LON:SQZ | Serica - Interesting Year Ahead

17th Mar '10 by doverbeach

30 comments 14033 reads

In January Serica announced it had farmed out Conan and Oates .

Thew drilling schedule now looks like:

- April-May Conan Prospect - UK East Irish Sea
- June/July Oates Prospect - UK Central North Sea
- Q3 Dambus Prospect Offshore Indonesia - Kutai PSC
- Q3 Marindan Prospect Offshore Indonesia - Kutai PSC
- Q4 1 onshore Indonesia well - Kutai

Summary note out today from First Energy highlighting the forthcoming drilling schedule:

The main driver for Serica Energy in 2010 will be the results from the Company’s exploration program. In 2010, a five-well exploration program will be targeting an estimated potential 160.0 MMBoe net to Serica (93.0 MMBoe offshore UK and 67 MMBoe from Indonesia).

Exploration success leading to commerciality on any of these prospects would significantly change the outlook for this junior producer. These targets have a great deal of risk associated with them, as do all offshore drilling prospects. None the less, Serica has done an effective job to de-risk these prospects through very favorable farm-out agreements.

Followed one day later by a bullish note from RBC (Al Stanton) who are Serica's broker - sorry no link:

An exciting combination of exploration drilling and solid finances: We see Serica as an attractive small-cap exploration story through 2010 with material stakes in five exploration wells within proven basins. We reiterate our Outperform recommendation and C$2.00 Target Price, which could increase significantly on exploration success.

... Serica is our favourite UK exploration play with the high-impact Conan and Oates exploration wells scheduled for April/May and June/July respectively. Fully, unrisked, the two wells offer combined upside of ~120% to our current C$2.02/share (114p) NAV.

... $40m net cash position: After completing the KrisEnergy deal and paying down debt in January, Serica has net cash of around $40m. Coupled with 2010E operating cash flows of $17m and exploration carries, this is more than sufficient to fund planned 2010 activity.

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djpreston

31st Mar '11

Just seen that RBC has cut target from 75c to 60c

loglorry

DJ do they have a risked breakdown of the assets?

Log

Just saw the bulet headline on my feed.

deucetoace

I didn't like the results for various reasons, mainly what appears to be yet another reserve downgrade at Kambuna that they have clearly known about for some time but not told the market. I agree it is cheap but then it has been cheap for as long as I can remember so, for the last time I think, I am out.

I have to agree with you duecetoace and it hasn't been my best ever investment but selling today seems wrong and here is why.

176m shares in issue
no debt
market cap £60m at 34p

Cash £13.13m or 7.43p/shr
Tax assets £78.75m or 28p/shr based on 62% tax.

Kambuna 2P Net of WI@25% 2.05mmbboe. Valued @ $20/bboe is £25m. They sold the other 25% for $100m but reserves are lower / pressure falling etc. They might be able to do something about it and they still have 3000/bpd of condensate selling at $106 and don't expect that to fall until after 2013 so I guess it must be worth at least £25m.

Columbus 2P Net of WI@50% 9.10 mmboe. OK problems with BG and its gassy so lets go for $5/bboe gives 16p/shr

Spaniards - well who knows but it is a stratigraphic trap so might be huge and a nearby well flowed at 2660/bpd. So risked I had it in at 5p/shr which is only £8m. If it comes in like Cladhan with 200m bbl recoverable then this is obviously hugely undervalued. Very high risk though at this point. Partners DEO and EO/NPE know what they are doing.

Plus other stuff - no value assigned

So very conservatively we have 36p/shr current price 34. But adding in the tax assets we have 63p/shr.

Columbus could be a lot more if they can work things out with BG.

A shot at Spaniards could be very material. Even if they farm it down to 25% but they get 100m recoverable 2P from the field that is 25m net to them @ £7.50 adds another £1.06/shr to the price.

So why sell when the assets are underpinned and you have a shot at Spaniards which might treble the price. Even if it doesn't then a takeout for the tax assets etc. seems likely around 60p to me.

DYOR

Log

Loglorry,

I accept it is cheap. It was cheap when I first bought it at about £1 about 3.5 years ago. It was cheap when I paid 70p 18 months ago, when I sold it at 50p 7 months ago and when I bought back at 40p 3 months ago and it is cheap now.

I even like to see Caledonian Investments as a good long term shareholder - they show up on various things I consider and are always a plus point to me as they have a good long term record.

Yes I know they have been unlucky with drilling - consistently.

Where does it get me to buy this cheap share is what I have to ask myself. The answer is clear.

There's plenty of stuff around that is cheap the money can go there instead. I like HGTS (I think it will double in a year) but maybe have enough for an illiquid share. I want to research San Leon Energy (LON:SLE) & consider SDUS (you no doubt have you own equally valid list). There are plenty more I can look at.

There comes a point when you have to say enough is enough.

deucetoace

tiswas

9th Jun '11

25p to buy today so I added a few.

I see that RBC had 25p core and 20p risked upside for a total NAV of 45p and 67p for unrisked upside making 113p.

Not sure where the tax losses fit in to this but with cash and Kambuna alone surely that is enough to underpin a £45m market cap?

Isaac

22nd Nov '11

I'm back in having watched and waited a long time.

Good discussion here : http://boards.fool.co.uk/serica-for-sale-12414658.aspx?sort=whole

28th Nov '11

It really does knock common sense when you have some experts asking the crowd for advice as to whether they should continue holding Aminex, I mean surely anyone that excercises common sense will indicate the one well punt nature of the stock is high risk - one that is not necessary to take in the current environment?

Why would any sensible investor take such a risk in the current environment when there are ample opportunities with multiple drilling programmes and are significantly undervalued & are certainly not one well punts?

To highlight two posts on ADVFN :

lanaken - 28 Nov'11 - 11:28 - 2338 of 2340

Hi CNF,

Anyone not looking at that presentation and not concluding that SQZ is very undervalue and there is value enhencing news in the pipeline isn't that much of an investor, imv.

repo

CaptainNelsonForties - 28 Nov'11 - 12:11 - 2339 of 2340

Repo,

Absolutely, its all there in black and white. We're trading at less than half of the current discoveries, producing assets and cash flow let alone any of the exploration assets. Its clearly a buy and hold at present. If we get a major in on Namibia or Atlantic margin it will attract the crowds, also any promising numbers from the Atlantic margin or Namibian seismic once processed would do the same. But even on Kambuna, Columbus and Spaniards it looks like fairly easy money for those that are prepared to wait.

Captain Nelson Forties

repobear

Isaac,

OK then then here goes, corrected version;-)

http://uk.advfn.com/cmn/fbb/thread.php3?id=24518801

'Hi CNF,

Anyone looking at that presentation and not concluding that SQZ is very undervalued and there is value enhancing news in the pipeline isn't that much of an investor, imv.

repo'

http://www.serica-energy.com/fileadmin/user_upload/Presentations/Serica_Road_Show_Nov_2011_Final_Reduced.pdf

The last few slides seem to indicate to me that after a period in the doldrums we might get some value enhancing news soon.

As to Isaac's point. You get a less exposed ride on Tanz chucked in for next to nothing too. So maybe he's got a point. Plus if that fails you're still in the game with loads to play for and if it doesn't you won't get diluted out of sight.

A bit more colour here from doverbeach after the AGM on this site.

'Here are my notes from this morning's AGM for Serica Energy (LON:SQZ) . First, the Chairman's statement was memorable not just for its length (it took 30 minutes to read out) but for its depth. I urge anyone who is interested in the trials of running a small E&P, especially one with assets in the North Sea, to take the time to read it in full, even if you have no interest in Serica itself..

I think they've turned the corner. Views?

Is the Tanz acreage any good?

repo

Could I ask why the two people who gave Isaac's last post here the thumbs down did so?

Is it because it's a habit or do you think he wrote a load of rubbish. If it's the latter please tell me why you disagree?

I am all ears.

repo

nigelpm

Because this thread is for discussion about Serica NOT Aminex.

Hope that is clear enough.

nigelpm,

Thanks for answering, and I know Isaac and myself, have got a thing about AEX, but if you read the post and the quotes, it was about SQZ and it made a fair point too.

repo

I must say that a lot of you people are playing to the crowd. Too many of you aren't interested in making money. The site is ok, but too many of the participants are dead from the wallet up.

neg recs welcome;-)

My final post as I'm totally uninterested in getting in silly meta discussions.

Isaac cited Aminex and then copied a couple of posts from ADVFN.

I will always thumb down that kind of post as it's utter drivel IMHO.

Playing to the crowd doesn't interest me. Making money does.

You can think what you like Nigel.

One thing I am pretty sure of is Serica will go higher then the current price over the course of 2012.

You may think that's drivel, but that's your problem.

I can't be bothered to re-type what has been said elsewhere.

I will express my thoughts where appropriate as I always do, but no need to re-write what is out there. I merely point out for those who can't think for themselves and need a bit of guidance.

peterg

29th Nov '11

One thing I am pretty sure of is Serica will go higher then the current price over the course of 2012.

You may well be Isaac, and it's even possble you will be proved right (I hope so, I bought a few this a.m.), but it has nothing to do with the point Nigel made, which is about yet one more irrelevant and out of context dig from you at holders of AEX. Of all the people on this BB you are clearly the one with by far the closest emotional attachment top AEX of anyone, your's just happens to be negative and you seem incapable, for reasons known only to yourself to, to avoid continuous digs at those who have a different view from yours. That repo was unable to see anything wrong with your post is sadly no surprise, as he apparently shares your disdain for anyone who has different views on investment from him, judging by the post from ADVFN that you quoted below.

I have respect for some of repo's views on stocks, and I have found them useful in the past. I have also found your comments of worth at times, but sadly the continual need you both seem to share to put down those who don't share your views tends to detract from the worth of your posts. If you were the great investor you think you are then you would realise that having people have different views about stocks and approaches to investing you is not only part and parcel of the market, it's also how you make money (assuming of course you are right) so you should be welcoming disagreement instead of continually trying to put down those who don't share your views.

Hi peterg,

I haven't had anything but criticism for AEX for the last couple of years and the share price action tells you that I have got this one pretty much bang on. However I've never said that it couldn't come right and I believe I indicated that again in a recent post to which you responded,

The facts seem to be that they have about a 20% CoS on the next well, though looking at the history of drills in the area that seems low, maybe very low. However there is about a 100% chance that after the next drill they will be out of cash. In the current climate that isn't a good situation, even with a drilling success on their hands.

I am half tempted to buy some shares, but there are better options out there, imv .

Someone, not Isaac, said to me today that he thought AEX were a bunch of crooks. That maybe a bit strong but I can understand where that shareholder is coming from. I don't hold because of the high propensity to screw things up, the constant feeling that every piece of news raises more questions than delivers answers and because the long term shareholder have been the losers here and management has had two decades of doing very nicely, thank you.

That said I half expect the next drill to come off, but again I suspect most of the fans will be too stunned to believe/ already have more than enough shares/ worries about future financing will probably give the opportunity to buy in if I, too, can get over the shock.

If I don't or can't , I'll wish you all luck and will admire the long term holders' patience here and hope they get their rewards. I don't have a problem if I miss a few investment buses. There's always another one coming along.

As regards SQZ, although you criticised the tone of my observation, you certainly agreed with it by putting your money where my mouth was;-) Take a look at the Antrim board on ADVFN and you can do the same again.

I like your posts for the most part, even when you get a bit arsey with me, because you try to be both informed and constructive.

best,

repo

PS That comment about my disdain for people who don't share my investment views was a bit off the mark in my view and certainly if taken outside of the AEX context.

Peter

Your a poster I respect and appreciate - I won't give you a hard time regarding your post, but will merely say I agree with most of the points made by Repo.

Whoever told Repo that Aminex management are crooks, well I can't really agree with that view as credit to them they put their hand in their pockets and bought shares around 7p. I respect that.

And I hope people don't take my posts personally as it is not intended, I would like to see others do well and sometimes I can come across quite agressive in expressing my views, but I can assure you it is well intended.

Having followed these boards and TMF for a number of years now it is always good to see the same old faces & the exchange of views.

Anyway it's almost xmas, so hopefully people will start to feel more merry and cheery. I think the Xmas rally has started already....A bit of Paul Mcartney to lighten the mood...

http://www.youtube.com/watch?v=ZGAqz4dLHuw

This is an interesting programme this evening :

Money

Series 1 - 1. Who Wants to Be a Millionaire?

Featuring Robert Kiyosaki on BBC 2 at 9PM - Also available on iplayer for those that miss it.

http://www.radiotimes.com/episode/ntdnh/money--series-1---1-who-wants-to-be-a-millionaire

davjo

AEX.....However there is about a 100% chance that after the next drill they will be out of cash. In the current climate that isn't a good situation, even with a drilling success on their hands.

Well I for one don't expect them to be out of cash, albeit they won't have a lot. I don't expect them to attempt raising new equity either because imo that door will effectively be closed. My feeling is that they'll manage the company from existing resources, bringing Kilwani gas on stream and maybe drill at least one Shoats Creek well and live off gradually increasing c/flow. In the meantime, I'd guess farming out Tanzania will be high on the agenda as the only way forward. Alternatively, a sale of assets is possibly on the cards. In that respect, one could point to the new CEO's appointment on the back of steering Sibir's sale.

Whilst AEX has proved to be my worst investment to date, it's pretty hard to see any downside at the present SP level, even in a fire sale. For that reason, it's quite an attractive hold in the short term at least for say a speculative 20% rise on unexpected news relating to any of the above. Of course, nobody could rule out a sale at 5p/sh or above. I don't see the odds being very different between AEX or SQZ in terms of SP appreciation from where they are now. Indeed, AEX may have the edge ;-)

For that reason, it's quite an attractive hold in the short term at least for say a speculative 20% rise on unexpected news relating to any of the above. Of course, nobody could rule out a sale at 5p/sh or above. I don't see the odds being very different between AEX or SQZ in terms of SP appreciation from where they are now. Indeed, AEX may have the edge ;-)

Well the point I am making is one can get a bigger bang for thir buck then just 20%.

When I invest I try to look for atleast 50% & possibly 100%, so that although the actual 50-100% maybe difficult to get and it will take a lot of time and patience, the first 20% should be fairly easy to get.

I would'nt Invest in companies that only looked to offer 20% upside unless it was a FTSE 100 company in which case there is more certainty of making money.

I think with Serica atleast a doubler is possible perhaps within the next 6-12 months, the likes of HOIL/SOCO/BLVN are far more attractive then Aminex and I would see those as being less risky.

But they are my views, others may choose to disagree.

Serica - interesting year ahead

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Doverbeach

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