Serica Energy (SQZ.L AIM All-Share, Market Cap £921m, 338p, 10.2% of JIC Portfolio, (Low Risk/High Reward, 7.5% target) www.serica-energy.com
North Sea oil & gas producer responsible for 5.0% of total UK gas supply. 80% of production is gas.
Conclusion: Given that it is under pressure from Kistos to do a deal, it is not surprising that Serica has updated the market, focusing on how it is adding value through operational improvements. It also sounds confident on North Eigg, which will be transformational if it comes in. On the Kistos offer, when presented, it valued Serica at 382p. Since then, Kistos' share price has gone up, meaning it now values Serica at 394p. I’m sure things are going on in the background – hopefully, a deal will be done that fairly values Serica’s contribution to a combined entity. In the Board of Serica, I trust. Happy Holder!
Mitch Flegg, Chief Executive of Serica Energy, commented:
"I am delighted with the significant progress that Serica has continued to make during 2022. The impact of the substantial investment programmes undertaken in the last three years has seen increased production levels providing responsibly sourced gas to the UK domestic market, protecting security of supply, and reducing the UK's reliance on imports as part of the transition to a lower carbon future.
Commodity prices have been exceptionally strong during the period with a resulting positive impact on income.
Serica has no debt, limited decommissioning liabilities and with growing cash reserves, is well positioned to continue to invest in further projects and other opportunities to add shareholder value. We have just completed a well intervention campaign on Bruce that has boosted net production by over 3,000 boe/d and provides further evidence of the value in Serica's assets that can be realised through measured and expert operatorship.
Operations have also commenced on the North Eigg exploration well with potential for transformational results, while we are now accelerating further well intervention work on Bruce and Keith following the success of the recently completed campaign."
Bruce field well interventions have resulted in improved production, and the ongoing programme should add value and extend the life of the Bruce facilities. The results were at the upper end of expectations, and it expects an uplift to its independently assessed reserves.
On North Eigg, it sounds very confident:
“Operations have commenced on the high-impact and potentially transformational North Eigg exploration well. This gas prospect is located close to Serica's operated fields and infrastructure and is estimated to contain 60 mmboe (P50) and potentially over 236 mmboe (P10) of recoverable resources (both unrisked). It shares many geological similarities with the adjacent Rhum field. It is clearly defined on 3D seismic, which is interpreted as a structural trap sealed against the East Shetland bounding fault.
If successful, the development scheme could be via a tie-back to the nearby Serica operated and 98% owned Bruce facilities. Tying back to Bruce would minimise development emissions, reduce overall carbon intensity of the Bruce facilities and extend infrastructure life.”
"Earlier this month, Columbus reached the milestone of having produced one million barrels of oil equivalent gross. Although production rates have been lower than anticipated, the field continues to benefit from strong commodity prices."
The bottom line: No change to current production guidance for 2022
“Production performance in 2022 is benefitting from the significant investment in the Rhum R3 well reintervention, the Columbus development project and now the LWIV campaign. Serica's average net production in July has averaged over 29,150 boe/d, and YTD average net production is 26,832 boe/d. Over 85% of our net production is gas.”
It is benefiting from high gas prices, which averaged 177p per therm so far in 2022 v 113p/therm in 2021.
The table below shows the volatility, but gas prices are up at the levels seen in January and February after a dip in May and June.