Serica Energy Plc (AIM: SQZ): Triton shut down until March: frustrating but unlikely to be too impactful
• Production at Triton has been suspended due to issues caused by Storm Éowyn, which resulted in minor damage to one of the cargo tanks. While preparing to conduct repairs, an integrity issue with a coupling in the inert gas line required for purging the tanks was identified. The FPSO remains offline pending identification of the root cause.• Production is now expected to restart in mid to late March, but the summer maintenance shutdown could also be longer than the expected 40 days as further safety and integrity investigations are conducted.
• The FY25 production guidance of ~40 mboe/d is under review.
• While the shutdown of Triton is likely to impact FY25 financials, this could have limited materiality for several reasons.
• The FY25 production guidance already factored in 80% production efficiency, including 45 days at Triton (12% downtime) for a total of 68% production efficiency. Assuming two months of shutdown in 1Q25 and a further 1.5 months in 3Q25 implies approximately 70% production efficiency.
• The FY25 guidance is based on the P90 profile of the new wells. So far, the wells have performed well above expectations, exceeding our assumptions by 60-100%. Production in February (excluding Triton) averaged 27 mboe/d to date.
• Given the nature of the required work (welding, …), we expect the costs associated with the repairs to be minimal.
• UK gas prices have been much higher than forecasted so far in 2025 (134p per therm vs. 100p per therm in our model). Even assuming a worst-case scenario of FY25 production in line with FY24 (34.6 mboe/d), this would still lead to operating cashflow (after tax and net of financial costs) of ~US$290 mm. This compares with the FY25 capex guidance of US$240 mm. Given the cash generation to come, it should not be presumed that the dividend will be cut, in our view.
• Pending further details on the new guidance, we re-iterate our target price of £3.00 per share.
Triton life extended to 2040. 2nd compressor restoration on track
The 2nd compressor is still expected to be available by the end of 1Q25. A third-party engineering study has confirmed that the life of the Triton FPSO could be extended well into the 2030s. Our model currently assumes 2034. An extension could have positive implications for reserves and resources.
Valuation
Pending further details on the new production guidance, we have not changed our estimates. Our Core NAV of £2.50 per share and our ReNAV of £2.97 per share remain unchanged.
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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