Serica Energy Plc (AIM: SQZ): Compressor at Triton back on line
• The first compressor at Triton has been repaired and the platform is expected to be back online this week. This represents a few weeks’ delay but the restart will boost production materially.• With the recent addition of the B6 well (>5 mboe/d net), total production was already over 50 mboe/d on 2 October. Since then, the Gannet GE-05 well has been tied-in and the EC1 well (Guillemot NW field) has reached TD (first production in 1Q25). Overall, we forecast that Serica could produce ~48 mboe/d in 1Q25 assuming no further problems at Triton.
• The second compressor at Triton continues to be expected to be repaired in 1Q25. This will provide some redundancy and address the operational vulnerability at Triton.
• As a result of Triton coming back later than expected, the company has reduced its FY24 production guidance to 37 mboe/d (we forecasted 39.5 mboe/d).
• The FY24 opex and capex guidance is unchanged but with the lower FY24 production plus the proceeds of the Triton December lifting (0.4 mmbbl or ~US$24 mm) now expected to be received in January, we now forecast YE24 net debt of ~US$45 mm.
• While our YE24 net has increased, we note UK gas prices (NBP) now stand at ~£1.20 per therm. With Russia cutting gas supplies to Austria, the fundamentals for UK gas prices in the near term are very strong. Serica continues to be committed to significant dividend returns. All else being equal, we continue to forecast >16% dividend yield for 2024.
• We re-iterate our target price of £2.90 per share.
Reflections on Capital allocation
UK NBP futures stand at an average of >£1.10 per therm in 2025. Assuming FY24 production of only ~41 mboe/d (compared to 1Q25 production capacity >50 mboe/d) and Brent prices remaining at current levels (~US$73/bbl), we forecast that Serica could generate ~US$500 mm of operating cashflow (post tax and interest) next year. Even assuming FY25 capex in line with FY24 (US$270 mm), this would lead to US$230 mm free cash flow. This leaves ample running room to fund a dividend at current levels (~US$115 mm) and/or make acquisitions. The new fiscal terms stability in the UK has generated multiple opportunities for the company.
Valuation
We have reduced our Brent price forecasts in 4Q24 and 1Q25 from US$80/bbl to US$75/bbl but have increased our NBP forecasts from £0.94/sh to £1.10/th in 4Q24. As we incorporate the later production restart at Triton, our Core (2P) NAV and ReNAV are broadly unchanged at ~£2.44 per share and £2.84 per share.
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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