Serica Energy Plc (AIM: SQZ): 40 mboe/d production in 2025. Expect generous shareholders’ distribution in 2025
• FY24 production of 34.6 mboe/d had been reported previously.• The GE-05 well (Serica WI: 100%) has been brought into production at a stable rate of 6 mbbl/d after having flowed 9 mbbl/d on test. This exceeds our estimate of 3 mbbl/d. The recent B6 well had a net IP rate of over 5 mboe/d (~8 mboe/d gross) when brought online.
• YE24 net debt was US$71 mm; which is below our estimate of US$105 mm. The company expects an additional US$12 mm cash inflow from a December lifting post YE24 (to be received in January).
• At Triton, the resumption of operations with two compressors continues to be expected in 1Q25. This is crucial for providing redundancy and addressing operational vulnerabilities at Triton.
• Serica expects to produce ~40 mboe/d in 2025 with capex of US$220-250 mm. This compares with our expectations of ~41 mboe/d and capex of US$250 mm. The FY25 production guidance includes numerous contingencies due to the operating challenges faced in 2024.
• In 2024, Serica’s oil production was sold under a contract with a fixed price in the low US$60’s/bbl. This contract has ended and FY25 oil production will be sold at a level consistent with Brent. Based on our Brent and NBP assumptions for 2025 (~US$74/bbl for Brent vs. ~US$80/bbl currently and 94p per therm vs. FY25 futures in excess of 115p per therm), we forecast that Serica will generate free cash flow of >US$185 mm. This suggests that Serica can continue to fund generous shareholder distributions (~US$133 mm in 2024).
• The publication of the first contingent resources estimate in April will provide further visibility on growth opportunities beyond the 2P reserves. We re-iterate our target price of £3.00 per share.
FY25 production guidance and well performance
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%. The guidance also factors in an 80% production efficiency, along with 12 days of maintenance at Bruce (representing an additional 3% downtime) and 45 days at Triton (+12% downtime). Consequently, the overall production efficiency at Bruce and Triton is approximately 77% and 68%, respectively. In 2023, the UK's average production efficiency in 2023 was 77% and Serica achieved 80%. The R3 well at the Rhum field (netting 7 mboe/d to Serica) is coming to the end of a three week shut down.
Valuation
Our Core NAV and ReNAV of respectively £2.50/sh and £2.97/sh are broadly unchanged as we incorporate the FY25 production and capex guidance (we assume US$240 mm capex).
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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