if that is three or four, I think probably the most succinct one says, can you confirm the latest net cash position as at the end of August? [Technical Difficulty]
Operator
Ladies and gentlemen, please do just bear with us while we reconnect. Hi, Mitch, can you hear us okay?
Mitch Flegg
I can hear you, yes. Can you hear me?
Operator
Hi. Yes, sir. Hi, Mitch. We can hear you.
Mitch Flegg
Can you hear me now?
Operator
Yes, Mitch. We can hear you.
Mitch Flegg
Okay. I don't know how much you lost of me. I was in full flow there, so I'm not quite sure. I was talking about the cash position. Apologies if you lost some of that. Yes, the -- and I've lost the questions as well now. So, I'm just going back to try and find the question that I was on. What I was saying, and I can't find the actual question, but what I was saying was that we have to be very, very careful with the cash position. There are huge, huge tax payments that are made, some that are made in advance, some are made in arrears, and trying to track the cash on a daily or a weekly or a monthly basis is a little bit futile.
So, since the end of the last quarter, we've made some significant tax payments, which aren't really indicative of a kind of steady state. So, I mean, although the number that was published is correct of 33 whatever it was, I don't have it to hand because I've lost my screen. I -- yes, I wouldn't be particularly concerned about the cash numbers. The cash numbers that we've created and put in the presentation are accurate and correct and I think that's what people should be concentrating on.
Sorry. So I'm just getting the questions back here. They disappeared from me. And there's a question here, how do you see 2024 shaping up? I think we've really -- we've talked about that in some detail, so I'm probably not going to go through that anymore.
The -- there's a couple of questions around the production increases anticipated from your well enhancement programs, and are there any areas where you would anticipate production declines over the next three years?
I think what we've shown historically and I talked about this at the start, is that we have replaced our reserves and maintain production year-on-year. If you do nothing, generally with fields at the sorts of age that we are working on, you would expect a decline of 12% to 15% year-on-year. I expect that the production enhancement programs that we are following right now and we'll continue to follow, will at least arrest that decline and I would expect a modest increase in production over 2024, 2025. So, we're not going to double production from the existing portfolio. But I would expect a modest increase in those years.
There's a question about the annual guidance. Is the annual guidance pro forma or equity-based? The annual guidance is pro forma. So, on a pro forma basis, our guidance was 40,000 boe per day to 47,000 boe per day. It's now changed to 40,000 boe per day to 45,000 boe per day. Both of those are on a pro forma basis.
Next one. What is the feedback you've received from institutional investors read today's report? Any specific reasons mentioned resulting in an SP, share price decline today?
Yes, interesting. We had a session with analysts this morning, and there have been a number of analysts that have written reports, that have been published this morning. And I know for a lot of investors, it's very frustrating because under the MiFID rules, the analyst reports are not available to all of the public, and some of it filters through in time. The three analyst reports that were written this morning were all very positive, and I've spoken to all three of those analysts who were very, very surprised at the share price movement this morning.
I mean, we often see that -- yes, it's the other thing that people buy shares in the run-up to results and sell on results, and companies often see that. I think the -- it was a surprise to us that share price fell this morning. I don't know where it is right now, and I don't -- I can't follow it minute-by-minute as we're speaking. I think there's been a slight recovery this afternoon. But we've seen a very strong run in the share price in the last month. And yes, we got a little bit of a correction today, that may just be a bunch of people taking profits. I don't know. We will analyze that as the day goes on, and when we've got the full story. But I mean, I think we are more concerned about long-term growth, about driving the company forward than we are worried about individual intra-day movements.
Another question, given you increased the interim dividend to GBP0.09, can we expect the total dividend to be at or above GBP0.25?
I mean, I think we will comment on that when we get to the appropriate time. I think it is a positive statement today. We are very happy with the health of the company and we are very happy with how the Tailwind acquisition has turned out, and that gives us the confidence to announce that increase to -- from GBP0.08 to GBP0.09 in the interim dividend. But we can't, and in fact, I'm not allowed to make -- to give too much expectation on what the final dividend is going to be. So, I'm afraid, I can't really say anything about that.
Then, relating to the realized oil price, which amount percentage of Tailwind oil production is hedged in H2 2023? When will the hedges roll off?
Well, I mean, in the presentation, we've put some detail on that. I think we've got 2 million barrels hedged in the second-half of this year, which is roughly 50% of our projected performance, and then 0.9 million barrels in the first-half of last year and 0.5 million, for memory in the second-half of next year, so that -- which will be roughly 25% and what 12% next year. So, the amount of hedging does decline dramatically as we go forward.
So, just going back through these questions. There are questions here around the debt and fixed interest rates, and I'm afraid that's outside of -- I'm afraid that I'm not really at liberty to, yes, to disclose where we are with the final details of our debt facility, other than to say that we are paying that debt off at I think quite an impressive rate. So, you would have seen earlier that we paid off GBP50 million roughly of that debt within the last six months or the last three months in actual fact.
Someone here, are share buybacks in the pipeline? The -- I mean, we have repeatedly said that we've gained the authority from shareholders in order to allow us to be able to make share buybacks. At the moment, our preferred method of returning cash to shareholders is through the dividend process. We retain the ability to do buybacks for a couple of reasons. One, if we ever got into the position where we -- if commodity prices went out of control again as they have in the past, we may find that we get into a position where we are building up cash more quickly than we can actually put it back through dividends, so we have the ability to do that.
I don't think we're in that position at the moment, because we want to keep cash on the balance sheet. Because, right now, having cash puts us in a really, really strong position for M&A. The debt markets around the world are -- well, not around the world, but around the U.K., debt markets for oil and gas are drying up. The position that we find ourselves in of having cash puts us in a good position for M&A. So, if we are not able to find M&A opportunities, if we are not able to deploy that cash through M&A, and if we start to massively increase that cash, then we would look at share buybacks. But at this stage, we believe that the amount of cash that we hold is appropriate to give us the strength and the resilience to do the M&A work that we're pursuing.
Next question. Have you bid in the 33rd licensing round? I think there were some notes on that in the Interim Report. We have put in a couple of bids on near-field appraisal projects, so discoveries that are close to our existing infrastructure. We are awaiting the NSTA announcement of those bids. It was supposed to be by the end of September. If I'm honest, I'm not holding my breath, so I'm not really -- not really sure.
What is the stumbling block in partnering in ongoing drills in the U.K. area? It appears scant such deals have been forthcoming despite the compelling tax advantages.
Yes. I think the question is, why don't we just find a bunch of partners, go out and drill a bunch of wells because it's cheap, because of the tax advantages, and that logic is good except that every company, ourselves included, have a certain amount of bandwidth. There's a certain amount of things that we can concentrate on if we want to do them efficiently and do them well and do them safely. We've got a very, very active drilling campaign coming up over the next 18-months to two years, and we've got the right people working on that.
We don't just want to throw money at other projects because it's cheap. We want high-grade projects. We want to do the projects that are -- that are right. We want to develop and mature prospects for beyond '24 and '25 and that's what we're doing right now. So, we're looking at infill drilling on Bruce, for example. But we are not going to rush out and just drill wells in places because there seems to be some short-term tax advantage. So, that's I can understand the logic, but honestly we want to -- we really want to do the right thing and to high-grade the opportunities that we have.
We've answered that one. We've answered that one. There's a question there about the net under-lift position in barrels at the end of June. I'm afraid I just don't know. I will come back and we'll find a way of getting answers to that to you. I'm afraid I do not know the answer to that.
A good question here. What is your ideal size range for M&A in pounds? And we don't always look at it in that way in terms of -- in terms of pounds, in terms of how much we pay for something. We look at things in terms of value. We want to be doing deals that move the needle, that add value to the company. We're looking for a [Technical Difficulty] to add between one-third and our current level of production, and that still is where we are.
Can you still hear me? Because I'm seeing things falling off my screen at the moment.
Operator
Hi, Mitch. You did drop out momentarily, but we do have you back on the line.
Mitch Flegg
Okay. I'm not sure which end the problem is, but I have now lost the complete list of Q&As. So, at that stage, I might hand you back to our host. Apologies for that.
Operator
Mitch, absolutely. Thank you very much indeed for being so generous with your time there and addressing all of those questions that came in from investors this afternoon. And of course, we will be able to give you back all of the questions that were submitted today, just for you to review immediately after the presentation has ended. And of course, we'll publish all those responses out on the platform where it's appropriate.
But Mitch, perhaps before really just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments to wrap up with, that would be great.
Mitch Flegg
Yes. I mean, I think, we've -- I've touched on -- hopefully, I've touched on all the high points. I mean, I think we exited the first-half of the year as a far stronger, far more diverse, and balanced company than we started. But that's not the end game. What we've created here is a fantastic set of foundations. We've got the balance sheet. We've got the people, and I've probably not talked about enough about the people, but we've got the skills and people to accommodate more assets within the company.
And so, we've built this -- this great set of foundations for us to go on and to get more value out of the existing assets but also to grow the portfolio as quickly as possible. It's a difficult -- there's a lot of -- we've talked a lot about tailwind, but there's a lot of headwinds in the industry at the moment as well. We are seeing a lot of regulatory lag. We are seeing a lot of tax issues and we are seeing the environmental lobby that are making life difficult for us. But I think we've got tools to address each of those, and I think we can achieve the goals that we've set for us. So, that's -- that really is my closing points.
Operator
Mitch, thank you very much indeed for updating investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the Management team can better understand your views and expectations. This might take a few moments to complete, but I'm sure will be greatly valued by the company.
On behalf of the Management team of Serica Energy plc, we would like to thank you for attending today's presentation. That now concludes today's session. So, good afternoon to you.
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Serica Energy plc (SQZZF) Q2 2023 Earnings Call Transcript