Serica Energy gushes higher as output runs ahead of forecasts, cash piles up
Serica Energy's shares leapt on Wednesday after acquisitions and the resumption of key operations led to a jump in annual revenue and profits, with output from the former running ahead of expectations.
The North Sea-focused oil and gas production company recorded a profit before tax (and taxation credits) of $59.2m for 2018, for an increase of 446% when compared to the year before, as revenue jumped by 43% to $45.7m and helped by a ‘bargain purchase gain’ of $52.9m on the newly acquired BKR assets.
Serica said the bargain purchase gain represented the difference between the provisional fair valuations of assets acquired and the consideration paid for those assets.
BKR, which is comprised of the Bruce, Keith and Rhum fields in which Serica has respective stakes of 98%, 100% and 50%, produced 24,000 barrels of oil equivalent per day (boepd) net to Serica for the final month of the year following the deal completion on 30 November.
Critically, full-year production net to the BKR interests totalled over 24,000 barrels of oil equivalent per day, the company said in a statement.
Initial consideration for BKR was more than offset by Serica's share of the net field cash flows from 1 January until completion, which resulted in the net receipt of $28m.
Mitch Flegg, chief executive of Serica, said: "2018 has been a year of incredible achievement. Serica has established itself as one of the leading independent UKCS operating companies and has assembled a talented and motivated operating team. We intend to use these skills to continue to optimise the value of all of our assets. In particular we aim to extend the field life of the BKR assets by concentrating on enhancing recovery and reducing costs through eliminating unnecessary complexity."
The AIM traded company also enjoyed two-and-a-half months of "strong" production from its 18%-owned Erskine field following its restart on 24 October, with the field averaging production at 3,100 boepd net to Serica during the five months to the end of March.
Since the turn of the year, new production from BKR and Erskine had come in at more than 30,000 boe/d.
Lastly, first gas is targeted for 2021 at Serica's 50% owned Columbus Development, with reserves auditors having ascribed net 2P reserves of 6.2 million boe to Serica within the development area as of 1 January.
At the end of 2018, the company had cash and cash equivalents of $53.6m, up from $28.3m at the same point the year before.
And by 31 March, the company's cash pile had jumped to $91.8m.
"We also aim to expand the portfolio at all stages - exploration, appraisal, development and production. Our operating expertise is based around the Central and Northern North Sea and (coupled with tax synergies) this means that the search for new opportunities is currently focused on the UKCS. Serica's growth has been supported by our commitment to identify opportunities based on value rather than volume," said Flegg.
The chief executive added that the company will continue to look for assets where it can add value in situations where other operators may be unable to do so.
Analysts at house broker Peel Hunt termed the group's $55m of cash "healthy" and noted the company's indication that BKR had been performing ahead of expectations year-to-date, with production averaging 27.4m boe/d (Peel Hunt: 25.6m boed/d for fical year 2019).
"We anticipate this will generate a step-change in FY19 profitability with our current forecasts looking for significant revenue/operating profit growth to $364m/$138m respectively," they added in a research note sent to clients.
"The impact on the balance will be equally as positive, with YE19 cash currently forecast to increase further to $144m."
Management also announced the appointment of Jefferies as joint broker to the company, with immediate effect.
Serica Energy's shares were up 14.54% at 130.58p at 1307 BST.