Serica Energy Plc (AIM: SQZ): Potential bond issue to increase liquidity
• Serica is evaluating a potential bond issue in the Nordic market. Given its strong balance sheet and high free cash flow (net debt has been reduced from ~US$200 mm at YE25 to US$78 mm), we view this as a shrewd tactical move to take advantage of favourable bond‑market conditions.• Proceeds would be used to repay drawings under the existing US$525 mm RBL and so would not increase debt, while leaving the full undrawn amount of the RBL available, therefore materially increasing available liquidity for Serica’s next phase of growth and insulating the company from commodity‑price volatility.
• Serica has an exciting portfolio of growth options, with the focus on rapid-return projects, such as Bruce infill drilling, which has the potential to go from drilling to production in 12-18 months. We expect greater clarity on the organic growth outlook at the Capital Markets Day, scheduled for 2 June.
• As well as future-proofing the balance sheet for the organic growth phase, the undrawn RBL would preserve acquisition firepower for opportunistic deals as the company continues to seek value accretive M&A opportunities.
• The portfolio has generated strong cash flow year‑to‑date, reducing net debt by US$122 mm and putting Serica on track to move into a net‑cash position by mid‑year. This is a positive story for credit investors, and we believe that pricing on a new bond could be comparable to the current RBL.
• We re-iterate our target price of £3.35 per share.
High production
Production was 39.1 mboe/d in 1Q26, increasing 25.6% to 49.1 mboe/d so far in 2Q26. The FY26 production guidance of “significantly over 40 mboe/d” is unchanged.
Valuation
Our Core NAV and ReNAV stand at £3.07/sh and £3.30/sh, based on Brent and NBP assumptions of US$76/bbl and £1.08/th for 2026, US$71/bbl and £0.89/th for 2029, and US$70/bbl and £0.80–0.81/th thereafter. We forecast that Serica could hold ~US$145 mm in net cash by YE26 (YE25: ~US$200 mm net debt).
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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