it has not shifted|
|Feeling like a slight retrace isn't it, some profit taking who can blame anyone for doing this. Hoping will go back down to 14 or 15p so I can buy more before going towards the new peel target of 25p with more quarterly updates. Guess Columbus would be extremely positive news which is the finger in the air.|
|Its actually 7.8mboe contingent after aquiring BG Groups extension into the columbus field for payment of a nominal sum (maybe $100k)
Thanks for posting that article Gersemi|
|Serica remains a buy despite recent strong gains argues Gary Newman
Usually when shares in a small AIM company have risen by nearly 300% from the level where I recommended it as a buy, I would be suggesting to take your profits before the almost inevitable retrace that so many suffer from. But there are exceptions to that and I do tend to cover companies where I see long term growth prospects, rather than bothering with those that just see large rises based on sentiment which are subsequently often wiped out just as quickly.
I first covered Serica Energy (LSE:SQZ) as a long term buy at 5.5p back in September 2015. The market cap has now risen to just over £50 million, which does make it more risky buying now as any problems would see the share price take a tumble from the current level of around 20p. The same would be true if the oil price was to drop by any significant amount, as this UK producer is highly geared towards that, and part of the reason why it has been performing so well lately is as a result of the higher prices it is obtaining for the oil it is selling.
Currently most of the focus has been on its producing Erskine field, where it holds an 18% share and is operated by Shell (formerly this was held by BG Group prior to the takeover), and it had been suffering due to waxing problems in a pipeline plus a routine shutdown of the Lomond off-take platform. But in late August operations recommenced at the field with a net production rate of 3,150boepd being achieved straight away, which was better than had been expected, and since then that has been steadily approving, and during December reached 3,800boepd.
Given the improved commodity prices towards the back end of 2016 this has had a very positive effect on the balance sheet of the company and it is continuing to build its cash reserves at an impressive rate – at December 31 2016 the company had $16.6 million in the bank, and once the proceeds of sales during December are received that is expected to grow to over $20 million (with $3.5 million net of operating costs expected to come in for the month).
The profitability of the operation has also been helped by a new operator taking over the Lomond facility and not only reducing costs – the overall operating costs are now well below the $20 per barrel guidance level - but also improving reliability, which had been a problem in the past. This has meant that Erskine has no longer been constrained by the ability of the off-take facility and has been able to pump at its full potential, producing 20,000 to 23,000boepd gross.
What I find just as impressive as the operational side of things is the fact that the company has managed to achieve this without getting into any debt, and has very little in the way of liabilities on its balance sheet – net assets stood at over $71 million as at the last interims up to the end of June 2016. It also doesn’t currently have any major planned Capex requirements during the coming year, and has extended some of its exploration licences until a time when hopefully there is renewed interest in spending in this area. It also has the Doyle prospect in the Irish Sea, where it has a 20% stake and the carrying amount in place should be enough for an exploration drill without Sercia having to contribute anything to the costs. It does of course still have some outstanding payments to BP, the previous owner, with $2.775 million paid on July 1 2016, and two further payments for the same amount due on the same date in 2017 and 2018.
A look at those interims might put some people off as they showed a net loss of nearly $2.8 million, but that was largely as a result of Erskine being offline, plus the low oil price during the period. Another risk here is the current total reliance on one asset, and any problem can have a big effect on the profitability of the company, as demonstrated during H1 2016.
The company does have a solution to that problem though, and during the coming year a full development plan for its 50% owned Columbus field is expected to be submitted for approval by the OGA – this will all be part of a larger project alongside neighbouring fields, with the goal being to maximise the development and offtake in as financially viable a way as possible. Columbus has plenty of potential as the development is based upon a single well and it has contingent resources on a P50 basis of 6.2 million boe, so has the potential to have a big impact on revenue and profits in the future.
So currently I would still view the shares as a buy – and definitely one to keep holding for now – as the company is showing that it has the potential to keep on growing going forwards, as well as continuing to build its cash reserves. The only thing that would change my mind would be any serious operational problems, or further significant drops in the oil price below the $45-50 area.|
|LGA theoretical rate of £30 million p.a., the reality may well be less.|
|Well noted Sawney. I'd forgotten all about that.|
|Although a bit out of date, it's reassuring to see that BP appear to be still holding their shedload of shares. They could easily have sold out at a handsome profit.|
|I doubt if anyone is looking at SQZ as an aquisition as they are still rather small. And i hope it stays like that way too as with a little success with the drill bit, perhaps the aquisition of another small BP or Shell small producer field and (don't laugh) Columbus FID and eventual tie in ,this has the potential to grow in m/cap far more than a cheap take out. Think returns to previous highs over 3-5yrs. I am....
A lot of If,s there but you'd struggle to find another simiar sized oiler as well positioned financially.
At worse Alternativiley let the bank balance grow and grow as quite a few more yrs production left b4 it tails off
|If a company with a £50 millions market cap is throwing off cash at a rate of £30 millions p.a. then surely that is insanely cheap and at a market cap of double that would still be chap as chips. Am I missing something here? I hope not, as I've just thrown my last cash at a few more.|
|Pretty high I would of thought, but at what price. Say a bid came in at double the current share price I personally would be disappointed at that amount.
No debt, generating cash, very few liabilities, good assets, just needs to get one of those licensing areas up and running and the share price will shoot up past that 40p|
|What are people's views here on the prospect of SQZ being taken over? Is that seen as a possibility by those with a better knowledge of this company than I have?|
|This is now my biggest oiler, ahead even of AMER. Still a bit of a one trick pony so would like to see that change, but otherwise I lose no sleep over SQZ at all. Don't think it would take much for a commentator like Malcy to pick up on SQZ - just one deal perhaps.|
|Happy to add this morning, steady as she goes. ...|
|The bullish inverse [email protected] played out as the text book suggests....
In addition its on volume probably at least 5 times the dailky average approx and its only midday. The real deal... 8-)|
|Looking good for touching the peel target of 25p this week. Going to be hard to buy under 20p now for the rest of the year.|
|I agree, cash is king.
When we get some of these other assets up and running then we can do a dividend but not yet.
Lots happening over the next year|
|I would not support a Divi, in these times cash is king. I think we and the rest of the world should have learnt by now that just because you can give it away, does not mean you should. There are many companies struggling, Serica is not one of them, the cash would be far better being put to work for us than pleasing a few of us shareholders , our time will come and with the pound being so weak it would not surprise me if we have a few suiters circling after the latest update.|
|Well let's do some maths. Market cap (say) £50 millions. Cash coming in currently at a rate of (say) £2.5 millions monthly and rising. A 10% yield would cost the company just £5 millions or two month's income. Very affordable and would reward long-suffering shareholders - especially the older one's who need to supplement their pensions :-)
I'd vote for that. It wouldn't do the share price any harm either.|
|Sitting back on the sidelines for what seems like an age, never sold and always had faith in a company with no debt but strong governance and money management. 2017 - 2018 could easily be the years Serica delivers on its promises over the years....Still waiting for Namibia, but with £50M worth of 3D paid for by BP and oil companies having now learnt how to reduce the cost per barrel extraction through efficient process control, I would not be surprised to see a farm out here within the next year. It's got interesting again.|
|A divi? Now there's a thought...|
|level two looking good, very thin on buy side, just a handful of shares left under 20p|
|Delighted with today's update. Cash in the bank, more money coming in and no major capital commitments. No chance of a divi I suppose?|
|These quiet ones with strong balance sheets pretty much always come good in the end. This was certainly worth the wait but not seeing any reason to sell.|
|20p+ imho in the next few days|
|Certainly in with a good chance. Some explo work on the horizon and all underpinned by approx 3-4000 boe per day.
I personally would like to see Namibia get some interest. If they can farm it out then its blue sky potential with some possible elephant field deep water drills.
It was never really clear why BP backed away as there were supposedly some good prospects. Oil price perhaps.