valuing Serica post asset sale

7th Dec '09 by doverbeach

6 comments 3813 reads

Serica today announced a large asset sale in SE Asia: http://www.investegate.co.uk/article.aspx?id=200912070700106639D&fe=1

Serica has agreed to sell a package of assets in Indonesia and Vietnam to KrisEnergy Limited ("KrisEnergy"), a recently formed private E&P company based in Singapore. The assets to be sold comprise a 25% interest in the Kambuna gas field in Indonesia, a 24.6% interest in the Kutai PSC in Indonesia and a 33.33% interest in the Block 06/94 PSC in Vietnam. The consideration to be paid by KrisEnergy for these assets is US$98.6 million in cash.

Following this sale, Serica's interests in Indonesia will comprise a 25% interest in the Kambuna field, a 30% interest in the Kutai PSC and a 100% interest in the East Seruway PSC. The Company will no longer hold any interests in Vietnam.

So is $98m a good deal for Serica? And what is it now worth?

$98m is c 34p per share

The Tristone report referred to here is no longer available on the web. But taking my summary of it from that thread, 25% of Kambuna would be 36p per share - unrisked as producing. Then there was an additional 14p share (risked at 50%) for additional Kambuna upside - on the other hand initial production has not gone as smoothly as was hoped.

In the Tristone note, 25% of Kutai would be worth about 2.5p risked. Macquarie have today issued a Serica note here (bad timing guys! time to re-write this one!). That had Kutai in as 8p risked, so 25% would be 3.5p

Difficult to put much value to the Vietnam blocks. The neighbours keep finding oil and gas, but Serica's well in June was P&Ad. No value was included for it in the Tristone note.

So selling this lot for 34p per share isn't amazing, but is in the right ball park.

So to value Serica now post sale.

- take the Tristone sum of parts and strip out the stuff now sold

- assume that of the 34p 3.5p was for Kutai, 1.5p for Vietnam and 29p for Kambuna and adjust the values of the remaining Kambuna and Kutai accordingly.

- add in line for cash - 34p from asset sale plus 7p cash from 3Q interims

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tiswas

7th Dec '09

Hi db

What about the $72.5 m drawn under the $100m borrowing facility?

Rgds

Tis

Via Lactea

Hi db and tiswas.

Looking back at the Q3 report there were about $45m net current liabilities and (almost) no long-term liabilities.

Today's announcement gives $98.6m. Take off the $45m, gives about $53m, which is about £28.

With 176.5 million shares issued, the net current assets following this deal will be about 15.8p.

How much should Serica now be valued at in the market?

Kambuna at 29p plus Columbus at 19p gives 48p. The market these days doesn't like to give value to exploration potential, so give nothing for those. Add in the 15p net current assets gives 63p. The current mid-market price is 53.5p, so I'd say it's a bit undervalued atm (but they could yet lose that 10p/share difference on unsuccessful exploration).

As with all little e&p's, the right e success (eg. Conan or Boyne here) should see it soar. I'm holding and relieved at today's sale announcement. Serica was overstretched to execute its exploration and development ambitions. At 53.p it's well underpinned by assets and so the exploration potential is in for free. I intend to hold and see if lady luck smiles upon us.

doverbeach

thanks guys - I have adjusted the table in the header for the correct Net Cash.

Since I posted it, Macquarie have come up with an updated note: http://macq.wir.jp/e.ut?e=4rt02byQQB4G2LlRd0hNn1bsbpp

We carried these interests at US$95m in our core NAV with an additional US$19m in our risked exploration upside (4% premium to core NAV, 14% discount to risked exploration upside). We view this deal as supportive of our valuation as it gives full value to Kambuna and we would not expect the full risked upside to be paid for before exploration wells have been drilled ...

Recent move to Outperform on valuation: We believe this supports our view that Serica is undervalued, trading 20% below our core NAV. This deal is marginally accretive to our core NAV but slightly dilutive to our risked upside. Despite the strengthened balance sheet, we continue to expect Serica will seek farm-outs of its North Sea prospects before drilling. We maintain our 70p target based on upside to be targeted in 2010, a discount to our 105p/sh total risked exploration upside.

nigelpm

Looks like another Encore to me but with a bit less underpinning however with greater potential for upside.

I'm in.

fuiseog

5th Jan '10

Very pleased to see SQZ have achieved a free carry on Oates from PMO for 50% and are looking to get a 70% carry on Conan from an undisclosed partner, with SQZ retaining 65%. Good to see the market responding positively. http://www.investegate.co.uk/article.aspx?id=201001050700040033F&fe=1 fuiseog

StrollingMolby

6th Jan '10

Anyone see this article in The Times Tempus column? It concentrates on PMO, but provides enough of a look-through valuation of Oates (from Oriel) to see the potential benefit for SQZ.

Premier Oil hints at strategy that may put it in top league

Premier Oil, the UK mid-cap oil and gas exploration company, was overshadowed by rivals such as Tullow Oil and Cairn Energy during 2009, leading to suggestions that, despite its name, it was stuck in the second division.

However, a deal yesterday for Premier to take a 50 per cent stake in Serica Energy’s Oates prospect caught the investors’ attention and sent Premier’s shares up 50p to £12.09. The deal is the latest step in Premier’s plan to build a leading player in the central North Sea and was accompanied by hints that it may be on the lookout for further opportunities.

The UK company will take over the operation of the Oates prospect and fund an exploration well that is due to start drilling towards the end of the second quarter. Although it has not paid to acquire the stake, Premier expects to spend in about $20 million on the exploration activity.

Oates is only 10 kilometres south of the block that contains the Huntington project that is being developed by Premier, meaning that the two fields could be developed concurrently if exploration proves a success. The pre-drill resources are estimated to be 65 million barrels of oil equivalent, with success of a discovery estimated at about 30 per cent. There is also the added bonus of follow-on potential at the nearby Bowers field, although Premier’s management argues that it is Oates that caught its eye.

Oriel Securities calculated that an oil discovery would be worth 200p a share on an unrisked basis, or 120p a share if a natural gas find occurs. That would make the well the highest-impact prospect in the company’s busy drilling programme in 2010. Other estimates of the potential field were more modest, with RBS projecting that a discovery could be worth 141p a share on an unrisked basis.

http://business.timesonline.co.uk/tol/business/markets/article6977108.ece

valuing Serica post asset sale

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Doverbeach

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