Serica Energy Plc (AIM: SQZ): Another accretive gas acquisition
• Serica is acquiring a Southern North Sea (SNS) asset package from Spirit Energy for ~US$74 mm, with an effective economic date of 1 January 2025. The assets produced 13.5 mboe/d in 1H25 (96% gas) and hold 18.7 mmboe of 2P reserves. Completion is expected in 2H26, with an expected modest cash payment at closing.• Key assets acquired include: (1) a 15% WI in Cygnus, one of the UK’s largest gas fields (operated by Ithaca), contributing 8.6 mmboe net 2P reserves and 4 mboe/d net production, (2) operated positions in the Greater Markham Area, delivering 7 mboe/d net production, including 100% of Chiswick (5.6 mmboe net 2P reserves) and 92.5% of Grove (1.2 mmboe), (3) a 54% WI in Eris and 90% WI in Ceres, with net production of 1 mboe/d and (4) a 25% non-operated WI in Clipper South, contributing 1.4 mmboe net 2P reserves and 1.2 mboe/d production.
• Spirit Energy will retain decommissioning liabilities for the operated assets, capped at 115% of current estimated costs.
• The acquisition is being executed via the recently acquired Prax, which holds substantial tax losses (we estimate RCT of ~US$0.74 bn, SCT of US$0.63 bn, and EPL of US$0.34 bn). The transaction showcases the company’s ability to create value in the UK North Sea. It is immediately accretive and the acquired assets are expected to generate ~US$100 mm in free cash flow over 2027-2028, following the modest upfront payment. Residual pre-tax decommissioning liabilities of US$60–70 mm are anticipated in the early to mid-2030s.
• We have increased our target price from £3.05/sh to £3.15/sh.
Knowledge of the acquired assets and running room
Chris Cox, Serica’s CEO, brings direct operational insight to the transaction, having previously served as CEO of Spirit Energy. His familiarity with the acquired portfolio enhances Serica’s ability to unlock value from these assets. The acquisition offers material upside potential through identified growth opportunities, including: (1) infill drilling at Cygnus (subject to approval), which could unlock additional reserves, (2) future drilling at Clipper South, both within the block and in adjacent areas, with the potential to significantly extend field life, and (3) incremental development at Grove, Chiswick, and Kew, alongside broader exploration, appraisal, and third-party tie-back opportunities in the Cygnus area.
Valuation
The transaction adds £0.31/sh to our Core NAV/ReNAV but our overall NAV increases by only £0.11/sh to £3.13/sh to reflect our lower NBP forecasts of £0.69-0.70/th for 2026 and 2027 and £0.75/th thereafter (from a flat £0.84/th previously). We estimate aggregate FCF in excess of US$1.0 bn over the 2026–2028 period.
Serica Energy is an independent oil and gas company with production, development and exploration licence interests in the U.K. Continental Shelf and exploration interests in Ireland, Morocco and Namibia. As of Dec 31 2016, Co. had proved plus probable reserves of 3.8 million barrels of oil equivalent, which consisted of 2.1 million barrels of oil and 10.40 billion cubic feet of gas.
Auctus Advisors is a specialist Equity Capital Markets and Advisory business with a focus in the Energy Sector.
The partners have complementary skill sets, with decades of experience across Equity Capital Markets, Investment Banking and the Energy industry. We have worked at Société Générale, Canaccord Capital, BMO Capital Markets and Schlumberger. Most recently we have worked together for many years at GMP FirstEnergy.
Auctus has been set up at the beginning of a new decade in which we see significant opportunities in the Energy space. Globally, demand for energy is at record levels and continues to grow. Conversely, investment in traditional energy sources has been severely constrained. We believe this imbalance creates opportunities for both companies and investors.
Auctus provides Corporate Broking, Equity Research and Investment Banking services.
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