Serica Energy Plc (AIM: SQZ): Depth, breadth, and a cash windfall

• Serica is acquiring Prax Upstream from administrators for ~US$26 mm, adding 8–10 mboe/d net production in 2026 and 11 mmboe of 2P reserves, diversifying exposure to a key growth basin.
• Prax holds a 100% WI in Lancaster with 2.6 mmbbl 2P oil reserves, 3-4 mbbl/d production forecast in 2026 (given COP in 3Q26).
• Prax has also executed two SPAs (closing in 1Q26). Serica will acquire from TotalEnergies a 40% WI in the Greater Laggan Area (GLA), a gas producing hub (4.6 mmboe 2P reserves and 5.4 mmboe 2C resources, 5 mboe/d in 1H25) in the West of Shetland. The second SPA covers ONE-Dyas’ 10% WI in Catcher and 5.21% in the Golden Eagle Area (GEAD), contributing 2.9 mboe/d of production in 1H25, with 3.7 mmboe of 2P reserves (mostly crude).
• The transaction is immediately cash accretive. Net of the ~US$26 mm consideration, we estimate that the deal could boost Serica’s YE26 net cash by ~US$200 mm, including US$100 mm on completion of the various transactions (interim free cash flow since effective dates), US$50 mm incremental FY26 free cash flow from the acquired assets and the balance from using Prax’ US$0.3 bn EPL tax losses.
• The ~US$200 mm net cash uplift by YE26 alone more than offsets the c.$150 mm decommissioning costs related to Lancaster, Catcher and GEAD. The remainder of the decommissioning is estimated at US$200-250 mm post tax at GLA, and it is only due well into the 2030s, with plenty of opportunity for this to be pushed out. We have increased our target price from £2.70/sh to to £3.15/sh in line with our new ReNAV.

Strategic access to the last UK North Sea growth area
GLA, to be operated by Serica, is the cornerstone of the acquisition for several strategic reasons. First, the area is gas-rich, aligning more closely with Westminster’s energy priorities than oil. Second, while production at Laggan, Tormore, Glenlivet, and Edradour is declining, the West of Shetland remains underdeveloped and offers substantial growth potential - including organic opportunities such as a Tormore infill well, the Glendronach development, and over 400 mmboe of net prospective resources across exploration blocks. Third, the acquisition includes the Shetland Gas Plant (SGP), only commissioned as recently as 2016, which is central to the region’s gas gathering system. With limited new infrastructure in place or planned, control of SGP provides strategic leverage for future asset consolidation. Importantly, new production also defers GLA’s decommissioning timeline.

Valuation and financials
Our Core NAV and ReNAV increase from £2.39/sh and £2.69/sh to £2.94/sh and £3.18/sh respectively.