BULL POINTS:
■ Production imminent at the Kambuna gas project
■ Recent deals more than underpin present valuation
■ Substantial prospects in Ireland
■ Acquiring new exploration acreage
BEAR POINTS:
■ A partner is needed to drill large projects
■ Drilling failure in Vietnam
With production expected within weeks from its Kambuna gas development, offshore of North Sumatra, Serica Energy is set to be transformed. Good progress is also being made on several exploration projects - these have the potential to add considerable value.
What's more, last July's sale of a 15 per cent interest in Kambuna to partner and now operator, Salamander Energy, raised $52.7m (£32m). That would value Serica's remaining 50 per cent stake at around $175m alone - more than the company's market value.
Granting Kambuna's operatorship to Salamander has allowed Serica's management to focus its attention elsewhere - most notably on acquiring new acreage offshore of Morocco, as well as advancing projects in Ireland. The company's Bandon well offshore of western Ireland targeted gas but found oil, which is now being evaluated. Although not a clear-cut success, the well provides encouragement for further exploration of the frontier Slyne Basin. Serica sold a 50 per cent interest in the project to RWE, which bore Serica's share of drilling costs.
| SERICA ENERGY (SQZ) | ||||
|---|---|---|---|---|
| ORD PRICE: | 56p | MARKET VALUE: | £99m | |
| TOUCH: | 55-57.5p | 12M HIGH / LOW: | 94p | 26p |
| DIVIDEND YIELD: | NIL | PE RATIO: | 25 | |
| NET ASSET VALUE: | 94¢ | NET CASH: | $24.7m | |
| Year to 31 Dec | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (p) |
|---|---|---|---|---|
| 2005 | 0.12 | -12.9 | -13.0 | nil |
| 2006 | 0.06 | -15.6 | -10.0 | nil |
| 2007 | nil | -16.8 | -10.8 | nil |
| 2008 | nil | -0.80 | -0.30 | nil |
| 2009* | 31.9 | 13.3 | 3.75 | nil |
| % change | - | - | - | - |
*Oriel Securities estimates (adjusted figures - not comparable) NMS:5,000 MARKET MAKERS:Matched bargain trading BETA:na £1=$1.649 | ||||
And while drilling at the Tuong Vi prospect in Vietnam has been a failure, Serica has many other prospects to explore. In particular, the Conan prospect in the east Irish Sea is described by analysts at broker Oriel Securities as "one of the best prospects held by any of the small independents". Serica is likely to need a well-financed partner to drill this, but the rewards could be immense. Oriel estimates the upside at potentially more than a trillion cubic feet of gas - assuming Serica sells a 50 per cent interest to finance exploration, the broker believes that could add 186p a share to Serica's valuation.
