Serica Energy Plc (AIM: SQZ): Operations on track. High net cash.
• 2023 production to date was 43,781 boe/d. very close to our expectations of 44.3 mboe/d.• Production in June at the Bruce Hub of 25,771 boe/d was particularly strong following the recent Light Well Intervention Vessel campaign. This partially offsets the low production in May at the Triton Hub following a trip of a compressor that shut down production for three weeks (the production at Triton has been restored since then).
• A 90 day well intervention campaign at Bruce from mid-July is likely to have a further positive impact on production. Bruce is expected to be shut down for maintenance for only one week in 3Q24.
• The second compressor at Triton (which provides redundancy) is expected to be repaired in October due to pare part lead time issues. Meanwhile, with a single compressor in operation, the risk of production shutdown is higher. However, with the platform expected to be shut down for maintenance for 40 days from 1 July, the period of vulnerability is only 1.5 to 2.5 months.
• The Bittern B1z sidetrack has encountered an oil filled reservoir in line with expectations. We carry an additional ~3 mbbl/d production from this well once on stream.
• Keith is now on stream with intermittent production. Production is expected to be continuous once the topsides at the Bruce platform are optimized. This is expected to be resolved in a few weeks’ time.
• Erskine is offline for the planned turnaround of the Lomond platform. The field is expected to restart in late July.
• We continue to believe that the share price more than discounts a “worst case” for tax regime changes. With FY23 production guidance of 41-46 mboe/d (unchanged), we re-iterate our target price of £2.90 per share. The current run rate dividend implies a yield of ~17%.
High net cash
Serica held ~£120 mm of net cash on 26 June. Correcting for production, capex (~£80 mm for capex instead of our forecast of £85 mm), this is £25 mm higher than we expected. Pending the publications of the 1H24 accounts, we have assumed that this reflects a positive change in working capital. As we incorporate overall expected spending, we now forecast YE24 net cash of ~£105 mm (~+£10 mm vs previous expectations).
Valuation
Our Core NAV and ReNAV are broadly unchanged at respectively £2.61/sh and £2.92/sh. The Buchan Area (FID pending clarity on fiscal terms) has an unrisked NAV of £0.19/sh while taking FID at Kyle could add a further £0.10/sh. Adding 3 infill wells at Bruce (beyond the 2 wells already in the 2P reserves) adds £0.21/sh and success at Skerryvore is worth £0.19/sh.
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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