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.