Serica Energy Plc (AIM: SQZ): Increasing materiality with exposure to UK gas
• FY25 production and YE25 net debt were previously disclosed.• FY26 guidance of 40+ mboe/d is reiterated. YE26 output remains guided at ~65 mboe/d.
• The guidance is unchanged despite 1Q26 production being impacted by a 24‑day maintenance shut-in at Triton. Legacy assets still averaged 38.5 mboe/d YTD, rising to 50+ mboe/d after Triton resumed on 9 March.
• Adding the pro forma contributions from the recently acquired assets (not all the transactions are completed yet), production is running at ~70 mboe/d, underscoring the scale and depth of the enlarged portfolio.
• The GLA acquisition has closed, with a US$56 m completion payment to Serica and ~5 mboe/d added. West of Shetland offers opportunities going forward, both through Serica’s own production and third-party business at the Shetland Gas Plant.
• Given the strength of UK gas prices, there is potential for positive surprises in Serica’s favour in the closing payments due on the remaining acquisitions (ONE‑Dyas: 3Q26, Spirit Energy: 4Q26).
• Serica declared a £0.10/sh final dividend, bringing distributions for 2025 to £0.16/sh (~6.3% yield).
• With gas representing 54% of 2P reserves and 50–60% of 2026–27 production, Serica is uniquely positioned to take advantage of the current very high‑price environment. At £1.08/th in 2026 (strip >£1.30/th), we forecast ~US$185 m net cash at YE26 (vs US$200 m net debt at YE25).
• Updating our forecasts and commodity assumptions, we raise our target price from £3.15/sh to £3.35/sh.
Reserves and resources addition
YE25 pro forma 2P reserves are estimated at 138.5 mmboe, a material increase of 19%, with 116.8 mmboe from the legacy assets. The company has almost entirely replaced its FY25 production through the booking of ~8.5 mmboe at Kyle. Additional infill opportunities have been identified at Bruce, adding 18.5 mmboe of 2C resources, while Wagtail contributes a further 8 mmboe of 2C resources. The reserves and resources additions showcase the depth of Serica’s portfolio. We expect to hear more at a Capital Markets Day later next quarter.
Valuation
We have increased our Core NAV from £2.86/sh to £3.12/sh, while our ReNAV rises from £3.15/sh to £3.35/sh. This reflects updated Brent and NBP assumptions of US$71/bbl and £0.89/th for 2027, US$70/bbl and £0.81/th for 2028, and US$70/bbl and £0.80/th thereafter. Under these forecasts, we expect Serica’s cumulative free cash flow to 2030 to exceed its current enterprise value.
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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