#SQZ Serica Energy acquisition

Saturday, Nov 25 2017 by
13

Is anyone looking at Serica recent acquisition announced last week and have any thoughts on it value and future for the company?

It appears to be a step change for the company taking it from around 3k boe to over 21k with no fund raising, no debt and already making circa $20mill profit from existing erskine platform alone with a number

See transaction pres here:
http://www.serica-energy.com/presentations

I already had a large position in this company but finding it hard to assess it value, some on twitter...seem to have put some good cashflow analysis together suggesting the company 'could' have an implied market cap value of circa £500mill off this deal (@sharesearch) .. thats obviously a huge increase form current £70m market cap but seems not unreasonable assumptions made..

any thoughts greatly appreciate.








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Serica Energy plc is a United Kingdom-based oil and gas company. The Company has exploration and development activities based in the United Kingdom, Ireland, Namibia and Morocco, and an economic interest in an oilfield offshore Norway. The Company's segments include UK, Ireland and Africa. It holds licenses in the Central North Sea and the East Irish Sea, which includes the Columbus Field. It holds Frontier Exploration Licenses for Muckish, Aghla and Derryveagh, and Liffey and Boyne Prospects. The Company also holds interest in Blocks 113/26b and 113/27c, including the Doyle prospect. It holds interest in Block 113/22a, which is operated by Zennor North Sea Limited. The Company has interest in a Petroleum Agreement covering Blocks 2512A, 2513A, 2513B and 2612A in the Luderitz Basin, offshore Namibia in partnership with other companies. The Company has working interest in the Sidi Moussa license. The Company has an economic interest in the potential development of the Vette field. more »

LSE Price
135p
Change
 
Mkt Cap (£m)
357.4
P/E (fwd)
2.6
Yield (fwd)
n/a



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38 Posts on this Thread show/hide all

Noodle Hat 12th Dec '17 19 of 38
3


Afraid not. I think you pretty much ignore Keith. Rhum being the jewel in the crown. Some links below to some other peeps calcs and barons summary of the peel hunt note. Yes I know Twitter but makes for interesting reading


https://twitter.com/barondaytrading/status/936212664451289088

https://twitter.com/sharesearch_/status/933627973277769728

https://twitter.com/barondaytrading/status/938367093514428416

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petroleum1 13th Dec '17 20 of 38
1


BlueFrew , Noodle Hat

As the Forties pipeline will be out of service for "weeks", I think it could be a good idea to sell now and buy back later. Your views are greatly appreciated.

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Noodle Hat 13th Dec '17 21 of 38
2

Petro.

I've no intention selling anytime soon. A short shutdown that affects alot of other oilers has no impact on the short/ med or long term investment case here. The value is I the deal that begins cash gen in Jan. Hopefully the production will start asap but any dip will be very short lived in my opinion.

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BlueFrew 14th Dec '17 22 of 38
3

In reply to post #253518

I take the view I did last time Erskine was shut in for maintenance. The oil isn't going anywhere. The investment case is, how much the oil is worth and how much will it cost to pull it out of the ground versus the market cap of the company. A 3 or 4 week shut in doesn't change the investment case much. If anything 3-4 weeks extra production from BKR is worth more than 3-4 weeks production from Erskine. So we can add the extra BKR production on. But it's a rounding error in the scheme of things.

The share price has hardly changed since the stoppage, other than a dip on the first trading day after it. Spread and trading fees could quite easily cost you pounds instead of saving you a few pennies.

Ultimately I hope that the integration of the BKR fields will go well and as a result the company will be worth significantly more than it is now. If things don't go so well, I hope that the downside is limited from here. So I like the risk-reward. But the time to judge is when we have information via RNS as the integration proceeds over the next year. What happens before we've even been handed the keys is utterly irrelevant.

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GAMBLORIV 24th Dec '17 23 of 38
1

This acquisition changes the scale of this company entirely. 2018 will be a huge year.

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Edward John Canham 1st Jan '18 24 of 38

Hi

Interested in this share, however, Reuters feed:-

A BP North Sea field to test U.S. policy on Iran
Thomson Reuters Mon 27th November, 2017 11:20am
(Repeats story from Friday)
* Serica acquires Rhum field from BP, co-owned by Iran
* Serica to seek U.S. licence to operate in Rhum field
* $400mln deal with BP hinges on licence, chairman says

I can find no more - is anyone aware of anything else?

Phil

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BlueFrew 2nd Jan '18 25 of 38
1

In reply to post #291213

The Iranian Oil Company owns the other half of Rhum. They need a licence to ensure that US personnel can help in the event of specialist help being needed in the event of a serious incident.

The full details are on page 42 of the Admission Document available on the Serica website.

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Edward John Canham 2nd Jan '18 26 of 38

In reply to post #291328

I got that. But:-

"$400mln deal with BP hinges on licence, chairman says".

Does this mean there is a significant/moderate/minimal risk it could go from a 80p share back to a 30p share if the US decides to be an a**e (a certain funny coloured toupee in the Whitehouse who dislikes Iran)?

Phil

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RomanShare 3rd Jan '18 27 of 38
3

In reply to post #291638

Minimum risk in my view. Not sure if I can paste links here? I pasted article below that should answer your concerns.

"London-based Serica Energy that recently acquired a stake in Rhum Gas Field, co-owned by Iran, is willing to invest in Iran's lucrative oil market upon the completion of the Rhum project.

Tony Craven Walker, Serica's executive chairman, made the statement in an interview with IRNA in London on Wednesday.

Serica Energy last month bought three fields on the edge of the British North Sea, including the Rhum field, co-owned by the National Iranian Oil Company, from London-based BP.

"Should things go well with Rhum gas field development, we will have close cooperation with Iran to increase crude output from oilfields," Walker added, noting that the implementation of the Joint Comprehensive Plan of Action [Iran's nuclear deal with world powers] has paved the ground for energy giants, including Serica, to expand collaboration with Tehran.

Asked about the newly-bought field from BP, Walker said, "We intend not only to boost the field's production and lifespan but also to cut costs with the help of our partners, namely NIOC.

Pointing to Serica's short- and long-term plans, Walker noted that the company is consulting its partners and as soon as a comprehensive policy is adopted, plans will be developed accordingly.

Walker said Serica and its partner, NIOC, plan to renew drilling of a third well at the Rhum field next year.

Energy experts believe collaboration with international firms for oil exploration/production overseas will help domestic enterprises gain international recognition. So long as Iranian engineers and firms do not take exploratory assignments in other countries, they cannot gain access to the state-of-the-art exploration and drilling expertise.

According to Walker, 120 energy experts will join the mega project and a master plan will be devised by mid-2018 when the much needed equipment is also transferred to the field.

Attaching great importance to the field, he noted that Rhum accounts for 5% of England's natural gas demand that is why expanding its lifespan at least for five years as well as enhancing the production level is of paramount significance.

"The field's life will expire in 2023, yet with the help of NIOC, we are making concerted efforts to expand it as long as 2027," Walker added.

"Serica will be in constant touch with the NIOC, BP and British officials to keep up with the latest development," he added, noting that a snapback of US sanctions cannot affect the British-based independent companies directly.

----- Snapback Scenario

Asked about the impact of sanctions, the official said US trade restrictions do not necessarily impact their operations in Rhum unless the European Union and Britain also implement a snapback and there is no indication that this is likely to occur.

After being forced to shut down in 2010 when international sanctions were imposed on Tehran over its nuclear program, Rhum resumed production in 2013 when Britain agreed to set up a temporary management scheme whereby all revenue due to Tehran would be held until sanctions were lifted.

"Because of the Iranian involvement, Serica needs a license from the US Treasury's sanctions enforcement arm—the Office of Foreign Asset Control— allowing US nationals and companies to take part in the field's operations, especially providing heavy machinery," Walker added.

"The license was renewed in September, a month before Trump sought to reverse the US position on the nuclear deal with Iran. Serica will apply for its own license in the coming months."

Walker said the license is needed as a back-up in case of an emergency that requires US equipment and companies, though it's not a prerequisite to operate the field."

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Edward John Canham 3rd Jan '18 28 of 38
1

In reply to post #291738

Excellent, you've put my mind at rest on that one.

Thanks a lot!

Phil

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lightningtiger 12th Apr '18 29 of 38
1

Fantastic results on 10/4/18 quadrupled the profit from 2016 from $3.4M to$14.1M. Stocopedia shows net profit of 2017 of $17.1M and 2018E of $83.4M with a Stockrank of 81.
Fib retracement from Vector Vest gives a target price of 100p and it is motoring up rapidly in that direction over the last 3 days. Considering buying a few more shares. Shares traded today 1.24M at the time of writing.

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gus 1065 20th Sep '18 30 of 38
1

Followers of the Serica Energy (LON:SQZ) story might be interested in a similar situation developing over at SDX Energy Inc (LON:SDX) . They’ve just announced a potential acquisition of BP assets in Egypt that would be of a scale that would constitute a “reverse takeover” and their shares have been suspended this lunchtime pending a further announcement.

https://www.investegate.co.uk/sdx-energy-inc---sdx-/rns/recent-press-speculation/201809201352224412B/

No more details, but hopefully not the same Iranian “hair” that has muddied the Serica waters.

Gus.

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mrosbiston 4th Oct '18 31 of 38
2

interesting pitch deck on Serica Energy (LON:SQZ) and outcomes of the OFAC decision (e.g there are alternative plans in place).

the research expects the BK transaction to close in 2018 regardless and outlines the options available in the event of no license.
- use of non-US specialists to run/maintain the rig (thereby not triggering IOC sanctions)
- shutting down the field (Rhum) for 1-3 years
- obtaining a license at some point in 2019 instead

the main risk is the BP have the option to cancel the transaction in the event of no license - the argument against this is how far along the process BP are and committed, through the transfer of employees, opening a new office

https://seekingalpha.com/article/4209579-serica-energy-upside-potential-driven-acquisitions

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BlueFrew 4th Oct '18 32 of 38
2

In reply to post #404444

BP only have 2 choices. Sell (well give it away, really) Rhum to Serica Energy (LON:SQZ) or shut it down.

BP have a bigger presence in the USA than they have anywhere else: https://www.bp.com/en_us/bp-us/who-we-are/commitment-us-economy.html

November the 5th comes and BP are still working with the IOC in contravention of US sanctions. How does that turn out for them? Do they want to lose their entire US operations or Rhum?

So unless some kind of deal can be achieved to allow Serica Energy (LON:SQZ) to operate Rhum, even if the US fails to grant a waiver, then the UK kisses goodbye to over 5% of its gas production. When gas prices have been rising strongly. When the pound is weak. When we have very little storage following the closure of Rough.

I am massively overweight Serica Energy (LON:SQZ) because I am sure a solution will be found that will allow them to take over the operation of Rhum. Even if the US fails to grant a waiver (the fact they've extended the existing waiver is a positive), then the Government will come up with a scheme that allows Serica Energy (LON:SQZ) to operate Rhum.

Whilst the US Government may be ambivalent, all of BP, Serica and the Government need this deal to go through.

(Long Serica Energy (LON:SQZ) )

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BlueFrew 5th Nov '18 33 of 38
3

A couple of very good RNSes this morning.

https://www.investegate.co.uk/serica-energy-plc--sqz-/rns/acquisition-of-bhp-interests-in-bruce-and-keith/201811050700052703G/

https://www.investegate.co.uk/serica-energy-plc--sqz-/rns/satisfaction-of-ofac-license-conditions/201811050701042704G/

With Erskine producing again and the Columbus field development plan approved things are looking extremely good indeed here.

My position here is now over 6x as big as my next biggest position, I should really consider top slicing a bit soon. But a small oiler which is executing brilliantly, has strong cash flow and no debt is worth its weight in black gold (or gas with a bit of condensate in the case of Serica Energy (LON:SQZ) ). It's a dilemma, but a nice problem to have indeed.

(Long Serica Energy (LON:SQZ) )

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mrosbiston 5th Nov '18 34 of 38
2

In reply to post #415484

i top sliced this morning. i had a more modest price target of 140p.

agreed it is an excellent and incredibly well run company, so i will let the rest ride into results

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nigelpm 5th Nov '18 35 of 38
1

No idea why anyone would be top slicing here to be quite frank. This management team have been excellent and the best is yet to come. The acquisition hasn't even completed yet!

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lightningtiger 6th Nov '18 36 of 38

Nothing wrong with top slicing. A profit is not a profit until you take it.
Interestingly all the oil stocks are up today . Out of 104 not many down. seems a good sector to be in at the moment..LOGP up big time hitting a new high.

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Edward John Canham 6th Nov '18 37 of 38

Currently management is doing everything right.

I suspect II will not move until 30 Nov sign-off date - so there could be some upside there.

The market still seems to price Serica Energy (LON:SQZ) as if it was pumping oil - it produces gas.

Time will tell, but even after a good run recently, I can still see upside here. DYOR NAI

(I have a small stake)

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lightningtiger 7th Jan 38 of 38
1

We could be in for another breakout!
Stockopedia shows revenues estimated from $64.2M to $408.2M 2018/19 and Net profit estimated $99.4M to $163.6M 2018/19. Although the StockRank is only 32, Momentum is 99.
In addition to that Vectorvest is showing a Fib retracement above 160p and a valuation of 228p, so it is well undervalued according to their figures.
Share price today up 8.3% @ 131p.

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