TIDMSQZ
RNS Number : 0180M
Serica Energy PLC
09 January 2023
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
For Immediate Release
9 January 2023
SERICA ENERGY PLC
UPDATE ON ACQUISITION, PUBLICATION OF CIRCULAR AND OPERATIONS
UPDATES
APPOINTMENT OF NEW DIRECTOR AND NOMINATION OF PROPOSED
DIRECTORS
Proposed Acquisition of Tailwind
Following the announcement dated 20 December 2022 by Serica
Energy plc (AIM:SQZ, "Serica", the "Company" or the "Group") that
it had entered into an agreement to acquire the entire issued share
capital of Tailwind Energy Investments Ltd ("Tailwind") from
Tailwind Energy Holdings LLP (the "Seller") (the "Transaction"),
Serica announces the publication of a Circular to shareholders on
the proposed transaction which will be posted later today and which
can be found on its website: www.serica-energy.com . An updated
presentation can also be found on the website. This announcement
contains material new information and an update on the recent
operational and financial performance of the two companies.
Mitch Flegg, CEO of Serica, commented:
" We're pleased to be publishing the Circular to Serica
shareholders today setting out why we think the acquisition of
Tailwind delivers exciting benefits to Serica shareholders and
enables the Company to enter a new growth phase.
We are delighted by the transaction which we believe will
improve cashflow and capital return predictability for shareholders
and be immediately accretive on key metrics while also maintaining
a strong balance sheet, providing increased resilience through the
diversification of the Serica portfolio and create a platform for
further growth in the future.
I look forward to working closely with our new colleagues to
deliver on the range of opportunities this transaction creates for
all our stakeholders. "
Key Terms of the Transaction
The consideration for the acquisition comprises:
-- The issue of up to [1] 111,048,124 new ordinary shares in
Serica (the "Consideration Shares"). Following the issue of the
Consideration Shares, they will represent up to 28.9 per cent of
Serica's enlarged issued share capital
-- A cash payment on Completion of approximately GBP58.7 million
[2] (the "Cash Consideration")
On the basis of the Serica closing price as of 19 December 2022
of 278 pence per share, this would be equivalent to GBP367 million.
Serica will also be taking on Tailwind's net debt, which as at 30
November 2022 was c.GBP277 million [3] . The agreed valuation was
based on each company's producing fields only as well as their
respective balance sheets and tax positions. The valuation included
the impact of the second Energy Profits Levy and no synergies were
assumed.
As part of the Transaction, Mercuria, the largest ultimate
shareholder of Tailwind, will become a strategic investor in Serica
with an approximate 25.2 per cent holding and will enter into a
Relationship Agreement with Serica.
Strategic Rationale for the Transaction
The Board of Serica believes the Transaction will have a number
of benefits for Serica:
-- Diversifies and strengthens portfolio by adding a new
production hub in the Triton area, resulting in a balanced mix of
gas and oil and an enlarged hopper of short cycle organic growth
opportunities
-- Significantly increases reserves and production, lifting
Serica into the top ten UK producers; with net production expected
to increase by 50-80% in 2023 and sustained until 2025 at above
40,000 boe/d, and reserves increased by 67% as at 1 January 2022
before allowing for the full impact of Tailwind's successful 2022
work programme
-- Expected to be immediately accretive to Serica's reserves,
production, cash flow and earnings per share
-- Enhances financial strength, retaining a net cash position at
completion with strong ongoing cashflows thereafter supporting
M&A, organic investments and returns to shareholders
-- Introduces Mercuria as a committed strategic investor with
deep energy experience and wide geographic reach
Operational and Financial Highlights
Increased production and reserves:
-- 2022 average net production for Serica of 26,050 boe/d
-- Tailwind net production increased significantly during 2022
with completion of Orlando well workover and Evelyn tie-back -
19,500 boe/d average in Q4 and touching 24,500 boe/d during
December
-- Combined proforma net production forecast of 40,000 to 47,000
boe/d in 2023, 41,000 to 48,000 boe/d in 2024 and 42,000 to 49,000
boe/d in 2025
-- Results from GE-04 well (Tailwind 100%) considerably better
than pre-drill estimates with expected initial production rates in
excess of 8,000 boe/d compared with 5,000 boe/d predrill estimate.
Production tie-in planned in Q1 2023
-- Addition of Tailwind 2P reserves increases combined 2P reserves as at 1 January 2022 by 67%
-- Tailwind 2P reserves at end 2022 expected to show more than
100% reserves replacement through successful execution of its
investment programme and recent sanction of near-term infill
drilling projects in 2024 (Bittern B1z sidetrack and Gannet GE-05
well)
-- Total Tailwind oil and gas resources at end 2022 expected to
be at least in line with 1 January 2022 including identified
projects having the potential over time to add over 30 million boe
to 2P reserves at relatively low capital cost utilizing existing
infrastructure
-- Combined operating costs projected to remain below $20 per
boe with objective of future reductions
-- Combination retains low decommissioning liabilities compared
to North Sea peers in line with Serica's existing portfolio
-- Tailwind holds significant ring fence tax losses carried forward for future use
-- Significant net cash position on completion and highly cash
generative portfolio increases capacity for future M&A, organic
investments and sustained cash returns to shareholders
Expected to be strongly accretive on a per share basis from
completion:
-- Approximately 20% accretion in reserves per share before
taking account of successful 2022 investment programme or near term
planned investment programme
-- Increase in proforma net production per share of
approximately 23% for 2023 and expected to be sustained
thereafter
-- Cash flow per share projected to be immediately accretive with 14% increase in 2023
-- Immediately earnings accretive during 2023 with projected 14% increase
2023E Without Transaction With Transaction Accretion [4]
2P Reserves per 0.23 boe 0.27 boe c.20%
Share [5]
-------------------- ----------------- --------------
Net Production 32 boe - 36 boe 38 boe - 46 boe c.23%
per '000 Shares
-------------------- ----------------- --------------
Operating Cash
Flow per Share 97p - 108p 111p - 123p c.14%
-------------------- ----------------- --------------
Earnings per Share 79p - 88p 90p - 100p c.14%
-------------------- ----------------- --------------
2023-2025E Average Without Transaction With Transaction Accretion
-------------------- ----------------- --------------
Annual Net Production 32boe - 35boe 39boe - 46boe c.27%
per '000 Shares
-------------------- ----------------- --------------
Annual Operating
Cash Flow per
Share 69p - 76p 100p - 111p c.46%
-------------------- ----------------- --------------
Transaction Supports a New Growth Phase for Serica
Enhanced Organic Growth Opportunities
-- Creates a diverse and resilient production portfolio with
multiple organic investment opportunities such as Bruce Hub and
Triton area infill wells
-- Combination of teams with impressive track records of deals
(BKR & Triton) and projects (R3 & Evelyn)
Increased Firepower for M&A
-- The transaction materially increases reserves and production
whilst maintaining balance sheet strength and significant net cash
position
-- Relationship with Mercuria provides a partner able to support a range of growth options
Acquisition offers enhanced platform for shareholder returns
-- Expected to be accretive per share in terms of reserves, production, cashflow and earnings
-- Strong basis from which to sustain and ultimately grow shareholder returns
Expected Timetable
Transaction Announcement 20 December 2022
Circular Published and Posted to Shareholders 9 January 2023
-----------------
General Meeting to Approve Allotment of Consideration 27 January 2023
Shares
-----------------
Fulfilment of Conditions Precedent January to March
2023
-----------------
Completion upon Consideration Shares Being March 2023
Admitted to Trading
-----------------
Tailwind Operations and Financial Update
2022 was a transformative year for Tailwind's operations, with
first oil from Evelyn, successful installation of new ESPs via a
workover of the Orlando well, new perforations in the Bittern PA-A2
well plus expansion of Gannet E via a second flowline and drilling
of the Gannet E-04 (GE-04) well. All these projects have been
delivered on schedule with associated production volumes running
ahead of budgeted levels.
Tailwind Production Increased Significantly Through 2022
-- Production increased significantly during 2022 through Evelyn
tie back and restart of the Orlando field
-- Q4 net production of 19,500 boe/d
-- Peak daily production reached 24,500 boe/d during December
Outstanding GE-04 Well Result
-- The 100% Tailwind owned GE-04 infill well has just been completed
-- High quality reservoir encountered with well results
considerably better than pre-drill estimates
-- Initial oil production rates in excess of 8,000 bbl/day now
modelled, compared with 5,000 bbl/d pre-drill estimate
-- Estimated 23% increase in STOIIP in southern panel
-- The well will be tied into the Triton FPSO and first production is expected in Q1 2023
Rising Production from Triton Area
-- Evelyn developed, Bittern A2 well intervention and GE-04 well
successfully carried out in 2022
-- Triton FPSO uptime more than 95% in Q4 2022
-- Ongoing investment programme with facilities upgrade and
maintenance programmes executed in 2022 and further campaign
planned in 2023
-- Recent life extension studies verified integrity of FPSO for
production to at least 2030 with no off-stationing required
-- Rig hired for Bittern B1z sidetrack and Gannet E-05 well in 2024
-- Possible FID of 100% owned and operated Belinda field and Evelyn phase 2 during 2023
Taxation
-- Three elements to UK Oil & Gas taxation: Corporation Tax
(30%), Supplementary Charge (10%) and Energy Profits Levy (35%)
-- Tailwind retains significant tax losses at end 2022 currently estimated at:
-- Ring Fence Corporation Tax: $1.4 billion
-- Supplementary Charge: $1.2 billion
-- Energy Profits Levy: $0.1 billion
-- Losses available for utilisation against future taxable
profits with potential tax offset in the region of GBP470 million
based on current rates of taxation
Borrowing
-- Reserve Based Lending facility of US$425m; US$370m drawn as at 31st December 2022
-- Mid-year redetermination identified significant borrowing base headroom
New Directors
Serica Energy plc (AIM: SQZ), is delighted to announce that
Michiel Soeting has accepted an invitation to join Serica's Board
as a Non-Executive Director with effect from 1 February 2023.
Michiel Soeting
Michiel Soeting has more than 30 years' experience in the audit
and financial service sector, of which 20 years in the oil and gas
industry. As former Global Lead partner and Global Head of Energy
& Natural Resources at KPMG, Michiel led some of KPMG's largest
global audits and advisory projects in the industry. He has
extensive financial expertise, as well as a strong governance, risk
management and regulatory compliance background. Michiel is a
Chartered Accountant qualified in both the Netherlands and the
United Kingdom
Amongst several current oversight roles, Michiel serves as
Independent Director and Chair of the Audit & Risk Committee at
VEON Ltd, the Nasdaq and Euronext listed international digital
operator.
Regulatory
The following information is disclosed under Rule 17 of the AIM
Rules for Companies ("AIM Rules") and Schedule Two Paragraph (g) of
the AIM Rules:
Michiel Adriaan Soeting (aged 60)
Mr Soeting does not hold any ordinary shares nor options over
ordinary shares in the Company.
Current Directorships Past Directorships (within the last five
years)
Veon Ltd KPMG LLP
-----------------------------------------
Trusmit BV
There is no further information which is required to be
disclosed under Schedule Two, paragraph (g) of the AIM Rules for
Companies in respect of Michiel Adriaan Soeting.
In addition, under the terms of the SPA for the acquisition of
Tailwind Energy Investments Limited, Mercuria has nominated two new
non-executive directors, Guillaume Vermersch and Robert Lawson, who
will join the Board upon completion of the transaction and subject
to due diligence.
Guillaume Vermersch
Guillaume Vermersch is the group chief financial officer and a
group board member of Mercuria Energy Group (Mercuria). Mr.
Vermersch is part of the founding team of Mercuria set up in 2004.
Previously he spent 5 years as head of the Credit and Finance Risk
department of Sempra Oil Trading in Europe and Asia. He was
responsible for defining, implementing and monitoring the full
scope of the Sempra Energy credit and financial strategies, from
trading business requirements to banking, finance and risk
management responsibilities to support the oil and energy
division's expansion. Prior to that, Mr Vermersch spent eleven
years in the energy, metals and mining commodities and structured
finance departments of ING Bank and Credit Agricole in Geneva and
Paris. Mr. Vermersch started his career with Arthur Andersen in
Paris. He holds an MBA from the Manchester Business School and also
graduated from École Supérieure de Commerce de Paris Europe (ESCP
Europe Business School).
Robert Lawson
After a 32-year career with BP, Robert Lawson joined Mercuria in
2022 as Executive Vice President and a member of the board of
Mercuria Energy Group. He is based in Geneva and his
accountabilities include Mercuria's Assets & Investments.
During his BP career, Mr Lawson worked in Upstream, Downstream
and Trading businesses. From 2009 to 2012, he was the Commercial
Vice President for BP's Refining and Marketing business then
becoming the Global Head of Mergers and Acquisitions where he
oversaw in excess of $100bn of M&A transactions during his ten
year tenure. In conjunction with that role, Mr Lawson held
accountability for BP's Global Gas & Power Trading activity
from 2018 to 2019. He also led BP's biggest change programmes in
recent times. In support of the CEO, he was the programme director
for both 'Reset BP', after the Deepwater Horizon incident, and
'Reinvent BP' in 2020. He holds a Masters in Management Science
from Stanford University and graduated in 'Economics with
Statistics' from Bristol University.
Tony Craven Walker, Chairman of Serica, commented:
" Serica's Board appointments announced today mark the Company's
progress towards becoming one of the leading UK Offshore Producing
companies as it broadens its portfolio and transitions away from
its reliance on a single large offshore producing facility. The
Company expects its growth path to continue. I am delighted to
welcome Michiel Soeting who joins the Board on 1 February. Michiel
strengthens considerably the Board's financial and audit expertise
and we greatly look forward to working with him. Shareholders
should also welcome the proposed appointments of Rob Lawson and
Guillaume Vermersch who, subject to completion of the transaction
with Tailwind and regulatory formalities, will join the Board as
Mercuria's two nominees. Rob is already well known to the Company
as a result of the Company's previous transactions with BP and
brings considerable experience on both the M&A front and his
knowledge of the upstream business. Guillaume's position as group
chief financial officer of Mercuria will provide further financial
expertise to the Board and ensure that we retain alignment on
future opportunities to increase shareholder value and
returns."
The information contained within this announcement is deemed by
Serica to constitute inside information as stipulated under the
Market Abuse Regulation. By the publication of this announcement
via a Regulatory Information Service, this inside information is
now considered to be in the public domain. The person responsible
for arranging for the release of this announcement on behalf of
Serica is Mitch Flegg, Chief Executive Officer.
Investor Presentation
Serica Energy plc is pleased to announce that Mitch Flegg will
provide a live presentation relating to the Transaction via the
Investor Meet Company platform on 10 Jan 2023 at 2:00pm GMT.
The presentation is open to all existing and potential
shareholders. Questions can be submitted pre-event via your
Investor Meet Company dashboard up until 9am the day before the
meeting or at any time during the live presentation.
Investors can sign up to Investor Meet Company for free and add
to meet SERICA ENERGY PLC via:
https://www.investormeetcompany.com/serica-energy-plc/register-investor
Investors who already follow Serica Energy plc on the Investor
Meet Company platform will automatically be invited.
For further enquiries please contact:
Serica Energy plc +44 (0)20 7390 0230
Tony Craven Walker (Chairman) / Mitch Flegg (CEO)
Rothschild & Co (Financial Advisor) +44 (0)20 7280 5000
James McEwen / Murray Yuill
Jefferies (Financial Advisor & Joint Broker) +44 (0)20 7029 8000
Tony White / Will Soutar / George Chrysostomou
Peel Hunt LLP (Nomad & Joint Broker) +44 (0)20 7418 8900
Richard Crichton / David McKeown
Vigo Consulting (PR Advisor) +44 (0)20 7390 0230
Patrick d'Ancona / Finlay Thomson Serica@vigoconsulting.com
About Serica
Serica Energy is a British independent oil and gas exploration
and production company with a portfolio of UKCS assets. The Company
is responsible for about 5 per cent of the gas produced in the UK;
a key element in the country's energy security and energy
transition.
Serica operates the producing Bruce, Keith and Rhum fields in
the UK Northern North Sea, and the producing Columbus field in the
UK Central North Sea. Serica also holds a non-operated interest in
the producing Erskine field in the UK Central North Sea.
Further information on the Company can be found at
www.serica-energy.com. The Company's shares are traded on the AIM
market of the London Stock Exchange under the ticker SQZ and the
Company is a designated foreign issuer on the TSX. To receive
Company news releases via email, please subscribe via the Company
website.
About Tailwind
Tailwind is a privately owned, next generation oil and gas
company focused on the delivery of sustainable, long-term value
supported since inception by core sponsor Mercuria. Tailwind's core
assets include the Triton Area assets acquired from Shell and Exxon
in 2018. The Triton Area consists of eight producing oil fields
including Evelyn, Bittern, Guillemot and Gannet, all developed
through the Dana Petroleum operated FPSO. Tailwind is operator of
the Gannet E and Evelyn fields. In addition, Tailwind is an
existing partner of Serica in the Columbus gas field and operates
the Orlando field. Further information on Tailwind can be found at
their website: www.tailwind.co.uk
Important Notice
This announcement has been issued by, and is the sole
responsibility of, Serica Energy plc. No representation or
warranty, express or implied, is or will be made by, or in relation
to, and no responsibility or liability is or will be accepted by
any adviser to the Company or by any of their respective affiliates
or agents as to or in relation to the accuracy or completeness of
this announcement or any other written or oral information made
available to or publicly available to any interested party or its
advisers, and any responsibility or liability therefore is
expressly disclaimed.
Peel Hunt LLP ("Peel Hunt"), which is authorised and regulated
in the UK by the FCA, is acting for the Company in connection with
the Transaction and neither Peel Hunt nor any of its affiliates
will be acting for any other person or otherwise be responsible to
any person for providing the protections afforded to clients of
Peel Hunt or for advising any other person in respect of the
Transaction or any transaction, matter or arrangement referred to
in this announcement. Peel Hunt's responsibilities as the Company's
nominated adviser under the AIM Rules for Nominated Advisers are
owed solely to the London Stock Exchange and are not owed to the
Company or to any Director or to any other person in respect of his
decision to acquire shares in the Company in reliance on any part
of this announcement.
N. M. Rothschild & Sons Limited ("Rothschild & Co"),
which is authorised and regulated by the FCA in the United Kingdom,
is acting as joint financial adviser to the Company and no one else
in connection with the Transaction and will not regard any other
person as its client in relation to the Transaction and will not be
responsible to anyone other than the Company for providing the
protections afforded to clients of Rothschild & Co or its
affiliates nor for providing advice in relation to the Transaction,
nor for providing advice in relation to the contents of this
announcement or the Transaction or any transaction, arrangement or
matter referred to in this announcement.
Jefferies International Limited ("Jefferies"), which is
authorised and regulated by the FCA in the United Kingdom, is
acting as joint financial adviser to the Company and no one else in
connection with the Transaction and will not regard any other
person as its client in relation to the Transaction and will not be
responsible to anyone other than the Company for providing the
protections afforded to clients of Jefferies or its affiliates nor
for providing advice in relation to the Transaction, nor for
providing advice in relation to the contents of this announcement
or the Transaction or any transaction, arrangement or matter
referred to in this announcement.
Apart from the responsibilities and liabilities, if any, which
may be imposed on Peel Hunt, Rothschild & Co or Jefferies by
FSMA or the regulatory regime established thereunder, none of Peel
Hunt, Rothschild & Co or Jefferies accepts any responsibility
whatsoever for the contents of this announcement, including its
accuracy, completeness or veri cation or for any other statement
made or purported to be made by it, or on its behalf, in connection
with the Company or the Transaction. Each of Peel Hunt, Rothschild
& Co and Jefferies accordingly disclaims all and any liability
whether arising in tort, contract or otherwise (save as referred to
above) in respect of this announcement or any such statement.
The contents of this announcement do not constitute or form part
of an offer of or invitation to sell or issue or any solicitation
of any offer to purchase or subscribe for any securities for sale
in any jurisdiction nor shall they (or any part of them) or the
fact of their distribution form the basis of, or be relied upon in
connection with, or act as an inducement to enter into, any
contract or commitment to do so.
A copy of the GM Notice and Circular when published will be
available on the Company's website at www.serica-energy.com.
Neither the content of the Company's website nor any website
accessible by hyperlinks on the Company's website is incorporated
in, or forms part of, this announcement.
This announcement includes statements that are, or may be deemed
to be, forward-looking statements, beliefs or opinions, including
statements with respect to the Company's business, financial
condition and results of operations. These forward-looking
statements can be identified by the use of forward-looking
terminology, including the terms "believes", "estimates", "plans",
"anticipates", "targets", "aims", "continues", "expects",
"intends", "hopes", "may", "will", "would", "could" or "should" or,
in each case, their negative or other various or comparable
terminology. These statements are made by the Company's directors
in good faith based on the information available to them at the
date of this announcement and reflect the Company's directors'
beliefs and expectations. By their nature these statements involve
risk and uncertainty because they relate to events and depend on
circumstances that may or may not occur in the future. A number of
factors could cause actual results and developments to differ
materially from those expressed or implied by the forward-looking
statements. No representation or warranty is made that any of these
statements or forecasts will come to pass or that any forecast
results will be achieved. Forward-looking statements speak only as
at the date of this announcement and the Company and its advisers
expressly disclaim any obligations or undertaking to release any
update of, or revisions to, any forward-looking statements in this
announcement. As a result, you are cautioned not to place any undue
reliance on such forward-looking statements.
Nothing in this announcement is intended as a profit forecast or
estimate for any period and no statement in this announcement
should be interpreted to mean that earnings or earnings per share
or dividend per share for the Company for the current or future
financial years would necessarily match or exceed the historical
published earnings or earnings per share or dividend per share for
the Company.
Certain figures included in this announcement have been
subjected to rounding adjustments.
[1] 2.9 million Consideration Shares will not be issued until
the expiry of certain warranty periods
[2] Subject to adjustments including to apply interest to the
Cash Consideration from the locked box date to Completion and to
deduct any leakage
([3]) Unaudited figure, based on GBPUSD 1.20 as at 30 November
2022
[4] Based on midpoint of without transaction to midpoint with
transaction
[5] 2P Reserves as at 1 January 2022
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END
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