- Serica Energy and Kistos are trying to take each other over
- Kistos has gone public in order to pitch to Serica shareholders
Two North Sea oil and gas companies are trading takeover offers. Kistos (KIST), a new company that only listed last year, revealed on 12 July that it had offered the Serica Energy (SQZ) board 246p a share in cash and 0.2932 new Kistos shares, a premium of 25 per cent on the previous day’s closing price of 305p. Serica’s offer for Kistos – made on 1 July – was a combined cash and share deal worth 483p a share, a 4 per cent premium on the previous closing price.
Both companies found the other's offer too low.
The combined company would have production of around 40,000 barrels of oil equivalent (boe) per day, and would likely move to the main market, Kistos said. Serica is the senior partner going by market capitalisation, at over £900mn. Kistos is worth around £400mn. Serica traded up 13 per cent on the news, while Kistos gained 5 per cent.
The showdown became public after Kistos published the offer for Serica on Tuesday morning. It also detailed the previous discussions between the companies, in which it said Serica had “accepted Kistos’ view regarding the strategic merit of a combination” – a fact made clear by Serica’s own offer.
Serica said it was “considering its position”, although rejected the same terms on 1 June. Stifel analyst Chris Wheaton said Kistos’ offer in its current form would likely see Serica paying for itself with its own cash reserves, given Kistos would need to take on around £670mn of debt to fund the deal.
“We do not think this offer represents good value for Serica shareholders,” he concluded, and added that he did not agree with the “industrial logic” that the companies should be combined at all.
While a merger looks like an easy way out of this situation given both parties are interested in a deal, they are still some way apart on terms. Kistos said Serica had positioned its 483p offer as a “merger of equals” but had not offered any board or management positions to the smaller company.
Serica has done well out of the significant increase in gas prices and new projects coming on stream, with its cash profit climbing from £28mn in 2020 to £415mn last year, while consensus estimates see this almost doubling to £808mn for 2022.
Kistos, which has production of 12,000 boe per day, started with one asset last year in the Dutch North Sea and has just completed a deal to buy a 20 per cent interest in the Greater Laggan Area in the North Sea from TotalEnergies (FR:TTE) for $125mn (£106mn).
Kistos, which listed on the premise of producing oil and gas with low operational carbon emissions, has rapidly built up both its market cap and earnings.
Cash profits are forecast at £441mn this year, up from £64mn last year – and with a whopping margin of 88 per cent. Executive chair Andrew Rose is a well-known dealmaker in the space, having sold RockRose Energy for around £250mn.
We have a buy rating on Serica and have not put out a view on Kistos. Both companies are generating huge amounts of cash at current prices, while the outlook for gas indicates this will continue through winter at least.
